CTTAY (CTTAY) Q2 2026 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Continental AG Analyst and Investor Call Q2 Results 2026. The conference will be recorded. [Operator Instructions] Let me now turn the floor over to your host, Max Westmeyer, Head of Investor Relations.

Yes. Thank you very much, and welcome, everyone, to our Q2 2026 results presentation. Today's call is hosted by our CEO, Christian Kotz, and our CFO, Roland Welzbacher. A quick reminder that both the press release and the presentation of today's call are available for download on our Investor Relations website. Before we start, I'd like to remind everyone that this conference call is for investors and analysts only. If you do not belong to either of these groups, please disconnect now. Following the presentation, we will conduct a Q&A session for the sell-side analysts in this call as usual. To give everyone the opportunity to ask questions, we kindly ask you to limit yourselves to no more than 3 questions. And with that, over to you, Christian, for the Q2 key messages.

Thank you, Max, and welcome, everyone, online also from my side. Thank you for joining us. Today, let me start with the strategic milestone we announced in July. As you know, Continental has signed the sale of its ContiTech group sector to Lone Star on July 4, which is fully in line with the timing that we have always indicated to the capital market. And we could still close the transaction by the end of 2026, of course, subject to regulatory approvals and other closing conditions. That does also mean that we cannot rule out that this -- that the process lasts into 2027, but please rest assured that we are working hard towards closing the deal as soon as possible. As you have probably seen, the agreed enterprise value amounts to EUR 4 billion plus a potential performance-based component of up to EUR 250 million. I think this is a clear testament to the attractiveness of ContiTech as an industrial pure play. Based on the current transaction structure, expected net cash proceeds at closing are expected to be around EUR 3.1 billion. Also here, the exact amount will, of course, and obviously depend on multiple factors at the time of closing. When it comes to the use of the proceeds, we intend to combine attractive shareholder returns with deleveraging, as we always communicated and announced. In line with that, we plan to use around EUR 2.5 billion for shareholder returns. Our options include a special dividend and share buybacks, as we also always explained and communicated, but these are details that we are now working on. The remaining around EUR 600 million are planned to be used for deleveraging and this supports our path towards a leverage target of below 1x by 2029, again, fully in line with our midterm targets we've communicated and explained in various locations. So Q2 certainly kept us busy, not least with the sale of the explained and mentioned sale of ContiTech, but when we did find a spare moment, the Tour de France offered an excellent alternative to be honest, to spend that extra time. And here, my warmest congratulations to Tadej Pogacar on an extraordinary fifth Tour victory delivered with exceptional skills but, of course, also supported by Continental tires, a great demonstration of what talent, teamwork and outstanding technology can deliver. With that positive and winning momentum, let us move on to our quarterly performance in Q2. So overall, we delivered a solid quarter with earnings and cash flow improving despite a still challenging market environment. Group sales came in at EUR 4.4 billion compared with around EUR 4.9 billion in Q2 of last year. The reported sales decline was mainly driven by the sale of OESL, so the ContiTech OE-related or the majority of the ContiTech OE-related business, which we have sold at the beginning of last year. Organically, our sales development was broadly stable at minus 0.3% and even slightly positive on the Tires side, more details to come. Our adjusted EBIT for the group increased year-over-year, reaching EUR 570 million, translating into an adjusted EBIT margin of 12.9%. That improvement was mainly supported by our Tires group sector, where we saw continuous strong price/mix, still lower raw material costs and a better operational performance. ContiTech continued to operate in a subdued market environment, which weighed on profitability. However, the impact was largely mitigated by portfolio measures, still favorable raw material costs and the ongoing execution of cost-saving measures, the sales head measures we have explained also earlier. Adjusted free cash flow improved significantly to EUR 216 million, roughly EUR 250 million up year-on-year. The strong increase was, of course, driven by the solid profitability improvement, but also included some cutoff date related items such as favorable working capital development and the timing of CapEx, which remains weighted towards the second half of the year. The positive cash flow also supported further organic debt reduction. However, and as always, in Q2, our net debt increased sequentially versus Q1, mainly and due to the dividend payment we have done in May. With the sale of ContiTech that I have mentioned earlier, we have also reached a significant milestone towards becoming a Tires pure play. As a result, we have already now adjusted the guidance to reflect ContiTech as a discontinued business, but Roland will touch on that later on in more details. As a next step, we will also start disclosing more details on the Tires business in the next quarters. That means we will change our segment disclosure moving forward. You will receive a call invite in the upcoming weeks for an update call on our future structure since we want to make the transition into a Tires pure play as smooth as possible also for you. So looking at the group sectors on Slide 6. The improvement in margin was mainly driven by the strong performance at Tires. As I mentioned already, our organic sales were broadly stable, while the group adjusted EBIT margin improved from 9.6% to the before -- already mentioned, 12.9%. This includes a positive contribution from the diesel settlement as well. Tires delivered organic growth of 0.3% and increased its adjusted EBIT margin to 15.3%, so even slightly outside our full year guidance corridor in the quarter. With that, over to you, Roland, for more details on Tires, starting, I think, with insights into the markets.

