Continental AG

Welcome everyone to our First Quarter 2022 Results Presentation. Today’s call is hosted by our CFO, Katja Dürrfeld.

Here in the room with us is Stefan Scholz, Head of Finance and Treasury. If you have not done so already, the press release and presentation of today's call are available for download on our Investor Relations website.

Before starting, we'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 question-and-answer session for sell-side analysts. To provide a chance for all to ask questions, we would ask you to limit yourself to no more than three questions.

This will help us conclude our call on time. With that, let me now hand you over to Katja.

Thank you very much, Anna. So let me begin today's presentation on Slide 3, starting with the review of our Q1 2022 and our priorities for the remaining quarters of 2022.

The war against Ukraine, apart from the humanitarian disaster, strongly influenced the worldwide economy, cost disruptions and high rise in inflation. On top of that, the COVID-19 related lockdowns in China disturbed additionally, the worldwide supply and logistics situation.

Our entire business was affected in the first quarter of the year by these challenges too. Diving deeper and automotive, inflation headwinds were dominant topics and its effects were the main driver for the negative margin.

As we are progressing in our negotiations with our customers on sustainable price increases, we expect relief in the upcoming quarters. We have already signed first contracts with customers on new pricing agreements to adjust to increased input costs.

These are satisfactory results and show us that we are in the right way even if the effects are only slightly noticeable in our first quarter results. A dedicated task force is engaging and securing semiconductor capacities.

Together with our customers, we are identifying necessary resources for 2023 and beyond on a very detailed level. Even down to article number and engage our suppliers in committing volumes to secure our stock.

Furthermore, €5.8 billion lifetime sales, which is up 49% year-over-year are clear sign for high demand for our innovative products and the level of order intake to guarantee our future success. Despite the difficult market environment we outperform the market by 3%.

Entire, we reached a strong margin of 17.1% also supported by an effect of around €200 million from inventory valuation. Inflation costs increased significantly, particularly due to hike in oil based raw materials, as well as energy and logistics.

The two price increases in the first quarter did compensate for this effect. At ContiTech, the solid growth in the industrial and aftermarket business compensated the declined volumes in the OE business.

Positive EBIT contributions came from inflation driven price adjustments with industry customers. Also here we are still in promising pricing negotiations with our e-customers to compensate the cost increases for raw materials, energy and logistics.

Now switching to the right side of the slide, our current priorities, our actions and measures are driven by the task of increasing the overall performance in all group sectors, but particularly in the automotive area as we also announced at the year end conference. Several initiatives were started, all are continuing to help us achieve this goal.

Operationally, we focus on our active portfolio management in line with our growth and value strategy. The increase of our profitability is also supported by efficiency programs in particular, in the fixed cost area, such as R&D and by ongoing cost reduction measures such as continuing the implementation of our transformation program, which was announced in 2020.

We strictly control and steer order intakes to ensure our future profitability. To mitigate the broad inflationary headwinds, implementation of sustainable pricing is mandatory.

Constructive discussions with our customers have shown already first effects and we expect further positive developments in the second and third quarter of the year. We are proactively managing the sourcing and logistics challenges occurred worldwide during the war in Ukraine and the COVID-19 related lockdowns in China.

Securing the delivery chain in automotive sector given the semiconductor related constraints is key. Looking at our employees, our top priority for 2022 remains the health and safety of our people.

The focus at the moment is on the protection of our employees in Russia, from prosecution but also the health and safety of our employees from COVID 19, especially in China remains an important issue for us. As you know, they deliver outstanding results and support us in maintaining to the extent possible the supply chain.

Even in the severe lockdown situation, wherever applicable. And of course, in compliance with local regulations, they are securing deliveries in the so-called closed-loop production scenario.

Aside from this, in times when in all region structuration is rising, our focus is on being the employer of choice and attracts talents needed to reach our goals and retain our highly motivated, passionate colleagues within the organization. In times when as just described the sourcing and logistics situation is difficult and uncertain, we are pleased to have achieved notable success at Tires in the first quarter that will help us making us more independent from conventional supply sources of raw materials.

