Dear ladies and gentlemen, a warm welcome to the Continental AG Analyst and Investor Call Full Year 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 Investor Relations.
Thank you very much, and welcome everyone to our Q4 and full year 2025 results presentation. Today's call is hosted by our CEO, Christian Kötz, and our CFO, Roland Welzbacher. A quick reminder that both the press release and the presentation of today's call are available for download on our investor relations website. The annual report will be published later this month on March 19th . Before we start, I'd like to remind everyone that this conference call is for investors and analysts only. If you do not belong to either of these groups, please kindly disconnect now. Following the presentation, we will conduct a Q&A session for sell-side analysts. To give everyone the opportunity to ask questions, we kindly ask you to limit yourselves to no more than three questions. With that, let me now for a first time hand you over to our new CEO, Christian Kötz.
Thank you, Max, and welcome. A very warm welcome, also from my side to everyone online. Thank you for joining us today. I'm actually glad to have the chance to join this earnings call, as Max said, for the first time as the CEO of Continental. 2025 was a year of significant transformation and delivery for Continental. We made decisive strategic progress while achieving our financial targets. As you all know, we've completed the sale of the OE-related part of ContiTech's business, the so-called OESL business, in February 2026. With this, we have materially reduced the OEM auto exposure of ContiTech. With the started sales process for the remaining ContiTech business, we are continuously executing our strategy to become a pure-play tire company. Let me briefly summarize the key developments in Q4, starting with sales.
In a challenging environment, we delivered organic growth of 0.8%, resulting in EUR 19.7 billion of sales. The Tire contribution is actually organic growth of 2.4%, whereas we have seen and experienced a negative impact organically of 3.3% on the ContiTech side organically. The Adjusted EBIT reached EUR 2 billion with a margin of 10.3%, mainly driven by healthy price- mix in Tires as well as strict cost discipline and resilient replacement demands. ContiTech continued to face challenging automotive and industrial markets, especially in APAC and North America, with pressure on mix and volumes, particularly in Q4. The transformation which I initially mentioned also had an impact on our result.
Our NIAT was significantly burdened by special effects of around EUR 1.7 billion, mainly related to the automotive spin-off, the Armovio spin-off, and the transformation of ContiTech. The individual effects are shown on the chart. Adjusted cash flow, however, came in at EUR 959 million, so at the upper end of our guidance, driven by solid operational performance, mainly in the Tire sector. Thanks to the strong free cash flow generation in Q4, we further reduced net debt and improved the pro forma leverage ratio to around 2.0 as planned, as anticipated, and as is also communicated at our last Capital Markets Day. Overall, I think we navigated this transition in 2025 very successfully, giving us the opportunity to return some of the earnings to our employees, but also, of course, to our shareholders.
As previously mentioned and explained, we adjusted our NIAT for non-cash, non-recurring items of a total of EUR 1.2 billion, resulting in a dividend payout basis, so an adjusted NIAT of around EUR 1.1 billion. This means we will propose a dividend for the financial year 2025 of EUR 2.70 per share to this year's annual general meeting for approval. The proposal reflects therefore our clear commitment to the target payout corridor of around 40%-60%, as communicated at our last Capital Markets Day, the proposed dividend basically sits right in the middle of this corridor. This ensures an attractive dividend yield of 4.8% while maintaining financial flexibility during the ongoing transformation. Now a quick glance at the Q4 results by sector.
Overall group performance came in broadly in line with prior year. Once again, this was supported by a very strong fourth quarter in Tires. I think Roland will touch on that in more detail. Particularly proud, we are that we managed to organically grow in Tires. I mentioned the total year results, but also in Q4, and to keep earnings stable despite headwinds from tariff and FX. Now over to Roland for more details on our Q4 financials.
Yeah. Thank you, Christian, and welcome everyone from my side as well. Turning now to the market environment for Tires on slide seven. Over the course of the year, the replacement market in Europe has changed quite a bit. Strong Asian imports initially supported market volumes, but as these imports slowed, total market volumes declined year-on-year. This effect was further reinforced by tough comparisons with last year. Despite this, we achieved organic sales growth in EMEA in Q4, underscoring the resilience and strengths once again of our business. I'll speak about our regional mix in more detail later on. North America and China, however, grew slightly compared to a weaker Q4 2024. Light vehicle production in China continued to show solid momentum, while developments in Europe and North America were more mixed. Over to slide eight. Let me briefly focus on the truck tire markets.