Thank you, Christian, and also welcome from my side to everyone on the call. Let me begin on Chart 7 with the market environment for Tires in the second quarter. In OE passenger car tires, the trend of declining volumes continued both in Europe and China, which also resulted in a year-on-year decrease in worldwide vehicles produced. In the replacement business, we saw imports going up year-on-year in our largest region, EMEA, resulting in higher volumes in lower-tier tires. And also, Chinese tire volumes showed a year-on-year increase, while the North American market continues to trend below last year's level. Let's turn to Page 8 and turn to truck tires. The picture remains mixed across regions. In Europe, commercial vehicle production growth has moderated following strong prior quarters, while North America looks like it has turned the corner. So silver lining here, showing signs of recovery from a low base, however. In the replacement business, demand in Europe remains supportive with year-over-year growth. Whereas replacement volumes in North America continue to trend below prior year levels, driven by lower transportation demand. Let's turn to Slide 9. Despite the continued softer volume environment, we delivered the expected margin improvement against a very weak Q2 2025, as you can see on Slide 9. This happened on the back of favorable raw material developments and once more healthy operational performance. Sales were broadly stable at EUR 3.3 billion. One of the reasons FX this time had no material impact in a while after being a drag for many quarters in a row. Volumes, however, were down minus 2.3%. This was mainly driven by subdued PLT OE demand in EMEA and soft markets in the Americas, while we continue to perform well in the weak Chinese OE market. As in the first quarter, price/mix was positive though. At 2.6%, it's more than compensated for the lower volumes, both on the sales and the EBIT side. This continuous positive development was mainly driven by product and channel mix. And despite lower overall volumes, we managed to increase UHP volumes, especially in EMEA and in APAC. Consequently, our adjusted EBIT increased to EUR 510 million, a margin of 15.3%, which will presumably be a peak margin for this year. Besides price/mix, the still lower raw material costs provided a mid-double-digit million euro year-on-year tailwind. Furthermore, and in addition to that, recently increased raw material purchasing prices led to a reevaluation of our inventories, this resulted in an additional noncash tailwind in a similar amount. And as I mentioned already, the prior year comparison base was, of course, materially impacted by tariff and FX headwinds. If we look at the regional breakdown on Slide 10, the underlying dynamics of our business become even clearer. In the Americas, organic growth was minus 3.4%. The passenger car OE volumes declined stronger than replacement in a softer market environment. Good news in terms of mix, U.S. American and Canadian replacement volumes declined only slightly, while South America clearly remained under pressure due to cheap imports. On the truck side, OE volumes have finally been stabilizing, but replacement volumes continue to trend below prior year. Nevertheless, we were able to increase price/mix in North America, but it could only partly offset the negative volume effects. In EMEA, we saw a healthy organic growth of 2.4%, even though PLT OE and replacement volumes declined modestly. One of the reasons are the increased UHP volumes, while the sale of our French retail network has started to affect reported revenues in Q2. The impact was limited in Q2, but it should become more visible in the coming quarters. In truck tires, both OE and replacement volumes increased versus prior year, demonstrating outperformance against the market. Consequently, price/mix remained continuously positive. In APAC, we also achieved positive organic growth, driven especially by increased ultra-high performance volumes. In particular, our performance in China resulted in positive OE volumes despite decreasing light vehicle production figures and in a stable replacement volume environment. Our sales price/mix remained positive, while portfolio adjustments such as the exit from our Asian truck business provided a low double-digit million euro headwind to sales year-on-year. Moving on to ContiTech on Page 11. In continued weak market conditions, ContiTech delivered a solid result. This was supported by the measures we've implemented to improve efficiency and strengthen profitability. The market environment, however, remained difficult, and this continued to weigh on