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Operator: Good day, ladies and gentlemen, and welcome to the Old Mutual Q3 Voluntary Update [Operator Instructions] Please note that this event is being recorded. I will now hand you over to the Head of Investor Relations, Langa. Please go ahead. Langa Manqele: Thank you very much, and good afternoon to everyone who's joining us, and good morning to those who may be dialing in from the space. My name is Langa Manqele, as introduced. I head up Investor Relations. On the call with me is Jurie, our CEO. He will be leading the call, and Jurie will be assisted during the Q&A and comment session by Casparus, our CFO; as well as Ranen Thakurdin, who is presently our Chief Accounting Officer. I will now turn over the call over to Jurie. Thank you. Johann Strydom: Thanks, Langa. Good afternoon, everybody, or good morning [indiscernible] good to be with you. I think I'm sure you have in front of you the operating update that we put out on the 18th of November. So maybe just by intro from my side, it's been -- I think we had our Capital Markets Day towards the end of October, where we put out the important metrics that we're measuring ourselves on and be reporting on going forward in our medium-term targets. We're not reporting on those metrics in this operating update. But as we put -- as we made clearly the update that from next year onwards, from sort of Q1 numbers onwards, we will be reporting on those. I think internally, since the Capital Markets Day and as we head towards the end of the year, the focus has moved, I think, about as we spoke around taking those targets and operationalizing them into the business planning process. We've managed to catch the planning cycle to be able to do that as well as the scorecarding process. So very much moving from sort of strategy into execution. And so that's the focus, internally, as we ahead towards end of the year. I think just a couple of comments on the operating update we put out. And I think you will have noticed that there's not major changes from the trends that we reported at the half year. So the Life APE sales continuing to, fall by 1% and gross flows flat. A decline in net planned client cash flow for, again the reasons that we reported half year, particularly in the low margin outflows and investments and single big outflow had an impact there. Gross written premiums on the noncovered side are at 5% on the P&C side. And loans and advances also 1% down impacted, there of course, there was a sale of underperforming loan book impact on that. So those are the metrics that we put out there. I think Langa, I'm happy to go to questions for the conversation. Langa Manqele: Thank you very much, Jurie. Judith, kindly open up the call. I do not see yet the queues on the Q&A. Please confirm on your side if you do. But otherwise, if you could just remind the participants on how to put in their questions through. Operator: [Operator Instructions] Our first question comes from Baron Nkomo of JPMorgan. Baron Nkomo: Just 2 questions. Firstly, are you able to give some color on the evolution of your CSM since June 2025? And then secondly, can you comment on Old Mutual Insure's underwriting performance so far in H2 relative to the strong first half performance we saw. Langa Manqele: Thanks. Thank you. Over to you. Casper Troskie: So on the CSM, unfortunately, I'm not able to give you more color on the evolution of CSM since the half year. We'll obviously be able to give you full reconciliation at the year-end. I was trying to assure underwriting margin, we haven't seen any material impacts that still show positive margin, but we obviously reported a very high number at the half year. So I would expect that to normalize more to within our updated range or at the top end of our updated range. Operator: The next question comes from Harry Botha of Bank of America Securities. Harry Botha: Can you comment on the Life APE sales that you're seeing in Personal Finance, excluding guaranteed annuity sales? And you also noted strong growth in retail gross written premium in Old Mutual Insure, if I understood correctly. H1 was up 5%. So it sounds like growth has increased. Can you comment on what's driving that increase? Casper Troskie: Well, your comments specific to -- I'll just deal with it. I guess if do you look at the Personal Finance sales, guaranteed annuities were down close to 40%. So it's the majority of the reduction -- overall reduction [ in 9% ] that you're seeing period-on-period. So that's what's driving that. We are seeing -- we saw a slight uptick in the recurring premium sales. So the biggest move there is guaranteed annuities [indiscernible] pulling the piece of [indiscernible] your second question? Harry Botha: Just regarding the gross written premium in retail segment within Old Mutual Insure, it sounded like it was up more than 5% at June. Casper Troskie: I'll just check on that and come back to you. We can go to the next questions. Operator: Our next question comes from Bradley Moorcroft of Peregrine Capital [Operator Instructions] Our next question comes from Francois Du Toit of Anchor Stockbrokers. Francois Du Toit: Can you hear me? Johann Strydom: Yes. We can. Francois Du Toit: Can you maybe comment on your solvency level, maybe just directionality in the quarter and maybe factoring in buybacks as well. I know you don't like telling us whether you're buying back or not and whether you like the price to buy back or not. But maybe if you can just give a sense of how much you executed in the last quarter on your buybacks? That's the first question. Obviously, that's the solvency level will be a function of that, I guess, as well. Your -- second question, your gross flows, I think, was quite a bit stronger at the half year in terms of percentage growth. Maybe just comment on the reasons for the slowdown. I think you've mentioned the annuity sales, but it seems like there's a further slowdown there since the half year. But nonetheless, the net flows improved from the half year to outflows, but it's not as big outflows level as we had at the half year. So maybe can you just comment on your persistency or client retention in the light of better net flows and whether you're seeing positive lapse experience variances or improved levels compared with the half year. Just a sense of what's behind the improved net flows and weaker gross flows. Casper Troskie: Okay. Let me go to solvency levels first. So Francois, what we -- last I looked, we had done just over 10% of the buyback, and we are obliged to on a regular basis publish what we've done. So that's in the market. So if you just look out for those, you'll see that. And then in the quarter, in terms of solvency ratios, I would expect most insurers have seen a decline in their solvency ratios given the fact that the pre-strike equity shock increased in that quarter. I think it is increased by about 4%, 5%, which means your capital requirements for any equities that you are holding on -- whether they will have gone up. So -- and at an all-time high, I think that the 1% away from the top level of stress that there can be. So I would have expected and we correspondingly, we've seen a reduction in [indiscernible]. Ranen Thakurdin: Just to add to Casper's comments, the share buyback was fully allowed for in the -- as a reduction to funds in our interim numbers. So as we execute the buyback, it won't affect our solvency ratios. Casper Troskie: Okay. On the second -- on gross flows, the second point actually you're right. So the -- the Old Mutual investments had a higher base in quarter 3, 2024. So this year, we are -- so comparing against the higher base that's impacted from the current year growth. And then as we said earlier, we had much lower fee from inflows to the points earlier we made. But we also had muted inflows in wealth, whereas wealth was a really strong performer last year. So we've seen muted inflows in wealth. Hopefully that helps. So overall, [indiscernible] savings were down 1% from a gross flow perspective, and that's the main reason in Old's Mutual investments down 18% from the prior year. Unknown Executive: And just to confirm earlier question, the 5% gross written premium growth of Old Insurance the retail growth rate was quite similar to the total. Operator: Next question comes from Marius Strydom of Austin Lawrence Gidon. Marius Strydom: My question is about OM Bank. At the open day or the Capital Markets Day, you mentioned you had 145,000 clients and you were adding 5,000 a day. So could you please give us some indication of whether you've seen that kind of daily addition maintained since the Capital Markets Day or whether it slowed markedly or any other information you could provide us around your traction? Casper Troskie: So Marius, I think on the weekend, I think to note that we were about 200,000 and that run rate is going at about 300 accounts a day. Operator: Our next question comes from Bradley Moorcroft of Peregrine Capital. Bradley Moorcroft: Can you hear me now? Casper Troskie: Yes.We can. Bradley Moorcroft: Sorry about the issue earlier. Also a question on Old Mutual Insure top line. I noticed that the growth has slowed from 9% at interims to 7%. I mean any further color you can give there in terms of the slowdown, persistency challenges, increased competition would be very helpful. Langa Manqele: Over to you, Casparus. Casper Troskie: I'm trying get a performance [indiscernible] . Langa Manqele: I will come back to you with that detail. Judith, may I check are there still any questions? I can see anyone who is on the queue at the moment. Operator: No, sir. At this point, there are no further questions in the question queue. Langa Manqele: Okay. Thank you very much. I will hand back over to you, Jurie, just to -- I think there's one question that