Continental Aktiengesellschaft (CON) Earnings Call Transcript & Summary

Yes. Thank you very much, and welcome, everyone, to our investor and analyst call and the ad hoc release that we issued today around the planned independence of ContiTech. Thank you very much for being available on such short notice. Today's call is hosted by our CEO, Nikolai Setzer; our CFO, Olaf Schick; as well as Christian Kotz and Philip Nelles, our Board members responsible for Tires and ContiTech. A small reminder that both the press release and the presentation of today's call are available for download on our IR website. And before starting, we'd like to remind everyone that this conference is for investors and analysts only. So if you do not belong to either of these groups, please kindly disconnect now. Following the presentation, we will conduct a question and answer session for sell side analysts. To provide a chance for all to ask questions, we would like to ask you to limit yourself to no more than 3 questions. This will help us to conclude on time, which is especially important today since we have to conclude after 45 minutes. And with this being said, let me now hand over to our CEO, Nikolai Setzer.

Thank you, Max. Not that long ago, our Capital Markets Day in December 2023, I guess you might remember, we said or promised that we are entering into the era of execution, and we are very proud to say that we are executing. We are executing on what we said. And with those executions and the decision of this morning to prepare and go into the independence of ContiTech, we are undergoing the most profound transformation in Continental's history. You might say even already before with the decisions which we took, spin-off of Automotive Group, transfer of group functions to the group sectors and as well the OESL sales process, which we started within the ContiTech Parameter, you see those are many, many transformative actions which we are undertaking, all with the same aim to increase value and crystallize the full value which we see in this company in the 3 sectors, which we see clearly in an independent and much more pure-play approach than we had it before. Just 2 weeks ago, it was the first presentation on the IR side with the early look on the automotive stand-alone. As we have informed as well on the transfer of the group functions, you see not just automotive was addressed as well as we mentioned, we are getting the 3 sectors into the most independent structure to act already as independent, having group functions transferred being close to the market, close to customers. It's not just the group functions into automotive, which you see on the right side on the chart, whereas the new Conti, Tires and ContiTech basically half of our business, so close to EUR 20 billion sales both sides, 96,000 employees on the other side. So very, very -- basically the half of the company, not just transferring those group functions to automotive and making automotive capital market ready, which we are pursuing, but as well setting the base for the decision which we took this morning, having as well group functions and 1st of April, 85% of the employees working on the group side, they have been already transferred into the sectors, and they have now sector functions in order to fully leverage the potential being close to that and being able to do this for the company itself. So looking what we have achieved on the spin-off side so far. In automotive, we have started with the kickoff with the detailed analysis in August '24, so not even 1 year ago. And we have achieved in the meantime, a lot. So we have announced a deep dive analysis, which we have finished then in December with the Board decision to pursue the spin-off and where we have laid out the new continental structure, so to say, going forward. On March 12, Supervisory Board has decided to pursue further the spin-off. It was approved. And as you know, our AGM, April 25 is coming. But not just this, we have as well in the meantime, on our way from March 12 until today, we have pursued and realized the publication of the spin-off documentation. So this is done. For the AGM, April 25, we have invited already. The invite is sent out to the shareholder. So this is on its way. Automotive consistently becomes more and more capital market ready. This is an ongoing task, which we are continuing for the time being, but we made great progress here. We have announced governance -- the main governance functions. So the CEO, CFO as well as Chairman of the Supervisory Board. They have been announced, which are now in a position to shape further the governance functions and drive the structure of the Board forward. And we have given more security on the balance sheet as well as on the net cash position, which we have determined for automotive. So in meantime, a lot has happened in the last 4, 6 weeks and a lot will happen. Next steps, as I said, is the shareholder meeting on April 25, the AGM. From that, we are going to the Capital Markets Days, which are 2 days. June 24th is automotive, focused on the automotive business. On the 25th, we will use for Tires and ContiTech. And based on the announcement of today, we will give and Olaf will come to this later on, give a little bit more details of the concept phase, which we deem to have finished until that point of time, where we are and where we are going forward. And from there, there will be many roadshows and in particular, specific roadshows for the automotive, for automotive business as the listing is targeted for September 2025. You see a lot of things are ongoing, not just within automotive. I've mentioned, of course, the decision today for ContiTech's Independence as well for OESL, the group functions, which will be transferred, 85% already done, more to come. To make this clear, the absolute priority for us is the spin-off, which we are working right now with all hands on deck. And we will make absolutely sure that nothing is stopping it. However, we deem and that's why we announced it today. We want to make best use right now what we can start, prepare in parallel; what we can already assess, analyze; what we can take already today a decision knowing what the future outcome is, we should take, we are obliged to, and that's