At the time, this makes a significant contribution to the achievement of our comprehensive, ambitious sustainability strategy. We are convinced that sustainable and responsible business increases our ability to innovate and meet the future, adding value to the company.

And the first quarter of this year, we made significant progress in this context. Slide 4 shows the entire value chain of a Tire from material sourcing to the end of use.

I'm pleased to highlight two topics in particular milestones, which were achieved in the last past month. We are very proud to be the first tire manufacturer who launched volume production of tires containing polyester yarn, which comes from recycled PET plastic bottles.

It is a new and very efficient mechanical process. Conventional polyester used in the carcass of a passenger car tire may be replaced by the ContiRe.Tex technology.

A set of standard passenger car tires uses the material of 40 recycled PET bottles. We presented the ContiRe.Tex technology last August just before IAA Motor Show for the first time and brought it into production in just a few months.

But also our development agreement with Pyrum Innovations is worth highlighting. We constantly expand and optimize our circular economy activities in order to conserve resources.

Through pyrolysis, for example, we will soon obtain high quality recovered carbon black from end of life tires. By doing so, we can further lower our use of fossil raw materials and reduce CO2 emissions.

Our long-term goal is to become a closed-loop recycling concept to end of life tires. Since Pyrum’s IPO in 2021, Continental has already held a strategic minority stake in the company.

Furthermore, Continental has developed a tire with a significantly improved rolling resistance for Stellantis. Based on a Continental EcoContact 6, its energy efficiency classification exceeds the EU tire label value A requirements by around 17%, which means it has a particularly low rolling resistance.

It has also received the top EU tire label rating A for wet grips. The development achievement is even more remarkable since the reduction of rolling resistance and exceptionally high breaking performance are conflicting physical targets.

The improvements were achieved, thanks to a new side wall structure and especially developed rubber compound for the tread. We aim for highly energy and resource efficient operations.

We continuously increase our efficiency in water, waste and energy consumption by running saving programs since more than a decade. Tires has for many years been a benchmark in the industry regarding efficiency in water and energy consumption.

As a result of years of hard work today, Tires already consumes 55% less water and 17% less energy than the industry average per metric ton of tires produced. By 2023 the aim is to achieve savings of an additional 20% in each case.

Summarizing, we are in a successful part of achieving our long-term goals in terms of sustainability at Tires, while exploring new ways of responsibly dealing with a tight resource raw material. After all, it is our ambition to successfully use 100% sustainably produced materials in our tire products by 2050 at latest.

Continental defines all materials as sustainable that originate in closed material cycles have no harmful impact on humans or the environment are produced responsibly and our carbon neutral along the supply chain. This time we only highlighted some examples but stay tuned for continuous updates.

Let me now move on to the next slide and start the deep dive in our financials. Reported sales came in at €9.3 billion, 8.2% above last year's comparable period, excluding supporting exchange rate effects of €266 million and changes in the scope of consolidations, organic growth was 5.3%.

Adjusted EBIT decreased year-on-year by €290 million, mainly due to inflation headwinds. The adjusted EBIT margin was 4.7%.

PPA effects did not change compared to prior year, special effects totaled negative €17 million. Net income after tax decreased year-on-year by €203 million to €245 million.

Trailing royalty came in at 8.3%. Free cash flow excluding acquisitions and divestitures came in at minus €174 million.

The value is not comparable with the value in Q1 2021. The value of the previous year comprises continuing operations as well as discontinuing operations whereas the value of the current period contains only the continued operations.

High inventory levels and higher material prices as well as higher capital expenditure on property, plant, and equipment and software have contributed to the negative cash flow in Q1 2022. The presentation of continuing and discontinuing operations in 2021 was influenced by spin-off activities for Vitesco in line with IFRS.

This leads to some KPIs not being available in the previous period as retrospectively these cannot be disclosed in a comparable way. This explains the not applicable for the gearing ratio as well as the equity ratio for Q1 2021.

Let me now move onto the performance by group sector, starting on Slide 6. The further decline in light vehicle production due to the difficult market environment caused the year-on-year organic sales decline of minus 1.2% in automotive, as well as the corresponding margin decline by 630 basis points to minus 3.9%.