I see. Judith, please check, I think it's right. Operator: Yes, correct [indiscernible] of HSBC. Unknown Analyst: I just had a question probably not related to Q3, but are you planning to take any restructuring charges in relation to your cost program? And will any of that be allocated to full year '25? Casper Troskie: Just to understand correctly. You asked whether we are going to be adding any further restructuring provisions. Is that the question? Unknown Analyst: Correct. Casper Troskie: To the extent that you have to meet quite a lot of conditions to have a restructuring provision. So if you've met all the conditions that are required at year-end for a restructure, i.e. you've identified people, you've made the announcements, then it can be accrued for the year-end. If you're not in that position, you have to incur the cost when you actually do that restructure. So there will be additional costs in the second half relating to headcount reduction, but those have largely been dealt with. So I'm not expecting a large provision outstanding at 31 December, i.e., a restructuring provision for future costs. We'll see the one-off costs coming through in the second half. I hope that helps. Langa Manqele: Thanks, Casper. Could you please just do a final round and check if we have any questions left and let's take those. Operator: [Operator Instructions] We have a follow-up question from Harry Botha of Bank of America Securities. Harry Botha: Just a follow-up around the loan growth issue. I think you noted the sale that had an impact on growth. What is your outlook for growth? How quickly do you see loan growth in Old Mutual Finance improving? Langa Manqele: Than you. Over to you Casper. Ranen Thakurdin: Yes. So Harry, as we mentioned earlier, part of the reason that the loan balances are flat as we were exiting specific pieces of the book. We are expecting to see better growth rates coming out of our loan book as we still very responsibly improve our lending. So we are maintaining tight credit criteria, but we do expect that book to grow going forward. Langa Manqele: Operator, kindly check if we have any outstanding questions. Operator: Our next question comes from Jarred Houston of All Weather. Jarred Houston: Just checking you can hear me? Casper Troskie: Loud and clear [indiscernible]. Jarred Houston: Thanks for the update. Just a question on your investment result, your shareholder investment return. Obviously, in the first half saw a very strong number. Is it fair to assume just given what's happened with markets both locally and in the rest of Africa as well as bond yields, it's fair to assume current run rate is a continuation of that strong trend. Casper Troskie: Yes. I think it's fair to assume. Investors should just recall that we do have collars around -- so we have a protected equity structure. So upside is limited, but we do try and roll those collars on a regular basis in tranches to manage the position over time. But, yes, you should still see strong investment performance coming through in line with the markets... Langa Manqele: [indiscernible] it sounded like you're going to ask a follow-up? Jarred Houston: Yes. Langa, just the comment earlier about the progress on the buyback. I just want to clarify did Casper say only 10% of the buyback has been completed. And then just a question mark on -- we've obviously seen quite a big step-up in market volume as a result of an index outflow. Is the group participating in the higher level of market volume? Or is it just slowly ticking away over time. Langa Manqele: Casper, would like to comment? Casper Troskie: Yes. So obviously, we would participate in the higher market volume, if that's consistently happening. We set -- we have to work within the limits. As an issuer, there are limits around -- so we can't move the market [indiscernible]. So we have to work within those limits. And then we have -- we're doing this buyback with this mandate with 1 or 2 of the large banks. So they have specific parameters to work with them. The 10% was a few weeks ago that might have gone up in the last week or 2. Ranen Thakurdin: Just over ZAR 400 million at the moment. Langa Manqele: Thank you, Casper and Ranen. Operator, I'm comfortable that we round up and maybe take 1 last question. Operator: Final question comes from Marius Strydom of ALG. Marius Strydom: Firstly, your South African Asset Management performance in the third quarter versus the first half. Considering higher AUMs at 30 June and continuing strong market performance, should we expect a decent acceleration in your earnings run rate since the half year? And then the second question, considering the lapse assumption changes that you made and the management actions that you've taken, have you seen some improvements in your lapse experience at MFC? Johann Strydom: Marius, just to remember, very small part of that base is equity half. So really, you're looking at sort of a balanced mandate. The assets that you have, for example, like, we're seeing pressure on credit spreads. So the origination targets are quite there might but on the flows. And then the alternatives, you're looking at much longer valuation cycle. So I would expect the force to increase in the third quarter, but there are quite a few moving parts. Ranen Thakurdin: So Marius, just remember that most of our IFRS 17 products on BFA, we get value in the equity market that goes to the CSM that, it doesn't drop through to earnings. So you will see that largely coming through in the CSM. Marius Strydom: My question is really related to the asset management businesses. So those that are not -- don't form part of the CSM. Langa Manqele: Thank you, Casper. And thank you, Ranen. Marius Strydom: Sorry, Langa, there was 1 more question. Johann Strydom: Sorry, Langa, there was a question from Marius, on MFC persistency. I mean we obviously are progressing with the management actions, but I think it's too early to call a material improvement yet. Langa Manqele: Operator, I don't see any questions I'm comfortable to wrap up here and hand back to you, just to wrap up the call for us. Thank you. Johann Strydom: Okay. Well, thanks for being with us, everybody. Yes, I think there were 1 or 2 questions which we're happy Langa to get back to the individual. But for the rest, thanks for the conversation. Yes, I suspect our next conversation will be in the new year. Langa Manqele: Thank you very much. Operator: Thank you. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.
Matias Cardarelli: Good morning, everyone. It is a pleasure to share PPC's progress at the halfway point of our FY '26. Results to date reflect not only continued progress, but also building on the foundations cemented last year, driving sustainable growth and operational improvement. I want to extend a warm welcome to all of our investors, our Board, employees and members of the media as well as other stakeholders who have joined us today. Your ongoing support and confidence in PPC remain critical as we advance our turnaround journey. Brenda Berlin, our CFO, and I will share the first half FY '26 financial results, key highlights of the year and progress on our strategy implementation. I will start with the business highlight, followed by Brenda's review of the financials. Then I will return for the business review and outlook. We will have time for your questions at the end of the presentation. Last year, we presented a new direction for PPC, a fundamental shift in the group's strategy, culture and focus areas. Steadily and consistently, we have been rebuilding PPC. FY '25 marked the beginning of this pivotal chapter for PPC in which we implemented structural improvements and delivered a strong recovery in our financial performance. This strong momentum has continued into FY '26. Central to this transformation is our turnaround strategy, Awaken the Giant. It is ambitious by design and grounded in the confidence that our success would come from internal drivers regardless of macroeconomic or competitive pressures. By unlocking internal value and sharpening our competitiveness, we have laid the foundations for growth and sustainable value creation, which is reflected in the numbers over the last 18 months. I believe our message might have been difficult to grab at first, but we believe it has led to a better understanding of our industry and business drivers. Clarity matters to both understand what is driving our current results, but also the PPC potential. PPC was struggling for relevance and stuck in a negative and confusing narrative. This remains, to some extent, in the sector today. Our results are becoming a reference point in the sector as a consequence of our focus on profitability and value to shareholders. We got off to a strong start in FY '25. And now in the first month of FY '26, we continue to deliver ahead of our FY '25, FY '30 strategic plan. This progress is evident in profitability, margin and cash flow generation. It is also clear in the significant increase in return on invested capital, reflecting a clear shift towards shareholder return and growth. Importantly, the quality of our earnings. This means that our performance is underpinned by solid fundamentals, sustainable margins and prudent capital allocation. This guarantees that the growth is achieved responsibly and maintained over the long term. This is PPC today, delivering ahead of plan with quality earnings and definitely more to come. Let me make a moment to highlight what truly sets PPC apart in our markets. Why is PPC delivering the best in sector results? From the beginning, we stated that our focus was on the quality of revenue, ensuring margins that they are both leading and sustainable. A purely revenue-driven approach might deliver short-term gains. But in a competitive context, it becomes a race to the bottom