Good afternoon ladies and gentlemen, and welcome to the Continental AG analyst and investor call H1 results 2025. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Max Westmeyer, Head of I R.
Thank you very much and welcome everyone to our Q2 2025 results presentation. I'm glad that we have a strong C-level presence here today. Again, our CEO Nikolai Setzer, our CFO Olaf Schick, as well as Philipp von Hirschheydt, the future Aumovio CEO, a nd for t he Q& A, Roland Welzbacher will j oin us as well. Both the press release and presentation of today's call are available for download on our Investor Relations website. As always, I'd like to remind everyone that this conference call is for investors and analysts only. If you do not belong to either of these groups, please kindly disconnect n ow.
F ollowing the presentation, we will conduct a Q& A session for sell side analysts. T o provide a chance for all to ask questions, w e would like to ask you to limit yourselves to no more than three questions each. This will help us to conclude our call on time. Before we start, let me remind you of some accounting technicalities that are also occurring in Q2. Due to the Aumovio spin-off in September, we applied for IFRS 5 accounting for continued and discontinued operations. As a result, among others, depreciation and amortization for Automotive and Contract Manufacturing has been stopped. This has a significant positive effect on EBIT and net income. The EBIT effect amounts to EUR 235 million, equal to 240 basis points in Automotive w hen looking at the Q2 adjusted EBITDA. I n the IR presentation, however, we are working with a like-for-like comparison, still considering depreciation to reflect the operational performance of Automotive.
Of course, also KPIs like net income would have looked different if depreciation was not stopped. To make it easier for you to consider the subject of continued and discontinued operations in your models, we have provided a slide with the pro forma comparative figures for all quarters of the previous year for continued operations in the appendix to the presentation. You can find it on page 26. With this upfront, let me now f inally hand over to you, Niko.
Yeah, thank you, Max. Warm welcome from my side. We are looking back definitely to a very, very busy second quarter. On the one hand, the market and the operational effects which have impacted us. On the other hand, we have reported on the ContiTech independence which we are striving for, the spin-off approval at the AGM. We have followed suit on the OSL transaction. Finally, on June 24th, we had a Capital Markets Day with lots of information, and I want to use the opportunity to thank everybody. We had a high personal participation as well, many joining in a hybrid mode. We had many roadshows and conferences, and clearly that shows how important the personal exchange is. We appreciate this, and we appreciate as well that you took the time in order to delve deep into our transformational story.
From the feedback which we got, it's now much, much better understood going forward. With the second quarter, we want to add another piece of the puzzle going forward. This headline sums it pretty well up. We think it's a resilient performance which we have shown in a very highly volatile environment. Barely have I seen such a quarter with so many events on the macroeconomic base as well as it comes to currency and operational start. Good news is we are ready to spin off Aumovio. You see on the right side for all other transformation projects, we only have a heads up that we are fully on track where there is no obstacle driving our transformation forward. In particular for our Aumovio listing in Frankfurt, we have now a targeted date which we can communicate: September 18th, which we are now working on.
Looking on the organic sales, you could see on the left side that our sales were dropping from EUR 10 billion-EUR 9.6 billion. So, heavy weight by the effects of north of 3%, 3.4%, mainly the U.S. dollar, but you barely find any currency in the world which is not depreciating versus the euro value. Unfortunately, as our base in particular on the Tires side is mainly in euro and we have a high cost base in Europe. Organically, with - 0.4%, we're in very weak markets. We are somehow in the market, obviously being there, rather flat. Automotive, t he highlight significantly improved to the upper range of the guidance with 4%, and the profitability was driven by the commercials and operational efforts. So, Philipp will give you more details later on.
In particular, you could see that the significant fixed cost reductions which he and his team introduced already last year and the year before, they are really paying off now and they contribute to a very reduced margin seasonality compared not only prior but the years before. In the first half with 2.8% we are within the guidance range 2.5%- 4%, which we have not been in the years before, which is clearly a very positive as well, a positive sign, improve point for the spin to happen September 18th. Tires strongly hit by the FX as well as strong FX headwind, same as we have on group, more than 3% with a substantial drop through, which is the half which weighs on the profitability, the other half. We have communicated before other tariffs with two months now with limited compensatory effect f rom Q3 onwards that will improve when we are going forward.
