Continental Aktiengesellschaft ($CON)

Good afternoon, ladies and gentlemen, and welcome to the Continental AG Analyst and Investor Call Q1 Results 2026. [Operator Instructions] The floor will be open to 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 Q1 2026 results presentation. Today's call is hosted by our CEO, Christian Kotz; and our CFO, Roland Welzbacher. And as always, a quick reminder that both the press release and the presentation of today's call are available for download on our Investor Relations website. Furthermore, this conference call is for investors and analysts only. If you do not belong to either of these groups, please disconnect now. Following the presentation, we will conduct a Q&A session for the sell-side analysts on this call. To give everyone the opportunity to ask questions, we kindly ask you to limit yourselves to no more than three questions. And before handing over, I'm pleased to share that following our AGM, the Supervisory Board extended the appointment of Christian Kotz in his role as CEO, ahead of schedule until March 2030. This reflects the Board's strong support of Continental's leadership and strategic direction. And personally, Christian, I'm very much looking forward to our future collaboration. And with that, over to you for the Q1 key messages.

Yes. Thank you, Max, and a warm welcome also from my side to everyone online. Thank you for joining us today. So let me first provide you some insights into the, I think, most pressing topic currently, which is the impact resulting out the military conflict in the Middle East, which is obviously also affecting our industry. So a couple of things or topics to be mentioned here. First, from a sourcing point of view, our direct exposure to the Middle East is limited, very limited, to be honest, with direct sourcing from the region being small and largely interchangeable. Nevertheless, we are closely monitoring supply chains and remain in constant exchange with suppliers, especially concerning potential challenges in their supply chain, so talking about potential indirect effects on to the supply chain, which are obviously much more complex and also much more difficult to observe. Second, from a financial point of view, so we are, of course, affected by changes in our material cost base. So we have assessed this current impact in terms of additional costs resulting from mainly higher raw material prices due to a typical lag of 3 to 6 months before changes in those spot prices are recognizable in the P&L. The first quarter is, therefore, not yet impacted by the higher raw material prices. Despite that, we expect additional costs, so costs before potential mitigation measures of low to mid triple-digit million euros for the remainder of 2026. And these costs are expected to start to materialize and to be visible in our P&L from Q2 onwards. So this figure includes our current assessment on increased logistics, energy and material costs. So this is not only the material cost impact, but the total impact we are currently assessing and assuming. So good news is that we are confident and remain confident that we can mitigate the negative impact to a good extent. We have proven this in the past, and we continue to be confident that we will be able to manage this also this time. So this can be done, for example, through efficiency improvements in production and also further fixed cost improvements, safety stocks for critical raw materials to ensure short-term product availability because it's obviously not only a direct cost subject, but also raw material availability subject and commercial measures. However, and you know this from the past, such measures do also require some lead time to become fully effective, which we have obviously considered in our assessment. So based on these mitigation measures, we can confirm our guidance and also our expectations regarding where we aim to land within the guidance remain unchanged. So leaving the Middle East crisis aside, there were some good news around oil dependency we could announce during Q1. In the last couple of years, I talked about this in previous meetings and occasions, we have also actively reduced the dependency on fossil fuels in our tire production. And we can now confirm and mention that we now fully phased out coal and heavy fuel oil and, thereby, obviously, reducing fossil energy exposure and further supporting a more sustainable, resilient and independent manufacturing footprint. And in this sense, since January this year, all of our plants worldwide have transitioned to alternative energy sources to generate the steam required for tire manufacturing and heating, so not using heavy oil and coal for this energy generation anymore. And with this step, and I think it's one of these proof points that particularly, in the current environment, the sustainability strategy and the necessary measures or the corresponding measures are actually delivering direct and tangible benefits for our operations, and therefore, also our results. So before we move into the financials, let me briefly highlight an important change in our Supervisory Board. As of the conclusion of the Annual General Meeting on the 30th of April, Madam Soussan has formally assumed the role of the Chair of the Supervisory Board. Over the past months, we have already been working very, very closely with her. And we are very pleased to welcome her in this position and are looking forward to a very constructive and fruitful cooperation. At the same time, I would also like to use the opportunity to express my gratitude and the gratitude of the entire Board and the Continental team to Wolfgang Reitzle for his longstanding contributions as Chair of the Supervisory Board of Continental. And another important topic to be mentioned, we are making the expected progress in the sale of ContiTech. We are fully on track, still aiming for a potential signing by the mid of this year. At the same time, I kindly ask you for your understanding that we will not share any further details at this stage of the transaction. But as I said, we are, according to plan, moving ahead. With that, let me start my comments on the quarterly performance. In a challenging market environment, particularly for ContiTech, and we will talk about this later on, and despite FX headwinds, which are affecting ContiTech as well as Tires, we achieved sales of EUR 4.4 billion, and this corresponds to an organic decline actually of our sales of 0.9% compared with the first quarter of last year. Our adjusted EBIT for the group was nevertheless increasing year-over-year, reaching EUR 522 million, which is translating into an adjusted EBIT margin of 11.9%. Once again, strong price/mix in Tires played an important role in this development, and also our healthy performance in the passenger car tire replacement business, especially in the UHP segment supported the result. And in addition, we continue to benefit from tailwinds from lower raw material costs in Q1, still reflecting the market prices we saw in the second half of last year, so as I said earlier, not impacted at all by the potential and the anticipated impact on the raw material costs out of the conflict in the Middle East. And also for ContiTech, we improved the results and its adjusted EBIT in relative and in absolute terms and also, here, despite continued weak market conditions. And this obviously reflects the ongoing focus on mix improvements as well as the anticipated rebound in the margin accretive distribution business, the strong increase after a weak Q4, but it also shows that Q4 of last year really was a negative one-time event and quarter. So the operating performance was also one of the main reasons for our positive adjusted free cash flow, a lower seasonal working capital buildup was supportive as well, but Roland will go into more details later on. And due to this positive cash flow, our net debt slightly improved sequentially compared with Q4 of last year, while the leverage ratio now improved to 1.9. So on the next slide, we illustrate what I touched on already. So the Tires result demonstrates the ongoing resilience of our business. We managed to come in at a sales of close to EUR 3.3 billion and were able to increase the earnings to 14.4% despite the before mentioned headwinds from tariffs and FX. The sales of ContiTech for the period came in at close to EUR 1.2 billion. Also here, besides headwind from [indiscernible], the year-on-year sales decline also reflects the closing of OESL at the beginning of February. Recall that we have successfully closed the sale of OESL at that point in time. So once more ContiTech is clearly on the right track in terms of profitability development and improvements. And with that, I would hand over to Roland for more details, starting with the insights into our relevant markets.