that erodes margins, value and risk the sustainability of the sector. Instead, we leverage our competitive advantages to deliver value to customers through high-quality products rather than only competing on price. We can also leverage our unique footprint, capacity availability and asset flexibility to allow access to key regions and markets. On top of this advantage, our focus has been on optimizing our production and distribution model. This enables us to plan and realize more effective contribution margins, ensuring that every sale brings the most value. Continued capital investment in our assets is another clear differentiator, one that sets us apart now and will have an even greater impact in the future. In a competitive market, we know that technology, asset age and maintenance are critical for margin enhancement. We continue to invest in and maintain our assets to enhance capacity and efficiency. Well-maintained assets and the newest technology position us strongly for growth and further competitive advantage. When it comes to product offering, I want to address an important aspect of our business related to our competitive position in our markets. Firstly, PPC operates in all cement segments across most regions. This allows us to stand out in the marketplace and attract a full range of customers. We are a premium brand because we are a premium quality. Our premium quality is matched by our ability to scale, guaranteeing supply and consistency to meet the diverse needs of our customers across all segments. Finally, our management team brings over 100 years of combined cement industry experience, both locally and internationally. This depth of expertise in our first and second line of management allow us to execute effectively on our strategy. Looking at the results for the 6 months ended in September 2025. You can clearly see the positive impact of the turnaround in all key metrics. When we launched the Awake in the Giant strategy, we set out clear metrics to define sustainable success and unlock future growth. Those were EBITDA, EBITDA margin, free cash flow and ROIC. The combination of these indicators determines quality earnings and shareholders' returns. We keep progressing in all of them. EBITDA has grown 24% to ZAR 983 million. EBITDA margin expanded by 2.6 percentage points to 18.3%. Free cash flow from operations surged 32% to ZAR 661 million. Record dividends declared for Zimbabwe, reaching USD 20 million from USD 4 million last period. And lastly, ROIC improved significantly to 13.4% from 7.1% last period. What is driving these results is the cumulative effect of multiple initiatives, building on the momentum established over the past 18 months. These continuous improvement efforts are already delivering and importantly, are expected to have an even greater impact going forward. The growth in the first half results is especially noteworthy because it was largely driven by our South African cement business, which expanded EBITDA by over 30% with an EBITDA margin of 17.5% -- in Zimbabwe, a very high demand boosted volumes, revenues and EBITDA. However, the planned kiln maintenance shutdown in Q1 increased our reliance on imported clinker, which temporarily impacted our margins. Overall, the business generated record cash flows, driving higher dividends. In summary, we delivered quality earnings growth, strong cash generation and improved returns. I will hand over to Brenda now to cover the financial review. After that, I will deal with the business review and outlook. Brenda Berlin: Thank you, Matias, and good morning, ladies and gentlemen. Matias has already touched on some of the key metrics. But as usual, I will start with reemphasizing some of the key features of the consolidated group, followed by some more detail on the SA & Botswana Group and then Zimbabwe. I will then close on capital allocation, capital expenditure and returns to shareholders. Moving to the consolidated group key features. Group revenue increased by 6.2% to ZAR 5.4 billion. I will go into a little bit more detail later as to the split of this increase across the SA & Botswana cement, materials and Zimbabwe. The increase in revenue, combined with continued cost control resulted in the expansion of the EBITDA margin by 2.6 percentage points to 18.3%. The increase in EBITDA by 23.5% to ZAR 983 million is also reflected in the 32% increase in adjusted headline earnings per share. The pro forma adjustment relates to adding back the unrealized foreign exchange losses on hedging instruments taken out to derisk PPC's balance sheet from rand weakness in constructing RK3. The group continued investing in equipment and spent ZAR 225 million on CapEx during the 6 months, almost all of which was maintenance expenditure. No expenditure was capitalized for RK3, but there were advanced payments totaling ZAR 317 million in the period, which are reflected in working capital. Adding back the ZAR 317 million paid to RK3, net cash inflows from operations increased significantly from ZAR 500 million in the comparable period to ZAR 661 million in the current period, an increase of some 32%. The ROIC of the group expanded by 6.3 percentage points to 13.4%, which is well ahead of the plan. Before going into the income statements of the respective businesses, this slide just sets out some key points to contextualize the results. The SA operations had a strong performance with EBITDA increasing by 36%. The Zimbabwean operations had an extended planned shutdown of the kiln in Q1 of the current period. Matias will go into more detail on these 2 points in the business review. Notwithstanding the Q1 shutdown, PPC Zimbabwe generated strong cash flows and declared $20 million in dividends during the 6 months. This compares to ZAR 4 million in the prior period. As mentioned already, we paid ZAR 317 million in advanced payments for RK3. The unrealized foreign exchange losses that are adjusted for in the pro forma HEPS amounts to ZAR 54 million after tax. The SA & Botswana Group ended the period at a gearing ratio of net debt to EBITDA of 0.1x, well below the target range of 1.3 to 1.5x. This slide sets out the key line items on the consolidated group income statement. Before going through the numbers, an overall point is that it is worth noting how clear and simple the income statement is now. It is significantly less confusing to go from EBITDA to profit after tax. A few years ago, there were no less than 9 line items below trading profit compared to the current 4. It is much easier to manage and understand a clean income statement. As mentioned, I'll cover both the SA & Botswana Group and Zimbabwe in a bit at the EBITDA level. The absolute increase in EBITDA of ZAR 187 million is reflected in an increase in trading profit as depreciation was almost flat over the 2 periods. Moving on to some relevant items below the trading profit line. The fair value and foreign exchange losses in the current period include ZAR 74 billion pretax unrealized foreign exchange losses that I've already talked about regarding the pro forma HEPS adjustments, ZAR 34 billion in realized FX losses on the advanced payments made for RK3 and ZAR 15 million loss on translation of foreign currency-denominated monetary items for PPC Zimbabwe and PPC Botswana. Net finance costs reduced by ZAR 15 million. Finance costs themselves reduced as we had both lower borrowings and lower interest rates compared to the prior period. Investment income or interest received also reduced due to lower average cash balances. The cash proceeds received on the sale of the Rwandan operation were held for almost the entire period before a special dividend was paid out in September 2024. Closing this slide with the effective cash tax rate of 33%. This is in line with the prior period and previous guidance. The single biggest item in the current period that increased the effective rate from the statutory rate of 27% is withholding taxes paid on dividends declared by PPC Zimbabwe. This is the final slide of the consolidated group. As usual, it depicts the contribution to both revenue and EBITDA by the SA & Botswana Group and PPC Zimbabwe, respectively. The numbers inside the wheel depict the current half year percentages with the prior period shown on the outside. As can be seen, the relative contribution from the SA & Bots Group at a revenue level declined by 5% from 70% to 65% and increased by 6% at the EBITDA level. I will now move on to give an overview of the SA & Botswana Group, followed by Zimbabwe. The SA & Botswana Group is an aggregation of 3 components, with the main driver being SA & Bots Cement. The materials businesses comprise ready-mix, ash and aggregates with PPC Limited and other being essentially listed company overhead. Matias will go deeper in the business review, so I will just touch on a few key features on this slide. Regarding South Africa and Botswana Cement, strong growth in Q2 followed a weather disrupted Q1. The focus remained on contribution margin and cost efficiencies, resulting in a very sound 31% EBITDA growth. The Materials segment shows a significant but not material decline in EBITDA. The EBITDA for the aggregates and ready-mix businesses were more or less flat compared to the prior period with the ash business responsible for the overall decline. Volumes in the ash business declined by 42% compared to the prior period. Dealing with PPC Limited and other, in the prior period, all of the centralized group services costs were in the segment. As of 1 October 2024, all group services staff were transferred to SA Cement being the main reason for the improvement in cost in the segment. On the next slide, I will deal with the cash flow bridge for the SA & Bots Bo Group, but the gearing being net debt to EBITDA remains very low at 0.1x. To remind you, it is expected to peak for 1 