It's important to mention that operationally we have been okay. We had a strong price mix north of 3%. Volume was, given the markets, as well okayish. We could, with our price mix as well, compensate for a raw mat headwind but not for the FX and tariffs which we are coming in. As you could see, caught here, not effective yet. The tariffs from Europe will drop from 25% for auto and pass c ar tires are included in the auto category, not the truck and specialty. We are mainly pass on our Tire side. They will drop to 15%, which is good news, though this is still 15%, but it will reduce presumably our headwind in the second half by a mid double digit million amount versus what we have assumed before or still at the Capital Markets Day w hat we have shown. T he markets on tires, they have been muted, in particular Europe, APAC, North America, o kayish.
For all markets it holds true that we have been at least within the markets, at least if you look as well for local manufacturers in Europe and North America and APEC, we have even slightly outperformed the market, which is a good sign going forward. ContiTech continued weak volumes on order as well as industry. However, we have seen at least, we say only, but at least gradual signs. Why? Only because we still hoped for more, ContiTech as well organically going backwards by 1.4% unfortunately, and headwinds, tariffs on FX. However, Philipp and the team, the other Philipp, will continue working strongly on fixed cost management, and we could mitigate to get most of the intake.
4.8% is slightly below the lower point of our guidance, the lower corridor, which translates into we have improved versus first quarter, 5.4%- 5.8%, and the second half we have to further improve going forward. For the group, you see in the white box the like-for-like without IFRS 5, we end up with EUR 595 million, 6.2%, and if you add the sectors, you see that we have substantial group effects, holding effects in the second quarter, which weighs on the results on the group level, which have been for the separation and spin-off activities, a high amount of one-offs, which we have absorbed here in the second quarter, and they might come as well then for the second half, certain separation one-off, which we will see. Another part which will happen then in Automotive, which will then be spun off on September 18th .
Net income, you see from EUR 305 million-EUR 506 million, also mentioned by Max. This is a difficult to be compared number because it's not only depreciation, we have as well a hypothetical tax effect, so to say, to take out. If you do this, if you assume a flat tax rate, the effect should be an amount of EUR 180 million. If you deduct this, EUR 325 million is still higher than we had last year. We moved forward as well on the net income. You could see as well, bottom down on the net indebtedness, we improved as well by about EUR 650 million. Adjusted free cash flow, we've been down in the second quarter. However, particularly for last year, you have to take into account that we had in the second quarter a high working capital effect or one-off effect on contract manufacturing, which is phasing out this year.
Last year we had those very positive effects, which do not come again. They have been in an amount of low to mid triple-digit million, so very significantly getting in. If you make the math for the first half, we are EUR 550 million ahead of prior year which is, given the markets and given where we are, a strong sign. We are in line with the seasonal pattern on the first as well as on the second quarter if you adjust for those effects which we had. Of course, in the second quarter now, as we had in the P&L, we had restructuring effects on the one hand. On the other hand, the spin-off related efforts which I already mentioned, which guiding us. Looking for equity ratio, Olaf will explain more. There are short-term technical impacts which dilute this, which will bounce back after spin. He will mention this more.
The leverage ratio on top, you see we further improved, I mean net indebtedness going down, EBITDA positive development. That helps. As mentioned on the Capital Markets Day, we will further in the future use this KPI instead of equity ratio going forward because we clearly believe that better reflects our ability to operationally finance our debt going forward. With that, let's move on to the next chart. There you see the second quarter in figures mentioned, group sales - 0.4%. Basically flattish, Tires up based on the strong price mix 1.4%, Automotive roughly within the market, slightly a little bit lower than the sales-weighted market for us with - 1.2%, and ContiTech with - 1.4%, again more than $80 million which we could not on an operating leverage fully mitigate.
With the 5.8% you see on the right side, sequential improvement as said, and if you look for the first half last year and this year, we are, despite being substantially down in sales, just half a percentage point lower, which I said we have to recover and now further improve in the second half with as well industry volumes come back but further working on our cost measures. Tires at 12.0%, here clearly I've mentioned FX and tire tariffs were hitting without the mitigation measures. As well here, i f you do the first half comparison, we are as well here only because the first quarter, second quarter was flip flop. Last year first quarter was weak, this year it was stronger o n tariffs, it's as well about half a percentage point down.
Given the effects which we have in the second quarter, which is clearly the trough looking for FX and tariff, this is a good result, resilient result as we mentioned before. With that, I hand over for a last time to Philipp von Hirschheydt, last time under the Conti flag, I have to say, and as the CEO of Aumovio, next time you will wear another jersey with really a strong second quarter. Philipp, give us the details please.
