加载中...
共找到 38,265 条相关资讯
State seeks millions of dollars in fines for denying, delaying and underpaying home-insurance claims to Los Angeles survivors.
Wall Street's main indexes closed lower on Monday as escalating tensions in the Middle East pushed oil prices higher, raising concerns about global stability and economic fallout. The Dow Jones Industrial Average fell 557.37 points, or 1.13%, while the S&P 500 declined 0.41%.
Top global investors and executives gathered at the Milken Institute Global Conference in Beverly Hills on Monday to discuss geopolitical tensions, private credit risks and opportunities, shifting capital flows and the economic impact of artificial intelligence.
U.S. Attorney for the District of Columbia Jeanine Pirro on Monday asked a federal judge to vacate his decisions blocking aspects of her criminal investigation into the Federal Reserve under Chair Jerome Powell.
Operator: Good afternoon. Thank you for standing by. Welcome to Allison Transmission Holdings, Inc.'s first quarter 2026 earnings conference call. My name is Shamali, and I will be your conference call operator today. At this time, all participants are in a listen-only mode. After prepared remarks, Allison Transmission Holdings, Inc. executives will conduct a question-and-answer session. Conference call participants will be given instructions at that time. As a reminder, this conference call is being recorded. If anyone should require operator assistance during the conference, I would now like to turn the conference call over to Jacalyn C. Bolles, Executive Director of Treasury and Investor Relations. Please go ahead, Jacalyn. Jacalyn C. Bolles: Thank you, Shamali. Good afternoon, and thank you for joining us for our first quarter 2026 earnings conference call. With me this afternoon are David S. Graziosi, our Chair, President and Chief Executive Officer; Scott A. Mell, our Chief Financial Officer and Treasurer; G. Frederick Bohley, Allison Transmission Holdings, Inc.’s Chief Operating Officer and Allison Transmission business unit leader; and Craig Price, Allison Off Highway business unit leader. As a reminder, this conference call, webcast, and this afternoon's presentation are available on the Investor Relations section of allisontransmission.com. A replay of this call will be available through May 18. As noted on slide two of the presentation, many of our remarks today contain forward-looking statements based on current expectations. These forward-looking statements are subject to known and unknown risks, including those set forth in our Annual Report on Form 10-K for the year ended 12/31/2025. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those that we express today. In addition, as noted on slide three of the presentation, some of our remarks today contain non-GAAP financial measures as defined by the SEC. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in the appendix to the presentation and in our first quarter 2026 earnings press release. Today's call is set to end at 5:45 p.m. Eastern Time. In order to maximize participation opportunities on the call, please take just one question from each analyst. Please turn to slide four of the presentation for the call agenda. During today's call, David S. Graziosi will provide a business update and briefly review the company's performance. Scott A. Mell will then discuss Allison Transmission Holdings, Inc.’s segment reporting structure, and further review our first quarter 2026 financial performance and our full-year guidance update prior to commencing the Q&A. Now, I will turn the call over to David. Thank you, and good afternoon. David S. Graziosi: Please turn to slide five of the presentation for our first quarter business update. First, I want to recognize and thank our global employee base for all the work done so far this year. Our teams have been working diligently on integration and value capture within both Allison business units. Our execution has tracked closely with our planning, and the integration process is proceeding in a disciplined and structured manner. Having said that, it has not been without a tremendous amount of effort by the Allison teams to arrive at where we are today. As our teams more closely coordinate efforts, we are beginning to see the initial phases of synergy realization take shape across several key areas and expect to begin to see financial benefits later in 2026. It has been encouraging to see the groundwork laid prior to the transaction translate into real momentum and reaffirmed guidance in achieving our target of $120 million of annual run-rate synergies. We remain confident in our acquisition thesis: accelerating sales growth through the strategic combination of the two business units, strengthening our localized production footprint, and generating sustainable cost reductions that enhance long-term shareholder value. Allison Transmission Holdings, Inc.’s reach is now greatly expanded with our global operations allowing for more localized production and opportunities for cost reduction. By leveraging increased purchasing scale and utilizing in best-cost countries, we expect to drive value creation and margin improvement across our business. I want to give another welcome to our new colleagues around the world and thank you for all that you do. It has been a productive first quarter and exciting times for Allison Transmission Holdings, Inc. as we enter this new chapter. Moving now to a brief update on first quarter sales performance and end market outlooks for both of our business units. Please turn to slide six. Starting with our legacy Allison Transmission business, first quarter net sales were $733 million, a year-over-year decline of 4% when compared against a robust 2025. In the North America On-Highway end market, we continue to view the truck market with cautious optimism. Although order trends have shown strength and imply a slight ramp throughout the year, we believe there is still uncertainty surrounding geopolitical impacts including tariffs and final rulings on emissions regulations that are hindering end users' new vehicle purchasing decisions. Continuing with the Allison Transmission business unit, the Defense end market had an extremely strong first quarter with revenue up 64% year-over-year. We continue to see strength from international customers primarily in tracked programs, with both legacy and new products, including our 3040 MX cross-drive transmission. We hold a favorable outlook for the Defense end market as national security becomes even more relevant to nations around the world leading to increased budgets and new programs being funded. Please turn to slide seven. The Allison Off Highway business unit generated $673 million of sales in the first quarter with continued growth in the mining end market driven by elevated commodity prices, including gold, copper, and rare earth minerals. The construction and material handling end market also performed in the first quarter as global construction markets are seeing steadier investments and positive developments, particularly in Europe. In the agriculture end market, while commodity prices remain a driving factor there are early positive indicators in certain subsegments and regions—for example, the low horsepower market in India—but overall, a fairly muted environment even prior to the start of conflict in the Middle East. On that topic, the conflict in the Middle East currently has undetermined impact and implications, both favorable and unfavorable, across multiple end markets across Allison business units. While the duration of the conflict remains uncertain, we have not seen any material disruption to our business at this time. We recognize the potential for indirect impacts across our supply chains, energy markets, and broader macroeconomic conditions, and our teams are actively monitoring and maintaining close coordination. In summary, integration is progressing as expected, and value capture is materializing. End markets, although impacted by uncertainty in some aspects, are steady if not showing signs of recovery. To everyone across our organization, thank you for the extraordinary commitment, resilience, and teamwork you have shown. Your efforts have laid a strong foundation for Allison Transmission Holdings, Inc.’s future. To our investors, we are confidently positioned to unlock meaningful synergies, accelerate growth, and create lasting value. Now I will pass the call over to Scott for a review of Allison Transmission Holdings, Inc.’s segment reporting structure, first quarter 2026 financial performance, and full-year guidance update. Scott? Scott A. Mell: Thank you, David. And thanks to those of you joining us on the call. Please turn to slide eight of the presentation. Before we begin with segment and consolidated results, I want to quickly go over some housekeeping items and outline our new reporting structure. First quarter results now include segment reporting for Allison Transmission, Allison Off Highway, and Allison Central Group. The Allison Transmission business unit is the company's legacy business excluding certain costs now accounted for within the Allison Central Group, while the Allison Off Highway business unit reflects the business acquired from Dana at the beginning of the year. Allison Central Group is a centralized cost center, which includes certain functional costs that support the company's global operations. Now, on the left-hand side of slide eight, we provide sales, operating profit, and adjusted EBITDA by segment. Segment operating income flows over to the consolidated table on the right, with further detail down to net income and the non-GAAP financial measures of adjusted diluted EPS and consolidated adjusted EBITDA. Please note that first quarter gross profit in the Allison Off Highway segment was negatively impacted by approximately $76 million of one-time acquisition-related purchase price accounting items. On a consolidated basis, first quarter net income decreased year-over-year to $112 million driven by the addition of costs from the Allison Off Highway business unit, including approximately $76 million of expenses related to the stepped-up basis in inventory and incremental depreciation expense related to the stepped-up basis in fixed assets, and an additional $22 million of intangible asset amortization expense. The year-over-year decrease in net income was also driven by higher interest expense, net, along with approximately $17 million of one-time acquisition-related integration expenses. Moving down to per share earnings, first quarter diluted EPS was $1.33. When excluding the effect of noncash, nonrecurring, infrequent, or unusual items, including the costs associated with the acquisition of the Allison Off Highway business unit, adjusted net income and adjusted diluted EPS were $216 million and $2.57 per share, respectively. As a reminder, reconciliations for non-GAAP financial measures can be found in the appendix of the first quarter earnings presentation and earnings press release. There will also be more detail provided in our 10-Q to be published later this week. Please turn to slide nine of the presentation. First quarter adjusted diluted EPS of $2.57 increased 6% year-over-year, and we expect the acquisition of the Allison Off Highway business unit to be accretive to earnings on a full-year basis. Adjusted EBITDA for the first quarter was $362 million, increasing 22% year-over-year, with adjusted EBITDA margin at 26%, reflecting disciplined execution across our business units despite the less than ideal operating environment. As we have discussed previously, we believe that improving end market conditions in both business units will have a favorable impact on margins. Our value capture and synergy realization will also provide an uplift to our margins, with our target for adjusted EBITDA margin in the 27% to 29% range. Cash generation continues to be a key attribute of Allison Transmission Holdings, Inc., with the ability to generate substantial cash flow while successfully integrating the Allison Off Highway business unit and navigating uncertain end market environments, including geopolitical policies and conflicts. Now I will briefly highlight our capital allocation priorities. We continue to invest for long-term and sustainable growth across our business units with new products and initiatives targeting identified growth opportunities. We are also focused on debt reduction to achieve our near-term leverage targets while simultaneously returning capital to shareholders through share repurchases and our quarterly dividend. At the bottom of the slide, you can see how we allocated capital in the first quarter. During the quarter, we repaid $150 million of the $300 million of outstanding borrowings under our revolving credit facility, which were used as part of the funding for the Allison Off Highway acquisition. During the quarter, we also increased our quarterly dividend for the seventh consecutive year. Currently at $0.29 per share, our quarterly dividend has nearly doubled over the last seven years. And finally, we maintained our commitment to share repurchases, with $20 million of our common stock bought back in the first quarter. We ended the first quarter with approximately $1.2 billion of share repurchase authorization remaining. Even with the recent appreciation in our share price, we continue to view our stock as undervalued relative to the underlying strength of our business units and long-term earnings potential and believe share repurchases remain an attractive use of capital at this time. On the right side of slide nine, you can see Allison Transmission Holdings, Inc.’s liquidity and leverage metrics at the end of the first quarter. We ended the first quarter with $311 million of cash on hand and approximately $845 million of available revolving credit facility commitments. Our net debt is just under $4 billion, resulting in a pro forma net leverage ratio below three times when giving consideration to a full year of earnings from the Allison Off Highway acquisition. In the near term, we plan to reduce our net leverage to a target of two times through a recovery in our end markets along with margin improvement through value capture and synergy realization. We will reduce our leverage ratio through both increased earnings and a concerted effort towards debt reduction. Before moving on to the 2026 guidance update, building on David’s comments, I want to summarize our financial performance for the quarter. In summary, our businesses are performing well. Macroeconomic clarity across our end markets would be well received and likely drive increased volumes with favorable drop-throughs to margin performance and per-share earnings. Importantly, we continue to generate substantial cash flow and invest for long-term growth while also reducing debt and returning capital to shareholders. Please turn now to slide 10 for a review of our full-year 2026 guidance. Given first quarter results, and taking into consideration current macroeconomic and geopolitical uncertainty, we are reaffirming our full-year 2026 guidance provided to the market on February 23. For 2026 revenue, we expect consolidated net sales in the range of $5.575 billion to $5.925 billion. This includes net sales for the Allison Transmission business unit in the range of $3.025 billion to $3.175 billion and net sales for the Allison Off Highway business unit in the range of $2.55 billion to $2.75 billion. For earnings, we expect consolidated net income in the range of $600 million to $750 million, subject to the completion of purchase price accounting associated with the acquisition of the Allison Off Highway business unit. Our net income guidance for 2026 includes more than $100 million of one-time pretax expenses associated with the separation, integration, and restructuring of the Allison Off Highway business unit. Despite these one-time costs, we expect the Allison Off Highway acquisition to be accretive to net income and earnings per share in 2026. Further, we expect consolidated adjusted EBITDA in the range of $1.365 billion to $1.515 billion. At the midpoint, this implies a 25% adjusted EBITDA margin. For our 2026 cash flow guidance, we anticipate consolidated net cash provided by operating activities in the range of $970 million to $1.1 billion, consolidated capital expenditures in the range of $295 million to $315 million including one-time separation and integration capital of approximately $45 million, and consolidated adjusted free cash flow in the range of $655 million to $[inaudible] million. Please note that our consolidated net cash provided by operating activities guidance includes approximately $55 million of one-time cash outlays associated with our acquisition of the Off Highway business unit. This concludes our prepared remarks. Shamali, please open the call for questions. Operator: Thank you. We will now open the call for questions. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, we ask everyone in the queue to please limit themselves to only one question to allow others a chance to ask. Our first question comes from the line of Robert Cameron Wertheimer with Melius Research. Please proceed with your question. Robert Cameron Wertheimer: Yes. Hi. Thank you, good evening. There has been a lot that has changed in the world since you announced the deal and even since you closed. I wonder if you could kind of talk about what versus your deal model has changed most, the positive and most of the negative, if you would. David S. Graziosi: Hey, Rob. Thank you for the question. To your point, I think we made this comment on the last call when we were asked about tariffs and so we just got on the call; we have not checked the news a minute or two to see what happened. That continues, right? The rate of change and volatility in the overall market—every day is truly an adventure. Having said that, we are very pleased with the acquisition, frankly. We would assess it currently as exceeding expectations in terms of the additional capabilities. Frankly, I think the attributes that are required to really excel in this type of market with the level of volatility that we are seeing—the operational footprint flexibility that we now have, the additional talent in multiple regions to really address and try to mitigate. At the same time, as you know, with trade developments being what they are and some of the regional realignment that is going on, a broader footprint is really much more to our benefit than we had anticipated when we originally put the deal thesis together. Having said all that, the team is very engaged in dealing with those developments, but also, as I mentioned in the prepared remarks, working on value capture as well. One thing that has become clear as we are dealing with various issues is other opportunities as well that are arising out of that. But again, if we go back to pre-acquisition, the ability to deal with from an Allison perspective would have been a bit more challenged, frankly, just given the rather limited footprint we had at that stage. So I would say in summary, very pleased with what we have seen and what we continue to work on, but also our ability to deal with the volatility in the broader markets. Robert Cameron Wertheimer: So more internal capability and flexibility that is more beneficial in this changed world. And then on end markets, you inherited some troughy-ish end markets. Any change overall in where you see those either standing or going? Thank you. David S. Graziosi: It is good in terms of an update there and, between the prepared remarks and what we had listed out in the press release as well as the IR package, I would say overall, our view in terms of end market conditions has not really changed. I think to use your word, troughy, that still really is our view. If nothing else, it is pointing out as, hopefully, we all get some clarity in terms of these geopolitical developments what the future holds. But it is very clear equipment in our end markets continues to be utilized, and that will always lead to demand. It is just a question of when exactly that will happen, but we feel very good about overall the point that we entered the markets. Operator: Thank you. Our next question comes from the line of Timothy W. Thein with Raymond James. Please proceed with your question. Timothy W. Thein: Thank you. Good afternoon. The question is on the target for adjusted EBITDA margins of 27% to 29%. David, just curious what, in terms of your internal model, when you see that as a potential realization? And to the extent has that moved up or down as you closed the acquisition—essentially, the timeline to hit that—has it changed, and how are you thinking in terms of realization of that target? Thank you. David S. Graziosi: Tim, I appreciate the question. I would say overall, very comfortable with the target range that you mentioned. From a timing perspective, given a few of the near-term issues that have arisen that I just mentioned, there is no longer-term impact in terms of our timing. As we said at the time of the acquisition announcement and close, we still feel that is very attainable within a few years. One thing I would certainly repeat is the work that the team has been doing on value capture and synergies—with some of these market condition changes—has really pointed out a number of other areas that the team is diving into as well. So again, we feel very good about the range and the timing being realized over the next handful of years. Jacalyn C. Bolles: Thank you, David. Operator: Thank you. Our next question comes from the line of Ian Alton Zaffino with Oppenheimer & Company. Please proceed with your question. Ian Alton Zaffino: Hi. Thank you very much. I just wanted to ask on the medium-duty side. When do we think that starts bottoming out and improving in a larger way? And then when we think about just the business in general, what could potentially offset that as far as vocational? Any other color you could give us there? Thanks. G. Frederick Bohley: Sure, Ian. This is Fred. Relative to medium duty, the first quarter was still extremely soft. I will say we are starting to see some signs that would give you some optimism there, relative to the lease-rental guys—some of them leaning into the market a little bit. I think the unknown for 2026 is really where we end up on medium-duty engines, which I think we need some direction from the EPA and how that is going to impact the cost of engines going into 2027. As we have the year modeled, we have had and continue to have the second half stepping up somewhat from the first half. Relative to Class 8 straight truck, versus our initial expectations, it was a little stronger in Q1 and continues to remain steady in demand. Ian Alton Zaffino: Okay. Thanks. And then just as a follow-up on use of capital or use of cash flow. I know you talked about buybacks and deleveraging. How are you kind of prioritizing one versus the other? Because I know the stock is cheap, but at the same time, you want to delever. And then are we kind of done on the M&A side for the foreseeable future, just given you are in the midst of integrating a very large one? Any color there? Thanks. Scott A. Mell: Yes, it is Scott. On the capital allocation, as I mentioned on the call, fortunately, we have not had to make overly challenging decisions on the allocation of capital. We feel very comfortable with the cash-generating abilities of both business units and the overall company. We have talked about this year targeting getting down to a two-times net leverage multiple here in the very near future, next couple of years. We paid $150 million off in the first quarter. I think you should anticipate seeing that rate somewhat continue as we go throughout the course of the year. And obviously, we are still in the market repurchasing shares. At share prices where they are today, it is not as dilutive to shares outstanding, but still demonstrative of our ability to continue to buy back shares. So that is not going to change. I think what you saw in the first quarter is a good precursor to what we expect to see over the course of the rest of the year. David S. Graziosi: And, Ian, on your second question in terms of future inorganic opportunities or otherwise, we continue to be active assessing different opportunities. So our capital allocation model that Scott went through—overall leverage targets, etcetera—and the ability of the business, the new business so to speak, to generate cash, we are continuing to be active looking at different opportunities. That being said, as you know and from your comments, the team is very engaged working on a sizable acquisition with our new team members. In the meantime, we are also assessing, as part of the combined business, other opportunities that could present themselves from an inorganic perspective. In summary, we remain engaged in that process and will certainly provide an update should one be necessary. Operator: Thank you. Our next question comes from the line of Jerry Revich with Wells Fargo Securities. Please proceed with your question. Jerry Revich: Yes. Hi. Good afternoon, everyone. I am wondering if you could just talk about your expectations for sequential performance in the business. I think normally, for both the Allison and the Dana Off Highway business, we have production ramping up sequentially 2Q versus 1Q and margins up sequentially. Is that how we should be thinking about this year? And then separately, can you just comment on your expectations of synergy capture as we go through the year? Do you expect any cost benefits 2Q versus 1Q? G. Frederick Bohley: From a sequential standpoint, Jerry, this is Fred. We do expect things on the Transmission side to step up sequentially, and as we have it modeled, we have Q2 up off of Q1, and then Q4, based on the number of days, stepping down a little. I think the drivers there will really be whether there is a meaningful prebuy in Q4. And, Craig, maybe you want to talk a little bit about what you are seeing sequentially? Craig Price: Yes, sure. From the Off Highway side, there is a step up in Q2. A greater portion of our business is in the European segment where in Q3 we get into the European holiday mode, so Q3 and Q4 can tend to go down for us. That is the picture from the Off Highway side. Scott A. Mell: And on the synergy capture, as David and I mentioned, we are starting to get much clearer line of sight relative to the specific opportunities—size, timing—everything that you need to start to see that impact through the financials. What I will tell you is our expectations on the amount of opportunity and the timing of the opportunity has not changed whatsoever, and as we go throughout the course of the year, I think you should expect to hear from us relative to providing more detail on impact and updates on when we think we will get the full run-rate of those impacts. Jerry Revich: Super. Thank you. And Fred, can I just ask a clarification? You mentioned we will see what the EPA wants to do. What is the range of outcomes? Is there a scenario under which EPA ’27 is delayed, or considering the timing of engine rollout, is there a potential for higher prebuy in medium duty? What is the range of outcomes that you alluded to that you think is reasonable? G. Frederick Bohley: We are not expecting a delay. I think most are expecting some sort of modification to the warranty. My specific comment was really relative to medium duty and the ability of everybody to meet the requirements of 2027—and if not, what could be some associated fees for being noncompliant—and then how that might impact a prebuy or not in 2026. Operator: Thank you. Our next question comes from the line of Tami Zakaria with JPMorgan. Please proceed with your question. Tami Zakaria: Hi. Thank you so much. The $673 million of Off Highway revenue this quarter—could you tell us how that compares to last year? And related to that, could you comment on price realization by segment—On-Highway and Off Highway, please? G. Frederick Bohley: I will take the price one first and then let Craig roll through what he is seeing in generalities on a year-over-year basis. From a price standpoint, within Allison Transmission in the quarter we generated about 325 basis points of price. We expect to be in that range for the full year. And as we talked about on the last earnings call, we anticipate price for Allison Off Highway to be neutral year-over-year. Craig Price: And from the Off Highway end market year-over-year comparison, I would say that we were up probably just over 10% year-over-year. It was a combination of currency factors, given the footprint and sales in Europe—we went from a euro conversion of about $1.07–$1.08 to roughly $1.17—and we also saw significant strong demand across a number of our segments. As David alluded to in his prepared remarks, we saw the construction market that was positive for us in Europe but was slightly negative in North America. Agriculture was a positive trend as well for us. The different subsegments of high horsepower business in Europe were strong. Also, the low horsepower business out of India came in strong. And the mining segment was up significantly as well, driven by the higher commodity prices seen at this time. Tami Zakaria: Understood. Thank you. Operator: Thank you. Our next question comes from the line of Angel Castillo Malpica with Morgan Stanley. Please proceed with your question. Angel Castillo Malpica: Hi. Good evening. Thanks for taking my question. I was hoping to go back to the end market discussion. I think, David, you mentioned that end market views have not really changed. It sounds like at least in North America On-Highway there are some pockets that maybe are coming in a little better than expected. I fully understand there is still a lot of uncertainty in the second half, but as you think about the unchanged full-year guide, could you go through the other Transmission end markets? Any others where you are seeing particular pockets of maybe better performance? I know Defense looked like it was a pretty good quarter here. Any others that maybe are offsetting that and where you are seeing a little bit more weakness? In particular, any commentary you have in terms of order books or customer commentary would be helpful. G. Frederick Bohley: Hey, Angel. This is Fred. I think we have already covered North America On-Highway, the largest end market. You mentioned Defense—it was an amazing quarter, with revenue up 64%, and we anticipate the balance of the year looking a lot like Q1. I would say relative to the quarter, things were a little softer outside North America On-Highway than what we had initially modeled. We do expect the service parts business to be stepping up sequentially into Q2. We are seeing, as Craig mentioned, strength from a mining standpoint in his business unit. We think we have some upside in our Global Off-Highway relative to mining as well as hydraulic fracking. Angel Castillo Malpica: Got it. That is helpful. And maybe just some housekeeping questions as we try to model the pro forma business. The $12 million of corporate, I think that was in the first quarter—is that a good run rate for how we should think about that part of the business, the Central Group, on an EBITDA basis? And then will you be giving the end markets that you gave for Off Highway historicals for 2025? Scott A. Mell: I will answer the second question first. No, we do not intend to provide that level of detail for the business since we did not own it. Relative to the Central Group function EBITDA number of $12 million, when you carve out the nonrecurring and the noncash stock comp, I think that is a reasonable number to apply on an annualized basis. Angel Castillo Malpica: Got it. Thank you. Operator: Thank you. Our next question comes from the line of Luke Junk with Baird. Please proceed with your question. Luke Junk: Thanks for taking the question. Maybe just continuing on that Defense thread, Fred, wondering how you think about the interplay between Defense and North America On-Highway if the latter comes back later this year. Historically, there has been a level of interrelationship there from the supply chain standpoint to some extent in the past, but maybe looking forward, that relationship is not as strong or as relevant in the current geopolitical environment. Can you just talk about that interplay a little? Thank you. G. Frederick Bohley: I would say at this point, with a lot of the growth in Defense being driven by non-U.S. government, outside North America volume—and we talked about the successes we are having with Hanwha in Korea with the K9 howitzer, our 3040 MX and our 4040 MX, new products for us—with Borsuk out of Poland, the Kaplan out of Turkey, BAE Hägglunds—there is a really good backdrop for Defense. We have invested in these products even pre-pandemic. They are coming to market. We are extremely excited about them and expect to have a great year in Defense. So I would not, based on the fact that it is primarily driven by outside North America, see much connectivity back into the North America On-Highway end market. Luke Junk: Maybe just related to that, is any of this flowing through the Outside North America On-Highway segment? I know you can tend to pick up some commercial terms that are better there. Are we seeing any of that in that part of the business? G. Frederick Bohley: We do flow the wheeled portion of the Defense through the Outside North America On-Highway, primarily because we are selling a lot of times to the same OEMs. We are seeing strength primarily in Europe relative to wheeled volume. We are also seeing some strength in Europe from a vocational standpoint as well. Luke Junk: Very helpful. I will leave it there. Thank you. Operator: Thank you. Our next question comes from the line of Kyle David Menges with Citigroup. Please proceed with your question. Kyle David Menges: Great. Thank you for taking the question. I just wanted to go back to some of the pricing comments and how to think about price versus cost for the two business units for the year. The 350 or so basis points for the Allison Transmission piece of the business—at that level, are we price/cost positive for the year? Are we confident in that? And then it sounds like for the Off Highway business, if price is flat, I am assuming cost inflation is greater, so then the price/cost would be negative in that business for the year? Scott A. Mell: On the Allison Transmission business, yes, we do anticipate our year-over-year price to cover inflationary cost factors, with obviously the delta in the first quarter being the volume and mix impact there. On the Off Highway side, while they obviously have less pricing leverage, they certainly have shown the ability to take costs down on a year-over-year basis relative to either operations or purchasing. Craig, you can expand a bit. Craig Price: Sure. I would classify it as pretty neutral. To Scott’s points, there are some minor price givebacks, but we are able to offset those within our operational structure. Kyle David Menges: Helpful. Thank you. Operator: Thank you. Our next question comes from the line of Analyst with Bank of America. Please proceed with your question. Analyst: Hi. Good afternoon. Just looking at the first quarter, adjusted EPS was up about 6% year-over-year and adjusted free cash flow is down about 34%. I understand reaffirmed guidance calls for both to grow on a year-over-year basis for 2026, but can you give us some color on the seasonality of working capital for the new business and what Allison Transmission Holdings, Inc.’s free cash flow profile looks like now through the year? Scott A. Mell: Yes. A couple of questions in there. I think the cash flow profile is going to be very similar to what you experienced prior to the acquisition, with it being said that the first quarter for the Off Highway business unit is a substantially meaningful user of cash during the quarter, just given some of the seasonality and the fact that it is a European-centric organization. But as you think about your modeling on a go-forward basis, you should expect to see the quarterly trends that you have seen in the past in terms of Q1 being a use of cash, Q2 turning the other way, Q3 turning back, and then Q4 generating cash as we get to the end of the year. Analyst: Thank you. Operator: And we have reached the end of the question-and-answer session. I would like to turn the floor back to David S. Graziosi for closing remarks. David S. Graziosi: Thank you, Shamali. Thank you for your continued interest in Allison Transmission Holdings, Inc. and for participating on today's call. Enjoy your evening. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Good afternoon. I would like to welcome everybody to Repay Holdings Corporation's First Quarter 2026 Earnings Conference Call. This call is being recorded today, 05/04/2026. I would like to turn the session over to Stewart Joseph Grisante, Head of Investor Relations for Repay Holdings Corporation. Stewart, you may begin. Stewart Joseph Grisante: Thank you. Good afternoon, and welcome to Repay Holdings Corporation's First Quarter 2026 Earnings Conference Call. With us today are John Andrew Morris, Co-Founder and Chief Executive Officer, and Robert Hauser, Chief Financial Officer. During this call, we will be making forward-looking statements about our beliefs and estimates regarding future events and results. Those forward-looking statements are subject to risks and uncertainties, including those set forth in the SEC filings related to today's results and our most recent Form 10-K. Actual results may differ materially from any forward-looking statements that we make today. Forward-looking statements speak only as of today, and we do not assume any obligation or intent to update them except as required by law. In an effort to provide additional information to investors, today's discussion will also reference certain non-GAAP financial measures. Reconciliations and other explanations of those non-GAAP financial measures can be found in today's press release and in the earnings supplement, each of which are available on the company's IR site. In connection with our 2026 annual meeting of stockholders, we intend to file a definitive proxy statement and related materials with the SEC. Our directors, and certain of our executive officers and employees, will be participants in the solicitation of proxies in connection with the annual meeting. Stockholders are encouraged to read the proxy statement and related materials when they become available as they will contain important information, including the identity of the participants and their direct or indirect interest by security holdings or otherwise. As you may know, Veridae Partners submitted a request for the Board to waive the timeliness requirement of our bylaws for stockholders to provide notice of intent to submit director nominations for candidates to stand for election to the Board at the annual meeting. The Board determined to deny the request, and on Friday, May 1, we filed our preliminary proxy statement with the SEC. Veridae failed to comply with the requirements set forth in our bylaws and is not entitled to make lawful director nominations at this year's annual meeting. Additionally, the Board previously confirmed receipt of an unsolicited nonbinding proposal from Forger Capital to acquire the outstanding shares of the company. Earlier today, we sent a letter to Forger Capital and issued a press release providing that the Board has unanimously rejected the nonbinding proposal because it significantly undervalues the company and is therefore not in shareholders' best interest. At this time, we will be making no further comments or taking any questions on Veridae, Forger Capital, or any matters related to the [inaudible]. With that, I will now turn the call over to John. John Andrew Morris: Thanks, Stewart. Good afternoon, everyone, and thank you for joining us today. Repay Holdings Corporation had a solid start to the year after exiting 2025 with continued momentum. Since reporting full-year 2025 earnings in March, we announced a strategically significant acquisition to create a scaled bill payment provider with the technology and market position to lead the digital journey across the payment ecosystem. I will talk more about the Kubra acquisition in a little bit, but let us first go over the highlights of our Q1 results and progress we have made. During Q1, Repay Holdings Corporation remained focused on our core growth and operational execution. We achieved 4% revenue growth, approximately 43% adjusted EBITDA margins, and continued to generate positive free cash flow. We exited the quarter with over 297 software partners across our consumer and business payment verticals. In Consumer Payments, Q1 revenue increased approximately 4% year over year as we implemented new enterprise clients who are adopting more payment channels and modalities. We have seen strong interest in our digital wallet capabilities and began our phased rollout of Repay Voice AI to select enterprise clients. Throughout last year, Repay Holdings Corporation has been investing in our sales and customer support teams while also enhancing many of our software integrations to help further penetrate existing partnerships and create overall better user experiences. The teams are working through the onboarding, implementation, and ramping of clients in our sales pipeline, which we are confident will drive accelerating growth as we move through the year. During the quarter, we continued to automate workflows and deployed AI capabilities to improve processes such as performance and risk monitoring for our ever-growing volumes on our gateway. We have also been optimizing network routing, leading to tangible payment efficiencies. In addition, we completed a strategic partner investment leading to an immediate EBITDA uplift from existing volumes during the quarter. And finally, we have strengthened our Consumer Payments leadership. We are excited for Matt Morrow to join Repay Holdings Corporation in the coming weeks as a new executive leader of Consumer Payments. Matt brings over a decade of payments and business services experience managing growth through disciplined strategic planning. His extensive experience and history with embedded payment partners will oversee the Consumer Payments growth, sales, and operational initiatives going forward. Now moving over to our Business Payments segment. Business Payments had another quarter of strong performance with Q1 revenue increasing approximately 18% year over year. The business added two new software partners in the quarter, leading to many new clients across our verticals. Our sales pipeline continues to build in our automotive, property management, government, and education verticals. New client wins include regional multi-location auto groups, and multiple government and school districts within certain regions. In addition, the political media vertical started to see an uptick in processing ahead of the back-half-weighted political media cycle heading into the 2026 midterm elections. We ended Q1 with over 665 thousand vendors in our supplier network, an increase of over 70% year over year. Vendor enablement is a great example of where we are deploying automation to improve vendor matching for clients. During the quarter, we were able to automatically match more than 15 thousand new vendors, which will allow us to improve our digital monetization for both new and existing volumes over time. The last topic I would like to discuss is our recently announced acquisition of Kubra. In evaluating capital allocation alternatives, including share repurchases and M&A, we believe the Kubra acquisition offers the most compelling long-term value creation opportunity given its scale, nondiscretionary, recurring revenue profile, and synergy potential. We have received feedback from certain shareholders on Kubra and wanted to address those points directly. Before doing so, I should reiterate our Board's continued support of the acquisition and management's belief in the long-term benefits. The acquisition is supported by fully committed financing. As such, the teams are moving forward expeditiously, and we expect to close the transaction during Q2 2026. We have also been asked about our plans for integrating the companies. Our teams have been actively planning for the integration to hit the ground running on day one to provide the identified value creation opportunities in the near term. This incorporates integrating technology, employees, and most importantly, client relationships and the support for a seamless transition. I look forward to engaging with Kubra's clients in the coming months once the deal is closed. Given the acquisition is yet to close, there are limits to the level of detail we can provide at this time; however, we will provide additional detail following closing. The Board and management remain confident in the strategic and financial rationale of the Kubra acquisition. As with any integration of this scale, execution will be critical, and we are focused on disciplined integration planning to mitigate operational and client transition risk. Together, we offer a comprehensive end-to-end digital platform. This means spanning across bill presentment, communication services, and payment processing with our own clearing and settlement engine. The acquisition will result in a compelling strategic combination in the market, leading to management and the Board's confidence in creating long-term value for all stakeholders. The Board remains focused on the fiduciary duty to maximize long-term shareholder value and regularly evaluates strategic alternatives, such as the Kubra acquisition. We believe the Kubra acquisition provides that significant scale. Based on 2025 Kubra results, we will approximately double our revenue, interact with over 40% of US and Canadian households every month, and process over $130 billion in annual payment volume as we serve nondiscretionary categories with recurring billing cycles. Importantly, the transaction is expected to enhance our free cash flow profile over time and provide identifiable cost and revenue synergy opportunities. We are targeting a return to below 3x net leverage within approximately eighteen months of closing, supported by the combined company's cash flow generation, synergy realization, disciplined capital allocation, and, as appropriate, ongoing evaluation of opportunities to further enhance balance sheet flexibility. We expect to generate strong free cash flow over this period and look forward to providing additional updates following closing on our progress throughout 2026. With that, I will turn the call over to Rob to go over Repay Holdings Corporation's Q1 financials. Rob? Robert Hauser: Thank you, John, and good afternoon, everyone. In the first quarter, Repay Holdings Corporation delivered results that were in line with our internal expectations across key metrics. Revenue was $80.8 million, representing 4% growth year over year. Consumer Payments revenue increased 4% year over year. Business Payments reported revenue increased 18% year over year, and normalized revenue increased approximately 16%, which excludes the positive political media contributions during the quarter. We expect this positive momentum and sustained contributions from existing clients as well as incremental contributions from new clients will increase growth momentum as we move throughout 2026. We also started to see early contributions from the political media spending cycle that occurs every two years, which we typically see a majority of in Q3 and Q4 around the November elections. Q1 adjusted EBITDA was $34.4 million, representing approximately 43% adjusted EBITDA margins. During the quarter, we began to benefit from cost improvement initiatives such as optimizing volume routing, and the immediate accretion from a strategic distribution partner investment we made during the quarter. As we updated in our flash Q1 performance last week, we raised our adjusted EBITDA outlook, which represents an improvement in our margin expectations, to approximately 42% for full-year 2026. This improvement includes the volume mix impacts that we have recently seen and the ongoing growth investments towards our sales, customer support, and technology. First quarter adjusted net income was $19.4 million, or $0.22 per share. Free cash flow was $5.4 million during the quarter, resulting in 16% free cash flow conversion. During Q1, we made approximately $15 million in tax receivable agreement payments related to the 2024 tax reporting year. In addition, we paid approximately $22.5 million for a strategic distribution partner purchase. We immediately benefited from this investment as the volumes were already on Repay Holdings Corporation's platform. The investment resulted in immediate EBITDA uplift during Q1 and for full-year 2026. In January, we used approximately $37 million in cash and drew $110 million on our revolving credit facility to refinance our maturing 2026 convertible notes. Total debt outstanding at quarter end was comprised of $288 million of convertible notes due in 2029 with a 2.875% coupon and the $110 million draw on our revolver facility. As of March 31, we had approximately $44 million in cash on the balance sheet and net leverage of approximately 2.7x. With a strong and resilient Q1 behind us, we are confident in achieving our 2026 outlook for double-digit revenue growth. As previously mentioned, we recently increased our full-year adjusted EBITDA outlook to represent 42% margins for 2026. For the full year 2026, Repay Holdings Corporation expects revenue to be between $340 million and $346 million, representing 10% to 12% reported revenue growth, and, when excluding political media, approximately 7% to 9% normalized revenue growth. Adjusted EBITDA is now expected to be between $141 million and $146 million, and we are confident in achieving our free cash flow conversion target of 45%. Please keep in mind that net interest expense is included in our free cash flow, which includes the interest payments associated with our 2029 convertible notes and the recent $110 million draw on our revolving credit facility. We are also expecting to benefit from a strong midterm election cycle, with the majority of political media contributions occurring in Q3 and Q4, to positively impact revenue by $8 million to $10 million, representing approximately three percentage points of reported growth year over year. Our current 2026 outlook does not incorporate contributions or expenditures related to the recently announced Kubra acquisition. We remain confident closing during 2026 upon receiving regulatory approvals. As I outlined on our previous earnings call, Repay Holdings Corporation's capital allocation priorities are focused on creating long-term value while maintaining strong cash generation for future opportunities. In light of the Kubra acquisition, our overall capital allocation framework remains unchanged, and we are working toward closing the transaction and then deleveraging. In 2026, we have and will continue to deploy capital towards key strategic priorities of organic growth and M&A catalysts to achieve long-term growth. Our first priority is to remain focused on organic growth opportunities. We continue to make targeted investments to strengthen our position and accelerate our growth opportunities. We have announced strategic M&A and partnerships. The Kubra acquisition is expected to generate compelling value creation opportunities, including the identified cost synergies by streamlining operations, integrating tech platforms, and better aligning Repay Holdings Corporation's overall corporate structure. Following the closing of the Kubra acquisition, we will continue our commitment to prudently manage balance sheet flexibility and leverage. With the strong free cash flow accretion of the combined companies, we are targeting a return to below 3x net leverage supported by strong free cash flow generation, synergy realization, and disciplined capital allocation within eighteen months of closing. We believe maintaining a prudent level of CapEx for product and technology initiatives to deliver the best experience for our clients and their consumers is mission-critical. As we move through 2026, we are focused on accelerating our growth and achieving our 2026 outlook and are committed to implementing our capital allocation strategy. I will now turn the call over to the operator to take your questions. Operator? Operator: Thank you. We will now open the call for questions. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from Joseph Anthony Vafi with Canaccord Genuity. Please proceed. Joseph Anthony Vafi: Hey, guys. Good afternoon. Nice to see the revenue outlook guidance and the accelerating growth here. I know you do not provide quarterly guidance, but as we look at the year and the ramp on the top line, excluding political media, how should we think about how the quarters progress on the top line? And then I will have a quick follow-up. Robert Hauser: Hey, Joe. Thanks for the question. We had a strong first quarter, coming in at 4% growth. Excluding political media, we expect the full-year ramp to be at the 7% to 9% growth as we guided. As I talked about last quarter, we had some new client wins that pushed into the second half of this year. In Q1 of this year, we are also lapping some small attrition that happened in the back half of last year. So we are at 4% growth this quarter, and we expect a ramp as we get into Q2 and really into Q3, as some of those new client wins come on. We feel really confident about that. When you include the reported numbers, the 10% to 12% double-digit growth for the year, we have a strong political media cycle in this midterm election season that really ramps in Q3 and Q4, and that is what really gets us to the reported double-digit growth for the year. Joseph Anthony Vafi: Thanks for that, Rob. And then could you remind us on the dynamic in Consumer? I know you are expanding offerings with some customers, and there is a dynamic that leads to maybe a short-term headwind and then a longer-term tailwind. And then, is there a macro assumption built into the outlook here for 2026? John Andrew Morris: Hello, Joe. Specifically, we continue to see a stable consumer based on the trends we see currently, and that same outlook is considered in our full-year outlook. Operator: Our next question is from Peter Heckmann with D.A. Davidson. Please proceed. Peter Heckmann: Hey, good afternoon. Thanks for taking the question. Just in terms of the Kubra deal and evaluating it versus, let us say, buybacks or other smaller deals, what are one or two of the most compelling aspects of Kubra? What does it bring to Repay Holdings Corporation? And then, in terms of thinking about the combined company, what attributes would you see two years out that really make you feel like either your growth rate, margin profile, or both will really drive additional shareholder value? John Andrew Morris: Yes, we are very excited about it. It gives us a comprehensive end-to-end digital platform, taking the best of both of us, which really allows us to expand across our bill presentment capabilities, our communication services, and our overall payment processing with our own clearing and settlement engine. We take the strengths of both as we deliver new solutions together on behalf of our clients, and we think that is a great long-term value creation opportunity. I would also point you to slide eight in our earnings supplement. We think we become one of the leading providers in these resilient verticals. It expands our TAM, really increases our scale, and there are some compelling synergies that we have talked about in this transaction. On a post-combined basis, as we look out into the next eighteen to twenty-four months, it gives us what we consider to be very attractive financial strength as well. Robert Hauser: I would just add that the free cash flow generation of the combined company is what really excites us as well—pretty decent free cash flow conversion as we go into the out years. As John mentioned, we are committed to hitting those synergies, and we are really confident in those synergies out of the gate. We have plans in place and are very confident on day one of close to start executing on those. John Andrew Morris: Let me touch on a couple of other points I mentioned earlier. It approximately doubles our revenue. We will be able to interact with over 40% of all US and Canadian households every month and process over $130 billion in annual payment volume. These are very nondiscretionary categories with highly recurring billing cycles. Think about this as becoming a very large consumer bill pay processor on a combined basis. We think it is recession resistant as well. Peter Heckmann: That is helpful. And then on the small, relatively small deal in the first quarter, does that contribute any revenue, or does it eliminate, like, a rev share or residual so it really just has an impact on the EBITDA line? John Andrew Morris: No additional revenue contribution there. It is a fully integrated strategic partner, so no additional revenue, but it is a fantastic opportunity for us as a highly strategic distribution partner. Robert Hauser: And on the EBITDA side, it contributed a little less than $1 million in Q1, and it was part of our full-year re-guide for EBITDA—about a $4.5 million increase. And remember, it is not a full year because we brought it in toward the end of the quarter. We hit our quarter guide, and we still feel strong about the guide we gave in the fourth quarter. Really, the uptick was due to this strategic distribution partner. Operator: Our next question is from Mike Grondahl with Northland Securities. Please proceed. Mike Grondahl: Hey, guys. John, in the Consumer side—auto and personal loans—how would you describe the headwinds you are facing there versus tailwinds? If you could handicap those two businesses for us, that would be helpful. John Andrew Morris: Good afternoon, Mike. It has been fairly consistent for the last few quarters, and we are not seeing any major differences. We still see resiliency. One example would be that we had a strong February and March on the Consumer side from a tax refund season perspective. We see positive trends in our volumes. Currently that is what we are seeing, which we think are very stable trends across our verticals. Mike Grondahl: Got it. And over the course of 2026, any important larger customer renewals to call out? John Andrew Morris: Specifically for core Repay Holdings Corporation, nothing that I would call out beyond what is normal for us. As most of you are aware, in the payment processing world, many contracts have some type of automatic evergreen. Nothing unusual there. Mike Grondahl: Got it. And then lastly, you noted your digital wallet capabilities in the press release. Could you highlight those again? John Andrew Morris: Sure. From a digital wallet perspective, think about your card statement or bill being automatically dropped into your native wallet—your Apple or Google wallet on your phone. We are delivering that solution and are currently rolling some of it out with clients. We will be able to take consumer invoices or consumer bill presentments and present that directly into their native Apple device. We see significant interest from our clients, including billers. We also talked earlier about using AI to help with our product development. Specifically, we have used that to create what we consider to be IVR reimagined into Repay Voice AI, an interactive AI solution on behalf of our billers. When someone calls in and wants to make a phone payment, we are able to use AI to help them drive that. We are in the early stages of testing and rolling some of those things out with our clients but see significant interest in our product development. Operator: Our next question is from Timothy Chiodo with UBS. Please proceed. Timothy Chiodo: Great. Thank you. A topic that we brought up on a prior call—we hit on this a little bit—but I see a comment in slide four. It seems as though it has risen to a greater level of materiality. You have a comment that says gross profit margins experience near-term impact from changes to enhanced data programs at the card networks. I was hoping you could expand upon that comment. John Andrew Morris: Hi, Tim. Yes. We have seen what we expected regarding the impact coming through from Level 2 and Level 3 on the CEDP in the Business Payments side, predominantly on the AR side. We have seen that impact come through as expected, and that is embedded in our annual outlook as well. We do see opportunities from our growth in our B2B space on total payment volume to continue to drive monetization in addition to that. Robert Hauser: I will just reaffirm that we had always forecasted that impact, and our original guide had baked the L2/L3 impact into our numbers. You are seeing that impact fall through as we expected. Operator: As a reminder, press star one on your telephone keypad if you would like to ask a question. Our next question is a follow-up from Joseph Anthony Vafi with Canaccord Genuity. Please proceed. Joseph Anthony Vafi: Thank you. Just one quick follow-up. You mentioned a few new customer ramps that you have good visibility to. Are there any other organic go-get requirements to get to your guidance this year—other than maybe small, normal-course items—or is the visibility pretty good on these new client wins? Robert Hauser: Thanks for the question. For 2026, we feel really good about those bookings—they are already booked—and it is really about executing on deploying those clients and ramping them in the second half, which we have a lot of confidence around. A lot of the work that our sales team is doing now is starting to focus toward 2027. Our confidence level on those bookings is high; it is just a matter of deploying in the second half. Operator: We have a follow-up question from Mike Grondahl with Northland Securities. Please proceed. Mike Grondahl: Hey, guys, just one more. As I was looking through your new May 2026 deck, page 22 lists a handful of acquisitions that you have done. John, what was the best acquisition you did and why? And which one was maybe the toughest and why? John Andrew Morris: Specifically on acquisitions, acquiring TriSource—which is our back-end clearing and settlement—has fundamentally advanced our understanding of payments and the whole technology stack and infrastructure. Our ability to use that to maximize our overall margins, throughput, and overall client experiences has to rank at the top, though not as a single item. Our B2B acquisitions have been very positive for us as well. On the challenging side, sometimes the smallest ones can be a bit more challenging because of the ability to move certain technology pieces around despite the ROI. Ultimately, the challenge can be in combining things together. We have not done an acquisition in the last three years, so we are very confident in what we have done and how we have merged our tech stack together and enhanced our overall product offerings. We think we are in a really good spot from an overall product competitive perspective. We have really monetized many things across both sides of the business. If you add what we are doing with AI and how we are leaning hard into AI on a lot of different things—investments in integrations and implementations—we have not fully turned our flywheel there as we want to. We will continue to use that to enhance the experience, improve front-office and back-office processes, and speed up implementations. We think there are fantastic opportunities ahead. Combined with what we have learned over the past several acquisitions, this gives us a great deal of confidence in the Kubra transaction. We know execution is critical, but we think we are set up well to execute. Operator: There are no further questions at this time. I would like to turn the floor back over to John for closing remarks. John Andrew Morris: Thank you, everyone, for joining us today. Repay Holdings Corporation had a strong start to the year, and we remain focused on executing against our priorities, including closing the Kubra transaction. We are also focused on accelerating toward double-digit reported growth with strong profitability and our 2026 outlook. We believe the Kubra acquisition will put us in a better position to scale and benefit from the opportunities ahead. Thank you so much for joining us. Operator: This concludes today's conference. You may disconnect at this time, and thank you for your participation.
Deborah Belevan: Good evening everyone and welcome to Duolingo, Inc.'s first quarter 2026 earnings webcast. Today, after market close, we released this quarter's shareholder letter, a copy of which you can find on our IR website at investors.duolingo.com. On today's call, we have Luis von Ahn, our cofounder and CEO, and Gilian Munson, our CFO. They will begin with prepared remarks before we open the call for questions. Analysts may ask a question by using the raise hand feature. Please note this call is being recorded and all participants are currently in listen-only mode. Before we begin, please note we will make some forward-looking statements regarding future events and financial performance. These statements are subject to risks and uncertainties described in our SEC filings and are based on our assumptions we believe to be reasonable as of today. We undertake no obligations to update them. We will also discuss both GAAP and non-GAAP financial measures. Reconciliations between the two can be found in our earnings materials, and we encourage you to review them when evaluating our performance. I will now turn it over to Luis. Thanks, Debbie. Luis von Ahn: And thank you all for joining. Q1 was about execution. We said we were going to prioritize teaching better and changes in growing users, and that is exactly what we did. DAUs grew 21% year-over-year, right in line with what we expected as we make this strategic shift. I want to spend a few minutes on what we shipped this quarter related to language learning, because teaching better is the foundation of everything we are building toward. Speaking practice has historically been the hardest thing to do well on a mobile app. This quarter, we made it a bigger part of the experience for free users and paid subscribers. We introduced spoken tokens, which let learners speak their answers to almost any exercise. We started rolling out speaking adventures, which put learners in real-world conversational scenarios. And we launched flashcards, which help learners build fast recall by saying words aloud. And for our paid subscribers, video call keeps getting better. Over the past year, we have more than doubled the average number of words spoken per user in that feature. We also reached a major milestone on content. We now offer courses up to professional proficiency, which is B2 on the CEFR scale, across our nine most learned languages. And we got there fast. In Q1 alone, we published 20.5 thousand course units. To put that in context, that is more than 10 times what we were shipping per quarter just two years ago. AI has fundamentally changed what is possible for us, and I believe we are just scratching the surface. The product is better than it has ever been, and I could not be more excited about what is ahead. I will now turn it over to Gilian. Gilian Munson: Thank you, Luis. Q1 was a solid quarter. We achieved double-digit growth in both bookings and revenue, expanded gross margin, and delivered adjusted EBITDA of $83 million, which is about 29% of our revenue. As you consider 2026, it is worth reiterating how we are thinking about the year. We are investing deliberately to set us up to be a larger, more durable, long-term business. This means that for this year, we are managing the business towards the targets that we shared on the fourth quarter call. Specifically, 10% to 12% bookings growth, 15% to 18% revenue growth, and an adjusted EBITDA margin of about 25%. To help with your modeling, we have provided point estimates for full-year 2026, consistent with those ranges: bookings growth of roughly 10.5%, revenue growth of roughly 16.1%, and an adjusted EBITDA margin of 25.7%. A few things we want to make sure are on your radar as you build out your models. On bookings, our expected Q2 bookings growth of about 6% reflects a tough comp. The prior-year quarter included the initial rollout of Energy, a price increase on our most popular subscription plan, and exceptional advertising performance. We expect about 17% growth in Q2 for revenue, after which we expect growth to step down in Q3 before stabilizing in Q4. We do expect bookings growth to accelerate through the second half with about three points of acceleration in Q3 and a further rise in Q4. For gross margin, we expect it to be approximately 71% in Q2, after which it will trend down to roughly 69% by the end of the year as AI-powered feature use in our products expands. Adjusted EBITDA margin in Q2 should be roughly 24%. We expect Q3 adjusted EBITDA margin to be flat to slightly down from Q2 before approaching 27% in Q4. The overall message is that 2026 is a key strategic investment year for us, and it is playing out as we expected so far, as demonstrated by the point estimates for our financials that we have shared. We enter Q2 with over $1 billion in cash, no debt, and expect to generate over $350 million in free cash flow this year. We plan to continue executing on our buyback authorization under which repurchases to date are 514 thousand shares, or about 1% of our fully diluted shares outstanding. 2026 is a big year for Duolingo, Inc., and I am very excited about what we are building. I will now turn it back to the operator, and we can take your questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please use the raise hand bar, which can be found at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will receive a message on your screen asking to be promoted to a panelist. Please accept and wait a moment. Once you have been promoted, you will hear your name called, and you may unmute your video and audio and ask your question. Your Zoom application may disappear momentarily. This is expected, and your window will reappear. We are allowing analysts one relevant follow-up to their main question. We will now pause a moment to allow the team to gather and assemble the queue. Alright. We are waiting one moment for Wyatt Swanson with DA Davidson to accept. Wyatt, please turn on your video and audio and ask your question. Wyatt J. Swanson: Thanks for the question. Appreciate it. Could you talk to some of the different drivers of DAU growth this quarter and maybe entering Q2? Whether it is performance marketing, word-of-mouth maybe starting to return, or something else? And could you also talk to what regions you are seeing any particular strength or weakness? Luis von Ahn: Thanks for the question. DAU growth is very important to us; this is the most important thing we are trying to do this year. We are growing in every single region, as we have been for several years, but some regions are growing faster than others. Asia in particular is the fastest-growing region. In terms of growth drivers, they remain pretty similar. Word-of-mouth has historically been the main growth driver for us. Most of our users come to Duolingo, Inc. through word-of-mouth. We have some amount of marketing, some amount of performance marketing that we are doing. We have increased that budget a little bit, but it is not massive compared to other apps our size. Historically, another place where DAU increases is just improvements in retention. That is the work of making the product stickier. That has gone really well. We have been making a lot of changes to the product, some small, some larger, that make retention higher. The way you would see that is an increase in our DAU-to-MAU ratio, which keeps increasing pretty much every quarter, and it increased again this quarter. Wyatt J. Swanson: Perfect. Thanks. And then one quick follow-up. Can you provide some color on how you expect DAU growth to look in Q2 and whether 20% is still the right way to think about DAU growth through 2026? Luis von Ahn: Everything we said in the last call remains. We expect that it is going to stay at around 20% throughout the year. There will be slight ups and downs depending on comps, but it is around 20% for the rest of the year. Nothing has changed from the last time we spoke. Operator: Your next question will come from Ross Sandler with Barclays. We are waiting for a moment for him to accept. Ross, please turn on your audio and video and ask your question. Ross Adam Sandler: Luis, you had mentioned a couple interesting things 90 days back as part of the plan this year. One was to revitalize some of the engagement in the free tier, that top 20% of the free tier. Curious to hear any update on that effort. Then you also mentioned getting inspiration from some of the big mobile gaming companies in terms of new things you could potentially bring into Duolingo. Curious to hear what you have learned and any new strategies on that front. Thanks. Luis von Ahn: Thanks for the question. In terms of the free tier, we have done a few things. We made it so that the free tier is better than it was two months ago. These changes take time—it has only been two months since the last earnings call—so it is not like we have done a thousand changes, but there are more things available to free users, and we are very happy with that. We think over time that will increase word-of-mouth. In terms of getting inspiration from mobile games, we have always gotten a lot of inspiration from mobile games. Ultimately we are trying to make something as good at teaching as a one-on-one human tutor but also as fun as a mobile game. If you look over the last quarter, very soon you will see really cool avatar costumes—that is directly coming from mobile games; users are going to love that. We are making changes in how we show rewards to users; for example, showing them as cards now, which feels really collectible. Another thing important for the free tier: we want monetization tactics that are not at odds with the free tier. We found some really good ones this quarter. One is longer free trials. Historically Duolingo, Inc. has given a seven-day free trial. We are finding that giving longer free trials is really good. It increases bookings, and it is good for the user. For example, a one-month free trial feels great to them. We are pretty happy with that. Operator: Our next question will come from Andrew Boone with Citizens JMP. Please unmute your audio and video and ask your question. Andrew M. Boone: Thanks so much for taking the questions. I would love to talk about MAU growth and top of funnel at large. Help us understand the deceleration there—understood the comp and everything from last year—but how do we think about what has been the deceleration and whether that needs to accelerate to support DAU growth? Luis von Ahn: It is not just one team looking at that. Related to MAU growth is top of funnel, and that we do work on. The reality is that top of funnel has been about flat for this quarter, and we would like to accelerate it. We are working on that. There is a lot with marketing that I think will be really good, particularly in underpenetrated regions. That is one thing. The other is making changes to the product to teach better and be better for free users. That should accelerate word-of-mouth. Historically, the main driver of top of funnel has been word-of-mouth. Word-of-mouth is beautiful because it is free, but we do not have that much control over it in the way we can measure retention. So we are doing things we think will be really good for word-of-mouth, but we do not have the same granularity of control. Andrew M. Boone: And then, Luis, just a strategic question in terms of keeping users on platform. You have always focused on fun. It seems there is a change as we think about more of a voice-front experience. Talk about keeping the entertainment value and what has to change as you move toward more of a voice-like experience. Thank you. Luis von Ahn: I understand why you might perceive a change, but internally there is no change in terms of fun. We are huge believers that the hardest thing about learning something by yourself is staying motivated. That is the secret sauce of Duolingo, Inc. What has gotten us so far is that we know we have to motivate our users. People may say they want to learn something, but ultimately they will do what is most fun. So we spend a lot of effort making it fun. We think making voice and speaking more prominent does not decrease fun. Our metrics suggest it does not; it can be a pretty fun experience. Humans are very visual creatures, so you will continue to see beautiful animations and game-like elements even with voice in there. Our teams dedicated to making the app more fun are really firing on all cylinders. You will see a bunch of stuff in the next couple of days. For example, avatar costumes—I am dressed up as a hot dog, and I love it. Operator: Your next question will come from Eric Sheridan with Goldman. Please unmute your audio and video and ask your question. Eric Sheridan: Hi, great to see everybody. Thanks so much for taking the questions. Maybe a two-parter. Luis, for you, what have been the key lessons so far in terms of scaling AI, both in terms of the user experience as well as the scale of content for the platform over the last couple of months? And, Gilian, as AI scales on both sides of that equation, how should we think about what that means for margins longer term? Thanks to both. Luis von Ahn: Great question. We are very excited about AI. At the highest level, we are trying to make something as good at teaching as a one-on-one human tutor and as fun as a mobile game. For the teaching part, AI is what will get us there. For example, our video call feature that practices conversation has gotten significantly better over the last year. The conversations are more fluid, and users are saying about twice as many words on average as they were a year ago. Similarly, content: the amount of learning content we put out in the last quarter dwarfed everything we have ever done. We put out 20.5 thousand units of content in one quarter—about what we put out in the entire year last year. And last year we were already using AI. We are just getting better at using it. We are also working on models picking what exercise to give each user, with significantly more personalization—exactly what a one-on-one human tutor does. Gilian Munson: From a cost perspective, there are two things to think about. One, the adoption of AI in customer-facing features. You see our gross margin guidance has us landing at about 69% in the fourth quarter, and that assumes we are going to put a lot more of that ingredient in our product. Two, our operating expenses: we have started to see some pretty big increases in AI costs internally, and our guidance reflects that. But there are always waves of efficiency that come with AI. You might have AI costs come up, and then the team optimizes, and then you move forward. In Q1, gross margin was better than we would have expected and pretty good year-over-year, even with a lot of new AI content, because on a per-unit basis the costs have come down a lot. It goes in waves: costs come down, we adopt more, and we manage that. As you think about overall margins, expect us to be in that 69% range on gross margin, and we will manage operating expenses accordingly. Operator: Your next question will come from Bryan Smilek with JPMorgan. Your line is open. Unmute your audio and video and ask your question. Bryan Michael Smilek: Great, thanks for taking the questions. Luis, going back to last earnings as well—great to see voice being infused across the ecosystem. Can you discuss the affiliated impact on Max overall? Are you seeing Max subscribers cross back down to Super? How should we think about the product go-to-market for Max now that AI is becoming more available across the broader ecosystem? Luis von Ahn: Thanks for that question because it helps us clarify. What we said last time was that we wanted to add video call to our medium tier, Super Duolingo. It is important for us to do that because video call is such a good feature in terms of teaching, and we want significantly more people to have access to it. We started doing that. At the moment, we have a number of experiments giving video call to Super subscribers, particularly new Super subscribers. We have not scaled this to all our existing user base. So at the moment, there is no change for Max. There are a lot of possibilities for what Max could be. We could lower the price of Max, or give Max subscribers unlimited video call versus not unlimited for Super. There are a number of options, but it has only been two months since we last spoke, so we have not run all the experiments. In terms of metrics we are not seeing a big difference, except that a cohort of new users is not even seeing Max—they are only seeing Super—and that is one of many experiments. Bryan Michael Smilek: Thank you. That is helpful. And for Gilian, looking at the guidance—understand the tougher comp on bookings into Q2—can you help me think about the puts and takes that drive back-half reacceleration? You mentioned about 20% DAU growth with ebbs and flows each quarter. Would that back-half guidance imply that DAUs would improve from early benefits from these product initiatives? Gilian Munson: As you look at the second-half guidance, in general we are planning the business based on that 20% DAU growth basis. You may see some early returns on the investments we are making, but I would not bank on a lot of that. We are taking the long view this year and want to allow ourselves to operate in the range of bookings guidance we gave so we can make all the investments we want and do what we think is right for customers. Q2 is a really tough comp because of the release of Energy in particular and a handful of other features that made bookings a year ago really strong. You will see us bounce back from that comp, and then you will continue to see DAU numbers drive bookings. Operator: Your next question will come from Nathan Feather with Morgan Stanley. Please unmute your audio and video and ask your question. Nathaniel Jay Feather: Thanks for taking the question. The rapid increase in your ability to do content generation is really interesting. Now that you have a full course set across language learning, at least across most common languages, are you starting to A/B test new content for different engagement? Historically, have you seen an increase in retention, pay rates, etc. with higher quality content? And looking further, how does that impact your thought on expanding into additional subjects beyond language learning now that the cost to entry is lower? Luis von Ahn: Thanks, Nathan. Yes, one exciting thing is we have been working for years to have the top nine languages reach Duolingo score 129, which we now have. Internally someone said, “That is just the beginning.” Now that we have all this content, we are in a much better spot to make it significantly better based on how users perform. We are starting to do that. We have seen that changes in content quality and the type of content shown have meaningful impacts on retention, particularly new-user retention. We are running many experiments; for example, what we teach in the first unit matters a lot. Do we teach greetings, or words like “mom” and “dad”? It is not as simple as “always teach greetings.” These choices impact retention. We are also likely to move to generating content just for you based on everything we know—maybe not the immediate next exercise, but two exercises from now we might generate a sentence just for you. We are getting to that point, which is very exciting. In terms of other subjects, each has unique challenges. AI is helping us add new subjects faster—chess is a great example; we added it in about nine months. But each subject has its own content needs. Adding math is relatively easy if you want a wall of text like ChatGPT, but if you want diagrams and user interaction, that is harder. AI makes it easier, but it is still not trivial. We are happy with the subjects we have and are very excited about Math. You saw we started this call with a video for Math. We have reached a point where our math course covers pretty much all content between grades two and twelve and can actually explain things when you get them wrong. We are very excited about that. Nathaniel Jay Feather: Great. That is helpful. And thinking about the balance sheet—you have a lot of cash and high free cash flow. What are your thoughts on the right level of buybacks, and what are some central uses of that cash going forward? Gilian Munson: As we look at the cash, you saw we returned some level of cash back to shareholders via a buyback in the quarter. We have a $400 million authorization, so we are willing to spend that money. In general, we are focused on operating the business, so we are investing in the business as well. It will be a balance of the two. On a buyback, you buy more when the stock is lower and less when it is higher. We will look at where the stock is; we think it is a great time to buy our stock. It is a great way to offset dilution from the last couple of years. With our free cash flow estimates, we are going to generate almost as much cash as that buyback anyway this year. On capital allocation, of course there is M&A. We are out there always looking, but as you have seen, a lot of what we have done is fairly small in nature—not a big deal that hits the balance sheet hard. Duolingo, Inc. is very focused on growing Duolingo, investing in Duolingo, and going from there. Luis von Ahn: GameStop wants to buy eBay. We may want to do that too. I am kidding. Operator: Your next question will come from Ryan MacDonald with Needham. Please unmute your audio and video and ask your question. Deborah Belevan: I am going to leave that last comment alone a little bit. We are not buying eBay, just so you know. Ryan Michael MacDonald: Maybe we can talk about the announcement in late April about advanced content being available across all the top subjects. From a marketing perspective, how big of an unlock is that in terms of deploying incremental performance marketing budget now that you have all the content available? How should we think about how that may help replenish the top of the funnel through the back half of the year and into next year? Luis von Ahn: In performance marketing, this matters most for English learners. English learners are most interested in more advanced content. Some of the main places we are using performance marketing are underpenetrated markets, particularly in Asia. In a number of large Asian markets we can do profitable performance marketing. Historically, because our free version is so good, it has not been easy for us to do profitable performance marketing—people we acquire are super happy as free users. But we are finding we can do that in some places; for example, in China we are able to acquire profitably, and these are English learners. I would say the main thing is we have historically underinvested in performance marketing, and we are getting a lot more professional about it this year. You will see the benefits in the next few months. We are building the infrastructure for the right attribution to users and the right place after you acquire them—things a company our size should have built years ago, but we kind of ignored it. We are pretty excited about that. Ryan Michael MacDonald: And as you are testing video call in Super Duolingo for a cohort of net-new paid subs, what are you seeing thus far in terms of elasticity on pricing and the potential demand to pay incrementally for that feature at the Super level? And, Gilian, how is that informing your view on gross margin profile as we move forward? Luis von Ahn: We are running tests on what the right price should be for Super with video call. I cannot tell you all the results yet. We started this work a couple of months ago, and it takes time to build and run A/B tests and get results. What I can tell you is that people are willing to pay more for Super with video call. How much more, I will be able to tell you in a quarter or two. Gilian Munson: One of the reasons we have been focusing everyone on operating within ranges of financials is to allow ourselves to do this kind of work—testing different ways of approaching the customer on price. All of that is anticipated in the guidance around the ranges we want in 2026. In any given quarter, it might be a little more or less, but we anticipated that coming into the year and are executing against it. No big surprises, and the financials we have laid out for 2026 can accommodate that. Operator: Moving forward, we are allowing analysts one relevant follow-up in order to get through the queue. Thank you. Your next question will come from Ralph Schackart with William Blair. Please unmute your audio and video and ask your question. Ralph Edward Schackart: Hopefully this is relevant. Luis, historically you have a bit of a paradox: you over-monetized historically, and now maybe we are in a duration where you are under-monetizing the user base. Stepping back, what signals are you looking at today that inform you you are on the right path? And more broadly, when would be the right time to start monetizing again? It is only been a couple months since the last call, but would love to hear your thoughts. Luis von Ahn: Great question. We are at the same time under-monetized and over-monetized. Roughly 12% of our monthly active users are paying subscribers. We think that number should be much higher. If you look at other freemium models, they are much higher—Spotify is close to 50%. At the same time, certain types of monetization we probably overdid, making the free user experience have too much friction. Many monetization tactics were at odds with DAU growth—more friction drives some people to subscribe, which is good, but some people leave. What we need to do, and what we are doing, is finding ways to monetize that do not put DAU growth at odds with monetization. Those ways exist. I mentioned longer free trials. We have not experimented much with trial length historically. Other scaled subscription businesses often have one-month or even three-month free trials. You will see us experiment with that. We are seeing that one-month trials increase revenue and are not at odds with DAUs. Saying “one month free” does not drive users away. The work we are doing is finding ways to monetize that are not at odds with DAU growth. They exist; they are just not as quick as adding friction to the free user experience. This year is for experimenting. We will probably experiment with a three-month free trial. That is something we could not have done without operating with the guidelines we set for this year, because a three-month trial delays bookings by a whole quarter. This operating approach gives us room to do that. Operator: Your next question will come from Mark Mahaney with Evercore. Please unmute your audio and video and ask your question. Mark Stephen Mahaney: Thanks. I want to ask about gross margins. Your guidance implies they are going to phase down to the high 60s in the fourth quarter. Is there a reason to think margins hold at that level? Is there a reason to think they should recover higher? How should we think about the trajectory after this year? Gilian Munson: When we think about margins that have AI content in them—take gross margin—you tend to find that as you introduce features, they might be more expensive at first, and then we optimize costs over time. In Q1, margin held up nicely versus the year before because per-unit AI costs came down a lot. As we look forward, we want to put more and more AI as an ingredient in the product. That is why we have margin guidance down to 69%, which is essentially where we were last quarter too. That implies a lot more AI content, which we think is great long term. It is possible we could optimize more, but we want to be putting that much AI in the product. I think 69% is a good place to think of us exiting the year. This is a changing environment, and some optimizations come faster than you expect, so you could see both up and down. Operator: Your next question will come from Justin Patterson with KeyBanc. Please unmute your audio and video and ask your question. Justin Tyler Patterson: Thank you very much, and good evening. Duolingo has always had a high pace of product velocity around A/B tests. Synthetic coding has made it easier to do lots of those. How are you thinking about engineer productivity as a whole, the number of tests being run, and how should we think about that influencing long-term headcount needs? Luis von Ahn: Great question. We A/B test a lot—running hundreds of A/B tests concurrently at all times. That has been our product philosophy and how Duolingo, Inc. has gotten better over time. We are finding that the number of A/B tests we can run is increasing. We believe that is because of AI usage, particularly in our engineering and product organization. The increase is not huge, but it is the first time we have seen an increase on a per-capita basis in years. Last year you might have read on Twitter that you can program anything in five seconds and run 10,000 A/B tests at once with a single engineer—that is an exaggeration. Up until very recently, companies at our scale had not seen a real increase in velocity overall, but we are starting to see that increase. It is still moderate, but it is increasing, and we are happy with it. I do not think we will run 10 times as many A/B tests per engineer, but the trend is positive. Operator: Your next question will come from John Colantuoni with Jefferies. Please unmute your audio and video and ask your question. John Colantuoni: Thanks for taking my questions. Can you give a bit of color on how U.S. DAUs are trending relative to international DAUs and what that relative geographic growth could mean for bookings over time, given U.S. users generally adopt a subscription at a higher rate than international users? Luis von Ahn: DAUs are growing in the U.S., and they are growing in pretty much every country, but in the U.S. they are growing less than in many international markets. Asia is the fastest-growing region. In terms of how that affects monetization, it does not seem to affect it that much. The U.S. monetizes well, but a lot of countries monetize relatively well. A good example is China—China monetizes about as well as Western Europe, which is not as high as the U.S., but pretty high. Given the growth rate in China, that matters. I do not think slower growth in the U.S. implies lower bookings growth overall. My hope is that by making the product teach better, increasing word-of-mouth, and investing some in marketing in the U.S.—which historically we had not—we will drive higher year-over-year growth in the U.S. than we currently have. Operator: Your next question will come from Shweta Khajuria with Wolfe Research. Please unmute your audio and video and ask your question. Shweta R. Khajuria: Thank you for taking my question. With AI-driven content creation, there was a meaningful increase in content. How are you managing quality of content as that continues to grow against volume and engagement? Luis von Ahn: We spend a lot of effort on quality. The main reason our content is not growing even faster is because we are making sure it is very high quality. We do evaluations of our content with AI and with humans. We then test it with our own users in small amounts to see if it is high quality, and if it is, we increase exposure. As amazing as AI is, if you are not careful you can get a lot of slop. We are trying very hard for that not to happen. Over the last couple of quarters, the quality has actually increased. We know this from spot checks and rating the quality across content. Operator: Your next question will come from Omar Dusa lki with Bank of America. Please unmute your audio and video and ask your question. Analyst: Hi. I want to get back to performance marketing. Glad to hear the company is treating that with more seriousness. Last time we spoke, I got the impression the product would be leaps and bounds better in the future and really change the way people learn languages. Does the maturity of the product itself bottleneck scaling performance advertising spend? Performance advertising typically tries to optimize specific behaviors in users. Is that the case? And do you have any sense of when you might be ready to really put the pedal to the metal, assuming your organization has done its experiments—when would the product be ready to go full-bore on performance marketing? Luis von Ahn: I would say the bottleneck for performance marketing for us has been, first, building the infrastructure to be a much more serious performance marketing machine, which we are doing now. Second, and not the quality of teaching, is how good our free tier is. One problem, depending on region and what we advertise, has been acquiring a user and having them be very happy free users rather than subscribers. That is the main bottleneck we need to overcome. At the moment, in some geographies we have profitable performance marketing, but in many we do not. Gilian Munson: The only thing I would add is that we are making an investment in marketing this year, and it is not just performance marketing. The team has a multi-tiered approach to marketing and to stepping up that investment that is well thought through and has diversity to it. Analyst: I want to make sure I am not thinking about performance marketing the wrong way, because I thought it would be difficult to performance market a product that is not stable or mature, since you do not actually know what you are marketing if it is changing so much. Luis von Ahn: I would not say that. Duolingo, Inc. has been around for 15 years. It has never stayed the same, and it never will. That is not going to change, but I do not think that has been the problem. Operator: Your next question will come from Alex Brondelow with Wells Fargo. Your line is open. Please ask your question. Analyst: Thanks so much for the question. You mentioned how fast China is growing. There have been two successful brand tie-ins over the last 12 months—Luckin Coffee last year and Meituan in March. Are there learnings we can take from how successful those brand tie-ins have been in China to extend that success to other markets over the next year? Luis von Ahn: Thank you. We have had incredible brand partnerships in China. Our IP and brand in China are very strong, and that commands some of the largest brands wanting to partner with us. For example, we very soon have a partnership with McDonald’s in China. Large brands come to us. Brands in China, like Luckin Coffee, are more open to partnerships than many Western brands—you do not see Starbucks changing all their stores every two weeks with a new brand, whereas Luckin does. There are learnings our partnerships and marketing teams in China are bringing to other places, particularly in Asia. But some of this is specific to the China market. Also, China is not just growing fast because of partnerships; it is kind of the other way around. The great partnerships are coming in part because we are growing fast and seen as a very cool brand. There is a huge appetite for English learning in China that keeps growing, and that is the main reason China is growing. Operator: Your next question will come from Alexander Sklar with Raymond James. Your line is open. Please ask your question. Alexander James Sklar: Thanks. On the relationship between DAUs and top-of-funnel growth versus the visibility you have talked to on the shape of the bookings inflection this year, what early tests—or maybe it is tier or geo mix—are providing your visibility in terms of that bookings inflection exiting the year? Gilian Munson: On bookings, if you look at the quarterly progression we are guiding to as you go Q2 into Q3 and Q3 into Q4, it is fairly on par with where the company has been in the last couple of years. We are playing a long game here, and the investments we are making may show some things this year, but we are really looking beyond this year. 2026 is about operating around that 20% DAU growth and growing the business. What you are seeing in Q3 and Q4 is typical seasonality. There has been an adjustment in Q1 and Q2 to our new monetization balance, but in Q3 and Q4 what you are seeing is quite typical for us. Operator: I am showing no further questions. This concludes the Q&A section of the call. I would now like to turn the call back to the host for closing remarks. Luis von Ahn: Thank you. Thanks, operator. I would like to thank everyone for joining us, and we look forward to seeing you on the next call.
