Continental Stock

Ladies and gentlemen, welcome to the Continental AG Capital Markets Update. The conference will be recorded. [Operator Instructions]

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

Yes. Thank you very much, and welcome, everyone, to our Capital Market update. Today's call is hosted by our CEO, Christian Kotz; and also our CFO, Roland Welzbacher, is joining us for the Q&A session in the second part of today's call.

As we have already indicated during the Q2 earnings call, we are going to make the next step in our company transformation that is visible to the outside, a change in the reporting structure. From Q3 onwards, we will shift to a regional reporting. That means you will not see a tire segment anymore starting with Q3. The continued operations for Continental will consist of 3 regions instead. And with those -- with this call, we want to explain those regions in a bit more detail and provide a platform for potential questions around this change.

The presentation of today's call as well as the accompanying data sheet with 4 quarters of historical financials are now published on our website. You can also find a direct link to the data sheet in the backup of today's presentation. 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 the sell-side analysts in this call. To give everyone the opportunity to ask questions, we kindly ask you to limit yourself to no more than 3 questions.

And with that, over to you, Christian.

Thank you, Max, and welcome to everyone on the line also from my side. Thanks for taking the time to dial in. As you all know, we have taken important steps to reshape our company. So following the successful sale of our Original Equipment Solution business, the so-called OESL business and the signing of the ContiTech transaction, we have set the strategic course toward becoming a focused tire pure-play company. The agreed enterprise value of EUR 4 billion for ContiTech supplemented by up to EUR 250 million of performance-based components from our view, reflects the quality of the business and creates value for our shareholders. This is an outcome we are certainly satisfied with.

As we communicated earlier, the expected cash proceeds of approximately EUR 3.1 billion allow us to deliver attractive shareholder returns of around EUR 2.5 billion while strengthening the balance sheet through deleveraging at the same time. So this provides a solid starting point on our path towards achieving our leverage ratio target of around 1x by 2029, so all according to our plan and to our earlier communications. Most importantly, we will emerge as a simpler, more focused and more transparent company.

While the major transformation of Continental is nearing completion, we will continue to optimize the business, as you can see on Slide 3. We remain committed to continuously optimize both our portfolio and our cost base. So on the chart, you see some recent examples. These recent examples include the sale of our French retail operations and the planned closure of our textile production facility at Aldora Mills in the United States.

Talking about the French retail operation in France, we successfully preserved the West Drive network as a franchise platform and distribution channel for our tires. So while at the same time, removing the associated fixed costs and assets from our books. So this allows us -- or this allows the business to operate with greater agility while maintaining our market presence through the franchise network. And we are also working on some additional improvement projects in parallel, further solidifying our strong premium tires business. So these actions reflect our continued focus on profitability, returns and strategic fit. And this approach will continue also as a pure-play tire company. Therefore, our commitment remains unchanged. You can expect the same disciplined and pragmatic approach that has guided our transformation in recent years.

So let me start with a closer look at the future Continental setup on Slide 4. What will change moving forward is that the Tires result will become the Continental result. However, we will also have to include the central line item that so far has not been part of the result. In 2025, these items amounted to EUR 151 million and reduce the pro forma margin by approximately 1 percentage point as a consequence. As indicated on the slide, a reasonable assumption for the upcoming quarters is a run rate of approximately EUR 30 million to EUR 35 million per quarter. However, just to make this clear, this is the status quo and not yet an optimized holding structure for the future Continental.

The objective is straightforward to build an efficient SG&A structure and continuously improve our cost ratio. Becoming a pure-play company also increases transparency, as shown in the bottom half of the slide and as Max indicated and explained before. So starting today, we will provide additional information on the profitability of our business areas, which are our regional segments.

As you can see, Europe is the key foundation of our success. Our strong positioning in EMEA reflects the effectiveness of our strategy, customer proximity, long-standing relationships and continuous investments in supply chain capabilities. We have created a moat that will allow us to also overcome future obstacles in the business. The numbers also highlight why the APAC region and China, in particular, remain important growth markets, while APAC, as you can see on the chart, contributes a smaller share of total sales, it makes a strong contribution to adjusted EBIT and therefore, to the group's overall profitability.

In North America, our priority is clear. We want to return the business to its former strength by improving operational performance, digesting the impact of tariffs and currency effects and increasing profitability in what remains a challenging market environment, but more once I come to the America details.

The key principle of our operating model is a globally local approach. Global steering of R&D, manufacturing and supply chain allows us to achieve high levels of efficiency while simultaneously supporting strong local customer relationships. Our regions are responsible for those customer relationships and the commercial execution of our business, while our global functions ensure that decisions are made based on overall value creation rather than regional optimization. This balance between global scale on the one side and local proximity on the other side is from our viewpoint, one of Continental's most important competitive advantages. Cutting-edge tires with benchmark availability are the result.

So turning to Page 6. Our products have been, are and will be at the heart of our success. The global development and industrialization of top quality tires, technologies and materials for all regions and segments drive our exceptional product lineup and reinforce our premium brand position. On top of this continued success in the global industry, achieving technical approvals in all application fields at basically all major OEMs, our products continue to perform strong in independent tests around the world, while our brand remains among the leading tire brands globally. So this combination of technology leadership, product performance and brand strength creates a competitive advantage that is difficult to replicate.

Our globally managed manufacturing footprint, and we talked about this again and again, which you can see on Page 7, is another key pillar of our success. Some details. Today, approximately 80% of our production is already concentrated in highly standardized mega plants. That means in just 8 of our 19 plants worldwide, which makes us one of the most efficient players in the industry. Our 13 largest plants even account for 95% of the output and around 75% of our tires are produced in best cost countries. Another benefit of this footprint, the standardized mega plant layout and technology allow us to manufacture virtually any tire in multiple locations around the world, maximizing flexibility and scaling benefits mainly in replacement. On the other hand, smaller specialized plants primarily serve local market requirements or targeted product segments, balancing required scale and customer proximity.

So going to Slide 8. The success of our manufacturing system, however, is also built on standardization. Standardized plants create flexibility, as I mentioned before, improve productivity, lower costs and strengthen our supply chain resilience. At the same time, our global presence and our in the market for the market philosophy brings us closer to customers while enabling efficient sourcing and production. These strengths have been developed over decades, and we will continue to invest in them. We are enhancing manufacturing capacity, increasing standardization, expanding flexibility across plants and are further optimizing our supply chain to ensure we remain well positioned for increasing demand and rising product complexity.

Before we move into the regional discussions, let me briefly connect the dots. What we have shown over the last slides is the foundation of our competitive advantage as a tire pure-play company. a highly efficient global manufacturing footprint, industry-leading supply chain capabilities, strong customer relationships and a premium technology and brand position. At the same time, becoming a focused tire company also brings greater transparency. So as mentioned before, for the first time, we are providing a more detailed view of the performance drivers of the new Continental AG, giving you greater insight into where earnings come from, how value is created across the business and where we see opportunities for profitable growth.

So let's [indiscernible] Page 9 with EMEA. As I said earlier, our powerhouse and largest contributor to our earnings. Within the challenging European market environment, EMEA continues to deliver strong profitability, 16.7% in 2025 to be precise, which is more than EUR 1.2 billion of adjusted EBIT. In H1 2026, the adjusted EBIT margin even improved to 17.1%. In particular, in Q2, we saw a clear step-up with an adjusted EBIT margin of 17.5%, driven by a healthy price/mix, thanks to the strong UHP performance and lower raw material costs. Just like for the other regions, and we talked about this, however, raw materials will turn into a headwind in H2.

The resilience in the EMEA region is driven by the structural strength of the business. The region benefits from a high share of PLT replacement business, a premium focused brand mix and a broad customer base across Europe. While the UHP share in Europe is structurally lower than in North America or parts of APAC, the quality of the business remains strong. Our profitability demonstrates that success is not driven by a single product category, but by the strength of the overall business model. The foundation, we are close to our customers, maintain long-term or long-standing relationships across the value chain and operate a responsive and efficient supply chain. These capabilities allow us to deliver high service levels, respond quickly to changes in the demand and create value for our customers in volatile market environments.