Yeah, thank you very much, Niko. I'm also happy to be here and a warm welcome from my side. I'm glad to be on the call to give you some more details on what we have been working on and achieving in the second quarter on our way to independency on September 18th, as Niko was mentioning. You can see that we had quite some challenges in the second quarter. Sales were down with clearly negative FX effects, although only a limited drop through on profitability as the light vehicle production was flat on a year-weighted basis. However, the sustainable price agreements which we secured in 2024 have provided a significantly stronger base in the first quarters of 2025.
That helped us. And the one-off pricing elements we achieved last year, where we had a significantly lower start for our commercial efforts and strong catch-up effects in quarters two to four, are creating tougher comparisons which are going to weigh on this year's sales outperformance metrics in Q2, and that is specifically the case in Europe. I'm going to come to that in one of my further slides where we are talking about the regional sales performance. B ut briefly talking about the performance of the four business areas in the second quarter, and I have explained that already i n the first quarter call as well as during the Capital Markets Day.
W e are heavily working on portfolio measures which led to the fact that we phased out a build-to-print business, which you can see here in the Architecture Network Solutions result, where we have a reduction in sales compared to last year. That is primarily due to this phase-out of some specific projects. The core business is still developing quite well and quite nicely and in line with all the other business areas. At User Experience, we do see now improvements as we already indicated in the Capital Markets Day. We have on the one hand side price effects as well as some new launches in our new plant in Novi Sad in Serbia, which help to improve our sales and which also helped then in terms of operating leverage.
As you can see, Safety and Motion and Autonomous Mobility more or less stable, but more important for us, as we always mention, is profitability where we made, as you can see on the right-hand side, a significant step into the right direction. There is still the need to improve, but in a very challenging market environment w e increased our operational results by 110 basis points compared to last year's second quarter. These are the main drivers for this strong development were the execution of our operational and commercial efforts. We are going to go into some more details, but what we also achieved in the second quarter was a bigger one-time effect on the pricing side, which will not repeat in the coming quarters but will help us as it is going to be a sustainable price improvement for the rest of the year.
To our 4% margin, basically all business areas contributed. Autonomous Mobility was the second time this year around break-even, which is a strong achievement compared to last year. If we look at the H1 results, we can also see that you might remember on the Capital Markets Day we explained that we have the biggest challenge on the user experience side here. We made also significant steps forward and reached the break-even number in the first half of 2025. Very encouraging results which shall help us to move forward also in the next time to come. Another reason for our strong result is that the impact from tariffs is limited d ue to the fact that we produce i n our majority in our Mexican plants and we do have a very high share of USMCA compliant imports into the U.S.
And negotiations with customers and suppliers for the parts where we have to pay tariffs are ongoing. Therefore, we do not see any material contribution to those additional costs from our customers in this quarter. As we meanwhile agreed with most of the customers on reimbursement, this will then start to materialize from quarter three onwards. What we also did, we have been working on our fixed cost. Just one example, we have further reduced our headcounts in R&D, and this contributed then to a significant improvement of more than EUR 30 million of net R&D expenses, although we were not able to repeat the high number of reimbursements of last year. From a gross point of view, we made a significant step forward.
What we also achieved in quarter two is that the Automotive free cash flow before interest and tax is, despite the fact that we have quite significant outflows for restructuring and that thanks to an improved operational performance, we are at around break even again. That is a huge improvement compared to 2024. Let's go then into more details with regards to the transformational progress and let's look. Yeah, thank you very much, Max. You see here we are on our trajectory to make our overall infrastructure more competitive and to reduce our break even. We made again significant steps forward. We were always talking about that. We have clearly found measures in the pipeline and more and more are now also ending in the bottom line. We are going to see then even more improvements over the course of 2025 and then as well as in 2026.
What you see is on the left-hand side that we have reduced again in 2025 by more than 6,000 or by 6,000 employees our organization and made them fit for future. You remember that we announced two years ago that we are wanting to reduce our SGA costs by EUR 200 million in 2024 and EUR 400 million in 2025. In the first half of 2025, we have already implemented EUR 150 million of that. We are good for the EUR 200 million to come and we expect or we target at least to significantly overachieve also our initial goal and to get ourselves even fitter for future. We're already talking about R&D efficiency. We have reduced another 1,500 employees compared to the year end 2024. That will translate into an improvement of net R&D expenses adjusted for restructuring by around EUR 120 million in the first half of the year.