Operator: Please stand by. Welcome, ladies and gentlemen, to the First Quarter 2026 Earnings Call for Tactile Systems Technology, Inc. At this time, all participants have been placed in a listen-only mode. At the end of the company's prepared remarks, we will conduct a question and answer session. Please note that this conference call is being recorded and will be available on the company's website for replay shortly. I would now like to turn the call over to Sam Bentzinger, Investor Relations at Gilmartin Group, for a few introductory comments. Please go ahead. Sam Bentzinger: Good afternoon, and thank you for joining the call today. With me from Tactile Systems Technology, Inc.’s management team are Sheri Louise Dodd, Chief Executive, and Elaine M. Birkemeyer, Chief Financial Officer. Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties. These could cause actual results to differ materially from those indicated, including those identified in the risk factors section of our Annual Report on Form 10-Ks as well as our most recent 10-Q filing to be filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events, or otherwise. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. With that, I will now turn the call over to Sheri. Sheri Louise Dodd: Thanks, Sam. Good afternoon, everyone, and welcome to our first quarter 2026 earnings call. Here with me is Elaine M. Birkemeyer, our Chief Financial Officer. We are pleased to report a strong start to 2026, with first quarter results reflecting focused execution of our three strategic priorities, continued strength and durability of our commercial action plan, and operational excellence including preparing for recent changes regarding the introduction of prior authorization for fee-for-service patients. Specifically, in Q1, we delivered total revenue of $75.3 million, representing growth of 23% year over year. By business line, lymphedema revenue grew 23% year over year to $62.2 million, and airway clearance revenue increased 22% year over year to $13.0 million. Q1 results include a minimal contribution from our recent acquisition, Lymphotech. Our revenue performance reflects continued strategy and execution against key revenue drivers: our phased technology and people go-to-market investments, which drive referrals and market share; NCD-related tailwinds, which drive favorable advanced pump product mix; depth and breadth of our DME relationships, which drive market expansion and share; and, not to be understated, disciplined operational execution across the enterprise. Further, top-line strength drove meaningful margin expansion, gross margins increased 250 basis points to 76.5%, and adjusted EBITDA increased $4 million year over year to $3.7 million. We ended the first quarter with approximately $75 million in cash, maintaining substantial financial flexibility as we continue to invest for long-term growth. For 2026, we are updating our full-year revenue guidance to a range of $360 million to $368 million. This update reflects the inclusion of Lymphotech and our increased confidence in commercial execution while maintaining a disciplined approach as prior authorization outcomes under new Medicare requirements for our category continue to mature. For the remainder of the call, I will review our Q1 performance by business line and then provide updates on our ongoing strategic priorities. Elaine will follow with a review of our first quarter financial results and an update on our outlook for 2026. Turning first to lymphedema. Revenue grew 23% year over year in Q1. We are pleased to see the significant growth compared to last year, which was expected given the momentum of our field and back-office strategy execution. Our go-to-market investments are delivering. Our sales organization is fully resourced with broad geographic coverage and a well-balanced staffing model of one account manager for every product specialist. With those resources in place, we are shifting our focus from capacity investment and onboarding to productivity and operating leverage. Territory productivity increased meaningfully in Q1 year over year. Robust CRM utilization, combined with continued enhancements including workflow tools, is increasingly supporting referral management prioritization and account development, and we expect continued territory optimization and sustained productivity gains over time. From a products perspective, overall lymphedema growth in the quarter was supported by both Nimble and Flexitouch, with Flexitouch growth outpacing Nimble. As expected, this dynamic was largely tied to our decision in October 2025 to align our advanced pump documentation criteria with the Medicare NCD. While this alignment had always been planned, the timing reflected our increasing confidence that the MAC administration of the NCD had stabilized. Importantly, the NCD has created a more direct and clinically aligned pathway for patients who require advanced pump therapy compared to the prior LCD policy. This will continue to be a tailwind for Flexitouch as we continue to educate providers on the policy change and drive the right patient, right pump messaging. Notably, the NCD policy language also allows for advanced pump coverage for patients with head and neck lymphedema, and we are pleased to see increasing clinical adoption for these underserved patients who have no other pneumatic or nonpneumatic compression device options. This NCD-driven Flexitouch strength was also evident in our Q1 payer mix with sales in our Medicare channel growing 40% year over year. To a smaller extent, Medicare strength also reflects some order acceleration ahead of the April 13 effective date for the new prior authorization requirements for PCDs billed under traditional Medicare fee-for-service. Importantly, underlying demand remains healthy, and as the new prior authorization process settles, we expect quarterly ordering patterns to normalize. As a reminder, the inclusion of the prior authorization process for basic and advanced PCDs for Medicare patients was announced in January 2026 and aligns with prior authorization decisions in other growing DME categories. During our Q4 call, we discussed our expectation that this new requirement will add additional steps to the order process, such as assembling and submitting a prior authorization documentation packet and checking the status of each submission in order to process the claim. Additionally, these new requirements require patients to have a face-to-face clinical visit with a treating physician, not just a therapist, to establish and document medical necessity. To be ready for the go-live date, we accelerated the prior authorization module in our AI portfolio, which had originally been planned for launch in 2027. In the weeks leading up to April 13, we demonstrated operational agility in validating the technology and systems, training and staffing our team, and successfully deploying a new process on schedule. The Medicare PCD prior authorization requirement has been in place for just three weeks. We are actively managing early transition dynamics as both we and the MACs adjust our respective processes. As the industry leader and a DME provider with extensive experience operating in other prior authorization environments across Medicare Advantage and commercial plans, we believe we are well positioned to support patients through this transition. Turning to our other payer channels, our commercial business remains healthy and is demonstrating quarter-over-quarter consistency. In the VA channel, performance reflects a different operating and growth profile than Medicare and commercial. Unlike those channels where reimbursement policies are more dynamic and have driven more pronounced year-over-year comparisons, the VA reimbursement environment is notably more stable, which naturally results in less quarter-to-quarter volatility. From a commercial execution standpoint, the VA call points span a diverse set of specialties, including vascular, oncology, and therapy practices, with success driven by sustained relationship-based engagement and navigation of local VA systems. As our recently expanded field organization continues to deepen engagement, establish workflows, and build trusted relationships within these accounts, we expect the VA to become a more meaningful contributor over time. We view the VA as a strategic long term opportunity that is well aligned with our evolving portfolio and an incremental growth contributor alongside our Medicare and commercial channels, with growth unfolding in a deliberate and durable manner. Turning now to airway clearance. Sales of AffloVest increased 22% year over year in the first quarter. The key drivers of our robust performance remain consistent with what I have shared previously. Our relationships with the top respiratory DMEs remain strong, including at the C-suite, and AffloVest continues to be well placed across these accounts. There are additional opportunities to deepen engagement within our top 10 DME partners, given the breadth and scale of their national footprints and alignment of individual branch performance goals. We are committed to delivering high-quality medical education and training for providers and DME staff, supporting sales skills of AffloVest and airway clearance therapies at the DME national and area sales meetings, manufacturing a superior airway clearance product, and providing AffloVest account manager continuity to our DME partners, all of which we believe are critical inputs to driving consistent growth and valued partner status. As the market leader in airway clearance therapy, we remain focused on serving the millions of diagnosed and undiagnosed bronchiectasis patients in the U.S. We expect our commercial strategy, clinical education efforts, and strong DME partnerships to continue driving growth throughout the year, in addition to the launch of our next-generation AffloVest product, which I will touch on shortly. We are committed to evolving our lymphedema strategy for growth from that of a product company to an integrated solutions leader for lymphatic dysfunction, and the acquisition of Lymphotech is an important milestone in this exciting evolution. Lymphotech sits squarely within our strategy to support patients across the full continuum of care, which begins with getting an accurate, timely, and objective lymphedema diagnosis. Lymphotech’s 3D measurement and monitoring addresses this need directly, replacing traditional manual measurement methods that are time consuming, highly variable, and dependent on clinician technique. Currently, the Lymphotech platform is FDA cleared and commercially available as a SaaS-based solution. As we shared last quarter, a key element of this acquisition is broadening our R&D capabilities to support next-generation approaches to disease assessment and treatment, and we look forward to sharing updates on our progress in the quarters ahead. The integration is progressing as planned since closing in February. The Lymphotech cofounders and team are actively contributing to both the go-to-market commercialization strategy as well as helping to identify the capabilities and integration points across the diagnostic and therapy product development road maps. We are being deliberate and strategic in our approach to maximizing the provider, clinician, and patient experience. Beyond the team and the technology, Lymphotech also earned selection as a funding recipient under a new federal research program focused on lymphatic disease. Specifically, the Advanced Research Projects Agency for Health recently announced two landmark programs, LIGHT and GUIDE, committing a combined more than $290 million across all awardees over five years to advance lymphatic diagnosis and therapeutics. Lymphotech was selected as one of seven GUIDE funding recipients and is focusing its research on the development of a new responsive garment using bioimpedance feedback to deliver adaptive compression with Bluetooth-enabled remote monitoring. We believe this program has the potential to extend personalized treatment to millions of diagnosed patients. Along with the first U.S. clinical practice guidelines for lower extremity lymphedema presented in March, which validated PCD therapy, we believe awareness of lymphatic disease and evidence-supported therapies is reaching a historic inflection point for the category. As the industry leader, Tactile Systems Technology, Inc. is well positioned at the center of this momentum, further bolstered by our three ongoing strategic priorities focused on improving access to care, expanding treatment options, and enhancing lifetime patient value. Let me now provide a few updates on each of these. Beginning with improving access to care, where we are focused on several internal- and external-facing initiatives. Internally, we continue to transform each step of the order process with new technology infrastructure and more efficient workflows. AI-enabled technology is playing an increasingly meaningful role in our back-office transformation. Over the past several months, we have been leveraging AI capabilities in our order intake processes and parts of our medical record review and have been pleased with both the technology performance and the enhanced workflow efficiencies it is enabling. As I shared earlier, this quarter we successfully accelerated and launched the prior authorization component of our AI platform for Medicare fee-for-service orders ahead of the April 13 deadline. Looking ahead, we remain on track to further expand the use of AI capabilities across the entire order process, including patient eligibility and benefits verification, and full medical record review. With the rollout of these expanded features, we believe we will accelerate speed of therapy, reduce revenue-impacting human errors, and improve operational efficiency, each of which should support margin expansion over time. Externally, improving market access conditions is supported by clinical evidence generation, guideline dissemination, and engagement with government and commercial payers. For commercial payers, we continue to make steady progress on head and neck coverage and are working to align certain commercial policies to the NCD rather than their current alignment to the retired LCD. As part of that work, our head and neck clinical evidence program continues to advance with data progressing through the peer-reviewed and publication process. Payer engagement is a continued patient advocacy commitment we make for all patients, operationalized through payer education, appealing denials, and activating clinical support with medical directors as needed. Next, on expanding treatment options. We are excited to share we recently received FDA 510(k) clearance for our next-generation AffloVest product. Key enhancements with this next-generation device are focused on improving the patient experience and include further weight reduction, new digital connectivity, and improved size adjustability to allow for a more customized fit. Additionally, the clearance maintains our indication for use across the full patient age spectrum, from pediatrics through geriatric populations, reinforcing AffloVest’s position as a solution for bronchiectasis patients at every stage of life. We remain on track for commercial launch this year to ensure the product is available for the 2026 to 2027 winter respiratory season, and we look forward to sharing more updates with respect to timing as we get closer. Our second innovation area is focused on the advanced pump category. As we shared last quarter, our product roadmap includes the introduction of incremental features and product enhancements for Flexitouch focused on the patient experience. These include a new controller, reduced external hosing, and remote control functionality through our Kylie patient engagement application. We anticipate go-to-market readiness in 2027 for these features. Beyond these innovation updates, we are also focused on identifying integration points across the combined Lymphotech and Tactile product development portfolios. While it is too early to share specific details of a Lymphotech-integrated product portfolio, we are excited by the expansion of diagnostic and therapy delivery opportunities. Finally, our third strategic priority of enhancing the lifetime patient value encompasses more efficient and personalized engagement before, during, and after the order and delivery process. As we shared last quarter, we are continuing to focus on targeted care navigation pilots designed to provide clearer guidance to patients earlier in the process and reduce administrative friction. Results to date continue to support our thesis that patients value clear communication and guidance earlier in the process. We are refining these pilots to optimize touchpoints, and we are evaluating how to expand their impact in a measured and scalable way. We believe this work will reduce patient leakage, enhance the patient experience, and over time decrease the need for sales representative involvement in the order process, supporting both growth and operating leverage. Taken together, our progress across these strategic priorities reinforces our confidence in the durability of our commercial momentum. Our Q1 results reflect strong execution across both business lines, meaningful progress and agility in our operation transformation initiatives, and the expected return on our go-to-market people and technology investments. Intentionality and discipline are key constructs in the way we are operationalizing our strategy; as a result, the business performance is there. This approach is supported by a strong balance sheet and a thoughtful capital allocation strategy that balances growth investments with shareholder returns. We are confident in the trajectory of our business and the multiple catalysts ahead as we move through 2026 and beyond. With that, I will now have Elaine review our Q1 financial results in more detail and provide an update on our outlook for 2026. Elaine M. Birkemeyer: Thanks, Sheri. Unless noted otherwise, all references to first quarter financial results are on a GAAP and year-over-year basis. Total revenue in the first quarter increased by $14 million, or 23%, to $75.3 million. By product line, sales and rentals of lymphedema products, which includes our Flexitouch, Entre, Nimble, and Lymphatex systems, increased $11.7 million, or 23%, to $62.2 million, and sales of our airway clearance products, which includes our AffloVest system, increased $2.3 million, or 22%, to $13.0 million. Growth was broad based and reflected strength across both volume and revenue per unit, including higher shipments, strong collections, and a favorable mix across payer and product category. Continuing down the P&L, gross margin was 76.5% of revenue, compared to 74% in 2025. The increase in gross margin was attributable primarily to lower manufacturing costs, stronger collections, and favorable product and payer mix reflected in our revenue. Importantly, these improvements reflect structural enhancements in the business rather than temporary cost actions. First quarter operating expenses increased $9.3 million, or 19%, to $59.1 million. The change in GAAP operating expenses reflected a $5.2 million increase in sales and marketing expenses, a $1.0 million increase in research and development expenses, and a $3.0 million increase in reimbursement, general, and administrative expenses. As we discussed previously, we are annualizing investments made in 2025 while continuing to invest in IT infrastructure and automation to support long-term growth. Despite these ongoing investments, operating loss decreased $3.0 million, or 66%, to $1.5 million. Interest income decreased $200,000, or 26%, to $700,000 due to our decreased cash position. Interest expense decreased $400,000, or 93%, to $28,000. Income tax expense was $900,000 compared to an income tax benefit of $1.1 million. Net loss decreased $1.2 million, or 41%, to $1.8 million, or $0.08 per diluted share, compared to $3.0 million, or $0.13 per diluted share. Adjusted EBITDA increased to $3.7 million compared to an adjusted EBITDA loss of $300,000 in the prior year, with margin expanding to 4.9% from negative 0.4%, reflecting a meaningful improvement in operating leverage. With respect to our balance sheet, we had $75 million in cash and cash equivalents and no outstanding borrowings at quarter end. This compares to $83.4 million in cash and no outstanding borrowings as of 12/31/2025. The change in cash during the quarter primarily reflects the Lymphotech acquisition, share repurchases, and normal seasonal items such as bonus payments. We continue to see improvement in working capital, including a meaningful reduction in days sales outstanding. Turning to a review of our 2026 outlook. For the full year 2026, we are raising our guidance and now expect total revenue in the range of $360 million to $368 million, representing growth of approximately 9% to 12% year over year. This guidance assumes both our lymphedema and airway clearance businesses will grow in a similar overall range, with airway clearance growing modestly faster. The increase in guidance is driven by three primary factors. First, we continue to expect strength in the commercial execution across the business. Second, we have included the contribution from Lymphotech. Third, we have incremental early confidence in how the MACs are navigating the new prior authorization requirements we discussed on our last call. More broadly, we believe underlying demand remains durable, and our tools and processes designed to support prior authorizations are tracking well against plans. While prior authorization approval data is still early and continuing to take shape, our outlook appropriately reflects discipline until we have a longer track record of consistent outcomes. For modeling purposes, for the full year 2026, we expect our GAAP gross margins to be 76% to 77%, our GAAP operating expenses to increase 10% to 12% year over year, the increase relative to our prior outlook reflects one-time acquisition and legal related costs, net interest income of approximately $3 million, a tax rate of 28%, and a fully diluted weighted average share count of approximately 22 to 23 million shares. We continue to expect to generate adjusted EBITDA of $49 million to $51 million in 2026. This outlook reflects the annualization of 2025 investments and continued strategic investments in 2026, which we believe are important to support long-term growth and operating leverage. Our adjusted EBITDA expectation assumes certain noncash items, including a stock compensation expense of approximately $9 million, intangible amortization of approximately $3.6 million, depreciation expense of approximately $3.2 million, litigation-related expenses of approximately $1 million, and one-time acquisition-related and integration costs of $1.3 million. With that, I will turn the call back to Sheri for some closing remarks. Sheri Louise Dodd: Thank you, Elaine. We are encouraged by a strong, balanced start to the year and the trajectory of our business. Our Q1 results demonstrated broad-based performance and reflect disciplined execution, improving productivity from a fully built commercial organization, and the increasing benefits from investments we have made in technology and infrastructure. As we look ahead, our focus remains on the fundamentals that matter most: expanding access to care, innovating across our product portfolio, and enhancing lifetime patient value. While we remain mindful of near-term adjustments related to Medicare prior authorization, ultimately, we believe this change reinforces our emphasis on clinical rigor, access durability, and long-term reimbursement stability, and we are well positioned to navigate it. We are operating from a position of strength supported by a resilient balance sheet, multiple growth levers in motion, and a clear strategy to translate consistent execution into sustained growth over time. With that, operator, we will now open the call for questions. Operator: Thank you. We will now be conducting a question and answer session. Sheri Louise Dodd: You may press 2 if you would like to remove your question from the queue. Again, that is 1 to ask a question. Operator: And our first question will come from Ryan Zimmerman with BTIG. Ryan Benjamin Zimmerman: Good afternoon, and congrats on a nice start to the year here. I want to ask about some of the dynamics that are starting to occur in the second quarter. Sheri, I think you called out some pull-forward dynamic with, you know, lymphedema sales ahead of February. And so, you know, one, I think if I look at the beat versus kind of where you are raising guidance, came in, you know, there is about a $1.7 million difference there. I just want to understand if that was the pull-forward effect, and then just anecdotally, kind of what you are seeing with the MACs in February, you know, how they are responding to this, how physicians are responding to this, and, you know, the cadence of sales we should think about. I apologize, there is a lot here. The cadence of sales we should think about over the balance of the year because you have historically seen, you know, kind of 2Q step up from 1Q. So, you know, is there a bit of a pause or dynamic in the market we need to think about for 2Q? Sorry for the multipart question there. Sheri Louise Dodd: No, it is okay. Let us take it layer by layer here. So what I will first say is I want to kind of reorient this concept of a pull-forward, because it was not really a pull-forward. What we did is we had patients whose orders were in process, and if they were not all the way completed by that date, they would have been exposed to an overall denial. And so what we did is a little bit of an acceleration of that, but I would not characterize it as pulling orders, if you will, from Q2 and shipments from Q2 into Q1. What we have been doing and what we have been seeing truly is great on our side in terms of our systems and our processes are working. We are really pleased. We accelerated what we were going to do next year and got it all in place by that go-live date, so very pleased with that. So what you are seeing in terms of our positioning on the prior authorization does not have anything to do with our readiness. It really has to do with some early variability that we are seeing within the MACs, and, again, Ryan, we are only three weeks into this entire process, so it is still new. Orders are flowing through; we are seeing what those denial and approval rates are, but we are seeing some differences between the MACs. And so there should not be variability between the MACs. If you are in one state, you are a Medicare patient, and you have the exact same criteria, you should not be denied based on where you live. And so we are seeing a little bit of variability. This is not uncommon because MACs are trying to make sure their interpretation is the same, how the data and information is rolling through on their side, training and education. So everything we are seeing, we do not think is anything other than administrative, and we are going to have an opportunity to talk to the MACs about this. We also do not see any of this being long standing. We believe we are going to be able to adjust, and with more experience in the prior authorization, we believe that our confidence in what that true process time is as well as those approval rates will increase. From a guidance standpoint, we did pull through what would be the Lymphotech revenue into there as well as some of our overall business delivery confidence, and then we are going to hold a little bit until we have a few more weeks—it is not going to be the full year—until we start to see what that prior auth process looks like, again, more from the MACs’ side than on our side. Elaine M. Birkemeyer: You did a great job. Ryan, I think the only other question you had was a little bit on sequencing and kind of Q2 and Q3. So, you know, we do continue to expect to see growth in Q2 over Q1 like we always have. I will say the Q2, Q3 this year will look a little bit different, I think. Together, those two quarters will be the same, but I would say we will see a little bit of a lighter step up in Q2 than some of the years past and probably a bigger step up in Q3 as it starts to normalize. Just as that went into effect, it created a little bit of a delay as that prior auth made a way for those responses and for this whole new process to get going. So I would say collectively, the two quarters are going to be the same, but there will be a little bit of a difference between the two. Ryan Benjamin Zimmerman: Okay. Very helpful. And then I am going to sneak one more, and I will get back in queue, because I probably have asked too many now. But just on the Lymphotech contribution, so I appreciate you guys calling that out. When do you expect that to be, you know, meaningful in the year, number one? So how should we think about when it really starts to deteriorate? And then two, you know, as we think about kind of what it can do over time, you know, how are you thinking about what Lymphotech can offer in terms of a contribution to the business as we look out further into 2027 and beyond? Thanks for taking the question. Sheri Louise Dodd: You bet. So on Lymphotech, the grants that we discussed—super excited about the LIGHT and the GUIDE grants—actually come through as revenue, which is why now it is in the overall guidance that we put forward. But prior to that, when we did our original guidance, we did not see any real growth happening from Lymphotech or any big contribution. So what you are seeing now is really a result of the grant coming through as revenue. Where we are most excited about Lymphotech is not going to materially impact this year. I mean, we did the acquisition on multiple fronts, but that ability and the R&D capabilities that Lymphotech brings will be a big part of how we are thinking about our go forward, not just as a Flexitouch next gen, but if you think about therapy in general. And when you see the details—as I described the details of that GUIDE—actually looking at garments that are using bioimpedance and delivering on personalized care, we are very excited about that. I just cannot share any timelines on what that R&D portfolio looks like right now, but we will be able to share that much more in the quarters to come as that gets further defined in our overall strategy for therapy delivery. On the diagnostic side, one of the big drivers we know for Lymphotech is actually getting the FDA approval for more of that diagnostic indication and then getting through the CPT codes that actually enable a payment for the diagnostic. So that is going to take a little bit of time, but on the here and now, we are super excited to have the federally funded government grants helping support the R&D efforts that we know are going to fit directly into our future portfolio. Sheri Louise Dodd: Hey, Ryan, the last thing I will say—you had a great question, but I kind of want to bookend it about, you know, the guidance and the flow through. Again, we said it is only three weeks in. We saw and we held on the NCD when it converted from the LCD to the NCD because we knew there were going to be changes in interpretation and time needed to get progressing before we felt super confident about what we could do to lean into that. And so everything we are doing now is really based on precedent and what we have done before, and it worked well. We are confident that these administrative pieces in the early days of the prior auth will flow through, and we are in the best position to handle it. So it is a real thing, but we do not sit here with a lot of concern. We just want more time to be able to fully articulate what that benefit will be. So the question you did not ask, but I wanted to bookend it based on the questions that you did ask. Ryan Benjamin Zimmerman: Thank you. Sheri Louise Dodd: Yep. Thanks. Operator: And our next question comes from Brandon Vazquez with William Blair. Brandon Vazquez: Congrats on a nice quarter. I hate to do this, but can we stick for a second on this concept of the pull-forward versus accelerated? I am not sure I fully understand it, and I want to make sure it is clear because I think it will be important to understand, one, the strength in the quarter and, two, the sequential changes from here. So maybe just spend a second specifically on the nuances between why a pull-forward is—or sorry—why accelerated sales is not necessarily a pull-forward of sales from Q2? Sheri Louise Dodd: We did the order acceleration for patient benefit, not to cover revenue. Typically, a pull-forward is because you are trying to cover revenue—you are trying to accelerate what you would have received in revenue in the next quarter and bring it into this quarter. When we talk about order acceleration, we really did this for the patient benefit. Those patients that had an order in process, if they did not clear the order by that April 13 date, it would have had to go all the way back and be resubmitted into a prior auth. So we had some orders—this is not a material amount—that were going to fall on that date of April 13. We put extra resources to help make sure that that order went through, but we were not taking an order from Q2 to book the revenue into Q1. Brandon Vazquez: Okay. Got it. That is clear. Thank you. Maybe a follow-up here, a little bit of a broader picture. A lot of commercial investments you guys have that have gone through 2025 and are ramping into this year. Maybe help characterize where some of these are in terms of maturing. Should the benefits still be growing? Are we reaching maturity for some of them, like the commercial team, things like that? So maybe just talk to us about what inning we are in for some of these more meaningful commercial investments. Thanks. Sheri Louise Dodd: Certainly. We are really pleased with where we sit right now in terms of our headcount, and as I stated in the prepared remarks, we are moving from capacity building and onboarding to true productivity. We are at a place where we have a fully resourced sales organization with that one-to-one ratio of our territory managers to our account specialists, so we feel in a really good place. As far as our CRM tool, our reps are continuing to use that tool, including workflow tools that really help support their activities—that is also going very well—and we expect that revenue per rep year-on-year growth to turn positive as we progress throughout the year. Net-net, we are certainly transitioning from build-and-bring-the-tool to actually having a fully resourced field organization that is stepping up and continues to step up. We are seeing that increase in overall referrals per rep and feel in a really good place with that. Operator: And as a reminder, that is star one if you would like to ask a question. We will go next to Adam Nader with Piper Sandler. Kyle Edward Winborne: Yes, hi, this is Kyle on for Adam. Thanks for taking the questions, and congrats on a good start to the year. Maybe I will ask on the EBITDA guidance. The Q1 result beat expectations and then you raised revenue guidance. So just trying to help understand—or maybe you could help us unpack—keeping the EBITDA guidance kind of where it is. I know you mentioned some of the acquisition costs and some of the one-time expenses there, and I noticed the uplift in OpEx spend for the year. Should we understand a lot of that as kind of part of this acquisition, or is it more of this robust R&D pipeline? Can you just help us a little bit there? Elaine M. Birkemeyer: In terms of that, I think there are probably two factors. One is a portion of the increase is due to Lymphotech. As Sheri mentioned, that is really related to the grant work we are doing, where it is really service-based work that is on the lower-margin side. Again, this is not the broader business model, but happens to be in our revenue this year. And so that is one of the reasons why. Then secondarily, as you said, we did have some in-period one-time costs in our OpEx as well. But I would say the biggest driver is really just the type of revenue lift that is coming from Lymphotech and the nature of that revenue. Kyle Edward Winborne: Okay. Got it. That is helpful. And then, congrats on the clearance for the next-gen AffloVest. I know that was exciting to get through. Just wanted to ask on that specifically. It sounds like you will be able to have this launched for this winter season as you discussed. How should we think about that in terms of the growth with that product—with the next-gen system with the advanced features? And then is there very much of that baked into the guidance for the full year, maybe just a little bit towards the end of the year? Is it kind of just an upside lever at this point? Sheri Louise Dodd: Yes, thanks for the question, and we are super excited to have gotten the FDA approval for this product and really excited to have these features that are going to help drive that patient experience. Just as a reminder, the reimbursement is exactly the same for our current generation as well as the next-generation AffloVest, so there is no additional reimbursement in place for that, and it definitely will be available. We are currently working with our DMEs on the timing to make sure that they wind down the inventory that they currently have on the Gen 5 and that training and education are all done in time for that respiratory season at the end of this year and into next year. From an overall guidance standpoint, our guidance assumes both lymphedema and airway clearance are going to grow in a similar overall range, with airway clearance growing slightly faster, and that is already built into our guide. We anticipated having the product this year and, again, with no incremental dollars out there on the reimbursement. It is simply a better patient experience, and we will continue to drive penetration and adoption within our DMEs. Operator: And moving next to Ben Haynor with Lake Street Capital. Benjamin Haynor: Good afternoon. Thanks for taking the questions. First off for me, wondering on the guidelines for lower limb—any more color you can share on what the initial reaction has been from clinicians? And then just maybe some commentary overall on mix of the lymphedema market—is 52% of cases lower limb? Any color you can provide for investors there would be helpful. Sheri Louise Dodd: Sure. On the guideline standpoint, we are really pleased to have the guidelines presented at AVS in February, and it is anticipated that those guidelines will be published this summer. As always, it is great to have the guidelines. In terms of the dissemination of the guidelines and training clinicians, that is something that our teams are going to be prepared for and help with the overall education. We are really pleased that the guidelines specifically called out pneumatic compression devices as being part of guideline-based care, which is differentiating from non-PCD products. So we are excited to have us positioned well with the overall evidence-based care guidelines, and we will roll that out and help communicate that. Elaine M. Birkemeyer: And then in terms of kind of mix of what is lower versus upper extremity, I think the best way to think about this is really what causes lymphedema for patients. We have said about a third of patients get lymphedema due to cancer, while the remainder are different other causes, with a big one being CVI. Cancer often can be upper body—if you think about breast cancer, head and neck cancer. There could still be some lower extremities with any type of pelvic cancer, but that is where you tend to see upper extremity, whereas the other drivers, typically CVI, happen to be lower extremities. So that probably gives you a little bit of a sense of it, but it really has to do with what is the underlying cause or driver, which is what determines where the area of lymphedema is in the body. Benjamin Haynor: That is definitely helpful. And would you expect additional clinical guidelines to be forthcoming for, you know, upper extremities or upper areas of the body? Sheri Louise Dodd: There certainly is, as Elaine said, that is largely in the oncology area. So there are definitely some white papers positioned in this area, and that could definitely transpire. I am not aware of anything specifically that is in the works on the upper extremity side, but we are really pleased at how well positioned and adopted pneumatic compression therapy is in upper extremity patients, particularly with therapists, and in oncology it is well understood, whereas lymphedema in the lower extremity can be almost a process of elimination. Certainly, with patients that have cancer, you know that you have removed a lymph node or you know that you have done something with the lymphatic system during a surgical procedure—different than lower extremity. So we tend to see that in the oncology space, and with lymphedema therapists there is more understanding of the lymphatic disruption that has happened with the specific oncology intervention. So guidelines could be helpful, but there is not as much of a disconnect as we have seen in the lower extremity. Benjamin Haynor: So numerically, you have not only more patients but less penetration, if you will, amongst that group. So it is kind of a double whammy theoretically for you guys. Sheri Louise Dodd: What you said is accurate. Elaine M. Birkemeyer: I think it is accurate that the lower extremity is the larger population. I think what Sheri is highlighting is that the guidelines are more meaningful for that population because there is not an obvious trigger to the lymphatic disruption, and so these guidelines really help it get discovered earlier. Versus upper extremity, there is an obvious trigger, and so patients and clinicians are more likely to watch out for it in the absence of guidelines. Benjamin Haynor: Okay. I think we are on the same page. Perfect. And then lastly for me, if I could sneak in one more. Is there any color you can provide on, you know, this new pharmaceutical out there for bronchiectasis? Has there been any impact that you find notable on the airway clearance side of things? Sheri Louise Dodd: Certainly. We have said and believe that the introduction of the pharmaceutical product specifically for patients with bronchiectasis is helping awareness for the broader category, so it has been a nice category lift. The airway clearance, though—and they call it the vicious vortex—is that you have issues of inflammation, and you have got mucus, and then you have infection. The pharmaceutical product helps support inflammation, but inflammation is just one part of this whole vicious vortex associated with bronchiectasis. There is still going to be inflammation, and with inflammation you are still going to have mucus, and with mucus you are still going to have opportunities for infection. So that need to actually clear the airway is still very relevant for this patient population. This is what we are hearing from our clinicians, and the positioning of the product as well is not to say it replaces airway clearance. It is actually alongside—could be used alongside and adjacent to it—but it is not one versus the other. We are happy that it is helping grow awareness and creating education around the disease of bronchiectasis, but we are not seeing this change the actual care pathway for these patients; it is just an option to be used alongside an airway clearance product. Benjamin Haynor: Makes sense. Thanks for taking the questions, and congrats on the quarter. Operator: Thank you. And ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines, and have a wonderful day. Operator: Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to Enel Chile First Quarter 2026 Results Conference Call. My name is Carmen, and I'll be your operator for today. [Operator Instructions] During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include Enel Chile S.A. current expectations, intentions, plans, beliefs, and projections. Forward-looking statements are based on management's current assumptions and expectations, do not guarantee future performance, and involve risk and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors are described in the Enel Chile's press release on its first quarter 2026 results. In the presentation accompanying this conference call, Enel Chile's annual report on Form 20-F on the risk factors. You may access our first quarter 2026 results press release and presentation on our website, www.enel.cl, and our 20-F on the SEC's website, www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Enel Chile undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate, except as required by law. I would now like to turn the presentation over to Ms. Isabela Klemes, Head of Investor Relations of Enel Chile. Please proceed. Isabela Klemes: [Foreign language] Good morning, and welcome to Enel Chile's 2026 first quarter results presentation. We greatly appreciate you taking the time to join us today. My name is Isabela Klemes. I'm the Head of Investor Relations. Joining me this morning are our CEO, Gianluca Palumbo; and our CFO, Simone Conticelli. Our presentation and related financial information are available on our website, www.enel.cl, in the Investor section, as well as through our investors app. In addition, a replay of the call will soon be available. At the end of presentation, there will be an opportunity to ask questions via webcast chat through the Ask a Question link. Media participants are connected in listening mode. Gianluca will kick off the presentation by covering key highlights of the period, our portfolio management actions, and providing updates on the regulatory context. Following that, Simone will offer an overview of our business economic and financial performance. Thank you all for your attention, and now let me hand over the call to Gianluca. Gianluca Palumbo: Thank you, Isabela. Good morning, and thank you for your participation. Let's start the presentation with our main highlights of the period. Let's begin with portfolio management. During the quarter, hydrological conditions were favorable, which helped us reduce portfolio risk and supported a stable operating performance across the business. We will come back to this point in more detail later on. At the same time, through EGP Chile, we started the construction of 3 battery energy storage projects in the northern part of the country. These BESS projects will add around 0.5 gigawatts of additional capacity and will play a key role in strengthening the flexibility of our portfolio while supporting our commercial strategy. In addition, Enel Generacion Chile signed a new LNG supply agreement with Shell. This agreement allows us to better valorize surplus gas volumes already available and to optimize LNG and Argentine gas supply for our generation business. Importantly, this initiative is fully aligned with our long-term business vision for Chile. This is particularly relevant in the context of the growing deployment of battery energy storage systems, which are essential to ensure a more flexible and efficient portfolio. Let's now move to the country and regulatory context. Starting with the VAD 2020-2024 process, tariff resettlements have been postponed until July 2026. At this stage, the regulator is working on alternative solutions to fund this payment with the objective of avoiding any impact on regulated customers' tariffs. Turning to the VAD 2024-2028 process. During the quarter, the regulator published the preliminary technical report, volume 2, in January 2026. Over the next few months, we are awaiting the publication of the final report. Let's now turn to business profitability. The first quarter of 2026 delivered consistent financial results. EBITDA showed a solid improvement compared to previous years, plus 16% during the period. The extraordinary general meeting approved a capital increase of CLP 360 billion at Enel Distribucion Chile, reinforcing the company's balance sheet and overall financial flexibility. In addition, the annual general meeting approved the final dividend, fully in line with our commitment to shareholder returns and value creation. In the next slides, we will go deeper into each of these areas and provide further details on the key drivers behind these results. Let's move to Slide 4 to talk about hydrology and the progress of our battery energy storage project. Let me begin with our hydro generation. Hydro generation during the quarter remained broadly in line with last year's levels, as shown on the left-hand side of the slide. For 2026, we are forecasting hydro generation at 10.7 terawatt hours. This assumption is based on a conservative view on hydrology, fully consistent with the average evolution observed over the last 13 years that allows us to confirm our 2026 guidance. This is the case, even though the probability of an El Nino event has increased in recent weeks, with potential impacts mainly expected in the second half of the year. This level of performance is supported by our well-diversified hydro portfolio, together with continuous operational optimization. Moving now to gas activities. On gas sourcing, we have signed contracts with Argentine gas suppliers with a longer tenure compared to previous years. These contracts secure firm volumes at more competitive prices, providing stable supply until April 2027. In parallel, in the context of high gas prices and the more flexible demand outlook for our thermal fleets, we concluded a negotiation related to our long-term LNG agreement. This approach is well aligned with our view of a gradual ramp-up of battery storage in the coming years, supported by a solid and reliable gas supply from Argentina. Finally, let me focus on battery storage. We continue to strengthen our generation portfolio through the development of battery energy storage systems. These investments will increase the flexibility of our portfolio and support the long-term resilience of our generation mix. In addition, they will continue to optimize our sourcing strategy. In this context, approximately 450 megawatts of new battery capacity are currently under development and will gradually start operations from [ 12-'27 ] ahead, in line with our planned investment schedule. Now let's move to Slide 5, where we will review our generation portfolio and the energy balance. Let me start with our generation portfolio. We entered 2026 with a solid and well-diversified portfolio. In fact, our total net installed capacity stands at 8.9 gigawatts, of which 78% comes from renewable energy sources and BESS. Therefore, this structure enhances flexibility and supports a balanced and resilient energy mix. Moving now to our energy balance. During the first quarter of 2026, net production remained stable compared to the same period last year. This performance reflects the flexibility of our generation portfolio. Higher contributions from wind, solar and efficient natural gas combined cycles more than compensated for the slightly lower hydro generation. Physical energy sales amounted to 7.5 terawatt hours, fully in line with the level recorded in the first quarter of last year. This confirms the stability of our commercial positioning, supported by our diversified sourcing mix. On energy purchases during the quarter, we maintained a similar purchasing mix compared to last year. This included 1.3 terawatt hours of net spot market purchases and 0.8 terawatt hours sourced from third parties. And now I would like to take a moment to share with you some key topics related to the distribution business, which we will cover on the next slide. Let me start with the tariff review shown on the left-hand side of the slide. We are in the 2024-2028 distribution tariff review process. In January of this year, the regulator released the second version of the technical report. The remaining technical steps are expected to lead a final tariff determination in the second half of 2026. Overall, the review is progressing in line with the regulatory timetable. Turning now to the VAD 2020-'24. The settlement of the outstanding debt with distribution companies, which was originally scheduled to begin earlier, has been postponed to July 2026. For Enel Distribucion, the amount to be received is around USD 65 million, while at the distribution sector level, the total amount involved is approximately USD 900 million. We remain confident that the process will progress toward the prompt resolution, considering its relevance for the sector and the need for orderly completion. Turning to distribution reform. We continue to see constructive and positive engagement from stakeholders, together with the growing and broad consensus on the need to further evolve and modernize the distribution framework in Chile. This is particularly important in the context of electrification and considering the long-term nature of distribution investments. Finally, a few words on grids and execution. We continue to reinforce specific parts of the network, while at the same time expanding digitalization and remote control solutions across the network. These actions allow us to restore service faster, improving customer experience, and strengthen the flexibility and resilience of our networks. Overall, execution and distribution remains solid, with a clear and continued focus on service quality. And with that, I will now hand over the presentation to Simone. Simone Conticelli: Many thanks, Gianluca, and good morning, everyone. I will begin my presentation with an overview of our key results for the period. As shown on the slide, during the first quarter of 2026, EBITDA reached $423 million, with a 16% increase compared to the same period of last year. The improvement was mainly driven by a better integrated margin performance. First quarter net income amounted to $162 million, representing a 7% decrease compared to the result of first quarter 2025, mainly due to higher depreciation following the commissioning of the new renewable plants and lower capitalization of interest. Finally, first quarter FFO reached $122 million, representing a 12% increase compared to the same period last year. The improvement is due to a combination of several factors, which will be commented on the following slides. And now let's move to the next slide to talk about the investment made during the quarter. First quarter investment amounting to $111 million were mainly allocated to the development of BESS project, increasing the value of our power plant fleet, and the reinforcement of our distribution network. Let's review the allocation in more detail. 41% or $46 million were invested in renewable and storage. 31% or $34 million supported thermal power projects. 20% or $31 million was directed toward grids investments. In the renewable segment, we have focused our effort on the development of BESS project, as announced in our strategic plan, on the enhancement of hydro capacity performance, and on the improvement of fleet availability. In the thermal segment, the priority has been the maintenance and performance enhancement of the power plant fleet. Finally, regarding grids, the focus remain on the resilience program to strengthen the distribution network and ensure service continuity under adverse weather condition. Passing to the nature of investment. First, asset management CapEx totaled $58 million, accounting for 52% of the total CapEx. The main activities have been the maintenance of Atacama, Quintero and San Isidro CCGT, the maintenance of renewable fleet aimed at ensuring plant availability, and some activities for the corrective maintenance and digitalization of grids. Second, development CapEx amounted to $40 million, mainly invested in batteries development, which represented 75% of total, and digital meters and grids remote control equipment. Finally, customer CapEx totaled $13 million, mainly invested in low and medium voltage connection project and initiative to support load increase. Let's now go on to the next slide, which provide a closer look at the EBITDA performance. In the first quarter of 2026, our EBITDA reached $423 million. The increase of $58 million compared to the same period of 2025 is mainly explained by the following factors. Starting with the integrated business, we recorded an increase of $67 million, mainly due to, first, lower natural gas costs that reduce the variable production cost of our thermal power plants and the spot energy purchase costs. And second, the positive impact of the optimization of gas sourcing, which allowed us to improve LNG and Argentine gas supply for our thermal fleet, extracting value from our gas contracts portfolio, as previously commented by Gianluca. These positive impacts were partially offset by the termination of certain high-priced regulated contracts and higher provision related to energy and transmission charges adjustments booked in 2025. Going to grids. We recorded a decrease of 18%, mainly due to the positive impact of issuance provision on 2025 and the impact of the higher O&M expenses associated with the anticipation of the 2026 winter plant activities, partially offset by a higher contribution from complementary distribution activities, mainly related to the new customer connections. Now let's move to the next slide to review the net income evolution. Net income amounted to $162 million in the first quarter of 2026. The difference compared to the first quarter 2025 is mainly due to the $58 million improvement in EBITDA, thanks to the more efficient sourcing, partially offset by higher depreciation and amortization, mainly related to the commissioning of new renewable capacity in the generation business and higher financial expenses, partially due to lower interest capitalization in the generation business. And now passing to the next slide, let's analyze the FFO composition for the first 3 months of 2026. In the first quarter 2026, FFO reached $122 million as a result of the following factors: first, EBITDA totaled $423 million, as previously explained; second, the increase of net working capital amounted to $161 million, mainly due to seasonality of energy payments and gas optimization agreement, for which the payment was registered in April; third, financial expenses amounted to $93 million, also including the settlement of hedging derivatives; finally, income tax expense payments amounted to $48 million, mainly related to generation business. Passing to the comparison with the results of the first quarter of 2025, the 2026 FFO was $13 million higher, mainly thanks to the EBITDA increase for $58 million, the lower increase of net working capital for $27 million, mostly due to lower CapEx payment related to the new development capacity, the positive effect of energy payment scheduling, partially offset by the increase of account receivable following the LNG agreement settled in April, the higher financial expenses for $62 million, and the higher income taxes for $9 million, reflecting higher monthly payment tax rates. Now let's take a look at our liquidity and leverage position. Gross debt amounted to $3.9 billion as of March 2026, remaining broadly flat compared to December 2025. The slight increase reflects the seasonal cash and working capital requirements, which were temporarily funded through a $50 million drawdown on the CAF credit line, partially offset by a $9 million reduction in IFRS 16 lease liability. The average term of our debt maturity reached 5.4 years by March 2026 versus the 5.8 years seen in December 2025, and the portion at a fixed rate was 85% of the total debt. The average cost of our debt reached 4.9% as of March 2026, in line with December 2025 figures. Regarding liquidity, we are in a comfortable position to support our capital needs for the upcoming months and cope with next year maturities. As of March 2026, we have available committed credit lines for $640 million and cash equivalent for $454 million. So thank you all for your attention, and now I will pass the floor to Gianluca for the closing remarks. Gianluca Palumbo: To conclude, our resilient and diversified business model supported solid and stable results in the first quarter of 2026, even in a volatile operating environment. A well-balanced portfolio combined with disciplined execution continues to provide resilience, allowing us to navigate changes in market and climate conditions with confidence. Second, electrification is clearly emerging as a key driver of demand growth in Chile. This trend is supported by structural developments across mining, industry, transport and electromobility. In this context, we remain closely engaged and well-positioned to support the country's electrification process, leveraging our integrated offering of clean energy, infrastructure and services. At the same time, we continue to closely monitor regulatory developments and their potential impacts. Finally, our solid financial position and flexible business model continue to support the execution of our investment plan and our ability to meet financial commitments. This financial strength allows us to continue investing in renewables and battery storage while maintaining financial discipline and delivering sustainable returns to our shareholders. Now let me hand it over to Isabela for the Q&A session. Isabela Klemes: Thank you very much, Simone and Gianluca. We now start the Q&A. As a reminding, we are receiving questions from our chat on the application. So I will start now, Gianluca and Simone, with the first question. We actually received this question from several analysts, including Andrew McCarthy from LarrainVial. I will do the questions, okay? So the first one is, congrats on the results. Apart from the gas valorization agreement, which is a positive one-off in your results, could you please indicate which other one-off negatives you have incurred in your first quarter 2026 figures? Basically, I'm interested in knowing the recurring EBITDA booked in the first quarter 2026. Actually, on the same, we also received a question regarding what we have mentioned in the EBITDA, regarding the provisions recorded in the first quarter 2026 related to energy and transmission charges. Simone? Simone Conticelli: So thank you for the question. So you are right, in this quarter, we have more than one nonrecurrent effect. The first one is the impact of the agreement with Shell. That is a positive impact, but then was partially offset by some problem with the transmission line that impacted in our efficiency. And on the other side, this impact can be around $50 million, and then around $60 million of adjustment coming from the previous year. The main part from 2023, it was related to an adjustment of the ancillary services booked in this year after quite a long discussion with the system, we finally take the final decision, and this has an impact of minus $30 million. So to make a synthesis, if you normalize all these nonrecurrent effect, our results is around $360 million, $370 million for the quarter. Isabela Klemes: Okay. So we are receiving several questions. Let me go to the second one. So the second one is coming from Javier Suarez from Mediobanca. Javier has several questions that I will split here. So the first one is, can you update on the key factors on the ongoing negotiations with regulator of the distribution regulatory framework? And also on the same page on distribution, he also is asking why, in other words, what is the reasons for the postponement of the settlement to July 2026 relating to VAD 2020-2024? Gianluca, this is yours. Gianluca Palumbo: Yes. Okay. So let me start for the first part. On the distribution regulatory framework, the VAD 2024-2028 process is still ongoing, so the methodology remains based on the reference model company with a regulated real post-tax WACC, as you know, of 6%. We believe there is still room for improvement in the CNE proposal, and we are actively participating with the distribution association in the observation and the discrepancy process. The final technical report is expected by June 2026, and the tariff decree in early 2027. So regarding the postponement of the VAD 2020-2024 settlement, the estimated impact is around USD 765 million. The recovery mechanism was defined by the SEC in February 2026, but collection was postponed by 3 months. So in this moment, our current planning assumption is collection from July 2026, while the Ministry of Energy is also evaluating alternative mechanisms, including potential debt factoring. Isabela Klemes: Now, another question from Javier. The other question from Javier, Simone, this is for you. Can you give more details on the profitability of the BESS project in Chile in terms of IRR? Simone Conticelli: Yes, thanks for the question. First of all, let me make a initial comment saying that Enel is developing new BESS, following the strategical goal to balance our portfolio. So first of all, we see this BESS project like an improvement of our portfolio and a way to have some energy shift that can result in a better match between the demand and the production curve. But looking at the BESS project as a stand-alone project, what we can say is that we launch this kind of project only if the return is at least 300 basis points above our WACC. Also that we make also some stress test trying to change the market condition to see the resilience of this kind of project also to some more stressed and critical scenarios. Isabela Klemes: So move on. The other question is coming from Fernan Gonzalez. This is also for you, Simone, from BTG Pactual. So the question is: why did energy purchase cost in the generation segment increase so much if volumes were similar with last year and its spot prices were significantly below the first quarter 2025 levels, even in the non-solar hours? Simone? Simone Conticelli: Okay. So in such a way, we answer at the beginning indirectly to this question, because this negative impact from adjustment from the past, entered as sourcing cost, and so You are looking also at the impact of this negative adjustment. Isabela Klemes: So moving on, we're receiving a lot of questions. So the next one is coming from Andrew McCarthy, another question from Andrew from LarrainVial. Good morning. Energy losses in the distribution segment continued to deteriorate during the first quarter 2026. Can you comment on what is driving that, how you expect to evolve, and what can be done to reverse the trend? Gianluca. Gianluca Palumbo: Okay. Thank you for your question. Energy losses increased mainly due to tariff adjustments and some change in customer behavior, which have led to a rise in not technical losses, such as the debt. So in the first quarter, losses were also impacted by lower than expected demand and a more competitive market environment. That said, our loss levels remain below the regional averages, and we have a clear plan to reserve the trend. So we are strengthening our loss reduction strategy through this plan. So first of all, improved inspection targeting using better analytics. Second, expansion of micro and macro metering, so this is an action to help the balance -- micro balance. Increased field action and controls, considering the better analysis that we will do. And finally, enhanced coordination with authorities to address illegal connection. That is one of the problem that we have. So looking forward, we expect losses to gradually decline, targeting around 5.7% by 2028, supported by these operational and technological improvements. That is very important for us. Isabela Klemes: I'm checking here other questions. Okay. So the other question is coming from Felipe Flores from Banchile Citi. The question is: my question is related to the capital increase in distribution. Will this be subscribed by Enel fully using cash? How does the company plan to finance it, or it's already covered? How much would take to recover the money? So Gianluca, if you can give some color on the capital increase. Gianluca Palumbo: Yes, of course. Okay. The capital increase is intended to strengthen Enel Distribucion financial position, and it's expected to be supported by controlling shareholders in line with its long-term commitment to the business. So from a financial perspective, it will be covered through group level financial resources, ensuring obviously efficiency and flexibility. So in terms of returns, this is not a short-term recovery investment. It supports the long-term sustainability of the business through improved financial structure, lower financial costs and maybe it's very clear, the ability to execute the investment plan under regulatory framework. This is the last question that I can add in this case. Okay. Isabela Klemes: I'm checking here. We have receiving another question. Some of them, we have already talked about that is related the capital increase and also on the postponement on the VAD, so I'm continue checking here. Another one was a question also, Gianluca, regarding the VAD 2020-2024, that potentially is going to be a new pack. But Gianluca has already answered this. That is one of the proposals that could be done in order to have the payment on the VAD. So let me -- just a second. Okay. So we have other questions that is coming from Juan Felipe Becerra, that is relating -- he can -- he ask Simone, if you can give more details on the gas optimization contract on Shell. We have already included, but if you can check also. Now, he has another question. Does this optimization imply lower contracted volumes or changing pricing terms with Shell? And regarding the 3 BESS projects highlighting the presentation, can you provide more details on the expected time line for each project to reach COD and enter in EGP capacity? Simone? Simone Conticelli: So let's start talking about the Shell agreement. This is an agreement that has the goal to optimize our portfolio. As you know, we have a very valuable portfolio of gas contracts. Part of the contracts is for GNL. Part of this contract is for gas from Argentina. What I want to stress is that the total amount of volume of gas that we can manage is higher of our needs, even stressing the needs of our power plant during a dry year. So what we have done in this agreement is try to rebalance the amount of the GNL contract to make coherent our portfolio. And we did it in a very right moment in such ways, so we have also positive impact on 2026 results. On the other side, talking about the BESS. Isabela Klemes: Yes. This is go to Gianluca. Gianluca Palumbo: So regarding the 3 BESS, to complement, the answer, regarding the 3 BESS projects highlighted in the presentation, let me know that, we could you provide more detail on expected time line. So in this case... Isabela Klemes: Yes. So the question, Gianluca, was regarding the BESS. What we are expecting the COD on the BESS side. Also what Gianluca was saying that we are expecting -- it's included in our business plan that we have recently presented. And Gianluca, if you want, now your mic is up. Gianluca Palumbo: Okay. I understand. Isabela Klemes: Going back again. Thank you. Gianluca Palumbo: Okay, okay, okay. During 2025, we focused on engineering, permitting and project preparation. With the regulatory framework now in place, we are starting construction in 2026 and expecting the COD during the third and the fourth quarter of 2027. So our strategy also included additional BESS investment, like we presented in the last Capital Markets Day, in 2027 and 2028, reinforcing storage as a core pillar of our portfolio. So we will continue to closely monitor market conditions, maintain flexible approach, focus on profitability and value creation. This is our pillar in our optimization of our portfolio. Isabela Klemes: Another question is coming from Jay Samani from Scotiabank. This is for you, Simone. SO where do you see Enel Chile next avenues for growth, given that lower demand from unregulated customers? He's mentioned about the termination of the PPA -- regulated PPAs. How is Enel Chile position itself for long-term? And can we expect the company to maintain the current earnings level for growth? He's asking about our business plan. Simone Conticelli: So can you repeat me the first part of the question, please? Isabela Klemes: Yes. Jay is asking you, where do you see that Enel Chile is going? What are the strengths of our plan? He's also mentioned that we see -- we have seen the results, not the reduction of the regulated PPAs, so he's asking what we are seeing the long-=term? So we are seeing more regulated customer coming on, new auctions, and how we are positioning ourselves in the long-term? Simone Conticelli: Okay. Enel will confirm its strategy. In this moment, clear we see a reduction in the volumes of regulated contract, but this is related in how the auction now will rise in the market. What we have to stress is that we want the full last to auction also at a valuable price on the market. So we have a very good portfolio in term of price in the short-term. Also, we can stress the fact that the pricing of our portfolio, the average price in the next 3-year, we will maintain the same value, even if the price on the market is going down. And for the full following year, we will keep on looking to a good mix among short-term opportunity and also long-term contract. That can be new regulated auction, but also, long-term contract with the big customer. Isabela Klemes: We have a last question that is coming from Isabella from Bank of America. So she's asking: what is the minimal cash position you are operationally comfortable with? You currently have a cash position of around $454 million. Do you plan on using your credit lines this year, or will you refinance your short-term debt? Simone Conticelli: So thanks for the question. You know that our business has a strong seasonality with some needs in terms of financing in the first and in the second quarter, and then -- and higher cash production in the second half. We have an internal model to define the comfortable minimal cash position to cover the net working capital needs. And then for the future financial needs, we plan to refinance using a long-term financing that in this moment is under negotiation. Isabela Klemes: We do not have any more questions coming here from the chat. So any other doubts that you may have, the Investor Relations team will be fully available to execute other calls and to go into more details. Thank you very much for connecting today. Have a nice holiday. Thank you. Operator: And this concludes our conference. Thank you for participating, and you may now disconnect.
