Dear ladies and gentlemen, a warm welcome to the Continental AG Analyst and Investor Call for Year Results 2024. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Max Westmeyer , Head of Investor Relations.
Thank you, Operator, and welcome everyone to our Q4 and full year 2024 results presentation. Today's call is hosted by our CEO, Nikolai Setzer, and our CFO, Olaf Schick. A small reminder that both the press release and presentation of today's calls are available for download on our website as per usual. The annual report of Continental AG will be published on March 18, and before starting, I'd like to remind everyone that this conference call is for investors and analysts only. So if you do not belong to either of these groups, please kindly disconnect now. Following the presentation, we will conduct a Q&A session for sell-side analysts to provide a chance for all to ask the questions. We would like to ask you to limit yourselves to no more than three questions. This will help us to conclude on time.
With this, let me now hand you over to Nico.
Yeah, welcome from my side. So 2024 was a year characterized by a challenged top line on the one hand, on the other hand, progress on the bottom line, which is the even more important part from where we are coming from. So you see a 2.6% down organically in persistently weak markets on the Automotive side, but as well in particular second half on the industry side for ContiTech. Said in this challenging market, we've been able to increase EBIT, so EUR 170 million in absolute terms on top or 0.7 in return on sales. So from 6.1%, so '22, we have been at 5.0%, by the way, just to remind 6.1%. Now we are at 6.8%. So substantially improved mainly by the measures which we implemented, as said, because we haven't seen particularly on Automotive and ContiTech any good tailwind. So on Automotive, we progressed with our pricing.
So 2024 negotiations are finalized with a high share of sustainable agreements. I come to this then later on the Automotive group on plan and the self-help measures are fully on track. Fixed cost saving of EUR 400 million for this year already safeguarded. So we had more than EUR 200 million last year, which gets us on track. And as said, I come to those measures then later. Tires ended with, again, solid performance, which we have seen as well in the quarters before. Healthy winter tire business helped. And the PLT replacement markets sell-in have been better than we've seen them before, particularly then at the end as well on the U.S. side, we could see better PLT markets and truck tire finally stabilized. Yes, on a lower level for us, but stabilization is seen first of all as positive.
In ContiTech, both markets were down, persistently down, weighing on the performance. Full focus on strict cost discipline and measures which we've introduced. You see the 7.8% margin in Q4. We had a solid Q4 leading us then into 2025, and we have already announced further measures on the ContiTech side. This led as well to a nearly only slightly up EUR 10 million. You will see then on the next slide as well. It has been burdened by one-offs such as tax efforts for spin-off preparation, dividends within the group, which led to non-cash effective tax expenses around EUR 100 million. If you add those, we would be as well on the nearly side, EUR 110 million up versus prior year, which lets us then on the road set to 11.4.
Given that 10% is our hurdle to generate value, we have generated in 24, again, value so slim by 1.4%, but we generated this. Looking on the adjusted free cash flow, we have been at the upper or slightly above the guidance, which we had going into Q4 that was driven by a positive improvement, substantial positive improvement on the Automotive side. As well as mentioned before, healthy winter tire seasons helps in Europe. This is even stronger given the fact that we had negative impacts by one-offs. Finally, last line, you see that this drove as well our net indebtedness down from about EUR 4 billion to EUR 3.7 billion. 300 million, we've been able to deleverage on the debt side, net debt side. That translates into our dividend proposal. You see we foresee a slight uptick to EUR 2.5.
Where's this driven from? As said, higher net than the year before, positive free cash flow development for the full year, decrease in net debt. We have achieved on a group level our financial results, annual results, which we are giving. So we have all reasons to let the shareholders as well participate in the positive development, which we've seen in 2024. If you now add to our net income the EUR 100 million net non-cash effective expenses, you end at slightly below 40%. So we are with that within the corridor on the upper end as we have been in the last years as well. However, given the positive development, we strongly believe that this is the right decision, which leads as well to a 4% dividend yield overall, which seems to be from our point as well reasonable.
So, looking now, as I mentioned, into Automotive, I mentioned before, it was a year clearly challenged top line. However, we made strong progress on our self-help measures, which are leading as well into 2025 as the price negotiations as number one. So much higher sustainable price agreements than we had last year getting into the first quarter. That makes us go with confidence as well into Q1 2025, much higher confidence than we had last year. And for this year, beside the fact that there are still some pricing to close, we are focusing on redesign to cost activities in order to really manage our BOM and generate further cost savings in order to improve the bottom line. Operational excellence year on year inventory, we had reduced our inventory by EUR 255 million. That supported the free cash flow of 2024.
As well for this year, not at an end, we continue our inventory reduction and we are targeting a turn rate increase by one year over year. Coming to the strong progress, you know our SG&A measures, which we have implemented, the greater EUR 200 million savings are effective in 2024 already. All agreements are in place, just further execution of the rest, which is still open in order to achieve the EUR 400 million. As we are already that far, we are investigating further potential given the market environment, which I said, which is still not providing tailwind, particularly for Europe and for North America. On the R&D side, EUR 200 million overall improvement in absolute terms. In those EUR 200 million, it's important that 150 are restructuring expenses, which we take out, so to say.