volumes and profitability. Sales came in at EUR 1.1 billion, almost at the same level as last year if we exclude the OESL effect that is still down in the previous year's comparison base. The organic decrease was mainly driven by the continuously challenging volume environment. At the same time, we had a good finish to the quarter, especially in EMEA and the Americas, mainly driven by solid execution in the project-related business, which makes us confident moving forward. Adjusted EBIT came in at a margin of 6.9%. As already mentioned, our safeguarding measures defended profitability against a slightly unfavorable product mix and first negative impact from raw material price inflation. Commercial measures we've implemented are expected to increasingly take effect from Q3 onwards, partly covering the increasing material costs. And one more technicality. Due to the signed sale of ContiTech, IFRS 5 is applied starting end of Q2. In Q2 itself, this had no tangible effect on the result, but it will come with the stopped depreciation from Q3 onwards. You probably still know the trough from Automotive last year. Turning now to our cash flow on Slide 12. Where we moved from minus EUR 46 million in Q2 '25 to plus EUR 216 million in Q2 2026. The improvement was predominately driven by our improved operational performance by working capital and by CapEx. The working capital tailwind resulted from operational changes in receivables and payables, while seasonal inventories increased slightly stronger than in the comparison period, also due to valuation effects as mentioned. Lower CapEx reflects this year's planned H2 weighted phasing of investments. Thus, our solid operational performance contributed positive to our Q2 free cash flow, but timing effects also played a role. On working capital, which you can see on the next slide, the development was in line with the typical seasonality and sales development. Working capital stood at EUR 4.6 billion at the end of Q2, corresponding to 25% of sales. Net debt was at EUR 5.5 billion and the pro forma leverage ratio stood at 2.0x. That means our net debt was slightly up compared with Q1, which was driven, as mentioned by Christian, by the EUR 540 million dividend payment in May, while our positive free cash flow partially countered that effect. Let me now turn to our market outlook for 2026 on Slide 14. Looking at our full year market assumptions, we continue to expect volumes to remain unsupportive in challenging and uncertain market conditions. Within passenger cars and light trucks, we have become slightly more cautious on both vehicle production and replacement demand. Slightly lower outlook for vehicle production is largely driven by China. And when it comes to replacement demand, we now expect slightly negative developments in both Europe and North America, given the year-to-date market development. In commercial vehicles, the picture on the OE side is more encouraging. We continue to assume decent growth in European truck production and have also slightly increased our North American production outlook, reflecting the strong Class 8 order intake in recent months. We have, however, become more cautious on North American truck tire replacement demand. Finally, turning to our guidance. As Christian mentioned already, we have updated our guidance to reflect the planned sale of ContiTech. The underlying expectations for our operational business, however, are confirmed. For the continued operations of Continental, we now expect consolidated sales of around EUR 13.2 billion to EUR 14.2 billion and an adjusted EBIT margin of around 12% to 13.5%, coming from unchanged assumption in our Tires business plus the holding costs on top. Looking at year-to-date performance. However, I think it is fair to state that we're currently assumed to achieve the upper half of the profitability range in Tires, while sales will probably end up around or slightly below midpoint. Adjusted free cash flow expected at around EUR 0.7 billion to EUR 1.1 billion. Also here, no change in underlying assumptions. PPA amortization is no longer a material KPI for Tires and special effects from continuing operations are now expected at around minus EUR 200 million, while CapEx is expected at around 7% to 8% of sales, reflecting the higher investment profile of Tires versus ContiTech. The underlying spending assumptions for this year are unchanged though. For ContiTech, the outlook is unchanged and does not consider any IFRS implications such as stopped depreciation. So that being said, I would like to hand over now the rest of the time to you. Operator, can you please open the line for Q&A.