In Europe, truck tire replacement markets showed continuous resilience also in Q4. North America picked up during the year after a slow start into 2025, resulting in slight growth in Q4. This is mainly driven by the continued very weak volume in commercial vehicle production in North America, so the OE business, which we also had to manage in Q4. In Europe, however, production figures continued to rebound. At least we are seeing a little bit more positive tonality from the U.S. truck OEMs as well. Over to slide nine. Let's now discuss the Tires performance in this environment. Despite facing continued strong FX headwinds, lower volumes, and a tough comparison based on the volume side, we managed to reach the prior year profitability level with sales of EUR 3.6 billion in Q4.
We achieved an Adjusted EBIT margin of 13.9%, supported once again by healthy price- mix of 3.4%, which underlines the robustness of our business. Price- mix was once more driven by many areas: product, channel, and regional mix. A mid-double-digit million euro tailwind also came from lower raw material prices. First positive impact from our portfolio measures started to provide a slight support to our Adjusted EBIT margin as well. Slide 10. We look at the regional picture on Slide 10, the underlying dynamics of our business become even clearer. We saw mixed volume trends. Positive support on the PLT side came mainly out of APAC and the U.S. with Canada. Overall, the Americas remained a challenging environment for us, particularly in the truck tire business.
Positive price- mix, as well as the passenger car tire volumes in the U.S. and Canada, helped to stabilize our results, even though on a comparably low level, given the headwinds from tariffs and FX. In EMEA, negative volumes were fully offset by strong price- mix effects, also supported by a positive development in truck tires. This resulted in an organic sales growth of 1.1%. APAC delivered strong organic growth driven by a recovery in both OE and replacement passenger car tires in China. This more than compensated for the loss of volumes following the closure of the truck tire business in the region. A healthy price- mix performance in the region was able to substantially offset the significant foreign exchange headwinds, which mainly came from the Chinese renminbi as well as the Australian dollar.
On slide 11, you can see the result of the ongoing mix improvements and increase in UHP share. We managed to increase the share for both Continental branded tires as well as for our broader passenger car tire portfolio. Across all brands, the UHP share now stands at 55%, up 3 percentage points compared to last year. Remaining figures were rather resilient and did not change much compared to last year, perfectly reflecting our business model. Replacement tires accounted once again for 76% of total sales. Continental branded tires represented 77% of passenger car tire sales. Also our regional mix did not change materially compared to 2024. Let me now turn to ContiTech on slide 12. ContiTech continued to be impacted from a delay in market recovery.
In the fourth quarter, sales declined organically by 5.2%, reflecting weak demand in the automotive business and also ongoing industrial headwinds, such as the conveyor belt business in China and the North American distribution and off-highway business. Customer caution and the deferral of business orders into 2026 further constrained our results towards year-end, something we saw starting to partially reverse already in Q1. The Adjusted EBIT margin before IFRS 5 came in at 2% as a result, impacted by the discussed unfavorable mix as well as earlier incurred standalone costs coming from a faster than anticipated progress in the transformation and Carve-out related one-offs. Very important to mention, ContiTech has defined a lot of self-help measures which are firmly in place and are expected to materialize over the course of 2026.
This will help to further strengthen our industrial business, which delivered sales of EUR 4.4 billion and an Adjusted EBIT margin of 7.1% in 2025. Turning now to our cash flow on slide 13. Free cash flow in the fourth quarter was particularly strong. This was driven by the less seasonal pattern in CapEx throughout the year, disciplined cost management, and as always on the tire side, a strong cash inflow from working capital in Q4, mainly driven from the winter tire business in Europe. Just some further comments on the bridge. The EBITDA decline year-over-year was mainly due to non-cash restructuring and transformation costs. You can see the offsetting effects in the other line. Slide 14 highlights the positive impact of our strong cash generation on the balance sheet. Working capital followed.
As I said, its typical seasonal pattern in Q4, clearly decreasing after a build up in the previous quarters. The change compared to prior, however, is mainly driven by the accounting change for OESL. Their assets and liabilities are now classified as held for a sale, therefore no longer part of our working capital. Without this, it would have remained broadly unchanged compared with the prior year. As a result of the Q4 cash flow, our net debt declined in the fourth quarter, resulting in a pro forma leverage ratio of around 2.0, fully in line with our expectations that we have already communicated during the 2025 Capital Market Day. Let me now turn to our market outlook for 2026 on slide 15.
For this year, light vehicle production is currently forecasted to remain below last year's level in our key markets in Europe and North America, and even in China, resulting in our expectations of slight decline in OE production worldwide. Passenger car replacement market forecasts, however, hint towards minor growth well across all regions. This is also true for the truck business in Europe. In the U.S., however, we're seeing a bit more mixed picture. Slight rebound of commercial vehicle production throughout the year against the very weak comps of 2025 should have an adverse impact on the truck replacement business, however, in that region. Overall, we're expecting no growth to very low growth environment for Tires. For ContiTech, industrial production is expected to remain mixed.