Looking ahead, we see attractive opportunities to further strengthen this position predominantly by growing our UHP business while maintaining the right balance in our brand portfolio. Furthermore, we are well positioned to grow with the Chinese OEMs entering the European market. We already maintain strong relationships with a growing number of these customers, and we do see potential to expand this business in the years ahead. So overall, EMEA remains a key foundation of our group's success and I think demonstrates very, very obviously, the effectiveness of our strategy of customer proximity, operational excellence and premium positioning.

Turning to the Americas on Page 10. The picture is somewhat different. The region operates in an environment that has become ever more challenging throughout the last years. We have built a solid Tier 1 position, particularly in the premium passenger tire segment. And in many markets, we are already outperforming the industry from a commercial perspective. Our premium products continue to gain recognition and our market position is sound. However, 2025 was affected by a combination of factors that clearly weighed on profitability.

Geopolitical developments, tariff-related uncertainties, foreign exchange effects and subdued market demand created a difficult operating environment, which is also reflected in the 8% adjusted EBIT margin. At the same time, weak demand in the truck tire business resulted in insufficient capacity utilization and weighed on the earnings as well.

In the first half of 2026, we already saw some improvements, although sales remained below the first half of 2025. Profitability increased to an adjusted EBIT margin of 9.4%. Also here, the second quarter was encouraging with an adjusted EBIT margin of 10.5%, back in the double-digit margin area, a step-up mainly due to the mitigation measures we've implemented in light of the U.S. tariffs. However, pressure on volumes and insufficient capacity utilization, predominantly on the truck tire side are expected to remain challenging within 2026.

While these challenges are significant, they are well understood and come with clear priorities for action. First, we want to continue growing our premium and ultra-high performance business, where we already have a strong product offering and attractive profitability. Yet we have multiple product launches upcoming to further increase our 4x4 and light truck presence where we are currently still underrepresented.

Second, we are focused on improving manufacturing efficiency and increasing the productivity of our existing footprint. With this, we intend to strengthen our market position and to gain share in the United States and Canada. And finally, we will maintain a clear focus on cost efficiency and disciplined capital allocation. With these actions, we are convinced that we will improve earnings quality back to the double-digit margin levels Americas is capable of delivering.

So then let's finally let us take a look at APAC, which you find on Slide 11. From a sales perspective, APAC is our smallest region. At the same time, it is one of our most attractive regions. The 16.9% adjusted EBIT margin in fiscal year 2025, an impressive 18.8% in H1 2026 and the premium passenger car business mix shown on this slide underline the quality of our positioning in the region. Consequently, APAC contributes disproportionately to earnings. Nevertheless, we also expect APAC profitability to remain below H1 2026 in the second half of the year. Given the strength of the region, we intend to continue expanding our presence and investing in growth opportunities across the APAC region.

Our first priority is to fully capture the potential offered by established OE customers throughout the region. We have built strong relationships over many years and see attractive opportunities to further deepen these partnerships. At the same time, we see substantial growth potential with fast-growing Chinese OEMs, particularly as they continue to expand their export activities globally. As mentioned for EMEA, their growing international footprint creates opportunities not only in China, but also in other regions where these manufacturers are gaining market share.

That said, our objective is not to pursue growth at any cost. We will remain selective and disciplined. Our focus is on attractive premium segments, particularly ultra-high performance tires where our technology, product quality and brand positioning provides a competitive advantage. Combined with our premium reputation, OEM relationships and localized manufacturing footprint, APAC offers attractive long-term growth opportunities within the new Continental. So I can say I'm really excited that we are now able to share more details around our premium tires business with you moving forward.

Again, this is just the starting point. Therefore, I would like to reiterate my key takeaways from today's presentation. So what stands behind our performance is a resilient and difficult to replicate business model, built on premium products and efficient global manufacturing footprint, leading supply chain capabilities and strong customer relationships. These advantages create meaningful differentiation and we are convinced limit that these limit the impact of lower-tier competition.

Talking about the regions. EMEA remains the foundation of our earnings profile and is well positioned to sustain industry-leading profitability. In the Americas, as explained, our focus is firmly on executing the operational and commercial measures required to restore earnings quality and unlock the region's full potential. And in APAC, we continue to build on a highly profitable foundation, capturing attractive growth opportunities while maintaining our disciplined premium positioning. Taken together, we believe these strengths position Continental well to deliver profitable growth sustainable value creation and long-term competitiveness as a focused tire pure-play company.

So what's next? First, Q3, which, by the way, is progressing as planned. Even though the volumes continue to be challenged, especially given the tough comps from Q3 last year, we are doing very well in terms of price/mix and also in terms of profitability as a result. Q3 margins should once again move more towards the upper end of our full year guidance range. And of course, with our Q3 2026 results, the new segment structure for Continental will become effective. And already today, you have plenty of information to prepare your financial models accordingly. But this is just the beginning in the upcoming year, presumably in H1, a little bit dependent on the closing date of the ContiTech sale, we plan to host a Capital Market Day dedicated to the future Continental and an even more detailed view into Continental as a pure-play tire company and our ambitions and targets.

So with that, I would now like to hand over to the operator for the Q&A, for which Roland will join us as well and would like to thank you for listening and spending the time with us.

[Operator Instructions] The first question is from Monica Bosio from Intesa Sanpaolo.

Just on Americas, where the profitability was well below the average. I was just wondering if you can share with us what is the current capacity utilization? And if you have a target maybe in 2, 3 years' time in terms of better saturation. And -- so I'm just wondering if you can share with us also if you have a target in 3-year time within your higher margin guidance, specifically for the Americas? And second question is just a check. I'm sorry, but I didn't catch what are you expecting for the APAC market in terms of margins by year-end? And I didn't catch what were the margins for the APAC in the first and second quarter.

Monica, then I think I go first. So capacity utilization in Americas was the question, I think. So as I said, I mean, we clearly have a different situation between PLT and truck tire. In general, I would say, and I mentioned this in the past, we target for a healthy -- or we a utilization rate of 90% plus/minus as a healthy targeted utilization rate because it gives you then enough opportunity also to respond to changing customer demands, while at the same time, you're running at a level where you can optimize efficiency.

So on the PLT side, we are not far below that target level. And this is true for the Americas as well as for Europe, even though we are below this 90%. Whereas on the truck side, globally, we are running roughly at an 80% utilization rate. And in the Americas, especially in North America, we are even below this 80%. So -- and this is one of the reasons, and you have seen the chart that in North America, we also have a higher share of the truck tire business of the total business. And we also in the U.S. have a lower capacity utilization rate even on the truck than in the global average or in Europe. It's part of the reason, but only part of the reasons why you see a lower profitability level in the U.S.

So what are our targeted rates that was then the question, obviously, to get back to the 90% for PLT, we are very confident that we maintain this healthy utilization rate levels and will slightly improve once again from where we are today. On the truck side, it's much more challenging. And obviously, getting back to this level depends very much on when do markets recover, how much will they recover. And we talked about, I think, the U.S. market situation a couple of times. So margin targets then was the second question for the U.S. or for the Americas.

I mean before -- second -- that was the -- second question, let me start with a little bit of a historic view. So if you go to times before corona, so -- and really the corona pandemic left the biggest marks in our operations in the Americas, there was basically hardly any difference in profitability between the 3 regions. So the Americas has the potential, we are convinced to get to similar and comparable profitability levels than the other regions, but definitely above the 2-digit level.

Part of it is under our control, and this is what we are working on. Part of it is not under our control, tariff situation, FX situation, raw material supplies and so on and so forth. But we feel confident that, let me say, if everything remains stable as what it is today, we should be definitely able to get back to the at least 2-digit level within our midterm time frame. And midterm for us is always latest 2029, and that's clearly our target.

And then your last question was, I think, on APAC. So -- and there you also had 2 questions, I think, if I got it right. One was our current trading and performance and the other one was our outlook for the total year. I'll start with the second part. We are not providing an outlook on a regional level yet. And so this is why I also didn't mention the targeted profitability for APAC for the total year. But obviously, with the Q3 reporting, we will also then need to provide and will provide regional guidance that will be part of the change. But current performance, what I mentioned was 16.9% adjusted EBIT margin in 2025 and 18.8% in the first half of 2026. I hope I covered all of your questions.