Kylie Bundrock: Good morning, everyone. I'm Kylie Bundrock, ANZ's Group General Manager, Investor Relations and M&A. Thank you for joining us for the presentation of our first half 2026 financial results which are being presented from ANZ's offices in Melbourne and stand on the lands of the Wurundjeri people. On behalf of the ANZ team, I pay my respects to elders past and present and also extend my respects to any Aboriginal and Torres Strait Islander people joining us for today's presentation. Our results materials were lodged this morning with the ASX and are also available on the ANZ website in the shareholder center. A replay of this results presentation session, including Q&A, will be available on our website shortly after this session concludes. The results presentation materials and the presentation being broadcast today contain forward-looking statements or opinions. And in that regard, I'll draw your attention to the disclaimer in the front of the results slide pack. Our CEO, Nuno Matos; and CFO, Farhan Faruqui, will present for around 45 minutes, after which I'll go over the procedure for Q&A before moving to questions. Ahead of that, a reminder that if you would like to ask questions, you can only do that via the phone. And so over to you, Nuno. Nuno Goncalo de Macedo E de Almeida Matos: Thanks, Kylie. Good morning, everyone. Thank you for joining us. It's almost a year since I joined ANZ as CEO, and this has been a period of significant change for our bank. During this time, we launched a refreshed strategy, ANZ 2030, including the definition of our strategic pillars and initiatives, clear guidance of our major financial metrics, and we outlined our 5 immediate priorities. In parallel, we made good progress in clarifying our dividend outlook as well as strengthening our capital position and increasing our collective provisions and coverage ratio. These changes have resulted in better managed, more sustainable business, which is delivering stronger financial results. While we are early in our transformation, we are already more focused on our customers, simpler, more resilient and have materially improved value for our shareholders. Before turning to performance, I will take a moment to reflect on the external environment. As Australia's most international bank, we have a front-row seat to global developments. The real impact of this crisis remains ahead of us with the physical flow of critical commodities from the Middle East being key. While we have made a small downward adjustment to our global GDP forecast, at this stage, we'll still see the global economy growing at around 3.2% this year. In Australia, consumer and business confidence is materially weaker. However, spending and business conditions have only impacted modestly so far and employment growth is stable. This supports our central expectation that Australia will avoid a recession, although the situation is extremely dynamic, and we are prepared for a range of outcomes. The longer the flow of oil is constrained, the greater the chance the crisis shifts from being primarily an inflation challenge to more of a supply and growth challenge with greater economic impact. Turning to our customers. Generally, corporates have been taking prudent steps by shoring up liquidity, prioritizing optionality in their treasury management and perhaps most importantly, improving supply chain resilience. For large corporates in sectors which are most impacted such as transport, energy and construction, we are starting to see an increase in working capital needs, reflecting higher input costs, longer shipping routes and buffers for future disruption. Unlike other recent disruptions, capital markets have remained open, reducing the need for customers to solely draw on bank lending lines. While our business banking customers in Australia and New Zealand generally entered this period well prepared, for smaller businesses, particularly in the impacted sectors, higher operating costs are placing pressure on margins and cash flow. We are supporting our business customers through this time, including by offering 0 interest loans through the Australian government's $1 billion economic resilience program, where we are already seeing strong demand. Turning to our retail customers. Households in both Australia and New Zealand entered this period with high saving buffers, and we have not seen any material increase in hardship applications. However, in recent weeks, consumers have needed to sharply increase spending on transport, leaving them with less discretionary spending. We will continue to monitor emerging pressures and support our customers with appropriate assistance. The impact of the current crisis on ANZ's credit, capital and liquidity position has been minimal as of today. Our business is strong and structured to allow us to adapt to periods of uncertainty. First, we have very limited direct exposure to the Middle East at less than 0.5% of our total group exposure, and we are focused on high-quality investment-grade counterparties. Second, we have a strong balance sheet and continue to have good access to funding markets with limited increases in funding costs. As one of the world's most highly rated banks, we remain an attractive destination for global debt investors and depositors. And third, we are seeing the benefits of actions taken to transform the profile of ANZ's portfolio over the last decade. This includes prioritizing capital-light flow business over lending, while 83% of our wholesale portfolio is investment grade as reflected in our continuing low loss rates. That said, the situation is dynamic and the longer it continues, the greater the impact. Reflecting this raised risk in the external environment, we have taken a Collective Provision charge of $126 million this half, with our provision coverage ratio up 4 basis points to 1.22% in the half and up 9 basis points since March 2025. Now turning to our performance for the half. Our return on tangible equity was 11.6%, an improvement of 161 basis points. In parallel, our balance sheet and capital positions remains strong with common equity Tier 1 at 12.39% at the end of March, having improved 36 basis points from September. We proposed an interim dividend of $0.83 per share and increased the franking rate to 75% from 70%, reflecting our improved performance in the Australian geography. Our capital levels are appropriate. As a result, we will not apply a discount to the dividend reinvestment plan for the interim dividend, which will now be neutralized. When we launched the ANZ 2030 strategy last October, we were clear that this is a 2-phase strategy. The first phase across FY '26 and '27, it's about delivering on immediate priorities at pace in order to get the basics right, including a substantial improvement in productivity and initial investment for growth. In the second phase, beyond '27, we will realize the benefits of those strong foundations to drive outperformance. In each phase, we expect to improve returns and deliver value. We are now 1/4 of the way through the first stage and already showing tangible progress. We are also investing in capabilities now to execute the second phase which will differentiate ANZ from our peers while significantly improving our customer experience and the strength of our human and digital channels. As I said, at our Strategy Day, we have 5 immediate priorities, and we committed to regular updates on our progress. First, our new leadership team and our culture reset. Last year, we announced 4 new executives who are now firmly embedded in their new roles. Most recently, we appointed Tammy Medard as the Group Executive Business and Private Bank. And just last week, we took another important step, launching our new corporate values aligned to our purpose and our strategy. These values are not a slogan or catch phrase. They are action-oriented values, which will guide our people to deliver best outcomes for our customers and shareholders safely and consistently and at pace. At Strategy Day, we committed to a safe and secure migration of Suncorp Bank customers to ANZ by June 2027. This program of work was reset in October 2025. At the end of March, we have delivered 34% of this program, and our plan is to get to 57% by the end of this financial year. We remain on track to complete the migration by June '27. During the half, we strengthened the program operating model to support timely decision-making and delivery with clearer accountabilities and enhanced executive oversight. We also made progress building and testing the product solutions required for the integration as well as the core data solution and new end-to-end testing environment. Through this process, we will meet all of our federal and Queensland government commitments. At Strategy Day, we also committed to delivering a single customer front end by September 2027. Again, this program of work was reset in October '25. By March, we completed 13% of all this work and expect to have completed 45% by the end of this financial year. We remain on track for full delivery by September '27. Once complete, we'll serve individuals and small business customers with a single ANZ digital platform and brand. This will bring together the ANZ Plus experience with a broader products and functionality of ANZ existing retail and business platforms. We have made significant progress on our fourth immediate priority, simplifying the bank and reducing duplication. We reduced costs by 9% half-on-half, excluding significant items. And as a result, our cost-to-income ratio reduced to 49.4%, down from 54.6% in the previous half. When launching the strategy, we said we expected the impact of the initial productivity improvements to yield pretax gross cost savings of around $800 million in FY '26. We have realized 49% of the identified productivity savings, and we are on track to deliver in excess of this in the full year. Farhan will provide more detail. By the end of April, 78% of our announced 3,500 employee exits had occurred as well as more than 1,000 managed services consultant departures. Fifth, we are making good progress on our nonfinancial risk management uplift and remain on track to deliver our root cause remediation plan approved by APRA last September. This is a comprehensive framework that details the activities of our enterprise-wide PACT program standing for people, accountability, customers and trust. Today, we have released the second report by Promontory, the independent reviewer appointed to access this progress and regulatory reports -- and regular report, sorry, to APRA and the Board on the execution of the RCRP. All reports are and will continue to be available in full on our website. We are now through the setup phase of the PACT program and on track to largely complete the design phase this year. Last September, we also announced that ANZ had established an ASIC matters resolution program within our federal retail end markets to deliver improvements across a number of areas. This work is progressing and constructive engagement with our regulators on these important matters continues. I will now turn to the strategic initiatives across our divisions with a focus on the customer first pillar. This includes progress in laying the foundations for the second phase of our strategy to accelerate growth and outperform the market beyond 2027. In Australia Retail, excluding Suncorp Bank, we have 6.5 million customers and 11.6% of the market view us as their main financial institution. Our strategic NPS was stable at 2.9, and we remain an uncomfortable #4 of the majors. Total deposits grew 2% with 1% growth in transact and save. Home lending grew 1% at 0.36x system in the half. Having improved service and assessment levels in our home loan business, we increased momentum throughout the half to 0.85x system in March. We expect to be around system or at system in April and in the second half. This will be further supported by us having joined the first homebuyers guarantee scheme. Under our ANZ 2030 Customer First strategy, we are laying foundations for growth through deep propositions for attractive customer segments, including migrants and mass affluent, strengthened proprietary origination and elevated channel experience. Early progress on our customer proposition enhancements includes enabling New Zealand customers relocating to Australia to open accounts before arrival and launching competitive digital international money transfers to meet core migrant and affluent needs. Alongside this, we are upgrading our physical and digital channels, including the delivery of the single customer front end in 2027, the ongoing modernization of our call center platform and ATM fleet and a branch refresh across our network. In our Business and Private Bank, which has 580,000 customers, excluding Suncorp, MFI share was steady at 16.4%. Business Bank save and transact deposits and lending grew by 2% with lending continuing to lag the market. NPS for the division was down to minus 0.4%, again, an uncomfortable fourth position. Our transformation is focused on improving customer experience and accelerating growth. In contrast, the private bankperforming -- the Private Bank is performing quite well. Deposits increased by 6%, investment funds under management were up 8% and lending rose 17%. We were recognized with 4 awards by Euromoney, including Australia's Best Private Bank. Under our ANZ 2030 strategy, the transformation of the business bank will be driven by building a frontline that matches our ambition in size and quality and ensuring we have the right platform for the right customers while leveraging our strong private bank foundations. In short, our ambition is to have more business bankers who are highly skilled with better tools. In this regard, on the front line, our initial focus is on upskilling our business bankers with our upgraded Banker Academy ready for its first major intake. In this half, we have equipped them with better tools, having launched agenting AI-enabled capabilities in our CRM. With the right foundations in place, we remain committed to increasing business bankers by close to 50% by 2030. On platforms, we are accelerating the delivery of the single customer front end for small business customers. And for our larger business bank customers, we are releasing a new set of improvements to Transactive Global to make it simpler and more agile for this segment. For Private Bank, we recently completed a strategic review of our products, services, people and platforms, and we are moving forward in accelerating this business. Suncorp Bank NPS and MFI continued to perform well with a stable customer base of 1.26 million. We look forward to bringing these customers into the ANZ franchise by June '27, delivering benefits of scale and experience to both our customers and our shareholders. Our institutional business continued to deliver strong and consistent earnings with 2 highlights: 8% growth in operational deposits and 8% growth in market revenues, both FX adjusted half-on-half. Our institutional business is relationship-led with a unique international network and unified digital platform. We have a clear strategy focused on transaction banking services delivered through market-leading platforms, a capital-light profile and target customer acquisition. We are seeing the benefits of this strategy. Around 1/4 of our strong operational deposit growth has been driven by new clients across target sectors, including financial institutions. Our customers benefited from our continued improvements to our Transactive Global platform as well as data and insights from our markets platforms, which is helping them manage risk during a period of financial market volatility. In institutional, we have been clear that we focus on supporting our customers in lending in the context of a holistic relationship while balancing risks and returns. Finally, we recently announced an agreement to acquire Worldline's share in our merchant acquiring joint venture, moving us to full ownership. This will allow us to regain control of the merchant customer relationship and ensure it is consistent with our strategy to be a leading payments and transaction bank. In New Zealand, ANZ remains the largest bank with 2.7 million personal and business banking customers. Refreshed customer propositions helped increase personal and business MFI share to 33.3% and 31.6%, respectively, at the end of March. On the other hand, our NPS for both personal and business remains a challenge to be addressed. Save and transact deposits grew in the first half by 4%, in line with the market. In New Zealand, we gained share in total deposits and lending across personal and business and agri with the only exception being home lending. To build on our existing scale, we are replatforming for the future to bring the customer experience in line with our leadership position, refreshing our customer propositions and investing in business bankers. The replatforming rollout is well underway with the successful migration of customer records to our new modern banking platform completed in the first half. Now before I hand to Farhan, I would like to leave you with 3 key messages. Our transformation is running at pace, and we are making good progress in executing our 5 immediate priorities safely, sustainably and on time. In parallel, we are investing in line with our ANZ 2030 strategic initiatives to deliver for our customers, accelerate growth and outperform the market beyond 2027. And importantly, we are already delivering materially better returns for shareholders. With that, I will hand over to Farhan. Thank you. Farhan Faruqui: Thank you, Nuno, and good morning to everyone joining us today. We are 6 months into Phase 1 of our ANZ 2030 strategy, and we have made solid progress this half. As I noted at the end of last half, our focus is on sustainably improving our performance, and that means simplifying our organization to drive more efficient outcomes, maintaining a strong balance sheet and capital position, and improving returns for our investors. We have delivered on each of these with progress across all our key financial metrics. Return on tangible equity increased by 161 basis points to 11.6%. CET1 capital ratio increased by 36 basis points to 12.39%. Cost-to-income ratio improved by 519 basis points to 49.4% and revenue to risk-weighted assets increased 15 basis points to 4.88%. Importantly, our performance delivered value for our shareholders with a total shareholder return of 10.7% in the half. Dividends were maintained at $0.83 per share and the franking rate increased from 70% to 75%. As a result of our strong capital position at the end of this half, we will now not be undertaking a second discounted DRP and the interim DRP will be neutralized. In the first half of '26, the group delivered a cash profit after tax of $3.8 billion. Excluding the significant items announced in the prior half, cash profit increased by 14% and profit before provisions increased 12% half-on-half. I want to particularly call out the FX movements, which were more pronounced in this half. As previously reported, we hedge a large portion of our non-Australian dollar earnings. And over this half, these hedges helped offset the adverse FX translation impact. In revenue, we had a negative translation impact of $205 million and a hedge benefit of $19 million -- sorry, of $99 million in other operating income. In expenses, we benefited from a positive translation impact of $107 million. Therefore, at a profit before provisions level, the net FX impact was fully neutralized by our hedging strategy. I'll now step through the key drivers of results, starting with revenue. Our half-on-half comments will be based on comparisons to second half '25 financials, excluding significant items. Revenue was flat in the half. However, on a constant currency basis and excluding the hedge benefit, group revenue increased 1%. On this basis, net interest income was broadly flat. Deposit volume growth and margin management were offset by lending revenue. In addition, lending volume growth was softer in the half, particularly in Australia Home Lending and the Business Bank. Other operating income ex Markets increased by 2% and Markets delivered another solid result with revenue growth at 8%. I will talk more to deposits and lending volume as well as markets income shortly. Now moving to margins. Headline margin was 1 basis point lower in the half, while margin ex Markets was up 2 basis points, reflecting our disciplined approach to margin management. I'll walk through the key factors that impacted NIM this half. Number one, we continued to optimize deposit pricing, offsetting the impact of rate cuts in offshore markets in the half, delivering an overall flat margin outcome for deposit pricing. Asset and funding mix added 2 basis points with growth in save and transact deposits as well as overall deposit growth outpacing lending growth. Three, our replicating portfolios added 2 basis points, benefiting from higher rates and our decision to modestly lengthen the duration of the portfolio. And four, timing impacts from RBA rate changes as well as continued Australia home loan pricing competition drove a 3 basis point asset pricing reduction in the half. When adjusted for temporary factors, we exited March with group NIM consistent with the overall first half average of 1.53%. In terms of outlook, we remain disciplined in our execution. Looking forward, we face both tailwinds and headwinds. We anticipate that higher term rates in our house view of further RBA and RBNZ cash rate increases will be supportive to NIM. In particular, a further 7 basis points of tailwind to NIM from replicating portfolio earnings is expected over the next 12 to 18 months. However, sustained levels of competition and customers shifting to term deposits as rates increase presents potential margin headwinds. Based on these factors and noting that margin outcomes may vary from quarter-to-quarter, we see a bias to the upside in NIM ex Markets in the next half. Moving to the balance sheet. Ex Markets customer deposits grew by $11 billion in the half, and the performance was stronger on a constant currency basis with deposits up $20 billion. Volumes grew in all divisions with the exception of Suncorp Bank, where deposits were broadly flat. Core to our strategy is deepening customer relationships and improving the quality of our deposit base. With this focus, we grew our save and transact deposits by $16 billion on a constant currency basis this half, delivering a positive mix shift. Operational deposit growth of 8% on a constant currency basis was a particular highlight in our payments and cash management business. On the same basis, these deposits have grown 28% over the past 2 years as we continue to prioritize serving the transactional banking needs of our institutional clients. While deposit growth and mix were positive this half, Australia retail deposit growth remained below system and remains a focus, as Nuno has highlighted. Turning to lending. On a constant currency basis, customer loans and advances increased by $16 billion in the half, with all divisions contributing to the growth. In Australia retail, home loans grew $5 billion, reflecting below system housing growth. As Nuno has said, we expect to be at or around system in April and in the second half. Growth across Business Bank was mixed and below the broader market. This business is in transformation, and we are investing to accelerate growth. In New Zealand, business and agri lending grew at 1.1x system and home lending grew 0.8x system in a highly competitive market, characterized by a record level of customer switching and migration to lower-margin fixed rate lending. In institutional, growth this half was in shorter tenure supply chain trade finance. This was pronounced particularly towards the end of this quarter as customers started to secure their supply chain inventories given the current geopolitical environment. Turning to markets. The business again delivered consistent high-quality earnings with income of $1.1 billion, up 8% this half and up 7% on the prior first half on a constant currency basis. This outcome reflects increased customer activity across key products. FX, rates and commodities income all increased compared with the same period last year. In FX and rates, customer demand for structured products increased as customers sought to mitigate downside risks in this environment. In commodities, demand for gold underpinned performance this half. These positive contributions were partly offset by lower franchise credit income due to wider credit spreads. Balance sheet revenues also grew, driven by higher liquid asset volumes and improved yields. The result was further supported by geographic diversification with 72% of markets income generated outside of Australia, providing an important and resilient source of earnings diversification for the group. Looking ahead, our markets business remains well placed to continue to support our customers as they navigate volatile markets. That said, in periods of extreme volatility in financial markets, customers tend to step back from risk management activity and adopt a wait-and-see approach. This could be a headwind in a prolonged Middle East conflict. Now turning to expenses. At the full year results last year, we outlined actions to remove duplication and simplify the organization. We delivered a 9% half-on-half reduction in operating expenses and 8% on a constant currency basis. This reflects a substantive shift in how we manage cost and drive operational efficiency across the organization, representing a structural reset of our cost base. Specifically, 78% of the 3,500 FTE reductions have exited the group as at April 30. More than 1,000 managed service contractors were exited at the start of the financial year. We also optimized third-party spend by consolidating and rationalizing our vendor base, reducing total vendors by [ 80%. ] We exited noncore businesses and activities at pace. These exits reduced complexity and lowered costs in the half. Together, these actions are delivering a step change in cost discipline and realizing approximately $392 million of productivity in the first half. Suncorp Bank synergies contributed a further $29 million of first half productivity, primarily from the removal of duplicative project spend. Investment spend overall was lower this half, reflecting both the seasonal phasing of spend and stopping initiatives not aligned with our strategy. We will remain within our full year investment envelope of approximately $1.5 billion. Our expense rate for investment continues to be a sector-leading approximately 80%. At the full year results, we outlined an expectation that FY '26 costs would be down approximately 3% from the $11.85 billion baseline, which reflects the FY '25 cost base adjusted for significant items. Our productivity program is now on track to deliver an estimated $875 million of savings this year, up from our previous target of $800 million. In addition, we expect an FX translation benefit of $210 million this year if FX rates remain consistent with the first half average. As a result of our recent agreement to acquire Worldline shares in the ANZ Worldline Merchant Acquiring joint venture, we will consolidate the expense base of the business post regulatory approvals. We remain confident that this expense impact can be absorbed within our overall outlook. Taken together, we are updating our expense outlook. We now expect costs to be down approximately 5% in FY '26 from our FY '25 cost base adjusted for significant items of $11.85 billion. Let me turn now to portfolio quality. We recorded an individual provision charge for the half of $148 million, including $79 million for our wholesale and small business exposures. This resulted in an annualized individual provision loss rate of 4 basis points, which has now remained stable for 3 consecutive halves and is well below our long-run loss rate of 11 basis points. Our low individual provisions are the product of portfolio derisking over several years to strengthen our asset quality. We have been monitoring developments in the Middle East, where we have limited exposure, less than 0.5% of total group exposure. This exposure is focused on investment-grade government-related entities, central banks, sovereign wealth funds and sovereign-backed corporates. We believe these customers are well placed to withstand stress, and we continue to support them. Our institutional portfolio continues to be high quality with over 92% of our institutional exposure investment grade. Importantly, nearly 2/3 of this exposure is to financial institutions and sovereigns where we've had near 0 basis points loss experience since the GFC. For Business and Private Bank, we continue to focus on ensuring strong levels of collateral coverage with 83% of exposure being fully covered by collateral and a loss rate of 13 basis points in the half, down from 20 basis points in the second half '25. Our Australian mortgage customers' delinquencies decreased 3 basis points in the half to 83 basis points, and our mortgage customers continue to show resilience with 88% of accounts ahead on repayments and approximately 70% of our customers holding savings buffers of 3 months or more. Similarly, our New Zealand mortgage portfolio delinquencies decreased by 6 basis points in the half, down to 80 basis points. Now while we have not seen a material increase in customer requests for hardship relief, we are very conscious of the stress from higher interest rates and cost of living pressures. We are closely monitoring and providing support for our customers against this evolving macroeconomic backdrop. Now moving to collective provisions, where we considered the Middle East conflict and took a balanced view at the end of March. Transmission to the broader economy is still at an early stage, and our portfolio is strong, but there are clearly risks to both the domestic and global economies, especially if the conflict is not resolved in the near term. We have reflected this view by increasing the weighting to our severe scenario by 2.5%. This increased our collective provision charge by $175 million. Over the half, we also made adjustments to our overlays and together with portfolio growth, credit quality improvements and model changes, our resultant collective provision charge for the half was $126 million. Overall, the collective provision balance has increased to $4.45 billion, lifting coverage by 4 basis points to 1.22% of credit risk-weighted assets. This new collective provision balance represents a post-COVID high in coverage levels, with the collective provision balance now around $2.5 billion above our base case scenario and $65 million above our downside scenario. In reviewing the adequacy of our settings, we also considered, one, our scenario weights are now skewed 52.5% to our 2 downside scenarios, reflecting the current volatile geopolitical environment. Two, existing collective provision balance levels cover 13x the individual provision losses taken in FY '25 and 20x based on the average of individual provision losses taken since FY '23. This is well above peers. Three, the continued resilience of our high-quality onshore and offshore portfolios as evident by consistently low individual provision loss rates. Overall, these settings reflect an appropriate approach, and we will continue to actively review our provision balance as conditions evolve. Now turning to capital. As I noted earlier, we have taken decisive action to strengthen our capital position, and this is reflected in our CET1 ratio increasing to 12.39% as at March. The dividend remained stable at $0.83 per share and franking increases from 70% to 75%. This higher franking reflects the improving performance of the Australian geography. At FY '25 results, we had announced the potential to discount the first half '26 interim dividend subject to our capital position and needs at the time. As I mentioned, this discount will now not occur and the DRP will be neutralized. This is reflective of our improved capital position, including the benefit of higher participation in the full year '25 discounted DRP and clarity on the direction of the RBNZ capital changes. It is also our intention to continue to neutralize future DRPs. With a stable dividend and improving profit, the payout ratio has reduced to 66% and is now broadly in our target range of 60% to 65%. Our payout ratio at this level retains capital for the underlying growth capacity to deliver on our ANZ 2030 strategy. We welcome the announcements in recent months from both the RBNZ and APRA regarding capital settings and capital reviews and agree that these will encourage better capital management and importantly, better alignment between risk settings and capital allocation. Notwithstanding some of the recent volatility in the markets and a modest increase in funding costs, we have continued to have good access to funding markets and a strong liquidity position. Key funding and liquidity metrics remain well above regulatory minimums. However, uncertainty is heightened, and this is an area we will continue to monitor closely. In closing, I wanted to reiterate the financial targets we have set for ourselves, including the upward revision to our productivity target for FY '26. Phase 1 is progressing as intended, and the delivery is now evident in the numbers, improved returns, higher efficiency and strong balance sheet settings while continuing to invest in the franchise. As conditions evolve, including ongoing geopolitical uncertainty, we will continue to actively manage our balance sheet and risk settings and support customers as needed. Our priorities and targets under ANZ 2030 remain very clear. We will continue to report transparently at every result, and we will be held to account on delivery. Thank you, and I'll now pass to Kylie for Q&A. Kylie Bundrock: Thanks, Farhan. [Operator Instructions] I will now hand to the operator for questions. Thanks, Darcy. Operator: [Operator Instructions] Your first question comes from Andrew Lyons with Jefferies. Andrew Lyons: Just 2 questions. Just firstly, on your capital position. Slide 63 highlights that the risk impacts were a tailwind for your core equity Tier 1 ratio via lower credit risk-weighted assets in 1H '26 as it has been in recent halves. However, I'd just be keen to sort of understand the sensitivity of your capital ratios to a deterioration in the macro economy. So can you maybe just talk to if the macro economy plays out per your base case assumptions that you use in your ECL modeling. How do you expect the risk impact within your credit risk-weighted assets to play out over the next couple of years? And maybe I can hazard to ask what it would look like in the downside scenario as well. Farhan Faruqui: Yes. No, thanks for that question, Andrew. Look, I think we are actually -- from a base case scenario standpoint, we have -- and I don't have the numbers for the next 2 years or so, Andrew, but I can tell you that over the next 6 months or so, we have an estimated -- if you were to move to the base case, we would have an estimated $3 billion increase in RWA, which would basically equate to approximately 9 basis points of capital. If we -- I don't have a downside scenario assumption, but I would imagine, obviously, it will be much higher than $3 billion. Andrew Lyons: Yes. Okay. No, that's really helpful. And then just a question around your mortgage lending. APRA data yesterday highlighted that you are clearly closing the gap to system in your mortgage lending. I guess 2 parts to the question. Firstly, how should we think about the NIM implications of reinvigorating growth both from the perspective of more aggressive mortgage pricing, but also the need to fund that higher level of growth? And then also, historically, your systems have impeded your ability to manage a big recovery in volumes. Can I perhaps just ask to date how effectively your systems responded to higher volumes that are now coming ANZ's way? Nuno Goncalo de Macedo E de Almeida Matos: Sure. So this is a topic that we addressed in the last quarters, and we talked about it at length. And I think now we are seeing the results of our first actions in this regard. The first thing I would say is we are not targeting mortgage growth just from a growth perspective. We want to grow in a profitable manner. That's the first thing we want to say. So in terms of the levers we've been working on it, pricing has been one that clearly we paid a lot of attention. We moved from competing at structural discounts into competing using pricing as another lever tactically when it makes sense, means we use discounts for a specific segment that we believe is more profitable than others. We don't do discounts across the board. We're not anymore the cheapest in the market. We changed our competitive stance. And we will keep it that way for the future because, again, as we've been saying, we are targeting sustainable and profitable growth. We also continue to manage aggressively our processes and improving the way we underwrite the way we process loans. And in that regard, as we said, we had significant improvements in this half. We had issues with our loan processing team in last years. That's basically done. That's digested. We have now the right size of a team. We are now in SLAs in market SLAs for basically all products and that's why we feel confident now to regain market flow. As you can see in October -- sorry, in March, we are very close. And in the second half, starting in April, we should be at market or around markets. But we are not only relying on process improvements. We are also improving significantly the quality of our distribution. And that means our proprietary origination teams, we are very much focused on productivity, and that's already a plus in this half. We're able to produce more tickets per individual per lender in our mortgage business. And the way we interact with brokers was also significantly upgraded in terms of times and in terms of experience. But we are also touching the product lever. For example, in the half, we're able to, in record time, launch, and we were lagging to be honest, we were able to launch our first homebuyer proposition. We entered the scheme. This is an important scheme. It represents roughly almost 10% of the market, so we should be there. So we are touching all the levers, product, distribution, processes and pricing, and we are getting out of only competing based on pricing, as we've been saying. With that, the production that we are bringing to our balance sheet from the market, it's accretive, and we are comfortable that it will not hurt our margins in the future. Operator: Your next question comes from Ed Henning with CLSA. Ed Henning: I have a first one on margin, a second one on costs. Just the first one on margin, I just confirm, Farhan, what you said on the call is the exit margin was the same as the half, but there's an upward bias. And the upward bias just on the replicating portfolio with the headwinds on competition and stuff a little bit more muted than what you're seeing currently in the environment on the replicating portfolio? Farhan Faruqui: Yes. So thanks, Ed. The -- I talked about the bias to the upside in the next half. It is driven to a great extent by replicating portfolio. As I said, we have a 7 basis point tailwind in the next 12 to 18 months on replicating portfolio, but a majority of that actually comes through in the next half. So that actually is supportive to NIM as well as obviously, the fact that we have more rate hikes baked into our current house view from both RBA and RBNZ. So I think overall, we feel that we are likely to see more upside on NIM than we are to see anything else from a headwind perspective. Nuno Goncalo de Macedo E de Almeida Matos: But -- and just to complement what Farhan is saying, the reason Farhan is saying is the bias up and it's not the full up, obviously, is that we have impacts on both sides, right? Clearly, with higher rates, customers will migrate to lower margin products on the funding side. So you would expect that both consumers and small business would migrate to, for example, term deposits. And we also have potential in our offshore business, U.S. rates coming down with a new -- let's say, with the new environment on the Fed. So there are undoubtedly very important tailwinds, but it's not just on one side. There's others also on the other side, but it's a net up. That's what we think. Farhan Faruqui: Yes. And I would just add to that, that some of those headwinds are starting to -- the green shoots of that are starting to show up. So we are starting to see a little bit of activity towards switching into, say, term deposits, et cetera, away from save and transact. Ed Henning: Okay. That's great. And just a second question on costs, just to clarify the increase in the savings coming through for '26. Is that additional productivity savings that's not a bring forward of any Suncorp synergies there? And now also with your guidance improved to down 5% this year, previously, you were indicating likely that '27 will be down again from '26. Does that still hold? Or is that a bit more of a challenge? And obviously, you've got -- you've talked about growing your bankers and stuff, and it depends on your timing around that as well. Nuno Goncalo de Macedo E de Almeida Matos: Yes. So let me recap where we are here and reminding you what we guide on this topic. We guide $800 million savings this year. And then net of inflation that equated to a 3% reduction on costs. We are now guiding to a 5% reduction on cost for '26. And that means $875 million of savings, not anymore $800 million plus the FX -- sorry, yes, the FX translation on cost line. So if you want the 5%, it's a simple math of the previous 3% plus 1.8% impact of FX translation plus an additional 0.2% of savings, which is around $75 million. We also would like to remind that we acquired the stake in Worldline, which makes us now the -- let's say, the full -- we have now full ownership, and that includes, so we are going to absorb on those 5%, we are going to absorb the additional costs that we will have by consolidating the Worldline company in our books. So it's a 5%, if you want is 3%, 1.8% of FX, additional 0.2% of savings and no additions on the Worldline. On your question of '27, I want to remind you, we did not guide '27. So we did not disclose any guidance in '27. What I can tell you is that we are not moving forward '27 savings to '26 is not about that. It's to continue to make the company more and more productive. And as we continue to be highly focused on finding those efficiencies, we are not exiting in taking them, and we continue to commit to the mid-40s cost to income by 2028. Farhan Faruqui: Yes. I would just to answer a little bit of your question, so in addition to what Nuno said about not moving forward to synergies from '27, we're also not -- we're also reporting, as you know, at the Suncorp synergies separately. So the $875 million, the new guided number does not include the Suncorp synergies that we're producing, which is separately tracked. And I mentioned that in this half was $29 million. So the $875 million does not represent any moving forward of Suncorp synergy benefits. Operator: Your next question comes from Tom Strong with Citi. Thomas Strong: Firstly, perhaps just on the progress of the Suncorp migration and the delivery of the customer front end. I mean you're further in front on the migration side. But can you just put a bit more color around the next 12 months around where the material points of financial risk are and technology delivery. So we've got a bit more of a better idea of what to expect and an ability to hold this to account over the next year? Nuno Goncalo de Macedo E de Almeida Matos: Well, I believe you have -- we have announced for those 2 projects clear time lines in terms of where do we expect that to be concluded. And I repeat, September '27 for the single customer front end, which means why is this so important? It means that by then, we'll have 8 million customers, retail and small business customers in one single platform, one single brand from what we have today, which are many, right? So it's not a small thing. It's a big thing. We reset the program in October, September '25 when we came to the market with our new strategy, and we start measuring all the tasks we have to do from that date until September '27, we start measuring them. Obviously, the program started. We have many things that we are leveraging on top from the past. So it's not that we are starting from 0, obviously. But we reset the program and we said whatever we have to do from September '25 on, we have a book of work, and we are now measuring that execution. We are at 13% in March '26. And we are very clear that we want to be at 45% by the end of this year. So I think you can take that as a clear pace. Basically, the project will be almost half done 1 year before the finish line. On Suncorp integration, we are at 34% again of the reset book resetting the clock at 0 in October '25. A lot of work had been done before. But again, we calculated the remaining book of work, and we started from that at 0, 34% at March '26. We expect to be at 57% at September '26. So you will -- we will be publishing every quarter, by the way, in Q3, when we launch -- when we'll publish to the market, we will publish again those percentages. And you will be -- every quarter, you will have a very clear definition on where we are. These programs are not long term anymore. They are next year. It's going to be very easy for you to test if we are on time or not. From a financial perspective, from an investment perspective, we have clear definition of the let's say, required investment. And we are -- again, this is not long term. We are very convinced that there won't be any material deviations from the numbers we have in our investment planning. Farhan Faruqui: And just to add to that as well, Tom, no deviation. All of those investment asks for both Suncorp Bank integration as well as the single customer front end are fully baked into our 5% reduction in total cost for '26. Thomas Strong: Okay. That's very clear. And just a second question, if I can. As the Suncorp customers have migrated and we move to a single customer front end, can you just talk about any sort of pricing decisions you'll have to make? I mean if I look at Suncorp customers today get a slightly sharper mortgage rate and a little bit better in terms of TDs and savings. Does this move to a single front end so you need to harmonize some of those different product pricing between the ANZ and Suncorp brands? Nuno Goncalo de Macedo E de Almeida Matos: Yes, undoubtedly, our competitive ambition is to have one face to the market, one face in terms of one product suite, one brand and to have a very simple offer to customers. Now when we say customers, we should talk about segments of customers, which means we might have a specific proposition for segment A, don't read that at Suncorp and then other proposition for segment B and so on and so forth. So yes, there will be inevitably a certain level of harmonization. We don't believe that it will impact at all our competitive position vis-a-vis Suncorp customers. Operator: Your next question comes from John Storey with UBS. John Storey: Just 2 questions from my side. Obviously, there's a big focus on ANZ lifting its revenues over the next few years. I'd be interested if you could just provide a little bit more detail just on the revenue trends that you've seen quarter-on-quarter. It looks to us like operating income is down roughly about 1.9%. Maybe a little bit more detail just on that split between NII and noninterest income would be useful. Nuno Goncalo de Macedo E de Almeida Matos: Sure. Well, we are absolutely committed and a lot of our attention is dedicated to make sure that growth is part of this journey. And that was very clear when we published the ANZ 2030 strategy. Now I would say we want to deliver profitable growth. We are not focused on inflating our balance sheet just to show growth and hurt our shareholders and our returns. When we started this journey some months ago, we read quite well our starting point. We read quite well our business capabilities, and we were very clear on which divisions were performing well and which divisions were not performing well. And which geographies were performing well and which ones were performing less well. We also were very clear about -- we took into account our risk management perspectives and capabilities and our regulatory stance. And we read well our returns, our capital levels and our dividend outlook. We took all that into account. And I believe that we set a very clear strategy to address ANZ from a short-term and long-term perspective, right? We communicated 2 phases. In the first phase, which we -- if you want, we make it tangible by always reporting on our 5 immediate priorities. Those are foundational elements. It's important that we understand that without those elements, the company will not be able to run as fast as it can in a sustainable manner, and we are thinking long term for this company. We want this company to be in a fantastic position to run fast in a sustainable manner. And that's '26 and '27, as we said, right? Beyond '27, we expect to grow and outperform the market in a profitable manner, in an accretive manner. And that's based in improving the customer experience, especially in retail and business banking, in improving our propositions, in strengthening materially our capacity to distribute our products, both from a digital and human perspective and to really focus on being a service bank. We are not a lender only. We are a 360 bank that want to be with customers every single day, and that's transaction banking, right? We also said that we would deliver returns improvement -- improved returns in each phase of our strategy in both phases as we are seeing. But the profile of that improvement is different from -- between Phase 1 and Phase 2. In Phase 1, the one we are now, I think you can observe significant improvements in how we are managing productivity and results are coming out of it. Cost management discipline, structure discipline, organizational design discipline, significant improvements in margin management and in return management and in capital management, which means we want to generate organic capital. We want to be sustainable and accretive. We want to set the way we compete in our own merits, not on pricing only. And we want and we need to increase significantly the way we manage risk. That's all going on. Now silently, but decisively, we are investing in order to be credible in our commitment to accelerate growth beyond '27. And that means improving customer experience, especially on the 2 divisions we said, which undoubtedly are our biggest opportunities, if you want. We are building propositions, especially for the segments we announced, affluent and migrants, which will be launched in due time, even though we are already delivering some tactical improvements. We are, as we speak, replatforming our call center, improving the quality of our ATMs, launching a single customer front end, so important in 2027. In wholesale, we continue silently to improve our digital transaction banking platforms, not only in Australia, not only in New Zealand, but also in our international network. What I'm saying is, at the same time, we put the company in good order and we set the foundations. At the same time, in parallel, we are improving our capabilities. So undoubtedly, our revenues will improve, but they have to be accretive. They have to deliver good returns. That's our ambition, and that's our commitment. And I think, to be honest, the consensus of the market is agreeing with us. That's what -- that's where the consensus is, is a company that needs to transform itself in order to grow faster. What I can assure you is that we are obsessed with that, but we will not do it without having the right foundations. It's better for shareholders to do it this way. Farhan Faruqui: I can just add, if you like, just on the quarter-on-quarter comment, would you like me to answer that now? John Storey: Fine, I'll take it with you, maybe chat a bit later. I just got another one, just quickly on the collective provision, right? I mean Slide 73 and 74. It looks to -- sort of looks to me like you've basically taken effectively a charge of kind of $200 million, right? Obviously, the economic overlays and the reweightings, as you called out, a big driver of that. But if you look at actually how the model spits it out in terms of where the provision actually sits from a divisional perspective, it looks like it actually kicks a lot of it out actually into the Aussie Retail and institutional divisions. I just wanted to ask like why would you not take a more subjective view on increasing the overlays possibly into the business and the Private Banking division, right? Farhan Faruqui: So no, thanks for that. Look, I think we've -- again, I mean, this has been -- there are some overlays that we've also taken, which we haven't described in great detail. But there are on general macro uncertainty, obviously. There is no trend or any particular impacts that we're starting to see in our Business and Private Bank. And there are also offsetting impacts because where we add some provisions, we also have had reductions to offset the increase in the scenarios as well. So there's been a bit of pluses and minuses. I'm happy to walk you through it in more detail, John, when we speak later. But it's not that we chose not to take in Business and Private Bank. All divisions were impacted by the shift in scenario weights, but there were offsetting impacts, which had different outcomes for each division. Operator: Your next question comes from Matthew Wilson with Jarden. Matthew Wilson: First question, how will the pace of the business banking transformation to accelerate growth and lift returns be impacted by the current macro uncertainty that you sort of outlined, given that segment is front and center of the impact, does it create opportunity? How do you avoid adverse selection and the 50% new bankers? What is that in absolute terms? And where will they come from? Nuno Goncalo de Macedo E de Almeida Matos: Yes. Important topic undoubtedly. The transformation of a business, it's about building capabilities, right? So in that regard, the question could be, does that -- do we deviate from our initial plan vis-a-vis the cycle that we might be facing. I wouldn't think so, meaning having to build a new digital front end, what we are doing, it's something that we will do it in any case, right? And we are not going to reduce the pace of our digital capabilities in business banking, be it on the small business side, which is single customer front end or as we've been saying, or building transact -- bringing Transactive Global, which is our institutional platform into the business banking bigger customers in that segment. Those 2 platforms will continue to be upgraded. One built, the other upgraded continuously. We are actually launching in the second half, a very important release of improvements for business banking customers from Transactive Global as an example. So that does not change. In terms of the bankers, and this is an important element, we need on our bankers force, sales force, we need to do 3 things. We need more. Undoubtedly, we are underweight versus the industry for a size of our ambition. That's no doubt about it. So the 50% increase stands. We might fine-tune it according to the cycle to your point, but stands by 2030. We need better banks -- better bankers, and that means train them and skill -- making sure they have the right skills to a different level. And the launch of our Banker Academy, the new Banker Academy is a reality, and we are going to start having intakes in that academy. We need to significantly have better bankers to face customer needs and the competition. And we need to equip them better with CRM tools. The fact that we, in this half, launched a new CRM platform for them with the Agentic AI was a big milestone. So I would say, in terms of infrastructure capabilities, no change at all. We are fully committed to improve the platforms, to improve the CRM tools, to improve their skills. In terms of how fast do we go on the 50%, of course, the cycle might inform you if you should go faster or not. It's too soon to say. At this point in time, our appetite has not changed a bit. So we are committed to accelerate, if possible, anything we can do in that segment. Matthew Wilson: That's very clear. And just one final one. In your sort of opening remarks in the press release, you mentioned that there's been no material change in the overall borrowing behavior of your customers. If deterioration did materialize in the next 6 to 12 months, as is usually the case when that happens, you see a sort of rapid drawdown of facilities. Is that the sort of leading indicator that you're pointing to? If we did see a pickup in system corporate credit growth due to that, then that would be telling us that things are getting a bit tougher in reality. Nuno Goncalo de Macedo E de Almeida Matos: Undoubtedly, that's one, okay? That's a very important indicator when companies start to draw in their liquidity lines. That's one undoubtedly. But to be honest, there are also other indicators that we should be looking into it. Traffic on our highways, on our streets, that's a very important indicator. Discretionary consumer spending, a very important indicator. So there are some leading indicators that we are also looking into it and many others, to be honest. But that one is a very important one. To be honest, so far, yes, there are some cases, but it's still very, very shy. But again, this crisis is still at the beginning, to be honest. These are weeks. It takes some time to really unfold. Hopefully, we will not, but we can't rule out a more nasty environment undoubtedly. Farhan Faruqui: But just to add to that point as well, Matt, as we look forward and particularly when we talk about capital, we have stressed our capital to see if there was a more elevated level of corporate borrowing, what would be the impact from a risk-weighted asset perspective and capital consumption standpoint so that we can be comfortable that we can continue to accommodate the DRP as well as dividends going forward. Operator: Your next question comes from Andrew Triggs with JPMorgan. Andrew Triggs: First question, please. You talked quite a bit about your mortgage growth ambitions into the middle of this year. Can you touch a little bit more on both the Business Banking and Institutional division side of things on the -- sorry, on the latter, noting that the volumes were soft in the half, and it looks like that was more about the Australian division rather than currency impacts that tends to be the division which is harder to forecast in terms of loan growth. Nuno Goncalo de Macedo E de Almeida Matos: Sure. First, I would like to remind or to highlight again what our strategic stands, okay? We see ourselves as a transaction bank, meaning we want to serve customers holistically. We want to be with them on a day-to-day basis, which means we want to be their main bank for their accounts, for their payments, for their FX, for their 360 needs, which include obviously lending. But we are not a lending-driven organization, just to be clear. We are a customer-driven organization, certainly in wholesale. In terms of the second half and obviously not guiding too much, we would say, first, it's uncertain because the cycle is just unfolding at this point in time. But both in institutional and in Business Banking, on the deposit side, the behavior was good or at market. In Business Banking, we feel we grew in deposit side with markets. And in institutional, we feel that it was a good performance. On the lending side, I would expect to accelerate. Now caveats, the cycle. The cycle will inform us if this element I just quote, it's possible, reasonable, doable, et cetera, or desirable. But at this point in time, we think it will be better. In Institutional, I want to be very clear. We don't target lending growth, okay? We remain very flexible. We target customer 360 relationships, and we target flexibility and lending is a part of that relationship. This is very, very important from a return perspective. We want an institutional business that is profitable and is customer focused. Andrew Triggs: And just in terms of the credit quality looking forward, obviously, you have a very strong weighting towards institutional, which is very high-grade customer base. Can you just talk a little bit more about some of the, I guess, the more energy-exposed sectors within that portfolio and how resilient those customers are, especially given they have, I guess, better access to capital markets and the like versus SME customers? Nuno Goncalo de Macedo E de Almeida Matos: Sure. I will give you 2 or 3 data and then Farhan, you can add for that. Our institutional portfolio is 83% investment grade globally. Our international network, it's 91% investment grade. So it's a very robust portfolio. It's a portfolio that has been year after year for almost a decade showed extremely low loss profile. And this is not, in our opinion, a coincidence. This is the result of a decade of strategic shift from a lending-driven business to a customer-driven business focused on transaction banking on customers that really value ANZ because of its regional presence in Asia Pacific and its global presence as a capital provider. So it's consistent -- and we don't expect to change. But obviously, the cycle is here to test us. With that, Farhan, would you like to add some additional elements? Farhan Faruqui: Yes. Look, I think, Andrew, I mean, I think Nuno covered it quite well. I mean we talked about some of the statistics, and I think it's worth just repeating them just to make sure that we are all consistent. But as Nuno said, over 90% of our international exposure is investment grade and is largely driven by high-grade corporates as well as large financial institutions and sovereign exposures. So it's a very well-secured portfolio from that perspective and has shown resilience, as Nuno pointed out, over the years. 92% of all of institutional is investment grade, if you look at it from an ex Markets perspective. Our loss rate has been very low. And if you look at our -- some of the exposures that we've had to our multiple companies, including energy, these energy companies are generally very high-grade companies who operate in the global space and have not shown signs of stress. So of course, this is an area which we continue to watch. But given the level of coverage that we have from a provisioning point of view in institutional as well as overall for the group and the high quality of the portfolio that we carry in institutional, we feel pretty comfortable with where we are in terms of our provisioning level. Operator: Your next question comes from Brian Johnson with MST. Brian Johnson: And just congratulations on the cultural reset that we've seen at ANZ. There's a lot to be admired. Against the backdrop of that, I just had 2 questions, if I may. The first one is just on the New Zealand dollar hedge. When I have a look at Page 70 of the 4D, it seems to be declining. When does it basically run out? And when would you be calling out if the New Zealand dollar continues to be where it is, when would you be specifically thinking that this would cause a negative delta in the reported earnings? Is it FY '27? Or is it the second half of FY '27? Farhan Faruqui: Thanks, Brian. As you can see in the hedge balances that we have right now in New Zealand dollars, we have about just over $2.5 billion of existing hedges at about NZD 1.10. Assuming the FX rate stays exactly where it is today, we expect to see continued benefits coming through in '27 as well, slightly less than what we've seen in '26 or what we will see in '26, but they will continue through '27, and we would expect that all things held equal, if rates don't change, then if there is any headwind, that would happen closer to the second half of '28. Brian Johnson: So, Just -- Farhan, just having a look at Page 70 of the release, we can see that it looks like you're actually reducing the size of that hedge. Like a year ago, it was NZD 3.2 billion -- it was NZD 3.1 billion at September '25. Total hedges were NZD 3.2 billion. It's now down to NZD 2.5 billion. You're hedging the statutory earnings, doesn't -- just the quantum of it, doesn't that actually imply that it starts to bite in the second half of '27? Farhan Faruqui: We have modestly reduced New Zealand dollar hedges at these levels right now, Brian, but our estimation is that we're in good shape for the next 12 to 18 months, which should take us closer to the end of '27. And then we'll start to see some headwinds coming in '28, a function of what the rates are at the time. But we expect closer to the second half of '28 for any material headwind. Nuno Goncalo de Macedo E de Almeida Matos: And what is important to say, Brian, is that our strategy to hedge our FX exposure of New Zealand dollars and U.S. dollars has not changed. So we continue to hedge. We obviously have a dynamic approach to -- depending on the levels of New Zealand dollars, but the strategy to hedge continues, has not changed. Farhan Faruqui: As well as U.S. dollars. Brian Johnson: Okay. The second one is that if I have a look at the slides at the back on asset quality, for example, if I have a look at Slide 83 in what I think is pretty small text, it says that you've got $1.4 billion of commercial property lending in Asia outside of China. That seems to me like quite a big number, particularly given that the disruption that we're seeing in the Middle East probably has a disproportionate impact in basically Asia as opposed, for example, to Europe. When we have a look at the slide on the long-run loss rate, it seems to me that basically COVID -- the GST wasn't a big event in Australia. COVID, we had massive government intervention. The last time we've really seen a cycle in Australia was 1992. But I'm just wondering, with your downside scenarios and your severe downside scenarios, can we get a little bit more granularity on when you are assuming the Middle East Gulf opens up? For example, there's reports that it may not be open until the end of August, and that's one of the more optimistic assessments. There are ones that are much longer. Could you just give us a little bit more granularity? Because when we have a look at your ECL provisioning today, based on what we've seen from NAB and Westpac, it looks that have preguided on this, it looks to be a little bit light relative to peers. And I just want to assess whether there's a risk when we're coming back at year-end that we see further top-ups. Farhan Faruqui: There's a lot in that, Brian. So I'm going to try and see how best I can address that, and I'm happy to have obviously a longer conversation later in the afternoon. But look, when we looked at -- let me start first step back and look at the broader collective provision levels. As we consider that collective provision balance and the change and the shift to the downside to the severe scenarios from downside by an additional 2.5%, we took a fair bit into context. We obviously wanted to -- we took a balanced view in terms of where the Middle East conflict is going to take us. Obviously, there is no ability to forecast when exactly it will end. But the shift from downside to severe of 2.5% was a reflection of the potential that this war could continue for a period of time. The second part that we considered was that we are still 52.5% weighted to the downside, which reflects the fact that we have a cautious view of the next few months as this war situation plays out. The third, of course, was the fact that we have a strong coverage, as I mentioned, even in high stress periods, I mentioned the last 1 year and the last 3 years where we've had 13 and 20x coverage on individual provision losses. But even if you were to go back to all the way back to GFC, even in the high stress years, we've had close to 5x coverage. So it has -- we've had -- our portfolio derisking has actually stood the test of time over the years where our individual provision losses have been well and truly covered by our collective provision balance. So as we took all of those things into account, we felt that the shift and the change that we've made, which, by the way, is equivalent to the percentage shift that our peer banks have done in terms of 4 basis points of collective provision coverage is consistent with what the others have done. But that having been said, I think it's important, Brian, that we're not -- this is a -- obviously, this scenario will continue to play out. And we are obviously very closely monitoring how the situation evolves, and we'll continue to ensure that our provisions are appropriate in the settings based on -- and the settings are appropriate based on how the situation evolves. So I think at this point, our view, as we said earlier, even on a 100% downside scenario, as I mentioned, we have $65 million higher collective provision levels if we go to 100% downside. And we'll continue to monitor that as well. Our portfolio quality, we've talked about the lowest loss rates for the last few years relative to our peers, very stable loss rates over the last 3 halves and a very different portfolio, if you like, relative to our peers. So it's very hard to make that peer comparison given our portfolio and given the derisking that we've done over the years. Brian Johnson: I suppose the issue is though, Farhan, it wasn't that long ago that you used to disclose the long-run loss rate and it's less than a year ago, it was 18 basis points. Farhan Faruqui: Sure. And Brian, we did update. We did update that. Brian Johnson: And It's kind of disappeared now. Farhan Faruqui: Well, it's not disappeared. What we've done is we've basically tried to reflect the current portfolio that we have and applied the loss rate to that portfolio mix. So when we apply that -- when we apply long-run loss rates to our current portfolio mix, our long-run loss rate will be about 11 basis points. We are currently at 4. Operator: Your next question comes from Carlos Cacho with Macquarie. Carlos Cacho: First, I just wanted to ask about kind of mortgage growth. You talked about targeted growth in certain segments. Can you give us a bit more detail where you're targeting? If I look on Slide 9, it does look like at the moment, pretty much all your recent growth has been driven by investors and in particular, IO, where from what we hear from brokers, you're well below peers in that pricing. Is that the primary segment you're going after the investor segment, just given, I guess, slightly higher margins. And so it's maybe a little bit more accretive to compete aggressively on price there? Nuno Goncalo de Macedo E de Almeida Matos: We are going to segments in general. Obviously, we are targeting the whole market. But we price statically, as we said at the beginning, to segments that we believe are more profitable when you take into account returns and risk, obviously. And that enable us to avoid a previous stance where we were at discount for the whole market. So yes, we have been much more considerate at the time of choosing where we apply some additional, if you want, relaxation in pricing. But in general, especially in the bigger segments, talking about the owner-occupied LTVs below 80%, we are either the second or the third among the 5, and we feel comfortable to be in that position. Carlos Cacho: And then just following up on Tom's question about kind of aligning products with the Sun migration and specifically looking at potential margin impacts. At the moment, your ANZ Progress Saver pays a rate that's 130 bps below the equivalent Suncorp product. If you were to align the rates on that, it would appear like it's a pretty significant margin headwind, potentially as high as 4 or 5 basis points. How do you think about that? Are we looking at potentially having another deposit product to avoid that margin headwind? Is that a gradual process? Or does that kick in when the Suncorp customers migrate? It just -- it would be good to understand how your thinking is about aligning those products where there are pretty material differences in the rates or the types of products they offer. Nuno Goncalo de Macedo E de Almeida Matos: Sure. An important question undoubtedly. As I said, we will have, and we can talk about Suncorp, if we talk about Plus. We will have one set of products under one single brand, a simple set of products. But that does not mean that we have only one product on each family. We will have several savings products and several potential TD products, obviously, and so on and so forth. So the way we are going to migrate those products into our family, we'll have to apply to this principle. We don't expect to have material impact due to the fact that at this point in time, we have 3 different platforms with 3 different products because we feel that they represent different customer needs and different customer profiles. Carlos Cacho: So essentially, there will be 3 Bonus Saver products, 3 Online Saver products once we have the new single customer front end is what it sounds like. Nuno Goncalo de Macedo E de Almeida Matos: We will manage that accordingly. And again, customers choose the products they want, right? And we are obviously going to simplify and harmonize with time, but that does not mean that we'll have one single offer for everybody from the start. Operator: Your next question comes from Jonathan Mott with Barrenjoey. Jonathan Mott: I just have one question. And sort of sitting back and thinking about the 2030 strategy since it was announced back in September to where we are today, it's pretty clear that the costs are going really well. You're doing a great job on simplifying the business. But the one thing that's really changed has been the cash rate environment and the bond yield environment. And obviously been very beneficial to industry margins. And the industry revenue seeing the other bank results and updates and preannouncements coming out, looks like it's the strongest revenue environment we've seen in a very, very long time. Yet when we look at ANZ, the revenue this half was flat. So I understand the need to get productivity, you need to get the Phase 1 right before you get to Phase 2, and you will see the revenue benefit then, but your revenue share is really suffering through this process. So my question is, if you look back and think about it, was that something of a mistake that you've lost out on so much revenue relative to your peers? And do you really need to use some of the higher interest rate benefit coming through to get that revenue moving again? Nuno Goncalo de Macedo E de Almeida Matos: Listen, I think I already answered that question very clearly. So I'm not so sure if I should repeat it or not, but I will with pleasure. Jonathan Mott: Yes. It's just the revenue environment is very different to when you made these decisions. And we can understand the process that you're going through. But really, the opportunity for revenue is very, very large at the moment. It's the longer it takes to get there, it's costing you more money. Nuno Goncalo de Macedo E de Almeida Matos: Yes, I couldn't agree more with you. So I'm going to repeat what I said. We have read the situation of the company 6 months ago or if you want 12 months ago, we did a very clear review of where we were as a company. And we looked into the business capabilities we had, especially where we were lagging the markets in retail and business banking. At the same time, we are making sure we take advantage of our engines that are already in good shape, talking about institutional and New Zealand. We also read our stance in terms of risk management and our regulatory obligations. And if you recall, we were returning very close to cost of capital and our capital was below 12%. And there was debate about our dividend sustainability, right? So we have to face reality. We have to face a starting point. And then we draw a strategy and hopefully, we executed with precision. We were absolutely clear on that strategy, right? We said at the beginning, the levers will be productivity, cost management, structure, margin management, capital management, risk management, return management. I think we have been delivering on it. In parallel, we also said that we are building the capabilities in order to be able to compete in a profitable manner. And this is very important. We are not here to write tickets to our balance sheet, if they are not profitable, if they're not accretive. Shareholders don't pay us for that. Shareholders pay if we write good business, profitable that allow us then to share with them the benefits of that business. And that comes with time and with patience, with a long-term view, really thinking about shareholders and not trying to impress in the short term. That's what we are doing with a lot of conviction, with a lot of discipline, but with a lot of patience. So yes, we could discount and go back to our old model of competition and get more tickets. That wouldn't help shareholders. Frankly, it might not even help customers because it would distract us of the most important thing. We want to compete on our merits, better experience to customers, better propositions to customers, better channels that are able to do their job more effectively and a bank that is not a lender, a bank that is with customers every single day and does fantastic service on their accounts, on their payments, on their effects, on capital-light products and also lend with confidence. That takes its own time. And we will not deviate from that. And I think that's for the best interest of the shareholders, as I think it's obvious already. Thank you. Operator: Your next question comes from Richard Wiles with Morgan Stanley. Richard Wiles: I just have one question as well. Farhan, you talked about the group margin being biased to the upside in the second half of '26. Could you talk about the outlook for margins in the Institutional division and also in New Zealand, please? Farhan Faruqui: Sure. I think -- thanks, Richard, for that question. I think it is going to be slightly different outcomes for different divisions. I think that the potential beneficiary of the tailwinds that we have are probably more business and private bank. I think New Zealand, we expect would start to stabilize in the second half. Obviously, it had the impact of the significant negative -- sorry, significant rate reductions -- sorry, significant rate changes over the course of the last half, but we expect to start to see them stabilize. I think Institutional will remain under pressure in terms of the U.S. dollar rates that we talked about as well as potentially competition, both in lending and in deposits. So we think that business banking would improve. The New Zealand business will stabilize. And I think overall, with the gives and takes, I think the retail business probably has more tailwind as well versus the headwinds. So that's sort of the divisional view. But overall, from a group perspective, Richard, we expect that it will be in the upside. Now as Nuno said, there are other factors which move things around a little bit, but it's a bias to the upside. Richard Wiles: Okay. Could I just follow up on the institutional? I think in the half just gone, the margin ex markets in Institutional was broadly flat despite the headwind that you would have had from the falling U.S. dollar rates. The U.S. is on hold at the moment. I mean it's unclear what they'll do on rates. But certainly, after this week's announcement, there's -- it looks like the prospect of rate cuts has been pushed out. So given the stable margin in the last quarter, why aren't you more positive on the outlook for the Institutional margin? Farhan Faruqui: No, I'm always very confident of the fact that Mark and his team managed the institutional margins very well. I was just pointing out the fact that should there be any U.S. dollar rate reductions, then that would obviously put pressure on institutional margins. Of course, if that environment doesn't materialize, then we think there is a very good possibility that institutional margins remain stable, maybe slightly up. Operator: Your next question comes from Matt Dunger of Bank of America. Matthew Dunger: If I could ask on the Institutional business delivering the vast majority of group deposit growth in the half, and you called out a strong result on operational call. Clearly, you're not leaving with balance sheet on the lending side. So what's happening at the customer level? Where are you winning new flows? And do you think you can sustain this momentum? Nuno Goncalo de Macedo E de Almeida Matos: Yes, good question. Well, undoubtedly, our performance in the -- has been for quite some time on the transactional banking side, has been, I would say, very remarkable for quite some years. And we have been growing deposits, operational deposits at double-digit rates for some time. And that's on top of, on one hand, our focus on that type of business and on the consistent investment we have made on having leading platforms for payments, for FX and for markets. So there is a clear strategic rationale for these results. On the lending side, it's fair to say that we have been cautious, and we have been very mindful of returns. We also know that transaction banking and capital finance, they go hand on hand. We know that very well. So we stand very much ready to support our customers. And we are absolutely willing to put more capital into work in this segment, undoubtedly. It's also fair to say the following. One of our major sources of growth in Institutional has been with financial institutional customers, which, as you know, are customers that are less demanding on finance. They are much more demanding on markets business and then on transactional banking. The fact that we have been growing a lot in financial institutions allow us to be less dependent on capital deployment, that this is also a strategic direction that we took. So on one hand, the type of customers we have been banking are more capital-light and we have been growing. And on the other hand, we are return conscious. But above all, we are absolutely, absolutely ready to deploy more capital, certainly now that our capital levels are at a healthy level in this segment, we want to. But what we will not do is to go into a capital deployment bridge as to -- if you want to show up in our balance sheet that has limited value, as I think we know. Thank you. Matthew Dunger: Could I just follow up with the franking rising to 75%, your lending growth has been targeted towards Australia. So just wondering how important it is to sustain this, obviously, raising the franking positive for your retail shareholder base? Nuno Goncalo de Macedo E de Almeida Matos: Yes. I can talk about that and then Farhan, if you want to add something. But our strategy, as we announced it 6 months ago, our strategy is naturally franking accretive, right? Remember, we clearly said we have 2 divisions that are performing well, Institutional and New Zealand. Those divisions -- well, one is -- New Zealand is outside, obviously, Australia. And in Institutional, there is a part outside of Australia. And then we said our biggest opportunity, our biggest gap in terms of capabilities and obviously, in terms of results is retail Australia, Business Banking Australia. So as we close the gap in these 2 business, which is, again, fair to say initial phase more on the productivity side, second phase, more on the revenue side. Those 2 business will become more important on the mix of business of ANZ, which is accretive to franking. So this is to say this 70% to 75% we expect to absolutely be sustainable. And obviously, this is in the best interest of shareholders. If you want, when we announced an $0.83 dividend and we upgrade franking from $0.70 to $0.75, that actually equates to a $0.02 increase on the net dividend for those type of shareholders. Farhan, do you want to... Farhan Faruqui: Yes. I think you've covered it really well, Nuno. I would just say, as you know well, Matt, that obviously, our franking is an outcome of our strategy, not the other way around. And as Nuno said, our strategy is very franking accretive by definition because it is very much focused on the Australian geography. In fact, our entire 2030 strategy is predicated on the fact that not only will we continue to extend the lead in our businesses in New Zealand and Institutional, but we will have a substantial uplift in our businesses in Australia Retail and Australia Business and Private Bank. So therefore, we obviously are expecting to see franking to continue to increase, as I said, it's in line with our strategy. The other point, which we've said before several times, as you know well, is that we have no incentive to keep any franking benefits on our balance sheet. Our intention is to try and distribute as much of the franking as possible because it doesn't benefit us, but it is a significant benefit in the hands of our shareholders. And we want to make sure that we continue to enhance that value for them as we go forward. Operator: Your next question comes from Brendan Sproules with Goldman Sachs. Brendan Sproules: Brendan from Goldman Sachs. I just want to follow on, on Slide 54 around the revenue momentum within the Institutional division. Obviously, over the last 4 halves, you've had pretty flat revenue growth from a customer franchise perspective, particularly in the non-lending space despite the fact your operational deposits are kind of up 20%, I think, since September 2024. To what extent is rate rises important to really get the revenue growing in this business, particularly now that you're not as focused on lending as you may have been in the past? And then I have a second question. Nuno Goncalo de Macedo E de Almeida Matos: Good. Thanks, Brendan. So obviously, for a transactional banking business, not surprisingly, the rate levels are important. That's very clear, and it is what it is. Having said that, this is a very capital-light business and the fact that we have been growing volumes at a very good pace, above market, it means that the sustainability of that flow, that capital-light flow is very strong, right? And it's on top of great capabilities. On the lending side, we don't target lending institutional, but again, it's very much part of our offer. We just don't deploy capital without a clear rationale for deploying capital, right? And it's within a customer relationship, which means it's within a symmetrical and mutual benefit relationship with our customers. And I believe the fact that we are, by far, the leading institutional bank in Australia and New Zealand tells you that customers really value the way we serve them and we operate with them. So yes, rates are important, taking into account that our replicating portfolio takes a lot of that volatility. So the same way we were hurt when rates start to go down in the last half, it's fair to say that we will benefit going forward. But above all, what we are looking in this business, it's sustainability in a capital-light business. And that's one of the ways to make sure that an Institutional business is profitable, right? And it's profitable in a sustained manner and is not dependent so much on cycles of credit, on credit spreads, on credit demand and potential losses. So we are much more comfortable in being the bank of the day-to-day of companies in a 360 manner, even though, as you said, we will have some fluctuation on rates, but I prefer a fluctuation on rates in a capital-light business than a fluctuation on credit cycles, to be honest. Farhan Faruqui: If I can just add one other point to that Nuno is absolutely right, these businesses are, by definition, leverage to the upside on rates. But there is the other element of the fact that Nuno mentioned volumes, but we also very carefully manage and monitor the cost per dollar of FUM in this business because effectively, at the end of the day, we're seeking returns. And those returns from the cash management business drive a number of things. They drive what the cost of dollar per FUM is even if rates aren't going up. We monitor volume, obviously, but also it is a very important feeder product or very much of an integral product to the broader businesses that clients do, whether it's on trade, whether it's on markets flow business, including FX, et cetera, which are intricately linked to payments and cash management. So it's -- it is a very central part of the ecosystem of what we do with our customers, which is the point that Nuno has made around transaction banking and services being center of plate for our customers in institutional. So it has a number of other value drivers, which don't necessarily always show up in just fees and commission, for example. Brendan Sproules: Maybe if I could just follow on from that. I'm just trying to sort of understand where Institutional sits in the longer-term 2030 vision. Obviously, a 13% return on tangible equity is your group target. Currently, Institutional is your largest contributor from a revenue perspective. It's 30% and its return on tangible equity is 14%. It's been pretty constant. Just given what you outlined there, am I imagining that this will still be your biggest contributing division when we get to 2030? And because of the capital-light nature of how you want to run this business that we can expect that return on tangible equity to grow and be a major contributor to the group's overall target of 13%? Nuno Goncalo de Macedo E de Almeida Matos: Yes. Important matter, which is the mix of business and how the mix of business will evolve with the strategy. As you know, we didn't guide on mix of business in that regard. Having said that, what I think it's disclosable is the fact that Institutional is a business where we are a leader, right? We are a leader in Australia, in New Zealand, and we are a highly competitive franchise, especially in Asia Pacific. Leadership has a benefit. It always -- you always over-index in returns when you are the leader, right? So this is a jewel we have. It's a significant part of our business. We want to make sure that, that business continues to be the leader. In that regard, you should not expect a significant reduction of the mix -- in the mix of ANZ in Institutional. Also in that regard, we want to make sure that Institutional remains a very profitable part of our franchise. We don't want to, again, depend on credit. But -- and this is an important element for the cycle, the fact that we have good levels of capital in a cycle where credit spreads potentially will improve, we stand ready to benefit from the improvement of credit spreads because, again, we are a capital finance provider. So Institutional will remain very important. We will remain a leader in the market we just mentioned. It will continue to be a capital-light business. We don't expect degradation of returns, but there will be obviously cycles. I think with that, you have an idea where we want to stay with this business by 2030. Operator: There are no further questions at this time. I'll now hand back for any closing remarks. Nuno Goncalo de Macedo E de Almeida Matos: All right. Thank you, Darcy, and thank you, everyone, for joining us today. Before we wrap up, I would like to reiterate our 3 key messages. First, our transformation is running at pace, and we are making good progress in executing our 5 immediate priorities safely, sustainably and on time. Second, in parallel, we are investing in line with our ANZ 2030 strategic initiatives to deliver to our customers, to accelerate growth and to outperform the market beyond '27. And very important, we are already delivering materially better returns for shareholders. I look forward to consistently updating you on our progress. Thank you so much.