what we deem as well as a preparation of portfolio management, giving as well transparencies to our teams. So as of today, all teams knows what's our targeted structure, where to go into and everybody can pay in, in order to make this structure really successful going forward. So the company will change as well on the New Continental, so to say, and we are actively shaping it. We are actively shaping the future. I said the step 1 was already with establishment of the lean holding, which a preferred gets into its first glance and it's a strong warm start, let's put it that way. We have worked on the OESL carve-out and the legal and physical independence of OESL. We are on our way to finish this in order to be then able to complete the OESL transaction within this year. At the same time, while OESL is carved out and we are working on the sale of the OESL business, we have created and we are shaping further 2 strong and independent group structures, 2 champions as we are saying clearly are able focusing on their business, which we were doing in parallel to the spin, as I said before, and just by the OESL carve-out or putting this aside. The target which we communicated coming back to Capital Markets Day '23, Philip Nelles announced that we have a short-term target to get to 80% industry business as we clearly see that in this market, we have very strong assets, our technologies, we are close to the market. We deem this as the area where we can create the highest value. We have achieved then after the OESL sell this one and industry business together with the [indiscernible] as-a-Service solution business is then the parameter going forward. We are focusing then in the independence of ContiTech. What you can see, and this is one part of the drive. The other part, as I said, we have created 2 champions where we clearly believe they have an independence greater potential to leverage their value creation. We see as well with the OESL transaction, this removes another commonality between Tires and ContiTech, one which has been always strong, which was the automotive market together with our automotive business with OESL out with 80% industry. We are very, very, very different market and customer focused on those 2 factories. In addition, we see over time more and more limited nonbusiness critical synergies. They are nonbusiness critical because they are limited, and they are further going down on the R&D on the technology side. And with ContiTech moving as well into a material solutions industry business, it gets more and more away from a pure rubber player and being a multi-material part where even synergies on the purchasing side are very, very limited. That's why we are starting now the evaluation of the transaction form. This is the concept phase, which we are starting with sale as the most probable option. We want to provide as well transparency from the start. Of course, in this transaction form analysis, we don't exclude anything. We are doing this very thoroughly until the Capital Markets Day. But from today's point of view, looking in what is the best for the company itself, talking proceeds and talking structure and what's the likelihood to execute such a transaction form as it is the most probable one. So overall, to sum it up, the group with those 2 going forward sectors, there is nothing to justify this group structure. This is clear, not coming from the synergy. So very consequently is the next move which we started. To explain this a bit as well from the history side. So this is not a sudden situation, which we realize today, we see that it's a clear logical step over time how Philip and the team have developed ContiTech. So from a synergetic rubber solutions player, as I mentioned, ContiTech is focusing more and more on very creative new innovative material solutions with reduced rubber exposure. Both parties with relevant autos customer overlap. I mentioned this already on the chart before, now almost pure industry focus with ContiTech. This is diminished to a much more level. There are no commonalities on the market and customer side anymore. From an integrated product groups with shared central functions, it gets to a very slim and ContiTech is getting a specialized and customer-centric business. It was started 2 years ago with the realignment of ContiTech by Philip. And now and more we follow suit and we are going to get even closer to customers and to the markets and giving ContiTech the opportunity to take its own decisions. And looking for scale in the past and looking as well 10, 20, 30 years ago, ContiTech hasn't had the scale to be successful on a global scale and being strong enough versus global competitors. If you look right now with its organic and M&A growth, which we realized, the largest one was the Veyance acquisition, but there have been several smaller ones, which have been constantly integrated and moved upwards organically grown. We are now ready. We have a strong scale. Philip will come to this in a second. We are a strong top player in this market. We are ready to go for it. Internally, looking externally, we clearly see a subdued industry, not only automotive, we see it as well on the industry side. The last decisions for global trade, let's put it that way, or the last environment is giving us more and more, and we see it within the group, the conviction that pure play right now, being focused, being agile, having speed is a clear competitive advantage. That's why we want to focus on that. It requires for ContiTech now really having industry focus and being able to take its own decisions. And as we said, we clearly believe that the stand-alone value creation potential outweighs limited nonbusiness critical synergies. So to sum the part up, with the targeted transactions, we are creating not 2 automotive and rubber, we are creating 3 champions. That's how we see it, that's what we promise, and that's what we are engaged into it. And honestly, we are convinced as well in OESL. We see the business further, which we turned around further improving. We will give our very best in order to make as well out of OESL a champion for the new destiny, which will come. Now looking into the 2 sectors and Christian, how do you envision going forward, the situation for Tires?