That should last and should run also into the second half. I have already mentioned on the Architecture Network Solutions side that our portfolio management is well on track. We have done some smaller divestments. One we mentioned already at the end of last year, this is the Zona sale which we have now retroactively taken out of our comp base, which made our adjusted EBIT 0.2% or 0.5 points better on a like-for-like base. That means that we and what we target, we execute, and this helps us to improve our overall profitability. I have already explained the stop of parts of the build-to-print businesses. We will also there further streamline operations.
You have heard, and that's what we mentioned already during the Capital Market Days, that we are intending to divest our Italian drum brake business. That is also very well on track, and we expect closing in the fourth quarter of 2025, and this measure will have also immediate visible effects on our profitability. We are working on getting our portfolio up and running and fit for future asset. We are still working on some projects to be given back, so some impacts on sales. You are also going to see over the course of quarter three where we have also ended and terminated some smaller projects. However, all that with a clear intention to have an immediate effect on our bottom line.
Let's go to the next page where we explain the regional sales, and you can see here that in terms of outperformance, our picture changed this time for Europe. One reason is the phase-out of the build-to-print business at Architecture Network Solutions. Also, we had last year in the second quarter quite significant commercial effects, meaning repricings, which led to a very high comp. In this year, we have been much more focusing on North America as well as in Asia, where we improved our commercial efforts, improved our commercial effects. The positive trend from Q1 persisted in North America, and as you can see also in China. In North America, our performance was mainly strengthened by an improved customer mix, but also by ramp-ups as well as a sizable one-time customer contribution.
In China, where we have been doing significantly better than the market, we have benefited particularly from launches of our MK C2 integrated brake system projects, and that is specifically with Chinese OEMs. If we then come to the last page which I'm presenting today, page number eight, the order intake. You can also see here that we are on a good track. We have incoming orders of EUR 5.7 billion in the second quarter with significant wins, again significant wins on the Autonomous Mobility side where we were able to have quite good awards for satellite cameras in the premium segment. We have also gotten orders from Chinese OEMs for long range radars, not only from Chinese but also from others. We have also gotten significant awards and substantial ones for our commercial special vehicle unit which we consolidate into the Autonomous Mobility arena.
What you can see also here, not only have we managed to ramp up new projects on the MK C2 integrated brake system, we are also getting new orders across the world, specifically in Asia and also from Chinese OEMs. We also extend our presence on the suspension, ABAC system side, and architecture and networking. We're also contributing with EUR 1.6 billion for TCU, Telematic Control Units as well as for several other gateways and Light Control Solutions. That's from our Continental Automotive, next time then our Aumovio, and with that I hand over back to Olaf.
Thank you, Philipp. I will continue with Tires and Nico already highlighted Tires is significantly impacted by the highly volatile environment. Substantial headwinds from FX and tariffs are distorting the strong operational performance of Tires. Overall volumes slightly declined, mainly due to the continuing weak OE market and softer overall replacement demand in Europe. However, replacement markets in APAC and North America held on well and this development supports the mix effect. In our EBIT we managed to perform in line with the market or even slightly better in our T regions. We're also seeing further stabilization in the European market for truck tires, both in OE and replacement segments, but on a low level. In North America, the truck tire replacement business benefited slightly from the continued weak performance of the truck OE business. When we look at price mix, we see good results of 8.2% primarily driven by mix improvements.
We benefited from regional trends, positive effects in sales channels, and the continuous trend towards premium and ultra high performance tires in our product portfolio. This development helped us at least to more than compensate for the raw material headwind in the mid double digit million euro area in Q2 as well as increases in fixed costs. However, this quarter results were severely affected by macroeconomic factors. In addition to the headwind from FX, profitability was significantly burdened by tariffs as our mitigation measures were unfolding with a delay as of mid June. Overall, the net headwind for these two factors, FX and tariffs, is in the low 3 digit million euro range and is distributed almost equally between tariffs and FX. The bigger picture is despite the volatile market environment, profitability for H1 is only slightly below previous year's level. That's actually a strong signal of the operational performance of Tires.
Now let's look at ContiTech on the next page. Despite continuing weak volumes in the Automotive and industry sectors, there are slight signs of improvement as evidenced by slight organic volume growth in our industry business. However, the trajectory of expected improvements remains uncertain. We need to see that on a positive note, sales have stabilized quarter over quarter. The FX effects on sales were again negative from the limited of due earnings. Now, a strict focus on fixed cost management and production performance could not fully mitigate the impact of lower volumes year- over- year. However, we could achieve improvements versus the first quarter. Let's look at the free cash flow. The second quarter operational free cash flow generation was burdened by ongoing restructuring and spin-off efforts.