In absolute numbers, you just see EUR 50 million, but the restructuring costs are shown here as one-offs. If you take those out, we are EUR 200 million down, which gets our net net R&D rate from 11.8% last year to 11.4%. So as well relative, though our top line was that much stressed, we improved on our R&D share. Just to give again, 2022, we have been at 12.4%, so one percentage point, which we improved. And particularly Q4, we reached an 8.5% net R&D, even though the reimbursements have been lower than the year before. Strong improvement here. As we have announced, we have the targets to get below 10% in 2027. And with the current market environment, we took the decision to reduce our R&D headcounts by additional 3,000 until year end 2026. That should, on the one hand, increase our efficiency and clearly our cost base.
On the other hand, as we mentioned with our R&D initiative, by consolidating R&D hubs, by bringing the project teams together, by optimizing our footprint, which is relatively fragmented still today, we are fully convinced that this will even increase our effectiveness. So stronger R&D output by reduced input in terms of cost. So last but not least, as mentioned, the EUR 255 on the inventory reduction helped, but overall we have achieved as well operatively a positive cash flow. And this cash flow on Automotive is without tax and interest because we are paying this on a group level. So you see about EUR 350 positive. This is a turnaround and we expect this going further as it is of utmost importance to establish a capital-market-ready company for Automotive for the spin-off, which is planned for the second half of the year.
Looking into ContiTech, as well, burdened in this case by the double dip. Auto weak, as we have seen in auto, but as well the industrial markets, particularly in the second half in Q3, have been quite weak. Strong focus on self-help measures here as well. For our OESL business area, which is heavily exposed to auto, we have successfully worked on pricing parts last year, which we completed as well as self-help measures, which has driven OESL 400 basis points into positive territory of profitability, and we have contributed with positive cash flow here. We continue our measures. We have further initiated measures for variable and for fixed and for variable in particular, bill of material standardization, harmonization. We've given clear targets of the team. Central team is steering this and we target EUR 50 million variable cost reduction program.
This is on top of the programs which we have anyhow by improvement measures implemented. So this is a major activity which we are driving forward in order to prove and secure the results on the fixed cost reduction. You could see Focus 2025 that we took again in January measures on the footprint. So we have announced plant closures, five additional sites in January, Germany overall for 580 headcounts. So those are closures and right sizing. And as said, particularly the right sizing part and particularly on the German side. So last but not least, complexity reduction, OESL carve out is on track. We are progressing and market sounding takes place as we speak. So as we said in the first quarter, we are moving forward and progress is made. With that, I hand over for the detailed results to Olaf.
Thank you, Nico. Yeah, if you look at page seven and we look at the quarterly development, you can see two overarching trends. As Nico said, sales remained under pressure with only tires being able to grow organically at 2.6%. At the same time, though, we managed to increase our profitability in each sector in Q4, both in relative and in absolute terms. That means our strategic focus on value creation pays off. Now let's go more into details for each sector. Start with Automotive on page eight. As I mentioned, we had to face organically declining sales of -3.2%. So basically in line with the market, but the picture was very differentiated per business area. As you can see, architecture networking developed well with 7% organic growth, benefiting from customer mix and slightly positive effects from new product launches in 2024.
SAM and UX continue to be burdened from lower than expected take rates of our products in vehicles as well as delayed launches of new platforms. Furthermore, the customer mix in the markets was not in favor of our product portfolio, particularly in UX. These effects also had a significant impact on profitability, while SAM did a very good job in managing costs. Nevertheless, we were able to improve our adjusted EBIT by EUR 75 million. This was mainly due to cost saving programs, self-help measures, which overcompensated for the lower volume effects. We realized savings in both SG&A as well as in R&D. This is particularly worth mentioning since our R&D reimbursements came in slightly below the level of Q4 2023. With the 6.6% margin in Q4, we realized an adjusted EBIT margin of 2.3% for the full year. This is marginally below the lower end of our target.
We have set ourselves for the full year, but if we look at the sales headwind we faced throughout the year, I think we can actually be proud of the achievements of the automotive organization. Now, if we look at the breakdown of the sales on slide nine, you can see the familiar picture of the previous quarters. While we performed well in Europe, outperforming the market by 4%, we lost compared to the markets both in North America and China. Again, this was attributable to an unfavorable customer mix phasing out products and lower take rates. All this resulted in a worldwide sales performance in line with the sales weighted market for the quarter. Also, for the full year, we came in just in line with our weighted market.
On page 10, order intake, even though a lot of sourcing decisions of our customers have been pushed out into this year, so 2025, we came in at a book-to-bill ratio of one. For the single quarter, this means an order intake of EUR 5.1 billion, of which Safety and Motion realized almost half of it. A good portion of that came from our latest generation of brake systems. I think this is a good message that we're continuing to win orders with our MK C2 brake systems and our customers' trust in our leading technology capabilities for one-box solutions also in Asia. Besides SAM, also Architecture and Networking contributed well to the order intake, mainly with awards for body and zone controllers as well as for passive start and entry applications. Now let's continue and look at tires.