Also Q1 versus Q2, we had 19.1% margin in Q1 in APAC and 18.5% margin in Q2.

[indiscernible] is from Ross MacDonald from Citi.

First question, just an admin question, but trying to download the Excel, the historicals, can you maybe give us an update on how much history we should expect to receive for these divisions, for these new divisions, for the group? I'm just trying to get a sense of how we should think about seasonality in these divisions by quarter and maybe peak versus trough margins versus history. It would be great to understand how much of that data you'll give us.

The second question, just on EMEA. If I look at the EMEA sort of data that you've given us, it looks like you have very high Conti brand share, but still quite low penetration with the UHP tires. So that would imply there's a lot of upside potentially on mix in Europe over the midterm. So how should we think about that given you're already making quite a strong margin in EMEA, how should we think about long-term margin potential for Europe from here?

And then my final question, just on North America. Can you maybe help me understand the very high OE share? I know this is 2025 data that you're presenting, but how should we read that? Because obviously, the margin is low at 8% in 2025, but on a very high OE basis, would it be fair to assume a sort of long-term 25% OE share and how to think about that going forward?

Okay. Roland, you will jump in.

I will.

So I think first question was how much history we will provide. I think the data will show 4 quarters per region.

Exactly, yes.

So that's the level of history we are able to provide. Your second question was around EMEA and the correlation, I think, between UHP share, brand share. And based on that, if your read of additional UHP opportunity or mix opportunity is correct. So I would say your read is correct. I mean, be a little bit careful, obviously, in Europe. In Europe, we have this historical brand portfolio as well. So we have, yes, a high share of Continental, but compared to the other regions, actually also the highest share of other brands. And in these other brands, we are not as UHP heavy, let me say, as we are in Continental. But clearly, there is additional mix opportunity. What we always said, and I think the numbers do show that there is or where this potential lies.

Americas, and I hope I get all of your question, was the question on the relatively high OE share. So that's a correct reading. I mean, if you compare this also to APAC, we also have a relatively high or an overproportional OE share, so 28% in the Americas, 32%; Europe, only 19%. A couple of things to mention. Number one, in the Americas as well as and especially North America and in APAC, we are -- I mean consciously targeting a slightly higher OE share also to provide the foundation for profitable later replacement growth. But in the long run, I mean, once we are more equally exposed in the individual regions, there should not be really a difference in terms of balance between OE and replacement share in the different regions.

And there's one Americas specific subject. You have seen that in the Americas, we have the highest exposure to the truck tire market. And on the truck -- or in the truck tire business, the OE share is even bigger of the total business than on the PLT side. So this also drives a relatively higher share of OE business of our total business in the North American region.

Christian, can I maybe just sneak in a quick follow-up just on North America. Obviously, you were saying previously prior to COVID that the margin profile by region was fairly balanced. Has something changed beyond the obvious tariff headwinds? Has the purchasing power of your customers become stronger? And is it reasonable to assume that North American margins can get to sort of mid-teens level like the other divisions?

No, I mean if you take a look at the underlying mix, if I start on the positive note, on the underlying mix, the mix opportunity, especially in North America, is at least as positive and healthy as it is in the APAC region and definitely even better than on the European market. So and I mentioned our under-indexation on the AT and 4x4 side, where we definitely have additional profitable growth opportunity.

So what has changed in the Americas? So tariff is one element, no doubt about that. And the other part is the operational performance in our plants. So corona, I mentioned this also in other meetings and discussions, we had -- the biggest impact really in our North American operations in terms of fluctuation rates, difficulties to replace the workforce, and this has really led to inefficiencies and operational or a deterioration of the operational performance, which we are now reestablishing step by step.

But then there's also a third element, which is really significant for us, which is the exchange rate effect. As you know, I mean, before the corona or if I go back to the 2018, '19 days, the dollar, especially for us, the dollar to euro exchange rate was very different to what it is today. And you know we are still producing, especially on the PLT side, quite an amount of tires in Europe, which we sell in the U.S. So we complement our portfolio produced in the U.S. with production from Europe. And this has led also or this is weighing on our performance as well. And I mean, let's see what the exchange rate will do in the long run. But this is also an impact which has clearly changed the pre-corona versus today's world.

And the next question is from Thomas Besson, Kepler.

I have a couple of questions about this. I understand you're just going to give us 4 quarters of history, but is it thinkable to have a view about a 5- or 10-year average margin for each of the region with peak and trough? Or is that not something you would consider sharing with us?

Second question, I think you've talked during the CMD about potential acquisitions in Asia, in specialties and so on. Could you talk about the cash uses, the pace of deleveraging versus acquisitions, also integrating eventually some comments about the EUR 2.5 billion that are going to be returned from the ContiTech acquisition. And lastly, can you explain why ForEx is such an issue today, while at the same exchange rates over the last 20 years, you've had higher margins in the Americas.

So I mean, to be -- so Thomas, thanks, first of all. The first question, I was not 100% sure. So what you asked for...

You want I'm asking if it's possible to have from you either a 5- or 10-year average margins for each of the 3 regions. I understand you're going to give just 4 quarters of history. But could we get a kind of range of 5, 10, 20 years, whatever period you want to choose so that we have a little bit more understanding about the range of margins by region, if it's possible. That was the first question.

No. I mean, Roland, do you want to...

Thomas, you may remember that I talked earlier about reorganization. So we reorganized our business fields starting January 1, 2026, before we had 5 different business fields, 3 regions plus OE and specialty tires. We integrated the OE and Specialty Tires business fields or business areas into the 3 regions now. This is why we have no comparable historic data in the long term. Nevertheless, what Christian said is true. So we have been double digit in the Americas in general because the biggest portion was replacement business, and it's not that difficult now to add a little bit of specialty and OE and try to approximate this. And we want to get to this as well. This is part of our midterm plan. We always said we want to get to 13% to 16% return on sales until '29, clearly targeting 15% to 16% -- and Americas and the turnaround situation is part of it, but of course, it's just one part of it.

So the CMD, just to add in, I mean, I mentioned that we are planning a CMD where we are planning to provide even more insights. We will need to show you more details on what we are planning to do per region. And then we will obviously also provide in more detail margin targets per region. And maybe as part of it, we can also -- and I mean, we will need to take a look what type of indications we would be able to provide in order to substantiate, let me say, for the lack of better words, these targets. But as Roland said, to provide numbers which are really then comparable, we don't really see to give you this data set, but clear, I mean, at the outlook at the CMD, we will need to substantiate our targets. And obviously, historic data would be helpful to better understand the targets and our ambitions fully understood.

Your second question was M&A and I think the utilization of the proceeds. I mean, to be honest, no news versus what we've always said. So no change in the plan out of the -- to be expected roughly EUR 3.1 billion of proceeds, EUR 2.5 billion, we plan to generate direct shareholder return as a combination most probably of a special dividend and a share buyback program. We will -- we still have not decided how we will structure this in detail. EUR 600 million will be used to deleverage the company in order to achieve our 2029 targeted leverage ratio.

Nevertheless, we continue to be always open to evaluate M&A opportunities in case they arise. And I think the data we provide here right now do also explain why we always said from a content standpoint, regional footprint, Asia and from a product viewpoint, specialty tire would be subjects or assets which would complement our current portfolio nicely. But again, it needs to make financial sense, and it needs to be available and no difference to what I said and what we've communicated before. That's not the priority item for the time being, but it's an opportunity moving forward.

And your last question was, I think the question on why is FX for us such a big issue. If you take a look over a longer period of time, we also had different FX rates. So I mean, I was living in the U.S. and I remember days when -- I mean, we were at 120 or even at 125 to the euro. So the level which we have experienced then prior to corona for a couple of years is not something which we have seen for decades. But it's fair to say that has helped us to create a certain profitability, and we've lost, let me say, to a certain extent, this tailwind because we always said we are self-sufficient in North America, if you include Mexico for PLT by roughly 45%, so 55% we complement of the tires we sell from other sources and Europe is our main supplying region to complement what we can't produce locally.