[Operator Instructions]. So the first question comes from Jose Asumendi from JPMorgan.

A few questions, please, maybe regarding your margin assumptions for the second half within the Tire business. Maybe just going through a few buckets. Do you expect volume to be at some point a positive contributor to the business either in the third or the fourth quarter? Second, should we expect any impact of revaluation of inventories, the positive or negative impact, noncash impact on the P&L in Q3 or Q4? And then three, can you comment on your expansion plans in China and whether you're starting to see a revenue acceleration in the region? Any update you could give us on the region, please?

Jose, let me start. I think your question goes back to the guidance. And it's a fair question, looking at the good H1 results. Let me answer this, first of all, a little bit broader, and then I will go into the specifics. First of all, we expect that the ongoing economic uncertainty will affect the market volumes also in H2 and will remain in total below prior year. And if you remember, we've had this good Q3 quarter last year, which was very strong also on the volume side and in price/mix, tough comps to beat. Let's remind ourselves. Second of all, and this is the real difference. We benefited from substantial raw material wind year-over-year in H1. We're talking about a triple-digit euro million amount. And this will fully go away, of course, in the second half. But in fact, it will reverse in the second half and turn into a headwind of similar magnitude. Yes, you know we put a mitigation plan in place. We discussed that in the second -- in the first quarter already in May, but still, it's a completely different ball game in the first half. So this is why we said in terms of sales, we will most probably come out slightly below the midpoint and profitability in the upper half of the guidance range. So talking volume because you asked specifically -- first half now in total, volume effect on sales, minus 3.3%. We expect this negative effect to be slightly lower in the second half. So we expect some improvement on the passenger car tire replacement side, but again, it will be in total below prior year. And in terms of revaluation, because it was mentioned that it was a noncash item in Q2, and we will also have a positive revaluation effect in the second half. The magnitude still remains to be seen, but I would say, at least it's a mid-double-digit euro million amount also in the second half. And on China, Christian, do you want to take this?

Yes. Before -- so Jose, before I talk about the situation in China and the status of our expansion plans, let me just add to what Roland said. Yes, we have consciously taken a conservative approach on our second year -- or H2, second half year assumptions. Why? And this goes in line with what you've asked for, basically, because of the very high continuous volatility and challenging market environment. This is why we've also reduced our market assumptions for the second half of the year, as explained. And even under these consciously conservative assumptions, we confirm our guidance with the, let me say, additional details of assuming that under these conditions or assumptions, sales will come in at the midpoint or slightly below the midpoint of our sales guidance and profitability rather above the average towards the upper end of the corridor. As you know, for us, Q3 and Q4 are decisive quarters. And August and September are obviously already very important for us, and let's see how the business will develop. I mean it's definitely too early to tell, but at least the winter tire preorders are giving some hope that maybe the development is more positive than what we have assumed. But as I said, too early to tell, and this is why we have consciously taken a conservative assumption. Now to your question on the expansion plans in China, we continue to execute our expansion plan. So we are ramping now our plant in Hefei from roughly 15 million to 18 million PLT tires per year. This goes very, very smoothly. We are utilizing fully our capacities. As Roland said earlier, we are clearly outperforming light vehicle production in OE. So we are rather increasing our volumes in a declining production volume environment and carefully balancing OE versus replacement volumes and are very confident that we will continue to be able to fill, let me say, the plant and execute our expansions, as indicated and planned.

Just a quick follow-up. The Chinese business, what's the split, please, between PLT and CVT, OE and RT, if possible, just to give up some broad indications? Is it mainly passenger car, and is it mainly OE at the moment? Or what's the split between OE and...

Which part of the business are you referring to? I didn't get that on the phone?

Within the Tire business, your expansion of the plant or your Chinese plant, is this mainly passenger car? Or is it mainly truck? And what's the split roughly of your Chinese revenues? Is it mainly original equipment? Or are we looking at more replacement?