Thank you, Niko, and a very warm welcome also from my side, and thanks for joining in. So obviously, the tire sector is the least impacted sector by the initiated transformation. So our strategy clearly remains unchanged. Nevertheless, we are also as a tire organization and team, truly excited about the changes we have initiated because we are deeply convinced that as a pure tire company, we are even better prepared to, number one, master the challenges, but also number two, utilize the opportunities given by the global tire industry or by the global tire markets. You know us since many years as a very competitive and resilient player in the global industry. And we do really remain extremely confident that we have all ingredients in place, so all basics in place to maintain this resilience and to continue to defend, let me say, our leading position in the industry when it comes to value creation performance. So talking about the ingredients, as said, we are deeply convinced that we have all basics in place. So we have the necessary customer-centric organizational setup and mindset. Number two, we have a very attractive global brand, which is continuously improving, mainly and even more so outside of Europe. We, since many years, as you all know, have a very strong brand reputation and awareness in Europe and constantly extending this leading brand awareness and recognition also outside of Europe. And last not least, obviously, the technology and the quality in place to defend and maintain our leading position, which is, amongst others, again and again, proven by press tests and other neutral sources. Second, since decades, I would say, we have done the necessary measures and have also continuously invested into our global manufacturing and supply chain footprint, which we do believe is really industry-leading or amongst the industry-leading footprints, which does provide the basis to deliver the results and the resilient value creation performance we have appreciated over so many years. So being highly capital efficient, a high cash-generating business, which we have proven over many, many years, which do provide the basis for an attractive shareholder return business model. So nevertheless, looking forward, we do believe we not only have the basics in place, but we also do believe we have short and midterm margin upside potential compared to where we are today, where mainly in 2 areas. Number one, we need to and are more than convinced and committed to utilize the price/mix opportunities given by the market; and second, by consequently reviewing and executing a portfolio management process, so making very conscious decisions in which business fields, segments, markets we want to be active in, but also making very conscious decisions where we do not want to be active in to make sure that we really maintain our industry-leading value creation performance. So in a nutshell, we have proven over many, many years that we are a very resilient and reliable player within a very resilient overall industry. We are more than committed to maintain our industry-leading value creation performance. And we do -- and we are deeply convinced and ensured that we have all ingredients in place to maintain this industry-leading value creation performance. As an independent pure-play tire company, even more so, I've mentioned this in many occasions because we are deeply convinced that will give us even more flexibility, independence and speed and agility to react to an ever faster changing business environment we're all facing, not just in the tire industry, but definitely also within the tire industry. Philip, a word about ContiTech.