Here we could see that, and if you look at the development versus the prior year, you need to consider that Q2 2024 was positively affected by one-off effects from changed payment terms in contract manufacture. Obviously, we didn't have this effect in the second quarter 2025. Since cash flow generation in Q2 seasonally tends to be rather neutral, we came out of the negative adjusted free cash flow due to the ongoing restructuring and spin-off efforts already mentioned, but also investment activities on the Tires side. However, Enrico said that at the beginning. We achieved in the first half of. 2025 free cash flow improvement over EUR 400 million compared to the prior year.
Then. I would like to address on the next page a more technical aspect concerning our balance sheet that you see only in this quarter, and that's the temporary drop in our equity ratio. So Continental equity as per June, 30th, 2025 has been significantly reduced due to the reclassification of Aumovio's equity into other short-term financial liabilities. This reflects the upcoming distribution of Aumovio's shares to our shareholders due to the spin-off. This liability position is not part of net debt. By the way, with the spin-off, the balance sheet total will be reduced significantly by asset held for sale. Assets held for sale amounted to EUR 18.1 billion in Q2. That means our total assets will basically be reduced by 50%.
As stated at the Capital Market Day, we expect the leverage ratio of around 2x after the spin-off, and all KPI targets mentioned in our Capital Market Day of course remain valid. That means also an equity ratio above 30% that we target for. Now let's look at the market outlook. Light vehicle production in North America has proven to be quite resilient so far. As a result, expectations have also improved after two months of tariffs being effective. Therefore, we raise our North America LVP expectations for 2025 to a range of -5% to -3%. Expectations for Chinese vehicle production have also improved. In total, we expect our flag vehicle production worldwide outlook for commercial vehicle production was significantly worsened. In particular, in North America, our assumptions regarding the Tires replacement markets and industry production did not change.
If you look at our guidance, we have announced and adjusted our guidance at the Capital Market Day. We are now confirming this guidance. With the reduced tariffs and mitigation measures taking effect, we are now expecting a mid-digit million euro lower headwind in the second half for both OEs and the group. Furthermore, you still guide for negative special effects of around EUR 50 million. This does not include the deconsolidation effects in connection with the planned spin-off. Our free cash flow guidance has not changed. Let me give you a short summary of how the extraordinary negative effects expected for the full year 2025 are distributed across the group sectors based on the free cash flow bridge that we have provided to you in March when we presented the financial year 2024 figures and gave an outlook.
Everything said so far in that regard and what we said back there is still valid. Most of the cash outflows for restructuring are attributable to Automotive, and only smaller post new days. P ayments in connection with the spin-off will be primarily borne by Automotive. This includes costs in connection with the listing, IT separation, and branding. The part remaining with Continental is mainly related to IT separation. Regarding the tax effects, it is too early to share any more details, but certainly both Automotive and Continental will have to bear a part of the spin-off related taxes and rename them t he magnitude before. M ajor part of all spin-off related costs will occur still in 2025. With that, we come to the end of our presentation.
Yeah, thank you, Olaf. Before we are jumping now into the Q& A, I want to jump in because this is today. I mentioned this at the beginning already when I hand it over to Philipp, a historical analyst and investors call because it's the last one with Automotive and it's the last one with two individuals, with our CFO Olaf Schick and with Philipp von Hirschheydt, which will both then leave basically at the same time at the September time frame and they leave the jersey of Continental as I mentioned before. By no means as we are now 5th of August, this is the goodbye because there are still ways to go and you know me until the last breath. You wear the Conti jersey and we are fully convinced that you contribute. However, it's a recognition to your strong contribution and performances and I think everybody has seen the proof.
We are on track with our transformational parts which have been strongly supported and pushed by Olaf and Automotive. You could see we are now on a way where we can say sustainably we have an Automotive sector which can develop as an own entity much better than within Conti and has everything which is needed in order to be successful going forward. The champions, the three plus one as we said, they are on track. Thanks to you both for your contributions in the past. Please don't forget to invest everything to have a strong listing on September 18th and drive our other projects forwards, which I have no doubt you will do. At the same time, mentioned at the beginning by Max, we have the future CFO. Roland will take over the helm of Olaf once he's leaving. He is as well already on the call and he is then able to answer in particular obviously the tire questions, as he is the CFO of Tires already now and will be in the future. With that I hand over to the operator to open the Q& A. Thank you.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press nine and star on your telephone keypad. In case you wish to withdraw your question, press three and star on your telephone keypad. The first question is from Christoph Laskawi, Deutsche Bank. Please go ahead with your question.