And producing nowadays in euros and selling in dollars simply became much less attractive compared to where we were prior to corona. In the long run, yes, I don't -- and I don't want to say that this is an unfair exchange rate or that we should assume that things will change. It's just a matter of fact that from where we have been prior to corona to where we are today, this has weighed on our results in the Americas significantly.

The next question is from Stephen Benhamou from Bank of America.

Just a follow-up regarding your last comment on your production. So if I'm not mistaken, you want to increase your local production in the U.S. versus your historical, I would say, mutualization strategy with mega plants, notably in Europe that are producing tires sold in the U.S. So what does it mean in terms of potential investments in the future? And to what extent you're able to increase your existing utilization rate that could prevent you to do a significant investment in the U.S.

And the second question is regarding your guidance. So you're comfortable with an EBIT margin for Q3 at the upper end of your full year guidance. This would mean that over the past 9 months, EBIT margin would be also at the very end of the upper end of the guidance. So my question is simple. Why you didn't raise your guidance? Does it mean that we should anticipate a decline in Q4? Or what are the reasons to explain that your conservatism, I would say?

Okay. And you, Roland, you join in as well. So first question on our U.S. setup. So yes, we are planning to increase production capacities in North America to improve sales efficiency. But obviously, it needs to make financial sense, and it's also dependent on what we are able to operationally execute in an efficient way. So just investing significantly more, building up significant capacities, which you can then not ramp up efficiently is really waste. And we have seen that specifically on the workforce labor side to maintain the necessary workforce or get the plants back to an efficiency level is already a challenge. And this is the other let me say, limiting factor.

And we do believe, to be honest, from today's perspective, the growth which we are targeting on the sales side in North America, we hopefully will be able to cover with additional capacity locally, but not significantly more to reduce our dependency on European supplies as well. From an invest standpoint, we feel comfortable that with our always communicated CapEx rate of 7%, roughly this year, probably a little bit higher because of some of the major investments we are currently doing in the APAC region. So we always said 7% to 8% in this year, but the 7% in average is a healthy number to cover all of these subjects and topics. So we don't really foresee and believe we will have an investment wave in front of us in order to cover this whole.

And our U.S. plants, especially Sumter is designed to grow into -- or at least has the space, the general setup, the infrastructure to grow into a mega plant. So if we have the locations ready to invest into additional capacities, we don't need new locations, which makes obviously also then the investments more efficient.

On the Q3 and full year guidance, I mean, obviously, today, the purpose is not to talk about 2026 and this year's guidance. But obviously, my statement on Q3 raises this question. We said at the presentation of our Q2 results that we consciously took a conservative approach with all of the uncertainty, volatility. And I think the last 2 months clearly once again prove the volatility and the uncertainty is extremely high. So what will happen to the Iran war, what will happen to the raw material costs, will this stabilize, yes or no. So I think we've probably never lived in a level of uncertainty like we have it today, and this has guided us to take a consciously conservative approach.

Now July and August, as I mentioned, continues to be challenged from the volume standpoint. So our anticipation and prediction here was correct. But it continues to be very strong on the price/mix side. But to be also honest, July and August are small volume months and small impact months in Q3, the decisive month in Q3 is September. So we will need to have now September in the books to really have, number one, more certainty; and number two, also, obviously, more visibility for the rest of the year. And if we see a reason to adjust our guidance, we will do that, but it's simply for the reasons I mentioned too early today.

Question, José Asumendi from JPMorgan.

It's José from JPMorgan. Very interesting. A few questions, please. Can you comment on or further please elaborate on the structural measures you want to undertake to improve the profitability of your truck tire product or division? And also, are you thinking strategically for partners within this subproduct subdivision? And is this a product you would like to keep in the longer run? Or you think there could be also maybe a future of Continental without truck tires?

Second question, not related to this, but can you comment on the price delta, price difference between your products in China and your products in Europe, just to get a sense of magnitude of the price per unit we should be thinking about when comparing both businesses? And then final one on your shareholder return. I'm just thinking, obviously, all the options are open. But in case you will find a suitable M&A target in the medium term, would this alter the EUR 2.5 billion shareholder remuneration you are planning to shareholders? Or do you still plan to stick this shareholder remuneration even if you include an M&A target?

José, thank you. Let me try to cover again the questions. So I'll start with the last one because it's the easiest one. We have no plans to change our commitment. We want to be reliable. We want to deliver what we promise, and we've communicated, we've promised that this is the plan to use the proceeds. I don't see, at least within the time frame we are talking about, any reason why we should deviate from what we have committed to and what we've communicated.

Structural measures for truck tire and is there a world without truck tires? So what about truck? I mean, truck is -- on the one side, the overall demand -- and I'm only talking about Europe and North America. As you know, we have basically withdrawn from the Asian market with the closure of our truck tire production in India. So if I take a look at Europe and North America, which are our key regions, I mean, we are on historical low demand levels. So there should be at a certain point in time, and we've seen the cycles specifically pronounced on the truck tire side in the past. So we are hopefully comparing now, let me say, the worst-case demand scenario with hopefully years to come where at least a certain recovery of demand to be expected.

Structural measures, I mean, on the one side, truck tire business is really not just truck tire. It's really very diverse in terms of route to market. So is it traditional retail business? Is this fleet business? A retread included, yes or no. A major part of the retail operations we run are dedicated -- in the U.S., basically more than 90% of what we do on the retail side is dedicated to support fleets. So from a structural standpoint, we really need to -- and that's what we are doing, flip or turn every stone in order to really improve beyond hopefully, demand recovery, the performance. So that's why we already started to, as an example, retail footprint.

We've already reduced our exposure and turned equity shops into partner shops, and we will continue to do that. We have just decided to close our retread production in Mexico to optimize our retread profitability, and we are working on additional measures in order to improve specifically the truck tire profitability in North America. No details to share yet. Once we have more details there, we will communicate.

And the last topic then on future without truck. To be honest, I don't think so. We need to optimize our portfolio. So is every truck business then a business we are striving for? Or do we need to be even more consequent in terms of what truck business do we do and what type of truck business don't we do? And this is where we need to become, and this is what we are working on even more consequent, but a business of -- Continental Tire business without truck I can at least not imagine. We always talked about economies of scale, efficiencies and we need to find the right balance and the right sweet spot and having the right product portfolio. And for me, if you want to be a globally leading tire manufacturer, a truck tire is an essential part of your overall business portfolio.

Did I cover all of your questions? Price difference between China and Europe. So I ask for your understanding that we are not going to provide this level of details. But it's also, I mean, beyond our willingness to do that, it's also potentially very misleading because products are very different. Product portfolio is very different. Costs of production are very different. So if you have a North American 4x4AT tire, which is very material heavy, versus some of the other products in the other regions, it's very difficult to provide a meaningful price comparison.

There aren't any questions on the line. Thank you very much for your participation. And with that, I would like to hand over to your host, Max Westmeyer, for the closing remarks.

Yes. Thanks a lot, and thank you, everyone, for participating in today's call. As always, the Conti IR team is available should you have any follow-ups. And this is, of course, especially true this time, should you wish to discuss more background information on the regions and the historical financials that we have provided, especially once you had a bit more time to digest the numbers that we provided. So feel free to reach out. And with that, we conclude today's call. Thank you very much, and goodbye.

Good afternoon, ladies and gentlemen, and welcome to the Continental AG Analyst and Investor Call Q2 Results 2026. The conference will be recorded. [Operator Instructions]

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

Yes. Thank you very much, and welcome, everyone, to our Q2 2026 results presentation. Today's call is hosted by our CEO, Christian Kotz, 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. 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 disconnect now.

Following the presentation, we will conduct a Q&A session for the sell-side analysts in this call as usual. To give everyone the opportunity to ask questions, we kindly ask you to limit yourselves to no more than 3 questions.

And with that, over to you, Christian, for the Q2 key messages.

Thank you, Max, and welcome, everyone, online also from my side. Thank you for joining us.