Thank you, Christian, and hello from my side. Happy to join the call today. It's very clear. ContiTech will be and is already today actually a material solutions powerhouse. And why is that? Because over time, organically and by acquisitions, ContiTech has been growing and adding volume and businesses, not only in the rubber space, but also increasingly in the thermoplastic space, combining materials, creating solutions for customers with materials and based on solutions. And this we do since our realignment 2 years ago with a much more customer-centric business model to be close with our customers with a high degree of dedicated experts and material expertise in the market, really providing tailor-made solutions for a very diverse customer base in very attractive margin business spaces where we are in, especially on the industrial side. And with the recent, let's say, development also progressing on the sale of the OESL, our automotive ContiTech business, which is nicely progressing, we really intend to sharpen the profile to become an industrial player and surface solutions provider, which is definitely fueled by this approach becoming 80% industrial market-oriented company. And that is, for us, important as we address with this move markets which are seeing global trends for further upside potential being active in these markets. And just to give you a flavor on size and performance, you see it with the numbers. So taking out the OESL for a second with the progress of the sale, ContiTech remains with Industrial Solutions and Surface Solutions with a sales and revenue of EUR 4.5 billion sales and a strong margin of 8.1% for '24 number here, which is in very dynamic and difficult industrial markets, a very strong figure. With employees of around 23,000, we generate this business, and we intend to even grow, especially while we look at our go-to-market strategy to further increase and grow, especially on the aftermarket share, a very attractive market for us overall. So that helps us and will be us ContiTech, a material solution powerhouse, not only in the industrial OE space, but for sure, generating strong growth potential and value creation potential on the aftermarket side. So overall, with a number of activities that not only on the top line for growth and value creation are with us with a very attractive upside potential in our core industries. It also is around a lot of self-help measures where we have initiated a lot of activities that will drive down variable costs as we move forward, harmonizing, standardizing with our new focus on key products and key markets where we intend to scale up and make sure efficiency is the name of the game for us increasing even and seeing a clear attractive margin upside for us at ContiTech. And with that, you see ContiTech is a great asset, a great story to tell and talk about with an upside potential growing and value creating with strong margins in attractive markets. And with that, over to you, Olaf.

Thank you, Philip. And I think if you listen to the colleagues, this is very exciting. This is a good day because we have a clear plan for the future setup, exciting businesses. So let's look at the road map ahead. We are in the execution mode, transfer of group functions to ensure capital market readiness of automotive. This is on track. Auto spin-off, you heard it from Niko, Supervisory Board approval achieved, capital allocation decided next is the AGM. We are on track for the spin and the listing in September. And as Niko said, this is and will stay the absolute priority for us. Then we have the OESL M&A transaction. We are in the midst of the transaction. We plan to execute in 2025. More to talk later, probably at the Capital Market Day. And now the transaction of ContiTech, we took today the decision to make ContiTech independent. And now we are entering the preparation phase, and we will look at the details of how to execute such a transaction, how it will look like, legal tax transaction structures and so on. Currently, we do not see red flags to execute a transaction in 2026. So all the 3 different phases fit well together. If you go to the next page, to summarize, with the transaction plan we announced today, we are targeting the full independence of ContiTech. In the upcoming weeks, as I said, we will evaluate the transaction concept and the timing in detail. Right now, we see a sale, and Niko also mentioned that already as the most probable option. It is important that we are doing all these in parallel with speed and dedication, but also diligently to ensure that everything will be executed according to highest professional standards. Now more will be shown and we inform you at the Capital Market Day. I can tell you it will be exciting and hope to see you there. Thank you. And back to Niko.