Okay. So in China, we are purely focusing on PLT business. We are basically not selling truck tires. And as we have indicated or communicated earlier with the closure of our truck tire production in our Modipuram, India plant, we are basically withdrawing our overall reducing our truck tire APAC activities to a bare minimum. But China only, it's pure PLT, no truck volumes. Second, OE replacement. I mean, normally, our split is between 25% and 75%. In China, we are a little bit more OE heavy without going in too much details, why, because we are still trying, obviously, to -- or let me say, to support potential future replacement growth by slightly over proportional OE exposure but we are also benefiting quite a lot from all the export volumes from China. As we discussed and communicated in the past, we are nicely represented at the Chinese OEMs, and we are heavily used also on the export vehicles, mainly to Europe, which is helping us, obviously, also to increase our volumes and is also part of the reasons why in China, we have this higher share of OE versus replacement business. But as everywhere in the world, replacement is by far above the 50% mark of our total volumes in China.

So the next question comes from Harry Martin from Bernstein.

The first one I had is on the high-value segment in Europe. We have seen some very strong sell-in data in Europe this year, up double digits year-to-date. So are you matching the market growth in Europe? Do you have any comments or anything else you can share on market share and the opportunity in the high-value segment specifically? Secondly, on U.S. trucks, I just wanted to think about the implications of increasing the original equipment outlook cutting the replacement. How different is the margin mix between original equipment and replacement for you in that segment? And then would it be correct to assume that relative market share would be higher in original equipment with a much lower import share? And then the final question, just a clarification one really on the raw material impact. So is the underlying assumption around a low to mid-triple-digit million amount still consistent as it was in Q1. I think that's based on $85 oil. But if you could give any more color on the other assumptions around things like natural rubber that go into that guidance, that would be very helpful.

Then let me -- Harry, let me start with the first 2 questions and Roland will continue. So first, the high-value segment in Europe. I mean, overall, I would say we are broadly in line with market development. We have still some, let me say, improvement potentials, which we are trying to utilize by extending our product portfolio offering. So especially on the summer side, but also on the all-season side, as you know, we have been rather a late entry into the all-season segment due to our history, let me say, of focusing very much on the winter tire segment. We are closing this gap very fast, which really helps now, I think, to outperform also in terms of sales development in terms of euro -- the market, and this is an area where with extended product portfolio, we definitely will have a chance to further grow or continuously grow our UHP share. But overall, we are in line with market development in the high-value segment. U.S. truck. So a little different than in the PLT world. The difference between OE profitability and truck profitability, at least for us, is not that big. We have also a very profitable satisfying OE truck stand-alone businesses. It really depends also on the replacement side, which customers you sell to, which brands do you use, so the difference between OE and replacement for us in truck is, especially in the U.S., much smaller than what we used to see and what you are used to probably on the PLT side. So with this, therefore, increasing amount of OE volumes compared to still, let me say, under pressure replacement market, this will not lead to a margin deterioration for us as far as truck profitability in the U.S. is concerned. So this is what I would -- I hope this addresses your questions on the first two. And then maybe, Roland, you take the question on the raw material side?

Yes, Harry. So when the crisis started in Q1, we started to analyze what that means for Conti and we made an assumption on the raw material, energy and transport cost increase. And we said it would be a low to mid-triple-digit euro million amount. Based on the assumptions of the oil price average in total would be around $85 per barrel. Now we have seen lately a lot of volatility on the oil price side. It came down pretty nicely in the last days. I think today it's trading around $84. The base assumption of $85 average is still our assumption going forward. There's no change. We believe for this to happen, oil prices need to go further down slightly in Q4, which -- this is our expectation as hopefully, the crisis is continuing to ease a little bit. And that also means our mitigation plan we put in place with a high coverage ratio of the additional cost would hold for the second quarter, if this was the intention of the question.

So the next question comes from Thomas Besson from Kepler Cheuvreux.

It's Thomas at Kepler Cheuvreux. I have 3 questions as well, please. I'd like to start with a comment on your trading activities. Your French competitor talked about a very strong June versus relatively mediocre April and May. Could you talk about your own experience about June and July versus April and May? And is that part of what you were mentioning as maybe being overly conservative? The first question. The second, one of you guys has been on Bloomberg and talked about traction of M&A opportunities in the U.S. in the specialty tire business. Could you talk about whether Conti could effectively be eventually active on M&A before the deleveraging targets are achieved? Or what kind of targets you would consider acquiring in '27, '28? And lastly, I understand you want to do a call on that, it's great. But is it possible to have an idea of the additional disclosures you plan to give us about the Tire business? Are you going to provide us with the margins by region? Are you going to break down your margins as well for trucks and specialty on top of passenger cars, or do you want to keep that for that call?