For Europe, we expect a gradual growth following periods of stagnation, while the American market remains highly volatile due to U.S. tariff measures and ongoing geopolitical tensions. Slide 16, all of this translate into our guidance for 2026, which is summarized now on this page. It includes currently effective tariffs and is based on foreign exchange rate also at current levels. Let's be very clear, it does not yet reflect potential changes to input costs or other impacts of the recent geopolitical tensions with regard to Iran and the Middle East. For the group, we expect sales of around EUR 17.3 billion-EUR 18.9 billion with an Adjusted EBIT margin between 11% and 12.5%.
This is, of course, mainly coming from Tires, where we expect sales of EUR 13.2 billion-EUR 14.2 billion and an Adjusted EBIT margin in the range of 13%-14.5%. This broad range, just as for ContiTech and the group, is mainly a result of the uncertainty we're seeing from the volatility in currency developments, where particularly the US dollar is trending into or has been trending into an unfavorable direction. The uncertain volume development also driven by the changes in tariffs and geopolitics, as well as the net impact from raw material in 2026. For ContiTech, sales are expected to come in between EUR 4.2 billion and EUR 4.8 billion, with margins of 7%-8.5%. This does include the general result of OESL, which stood at EUR 117 million sales, slightly above break-even profitability.
Adjusted free cash flow expected to be around EUR 0.8 billion-EUR 1.2 billion. This includes CapEx of around 7%, mainly driven by ongoing investments into our tires business. PPA is going to be significantly down to around EUR 25 million per year, mainly from ContiTech. Other special effects should amount to roughly EUR 250 million, already including the deconsolidation effect from OESL, as well as the expected costs associated with the sale of ContiTech. In the current setup of Continental, we should currently anticipate to see a slightly decreased tax rate of around 24%, given the change in our country mix compared to our previous setup, including Armovio. With that, I'd like to hand over now the rest of the time to you. Operator, could you please open the line for the Q&A?
Thank you very much. Yes, dear ladies and gentlemen, we are starting now with our Q&A session. To ask a question, please press nine and the star key if you are dialed into the conference call. I repeat, the combination is nine, star. To cancel your question again, if you find your question answered, please press three and then the star key. For now, please press nine, star. The first question comes from Akshat Kacker of J.P. Morgan. Please, over to you.
Thank you, Christian and Roland. Akshat from J.P. Morgan. I have three questions, please. The first one on ContiTech margins. You mentioned excluding OESL, the business was at 7% margins roughly in 2025, 4.6% margins in Q4. Could you just give us some more details in terms of the start of the year? How should we think about margins in Q1? If you could help us think about the second half margin profile, how much improvement should we expect based on all the cost actions that you have taken in this division last year? That's the first question. The second one is a quick one on the sales process. The announcement last month said that the first-round bids were expected in March. Could you confirm if the process is on track, and what is the timeline from here, please?
The last one on the tire business. You have talked about some kind of pressure in Americas, which is similar to what we've heard from your peers in terms of higher inventories and sell-out concerns in that region. Could you talk about overall pricing for Conti in that market? You were successful in increasing prices against status last year. Do you see those price increases sticking in the U.S. market? Thank you so much.
All right. Akshat, I'm gonna take the first one. We thought about how to put more flavor on the Q1 expectations on ContiTech. It's a little bit difficult because there is no Q1 2025 we can refer to. What we would like to do instead is guide you a little bit compared to Q4. In order to allow for a like-for-like comparison, excluding OESL, we're focusing on the sequential development. In the last three months, we still did not see a material improvement in the industrial sector. We're even expecting volumes to be slightly down in Q1. The anticipated mix improvement I talked about earlier, however, should help to compensate for most of the lost volume on both the top and the bottom line. X should presumably not be a factor sequentially.
We're expecting a low to mid double-digit contribution from not repeating negative one-offs in Q4, as well as some one-time safeguarding measures in Q1, helping the bottom line to clearly improve versus Q4. We still most likely will not be able to reach the lower end of our EBIT guidance for the full year already in Q1. This is true for the industrial business itself, but also because we see the EUR 170 million January sales contribution from OESL, just above break even, also going into our Q1 results, given the closing only happened beginning of February. We talked about the second half. Despite the fact that the margin is not yet in the guidance range, the year is starting as planned.