Yes. And I hope you could see to sum this all up that we are clearly actively working on crystallizing value. As Olaf said, the team is thrilled to go this way. It's a lot of work, but we clearly are determined because we see that this is the best way to crystallize and realize the value potential, which we clearly see in our businesses. We have strong technologies. We are close to markets, and we see that this will unleash the potential and give us more opportunities, in particular in such very bumpy times, which we see right now, where fast players are clearly having advantages. So we are following execution you heard. We are not just following, but we're executing on our target picture, which we clearly said is a pure-play strategy and creating individual champions, I said 3 plus 1 or if we don't forget OESL, we will do the best in order once this business is getting into freedom that they are well equipped in order to be successful as well. However, it offers great opportunities for the ContiTech Industry side to develop even faster, and Olaf made that clear. We have a priority-based execution. We have clearly set those priorities and step-by-step, we are executing. We have so far ensured that we are staying on track and we are determined to keep in that way. So be ensured we prioritize, we make sure that this all happens in the timing and that we are ensuring our goal achievement. That's why, clearly, we have set up as well, I hope you could see this on the chart before, a step-by-step approach. We are paralyzing what we can prepare in parallel. However, we make sure that we are executing and we are focusing as well in order to do this step by step. With that, Max, I hand over back to you for the Q&A, should give us with 20 minutes. So sufficient time.

Yes. So let's open up the line.

So the first question is from Horst Schneider, Bank of America.

It's Horst here from Bank of America. I've got -- the first question that I have relates to the planned disposal of OESL because I was thinking only these days with the tariffs, I could imagine it's not anymore as easy as it was to sell the business and there's some debate on tariff impact, et cetera. So -- but as far as I got you in this call, can you confirm that basically the disposal, it's on its way. You sound confident, to be honest, on that. And if there were basically then discussions coming up on the price again with the party who wants to buy, you would rather like to get that executed and the price is not that important? Or is there basically a price where you would say, "Okay, we'd rather wait now", because the uncertainties are too high. And that also refers then to the rest of ContiTech when the independency is coming in 2026 and you say a disposal is a preferred option. So if that was proving difficult, then the preferred option could be also just a spin-off again. Maybe you can elaborate on that. And the last question that I have is, ContiTech is for me always kind of a bunch of activities, which I have got problems to understand, especially regarding what is now making the margin, where is the cash flow. Can you maybe give again some color on OESL versus rest of the group? If OESL goes out, then to what extent ContiTech basically sees an uplift in the margin that it generates?

Okay. Thank you, Horst. Happy to answer your questions. First of all, on the OESL, then I give over to Olaf and then Philip comes. And I'm sure that he will tell you will be thrilled for the Capital Markets Day to get more information and get more insight into ContiTech, and we will highly prepare for this part. For OESL, yes, the disposal is on its way. We are full steam ahead. So information memos are out. We have interested parties. So we are following suit on this one. You referred to the tariffs as well on the OESL side. We have a consistent footprint. We have a strong U.S. manufacturing site. We are as well located in Mexico. So nothing else than anybody else in the sanction. So we see this as being neutral for any disposal part as neutral as you can be in the current climate, but there is no disadvantage on that side, and there is nothing which should hinder us to pursue further. Our target is to create value for the group. The last answer, how important is price? As you mentioned. We deem this asset as a strong asset going forward. So we believe there is strong value in it. However, we obviously will take in the whole constellation of the group, the decision in order to create value for the total group. This is how we go. We will inform further how this goes. And our target for OESL is to complete this transaction within 2025. Once we get feedback from the buyer front and so on, we inform further how that goes. And as I said on the Capital Markets Day, we might have more information for that.

On the second question, Horst, sale versus spin-off, ContiTech. First of all, ContiTech is a very attractive industry asset, no doubt, highly attractive. We know that. We are looking at sale versus spin-off versus IPO or maybe dual track. But our first analysis shows we clearly see a sale as the preferred option at this stage. We will further look into it in the next phase in the next weeks, why a sale? Because of transaction proceeds, because of complexity of the transaction. So we see sale possible to a strategic, but also to a PE. That's why we say independent setup of ContiTech to ensure that we could also execute a sale to a financial investor. And then Philip?

Yes, Horst, thanks for the questions. And just to give some flavor on ContiTech. So with the process of selling OESL, we also managed a strong turnaround program, improving the business on the P&L, but also on the cash position. So really strong improvements over the last 12 months. And looking into the numbers of the rest of ContiTech, if you take my chart that I shared just a few minutes ago, EUR 4.5 billion revenue size of the industrials, organized regional organizations and the Surface Solutions in total with just above 8% EBIT. And here clearly give some flavor, the OESL, which has automotive surface interior, volumes inside is a bit dilutive. So the industrial part is significantly stronger than the Surface Solutions business. But stay tuned for the Capital Market Day, we'll have some more details showcasing the attractiveness of ContiTech there.