year in FY '27 when the construction of RK3 is largely completed. In this peak funding year, we expect to be below 2x when the required net debt-to-EBITDA covenant is 2.5x. Dealing now with the SA & Botswana Group cash flow. What is shown on the slide is the waterfall for the current period up to in the first instance, net cash generated by the core business of ZAR 256 million. Dealing with this section first. What you can see is strong operating cash flow before working capital changes of ZAR 584 million, a small working capital release of ZAR 11 million, bearing in mind the ZAR 410 million reduction in working capital for the year ended 31 March 2025. Taxes, CapEx and other core operational business activities are then depicted to arrive at the net cash generated. What is shown after net cash generated are nonoperational items with the material items being essentially, the investment in RK3 is showed at ZAR 351 million, being both the advanced payments and realized ForEx losses. Dividends received from PPC Zimbabwe of ZAR 211 million versus PPC share of the USD 12 million paid in the current period with a further $8 million being declared, but only paid subsequent to 30 September. Distributions to shareholders in the current period of ZAR 274 million being the ZAR 0.176 per share declared in June 2025. Overall, net cash decreased by ZAR 193 million in the current period, leaving gross cash at ZAR 543 million at 30 September 2025. Drawn long-term facilities remain at ZAR 500 million, plus ZAR 2 million in accrued interest, which leaves net cash at ZAR 41 million at half year-end. The reason for the small gearing ratio on the previous slide is that capitalized leases have to be deducted as debt for the gearing covenant. Set out on this slide are the key metrics for Zimbabwe. We keep this slide in U.S. dollars so that you can see the numbers in PPC Zimbabwe's functional currency. There was a strong increase in sales revenue of some 25%, which is in line with volume increases as demand remained high. Q1 margins were affected by the need to import clinker during the planned shutdown, but exceeded the prior period margin in Q2. CapEx increased by $2.3 million due to the extended Q1 shutdown compared to a much shorter stop in the comparable period. Record dividends declared of $20 million. As I mentioned on the previous slide, $12 million was actually paid in the current period with PPC share of the remaining $8 million received in November 2025. Repatriation of dividends remains consistent. Cash balances at the end of the period was strong at $14.4 million, 96% of which is in hard currencies. We are progressing steadily on the conditions precedent to the sale of the Arlington property transaction. Moving on to the last slide on capital allocation now. On the left-hand side of the slide, you can see the actual CapEx spend for the group over the last 2 years. The forecast spend for FY '26 is also shown. The budgeted ZAR 450 million for the group in FY '26 includes some catch-up on value accretive and reprioritized projects deferred from FY '25. This increase on the actual FY '25 spend is almost all attributable to the SA & Bots Bulks Group. The spend on RK3 has commenced. The previous forecast spend for this FY '26 was ZAR 1.18 billion. And as you can see, this has reduced to ZAR 920 million due to timing adjustments. Return on invested capital, or ROIC, remains a key focus, and all expansion capital has to meet stringent criteria. The ROIC for H1 FY '26 is set out on the top right and has consistently improved since 30 September 2024 when it was 7.1% and 10.6% at 31 March 2025. We expect ROIC to weaken in the short term being H2 FY '26 and FY '27 as CapEx is spent on RK3 with no associated return. Thank you. I will now hand you back to Matias for the business review. Matias Cardarelli: Thank you, Brenda. Before we dive into the business review of the period, I want to take a moment to reflect on what has enabled us to deliver these results. From the very beginning, our top priority was to build a strong foundation for PPC. This meant a fundamental change to the core of the organization. I was very frank about the scale and gaps we found from the organizational culture to governance, controls, management information, people skills and importantly, leadership from the top to the various level in the company. Difficult decisions were necessary and were indeed taken. It was the only way to turn around PPC. In my view of leadership, bridging the gap between words and actions is essential. Authenticity and accountability are not buzzwords. They underpin trust. PPC's leadership team is committed to transparency and delivery. In this context, we act quickly and decisively. We address long-standing issues, brought in critical expertise, strengthened processes and controls and realign priorities to ensure a focus where it matters most. These actions had an immediate impact in all areas of the organization and meaningfully improved the financials. While this process is far from being completed, we have made good progress. This year, we conducted a pulse survey on employee engagement. The survey was designed to capture the voice of employees, providing a clear understanding on how the turnaround is being experienced across the organization. In the context of change, it was vital to understand the general sentiment. Participation was very high at 93% and feedback was extremely positive regarding the need for the turnaround, belief in the strategy and confidence in leadership. This alignment between management and our teams ensures the sustainability of the turnaround process. On the back of the positive trajectory established in the last financial year, in FY '26, we needed to deliver consistent and sustainable progress across the business. I am pleased to report that our group results reflect this. As I mentioned before, the key highlights of the current results is the sustained growth trajectory with expansion across all the key financial indicators. In the first half of FY '26, the main driver was the solid performance of our South African cement business. The second leg of our performance was in Zimbabwe, with EBITDA increasing and EBITDA margin recovering strongly in Q2. As we presented before, the Awaken the Giant turnaround is anchored by 4 key pillars and 8 supporting commitments. We track performance of these initiatives, both at operational level and at [ESCO] level to embed these priorities into our company DNA. While we have made progress across all 4 areas, there is still room for improvement. Two areas have developed faster and continue to gain traction. Regarding the Less is More pillar, simplification and standardization are delivering value and a new wave of initiatives will bring additional gains as we further optimize our production and sales mix. The cost mindset pillar has had a radical impact from the beginning with strict control over noncore expenses, overheads reduction and supply contracts renegotiation. Importantly, this cost discipline is expanding and will have a compound effect in the periods ahead. The operational turnaround, even with a well-maintained asset base takes more time. We are progressing and taking firm steps. We are now in the first year of our 3-years plant performance improvement plan, which has established benchmark metrics, clear targets and robust actions plans. The supply chain area is more advanced and continues to drive results. The in-source new logistics area continues to deliver material savings. The centralization of procurement last year, coupled with streamlined processes is transforming procurement from a reactive function to a proactive driver of cost savings and working capital efficiency. On the commercial pillar, as I mentioned before, the progress will go hand-in-hand with our competitiveness evolution. As our competitiveness improves, we are increasingly able to roll out our commercial strategy. We have started to combine higher revenue with growing margins. Market share at all costs has never been and will never be our strategy. The giant is moving, powered by productivity and efficiency gains, disciplined product mix with savings being realized throughout our cost base. Let me take you through the results per segment and introduce the operational metrics driving our business performance. Turning now to the South African cement business that delivered remarkable positive numbers. In the context of a low growth market and intense competition, our performance marks a material improvement driven by consistent execution and clear focus. EBITDA growth of 31% period-on-period and EBITDA margin expansion to 17.5% are particularly noteworthy. When it comes to revenue, we must clearly separate the 2 quarters of the period. In Q1, the abnormal and persistent rainfall affected both sales and production in our Slurry and Dwaalboom plants. In the second quarter, we saw a strong rebound of our sales across key regions, such as Mpumalanga, Limpopo and the Western Cape. Overall, cement sales grew by 2% due to a strong 10% increase in the second quarter. This growth not only reflects pockets of higher demand, but also demonstrates our improved competitive position and ability to recover market share profitability. Our operational discipline is evident in the 5% reduction in cash cost per ton. To secure contribution margin per ton and gross margin growth, the cost management in place was critical and marked by tight control of variable and fixed costs, outperforming inflation, significant logistics savings after in-sourcing the function and continued overhead savings. Following the quick wins achieved in outbound logistics with a rand per ton per kilometer cost reduction of 14% in FY '25, in H1 FY '26, we delivered a further reduction of 13% comparing to the previous period. It is