Yes. Thank you, Christian, and hello, everyone. So let me begin with the market environment for Tires in the first quarter. As we expected, in OE passenger car tires, volume declined in both Europe and North America and, after a strong run in the past years, we have seen now a significant downturn in the Chinese markets, driven primarily by lower local NEV production with government subsidies now phasing out. In the passenger car replacement business, elevated dealer inventories resulting from the high import volumes in '25 continue to play a major role also in the first quarter '26. As a consequence of the necessary destocking, EMEA volumes are down with imports below the prior year level. The Americas, also clearly trending below last year. Same is true for Latin America. We are experiencing a very difficult market environment. China, however, showed a slight year-on-year increase, partly reflecting the weaker OE environment I was talking about. Now turning to Slide #7 and to Trump tariffs. The picture is mixed. In Europe, we see increases in both OE and replacement demand in the market. In North America, however, OE volumes continued to decline year-on-year with replacement markets significantly below last year's level. Slide #8. In this market, Tires was performing really well, as you can see. Despite facing continued strong FX headwinds of over 4% and volumes being down in a similar magnitude, we still reached sales of EUR 3.3 billion. The main reasons for the negative volume development were the subdued passenger car OE demand in EMEA as well as the soft OE and replacement markets in the Americas. In contrast, we performed very well in the Chinese market, particularly in OE. So all in all, we achieved an adjusted EBIT margin of 14.4%, 1 percentage point up versus last year, and even improved in absolute terms despite lower sales. This was supported once again by a price/mix contribution, this time of 4%, up from 3.3% in Q1 last year. This improvement once again underlines the robustness of the Tires business. Price/mix contributions mainly came from a broad range of levers including, of course, product and also channel mix, and all regions contributed with a solid performance in UHP sales. Moving to Slide 9. If we look at the regional picture, the underlying dynamics of our business become even clearer. Sales in the Americas on the left side were impacted by foreign exchange headwinds of minus 8.3%, most impacted of all regions due to our sales and footprint structure and the sharp changes in the U.S. dollar over the last 12 months. In passenger car tires, OE volumes were down in line with a weak market environment. Replacement volumes in the U.S. and Canada remained broadly in line with the prior year level, outperforming a declining environment, while Latin America saw a significant decline. In truck tires, volumes declined in both OE and replacement. Towards the end of the first quarter, however, we began to see initial signs of stabilization on the OE side with decent sales figures in March. Price/mix remained positive. However, it could only partially offset the significant negative volume effects in the quarter. In EMEA, sales were impacted by foreign exchange headwinds of minus 1.8%. In passenger car tires, OE volumes were down while the replacement business was performing quite decently, supported by a strong performance in the UHP segment. In truck tires, OE volumes were positive and once more managed outperform in this area, whereas replacement volumes came in slightly below the prior year level. Price/mix remained continuously positive, supported by a broad mix contribution across product, channel and countries. And all of this contributed to a strong organic growth of 2.7%. Last but not least, APAC. Sales were impacted again also by foreign exchange headwinds, this time, minus 4.4%. At the same time, we delivered a solid organic growth, supported by a positive volume development in both OE and replacement with a particularly strong contribution from the UHP segment. However, our sales were reduced by portfolio measures, you remember, like the exit of the truck business in India and also the closure of our Malaysian plant, resulting in a low double-digit million euro impact in the quarter. Price/mix like in all our regions remained continuously positive and was able to significantly offset the negative FX impact. Moving to the next slide. Let me start with the sales development of ContiTech in the first quarter, Page 10. What looks like a very sharp drop of at first glance is the result, however, of our transformation. Following