But OESL is still below the ContiTech average margin, right? That's for sure.

Yes absolutely.

Yes. We mentioned this low single-digit EBIT margin, which we had.

If you compare the chart there, then it implies roughly EUR 1.9 billion of sales at around 1.5% margin.

So if you do the pure math.

All right. And the cash flow of ContiTech, it's for sure positive, right?

They are both positive. ContiTech in total is positive as well as OESL, providing stand-alone positive cash flow as well.

So the next question is from Christoph Laskawi of Deutsche Bank.

The first one would be on the integration between the plants in Tires and ContiTech. Is there shared plans? Could you comment on how easy it is to separate those if there is any shared facilities at all? And then following up a bit on what Horst asked, I mean, ContiTech seems to be pretty cash generative when just looking at the numbers that you state. And it might be too early to ask for that. But in the case of the disposal, it would -- I would see no reason not to sort of including debt, right? So with the cash profile, it could carry that quite well. Any comment on that would be much appreciated.

Maybe you are referring to integration?

Yes, I can.

Pretty easy.

Thanks for the question. I mean we're pretty much separated. So we don't see significant effort to separate our operations and value streams are pretty much independent from each other.

We have very few locations where we have commodities very few. So this is a relatively noncomplex separation going forward on the plant side. There are certain other IT infrastructure and such things which we have used the synergies, but this is what we work then in our operations. Your question with regards to cash generation and potential debt, which might get over. Yes, ContiTech has been strongly cash contribution with a high cash conversion rate. Once it comes to what Olaf said, proceeds are coming, then we would evaluate in a way, which we always do, how much is the leverage between ContiTech and then the Tire business. We will make sure that the Tire business will have a leverage, which is in line with going forward in the business, then we are moving forward with the proceeds of what we can do. So yes, either ContiTech would get a certain debt, which is then in line with the business going forward or it would be without debt and this could be then used for deleveraging or if the deleveraging goes further, it could be -- could mean then dividends, share buybacks, whatever, if there is still something left from the proceeds standpoint.

Totally agree, but it's also a bit too early right now to tell more, right?

Exactly.

We will work on the details.

So this is the standard answer, so to say. We would follow the logic.

So the next question is from Harry Martin of Bernstein.

A couple of quick questions. The first one, just looking at the time line, are there any ContiTech separation-related costs that will happen before 2026 from the transfer of group functions or anything else? And then the second question is for Nikolai. How do you see your position as the CEO of the holding company evolving after it's split into 3?

I'll start maybe with the second part. So as I've mentioned it before as well, so my task is to direct the future of the company into the future alignment into its structure. So once my task is completed and I'm not able to create more value within the group, then my job is done. When this time will be remains to be seen. So for the time being, we are starting now this journey on the ContiTech side as we see that most likely such a transaction could happen in 2026. And I'm making sure that this realignment takes place. And once it is done and we declared as done, then my job is done. I think Olaf to go ahead?

Maybe I'll start and then you can add. I mean, ContiTech is today already quite independent of its setup. Also regarding central function, I mean we are transferring right now group functions also to ContiTech. But as we also said earlier, the synergies between Tires and ContiTech are very limited, right? So that also means that the dis-synergies are limited.

All said, I would have given the same answer.

[Operator Instructions] So the next question is from Ross MacDonald of Citi.

Hopefully, you can hear me. Three quick questions from my side. Firstly, on the RemainCo, you recently adjusted the dividend payout ratio up to -- between 40% and 60%. Is that a fair estimate for the dividend payout policy of the business following any sale of ContiTech? And then a second question just for Christian, given this will increasingly become a pure-play tire business over time, can you maybe help us understand how you see the tariff impact for tires over the medium term? I assume this will drive significant U.S. tire inflation. And I'd just be curious how Conti can participate in that through net pricing and then also what these tariffs could mean for the budget share of tires in Europe? And then a final one, just on the ContiTech transaction. Just be interested if you've had any notes of interest from financial sponsors in the ContiTech assets. And maybe just to help us out with some key competitors that we can look at in the equity markets for ContiTech.