Today, let me start with the strategic milestone we announced in July. As you know, Continental has signed the sale of its ContiTech group sector to Lone Star on July 4, which is fully in line with the timing that we have always indicated to the capital market. And we could still close the transaction by the end of 2026, of course, subject to regulatory approvals and other closing conditions. That does also mean that we cannot rule out that this -- that the process lasts into 2027, but please rest assured that we are working hard towards closing the deal as soon as possible.

As you have probably seen, the agreed enterprise value amounts to EUR 4 billion plus a potential performance-based component of up to EUR 250 million. I think this is a clear testament to the attractiveness of ContiTech as an industrial pure play. Based on the current transaction structure, expected net cash proceeds at closing are expected to be around EUR 3.1 billion. Also here, the exact amount will, of course, and obviously depend on multiple factors at the time of closing.

When it comes to the use of the proceeds, we intend to combine attractive shareholder returns with deleveraging, as we always communicated and announced. In line with that, we plan to use around EUR 2.5 billion for shareholder returns.

Our options include a special dividend and share buybacks, as we also always explained and communicated, but these are details that we are now working on. The remaining around EUR 600 million are planned to be used for deleveraging and this supports our path towards a leverage target of below 1x by 2029, again, fully in line with our midterm targets we've communicated and explained in various locations.

So Q2 certainly kept us busy, not least with the sale of the explained and mentioned sale of ContiTech, but when we did find a spare moment, the Tour de France offered an excellent alternative to be honest, to spend that extra time. And here, my warmest congratulations to Tadej Pogacar on an extraordinary fifth Tour victory delivered with exceptional skills but, of course, also supported by Continental tires, a great demonstration of what talent, teamwork and outstanding technology can deliver.

With that positive and winning momentum, let us move on to our quarterly performance in Q2. So overall, we delivered a solid quarter with earnings and cash flow improving despite a still challenging market environment. Group sales came in at EUR 4.4 billion compared with around EUR 4.9 billion in Q2 of last year. The reported sales decline was mainly driven by the sale of OESL, so the ContiTech OE-related or the majority of the ContiTech OE-related business, which we have sold at the beginning of last year.

Organically, our sales development was broadly stable at minus 0.3% and even slightly positive on the Tires side, more details to come. Our adjusted EBIT for the group increased year-over-year, reaching EUR 570 million, translating into an adjusted EBIT margin of 12.9%. That improvement was mainly supported by our Tires group sector, where we saw continuous strong price/mix, still lower raw material costs and a better operational performance.

ContiTech continued to operate in a subdued market environment, which weighed on profitability. However, the impact was largely mitigated by portfolio measures, still favorable raw material costs and the ongoing execution of cost-saving measures, the sales head measures we have explained also earlier.

Adjusted free cash flow improved significantly to EUR 216 million, roughly EUR 250 million up year-on-year. The strong increase was, of course, driven by the solid profitability improvement, but also included some cutoff date related items such as favorable working capital development and the timing of CapEx, which remains weighted towards the second half of the year. The positive cash flow also supported further organic debt reduction. However, and as always, in Q2, our net debt increased sequentially versus Q1, mainly and due to the dividend payment we have done in May.

With the sale of ContiTech that I have mentioned earlier, we have also reached a significant milestone towards becoming a Tires pure play. As a result, we have already now adjusted the guidance to reflect ContiTech as a discontinued business, but Roland will touch on that later on in more details.

As a next step, we will also start disclosing more details on the Tires business in the next quarters. That means we will change our segment disclosure moving forward. You will receive a call invite in the upcoming weeks for an update call on our future structure since we want to make the transition into a Tires pure play as smooth as possible also for you.

So looking at the group sectors on Slide 6. The improvement in margin was mainly driven by the strong performance at Tires. As I mentioned already, our organic sales were broadly stable, while the group adjusted EBIT margin improved from 9.6% to the before -- already mentioned, 12.9%. This includes a positive contribution from the diesel settlement as well. Tires delivered organic growth of 0.3% and increased its adjusted EBIT margin to 15.3%, so even slightly outside our full year guidance corridor in the quarter.

With that, over to you, Roland, for more details on Tires, starting, I think, with insights into the markets.

Thank you, Christian, and also welcome from my side to everyone on the call. Let me begin on Chart 7 with the market environment for Tires in the second quarter. In OE passenger car tires, the trend of declining volumes continued both in Europe and China, which also resulted in a year-on-year decrease in worldwide vehicles produced.

In the replacement business, we saw imports going up year-on-year in our largest region, EMEA, resulting in higher volumes in lower-tier tires. And also, Chinese tire volumes showed a year-on-year increase, while the North American market continues to trend below last year's level.

Let's turn to Page 8 and turn to truck tires. The picture remains mixed across regions. In Europe, commercial vehicle production growth has moderated following strong prior quarters, while North America looks like it has turned the corner. So silver lining here, showing signs of recovery from a low base, however. In the replacement business, demand in Europe remains supportive with year-over-year growth. Whereas replacement volumes in North America continue to trend below prior year levels, driven by lower transportation demand.

Let's turn to Slide 9. Despite the continued softer volume environment, we delivered the expected margin improvement against a very weak Q2 2025, as you can see on Slide 9. This happened on the back of favorable raw material developments and once more healthy operational performance. Sales were broadly stable at EUR 3.3 billion. One of the reasons FX this time had no material impact in a while after being a drag for many quarters in a row.

Volumes, however, were down minus 2.3%. This was mainly driven by subdued PLT OE demand in EMEA and soft markets in the Americas, while we continue to perform well in the weak Chinese OE market. As in the first quarter, price/mix was positive though. At 2.6%, it's more than compensated for the lower volumes, both on the sales and the EBIT side. This continuous positive development was mainly driven by product and channel mix. And despite lower overall volumes, we managed to increase UHP volumes, especially in EMEA and in APAC.

Consequently, our adjusted EBIT increased to EUR 510 million, a margin of 15.3%, which will presumably be a peak margin for this year. Besides price/mix, the still lower raw material costs provided a mid-double-digit million euro year-on-year tailwind. Furthermore, and in addition to that, recently increased raw material purchasing prices led to a reevaluation of our inventories, this resulted in an additional noncash tailwind in a similar amount. And as I mentioned already, the prior year comparison base was, of course, materially impacted by tariff and FX headwinds.

If we look at the regional breakdown on Slide 10, the underlying dynamics of our business become even clearer. In the Americas, organic growth was minus 3.4%. The passenger car OE volumes declined stronger than replacement in a softer market environment. Good news in terms of mix, U.S. American and Canadian replacement volumes declined only slightly, while South America clearly remained under pressure due to cheap imports.

On the truck side, OE volumes have finally been stabilizing, but replacement volumes continue to trend below prior year. Nevertheless, we were able to increase price/mix in North America, but it could only partly offset the negative volume effects.

In EMEA, we saw a healthy organic growth of 2.4%, even though PLT OE and replacement volumes declined modestly. One of the reasons are the increased UHP volumes, while the sale of our French retail network has started to affect reported revenues in Q2. The impact was limited in Q2, but it should become more visible in the coming quarters. In truck tires, both OE and replacement volumes increased versus prior year, demonstrating outperformance against the market. Consequently, price/mix remained continuously positive.

In APAC, we also achieved positive organic growth, driven especially by increased ultra-high performance volumes. In particular, our performance in China resulted in positive OE volumes despite decreasing light vehicle production figures and in a stable replacement volume environment. Our sales price/mix remained positive, while portfolio adjustments such as the exit from our Asian truck business provided a low double-digit million euro headwind to sales year-on-year.

Moving on to ContiTech on Page 11. In continued weak market conditions, ContiTech delivered a solid result. This was supported by the measures we've implemented to improve efficiency and strengthen profitability. The market environment, however, remained difficult, and this continued to weigh on volumes and profitability. Sales came in at EUR 1.1 billion, almost at the same level as last year if we exclude the OESL effect that is still down in the previous year's comparison base.