the closing of OESL at the beginning of February, only 1 month of OESL sales is included in this year's first quarterly sales figure compared with a full 3-month contribution in Q1 of last year, reducing sales in total by around EUR 300 million. Combined with the negative currency effect as well as a continuously challenging market environment, as mentioned by Christian, especially outside of Europe, this resulted in sales of EUR 1.2 billion. At the same time, the adjusted EBIT margin improved to 7.9%, including that 1 month contribution of OESL, which is not hurting in absolute figures, but it is clearly dilutive to ContiTech returns in percent of sales. Without OESL, the Q1 profitability of our industrial business stood at 8.7%. In that business, we saw the expected recovery in the distribution business, particularly in EMEA as well as in the industry segment of Surface Solutions. In contrast, markets for material conveyance continued to remain subdued. Our profitability also benefited from a continued focus on higher-margin products as well as the expected rebound in the distribution business. In addition, improvement measures started to materialize during the quarter, supported by a favorable development in material prices. And given the complexity of ContiTech's raw material portfolio, forecasting the impact of the recent price increases requires more details and some more time than for Tires. And despite that, we're confident that mitigation measures will also offset these additional costs, and we therefore confirm the sector's guidance. Turning now to our cash flow on Slide 11. Even though low in absolute terms, our adjusted free cash flow performance was particularly strong for the first quarter. The main reasons for this were the very healthy operational performance as we laid out on the previous slides as well as the limited seasonal buildup in working capital in Q1, which was mainly driven by lower inventory buildup at Tires and the effects of still lower raw material prices year-over-year. CapEx improved slightly compared to last year's Q1, especially due to slightly lower CapEx in Tires. ContiTech stayed rather flat year-over-year, following our approach to run it like a continued business operation. Slide 12 highlights the positive market impact of our cash generation on the balance sheet. Despite some precautionary measures to safeguard our raw material supply, which temporarily leads to slightly higher inventory levels for selected raw materials, we were able to keep working capital in percentage of sales in line with last year's level. As a result of the Q1 cash flow, our net debt declined sequentially, slightly improving our pro forma leverage ratio to 1.9. Let me now turn to our market outlook for '26 on Slide 13. Due to the military conflict in the Middle East, the forecast data is highly uncertain. Generally speaking though, we're not yet seeing a significant impact on OE and replacement demand. Therefore, we're also largely keeping our market outlook intact with minor changes to reflect a slower-than-expected start into the year, such as in the U.S. truck business. Our base assumption remains intact. 2026 from our point of view will be a low to no growth environment. All of this translates into our guidance for 2026, which is summarized on Slide 14, which we confirm today. We've analyzed multiple scenarios to evaluate the potential impact of higher prices for raw materials, energy and freight and, as an outcome, we incorporated low to mid-triple-digit million euro headwind into the Tires. As we have proven in the past years, as Christian said, we're confident that we can implement mitigation measures to offset the vast majority of the additional costs. And as a result, no changes are necessary within the currently very challenging environment. And same is true for ContiTech as well, of course. Potential U.S. tariff measures, should they be implemented, would represent an additional cost headwind. However, as the details, as you all know, have not yet been specified by the U.S. administration, a reliable assessment or quantification of the impact is not yet feasible. We might be talking about additional gross cost of up to a mid- to high double-digit million U.S. dollar amount for Tires still. Potential measures to mitigate this cost and also only be defined once we know the details of potential new tariffs. However, we might try to optimize the existing levers even further. So with this being said, I would like to hand over now the rest of the time to you guys. Operator, could you please open the line?