Good afternoon. Thank you for taking my questions. The first one, and sorry for bringing back the unpleasant topic, but it seems like the discussions with BMW are turning into a lawsuit. Is it right to assume that this potential liability will be passed on to Aumovio and not sit with Remenko as we've seen it with Vitesco? Could you just share your thoughts on the timeline of this potential lawsuit and what we should expect from it? The second question would be on Tires and the tariff relief and how that will be phasing in the second half. Is it right to assume that the high drop through on FX will probably stay unchanged also in Q3, Q4, but the mitigation measures are coming through with July and obviously the tariff cut from August 1st onwards, so that we could even see in Q3 already a 1% margin step up from the mitigation and the relief? The last question would be just on the free cash flow in Q2. Could you quantify the restructuring cash out and the spin-off cash out that was impacting that number? Thank you.
I will start, Olaf here. I will start with the first question on the topic of BMW. As you know, we supply BMW with the lower MK C2, so the latest integrated brake system which is installed in various models by BMW. We still have different leading positions regarding the previous warranty case and both our customer BMW and also Continental filed a lawsuit a few days ago. Look, that's something that you touch a phase of where you have different legal positions that you secure legal positions in this way. That's actually not unusual. Nevertheless, we believe it's still possible and actually desirable to continue the talks with BMW and then everything else we discussed with BMW, we will continue that dialogue. You saw that in Philip's presentation, it's important, right?
This MK C2 brake technology is well accepted in the market and we receive new orders also in the second quarter, also from China a s you saw in the presentation. O ur provision is still correct and we confirm our provision as of today. The situation going forward will remain with Aumovio. The spin-off basically will not be affected by these proceedings. This is content wise an Aumovio topic. You cannot compare that actually with the Vitesco scenario where you had a kind of proceedings by authority. That is very different. It is difficult to make here analogies.
Yeah. Do you want to take the restructuring in the spin-off related question as well?
Yeah. I take your third question as well. Restructuring, spin-off, cash outs. In Q1 and in Q2 we had each low triple-digit million euro amount of payouts. That means in the first half of the year this was a low to mid triple-digit million euro amount that we had.
Hello everyone, Roland speaking and thanks for the question, Christoph. That was the obvious one. Let me start to answer this with looking back at Q2. We lost versus last year Q2 around about EUR 100 million adjusted EBIT and it was basically all about tariffs and FX, and without that effect we would have been close to EUR 500 million. Now going into the second half, what we expect on the tariff side, first of all, is that we get some relief from the adjustment made on the tariff scheme going down from 25%- 15% hopefully, or PLT hopefully pretty fast, and then our mitigation will become fully effective. That will be a big relief. What we expect then for the full year still for the second half could have an impact on low to mid euro million additional costs versus the status before. On the FX side we have a pretty high drop at 50% in Q2. We expect a similar drop, 40%- 50% in H2. If you remember, the U.S. dollar rate was at 1.04 at the beginning. The peak was in July at 1.18. If it stays round about 1.15, then we expect north of EUR 100 million additional burden for the second half of the year.
Thank you. Very clear.
The next question is from José Asumendi, JPMorgan . Please go ahead with your question.
Thank you very much. Good morning and fully agree, Nico. I'm presenting incredible times at Continental. The changes we're seeing are incredible in the context and the history of the company. Certainly very, very interesting times and I fully agree this will empower both companies t o deliver better results. A couple of questions and obviously, you know, w ishing all the very best to everyone in your roles. Can you comment a bit please on cash generation in the second half and the first half, and if you could provide any color within Tires and Auto, you know, expectations for the full year and specifically how do we think about maybe a little bit second half. Second. Can you comment on Auto, any more color please around the subdivisions within it or which of the divisions will be the biggest beneficiaries of the cost cutting actions you're taking in 2025 and 2026, and then three, business wins you booked in the first half or second quarter within Auto? Anything you will highlight which is, you know, driving the growth of the company within the Auto side. Thank you.