We see stepwise improvements in the upcoming quarters, also supported by continuous safeguarding and restructuring measures, which we have already put in place and where we expect benefits coming through, specifically in the second half. Number two, M&A process. We started the M&A process. We reached out to investors already in December and then started the full-blown process in January, and indeed, we're expecting offers to come in in March. Now, it remains to be seen. Right now, we're on track in terms of timing and we still believe we can close the transaction within the year 2026.
Yeah. Let me jump in then here. Good morning, Akshat, by the way, from my side as well. Just to add in maybe on point number two, and also in anticipation of maybe a potential follow-up question. We also don't really see that the current military conflict in the Near East is impacting our process to sell ContiTech. If this is a question you might have or a concern you might have, we really don't see this impact for the time being. To your third point, tire business in the U.S. First of all, let me differentiate between the two, let me say, burdens or the pressure points. One are Conti-specific pressure points, and the other one on the other side are the more generic industry pressure points.
The Conti-specific pressure points are very much related to the fact, as you all know, we are importing quite a number of tires from Europe. Our business was under pressure, is under pressure in the U.S. simply due to FX. Producing in euro and selling in dollar is obviously much less interesting and attractive as it used to be. Number two. The tariffs are impacting us potentially a little stronger than the one or the other competitor. Those are the Conti-specific pressure points which put a burden on our results and are challenging us, let me say. The second part are more the generic industry pressure points, so the weak market demand plus the high pressure from the imports. Are we able to offset those impacts?
I mean, you know I'm not going to comment on pricing stand-alone. Clearly, we continue to focus on finding the sweet spot in terms of price- mix and volume. And being still underrepresented, as you know, in the U.S., mainly in the U.S. and Canada, we do believe we have good opportunities to find the sweet spot and finding ways offsetting these negative pain points, let me say, as good as we can. An environment which is definitely specifically in Q1 still challenging because you compare in Q1 than still last year, a quarter without tariffs versus this year, a quarter with tariffs. Last year, a quarter with exchange rates which were still favorable versus this year, a quarter with very unfavorable exchange rate effects. Challenges specifically in the U.S. in Q2...
In Q1, optimistic to sequentially improve, during the course of the year.
Thank you. Very clear.
Thank you.
Thank you also from my side. We are moving on to the next question. Next question comes from Christoph Laskawi from Deutsche Bank. Please, Mr. Laskawi, over to you.
Hi, good afternoon. Thank you for taking my questions. The first one on the exposure to energy costs, please. We've seen obviously oil and gas prices spiking this week. Thinking back to end of 2022 and the debate around the inflation around gas prices in particular back then, it would be great to get a refresher of roughly the euro amount exposure as percent of sales or in absolute terms in your sourcing and also, in general, how you managed to pass these on to customers potentially in the past. Also how you source these essentially oil and gas for heating in the production, et cetera. Is it hedged throughout the year or, are you closely aligned to spot? The second question on more shorter term Tires please.
One of your competitors was very negative on volumes in Q1. One said they don't share that. Could you comment to do you see the market down 10% or is it better? It's probably fair to assume volume's down in Q1. Could you comment on inventories and how you generally see Tires Q1 trading, and if we should assume you are in the guidance range or would be rather on the lower end, if you can make a comment at this point at all. Thank you.
All right, Christoph. It's Roland here. Let me take the first one. Your questions about the energy cost. Let me approach this from a slightly different angle. Across Continental and in each sector, basically, tires, ContiTech. Energy-related purchasing accounted to clearly below 5% of the total ticket, means of the total purchasing volume, of which natural gas and electricity account for roughly 75%. 5% of purchasing is energy, 75% of the 5% is the natural gas and electricity. We have seen gas prices doubling in the last couple of days, so it remains to be seen whether this higher level will then be sustainable or not. That's a key question for us with regard to impact on our financials, obviously. The same is true for oil prices.
Currently we see an increased level of oil prices, it remains to be seen for how long the crisis continues and whether we see at a longer period of time, high oil price levels, which will then have, of course, an impact on our financials. Again, same as you remember last time it was tariffs and FX, we put in mitigation measures in place. Same here. If we would see an elevated level now coming from the crisis going into our raw material and in energy prices, obviously we would look for offsetting measures on the cost side as well as market related. Usually part of it is covered with indexation clauses in certain contract with customers, and a certain part is not.
Before we turn to Christian for the volumes, let me pick up your last question on a little bit more flavor on Q1 for Tires in general. What we expect now is indeed that volumes remain weak. We have seen that already in January and in February. To some extent, we believe March is gonna be better, but still, volumes will be somewhat disappointing. We also see price- mix coming in strong and potentially offset the volume negative. What we see and already anticipated because we're in Q1 now, and Q1 last year was a completely different environment in terms of FX, that we have strong headwind on the FX side now going into a P&L. In Q1, the US dollar has slightly come down a little bit over the last two days.