Operator: Good day, and thank you for standing by. Welcome to the Prosegur Cash Q1 2026 Results Presentation. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Miguel Bandrés, Head of IR. Please go ahead. Miguel Ángel Bandrés Gutiérrez: Good morning to everyone, and thank you for joining today's call with Javier Hergueta, our CFO; and myself, will present our Q1 2026 results. The presentation should take around 20 minutes, in which we'll share the most relevant events that have taken place in the period for our business as well as our performance. Javier will review the period's highlights, key financials and our transformation progress, after which I'll share the main developments by region before Javier closes with conclusions and open the Q&A session. Should we not get to respond to everything in this session, we'll get back on any open topics on an individual basis. I want to again thank you all for your attendance. I remind everyone that this presentation has been prerecorded and is available via webcast on our corporate web page, which you can find at www.prosegurcash.com. But before we move to the financial results, I'd like to offer some context regarding the current landscape for the cash industry, which continues to show its resilience and the fundamental necessity our society has for cash. These pieces of information range from access to cash in Australia, the role of cash as a cautionary payment method in Europe, institutional protection of cash in Switzerland or the continued growth of cash in circulation in India. In the first news, we read from Business Insider that the European Central Bank advises holding cash is a key precaution to be taken in the current and growing uncertain environment in the Iran war, broader international tensions, cyber attacks, blackouts or multiple vulnerabilities in digital payment systems. This reminds us that cash is not only a payment method, but also a key element of resilience in moments of uncertainty. Next, as POLITICO Europe covers, Switzerland has decided to safeguard cash after a vote that has drawn broad international attention. This is yet another example of how both institutions and citizens continue to value freedom of choice in payments and the trust that physical money provides. Thirdly, the Monetary Brief from RBA Payments System Board states that authorities in Australia are reinforcing access to and distribution of cash. This is especially relevant for regional and remote areas and ensures that regulators continue to regard cash as an essential service that must remain available to all citizens. Lastly, moving to India, cash in circulation rose to a record level in January, increasing by 11% versus January 2025. This shows that in fast-growing and increasingly digital economies, cash remains highly relevant for everyday transactions and savings behaviors. All these cases emphasize the unique attributes of cash and its vital role for social and financial inclusion. As a market leader, Prosegur Cash remains dedicated to managing this essential infrastructure in close coordination with central banks and financial institutions. With this overview of the cash environment, I would now like to hand it over to Javier, so he can share with us the main highlights of the quarter. Javier Hergueta Vázquez: Thank you, Miguel. Good morning to everyone, and thank you as well for attending. The first quarter of 2026 has been a solid start to the year for our company. Despite an adverse foreign exchange environment, we have been able to deliver strong net profit growth, continue accelerating our transformation and reduce our net debt. All of this once again demonstrates the resilience of our business model. Our top line has shown organic growth of 3.2%, with Europe posting a positive 3.6% trend and building on past quarters. However, this good operating performance has been offset in euro terms by a negative 6.6% foreign exchange impact and a slight 0.2% inorganic effect, with which sales declined by 3.7% to EUR 497 million. Argentina continues to suffer very slow consumption, as we have shared in previous calls, due to the balancing policies the government has set in place. Despite the above, our EBITDA margin has remained broadly stable at 17.3%, in line with the 17.4% reached in the first quarter of 2025. EBITA margin stood at 11.3%, while net profit increased by 8.1% year-on-year to EUR 26 million, showing an improvement in the lower part of our P&L. Regarding Transformation, we continue to advance at a strong pace. These products grew by 6.2% and now account for 36.4% of total sales, 340 basis points more than in 2025. Cash Today continues to be the key driving force of such growth in the period. In terms of cash generation, free cash flow totaled EUR 6 million in the quarter. This has been achieved with lower working capital use than in 2025 and has allowed us to reduce LTM net debt by EUR 47 million. Lastly, I would like to mention the sale of the AVOS in Argentina and Paraguay as well as the cancellation of treasury shares following the buyback process, both of which are relevant milestones of the quarter. I want to underline that we are very closely monitoring the evolution of current geopolitical and strategic tensions, which can have an impact in our business. Despite this is yet to fully materialize, we can already observe an increase in fuel prices that we are in due course passing to tariffs and that should have a marginal net effect, while we have to follow the potential impact on fuel supply chain for which we had already set in place contingency measures such as building fuel reserves. On the other hand, we see that inflation is in an upward trend. This inflationary environment, if it is to stay, will have a positive impact in the speed of cash being used and hence, in our volumes despite lower economic growth. As well as we have read in the news, this growing uncertainty favors the role of cash and its resiliency to the system. As said, different levers that should have a net positive impact are to be monitored. In this context, continuing to control debt and focusing on growing sales to improve our profitability are critical. With this overview, let me now go into the financials in more detail. First, looking at our income statement, revenue reached EUR 497 million in the quarter. As shown on the right-hand side of the page, organic growth stood at 3.2%, while inorganic perimeter had a limited negative impact of 0.2%. Foreign exchange, however, negatively affected us by 6.6%, hitting Asia in a particularly strong manner. When adding all these effects, reported sales decreased by 3.7% year-on-year. EBITDA totaled EUR 86 million, and the margin remained broadly stable at 17.3% of sales, just 10 basis points below the level achieved in the first quarter of last year. Together with depreciation of EUR 30 million, this brings us to an EBITA of EUR 56 million and a margin of 11.3%. Further down the P&L, amortization of intangibles reached EUR 5 million, resulting in an EBIT of EUR 51 million, equivalent to 10.2% of sales. It is also important to note that the financial result improved significantly from EUR 12 million in the first quarter of 2025 to EUR 6 million in the current period. This allows us to reach an earnings before taxes of EUR 44 million, a 2.5% increase year-on-year and to improve our EBT margin over sales to 8.9%. Taxes totaled EUR 19 million, slightly below last year in absolute terms, and the tax rate shows a very positive 300 basis points decrease to 42%, result of active tax efficiency actions as well as an improved tax country mix, which we aim to sustain during the year. With all that, net profit reached EUR 26 million, growing 8.1% versus 1 year ago and representing 5.2% of sales. Consolidated net profit totaled EUR 25 million, up 7.8%, while earnings per share reached EUR 1.68, 8.6% more. I would like to underline the strength of our P&L, especially in the lower part, where the improvement in financial result and tax rate has allowed us to continue increasing profitability for our shareholders despite continued foreign exchange headwinds. Moving now to our cash flow and net debt position. This quarter reflects our consistent disciplined financial management. Starting from the already shared EBITDA of EUR 86 million, provisions and other items deduct EUR 20 million, while tax and ordinary profit amounts to EUR 20 million. Investment in CapEx totaled EUR 22 million in the quarter. A key positive development in the period has been working capital. Its use decreased to EUR 18 million from EUR 40 million in the first quarter of 2025. Thanks to this improvement, free cash flow totaled EUR 6 million, slightly above the EUR 5 million achieved 1 year ago. The conversion ratio stood at 75% and remains at a strong level, especially for demanding first quarter. After interest payments of EUR 10 million, positive EUR 15 million M&A inflows and other minor items, total net cash flow for the quarter was positive by EUR 7 million, a significant EUR 25 million improvement over the same period of last year. Our net financial position improved from EUR 711 million at the beginning of the quarter to EUR 700 million at the end of March. Including IFRS 16 debt, deferred payments and treasury stock, our total net debt stands at EUR 845 million with our leverage ratio at 2.4x. It's important to note that we've achieved a total net reduction of EUR 47 million over the last 12 months, once again, reflecting our disciplined approach to capital management. With this, let me move now to Transformation. Looking into Transformation, I'm very pleased to share that these products continue to grow their relevance and now represent 36.4% of total sales. Revenue from Transformation Products reached EUR 181 million in the first quarter, which is a 6.2% increase versus the same period of 2025. And this all despite as well being negatively affected by currency depreciation. This performance has been supported by a strong contribution from Cash Today. These solutions continue to receive strong customer acceptance across markets. Penetration over total sales has increased from 33% to 36.4%, implying a 340 basis points year-on-year improvement, clearly showing our transformation is advancing at a fast pace. With this, I would like to pass over to Miguel, so he can share with us the key developments in our regions. Miguel Ángel Bandrés Gutiérrez: Thank you, Javier. I would like to start with Latin America, our main region, which accounts for 58% of sales. Revenue in the region totaled EUR 291 million in the first quarter of the year. This implies a decline of 7.4% versus sales achieved a year ago, driven fundamentally by an adverse 8.9% foreign exchange effect. It's important to note that underlying organic growth has remained positive at 1.5%, again, despite the strong halt that Argentina's consumption continues to experience. Transformation Products have also had a very positive quarter. They grew by 5.5% to over EUR 117 million, despite the adverse currency environment and the penetration increased from 35.4% to 40.4% of sales, a significant 500 basis point improvement year-on-year. This development shows that Latin America continues to be a key region for the deployment of our value-added solutions and the customer adoption remains strong. Turning now to Europe that accounts for 32% of group sales. Revenue reached EUR 161 million, 3.6% more than a year ago. This growth is backed by a strong 3.8% organic growth despite a still hesitant economic activity and has had a limited 0.2% negative foreign exchange impact. It's encouraging that the positive trend in Europe continues to strengthen, confirming the good commercial momentum we've seen in recent quarters. Transformation Products in the region grew by 9.1% to EUR 53 million, and the penetration increased from 30.9% to 32.6% of sales, a 170 basis point improvement year-on-year. Europe is, therefore, contributing not only with growth, but also with a higher share of transformation sales that provides a balanced, higher quality growth profile for the group. I'll now turn to Asia Pacific, which represents 9% of group sales and continues to show very attractive underlying dynamics. Reported sales in the region reached EUR 45.3 million, a 2.6% decline versus a year ago. However, this figure is fully explained by a 12.9% foreign exchange impact and a 2.3% inorganic effect, while underlying organic growth remains strong in mid-double-digit territory at 12.6%. Operations in the region continue to evolve very positively with outsourcing opportunities being captured together with growing demand for our services, far outpacing local GDP growth. Transformation Products were broadly stable in reported euro terms at EUR 10.9 million, down 0.6% year-on-year. Excluding currency effect, they, however, have increased by 5.1% and penetration has improved by 50 basis points from 23.6% to 24.1% of sales. The region continues to offer significant growth potential in both the core business and our transformation solutions. Thank you for your attention, and I'll turn back to Javier, so he can summarize our main conclusions. Javier Hergueta Vázquez: Thank you, Miguel. I would now like to summarize our main conclusions. The first quarter of 2026 has been a good start to the year in which despite foreign exchange headwinds, we have delivered net profit growth, continue to accelerate our transformation and reduce our net debt. Reported sales declined by 3.7%, but organic growth was positive at 3.2%, and Europe maintained a particularly good trend at 3.6%. Asia Pacific also continues to show strong underlying growth; while Latin America, again, with the exception of Argentina, remains resilient in organic terms. At profitability level, EBITDA margin remained stable at 17.3% and EBITA margin reached 11.3%. Most importantly, net profit grew by 8.1% to EUR 26 million, emphasizing the behavior of the bottom part of our P&L. Transformation continues to be of growing relevance for us, having grown these products by 6.5% to EUR 181 million and now representing 36.4% of total sales, 340 basis points more than 1 year ago. Cash Today continues as a key growth driver. Cash generation has also been positive with EUR 6 million of free cash flow in the quarter as a result of improved working capital. This cash generation has led to a EUR 47 million reduction in LTM net debt, which results in leverage remaining within our comfort range at 2.4x. Additionally, during the quarter, we completed the sale of AVOS in Argentina and Paraguay that will continue to allow us to focus on our growth verticals. As well, we proceeded to the cancellation of treasury shares following 2025's buyback process. Thank you very much again for your attention. And now we would like to open the line to your questions. Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Enrique Yáguez from Bestinver Securities. Enrique Yáguez Avilés: The first one is about Argentina. Do you foresee any sign of sequential improvement this second quarter in terms of organic evolution? And I don't know if you could disclose what would have been the organic evolution in LatAm excluding Argentina? Second is about the sale of AVOS Argentina and Paraguay to the parent company. Could you disclose the impact of the revenues and EBITDA last year, just in order to have those impacts in the model? Third, about the working capital consumption. I know that first quarter is usually very negative due to seasonality, but we have seen more than a 50% reduction. Do you foresee this reduction sustainable or should we reverse in the coming quarters? And finally, if you could quantify how much the fuel cost represent over your total OpEx? Javier Hergueta Vázquez: We'll take the questions one by one. In relation to the first one on Argentina, despite the recovery being slower than initially anticipated and consumption still being low, we are starting to see some signs of improvement in April at the beginning of Q2 coming from some changes in the monetary policy in the country. Although we anticipate that, that recovery will still be at a lower pace than initially expected, but we are starting to see some signals then. And when we look at the picture ex Argentina in Latin America, what we see is a mid-single-digit growth in organic terms and also growth in euro terms close to that mid-single digit, which also is the same at the group level, not only in Latin America when we exclude Argentina out of the picture. In relation to the AVOS divestment, what you could expect is an impact in terms of revenues of around 1.5% to 2% on a 12-month basis, meaning that part of the impact you will see in 2026 and part of it in the first quarter next year. And in terms of margins, this transaction is accretive because the margins in the AVOS business is below the average margins of the group. When it comes to working capital, basically, I mean, we are seeing here the impact both from a strong focus on management our DSO and DPO, which has been reduced again in Q1 and also lower organic growth than in previous periods in Q1, so that explains a reduction that you've seen in the numbers. But in any case, as you pointed out, I mean, this tends to be seasonal. And at the end of the year, it tends to revert to lower levels. So we understand that the lower levels will remain for the later part of the year. And fourth question, not sure if I got it right. I think you mentioned the operating cost with... Enrique Yáguez Avilés: No. The fuel cost, how much... Javier Hergueta Vázquez: Fuel cost. Okay. Got it. Yes. Well, so I mean you know that fuel is one of the main cost components, of course, after labor, which is the biggest one for us. But what we're seeing here is that the increase that we've been experiencing since the rise in the geopolitical tensions, we are passing on to tariffs, so that's working in that front quite well. The other front, which we are working on is on preparing ourselves for potential stock-outs or disruptions in the supply chain. So we are adopting measures by making available additional deposits, flexible approaches to that just in case it happens, which is not clear if it is the case or not, but just in case it is. So for the time being, I mean, we feel it is pretty much under control. Operator: [Operator Instructions] We will take our next question, and the question comes from the line of Manuel Lorente from Santander. Manuel Lorente Ortega: Yes. So probably my first question is on Europe. We have seen somehow an acceleration in terms of top line growth, both at the core underlying business and transformational business with good and healthy plus 9%. So my question is whether you have winning a new contract, new clients or what is the reason behind that, let's say, improved backdrop? Javier Hergueta Vázquez: Well, I would say that the growth trend that you're seeing in Europe, which is on the 3.5% range more or less, it's quite in line with what we experienced at the latter part of last year. So it's continuing on that front. And that is, as you say, a result of both the Transformation Products and the core business performing in good shape. This is all despite a slower start, a bit slower start of the year in the ForEx business. It is true that the comparable base was not as demanding in Europe in Q1 as in other geographies, and it will be more demanding in the coming quarters. But we feel that given those are also the strongest periods for the ForEx business, we should be able to maintain the same growth pattern across the year. And I would say that it's the result of many customers performing well. There's not any special big contract. I mean, we've won some interesting contracts at Cash Today, which is performing very well. But I think it's the combination of a very good health all across the business in the region. Manuel Lorente Ortega: Okay. And then probably my second question is on the free cash flow line, especially on the provisions and others line. Working capital has improved very well in the quarter as you highlighted. But on the other front, provisions increased roughly EUR 15 million year-on-year. Is there any explanation on that? And how should we expect that line to evolve throughout the year? Javier Hergueta Vázquez: In that one, Manuel, what you see is mainly the combination of 2 factors. One is we've had some more cash outflow coming from payments on redundancies and some more losses or casualties in Q1. And on the other hand, the timing of some refunds mainly linked to taxations has been different. Those were coming in, in Q1 last year and this year, they're coming later in the year. So that part, that second part, should be neutralized or reversed throughout the year. So overall, the net evolution of it should tend to be more in line with what we had last year. Manuel Lorente Ortega: Okay. And just to finalize then, Q1 results were somehow supportive in terms of volumes and pricing, materially offset by FX headwinds. What do you see for the rest of the year? I mean this is going to be a year, to some extent, of limited top line growth and a more healthy bottom line expansion in a context of improved free cash flow? Or do you see room for acceleration in top line throughout the remainder of the quarter that might lead to, let's say, some top line growth at the end of the year because I'm seeing consensus and consensus is pointing to a very flattish revenue and EBITDA for the year, probably on FX? Javier Hergueta Vázquez: So I would say that the year has started quite in line with what we expected. So we were already aware that there was a tougher comparable base in Q1. Then trying to look ahead of us for the next 3 quarters, I think there are a number of factors on the table right now, which are difficult to ascertain. I mean, we have a geopolitical tension that was not there or at least not in such an intensity a couple of months back. We have to see what happens with the FX and also the expected evolution in Argentina, where, as I mentioned, there are some signals of recovery, but it will be quite gradual. So putting it all together, it's hard to say, I mean, how each piece will be evolving. But assuming that there's nothing too disruptive on that, I would say that the consensus as of today in terms of EBITDA, which is EUR 250 million-plus, sounds like a reasonable figure to me. But as I said, I mean, we'll have to see how things evolve because part of that is out of control for us, and on the rest, we are managing it as much as we can. And as I said, excluding Argentina, if you look at Q1, organic growth is at mid-single-digit levels, which, if the comparable basis starts to help, could be a reasonable target for us. But let's see how things evolve, especially the ones that are out of control in the coming quarters. Operator: [Operator Instructions] There seems to be no further questions at this time. I would like to hand back to the speakers. Javier Hergueta Vázquez: Well, thank you, everyone, for taking the time to join today's conference call. Should there be any further doubts or queries, as usual, our Investor Relations team remains available. And in any case, hope to speak again soon to all of you, and in any case, in the Q2 results presentation. So thank you very much. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Koichi Yatsuda: It's time for us to start Tokyo Electron financial announcement for the fiscal year ended March 2026. Thank you very much for joining us today despite your busy schedule. I am Yatsuda of IR Department, serving as a moderator of today's session. I'd like to introduce today's attendees -- Toshiki Kawai, Representative Director, President and CEO. Toshiki Kawai: I am Kawai. Thank you very much. Koichi Yatsuda: Next, Hiroshi Kawamoto, SVM & GM (sic) [ SVP & GM ] Division Officer of Finance Division. Hiroshi Kawamoto: I am Kawamoto. Thank you very much for joining us today. Koichi Yatsuda: Before starting the presentations, let me explain the flow of today's session. First of all, Kawamoto and Kawai will make presentations. After that, until 6:30 p.m. Japan Time, we will have a question-and-answer session where we entertain questions from the audience. This meeting uses 2 channels of Webex for the simultaneous interpretation between Japanese and English. As we explained in our e-mail, you are kindly requested to use apps on PCs or mobile terminals if you wish to ask questions. But if you are not going to ask questions, you can use telephones. Since this conference is intended for institutional investors and analysts, we would appreciate your understanding that we receive questions only from institutional investors and analysts, as usual. We will post the audio contents of this conference in Japanese and English on our website within a couple of days. It will be appreciated if you could also visit our website. Now Mr. Kawamoto will present the consolidated financial summary. Kawamoto-san, please. Hiroshi Kawamoto: Good afternoon. I am Kawamoto, Finance Division. I'd like to present the consolidated financial summary of the fiscal year ended March 2026. I will start with the quarterly financial summary. I will mainly refer to the figures in the blue box. In the fourth quarter, we generated net sales of JPY 711.8 billion, 28.9% increase from the third quarter, with net sales showed a temporary drop due to shipment timing. Accordingly, gross profit was JPY 333.1 billion, 41.3% increase from the previous quarter. Gross profit margin was 46.8%, 4.1 percentage point increase quarter-over-quarter. Although SG&A expenses increased mainly due to R&D expenses increase, SG&A to sales ratio declined, which resulted in 77.1% quarter-over-quarter increase of operating income at JPY 205.6 billion. Operating profit margin was 28.9%, increasing by 7.9 percentage points sequentially. Net income attributable to owners of parent was JPY 214.2 billion, 80.8% increase quarter-over-quarter, partly due to extraordinary income generated by selling strategic shareholdings. This slide shows net sales by region. As for the composition in the fourth quarter, proportion of sales in Taiwan significantly rose by 40% from the previous quarter to 22.0%. Meanwhile, as growth rate of spending for leading-edge nodes was higher than that of mature nodes, proportion of sales in China dropped to 26.8%, 5.0 percentage point decline quarter-over-quarter. On the full year basis, in the fiscal year ended March 2026, proportion of sales in China was 34.1%. Now I will move on to the full year financial summary. Since the leading customers continued active investment, and -- our Field Solutions sales were strong. Thanks to the increased utilization rate of the customers' fab, we generated net sales of JPY 2,443.5 billion, 0.5% increase year-over-year, hitting record high following the fiscal year ended March 2025. Gross profit was JPY 1,107.8 billion, exceeding JPY 1 trillion in the second consecutive year, while gross profit margin declined by 1.8 percentage point year-over-year to 45.3%. This is due to soaring costs in parts and materials, as well as changes in the product mix. Another factor is the increase of the number of field engineers outside Japan to prepare for the future growth. Operating income was JPY 624.9 billion. Operating profit margin was 25.6%, 3.1 percentage point drop year-over-year. This is because of active R&D investment to prepare for further growth and enhance our competitive edge. R&D expenses were JPY 277.8 billion, increasing by 11.1% year-over-year. Net income attributable to owners of parent was JPY 574.4 billion, 5.6% increase year-over-year, reaching all-time high. We sold strategic shareholdings and recorded extraordinary income of JPY 115.4 billion. Capital expenditures were JPY 216.0 billion, mainly due to the completion of the development buildings in Miyagi and Kumamoto and production and logistics center in Iwate, and procurement of in-house use evaluation tools. Depreciation was JPY 80.9 billion, 30.3% increase year-over-year. This is a graphic representation of the financial summary shown on the previous page on the chronological basis for your reference. ROE was close to 30% following the previous fiscal year. This shows SPE new equipment sales by application. In the fiscal year ended March 2026, from the top of this chart, sales to DRAM customers accounted for 31%, non-flat memory accounted for 10% and non-memory accounted for 59%. For DRAM, while investment in advanced technologies such as HBM continued to be strong, investment levels are varied among customers. As a result, DRAM sales and proportion remained almost unchanged from the previous year. For non-volatile memory, utilization ratio of our customers have improved significantly and investment has been back on course of recovery. Accordingly, both sales and proportion were in increasing trajectory. For non-memory, while investment for mature node paused tentatively, investment for advanced node was very active. Accordingly, non-memory investment exceeded JPY 1 trillion, just like in the previous year. This slide shows Field Solutions sales. In the fiscal year ended March 2026, Field Solutions sales was JPY 626.0 billion, increased by 16.3% from year-over-year. Along with further improvement in utilization rate of the customers' staff, our parts & service business grew, and there were quite a few modifications to enhance productivity. Accordingly, Field Solutions sales were strong. This slide shows the balance sheet. Total assets were JPY 2,860.9 billion. Cash and cash equivalents were JPY 506.2 billion, increasing by JPY 87.7 billion from the previous quarter. Notes and accounts receivables were JPY 525.8 billion, rising by JPY 124.3 billion sequentially. Inventories were JPY 713.1 billion, decreasing by JPY 12.2 billion from the previous quarter. Tangible assets were JPY 589.3 billion, increasing by JPY 15.3 billion quarter-over-quarter. For the liabilities and net assets shown on the right-hand side, liabilities were JPY 791.0 billion, increasing by JPY 161.2 billion quarter-over-quarter. Net assets were JPY 2,699 billion, rising by JPY 64.7 billion sequentially. This slide shows cash flow. The cash inflow from operating activities in the fourth quarter was JPY 205.7 billion. The cash inflow from investing activities was JPY 33.2 billion as a result of acquisition of tangible assets and sales of investments in securities, among others. The cash outflow from financing activities was JPY 150.8 billion due to the share repurchase. Free cash flow was plus JPY 239.0 billion. The full year free cash flow was also positive at JPY 433.2 billion. Both full year and quarterly free cash flow hit record high. Finally, I will present total return amount. The share repurchase we announced in February 2026 was completed. The total acquisition amount was JPY 149.9 million. At the Board of Directors meeting held on March 27, 2026, it was decided to cancel 3,600,000 treasury stocks on April 30, 2026. The total return amount in the fiscal year ended March 2026 was JPY 437.4 billion, which exceeded that in the previous fiscal year, reaching all-time high. This concludes my presentation. Thank you very much. Koichi Yatsuda: Now next, Kawai will talk about business environment and financial estimates. Kawai-san, please? Toshiki Kawai: Once again, thank you very much. I am Kawai. I will present business environment and financial estimates. Let me start with fiscal 2026 full year business highlights. In fiscal 2026, we generated net sales of JPY 2,443.5 billion, hitting record high. In addition to the active investment for advanced logic and DRAM/HBM for AI servers starting in the previous fiscal year, investment for 3D NAND, which had been muted for a long time, finally showed some signs of recovery. Along with improvement of utilization rate of customers' fabs, our Field Solutions sales grew as well. We delivered record full year net income of JPY 574.4 billion as we strive to improve capital efficiency and recorded extraordinary income by selling strategic shareholdings. The R&D centers in Miyagi and Kumamoto and production and logistics center in Iwate, which we had been constructing to prepare for next phase growth were completed. We also started constructing a new production building in Miyagi, which adopt a smart production concept to support manufacturing in the future. To properly address rapidly expanding WFE market, we are securing robust and strong capacity. Winning PORs in advanced domains is another critical fiscal 2026 highlight, which will contribute to our sales growth in the future. For memory applications, where we are strong, we won high market share in major etching processes, including capacitor process and HBM interconnect process. For Advanced Packaging, which shows remarkable growth supported by our broad product portfolio, we won PORs for multiple products ranging from front-end process to 3D integration and testing. Next I will present the business environment. For 2 years from calendar 2026 and 2027, we expect the WFE market to grow by 20% or more from calendar 2025, ranging from $150 billion to $170 billion for each year. For spendings in the high-end devices we focus our efforts on, as we are currently receiving strong inquiries, we expect 30% or more year-over-year growth. As for ongoing geopolitical risks, for the time being, we do not see any changes in our customers' investment trends. When the blockage of the Strait of Hormuz is protracted, however, we must pay close attention as there is a concern about the shortage of parts and materials triggered by supply chain disruption. Now I will present our fiscal 2027 sales growth drivers under such business environment. Among the investment for high-end devices, which will drive market growth this year, coater/developers and etching systems are expected to make a significant contribution to our sales. In the coater/developer business, in particular, our share in the global market exceed 90%. We received inquiries regarding investment, both for capacity enhancement and device scaling from almost all customers as DRAM customers adopt EUV technology and logic customers introduce EUV multi-patterning. Accordingly, fiscal 2027 coater/developer sales are expected to grow by 50% or more year-over-year. For etching system, we are strong in the field of dielectric etching, recording 50% or more global market share at present. For DRAM capacitor process, we have won PORs from all leading customers and maintain a very high market share in the interconnect process, which is growing for HBM applications. For the GAA or gate-all-around structure, which was first adopted by 2-nanometer logic, business opportunities are expanding in gate etching and isotropic etching. Driven by these factors, fiscal 2027 etching system sales are expected to increase by nearly 30% year-over-year. As we have a broad product portfolio, we are blessed with numerous growth opportunities also for Advanced Packaging. In the business of prober for advanced logic, where we have a compelling market share, the sales are growing steadily and expected to top JPY 100 billion in this fiscal year. Sales of bonder/debonder for the HBM, permanent wafer bonding for logic 3D integration and bonder for 3D NAND are growing. In fiscal 2027, sales for Advanced Packaging, including coater/developer, etching systems, and deposition systems are expected to grow by 60% or more year-over-year. Next I will present the financial estimates. First of all, let me talk about a change of the financial estimate disclosure period. While SPE market is expected to grow in midterm and long term, the size of customers' investment gets bigger than before, and their investment plan may change in the middle of fiscal year due to supply/demand balance, customer strategy and geopolitical factors. Particularly as investment of some customers has been becoming extremely big in size, impacts of their movements on our group performance are getting relatively bigger. Taking account of those factors -- although in the past, we disclosed full year financial estimate of following fiscal year at the timing of year-end financial announcement -- from fiscal 2027 onward, we will disclose financial estimate of the first half of fiscal year, and thereby we will strive to share more timely and realistic information. For the financial estimate of fiscal -- first half of fiscal 2027, driven by the strong demand for AI server, we expect net sales of JPY 1.570 billion, gross profit of JPY 715 billion and operating income of JPY 431 billion, all of which are expected to hit half year records. For the second half of fiscal 2027, stronger growth than the first half is expected as we expect further increase of shipment, mainly to DRAM and advanced logic customers. As I said before, we must pay close attention to impacts of blockage of the Strait of Hormuz, but at present we do not see any changes in our customers' investment plans. We have secured parts and materials we will need for tools to be sold in the first half of fiscal 2027. This slide shows fiscal 2027 SPE new equipment sales forecast. The new equipment sales in the first half of this fiscal year are expected to grow by 41% year-over-year to JPY 1.200 billion. The breakdown by application is shown on this slide. Driven by AI server demand, sales of our system for high-end devices are expected to increase. This slide shows our plan for R&D expenses and CapEx. In fiscal 2027, we plan full year R&D expenses of JPY 330 billion. We will actively promote R&D to enhance foundation of our technology competitive edge and support semiconductor technology innovation. For CapEx, we plan to spend JPY 190 billion on the full year basis. We plan to acquire equipment for the new development buildings whose construction was completed in fiscal 2026, and we plan to complete construction of a new production building adopting the smart fab in summer of 2027. We will utilize robust infrastructure shown in this slide and capitalize on future development opportunities to maximize our corporate value. Finally, I will present the dividend forecast. Along with the revision of financial estimate disclosure period, for the dividend forecast as well, we present the forecast of interim dividend alone. Fiscal 2027 interim dividend is expected to be JPY 361 per share, maintaining a high level just as second half of fiscal 2026. This concludes my presentation. Thank you very much for your kind attention. Koichi Yatsuda: Now we will have question-and-answer session until 6:30 p.m. Japan Time. [Operator Instructions] So the first question is from Mr. Yoshida of CLSA Securities. Yu Yoshida: I am Yoshida from CLSA Securities Japan. Slide 15, I have a question regarding the outlook of the WFE market. Roughly speaking, according to this slide, CY 2025 WFE market was JPY 120 billion. By 2026, more than JPY 150 billion, maybe JPY 155 billion. Accordingly, 2027, that should be JPY 170 billion. That's what it looks like. So is that correct understanding? By application, I think you've made some comments by application '26 and '27. What sort of growth do you expect? Are there any changes from your forecast 3 months ago? And for China, I would like to see your view on China market as well. Toshiki Kawai: Thank you very much. Let me answer to your question. This is Kawai. First of all, WFE market, as you just said, what you said is correct. Compared with this year, next calendar year, you can see increasing trend of WFE market. At present, we are receiving new inquiries. Some request for delivery could be put forward to this year. But as for this year, maybe $150 billion or more and going toward $170 billion next year. That's how we understand the trend of WFE market. Your second question, the composition. First of all, last year, composition, as Kawamoto said earlier in his presentation, DRAM and NAND accounted for 35% and logic accounted for 65% in calendar 2025. But this year, DRAM and NAND accounts for 40% and logic accounts for about 60%. So memory proportion is expected to grow slightly. That's how we view the composition for this calendar year. For China, composition for 2025, China accounted for about the high 30s percent, non-China accounted for low 60s percent level. For this year, China accounts for the mid 30s percent and non-China accounts for mid-60% level. So are there any changes from the 3 months ago in terms of application? Over the past 3 months, so maybe AI server inquiries have been added over the past 3 months, and there are some requests for pulling forward orders. So AI cyber demand is still very strong. Yu Yoshida: Is that DRAM logic? Toshiki Kawai: Yes, that's correct. Koichi Yatsuda: Next question is from Tamura-san from Morgan Stanley MUFG Research Japan. Suzune Tamura: Yes. This is Tamura from Morgan Stanley. So this should be the final year of your midterm management plan. JPY 3 trillion is your target, and you can -- I can see the plan for this first year. And sales of the second half should be stronger. So I think you can achieve JPY 3 trillion. I would like to know the confidence level and your expectation for this fiscal year. Operating profit margin, your target is 35% as well, as I can see the figure of the first half of this fiscal year. It might be difficult for you to achieve 35% of OPM. What are the reasons why you failed to achieve the 35%, but what sort of the time span you have to achieve the 35% of OPM, including fiscal 2028? Toshiki Kawai: Thank you very much. For our midterm management plan, our sales target is JPY 3 trillion or more, OPM of 35% or more, ROE of 30% or more. So this is our target. And this year is the target year, as you said in your question. As I said in my presentation, as for the sales, as you correctly said, the second half sales is more than the first half sales. And actually, the next fiscal year sales will be more than this year. So our targets in the midterm management plan for sales and ROE, we are steadily progressing toward the targets of midterm management plan. As you pointed out, the operating profit margin, so we try our best effort to achieve our target and getting closer to the target level of OPM. We still continue this effort. However, we understand the achievement of OPM is one of the challenging factor for us. For example, when we produce midterm management plan, foreign exchange has been drastically changed. Because of that, fixed costs have been changing by JPY 70 billion. In FY 2026 to '27, the foreign exchange rate is about JPY 146 to JPY 160 to the dollar. That's the reason why the fixed costs are increasing. So one of the reason is the impact of the foreign exchange. The other one is the labor cost. That's about 9% to 10% increase, and logistics costs in fiscal '26 to '27 increased by 10%. So the traveling expenses and transportation expenses are also increasing. So because of this rapid change in foreign exchange and inflation factors are impacting the operating profit margin. From when we produced the midterm management plan, the fixed cost to sales ratio has been increasing, but we are taking actions to do some more improvement. As I said earlier, inflation is the trend, and we need to take a proactive action against inflation and soaring cost of the materials and parts in addition to price increase, and we must enhance the productivity. At the same time, we will launch new models to the market. By using those countermeasures within 2 years to come, we try to achieve 50% or higher gross profit margin. That's what we are doing right now. In addition, we are receiving inquiries from our customers. So this fiscal year and next fiscal year, we are going to steadily improve operating profit margin so that we can achieve high level of the operating profit margin. Koichi Yatsuda: Next question is from Mr. Shimamoto of Okasan Securities. Shimamoto Takashi: I am Shimamoto of Okasan Securities. I have a question regarding share of etch system. So you disclosed the annual share of your products compared with last year, etching share declined by 5 percentage points. Last year, why did you reduce your market share? And you may see some increasing 25% or higher growth is expected. But when I look at WFE, expected to increase 25%. So maybe you may not incorporate the share increase with that level of WFE market growth. So could you let me know your actions to increase your market share? Toshiki Kawai: When you look at process share for etching, our share is increasing. That's how we analyze the situation. However, when we convert it to sales, when you look at the share converted to share sales, actually, Tokyo Electron itself is 0.9% negative. Etching is -- has the strong contribution to that. Customer mix in terms of market share is another reason. And regulations are also impacting our performance. Customers start with purchasing the American tool vendors tools first and maybe the customer try to buy Tokyo Electron's tools in this fiscal year rather than last year. So 2 years ago, our etching share grew very rapidly significantly. So timing of delivery was another factor. Also customer mix and also regulation impact. Those 3 factors were major reasons to the result of the share. On the other hand, as I said earlier, the process share -- when it comes to process share, so our company is now waiting for the future growth. Especially in conductor etch, we are winning PORs. You can see some positive information. Interconnect process and capacitor process, we maintain our share and that will contribute to the future DRAM and logic growth, and we can see more opportunities. And also GAA, gas chemical etching, there are some business opportunities for gas chemical etching. Shimamoto Takashi: So if possible, could you let me know your target for share in this year? Toshiki Kawai: For that question, so we need to closely watch the customer investment trend. We haven't disclosed information about this year's share. I'm sorry for that. Koichi Yatsuda: Next question is from Mr. Nakamura of Goldman Sachs Japan. Shuhei Nakamura: Regarding profitability, so for this fiscal year and onward, I want to get your take. So gross profit margin for the first half of this fiscal year, you showed us 45% level. So sales increased rapidly, but your prospect of gross profit margin is rather weak, maybe because of the impact of labor cost or inflation. That's what you said earlier. In addition to those, are there any other reasons, including product mix, to lower your forecast of gross profit margin? As for the second half of this year, you said the sales will be increasing further more. So second half of this year or next fiscal year. So what do you think about profitability? Toshiki Kawai: Thank you for your question. As I said earlier, the fixed costs are increasing. That's what I said before. The exchange rate and inflation as well as logistic costs, traveling costs, those things are increasing. And we are taking appropriate action for price rise. When it comes to the productivity enhancement, at present, what is important for customer is how we can improve the productivity. So the throughput of process tool or yield enhancement, so we must expand our services to improve the throughput and yield. At the same time, we should introduce the new products. So this is how we can improve gross profit. So 1 year or 2 year, maybe we try to achieve gross profit margin of 50% or more by taking solid actions. Shuhei Nakamura: So within 2 years, you are going to achieve GPM of 50% or more. That's what you said. But GPM 50% at that stage, what is the level of the operating profit margin when you can achieve 50% of gross profit margin? Toshiki Kawai: The midterm management plan target. Also depending on top line, when the gross profit margin goes up, then I think we can improve the situation. Therefore, we will make solid effort to achieve 35% of OPM. That's the intention that we have right now. Koichi Yatsuda: Next question is from Mr. Hirakawa of BofA Securities. Mikio Hirakawa: I have a question regarding the lead time of your products. At present, the lead time of your product is about 4 to 6 months, in average, 5 months. Is that correct understanding? In the first half of this fiscal year, you already received orders and about 90% of those orders are now waiting for the shipment. Is that correct understanding? Toshiki Kawai: The lead time of our products are getting shorter. Rather than 5 months, depending on products, needless to say, might be 3 months or 4 months. We are trying to shorten the lead time of products. We must do that because we receive a huge amount of inquiries. For the first half of this fiscal year, yes, this rather high level of confidence for the figures for first half of this year. Yes, we do have the high level of confidence. Mikio Hirakawa: So your competitors just show us the first half, but the first quarter, but you are giving us the prospect of the first half of this year. So maybe 5 months to go, maybe you have the high level of confidence because you already received orders from the customer. Is that correct understanding? Toshiki Kawai: We are very glad that our earnings draw a lot of attention. And we are trying to explain the market trend as much as possible. So there should be no major change within 6 months to go. And we try to look ahead when I -- so rather than 1 quarter, I try to show you our outlook of 6 months to go. Koichi Yatsuda: Next question is from Yoshioka-san from Nomura Securities. Atsushi Yoshioka: I am Yoshioka of Nomura Securities. I have a question regarding Page 16. So the revenue driver for fiscal 2027. Starting from coater/developer, so Y-o-Y 50% or more, so your share is rather high from the very beginning, but you are outperforming market significantly and maybe you are very strong along with the exposure system. As you said in your presentation, but once again, I would like to know the reason why you can see this kind of drastic growth for coater/developer. And what is the level of confidence? That's one thing. On the same page, Advanced Packaging, FY 2027, you said JPY 120 billion increase in sales is expected. So what is the contributing factors to improve your sales out of JPY 120 billion, if there are some major driver, could you share your idea with us, please? Toshiki Kawai: So coater/developer, regarding coater/developer, let me explain. This is Kawai. As you said, in principle, EUV-related demand and EUV multi-patterning. And for all exposure systems have coater/developer ranging from high end to the general purpose coater/developer, coater/developer essential for lithography process. So we have incorporated all those needs or demands. So the investment for device scaling and investment for capacity enhancement, everything will help us to increase our sales. So this area is growing very rapidly and 50% or more year-over-year growth. As for Advanced Packaging, Mr. Yatsuda will give you the answer. Koichi Yatsuda: So let me explain Advanced Packaging. This is Yatsuda. Advanced Packaging, so the advanced logic and HBM, those 2 are the drivers. We are receiving very strong inquiries in those 2 areas. Just like the front-end category, the coater/developer, etching and cleaning these area, we received the very strong inquiries for the Advanced Packaging. For coater/developer, not only resist, but also other coating film exists and receives many orders. And laser tool wafer bonder and HBM, temporary bonder and the bonder, we received quite a few inquiries in those areas. These are the major drivers for Advanced Packaging, and we expect a huge growth of our sales. Atsushi Yoshioka: One follow-up question for bonder. So how much sales do you expect for bonders, please, if you have any figures for that? Koichi Yatsuda: As for bonder, we don't have a quantitative value we can disclose. But just for information, in last fiscal year, total sales is about JPY 30 billion. We can expect the huge increase. As I said 3 months ago, from this year and onwards to 2030, 5 years to come, so about JPY 500 billion sales on the laser tool bonder/debonder. The bonding-related product, we are expecting JPY 500 billion cumulatively. That means about JPY 100 billion for each year. So this year or next year, we can exceed that level. Next question is from Mr. Nakanomyo from Jefferies Securities. Masahiro Nakanomyo: I am Nakanomyo from Jefferies Japan. Just for confirmation, you said first half of this fiscal year, you just gave us the outlook for the first half, but you didn't disclose your outlook for the second half of this year. That means second half of this fiscal year, you cannot come up with clear figures, especially the figure for second half might change depending on the movement of the leading customers, and you also take account of the situation in Middle East. So based on your inquiries, you said the sales in second half is stronger than the first half of this year. Is that correct understanding? Toshiki Kawai: Right. So we do receive inquiries, very strong inquiries. And for second half of this fiscal year, actually, our inquiry is increasing very rapidly to fill our shipment for second half of this year. However, when we think about the yield enhancement of customer fab and also they have very limited clean room space and lack of the labor force. And there are also geopolitical factors or macroeconomic trends. So in the future, we need to think about energy supply, cash flow, when the CapEx will be growing. Furthermore, we need to consider various factors not only for this fiscal year, but we need to continuously watch the situation under those business environment. We try to come up with high confidence figure. And there are many factors outside of the market and the actually semiconductor importance in increasing. So semiconductor market is affected by the outside of the market itself. So that's the reason why we are going to disclose the forecast within 6 months to go. That is more accurate and realistic. Actually, inquiries are very strong right now. So from this year and next year, with the range of the market size, $150 billion to $170 billion. Masahiro Nakanomyo: I have one follow-up question. For the first half of this fiscal year, so your shipment increased by 40%. Therefore, you will outperform WFE market. Maybe same for the second half of this year, fiscal year as well. But once again, this fiscal year, are you going to outperform the WFE market growth? And what are the factors to help you to do that? Toshiki Kawai: So we are focusing on our core competence, the cutting-edge area. So AI server related high-end area devices, we can see the growing trend. That's the reason why we can have the high level of revenue better than the average. Koichi Yatsuda: Next question is from [ Mr. Franz from Fortis Securities ]. Unknown Analyst: Major foundries like TSMC have announced silicon photonics service for customers. How do you see this market opportunity? And what product POR does TEL have for silicon photonics-related processes? The second question, Field Solutions grew by 16.3% in fiscal 2026. What were the main drivers? And in fiscal 2027, will Field Solution growth accelerate further in line with new equipment growth guided at plus 41% in first half of the fiscal year? Toshiki Kawai: The first question is regarding silicon photonics, the Tokyo Electrons POR and product portfolio. When it comes to the silicon photonics in our company, the flat panel-related applications, we do have the product using glass substrate, the etching for flat panel. So those technologies that we have -- and also CMOS image center, we developed the technologies. Maybe we can use those technologies as well for silicon photonics applications. About the Field Solution, the 16% growth. Actually, utilization rate of the customers' fab has been increasing. Therefore, the parts revenue is increasing and also support revenue is growing as well. Along with the demand increase for semiconductor, utilization rate of customer fab is increasing, resulting in the growth of Field Solution sales. Koichi Yatsuda: So next question is from Mr. Yamamoto of Mizuho Securities. Yoshitsugu Yamamoto: Yamamoto from Mizuho Securities. About your pricing strategy, may I ask some questions. So by and large, you are working hard by buying equipment. So maybe coater/developer should be the easy area for you to improve or increase pricing. So now 50% or more growth is expected in this fiscal year for coater/developer. When it comes to them, maybe 50% increase. However, I think those revenue are recorded in second half of this year. Have you increased your price by about 10%? So you said earlier, more than 50% within 2 years to come. So maybe you are now preparing for the price increase for the new orders to come. So 50% decrease for coater/developer. And you said you are going to exceed the 50% of gross profit margin within 2 years to come. Does that mean you are going to raise price of the coater/developer? Toshiki Kawai: So for all products, very similarly, the fixed costs are increasing throughout the product range. Therefore, we must be fair. We try to maintain fairness and we should have a good consensus with our customers, and we are going to raise price when it's necessary. So we don't pick up any particular products for increase in price. That's not our strategy. This is the price increase along with the soaring cost. And also, if we can contribute to the customers' productivity, we can provide high value, then we can increase the price for those products. And depending on the timing of the machine model, maybe not only coater/developer, etch and film deposition system as well as cleaning system, we are taking a very similar approach for different products. Yoshitsugu Yamamoto: So 5 percentage point increase for the gross profit margin, so that's because of cost increase. Then in the past, you didn't exceed 50% for gross profit margin. So you are now passing the cost increase to the prices, but it's so difficult for you to increase gross profit margin by 5 percentage points. So maybe productivity enhancement, when you add more value to the product, so that is the major driver or pricing for new product. Is that correct understanding? Toshiki Kawai: Yes, we need to keep good balance among those 3 factors: productivity enhancement, contribution to the yield enhancement by providing high value-added products, new products, surcharge and price increase. Koichi Yatsuda: Second question from Mr. Shimamoto of Okasan Securities. Shimamoto Takashi: I am Shimamoto from Okasan Securities. So first half of this fiscal year, what is your plan for sales? Actually, your sales growth rate is rather high. So what is the driver? Are there any special driver to increase your sales in the first half of the year, some deferred sales recognition or some orders whose delivery is pulled forward. Are there such special factors in this first half of this year? Toshiki Kawai: There are no special factors, just the AI servers, almost every week, our customers ask us to pull forward the delivery date. So that is a kind of escalation having positive impact of our business, and we are taking appropriate action to meet customer needs. So there are no such special factors. Rather instead, rather than first half of this year, customers want more products in the second half of this fiscal year. So current trend of the demand will support us to increase our sales. Shimamoto Takashi: One more question. For next year, so this kind of growth rate, do you think this level of growth rate continue in next year? How much expectation do you have? Toshiki Kawai: $150 billion to $170 billion is this WFE market size. So this is the quantitative expression of our forecast. But there are more positive factors to improve the WFE market. AI implementation will be accelerated. So the race for investment to AI will be getting more and more severe and NAND -- HBM is now having higher priority. However, NAND shortage might get more and more severe, then the customer may further increase investment to NAND, then physical AI R&D investment will be accelerating. So these are the positive factors to drive the market furthermore. And there must be the business opportunity, and we try to capture those business opportunities properly. Koichi Yatsuda: Thank you very much. So now we received the first question. So there are 2 more questions. So Mr. Shibano from Citigroup Global Markets. Masahiro Shibano: I'm Shibano from Citigroup Global Markets Japan. Thank you very much. Earlier, you talked about the current management midterm management plan. But next fiscal year, you are going to start the new midterm management plan. So in March, there are some changes in the leadership team because of the changes in officers. So now you are going to prepare the next midterm management plan as far as Mr. Kawai is concerned. What sort of focus area you have in your mind to be incorporated into the next midterm management plan? Which is the area which require the higher enhancement? Toshiki Kawai: Thank you very much. In our company, our vision is a company filled with streams and vitality that contribute to technological innovation in semiconductors. So in the future, the growing area includes patterning, device scaling and heterogeneous integration. So these are the major drivers to drive the technology innovation of semiconductors. The front-end process to contribute to the device sharing, that's where we are going to enhance our share. In addition, Advanced Packaging area, which require heterogeneous integration. In our company, bonder/debonder, laser lift-off technology and device blowers, so these are the products of our company for Advanced Packaging. That's where we want to address the market properly, and SAM must be improved furthermore. In that sense, film deposition application need to be increased. That's another area we need to work on. So current product lineup, we need to enhance share. Now etch market is rather big and we must improve our share in the etch market. In addition, Advanced Packaging area as well as served available market should be expanded. This is how we can enhance top line along with the growing WFE market. And we are going to launch high value-added products. So this is how we try to take actions. And in principle, this ongoing midterm management plan, this is not our final goal. So through aggressive business and proactive management, we are going to pursue very close profit margin. And our sales is growing furthermore, and we need to take or catch the business opportunities as much as possible. Koichi Yatsuda: The last question is from Qiu-san of Berenberg. Tammy Qiu: So has your 2027 visibility become higher than previously? As you don't usually give WFE estimation for year out previously, is $170 billion the base case for 2027, is that kind of covered by customer commitment already? Toshiki Kawai: Rather than customer commitment is a bit too much to say. So we have the very close communication path, and we are hearing from our customers, maybe this is the value what we can achieve. On the other hand, as you know, there are issues in the Strait of Hormuz. We must pay close attention to the development of the Middle East. So as far as customers' plan is concerned, I think $170 billion level of WFE market is achievable when I look at current customers' investment plan. Koichi Yatsuda: We have received some more questions, but it is time for us to close this conference. We will follow up the questions we couldn't answer today on our website in a few days. Lastly, we'd like to continuously improve our R&D activities based on your precious feedback. So we'd like to appreciate your kind cooperation in filling out the questionnaire survey before you exit the Webex. Thank you very much for taking time to join this conference despite your busy schedule today. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Joahnna Soriano: Good afternoon, everyone. Thank you for joining us today, and welcome to Ayala Land's First Quarter 2026 Briefing. Let me begin by introducing our panel. Meean Dy, President and CEO; Jed Quimpo, CFO and Treasurer; Mariana Zobel De Ayala, Group Head for Leasing and Hospitality. We're also joined today by members of our Management Committee; Mike Jugo, Head of the Premium Residential Business Group; Robert Lao, Head of Strategic Growth, New Ventures and Central Land Acquisition; Darwin Salipsip, Group Head of Construction Management; Raquel Cruz, Head of the Core Residential Business Group; and Isa Sagun, Chief Human Resource Officer. We likewise acknowledge the presence of our broader management team. Please note that the press release and presentation materials are available on our Investor Relations website at ir.ayalaland.com.ph. For any questions we may not be able to address during the briefing, we will respond via e-mail at the soonest possible time. At this point, I'd like to turn it over to our CFO, Jed, for his presentation. Thank you. Jose Eduardo Quimpo: Thank you, Joe. Good afternoon, everyone. I will be presenting Ayala Land's first quarter 2026 performance to be followed by key messages by our -- from our President and CEO. First on the headline numbers. Ayala Land registered total revenue of PHP 37.5 billion for the first quarter of 2026 and generated net income of PHP 5.4 billion, down 14% and 23%, respectively, versus same period in 2025 as a result of continuing headwinds faced by our property development business, which was partially mitigated by the strong performance of our leasing and the hospitality business. We invested a total of PHP 23 billion in capital expenditures, in line with our original 2026 plans, with a notable increase in investments in leasing assets as we continue to execute our pivot to leasing to balance the business profile. Net gearing remains strong at 0.81:1, well within our debt guardrails and debt covenants. In terms of revenue breakdown, revenues from our Property Development business registered PHP 20.3 billion, down 27% versus prior year as our Residential business segment, which registered total revenues of PHP 17.4 billion, continued to face market sentiment headwinds and uncertainties. Similarly, our Estate lot segments composed of commercial and industrial lots for sale, which registered PHP 2.9 billion in revenues, is also down versus same period last year, wherein we saw strong commercial lot bookings in quarter 1 2025. On the other hand, our portfolio of Leasing and Hospitality businesses was solid, growing by 9% versus the same period last year. Excluding the impact of our sale of our 50% share in Alabang Commercial Center, our Leasing and Hospitality business on a like-for-like basis grew by 12%. Shopping centers registered revenues of PHP 5.8 billion, up 2% versus prior year on the back of the reinvention of our flagship malls and improved merchant sales. Our Office business delivered flat revenues at PHP 3 billion as contractual escalations was offset slightly by higher vacancy and the resulting sale of the office space owned by Alabang Commercial Center. Our Hospitality business grew by 30%, registering PHP 3.4 billion in revenues, driven by both increased capacity from our newly renovated assets and the recently acquired New World Hotel. Finally, our industrial real estate business grew by 23% at PHP 0.4 billion with significant improvements in occupancies versus prior year. We've also seen growth in our services businesses as a whole. While our net construction or construction revenues from non-Ayala Land clients was slightly down at PHP 2.4 billion, we saw an increase in our property management and retail electricity sales to third-parties, which was up 21% to PHP 0.9 billion. Interest and other income likewise increased to PHP 1.2 billion, up 34% from increases in interest income and marketing and management fees. To our income statement. As mentioned, the company registered a total of PHP 37.5 billion in revenues for the first quarter of 2026. Total expenses amounted to PHP 29.2 billion, minus 12% versus prior year. This is on the back of lower real estate expenses, which was down 16%, but was partially offset by increase in general, administrative expenses. Interest, financing and other charges were stable, up by just 1%. Earnings before tax amounted to PHP 8.2 billion, down 21% versus prior year. After provision for income tax and taking out noncontrolling interest, net income attributable to ALI equity holders amounted to PHP 5.4 billion. Our GAE ratio stood at 7%, slightly up versus same period last year, but our EBIT margin was stable at 35% as we saw increased contribution of leasing business to our overall revenue mix. Let me now move on to our operating results. Notwithstanding market environment, our sales team delivered a total of PHP 28.2 billion of property development sales for the first quarter of 2026. This is just 8% lower versus prior quarter and equivalent to monthly sales of PHP 9.4 billion. Notable as well was that this was delivered despite having no new launches in the quarter. Our sales mix was fairly similar versus prior periods, wherein close to 60% was for Premium Residential, just under 30% in Core Residential and the balance in Estate Lots. Deep diving on our Residential business. Residential sales take-up in the first quarter registered at PHP 24.4 billion, down 22% versus prior year, but steady on a quarter-on-quarter basis. Sales mix between Premium and Core segment is broadly similar to prior periods at a ratio of 2/3 to 1/3, respectively. Within our product offerings, we have seen a notable quarter-on-quarter improvement in sale of horizontal products. And by location, our regional products now account for more than half of our quarterly sales. Buyer profile is likewise broadly the same, with over 70% being sold to local Filipinos, over 15% to overseas Filipinos and the balance to other nationalities. The decline versus same period last year is broadly the same across all 3 segments. Moving on to our Leasing business, first, starting with our shopping centers. As mentioned, our shopping centers delivered a 2% revenue increase versus same period last year. On a like-for-like basis, however, meaning excluding our 50% stake in Alabang Commercial Corporation, the portfolio grew by 8%. Our shopping centers business continued to demonstrate improving lease out. This, plus the delivery of additional gross leasable area this 2026, marks a banner year for the business. In the first quarter of 2026, we opened Phase 1 of Ayala Malls Arca South. We are on track to deliver an additional 190,000 square meters of GLA this year as well as complete the reinventions of our flagship malls by the middle of the year. Our Office business continues to have healthy occupancy versus industry, with a pipeline focus on areas with low vacancy. Lease-out rate was slightly down at 88% versus 90% same period last year due to the additional capacity, which opened late 2025. This year, we will open another 70,000 square meters of office GLA, all of which will be located within our estates, which is our key differentiator. Beyond 2026, we have a pipeline of 250,000 square meters of GLA, which will be located in major CBDs such as Makati, BGC, Quezon City and Cebu. Our hospitality business of hotels and resorts delivered improved occupancy across all our formats. In addition, newly renovated assets are driving both higher capacity and higher room rates. Occupancy for hotels registered at 72%, while resorts occupancy was at 71%, a significant improvement from a year ago. We are likewise on track for the completion of Mandarin Oriental for quarter 4, 2026. Finally, our industrial real estate business saw improvements in lease-out rates. Both dry and cold storage facilities are at mid to high 80%. For 2026, we look to bring on board additional 9,000 pallet positions of cold storage in Cebu. We invested a total of PHP 23 billion for the first quarter, in line with our original CapEx plan, with notable increase in our investments in Leasing and Hospitality, which increased by 53% versus same period last year. Investments in Leasing and Hospitality now account for more than 1/4 of our total capital expenditure. We expect this share to continue to increase for the rest of the year. In terms of our debt profile, we maintained over 80% of our debt contracted long-term, and we've managed to keep our borrowing cost stable at 5.5%. Of our PHP 25 billion of debt maturities this year, we've already refinanced over PHP 15 billion in the first quarter and with the balance of just under PHP 10 billion to be refinanced this second quarter as planned. We continue to prudently manage our yearly maturity levels, ensuring that maturities are at 10% of our total debt on the average. The weighted average maturity of our debt portfolio as of end of first quarter is 4.1 years. This we expect to lengthen by end of 2026 as we convert short-term debt into long-term debt for the remainder of the year. Our balance sheet remains solid, with net gearing ratio of 0.81:1, well within our guardrails and debt covenants. Given current conditions, we have increased our cash and cash equivalents position to PHP 21 billion. We ended the first quarter with over PHP 1 trillion in assets, PHP 17.5 billion more than the end December 2025 levels. While our net debt increased in Q1, we view this as temporary, and we continue to aspire for minimal incremental increase in debt for the full year 2026, with cash generated from operations and proceeds from our portfolio management. Our debt service coverage ratio continues to be more than adequate, with current ratio more than 1.5x and our interest rate coverage ratio comfortably way above 4x. In summary, despite market headwinds in property development, Ayala Land delivered PHP 37.5 billion in revenues and net income of PHP 5.4 billion. We continue to invest in the business totaling PHP 23 billion of CapEx with a notable increase in leasing asset. Balance sheet remains strong with net gearing of 0.81:1. This ends my presentation. Thank you for listening, and let me turn over the floor now to Meean. Anna Maria Margarita Dy: Thank you, Jed, and good afternoon to everyone. Our strategy for 2026 is clear and deliberate: to ensure that capital discipline and balance sheet strength are maintained; to expand our Leasing and Hospitality platform; and to maintain stability in our Property Development business. We are growing by strengthening our recurring income base while pacing our Residential business to ensure we can deliver with certainty. The Middle East conflict is an external shock that is challenging the domestic macro environment. But this context also makes Ayala Land's strengths clearer, high-quality assets, balance sheet discipline, the ability to keep executing where demand and conviction remain strong and a Leasing and Hospitality platform that is becoming a larger contributor to earnings and cash flow. We are becoming a more balanced Ayala Land with greater resilience and flexibility to manage the cycles. For 2026, we are targeting minimal incremental debt with capital expenditures largely funded through internally generated cash. In the first quarter, net debt increased by PHP 16 billion, but we expect this to moderate by year-end as residential unit turnovers progress and our leasing assets continue to stabilize and generate steady cash flow. We have recalibrated our CapEx to approximately PHP 50 billion from our original guidance of PHP 70 billion to PHP 80 billion. Our balance sheet remains robust with an asset base of approximately PHP 1 trillion or around 3 times our debt level, and our interest coverage ratio remains above 4x, giving us flexibility to manage the cycle while preserving capacity for long-term growth. Three years ago, we made a deliberate strategic decision to increase the contribution of our Leasing and Hospitality businesses. That strategy is now beginning to show in our results at a time when resilience matters most. Leasing revenue grew 9% for the quarter. And excluding the effect of Alabang Town Center sale, growth would have been 12%. This reflects the strength of a diversified recurring income platform across malls, hotels, offices, industrial leasing and estate-based assets. Of note, these activities are meaningfully shifting Ayala Land's earnings profile. Leasing and Hospitality now account for 34% of Ayala Land's revenues, up from 23% in 2019, and it is on track to grow at double-digit rates and to account for majority of our EBITDA over the medium term. In malls, we are encouraged that growth is not coming only from new space. Foot traffic and same mall sales are up 6% year-on-year and 10% year-on-year, respectively. supported by our renovations and merchant replacement programs across both flagship and core malls. These improvements illustrate how we are making our existing assets more relevant, more productive and positioning them to capture a larger share of the consumer wallet. We expect this momentum to continue. 