noteworthy that we have more logistic initiatives planned to benefit FY '27. On the operational front, we have seen real progress, driving both lower variable cost and carbon emissions, including higher production levels of clinker and cement in our integrated plants, lower clinker incorporation and a 3 percentage point improvement in the kilns OEE. In short, a very positive performance and trajectory in South Africa. Turning to our South African material business. Overall, revenue declined by 7% to ZAR 494 million. EBITDA was ZAR 14 million down from ZAR 28 million in the same period last year. The reduction in EBITDA was driven by the ash segment. The ash segment with volumes down by 42% period-on-period continues being impacted by some of our customers moving to low-quality unclassified ash. In ready-mix, period-on-period, volumes fell by 8%, mainly due to adverse weather condition in Q1. We are seeing projects ramping up towards the end of the second quarter. Aggregates, on the other hand, delivered positively with volumes up 11% period-on-period. However, the cost improvement were offset by an increase in a noncash rehabilitation provision, leaving EBITDA flat comparing to the prior period. Turning to Zimbabwe. In the first half of the year, we continue to deliver EBITDA growth and record level of cash generation, underscoring the strength of our business and the potential of the market. Revenue for the first half surged by 25% to USD 106 million, reflecting a robust market demand. The demand for cement is high, and PPC is uniquely positioned to supply into this growing market. With our premium brand, national footprint and the full range of product, we are able to deliver consistently to our growing customer base. EBITDA grew by 13.6% to USD 25 million with an EBITDA margin of 23.6%. EBITDA and EBITDA margin strengthened considerably in Q2 and have remained strong. The previous year assessment of root causes of the operational inefficiency and unplanned stoppages led to a target 3 years plan to improve equipment reliability at our Colleen Bawn plant. These root causes do not need to be addressed only with CapEx, but with planned maintenance and the right expertise. To this point, PPC Zimbabwe has entered into a technical agreement with Sinoma overseas to strengthen our local capabilities. The Q1 Colleen Bawn plant stoppage was the commencement of this 3 years plan. This stoppage in a context of a very high demand lead to a higher consumption of imported clinker and consequently, higher cash cost per ton of cement. Since then, operations have normalized, and we are operating at our expected margins. The recent introduction of slag-based product is also already having a positive impact. The reduction of clinker content by 5% to 10%, depending on the product support cost efficiency, brings additional cement production capacity and reduce CO2 emission. In summary, Zimbabwe remains a strong contributor to the group, and we are well positioned to continue benefiting from a high demand context. Again, I will share my confidence in our turnaround process. This early delivery in FY '25, combined with compound momentum in H1 FY '26 has only strengthened that confidence. As we look ahead of FY '26, our message remains unchanged. We started this year with a strong foundation, and we are determined to build on that success. The Awaken the Giant strategy remains solid. In South Africa, relative to the prior period, we expect EBITDA to maintain a growth trajectory in the second half of FY '26. This is particularly significant given that we will compare against an outstanding H2 in FY '25, which we saw over 80% growth period-on-period. Our commitment to cost discipline and quality revenue growth will sustain this positive trend. In Zimbabwe, we anticipate another record year with EBITDA expected to surpass last year's high and additional dividends are projected in the second half of FY '26. As I mentioned, the market is very active, and we are focused on capturing this demand. Importantly, certain key projects will also go live in FY '26 and further progress will be made on our strategic initiatives. These investments are designed to unlock new value, drive efficiency and position us for both short-term gains and sustainable growth well into the future. As Brenda highlighted, the discipline in capital allocation will remain, ensuring a solid balance sheet and financial resilience. In summary, both group EBITDA and EBITDA margins are expected to increase in FY '26 from FY '25 levels. The giant is not just a wake, it's moving with a clear direction. As I mentioned, we are also getting real traction on strategic projects. These are not longer just plans for the future. They are becoming the reality of a more efficient, environmental-friendly and sustainable PPC. Alongside our turnaround initiatives, we have been diligently implementing structural projects that are reshaping PPC. Let me start with our new solar project, which perfectly align returns and environmental sustainability. In South Africa, we have rolled out the installation of solar facilities at our 2 main plants, Dwaalboom and Slurry. Each site has a peak capacity of 10 megawatts. Both plants are already generating electricity. And once fully operational, this solar installation will supply approximately 30% of each plant annual electricity needs. The financial impact in FY '27 will be substantial. In Zimbabwe, the solar project is advancing with our partners to install a 20-megawatt solar plant with battery backup at our Colleen Bawn. Since currently after logistics, electricity is our main cost there, the impact is expected to be significant. This project is planned to go live in FY '28 as defined in our strategic plan and will be a step change for PPC. This investment will not only improve our cost base and strengthen our energy security, but also demonstrates our commitment to environmentally sustainable operations. In the middle section, we have the new Western Cape plant. I am pleased to report an update on the RK3 project, a game changer for PPC and the South African cement industry. The project remains on schedule and within the approved budget. We have made progress in several fronts. Engineering and design are nearly complete. Manufacturing of key equipment has started with the first delivery already on site and civil works are advancing as planned. Importantly, our project governance, cost control and reporting structures remain robust and effective. Overall, the RK3 project is progressing, and we remain confident in our ability to deliver this critical investment on time and within budget. Turning to the last image, the calcined clay testing. We are proud to have conducted industrial trials of calcined clay in the Western Cape. Calcined clay, a new extender could be a true innovation in the cement space in Southern Africa. As we align our carbon emission targets with our business performance targets, this innovative technology is a sustainable cementitious product alternative, potentially at a considerably lower cement production cost. We are in early stages of the trial, but we are excited about its potential. This slide has not changed since we presented in our last Capital Market Day. The plan and goals for FY '30 remain in place. This image tells a simple but powerful story. We set out a clear and ambitious plan, and we are already ahead. We started by rebuilding PPC's foundations and driving significant improvement step by step. The Awaken the Giant strategy is our guide, and the results are visible. Stronger EBITDA and EBITDA margin, rising ROIC and consistent growth in cash generation. We are delivering. And as we look ahead, our plan remains unchanged. We will consolidate the gains in FY '26 and FY '27 to set the stage for the next step change in FY '28 with the RK3 plant fully operational. Our targets are ambitious and achievable, sustainable EBITDA margins above 21% and ROIC well ahead of our cost of capital by FY '28. This is not about short-term wins or changing direction with every headwind. It's about building for the long term, staying the course and proving that we do what we say. The foundations are now strong. The momentum is real, and we have a track record of delivery. The present and future of PPC are exciting, not just because of the results we have delivered this past 18 months, but because we have proven what is possible when an aligned and experienced team execute the right strategy with discipline and a clear understanding of our business. Our strategy remains to continue making PPC a stronger and more competitive business on that, consistently delivering improved financial performance and generating real cash back profits. This journey has already begun, and the results are concrete and tangible. Yet, as proud as I am of these achievements, the future holds even more exciting chapters for PPC. Thank you for your support and for being part of this Awaken the Giant journey. Now we will have time for some Q&A. Unknown Executive: Good morning. We have a number of questions here, and I'll just take them in order as they've come in. Matias Cardarelli: Okay. That's good. Unknown Executive: The first 3 questions are all from Titanium Capital, Charles Boles. On Slide 5, you talk about the importance of a strong asset base. Is there an issue in Zimbabwe with the age/efficiency of the plant? Is PPC at risk if Dangote proceeds to build capacity in Zim as speculated in the press? Matias Cardarelli: Okay. First of all, Charles, thank you very much for your question. I don't know exactly when you made that question, but probably that address the main things about your question about Zimbabwe. Yes. Of course, we are updating the technology in Zimbabwe, and we are improving our maintenance there. That is why we commented today that we have