We don't know whether this is gonna be sustainable or even continues and would be a slightly offsetting effect that remains to be seen. For now, we expect this to be, again, a break on our Q1 financials. You know that we are looking forward for the raw material tailwinds we are seeing in Q4 continuing now into Q1. We have slightly offsetting effect potentially from reevaluation of stocks as the raw materials have declined now over a period of time. On the tariff side, again, the cross effect is similar to Q4. You know that wages and other input costs, logistics costs, will also going up. Again, we have an inflation effect and of course a negative consequence then on our financials.
Yeah. I mean, Roland, obviously very comprehensive answer. Let me just add one or two things maybe. Christoph, you asked specifically for the volumes, inventory levels. I think Roland already alluded to the fact that, yes, we believe Q1 will be from a, from volume standpoint, probably below last year for various reasons. The OE business is not starting off strong. You see probably also the OE volumes in China since quite a while, maybe not as strongly developing as we used to see it during the course of last year. We had some special effects. The winter storms in the U.S. did not help to have a strong start into the year. We had, as you all know, also in Europe, pretty challenging, let me say, weather conditions, which are not necessarily good for selling.
Nevertheless, we do believe that these conditions have been good or are good for the total year because it helps our customers to sell off their inventory. We believe the inventories are trending towards a more favorable situation. All in all, and I tried to explain this earlier, most probably, and we believe Q1 will be the most challenging quarter of this year we are facing. Is it in the guidance range or without the guidance range? To be honest, it's too early to tell. I mean, you also know that even in Q1 the seasonality is pretty strong. March is the dominating month within this first quarter. It depends very much now on how March will come in, plus many other effects. Yes, Q1 is the most challenging quarter from today's perspective.
Thank you. If I might sneak in one follow-up just on the Tire bridge, obviously because it's discussed a lot currently. On your assumption for the positive raw materials, is it fair to assume around mid double digits, mid to high double digits, effected in the guide as a positive, or is it smaller than that? Thank you.
I would say mid to high, pretty much our expectation. As I said, we're still trying to understand some revaluation effects on the stock side, which partly offset this. I would say this is also broadly in line with our expectation.
Understood. Thank you.
Thank you very much. The next question comes from... One moment, please. Ross MacDonald of Citi. Please, over to you, Mr. MacDonald.
Hi there. Thank you for taking my questions. It's Ross MacDonald at Citi. I had three questions, please. The first one just linked to Christoph's question around 2022 and obviously the experience around some of the shocks we saw back then. Obviously, this is a different conflict, but one thing that stood out back in 2022 for Conti was the impact of marine shipping rates. Now, I know these haven't been rising too much, but can you maybe speak around how hedged you are for the next 12 months on the marine shipping side, just in case we see any inflation in spot rates on the logistics piece? The second one on FX, on the Tire bridge.
Could you maybe give us your assumptions around the USD rate you're assuming in the bridge there and potentially the drop through from FX to EBIT that we should assume from the modeling side. A final one, just again, modeling question. On the other/consolidation line, I think it dropped to a very low level in Q4. How should we model that for 2026, please, on revenues and EBIT for the new, leaner Conti? Thank you.
All right. Let me start with the FX question. First of all, the drop rate in 26 will not be so much different from the drop rate in 25. It's usually between 40% and 50%. In Q1, FX will be substantial, the effect, because, you know, we started the US dollar last year at 1.04, and then in Q1 it was still pretty strong, and then it got a lot weaker. Now compared Q1 26 with Q1 25, we expect a significant FX headwinds going into the year now, probably more significant to what we have seen in Q4 last year. On the consolidation side, I'm not sure whether I understood.
Yeah. Maybe I. Let me just add on that. I think what we've seen in Q4 on the other or holding line, the, well, slightly or very low amount is mainly to a revaluation of some accruals as well as some transformation related charges that we could make. This is nothing that we would see on a sustainable level. If you would look into our 2026 assumptions, we are rather looking into, let's say, a EUR 150 million-ish cost item on the holding side, obviously very much depending on how standalone costs will develop, at which point we will look into standalone costs. I think this should be a fair ballpark for you to look at.
Cool. Maybe some comments. Ross, by the way, hi. One or two comments on your first question, especially with regard to logistic costs and the potential impact. Obviously, as you all know, the region is not necessarily primarily relevant for us. We generate less than 1% of sales in that region. The direct impact or the indirect impact on our P&L via raw material cost and logistic and/or logistic cost is what we need to obviously take a very close look. Let me evaluate and supervise the situation carefully. I mean, as you said, we don't necessarily see a jump in the logistic costs or the shipping costs yet. I think it is very much dependent, to be honest.