The organic decrease was mainly driven by the continuously challenging volume environment. At the same time, we had a good finish to the quarter, especially in EMEA and the Americas, mainly driven by solid execution in the project-related business, which makes us confident moving forward.

Adjusted EBIT came in at a margin of 6.9%. As already mentioned, our safeguarding measures defended profitability against a slightly unfavorable product mix and first negative impact from raw material price inflation. Commercial measures we've implemented are expected to increasingly take effect from Q3 onwards, partly covering the increasing material costs.

And one more technicality. Due to the signed sale of ContiTech, IFRS 5 is applied starting end of Q2. In Q2 itself, this had no tangible effect on the result, but it will come with the stopped depreciation from Q3 onwards. You probably still know the trough from Automotive last year.

Turning now to our cash flow on Slide 12. Where we moved from minus EUR 46 million in Q2 '25 to plus EUR 216 million in Q2 2026. The improvement was predominately driven by our improved operational performance by working capital and by CapEx. The working capital tailwind resulted from operational changes in receivables and payables, while seasonal inventories increased slightly stronger than in the comparison period, also due to valuation effects as mentioned.

Lower CapEx reflects this year's planned H2 weighted phasing of investments. Thus, our solid operational performance contributed positive to our Q2 free cash flow, but timing effects also played a role.

On working capital, which you can see on the next slide, the development was in line with the typical seasonality and sales development. Working capital stood at EUR 4.6 billion at the end of Q2, corresponding to 25% of sales. Net debt was at EUR 5.5 billion and the pro forma leverage ratio stood at 2.0x. That means our net debt was slightly up compared with Q1, which was driven, as mentioned by Christian, by the EUR 540 million dividend payment in May, while our positive free cash flow partially countered that effect.

Let me now turn to our market outlook for 2026 on Slide 14. Looking at our full year market assumptions, we continue to expect volumes to remain unsupportive in challenging and uncertain market conditions. Within passenger cars and light trucks, we have become slightly more cautious on both vehicle production and replacement demand. Slightly lower outlook for vehicle production is largely driven by China. And when it comes to replacement demand, we now expect slightly negative developments in both Europe and North America, given the year-to-date market development.

In commercial vehicles, the picture on the OE side is more encouraging. We continue to assume decent growth in European truck production and have also slightly increased our North American production outlook, reflecting the strong Class 8 order intake in recent months. We have, however, become more cautious on North American truck tire replacement demand.

Finally, turning to our guidance. As Christian mentioned already, we have updated our guidance to reflect the planned sale of ContiTech. The underlying expectations for our operational business, however, are confirmed. For the continued operations of Continental, we now expect consolidated sales of around EUR 13.2 billion to EUR 14.2 billion and an adjusted EBIT margin of around 12% to 13.5%, coming from unchanged assumption in our Tires business plus the holding costs on top.

Looking at year-to-date performance. However, I think it is fair to state that we're currently assumed to achieve the upper half of the profitability range in Tires, while sales will probably end up around or slightly below midpoint. Adjusted free cash flow expected at around EUR 0.7 billion to EUR 1.1 billion. Also here, no change in underlying assumptions. PPA amortization is no longer a material KPI for Tires and special effects from continuing operations are now expected at around minus EUR 200 million, while CapEx is expected at around 7% to 8% of sales, reflecting the higher investment profile of Tires versus ContiTech.

The underlying spending assumptions for this year are unchanged though. For ContiTech, the outlook is unchanged and does not consider any IFRS implications such as stopped depreciation.

So that being said, I would like to hand over now the rest of the time to you. Operator, can you please open the line for Q&A.

[Operator Instructions]. So the first question comes from Jose Asumendi from JPMorgan.

A few questions, please, maybe regarding your margin assumptions for the second half within the Tire business. Maybe just going through a few buckets. Do you expect volume to be at some point a positive contributor to the business either in the third or the fourth quarter?

Second, should we expect any impact of revaluation of inventories, the positive or negative impact, noncash impact on the P&L in Q3 or Q4?

And then three, can you comment on your expansion plans in China and whether you're starting to see a revenue acceleration in the region? Any update you could give us on the region, please?

Jose, let me start. I think your question goes back to the guidance. And it's a fair question, looking at the good H1 results. Let me answer this, first of all, a little bit broader, and then I will go into the specifics.

First of all, we expect that the ongoing economic uncertainty will affect the market volumes also in H2 and will remain in total below prior year. And if you remember, we've had this good Q3 quarter last year, which was very strong also on the volume side and in price/mix, tough comps to beat. Let's remind ourselves.

Second of all, and this is the real difference. We benefited from substantial raw material wind year-over-year in H1. We're talking about a triple-digit euro million amount. And this will fully go away, of course, in the second half. But in fact, it will reverse in the second half and turn into a headwind of similar magnitude.

Yes, you know we put a mitigation plan in place. We discussed that in the second -- in the first quarter already in May, but still, it's a completely different ball game in the first half. So this is why we said in terms of sales, we will most probably come out slightly below the midpoint and profitability in the upper half of the guidance range. So talking volume because you asked specifically -- first half now in total, volume effect on sales, minus 3.3%. We expect this negative effect to be slightly lower in the second half. So we expect some improvement on the passenger car tire replacement side, but again, it will be in total below prior year.

And in terms of revaluation, because it was mentioned that it was a noncash item in Q2, and we will also have a positive revaluation effect in the second half. The magnitude still remains to be seen, but I would say, at least it's a mid-double-digit euro million amount also in the second half.

And on China, Christian, do you want to take this?

Yes. Before -- so Jose, before I talk about the situation in China and the status of our expansion plans, let me just add to what Roland said. Yes, we have consciously taken a conservative approach on our second year -- or H2, second half year assumptions. Why? And this goes in line with what you've asked for, basically, because of the very high continuous volatility and challenging market environment. This is why we've also reduced our market assumptions for the second half of the year, as explained.

And even under these consciously conservative assumptions, we confirm our guidance with the, let me say, additional details of assuming that under these conditions or assumptions, sales will come in at the midpoint or slightly below the midpoint of our sales guidance and profitability rather above the average towards the upper end of the corridor.

As you know, for us, Q3 and Q4 are decisive quarters. And August and September are obviously already very important for us, and let's see how the business will develop. I mean it's definitely too early to tell, but at least the winter tire preorders are giving some hope that maybe the development is more positive than what we have assumed. But as I said, too early to tell, and this is why we have consciously taken a conservative assumption.

Now to your question on the expansion plans in China, we continue to execute our expansion plan. So we are ramping now our plant in Hefei from roughly 15 million to 18 million PLT tires per year. This goes very, very smoothly. We are utilizing fully our capacities. As Roland said earlier, we are clearly outperforming light vehicle production in OE. So we are rather increasing our volumes in a declining production volume environment and carefully balancing OE versus replacement volumes and are very confident that we will continue to be able to fill, let me say, the plant and execute our expansions, as indicated and planned.

Just a quick follow-up. The Chinese business, what's the split, please, between PLT and CVT, OE and RT, if possible, just to give up some broad indications? Is it mainly passenger car, and is it mainly OE at the moment? Or what's the split between OE and...

Which part of the business are you referring to? I didn't get that on the phone?

Within the Tire business, your expansion of the plant or your Chinese plant, is this mainly passenger car? Or is it mainly truck? And what's the split roughly of your Chinese revenues? Is it mainly original equipment? Or are we looking at more replacement?

Okay. So in China, we are purely focusing on PLT business. We are basically not selling truck tires. And as we have indicated or communicated earlier with the closure of our truck tire production in our Modipuram, India plant, we are basically withdrawing our overall reducing our truck tire APAC activities to a bare minimum. But China only, it's pure PLT, no truck volumes.

Second, OE replacement. I mean, normally, our split is between 25% and 75%. In China, we are a little bit more OE heavy without going in too much details, why, because we are still trying, obviously, to -- or let me say, to support potential future replacement growth by slightly over proportional OE exposure but we are also benefiting quite a lot from all the export volumes from China.