[Operator Instructions] The first question is from Akshat Kacker, JPMorgan.

Christian and Roland, Akshat Kacker from JPMorgan. Congratulations on a good quarter and a good start to the year. I have three questions, please. The first one is on your unchanged 2026 guidance. I think it's a very strong message given the size of the gross impact you're talking about for rest of the year. And the question is, I'm trying to understand what is this mainly driven by, did you start the year with a very cautious outlook? Or was it a much stronger Q1? Or are you just confident in your ability to implement price increases and mitigate these costs in the second half? Just trying to understand because you haven't changed your expectations within the range for the business as well for the full year. The second one is on cost inflation due to the conflict. Could you just share more details behind the low to mid-triple-digit million impact expected for 2026? How much of it is growth, how much is energy and how much of it is logistic costs? And how much of this would already be reflected in your Q2 results? And the last one is on the ContiTech performance in Q1. A lot of questions that we get is around the sustainability of this result. So when I think about excluding OESL, your margins were at the high end of your full year range, but your organic sales were still down 4% to 5% in the first quarter. Could you just give us more details on how do you expect the business to perform in Q2 both from a top line and margin perspective?

All right, Akshat. Roland here. I think I'm going to take all three of your questions. Starting with the guidance in Q1, yes, we came out at Tires, 14.4. We're certainly at the upper end of our guidance for the full year. But if you look at all the challenges ahead, the high volatility and the low visibility of all these geopolitical influences, we discussed internally a lot, and we believe still having a guidance with 13 to 14.5 is fully reflecting this uncertainty. So we feel comfortable right now. Q1 was good. So we had a nice price/mix, as you have seen, and it helped us to offset missing volumes, which were largely due to market development. And also the FX, as you know, hit us hard in Q1. It's probably going away in Q2 and then turning neutral in the second half. So so much to the guidance. On the cost inflation side, you heard what Christian said about our assessment -- current assessment, we have to say, because it is, let's say, a dynamic situation. If the crisis would last longer than we anticipate today, then obviously we have to update our assumptions on the cost increase and also then our mitigation measures available. If you think about breaking out the material portion of this amount, we were talking about, I mean, a good guess would be around about 80%. So 80% of this amount, low to mid-triple-digit million euro what we expect right now is raw material, and the rest of the 20% is in energy and transport. And we believe it comes with a delay because, as you know, we're not buying spot. So we also have long-term contracts. It's going to take to months. As we pointed out before, it actually hits our P&L. So it probably hits us late in Q2, and then it will come in full blown in the second half. And this is also true for the mitigation that we are putting together a program how we'll be able to offset all these additional costs. There is obviously a commercial part. We also need to focus on our fixed costs. We need to squeeze every little bit of efficiency out of the plants. We're stocking up on some critical components. So there's a number of things we're trying to do now to offset the cost expectations we have right now. And it would also come with a delay, but already starting then hopefully in Q2. And then on the third part, that was ContiTech, right? How sustainable are the Q1 results, how do we look right now at the second quarter with a good result already in Q1. Well, you probably remember what we said on our commentary on Q4 last year. We had some negative onetime effects we expected to swing now on the positive side in Q1. It has actually happened. So this swing, let's say, it's a low double-digit euro million amount from Q4 into Q1. This positive onetime effect, we will not have in Q2, right? That's the first thing we need to say to Q2. Second thing is we expect the market to recover in the course of the year, mostly in the second half, but already slightly in the second quarter. So we expect slightly higher sales. And we expect with regard to EBIT to come out at a similar result than we have seen in Q1. So we believe, yes, it is sustainable and it's going to improve in the second half of this year. This is why we're confident that actually we are on track also with our sales process because this is not a road block. This is actually giving us confidence in the process itself.