put in place a 3 years plan that started this year with the first shutdown in Q1 of FY '26 in our Colleen Bawn plant. The second thing that we are doing in Zimbabwe, as you have seen in the presentation, is we are starting our solar project, which is going to bring a significant savings and also is going to improve significantly our CO2 emissions. The third thing that we commented today is that we have signed an agreement with Sinoma Overseas recently to be able to have the support of the biggest and most important engineering cement company in the world to upskill our talent in Zimbabwe to make all this process faster and more sustainable. On the other hand, please remember that we have the newest plant in Zimbabwe in Harare. And overall, we have good assets there. But yes, it's very important to update and to well maintain our assets to run there. In the case of Dangote, allow me to say this respectfully. I think it's very important to differentiate between announcement and reality. We all read that announcement when Aliko Dangote visited the President in Zimbabwe last week. We don't have any indication that, that project is going to materialize anytime soon. We monitor all of those news. So we don't see that something that is at least for the moment, real. I think I will take advantage of this question also to comment something also in the direction of trying to differentiate between announcement and reality. It's probably that in the following weeks, we are going to see an important announcement in the South African cement industry with probably the arrival or the change in some shareholders of one of the cement companies. I'm sure that, that situation when it's going to be announced, is going to come with a lot of announcement of a big investment, et cetera. I think it's very important for investors nowadays to be able to clearly differentiate between what people say and what people really do. This will help, I think, investors to take the right investment decisions. The second one... Unknown Executive: The second question also from Charles. We understand there is a dispute with Cashbuild. Could you give us some understanding what this dispute relates to? Matias Cardarelli: Well, Charles, I'm not aware of any dispute with Cashbuild. Honestly, Cashbuild is an important customer for us. We have a proactive working relationship with them. Yes, what is true is that Cashbuild approach, generally speaking, is mostly about price. They are looking for the lowest price cement price that they can get. And for us, it's very clear, our driver is contribution margin. We are not in the game of dropping prices to protect volumes or to gain market share like many other cement producers do in South Africa. So we don't have any dispute that really as far as I know, with Cashbuild. We have good working relationship with them. And Cashbuild and any other customer have the right to decide if they would like to buy our product or they prefer to buy product for another cement company. We believe that PPC put in place the best value proposition, which is not only price but also quality and services. So this is our proposal. No, I'm not aware of any dispute with Cashbuild that we have. Unknown Executive: Thanks, Matias. Last question from Charles. Afrimat has increased output from the Lafarge facilities. There is also more capacity coming online in Mozambique plus growing imports. Do you expect this will put cement pricing under pressure going forward? Matias Cardarelli: Well, it's a strange question because that Afrimat is bringing more capacity to the market. That is the question? Unknown Executive: From the Lafarge facilities. Matias Cardarelli: Because this is the public information. Afrimat had 2 major breakdowns in the past 6 months in both kilns, particularly one of them, a very serious one that prevented them for supplying cement to the market. Actually, there was a kind of shortage of cement at the moment and some Afrimat customers were looking for other supply sources. And Afrimat also needed to go to buy clinker that was also not easy for them because there is not a lot of extra capacity clinker in the market. So I'm not sure what do you mean by Afrimat increasing output. What we have read and listened from Afrimat is that Afrimat is saying that it's going to increase their presence in the 32.5% market in the inland region, meaning South Thimphu, Malanga and Limpopo, which is important to clarify that, that is a market that is the red ocean of the red ocean in the country. It is the low-strength market where operates all the blenders, all the importers, all the integrated plants. So that announcement from Afrimat probably indicates that, yes, there is going to be an increased price pressure on that particular segment, which is a segment that -- for us is not very relevant. We don't -- that is just a small percentage of our sales, it's not a market that for us is relevant. So probably, if AfriSam tried to get some market share in that red ocean market, we might see some price pressure, but in that particular market, the low strength 32.5 market in the inland region. Unknown Executive: Thank you. Moving on to [Marco Rus from OIG Invest]. Given the material USD exposure from RK3 and your current [FEC] position, what is management's outlook for the ZAR USD over the next 12 to 24 months? And how do you plan to manage or hedge your ongoing dollar exposure going forward? And Brenda, before you answer that question, there is a second question, which is related from [Clifford Wrye], which is also asking what are the expected future exchange losses if the rand to the USD remains as is? And what was the hedge price on the USD and what considerations were taken to come up with the hedge option? So perhaps you can answer all of those, I think, at the same time. Brenda Berlin: Of course. So just to break it up into maybe bite-sized chunks. So first of all, we took a decision to hedge the full U.S. dollar exposure for RK3. We averaged at a rate at $18.50. It was the rate that the Board -- when the Board contemplated the business case, it was based on that exchange rate for the CapEx. So the full U.S. dollar exposure is hedged. On the unrealized losses, it's a little bit -- it's a question of timing. So we've realized -- we've got unrealized losses now as we mark-to-market of the hedges. Had we raised the creditor, there would have been matching gains. So what's going to happen in our income statement over the next 18 months is there will be a match. There will just be timing differences. So overall, gains on the creditors will offset losses on the hedge. In terms of hedging instruments, I think that was the last one. We looked at a range, a big range and ultimately decided on sort of quite clean, simple forward exchange contracts taken out over the period in which we expect to spend the CapEx. Unknown Executive: I have a few questions here from Warren Riley of Bateleur Capital. I'm going to take them one at a time, just I think it's easier to ask. Can you talk to outlook for fixed capital investment in South Africa? Have you begun to see any larger projects coming to tender? And is this majority private sector investment? Matias Cardarelli: Paulo can take this one. Paulo Marques: Thank you for the question. Well, at the moment, we are still seeing fixed gross capital formation at a depressed level. But on a more positive note, we see some movement on those tenders process. We know that those tenders process are long given that are public entities. And in terms of the dynamics and the movement, it's positive. In terms of works on the ground, no, we haven't still started seeing some of -- all of those projects coming to a start. Unknown Executive: Thanks, Paulo. The second question from [Warren] is what are the SA Botswana cement volumes growing at in Q3 to date? Matias Cardarelli: Sorry, we don't share that information. About. Unknown Executive: Sorry, Warren, well, can't give you an update on that. The third question is, can you provide the exit run rate for Zimbabwe EBITDA margin in Q2? And can this be sustained into the second half of FY '26? And then I think combined because I also talked to Zimbabwe, what impact is the 30% import surcharge having on demand and domestic pricing? Matias Cardarelli: The run rate for EBITDA margins in the second half of FY '26, that is the question, is it? Unknown Executive: Yes. So basically... Matias Cardarelli: We expect a range between 25% to 30% EBITDA margin there and definitely could be sustained. I mean this year probably has been -- not probably as we shared, has been impacted because when we were in the long shutdown of our kiln in Colleen Bawn was when the demand started to surge. So we needed to import more clinker, and that is why that EBITDA growth, cash flow growth, dividend growth, but EBITDA margin was temporarily impacted. So the run rate for the second half would be an EBITDA margin between 25% to 30% and sustainable. Unknown Executive: And the other question, is that what the impact of the 30% import surcharge, so that's irrespective of... Matias Cardarelli: Yes. I mean it has been important. But I mean, not because we have particularly gained a lot of market share because our position there is very solid. And actually, we sell everything we produce. So I think it's important in terms of giving the industry, the support you expect from government to make big investment. As you all know, we are a capital-intensive industry, which requires big investment. And this kind of decision from government in Zimbabwe gives the industry the encouragement to invest in the long term. That is... Unknown Executive: Thanks Matias. And expecting there are no further questions. Matias Cardarelli: Okay. Thank you very much. Have a nice day.