The Strait of Hormuz is not relevant here. It's a question of whether you see an impact onto the Suez Canal, so longer delivery times, supply versus demand evaluation or development which might impact us. This can also be, besides being a challenge, and a potential negative cost impact, it could also be a significant opportunity. For the ones producing in the market for the market, and you know this is what we have done and concentrated on since so many years, we are, for sure, much less exposed to those logistic costs than many other, especially the big importers. Yes, it's an area which can create, besides material costs, a second burden, cost burden.
On the other side, we should be, like some others, significantly underexposed to these costs. That can also therefore drive an opportunity and not just a challenge.
Thank you very much.
Thanks a lot for your questions. Before we start with the next question, a quick reminder, ladies and gentlemen, to ask a question, please press nine and the star key if you're dialed in into the conference call. Thank you. The next question is from Harry Martin of Bernstein. Please go ahead.
Yeah, hi, thanks for taking the questions. The first one, I just wanted to push a little bit more on the ContiTech margin. If I look at slide 15, it actually shows industrial production was up in every region this year, but the margins ex OESL have kept coming down. I mean, what really gives the conviction that you can have this step-up in margin in 2026 when, you know, as you point out, industrial production growth isn't, you know, a significant accelerator? Maybe just some color on which are the really high margin regions or product lines that need to come back for the new guidance to be hit?
On the Tire side, I just wanted to ask the expectation for volumes to be around flat for the full year. That's probably a touch below some of the peers that have reported. We've heard from two of the largest players in the industry, they're gonna have a big step-up in new product launches this year versus last year. Perhaps is that why they expect some volume share gain? Or do you have a similar step-up in new products as well?
You want to start with the first one?
Yeah. Roland here. Hello, Harry. Let me take the ContiTech question. Difference Q1 was our expectation 2026. If we look at what didn't went well or was remained pretty soft on ContiTech in Q4 in terms of market segments.
Dear ladies and gentlemen, here's the operator. The sound seems to be missing. We seem to have some sort of issues here. Dear speakers, can you hear me? Are you still there? Please hold for a little while.
Maybe this works on the backup line now.
Yes, this works. Perfect.
Okay.
We can hear you now.
Sorry, we lost the connection somehow.
I don't know, Harry, where did you lose us?
Right at the beginning of your answer.
Of my answer. You got Roland's input, correct?
No, I think it dropped at the very beginning, when Roland started talking about which segments were the weakest in Q4.
Okay. Let me repeat that. It's not a problem at all.
I said, the question was about Q4 what sector specifically would need to increase into 2026 in order to bring us to the point where we want to be. The industrial business is burdened in most of the business areas of Conti taking Q4. That is energy, construction, mining, auto aftermarket. If you look specifically which needs to turn around, those who were specifically weak in Q4, that is APAC, particularly China, continue to be difficult. The American off-highway business remains soft as well. The distribution business, which is a high margin business for us, also experienced unexpected weaknesses towards the end of the year, and this needs to rebound. We see first signs talking to customers. The confidence is growing. We also see first light at the end of the tunnel looking at our order book in 2026.
China, in fact, remained also somehow soft. We see first signs it's going to improve, and it will be a stepwise process. Okay. I was trying to comment on your second question with regards to the volume expectations. First, yes, we basically assume stable volumes for us year-over-year on the PLT side, but basically also on the truck side, with significant nuances, so to speak, region by region, segment by segment. Yes, we are also launching new products in order to be able to at least defend our market share or gain market shares. If markets do recover stronger than what we anticipate and what we have explained, we do believe we might also have then some volume chances.
Just to highlight some examples, We are in process of just launching in the U.S. our very first all-weather tire, the SecureContact AW, where we have very nice pre-order book, and where we are cautious in terms of our forecast. We might have some opportunities, but we are also launching new truck tires, bus tires, like the EfficientPro in Europe, which is clearly outperforming the industry on the commercial vehicle OE business side. We are investing significantly in terms of size range, not only in Conti, but also in all of our second and third line brands in the area of UHP tires. Yes, we are cautious.
I mean, we have seen in the last couple of years that being too optimistic on the volume side has proven to be a challenge, and that's why we consciously decided to take a more conservative approach. If markets do recover stronger than what we count for, we believe we are well prepared as far as our product portfolio, our product performance is concerned, to also benefit then from a potentially stronger rebound of the markets.
Got it. Thank you.
Thank you, Harry. Apologies for the technical challenges.