Hi José, good to hear you. If we look at Auto, and Philipp can then add the cash performance. In the first half of the year w as quite strong. Still, you still have the seasonality of the business. Going forward. We expect also, before interest and taxes, basically break even, a stronger cash performance in the second half of the year. For Tires, the second quarter was impacted also by investments in tire production facilities in the U.S. and in Asia. We had a good start of the winter tire business already, and in the second half of the year we see the strong seasonality of that business. We expect a strong cash flow performance in the second half of the year.
Okay, then let me add to that, José. Yeah. With regards to our Aumovio in the second half, I explained that we have been basically break even in the first half and we expect also in the second half to be above the break even line. As Olaf already said, for us, it's also valid that we do have normally a stronger second half than first half. We expect that we are able to, let's say, beat the additional separation costs which Olaf was mentioning and we will still be break even or even better than on the free cash flow side in the second half of 2025. We expect that this is then also rolling into the next quarters and years to come.
From a subdivisional point of view, our business areas, how we call them, who are the biggest beneficiaries, we do the major part of our programs across all business areas. In general, all business areas should and will benefit from our measures, being it on R&D side and being it on the SGA side. As you might imagine, we have been showing that we had in 2024 on the user experience side a negative return on sales of 4.8%. We expect that we do make the biggest step forward there. As we explained, we do have measures in place. We have been in the first half already break even. This will make the biggest jump, whereas each and every business area needs to contribute while reducing costs and adjusting the infrastructure towards the sales volume and towards better drop through and better operating leverage going forward, making the break even point significantly lower. In the past years.
Coming to your third question and the question of what are the main achievements which we managed in new audits. I think what we do see already for quite some quarters is that our MK C2 integrated brake system is a very appreciated technological step forward. We have around the world new orders for this specific product, which I think shows the, let's say, the breakthrough which we have achieved there. We also see that on the Autonomous Mobility Solutions side we make big steps forward, which should then turn on the outer years of this decade to quite positive sales. If we look into the Architecture Network Solutions area, and that's what we try to explain in the Capital Markets Day, whatever technological step forward is going to come, we are well prepared because we have products there for the entire product life cycle.
That's what you see. You see consistent and continuous orders coming in for existing products, but also then for new ones, being it on the telematics side, being it on many other areas. We are quite happy with the project which we gained where we expect then also more order intake in the second half is on the user experience side where we are currently more focusing on making that business break even. We then will also see additional orders going to flow in Q3 and Q4.
Thank you very much.
The next question is from Ross MacDonald, Citi . Please go ahead with your question.
Hi there, hopefully you can hear me. I had three questions. I think fairly simple questions. First one, just on Tires, one of your competitors actually lifted their price mix assumptions for the full year last week. It would be helpful to understand how you see price mix tracking in the second half relative to that 3.2% in Q2, and then maybe any comments linked to that on volume assumptions into the second half for Tires given you're putting pricing through. We should also potentially have some restock on the winter tire side. The first question there on Tires. Secondly, on Automotive, it sounded like the margin, the sequencing of margins into the second half may be slightly lower from the 4% you printed in Q2. Just be interested in understanding in the guidance range, which is quite wide at 2.5%- 4%, if you can give any color on where you think second half Automotive margins appear to be tracking at this time. Finally, just on the OSL sale, I saw a headline that you expect that to be wrapped up in Q3. Any comments in terms of likely timing and cash-in impacts could be helpful I think. Thank you.
Thanks for one of the comments. Yeah. Let me start with the tire side and start with the volume. We expect a slightly higher volume in H2 than it used to be in H1. We expect soft market environment to continue with just one exception. We get more orders now for the truck tire OE business in Europe. If we quickly remind ourselves, the start into the retail season has started with a strong order intake, but we also have tough comps because we've also already had a very strong second half last year. Against this, we expect a slight increase in volume. If we look at price mix, the 3.2% in sales dropped down at a rather high rate of higher than 80%. We expect this to continue. Very rich mix in the second half, price only drops down to a limited rate because obviously this is also meant to mitigate the tariff impact. Nevertheless, we had a very strong price mix effect in our EBIT in Q2 and we continue, we see this to continue into H2.
Okay, then I add on with the question towards Automotive. Yes, we have had a good first half with 2.8% which is in our guidance, and we expect, as we said, we confirm our guidance for the rest of the year. There is a lot of uncertainty out there in the market. As the first or the second quarter was already quite unstable of overall macroeconomic environments, we expect that. Who knows what's going to happen in the second half specifically on our side. We are confident that we are on a very good trip and we are satisfied with improvements we are doing. We think that any adjustment of our guidance can and will only be done after we have been spun off and are going to be independent. Then based on the parameter of Aumovio, we will look at it. I might get back to that it.