Even though the comparison base was quite solid, tires managed to outperform Q4 of 2023. We realized sales of EUR 3.7 billion, which is corresponding to 2.6% organic growth. Within this, both volume and price mix were positive. On the volume side, we benefited from overall good replacement markets, particularly from a healthy winter tire seasons in Europe, and also on the European truck side, we saw at least a stabilization in volume. In terms of price mix, the muted OE volumes combined with good replacement market contributed to a good channel and product mix, and as you know, the good replacement business is also margin accretive, which you can see in the 13.9% adjusted EBIT margin that we realized in Q4 for tires, and this was predominantly driven by European replacement volumes and a good mix effect from ultra high performance and winter tires growth.
But also in APAC, we saw a good sales environment. This helped us to overcompensate the negative material costs we faced in Q4 as well as the ongoing negative year over year effects from labor costs that we see. On the next page, we actually want to provide you some additional information around the status quo of our tire business. If you look at the channel mix, you can see that the replacement markets, which make up around 80% of our sales in 2024, is by far the most important revenue contributor. Region by region, this differs a bit, but the main message stays the same. The APAC region, which is certainly also attributable to some purchasing incentives, has the largest OE share with 27% of sales, while our main market, Europe, only has 15% OE share.
Segment-wise, passenger car tires with more than three quarters of all sales clearly make up for the largest portion of our revenues. When we look at the percentage of premium tires, which means Continental branded tires in our portfolio, it also stands at 77%. Out of these, 60% are ultra high performance tires, which is an increase of 300 basis points compared to last year. If we only look at the share of sales of our passenger car tires, excluding van, we even reached a share of 66% in 2024. Now let's look at ContiTech. As you saw at the beginning of the presentation, ContiTech had to deal with declining revenues in Q4. On the back of weak end markets in both industry and automotive, we lost more than EUR 100 million of sales, which equals an organic decline of 5%.
Particularly, the off-highway and commercial vehicle markets continued to hurt our sales volume, whereas we saw some stabilization in the construction and home market, while aftermarket performed well. In that environment, self-help became even more important, and you can see in our results that we were able to execute the necessary measures. As a result of this stronger quarter, we came in at the upper corridor of the profitability guides, which we issued with the Q3 reporting. An important contributor was the ongoing improvement of our original equipment solutions business. OESL came in not only in EBIT positive, but also cash flow positive in 2024, and we are also continuing to make good progress at the carve out of that business and starting the M&A process. Now, on page 14, let's look at cash flow.
Looking at the operating cash flow, you can clearly identify improved earnings as well as continuous inventory management as some of the key levers. They helped us to compensate runoff, such as reacquisition of shares in ContiTech AG. We mentioned that before at the beginning of the year, as well as costs for both restructuring and carve-out measures in Automotive and ContiTech. On the positive side, we saw a low- to mid-triple-digit million EUR cash inflow from changes in working capital, more precisely in receivables in our contract manufacturing business. On the investing side, we were very disciplined regarding CapEx, mainly because of the high market uncertainty, delayed product launches, as well as efficiency measures. That wraps up my Q4 commentary. Now let's look at 2025, starting on page 15, beginning with our expectations for the worldwide light vehicle production.
We're currently expecting that the existing trends of last year will continue. We are seeing Europe down 3%-5% and North America also down in the low single digits. As expected, a slightly positive development in China, we're expecting worldwide light vehicle production to be flat overall, with a continued negative EU mix for us. For commercial vehicle production, though, we could see slight increases on the very weak comparison base of 2024. On the replacement tire side, we are currently expecting slight growth potential in all major markets, leading to an expected 0%-2% growth rate worldwide overall for passenger car tires. That is also quite in line with our expectations for the commercial vehicle replacement markets. When we look at the industrial production, then we expect China to remain the growth driver of the industry, while Europe and North America could be flat or slightly up.
Now, let's look at our 2025 guidance. In this challenging environment for the group overall, we're expecting revenues of around EUR 38 billion-EUR 41 billion at an adjusted EBIT margin of 6.5%-7.5% and an adjusted free cash flow of EUR 800 million-EUR 1.2 billion. This includes CapEx of around 6% of sales. Looking at the sectors, we're currently expecting the automotive sales to remain under pressure and to come in between 18 to 20 billion euro at an adjusted EBIT margin of 2.5%-4%. That means we will see further improvements on the back of our self-help measures, despite the very challenging sales dynamics.
For tires, we're expecting to come in between EUR 13.5 billion and EUR 14.5 billion sales at an adjusted EBIT margin of 13.3%-14.3%, given we are facing a lot of uncertainties in 2025, combined with a headwind on the raw material side. And for ContiTech, we're currently anticipating sales between EUR 6.3 billion and EUR 6.8 billion with an adjusted EBIT margin ranging between 6% and 7%. Contract manufacturing, we're phasing out, and we will continue, so it will continue to decline in 2025. Sales will presumably be between EUR 100 million and EUR 200 million at a 0% margin as planned. To make the bridge from adjusted EBIT to net income, we're expecting PPA amortization of around minus EUR 100 million as in the prior year, as well as special effects of around minus EUR 700 million.