Entire organic growth of 17.4% reflected strong growth in the replacement tire market, but also how our prices for our products. The adjusted EBIT margin increased by 50 basis points to 17.1% also supported by inventory valuation effects.

An organic growth of 3.7% showed that the strong industrial business of ContiTech could compensate for the weakness in OE volumes. Despite this organic growth adjusted EBIT decreased by €65 million year-on-year, weigh down by around €120 million in cost increases related to raw materials, energy and logistics.

Finally, contract manufacturing declined year-on-year by 22.2% organically restrained both by soft vehicle production volumes as well as the gradual phaseout of its business with Vitesco. Let me now review organic sales performance for automotive versus regional vehicle production in the fourth quarter on Slide 7.

Segmented by region automotive organic growth was able to significantly outperform vehicle production, our important European market, as well as the North America. Our organic growth in China matched local vehicle production.

Altogether, automotive outperformed it’s regionally weighted average by around 9 percentage points. We attribute the strong outperformance of the first quarter also to the fact that OEMs have increased their inventories with Continental products, despite some shutdowns in their own plants.

We do expect overall uncertainties and the volatility in the market to persist for the remainder of the year. Now, continuing with the revenue Q1 sales and adjusted EBIT on Slide 8.

Automotive sales totaled at €4.2 billion impacted by negative organic growth of 1.2%. Strong sales in Asia and North America nearly compensated lower volumes in Europe.

The impact from FX was plus 3.6%. The reported sales was supported by the light control unit business from our former Osram Continental joint venture.

The adjusted EBIT margin for automotive decreased substantially by 630 basis points to a margin of negative 3.9%. The profitability was negatively impacted by cost inflation.

Autonomous mobility reported sales totaled around €0.5 billion and shorted organic growth of 6.2%. This was driven by higher radar and camera volumes.

Earnings were also impacted by additional R&D activities. Safety and Motion reported sales totaled around €1.6 billion impacted by organic growth of negative 3.2%.

Sales were impacted by lower volumes for hydraulic breaks as well as ESC systems. Vehicle Networking and Information reported sales totaled around €2.2 billion impacted by organic growth of negative 1.6%.

Sales was supported by connectivity and aftermarket. Profitability was impacted by upfront R&D activities and effects.

However, R&D expenses have materialized in the significantly higher level of order intake achieved in this quarter as mentioned before. This also reflects achieving R&D efficiencies as a result of our cost saving measures.

Turning now to the order intake in Q1 on Slide 9. We see a satisfactory of total order intake at automotive of €5.8 billion that was mainly achieved by noticeable order intake at Vehicle Networking and Information of €4.5 billion.

And the biggest wins were related to two orders for displaced solutions within our UX action field totalling more than €2.5 billion lifetime sales and award for a telematic control unit for a global Asian vehicle manufacturer and a business win for a body HPC for a Chinese customer with SOP already in 2024. The order intake at safety and motions of €0.9 billion was mainly supported by worldwide orders for airbag control units and further orders of our MK100 electronic break system.

Despite customers delaying their sourcing decisions due to market uncertainties, autonomous mobility achieved first order intakes of €0.5 billion. These are related to future innovative technologies around camera systems.

I will now cover tires on Slide 10. Tires sales started the year on a strong note.

Reported sales increased by 20.1%, organic growth was strongly up by 17.4%. The impact from FX was 2.7%.

Overall volumes were up 1.4% caused by stronger replacement volumes while OE volumes were declining. Price mix was very strong at 15.9% with more than 50% attributable to pricing, predominantly from our replacement tire business in Europe and North America.

Besides the strong sales increase adjusted EBIT increased by €110 million equaling to a margin of 17.1%. Price mix was able to compensate for cost inflation of around €400 million.

In addition, profitability was supported by inventory valuation with a positive effect of around €200 million. Moving on to ContiTech on Slide 11.