Thank you very much also from my side. Dear ladies and gentlemen, at the moment, there are no further questions in the queue. Before that, I have seen a question shortly appearing from Monica Bosio. Last call, please press nine star now if you wish to state a question. I see a follow-up from Ross MacDonald, Citi here. Please over to you, Ross.
Yes. Thank you. I'll make the most of this opportunity to ask two follow-up questions. Maybe a longer-term question, given you've just taken over responsibilities as CEO. Could you maybe update us on your strategic priorities? Obviously, ContiTech sale and navigating this geopolitical uncertainty, I imagine is the key focus. Maybe longer term, you know, if you can give some words on what stamp you want to leave on the business and how we should think about the group segments, whether you would look at inorganic growth, maybe M&A in some specialty categories. We'd be interested on the long-term vision. I know we've just had the CMD last year, but, you know, potentially an update there.
Secondly, linked to the ContiTech sale, you know, you've obviously been very generous with the dividend this year. How should we think about as and when that deal is done, how you think about the split between de-gearing, special dividends if applicable, and buybacks? Those would be my two questions. Thank you.
Yeah. Yeah. Okay. No, thank you, Ross. Let me take the first one, and then we can probably share the second one, Roland and I. More on the long-term side. I mean, as you know, I'm new in the CEO role, but I'm not new in the tire area. You will not see significant surprises from me, how I want to drive and how I believe we should develop the tire business. First priority, obviously, now is to successfully complete the transformation. We all know, these are challenging tasks. We are very, yeah, to a certain extent, proud, that we accomplished everything we have accomplished in 2025, even though we only had really very limited time.
Successfully spinning Armovio successfully now closing the OESL sale gives us really confidence that we can close this transformation during the course of 2026. Obviously, second priority, which goes in parallel, is to further optimize, let me say, the healthiness, the organic healthiness of our tire business, which partly goes also into your second question. How can we optimize and, yeah, further improve our balance sheet, but how can we also further optimize our organic operational performance? There clearly the focus is on, as we always mentioned, and as we explained also at the Capital Markets Day, on the one side, the very consistent and consequent focus on the UHP tire development and the business development, where we still see lots of opportunities. You will see us to continue to consequently focus on our portfolio.
We have done quite some steps also there during the course of last year. As you know, we've exited our agricultural business. We've closed two facilities, truck tire production in India and our facility in Malaysia. We have further optimized our retail footprint with some significant adjustment. We are in process of closing our textile production in the U.S., and you will see us to do some further steps in order to optimize, let me say, our operational performance without any inorganic shape. Third, and I can only then repeat what I said in the past, we do believe at the end of this transition, we are then a very, very healthy tire company, very solidly financed with strong operational performance.
This should bring us into the situation that in case consolidation takes place, in case there are reasonable and justifiable inorganic growth opportunities, we should be ready to be able to participate, and we would actively, you know, look for opportunities. As I mentioned in the past, and I can only repeat myself, it needs to make financial sense. It needs to be complementary. And we will see whether those opportunities will arise, yes or no. Clear, we wanna be fit for that and ready for opportunities in case they might arise. Your second question was on the utilization of the potential proceeds.
I mean, before Roland chips in, this relates then also to what I said earlier, obviously, we will partly and in line with what we communicated at the Capital Markets Day, we will use these proceeds really in two ways. One, to improve our balance sheet, and second, to also let our shareholders participate. How we do this, in which shape we do this, we will need to decide. Roland, anything to add there from your side?
Not really much to add, just probably in terms of timing. First of all, what we need in order to approach this decision-making process is more visibility on the potential proceeds of the ContiTech sale. Then we can better assess what the right way and right format would be. That's all.
Yep.
Thank you.
Thank you, Ross. I hope the voice quality is okay, because we are really working with a backup solution.
We can hear you quite well.
Is it okay? Good. Good to know.
Yes. Yes. We can hear you very well.
Good.
The next question comes from Monica Bosio, Intesa Sanpaolo. Please, over to you.
Yes, good morning. I just wanted to ask if you, the company is expecting tailwinds in raw materials? Obviously, now the situation could change. As things are, can you quantify the raw material tailwinds? I was just wondering if you have a sort of sensitivity in term of price, petrol price per barrel on the raw material side in general. My second question is on the PLT tires, the shares of the ultra-high performance tires, are guiding for flat volumes both in passenger cars and trucks, can you please just give us some flavor on the volume trend in the ultra-high performance tires? Maybe 1%, 2% or something similar.
What do you expect to gain market share the most in term of geographical area, if I may ask? Thank you.