They will mainly be driven by restructuring on the one hand and spin-off effects, both roughly in the same magnitude. The financial result should once more come in at around minus EUR 350 million, despite the lower level of net debt, since we will have to pay slightly higher interest in the current environment. The tax rate finally is expected to normalize again and will be around 27%. Please keep in mind that both our market outlook and our guidance do not include any potential significant changes to global tariffs. And then maybe a final statement from my side before I head back to Max. We are on track with the spin-off preparations. We have achieved so far all milestones that we have set ourselves.
And the plan is to go to the AGM in April, have then Capital Market Days mid of the year, and then execute the spin in the second half of this year, everything on track as planned. And with that, I head back to Max. Yeah, and I would like to hand the rest of the time to you guys. So Operator, could you please open the line for Q&A?
Thank you very much. Yes, dear ladies and gentlemen, the Q&A line is now open. So please press nine and then the star key to state your question. I repeat, the combination is nine and the star key. So if you are dialed into the conference call, please state your question using nine and the star key. One moment for the first question, please. So the first question comes from Michael Aspinall of Jefferies. Over to you.
Thanks, Kelly, Nikolai, Olaf, and Max. Just two from me. Sorry. Just from a tariff perspective, obviously, you mentioned that your guidance is in the absence of tariffs. Can you give us a kind of idea of what the impact might be given the tariff announcement overnight?
Yeah, overall, still to be quantified. Looking on our footprint, we have invested in two tire plants in the last 10 years in the US. So we have a high localization. We have a smaller plant in Mexico in SLP, which is serving the local market, but there are as well some goods coming to the US. So now we are optimizing supply chains, talk to customers how to manage the situation. And once we know more, then we will inform on that. Overall, we can say we are relatively local and not overexposed there.
Okay, and this is a follow-up on tariffs then. From a logistical perspective, from what you see on kind of the border in Mexico and in your internal processes, are tariffs able to be implemented from today? Like, will the people at the borders have the capability to take paperwork and payments and everything for tariffs?
I can only say we are ready. How much that will influence then the procedure at the tariff border, we are not able to judge. But we assume, as this is not coming completely as a surprise, that there are enough procedures there in order to handle that. We are ready for this. So we have to assume that this works as well.
Okay, great. And then last one for me. I think you've made some comments before that margin should structurally grow in tires. Your 2025 guidance at the midpoint is for margins to be roughly flat on 2024. Is there something holding back margins in tires this year? Or put another way, what do we need to see to start moving towards those midterm targets?
That's a good question. So we could already see in the second half, and in particular the fourth quarter, then raw mats and certain cost input parts have increased. This is what we have to balance with volume, price mix, and our performances for this year, depending on how the markets will react. So it's still relatively early for the year. We set the guidance as it is, and we develop from here. We are hopeful so far Q1 started okay. That's what we saw. We know as well that March this year, not again, Easter is in March now. It's different than last year.
So we should have a solid March, which has started right now, so that we assume that we have a better Q1 than last year. Last year was Q1 the weakest quarter. We assume now that we have a better quarter than last year. And then we go from there. And if we have opportunity to be better, please trust us. We are fighting for this, and we will pursue doing that.
Okay, great. Thanks for your time, and sorry for the disruption.
Thank you very much. The next question comes from Christoph of Deutsche Bank. Over to you.
Good afternoon. Thank you for taking my questions as well. The first one actually is sticking with tires and the top line guide. At midpoint, it seems like very modest growth is factored in.
If I understood it correctly, you expect volumes to be positive, price mix to be positive, and just at current spot, FX should be a positive as well. Could you just provide a bit more detail around how you would see those buckets trending in 2025 overall? And then the second question on the auto-free cash flow, it's good to see that it was positive, quite easily positive in 2024. Could you give us any indication on 2025, excluding all the one-time cash outs that you would face? Is the run rate set to continue, or are there any deviations from that? Thank you.
Yeah, for the first one on the top line, you get a little bit the similar answer as I just mentioned before. You're right. We assume positive volume development this year, not on the automotive OE market.
Automotive OE market, we assume ASP in particular for our sales weights going down, track stabilized, as I mentioned, but an improvement on the replacement market. So on one part of our business, which should translate then for the whole sector in a certain volume, and then as well in a positive mix as most of the mix comes from that part. How much remains still to be seen? As I said, we are positive for Q1 being better than last year, and we are positive as well that we achieve those volumes as well as price mix increases. How much that remains to be seen. That's why we have a guidance as well with the upper corridor if we are better, but too early to judge.
Maybe for the second question, for us, it was important that Automotive improves its margin in 2025, also achieves a positive cash flow in 2024, sorry. And both the next step will be further margin improvement in 2025. And also here, we are starting better in Q1. And we will, let's say, achieve we hope to achieve positive territory already in Q1. And for the cash flow, it will further improve in 2025. But we cannot give you more details at this stage. Thank you. And just one last one, as it wasn't really discussed too much on the braking issues with BMW. It wasn't really part of the comments. So I assume everything remains as you stated in previous quarters as well. No changes to the provisions or how you assess the situation. No changes to the provisions. Recall is going on. Software update is functioning.