Maybe just one additional comment, Akshat, on your first question because I think one of the underlying questions was, have we been a little bit too careful and cautious with our outlook. I will turn this around and say, no. But we have been operationally stronger than what we have hoped for and planned for in Q1 when it comes to what we really accomplished in terms of mix because mix was really the main contributor and also the operational performance in terms of how our factories performed and how we really managed our costs in this very challenging environment.

The next question is from Christoph Laskawi, Deutsche Bank.

It's Christoph from Deutsche Bank. The first one would be a bit of a follow-up on the inflation impact and mitigation measures. The way I read it was that in Q2, there's already a bit of mitigation but only very late. The negative impact comes through. So could in Q2, actually, the net still be slightly positive and this moves then to a net negative in H2 and probably a stronger one in Q4 than in Q3? If you can comment. And then a bit tied to that you're seeing also just in terms of current trading. You said there was no notable changes in OE and replacement so far. Was there anything within replacement like trade downs or changes in certain parts of the market like Tier 1, Tier 2 which is of note? Or is it really surprisingly resilient? And just that you're planning, just assuming that there's a price component of that, what kind of assumption do you take on the volumes or the price demand elasticity as a result of that more looking towards H2? And lastly, one comment and one question. And I appreciate you don't take strategic decisions on short-term volatility. But does the current environment in any way accelerate certain footprint decisions that you are considering with regards to changes in plants, either closing or expanding them in the regions?

Thank you, Christoph. Roland here. I'll take the first one follow-up on the inflation and mitigation piece. Let me start from the end. So if you look at 2026 as a whole, when we started into the year, we were expecting a significant tailwind from the raw mat side. Now we learned that the crisis might have a substantial impact on the cost side, taking away a large portion of this. We still believe at the end of 2026, based on the current assumption, on the net side, we're still positive in the mid double-digit million euro amount, right? This is the current assessment. That might change. Let me explain a little bit our assumptions behind that. Our assumptions going into this cost estimate is the U.S. dollar on average -- I'm sorry, not the U.S. dollar. The U.S. dollar amount of the oil price on average for the year would be around $80, $85, right? So the current level is way beyond that. So the assumption is that we will see this rather high level until July, August this year, and then it would go down because we're all hoping and actually expecting that the crisis would end at some point this year. It probably stays at an elevated level, though. So it will not go down to precrisis levels immediately because there is too much that already. But this is our base assumption. And now talking about phasing. We believe as there is a time lag before it hits the P&L, we see the major portion of the amount falling into the second half, probably something landing already in Q2. And our expectation so far in Q2 on the raw mat side was that we still have a substantial tailwind. So this is probably then already affected a little bit by the cost. How much we will see in Q2 still remains to be seen. Visibility, as I said, is very low. But once we get closer to quarter end, obviously, we have more visibility and can comment better.

Then, Christoph, let me take the second question, which was, I think, the question on, do we see potential trade downs on the replacement side so that the current inflation may effect, let me say, the mix in terms of split between Tier 1, 2 versus Tier 3, 4. A couple of things, I would say. So number one, in the relevant markets for us, so especially Western, Central Europe, North America, but also in China on the replacement side, we do not see that the premium market is impacted. So we really see this continuous resilience. So that's the tier split, so to speak. And from a size mix standpoint, I mean, the size mix is anyway determined by the demand, which is determined by -- or the demand is determined by the mix of cars and shipments. And this is really not impacted, obviously. So we continuously see this positive development. And having not only Continental tires, but also other brands to fulfill customer requirements in the UHP segment in the non-Tier 1 segment we believe is really a very nice -- well, it is proving to be a complementary offer to our B2B customers. So it actually supports our positioning. So replacement trade down, not really visible. There are some destockings or destocking events and, let me say, effects, mainly in North America, but also in Europe due to the anticipated tariffs. But this is really affecting Tier 3 and Tier 4 on the sell-in side, and it's not really affecting or we don't really see any impact on the Tier 1 and

All right. And then question number three, I think, was on the volumes mainly. And you've seen that we took quite a hit in Q1 on the volume side. This will substantially reduce according to our expectation for the second quarter. And actually, for the second half, we expect a flattish development. This is without any impact second round effects from the Iran crisis. We don't know whether any shortages in any components will have an effect on the supply chain, will have an effect on the OE business, and then will have an effect eventually on us. So right now, we don't see that, to be very clear. So we see a flattish development in the second half on the volume side and a much better development already in Q2, but this is the base case right now.