Thomas, then let me get started. Talking first, I think, was your question, June, July trading versus weak April, May trading, I think that was the question. And I believe that's probably more related to Europe. I didn't really get whether this was European-specific or global. I assume that was more a European related question. We do see, let me say, a slightly stabilization and improvement in June and July versus April, May. Do we see step change improvements? No. And this is why, as Roland said earlier, we continue to assume that in the second half of the year, volumes will be negative year-over-year, but less negative, let me say, compared to last year, compared to what we have seen in H1. So as said, maybe we are a little bit too conservative. On the other side, we have seen so much volatility and so much change, short notice that, as I said earlier, and I was trying to explain earlier, we consciously have taken a conservative assumption. I think it's fair to say. And maybe one word on the M&A activity side. I mean, to be honest, there is no update compared to what we've always said. What did we say? We always said that M&A or inorganic growth is part of the tire industry. It has been part of Conti's history forever. And we will continue to evaluate if there are options which do complement and fit to our portfolio. What would fit? Also no change to what I've always said, there's a regional and, let me say, a product perspective. On the regional side, as you all know, we are underrepresented in Asia. On the product side, we are specifically underrepresented on the commercial specialty tire side. So everything which would fit would be obviously an option. Is this now a changed priority compared to after the ContiTech sales or being in process of hopefully closing the ContiTech sale soon? No. This continues to be an option. It's not a priority for the time being. We will continue to work on our priorities first. This means closing and competing and completing the transformation, doing our operational necessities. But obviously, in the long run, it's always an option if the news or what you have heard indicates that this may have now triggered a change in terms of priorities and timing, then I would say that is not the case. Maybe a word then Roland, from you on the changes in our disclosure policies and structures.

Yes. Let me answer this, Thomas. So I got the question this morning on Bloomberg, and it was a rather general question, I gave a rather general answer. I probably should have said it's not the #1 priority. So there's no change in scope and focus and also not in terms of priority, of course. With regard to disclosure and reporting going forward, as we mentioned, we plan that starting in Q3, we'll provide more details on the regional development. In order to help the analyst community to prepare and build models and before we actually come with the Q3 figures, we most likely will invite for some sort of capital market update, a bring down call pretty soon in order to give you the chance, and before we go into the quiet period to tell you a little bit more about the past and provide more details on the regions so you can actually start preparing for this way before.

And this would include margin breakdowns as well.

On the regional view on the regional level, I think it's fair to say, I don't expect significant details on the product segment level.

Yes, exactly.

Next question is from Ross MacDonald from Citi.

My first question is just coming back on to the revenue bridge actually and just picking up on the comments around where we're tracking in the full year guide on revenues. I think, Roland, you said we're in the middle, maybe slightly lower half of the guidance range. If I do the math, that would imply to hit the midpoint, around about EUR 7.1 billion of revenue from the Tire business, which would be up about 1% versus the second half of last year. So just interesting, take your volume comments on board, it sounds like volume will be a negative in the second half, let's say, minus 1.5%, minus 2%. How do I think about the price/mix contribution? It feels like price/mix should step up versus Q2, maybe 3%, something like that is more appropriate for the second half. So I'd be interested what we should pencil in on the price/mix side. And then when I add those 2 up, that would imply that we're kind of maybe slightly towards the middle of the guidance here rather than the lower end. So I'd be interested in your comments there. And then obviously linked to that, just if you could update on how you see the FX headwinds for the second half. Next question just on CapEx. If I look at the CMD targets from last year, the Tire business was talking about midterm CapEx to sales of around about 7%. And you're obviously guiding 7% to 8% now for the Tire business. So if you could comment on whether this is a sort of transitory period of higher investment spend and you're still happy with that 7% level, would be keen to understand that. And then the final question is just on the other/holding consolidation line, maybe more for 2027, but obviously, now that you're a cleaner, leaner business. How should we think about the full year '27 central cost line? Can that -- can we get that number down? It's obviously 100 bps at the group level, but just curious if there's any juice you can squeeze on that number.