Olivia Garfield: Good morning, and welcome to the Severn Trent Results Presentation Half Year Q&A session. We've got myself, Helen and the entire senior team here. And of course, the new Chief Executive of Severn Trent, James Jesic, is also with us. And obviously, this is my final results presentation. So we'll be trying to get lots of questions on the business topics and on the results. We're pleased with our performance over the last 6 months, and we look forward to taking questions on them. So Sarah, over to you first. Sarah Lester: Good morning. Well, we knew the day would come Liv. To simply say thank you feels way too small given everything you've done. But until I think of something better, I'll just leave it with thank you. James, a much deserving successor, super thrilled, super excited for you for the team and for everything that lies ahead. But I guess it is on with the show. So a couple of questions from me, please, on the results today. Firstly, on that ODI guidance upgrade, I mean, you could have waited until deeper into winter to upgrade, but you didn't. Wondering what gives you conviction to upgrade that guidance today? Then a cheeky half question, please, on the AMP8 total ODI guide. Do we get to increase that by GBP 15 million today, too? I suspect the answer is no on that. And then the final one, please, and while we're on the outperformance topic, about parking ODIs, wondering what other tools are in the Severn Trent toolkit that can contribute to sustained strong total outperformance in the next few years. And I promise I'm not asking numbers, just more initiatives and areas of opportunity. Olivia Garfield: Brilliant. Okay. So first of all, thank you very much. There are 11,000 Severn Trent's that work their stocks off every day to land out performance, and they will be really pleased that we started strongly. So let's go for the half question first. We're not giving you more of an upgrade than the at least GBP 300 million. So it is a strong first 6 months, and we still got 4.5 years to go, but we will keep that under review, and we'll share more news at the right point in time. In terms of why we're so confident, I'm going to answer that. But I mean, fundamentally, you'll have seen -- we're saying 3 things. The first thing we're saying is that about 90% of measures are green, and that means we're doing very well across the entire basket of ODIs, and that's what gives us confidence because you will always have some ups and downs over the winter period, as you said. The second thing is quite a lot of measures, they do close off at the calendar year-end. So there are, remember, a number of measures where we're actually 10.5 months through the performance and that gives us a chance to give some indication of those. So that's also helpful. Pollution, spills are good examples there, where they're almost complete for the year, which helps us give clearer guidance now at this stage and maybe later in the year. And the third thing is that we're just really getting into our mojo operationally. It's a brand-new 5-year period. We felt confident that now that the measures were against the sector, they're like-for-like, against everybody else, we always saw that our overwhelming strong performance would come through, and that's beginning to come through. So Steph, which are the measures you're excited about on the ODIs? Stephanie Cawley: Yes. So we're doing really well across the piece, but it's the big 3 that we're really excited about, so it's spills, pollutions and leakage. I've just talked briefly about leakage. You know it's a 3-year roll-in measure. So we've got 2 strong years in the bag already. We're on track to deliver our eighth year hitting the leakage target. We're finding and fixing more leaks than ever. We recovered really quickly after the summer despite the fact that we had 1/3 more burst than we'd normally see during that period. doing some great work with Pegasus units to reduce pressure, which also means we see less leakage. So we think we're set up really well for the rest of the AMP. Olivia Garfield: Now going on to your second question, which is just wider, what gives us confidence for the future over the next 5 to 10 years? I think there's a couple of areas I'll go to. So I'm going to hand to Helen first of all, because financing is important in the sector. We do own that financing outperformance. And we've had a very strong last couple of years actually on financing. So I'll get to Helen talk about financing. I don't think it's worth getting into totex and I'll get to James to talk about partly why the PCDs are an upside for us. Remember, we're guiding to up to GBP 50 million on PCDs, but also on totex overall and give some sense of it. And the part of it there, I think he'll talk through is some of the innovation we're putting in place and some of the kind of the strategic decisions we've made on in-sourcing and plug and play. And then I think I'll just get Shane to mention, when you look at the future, there is going to be more opportunity for RCV growth. That stores it locks in long-term stored value. I'll get Shane maybe to talk through what we think is going to come next in the RCV growth opportunity above and beyond the current locked in pricing. So Helen? Helen Miles: Yes. So Sarah, thanks for the question. I think we talked about in the results about our financial strength. And I believe that underpins our ability to continue to outperform on financing. We've -- I'm really pleased we've been able to guide today to 60% to 65% gearing by the end of the AMP. And I think that demonstrates our commitment to maintaining that financial strength as we go into the next AMP. But if you look at our financing specifically, our structure has worked for us in terms of we've got one of the lowest index-linked financing in the proportion in the sector. That's really worked for us certainly over the last 5 years and is continuing to now. But we've also had a very specific program about diversification. And we've -- over the last 6 months, we've hugely diversified our sources of finance in terms of geographic. And we've recently welcomed another 5 banks into our into our financing as well. So there's so much positivity out there in the market, so much demand for our financing with the tighter spreads in the sector, I'm extremely confident that as we go out to the market, we'll continue to raise financing significantly lower than the cost that the regulator allows. Olivia Garfield: Very good, James. James Jesic: Sarah, first of all, thank you for your kind words, hugely appreciated. I guess when you look at the size of the plan that we've got for AMP8, gives us loads of opportunities to actually deliver more for our customers, more for the environment and, of course, more for our shareholders. I think what we're really focused on and what I've been focused on is how do we innovate, how do we create more efficiency into our program to not only deliver a bigger bang for our book, but also ensure that we have plenty of choices. Now some things that I've shared with you previously are around things like innovation we're doing around AI and how we improve our design. So that will create a lot more efficiency in that space, but also our plug-and-play program where we're using far more modular solutions to increase efficiency in our capital delivery. So there's lots of things that we're doing. And of course, we're always happy to share. Olivia Garfield: Very good. And I guess what's going to come next year in terms of that performance, plus performance on totex and RCV growth? Unknown Executive: Yes. And we focus on RCV growth at the moment. So whilst we have 60% nominal RCV growth, there's an opportunity to get -- put forward additional cases to Ofwat. These are called the reopeners. It's quite similar to green recovery, where we got GBP 500 million. That was additional LCV growth. And there is a high bar though for this. I should just be clear. It's not super easy. So you've got to be on track with your capital program. You're going to be able to demonstrate that your supply chain has capacity and you've got capacity to deliver more. And they are a large business cases. As you've seen in PR19, green recovery, PR24, you're going to submit quite a lot of evidence to Ofwat to get these approved, and you've got to have strength in the balance sheet. So there is a high bar, but Ofwat will be publishing further guidance in December, and we'll be responding to that. So you probably have 2 -- we think there's 2 streams. There's a fast track route, which will be funding next year or there's a slow track route, which runs over 2 years. So I guess you can work out which one we're going to go for Sarah. But in terms of the quantum, until we have the final methodology from Ofwat in December, we probably can't comment any more on that. Olivia Garfield: Very good. Fantastic. You can come back later with any more questions. I'm going to hand to Dominic now. Dominic? Dominic Nash: I think you're going to be getting quite a lot of recurring comments this morning, Liv. So first of all, clearly, congratulations on your next adventure and also your decision and also clearly, I think that will continue to be a poor place in your absence. I look forward to hearing what you're going to be getting up to next, maybe I don't know, sumo wrestling training might be something we can hear about. And James, clearly, you're also going to be sitting there thinking, oh my word, I've got big shoes to fill. So I'm sure you'd be reiterating, so sure it will be fine. A couple of questions for me, please, actually. 