I think the last question was do we see further footprint decisions or the need for further footprint measures and, thus, the current environment accelerates the needs. You rightly say, obviously, we don't take this decision based on short-term changes in the environment. These decisions need to be based on long-term trends, and this is why we decided on the footprint and the portfolio measures you're already aware of, so the exit of the truck tire business in India, the closing of our facility in Malaysia. We are progressing with some further measures. We talked about the intent and the agreement we've reached to sell our retail operations in France, which we progress and are very confident that we can close this hopefully very, very soon. And we will continuously work on additional footprint measures where we see the need. But the current environment doesn't really accelerate the needs or the pressure. It's more the question of consequently executing the road map and the measures we anyway have planned and see the need for.

Next in line is Harry Martin, Bernstein.

The first one, just looking into the nearer term, are you seeing any evidence yet of prebuy from wholesalers ahead of price increases coming in the industry? And would this potentially benefit more budget tires than the premiums? Or do you think it would be quite similar across the board? And then the second question that I had, I just wanted a bit more color on the supply shortages, the bottlenecks on some of the critical raw materials that you have. Which materials are we potentially closest to that? And of your production volume, how many months do you have raw material supply secured for as of today?

Okay. Harry, thank you for the questions. I guess I'll take them both. So first was is there any signal or evidence on potential prebuys B2B in view and lieu of the current situation and potential price increases. So I don't really see this right now. I mean, to be honest, there has been so much uncertainty within the market now for such a long period of time. There were so much discussions around potential tariffs in different places of the world. FX rates has changed so dramatically. I mean, the visibility on demand was very, very unclear. And I do believe the willingness of especially wholesalers to invest into prebuys is really reduced. It's very speculative. You never know how the situation will actually look like in 2 months from now. So I don't think that this is really a very relevant impact, and I don't really see a significant signal or significant activities in this area. Second was your question on raw material coverage. So this is obviously a very, very different raw material category by raw material category. We have in certain raw materials, obviously, more alternatives and much less dependency on, let me say, oil. So taking a look at natural rubber, supply chains are not impacted. Most probably, rather demand will go down if the world economy is weakening. So should we buy now more natural rubber to prestock? I don't think it's a great idea, to be honest. So completely different, obviously, on materials where the dependency on oil is significantly higher and maybe also the dependency on certain supply locations is higher. And there, we obviously take some measures to secure availability for a longer period of time. So I cannot really say that it wouldn't be serious, for the lack of better words, to say we are covered until whatsoever. This is very much dependent on each individual raw material category. But for the ones, and this is mainly very specific chemicals, so not really volume drivers, this is where we do ensure currently that we are protecting our production as much as we can.

Next question is from Ross MacDonald from Citi.

I have three questions. They're all kind of focused on the same theme. I noticed this is the third quarter now within Tires you're close to the very top end of the margin guidance near 14.5%. And so my three questions are really just trying to get to the bottom of what is going to take that margin lower in Q2, Q3, Q4, i.e., why shouldn't we be tracking towards the upper end of the guidance range here? So the first question is on mix. Could you talk a little bit about the mix trends? It seems like UHP is very strong in Q1, and there's also a channel mix benefit, right? If you could maybe just comment a little bit on your UHP utilization rates. And then given that the light vehicle production is down in Q1, presumably you've been able to push some additional UHP units into the replacement channel. So is there anything in the mix in Q2 that we would force me to take my numbers down on mix in Q2? Or do you think this mix trend continues? And then just be interested on the mix point, whether you think you're taking share here in UHP or if you're growing very much in line with the market. The second question is on inventories, linked to Harry's question, but maybe specifically, if you could comment on your Continental inventories in the system or your perceived inventories in the system and whether there's any benefit from Q2 onwards selling into the dealer network in the U.S. and Europe. And then linked to that, maybe you could comment on winter tire inventory levels. I know Q3, Q4 was very strong on winter tire demand. Do you think there's a similar dynamic in the second half of this year on winter tire? Would be interested in how you see the inventories there. And then the final question is really just on margins within tires. If I remember correctly, Q2 was unmitigated on the tariff exposure. It would be really helpful if you could give us a steer on where you see the Q2 margins for Tires tracking relative to the guidance range.