The provision that we have built in the middle two-digit million EUR area is still the right provision that we have built for the full year 2024. Thank you. And everything else we discuss with our customer. Thank you very much.
Next question is from José Asumendi of J.P. Morgan, please. Thank you very much. A few questions, please. Can you comment a bit on the margin evolution we should expect for the automotive division, Q1, Q2? It looks like a challenging start of the year when it comes to production, but you also have the cost savings that you're booking and the efficiency plans you're booking on a year-on-year basis. If you could just comment whether the first quarter should be better than last year or not, and a little bit what are the efficiency measures that you're expecting.
The second question regards also with on the auto division, Nico, if you can comment maybe on some of the business wins you had within Safety and Motion, A&N or Autonomous Mobility, anything that you would stand out, any big large business wins in the second half of 2024. And then question three would be on ContiTech. We'd love to hear a bit more what's holding back the margin and what can you do structurally to improve the profitability of the division. Thank you.
So for Q1, Q2, auto, Olaf has already referred. I mean, honestly, we had a relatively weak first quarter start into last year. And as Olaf said, we are targeting to get into positive territory in the first quarter. How much and far remains to be seen. As I said, March is still the highest auto month in front of us.
So far, we are within what we could see for the start. You're right that light vehicle production for us will be slow in the first quarter, in particular sales weighted for where we are. However, we have on the one hand the self-help measures, which you mentioned. They are coming then as they increase steadily over last year. They help us as well in the year-over-year comparison. And don't forget the pricing. So we have a very high level of sustainable pricing. We had our weakness last year getting into the year. What means weakness? We have later on caught up on that part, but in the first quarter, we had many of those agreements on purpose not signed. So that helps the improvement. On the second quarter, some of that is already mitigated. We had already some pricing last year.
The fixed cost measures, which we had, were then ramping as well up. The incremental on the second quarter should be much, much lower if there are any, but too early to judge. First quarter, strong improvement versus last year with our target to be on the positive territory side. On the order intake, we can say in the fourth quarter, and Olaf has already mentioned, we've been extremely pleased with the Safety and Motion order intake, and in particular with MKC2, which is the braking system which we are supplying as well to BMW. As you know, we have from the EUR 2.4 billion, this brake system has been EUR 800 million order intake in one quarter, which is very, very solid and strong. In particular as well from Asian players, that gives us the confirmation order intake is on track.
Customers appreciate our brake performance and our strong technology, leading technology, which we have in there. That's to me the main highlight. Book-to-bill, you have seen we have been roughly on one. And the rest has been more typical business like airbag ACUs, where we have a relatively strong positioning in, which helped us. And we see as well on the zone controller part, so more high-performance compute architecture, which is getting in, where we are going more from the decentralized part as well to the central part, be it high-performance compute or then the distribution architecture like zone controllers. Those have been the highlights here. On the ContiTech, we have, I would say, three parts in here. The one part is OESL.
We have improved by 400 basis points last year, but still, it's a low single-digit return on sales number, which weighs on the overall result, which we have on the ContiTech side. If we look for the pure industry business, we are still north of double digit and plan as well to continue this. So the markets are clearly under pressure. And our Surface Solutions part, which has as well half of its business is automotive, has as well weak markets and the home goods market, which is somehow challenged. This is somewhere in the middle between those two. What are we doing? On the one hand, I mentioned variable cost, which helps all the business areas. So standardization, particularly on the industry side, because this is clearly a high complexity where we see lots of opportunities to get better fixed cost reductions, which we are doing.
As mentioned, five plant closures or right-sizing we have announced in January. So we will optimize the footprint optimization, which we have, and generate savings via that. So mainly for this year, again, particularly for the first half self-help, which we continue as well for the second half. For the second half, we at least hope for a certain industry recovery. If it doesn't come, then we continue our self-help measures and prepare ourselves for a recovery then coming later.
There you go.
Perfect. Thank you very much. The next question is from Horst Schneider, Bank of America. Please go ahead.
Yes, good morning. Hope you can hear me. It's Horst here. Perfect. The first question that I have relates to ContiTech.
So, since I think your guidance is not yet including the disposal, could you maybe say how the guidance would look like if you were now disposing this ContiTech automotive business in the course of H1? In that context, maybe you can provide an update where you stand now on the disposal. That's question number one. Question number two is on automotive again, because your guidance, the lower end implies something like 10% revenue decline. And I wonder basically what needs to come through that really the revenues here decline by 10% and more longer term than that is then also for the spin-off. It seems to me that the 6% margin target that you have put out for 2025, 2026 for automotive is no longer valid because you are missing kind of EUR 2-4 billion of revenues.
So with that in mind, I do not think you want to revise the guidance now in this call. But nevertheless, with that in mind, what is the necessary cash equipment for automotive in the spin-off? Thank you.