Okay, Ross, thanks a lot. Let me start with the first one, guidance second half and some more details. So on the volume side, as I said earlier, I would expect a lower but still negative effect compared to the first half. On the price/mix side, it will also be a little bit lower than in the first half according to our expectations. First of all, we have seen a fantastic price/mix effect in Q3 and a pretty good price effect in Q4 last year, and it's really tough to beat this. On the other hand, what we might see is a little bit of a higher drop on price/mix side than usual because we have not only product, we also have channel and regional effects playing a role here. On the FX side, however, and this has been really a drag for many, many months now, this is now turning positive actually, slightly positive on the EBIT side in the second half. So no headwind anymore. It will rather be a slight tailwind. You want to take the CapEx question, Christian?

Yes. So Ross, I can talk about the CapEx. No, I mean our 7% as the average midterm assumption still holds true and is valid. Why are we a little higher now short term? It's basically because we are investing into our Asian footprint and making some real step changes there. We talked about our step -- the next step we are doing in China. So from the 15 million to the 18 million -- we have also decided to pull ahead the next expansion step of our Rayong plant in Thailand. You probably know we have closed our Malaysian PLT factory by the end of last year and are consolidating a lot of the volumes into our more efficient Rayong plant, so to be able to basically then scale on also to a mega plant as quickly as possible and serve the South [Audio Gap] let me say, market, including then also Korea and parts of also Australia and these parts of the world out of our Thailand factory where we have opportunities to utilize the profitable growth, let me say, the market provides. So that's why short term, we are rather a little bit above the average. But in the long run, the 7% assumption is still valid and is still what we believe is a healthy investment rate.

So finally, holding costs, you probably have noticed that we had some positive onetime effects in Q2. We got a reimbursement on the insurance side on diesel, and we also had -- because we started sectorization, so putting central function from holding into the sector in the second quarter, we've had still higher cost of the holding, which now went into the different sectors, went away with Automotive, will partly go with the ContiTech and will also remain with Tires. So looking at 2027, I would expect EUR 30 million, EUR 35 million quarterly holding costs going forward for '27. Of course, we're trying to drive this down over time a little bit. So just shy of 1% of net sales, I think, is a fair assumption.

With the clear intent, obviously, as I said, Roland, to become more efficient on that line item as well. But first of all, we need to confirm and complete our transformation before we can more actively work on that part of the business as well.

Understood. Can I maybe just check on the FX, given that's turning to a tailwind. Is there any change in the drop-throughs we should assume into the EBIT line from FX? Or maybe a quick update on how that drops?

Yes. It dropped normally 30%, 40%, roughly. I would assume a similar drop now also in the second half. I don't see a big difference.

I mean, obviously, it depends also which currency pair you look at. So when you consider our footprint in U.S. versus Europe in terms of production versus sales, obviously, drop-through tends to be a little higher. Also, that works in both directions. Again, it depends very much on where exactly you would look into the currency pairings.

[Operator Instructions]. The next question comes from Monica Bosio from Intesa Sanpaolo.

Yes. Just a follow-up on the price/mix. You just say that the price/mix for the second half will be a bit lower sequentially, but with a higher drop-through. Can you just remind me what do you expect in terms of drop-through for the second half and for the full year? And my second question is on the IEEPA tariff refunds. I was wondering if the company benefited from any tariff refunds in the second quarter? And my final question is on the ultra-high performance tires that went very well in Europe. So can you give us an update of the overall weight? And on the other side, I was wondering whether the company is cutting some capacity in budget tires or if it plans to do this?

Okay. Roland here, Monica. I'll kind of take the first one. Because it's basically a follow-up on the price/mix side. We have seen last year a drop rate of 60%, 70%, which would also be our midterm average we've seen. Now this year, the drop rate is a little bit higher because it's not just product-related, it's also, again, channel related, and we've had regions performing better, which are more overproportionately profitable. This is why I said the drop rate is a little bit higher. It used to be higher already in the first half, and this continues most likely also in the second half. UHP...