ContiTech showed a solid organic growth of 3.7% – 3.6% sorry, supported by the industry and aftermarket business, especially in conveying solutions and industrial fluid solutions, whereas the volume in OE business went down burdened by decline in Europe. ContiTech demonstrated its operational excellence in managing a high volatility in call-ups without any negative effects.

Profitability was challenged by inflationary headwinds from raw materials, energy and logistics of around €120 million. Positive contributions from pricing activities for industrial and aftermarket business were only partly able to compensate the inflationary effect.

Price negotiations with OE customers on inflation topics are ongoing and we expect seeing positive contributions as a result in the upcoming month. Let me now continue to the overview of free cash flow for Q1 2022 on Slide 12.

The main driver for the decrease of the operating cash flow by €418 million was higher inventories, reflecting higher inventory levels, as well as higher material prices. Investing cash flow was negative with €298 million mainly influenced by higher CapEx on property plant and equipment and software.

Let me now move on to our market expectations for 2022 on Slide 13. Our expectations are based on currently foreseeable effects.

In the event, the war in Ukraine continues, all the geopolitical situation worsened, it could result in further lasting consequences for production, supply chains and demand. In addition, further negative effects could arise as a result of the ongoing COVID-19 pandemic and the related supply situation.

Depending on the severity of the disruption, this may result in lower sales and especially earnings in all group sectors, as well as for the Continental Group compared to the prior year. Keeping these assumptions, we are anticipating a year-on-year increase in light vehicle production by 4% to 6%.

For commercial vehicles, we anticipate that production in 2022 will decrease by 11% to 7% globally driven by a strong decrease in the markets in China and Europe. For passenger car replacement tires, we expect demand to be minus 2% to zero percent globally, but in our main markets, Europe and North America replacement tire demand should be flat or slightly up.

For truck tire replacement demand, we increased our expectations for our main markets slightly after the satisfying first quarter. Let me conclude today’s presentation with our outlook.

As a result of our adjusted expectation regarding the production of passenger cars and light vehicles and the negative effects from cost inflation for key inputs, especially for oil based raw materials, as well as for energy and logistics for tires and ContiTech, we adjusted our outlook for 2022 in the ad hoc release from April 21, 2022. Consolidated sales are expected to be around €38.3 billion to €40.1 billion and the adjusted EBIT margin is expected to be between around 4.7% and 5.7%.

For the automotive group sector, Continental expects sales of around €17.8 billion to €18.8 billion and as a result of the lower sales expectations and adjusted EBIT margin in the range of around minus 0.5% to 1%. This still includes higher procurement and logistics expenses of around €1 billion, as well as additional expenses for research and development of around €100 million in the autonomous mobility area.

For the tires group sector sales are now expected to be around €13.8 billion to €14.2 billion with an adjusted EBIT margin of around 12% to 13%. The adjusted EBIT margin range assumes a year-on-year increase in procurement and logistics costs of around €1.9 billion.

For the ContiTech group sector, Continental expects sales of around €6.3 billion to €6.5 billion and an adjusted EBIT margin of around 6% to 7%. The adjusted EBIT margin range assumes a year-on-year increase in procurement and logistics costs of around €600 million.

For the contract manufacturing group sector sales of around €600 million to €700 million and an adjusted EBIT margin of around zero to 1% are expected. PPA amortization is assumed to have an effect of minus €150 million, special effects are anticipated to amount to minus €150 million.

Financial result should be below minus €200 million. We expect the tax rate to be around 27%, capital expenditure before financial investment is expected to total around 6% of sales and fiscal 2022 free cash flow of around €0.6 billion to €1.0 billion is expected before acquisitions and divestments.

We will now proceed with questions, please.

Thank you very much. It’s Thomas with Kepler Cheuvreux.

I have two topics please. Firstly, on your tire operations, could you remind us what you expect in terms of impact for inventory evaluation over the coming quarters?

And what should be the net effect over 2022? On automotive, I have very small questions I think that are quite easy.

I’d like to understand if you – what you exactly plan to disclose for automotive in 2022 and beyond? It seems you are no longer giving the details by business.

But I know it’s a transition year, so I’d like to know what we’ll get in terms of information 2022, 2023 and after that. And I’d like to as well understand what your comments on semi inventories.