So with ContiTech, you are right. OESL is still part of the guidance. However, as mentioned, we pursue and started the sales process in the first quarter. So we are in touch with potential buyers and partners and are now starting this process as we speak. More to come then after the first rounds and after we see that we are moving forward. On how would ContiTech look like without OESL? As we have announced, it's roughly EUR 2 billion sales, the OESL business area, and a low single-digit return on sales. So you can do the math, and then you can somehow calculate what ContiTech would mean without the OESL side.
Nico, low single-digit return on sales, I'm guessing it means something like 2%. Is that quite ballpark? 2% is a low single-digit number, yes. Okay. Thank you. I tried. Okay. Go on. Thank you.
Excellent. The second part, yes, we chose on purpose a larger bandwidth on our sales because currently we see that so many moving parts on our customer base. We see our markets. We heard as well today, tariffs are coming in, even though they are not fully included in our guidance yet. However, we anticipate turmoil as well from 2025. In this foggy situation, we rather guide on a larger base and we prepare ourselves. That is as well internally for us the signal. If the market is not in our favor and our talent, we have to take actions and we have to manage our costs very, very disciplined.
That is the basic message which we want to send externally, but which we will do as well internally. So if you see as well our margin guidance, take into account EUR 18 billion as to make the math, this is a substantial deduction of sales, which is then having effect as well on the bottom line. By all means by the measures which we are doing, we try to prevent. How we are going forward? And if we got to mid and long term, yes, we had in our capital markets in December 2023, different market situation than we have today on the total base and absolute base as well on customer mix and as well on product mix. Product mix has changed again, looking for certain types which are built in Europe, which might change again, and in North America, which postponed electrification and so on.
So for the next short- and mid-term guidance, we refer to our capital markets day mid of the year. That's where we are looking into the mid- and long-term plan. We are looking as well on our margin guidances and do this, so to say, from scratch and from the current situation and take everything into account, which we saw in the last two years for the time being. As I said, we are preparing for both, for upswing as well as downswing, and clearly full focus is still on our cost situation in order to manage as well our capital structure going then into the spin.
Something to add for the capital structure? Yes, absolutely, Nico. And so we will provide Automotive with a very solid balance sheet, which means they will have a net cash position excluding pension and leasing liabilities. The exact amount we will announce in due course. And Continental, after the spin, will keep investment grade.
Small follow-up maybe for Nico. Nico, tomorrow we have got this announcement of the EU Automotive Action Plan. I'm not sure if the European Union involved you in this discussion, but from a supplier perspective, what can the European Union do in your favor within this action plan?
So we have been as well all the suppliers, automotive suppliers as well involved. However, as you know, this is very much currently. And if it comes to the fleet CO2 measurements, we are power train agnostic. So we have not been at the forefront. However, everything in this action plan, which improves the competitiveness of Europe and our OEMs, which we have here, you know that we are somehow overexposed to Europe and as well to the European OEMs.
So everything which supports competitiveness here, which supports our industry, is of course as well something positive for us.
All right. Let's see what they do. Thank you so much.
Exactly. Exactly. We have to see the written news, what is coming up, and then we judge and then we come further. Absolutely, Horst. All right. Thank you.
Thank you very much, also from my side, dear ladies and gentlemen. The next question is from Thomas Besson of Kepler Cheuvreux. Over to you, Thomas.
Thank you very much. I would like to start with my question on cash flow, please. Can you share with us your assumptions for the interest restructuring and tax outflows for 2025 and compare that with 2024? And explain why in Q4 interest and taxes looked higher than in previous quarters? That's the first question.
The second, could you talk about the expected seasonality of group margins? I know the group is probably going to change over the course of the year, but if it stays as it is, which I think is the way you've guided for the year, would you expect a stronger second half, which is what I would assume, or a stronger first half? And lastly, is there any more granularity you would like to share with us on the timeline for expected capital market events to come? Or if not, when should we expect to get that granularity, please? Thank you.
Maybe I start with the second one and then you do the-
or you want to start with the cash flow? You can definitely-and then I come with the
expected seasonality. So yes, based on our replacement business, which is still more heavy in the fourth quarter than as you've seen in the years before, we expect a stronger second half than the first half. That holds as well true what I said for our markets in particular, the industry markets, which we are expecting the second half to be more favorable than in the first half. So as we have seen it last year, not that strongly in the seasonality because you heard us saying that we assume automotive in the first quarter to be strongly better than last year and reaching positive territory. We said as well tires, which had a weak first quarter last year, based on Easter in March and April, as you remember, a stronger first quarter than last year.
That helps as well the group to be stronger in the first quarter than last year and have a less pronounced, however, we assume again a staggered increase profitability during the course of the year.
To the first question, if you look at the special effects, we have two main effects 2025 that are in the same magnitude for one part is restructuring, the other is one-offs for the spin-off execution. If you look at the financial results, we have to consider that in the year 2023, we had some special impact driven by the CNY, which we didn't see in 2024. So it will be on the same level in 2025, roughly as 2024. The tax rate in 2024 is impacted by what we mentioned at the beginning of the presentation when we explained the NIAT, some non-cash relevant taxes in preparation of the spin-off.