2026 will be a banner year for our retail platform with 200,000 square meters of additional mall GLA. This is the largest expansion of leasing assets in Ayala Land's history with additional GLA at Ayala Malls Arca South, Nuvali and Evo City as well as the opening of Ayala Malls Gatewalk in Mandaue, Cebu. Hospitality is becoming a more material contributor to Ayala Land. In the first quarter, the portfolio posted 30% year-on-year revenue growth and is now comparable in size to our Office business. This growth reflects improved RevPAR across both hotels and resorts, supported by renovations across 5 hotels and Lagen Island Resort as well as the addition of New World Makati Hotel. We also look forward to the opening of Mandarin Oriental in the fourth quarter of this year. Our Office business remains stable, while Industrial Leasing continues to show good progress with healthy occupancy levels and lease rates. These businesses give us additional stability within the recurring income portfolio and help balance the consumer-facing elements of Leasing and Hospitality. Between 2026 and 2030, we expect to grow our leasing portfolio by 1.2 million square meters of GLA, representing 35% increase from our current portfolio. We are excited not only by the footprint expansion, but by the quality of the assets, the strength of their locations and their relevance to the markets they will serve. Substantially all of these assets will be located within our very own estates. In Property Development, residential presales for Q1 were down 22% and revenue were down 27%, reflecting weaker buyer sentiment and macroeconomic uncertainty. We started the year with a launch target of PHP 30 billion. Given current conditions, we are reviewing launches carefully. As the operating environment becomes clearer, we remain optimistic that we can proceed with selected horizontal launches by the second half of the year. The uncertainties around cost and execution drove us to cancel our Avida Katipunan Heights and pause our Laurean project. These were well-received projects in strong locations, but because construction had not yet begun, we had the ability to act early, minimize disruption, and we will revisit opportunities when cost visibility and market conditions improve. We have a busy year ahead in Property Development. First, we have PHP 130 billion worth of inventory that we will monetize. This gives us the depth to maintain market leadership while being more selective on new launches. Proceeds will be used prudently to preserve balance sheet strength, fund priority investments and return capital to shareholders where appropriate. Second, we will deliver 13,000 residential units in 40 projects to our buyers this year. These are in the final stages of completion and are being turned over in tranches. This supports cash flow, fulfills commitments to buyers and demonstrates that Ayala Land remains very much in execution mode. Our PHP 28 billion stock buyback program ended in early 2026, and the Board has approved a new PHP 10 billion buyback program. This gives us the flexibility to act when there is a meaningful disconnect between the market price in Ayala Land's underlying asset base, earnings profile and long-term growth prospects. And as we monetize assets and generate cash, we will continue to balance reinvestment in priority growth opportunities with returning capital to shareholders, either through special dividends or share buybacks. Our plans for Leasing and Hospitality remain firmly on track. If anything, the current environment reinforces why this strategy matters. In Property Development, we are taking a prudent stance in the near term, but the long-term fundamentals remain intact. The Philippines remains a young, urbanizing consumption-led market, supporting long-term demand for homes, workplaces, retail, hospitality, logistics and mixed-use estates, precisely the areas where Ayala Land has built its strongest capabilities. We will continue to manage capital and cash flow carefully, supported by a strong balance sheet and a diversified portfolio of assets. At the same time, Ayala Land remains very much in execution mode, delivering homes, opening new malls, reinvesting in existing assets, welcoming new hotel guests and supporting the communities where we operate. With our estates as our platform, we are positioning the company to be a stronger, more balanced and more resilient business. Thank you. Joahnna Soriano: [Operator Instructions] The first question is from [indiscernible] of Maybank. [Audio Gap] Unknown Analyst: Yes. Can you hear me? Joahnna Soriano: Yes. Unknown Analyst: I'd like to ask a question on residential. The revenues were down, I believe, 21% for -- specifically for residential. Can you provide more color on why this is? Are these cancellations or maybe part of unbooked revenues? Because I believe you still have like PHP 150 billion, PHP 160 billion worth of unbooked revenues. How much of these are non completions? Jose Eduardo Quimpo: Jed here. Thanks for the question. If I was to look at the revenue profile on the residential for first quarter 2026, the primary driver of the decline is on new bookings. So it's really a sales-driven decline. Two -- As you know, there are 2 aspects of revenue bookings. The first one is from sales and the other one is from POC. The POC is fairly predictable because that's to a certain extent driven by our ability to deliver. So primary driver is in new bookings. In terms of your question on cancellation, cancellations as impact to overall revenues is less than 8%. So we're still tracking, at least for the first quarter, very similar numbers in terms of cancellation impact as the full year 2025. Unknown Analyst: The other question is on the malls. The same mall revenue growth or same mall sales growth is about 10%. And I believe the malls grew rental revenues slightly below that. Can you give us an idea on how is that possible? Is it because of the lower rent on the new malls? Mariana Zobel De Ayala: So -- correct. So you mentioned that the sales is 10% and the revenues are 8%. We have a large number of our merchants also on fixed revenue. So the tracking of sales to revenue doesn't always follow as cleanly as we'd like. That being said, we had -- we saw incredible growth across particularly some of our maturing assets as we call them. Specifically, One Ayala, we saw grew 33% year-on-year, Manila Bay over 20% year-on-year. Vermosa over 100%. So we're really happy with how those newer malls are maturing. Unknown Analyst: Sorry, just one last question on residential. So based from the CapEx targets for this year, is it safe to assume that there are minimal or no launches on residential to be expected this year? Anna Maria Margarita Dy: I think like I mentioned, what we're looking at are horizontal launches on the second half of the year. That's maybe one segment that we will review, but we'd like to have the second quarter, I guess, to assess that. Joahnna Soriano: Go ahead [indiscernible]. Unknown Analyst: Okay. Can you hear me now? Joahnna Soriano: Yes. We can hear you. Anna Maria Margarita Dy: Yes. We can hear you. Unknown Analyst: Okay. My question is on -- it was mentioned by Meean earlier on the canceling the Katipunan project. Does that mean that you are pursuing and for Laurean? It's -- this is the first -- this is my first question. Anna Maria Margarita Dy: Yes. For Katipunan, we canceled the project. So the difference is Katipunan was launched just a few weeks before the war actually erupted. So we were in a much earlier phase of the selling period. So that we canceled. For Laurean, we launched this sometime in September last year, and we said that we would pause that project. And by pause, we mean that we're putting all selling and development on hold for now. And we will revisit it at -- maybe at some point in time when the environment is clearer. We're thinking maybe middle of next year is when we will take a look at it again. Unknown Analyst: Okay. My next question is again on the Resi side. I wanted also -- I had just heard Jed just kind of mentioned that the 22% decline in revenues is really a function of sales recognition and also the progress of the residential units that -- during the quarter. Can you provide us with clarity on whether you're going to see the same trend in the coming quarters? Or does this seem like it's part of the -- is it going to be lumpy in the succeeding quarters? Or -- yes, I just wanted to understand. Anna Maria Margarita Dy: Just to clarify, the first -- the decline in the revenue was, I think, as Jed explained, it's really because of the lower sales and not so much because of any slowdown in completion. So it's really driven by slower take-up in the first quarter. Now as to what we're seeing for the rest of the year, again, I think it's very difficult to make that call right now. I think we'll need the next quarter to see how things will pan out with this disruption that we're facing ahead of us. Unknown Analyst: Okay. I guess the last question will be on the progress of the leasing assets that are going to come in the second half. How is it looking so far? Any updates on that would be appreciated. Mariana Zobel De Ayala: Yes. So we have about 216,000 square meters of mall assets to come online, and they are in full swing. Actually, in the case of Arca, we opened the first phase, so just about 18,000 square meters in February. And we're really looking forward to a number of expansion openings in Greenbelt in TriNoma and then towards the end of the year in Evo City, Nuvali and then finally in Gatewalk, which is in Mandaue, in Cebu. So we are on track. Joahnna Soriano: We have several questions here from Jelline of JPMorgan. First is how much of the 200k mall GLA is currently leased out? Mariana Zobel De Ayala: I don't have that exact number for you. Let me get it. But basically, our rule of thumb is 6 months before opening, we should be at 80% leased out to be able to ensure we can hit healthy occupancy at opening. Joahnna Soriano: And then for offices, she has 2 questions. The first is, what's the level of preleasing commitment? And what drove the considerable dip in office revenues on a quarter-on-quarter basis, considering the low GLA contribution of ACC? Mariana Zobel De Ayala: Yes. So we actually had 6,000 square meters of Teleperformance, which is a building we have here in Makati, and that contract ended. We've actually since leased it out, but unfortunately, there's a dip for this particular quarter, but we expect for that to pick up by the end of the year. In terms of our new openings, for Evo City, we have -- about 40% of our GLA has warm and active prospects. And for Gatewalk, which is later on in the year, about 20% of our GLA has warm and active prospects. Joahnna Soriano: We also have a question on Resi. Can you please comment on your Resi GPM trend in the first quarter of 2026? How do you expect cost to trend for the rest of the year? Anna Maria Margarita Dy: First question was what? Sorry. Second question was cost. Joahnna Soriano: Yes. The first question is, can you please comment on Resi GPM trends in the first quarter? Anna Maria Margarita Dy: I think so far, we've been holding the margin -- the margins for all our projects. So the projects that we have are in later stages of completion. So we're not -- we're a little bit insulated from cost effects because of this Middle East crisis. Joahnna Soriano: The second one is on cost. How do we expect that to trend for the rest of the year? Anna Maria Margarita Dy: As far as construction cost, I think we're more or less still within our budgeted contingency. So we should be okay. Again, it's because we are in the later stages of construction. I think where we would see more significant or meaningful impact are in projects that we are about to start. So we see different numbers. I think the Philippine Construction Association, PCA, seeing anything from 10% to 30% at this point. So those are for brand new starts. But for now, we're really focused on the delivery of 40 projects, which are in later stages of development. So for now, I think we are managing the effects. Joahnna Soriano: Our next question is from Wendy of Uni Capital. Wendy Estacio-Cruz: Can you hear me? Joahnna Soriano: Yes. Wendy Estacio-Cruz: For my first question, I might have missed it, but on the reported sales from the Laurean, how much has been recognized or booked or remaining as reservations as of the first quarter of 2026? Is it included in the total? Or has it been canceled already? Anna Maria Margarita Dy: The booking is very small because there's hardly any percentage of completion. You wouldn't see it actually in our P&L. Wendy Estacio-Cruz: How about in the total sales reservation for the first quarter? Anna Maria Margarita Dy: It's been taken out. Wendy Estacio-Cruz: Okay. When it comes to the buyers' behavior, are there buyers that have opted for refunds or reallocating within the portfolio? Or have you seen any signs of them waiting to go with your brands, for example? Jose Eduardo Quimpo: So when the discussions are going on so far with the buyers of Laurean, those that have done sales take-up, so as you know, we provided them various options, options ranging from staying with the project and discussing with us. We look at it again on or before April 2027, moving to Ayala Land product -- to another Ayala Land product or to those that want their money back, that's also available. So those are evolving discussions at this stage. I don't have the specifics in terms of where they're trading to or all of that. As you might appreciate, it's an important discussion that we need to take with them and it's something that is still ongoing. Our objective is to make sure that the relationship with the buyers continue to remain strong, and we [indiscernible] to whichever of these 3 choices they want. Anna Maria Margarita Dy: Might be too early right now to say. I think these are -- we'll need to give the buyers time to decide on this. Wendy Estacio-Cruz: All right. And for my last question on the input cost. I know in consolidated figures, a lot of cost pressures from raw materials have been pricing. But do you see any -- or can you pinpoint which construction or raw material is like putting the most pressure on the OpEx, like steel, imported raw materials or whatsoever? Anna Maria Margarita Dy: I think you'll -- those are probably not in the OpEx line. You'll probably see it more as part of our cost of goods. So diesel, for example, will affect costs of anything that's excavation or land development, anything imported because shipping costs would also have been elevated. But you'll probably see that more in the cost of goods sold. Joahnna Soriano: Our next question is from Al Hamil of Adram. [AudioGap] We'll move on to Sean. [Audio Gap] We'll get back to you, Sean. We'll proceed first with Carl Sy of Regis. Carl Stanley Sy: Let me just check if you can hear me. Joahnna Soriano: Yes, we can hear you, Carl. Carl Stanley Sy: So I'll start off with some items related to the first quarter performance. So among them, of course, ACC was sold in 2025. And in order to get a better gauge of the profit part in first quarter '26, could you tell us how much ACC contributed in the first quarter '25? Jose Eduardo Quimpo: I can get that to you, Carl. But basically, that would be the differential between the plus 2% and the plus 8% on the shopping center. Now the important thing there, Carl, is, as you know, ACC is a consolidated entity. So while you recognize it at the full line at the top, at the bottom part when you compute the noncontrolling interest, that's when you take out the other 50%. So I think it has 2 different impacts, both from a top line and ultimately at the bottom line. Carl Stanley Sy: Okay. And then if you happen to have -- already for the first quarter '26? Anna Maria Margarita Dy: Sorry, could you repeat that, Carl? Carl Stanley Sy: The unbooked revenue -- unbooked residential revenue? Anna Maria Margarita Dy: About PHP 98 billion, right? About PHP 98 billion. Carl Stanley Sy: Got it. And then I'll ask about the mall business a little bit this time. So same mall sales growth is 10%. And you did mention that some of the malls actually showed very strong performance like One Ayala and Manila Bay. But I'm curious about the malls that were actually redeveloped, how are they performing and -- relative to previous year and relative to your own expectations? Mariana Zobel De Ayala: Yes. So our flagship malls are up 12% year-on-year. So we're quite happy with how that's progressing, especially considering that we've only really completed construction for Ayala Center in TriNoma . We're still closing out on Glorietta and Greenbelt. Carl Stanley Sy: Sorry, you mean that's plus 12%, including the ones that have not completed redevelopment yet? Mariana Zobel De Ayala: Yes. Carl Stanley Sy: Okay. Got it. And then regarding the Iran conflict, you mentioned that CapEx will come down to PHP 50 billion from the previous target of PHP 70 billion to PHP 80 billion. So may I ask what projects or what spending are you cutting? Where are you getting from? Anna Maria Margarita Dy: So we will need to prioritize projects that are going to be turned over this year and next year and malls that are opening this year and next year. Carl Stanley Sy: Okay. Is it fair to say maybe you're cutting land banking project? Anna Maria Margarita Dy: Well, we've been cutting that back for a few years now. So that will continue, yes, Carl. Carl Stanley Sy: Okay. And then you mentioned also about construction costs rising by some estimates, 10% to 30%. But in addition to that, I'm curious if there are other disruptions, supply chain disruptions such as it's taking longer to get particular materials? Is it harder to get labor or any other disruptions? Anna Maria Margarita Dy: Yes, I think that's something that we anticipated, particularly for projects that are in very early stages of construction, which is partly why -- largely why we decided to put Laurean on pause. But the projects that we are really focusing on now are in later stages of construction or later stages of completion, and we should have less impact from supply chain disturbances for those projects. But for projects that we would start, yes, we would anticipate such disruption. Jose Eduardo Quimpo: Carl, maybe to just close out your earlier question. For the first quarter of 2025, Alabang Town Center had PHP 298 million in revenues. That's the retail side, and the office had PHP 43 million in revenues. Joahnna Soriano: So our next question is from Sean. I'll just read it out loud. The first one is, can you share the breakdown of inventory between premium and core now that Katipunan is canceled and Laurean has been paused? Jose Eduardo Quimpo: Yes. So total inventory is PHP 150.3 billion. That's sales value. That still includes the paused project of Laurean. If I was to break down the PHP 150.3 billion, about -- just under 80% is in the premium category and just over 20% is in the core category. Joahnna Soriano: He's also asking about our RFO level. Jose Eduardo Quimpo: Our RFO as of end of first quarter 2026 is about PHP 18 billion, just a bit over PHP 18 billion. Joahnna Soriano: Our next question is from Al. Will the pause of Laurean have a P&L impact or just cash flow? Jose Eduardo Quimpo: As mentioned by our CEO, it's a very minimal P&L impact for us because it's a project that has barely started. So yes, there will be some cash flow impact. But as you know, in terms of pay terms, only a percentage of the sales value is actually on hand with Ayala Land. And as I mentioned earlier, we're offering buyers 3 options. So cash flow impact will ultimately be managed because of the quantum. And then the second one, of course, is if they choose another Ayala Land product, then clearly cash flow impact is negligible for us. Joahnna Soriano: In relation to that question, we also have a question from Russ Toribio of Bank of America. Any update on the treatment of the commissions we paid or have been paid in relation to Laurean? Anna Maria Margarita Dy: So we will expense that. Joahnna Soriano: Our next question is from Liam of [indiscernible] Securities. Unknown Analyst: So my question is more on forward-looking. First is on the BSP's recent key policy rate hike to 4.5%. I just want to hear from you how this might impact your sales take up this year? And if possible, can you share with us the buyer's profile in terms of investors over end users, both for horizontal and vertical projects? That's my first question. Anna Maria Margarita Dy: So impact on sales take-up. So typically, well, clearly, increasing in interest rates is discourage, particularly in the core segment where 90%, I would say, of our buyers would be taking up a mortgage. In the Premium segment, that's a much smaller number. So there's a little less, I guess, sensitivity to mortgage rates. As to the split of investors and end users, I would say maybe 50-50 on the Premium segment. But particularly on the Premium segment, investors here are probably ones who are looking for capital appreciation more than yield. So it's a different profile of buyer -- of an investor buyer, particularly in the Premium segment. Joahnna Soriano: I think your answer was choppy during the RFO question. Just to repeat what Jed said, it's at PHP 18.8 billion. Unknown Analyst: All right. I would like to revert first -- back to my first question because the context of that is that BSP has been instituting interest rate easing since 2024, yet rates didn't really reflect that. So will there be a change in mortgage rates do you think, considering that they have recently increased the key policy rate to 4.5%? Jose Eduardo Quimpo: I think a real better person -- or the real better part is to answer that would be the banks, right? From a property developer perspective, you are absolutely correct. We went through a period of an easing cycle. It was over 200 basis points in reduction in policy rates, and that did not have a perfect transmission to the mortgage rates. Best mortgage rates, and I was just tracking it, is at 6.5% for 5 years. So clearly, the transmission on the policy rate reduction did not re down to mortgage rates. Now that we seem to be on a path towards increasing policy rates, it's also, I suppose, hard to say that it will be a perfect transmission on the way up. So far, at least as of -- so far as of our last recording, the 6.5% good rate for 5-year mortgage is still holding. I understand there's a next policy meeting around middle of the year and so we'll see how that goes. My only last comment to that, Liam, is I suppose it also depends on what the risk the banks are seeing in terms of their credit quality. I think those 2 play key aspects for us. Joahnna Soriano: Any other questions? I think we have a question here from Paul [indiscernible]. Unknown Analyst: First of all, am I audible? Joahnna Soriano: Yes, you are. We can hear you. Unknown Analyst: So I have 2 questions. So first on the margins. I understood the residential margins were already raised earlier. Can you provide us the percentage of margins on the Residential segment, particularly between horizontal and vertical as of end first quarter? Jose Eduardo Quimpo: Horizontal 45%, vertical 38%. Unknown Analyst: Sorry, how much is vertical? Jose Eduardo Quimpo: 38%. Unknown Analyst: Okay. Got it. And my last question is on lot sales. So what's your outlook on -- what's the management's plan on lot sales? Because I understood that it is down by 53%. This is coming from 90%, if I'm not mistaken, increase during the fourth quarter? Anna Maria Margarita Dy: So lot sales are really lumpy because these are -- some of these lot sales are large in terms of value. I think similarly to the residential, we'll really have to wait and see in the second quarter as to how the market for the lot sales will be. There are a couple of deals that we are currently working on. We have a good pipeline, but I would think that we would need to see how things are in the second quarter before we can make a call on that. Unknown Analyst: Liam, did you have any additional questions raised? Okay. Here's Liam's questions. Is the 21% drop in Resi sales indicative of full year trend? How has mall foot traffic changed between January, February versus March with the onset of the ME conflict? Jose Eduardo Quimpo: Yes. Maybe I'll take the question on the Resi one. So as our CEO mentioned, it's just a bit too early to make a full year call. The Middle East crisis is, what, 40-something days old. Clearly, to give guidance today would be an erroneous or likely an uninformed guidance. So what I would say is that we continue to observe the market. We believe we can have a better call at this as we see how it impacts our second quarter. We look to continue to deliver sales. The quantum targeting, I think that's something that we're trying to look at. On...? Mariana Zobel De Ayala: March was actually a strong month from a foot traffic standpoint. Jan and February are generally seasonally lower times. So I don't think yet we've kind of seen the impact through March. Joahnna Soriano: The next question is from Diane from Papa Securities. Are there cancellations or more projects that will be canceled other than what has already been disclosed? Anna Maria Margarita Dy: So the answer is no. The reason is both these projects, Laurean and Katipunan, have not yet started construction. All our other projects are in flight. Joahnna Soriano: Any additional questions from the floor or from the chat box, please feel free to type it in. Liam, did you have any additional questions? Go ahead, Jelline. Jelline can you hear us? Jelline Gaza: Can you hear me? Joahnna Soriano: We can hear you. Jelline Gaza: Can you hear me? Okay. Yes, I just have a clarification on a comment made earlier wherein it was mentioned that the Laurean presales have been reflected in the first quarter presales. Can I confirm that the entirety of the PHP 9 billion to PHP 10 billion has been reversed and reflected in the PHP 24 billion? And in such case, could you disclose the like-for-like movement in presales without Laurean? Jose Eduardo Quimpo: Jelline, thanks for the question. There's 2 -- So the -- as mentioned in the presentation earlier, we are talking about 2 projects, Katipunan, which we canceled. And by virtue of the canceling, we took that out on the sales take-up number. The second one is Laurean, which is on pause. A project on pause is still part of the sales take-up. So Laurean is also -- sales of Laurean are still part of first quarter 2026 numbers. Jelline Gaza: Okay. So no reversals. Okay. Jose Eduardo Quimpo: Yes, ma'am. Joahnna Soriano: We have a question here from [indiscernible] from China Bank regarding development. What drove the core market take-up growth on a quarter-on-quarter basis? How has RFO take-up progressed? Jose Eduardo Quimpo: I guess, I suppose the key answer on core market take-up growth is concentrated sales. As you know, we haven't really been launching anything significant on the core market for quite a while now. So our sales teams are continuing to focus to move inventory. As I mentioned earlier, our core inventory is now just less than 20% or just about 20% of our remaining inventory. So that seems to be at a good bright spot for us in terms of very early indications of what could be something that we could bring out to the market. In terms of RFO progress, again, that's something we've extremely shown discipline on. You've seen us actually being able to bring down our RFO to less than 10% of our total inventory. That is still and will continue to be the game plan. Our sales teams are focusing on -- likewise on RFO sales to ensure that from a capital management basis, these units are appropriately remonetized so that we can get back into the game. Joahnna Soriano: We have a question here from Derene. Back in February, before the Iran war, the launches this year was announced to be at PHP 30 billion, roughly half of what it was in 2025. May we know what the figure is now? Just to reiterate what our CEO said earlier, we did not provide a specific absolute amount, but we did say that in the second half of this year, we will be revisiting the potential or the possibility of launching horizontal projects. We have your question from [indiscernible] from Security Bank. Just want to understand the sales trend and reservation sales. Would you have any monthly trend in this? How are the take-up trends since February to April, given the onset of the Middle East conflict? And what's the current strategy to push more sales over the short term? Anna Maria Margarita Dy: So typically, the way sales work is the third month of the quarter is the strongest. That's just the way sales works for various reasons. And in the first quarter, because that's also the time where we had the crisis, I guess, happened, March didn't pull it through for the first quarter. So I don't think it -- we can tell you what it is on a quarter-on-quarter basis because sales behaves differently. It's usually the third month of the quarter where really -- it is typically the strongest month. But because of the crisis last quarter, March did not pull it through for us. Joahnna Soriano: One last question from Al Hamil. Is your group planning to be more aggressive in monetizing land bank to help cash flow? Anna Maria Margarita Dy: I think we've been quite aggressive in using our land bank. In the past -- I think in the past 2 years, we've been -- or 3 years almost, we've been using about 800 hectares for our own use. So we've been quite aggressive in terms of launching our horizontal projects. So that's usually the biggest user of our land bank. We will be -- we will continue to be very active in managing our portfolio. That includes land bank as well as some of our other assets. And this is really to, I guess, ensure that we are repositioning our asset base to something that is more, I guess, near term versus longer term, moving away from noncore and going into more core assets. Joahnna Soriano: That is the last question. We apologize again for the quality of the audio. We will be sharing a transcript of the call this afternoon. Okay. So that concludes our briefing on Ayala Land's performance for the first quarter of 2026. Again, if you have any further questions, please feel free to reach out to the team directly. And again, a recording of the briefing will be made available on our website at ir.ayalaland.com.ph. Once again, thank you, everyone, and have a good rest of the afternoon.
Operator: Thank you for standing by, and welcome to the National Australia Bank First Half 2026 Results Presentation. Go ahead, please. Sally Mihell: Good morning, and thank you for joining us today for NAB's Half Year 2026 results. I'm Sally Mihell, the Head of Investor Relations. I would like to acknowledge the traditional owners of the land from which I join you today, the Gadigal peoples of the Eora Nation. I'd like to pay respect to the elders past and present and to the elders of the traditional lands from which you join us. Presenting today will be Andrew Irvine, our Group CEO; and Inder Singh, our Group CFO. We are also joined in the room by members of NAB's executive team. Following the presentations, there will be an opportunity for analysts and investors to ask questions. I'll now hand to Andrew. Andrew Irvine: Thank you, Sally, and good morning, everyone. I'd also like to welcome Inder, who is presenting his first set of results for NAB. NAB's half year 2026 results benefited from good momentum across our business, supported by stable margins. We also benefited this half from strong broad-based credit growth in a supportive economic environment. The outbreak of conflict in the Middle East have created more volatile environment, which we do expect to continue for some time. In light of this, we have improved the strength and resilience of our balance sheet to support our customers. Our customer-centric strategy becomes even more important in the current environment, and we continue to execute this strategy with both focus and discipline. This is helping us deliver better customer experiences, which in turn drives improved customer advocacy. To achieve our ambition to be the most customer-centric company in Australia and New Zealand, we must continue to modernize our technology to build a simple, fast and resilient bank. On this, we are making good progress with more to come. We have 3 business priorities, which aim to deliver stronger returns over time, growing business banking, driving deposit growth and strengthening proprietary home lending. Again, we have continued to make good progress against each of these priorities, and I will discuss them in more detail shortly. Looking ahead, while the near-term outlook is more challenging, we are well positioned to navigate this uncertainty with stronger balance sheet settings and good underlying momentum across our business. Cash earnings this half were impacted by changes to our software capitalization policy to reflect the rapidly changing technology environment. Excluding the impact of this large notable item, our cash earnings increased 2.3%. This was mainly driven by a 6.4% improvement in underlying profit ex notables, offset by higher credit impairment charges. Revenue growth of 3.1% reflects stronger markets and treasury income and volume growth. Total costs, excluding the impact of the notable item were down slightly. Our cash return on equity, excluding the impact of the large notable item this half was 11.6%. This is slightly higher than fiscal year '25. We have declared an interim dividend of $0.85, and this represents 72.5% of cash earnings, excluding notable items, which is in line with our target payout policy of between 65% and 75%. Disciplined execution by each of our divisions has contributed to our strong underlying performance in the half. Business and Private Banking has had a very strong half with a 5.4% increase in underlying profit. The business has good momentum in lending and deposits with a stable margin outcome. I'm particularly pleased with the 10.8% growth in transaction account balances, which reflects our consistent focus on deepening customer relationships. This performance is a strong demonstration of the quality of our business in Private Bank in a very competitive environment. Corporate and Institutional Banking delivered underlying profit growth of 1.7%. A disciplined approach to both lending and deposits has helped deliver a 15.2% return on equity. Business credit growth this half was 6.9%, reflecting strong system growth together with good momentum in corporate lending and higher customer drawdowns in the month of March. Personal Banking has also had a very good half with underlying profit of 3.7%. The focus on strengthening proprietary home lending and growing deposits whilst managing margins has been a key driver, and I'll talk more about these shortly. Finally, in New Zealand, BNZ delivered flat underlying profits in what is a very challenging economic environment. Our continued focus on growing personal deposits has supported good market share growth this half. The ongoing conflict in the Middle East is challenging customers through both higher fuel costs and supply disruptions. These issues, together with inflationary pressures and higher interest rates are likely to create real cash flow stress for some customers. While the vast majority of our customers are well positioned to manage these impacts, some will need further support. At our heart, NAB is a relationship bank. Our relationships with customers are particularly important in these times, and our business bankers are on the front foot contacting customers to discuss their circumstances. Support provided includes increased limits to working capital facilities and overdrafts to manage liquidity issues. We have also provided some zero interest loans to customers as part of the government's economic resilience program. Consumer sentiment has deteriorated sharply. However, overall, our retail customers enter this period with strong buffers. Across our home loan book, offset and redraw balances have grown by 9% in the last 12 months. In addition, 80% of our customers did not reduce their home loan repayments in 2025 when cash rates fell by 50 basis points. This will help those customers absorb an increase in interest rates from here. In light of the more challenging environment and the ongoing volatility, we have taken proactive steps to increase the resilience of our balance sheet settings. The March common equity Tier 1 capital ratio of 11.65% is modestly lower over the half, reflecting both strong volume growth and market volatility impacts. To further strengthen capital, a 1.5% discount will be applied to our first half dividend reinvestment plan, and we expect to partially underwrite the DRP participation. These actions will raise a total of approximately $1.8 billion and increase our group CET1 ratio by approximately 40 basis points to a pro forma ratio of 12.05%. Forward-looking collective provisions have also been increased by $300 million to a total of $1.93 billion. This includes an increase in our economic adjustment as well as increased overlays in sectors more likely to be impacted by fuel supply and fuel cost issues. Our total provisioning to credit risk-weighted assets has increased to 1.6% and collective provisioning to credit risk-weighted assets has increased to 1.35%. Liquidity and funding metrics remain well above regulatory minimums. The duration and intensity of the current disruption to liquid fuels markets and associated impact on the economy remain highly uncertain. I'm confident the actions we've taken to improve the strength and resilience of our balance sheet will better enable us to continue to deliver the strategic priorities while supporting our customers through this more challenging period. The next slide outlines our strategy based on our ambition to be the most customer-centric company in Australia and New Zealand. To execute this strategy, we are being disciplined and consistent in our focus on doing a few things well at both scale and at speed to power exceptional customer experiences. Our ambition to improve customer advocacy is anchored in a core belief that this will deliver deeper customer relationships together with improved retention and referrals. This, in turn, should lead to higher growth and sustainable returns over time. NAB customer voices is the foundation of our strategic focus on customers. This program, which we have been progressively rolling out over the last 18 months, enables us to more systematically measure, capture and respond to customer feedback. We continue to see the benefits, including significantly reducing the time required to open a simple business transaction account. While there is more work to do, these improvements will help support our strategic focus on growing our core deposits. I'm very pleased to say that the progress to date has been recognized with NAB being awarded the Roy Morgan Customer Satisfaction Award for the Major Bank of the Year in 2025. To put this in context, the last time NAB won this award was in 2012. This is a tremendous achievement, which recognizes the efforts of all our colleagues to improve customer experiences. In addition, we now have positive NPS across all our 4 segments for the very first time. Our medium and large business NPS has improved by 16 points over 12 months and is ranked equal first of the major banks. Over the same period, both mass consumer and micro and small business improved by 5 points with NAB now ranked equal second. Six months ago, you'll remember, I highlighted the focus on improving NPS in high net worth and mass affluent. Here, too, our NPS has improved by 14 points, and our ranking has moved from fourth to third. The mass affluent segment and our premier banking strategy remains a key focus in our Personal Banking division. And in this segment, we are now ranked second. While we certainly have more to do, our strategic focus on customer advocacy is working and can be a key differentiator for our bank. Becoming a simpler, faster and more resilient bank is an ongoing journey and is embedded in how we run NAB. Simplifying the bank is key to our transformation. This means reducing the number of products we offer, eliminating duplication and simplifying our processes. Since fiscal '22, we have cut the number of products we have by 27% with an ambition to get this down by 50%. Being faster means improving the speed of delivery to customers by improving the productivity of bankers and support teams. This will increasingly be enabled through the use of AI to support routine tasks and allow colleagues to focus on higher-value work and to improve products and systems. Improved resilience is also being delivered through the continued modernization of our core technology programs. The progressive migration to modern cloud-based platforms and decommissioning of legacy systems will continue to keep our customers safe and improve the availability of our services. By becoming simpler, faster and more resilient, we aim to deliver stronger operating leverage, simple real-time banking that our customers love, lower operational risk and sustainable returns to shareholders over time. Upgrades to our bank's technology infrastructure foundations are now largely complete. This includes multi-cloud infrastructure and the build and migration to a modern data platform. The next phase is the progressive modernization of our core product and servicing platforms, and this work is now well underway. This slide highlights 2 of these platforms, our real-time payments platform and our transaction switch. In the first half, we completed the migration of all payments to our cloud-based real-time payments engine. A modern payments platform has been key to the development of innovative payment solutions such as Amazon PayTo. Our transaction switch processes 15 million card and acquiring transactions every day across a range of channels. A new transaction switch has now been installed in the cloud, and we have commenced building the capability to enable card processing and authorization. The migration of all credit and debit card transactions is expected to be completed in FY '27 with merchant acquiring to follow. Our new Group Executive Digital Data and AI, Pete Steel, joined us in November, and Pete's deep experience is helping us prioritize where we invest in a rapidly changing technology environment. AI opportunities, including investments to date are broadly aligned to 3 strategic outcomes. Growth opportunities will be supported by banker AI and customer AI solutions that will help drive and deliver more personalized services to our customers at both scale and enable our bankers to spend more time with our customers. Productivity opportunities will be supported by AI tools that can undertake routine tasks and increase the speed of delivery. We have already rolled out AI tools to over 7,000 software engineers, which has, in turn, helped improve our change cycle delivery time and significantly increased developer productivity. We are also providing colleagues with access to AI tools to help them build the skills they will need in the future. As this technology evolves quickly, it is important we embed the appropriate risk controls and governance frameworks to keep our customer data safe and ensure transparency of any AI decisions that are taken. NAB has 3 clear business priorities, which will help drive stronger sustainable returns. The first is continued growth in business banking. Our aim is to be the clear market leader in business and private banking and to pursue disciplined growth in corporate and institutional banking. The second is to continue to drive deposit growth with a focus on at-call transaction accounts. We are investing in innovative payment solutions for business and improved propositions for our target retail segments, including mass affluent and youth. And the third is to strengthen our proprietary home lending. Here, we've implemented a number of initiatives to help grow the share of lending through our proprietary channels. This will help manage margins and improve returns on our home lending portfolio. I will now speak to each of these priorities in more detail. We are proud to support Australian businesses through our 2 business banking divisions, which combined make us the largest business lender in Australia. We have a 22% share of total business lending and a 28% share of lending to small- and medium-sized businesses. Sound underlying business activity has supported strong business credit growth at a system level over the 12 months to March. As the largest business lender in Australia, we've continued to see good opportunities to grow. Total business lending GLAs across both Business and Private Banking and Corporate and Institutional Banking increased by 11.5% in the 12 months to March to $306 billion. This is our strongest annual growth in 3 years and was supported by above-system lending growth in Australian business lending. Business and Private Banking is the clear market leader in SME banking. This is NAB's heartland, and we know it well. Our relationship-led approach increasingly enabled by digital, data and analytics capabilities continues to deliver good growth, and our pipeline remains strong. A focus on digitizing our customers' simple needs and removing work from our bankers is allowing bankers to spend more time with our customers. This includes the continued deployment and development of our business lending platform with over 80% of lending applications in the first half submitted digitally. Competition in this segment has undoubtedly increased, but our scale, our deep expertise and the quality of our bankers enables us to compete from a position of strength. In recent halves, despite strong competitive intensity, we have consistently grown business lending at above system rates while maintaining a stable divisional margin. A holistic approach to retaining high-performing bankers has helped keep turnover rates low. Turning to our second priority of driving deposit growth. We continue to see strong growth in transaction and at-call accounts across both our Personal and Business Banking divisions. Over the first half, Business and Private Banking and Personal Banking grew at-call deposit account balances by $14 billion, but which exceeded the growth in lending balances across these divisions. In Personal Banking, our investment in branch transformations and increasing engagement with customers has supported a 30% increase in new transaction account openings over the last 2 years. In Business and Private Banking, a continued focus on deepening customer relationships and investments to streamline account opening processes has in turn supported a 31% increase in new transaction account openings over 2 years. The good growth in at-call deposits across the group this half has also meant we had correspondingly less appetite for larger term deposits. This is reflected in the decline in total deposits in our Corporate and Institutional Banking division. NAB's home lending strategy aims to serve our customers well in the channel of their choice through the delivery of a seamless customer and broker experience. A focus on strengthening our proprietary franchise has seen us grow our share of drawdowns by proprietary channels from 41.4% to 47.7% in the first half. And in the month of March, 50% of our drawdowns were through proprietary channels, a key milestone for our bank. This progress has been supported by investments to improve banker productivity, including an increasing contribution from new bankers appointed in FY '25 to uplift capability. Having a strong and growing proprietary home lending business also means we can adopt a more targeted approach to broker distribution. Brokers are an important distribution channel, and we are deepening relationships with value brokers to drive growth in priority segments. The successful execution of this strategy is delivering above system growth with improved home lending returns. I'll now pass to Inder, who will take you through the financial results in more detail. Inder Singh: Great. Well, thank you, Andrew, and good morning all. I'll focus on our financial performance as measured on a half-on-half basis compared to the period ending September '25. And to give you the best view of underlying trends, I will exclude the impact of the large notable item that we booked in the first half of 2026. Slide 22 provides an overview of our earnings performance. Underlying profit rose 6.4%. Revenue was higher, boosted by improved markets and treasury income and costs were slightly lower. Cash earnings grew 2.3% with underlying profit growth partly offset by higher credit impairment charges. We referenced these higher credit charges in our pre-announcement, and they include a $300 million top-up to forward-looking provisions to reflect potential downside risk from the Middle East conflict. Statutory profit declined 18%, primarily as a result of the large notable item, partly offset by the gain on disposal of our remaining 20% stake in MLC Life. Before we get into operating trends, I will provide some additional detail on the large notable item. This is set out on Slide 23. As Andrew mentioned, we have implemented changes to our software capitalization policy to more closely align to an environment of rapid technological change. This has involved a reduction in the useful life of capitalized software assets and an increase in the capitalization threshold from $5 million to $20 million. There has also been a change in the nature of assets capitalized. For example, we will no longer capitalize certain risk and regulatory spend. These changes have resulted in a one-off accelerated amortization charge of $1.35 billion, which has been booked through the operating expense line in the first half. These changes are expected to also have impacts moving forward. Firstly, the one-off accelerated amortization charge reduces our software capitalization balance by $1.35 billion, resulting in lower associated amortization charges going forward. Secondly, the remaining software capitalization balance of $2.2 billion will be amortized over a shorter period. These 2 impacts are expected to be broadly offsetting in the second half of 2026. Finally, moving forward, a higher proportion of investment spend will be expensed with the OpEx ratio forecast to be approximately 50% in the second half of 2026. Following these changes, we would expect additions to our capitalized software balance to be more closely aligned to amortization over time. Turning now to Slide 24. Revenue rose 3.1%, mainly reflecting volume growth and a strong markets and treasury outcome. The depreciation of the New Zealand dollar had a negative $81 million impact on half-on-half revenue growth. Markets and Treasury income increased $147 million over the first half. The key driver here was NAB risk management income, which benefited from improved outcomes in our treasury liquids portfolio, specifically the non-repeat of the realized losses on bonds that we experienced in the second half of 2025. Customer risk management income also rose over the half, driven by some larger deals in C&IB. The revenue impact of a more broad-based increase in customer hedging activity was relatively limited due to the shorter average tenor of these trades. Excluding Markets and Treasury, revenue rose 1.8%, primarily driven by volume growth, which contributed $167 million. As Andrew mentioned, this was another period of strong lending performance with growth aligned to our strategic priorities. We saw good growth across our business banking franchises of B&PB and C&IB, along with housing growth supported by improved proprietary home lending flows. Margins were broadly stable, and I'll discuss these in more detail shortly. Fees and commissions rose $16 million, benefiting from higher capital markets fees. Moving to Slide 25. Net interest margin increased 3 basis points over the half. Excluding Markets and Treasury and the benefit of lower liquids, both of which are largely revenue neutral, NIM was stable this half with lower lending margins, mostly offset by higher earnings on our deposit replicating portfolio. Lending margin reduced by 4 basis points. Within this, Australian home lending contributed 2 basis points to margin compression with half of that related to competitive pressures, and this trend is broadly in line with prior periods. The timing difference between cash -- changes in cash rates and customer lending rates added a further 2 basis points of compression as we move from the benefit of 2 cash rate reductions in the prior half to a drag from 2 cash rate increases in the current half. This compression was partly offset by small positive impacts. Australian business lending contributed 2 basis points to NIM compression with 1 basis point each from B&PB and C&IB. In B&PB, this impact reflects a fairly consistent level of competition with prior periods. In C&IB, we have seen a pickup in competition and also a small change in our business mix. Funding costs were neutral this period with fairly stable spreads. Deposits added 1 basis point to NIM, reflecting a series of small movements, which I'll walk through in turn. Firstly, mix contributed 1 basis point with stronger relative growth in lower cost transaction account balances over the period and a lower proportion of savings accounts earning bonus rates due to product refinements in ubank. Secondly, deposit costs contributed a benefit this period of 1 basis point related to TDs. And lastly, we saw a 1 basis point drag related to the $5 billion increase in the size of our deposit replicating portfolio, which reduced the level of unhedged low-rate deposit balances. It is important to note that this impact was largely offset by a higher earned benefit from the replicating portfolio as shown in the next block on this chart. The 3 basis point replicating portfolio benefit to NIM shown on the chart relates entirely to our 5-year deposit hedge. This benefit was higher than our original guidance of 2 basis points with the extra basis point driven by the $5 billion top-up to the hedge I referenced earlier. Turning to some considerations for NIM in the second half. Replicating portfolio returns are estimated at approximately 5 basis points. This is based on swap rates as at March 2026. This increase in contribution from the first half reflects the full period impact of the $5 billion top-up to our deposit hedge plus higher swap rates impacting both deposit and capital hedges. This is a key area through which we are seeing the benefit from the rising rate environment. Our strong deposit growth this period has reduced our sensitivity to changes in the Bills/OIS spread. An 8 basis point move in this spread is now equivalent to a 1 basis point impact on NIM. Now moving to Slide 26. Operating expenses declined 0.5% over the period, excluding the large notable item. This includes a $38 million benefit relating to the depreciation of the New Zealand dollar. Salary-related growth was $58 million. The majority of this reflects the impact of pay rises from 1 January under the Australian enterprise agreement. Volume-related costs rose $52 million. The key driver was additional bankers across all of our customer-facing divisions, with the largest uplift in Personal Banking, including increases as part of our strategy to strengthen proprietary home lending. Technology and investment spend rose $51 million. The main drivers were higher technology spend related to cybersecurity and fraud prevention, increased cloud consumption, technology modernization and higher software and data costs. Investment spend was modestly lower, consistent with the usual seasonal trends between half years. Productivity savings were $199 million, achieved through continued process improvement and simplification, operational and technology efficiencies and changes in the composition of our workforce. Other costs were up $16 million this half with a number of moving parts. Key items included lower remediation costs, offset by higher performance-based compensation. Looking ahead, our considerations for FY '26 OpEx remain largely unchanged. We expect year-on-year cost growth to be below the prior year comparative of 4.6%. Investment spend is expected to be approximately $1.8 billion with around 50% of second half spend expensed through the P&L. This reflects our changed software capitalization policy. Depreciation and amortization is expected to be higher year-on-year, reflecting the timing of asset deployments. Payroll review and remediation remains ongoing, and we note that $7 million of additional charges were booked in the first half of 2026. We continue to target productivity savings of greater than $450 million for the full financial year. Now turning to asset quality trends on Slide 27. We entered the 2026 financial year on the back of several quarters of improving Australian economic trends. Cash rates were declining, normal GDP was rising to around trend levels and unemployment remained low. However, with an absence of productivity improvements, it became evident in the second quarter that the economy was hitting capacity constraints with building inflationary pressures. This prompted the Reserve Bank to tighten cash rates in February and March with an expectation of further cash rate increases and slowing activity. Then in early March, an escalation of the Middle East conflict resulted in a sudden and sharp increase in fuel costs, some supply challenges and a heightened level of uncertainty and market volatility. Against this backdrop and with the typical lags we see between a change in economic conditions and the performance of our book, it wasn't surprising to see improved underlying asset quality outcomes in the first quarter of 2026. The default but not impaired ratio declined 8 basis points, supported by broad-based improvements across both our Australian mortgages and B&PB business lending portfolios. However, as we move through the second quarter, these improving trends started to moderate. And whilst Q2 represents only one data point, we are monitoring this very closely. As you're aware, the impaired asset ratio can be lumpy, and we have historically seen this ratio increase towards the later stages of an asset quality cycle. The 4 basis point increase this half was primarily driven by a small number of C&IB customers. This was similar to what we saw in the second half of 2025. It is very difficult to forecast half-on-half movements. But given the economic outlook, this impaired asset ratio could remain elevated over the coming months. The credit impairment charge for the first half was $706 million. This equates to 18 basis points of gross loans and advances. This was $221 million higher than the second half of 2025, reflecting the $300 million top-up to forward-looking provisions, partly offset by lower individual charges and a write-back in the underlying collective provision. IAP of $541 million included broadly stable charges for unsecured personal lending, modestly lower charges for B&PB business lending in New Zealand and higher charges in C&IB related to single name exposures. The underlying collective write-backs of $135 million were primarily driven by the release of provisions held for customers transferred to individually assessed, ratings upgrades for a small number of C&IB customers and data refinements, partially offset by lending growth. The $300 million top-up to forward-looking provisions reflects increased stress in the outlook to the Middle East conflict, which I'll discuss in more detail. Turning now to Slide 28. B&PB business lending asset quality trends are broadly consistent with the group profile I discussed on the prior slide, showing an improvement through the first quarter, but stabilizing in the second quarter. This has seen B&PB's business lending NPL ratio declined 22 basis points over the half with stable to improving trends across most sectors. While our book is well diversified and highly secured, there is clearly downside risk to asset quality over the coming months. As Andrew highlighted earlier, our large network of relationship bankers is proactively reaching out to customers to understand the impact of the Middle East conflict on their businesses and discuss support options. During these uncertain and challenging times, our scale and our long history of banking SME customers is really important. We have worked through many cycles, and we know this business and our customers well. I'll now turn to provisioning on Slide 29. Total provisions increased $221 million over the first half and now represent 1.7x our base case scenario and equate to 1.68% of credit risk-weighted assets. Individually assessed provisions have increased $91 million to $1.3 billion, reflecting new and increased provisions related to C&IB customers, partly offset by write-offs in B&PB. Collective provisions increased $130 million to 1.35% of credit risk-weighted assets. Forward-looking collective provisions rose $300 million to reflect the impact of potential stress related to the Middle East conflict. This includes changes in our base case economic assumptions, a 2.5% increase in the downside scenario weighting to 45% and a net increase in target sector forward-looking adjustments of $148 million. These increased FLAs relate to sectors expected to be most impacted by fuel costs and supply issues, including agriculture, transport and storage, manufacturing, construction and commercial real estate. Underlying collective provision reduced by $170 million with $35 million of that related to FX movements and the remainder driven by items I referenced in my asset quality remarks on Slide 27. Moving now to capital on Slide 30. Our group CET1 ratio declined 5 basis points to 11.65% as of the end of March 2026. This reflected volume growth and market-related impacts across credit provisioning, IRRBB risk-weighted assets and net FX translation. Our Level 1 ratio ended the period at 11.53%. Both this and the Level 2 ratio are above our operating target of greater than 11.25% and well above the regulatory minimum of 10.5%. I'll now walk through the key moving parts of the Level 2 CET1 ratio as shown on the chart on the screen. Cash earnings added 81 basis points, partly offset by 59 basis points for payment of the 2025 final dividend. Credit risk-weighted asset movements reduced the CET1 ratio by 24 basis points, mainly reflecting strong business lending growth. The other RWA bucket includes a range of impacts, which overall have reduced the CET1 ratio by 9 basis points. These include: firstly, a 10 basis point reduction related to increased swap rates impacting the embedded loss component of IRRBB risk-weighted assets; and secondly, a 6 basis point benefit from the removal of the standardized floor adjustment in the period, which resulted from RWA movements in the second quarter. Net FX translation was a drag of 8 basis points relating mainly to the depreciation of the New Zealand dollar. Offsetting these impacts was an 11 basis point benefit from the sale of our remaining 20% stake in MLC Life during the half. As we outlined in our pre-announcement, the first half DRP will include a 1.5% discount, and we expect to partially underwrite this DRP. In combination, these initiatives will raise approximately $1.8 billion or 40 basis points of CET1 capital, taking our pro forma ratio to 12.05%. Going forward, we remain focused on disciplined capital allocation to support profitable growth and drive sustainable shareholder outcomes. There is no change to our operating target of greater than 11.25% or our dividend payout policy of 65% to 75% of cash earnings. Liquidity and funding are set out on Slide 31. The quarterly LCR ratio is 3 basis points lower over the half at 132% and NSFR was stable at 116%. Both ratios are well above the minimum requirement. We continue to manage funding and liquidity prudently, and our balance sheet is well positioned for periods of market volatility. Our term funding issuance is well progressed. We issued $19.6 billion over the first 6 months of the year, supporting repayment of maturities in the period. Over the course of the financial year '26, issuance is expected to be broadly in line with prior years at around $36 billion. I'll hand now back to Andrew. Andrew Irvine: Thank you, Inder. Look, as Inder mentioned, the impact of inflationary pressures and a tightening rate cycle, which emerged at the end of 2025 has been compounded by the outbreak of the Middle East conflict and the associated impacts on both fuel supply and fuel prices. This has made for a far more uncertain and challenging outlook, and it's not surprising that both consumer and business confidence levels have declined sharply. While activity indicators have held up very well to date, elevated uncertainty and cost pressures are expected to slow economic growth. Business credit, which was growing at an annualized system rate of around 10% in the first half is expected to moderate in the second half. That said, the longer-term outlook for business investment continues to be very positive, supported by key structural drivers, including ongoing investment in infrastructure, in property, in energy transition and in supply chain resilience. Looking ahead to the second half, the actions taken to strengthen our balance sheet position us well to manage the uncertain outlook and to continue to support our customers. NAB enters this period with good underlying momentum in our business. The consistent execution of our strategy to deliver improved customer advocacy, supported by a focus on being simpler, faster and more resilient. We continue to progressively modernize our core tech platforms, and we are developing our strategy to deliver value through AI solutions. Everyone at NAB is focused on delivering progress in our 3 key priorities of growing business banking, driving deposit growth and strengthening proprietary home lending. And there is no change to our disciplined approach to managing costs and driving productivity, which creates the capacity for ongoing investment. I remain confident in the long-term outlook for our business. We have the right business mix and strategy to deliver sustainable returns to shareholders. Thank you again for your time, and I'll now hand back to Sally for Q&A. Sally Mihell: Thank you, Andrew. We'll now take questions from analysts and investors. When it's your turn, the operator will introduce you. Can I please ask that you limit yourself to one question and we'll come back to you if time permits. Please go ahead, operator. Operator: [Operator Instructions] Your first question today comes from Richard Wiles from Morgan Stanley. Richard Wiles: I just had one question about the credit quality trends in the Personal Bank. You said that there was an increase in pre-provision profit, but that was offset by higher impairment charges relating to the unsecured retail portfolio. Can you quantify those losses relating to cards and personal loans? And maybe comment on why this is happening against the backdrop of a strong labor market and whether you expect trends in consumer unsecured losses to get worse from here? Inder Singh: Yes. Look, good question. I think what we're flagging is a modest uptick. We are seeing a little bit of seasonality playing through that in the second quarter tends to be a little lighter from a repayments point of view. And the second issue is we're just seeing some transitory impacts just from the migration of the Citi book, which we're looking into. So we don't think this speaks to a major change in the outlook for unsecured, but those are the couple of items that are driving that trend. Richard Wiles: Okay. So Inder in the half, it was really just seasonality that drove the uptick rather than anything more alarming. Inder Singh: Yes, that's right, Richard. And also just a couple of transitioning items with the Citi book, which we'll be able to give you a further update on in the next update. Operator: Your next question comes from Andrew Lyons from Jefferies. Andrew Lyons: A related question, but focusing more on the commercial portfolios. Your IP charge was again elevated at 14 bps of total loans in the half, which particularly appears high versus what peers have been reporting over the last couple of halves. And you'd again put it down to business mix in the stage of the cycle. Andrew, maybe a question for you. Just in light of this relative returns drag and with the benefit of hindsight, are you happy that over the last couple of years, you've got the risk settings right across your domestic business portfolios, that's both Business and Private Bank and C&IB. Andrew Irvine: Andrew, I think we do. We're very confident that we earn through any losses that we might have in our commercial segments and portfolio. It's also important to note that the quality of the book in -- domestically actually improved in both the first quarter and the second quarter of the half. What we're flagging is that we had a very small number of international exposures that we took an individual provision for. But I think when we look at the domestic portfolio, most metrics actually improved half-on-half. Operator: Your next question comes from Victor German from Macquarie. Victor German: I just wanted to maybe quickly touch on capital. Like peers, you've done a very impressive job over recent years, optimizing your risk-weighted assets. And looking ahead, I'd be interested in your views on the likely implication of potentially deteriorating credit quality on risk-weighted assets. In your 1 half results, you effectively approached, you increased provision or you increased your provision by $300 million and also risk-weighted assets -- sorry, I should say, overlays by 8 basis points. So I'd just be interested in how you think investors should think about this potential risk-weighted asset inflation if credit quality does deteriorate and whether this relationship that you kind of put out in this result is a good guide for how we should think about it? Andrew Irvine: Maybe I'll have a first crack at that one, Inder, and then you can follow up if I missed anything. I'd say, first and foremost, it's going to be hard, I think, to predict what capital will do in the second half. We -- some things for consideration for you, we do expect credit growth to moderate from very elevated levels in the first half. So that on the balance will be a positive, but we have to also look at well, what happens and if there's any PD migration to the negative over the course of the half that may drive credit risk-weighted assets. So we'll have to see what those headwinds and tailwinds do on a net basis. But we did take an increased CP going into this because I think the fact is we don't really know how this is going to transpire. And I think we all need to be quite humble with our forecasting accuracy right now. This crisis in the Middle East seems to be continuing on, and we just don't know what the duration and intensity of the crisis is. So we wanted to be prudent going into this so that we could continue to participate in credit growth and to support our customers. So I think we'll have to see how this plays out in terms of what happens to the numbers as we go. I don't know, Inder. Inder Singh: Yes. Maybe just to give you one data point, Victor, on your question about RWA trajectory. One way to think about it is if you look at our base case economic projections from here, which call for a moderation of GDP growth and a slight uptick in unemployment. If that actually plays through, we would expect our risk-weighted assets to increase by around $3 billion over the next 12 to 18 months. Clearly, this is going to be progressive, right? So -- and as Andrew mentioned, there's going to be a series of other dynamics around the broader capital piece that will play through as well. Operator: Your next question comes from Jonathan Mott from Barrenjoey. Jonathan Mott: Andrew, I wanted to go back to your comments on the slowdown in credit growth. Obviously, the business environment has been fantastic for the last couple of years now and reaching 10% growth in the business bank is a great number. You also said that the pipeline still looks okay. I wanted to get your views on what you're seeing in that pipeline. Have you actually started to see agricultural customers pull back yet? Have you seen that pipeline weaken just in the last couple of weeks given the volatility? Is it actually flowing through at the coal phase? Or is it just your expectation that credit growth will slow? Andrew Irvine: Yes. Look, I'd say we're still seeing a material bifurcation between conditions and confidence. And so when you look at the actual numbers on a week-to-week basis, you're not yet seeing any material slowdown in application volume and how those apps are flowing through to settlement and the pipeline continues to remain very robust. So if you look at the numbers, and you were not aware that there were a crisis going on, you wouldn't see anything to be worried about, frankly. But at the same time, when we talk to our customers, you can hear from them that confidence has dipped and they're talking about taking actions to safeguard their business and to moderate their growth settings. So that is a bifurcation and a disconnect, frankly, that we're seeing that really hasn't kind of unraveled yet. So our expectation is that we'll see a softening, but the truth is we don't see it yet in our numbers. Jonathan Mott: Great. So is it just too early? Andrew Irvine: Yes. Look, I'm quite surprised, frankly, that we haven't seen any reduction, but that's where we're at. So I think it is too early. Operator: Your next question comes from Ed Henning from CLSA. Ed Henning: Can I just ask a question on the margin. If you give us a little bit more just the outlook and what you're thinking there. If I kind of run through a few things. What was the rate lag impact in the first half? You saw also on the home loan side, you saw fixed rate lending increase a little bit. Was that a headwind? And do you see that as a continuing headwind going forward? On the mix, you talked about the benefit coming through on the deposit side. Can you just talk about do you anticipate a mix benefit still to come through? Or are you starting to see some shift to TDs that will be a bit adverse on that? And if there are any changes in competition as well, please? Andrew Irvine: Inder, do you want to take that? Inder Singh: Yes. Look, obviously, we are cognizant of all of those moving parts. Clearly, we don't provide specific NIM guidance. But if you look at the impact of rate increases, we obviously had 2 rate increases in this half compared to 2 rate decreases in the last half. But if we look forward and we only get, say, 1 rate increase, we think the rate lag impact is probably 0.5 basis points or thereabouts in terms of NIM. I think the impact in terms of fixed doesn't really play into that materially, to be honest. In terms of deposit mix, look, it's difficult to sort of forecast. We've obviously got strong momentum in a number of parts of the business around transaction accounts, and Andrew spoke to that, both in terms of B&PB and also within the personal bank. And we'll manage the overall mix in terms of how we express appetite for TDs based on how we see the momentum playing through, but we're pretty pleased with the first half momentum. Andrew Irvine: And we haven't yet seen any migration to yield-bearing deposits in the mix. Is there a potential for that to happen as rates increase and the value to customers of capturing yield is greater. But to date, we haven't really seen that migration. Operator: Your next question comes from Andrew Triggs from JPMorgan. Andrew Triggs: Just a question on a capital again. With the RBNZ changes being finalized and coming up in, I think, the 1st of October, can you just talk to the benefit from those changes and its interplay with the pro-cyclicality capital you talked about, noting that you are fairly marginal on the standardized for now? And just with that sort of tighter capital position, just your priority areas for growth and where might you think even if credit growth does moderate a little bit, do you think you need to pull back on certain areas like institutional to make sure you have sufficient capital for the emerging economic environment? Inder Singh: Yes. Good question. I might take the first element of that, and then Andrew can talk a bit about the priorities for growth. In terms of the New Zealand regulatory changes, I think 2 main areas of impact. One is that you'll see the gap between Level 2 and Level 1 close out a little bit, mainly because we have some internally funded Tier 2 in the New Zealand sub that gets a deduction at the top of the house. So you'll see that narrow. I think secondly, probably a combination of the New Zealand changes and what APRA has proposed here, we should see the standardized floor really become less of an issue for us moving forward. And so our focus really is on the advanced impacts as we expect that standardized floor, which has been a bit tight in the last couple of periods to be less of an issue moving forward. Andrew, do you want to cover the priority areas for growth? Andrew Irvine: Yes. I think, look, when I talk to shareholders, they want us to continue to participate in high-quality loan growth, predominantly in our business banking franchise, but also to the extent we can get it in home lending where there are opportunities to grow share above our cost of capital. I think we're going to continue to look at areas where we're not earning a sufficient return on our capital and continue to tighten the settings to minimize that leakage really. We've done that, I think, really well across our portfolios, but there's still more that we can do there. We're conscious. We want to be a bank that's generating capital over the course of time, and we know that, that's been hard for us over the last little while. Some of that explained by the fact that we had very marked and elevated loan growth. And we have confidence that over time that we will generate positive capital in a normalized market environment. Andrew Triggs: Thanks, Andrew. So can I read that you'd be happy to have a zero discount DRP attached to the full year dividend if shareholders were happy for you to grow. Inder Singh: Yes. I mean, look, I think the other thing to bear in mind is that, obviously, the strong growth that we've experienced is going to translate into higher earnings. So as we look forward, we're also mindful of earnings per share growth. Our payout ratio in this half is 72.5%. That's at the upper end of the 65% to 75%. So should we see good opportunities to continue to grow the business strongly, we can manage, I guess, the pace of the EPS growth versus DPS growth, i.e., DPS growth may lag a little bit, right? Because if we continue to see good opportunities to invest shareholder capital, we will do that. If the payout ratio lags a little bit, that's perfectly fine. Operator: Your next question comes from John Storey from UBS. John Storey: I've just got a question for you, Andrew. It's obviously the second rate hiking cycle that you've seen in Australia. I just wanted to get your sense if you think the market, in your opinion, is just underestimating the earnings durability of the business and private bank in particular. Obviously, a very strong set of results, but I appreciate it's backward looking, but interested to get your views on how you characterize today versus what you've seen and gone through over the last few years. Andrew Irvine: Yes. Look, it's -- again, I would say that the ability to project into the future now is more uncertain than it normally would be because of the macroeconomic volatility. And how that's going to play out for businesses. The Reserve Bank has been clear that they needed to tighten demand because there was a situation in our economy where demand was outstripping supply. That's why they've raised the interest rate by a couple of 25-point increases, and we expect there'll be one more. I think what's hard to then predict is how much supply has been taken out by the migration of spend to fuel, but that's real for many of our customers, particularly in areas like agriculture, manufacturing, transportation, retail trade. So what I will say is that our customers, by and large, enter this period in a strong cash position. Deposit at the bank are up meaningfully and most of our customers have relatively lower leverage and strong cash buffers to, I think, withstand the cycle. And there'll be opportunities for many of them to grow and take advantage of any dislocation. So look, I think we just have to stay close to our customers as we go here, which we intend to do. But it's really, really difficult, I would say, to project out right now because of that uncertainty in the day-to-day nature of things. Operator: Your next question comes from Tom Strong from Citi. Your next question will be from Matt Dunger from Bank of America. Matthew Dunger: I wondered if I could ask about cost growth, significant change to the capitalization policy. And you've been delivering significant productivity, guiding still to cost growth over 4%. Andrew, you've called out the moderating lending growth expectations. Does over 4% cost growth remain acceptable in this environment? Just wondering if you've changed your thoughts at all given the change to software policy? Andrew Irvine: Yes. Look, we're not, at this point, looking to change guidance to the market in terms of our expense commitments. But you can be sure that as a management team, we are looking at our cost base and the expenses that we have and that over time, you always need to cut your cost according to what's happening in the revenue environment. And so to the extent there's a possibility that revenues come under any pressure, we would obviously be looking at what happens over time to our cost growth. It's important, though, to remember that there's lots of areas of cost that our customers value and our shareholders value. So we have to delineate between those costs that drive outcomes and costs where we can drive productivity. And I do think the new solutions emerging around AI are going to be helpful for us in that regard as a bank. Anything Inder you would add? Inder Singh: Yes. No, I think just to reaffirm, Andrew, I mean, over time, our aspiration as a management team has to be to aim for positive jaws going forward. We have to be cognizant about the fact that we need to balance the underlying level of inflation in the cost base with the need to invest to support growth in the right areas to make sure we continue to modernize the bank's infrastructure, continue to improve the experience of our customers. So it's something that is very active in our thinking as we get into the planning process for the next couple of years going forward. Operator: Your next question comes from Matthew Wilson from Jarden. Matthew Wilson: Matthew Wilson, Jarden. Just on the software capitalization that Matt Dunger referred to. This is the third time in 7 years you've written off capitalized software. That's $2.9 billion or $600 million per annum, which has effectively understated your cost base by around 8%. When you look at your peers in this space, ANZ's best of breed, they expense 80% of their investment spend. They've got the same tech environment that you confront. You're now only at 50%. I don't think you've gone hard enough. Andrew Irvine: That's an interesting point of view, Matt. I think we're right in the middle of peers now with the new settings and we'll have to continue to watch. I do think there is a macro trend here that over time, the value of software assets is likely diminishing as AI advances and the ability to build software or replicate software faster and cheaper emerges. So this is probably something we're going to have to continue to look at, not just as a bank, but as an industry. But I think for now, our settings are in the middle of peers. And I think as a Board and as a management team, we were happy with where we've come to. Matthew Wilson: This was an opportunity to sort of at least equalize the best of peers and get ahead of the trend that you clearly understand. Andrew Irvine: Yes. Look, we'll note your point. And I think the point that we've had 3 of these in the last 7 years is far from ideal. So -- it's certainly something that we should be looking at. Clearly, we weren't in the right starting position 7 years ago as a bank in this area. Operator: Your next question comes from Brendan Sproules from Goldman Sachs. Brendan Sproules: Brendan from Goldman Sachs. I just want to refer to you to Slide 28, where you show us the NPLs by sector. You noted today in the presentation that overall asset quality had been improving as the economy picked up and rates were cut over the last 12 months. Could you maybe just talk about a couple of sectors here that over the last 12 months have actually been deteriorating, Obviously, agri, forestry and fishing as well as transport and storage. And these are the most impacted, obviously, by the energy pricing dislocations. So can you maybe talk about why these things have been deteriorating while the rest of the economy has been improving? Andrew Irvine: Yes. I might call on Shaun Dooley, the bank's Chief Risk Officer, to come and just address that question. Shaun, if you don't mind. Shaun Dooley: Shaun Dooley speaking. So thank you, Brendan, for the question and you're drawing attention to Slide 28 there. So I think what we're seeing in agri, forestry and fishing is probably a couple of single name exposures that have probably had their own idiosyncratic issues associated with their particular businesses. Some of it has been weather-related, some of it has been supply chain related as well. So that being said, the portfolio remains a pretty strong portfolio. Its performance over a long period of time has been strong. It's well diversified and it's industry that we know well, and we have deep specialization, both in terms of bankers and credit people. In terms of the transport and storage, as you said, there's some issues associated with probably supply chain input costs into that. And that has been a sector, particularly in the transport side of it, where we've probably experienced more challenges in that part of the portfolio. But I think the main takeaway from this slide is the improving performance across the majority of the sectors that we're dealing with in business and private bank. And you'll see the same thing deeper in the pack around the whole portfolio as well. Brendan Sproules: And I have a second question on the performance of the Corporate Institutional Bank in the half. I'm referring to Page 44 of the 4D. You've had very strong lending growth, almost 7% in the half and almost 13.5% over the year. But we're actually seeing very weak lending and deposit income growth. Can you maybe talk to some of the drivers of why that's the case and whether -- particularly as we're entering probably a period of a slowdown, how you expect that to change over the next 6 to 12 months? Inder Singh: Yes. Look, I mean, overall, I'd say, looking at the returns that the C&IB business is producing at around 15%, we're very pleased with the progress that we're making. I think clearly, we've seen some impairment charges come through, which we've referenced in Andrew's remarks. I think on net interest margin, it's probably fair to say that we've seen a little bit of NIM compression in the half. You'll pick that up as you get through the back pack of the slides. NIM half-on-half is off about 14 basis points, which I think contributes about 1 basis point in lending compression at the company level. But really, what's driven that on the deposit side is we've seen the cut in U.S. dollar cash rates impacting the deposit book. That's been about 3 basis points. We've also lost the benefit of the custody business that we had, which we've now exited that had given us probably about a 2 basis point headwind on the deposit margin. So deposit margin is off a bit. On the lending side, we are seeing a little bit of heightened competition, as I referenced in my remarks albeit the returns remain very strong. We've also had a bit more of a skew towards growing the Australian corporate book where we've got good momentum. We've now built better capability in areas like transaction banking. So the overall relationship ROE is very strong. But look, it's a fair point that in the half, the asset growth and the income growth has probably not kept pace, but we expect that to improve a little bit into the second half. Andrew Irvine: One other point I would make is that I think in the month of March, there was material drawdown activity in the top end of town, likely due to concerns at the time regarding the Middle East crisis. And given that, that was at the end of the period, we probably didn't get the full benefit of earned income in those -- in that asset growth. But were that to continue, that would normalize and align, I think, over the continuity of time. Operator: Your next question comes from Brian Johnson from MST. Brian Johnson: Just I've got a question just as far as the capital, which is kind of summarized on Slide 30. If we have a look at NAV historically, you've kind of committed to the 65% to 75% payout ratio and neutralizing the dividend reinvestment. The one disappointing aspect I really think of this result, which was effectively pre-flagged is the DRP issuance. Could we just get some comment -- and the other thing I suppose I'd flag is the 11.65% to 12.05% pro forma, that's assuming you raise the money from the dividend reinvestment, but it actually doesn't take out the dividend itself. So if we were to go through all of that, it comes back to about 11.47%, which is a surplus, I think, above the minimum of about $980 million. Can we just get a feeling on, is that enough surplus capital that we should be confident you can resume neutralizing the DRP? Or has -- or because of the overlays, has the capital intensity effectively permanently gapped up to the point where you can't neutralize the DRP going forward? Inder Singh: Quite a lot in that question, Brian. Maybe if I start with. Brian Johnson: It's one question with 20 hidden there, Inder. Inder Singh: No, I appreciate it, Brian. On the -- if you look at the dividend that you are looking through the pro forma, we can argue for a long time as to how you roll forward the capital position. But if you start with 11.65%, by the time we pay the dividend, we would have probably accreted that by another 30 to 40 basis points of earnings, Brian. So by the 1st of July, if you wanted to pro forma it at that point, you could say, take the dividend off, give us the credit back for the DRP and the underwrite. So 60 basis points of dividend comes off, 40 basis points of the benefits from the DRP actions come back on. So we could spend a long time going around the houses on this, but we're sort of seeing the capital position probably being in the high 11s and the low 12s as you roll through the earnings through the course of the year. I think your broader question is a good one, which is how do we think about the sustainability of balancing growth, the dividend where it's at, et cetera. And look, it's unfortunate on the overlays that we've had 2 significant overlays on our RWAs in this half and the previous half. Obviously, we don't expect that to be a sustaining trend. We've had a series of recalibrations to do on our models, which we are progressing through. So we obviously aspire to have strong models with limited overlays of this type of nature going forward. But as I referenced earlier, I think if we can translate the balance sheet growth to earnings growth, we should see the earnings per share grow over time. We have the opportunity to be able to fund higher credit growth by managing down the speed with which the DPS grows at, right? So you should be able to accrete capital going forward. So at the moment, we feel pretty good looking at the second half that we don't need to put a discount on the DRP. But we're just going to have to execute well, Brian, make sure we're allocating capital sensibly. We're driving the right volume margin trade-off that we're investing in the right places and driving value from that, managing our costs and driving efficiencies. So I think it's as much about the capital generation levers more broadly and how we execute against those. But stock of capital is in a strong position, and we feel good about the second half. Brian Johnson: So Inder -- but am I right in thinking the formal kind of guidance, if you'd like to call it that on the DRP neutralization no longer exists? Inder Singh: No, we're not seeing any changes to any of the capital policy settings. We are basically saying here's a series of actions that we're going to take in relation to the first half. Operator: Your next question comes from Tom Strong from Citi. Thomas Strong: Can you hear me okay? Andrew Irvine: Yes. Thomas Strong: Perfect. Just a question on productivity, if I can. I mean if we go back 12 months ago to the first half '25 results, you did about $130 million of productivity for $420 million for the full year. Now you've had quite a strong half this half in terms of $200 million of productivity. So to what extent is the bottom end of that greater than $450 million of productivity guidance? And to what extent is that conservative given the hard work you've put through in the first half? Inder Singh: Well, look, I'd say we have fairly meaningful targets. The $450 million plus is an ambitious target. We are making good progress through it through the course of the first half. As you picked up from the various comments we've made during this briefing, we've got a real focus on making sure we can drive operating -- positive operating jaws as we look forward on a multiyear basis. We've got work to do to continue to not just deliver the current targets, but continue to build on those over the coming years. So -- and we're looking at all options in terms of what we can do around deploying tools to continue to enhance that. Andrew Irvine: But you can be sure we're running hard as a management team in this area. And if we can beat that number, we will. Operator: There are no further questions at this time. I'll now hand back over to the team for any closing remarks. Sally Mihell: Thank you. I'd like to thank everyone for joining us today. If you do have any follow-up questions, the Investor Relations team will be available to help. Thank you.