I think you said that they were going up for you. So my question basically indirectly is, are OEMs using you to effectively build up inventories for semi and choosing when or whether they want to produce or not?

Thank you.

Okay. So I’ll try to capture all the questions.

Your first question related to our tire operations and if we do expect further impact from inventory valuation in the upcoming quarters. And yes, we do so.

So we do expect further impact from inventory valuation in the upcoming quarters, but definitely not to the same extent that we’ve seen that in Q1. Your second question was about semiconductor inventories.

So for the semiconductor inventories due to the effect that we’ve seen hitting us during the course of the last year and also this year, and that we will still be – that will still be there also during the rest of the year. We’ve implemented a program already in last year to make sure that we are able to stabilize our supply chains better than before.

And one of the measures that we have implemented to stabilize our supply chain is safety stock. So we have identified critical parts and critical components for us.

And we are trying to build up safety stock and with this regard to stabilize the supply chain. And for the third question...

The third question was about what you intend to disclose for your automotive businesses in terms of financial information. We just have the revenue by business line in the presentation, no longer the adjusted EBIT, it is something which is going to be kept going forward.

You can to break up further the revenue disclosure and EBIT disclosure in the future, or are we going to just have less information than in the past?

No, I don’t think you will have less information than in the past. So what we’ve started to do this year is we have started to talk about order intake and also revenue for the relevant segments, so including now autonomous mobility and we will continue to do so also during the course of the next year.

In addition to the revenue and order intake figures, we will also provide you with indications from time to time on the profitability.

Thank you very much.

Hi. Thank you.

It’s Gabriel from Citi. My first question is on the tire guidance.

If we compare your guidance to tire peers, I think there are two key differences here. First is that you’re guiding to a higher cost headwind as a percentage of sales.

And secondly, you are not expecting to fully offset with product mix, if I understood right? Could you just explain those differences please?

My second question is on the price recoveries. Maybe you can just provide an update there on how negotiations are going.

How much of the €1 billion in autos intended to cost headwind, do you think you can pass through and whether we’ll see this fully beginning to impact in Q2 or if it’s going to be more of a gradual ramp up through the year in terms of recovering some of the cost? And then my last question is on the divestment strategy.

Just an update here again would be useful because aside from the spinoff of the Vitesco, we haven’t really seen much progress since the CMD on divestment. So are you still planning to make meaningful divestments?

And if so, when will you be able to provide us with some more information here? Thank you.

Okay. So I’ll start with your question regarding the tire guidance.

I cannot disclose exactly the figures that that we are trying to pass on or that we are expecting to pass on to our customers. But what I can tell you is that we are carefully evaluating the situation and also the increase in our input costs and that we are trying to pass this on to our customers on the tire side.

The way and the amount that we can pass it on might differ from sales channel to sales channel and region to region. This is why a general comment on the situation really is not possible that that will.

With regards to the automotive price discussions, I think this was what your second question referred to. We are as already said during the year end phase in constant and also constructive negotiations with our customers to implement sustainable price increases for our products to mitigate the impact of the higher inflationary costs on Continental.

And what I can also tell you is that we have concluded first negotiations, and that we’ve signed first agreements with our customers, and that we are positive that this will continue during the course of the next month. And your third question was about a divestment strategy.

There I can just say that we are for sure, carefully reviewing our portfolio also with regards to best owner to best owners. But I can, at this point in time, not disclose any details to you with regards to potential further actions that we might take.

Okay. Thank you very much.

Hi, Katja. This is Jose.

A few questions please. On autos, can you talk a little bit about this expected outperformance to total production you’re expecting for the year?

We have seen some of your peers coming out with maybe a bit more cautious global light vehicle production forecast for the year. So can you talk a little bit about the performance you’re showing Q1 and what you’re expecting for the year?

Second, can you talk a little bit about the level of activity you’re seeing in your plants in China a little bit more specifically, maybe in the last weeks? Is the situation getting better or is it stable versus last month?

We’re hearing that decision is improving, but we’d love to hear your thoughts maybe as you are quite spread across China in different locations. And then on tires, just two quick ones.