So that's why the tax rate is going up and then normalizing again at 27% in 2025. Okay. And to the last point, capital markets day. So the announcement of the timeline is coming soon. So buckle up.
Reserve your calendar for the whole summer. No, seriously, it will come up in the coming weeks, upcoming weeks, and Max will inform investor relations departments once the dates are fixed and they will invite you.
And then you will also at the Capital Market Days your new short and midterm targets for both sides, Continental and Auto.
Thank you.
Thank you very much. Moving over to the next question. Next question is from Harry Martin of Bernstein. Please go ahead.
Hi, everyone. Thanks for taking my questions. The first one, just coming back to the tire margins, the question really is, why would the margins not up more than 20 basis points in 2024 versus 2023? Volumes increased, you went from 76% to 81% replacement mix, increased the premium high rim diameter share. I think you've mentioned some of this is cost-related. So how much is the gap between pricing and raw material today offsetting some of that positive mix? And can you increase prices to recover some of that in 2025? Or is it some of the production sites in Europe that are holding margins back? The second question on the working capital improvement, the management of working capital this year has been very positive. Can you comment on how sustainable some of those improvements are into 2025 and whether this is more in the automotive side or in the tires business?
And then the final question, I'm interested in the status of the automotive spin-off. You've mentioned again monitoring capital market readiness. Clearly, tariffs, production cuts don't make things easier. So can you give a sense of how the debates have been evolving in the boardroom to the new market reality when it comes to the spin-off? And are there any key metrics at all that you're monitoring that would make you delay or reconsider the automotive spin-off? Thank you.
I'll start with the last one. As we indicated, we had a detailed analysis we needed to conclude by end of 2024. Checkmark for us, it was important to achieve, let's say, margin improvement automotive, positive free cash flow automotive. Checkmark, headcount reduction as planned was also important to achieve that. Now we are on track in the preparations.
We have a very detailed separation plan, very detailed capital market readiness plan, and we are on track to execute it, to fulfill it. So all our milestones, we are living up to it. Next is Supervisory Board approval in March. Next, then afterwards, the AGM. So we are on track, and we will execute the spin this year in the second half.
So the sustainability work and capital improvements in 2025, I guess this refers in particular to automotive. As we've mentioned, we had a substantial working capital improvement. Just to look into history, we had a huge working capital build-up during the semiconductor crisis. So 2020, 2021, we piled up not just semiconductors, but the whole bill of materials. So we had relatively large capital increase during that timeframe. Means we are still not on a level where we cannot further improve.
That's what we are planning for 2025. So number one, we see it sustainable. Number two, we are targeting further improvements as well in turns. And as you've seen, with our guidance, it's not based on strong top-line growth. This means as well in absolute terms that we are planning to reduce further working capital on the automotive side 2025. On the tire side, it always remains how the business runs. And ContiTech, we will be as well restrictive, but their working capital part is less of a point. So tire margins, why not more up? As you mentioned, the negatives coming and as well going forward is raw material increases. So we saw then during the course of the year turning around raw materials. They have been a tailwind at the beginning, and then coming later, they have been a headwind.
So it was a negative mid double-digit million EUR impact in the P&L in Q4. So that weighed on those results, number one. Number two, not everything which you see in price mix, which we are showing, is going one-to-one to the bottom line. Obviously, price is going down. But looking on the mix part, this is not one-to-one getting in, and we have still certain markets, particularly as well on the U.S. side on the first part, which is typically rich, heavy, and strong, which have not been that strong on 2024 and 2023. So going forward in 2025, as mentioned, raw materials from right now see again an upswing going further. How this plays out in 2025 in the whole business environment, in the industry environment, we don't know. And that is the same to the increase of pricing.
So we will make our pricing decisions based on our volume and profit strategy during the course of 2025, and we will try via that as well to optimize our results.
Thank you very much.
Thank you. The next question is from Monica Bosio of Intesa Sanpaolo. Please, Monica, go ahead.
Yes, good morning. Good morning, and thanks for taking my question. The first one is on the automotive business and the quantity performance towards the market. The car production at a global level will be likely at -1% with a negative trend for Europe, especially in the first part of the year. Conti is somewhat overexposed to Europe. So my question is, should we expect the company will manage to perform in line with the market, or likely we will see an underperformance by year-end in the automotive division? That's my first question.
The second one is a follow-up on the tire business. You said that in the last quarter of 2024, the raw material impact was double-digit million EUR negative. Can you just give us a rough indication for 2025? And you also said that maybe there will be some price actions. Would you see as reasonable by year-end an overall price mix at 1.5%-1.7% for the tire business? And the very last question is on the free cash flow by year-end. As a special effect, you indicated the EUR 700 million, but I'm just wondering what is the net cash impact on the free cash flow from restructuring in 2025? Thank you very much.
Sorry, go back to the first one. You're right.