Let's maybe talk about the tariffs for a second. Yes, we had, I think, a EUR 10 million refund impact of the IEEPA, whatever you pronounce them, tariffs in the U.S. in Q2. This is not, let me say, corresponding to the full refund, we believe we will get so more to come. But EUR 10 million, I think, correct me if I'm wrong, Roland, Max, is what we have considered or have seen in Q2. UHP tires in Europe. Yes, it works in Europe, which is obviously the -- for us, the most important region. But I mean, the positive mix development in terms of sizes, you see worldwide and actually, in North America, probably with even some strong opportunities for us as well as in some of the Asian markets. So talking about China, for example, in OE today, I think we don't even sell a single tire below 18-inch in OE. And I think the average size is in the meantime, significantly above 18-inch. So there is significant mix improvement. And in North America also due to our representation in the light truck and full-size SUV segment. We also have significant positive mix improvement potential. So -- and on the overall weight, I think we are now at 62% of our total PLT sales represented by the sale of UHP tires.

On the Conti brand.

On the Conti brand, yes. So sorry, on the Conti brand, without the Conti brand, we have 55%. And capacity in budget tires, I mean we are now for at least a number of quarters not selling more tires. So the only improvement we are seeing is basically due to mix. Nevertheless, we invest 7% in average CapEx in our facilities. And this is partly obviously in terms of capacity increases. So I mentioned Rayong and Hefei. So Asia being obviously the most pronounced region where we invest into capacity, but the majority investment of our investments are really going into structural investments. So turning existing capacities into future-ready capacities. We do this in line with market development and also, let me say, preparing for some opportunities so that we are never -- hopefully never get into a situation that we cannot fulfill additional UHP opportunities. So we always should have a little bit of excess capacity and capabilities in this segment. But as long as we can sell also non-UHP tires and Tier 2 and 3 tires as a part of our overall customer value proposition in a profitable way, we will continue to do this. So I mean if you ask the ultimate question, do we decide or have we decided to step out of non-UHP business, then I would say a clear no because especially from the customer perspective, we want to be a reliable partner. We want to make sure that our customers can buy -- our B2B customers can buy from us what they really need, and they not only need UHP premium tires. They also need other brands and other tires. And we do believe that this is a very, very, let me say, strong value contribution or value proposition from a customer perspective.

The last question is from Thomas Besson again, from Kepler Cheuvreux.

Just a small modeling question. Can you talk about the net interest charge? I mean, your net debt is declining. It's still around EUR 300 million. Can you give us an indication of where you think it's going next year? And same question for the tax rate. You're guiding for sub 25% this year. Can you stay there or improve that further? Or have you already done the best you can on that front?

I'll take this one on net debt and then on the tax rate. So if you look at our financial targets, which we communicated back at the Capital Markets Day in June '25, we said midterm, we want to land at a leverage ratio of 1x. So on a pro forma basis, we're now around 2x. So that means we need to drop by 0.3x, 0.3x -- 0.2x, 0.3x every year. And this is also the plan for this year. So if you put that in the model, I think this is a fair assumption. On the tax rate, we went down now from 27% to 24% because we have a different business and country mix going forward. And I think -- I cannot really judge how it's going to look like in '27. I would say it's a similar level. I'm not seeing any influencing factor changing this dramatically next year.

Sorry, the question was not on debt, but on the interest charge. As your debt falls, should we assume that you can take down your net interest charge next year as well?

Maybe, Thomas, let me jump in there. I mean, what we see right now for the time being is stable gross debt, right? So we have to pay the interest for that regard. So for this year, there is no change to be anticipated. I mean once we then look at how we are planning on using proceeds, we have said roughly EUR 600 million will be used for deleveraging from the ContiTech transaction. So let's assume maybe there is one bond that might become due that we might not refinance. So this will then end up in lower gross debt, and this will also then contribute to slightly lower interest rates. But it's going to be rather a stepwise approach, given that gross debt has to go down in the first place, not necessarily net debt related.

Yes. That was my question, whether you are going to use these proceeds.

This was the last question. So I'll hand over to Max Westmeyer.

Thank you very much, and thank you all for participating in today's call. As always, we, the Continental Investor Relations team, are available should you have any follow-up questions. And with that, let me conclude today's call. Thank you very much for dialing in, and goodbye.