Operator: Welcome to Rato's Q1 Earnings Call 2026. [Operator Instructions] Now I will hand the conference over to CEO, Gustaf Salford; and CFO and IR, Anna Vilogorac. Please go ahead. Gustaf Salford: Good morning, everyone, and thank you for joining us today. I will begin with a brief overview of the quarter, and then Anna will go through the financials in more detail. Overall, we delivered solid growth in what continues to be a mixed market environment. Net sales increased by 3.4% and adjusted EBITA came in at SEK 460 million (sic) [ SEK 417 million, ] corresponding to a margin of 9.3% and EBITA growth of 21%. Adjusted earnings per share was SEK 0.67, an increase of 81% compared to last year. We had a strong start of the year in our industrial product companies. Diab and HL Display both posted healthy growth. On the industrial services side, the quarter was more challenging. Both Knightec Group and Aleido faced softer demand and tougher market conditions. Our results for the quarter was negatively impacted by 2 main factors: First, lower volumes and gross margins among our technical consulting businesses. And secondly, at Speed, we continue to invest in automation to increase capacity and efficiency over time, which temporarily affected profitability as we absorb these investments. During the quarter, we also launched our strategy, Ratos 2030. The strategy reflects a clear direction. Ratos is returning to its roots as a focused long-term investment company, owning both majority and minority stakes in Nordic companies. For the '26, '28 period, we have 3 strategic objectives, and I'll walk through each one and highlight what we delivered in the first quarter to support them. Firstly, we're building a more focused Ratos. In Q1, we launched a new strategy, provided greater clarity on the portfolio, as you also can see in our Q1 report, and also exited Expin Group, steps that reinforce our focus and where we allocate our time and capital. Secondly, we are driving profitable and capital-efficient growth through organic initiatives and add-on acquisitions. And in the first quarter, we saw significant orders for Aibel, TFS and Presis Infra. We delivered organic growth, and we generated a robust earnings contribution. We also completed HL Display's add-on acquisition of Deinzer, which supports both growth and value creation in that business. Thirdly, we'll further develop our ways of working as a company. And during Q1, we increased our external presence on portfolio company Boards, including the appointment of Daniel Kjørberg Siraj as Chair of the Board for Presis Infra. We have clarified how we categorize our portfolio and where we'll focus going forward. The purpose is to create a clear and more transparent structure for how we manage the companies and how we track progress against our financial targets. At a high level, we now distinguish between core and noncore companies. Our core portfolio is where we will concentrate ownership attention and capital to drive profitable capital-efficient growth over time. And if we now turn to our companies and especially the companies in the industrial products, we saw that performance developed well this quarter, especially for Diab and HL Display, and all companies delivered organic growth. Diab delivered a strong 16% organic growth in the quarter, supported by increased demand from defense customers and profitability improved on the back of the higher volumes combined with lower depreciation. We also saw a strong development in return on capital employed. HL Display reported 4% organic growth, and we saw positive sales development in North America. And as mentioned earlier, the acquisition of Deinzer was completed during the quarter, strengthening our offering and supporting further growth going forward. LEDiL delivered 1% organic growth, driven by the indoor business, while outdoor business continue to face a more subdued market environment. Turning to our industrial services companies, the quarter was more challenging, reflecting a cautious market environment and low utilization in parts of our consulting businesses. Aleido reported a negative minus 4% organic growth and the market remained cautious and utilization was lower, which affected performance. At the same time, we continue to strengthen our offering, and we were awarded a contract to deliver a new AI-based platform solution, which is an encouraging step as we build capabilities for the future. Knightec delivered a negative minus 2% organic growth. We saw utilization challenging, driven by uncertain market conditions where customers continue to be cautious with new project starts. Speed grew 12% organically, supported by continued momentum in our logistics solutions and new customers. And profitability was impacted during the quarter as we progressed automation projects that are investments we believe, are important to improve capacity and efficiency over time and prepare for growth and margin improvements. TFS delivered 18% organic growth, primarily driven by an increased share of pass-through revenues, while service revenues were down. Importantly, we received a major order of approximately SEK 350 million, supporting a stronger development of the business going forward. Moving to our infrastructure companies. Presis Infra delivered 2% organic growth in the quarter and profitability was somewhat lower, mainly driven by product mix and timing effects but we continue to see a robust order backlog, which supports good visibility for the coming quarters. And now moving on to our minority holdings. Starting with Aibel, the company was awarded a major framework agreement with Equinor. The agreement has a fixed duration of 5 years with options for extension. The total value is estimated at around NOK 20 billion over the fixed period, an important win that supports long-term developments. For Sentia, the share price has increased by more than 40% since the listing in June 2025. We also expect to receive a dividend from Sentia in Q2 of approximately NOK 220 million, corresponding to Ratos share. And lastly, a brief update on our noncore consumer companies. KVD delivered minus 3% organic growth impacted by lower used car volumes. At the same time, Forsbergs Fritidscenter performed well with a strong order backlog and solid sales and results. Oase Outdoors reported 12% organic growth, and the business unit built inventory ahead of the peak season in the second quarter, which is consistent with normal seasonal preparations. And Plantasjen delivered 4% organic growth, with growth in both the Swedish and the Norwegian markets, and the profitability was impacted a bit by product mix and higher energy costs during the quarter. And with that, I would like to hand it over to Anna for the financials. Anna Vilogorac: Thank you, Gustaf. And without further ado, let us dig into some more details. So really on the positive side, this quarter, again, a second quarter in a row now, we displayed positive organic growth, just above 3%. But also if we look at the 12 months rolling trend, this also now is in a positive trajectory. Also another quite positive item in this quarter is that our EBITA improved by 21%. This is from a meaningful impact of the Sentia contribution, and we will come into more details for that. But just as a reminder that Sentia was not a part of this. The Sentia holding was not part of our Q1 2025 numbers. So here, we will break down the net sales and adjusted EBITA in different components, starting with the organic one. As mentioned, 3% organic growth Unfortunately, it was a negative contribution on our EBIT. And this stems predominantly from 2 components. One is being Speed, for which we do see this automation investments, which we are taking through the P&L. And the other one is Knightec Group, which actually had organic decline. And here, we see a high drop through straight to our bottom line. Moving into M&A component, which actually was margin accretive. We do see Deinzer effect, even though it was small, it was just 1 out of 3 months. Whilst the other 2 were actually some disposals and acquisitions within Presis Infra, out of which that disposal actually was loss-making. Hence, a really strong contribution from the M&A side, which we do not expect to see in the coming quarters. Moving into FX. As seen in the previous couple of quarters, we still do see negative impact on the top line stemming from both U.S. and euro, SEK strengthening towards these currencies. On the EBITA side, on the other hand, it was quite neutral. Even though we should remember that our global companies, Diab and HL Display actually did see quite a negative impact on their EBIT from FX predominantly strengthening towards U.S. dollar and euro. And here, we can clearly see that meaningful Sentia contribution, which is 150 basis points accretive to our margin. Also, what surprised us positively was Aibel. We are moving towards a year for which we based on the projects that we have, do expect Aibel to come in lower in revenues in 2026 versus 2025. On the other hand, we did see good project execution in Q1 and hence, a bit more in revenue recognition for the quarter, supporting us positively in the bridge. And here, we have now increased our transparency. So we are reporting company by company in our interim report. So bear with me, it's a lot of moving parts here. And I would just make a couple of comments. I would say, again, industrial products is doing really well, both HL Display and Diab. And again, remembering that we do have a currency headwind in both of these companies, which is quite significant and still a very good contribution to the EBITA. We also see this highly negative impact in Knightec Group and Speed. For TFS, just one comment worth making here. We see a healthy top line growth, plus 31% in net sales bridge. However, a negative contribution to EBITA. And as Gustaf mentioned, we see good growth in so-called pass-through revenues. What that is, is us providing third-party services to our customers for which we are not getting any EBITA contribution for. Our service business is actually down and hence then lower profitability stemming from that. When it comes to consumer companies, KVD, Plantasjen, Oase Outdoors, as you can see, not a lot of movements in there, quite neutral for the full quarter. And again, our peak season is in Q2. So that's something to look forward to. And one last comment is that we saw a positive effect coming from the corporate line, has -- it's a twofold explanation. One is that we have dismantled the business area level. Hence, we are running at the lower cost rate currently. And the other part is actually coming from lower transaction costs this time around versus previous year. Looking at net working capital, I would say stability is name of this game. If we look at both absolute and relative terms compared with last year, we are quite flat. When it comes to sequential development, we do see inventories as a preparation for the peak season in Q2 for many of our companies. Inventories are up quite significantly on a sequential basis, but they were offset by other receivables and payables. Hence, the net working capital in absolute terms was quite close from the level we saw in Q4, and that effect in other receivables, payables has to do with us preparing for our dividend payment. Looking at the cash, I would say that this is probably the thing that we are least happy about in this quarter for Q1, it has to do with a couple of differences. And we do have the comparison difficulties versus the same period last year as Q1 in 2025 did, of course, include Sentia, and also, there were some reconstruction effects from Plantasjen in that number. But quarter isolated, I would say, some normal behavior when it comes to net working capital buildup for some companies. We also had some timing issues when it comes to our industrial services companies. And on top of that, we did get a negative effect from our currency loan hedges. And that had to do predominantly by Norwegian krona strengthening in the quarter versus SEK. Looking at the LTM trend. However, as you can see, it is a quite healthy cash conversion. Net debt, quite similar from previous quarters when it comes to leverage, 1.6x. We see, again, normal seasonal pattern for which the Q1 is a step-up, not least due to the cash situation I just described, versus previous year, it's a slight decline in overall net debt. And again, we are at the lower end of our targeted range of 1.5 to 2.5x. And just as a reminder, we do not include our shareholding in Sentia in these numbers. If we would just theoretically and mathematically include those, our leverage would be 0.3x, hence, indicating a very stable and solid financial position, which gives us a lot of maneuverability going forward. Looking at return on capital employed, which is one of our external financial targets. If we first turn to the golden line, we see definitely an impact of us disposing or listing Sentia. As you might remember, Sentia, as a construction company, it's more volatile when it comes to cash flow and net working capital. Hence, we have become much more stable when it comes to those metrics. On the other hand, we did have quite nice return on capital employed, and that's the effect you can see from Q1 and onwards that it's declining. But I would rather us comparing like-for-like, which is then the bottom line. And as you can see, the trajectory is positive. We are, of course, still not happy, and our ambition is to do even more. But this time around, it is nice to see that it's actually moving in the right direction. And last, but what it all boils down to is, of course, the EPS. I think also, it's nice to see that we have EPS accretion throughout the P&L. And if we first turn to the left-hand side graph, this is based on group total. That is how we historically looked. And we see a very healthy EPS growth from Q1 last year to Q1 this year, more than 80% growth. But also if we look at the LTM line, that's also a 16% improvement, which is great to see. And then if we look at the table on the right-hand side, here, we've tried to do it like-for-like just so you understand where this improvement is coming from. So this is based on continuing operations. And again, adjusted EBIT, a double-digit improvement. Net financial items, we also see a double-digit improvement as we have lower financing costs. And looking at taxes, another item actually highly supported this quarter around. Even though I just want to warn you, you shouldn't see this tax rate of 10% as a normalized tax rate. I would say our effective tax rate is estimated to be somewhere between 17% and 19%. So unusually low tax rate for the quarter, has to do with not least Diab growing and having good profits in countries where we have a large tax losses carry forward. So all in all, it's a substantial EPS improvement, and this is a testament of value creation this year versus past year. And with that, I would like to hand over to Gustaf to take us through a summary. Gustaf Salford: Thank you so much, Anna. And if I try to summarize this quarter, it's really about that we launched our new strategy, Ratos 2030. And we also had updated financial targets released for the period 2026 to 2028. It's all aimed at supported increased shareholder value through clear focused and a disciplined capital allocation. Operationally, we delivered organic growth and improved results supported by strong performance in our industrial product companies, where momentum in business like Diab and HL Display helped offset the more mixed market environment elsewhere in the portfolio. And looking ahead, our focus is really to keep driving improvements, execute on the strategy and support the portfolio with the right initiatives so we can sustain profitable, capital efficient growth through Q2 and onwards. And with that, I would like to say thank you, and we are happy to take any questions. Operator: [Operator Instructions] The next question comes from Henric Hintze from ABG Sundal Collier. Henric Hintze: This is Henric Hintze with ABG. So first of all, I would like to ask on Speed, the automation projects you have ongoing there. When exactly do you expect these to reverse from contributing negatively to contributing positively? And what sort of EBITA recovery should we expect there? Gustaf Salford: Henric, I'll start with that question. So the Speed automation is ongoing. It's an impressive project where we are driving a lot of automation in the warehouses. So we will work with that during the spring here. And then during the autumn, it is expected to go live, so to say, and have the positive impact on margins and the productivity for some of our key clients going forward. And then exact financial impact, you will see that in the coming year and onwards, I would say. So that is the operational and financial plan for the Speed automation. Henric Hintze: Okay. And also on Knightec. So clearly, automotive is one of the main drivers of the weakness we see there. How are you sort of approaching this? Is there any reason to believe that there will be a recovery in the near term? Or are you to trying to reduce the number of consultants? Or is it somehow possible to divert them to other sectors? So how are you thinking about that? Gustaf Salford: Yes. I think if you look at the Knightec, and maybe if you include Aleido as well, of course, there is an impact on cars and trucks. That has been a bit more difficult market in terms of project starts, and what Knightec do is really product development and R&D initiatives and so on. So it's very important with new projects. However, we are very well positioned when it comes back, the demand for those products and projects. And as well, we have the defense customers, we see very strong demand at the moment. So I think we have the competence, we have the expertise to be well positioned when the demand comes back. And of course, short term, we are mitigating the current impact from the weaker markets by looking at utilization and looking at the efficiency of the teams and the cost levels and so on to manage this business cycle. But it's also important to say that it's very important that we keep the right expertise to drive growth going forward. And we have a kind of positive outlook for technical consulting companies. But at the moment, it's more a challenging market condition. Henric Hintze: Okay, very good. And maybe finally, could you just specify exactly what the restructuring charges you had in the quarter were for? Anna Vilogorac: Of course, I would say you have -- the biggest one is actually HL Display. They normally consolidate their footprint as they do a lot of M&A. That is a one large one. And then we had a small total overall impact from Expin Group, but that was a smaller one, minus SEK 4 million. The other one is minus SEK 21 million. Operator: The next question comes from Björn Olsson from SEB. Bjorn Olsson: First, just a follow-up on Henric's question on Knightec. So I interpret this that you'll keep your sort of being overstaffed, waiting for demand to return. How long -- I mean given the uncertain outlook in general, for how many quarters do you think that plan could hold before you actually start to take actions? I mean your margin is down 300 bps year-on-year. So sort of for how long should we expect that to continue until you take action? Gustaf Salford: Yes. Thank you, Björn. I mean on that question, I think it's important to say that we come from a year last year of lower cost and efficiencies. So that is something we have been driving for the last year. And we continue to do so because for the company, it's important to mitigate the effect of the lower demand. And then it's impossible to say exactly how many quarters, of course, this situation will continue on the demand side. But we are mitigating the effects. We are looking at efficiencies. I wouldn't say we're overstaffed, but it is important to keep the right experts and expertise in order when the demand comes back. So I cannot say exactly what quarter we expect it to come back. But we are mitigating the effect of the lower demand in Knightec. Bjorn Olsson: Okay. On Plantasjen, it seems that the momentum was somewhat picking up in Q1, although with a sort of margin negative product mix. Could you give any flavor of how Q2 seems to be developed this far? Gustaf Salford: Yes. If we look at the first quarter for Plantasjen, I think all of us experienced a quite cold February and there was higher energy costs and so on that impacted the margins. But it's very positive to see that the top line were growing, then the product mix was a bit impacted in the quarter. That was a product mix of a bit lower products also linked to the colder February. However, looking at this quarter, that is, of course, very important, it's spring. And that's when you primarily go to Plantasjen. And I think we have a -- we are optimistic about the Q2 numbers. And I see good activity when I go around and visiting different Plantasjen stores here in Sweden. And I think it's important to say that it was both in Norway and Sweden that we saw growth in Q1. Anna Vilogorac: And just reminding, Björn, that April last year was actually a very good month for Plantasjen. So perhaps from that reason as well, quite difficult for us to judge from April. So it's going to kind of come down to May and June, unfortunately. But again, it's our biggest quarter. This is where everything kind of ties in for Plantasjen. So very important quarter ahead. Bjorn Olsson: Makes sense. So I guess, me and my colleagues will do some secret shopping for the months to come. Anna Vilogorac: Please do. Gustaf Salford: Absolutely. Highly recommended. Bjorn Olsson: And finally, just on your balance sheet. I mean as you report, you are in the lower end of your net debt target and since you don't plan to do any major platform acquisitions either in the near term, have you had any like second thoughts on buybacks? Anna Vilogorac: Of course, again, it's a discussion that is being had at the Board level, of course. So we are constantly evaluating how to allocate capital in the best way possible. We also hope that we'll get additional M&A throughout the year. Again, companies such as Diab, such as HL Display, such as Presis Infra. There is a lot to be done there. So nothing on the table are decided yet, but of course, all of these initiatives or capital allocation possibilities are on the table and being discussed. Operator: The next question comes from Georg Attling from Pareto Securities. Georg Attling: Gustaf and Anna, just a few questions from me. One on a more high level. I'm wondering what effects you've seen from, let's call it, the geopolitical unrest both here in Q1 and also if you've seen anything during the start of Q2? Gustaf Salford: Yes. Thank you, Georg. So Ratos, we are primarily exposed to, I would say, Sweden and Norway when it comes to our revenues. But of course, many of our companies have international operations as well. I kind of -- we haven't been impacted in Q1 really. And you can almost say for the Norwegian stock exchange and also for Aibel, they are, in a way, supported by this geopolitical unrest. And for the rest of our companies, we haven't seen any real impact on supply chains or anything like that because most of our goods were already delivered or in warehouses during Q1. Q2, I don't expect it to impact us significantly. Again, we have the goods we need in order to deliver on the spring season in our companies and as well that only if you take the technical consulting side, it's primarily more on project starts for larger industrial companies that's impacting those volumes. So I would say a very, very limited impact on Ratos both in Q1 and Q2. Anna Vilogorac: And maybe just to add, Georg. Of course, for HL Display and Diab being this international companies, we do hear transport surcharges or raw material inflation. We have initiated, of course, our processes in order to push those kind of price increases towards our customers. So, so far in Q1, no financial impact. And then, of course, going forward, we will try to handle it as best as we can by pushing it to our customers. That's the plan. And I think both companies acted quite early in this. So we don't expect any substantial negative impact on our results. Georg Attling: That's clear. And just a follow-up on that with regards to technical consultants. If you could describe Q1, did you see that demand was higher at the start of the quarter and then declined in conjunction with this geopolitical tension rising? Or has it been sort of subdued throughout the entire quarter? Gustaf Salford: I don't think we have experienced any difference in the demand between the month. I haven't picked that up, no. Georg Attling: Okay. Just a final question on -- also on Plantasjen. Obviously, no margin expansion year-over-year here this quarter, partly attributed to mix, as you described. But when we look ahead on this sort of top line level, have you done what's possible or sort of picked the low-hanging fruit in terms of margins? Or is it more that can be done even without higher volumes? Gustaf Salford: I think you have a great leverage in the Plantasjen business model, if you get the volumes now during the spring. So that's key. And going into the second quarter now with 2 quarters of growth in the business, that's a great momentum to have. And we don't expect this high energy prices that we had in the beginning of the year, especially February, to impact Q2 in any meaningful way. So we're set up to get leverage from the volume we now see in the spring and the Q2 season. Anna Vilogorac: And maybe just one comment, Georg. So for 2025, I would say we believe that we could do 6% to 7% EBITA margin. And then, of course, we had that very cold May. So Q2 was not as good as anticipated. So we landed just below 5%. I would say, cost-wise, we're on the similar level. And the question is whether we can get a bit more top line. Otherwise, you should probably see it as 2025 numbers. That's where we are if we don't get that additional volume now in Q2. Georg Attling: That's clear. Just a follow-up on that also. I mean we've seen the NOK really rallying here in the past few months. How will that affect Plantasjen's profitability? Do you have a similar amount of costs in NOK as well? Or will that be positive for the margin? Anna Vilogorac: I would say so that we do have quite an extensive or large business also in Norway. So I would say we don't perceive any large impact from NOK strengthening versus SEK. We saw a slight positive now in this quarter, both on the top line and a little bit of bottom line, if that gives you an idea. Operator: [Operator Instructions] The next question comes from Emil Nystedt from Kepler Cheuvreux. Emil Nystedt: It's Emil from Kepler Cheuvreux. I have a couple of questions. First, I was wondering about TFS, where you had quite high pass-through revenue in the quarter. Should we view Q1 as an isolated data point here? Or can we expect continued high pass-through revenues moving forward? And then also, if you could please give us some color on the SEK 350 million order intake and how the underlying business is doing. Gustaf Salford: Yes. Thank you, Emil. If we start with past-through items, this is kind of industry standard that you have significant past-through items for the clinical trials. So that's not something strange. In the quarter, it was a higher proportion compared to the average ratio. And then you see this impact on the margins directly. The service revenue, as we call it, what TFS is getting the margins from, declined in the quarter. So therefore, it's so important to see that we now get this very significant order of SEK 350 million that will be part of driving growth for TFS going forward. And as you know, the CRO business is a high margin, low capital employed type of business. So getting growth into that business is key for value creation for Ratos and of course, also for TFS. And I look positively on the industry that the biotech funding is more coming back, and there will be more clinical trials in the areas where TFS is operating. And with that, the ratio of pass-through items should then also go down on average compared to what you saw in this quarter. On the significant deal, we cannot disclose the customer name. But I can say, it's a great customer. It's a very good deal that will be supporting TFS' growth going forward. Anna Vilogorac: So just to give a bit color. So pass-through revenues in the same period last year was 1/3, and it's almost 50% in Q1 2026. So it's a huge increase. And that is because of the phases that these different studies are in. So in certain years, it can be quite high. And in other years, it is more insignificant. Emil Nystedt: And then secondly, on Diab, plus 16% organic growth here in the quarter. How much order backlog visibility do you have in Diab today? And is the current demand level and margin sustainable through the rest of 2026, do you think? Anna Vilogorac: A couple of different points. The visibility that we have is 2 to 3 months, so not that high, unfortunately. So that is what we see. Normally, I would say it is difficult to estimate how sustainable, let's call it, defense volumes are. They can come and go in different periods. And then also you need to remember in this EBITA and margin increase that we do have an impact from lower depreciations as we did write-off fixed assets associated with wind in July last year. So of course, this kind of steep incremental improvement, we do not expect that to continue onwards. So that's something to bear in mind for the rest of the year. On the other hand, we do still see solid markets across the board. Maybe marine segment is not the best one. But apart from that, we stand on several different segments and see a healthy development. But this kind of very exponential improvement should not be penciled in into the future. Let's put it like that. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Gustaf Salford: Thank you, and thank you for your questions. So if we look at Q1, it was really a robust quarter for Ratos with a new strategy launched and improved operational performance with organic growth and margin improvement. So we are really looking forward to continuing to deliver during our important second quarter and fiscal year 2026 and beyond. And with that, I would like to thank you for listening, and have a great day. Thank you.
Koichi Yatsuda: It's time for us to start Tokyo Electron financial announcement for the fiscal year ended March 2026. Thank you very much for joining us today despite your busy schedule. I am Yatsuda of IR Department, serving as a moderator of today's session. I'd like to introduce today's attendees -- Toshiki Kawai, Representative Director, President and CEO. Toshiki Kawai: I am Kawai. Thank you very much. Koichi Yatsuda: Next, Hiroshi Kawamoto, SVM & GM (sic) [ SVP & GM ] Division Officer of Finance Division. Hiroshi Kawamoto: I am Kawamoto. Thank you very much for joining us today. Koichi Yatsuda: Before starting the presentations, let me explain the flow of today's session. First of all, Kawamoto and Kawai will make presentations. After that, until 6:30 p.m. Japan Time, we will have a question-and-answer session where we entertain questions from the audience. This meeting uses 2 channels of Webex for the simultaneous interpretation between Japanese and English. As we explained in our e-mail, you are kindly requested to use apps on PCs or mobile terminals if you wish to ask questions. But if you are not going to ask questions, you can use telephones. Since this conference is intended for institutional investors and analysts, we would appreciate your understanding that we receive questions only from institutional investors and analysts, as usual. We will post the audio contents of this conference in Japanese and English on our website within a couple of days. It will be appreciated if you could also visit our website. Now Mr. Kawamoto will present the consolidated financial summary. Kawamoto-san, please. Hiroshi Kawamoto: Good afternoon. I am Kawamoto, Finance Division. I'd like to present the consolidated financial summary of the fiscal year ended March 2026. I will start with the quarterly financial summary. I will mainly refer to the figures in the blue box. In the fourth quarter, we generated net sales of JPY 711.8 billion, 28.9% increase from the third quarter, with net sales showed a temporary drop due to shipment timing. Accordingly, gross profit was JPY 333.1 billion, 41.3% increase from the previous quarter. Gross profit margin was 46.8%, 4.1 percentage point increase quarter-over-quarter. Although SG&A expenses increased mainly due to R&D expenses increase, SG&A to sales ratio declined, which resulted in 77.1% quarter-over-quarter increase of operating income at JPY 205.6 billion. Operating profit margin was 28.9%, increasing by 7.9 percentage points sequentially. Net income attributable to owners of parent was JPY 214.2 billion, 80.8% increase quarter-over-quarter, partly due to extraordinary income generated by selling strategic shareholdings. This slide shows net sales by region. As for the composition in the fourth quarter, proportion of sales in Taiwan significantly rose by 40% from the previous quarter to 22.0%. Meanwhile, as growth rate of spending for leading-edge nodes was higher than that of mature nodes, proportion of sales in China dropped to 26.8%, 5.0 percentage point decline quarter-over-quarter. On the full year basis, in the fiscal year ended March 2026, proportion of sales in China was 34.1%. Now I will move on to the full year financial summary. Since the leading customers continued active investment, and -- our Field Solutions sales were strong. Thanks to the increased utilization rate of the customers' fab, we generated net sales of JPY 2,443.5 billion, 0.5% increase year-over-year, hitting record high following the fiscal year ended March 2025. Gross profit was JPY 1,107.8 billion, exceeding JPY 1 trillion in the second consecutive year, while gross profit margin declined by 1.8 percentage point year-over-year to 45.3%. This is due to soaring costs in parts and materials, as well as changes in the product mix. Another factor is the increase of the number of field engineers outside Japan to prepare for the future growth. Operating income was JPY 624.9 billion. Operating profit margin was 25.6%, 3.1 percentage point drop year-over-year. This is because of active R&D investment to prepare for further growth and enhance our competitive edge. R&D expenses were JPY 277.8 billion, increasing by 11.1% year-over-year. Net income attributable to owners of parent was JPY 574.4 billion, 5.6% increase year-over-year, reaching all-time high. We sold strategic shareholdings and recorded extraordinary income of JPY 115.4 billion. Capital expenditures were JPY 216.0 billion, mainly due to the completion of the development buildings in Miyagi and Kumamoto and production and logistics center in Iwate, and procurement of in-house use evaluation tools. Depreciation was JPY 80.9 billion, 30.3% increase year-over-year. This is a graphic representation of the financial summary shown on the previous page on the chronological basis for your reference. ROE was close to 30% following the previous fiscal year. This shows SPE new equipment sales by application. In the fiscal year ended March 2026, from the top of this chart, sales to DRAM customers accounted for 31%, non-flat memory accounted for 10% and non-memory accounted for 59%. For DRAM, while investment in advanced technologies such as HBM continued to be strong, investment levels are varied among customers. As a result, DRAM sales and proportion remained almost unchanged from the previous year. For non-volatile memory, utilization ratio of our customers have improved significantly and investment has been back on course of recovery. Accordingly, both sales and proportion were in increasing trajectory. For non-memory, while investment for mature node paused tentatively, investment for advanced node was very active. Accordingly, non-memory investment exceeded JPY 1 trillion, just like in the previous year. This slide shows Field Solutions sales. In the fiscal year ended March 2026, Field Solutions sales was JPY 626.0 billion, increased by 16.3% from year-over-year. Along with further improvement in utilization rate of the customers' staff, our parts & service business grew, and there were quite a few modifications to enhance productivity. Accordingly, Field Solutions sales were strong. This slide shows the balance sheet. Total assets were JPY 2,860.9 billion. Cash and cash equivalents were JPY 506.2 billion, increasing by JPY 87.7 billion from the previous quarter. Notes and accounts receivables were JPY 525.8 billion, rising by JPY 124.3 billion sequentially. Inventories were JPY 713.1 billion, decreasing by JPY 12.2 billion from the previous quarter. Tangible assets were JPY 589.3 billion, increasing by JPY 15.3 billion quarter-over-quarter. For the liabilities and net assets shown on the right-hand side, liabilities were JPY 791.0 billion, increasing by JPY 161.2 billion quarter-over-quarter. Net assets were JPY 2,699 billion, rising by JPY 64.7 billion sequentially. This slide shows cash flow. The cash inflow from operating activities in the fourth quarter was JPY 205.7 billion. The cash inflow from investing activities was JPY 33.2 billion as a result of acquisition of tangible assets and sales of investments in securities, among others. The cash outflow from financing activities was JPY 150.8 billion due to the share repurchase. Free cash flow was plus JPY 239.0 billion. The full year free cash flow was also positive at JPY 433.2 billion. Both full year and quarterly free cash flow hit record high. Finally, I will present total return amount. The share repurchase we announced in February 2026 was completed. The total acquisition amount was JPY 149.9 million. At the Board of Directors meeting held on March 27, 2026, it was decided to cancel 3,600,000 treasury stocks on April 30, 2026. The total return amount in the fiscal year ended March 2026 was JPY 437.4 billion, which exceeded that in the previous fiscal year, reaching all-time high. This concludes my presentation. Thank you very much. Koichi Yatsuda: Now next, Kawai will talk about business environment and financial estimates. Kawai-san, please? Toshiki Kawai: Once again, thank you very much. I am Kawai. I will present business environment and financial estimates. Let me start with fiscal 2026 full year business highlights. In fiscal 2026, we generated net sales of JPY 2,443.5 billion, hitting record high. In addition to the active investment for advanced logic and DRAM/HBM for AI servers starting in the previous fiscal year, investment for 3D NAND, which had been muted for a long time, finally showed some signs of recovery. Along with improvement of utilization rate of customers' fabs, our Field Solutions sales grew as well. We delivered record full year net income of JPY 574.4 billion as we strive to improve capital efficiency and recorded extraordinary income by selling strategic shareholdings. The R&D centers in Miyagi and Kumamoto and production and logistics center in Iwate, which we had been constructing to prepare for next phase growth were completed. We also started constructing a new production building in Miyagi, which adopt a smart production concept to support manufacturing in the future. To properly address rapidly expanding WFE market, we are securing robust and strong capacity. Winning PORs in advanced domains is another critical fiscal 2026 highlight, which will contribute to our sales growth in the future. For memory applications, where we are strong, we won high market share in major etching processes, including capacitor process and HBM interconnect process. For Advanced Packaging, which shows remarkable growth supported by our broad product portfolio, we won PORs for multiple products ranging from front-end process to 3D integration and testing. Next I will present the business environment. For 2 years from calendar 2026 and 2027, we expect the WFE market to grow by 20% or more from calendar 2025, ranging from $150 billion to $170 billion for each year. For spendings in the high-end devices we focus our efforts on, as we are currently receiving strong inquiries, we expect 30% or more year-over-year growth. As for ongoing geopolitical risks, for the time being, we do not see any changes in our customers' investment trends. When the blockage of the Strait of Hormuz is protracted, however, we must pay close attention as there is a concern about the shortage of parts and materials triggered by supply chain disruption. Now I will present our fiscal 2027 sales growth drivers under such business environment. Among the investment for high-end devices, which will drive market growth this year, coater/developers and etching systems are expected to make a significant contribution to our sales. In the coater/developer business, in particular, our share in the global market exceed 90%. We received inquiries regarding investment, both for capacity enhancement and device scaling from almost all customers as DRAM customers adopt EUV technology and logic customers introduce EUV multi-patterning. Accordingly, fiscal 2027 coater/developer sales are expected to grow by 50% or more year-over-year. For etching system, we are strong in the field of dielectric etching, recording 50% or more global market share at present. For DRAM capacitor process, we have won PORs from all leading customers and maintain a very high market share in the interconnect process, which is growing for HBM applications. For the GAA or gate-all-around structure, which was first adopted by 2-nanometer logic, business opportunities are expanding in gate etching and isotropic etching. Driven by these factors, fiscal 2027 etching system sales are expected to increase by nearly 30% year-over-year. As we have a broad product portfolio, we are blessed with numerous growth opportunities also for Advanced Packaging. In the business of prober for advanced logic, where we have a compelling market share, the sales are growing steadily and expected to top JPY 100 billion in this fiscal year. Sales of bonder/debonder for the HBM, permanent wafer bonding for logic 3D integration and bonder for 3D NAND are growing. In fiscal 2027, sales for Advanced Packaging, including coater/developer, etching systems, and deposition systems are expected to grow by 60% or more year-over-year. Next I will present the financial estimates. First of all, let me talk about a change of the financial estimate disclosure period. While SPE market is expected to grow in midterm and long term, the size of customers' investment gets bigger than before, and their investment plan may change in the middle of fiscal year due to supply/demand balance, customer strategy and geopolitical factors. Particularly as investment of some customers has been becoming extremely big in size, impacts of their movements on our group performance are getting relatively bigger. Taking account of those factors -- although in the past, we disclosed full year financial estimate of following fiscal year at the timing of year-end financial announcement -- from fiscal 2027 onward, we will disclose financial estimate of the first half of fiscal year, and thereby we will strive to share more timely and realistic information. For the financial estimate of fiscal -- first half of fiscal 2027, driven by the strong demand for AI server, we expect net sales of JPY 1.570 billion, gross profit of JPY 715 billion and operating income of JPY 431 billion, all of which are expected to hit half year records. For the second half of fiscal 2027, stronger growth than the first half is expected as we expect further increase of shipment, mainly to DRAM and advanced logic customers. As I said before, we must pay close attention to impacts of blockage of the Strait of Hormuz, but at present we do not see any changes in our customers' investment plans. We have secured parts and materials we will need for tools to be sold in the first half of fiscal 2027. This slide shows fiscal 2027 SPE new equipment sales forecast. The new equipment sales in the first half of this fiscal year are expected to grow by 41% year-over-year to JPY 1.200 billion. The breakdown by application is shown on this slide. Driven by AI server demand, sales of our system for high-end devices are expected to increase. This slide shows our plan for R&D expenses and CapEx. In fiscal 2027, we plan full year R&D expenses of JPY 330 billion. We will actively promote R&D to enhance foundation of our technology competitive edge and support semiconductor technology innovation. For CapEx, we plan to spend JPY 190 billion on the full year basis. We plan to acquire equipment for the new development buildings whose construction was completed in fiscal 2026, and we plan to complete construction of a new production building adopting the smart fab in summer of 2027. We will utilize robust infrastructure shown in this slide and capitalize on future development opportunities to maximize our corporate value. Finally, I will present the dividend forecast. Along with the revision of financial estimate disclosure period, for the dividend forecast as well, we present the forecast of interim dividend alone. Fiscal 2027 interim dividend is expected to be JPY 361 per share, maintaining a high level just as second half of fiscal 2026. This concludes my presentation. Thank you very much for your kind attention. Koichi Yatsuda: Now we will have question-and-answer session until 6:30 p.m. Japan Time. [Operator Instructions] So the first question is from Mr. Yoshida of CLSA Securities. Yu Yoshida: I am Yoshida from CLSA Securities Japan. Slide 15, I have a question regarding the outlook of the WFE market. Roughly speaking, according to this slide, CY 2025 WFE market was JPY 120 billion. By 2026, more than JPY 150 billion, maybe JPY 155 billion. Accordingly, 2027, that should be JPY 170 billion. That's what it looks like. So is that correct understanding? By application, I think you've made some comments by application '26 and '27. What sort of growth do you expect? Are there any changes from your forecast 3 months ago? And for China, I would like to see your view on China market as well. Toshiki Kawai: Thank you very much. Let me answer to your question. This is Kawai. First of all, WFE market, as you just said, what you said is correct. Compared with this year, next calendar year, you can see increasing trend of WFE market. At present, we are receiving new inquiries. Some request for delivery could be put forward to this year. But as for this year, maybe $150 billion or more and going toward $170 billion next year. That's how we understand the trend of WFE market. Your second question, the composition. First of all, last year, composition, as Kawamoto said earlier in his presentation, DRAM and NAND accounted for 35% and logic accounted for 65% in calendar 2025. But this year, DRAM and NAND accounts for 40% and logic accounts for about 60%. So memory proportion is expected to grow slightly. That's how we view the composition for this calendar year. For China, composition for 2025, China accounted for about the high 30s percent, non-China accounted for low 60s percent level. For this year, China accounts for the mid 30s percent and non-China accounts for mid-60% level. So are there any changes from the 3 months ago in terms of application? Over the past 3 months, so maybe AI server inquiries have been added over the past 3 months, and there are some requests for pulling forward orders. So AI cyber demand is still very strong. Yu Yoshida: Is that DRAM logic? Toshiki Kawai: Yes, that's correct. Koichi Yatsuda: Next question is from Tamura-san from Morgan Stanley MUFG Research Japan. Suzune Tamura: Yes. This is Tamura from Morgan Stanley. So this should be the final year of your midterm management plan. JPY 3 trillion is your target, and you can -- I can see the plan for this first year. And sales of the second half should be stronger. So I think you can achieve JPY 3 trillion. I would like to know the confidence level and your expectation for this fiscal year. Operating profit margin, your target is 35% as well, as I can see the figure of the first half of this fiscal year. It might be difficult for you to achieve 35% of OPM. What are the reasons why you failed to achieve the 35%, but what sort of the time span you have to achieve the 35% of OPM, including fiscal 2028? Toshiki Kawai: Thank you very much. For our midterm management plan, our sales target is JPY 3 trillion or more, OPM of 35% or more, ROE of 30% or more. So this is our target. And this year is the target year, as you said in your question. As I said in my presentation, as for the sales, as you correctly said, the second half sales is more than the first half sales. And actually, the next fiscal year sales will be more than this year. So our targets in the midterm management plan for sales and ROE, we are steadily progressing toward the targets of midterm management plan. As you pointed out, the operating profit margin, so we try our best effort to achieve our target and getting closer to the target level of OPM. We still continue this effort. However, we understand the achievement of OPM is one of the challenging factor for us. For example, when we produce midterm management plan, foreign exchange has been drastically changed. Because of that, fixed costs have been changing by JPY 70 billion. In FY 2026 to '27, the foreign exchange rate is about JPY 146 to JPY 160 to the dollar. That's the reason why the fixed costs are increasing. So one of the reason is the impact of the foreign exchange. The other one is the labor cost. That's about 9% to 10% increase, and logistics costs in fiscal '26 to '27 increased by 10%. So the traveling expenses and transportation expenses are also increasing. So because of this rapid change in foreign exchange and inflation factors are impacting the operating profit margin. From when we produced the midterm management plan, the fixed cost to sales ratio has been increasing, but we are taking actions to do some more improvement. As I said earlier, inflation is the trend, and we need to take a proactive action against inflation and soaring cost of the materials and parts in addition to price increase, and we must enhance the productivity. At the same time, we will launch new models to the market. By using those countermeasures within 2 years to come, we try to achieve 50% or higher gross profit margin. That's what we are doing right now. In addition, we are receiving inquiries from our customers. So this fiscal year and next fiscal year, we are going to steadily improve operating profit margin so that we can achieve high level of the operating profit margin. Koichi Yatsuda: Next question is from Mr. Shimamoto of Okasan Securities. Shimamoto Takashi: I am Shimamoto of Okasan Securities. I have a question regarding share of etch system. So you disclosed the annual share of your products compared with last year, etching share declined by 5 percentage points. Last year, why did you reduce your market share? And you may see some increasing 25% or higher growth is expected. But when I look at WFE, expected to increase 25%. So maybe you may not incorporate the share increase with that level of WFE market growth. So could you let me know your actions to increase your market share? Toshiki Kawai: When you look at process share for etching, our share is increasing. That's how we analyze the situation. However, when we convert it to sales, when you look at the share converted to share sales, actually, Tokyo Electron itself is 0.9% negative. Etching is -- has the strong contribution to that. Customer mix in terms of market share is another reason. And regulations are also impacting our performance. Customers start with purchasing the American tool vendors tools first and maybe the customer try to buy Tokyo Electron's tools in this fiscal year rather than last year. So 2 years ago, our etching share grew very rapidly significantly. So timing of delivery was another factor. Also customer mix and also regulation impact. Those 3 factors were major reasons to the result of the share. On the other hand, as I said earlier, the process share -- when it comes to process share, so our company is now waiting for the future growth. Especially in conductor etch, we are winning PORs. You can see some positive information. Interconnect process and capacitor process, we maintain our share and that will contribute to the future DRAM and logic growth, and we can see more opportunities. And also GAA, gas chemical etching, there are some business opportunities for gas chemical etching. Shimamoto Takashi: So if possible, could you let me know your target for share in this year? Toshiki Kawai: For that question, so we need to closely watch the customer investment trend. We haven't disclosed information about this year's share. I'm sorry for that. Koichi Yatsuda: Next question is from Mr. Nakamura of Goldman Sachs Japan. Shuhei Nakamura: Regarding profitability, so for this fiscal year and onward, I want to get your take. So gross profit margin for the first half of this fiscal year, you showed us 45% level. So sales increased rapidly, but your prospect of gross profit margin is rather weak, maybe because of the impact of labor cost or inflation. That's what you said earlier. In addition to those, are there any other reasons, including product mix, to lower your forecast of gross profit margin? As for the second half of this year, you said the sales will be increasing further more. So second half of this year or next fiscal year. So what do you think about profitability? Toshiki Kawai: Thank you for your question. As I said earlier, the fixed costs are increasing. That's what I said before. The exchange rate and inflation as well as logistic costs, traveling costs, those things are increasing. And we are taking appropriate action for price rise. When it comes to the productivity enhancement, at present, what is important for customer is how we can improve the productivity. So the throughput of process tool or yield enhancement, so we must expand our services to improve the throughput and yield. At the same time, we should introduce the new products. So this is how we can improve gross profit. So 1 year or 2 year, maybe we try to achieve gross profit margin of 50% or more by taking solid actions. Shuhei Nakamura: So within 2 years, you are going to achieve GPM of 50% or more. That's what you said. But GPM 50% at that stage, what is the level of the operating profit margin when you can achieve 50% of gross profit margin? Toshiki Kawai: The midterm management plan target. Also depending on top line, when the gross profit margin goes up, then I think we can improve the situation. Therefore, we will make solid effort to achieve 35% of OPM. That's the intention that we have right now. Koichi Yatsuda: Next question is from Mr. Hirakawa of BofA Securities. Mikio Hirakawa: I have a question regarding the lead time of your products. At present, the lead time of your product is about 4 to 6 months, in average, 5 months. Is that correct understanding? In the first half of this fiscal year, you already received orders and about 90% of those orders are now waiting for the shipment. Is that correct understanding? Toshiki Kawai: The lead time of our products are getting shorter. Rather than 5 months, depending on products, needless to say, might be 3 months or 4 months. We are trying to shorten the lead time of products. We must do that because we receive a huge amount of inquiries. For the first half of this fiscal year, yes, this rather high level of confidence for the figures for first half of this year. Yes, we do have the high level of confidence. Mikio Hirakawa: So your competitors just show us the first half, but the first quarter, but you are giving us the prospect of the first half of this year. So maybe 5 months to go, maybe you have the high level of confidence because you already received orders from the customer. Is that correct understanding? Toshiki Kawai: We are very glad that our earnings draw a lot of attention. And we are trying to explain the market trend as much as possible. So there should be no major change within 6 months to go. And we try to look ahead when I -- so rather than 1 quarter, I try to show you our outlook of 6 months to go. Koichi Yatsuda: Next question is from Yoshioka-san from Nomura Securities. Atsushi Yoshioka: I am Yoshioka of Nomura Securities. I have a question regarding Page 16. So the revenue driver for fiscal 2027. Starting from coater/developer, so Y-o-Y 50% or more, so your share is rather high from the very beginning, but you are outperforming market significantly and maybe you are very strong along with the exposure system. As you said in your presentation, but once again, I would like to know the reason why you can see this kind of drastic growth for coater/developer. And what is the level of confidence? That's one thing. On the same page, Advanced Packaging, FY 2027, you said JPY 120 billion increase in sales is expected. So what is the contributing factors to improve your sales out of JPY 120 billion, if there are some major driver, could you share your idea with us, please? Toshiki Kawai: So coater/developer, regarding coater/developer, let me explain. This is Kawai. As you said, in principle, EUV-related demand and EUV multi-patterning. And for all exposure systems have coater/developer ranging from high end to the general purpose coater/developer, coater/developer essential for lithography process. So we have incorporated all those needs or demands. So the investment for device scaling and investment for capacity enhancement, everything will help us to increase our sales. So this area is growing very rapidly and 50% or more year-over-year growth. As for Advanced Packaging, Mr. Yatsuda will give you the answer. Koichi Yatsuda: So let me explain Advanced Packaging. This is Yatsuda. Advanced Packaging, so the advanced logic and HBM, those 2 are the drivers. We are receiving very strong inquiries in those 2 areas. Just like the front-end category, the coater/developer, etching and cleaning these area, we received the very strong inquiries for the Advanced Packaging. For coater/developer, not only resist, but also other coating film exists and receives many orders. And laser tool wafer bonder and HBM, temporary bonder and the bonder, we received quite a few inquiries in those areas. These are the major drivers for Advanced Packaging, and we expect a huge growth of our sales. Atsushi Yoshioka: One follow-up question for bonder. So how much sales do you expect for bonders, please, if you have any figures for that? Koichi Yatsuda: As for bonder, we don't have a quantitative value we can disclose. But just for information, in last fiscal year, total sales is about JPY 30 billion. We can expect the huge increase. As I said 3 months ago, from this year and onwards to 2030, 5 years to come, so about JPY 500 billion sales on the laser tool bonder/debonder. The bonding-related product, we are expecting JPY 500 billion cumulatively. That means about JPY 100 billion for each year. So this year or next year, we can exceed that level. Next question is from Mr. Nakanomyo from Jefferies Securities. Masahiro Nakanomyo: I am Nakanomyo from Jefferies Japan. Just for confirmation, you said first half of this fiscal year, you just gave us the outlook for the first half, but you didn't disclose your outlook for the second half of this year. That means second half of this fiscal year, you cannot come up with clear figures, especially the figure for second half might change depending on the movement of the leading customers, and you also take account of the situation in Middle East. So based on your inquiries, you said the sales in second half is stronger than the first half of this year. Is that correct understanding? Toshiki Kawai: Right. So we do receive inquiries, very strong inquiries. And for second half of this fiscal year, actually, our inquiry is increasing very rapidly to fill our shipment for second half of this year. However, when we think about the yield enhancement of customer fab and also they have very limited clean room space and lack of the labor force. And there are also geopolitical factors or macroeconomic trends. So in the future, we need to think about energy supply, cash flow, when the CapEx will be growing. Furthermore, we need to consider various factors not only for this fiscal year, but we need to continuously watch the situation under those business environment. We try to come up with high confidence figure. And there are many factors outside of the market and the actually semiconductor importance in increasing. So semiconductor market is affected by the outside of the market itself. So that's the reason why we are going to disclose the forecast within 6 months to go. That is more accurate and realistic. Actually, inquiries are very strong right now. So from this year and next year, with the range of the market size, $150 billion to $170 billion. Masahiro Nakanomyo: I have one follow-up question. For the first half of this fiscal year, so your shipment increased by 40%. Therefore, you will outperform WFE market. Maybe same for the second half of this year, fiscal year as well. But once again, this fiscal year, are you going to outperform the WFE market growth? And what are the factors to help you to do that? Toshiki Kawai: So we are focusing on our core competence, the cutting-edge area. So AI server related high-end area devices, we can see the growing trend. That's the reason why we can have the high level of revenue better than the average. Koichi Yatsuda: Next question is from [ Mr. Franz from Fortis Securities ]. Unknown Analyst: Major foundries like TSMC have announced silicon photonics service for customers. How do you see this market opportunity? And what product POR does TEL have for silicon photonics-related processes? The second question, Field Solutions grew by 16.3% in fiscal 2026. What were the main drivers? And in fiscal 2027, will Field Solution growth accelerate further in line with new equipment growth guided at plus 41% in first half of the fiscal year? Toshiki Kawai: The first question is regarding silicon photonics, the Tokyo Electrons POR and product portfolio. When it comes to the silicon photonics in our company, the flat panel-related applications, we do have the product using glass substrate, the etching for flat panel. So those technologies that we have -- and also CMOS image center, we developed the technologies. Maybe we can use those technologies as well for silicon photonics applications. About the Field Solution, the 16% growth. Actually, utilization rate of the customers' fab has been increasing. Therefore, the parts revenue is increasing and also support revenue is growing as well. Along with the demand increase for semiconductor, utilization rate of customer fab is increasing, resulting in the growth of Field Solution sales. Koichi Yatsuda: So next question is from Mr. Yamamoto of Mizuho Securities. Yoshitsugu Yamamoto: Yamamoto from Mizuho Securities. About your pricing strategy, may I ask some questions. So by and large, you are working hard by buying equipment. So maybe coater/developer should be the easy area for you to improve or increase pricing. So now 50% or more growth is expected in this fiscal year for coater/developer. When it comes to them, maybe 50% increase. However, I think those revenue are recorded in second half of this year. Have you increased your price by about 10%? So you said earlier, more than 50% within 2 years to come. So maybe you are now preparing for the price increase for the new orders to come. So 50% decrease for coater/developer. And you said you are going to exceed the 50% of gross profit margin within 2 years to come. Does that mean you are going to raise price of the coater/developer? Toshiki Kawai: So for all products, very similarly, the fixed costs are increasing throughout the product range. Therefore, we must be fair. We try to maintain fairness and we should have a good consensus with our customers, and we are going to raise price when it's necessary. So we don't pick up any particular products for increase in price. That's not our strategy. This is the price increase along with the soaring cost. And also, if we can contribute to the customers' productivity, we can provide high value, then we can increase the price for those products. And depending on the timing of the machine model, maybe not only coater/developer, etch and film deposition system as well as cleaning system, we are taking a very similar approach for different products. Yoshitsugu Yamamoto: So 5 percentage point increase for the gross profit margin, so that's because of cost increase. Then in the past, you didn't exceed 50% for gross profit margin. So you are now passing the cost increase to the prices, but it's so difficult for you to increase gross profit margin by 5 percentage points. So maybe productivity enhancement, when you add more value to the product, so that is the major driver or pricing for new product. Is that correct understanding? Toshiki Kawai: Yes, we need to keep good balance among those 3 factors: productivity enhancement, contribution to the yield enhancement by providing high value-added products, new products, surcharge and price increase. Koichi Yatsuda: Second question from Mr. Shimamoto of Okasan Securities. Shimamoto Takashi: I am Shimamoto from Okasan Securities. So first half of this fiscal year, what is your plan for sales? Actually, your sales growth rate is rather high. So what is the driver? Are there any special driver to increase your sales in the first half of the year, some deferred sales recognition or some orders whose delivery is pulled forward. Are there such special factors in this first half of this year? Toshiki Kawai: There are no special factors, just the AI servers, almost every week, our customers ask us to pull forward the delivery date. So that is a kind of escalation having positive impact of our business, and we are taking appropriate action to meet customer needs. So there are no such special factors. Rather instead, rather than first half of this year, customers want more products in the second half of this fiscal year. So current trend of the demand will support us to increase our sales. Shimamoto Takashi: One more question. For next year, so this kind of growth rate, do you think this level of growth rate continue in next year? How much expectation do you have? Toshiki Kawai: $150 billion to $170 billion is this WFE market size. So this is the quantitative expression of our forecast. But there are more positive factors to improve the WFE market. AI implementation will be accelerated. So the race for investment to AI will be getting more and more severe and NAND -- HBM is now having higher priority. However, NAND shortage might get more and more severe, then the customer may further increase investment to NAND, then physical AI R&D investment will be accelerating. So these are the positive factors to drive the market furthermore. And there must be the business opportunity, and we try to capture those business opportunities properly. Koichi Yatsuda: Thank you very much. So now we received the first question. So there are 2 more questions. So Mr. Shibano from Citigroup Global Markets. Masahiro Shibano: I'm Shibano from Citigroup Global Markets Japan. Thank you very much. Earlier, you talked about the current management midterm management plan. But next fiscal year, you are going to start the new midterm management plan. So in March, there are some changes in the leadership team because of the changes in officers. So now you are going to prepare the next midterm management plan as far as Mr. Kawai is concerned. What sort of focus area you have in your mind to be incorporated into the next midterm management plan? Which is the area which require the higher enhancement? Toshiki Kawai: Thank you very much. In our company, our vision is a company filled with streams and vitality that contribute to technological innovation in semiconductors. So in the future, the growing area includes patterning, device scaling and heterogeneous integration. So these are the major drivers to drive the technology innovation of semiconductors. The front-end process to contribute to the device sharing, that's where we are going to enhance our share. In addition, Advanced Packaging area, which require heterogeneous integration. In our company, bonder/debonder, laser lift-off technology and device blowers, so these are the products of our company for Advanced Packaging. That's where we want to address the market properly, and SAM must be improved furthermore. In that sense, film deposition application need to be increased. That's another area we need to work on. So current product lineup, we need to enhance share. Now etch market is rather big and we must improve our share in the etch market. In addition, Advanced Packaging area as well as served available market should be expanded. This is how we can enhance top line along with the growing WFE market. And we are going to launch high value-added products. So this is how we try to take actions. And in principle, this ongoing midterm management plan, this is not our final goal. So through aggressive business and proactive management, we are going to pursue very close profit margin. And our sales is growing furthermore, and we need to take or catch the business opportunities as much as possible. Koichi Yatsuda: The last question is from Qiu-san of Berenberg. Tammy Qiu: So has your 2027 visibility become higher than previously? As you don't usually give WFE estimation for year out previously, is $170 billion the base case for 2027, is that kind of covered by customer commitment already? Toshiki Kawai: Rather than customer commitment is a bit too much to say. So we have the very close communication path, and we are hearing from our customers, maybe this is the value what we can achieve. On the other hand, as you know, there are issues in the Strait of Hormuz. We must pay close attention to the development of the Middle East. So as far as customers' plan is concerned, I think $170 billion level of WFE market is achievable when I look at current customers' investment plan. Koichi Yatsuda: We have received some more questions, but it is time for us to close this conference. We will follow up the questions we couldn't answer today on our website in a few days. Lastly, we'd like to continuously improve our R&D activities based on your precious feedback. So we'd like to appreciate your kind cooperation in filling out the questionnaire survey before you exit the Webex. Thank you very much for taking time to join this conference despite your busy schedule today. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, and thank you for standing by. Welcome to the Prosegur Cash Q1 2026 Results Presentation. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Miguel Bandrés, Head of IR. Please go ahead. Miguel Ángel Bandrés Gutiérrez: Good morning to everyone, and thank you for joining today's call with Javier Hergueta, our CFO; and myself, will present our Q1 2026 results. The presentation should take around 20 minutes, in which we'll share the most relevant events that have taken place in the period for our business as well as our performance. Javier will review the period's highlights, key financials and our transformation progress, after which I'll share the main developments by region before Javier closes with conclusions and open the Q&A session. Should we not get to respond to everything in this session, we'll get back on any open topics on an individual basis. I want to again thank you all for your attendance. I remind everyone that this presentation has been prerecorded and is available via webcast on our corporate web page, which you can find at www.prosegurcash.com. But before we move to the financial results, I'd like to offer some context regarding the current landscape for the cash industry, which continues to show its resilience and the fundamental necessity our society has for cash. These pieces of information range from access to cash in Australia, the role of cash as a cautionary payment method in Europe, institutional protection of cash in Switzerland or the continued growth of cash in circulation in India. In the first news, we read from Business Insider that the European Central Bank advises holding cash is a key precaution to be taken in the current and growing uncertain environment in the Iran war, broader international tensions, cyber attacks, blackouts or multiple vulnerabilities in digital payment systems. This reminds us that cash is not only a payment method, but also a key element of resilience in moments of uncertainty. Next, as POLITICO Europe covers, Switzerland has decided to safeguard cash after a vote that has drawn broad international attention. This is yet another example of how both institutions and citizens continue to value freedom of choice in payments and the trust that physical money provides. Thirdly, the Monetary Brief from RBA Payments System Board states that authorities in Australia are reinforcing access to and distribution of cash. This is especially relevant for regional and remote areas and ensures that regulators continue to regard cash as an essential service that must remain available to all citizens. Lastly, moving to India, cash in circulation rose to a record level in January, increasing by 11% versus January 2025. This shows that in fast-growing and increasingly digital economies, cash remains highly relevant for everyday transactions and savings behaviors. All these cases emphasize the unique attributes of cash and its vital role for social and financial inclusion. As a market leader, Prosegur Cash remains dedicated to managing this essential infrastructure in close coordination with central banks and financial institutions. With this overview of the cash environment, I would now like to hand it over to Javier, so he can share with us the main highlights of the quarter. Javier Hergueta Vázquez: Thank you, Miguel. Good morning to everyone, and thank you as well for attending. The first quarter of 2026 has been a solid start to the year for our company. Despite an adverse foreign exchange environment, we have been able to deliver strong net profit growth, continue accelerating our transformation and reduce our net debt. All of this once again demonstrates the resilience of our business model. Our top line has shown organic growth of 3.2%, with Europe posting a positive 3.6% trend and building on past quarters. However, this good operating performance has been offset in euro terms by a negative 6.6% foreign exchange impact and a slight 0.2% inorganic effect, with which sales declined by 3.7% to EUR 497 million. Argentina continues to suffer very slow consumption, as we have shared in previous calls, due to the balancing policies the government has set in place. Despite the above, our EBITDA margin has remained broadly stable at 17.3%, in line with the 17.4% reached in the first quarter of 2025. EBITA margin stood at 11.3%, while net profit increased by 8.1% year-on-year to EUR 26 million, showing an improvement in the lower part of our P&L. Regarding Transformation, we continue to advance at a strong pace. These products grew by 6.2% and now account for 36.4% of total sales, 340 basis points more than in 2025. Cash Today continues to be the key driving force of such growth in the period. In terms of cash generation, free cash flow totaled EUR 6 million in the quarter. This has been achieved with lower working capital use than in 2025 and has allowed us to reduce LTM net debt by EUR 47 million. Lastly, I would like to mention the sale of the AVOS in Argentina and Paraguay as well as the cancellation of treasury shares following the buyback process, both of which are relevant milestones of the quarter. I want to underline that we are very closely monitoring the evolution of current geopolitical and strategic tensions, which can have an impact in our business. Despite this is yet to fully materialize, we can already observe an increase in fuel prices that we are in due course passing to tariffs and that should have a marginal net effect, while we have to follow the potential impact on fuel supply chain for which we had already set in place contingency measures such as building fuel reserves. On the other hand, we see that inflation is in an upward trend. This inflationary environment, if it is to stay, will have a positive impact in the speed of cash being used and hence, in our volumes despite lower economic growth. As well as we have read in the news, this growing uncertainty favors the role of cash and its resiliency to the system. As said, different levers that should have a net positive impact are to be monitored. In this context, continuing to control debt and focusing on growing sales to improve our profitability are critical. With this overview, let me now go into the financials in more detail. First, looking at our income statement, revenue reached EUR 497 million in the quarter. As shown on the right-hand side of the page, organic growth stood at 3.2%, while inorganic perimeter had a limited negative impact of 0.2%. Foreign exchange, however, negatively affected us by 6.6%, hitting Asia in a particularly strong manner. When adding all these effects, reported sales decreased by 3.7% year-on-year. EBITDA totaled EUR 86 million, and the margin remained broadly stable at 17.3% of sales, just 10 basis points below the level achieved in the first quarter of last year. Together with depreciation of EUR 30 million, this brings us to an EBITA of EUR 56 million and a margin of 11.3%. Further down the P&L, amortization of intangibles reached EUR 5 million, resulting in an EBIT of EUR 51 million, equivalent to 10.2% of sales. It is also important to note that the financial result improved significantly from EUR 12 million in the first quarter of 2025 to EUR 6 million in the current period. This allows us to reach an earnings before taxes of EUR 44 million, a 2.5% increase year-on-year and to improve our EBT margin over sales to 8.9%. Taxes totaled EUR 19 million, slightly below last year in absolute terms, and the tax rate shows a very positive 300 basis points decrease to 42%, result of active tax efficiency actions as well as an improved tax country mix, which we aim to sustain during the year. With all that, net profit reached EUR 26 million, growing 8.1% versus 1 year ago and representing 5.2% of sales. Consolidated net profit totaled EUR 25 million, up 7.8%, while earnings per share reached EUR 1.68, 8.6% more. I would like to underline the strength of our P&L, especially in the lower part, where the improvement in financial result and tax rate has allowed us to continue increasing profitability for our shareholders despite continued foreign exchange headwinds. Moving now to our cash flow and net debt position. This quarter reflects our consistent disciplined financial management. Starting from the already shared EBITDA of EUR 86 million, provisions and other items deduct EUR 20 million, while tax and ordinary profit amounts to EUR 20 million. Investment in CapEx totaled EUR 22 million in the quarter. A key positive development in the period has been working capital. Its use decreased to EUR 18 million from EUR 40 million in the first quarter of 2025. Thanks to this improvement, free cash flow totaled EUR 6 million, slightly above the EUR 5 million achieved 1 year ago. The conversion ratio stood at 75% and remains at a strong level, especially for demanding first quarter. After interest payments of EUR 10 million, positive EUR 15 million M&A inflows and other minor items, total net cash flow for the quarter was positive by EUR 7 million, a significant EUR 25 million improvement over the same period of last year. Our net financial position improved from EUR 711 million at the beginning of the quarter to EUR 700 million at the end of March. Including IFRS 16 debt, deferred payments and treasury stock, our total net debt stands at EUR 845 million with our leverage ratio at 2.4x. It's important to note that we've achieved a total net reduction of EUR 47 million over the last 12 months, once again, reflecting our disciplined approach to capital management. With this, let me move now to Transformation. Looking into Transformation, I'm very pleased to share that these products continue to grow their relevance and now represent 36.4% of total sales. Revenue from Transformation Products reached EUR 181 million in the first quarter, which is a 6.2% increase versus the same period of 2025. And this all despite as well being negatively affected by currency depreciation. This performance has been supported by a strong contribution from Cash Today. These solutions continue to receive strong customer acceptance across markets. Penetration over total sales has increased from 33% to 36.4%, implying a 340 basis points year-on-year improvement, clearly showing our transformation is advancing at a fast pace. With this, I would like to pass over to Miguel, so he can share with us the key developments in our regions. Miguel Ángel Bandrés Gutiérrez: Thank you, Javier. I would like to start with Latin America, our main region, which accounts for 58% of sales. Revenue in the region totaled EUR 291 million in the first quarter of the year. This implies a decline of 7.4% versus sales achieved a year ago, driven fundamentally by an adverse 8.9% foreign exchange effect. It's important to note that underlying organic growth has remained positive at 1.5%, again, despite the strong halt that Argentina's consumption continues to experience. Transformation Products have also had a very positive quarter. They grew by 5.5% to over EUR 117 million, despite the adverse currency environment and the penetration increased from 35.4% to 40.4% of sales, a significant 500 basis point improvement year-on-year. This development shows that Latin America continues to be a key region for the deployment of our value-added solutions and the customer adoption remains strong. Turning now to Europe that accounts for 32% of group sales. Revenue reached EUR 161 million, 3.6% more than a year ago. This growth is backed by a strong 3.8% organic growth despite a still hesitant economic activity and has had a limited 0.2% negative foreign exchange impact. It's encouraging that the positive trend in Europe continues to strengthen, confirming the good commercial momentum we've seen in recent quarters. Transformation Products in the region grew by 9.1% to EUR 53 million, and the penetration increased from 30.9% to 32.6% of sales, a 170 basis point improvement year-on-year. Europe is, therefore, contributing not only with growth, but also with a higher share of transformation sales that provides a balanced, higher quality growth profile for the group. I'll now turn to Asia Pacific, which represents 9% of group sales and continues to show very attractive underlying dynamics. Reported sales in the region reached EUR 45.3 million, a 2.6% decline versus a year ago. However, this figure is fully explained by a 12.9% foreign exchange impact and a 2.3% inorganic effect, while underlying organic growth remains strong in mid-double-digit territory at 12.6%. Operations in the region continue to evolve very positively with outsourcing opportunities being captured together with growing demand for our services, far outpacing local GDP growth. Transformation Products were broadly stable in reported euro terms at EUR 10.9 million, down 0.6% year-on-year. Excluding currency effect, they, however, have increased by 5.1% and penetration has improved by 50 basis points from 23.6% to 24.1% of sales. The region continues to offer significant growth potential in both the core business and our transformation solutions. Thank you for your attention, and I'll turn back to Javier, so he can summarize our main conclusions. Javier Hergueta Vázquez: Thank you, Miguel. I would now like to summarize our main conclusions. The first quarter of 2026 has been a good start to the year in which despite foreign exchange headwinds, we have delivered net profit growth, continue to accelerate our transformation and reduce our net debt. Reported sales declined by 3.7%, but organic growth was positive at 3.2%, and Europe maintained a particularly good trend at 3.6%. Asia Pacific also continues to show strong underlying growth; while Latin America, again, with the exception of Argentina, remains resilient in organic terms. At profitability level, EBITDA margin remained stable at 17.3% and EBITA margin reached 11.3%. Most importantly, net profit grew by 8.1% to EUR 26 million, emphasizing the behavior of the bottom part of our P&L. Transformation continues to be of growing relevance for us, having grown these products by 6.5% to EUR 181 million and now representing 36.4% of total sales, 340 basis points more than 1 year ago. Cash Today continues as a key growth driver. Cash generation has also been positive with EUR 6 million of free cash flow in the quarter as a result of improved working capital. This cash generation has led to a EUR 47 million reduction in LTM net debt, which results in leverage remaining within our comfort range at 2.4x. Additionally, during the quarter, we completed the sale of AVOS in Argentina and Paraguay that will continue to allow us to focus on our growth verticals. As well, we proceeded to the cancellation of treasury shares following 2025's buyback process. Thank you very much again for your attention. And now we would like to open the line to your questions. Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Enrique Yáguez from Bestinver Securities. Enrique Yáguez Avilés: The first one is about Argentina. Do you foresee any sign of sequential improvement this second quarter in terms of organic evolution? And I don't know if you could disclose what would have been the organic evolution in LatAm excluding Argentina? Second is about the sale of AVOS Argentina and Paraguay to the parent company. Could you disclose the impact of the revenues and EBITDA last year, just in order to have those impacts in the model? Third, about the working capital consumption. I know that first quarter is usually very negative due to seasonality, but we have seen more than a 50% reduction. Do you foresee this reduction sustainable or should we reverse in the coming quarters? And finally, if you could quantify how much the fuel cost represent over your total OpEx? Javier Hergueta Vázquez: We'll take the questions one by one. In relation to the first one on Argentina, despite the recovery being slower than initially anticipated and consumption still being low, we are starting to see some signs of improvement in April at the beginning of Q2 coming from some changes in the monetary policy in the country. Although we anticipate that, that recovery will still be at a lower pace than initially expected, but we are starting to see some signals then. And when we look at the picture ex Argentina in Latin America, what we see is a mid-single-digit growth in organic terms and also growth in euro terms close to that mid-single digit, which also is the same at the group level, not only in Latin America when we exclude Argentina out of the picture. In relation to the AVOS divestment, what you could expect is an impact in terms of revenues of around 1.5% to 2% on a 12-month basis, meaning that part of the impact you will see in 2026 and part of it in the first quarter next year. And in terms of margins, this transaction is accretive because the margins in the AVOS business is below the average margins of the group. When it comes to working capital, basically, I mean, we are seeing here the impact both from a strong focus on management our DSO and DPO, which has been reduced again in Q1 and also lower organic growth than in previous periods in Q1, so that explains a reduction that you've seen in the numbers. But in any case, as you pointed out, I mean, this tends to be seasonal. And at the end of the year, it tends to revert to lower levels. So we understand that the lower levels will remain for the later part of the year. And fourth question, not sure if I got it right. I think you mentioned the operating cost with... Enrique Yáguez Avilés: No. The fuel cost, how much... Javier Hergueta Vázquez: Fuel cost. Okay. Got it. Yes. Well, so I mean you know that fuel is one of the main cost components, of course, after labor, which is the biggest one for us. But what we're seeing here is that the increase that we've been experiencing since the rise in the geopolitical tensions, we are passing on to tariffs, so that's working in that front quite well. The other front, which we are working on is on preparing ourselves for potential stock-outs or disruptions in the supply chain. So we are adopting measures by making available additional deposits, flexible approaches to that just in case it happens, which is not clear if it is the case or not, but just in case it is. So for the time being, I mean, we feel it is pretty much under control. Operator: [Operator Instructions] We will take our next question, and the question comes from the line of Manuel Lorente from Santander. Manuel Lorente Ortega: Yes. So probably my first question is on Europe. We have seen somehow an acceleration in terms of top line growth, both at the core underlying business and transformational business with good and healthy plus 9%. So my question is whether you have winning a new contract, new clients or what is the reason behind that, let's say, improved backdrop? Javier Hergueta Vázquez: Well, I would say that the growth trend that you're seeing in Europe, which is on the 3.5% range more or less, it's quite in line with what we experienced at the latter part of last year. So it's continuing on that front. And that is, as you say, a result of both the Transformation Products and the core business performing in good shape. This is all despite a slower start, a bit slower start of the year in the ForEx business. It is true that the comparable base was not as demanding in Europe in Q1 as in other geographies, and it will be more demanding in the coming quarters. But we feel that given those are also the strongest periods for the ForEx business, we should be able to maintain the same growth pattern across the year. And I would say that it's the result of many customers performing well. There's not any special big contract. I mean, we've won some interesting contracts at Cash Today, which is performing very well. But I think it's the combination of a very good health all across the business in the region. Manuel Lorente Ortega: Okay. And then probably my second question is on the free cash flow line, especially on the provisions and others line. Working capital has improved very well in the quarter as you highlighted. But on the other front, provisions increased roughly EUR 15 million year-on-year. Is there any explanation on that? And how should we expect that line to evolve throughout the year? Javier Hergueta Vázquez: In that one, Manuel, what you see is mainly the combination of 2 factors. One is we've had some more cash outflow coming from payments on redundancies and some more losses or casualties in Q1. And on the other hand, the timing of some refunds mainly linked to taxations has been different. Those were coming in, in Q1 last year and this year, they're coming later in the year. So that part, that second part, should be neutralized or reversed throughout the year. So overall, the net evolution of it should tend to be more in line with what we had last year. Manuel Lorente Ortega: Okay. And just to finalize then, Q1 results were somehow supportive in terms of volumes and pricing, materially offset by FX headwinds. What do you see for the rest of the year? I mean this is going to be a year, to some extent, of limited top line growth and a more healthy bottom line expansion in a context of improved free cash flow? Or do you see room for acceleration in top line throughout the remainder of the quarter that might lead to, let's say, some top line growth at the end of the year because I'm seeing consensus and consensus is pointing to a very flattish revenue and EBITDA for the year, probably on FX? Javier Hergueta Vázquez: So I would say that the year has started quite in line with what we expected. So we were already aware that there was a tougher comparable base in Q1. Then trying to look ahead of us for the next 3 quarters, I think there are a number of factors on the table right now, which are difficult to ascertain. I mean, we have a geopolitical tension that was not there or at least not in such an intensity a couple of months back. We have to see what happens with the FX and also the expected evolution in Argentina, where, as I mentioned, there are some signals of recovery, but it will be quite gradual. So putting it all together, it's hard to say, I mean, how each piece will be evolving. But assuming that there's nothing too disruptive on that, I would say that the consensus as of today in terms of EBITDA, which is EUR 250 million-plus, sounds like a reasonable figure to me. But as I said, I mean, we'll have to see how things evolve because part of that is out of control for us, and on the rest, we are managing it as much as we can. And as I said, excluding Argentina, if you look at Q1, organic growth is at mid-single-digit levels, which, if the comparable basis starts to help, could be a reasonable target for us. But let's see how things evolve, especially the ones that are out of control in the coming quarters. Operator: [Operator Instructions] There seems to be no further questions at this time. I would like to hand back to the speakers. Javier Hergueta Vázquez: Well, thank you, everyone, for taking the time to join today's conference call. Should there be any further doubts or queries, as usual, our Investor Relations team remains available. And in any case, hope to speak again soon to all of you, and in any case, in the Q2 results presentation. So thank you very much. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: It is now the scheduled time. We will begin the Kansai Electric Power Company Fiscal 2025 Financial Report and Fiscal 2026 Management Plan Investor Briefing. Please allow me to introduce our participants. Mr. Mori, CEO. Nozomu Mori: This is Mori. Thank you very much. Operator: Mr. Tanaka, Executive Vice President. Tanaka Toru: My name is Tanaka. Thank you very much. Mr. Kikuoka, Executive Officer, Office of Accounting and Finance. Masafumi Kikuoka: Hello. Thank you. Operator: First, CEO, Mori, will give his presentation first. Nozomu Mori: So I'm going to start my presentation. This is Mori. Thank you very much for joining us today for our company briefing. Yesterday, we announced our results for fiscal year 2025. We posted consolidated revenue of JPY 4,056.6 billion and recurring profit of JPY 518.5 billion. This represents a decrease in both revenue and profit from FY '24. For FY '25, the dividend remains unchanged from the revised forecast announced at the second quarter. We will pay an annual dividend of JPY 75 per share. Looking ahead to fiscal year 2026, we expect a recurring profit of JPY 290 billion. This represents a decrease of JPY 228.5 billion. The main factors for profit declines are foreign exchange movement, fuel price fluctuations, lower nuclear capacity factor and higher costs. These include inflation-driven expenses and increased maintenance and construction costs. Although earnings conditions remain challenging, we will continue steady investment. This includes maintenance investment for safe and stable supply and disciplined growth investment for the future. For FY 2026, we plan to -- an annual dividend of JPY 80 per share. This is an increase of JPY 5 from FY '25. Last October, we presented the status of our new management plan. Since then, we have engaged in dialogue with shareholders and investors, incorporating the feedback we received with further discussions. Yesterday, we announced Kansai Electric Power Group Management Plan 2026. Looking towards 2040, our group aims to prioritize safety above all, lead Japan's energy sector and go beyond Kansai Electric Power to provide a vital platform for a sustainable society. The environment surrounding us is changing rapidly. Geopolitical risks, inflation, rising interest rates and the population decline are progressing simultaneously. At the same time, DX and AI are transforming industries. Power demand is also likely to increase over the medium to long term. In such an era, a vital platform for sustainable society is essential to support the Japan's growth in people's daily lives. At the core of it is energy. While decarbonization remains a major trend, we believe that energy security, stable and secure supply is now more critical than ever. While achieving S+3E simultaneously is a fundamental prerequisite. elevating its delivery to meet the demand will support Japan's sustainable growth. In addition to energy and transmission distribution, we will expand into ICT, real estate and new businesses to provide a vital platform for sustainable society. Beyond the Kansai and Electric Power, we will deliver new value to customers and society in a timely manner. As one group, we will advance the strengthened KX Kanden Transformation towards 2040 and realize our vision for 2040. We will implement disciplined investments totaling JPY 15 trillion on a cumulative basis by 2040. Across the group, we aim to secure a ROIC WACC spread of 100 to 150 basis points. We will also take immediate action to strengthen balance sheet management, human capital and supply chains. The next 3 years are period to accelerate growth towards our vision. Continuous investment is essential for businesses that provide a vital platform for sustainable society. While building new facilities takes time, 2040 is not a distant future. Although earnings conditions remain challenging from where we are, we will, with a long-term perspective, steadily move forward with investments for safe and stable supply as well as disciplined growth investment. For that, we will generate over JPY 380 billion in cash through asset recycling, including the divestment of our shareholdings. This will enable us to balance investments to shareholder returns. From FY '26, we will revise our shareholder return policy. We will target a consolidated payout ratio of 25% to 35% and to maintain or increase dividends. More than JPY 270 billion is to be returned over the next 3 years. We aim to achieve key targets, including ROE of over 8% on a 3-year average. Together with our diverse stakeholders, we will create new value, share empathy and growth and achieve sustainable enhancement of corporate value. That concludes my presentation. Operator: Next, Mr. Kikuoka, General Manager of Accounting, will explain the details of the financial results. Please refer to the materials in front of you or the projector. Masafumi Kikuoka: This is Kikuoka. I will provide supplementary explanations regarding fiscal 2025 fiscal results. Please go to Page 4. We have generally achieved the financial targets for fiscal 2025 set out in our midterm management plan. Page 5. The projected figures for fiscal 2026 based on earnings forecast for each of the financial goals outlined in the Management Plan 2026 are shown in the table below. Please go to Page 8. Track record of growth investments for fiscal 2025 totaled approximately JPY 185 billion. Although the actual results fell short of projected JPY 300 billion, this was the result of thoroughly reviewing each project and making investment decisions with the aim of achieving the expected returns. Please go to Page 14. These are major factors for fiscal 2025. Retail electricity sales volume amounted to 116.3 billion kilowatt hour, an increase of 800 million kilowatt hours. Electricity sales volume to other companies decreased by 4.6 billion kilowatt hour. Nuclear capacity factor decreased by 4.4% to 84.1%. Two lines below is Japan CIF crude oil price, which decreased by $11.0 per barrel to $71.4 per barrel. Exchange rate was JPY 151 to $1, appreciation of JPY 2. Please go to Page 15. Ordinary profit by segment increased year-on-year on all segments, except the Energy segment. I will explain only about the Energy segment on the next page. Please go to Page 16. Profit decreased by JPY 33.9 billion year-on-year to JPY 377.3 billion for Energy segment. This is due to negative impact resulting from a decline in nuclear capacity factor and increases in other expenses and maintenance costs despite the positive impact of increased profits from lower fuel prices. Please go to Page 2022 -- Page 22. This shows the financial forecast. Major factors on fuel prices incorporate the situation in the Middle East. Page 23. We expect consolidated ordinary profit for fiscal 2026 to be JPY 290 billion, a decrease of JPY 228.5 billion. The main factors affecting this are decrease in nuclear capacity factor due to prolonged large-scale maintenance works. increase in fuel costs due to the Middle East situation. The third is due to factors such as inflation and an increase in maintenance work. We anticipate an increase in corporate maintenance costs in Energy and T&D segments. While the situation in the Middle East remains unpredictable, if fuel prices rise more than anticipated, our fiscal year 2026 results will be further impacted by time lag-related losses. We will, therefore, closely monitor the situation and update our outlook as necessary. This concludes my part. Operator: Thank you. Next, Executive Vice President, Tanaka, will explain the management business -- management plan 2026. Please take a look at the Kansai Electric Power Group Management Plan 2026 or the trajectory in the front. Tanaka Toru: So I am Tanaka. I will provide additional details on the management plan 2026. Page 24. This page shows the cumulative capital allocation from fiscal '26 to '28. 2040. So this is placed as a Merck mile. This is not the endpoint. So this is a vision we have towards 2040. And there's no time to wait when it comes to investment for advanced KX Kanden Transformation toward 2040. We'd like to grow together with the Japanese industry. We are serious. And therefore, please allow us to accelerate investments so that we can grow alongside Japanese industry. To that end, of course, we will pursue upside in the operating cash flow. But on top of that, we plan to generate cash through asset replacement and steadily execute a total of JPY 2.5 trillion of investments over 3 years, JPY 1.5 trillion for maintenance investments to ensure safe and stable supply and JPY 1.0 trillion for growth investments. Naturally, we have no intention to make investments with that spread. We want to secure appropriate level of spread. And therefore, we would like to make disciplined investment that carefully assess profitability and business risks. we need to make investment to be able to secure this level of spread. And as for shareholder returns in the coming 3 years, we would like to provide shareholder returns of at least JPY 270 billion over the next 3 years, and we'll strive to maintain or increase dividends. Please go to Page 25. This is about asset recycling initiatives. So we cannot be optimistic. And therefore, we will do asset recycling and generate cash. And this is how we want to go about in our real estate business, I talked about this in the IR Day last December. We would like to increase the proportion of assets subject to asset recycling and aim to recycle more than JPY 550 billion in assets over the next 3 years. And we are thinking overseas JPY 50 billion and others, and we do believe that we will be able to achieve that. So holds JPY 300 billion. And on the 27th on Monday, we announced the notice of tendering shares and the tender offer for own shares by Kinden Corporation. This was a homework for us that we had held, and we have been talking about this constantly, and we have made this announcement for the shares we own, we will look at the market situation in the coming 3 years. We plan to divest at least JPY 380 billion, including Kinden shares this time. Please go to Page 26. This shows the illustrative impact of growth investments. I believe you can see the differences in the characteristics of each business, particularly the time it takes for profits to materialize. And in domestic energy sector, where projects have long durations, it takes 20 years or so to recover. And there's real estate and ICT below where you can recover in a short period of time. So by combining them, we would like to achieve growth. Furthermore, for domestic energy sector whose duration is long, we would like to choose the appropriate financing instead of just focusing on corporate financing, we will be engaged in joint development and capital recycling to accelerate profit generation and improve capital efficiency. And this was a short presentation, but this is all for me. That concludes our explanation. Operator: We will now take questions. First, we will take questions from participants in the room and then from those joining via Zoom. When asking a question please first state your company name and your name. Now we would like to take questions from participants at the venue. Can you raise your hand? Norimasa Shinya: I am Shinya of Mizuho Securities. I have 2 or 3 questions, please one by one. So on Page 5 of the financial results presentation, you are showing your guidance for this fiscal year and your management plan KPI. The President has been saying the next -- the 3-year is going to be a challenging period. You have been repeating that. So you have been given us some level of warning. But in terms of recurring ordinary income, the numbers look more challenged than what I had expected. So for the net profit and ROE of 8% and more, by looking at, I think that you are expecting to book some of the profit from the sales of assets to achieve a net profit. But in terms of ordinary profit, the target seems to be rather challenging. So after the adjustment of time lag, your profit is going to be lower on a 3-year average. So I would like to ask what your -- the assumption is and background is. And towards the later part of the management plan, outside of the non-energy -- sorry, nonenergy businesses, for real estate and ICT, you are showing some aggressive ambitious target for profit for international real estate and communication, you are showing us an ambitious profit target. But it seems as if you are taking a rather cautious approach for your energy business, your power generation and the sales in T&D. By looking at the ROIC target, I don't think your target is that bad. But for the next 3 years, mainly in your energy business, it seems -- I get the impression you are expecting rather challenging business environment. And I think you do have some assumptions for the capacity -- nuclear capacity factor, too, but can you share what your thoughts are? Nozomu Mori: Thank you for the question. Yes, as you mentioned, I have been saying we will be facing some more challenges in our businesses. And this time, if we are going to put that in our language, this comes to the guidance we are showing you now. If I look at the details of various factors, we could not really we -- naturally, we came to this kind of conclusion. Of course, I personally wanted to show higher profit target. But as we are seeing the decline in nuclear capacity factor, and we are seeing the increase in the energy cost now and with the higher inflation, maintenance kind of works we are implementing now the cost for them are having more negative impact to our profit than we had initially expected. So including those factors, we are now showing you the outlook. However, we will be taking necessary measures to achieve growth in the future. So even though we will try to make our business structure more lean, we will be focusing more on balance sheet, and we will be focusing on generating more cash. So we will do our best to make improvement as much as possible. And as time goes by, by looking at how -- what kind of progress we will see, if there are revisions or changes needed, we will adjust our plans. But as of now, with certain assumptions, we are showing you the outlook. Tanaka Toru: So I can add some more information about some of the numbers. Can you look at Page 23. So this is a comparison against the 2025. As shown here, from 2026 over the next 3 years, as we will have the 7 nuclear reactors, we will try to improve nuclear capacity factor to improve our profitability. We will implement the work for next 3 years. So it will be -- we will have a concentration of the maintenance work. And for the foreign exchange adjustment, prices, it is still uncertain what will happen to the Middle East situation. But until the fuel cost stabilizes, JPY 66 billion for FY '26, we will need to assume that kind of impact. But once it stabilizes, most of that will be seen in time lag. So we should be able to collect that in FY '27. And other than that, as Mori-san mentioned, there will be an increase in other cost items and the maintenance-related cost. As you can imagine, we are seeing impact from inflation. But as for our nuclear business, the maintenance work will be a rather long period. So we -- as we implement the thorough maintenance work, we are going to enhance our maintenance. So there will be an increase in the volume of maintenance work. And for our thermal plants. So for coal and LNG, thermal plants, in order to avoid long-term shutdown, operational shutdown, we are also going to enhance our maintenance work, too. So as of these cost increases, of course, there will be some impact from inflation, but we are going to make sure that there will be enough maintenance work done over the next 3 years. And for our T&D business, including our expenses, there will be some impact from higher inflation, but there will be a replacement of a tower. When we were achieving the high economic growth, there was a concentration of construction. So there will be a certain level of CapEx included there. So we will just make a steady progress to implement these plans that those are all included in our CapEx plans. Norimasa Shinya: And my second question is as you are going to face some difficulty over the next 3 years. So that means when do you -- when do you think will be the time where you can pursue to improve your profit or grow your profit? So I think you will be preparing yourself to improve your profitability later on, and there will be a JPY 2.5 trillion of investment, including replacement and growth investment altogether. So including the returns coming from those investments, you will be going back to your profitability and try to further improve your -- the improvement -- your profitability with the investment, when do you think that can happen? So on Page 25, your -- the management plan, I think Tanaka-san had explained about this. So the profitability and the returns from the investment in each sector, I think you are giving us some hint of what kind of returns you are expecting. But beyond medium-term plan in 2028 or '29 to '30 with the higher capacity utilization, you are going to see an increase in the profit. And in the early 2030s, you will -- are you expecting to benefit from the returns from the investment? Is that the kind of time frame you have in mind? When do you -- or does Mori-san think when you can achieve the growth in your profit? Nozomu Mori: Thank you for the question. So for the next 3 years, in terms of the profit, the numbers will look quite challenging. So if we look at the numbers, they look -- remain sluggish. We call it a plateau situation internally. And we may say these numbers are not meeting your expectation. But beyond next 3 years, we will start to generate more return with the better turnover. As for large-scale power generation investment that will take place further out in the future. But there will be some of the investment that can generate the more profit before that. So we will start to make investment for those over the next 3 years. As there are so many centred factors, next 3 years can be the only visibility we can show. But beyond the next 3 years, we are expecting to present some returns from these investments. From the past, everybody has been asking us what our normalized profit level is. So our intention is to bring our profit level back to a normalized level that should happen over the next 3 years. Norimasa Shinya: And my third question is about the dividend and shareholder returns. I understand the profit situation is challenging. But as of your dividend, you may send us clear message and you are expecting to increase your dividend per share. So do I understand you're more catered toward increasing your dividend? You are saying you will either maintain or increase dividend, but what is your intention? Nozomu Mori: Yes, what you said is correct. So the profit we can -- profit outlook we can show is as it is. But in order to achieve our vision for the future and as we as we try to get understanding from our shareholders of what we are going to do to achieve that. So now we are going to increase our dividend per share to JPY 80. We think it's appropriate to increase our dividend per share to JPY 80. There are different perspectives. But as of our dividend policy, we have been presenting our policies. And if we think about our policy, we would like to show JPY 80 per share to be a start line. Operator: Next, Yamazaki-san, please. Shinichi Yamazaki: My name is Yamazaki from Nomura Securities. And I have 2 questions I would like to ask you. First, that investment timing, this time, you are planning to make JPY 1 trillion of investment for growth. Is this evenly distributed? Or is it -- is there going to be more weight on the latter years? Is it going to increase year after year? And also, the asset replacement initiative. And you will be taking initiatives here to generate more cash. And what is the timing you're assuming? Asset replacement, asset recycle, you will be doing that in the beginning and then generate cash and then make investments later. That's what I assume. But how should I think about the timing? So this is my first question. Nozomu Mori: So I would like to give a response. As for the timing or the schedule of investment, the forecast of investment, already for thermal power replacement, this is a large-scale investment that is required. And we have already started taking initiatives here. We are doing this already in Aramco. And after that, there will be another replacement. And so large-scale growth investment will start one by one. And nuclear power as of now, we need to change the steamer. We are doing a major investment, and this is a maintenance investment that we need. And this is the current needs. Going forward, the investment in power source, we have multiple ones coming up, and that's what we are assuming. Therefore, in that sense, it's very big in the beginning, too, but it will increase and that trend will continue. And as for asset recycle, so it's not a question of which comes first. But at each timing, we will do what we can. So we will capture the best timing to do the asset recycle. So there is a Kinden case as well this time. And including this, we will take the opportunity. And it's not that we have the order in place already in our mind, but we will take the opportunity as they arise. And as for the investment amount, it's significant amount. Thinking about gas turbine alone, it's like for multiple hundreds of billions of yen. So with difference in a few months, it could go into the next fiscal year or so. And that has happened in the past as well. So it's not something that we can control in a stable manner. There's inflation as well. So we are thinking 3 to 4 years' time span. Otherwise, it's very difficult. It's difficult for us to say specifically which year we will be making investment. As for overseas energy business, there's bidding, and it's a few tens of billions of yen. So we have no intention to not be able to secure a spread. So of course, there has been cases where we had to give up in participating and that may happen in the future as well. So I think it's very difficult for us to be able to control cash every year for taking that policy shareholding. If we are negotiated or discussed with the counterpart or even if we are not, we will -- our shareholders that own within the 3 years. So this is where we have better control. The debt financing, it's a significant amount as shown in that chart. And that may be erasing everything. So this is my answer, but did this answer your question? So in terms of the level for the coming 3 years, growth investment, maintenance investment. So there's not much fluctuation between the 3 different years. We are assuming similar level of investments for the coming 3 years, roughly. Shinichi Yamazaki: And my second question is -- so Shinya-san just asked the question and expenses and maintenance costs are increasing. So putting aside maintenance, there's impact coming from inflation. I think it's the same for every company. And against such a backdrop, passing on the price, what are the measures you are going to take in some of the companies, they are doing it in a different form, but they're reviewing the electricity fee, and they are trying to cover that inflation with that. So if the profitability is difficult, is challenging in the coming 3 years, maybe you need to take such actions. And what is your thought on the inflation? And also, this is an issue that has existed from before, but Iranian situation. And because of that, the regulatory price seeming as a result, every few years, some issue like this happens. So what are your thoughts? Maybe you need to make improvements or revise prices. So what is your thought on this topic? Nozomu Mori: So impact of inflation. First of all, we need to analyze the impact of inflation. We have a rough image, but we need to understand much more in detail to be able to decide what we can do. So we'd like to continue to reduce costs with whatever we can and also the services we are offering in many ways, including value add by delivering value to customers, we will be the one to be chosen by customers. And I think it's difficult -- important for us to create such a cycle. And so we do believe that we will be able to increase profits as a result and price hike. So this is a regulated price. And understand that this is being deliberated in the National Committee. So of course, demand is very important. But putting that aside, this temporary measure by when this should be -- price hike should be implemented. This should be -- continue to be deliberated with the liberalization, the system is established and this price is remaining still. So at some point in time, discussion should be held thoroughly. And the policy should be decided by the government, I think, at some point in time. Operator: Next, please. Shusaku Nishikawa: Nishikawa of Daiwa Securities, asking 2 questions. So my question is extension of what Yamazaki-san mentioned. So I understand there's a regulated charges and you are not able to increase the price for low voltage, but for high voltage and the auto high voltage, the Kyushu Electric Power is already increasing it. And because you have the high mix of the nuclear power, and that's the situation with the Kyushu nuclear power and you're also facing inflation. So including the standard the menu, I do understand you are planning to increase the prices for the high voltage or the ultra-high voltage the charges to improve your margin. I should not be using the word price increases, but rebalancing the charges for the high voltage and ultra-high voltage. What kind of measures are you expecting to implement? And what kind of improvement can I expect? I talked about the Kyushu Electric Power, but when we look at the total electric power and true electric power, they are also talking about the shrinkage of a slight time lag on top of the high voltage in the ultra-high voltage. And because we are talking about slight time lag, we cannot ignore it because it should have certain impact to your accounting numbers. So the time lag to pass through the fuel surcharges adjustment. So are you thinking of revising that? Nozomu Mori: So for liberated the prices, each KEPCO companies are developing the schemes so that they can address the changes of the business environment. I understand that. But how we are going to set liberated price. we do need to have a good way to think about those prices. We cannot really specify what directions we will head to. But I think it's important as we will monitor what the other KEPCO companies do, we will compare our -- where we stand, and we will try to determine what kind of choices we should take. And please allow me, I cannot say when and what we will do. Shusaku Nishikawa: And my another question is the ROE of 8% that we are showing for your management plan. Can you tell me why you set that price and how committed you are and you are now saying 8% of ROE or more for 3-year average. Why did you determine 8% should be the 3-year average? What kind of discussion did you have? And you are saying the 3-year average of 8% or more. So are you saying after 3 years, the average should be 8%? Or are you aiming to achieve more than 8% every year? Or on a cumulative basis, if you are not able to achieve 8% ROE because of your profit level, by looking at your shareholder return policy, I don't think you will have other options to improve your ROE. So should I understand that you are going to implement some other capital measures or policies and that you are committed to achieve 8% ROE as a 3-year average? Nozomu Mori: For our target, if you are asking if we -- this is a committed target. As we are facing various uncertainties, so many uncertain factors, I cannot say we are committed to achieve this target. What we are saying is this is an aimed target. We will take on our challenges to get there. We wanted to present our intention with this target. Including our capital policies, we will try to improve our profit first to achieve our ROE target. That will be the basic principle. But we will always consider taking some kind of the measures in our capital policy to improve our ROE. So when we think about the next 3 years, we don't -- I said that we only have intention to accelerate our investment, and we will sell our Kinden shares and strategic shareholdings. Even with that, we need to accelerate our investment. And on top of that, we don't think there will be a case that we will lose our debt capacity. So we are not going to think about changing our -- the equity side. But if we don't have any opportunities to make investment, and then we will think about what we need to do because we need to be aware of our share price, too. But the fact that we prepared this plan this time, with the investment we will implement, we are going to achieve growth in the future. So by lifting our profit, we aim to achieve ROE of 8%. And you're asking me why 8%? I thought 8% will be the minimum level that everybody or investors and shareholders can be satisfied. This is the kind of investment discussions we have. Operator: Any other questions? Kamichika-san, please. Koji Kamichika: My name is Kamichika from SMBC Nikko. I have 2 questions. First, about the profit for -- during the 3 years. I'd like to deep dive into this. Profit-wise, you mentioned it's in a plateau. But on the other hand, you would like to aim for higher. And you also mentioned that. What kind of upside can we expect from the capital market? So could you elaborate on this? So from before, rebalancing is an option maybe? And other than that, what kind of potential upside could there be? This is my first question. And on top of that, and related to this, ROE, 8% in order to achieve this and also net profit, JPY 270 billion in average. So looking at equity capital, equity ratio, maybe your ROE is not enough, is not the level you can achieve, I think. So could you explain this? Nozomu Mori: First of all, basically, we want to improve our profitability. This is something we have been doing, and this will become more important going forward. First, what we can do right away is to reduce cost and improve efficiency of our business operation. So we'd like to be able to generate higher profits. As was mentioned earlier, the passing on the cost increase to the price, this is not something we are thinking of. Rather than that, we would like to make efforts ourselves to improve profitability. And the specifics, could you add anything? Tanaka Toru: So after calculation, maybe it's not sufficient. So I understand what you're saying. We understand that. But still, we'd like to aim for ROE 8%. And we'd like to accumulate profits to be able to achieve ROE of 8%. And Nishikawa-san's question earlier or it's related to what President Mori has mentioned. In the coming 3 years, we don't have the intention to stay in a plateau and just wait -- sit and wait. So T&D, ICT, real estate, energy, all the businesses for the investors as well as debt investors as well. We'd like to make the businesses investable. That's what we are keeping in mind. And based on that concept, we'd like to take action. So this is the prerequisite for growth, I think. This is abstract answer, and it's very difficult for me to say anything concrete. But we'd like to make our business investable and this is our intention. Koji Kamichika: I have one more question. This is about the forecast for next year, Page 23 of financial results. So minus JPY 16 billion decrease in electricity sales. Could you explain about this? So it's negative. So maybe competition is severe. But in the previous page, so total electricity sales is expected to increase. So what is the breakdown of negative JPY 16 billion? How should I understand the image of the breakdown? Tanaka Toru: So I would like to talk about the numbers. As Kamichika-san mentioned, Page 22, please take a look at Page 22. Retail is minus 2 and impact of temperature, fiscal 2025 comparing to that, it's minus 1.4 billion kilowatt hour decline and increase due to customer acquisition, it's positive -- increased by JPY 1.5 billion and also inspection time lag, negative JPY 200 million, and that is the result. So that is the intention. And also sales to other companies, it's plus JPY 108. It's a significant increase. And we have discussed about this internally, but it's difficult to explain the details because of competition. But JPX transaction value is expected to increase going forward and that is where the increase is coming from. But in terms of profit and loss, Page 23, retail decline in hour, that is generating impact. Operator: Are there any other questions? Reiji Ogino: I am from Morgan Stanley, Ogino Reiji. So I have the 3 questions. So for 2040, just like what the energy agency plan that shows, I don't think it's trustworthy because you cannot really foresee what will happen by 2040. I understand it's the same situation for you. I didn't expect this medium management plan to be such a long duration period. So we -- what we need is to see what your vision is for 2030 rather. You are now saying you're in the plateau situation. If we assume the plateau situation will continue for 3 years beyond the plateau, after you normalized the profit level going down. And without your growth investment, you can expect your profit to go back. But then you can -- if you say your profit will be in the plateau situation for 3 years. So by 2030, I understand there will be several years where you will need to implement some investment works for the nuclear power plant. And then if you are showing us what your assumption will be for 2030 and if you can present your expected ROE for 2030, I will have a better understanding of what I am about to ask. So you're saying next several years, you're going to face challenges as you are in the plateau. And you said 15 years later, you are going to improve your profit. I don't think that is trustworthy or that's meaningful. Nozomu Mori: So if we have a vision for 2030, we will be sharing that today. But after going through various internal discussions, and we also discussed what we are going to achieve, and then we are presenting what we have concluded. And so as we look at what we will do in the future, we decided to show what our vision for 2040 will be. And if you are not satisfied with that, we can only share what our outlook is for the next 3 years. Reiji Ogino: I don't think that's sufficient. So because you are now in the plateau situation, and we don't really know what will happen after that we are not sure if you're okay. So if you're going to see the recovery after you get out of the plateau, you are not saying at what level of the increase you are going to see, and you are saying that is the right way of presenting your outlook. I'm not saying that this is right. No, if you -- can you show the number by the time you announce your first half results, your -- this should be your task to do your analysis, okay. So as a company, you should be despising information. So you should be sharing what your -- the results of the analysis is for investors. It's not really a task of the sell-side analyst. Nozomu Mori: So as Ogino-san said, what you are saying and what other investors and shareholders are saying really they are meaningful to us, we do listen to what everybody is saying. Reiji Ogino: So what I am asking is, please show us as a reference what your outlook for 2030 is and what you are going to do to get there over the next 3 years? That is my first request. And my -- the second part of the question is your outlook for the next 3 years. So in your management plan, you said you're going to use your cash for investment and the shareholdings and the Kinden share. Even without your growth investment, these are things you should be doing. That should be the message of the equity market. But I get the impression you are going to do this because you are going to implement the growth investment. Even without the growth investment, the equity market thinks you should do that because there could be an issue of a parent subsidiary, the listing companies -- listed companies, okay. So for the next 3 years, can you share what your assumption is for next 3 years? Especially ours for the next 3 years, what is your assumption? And in case of a 3-year medium-term plan, if you assume crude oil price to be $70 or if you can share the assumption for foreign exchanges, if you are going to share the outlook for next 3 years, not the average, but I will be -- I will appreciate if you can show us in breakdown. So on average, if average is going to be JPY 780. And this time, the recurring profit will be at JPY 20. And this year, it's going to be JPY 340 and the average will be JPY 270. It seems like you will see your -- the ordinary profit to decline over time. Because you are in the plateau situation, this is the kind of image you're going to show. That's okay. But for the next 3 years, against this platform plateau situation, as you will implement certain growth investment, under normal situation, you will see your recurring ordinary income to decline, but you will be making an effort to achieve a certain growth. Apart from the rebalancing, I would like to hear what you're going to do to improve your ordinary income level for the next 3 years. So I would like to receive here your assumptions and the sensitivity for 3 years and for next -- for this fiscal year. And my third question, I don't really want to get into details. But for energy business, for power generation and retail, I would like to see the breakdown what the situation is for each businesses, either on the power generation side or on the retail side, what kind of challenges you are identifying and what kind of measures you are taking to improve that? I want to see that. I understand core business of energy is important for you. So for power generation and retail, I would like to see more the quantitative data for that. Okay. Nozomu Mori: So for assumption, we can share some assumptions. So from Secretariat, we can communicate what the assumption is. So we understand under the Iranian situation over the next 3 years, on the note says we are not including the Iranian situation or the situation in the Middle East. So without that, we are assuming some of the assumptions. Reiji Ogino: Is that the kind of document that you can share on the website? Nozomu Mori: No, we can only share it on Q&A. Reiji Ogino: I don't really want you to share this information to all the non-Japanese investors from me. So can you share that information on the website? Nozomu Mori: No. We are able to share the information. If necessary, we can provide the information through separate and individual communication. Reiji Ogino: And for power generation and the retail business breakdown. Nozomu Mori: We understand we should be aware of that perspective too. Internally, we are taking those approach, implementing our businesses. And for our results for FY '25 and our forecast for '26, internally, we are doing analysis of what kind of progresses we are making. And how much we can disclose is something we need to discuss, but we do have our internal analysis already. Operator: Are there any other questions? Okay. The third row, person sitting in the middle, in the third row. Unknown Analyst: My name is [Tanata] and 2 questions. First, your capital equity ratio. In fiscal 2026, you are forecasting 37% equity ratio. And related to that, the midterm plan, when I look at the numbers, net profit forecast and assuming the debt, I believe the capital equity ratio is expected to increase. So from mid-30%, there might be some deviation and difference. And how are you going to control your equity? So you have described about doing buyback as well. Are you going to take a more aggressive measures? Nozomu Mori: First of all, for this question, for equity ratio, we have a relatively high equity ratio. And this is to prepare for future investments. Whether it will be maintained at a high level, we don't. That might not be the case. And naturally, buyback, it's not that we are eliminating the possibility of buyback. This is something we are thinking of as one of the options. But as I have been -- we have been mentioning from before, we have significant amount of investment for growth and maintenance. So we will use both equity and debt to make investments. That is our stance. Unknown Analyst: My second question is related to Page 24 of the midterm plan, this capital allocation chart, operating cash flow and asset recycle, this is cash in and cash out is shareholder returns. And based on that, so passing on the cost increase and profitability increase is upside. So upside from the cash out is the shareholder returns. And is that the right way to look at things or each. Nozomu Mori: So higher or it might be blurry at the bottom. And growth investment, maintenance. Investment, we are assuming JPY 1.5 trillion, JPY 1 trillion. And as the bar graph is made blurry. It's not that there's already a lineup of growth investments and that we have things decided already. Each, there might be some changes, some might increase or decrease for each one of them. So it's not necessarily the case that our operating cash flow increase will lead to increase in shareholder returns. So we have discussed about sharing the details of everything. So JPY 270 billion or more of shareholder returns, it is described in the second page. And we want to make efforts to increase shareholder returns. And operating cash flow, when it increases, would it be reflected straight away into shareholder returns, but I would think I want to reduce debt. because the free cash flow is very bad. So we need to strike a balance. Operator: Do we have any other questions from participants at the venue? We are going to take questions from participants on Zoom. Unknown Analyst: So a couple of questions. So the first, on Slide 22 of the annual results. So I just wondered how have you managed to reduce your earnings sensitivity to changes in the oil price? And do those assumptions still hold even in such a volatile market as today. So I think it's JPY 0.2 billion earnings impact per dollar. Is that still valid even with oil at $100 per barrel? Nozomu Mori: So Kikuoka will be answering to your question. So the impact from this as when we see the fuel cost to increase with the time lag, there will be a fuel adjustment. And there will be -- we do the calculation based on the 2 factors. So as we are showing that we believe this can be the sensitivity we can achieve. Masafumi Kikuoka: Therefore. At this moment, if I can add some information, even though we have seen a deterioration of the situation in Middle East in early March. So in the month of February and March, if we take the average of the future price, we use that as the annual assumption. So to answer your question, going forward, if the situation continues to deteriorate or the deteriorated situation prolongs, negative impact of JPY 0.2 billion can be adjusted or changed going forward. And did I answer to your question? Unknown Analyst: Yes. Just following on that. Are you very much more hedged than you were before? Masafumi Kikuoka: Yes, I would like to answer to your question. So how much we hedge. We do not have an answer to give you the details. But because we have the fuel adjustment of the system, so for the fuel required for power generation, we are not making a major change in our policy to change our hedging. Unknown Analyst: And some of them related to mid-term to that of 2026? So just looking at the 2026 from the period was reasonable? What was the policies behind the allocation to investment and this is more one-off or more and more investments? Masafumi Kikuoka: So for each of the businesses, the amount of investment allocation, policy of allocation. We don't really start our process by thinking about the allocation, but we will try to identify the investment opportunity, which will allow us to achieve the growth. So over the next 3 years, we came to the conclusion this will be the amount of investment for each region. It's not like we prioritize at a certain business segment, but in order to maximize our profit, we determine what the growth investment opportunities will be. Tanaka Toru: And if I can add some more, when we determine the allocation, that is a critical part of our management. So over the last several years, before we prepared this plan, we have been focusing on our discussion. Mori-san said profit is, of course, what we need to achieve. But we also need to consider what the spread will be at the total group level, what the level of spread we can achieve at the ROIC level or ROE level as we have gone through the various discussions of what the spread we can achieve by using project financing or co-development project scheme. Basically, we are showing the ROIC number as the ROIC we will achieve by just engaging in our business on our own. But obviously, we can like sell our asset to REIT or they will take the various actions, and we will make necessary adjustment to achieve our target. So Mori is answering to your question. Nozomu Mori: I said that the profit, and so that's important. But as Tanaka has mentioned, we need to evaluate our returns from various measures. So on Page 45 of the appendix. So the policy of the allocation, Tanaka-san always said we will just thoroughly and aggressively as discussed. We did have a very detailed discussions. So we will not simply look at the ROIC and WACC, but we will look at the expected growth and the business-related the risks and how much time will require to generate return. By looking at the various aspects, we will also determine what the investment should be prioritized. And we will need to continue to brush up these plans. We understand that's important. Unknown Analyst: One final question. So just in relation to those midterm targets to what extent do they do it with new nuclear and your transactions with new investments or is that the additional environmental for 2026? Masafumi Kikuoka: Yes, your understanding is correct. It is included. Unknown Analyst: Congratulations to Tanaka-san on your promotion. Operator: Do we have any other questions? So there seems to be no more questions from anybody on Zoom or in the venue. And therefore, with this, we would like to close the briefing for today. Thank you very much.