If we are looking on our sales weighted, we see in particular, or in the first quarter, as year-over-year, Europe is down that the light vehicles production is weighted negative. It gets then better during the course of the year, but for the full year, it's more in the range of -2% than the flatish or -1%, which we might see somewhere else. So how do we see our business? We want to be at least in line with the market. So we have materialized this last year by better European performance. We've been, as Olaf has explained, short in North America as well as in China. However, on the globe, we assume to be within the market, and that's what we want to achieve now, at least as a minimum.
Looking for tires, mid double-digit million material last year, and the number would be in a range for sure of a three- million digit number for this year. As of now, how much again remains to be seen. Very volatile environment, and with the industry performance, which might react, we might see as well our raw material feedstocks reacting to this. Your question is 1.5% price mix, a reasonable number. If you are looking for the achievements which we had over the last years, 1.5 is within the ballpark. In particular, once the automotive OE business is still under pressure for this year, and we want to grow in replacement, which has a mixed effect itself. Truck remains to be seen.
If it stabilizes, stable truck typically has as well a certain mix effect, but overall, that is in a ballpark which we have achieved as well in last year. So that is kind of reasonable. And to your last question, so if you look at compare free cash flow to 2024, we see slightly higher cash outflow from one-offs. Restructuring is probably approximately in line with 2024. Okay.
Thank you. Thank you very much.
Thank you very much. Also from my side, the next question is from Sanjay Bhagwani of Citi. Here with you.
Hi. Thank you very much for taking my question also. Three questions. The first one is follow-up to Monica's question on the organic growth outperformance, or I think you did clarify that you want to perform at least in line with the market.
So on that regard, are you able to provide some color in specific to Safety and Motion and User Experience? What drove the organic growth underperformance in quarter four? And if you're already seeing that recovering in first half? And then overall, if you could touch on how do you see the organic growth versus the market in first half versus second half of the year? That is my first question, and I'll just follow up with the next one after this if that is okay.
So we don't guide specifically on the business area performance, Sanjay. So the explanations for SAM UX Olaf has given already. As I said, we said that we want to perform within the sales-weighted market that holds as well true for the individual parts.
Thank you. So second question is on semiconductor and electronic cost tailwinds. Are you able to remind us what proportion of your automotive sales is the electronic cost? And if you are already seeing this as a tailwind from H1 onwards or any color from the ground on how the electronic costs are now developing?
Still too early to guide for 2025. Overall, we see general cost opportunities on that side. Then it very specifically depends on the portfolio and which part on semis we are purchasing. And during the course of the year, we will shed more light on that part. But in general, the trend is there, and we are working obviously as well in order to provide those opportunities and stabilize via that our margins. So from the EUR 18 billion production purchasing volume, that is last year, I assume.
40%?
Yeah, around 40% is on the electronic build, so somehow bound to semiconductors. So it's a relatively large part, and we are a relatively large semiconductor device, so that depends. The difficulty is still the complexity we have in particular on the brake, but as well in airbag ACU is very, very specific ASICs. So it does not help to look simply on the general bread and butter and assume that we are capable to get those. So it is really the devil is in the detail, and that's why we inform them once we speak. But in general, there is a certain cost trend which we want to profit from and which we need in order to expand our margins.
Thank you. So related to that, should the OEMs, so it's because of the mechanics of the pricing passed through, the OEMs will have to initiate the renegotiation, right?
This is not like automatically maybe, let's say, whatever the cost decline comes in, 80% gets passed through to the OEMs. Is that correct understanding?
That is the correct understanding. And with many OEMs, as I mentioned, sustainability into this year. With many, we have as well agreed on a more long-term view and longer year view. So this is the contractual situation. And if anything has to be renegotiated, it has to be initiated, correct?
There's no automatic passing of savings.
Correct. Yes.
Thank you. And the last one is on the free cash flow guidance. Sorry if I missed anything. So you are guiding for a free cash flow at midpoint, that's somewhere around stable free cash flow, but the profits are slightly higher at midpoint. And also, can you please remind us what was the total one-offs for the ContiTech minority stake purchase, which was in 2024 and not repeating in 2025? So just trying to reconcile the cash flow if the underlying profitability is improving. And if some of the one-offs from last year are not repeating, then why is the cash flow guidance more stable and not improving? Just overall, is there any other headwinds or special items which we should be aware of?
Yes, we had in 2024, we had two main special topics. One was the EUR 500 million for the acquisition of ContiTech shares. So that's minus EUR 500 million. We had a positive effect from contract manufacturing that was plus EUR 350 million. So these were basically two major effects. They will not repeat in 2025. 2025, free cash flow, we will see an improved profitability on the one hand.
On the other hand, you will have what I just explained, let's say, restructuring one-offs in the same magnitude as 2024, but higher one-offs related to the spin-off.
Thank you. That's very helpful.
Thank you very much also from my side. Since there are no more questions in the queue, with that, I would like to close the Q&A session and hand the floor back over to the hosts.
Yeah, thank you, operator. We almost made it on time. Thank you, everyone, for participating in today's call. As always, we, the Continental IR team, are very happy to be available for you if you have any remaining questions, and with that, we would like to conclude for today's call. Thank you. Goodbye.
Thank you. Bye-bye. Thank you.