Are you seeing any pre-buy effect as a result of increasing prices with the dealers and also on raw mat price mix on this balance, can you maybe clarify or quantify if you could if you’re targeting an overall neutral balance of raw mats price mix for the year. Thank you.

Okay. So I’ll start off with the outperformance.

As I’ve just laid out during the presentation, we do have a quite strong outperformance regionally weighed for automotive in the first quarter of this year. And we do expect to continue to outperform the market.

We’ve also laid that down in our guidance, how much our outperformance expectation is. And I think looking at the Q1 figures, you can definitely see that we are able to meet the targets that we’ve set up.

With regards to our China plans, I have to admit that I’m really impressed about the way that our colleagues in China are operating and securing supply for our customers. I’ve spoken about the close loop production.

So we have people that have stayed in our plans for quite a substantial amount in time to make sure that we keep production running. And this has also worked out quite well.

In additional, we are working hard to secure supply chain from China and to make sure that there are no disruptions hitting us. So overall, I have to say I’m very proud and also very happy to see how our colleagues in China have performed with that regard.

Regarding potential pre-buy, I have to admit that I cannot judge how much our customers have really tried to pre-buy with regards to the price increases that we have already announced for this year. So that within Q1 we already had two price increases becoming effective and we have announced another one for May 5 – for May 1 which is in effect now, too.

So I cannot say exactly how our customers behave then. And last but not least, I’m not really 100% sure what your question with regards to the raw material price mix situation means?

What we can – what I have said is that in Q1, we were able to offset the effects coming from the inflations and that we do expect to also being able to translate further cost increases also into the market. To what extent this will fully compensate is probably looking a little bit into the glass bowl because the effect might change and might happen.

But we actively try and manage to pass on the cost increases.

Thank you, Katja. As a quick follow-up, this stronger performance to global car production in Q1, can you provide a bit more detail, like which division is driving these or which products you think are driving this growth?

Thank you.

So in general, I would say if you look at the figures, and if you also look at the auto, I think I can say that we’ve outperformed, not especially in one of the business areas that we have had. But that this is a result of the strong outperformance of all of our businesses.

I mean, I’ve also elaborated shortly on the outperformance and on the increases in autonomous mobility, for example. I’ve talked about the increases that we’ve seen there.

So overall that was a very strong performance of our automotive sector.

Thank you. Thank very much.

Yes. Thank you very much, Katja.

Thank you very much, Anna. I have three questions please.

The first one coming back to the pricing point, because I think it is absolutely crucial for you guys to nail that this year. When we think about automotive, I spent a day with the CFOs of VW and Mercedes last week, each of them.

And one of them told me specifically that if the supplier has some financial trouble, so it’s probably primarily his fault rather than the market. And that there’s very little hopes of getting a permanent price increase through.

And the other one literally said, he’s not aware of any major discussions with automotive suppliers about any price increases. That obviously does not exactly go hand in hand with what you are suggesting is actually taking place.

What’s your confidence really getting material price increases through. Are you trying to negotiate a one-time thing is the idea still that you’re going to get something permanently better in terms of pricing.

And now we’re talking rather about 1% here or about 10%, maybe you can at least give us a little bit of feeling for that. Secondly, when we think about tires, Gabriel already asked that question a little bit.

Is it okay if you don’t want to tell us whether you can offset the €1.9 billion fully? I don’t understand why that’s sensitive.

But if you don’t want to do it, fine. But if you do compare you to Michelin, for example, it seems like you guys are always a little late still on the pricing side to really increase that.

We can see that as positive, you have more upsides still or someone just looks at it in a negative way and thinks this is quite late and it always takes a little bit longer to implement that. Is that a fair observation in your view?

And if so, why that is the case? That would be interesting to know.

And then just as a final question, it’s great to see that you’re making such a progress on the order intake, especially on the vehicle solution and the networking side, when we talked about the hyperscreen, you guys not getting that, for example. So that’s good to see.

Now having said this, if someone followed you for a while, we have seen quite a materially risen of the order intake that you gave us for a number of years already before. How safe and comfortable do you feel with your current order intake that you’re providing us here?