Operator: Good morning, ladies and gentlemen, and welcome to Enel Chile First Quarter 2026 Results Conference Call. My name is Carmen, and I'll be your operator for today. [Operator Instructions] During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include Enel Chile S.A. current expectations, intentions, plans, beliefs, and projections. Forward-looking statements are based on management's current assumptions and expectations, do not guarantee future performance, and involve risk and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors are described in the Enel Chile's press release on its first quarter 2026 results. In the presentation accompanying this conference call, Enel Chile's annual report on Form 20-F on the risk factors. You may access our first quarter 2026 results press release and presentation on our website, www.enel.cl, and our 20-F on the SEC's website, www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Enel Chile undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate, except as required by law. I would now like to turn the presentation over to Ms. Isabela Klemes, Head of Investor Relations of Enel Chile. Please proceed. Isabela Klemes: [Foreign language] Good morning, and welcome to Enel Chile's 2026 first quarter results presentation. We greatly appreciate you taking the time to join us today. My name is Isabela Klemes. I'm the Head of Investor Relations. Joining me this morning are our CEO, Gianluca Palumbo; and our CFO, Simone Conticelli. Our presentation and related financial information are available on our website, www.enel.cl, in the Investor section, as well as through our investors app. In addition, a replay of the call will soon be available. At the end of presentation, there will be an opportunity to ask questions via webcast chat through the Ask a Question link. Media participants are connected in listening mode. Gianluca will kick off the presentation by covering key highlights of the period, our portfolio management actions, and providing updates on the regulatory context. Following that, Simone will offer an overview of our business economic and financial performance. Thank you all for your attention, and now let me hand over the call to Gianluca. Gianluca Palumbo: Thank you, Isabela. Good morning, and thank you for your participation. Let's start the presentation with our main highlights of the period. Let's begin with portfolio management. During the quarter, hydrological conditions were favorable, which helped us reduce portfolio risk and supported a stable operating performance across the business. We will come back to this point in more detail later on. At the same time, through EGP Chile, we started the construction of 3 battery energy storage projects in the northern part of the country. These BESS projects will add around 0.5 gigawatts of additional capacity and will play a key role in strengthening the flexibility of our portfolio while supporting our commercial strategy. In addition, Enel Generacion Chile signed a new LNG supply agreement with Shell. This agreement allows us to better valorize surplus gas volumes already available and to optimize LNG and Argentine gas supply for our generation business. Importantly, this initiative is fully aligned with our long-term business vision for Chile. This is particularly relevant in the context of the growing deployment of battery energy storage systems, which are essential to ensure a more flexible and efficient portfolio. Let's now move to the country and regulatory context. Starting with the VAD 2020-2024 process, tariff resettlements have been postponed until July 2026. At this stage, the regulator is working on alternative solutions to fund this payment with the objective of avoiding any impact on regulated customers' tariffs. Turning to the VAD 2024-2028 process. During the quarter, the regulator published the preliminary technical report, volume 2, in January 2026. Over the next few months, we are awaiting the publication of the final report. Let's now turn to business profitability. The first quarter of 2026 delivered consistent financial results. EBITDA showed a solid improvement compared to previous years, plus 16% during the period. The extraordinary general meeting approved a capital increase of CLP 360 billion at Enel Distribucion Chile, reinforcing the company's balance sheet and overall financial flexibility. In addition, the annual general meeting approved the final dividend, fully in line with our commitment to shareholder returns and value creation. In the next slides, we will go deeper into each of these areas and provide further details on the key drivers behind these results. Let's move to Slide 4 to talk about hydrology and the progress of our battery energy storage project. Let me begin with our hydro generation. Hydro generation during the quarter remained broadly in line with last year's levels, as shown on the left-hand side of the slide. For 2026, we are forecasting hydro generation at 10.7 terawatt hours. This assumption is based on a conservative view on hydrology, fully consistent with the average evolution observed over the last 13 years that allows us to confirm our 2026 guidance. This is the case, even though the probability of an El Nino event has increased in recent weeks, with potential impacts mainly expected in the second half of the year. This level of performance is supported by our well-diversified hydro portfolio, together with continuous operational optimization. Moving now to gas activities. On gas sourcing, we have signed contracts with Argentine gas suppliers with a longer tenure compared to previous years. These contracts secure firm volumes at more competitive prices, providing stable supply until April 2027. In parallel, in the context of high gas prices and the more flexible demand outlook for our thermal fleets, we concluded a negotiation related to our long-term LNG agreement. This approach is well aligned with our view of a gradual ramp-up of battery storage in the coming years, supported by a solid and reliable gas supply from Argentina. Finally, let me focus on battery storage. We continue to strengthen our generation portfolio through the development of battery energy storage systems. These investments will increase the flexibility of our portfolio and support the long-term resilience of our generation mix. In addition, they will continue to optimize our sourcing strategy. In this context, approximately 450 megawatts of new battery capacity are currently under development and will gradually start operations from [ 12-'27 ] ahead, in line with our planned investment schedule. Now let's move to Slide 5, where we will review our generation portfolio and the energy balance. Let me start with our generation portfolio. We entered 2026 with a solid and well-diversified portfolio. In fact, our total net installed capacity stands at 8.9 gigawatts, of which 78% comes from renewable energy sources and BESS. Therefore, this structure enhances flexibility and supports a balanced and resilient energy mix. Moving now to our energy balance. During the first quarter of 2026, net production remained stable compared to the same period last year. This performance reflects the flexibility of our generation portfolio. Higher contributions from wind, solar and efficient natural gas combined cycles more than compensated for the slightly lower hydro generation. Physical energy sales amounted to 7.5 terawatt hours, fully in line with the level recorded in the first quarter of last year. This confirms the stability of our commercial positioning, supported by our diversified sourcing mix. On energy purchases during the quarter, we maintained a similar purchasing mix compared to last year. This included 1.3 terawatt hours of net spot market purchases and 0.8 terawatt hours sourced from third parties. And now I would like to take a moment to share with you some key topics related to the distribution business, which we will cover on the next slide. Let me start with the tariff review shown on the left-hand side of the slide. We are in the 2024-2028 distribution tariff review process. In January of this year, the regulator released the second version of the technical report. The remaining technical steps are expected to lead a final tariff determination in the second half of 2026. Overall, the review is progressing in line with the regulatory timetable. Turning now to the VAD 2020-'24. The settlement of the outstanding debt with distribution companies, which was originally scheduled to begin earlier, has been postponed to July 2026. For Enel Distribucion, the amount to be received is around USD 65 million, while at the distribution sector level, the total amount involved is approximately USD 900 million. We remain confident that the process will progress toward the prompt resolution, considering its relevance for the sector and the need for orderly completion. Turning to distribution reform. We continue to see constructive and positive engagement from stakeholders, together with the growing and broad consensus on the need to further evolve and modernize the distribution framework in Chile. This is particularly important in the context of electrification and considering the long-term nature of distribution investments. Finally, a few words on grids and execution. We continue to reinforce specific parts of the network, while at the same time expanding digitalization and remote control solutions across the network. These actions allow us to restore service faster, improving customer experience, and strengthen the flexibility and resilience of our networks. Overall, execution and distribution remains solid, with a clear and continued focus on service quality. And with that, I will now hand over the presentation to Simone. Simone Conticelli: Many thanks, Gianluca, and good morning, everyone. I will begin my presentation with an overview of our key results for the period. As shown on the slide, during the first quarter of 2026, EBITDA reached $423 million, with a 16% increase compared to the same period of last year. The improvement was mainly driven by a better integrated margin performance. First quarter net income amounted to $162 million, representing a 7% decrease compared to the result of first quarter 2025, mainly due to higher depreciation following the commissioning of the new renewable plants and lower capitalization of interest. Finally, first quarter FFO reached $122 million, representing a 12% increase compared to the same period last year. The improvement is due to a combination of several factors, which will be commented on the following slides. And now let's move to the next slide to talk about the investment made during the quarter. First quarter investment amounting to $111 million were mainly allocated to the development of BESS project, increasing the value of our power plant fleet, and the reinforcement of our distribution network. Let's review the allocation in more detail. 41% or $46 million were invested in renewable and storage. 31% or $34 million supported thermal power projects. 20% or $31 million was directed toward grids investments. In the renewable segment, we have focused our effort on the development of BESS project, as announced in our strategic plan, on the enhancement of hydro capacity performance, and on the improvement of fleet availability. In the thermal segment, the priority has been the maintenance and performance enhancement of the power plant fleet. Finally, regarding grids, the focus remain on the resilience program to strengthen the distribution network and ensure service continuity under adverse weather condition. Passing to the nature of investment. First, asset management CapEx totaled $58 million, accounting for 52% of the total CapEx. The main activities have been the maintenance of Atacama, Quintero and San Isidro CCGT, the maintenance of renewable fleet aimed at ensuring plant availability, and some activities for the corrective maintenance and digitalization of grids. Second, development CapEx amounted to $40 million, mainly invested in batteries development, which represented 75% of total, and digital meters and grids remote control equipment. Finally, customer CapEx totaled $13 million, mainly invested in low and medium voltage connection project and initiative to support load increase. Let's now go on to the next slide, which provide a closer look at the EBITDA performance. In the first quarter of 2026, our EBITDA reached $423 million. The increase of $58 million compared to the same period of 2025 is mainly explained by the following factors. Starting with the integrated business, we recorded an increase of $67 million, mainly due to, first, lower natural gas costs that reduce the variable production cost of our thermal power plants and the spot energy purchase costs. And second, the positive impact of the optimization of gas sourcing, which allowed us to improve LNG and Argentine gas supply for our thermal fleet, extracting value from our gas contracts portfolio, as previously commented by Gianluca. These positive impacts were partially offset by the termination of certain high-priced regulated contracts and higher provision related to energy and transmission charges adjustments booked in 2025. Going to grids. We recorded a decrease of 18%, mainly due to the positive impact of issuance provision on 2025 and the impact of the higher O&M expenses associated with the anticipation of the 2026 winter plant activities, partially offset by a higher contribution from complementary distribution activities, mainly related to the new customer connections. Now let's move to the next slide to review the net income evolution. Net income amounted to $162 million in the first quarter of 2026. The difference compared to the first quarter 2025 is mainly due to the $58 million improvement in EBITDA, thanks to the more efficient sourcing, partially offset by higher depreciation and amortization, mainly related to the commissioning of new renewable capacity in the generation business and higher financial expenses, partially due to lower interest capitalization in the generation business. And now passing to the next slide, let's analyze the FFO composition for the first 3 months of 2026. In the first quarter 2026, FFO reached $122 million as a result of the following factors: first, EBITDA totaled $423 million, as previously explained; second, the increase of net working capital amounted to $161 million, mainly due to seasonality of energy payments and gas optimization agreement, for which the payment was registered in April; third, financial expenses amounted to $93 million, also including the settlement of hedging derivatives; finally, income tax expense payments amounted to $48 million, mainly related to generation business. Passing to the comparison with the results of the first quarter of 2025, the 2026 FFO was $13 million higher, mainly thanks to the EBITDA increase for $58 million, the lower increase of net working capital for $27 million, mostly due to lower CapEx payment related to the new development capacity, the positive effect of energy payment scheduling, partially offset by the increase of account receivable following the LNG agreement settled in April, the higher financial expenses for $62 million, and the higher income taxes for $9 million, reflecting higher monthly payment tax rates. Now let's take a look at our liquidity and leverage position. Gross debt amounted to $3.9 billion as of March 2026, remaining broadly flat compared to December 2025. The slight increase reflects the seasonal cash and working capital requirements, which were temporarily funded through a $50 million drawdown on the CAF credit line, partially offset by a $9 million reduction in IFRS 16 lease liability. The average term of our debt maturity reached 5.4 years by March 2026 versus the 5.8 years seen in December 2025, and the portion at a fixed rate was 85% of the total debt. The average cost of our debt reached 4.9% as of March 2026, in line with December 2025 figures. Regarding liquidity, we are in a comfortable position to support our capital needs for the upcoming months and cope with next year maturities. As of March 2026, we have available committed credit lines for $640 million and cash equivalent for $454 million. So thank you all for your attention, and now I will pass the floor to Gianluca for the closing remarks. Gianluca Palumbo: To conclude, our resilient and diversified business model supported solid and stable results in the first quarter of 2026, even in a volatile operating environment. A well-balanced portfolio combined with disciplined execution continues to provide resilience, allowing us to navigate changes in market and climate conditions with confidence. Second, electrification is clearly emerging as a key driver of demand growth in Chile. This trend is supported by structural developments across mining, industry, transport and electromobility. In this context, we remain closely engaged and well-positioned to support the country's electrification process, leveraging our integrated offering of clean energy, infrastructure and services. At the same time, we continue to closely monitor regulatory developments and their potential impacts. Finally, our solid financial position and flexible business model continue to support the execution of our investment plan and our ability to meet financial commitments. This financial strength allows us to continue investing in renewables and battery storage while maintaining financial discipline and delivering sustainable returns to our shareholders. Now let me hand it over to Isabela for the Q&A session. Isabela Klemes: Thank you very much, Simone and Gianluca. We now start the Q&A. As a reminding, we are receiving questions from our chat on the application. So I will start now, Gianluca and Simone, with the first question. We actually received this question from several analysts, including Andrew McCarthy from LarrainVial. I will do the questions, okay? So the first one is, congrats on the results. Apart from the gas valorization agreement, which is a positive one-off in your results, could you please indicate which other one-off negatives you have incurred in your first quarter 2026 figures? Basically, I'm interested in knowing the recurring EBITDA booked in the first quarter 2026. Actually, on the same, we also received a question regarding what we have mentioned in the EBITDA, regarding the provisions recorded in the first quarter 2026 related to energy and transmission charges. Simone? Simone Conticelli: So thank you for the question. So you are right, in this quarter, we have more than one nonrecurrent effect. The first one is the impact of the agreement with Shell. That is a positive impact, but then was partially offset by some problem with the transmission line that impacted in our efficiency. And on the other side, this impact can be around $50 million, and then around $60 million of adjustment coming from the previous year. The main part from 2023, it was related to an adjustment of the ancillary services booked in this year after quite a long discussion with the system, we finally take the final decision, and this has an impact of minus $30 million. So to make a synthesis, if you normalize all these nonrecurrent effect, our results is around $360 million, $370 million for the quarter. Isabela Klemes: Okay. So we are receiving several questions. Let me go to the second one. So the second one is coming from Javier Suarez from Mediobanca. Javier has several questions that I will split here. So the first one is, can you update on the key factors on the ongoing negotiations with regulator of the distribution regulatory framework? And also on the same page on distribution, he also is asking why, in other words, what is the reasons for the postponement of the settlement to July 2026 relating to VAD 2020-2024? Gianluca, this is yours. Gianluca Palumbo: Yes. Okay. So let me start for the first part. On the distribution regulatory framework, the VAD 2024-2028 process is still ongoing, so the methodology remains based on the reference model company with a regulated real post-tax WACC, as you know, of 6%. We believe there is still room for improvement in the CNE proposal, and we are actively participating with the distribution association in the observation and the discrepancy process. The final technical report is expected by June 2026, and the tariff decree in early 2027. So regarding the postponement of the VAD 2020-2024 settlement, the estimated impact is around USD 765 million. The recovery mechanism was defined by the SEC in February 2026, but collection was postponed by 3 months. So in this moment, our current planning assumption is collection from July 2026, while the Ministry of Energy is also evaluating alternative mechanisms, including potential debt factoring. Isabela Klemes: Now, another question from Javier. The other question from Javier, Simone, this is for you. Can you give more details on the profitability of the BESS project in Chile in terms of IRR? Simone Conticelli: Yes, thanks for the question. First of all, let me make a initial comment saying that Enel is developing new BESS, following the strategical goal to balance our portfolio. So first of all, we see this BESS project like an improvement of our portfolio and a way to have some energy shift that can result in a better match between the demand and the production curve. But looking at the BESS project as a stand-alone project, what we can say is that we launch this kind of project only if the return is at least 300 basis points above our WACC. Also that we make also some stress test trying to change the market condition to see the resilience of this kind of project also to some more stressed and critical scenarios. Isabela Klemes: So move on. The other question is coming from Fernan Gonzalez. This is also for you, Simone, from BTG Pactual. So the question is: why did energy purchase cost in the generation segment increase so much if volumes were similar with last year and its spot prices were significantly below the first quarter 2025 levels, even in the non-solar hours? Simone? Simone Conticelli: Okay. So in such a way, we answer at the beginning indirectly to this question, because this negative impact from adjustment from the past, entered as sourcing cost, and so You are looking also at the impact of this negative adjustment. Isabela Klemes: So moving on, we're receiving a lot of questions. So the next one is coming from Andrew McCarthy, another question from Andrew from LarrainVial. Good morning. Energy losses in the distribution segment continued to deteriorate during the first quarter 2026. Can you comment on what is driving that, how you expect to evolve, and what can be done to reverse the trend? Gianluca. Gianluca Palumbo: Okay. Thank you for your question. Energy losses increased mainly due to tariff adjustments and some change in customer behavior, which have led to a rise in not technical losses, such as the debt. So in the first quarter, losses were also impacted by lower than expected demand and a more competitive market environment. That said, our loss levels remain below the regional averages, and we have a clear plan to reserve the trend. So we are strengthening our loss reduction strategy through this plan. So first of all, improved inspection targeting using better analytics. Second, expansion of micro and macro metering, so this is an action to help the balance -- micro balance. Increased field action and controls, considering the better analysis that we will do. And finally, enhanced coordination with authorities to address illegal connection. That is one of the problem that we have. So looking forward, we expect losses to gradually decline, targeting around 5.7% by 2028, supported by these operational and technological improvements. That is very important for us. Isabela Klemes: I'm checking here other questions. Okay. So the other question is coming from Felipe Flores from Banchile Citi. The question is: my question is related to the capital increase in distribution. Will this be subscribed by Enel fully using cash? How does the company plan to finance it, or it's already covered? How much would take to recover the money? So Gianluca, if you can give some color on the capital increase. Gianluca Palumbo: Yes, of course. Okay. The capital increase is intended to strengthen Enel Distribucion financial position, and it's expected to be supported by controlling shareholders in line with its long-term commitment to the business. So from a financial perspective, it will be covered through group level financial resources, ensuring obviously efficiency and flexibility. So in terms of returns, this is not a short-term recovery investment. It supports the long-term sustainability of the business through improved financial structure, lower financial costs and maybe it's very clear, the ability to execute the investment plan under regulatory framework. This is the last question that I can add in this case. Okay. Isabela Klemes: I'm checking here. We have receiving another question. Some of them, we have already talked about that is related the capital increase and also on the postponement on the VAD, so I'm continue checking here. Another one was a question also, Gianluca, regarding the VAD 2020-2024, that potentially is going to be a new pack. But Gianluca has already answered this. That is one of the proposals that could be done in order to have the payment on the VAD. So let me -- just a second. Okay. So we have other questions that is coming from Juan Felipe Becerra, that is relating -- he can -- he ask Simone, if you can give more details on the gas optimization contract on Shell. We have already included, but if you can check also. Now, he has another question. Does this optimization imply lower contracted volumes or changing pricing terms with Shell? And regarding the 3 BESS projects highlighting the presentation, can you provide more details on the expected time line for each project to reach COD and enter in EGP capacity? Simone? Simone Conticelli: So let's start talking about the Shell agreement. This is an agreement that has the goal to optimize our portfolio. As you know, we have a very valuable portfolio of gas contracts. Part of the contracts is for GNL. Part of this contract is for gas from Argentina. What I want to stress is that the total amount of volume of gas that we can manage is higher of our needs, even stressing the needs of our power plant during a dry year. So what we have done in this agreement is try to rebalance the amount of the GNL contract to make coherent our portfolio. And we did it in a very right moment in such ways, so we have also positive impact on 2026 results. On the other side, talking about the BESS. Isabela Klemes: Yes. This is go to Gianluca. Gianluca Palumbo: So regarding the 3 BESS, to complement, the answer, regarding the 3 BESS projects highlighted in the presentation, let me know that, we could you provide more detail on expected time line. So in this case... Isabela Klemes: Yes. So the question, Gianluca, was regarding the BESS. What we are expecting the COD on the BESS side. Also what Gianluca was saying that we are expecting -- it's included in our business plan that we have recently presented. And Gianluca, if you want, now your mic is up. Gianluca Palumbo: Okay. I understand. Isabela Klemes: Going back again. Thank you. Gianluca Palumbo: Okay, okay, okay. During 2025, we focused on engineering, permitting and project preparation. With the regulatory framework now in place, we are starting construction in 2026 and expecting the COD during the third and the fourth quarter of 2027. So our strategy also included additional BESS investment, like we presented in the last Capital Markets Day, in 2027 and 2028, reinforcing storage as a core pillar of our portfolio. So we will continue to closely monitor market conditions, maintain flexible approach, focus on profitability and value creation. This is our pillar in our optimization of our portfolio. Isabela Klemes: Another question is coming from Jay Samani from Scotiabank. This is for you, Simone. SO where do you see Enel Chile next avenues for growth, given that lower demand from unregulated customers? He's mentioned about the termination of the PPA -- regulated PPAs. How is Enel Chile position itself for long-term? And can we expect the company to maintain the current earnings level for growth? He's asking about our business plan. Simone Conticelli: So can you repeat me the first part of the question, please? Isabela Klemes: Yes. Jay is asking you, where do you see that Enel Chile is going? What are the strengths of our plan? He's also mentioned that we see -- we have seen the results, not the reduction of the regulated PPAs, so he's asking what we are seeing the long-=term? So we are seeing more regulated customer coming on, new auctions, and how we are positioning ourselves in the long-term? Simone Conticelli: Okay. Enel will confirm its strategy. In this moment, clear we see a reduction in the volumes of regulated contract, but this is related in how the auction now will rise in the market. What we have to stress is that we want the full last to auction also at a valuable price on the market. So we have a very good portfolio in term of price in the short-term. Also, we can stress the fact that the pricing of our portfolio, the average price in the next 3-year, we will maintain the same value, even if the price on the market is going down. And for the full following year, we will keep on looking to a good mix among short-term opportunity and also long-term contract. That can be new regulated auction, but also, long-term contract with the big customer. Isabela Klemes: We have a last question that is coming from Isabella from Bank of America. So she's asking: what is the minimal cash position you are operationally comfortable with? You currently have a cash position of around $454 million. Do you plan on using your credit lines this year, or will you refinance your short-term debt? Simone Conticelli: So thanks for the question. You know that our business has a strong seasonality with some needs in terms of financing in the first and in the second quarter, and then -- and higher cash production in the second half. We have an internal model to define the comfortable minimal cash position to cover the net working capital needs. And then for the future financial needs, we plan to refinance using a long-term financing that in this moment is under negotiation. Isabela Klemes: We do not have any more questions coming here from the chat. So any other doubts that you may have, the Investor Relations team will be fully available to execute other calls and to go into more details. Thank you very much for connecting today. Have a nice holiday. Thank you. Operator: And this concludes our conference. Thank you for participating, and you may now disconnect.
Operator: Thank you for standing by, and welcome to the National Australia Bank First Half 2026 Results Presentation. Go ahead, please. Sally Mihell: Good morning, and thank you for joining us today for NAB's Half Year 2026 results. I'm Sally Mihell, the Head of Investor Relations. I would like to acknowledge the traditional owners of the land from which I join you today, the Gadigal peoples of the Eora Nation. I'd like to pay respect to the elders past and present and to the elders of the traditional lands from which you join us. Presenting today will be Andrew Irvine, our Group CEO; and Inder Singh, our Group CFO. We are also joined in the room by members of NAB's executive team. Following the presentations, there will be an opportunity for analysts and investors to ask questions. I'll now hand to Andrew. Andrew Irvine: Thank you, Sally, and good morning, everyone. I'd also like to welcome Inder, who is presenting his first set of results for NAB. NAB's half year 2026 results benefited from good momentum across our business, supported by stable margins. We also benefited this half from strong broad-based credit growth in a supportive economic environment. The outbreak of conflict in the Middle East have created more volatile environment, which we do expect to continue for some time. In light of this, we have improved the strength and resilience of our balance sheet to support our customers. Our customer-centric strategy becomes even more important in the current environment, and we continue to execute this strategy with both focus and discipline. This is helping us deliver better customer experiences, which in turn drives improved customer advocacy. To achieve our ambition to be the most customer-centric company in Australia and New Zealand, we must continue to modernize our technology to build a simple, fast and resilient bank. On this, we are making good progress with more to come. We have 3 business priorities, which aim to deliver stronger returns over time, growing business banking, driving deposit growth and strengthening proprietary home lending. Again, we have continued to make good progress against each of these priorities, and I will discuss them in more detail shortly. Looking ahead, while the near-term outlook is more challenging, we are well positioned to navigate this uncertainty with stronger balance sheet settings and good underlying momentum across our business. Cash earnings this half were impacted by changes to our software capitalization policy to reflect the rapidly changing technology environment. Excluding the impact of this large notable item, our cash earnings increased 2.3%. This was mainly driven by a 6.4% improvement in underlying profit ex notables, offset by higher credit impairment charges. Revenue growth of 3.1% reflects stronger markets and treasury income and volume growth. Total costs, excluding the impact of the notable item were down slightly. Our cash return on equity, excluding the impact of the large notable item this half was 11.6%. This is slightly higher than fiscal year '25. We have declared an interim dividend of $0.85, and this represents 72.5% of cash earnings, excluding notable items, which is in line with our target payout policy of between 65% and 75%. Disciplined execution by each of our divisions has contributed to our strong underlying performance in the half. Business and Private Banking has had a very strong half with a 5.4% increase in underlying profit. The business has good momentum in lending and deposits with a stable margin outcome. I'm particularly pleased with the 10.8% growth in transaction account balances, which reflects our consistent focus on deepening customer relationships. This performance is a strong demonstration of the quality of our business in Private Bank in a very competitive environment. Corporate and Institutional Banking delivered underlying profit growth of 1.7%. A disciplined approach to both lending and deposits has helped deliver a 15.2% return on equity. Business credit growth this half was 6.9%, reflecting strong system growth together with good momentum in corporate lending and higher customer drawdowns in the month of March. Personal Banking has also had a very good half with underlying profit of 3.7%. The focus on strengthening proprietary home lending and growing deposits whilst managing margins has been a key driver, and I'll talk more about these shortly. Finally, in New Zealand, BNZ delivered flat underlying profits in what is a very challenging economic environment. Our continued focus on growing personal deposits has supported good market share growth this half. The ongoing conflict in the Middle East is challenging customers through both higher fuel costs and supply disruptions. These issues, together with inflationary pressures and higher interest rates are likely to create real cash flow stress for some customers. While the vast majority of our customers are well positioned to manage these impacts, some will need further support. At our heart, NAB is a relationship bank. Our relationships with customers are particularly important in these times, and our business bankers are on the front foot contacting customers to discuss their circumstances. Support provided includes increased limits to working capital facilities and overdrafts to manage liquidity issues. We have also provided some zero interest loans to customers as part of the government's economic resilience program. Consumer sentiment has deteriorated sharply. However, overall, our retail customers enter this period with strong buffers. Across our home loan book, offset and redraw balances have grown by 9% in the last 12 months. In addition, 80% of our customers did not reduce their home loan repayments in 2025 when cash rates fell by 50 basis points. This will help those customers absorb an increase in interest rates from here. In light of the more challenging environment and the ongoing volatility, we have taken proactive steps to increase the resilience of our balance sheet settings. The March common equity Tier 1 capital ratio of 11.65% is modestly lower over the half, reflecting both strong volume growth and market volatility impacts. To further strengthen capital, a 1.5% discount will be applied to our first half dividend reinvestment plan, and we expect to partially underwrite the DRP participation. These actions will raise a total of approximately $1.8 billion and increase our group CET1 ratio by approximately 40 basis points to a pro forma ratio of 12.05%. Forward-looking collective provisions have also been increased by $300 million to a total of $1.93 billion. This includes an increase in our economic adjustment as well as increased overlays in sectors more likely to be impacted by fuel supply and fuel cost issues. Our total provisioning to credit risk-weighted assets has increased to 1.6% and collective provisioning to credit risk-weighted assets has increased to 1.35%. Liquidity and funding metrics remain well above regulatory minimums. The duration and intensity of the current disruption to liquid fuels markets and associated impact on the economy remain highly uncertain. I'm confident the actions we've taken to improve the strength and resilience of our balance sheet will better enable us to continue to deliver the strategic priorities while supporting our customers through this more challenging period. The next slide outlines our strategy based on our ambition to be the most customer-centric company in Australia and New Zealand. To execute this strategy, we are being disciplined and consistent in our focus on doing a few things well at both scale and at speed to power exceptional customer experiences. Our ambition to improve customer advocacy is anchored in a core belief that this will deliver deeper customer relationships together with improved retention and referrals. This, in turn, should lead to higher growth and sustainable returns over time. NAB customer voices is the foundation of our strategic focus on customers. This program, which we have been progressively rolling out over the last 18 months, enables us to more systematically measure, capture and respond to customer feedback. We continue to see the benefits, including significantly reducing the time required to open a simple business transaction account. While there is more work to do, these improvements will help support our strategic focus on growing our core deposits. I'm very pleased to say that the progress to date has been recognized with NAB being awarded the Roy Morgan Customer Satisfaction Award for the Major Bank of the Year in 2025. To put this in context, the last time NAB won this award was in 2012. This is a tremendous achievement, which recognizes the efforts of all our colleagues to improve customer experiences. In addition, we now have positive NPS across all our 4 segments for the very first time. Our medium and large business NPS has improved by 16 points over 12 months and is ranked equal first of the major banks. Over the same period, both mass consumer and micro and small business improved by 5 points with NAB now ranked equal second. Six months ago, you'll remember, I highlighted the focus on improving NPS in high net worth and mass affluent. Here, too, our NPS has improved by 14 points, and our ranking has moved from fourth to third. The mass affluent segment and our premier banking strategy remains a key focus in our Personal Banking division. And in this segment, we are now ranked second. While we certainly have more to do, our strategic focus on customer advocacy is working and can be a key differentiator for our bank. Becoming a simpler, faster and more resilient bank is an ongoing journey and is embedded in how we run NAB. Simplifying the bank is key to our transformation. This means reducing the number of products we offer, eliminating duplication and simplifying our processes. Since fiscal '22, we have cut the number of products we have by 27% with an ambition to get this down by 50%. Being faster means improving the speed of delivery to customers by improving the productivity of bankers and support teams. This will increasingly be enabled through the use of AI to support routine tasks and allow colleagues to focus on higher-value work and to improve products and systems. Improved resilience is also being delivered through the continued modernization of our core technology programs. The progressive migration to modern cloud-based platforms and decommissioning of legacy systems will continue to keep our customers safe and improve the availability of our services. By becoming simpler, faster and more resilient, we aim to deliver stronger operating leverage, simple real-time banking that our customers love, lower operational risk and sustainable returns to shareholders over time. Upgrades to our bank's technology infrastructure foundations are now largely complete. This includes multi-cloud infrastructure and the build and migration to a modern data platform. The next phase is the progressive modernization of our core product and servicing platforms, and this work is now well underway. This slide highlights 2 of these platforms, our real-time payments platform and our transaction switch. In the first half, we completed the migration of all payments to our cloud-based real-time payments engine. A modern payments platform has been key to the development of innovative payment solutions such as Amazon PayTo. Our transaction switch processes 15 million card and acquiring transactions every day across a range of channels. A new transaction switch has now been installed in the cloud, and we have commenced building the capability to enable card processing and authorization. The migration of all credit and debit card transactions is expected to be completed in FY '27 with merchant acquiring to follow. Our new Group Executive Digital Data and AI, Pete Steel, joined us in November, and Pete's deep experience is helping us prioritize where we invest in a rapidly changing technology environment. AI opportunities, including investments to date are broadly aligned to 3 strategic outcomes. Growth opportunities will be supported by banker AI and customer AI solutions that will help drive and deliver more personalized services to our customers at both scale and enable our bankers to spend more time with our customers. Productivity opportunities will be supported by AI tools that can undertake routine tasks and increase the speed of delivery. We have already rolled out AI tools to over 7,000 software engineers, which has, in turn, helped improve our change cycle delivery time and significantly increased developer productivity. We are also providing colleagues with access to AI tools to help them build the skills they will need in the future. As this technology evolves quickly, it is important we embed the appropriate risk controls and governance frameworks to keep our customer data safe and ensure transparency of any AI decisions that are taken. NAB has 3 clear business priorities, which will help drive stronger sustainable returns. The first is continued growth in business banking. Our aim is to be the clear market leader in business and private banking and to pursue disciplined growth in corporate and institutional banking. The second is to continue to drive deposit growth with a focus on at-call transaction accounts. We are investing in innovative payment solutions for business and improved propositions for our target retail segments, including mass affluent and youth. And the third is to strengthen our proprietary home lending. Here, we've implemented a number of initiatives to help grow the share of lending through our proprietary channels. This will help manage margins and improve returns on our home lending portfolio. I will now speak to each of these priorities in more detail. We are proud to support Australian businesses through our 2 business banking divisions, which combined make us the largest business lender in Australia. We have a 22% share of total business lending and a 28% share of lending to small- and medium-sized businesses. Sound underlying business activity has supported strong business credit growth at a system level over the 12 months to March. As the largest business lender in Australia, we've continued to see good opportunities to grow. Total business lending GLAs across both Business and Private Banking and Corporate and Institutional Banking increased by 11.5% in the 12 months to March to $306 billion. This is our strongest annual growth in 3 years and was supported by above-system lending growth in Australian business lending. Business and Private Banking is the clear market leader in SME banking. This is NAB's heartland, and we know it well. Our relationship-led approach increasingly enabled by digital, data and analytics capabilities continues to deliver good growth, and our pipeline remains strong. A focus on digitizing our customers' simple needs and removing work from our bankers is allowing bankers to spend more time with our customers. This includes the continued deployment and development of our business lending platform with over 80% of lending applications in the first half submitted digitally. Competition in this segment has undoubtedly increased, but our scale, our deep expertise and the quality of our bankers enables us to compete from a position of strength. In recent halves, despite strong competitive intensity, we have consistently grown business lending at above system rates while maintaining a stable divisional margin. A holistic approach to retaining high-performing bankers has helped keep turnover rates low. Turning to our second priority of driving deposit growth. We continue to see strong growth in transaction and at-call accounts across both our Personal and Business Banking divisions. Over the first half, Business and Private Banking and Personal Banking grew at-call deposit account balances by $14 billion, but which exceeded the growth in lending balances across these divisions. In Personal Banking, our investment in branch transformations and increasing engagement with customers has supported a 30% increase in new transaction account openings over the last 2 years. In Business and Private Banking, a continued focus on deepening customer relationships and investments to streamline account opening processes has in turn supported a 31% increase in new transaction account openings over 2 years. The good growth in at-call deposits across the group this half has also meant we had correspondingly less appetite for larger term deposits. This is reflected in the decline in total deposits in our Corporate and Institutional Banking division. NAB's home lending strategy aims to serve our customers well in the channel of their choice through the delivery of a seamless customer and broker experience. A focus on strengthening our proprietary franchise has seen us grow our share of drawdowns by proprietary channels from 41.4% to 47.7% in the first half. And in the month of March, 50% of our drawdowns were through proprietary channels, a key milestone for our bank. This progress has been supported by investments to improve banker productivity, including an increasing contribution from new bankers appointed in FY '25 to uplift capability. Having a strong and growing proprietary home lending business also means we can adopt a more targeted approach to broker distribution. Brokers are an important distribution channel, and we are deepening relationships with value brokers to drive growth in priority segments. The successful execution of this strategy is delivering above system growth with improved home lending returns. I'll now pass to Inder, who will take you through the financial results in more detail. Inder Singh: Great. Well, thank you, Andrew, and good morning all. I'll focus on our financial performance as measured on a half-on-half basis compared to the period ending September '25. And to give you the best view of underlying trends, I will exclude the impact of the large notable item that we booked in the first half of 2026. Slide 22 provides an overview of our earnings performance. Underlying profit rose 6.4%. Revenue was higher, boosted by improved markets and treasury income and costs were slightly lower. Cash earnings grew 2.3% with underlying profit growth partly offset by higher credit impairment charges. We referenced these higher credit charges in our pre-announcement, and they include a $300 million top-up to forward-looking provisions to reflect potential downside risk from the Middle East conflict. Statutory profit declined 18%, primarily as a result of the large notable item, partly offset by the gain on disposal of our remaining 20% stake in MLC Life. Before we get into operating trends, I will provide some additional detail on the large notable item. This is set out on Slide 23. As Andrew mentioned, we have implemented changes to our software capitalization policy to more closely align to an environment of rapid technological change. This has involved a reduction in the useful life of capitalized software assets and an increase in the capitalization threshold from $5 million to $20 million. There has also been a change in the nature of assets capitalized. For example, we will no longer capitalize certain risk and regulatory spend. These changes have resulted in a one-off accelerated amortization charge of $1.35 billion, which has been booked through the operating expense line in the first half. These changes are expected to also have impacts moving forward. Firstly, the one-off accelerated amortization charge reduces our software capitalization balance by $1.35 billion, resulting in lower associated amortization charges going forward. Secondly, the remaining software capitalization balance of $2.2 billion will be amortized over a shorter period. These 2 impacts are expected to be broadly offsetting in the second half of 2026. Finally, moving forward, a higher proportion of investment spend will be expensed with the OpEx ratio forecast to be approximately 50% in the second half of 2026. Following these changes, we would expect additions to our capitalized software balance to be more closely aligned to amortization over time. Turning now to Slide 24. Revenue rose 3.1%, mainly reflecting volume growth and a strong markets and treasury outcome. The depreciation of the New Zealand dollar had a negative $81 million impact on half-on-half revenue growth. Markets and Treasury income increased $147 million over the first half. The key driver here was NAB risk management income, which benefited from improved outcomes in our treasury liquids portfolio, specifically the non-repeat of the realized losses on bonds that we experienced in the second half of 2025. Customer risk management income also rose over the half, driven by some larger deals in C&IB. The revenue impact of a more broad-based increase in customer hedging activity was relatively limited due to the shorter average tenor of these trades. Excluding Markets and Treasury, revenue rose 1.8%, primarily driven by volume growth, which contributed $167 million. As Andrew mentioned, this was another period of strong lending performance with growth aligned to our strategic priorities. We saw good growth across our business banking franchises of B&PB and C&IB, along with housing growth supported by improved proprietary home lending flows. Margins were broadly stable, and I'll discuss these in more detail shortly. Fees and commissions rose $16 million, benefiting from higher capital markets fees. Moving to Slide 25. Net interest margin increased 3 basis points over the half. Excluding Markets and Treasury and the benefit of lower liquids, both of which are largely revenue neutral, NIM was stable this half with lower lending margins, mostly offset by higher earnings on our deposit replicating portfolio. Lending margin reduced by 4 basis points. Within this, Australian home lending contributed 2 basis points to margin compression with half of that related to competitive pressures, and this trend is broadly in line with prior periods. The timing difference between cash -- changes in cash rates and customer lending rates added a further 2 basis points of compression as we move from the benefit of 2 cash rate reductions in the prior half to a drag from 2 cash rate increases in the current half. This compression was partly offset by small positive impacts. Australian business lending contributed 2 basis points to NIM compression with 1 basis point each from B&PB and C&IB. In B&PB, this impact reflects a fairly consistent level of competition with prior periods. In C&IB, we have seen a pickup in competition and also a small change in our business mix. Funding costs were neutral this period with fairly stable spreads. Deposits added 1 basis point to NIM, reflecting a series of small movements, which I'll walk through in turn. Firstly, mix contributed 1 basis point with stronger relative growth in lower cost transaction account balances over the period and a lower proportion of savings accounts earning bonus rates due to product refinements in ubank. Secondly, deposit costs contributed a benefit this period of 1 basis point related to TDs. And lastly, we saw a 1 basis point drag related to the $5 billion increase in the size of our deposit replicating portfolio, which reduced the level of unhedged low-rate deposit balances. It is important to note that this impact was largely offset by a higher earned benefit from the replicating portfolio as shown in the next block on this chart. The 3 basis point replicating portfolio benefit to NIM shown on the chart relates entirely to our 5-year deposit hedge. This benefit was higher than our original guidance of 2 basis points with the extra basis point driven by the $5 billion top-up to the hedge I referenced earlier. Turning to some considerations for NIM in the second half. Replicating portfolio returns are estimated at approximately 5 basis points. This is based on swap rates as at March 2026. This increase in contribution from the first half reflects the full period impact of the $5 billion top-up to our deposit hedge plus higher swap rates impacting both deposit and capital hedges. This is a key area through which we are seeing the benefit from the rising rate environment. Our strong deposit growth this period has reduced our sensitivity to changes in the Bills/OIS spread. An 8 basis point move in this spread is now equivalent to a 1 basis point impact on NIM. Now moving to Slide 26. Operating expenses declined 0.5% over the period, excluding the large notable item. This includes a $38 million benefit relating to the depreciation of the New Zealand dollar. Salary-related growth was $58 million. The majority of this reflects the impact of pay rises from 1 January under the Australian enterprise agreement. Volume-related costs rose $52 million. The key driver was additional bankers across all of our customer-facing divisions, with the largest uplift in Personal Banking, including increases as part of our strategy to strengthen proprietary home lending. Technology and investment spend rose $51 million. The main drivers were higher technology spend related to cybersecurity and fraud prevention, increased cloud consumption, technology modernization and higher software and data costs. Investment spend was modestly lower, consistent with the usual seasonal trends between half years. Productivity savings were $199 million, achieved through continued process improvement and simplification, operational and technology efficiencies and changes in the composition of our workforce. Other costs were up $16 million this half with a number of moving parts. Key items included lower remediation costs, offset by higher performance-based compensation. Looking ahead, our considerations for FY '26 OpEx remain largely unchanged. We expect year-on-year cost growth to be below the prior year comparative of 4.6%. Investment spend is expected to be approximately $1.8 billion with around 50% of second half spend expensed through the P&L. This reflects our changed software capitalization policy. Depreciation and amortization is expected to be higher year-on-year, reflecting the timing of asset deployments. Payroll review and remediation remains ongoing, and we note that $7 million of additional charges were booked in the first half of 2026. We continue to target productivity savings of greater than $450 million for the full financial year. Now turning to asset quality trends on Slide 27. We entered the 2026 financial year on the back of several quarters of improving Australian economic trends. Cash rates were declining, normal GDP was rising to around trend levels and unemployment remained low. However, with an absence of productivity improvements, it became evident in the second quarter that the economy was hitting capacity constraints with building inflationary pressures. This prompted the Reserve Bank to tighten cash rates in February and March with an expectation of further cash rate increases and slowing activity. Then in early March, an escalation of the Middle East conflict resulted in a sudden and sharp increase in fuel costs, some supply challenges and a heightened level of uncertainty and market volatility. Against this backdrop and with the typical lags we see between a change in economic conditions and the performance of our book, it wasn't surprising to see improved underlying asset quality outcomes in the first quarter of 2026. The default but not impaired ratio declined 8 basis points, supported by broad-based improvements across both our Australian mortgages and B&PB business lending portfolios. However, as we move through the second quarter, these improving trends started to moderate. And whilst Q2 represents only one data point, we are monitoring this very closely. As you're aware, the impaired asset ratio can be lumpy, and we have historically seen this ratio increase towards the later stages of an asset quality cycle. The 4 basis point increase this half was primarily driven by a small number of C&IB customers. This was similar to what we saw in the second half of 2025. It is very difficult to forecast half-on-half movements. But given the economic outlook, this impaired asset ratio could remain elevated over the coming months. The credit impairment charge for the first half was $706 million. This equates to 18 basis points of gross loans and advances. This was $221 million higher than the second half of 2025, reflecting the $300 million top-up to forward-looking provisions, partly offset by lower individual charges and a write-back in the underlying collective provision. IAP of $541 million included broadly stable charges for unsecured personal lending, modestly lower charges for B&PB business lending in New Zealand and higher charges in C&IB related to single name exposures. The underlying collective write-backs of $135 million were primarily driven by the release of provisions held for customers transferred to individually assessed, ratings upgrades for a small number of C&IB customers and data refinements, partially offset by lending growth. The $300 million top-up to forward-looking provisions reflects increased stress in the outlook to the Middle East conflict, which I'll discuss in more detail. Turning now to Slide 28. B&PB business lending asset quality trends are broadly consistent with the group profile I discussed on the prior slide, showing an improvement through the first quarter, but stabilizing in the second quarter. This has seen B&PB's business lending NPL ratio declined 22 basis points over the half with stable to improving trends across most sectors. While our book is well diversified and highly secured, there is clearly downside risk to asset quality over the coming months. As Andrew highlighted earlier, our large network of relationship bankers is proactively reaching out to customers to understand the impact of the Middle East conflict on their businesses and discuss support options. During these uncertain and challenging times, our scale and our long history of banking SME customers is really important. We have worked through many cycles, and we know this business and our customers well. I'll now turn to provisioning on Slide 29. Total provisions increased $221 million over the first half and now represent 1.7x our base case scenario and equate to 1.68% of credit risk-weighted assets. Individually assessed provisions have increased $91 million to $1.3 billion, reflecting new and increased provisions related to C&IB customers, partly offset by write-offs in B&PB. Collective provisions increased $130 million to 1.35% of credit risk-weighted assets. Forward-looking collective provisions rose $300 million to reflect the impact of potential stress related to the Middle East conflict. This includes changes in our base case economic assumptions, a 2.5% increase in the downside scenario weighting to 45% and a net increase in target sector forward-looking adjustments of $148 million. These increased FLAs relate to sectors expected to be most impacted by fuel costs and supply issues, including agriculture, transport and storage, manufacturing, construction and commercial real estate. Underlying collective provision reduced by $170 million with $35 million of that related to FX movements and the remainder driven by items I referenced in my asset quality remarks on Slide 27. Moving now to capital on Slide 30. Our group CET1 ratio declined 5 basis points to 11.65% as of the end of March 2026. This reflected volume growth and market-related impacts across credit provisioning, IRRBB risk-weighted assets and net FX translation. Our Level 1 ratio ended the period at 11.53%. Both this and the Level 2 ratio are above our operating target of greater than 11.25% and well above the regulatory minimum of 10.5%. I'll now walk through the key moving parts of the Level 2 CET1 ratio as shown on the chart on the screen. Cash earnings added 81 basis points, partly offset by 59 basis points for payment of the 2025 final dividend. Credit risk-weighted asset movements reduced the CET1 ratio by 24 basis points, mainly reflecting strong business lending growth. The other RWA bucket includes a range of impacts, which overall have reduced the CET1 ratio by 9 basis points. These include: firstly, a 10 basis point reduction related to increased swap rates impacting the embedded loss component of IRRBB risk-weighted assets; and secondly, a 6 basis point benefit from the removal of the standardized floor adjustment in the period, which resulted from RWA movements in the second quarter. Net FX translation was a drag of 8 basis points relating mainly to the depreciation of the New Zealand dollar. Offsetting these impacts was an 11 basis point benefit from the sale of our remaining 20% stake in MLC Life during the half. As we outlined in our pre-announcement, the first half DRP will include a 1.5% discount, and we expect to partially underwrite this DRP. In combination, these initiatives will raise approximately $1.8 billion or 40 basis points of CET1 capital, taking our pro forma ratio to 12.05%. Going forward, we remain focused on disciplined capital allocation to support profitable growth and drive sustainable shareholder outcomes. There is no change to our operating target of greater than 11.25% or our dividend payout policy of 65% to 75% of cash earnings. Liquidity and funding are set out on Slide 31. The quarterly LCR ratio is 3 basis points lower over the half at 132% and NSFR was stable at 116%. Both ratios are well above the minimum requirement. We continue to manage funding and liquidity prudently, and our balance sheet is well positioned for periods of market volatility. Our term funding issuance is well progressed. We issued $19.6 billion over the first 6 months of the year, supporting repayment of maturities in the period. Over the course of the financial year '26, issuance is expected to be broadly in line with prior years at around $36 billion. I'll hand now back to Andrew. Andrew Irvine: Thank you, Inder. Look, as Inder mentioned, the impact of inflationary pressures and a tightening rate cycle, which emerged at the end of 2025 has been compounded by the outbreak of the Middle East conflict and the associated impacts on both fuel supply and fuel prices. This has made for a far more uncertain and challenging outlook, and it's not surprising that both consumer and business confidence levels have declined sharply. While activity indicators have held up very well to date, elevated uncertainty and cost pressures are expected to slow economic growth. Business credit, which was growing at an annualized system rate of around 10% in the first half is expected to moderate in the second half. That said, the longer-term outlook for business investment continues to be very positive, supported by key structural drivers, including ongoing investment in infrastructure, in property, in energy transition and in supply chain resilience. Looking ahead to the second half, the actions taken to strengthen our balance sheet position us well to manage the uncertain outlook and to continue to support our customers. NAB enters this period with good underlying momentum in our business. The consistent execution of our strategy to deliver improved customer advocacy, supported by a focus on being simpler, faster and more resilient. We continue to progressively modernize our core tech platforms, and we are developing our strategy to deliver value through AI solutions. Everyone at NAB is focused on delivering progress in our 3 key priorities of growing business banking, driving deposit growth and strengthening proprietary home lending. And there is no change to our disciplined approach to managing costs and driving productivity, which creates the capacity for ongoing investment. I remain confident in the long-term outlook for our business. We have the right business mix and strategy to deliver sustainable returns to shareholders. Thank you again for your time, and I'll now hand back to Sally for Q&A. Sally Mihell: Thank you, Andrew. We'll now take questions from analysts and investors. When it's your turn, the operator will introduce you. Can I please ask that you limit yourself to one question and we'll come back to you if time permits. Please go ahead, operator. Operator: [Operator Instructions] Your first question today comes from Richard Wiles from Morgan Stanley. Richard Wiles: I just had one question about the credit quality trends in the Personal Bank. You said that there was an increase in pre-provision profit, but that was offset by higher impairment charges relating to the unsecured retail portfolio. Can you quantify those losses relating to cards and personal loans? And maybe comment on why this is happening against the backdrop of a strong labor market and whether you expect trends in consumer unsecured losses to get worse from here? Inder Singh: Yes. Look, good question. I think what we're flagging is a modest uptick. We are seeing a little bit of seasonality playing through that in the second quarter tends to be a little lighter from a repayments point of view. And the second issue is we're just seeing some transitory impacts just from the migration of the Citi book, which we're looking into. So we don't think this speaks to a major change in the outlook for unsecured, but those are the couple of items that are driving that trend. Richard Wiles: Okay. So Inder in the half, it was really just seasonality that drove the uptick rather than anything more alarming. Inder Singh: Yes, that's right, Richard. And also just a couple of transitioning items with the Citi book, which we'll be able to give you a further update on in the next update. Operator: Your next question comes from Andrew Lyons from Jefferies. Andrew Lyons: A related question, but focusing more on the commercial portfolios. Your IP charge was again elevated at 14 bps of total loans in the half, which particularly appears high versus what peers have been reporting over the last couple of halves. And you'd again put it down to business mix in the stage of the cycle. Andrew, maybe a question for you. Just in light of this relative returns drag and with the benefit of hindsight, are you happy that over the last couple of years, you've got the risk settings right across your domestic business portfolios, that's both Business and Private Bank and C&IB. Andrew Irvine: Andrew, I think we do. We're very confident that we earn through any losses that we might have in our commercial segments and portfolio. It's also important to note that the quality of the book in -- domestically actually improved in both the first quarter and the second quarter of the half. What we're flagging is that we had a very small number of international exposures that we took an individual provision for. But I think when we look at the domestic portfolio, most metrics actually improved half-on-half. Operator: Your next question comes from Victor German from Macquarie. Victor German: I just wanted to maybe quickly touch on capital. Like peers, you've done a very impressive job over recent years, optimizing your risk-weighted assets. And looking ahead, I'd be interested in your views on the likely implication of potentially deteriorating credit quality on risk-weighted assets. In your 1 half results, you effectively approached, you increased provision or you increased your provision by $300 million and also risk-weighted assets -- sorry, I should say, overlays by 8 basis points. So I'd just be interested in how you think investors should think about this potential risk-weighted asset inflation if credit quality does deteriorate and whether this relationship that you kind of put out in this result is a good guide for how we should think about it? Andrew Irvine: Maybe I'll have a first crack at that one, Inder, and then you can follow up if I missed anything. I'd say, first and foremost, it's going to be hard, I think, to predict what capital will do in the second half. We -- some things for consideration for you, we do expect credit growth to moderate from very elevated levels in the first half. So that on the balance will be a positive, but we have to also look at well, what happens and if there's any PD migration to the negative over the course of the half that may drive credit risk-weighted assets. So we'll have to see what those headwinds and tailwinds do on a net basis. But we did take an increased CP going into this because I think the fact is we don't really know how this is going to transpire. And I think we all need to be quite humble with our forecasting accuracy right now. This crisis in the Middle East seems to be continuing on, and we just don't know what the duration and intensity of the crisis is. So we wanted to be prudent going into this so that we could continue to participate in credit growth and to support our customers. So I think we'll have to see how this plays out in terms of what happens to the numbers as we go. I don't know, Inder. Inder Singh: Yes. Maybe just to give you one data point, Victor, on your question about RWA trajectory. One way to think about it is if you look at our base case economic projections from here, which call for a moderation of GDP growth and a slight uptick in unemployment. If that actually plays through, we would expect our risk-weighted assets to increase by around $3 billion over the next 12 to 18 months. Clearly, this is going to be progressive, right? So -- and as Andrew mentioned, there's going to be a series of other dynamics around the broader capital piece that will play through as well. Operator: Your next question comes from Jonathan Mott from Barrenjoey. Jonathan Mott: Andrew, I wanted to go back to your comments on the slowdown in credit growth. Obviously, the business environment has been fantastic for the last couple of years now and reaching 10% growth in the business bank is a great number. You also said that the pipeline still looks okay. I wanted to get your views on what you're seeing in that pipeline. Have you actually started to see agricultural customers pull back yet? Have you seen that pipeline weaken just in the last couple of weeks given the volatility? Is it actually flowing through at the coal phase? Or is it just your expectation that credit growth will slow? Andrew Irvine: Yes. Look, I'd say we're still seeing a material bifurcation between conditions and confidence. And so when you look at the actual numbers on a week-to-week basis, you're not yet seeing any material slowdown in application volume and how those apps are flowing through to settlement and the pipeline continues to remain very robust. So if you look at the numbers, and you were not aware that there were a crisis going on, you wouldn't see anything to be worried about, frankly. But at the same time, when we talk to our customers, you can hear from them that confidence has dipped and they're talking about taking actions to safeguard their business and to moderate their growth settings. So that is a bifurcation and a disconnect, frankly, that we're seeing that really hasn't kind of unraveled yet. So our expectation is that we'll see a softening, but the truth is we don't see it yet in our numbers. Jonathan Mott: Great. So is it just too early? Andrew Irvine: Yes. Look, I'm quite surprised, frankly, that we haven't seen any reduction, but that's where we're at. So I think it is too early. Operator: Your next question comes from Ed Henning from CLSA. Ed Henning: Can I just ask a question on the margin. If you give us a little bit more just the outlook and what you're thinking there. If I kind of run through a few things. What was the rate lag impact in the first half? You saw also on the home loan side, you saw fixed rate lending increase a little bit. Was that a headwind? And do you see that as a continuing headwind going forward? On the mix, you talked about the benefit coming through on the deposit side. Can you just talk about do you anticipate a mix benefit still to come through? Or are you starting to see some shift to TDs that will be a bit adverse on that? And if there are any changes in competition as well, please? Andrew Irvine: Inder, do you want to take that? Inder Singh: Yes. Look, obviously, we are cognizant of all of those moving parts. Clearly, we don't provide specific NIM guidance. But if you look at the impact of rate increases, we obviously had 2 rate increases in this half compared to 2 rate decreases in the last half. But if we look forward and we only get, say, 1 rate increase, we think the rate lag impact is probably 0.5 basis points or thereabouts in terms of NIM. I think the impact in terms of fixed doesn't really play into that materially, to be honest. In terms of deposit mix, look, it's difficult to sort of forecast. We've obviously got strong momentum in a number of parts of the business around transaction accounts, and Andrew spoke to that, both in terms of B&PB and also within the personal bank. And we'll manage the overall mix in terms of how we express appetite for TDs based on how we see the momentum playing through, but we're pretty pleased with the first half momentum. Andrew Irvine: And we haven't yet seen any migration to yield-bearing deposits in the mix. Is there a potential for that to happen as rates increase and the value to customers of capturing yield is greater. But to date, we haven't really seen that migration. Operator: Your next question comes from Andrew Triggs from JPMorgan. Andrew Triggs: Just a question on a capital again. With the RBNZ changes being finalized and coming up in, I think, the 1st of October, can you just talk to the benefit from those changes and its interplay with the pro-cyclicality capital you talked about, noting that you are fairly marginal on the standardized for now? And just with that sort of tighter capital position, just your priority areas for growth and where might you think even if credit growth does moderate a little bit, do you think you need to pull back on certain areas like institutional to make sure you have sufficient capital for the emerging economic environment? Inder Singh: Yes. Good question. I might take the first element of that, and then Andrew can talk a bit about the priorities for growth. In terms of the New Zealand regulatory changes, I think 2 main areas of impact. One is that you'll see the gap between Level 2 and Level 1 close out a little bit, mainly because we have some internally funded Tier 2 in the New Zealand sub that gets a deduction at the top of the house. So you'll see that narrow. I think secondly, probably a combination of the New Zealand changes and what APRA has proposed here, we should see the standardized floor really become less of an issue for us moving forward. And so our focus really is on the advanced impacts as we expect that standardized floor, which has been a bit tight in the last couple of periods to be less of an issue moving forward. Andrew, do you want to cover the priority areas for growth? Andrew Irvine: Yes. I think, look, when I talk to shareholders, they want us to continue to participate in high-quality loan growth, predominantly in our business banking franchise, but also to the extent we can get it in home lending where there are opportunities to grow share above our cost of capital. I think we're going to continue to look at areas where we're not earning a sufficient return on our capital and continue to tighten the settings to minimize that leakage really. We've done that, I think, really well across our portfolios, but there's still more that we can do there. We're conscious. We want to be a bank that's generating capital over the course of time, and we know that, that's been hard for us over the last little while. Some of that explained by the fact that we had very marked and elevated loan growth. And we have confidence that over time that we will generate positive capital in a normalized market environment. Andrew Triggs: Thanks, Andrew. So can I read that you'd be happy to have a zero discount DRP attached to the full year dividend if shareholders were happy for you to grow. Inder Singh: Yes. I mean, look, I think the other thing to bear in mind is that, obviously, the strong growth that we've experienced is going to translate into higher earnings. So as we look forward, we're also mindful of earnings per share growth. Our payout ratio in this half is 72.5%. That's at the upper end of the 65% to 75%. So should we see good opportunities to continue to grow the business strongly, we can manage, I guess, the pace of the EPS growth versus DPS growth, i.e., DPS growth may lag a little bit, right? Because if we continue to see good opportunities to invest shareholder capital, we will do that. If the payout ratio lags a little bit, that's perfectly fine. Operator: Your next question comes from John Storey from UBS. John Storey: I've just got a question for you, Andrew. It's obviously the second rate hiking cycle that you've seen in Australia. I just wanted to get your sense if you think the market, in your opinion, is just underestimating the earnings durability of the business and private bank in particular. Obviously, a very strong set of results, but I appreciate it's backward looking, but interested to get your views on how you characterize today versus what you've seen and gone through over the last few years. Andrew Irvine: Yes. Look, it's -- again, I would say that the ability to project into the future now is more uncertain than it normally would be because of the macroeconomic volatility. And how that's going to play out for businesses. The Reserve Bank has been clear that they needed to tighten demand because there was a situation in our economy where demand was outstripping supply. That's why they've raised the interest rate by a couple of 25-point increases, and we expect there'll be one more. I think what's hard to then predict is how much supply has been taken out by the migration of spend to fuel, but that's real for many of our customers, particularly in areas like agriculture, manufacturing, transportation, retail trade. So what I will say is that our customers, by and large, enter this period in a strong cash position. Deposit at the bank are up meaningfully and most of our customers have relatively lower leverage and strong cash buffers to, I think, withstand the cycle. And there'll be opportunities for many of them to grow and take advantage of any dislocation. So look, I think we just have to stay close to our customers as we go here, which we intend to do. But it's really, really difficult, I would say, to project out right now because of that uncertainty in the day-to-day nature of things. Operator: Your next question comes from Tom Strong from Citi. Your next question will be from Matt Dunger from Bank of America. Matthew Dunger: I wondered if I could ask about cost growth, significant change to the capitalization policy. And you've been delivering significant productivity, guiding still to cost growth over 4%. Andrew, you've called out the moderating lending growth expectations. Does over 4% cost growth remain acceptable in this environment? Just wondering if you've changed your thoughts at all given the change to software policy? Andrew Irvine: Yes. Look, we're not, at this point, looking to change guidance to the market in terms of our expense commitments. But you can be sure that as a management team, we are looking at our cost base and the expenses that we have and that over time, you always need to cut your cost according to what's happening in the revenue environment. And so to the extent there's a possibility that revenues come under any pressure, we would obviously be looking at what happens over time to our cost growth. It's important, though, to remember that there's lots of areas of cost that our customers value and our shareholders value. So we have to delineate between those costs that drive outcomes and costs where we can drive productivity. And I do think the new solutions emerging around AI are going to be helpful for us in that regard as a bank. Anything Inder you would add? Inder Singh: Yes. No, I think just to reaffirm, Andrew, I mean, over time, our aspiration as a management team has to be to aim for positive jaws going forward. We have to be cognizant about the fact that we need to balance the underlying level of inflation in the cost base with the need to invest to support growth in the right areas to make sure we continue to modernize the bank's infrastructure, continue to improve the experience of our customers. So it's something that is very active in our thinking as we get into the planning process for the next couple of years going forward. Operator: Your next question comes from Matthew Wilson from Jarden. Matthew Wilson: Matthew Wilson, Jarden. Just on the software capitalization that Matt Dunger referred to. This is the third time in 7 years you've written off capitalized software. That's $2.9 billion or $600 million per annum, which has effectively understated your cost base by around 8%. When you look at your peers in this space, ANZ's best of breed, they expense 80% of their investment spend. They've got the same tech environment that you confront. You're now only at 50%. I don't think you've gone hard enough. Andrew Irvine: That's an interesting point of view, Matt. I think we're right in the middle of peers now with the new settings and we'll have to continue to watch. I do think there is a macro trend here that over time, the value of software assets is likely diminishing as AI advances and the ability to build software or replicate software faster and cheaper emerges. So this is probably something we're going to have to continue to look at, not just as a bank, but as an industry. But I think for now, our settings are in the middle of peers. And I think as a Board and as a management team, we were happy with where we've come to. Matthew Wilson: This was an opportunity to sort of at least equalize the best of peers and get ahead of the trend that you clearly understand. Andrew Irvine: Yes. Look, we'll note your point. And I think the point that we've had 3 of these in the last 7 years is far from ideal. So -- it's certainly something that we should be looking at. Clearly, we weren't in the right starting position 7 years ago as a bank in this area. Operator: Your next question comes from Brendan Sproules from Goldman Sachs. Brendan Sproules: Brendan from Goldman Sachs. I just want to refer to you to Slide 28, where you show us the NPLs by sector. You noted today in the presentation that overall asset quality had been improving as the economy picked up and rates were cut over the last 12 months. Could you maybe just talk about a couple of sectors here that over the last 12 months have actually been deteriorating, Obviously, agri, forestry and fishing as well as transport and storage. And these are the most impacted, obviously, by the energy pricing dislocations. So can you maybe talk about why these things have been deteriorating while the rest of the economy has been improving? Andrew Irvine: Yes. I might call on Shaun Dooley, the bank's Chief Risk Officer, to come and just address that question. Shaun, if you don't mind. Shaun Dooley: Shaun Dooley speaking. So thank you, Brendan, for the question and you're drawing attention to Slide 28 there. So I think what we're seeing in agri, forestry and fishing is probably a couple of single name exposures that have probably had their own idiosyncratic issues associated with their particular businesses. Some of it has been weather-related, some of it has been supply chain related as well. So that being said, the portfolio remains a pretty strong portfolio. Its performance over a long period of time has been strong. It's well diversified and it's industry that we know well, and we have deep specialization, both in terms of bankers and credit people. In terms of the transport and storage, as you said, there's some issues associated with probably supply chain input costs into that. And that has been a sector, particularly in the transport side of it, where we've probably experienced more challenges in that part of the portfolio. But I think the main takeaway from this slide is the improving performance across the majority of the sectors that we're dealing with in business and private bank. And you'll see the same thing deeper in the pack around the whole portfolio as well. Brendan Sproules: And I have a second question on the performance of the Corporate Institutional Bank in the half. I'm referring to Page 44 of the 4D. You've had very strong lending growth, almost 7% in the half and almost 13.5% over the year. But we're actually seeing very weak lending and deposit income growth. Can you maybe talk to some of the drivers of why that's the case and whether -- particularly as we're entering probably a period of a slowdown, how you expect that to change over the next 6 to 12 months? Inder Singh: Yes. Look, I mean, overall, I'd say, looking at the returns that the C&IB business is producing at around 15%, we're very pleased with the progress that we're making. I think clearly, we've seen some impairment charges come through, which we've referenced in Andrew's remarks. I think on net interest margin, it's probably fair to say that we've seen a little bit of NIM compression in the half. You'll pick that up as you get through the back pack of the slides. NIM half-on-half is off about 14 basis points, which I think contributes about 1 basis point in lending compression at the company level. But really, what's driven that on the deposit side is we've seen the cut in U.S. dollar cash rates impacting the deposit book. That's been about 3 basis points. We've also lost the benefit of the custody business that we had, which we've now exited that had given us probably about a 2 basis point headwind on the deposit margin. So deposit margin is off a bit. On the lending side, we are seeing a little bit of heightened competition, as I referenced in my remarks albeit the returns remain very strong. We've also had a bit more of a skew towards growing the Australian corporate book where we've got good momentum. We've now built better capability in areas like transaction banking. So the overall relationship ROE is very strong. But look, it's a fair point that in the half, the asset growth and the income growth has probably not kept pace, but we expect that to improve a little bit into the second half. Andrew Irvine: One other point I would make is that I think in the month of March, there was material drawdown activity in the top end of town, likely due to concerns at the time regarding the Middle East crisis. And given that, that was at the end of the period, we probably didn't get the full benefit of earned income in those -- in that asset growth. But were that to continue, that would normalize and align, I think, over the continuity of time. Operator: Your next question comes from Brian Johnson from MST. Brian Johnson: Just I've got a question just as far as the capital, which is kind of summarized on Slide 30. If we have a look at NAV historically, you've kind of committed to the 65% to 75% payout ratio and neutralizing the dividend reinvestment. The one disappointing aspect I really think of this result, which was effectively pre-flagged is the DRP issuance. Could we just get some comment -- and the other thing I suppose I'd flag is the 11.65% to 12.05% pro forma, that's assuming you raise the money from the dividend reinvestment, but it actually doesn't take out the dividend itself. So if we were to go through all of that, it comes back to about 11.47%, which is a surplus, I think, above the minimum of about $980 million. Can we just get a feeling on, is that enough surplus capital that we should be confident you can resume neutralizing the DRP? Or has -- or because of the overlays, has the capital intensity effectively permanently gapped up to the point where you can't neutralize the DRP going forward? Inder Singh: Quite a lot in that question, Brian. Maybe if I start with. Brian Johnson: It's one question with 20 hidden there, Inder. Inder Singh: No, I appreciate it, Brian. On the -- if you look at the dividend that you are looking through the pro forma, we can argue for a long time as to how you roll forward the capital position. But if you start with 11.65%, by the time we pay the dividend, we would have probably accreted that by another 30 to 40 basis points of earnings, Brian. So by the 1st of July, if you wanted to pro forma it at that point, you could say, take the dividend off, give us the credit back for the DRP and the underwrite. So 60 basis points of dividend comes off, 40 basis points of the benefits from the DRP actions come back on. So we could spend a long time going around the houses on this, but we're sort of seeing the capital position probably being in the high 11s and the low 12s as you roll through the earnings through the course of the year. I think your broader question is a good one, which is how do we think about the sustainability of balancing growth, the dividend where it's at, et cetera. And look, it's unfortunate on the overlays that we've had 2 significant overlays on our RWAs in this half and the previous half. Obviously, we don't expect that to be a sustaining trend. We've had a series of recalibrations to do on our models, which we are progressing through. So we obviously aspire to have strong models with limited overlays of this type of nature going forward. But as I referenced earlier, I think if we can translate the balance sheet growth to earnings growth, we should see the earnings per share grow over time. We have the opportunity to be able to fund higher credit growth by managing down the speed with which the DPS grows at, right? So you should be able to accrete capital going forward. So at the moment, we feel pretty good looking at the second half that we don't need to put a discount on the DRP. But we're just going to have to execute well, Brian, make sure we're allocating capital sensibly. We're driving the right volume margin trade-off that we're investing in the right places and driving value from that, managing our costs and driving efficiencies. So I think it's as much about the capital generation levers more broadly and how we execute against those. But stock of capital is in a strong position, and we feel good about the second half. Brian Johnson: So Inder -- but am I right in thinking the formal kind of guidance, if you'd like to call it that on the DRP neutralization no longer exists? Inder Singh: No, we're not seeing any changes to any of the capital policy settings. We are basically saying here's a series of actions that we're going to take in relation to the first half. Operator: Your next question comes from Tom Strong from Citi. Thomas Strong: Can you hear me okay? Andrew Irvine: Yes. Thomas Strong: Perfect. Just a question on productivity, if I can. I mean if we go back 12 months ago to the first half '25 results, you did about $130 million of productivity for $420 million for the full year. Now you've had quite a strong half this half in terms of $200 million of productivity. So to what extent is the bottom end of that greater than $450 million of productivity guidance? And to what extent is that conservative given the hard work you've put through in the first half? Inder Singh: Well, look, I'd say we have fairly meaningful targets. The $450 million plus is an ambitious target. We are making good progress through it through the course of the first half. As you picked up from the various comments we've made during this briefing, we've got a real focus on making sure we can drive operating -- positive operating jaws as we look forward on a multiyear basis. We've got work to do to continue to not just deliver the current targets, but continue to build on those over the coming years. So -- and we're looking at all options in terms of what we can do around deploying tools to continue to enhance that. Andrew Irvine: But you can be sure we're running hard as a management team in this area. And if we can beat that number, we will. Operator: There are no further questions at this time. I'll now hand back over to the team for any closing remarks. Sally Mihell: Thank you. I'd like to thank everyone for joining us today. If you do have any follow-up questions, the Investor Relations team will be available to help. Thank you.