Again on the OSL question, as I mentioned at the beginning, we are still fully on track. Everything which we said in the past is still valid. We are moving forward and we are confident to conclude this transaction still in the second half of this year. Your question of any impacts from the start, we said that you should not expect any specific cash impact. For us, the clear idea of the OSL transaction is making out of ContiTech a strong industry champion. That's why we carved out OSL and we bring it to the market. We are clearly convinced that the new owner performs stronger on OSL than we can do within ContiTech or within Continental. That tells you in the current environment the impact on the cash side is minor and will not have any influence on the cash or the other results.
Okay, thanks. All the best for the spin-off. Cheers.
Thanks.
At the moment, there seem to be no further questions. If you would like to ask a question, please press nine and star on your telephone keypad. We have one more question from Horst Schneider, Bank of America . Please go ahead with your question.
Thank you for taking my question on this one. Already in holidays, but just small ones on Tires. Can you maybe quantify the negative raw mat effect in Q2 and provide an o utlook for the second half? Also, can you then also quantify maybe the FX drop-through that you have seen in the second quarter? Thank you.
Okay, let me start with the FX drop. It used to be between 40% and 50% in Q2, and this is actually what we're also expecting in the second half a s I already said. O n the raw map side, obviously in Q2 that was still a drag on our EBIT, and this will then turn around in Q3. We already expect a pretty neutral effect in Q3 and a slightly positive effect in Q4, which makes H2 slightly positive.
All right, thank you. Maybe small add-on for Automotive for Philipp. Philipp maybe c an you elaborate now on the chances that you can achieve this in Aumovio then for the full year, the upper end of the guidance range? What speaks against this assumption? You a lluded at the IPCMD to t his was clarified in the pre-close call. Maybe an update on the H2 outlook and why Aumovio shouldn't achieve the upper end of the guidance range. Thank you.
Yeah, as I just explained, we do see still a lot of uncertainty in the market and we have not yet drawn a clear conclusion of how sales are going to develop. We feel very comfortable within the guidance range which we have been given both on the sales as well as on the EBIT guidance. However, to now come to a conclusion that we can change the guidance and guide towards any other direction, we do think that is too early. As I said, if so, we would need to do that going forward as then the Aumovio parameter. We still feel comfortable where we stand, but we feel not yet comfortable to change the guidance into any direction.
No worries. Thank you so much, and all the best.
Thank you very much, Horst.
And all the best for your second leg in the holidays, Horst.
Thank you.
And we have one follow-up question from Ross MacDonald, Citi . Please go ahead with your question.
Thank you. Sorry for the delay there. Given I think plenty of analysts on holiday, I'll jump in with a couple more. I'm just interested, Philipp, on the Automotive side on slide seven, the regional performance trends obviously quite unlike your EU peers, you're actually outperforming in China in the quarter. Could you maybe speak to how much of that is one off in nature? I think you talked about some one offs in UX or whether you expect to be outperforming in China in the second half, and then I guess linked to that, maybe if you could update for the broader regions how you expect full year performance to track relative to the S&P forecasts. Thank you.
Yeah, I mean with regards to China, we do see, and that's what we already said, we do have a quite solid business in China and we have some very successful customers on the Chinese OEM side which we are growing quite significantly with. We had that. We also need to say we had a very low comp of last year. That's why in the first half it was actually easier to outperform than it's going to be in the second half. However, we do see that we have a set with also with new order intake which is fully in line with the overall order intake of Automotive. We do have quite good inflow and we do see quite some chances in the market there. We are working heavily on making our organization even more robust and resilient and taking out costs there as well.
That is not a User Experience related topic. It's more on the Safety and Motion side where we have been gaining quite some businesses in China and where we have been doing better in the first half, and in the second quarter. On the North American side we also see good improvement. On the European side, actually this is where we have most of our portfolio measures implemented, where we have businesses which do not fulfill our profitability expectations. That's why we foresee also going forward that we are not going to outperform the European market as much as we have been doing so in the past.
I hope this answers your question. Horst?
I do think so. He stepped out of the line already.
Okay.
As this was the last question from the audience, I will hand back for closing remarks.
Yeah. Thank you very much and thanks everyone for participating in today's call. I hope you have a well-deserved b reak ahead of you. But, of course, i f you have any questions as a follow up, the Conti IR team is very happily available for you guys. With that, I would like to conclude today's call. Thank you very much and goodbye.