Okay, Ross. So we will try to catch all of you and cover all of your questions. Let me start off with, I mean, provocatively, you say, I think we continue to be at the higher end of the corridor, why shouldn't you assume that we will continue to be there. Let me say a couple of things. Number one, we've always said now within the last, what is it now, a couple of years, actually, that 13% to 16% is our target. And our intent is obviously with all of the measures we are taking to move to the upper end of this corridor, which is our target, which is our objective, which continues to be our objective. And we are taking the necessary measures. And I do believe if the world would have kept stable to a certain extent within the last years, we would have made significant progress on that way. Unfortunately, whenever we do something, then the next headwind or a very special event hits us, which then brings us back to more or less where we have been before. And I think Q1, where we don't really have an impact from the Middle East crisis, from energy costs from raw material costs, potential demand impacts clearly demonstrates that we would be and are on a very good way in terms of our core operational performance to really improve within the corridor. So what's changing? I mean, I think we've talked about this. Obviously, I think no one seriously and reliably can predict what will happen within the next 9 months. Will there be any supply chain interruptions? Is this having an impact on the demand curve, especially for the outer quarters, obviously. So you know us, we continue to stay cautious because we want to be the reliable performer, let me say, within this corridor. Operationally, though, I think we are making good progress. Let's just hope that at a certain point in time, normality would come back and that purely the operational performance is determining then also our financial results. On the first question, Roland, you want to add something?

Yes. A quick follow-up because, Ross, you asked what would need to happen in order to come out lower, right? We have seen the recent announcement on the 25% tariffs. We don't know yet whether tariffs are covered or not, when it's going to be applied, at which rate, and so we need to understand the details first. And you know from last year, we have been at a slight advantage with our structure. So it really depends now on the details, how effective our mitigation plan would become. This is number one. And then number two, we have seen this positive impact on the raw mat side now in the first quarter. Of course, we try to mitigate the impact now coming with the crisis. But it's all about market dynamics as well. So we need to wait and see whether it becomes fully effective what we hope for and what the base assumptions right now is. And then on the volume side, we all look at the input cost impact of the crisis. We're not yet seeing any volume impact because we cannot really assess whether the mileage will be affected or even the brand choice will be affected, coming from [indiscernible] at end consumer side. So we don't know that. There's simply a lot of uncertainty, and it can fall both ways. So this is why we believe we need to be cautious a little bit, although having a very good result in Q1. Second question was on the winter tire business and inventory levels. In the after season, we have seen a strong sellout in the winter tire markets, and this was driven by weather conditions mainly. So we did not do a full research right now, but what dealers tell us is that the stock levels are normal or below normal, and that would usually mean this is a good chance to have, again, a good winter business in the next season, although we do not have order intake yet, which really confirms this. . And then question number three was margin expectation in Tires, right? Second quarter.

I mean, if you go through the individual lines, Ross, then and you compare changes versus last year, so Q2, I mean, it's probably fair to assume that we will continue to see from the volume side a low to no growth effect. So why should it suddenly now recover? So we continue to be cautious there. We will see some raw material tailwind still in the second quarter versus second quarter of last year. So that's helpful. There is a negative FX effect, but it is much less negative than in Q1 year-over-year because we are getting close to the period of time where then the exchange rate effects last year actually happened. It's definitely a positive tariff impact year-over-year because, as you rightly said, last year, you remember this is when all the tariffs were implemented. It took us some time to implement the mitigation measures. So assume for a second that we will not see now additional tariffs, as Roland just mentioned, then this should be really a positive support. And there's no reason for us to believe that from a mix standpoint, we will see, let me say, a slowdown of our positive mix improvements we have seen now over the last couple of quarters. So overall, I would say Q2 needs to be definitely better than Q2 of last year, but most probably below Q1 of this year. This is what I would frame it, assuming the rest will somehow stay stable and we don't see significant new surprises coming up short term.