On the first one, dividend payout ratio for RemainCo is correct. This is the plan, 40% to 60%. This will stay regarding to the transaction. As Niko explained earlier, if there are then -- if you then later look at proceeds from a ContiTech transaction, then we will look at deleveraging, we look at the shareholder return whether a special dividend or share buyback. The second question...

Yes. I mean, before I go into the tariffs, just to add here, Ross, thanks for the question. We are aware that the tire industry is not necessarily a growth industry. That's why the shareholder attractivity is rather a healthy and strong dividend policy. And that's why, yes, the dividend ratio of 40% to 60% is then also the target for a potential stand-alone tire company. Pure-play tire and what does tariffs mean? The tariffs are extremely complex. So you are not having only tariffs now on tires, but you also have tariffs on raw materials, steel, natural rubber dependent on where they come from. So what this all means in terms of potential impact on production locations is very, very complex and needs to be analyzed in significant further detail. So it's not just, "Okay, you apply a tariff now on a tire, which is produced somewhere", but it's also a lot of tariffs on raw materials being shipped all over the world, and it also affects -- it will affect significantly costs of tires being produced even in the U.S., number one. Number two, there is not sufficient capacity to produce the demand in the U.S. locally, by far, not sufficient capacity. We have a good feeling for what the ratio is. And this will also not change short term because, as you all know, tire industry is a capital-intense industry. And if you want to share or change this picture, you have to invest a lot of money. And number two, it takes a lot of lead time. So it's, to be honest, too early to tell what this all means because it's very, very complex. Overall, we do believe are convinced that the steps we have taken over so many years to follow our strategy in the market for the market is not just for the U.S., but for all regions, the best policy because it's not only tariffs existing, as you know, potentially on tires being imported to the U.S. Many, many countries do have import duties on tires. And the overall strategy, therefore, to be in the market, for the market should be definitely mid- to long term, a competitive advantage, and this is why we have done what we have done.

An effect on Europe is as well too early to judge where tires might end. And this was the core of your question, I guess, if it's not ending then due to tariffs in one market, might it come to the other market. We are not that strongly exposed to the budget side and how the market will come, let's remain to be seen.

And the trade down is probably maybe another basic behind the question. So we see with higher inflation than the risk of customers buying less premium tires and more budget tires. I mean that's a question which we are having since many, many years. What we rather see is strong stability in the premium segment. And on the other side, also rather growth on the budget side. And the area which is the most under pressure is then what we call the quality segment, the in between. So you either qualify for a premium or you hit a market with very, very cost-conscious buyers. So we are not really concerned about significant impact on the premium share.

And the last question was whether we have got also already asked for ContiTech, whether there was interest. I can say since longer here in the Board, there has been consistently interest in ContiTech from several players in the market. It is a very attractive asset. We see this as well confirmed where we are going, in particular, once we are focusing it clearly on the industry side, which is a much less cyclical part, which provides more stable margins where we have due to our market presence and customer presence, a strong footprint, where there is potential to further grow this business. We have inorganically as well grown strongly. There are great other assets which might fit to ContiTech. So there is a lot of music in this asset, which we see and how much we will see then in the process once we have taken then as well our decision on the transaction concept and more to come then on the Capital Markets Day.

Dear ladies and gentlemen, due to time limitations of today's call, I'm with that closing the Q&A session for today and handing the floor back over to the hosts.

Yes. Thank you very much, and thanks, everyone, for joining today's call, especially given the short lead time that we gave you. As always, the Conti IR team is available if you have any remaining questions on today's announcements. Other than that, let me remind you that we are currently in a quiet period ahead of the Q1 results, and I'm looking forward to welcoming you all back on May 6 for that event. And with that, I would like to conclude today's call. Thank you very much, and goodbye.