As we discussed and communicated in the past, we are nicely represented at the Chinese OEMs, and we are heavily used also on the export vehicles, mainly to Europe, which is helping us, obviously, also to increase our volumes and is also part of the reasons why in China, we have this higher share of OE versus replacement business. But as everywhere in the world, replacement is by far above the 50% mark of our total volumes in China.

So the next question comes from Harry Martin from Bernstein.

The first one I had is on the high-value segment in Europe. We have seen some very strong sell-in data in Europe this year, up double digits year-to-date. So are you matching the market growth in Europe? Do you have any comments or anything else you can share on market share and the opportunity in the high-value segment specifically?

Secondly, on U.S. trucks, I just wanted to think about the implications of increasing the original equipment outlook cutting the replacement. How different is the margin mix between original equipment and replacement for you in that segment? And then would it be correct to assume that relative market share would be higher in original equipment with a much lower import share?

And then the final question, just a clarification one really on the raw material impact. So is the underlying assumption around a low to mid-triple-digit million amount still consistent as it was in Q1. I think that's based on $85 oil. But if you could give any more color on the other assumptions around things like natural rubber that go into that guidance, that would be very helpful.

Then let me -- Harry, let me start with the first 2 questions and Roland will continue. So first, the high-value segment in Europe. I mean, overall, I would say we are broadly in line with market development. We have still some, let me say, improvement potentials, which we are trying to utilize by extending our product portfolio offering. So especially on the summer side, but also on the all-season side, as you know, we have been rather a late entry into the all-season segment due to our history, let me say, of focusing very much on the winter tire segment.

We are closing this gap very fast, which really helps now, I think, to outperform also in terms of sales development in terms of euro -- the market, and this is an area where with extended product portfolio, we definitely will have a chance to further grow or continuously grow our UHP share. But overall, we are in line with market development in the high-value segment.

U.S. truck. So a little different than in the PLT world. The difference between OE profitability and truck profitability, at least for us, is not that big. We have also a very profitable satisfying OE truck stand-alone businesses. It really depends also on the replacement side, which customers you sell to, which brands do you use, so the difference between OE and replacement for us in truck is, especially in the U.S., much smaller than what we used to see and what you are used to probably on the PLT side.

So with this, therefore, increasing amount of OE volumes compared to still, let me say, under pressure replacement market, this will not lead to a margin deterioration for us as far as truck profitability in the U.S. is concerned. So this is what I would -- I hope this addresses your questions on the first two.

And then maybe, Roland, you take the question on the raw material side?

Yes, Harry. So when the crisis started in Q1, we started to analyze what that means for Conti and we made an assumption on the raw material, energy and transport cost increase. And we said it would be a low to mid-triple-digit euro million amount. Based on the assumptions of the oil price average in total would be around $85 per barrel.

Now we have seen lately a lot of volatility on the oil price side. It came down pretty nicely in the last days. I think today it's trading around $84. The base assumption of $85 average is still our assumption going forward. There's no change. We believe for this to happen, oil prices need to go further down slightly in Q4, which -- this is our expectation as hopefully, the crisis is continuing to ease a little bit. And that also means our mitigation plan we put in place with a high coverage ratio of the additional cost would hold for the second quarter, if this was the intention of the question.

So the next question comes from Thomas Besson from Kepler Cheuvreux.

It's Thomas at Kepler Cheuvreux. I have 3 questions as well, please. I'd like to start with a comment on your trading activities. Your French competitor talked about a very strong June versus relatively mediocre April and May. Could you talk about your own experience about June and July versus April and May? And is that part of what you were mentioning as maybe being overly conservative? The first question.

The second, one of you guys has been on Bloomberg and talked about traction of M&A opportunities in the U.S. in the specialty tire business. Could you talk about whether Conti could effectively be eventually active on M&A before the deleveraging targets are achieved? Or what kind of targets you would consider acquiring in '27, '28?

And lastly, I understand you want to do a call on that, it's great. But is it possible to have an idea of the additional disclosures you plan to give us about the Tire business? Are you going to provide us with the margins by region? Are you going to break down your margins as well for trucks and specialty on top of passenger cars, or do you want to keep that for that call?

Thomas, then let me get started. Talking first, I think, was your question, June, July trading versus weak April, May trading, I think that was the question. And I believe that's probably more related to Europe. I didn't really get whether this was European-specific or global. I assume that was more a European related question.

We do see, let me say, a slightly stabilization and improvement in June and July versus April, May. Do we see step change improvements? No. And this is why, as Roland said earlier, we continue to assume that in the second half of the year, volumes will be negative year-over-year, but less negative, let me say, compared to last year, compared to what we have seen in H1. So as said, maybe we are a little bit too conservative. On the other side, we have seen so much volatility and so much change, short notice that, as I said earlier, and I was trying to explain earlier, we consciously have taken a conservative assumption. I think it's fair to say.

And maybe one word on the M&A activity side. I mean, to be honest, there is no update compared to what we've always said. What did we say? We always said that M&A or inorganic growth is part of the tire industry. It has been part of Conti's history forever. And we will continue to evaluate if there are options which do complement and fit to our portfolio. What would fit? Also no change to what I've always said, there's a regional and, let me say, a product perspective. On the regional side, as you all know, we are underrepresented in Asia. On the product side, we are specifically underrepresented on the commercial specialty tire side.

So everything which would fit would be obviously an option. Is this now a changed priority compared to after the ContiTech sales or being in process of hopefully closing the ContiTech sale soon? No. This continues to be an option. It's not a priority for the time being. We will continue to work on our priorities first. This means closing and competing and completing the transformation, doing our operational necessities. But obviously, in the long run, it's always an option if the news or what you have heard indicates that this may have now triggered a change in terms of priorities and timing, then I would say that is not the case.

Maybe a word then Roland, from you on the changes in our disclosure policies and structures.

Yes. Let me answer this, Thomas. So I got the question this morning on Bloomberg, and it was a rather general question, I gave a rather general answer. I probably should have said it's not the #1 priority. So there's no change in scope and focus and also not in terms of priority, of course.

With regard to disclosure and reporting going forward, as we mentioned, we plan that starting in Q3, we'll provide more details on the regional development. In order to help the analyst community to prepare and build models and before we actually come with the Q3 figures, we most likely will invite for some sort of capital market update, a bring down call pretty soon in order to give you the chance, and before we go into the quiet period to tell you a little bit more about the past and provide more details on the regions so you can actually start preparing for this way before.

And this would include margin breakdowns as well.

On the regional view on the regional level, I think it's fair to say, I don't expect significant details on the product segment level.

Yes, exactly.

Next question is from Ross MacDonald from Citi.

My first question is just coming back on to the revenue bridge actually and just picking up on the comments around where we're tracking in the full year guide on revenues. I think, Roland, you said we're in the middle, maybe slightly lower half of the guidance range. If I do the math, that would imply to hit the midpoint, around about EUR 7.1 billion of revenue from the Tire business, which would be up about 1% versus the second half of last year.

So just interesting, take your volume comments on board, it sounds like volume will be a negative in the second half, let's say, minus 1.5%, minus 2%. How do I think about the price/mix contribution? It feels like price/mix should step up versus Q2, maybe 3%, something like that is more appropriate for the second half. So I'd be interested what we should pencil in on the price/mix side.

And then when I add those 2 up, that would imply that we're kind of maybe slightly towards the middle of the guidance here rather than the lower end. So I'd be interested in your comments there. And then obviously linked to that, just if you could update on how you see the FX headwinds for the second half.

Next question just on CapEx. If I look at the CMD targets from last year, the Tire business was talking about midterm CapEx to sales of around about 7%. And you're obviously guiding 7% to 8% now for the Tire business. So if you could comment on whether this is a sort of transitory period of higher investment spend and you're still happy with that 7% level, would be keen to understand that.

And then the final question is just on the other/holding consolidation line, maybe more for 2027, but obviously, now that you're a cleaner, leaner business. How should we think about the full year '27 central cost line? Can that -- can we get that number down? It's obviously 100 bps at the group level, but just curious if there's any juice you can squeeze on that number.