And have you taken any sort of precaution measure to offset that this happens again? Thank you, Katja.

Okay. So let me first start with your first comment, with regards to our automotive pricing.

I cannot say what the person that you've spoken to had for information or was trying to transfer. What I can tell you is that our goal is to implement sustainable price increases to manage our higher input costs.

And what I can also tell you is that we have concluded and that we have signed agreements with customers already at this point in time. So I don't know who we've talked to and this is definitely the goal that we have.

And this is also what we need. And this is also what happens in partnerships?

As I said, we are in partnerships and we are partners to the OE industry and we are really in constructive negotiations with all our customers worldwide. This is definitely what I can say.

So then you said, Tires is perceived to be a little late with regards to price increases. And I can just say that this might be – this might come from the one or the other market.

I would not take that as a general statement on a worldwide basis. And if you want to take it positive, we might still have upside potentials.

But what I can really say is that we do not do our pricing depending on the reaction of one market participant. Yes.

But that we carefully value and evaluate all our markets on a permanent level, trying to find the right time and the right spots to pass on the cost inflations. And your third question was about order intake, Tim.

And I did not fully get it in its entirety. Did you ask if we've taken too much order intake already now?

Yes, that would be a nice one. No, I don't think that's the case.

When we think about your order intake lifetime sales, especially you have shown us previously number, this was a year ago or a year and a half ago, I believe where you suddenly revised that number down from €40 billion to €30 billion. I was just curious to understand if you have taken any precautionary measures to ensure that this time you're not overestimating the lifetime sales for your product and whether we can take this number for relatively granted revenues over the next three to four years or so?

I think if you ask me, I'm pretty positive that this is a number that we can achieve. And you've seen our Q1 with €5.8 billion that's quite a significant number.

And there are a lot of sourcing out there at the moment in the vehicle networking arena. So the HPC sourcings are ongoing there.

There's still a lot of sourcing to come with regards to autonomous mobility product. So I feel quite positive that this is a figure that we can rely on.

Okay. Thank you very much.

Hi, thanks for taking my question. The first one, I want to go back on the topic of outperformance.

Can you maybe help us understand what is the underlying outperformance of the automotive business if we sweep out the compensation that you're getting from car makers, because I'm guessing that there was already a key factor of outperformance in Q1 and will remain a key driver of outperformance. But what I think is more important is how the underlying businesses is outperform in the market.

And then the second one on the phasing of R&D in the quarter, can you maybe help us understand how much was already done of the $100 million in Q1, how much would be done in the coming quarters? And maybe it's split between each one, if you could give us that.

And then the last question on Tires, am I right in assuming that you are within your guidance, you're assuming flattish volume in 2022. And if that's the case, then doesn't your guidance already assume that at the midpoint, that you are fully compensating all the inflation costs.

Thank you.

Okay. Let me start with our expectations with regards to the strong organic sales growth.

So in general, we've said that the global LVP will increase by 4% to 6% which impacts our organic sales growth. And we also do have impact from the regional mix that we are exposed to which is quite significant.

We do have new launches, especially in the second half of this year in the autonomous mobility and VNI arena that will become more noticeable in the outperformance as the year progresses plus it also includes the sustainable pricing measures with so far minimal effects in Q1. But with bigger effects in the month to come now that's for this part, if split on R&D cost expectations by quarter, I can definitely not provide you as I don't have the figure available at this point in time.

And the third question, I'm sorry, I didn't get.

No, just the volumes assumptions that are exactly in your prior guidance?

The volume assumption that we have in our prior guidance.

Yes. That's the growth.

So I think we already talked about the growth assumptions. I think let me just – just give a second.

So what I can say is the volume assumption was not the biggest driver of the increases. I think it's also in the presentation because can you switch on the presentation for a second?

Exactly here. This was also in the presentation in general for the replacement tire.

So the PLT I said minus 2% to 0% for 2022 to come.

And you're assuming that you will outperform the market.