Yes. Quick follow-up on one point I think we missed from you, Ross. UHP utilization rates. I'll make it quick. There's no idle capacity sitting around in UHP. But I mean, besides the non-idle capacity in UHP, as I always mentioned, we continue to invest into the quality of our capacity. So we prepare for further UHP growth and are prepared for further UHP growth from a capacity and manufacturing standpoint.

The next question is from Monica Bosio, Intesa Sanpaolo.

My questions, most of them have been already answered. But just a follow-up on the gross headwinds from raw mat. Most of the impact will be in the second half, but I believe that there will be a carryover effect also in 2027. I know it's early to say, but do you believe that this carryover inflection impact would be still in the region of triple digit or maybe something better, in the region of mid-double digit? And second question is on the Europe, EMEA region and China, where the company performed quite well. Surprised me, especially on Europe. I was wondering if the company is getting market share and if there are relevant differences in terms of price/mix by countries. And the very last is on the working capital. The company managed to keep the working capital and revenue stable. Should we expect that this will be the case also for the full year?

Yes. All right. Monica, Roland here. Talking about the carryover, that's very early to say. That really depends on how long the crisis is actually dragging on. Most likely will be a carryover on the cost side. But we also put mitigation in place. That will also be a positive mitigation effect. So our expectation would be that it's net basically. That's to the first one. Second one, do you want to take that?

No. I mean you said a couple of things. I think you specifically looked at EMEA. So China, you highlighted. I think there was not really a question in EMEA or for EMEA. The question was, do we gain market share and is there a price/mix difference by country? That's how I got your questions.

Yes. Correct.

So I think, as you obviously know, our target continues to be to get the possible compromise between volume/price/mix. And we do believe that we have managed this, let me say, compromise and finding the right balance reasonably well in all areas, in all regions, specifically in the EMEA region. And this is really no different between individual countries. You probably know we are very much steering Europe as one market and not country by country. We want to be and we are perceived as a very reliable partner by our B2B customers, and for that, we really need to see Europe as Europe and don't take specific approaches in individual countries. So everything I say for Europe is really relevant for all countries within Europe. Was there an open question then?

It was on the working capital for full year in terms of revenue side, if you believe that you can keep it stable also over the full year.

Yes, it's not going to be a big game changer because the tailwinds are now on the free cash flow side coming to working capital in Q1. This will turn around because we expect raw material prices to increase so inventory value will go up by the end of the year. Most probably in terms of volume in the working capital side, we need to wait and see how demand looks like. But right now, I would not see a big significant impact coming from working capital.

[Operator Instructions] A follow-up from Akshat Kacker, JPMorgan.

just a quick clarification, a couple of questions. The first one is on OE indexation. And could you just talk about contribution from pricing in general and if there was a negative impact from OE indexation in the first quarter? And the second question is on your very helpful guidance for volumes in the second half. You now expect them to be flattish. What's driving that optimism? What products, segments or markets are expected to improve in terms of that year-to-year development?

Okay. So first, and I think you're not surprised about my answer. I'm not going to comment on specific pricing contributions. As you know, we are always trying to find the right balance between volume/price/mix, which is the driving force. But clear, I mean, we have certain businesses which are indexed. And OE is one of those major parts of our business which is indexed and where you then basically have obviously the contribution in both directions with a certain time delay. Your second question was on why are we optimistic for the second half in terms of volumes. To be honest, I wouldn't call it optimistic, I would call it, we believe, at the end of the day, it's a stable environment. We have had some -- I mean, especially the PLT replacement side, we have no real indication that miles driven or the usage rates of tires are going down. I mean, that could be obviously still something which is changing dependent on oil prices and potential consumer behavior. On the other side, there are also some let me say, counter effects. So from a travel standpoint, people don't fly so much but use the car a little bit more again. So there are all kinds of of, let me say, impact in different directions, which make us believe at the end of the day that we will continue to see a flattish environment. But we have had, especially on the replacement side, some prestocking effects last year, you remember. And that should more or less be over which, at the end of the day, then drives our assumptions for the volume development for the rest of the year.

Thank you very much. As there are no more questions in the queue, I'm closing the Q&A session and handing the floor back over to the host.

Yes. Thank you very much. and thanks, everyone, for participating in today's call. As always, the Continental Investor Relations team is happily available if you have any follow-ups. And with that, we conclude today's call. Thank you very much, and goodbye.