Okay, Ross, thanks a lot. Let me start with the first one, guidance second half and some more details. So on the volume side, as I said earlier, I would expect a lower but still negative effect compared to the first half. On the price/mix side, it will also be a little bit lower than in the first half according to our expectations. First of all, we have seen a fantastic price/mix effect in Q3 and a pretty good price effect in Q4 last year, and it's really tough to beat this.

On the other hand, what we might see is a little bit of a higher drop on price/mix side than usual because we have not only product, we also have channel and regional effects playing a role here.

On the FX side, however, and this has been really a drag for many, many months now, this is now turning positive actually, slightly positive on the EBIT side in the second half. So no headwind anymore. It will rather be a slight tailwind.

You want to take the CapEx question, Christian?

Yes. So Ross, I can talk about the CapEx. No, I mean our 7% as the average midterm assumption still holds true and is valid. Why are we a little higher now short term? It's basically because we are investing into our Asian footprint and making some real step changes there. We talked about our step -- the next step we are doing in China. So from the 15 million to the 18 million -- we have also decided to pull ahead the next expansion step of our Rayong plant in Thailand.

You probably know we have closed our Malaysian PLT factory by the end of last year and are consolidating a lot of the volumes into our more efficient Rayong plant, so to be able to basically then scale on also to a mega plant as quickly as possible and serve the South

[Audio Gap]

let me say, market, including then also Korea and parts of also Australia and these parts of the world out of our Thailand factory where we have opportunities to utilize the profitable growth, let me say, the market provides.

So that's why short term, we are rather a little bit above the average. But in the long run, the 7% assumption is still valid and is still what we believe is a healthy investment rate.

So finally, holding costs, you probably have noticed that we had some positive onetime effects in Q2. We got a reimbursement on the insurance side on diesel, and we also had -- because we started sectorization, so putting central function from holding into the sector in the second quarter, we've had still higher cost of the holding, which now went into the different sectors, went away with Automotive, will partly go with the ContiTech and will also remain with Tires.

So looking at 2027, I would expect EUR 30 million, EUR 35 million quarterly holding costs going forward for '27. Of course, we're trying to drive this down over time a little bit. So just shy of 1% of net sales, I think, is a fair assumption.

With the clear intent, obviously, as I said, Roland, to become more efficient on that line item as well. But first of all, we need to confirm and complete our transformation before we can more actively work on that part of the business as well.

Understood. Can I maybe just check on the FX, given that's turning to a tailwind. Is there any change in the drop-throughs we should assume into the EBIT line from FX? Or maybe a quick update on how that drops?

Yes. It dropped normally 30%, 40%, roughly. I would assume a similar drop now also in the second half. I don't see a big difference.

I mean, obviously, it depends also which currency pair you look at. So when you consider our footprint in U.S. versus Europe in terms of production versus sales, obviously, drop-through tends to be a little higher. Also, that works in both directions. Again, it depends very much on where exactly you would look into the currency pairings.

[Operator Instructions]. The next question comes from Monica Bosio from Intesa Sanpaolo.

Yes. Just a follow-up on the price/mix. You just say that the price/mix for the second half will be a bit lower sequentially, but with a higher drop-through. Can you just remind me what do you expect in terms of drop-through for the second half and for the full year?

And my second question is on the IEEPA tariff refunds. I was wondering if the company benefited from any tariff refunds in the second quarter?

And my final question is on the ultra-high performance tires that went very well in Europe. So can you give us an update of the overall weight? And on the other side, I was wondering whether the company is cutting some capacity in budget tires or if it plans to do this?

Okay. Roland here, Monica. I'll kind of take the first one. Because it's basically a follow-up on the price/mix side. We have seen last year a drop rate of 60%, 70%, which would also be our midterm average we've seen. Now this year, the drop rate is a little bit higher because it's not just product-related, it's also, again, channel related, and we've had regions performing better, which are more overproportionately profitable. This is why I said the drop rate is a little bit higher. It used to be higher already in the first half, and this continues most likely also in the second half. UHP...

Let's maybe talk about the tariffs for a second. Yes, we had, I think, a EUR 10 million refund impact of the IEEPA, whatever you pronounce them, tariffs in the U.S. in Q2. This is not, let me say, corresponding to the full refund, we believe we will get so more to come. But EUR 10 million, I think, correct me if I'm wrong, Roland, Max, is what we have considered or have seen in Q2.

UHP tires in Europe. Yes, it works in Europe, which is obviously the -- for us, the most important region. But I mean, the positive mix development in terms of sizes, you see worldwide and actually, in North America, probably with even some strong opportunities for us as well as in some of the Asian markets.

So talking about China, for example, in OE today, I think we don't even sell a single tire below 18-inch in OE. And I think the average size is in the meantime, significantly above 18-inch. So there is significant mix improvement. And in North America also due to our representation in the light truck and full-size SUV segment. We also have significant positive mix improvement potential. So -- and on the overall weight, I think we are now at 62% of our total PLT sales represented by the sale of UHP tires.

On the Conti brand.

On the Conti brand, yes. So sorry, on the Conti brand, without the Conti brand, we have 55%. And capacity in budget tires, I mean we are now for at least a number of quarters not selling more tires. So the only improvement we are seeing is basically due to mix.

Nevertheless, we invest 7% in average CapEx in our facilities. And this is partly obviously in terms of capacity increases. So I mentioned Rayong and Hefei. So Asia being obviously the most pronounced region where we invest into capacity, but the majority investment of our investments are really going into structural investments. So turning existing capacities into future-ready capacities.

We do this in line with market development and also, let me say, preparing for some opportunities so that we are never -- hopefully never get into a situation that we cannot fulfill additional UHP opportunities. So we always should have a little bit of excess capacity and capabilities in this segment. But as long as we can sell also non-UHP tires and Tier 2 and 3 tires as a part of our overall customer value proposition in a profitable way, we will continue to do this.

So I mean if you ask the ultimate question, do we decide or have we decided to step out of non-UHP business, then I would say a clear no because especially from the customer perspective, we want to be a reliable partner. We want to make sure that our customers can buy -- our B2B customers can buy from us what they really need, and they not only need UHP premium tires. They also need other brands and other tires. And we do believe that this is a very, very, let me say, strong value contribution or value proposition from a customer perspective.

The last question is from Thomas Besson again, from Kepler Cheuvreux.

Just a small modeling question. Can you talk about the net interest charge? I mean, your net debt is declining. It's still around EUR 300 million. Can you give us an indication of where you think it's going next year? And same question for the tax rate. You're guiding for sub 25% this year. Can you stay there or improve that further? Or have you already done the best you can on that front?

I'll take this one on net debt and then on the tax rate. So if you look at our financial targets, which we communicated back at the Capital Markets Day in June '25, we said midterm, we want to land at a leverage ratio of 1x. So on a pro forma basis, we're now around 2x. So that means we need to drop by 0.3x, 0.3x -- 0.2x, 0.3x every year. And this is also the plan for this year. So if you put that in the model, I think this is a fair assumption.

On the tax rate, we went down now from 27% to 24% because we have a different business and country mix going forward. And I think -- I cannot really judge how it's going to look like in '27. I would say it's a similar level. I'm not seeing any influencing factor changing this dramatically next year.

Sorry, the question was not on debt, but on the interest charge. As your debt falls, should we assume that you can take down your net interest charge next year as well?

Maybe, Thomas, let me jump in there. I mean, what we see right now for the time being is stable gross debt, right? So we have to pay the interest for that regard. So for this year, there is no change to be anticipated. I mean once we then look at how we are planning on using proceeds, we have said roughly EUR 600 million will be used for deleveraging from the ContiTech transaction.

So let's assume maybe there is one bond that might become due that we might not refinance. So this will then end up in lower gross debt, and this will also then contribute to slightly lower interest rates. But it's going to be rather a stepwise approach, given that gross debt has to go down in the first place, not necessarily net debt related.

Yes. That was my question, whether you are going to use these proceeds.

This was the last question. So I'll hand over to Max Westmeyer.

Thank you very much, and thank you all for participating in today's call. As always, we, the Continental Investor Relations team, are available should you have any follow-up questions.

And with that, let me conclude today's call. Thank you very much for dialing in, and goodbye.

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.