Where do we start? I can start maybe from the back. On the UHP side. Obviously, you are right. We. And even though we count on flat markets, we do believe that we have significant UHP growth opportunities. We believe markets will grow annually by roughly 8% CAGR. That's what we assume in terms of global UHP growth. Obviously, we don't want to lose market share. We want to rather gain market share. This gives you even if we would only grow in line with the market, the growth rates we should accomplish in the area of UHP tires. The share of UHP tires of our total business, I think this was in the presentation, all the details are in there, huh? 55% for our total portfolio.
I think 65% or 62%. 62%, sorry, of our Continental branded business. This should further significantly increase. Market share gains besides UHP, I mean, you know we generated 53% of our total business last year in the EMEA region, 33% in Americas, and 14% in APAC. Obviously, it will be probably difficult to gain relevant market shares in the EMEA region, where we are definitely more in the defending mode. Whereas we have significant growth opportunities with the market, but beyond the market by gaining market share in the Americas, focusing on North America and in Asia, given the size of the market relative to the share of our total business, I think it becomes very clear that we have there significant growth opportunities.
All right. Let me continue, Monica, and Roland here with your question on raw mat and oil price and assumption and so on. Let me start with raw mat impact. As I said earlier, in Q1, we're expecting a mid to high double-digit million euros amount, then probably partially offset by some revaluation effect on the stocks. For the full year, obviously it's gonna fade out substantially in the second half. For the full year, it would still be a triple-digit euro million amount, the base assumption. Big plus in the first half and then leveling out in the second half. That was before Iran. That's a pre-Iran situation. Also on the oil prices, we anticipated that basically the level trend in February would basically continue throughout the year.
It remains to be seen now to what level and which level is sustainable throughout the year 2026. If it would be a substantially higher level than we initially assumed, then obviously we have a lot of less tailwind on the raw material side. We would also have to look into measures in order to bring down costs in other areas and also then look at market-based mitigation measures like we did with tariffs and Vitesco last year. Does this answer your question?
Okay, yes. Thank you. Thank you both. Thank you.
Thank you, Monica.
Thanks a lot. The last question for today, a follow-up from Akshat Kacker again. Please, over to you.
Thank you. Akshat from J.P. Morgan. A couple of quick follow-ups. The first one on the free cash flow bridge. Could you just share your expectations around the different elements? You clearly expect EBITDA to improve year-over-year. Absolute CapEx is expected to be higher, so that might be an offset. Do you see any room for working capital optimization or improvement, with your free cash flow guide for 2026? That's the first one. The second one, a follow-up on the Tire bridge. You talk about, business inflation being partly offset by portfolio measures. Could you just give us, some more details on expected business inflation this year and how much of that can be offset? Thank you.
Yeah. Akshat Kacker, Roland here. Let me take the first question on the cash flow. I think we would expect some improvement on the EBITDA side, obviously, because this must be our target for this year to improve earnings, and we have all the right measures in place and be able to do that. CapEx, I would see slightly increased in terms of percentage on net sales as well as an absolute amount. It's not a big step, but slightly increased. On working capital side, I would not see much room for movement or contribution. That's my view on cash flow. Your second question?
I think if I got it right, Akshat, you asked for I mean, in my words, how much of the general inflation we feel we can offset with portfolio measures, more or less. Was this the question?
Yes, please. Thank you.
Okay. I mean, if you take a look at 2025, without going into the details, we had the general inflation effects, and we had some on the cost side, especially on the period expense side. We had some, let me say, compensating effects. One is, as much as FX overall hurts, it obviously helps a little bit to offset, and compensate the inflation in euros. The second part is, the portfolio measures. We more or less, for 2025, kept therefore our costs in euros, the fixed costs, roughly stable. Very, very little inflation.
Dependent on how things will develop in 2026, we definitely have the intent to get to, hopefully similar levels, but it remains to be seen, obviously, on the one side, what happens to the Vitesco. It helps us on the cost side, it hurts us on the sales side. If I can wish, then I definitely wish for a stronger dollar, for the, for the bottom line. Second part is how much of the pending portfolio measures we are working on. You know, for example, we are working on trying to sell our retail operations in France, which would have a pretty significant impact. Depending on how much progress we can accomplish in all of those, projects, intent, continues to be to offset, at best all of the inflationary effects, but too early to quantify now.
That's very helpful. Thank you.
Thank you.
Thank you all so very much from my side, dear ladies and gentlemen. As there are no more questions in the queue, I am closing the Q&A session and handing the floor back over to the hosts.
Thank you very much. Spot on in terms of timing. Thank you all for participating in today's call, and sorry again for the technical difficulties. As always, we on the Continental Investor Relations side are available should you have any follow-up questions. As I mentioned already, our annual report with all the details around 2025 will be published on March 19th. With that, we conclude today's call. Thank you very much and goodbye.