I did not say that we outperform the PLT market. I said that we outperform the automotive market and with regards to PLT, we do see some positive effects on us in Conti because of the regional mix that we have.

Yes. So especially with the recovery in Europe and North America.

Okay. Thank you.

Yes. Thank you and good afternoon.

I only have got small questions as add-ons. First of all, on the volume guidance, because you guide for plus four to plus six light vehicle production, I think that's already now at the lower end of the current IHS forecast and IHS continues to capture forecast.

So I just want to understand what's the sensitivity, if this IHS forecast would now fall below 4% or the market in general, maybe would just be flattish in 2022, if that would then – would that affect your guidance or you would say because outperformance is growing and then H2, it maybe accelerates even that this is no major issue for you anymore. That's number one.

Number two is again, in the context of global IT production because I still have got this 90 million units number in mind that is underlying your strategy plan for 2023 to 2025. You said in the last call that you still expect the sales to go above 90 million units globally.

Is that still the case or is thereby now any change that you see? Okay.

The market will not recover to such an extent as we expected because just the environment has completely changed. And the last one is just again on indexation.

I just want to understand, sorry on cost pass-through. I just want to understand how the cost pass-through works is that has got to be done always now one by one and occasion by occasion or is there now a kind of automatic pass-through so kind of indexation that you implement.

Thank you.

Okay. So with regards to the light vehicle production figures, maybe the first question if light vehicle production figures would fall significantly down, this would for sure have an impact on our original equipment business.

I think that is clear. If we could then still outperform this figure i is a different question to be asked, but in general, if the light vehicle production figures would drop significantly, this would have an impact on Continental.

And this is also why we've put our guidance into our guidance, that if the geopolitical situation would continue the way it is or would even worsen then this would have an impact, definitely. So the second question is, but that in general…

Sorry. Just quick again, could you define significant what you mean by significant?

Is it then when light vehicle production globally declines or if it's flattish that's not yet significant for you?

I cannot really specify maybe significant, but also not the right word would probably fall line with. Maybe this would probably be the better way to say it.

So if global production volumes would drop by X percent, we would also be affected by Y percent. Yes.

I don't think that there's a one to one relation, which you can also see if you look at our guidance. Yes.

Yes. Okay.

Okay. Which we by the way do confirm and the third question you had was about.

Second question was on 90 million units global light vehicle production 2023 to 2025?

Okay. Yes.

That we said is the basis to achieve our midterm targets that we've laid out. And we do see this figure to be in reach midterm.

This is at least what the IHS figures do indicate. And therefore we still – again stay to our midterm targets and stick to our midterm targets and working hard every day to achieve what we've from.

Okay. The last one was on pass-through of costs indexation.

There is no indexation that I can provide to you with regards to the pass-through of cost.

Okay. So example is there any prices now or some other prices say increase again, you have got to go back to the car makers and negotiate again, a cost pass-through, is that right?

I would say that there are different mechanics that do work in the market, depending on the customers, depending on the sales trends. You already said that we also do have contracts with customers where we work with indexation.

So I cannot comment on individual customer agreements. And generally we do have a mix of all these mechanics that work for us.

Okay. Thank you.

Good luck.

Yes, Michael, good Afternoon. I have two questions.

First one, once again, on price compensation, is there – there should we expect some rollover effect from the negotiations in Q2 related to parts you have already delivered in Q1. And the second one is on the China business you mentioned that you have a closed-loop production.

Do you see any risk that the Corona measurements impact the transportation from your plan to your customer’s plans?

Okay. First question about the pricing adaptations, for sure.

As I tried to lay out, we are looking for sustainable price increases and those should be retroactive. So further conclusions in Q2 should – will also compensate for effects that have occurred in Q1, definitely.

And with regards to operation, I have not heard of any major issues in China with regards to transportation from our plants at this point in time. All our plants are running.

All our plants are open. So that is not what I can confirm right now.

Okay. Thank you.

Thank you, operator, and thank you everyone for participating in today's call. As always the Continental Investor Relations team is available if you have any remaining questions.

With that, we would like to conclude today's call. Please stay safe and healthy.

Thank you, everyone and goodbye.