1 actually, Liv, on your decision to step down. Could you give us some words as to -- in your experience, what do you think has happened to the role of CEO in the water sector? And do you think the special measures bill that came through has had any impact in your decision to step down? And do you think that it's having a decision -- having an impact on the ability to attract, retain sort of senior staff? The second question I've got is on your 13% RoRE that you're guiding for '25 -- '26. You're basically saying, look, it's going to be 13% because we've got higher inflation. But on the normalization, the ODIs look like they're going to be nothing out of the ordinary this year versus the 5-year guidance. The totex looks like you're guiding to potentially more outperformance to come or efficiency, which I guess might be reinvested. And financing is financing. So if we normalize for inflation, is it fair to say that 13% ROE isn't going to be materially different to what we now expect for the full AMP. And third question, apologies on something that I've been sort of thinking about, which is on your low rainfall I think the Met office is suggesting we're going to have a very dry winter as well following the dry summer, where it doesn't look like it today. Are you concerned at all about your water resources in your region? And what can you do to give sort of long-term resilience? Olivia Garfield: Really, what a full range of questions. There's nothing left, I think, after Dominic's done those 3. So the first thing is, no, the special measures is totally fine. So let's be really clear on that. And the record there were thousands of people that internally that would love to be Chief Executive Severn Trent, never mind you get externally. So we are an absolutely lovely company that employs beautifully cheerful people that does an amazing mission based in the fab part of the country. So no, I fundamentally disagree that the special measures would have any impact on the Seven Trent will being anything other than highly, highly attractive and it's totally unrelated. I've been here nearly 12 years. And I used to believe that chief execs, I guess, you kind of like you go through the first wave 5, 6 years, and then you got to unravel your first wave of bad decisions. And then you go through another wave of it, you've got to unravel your second wave of bad decisions. And then eventually, you wake up and you realize you've got amazing successes internally. And the job actually at a certain point in time is you've got to hand over to the next generation. They're going to be the perfect answer to the next wave, and that's what we've got. I know James is going to be a rock star. I know the senior team are fab, and I think this is the right time. So I'm not going for another job. I always said I'd never apply for another job whilst was at Severn Trent. So I will eventually take another job. I'm not going to sit in my like of walk the dog every day. But there is no plan. The plan is for the next few months to be sat on James' shoulder, helping him out as he picks up the role. So that's the first one is that it's a brilliant job and company lucky to have James and James is lucky to have the job. Now on the second, I don't actually quite make the same math as you on the RoRE. So I hear your point on the 13% for this year that a whole chunk of it is either financing or inflation. Yes. But if we add up for the 5 years, not the same. So we've got GBP 300 million worth of outperformance. That's chunky. That's decent in anybody's percentage RoRE number. We've got the outstanding status as well, which is 30 basis points. That's chunky in anybody's number. And we've always said that there will be more outperformance across other areas, right? We'll be looking to land that. Financing is part of it. We've guided to at least 0 on totex. We said that there are some areas like Bioresources where we are a sector leader. It's likely that outperformance might come down the line, just not ready to call it yet. And then, of course, we're having a very strong start. So we're calling at least 300 now. Every single member of the Severn Trent family will be looking to try and improve that over the next couple of years. So for others, they might need to rely solely on financing and on inflation. The Seven Trent, not true. And if you look at our history, what you tend to find is when you look at the bars over a 5-year period, all of them begin to look good and you begin to see some really good performance in a whole range of areas. So that was that one. Now low rainfall again. So I hear it because the EA have published a whole lot of drought situation messages, and they're right to do that across the country. But if you actually look at our reservoirs, and that's what's interesting, is we have -- I'm going to pass to Bob now to give an update and he's going to take you through 3 things. 1 is don't forget the sources of water we have. 2 is we're going to give you some news in terms of latest levels. And the third thing is just to remind you of our track record of the last time we did actually have a host-pipe ban. So Bob, on to those 3. Bob Stear: Yes, great. So 1995 was the last time we had a host-pipe ban, of course. And as you know, Dominic, we've got -- our water comes from 3 main sources: underground in our boreholes from rivers and from reservoirs. So I guess the thing that people really noticed, of course, over the summer is the low reservoir levels. And this summer was a hard summer for us. We work really, really hard to avoid having to put a temporary use ban on again, which we managed brilliantly, a combination of asset-related interventions and great customer comms. But the great news is actually, we've actually had a really wet autumn so far. So we're in good shape. In fact, our biggest reservoirs around the Derwent area and Elan Valley, each went up by more than 10% over this last weekend. So they're all in really good shape as it happens. So I understand the question, but we're in good order. Thank you. Olivia Garfield: You always send the interesting question is to go back to what was the performance in 2022, which was the last dry year, and we're like 15%, 17% ahead of where we were on exactly the same day in 2022. So we feel confident and in good shape. Okay. And then we go to Julius, next. Julius Nickelsen: Congratulations to the strong results. And obviously, very sad to see you Liv. So thank you also from my side and all the best to you, James. Just 2 questions from me. The first one on the 60% and 65% gearing. Just wondering, does that hold also if that additional topics through the reopeners comes in? Or do you need to wait to assess how big that potentially could be? And then the second one on CEO succession, maybe to give you a little bit of an off [indiscernible] here, but what makes you think or like what convinces you that Severn Trent even without you Liv, can continue to be like the highest quality company in the sector and continue to outperform on the ODIs like it has done in the past would be interesting to hear your thoughts. Olivia Garfield: I'll do the first -- the second one first, and then I'll hand to Helen and probably Shane just to talk through the gearing and the reopeners. I mean, so I am just one person. So I know I'm a big personality, and I know I'm noisy, but I am literally just one person. And I don't actually deliver any individual ODI, do I? So I guess we could argue I'm not the person who's going to fix the leaks, I'm not the person who's going to fix the fills. And I'm definitely not the person who's going to stop pollution over the course of the next few hours. So that is the team. And what we've done this whole team and also the 50 [ FT ] is created a culture, where our people love performance and every single in our body culturally loves the fact that we are a leader in our sector, and that will make absolutely no difference that I'm not going to be here. It is ingrained in our DNA is the desire to do brilliant for our customers and to make sure that we perform every day. And if you go to any communication cell or any depot or any team meeting, then you'll see that, that's how we're set up, how we thrive is on that level of personal competition between teams, county place county, the ability to kind of add value and find new ideas, and I know I will continue. And don't forget as well, James was part of all that success. He did run operations in the transformational areas where we went from not doing so well in ops to doing brilliantly. So I guess you could argue James might have been involved in that. And then he's run capital during the era that we've gone from kind of like GBP 0.5 billion up to a GBP 2 billion. You could argue we probably added some value in that space as well. So James has been a core part of that entire journey. So the only difference now is he's going to be in a different chair, but he'll still be bringing that same value and that same value add. So I've got no qualms at all this performance will continue. Helen? Helen Miles: Yes. Julius, thanks for the question. Yes, really pleased we've been able to give gearing guidance today. 60% to 65% at the end of the AMP. And from my perspective, that's our path what we're committing to. We've said repeatedly, we're fully equity financed for the AMP, and that obviously remains true with that gearing. And we've also said we're committed to our stable credit ratings. So there's plenty of headroom in there for that. In terms of reopeners, still lots of unknowns, but my expectation is even with reopeners, we intend to meet that gearing level. So it shouldn't make any difference. But obviously, as Shane said earlier, we're waiting to see the financing rules to determine what that allows us to do. I think the other thing to note is I talked about in the presentation about GBP 500 million capital efficiencies. And obviously, one of the things that, that will allow us to do is invest more. We want to invest as much as we can. And that's why we're constantly driving for those capital efficiencies. Olivia Garfield: Brilliant. I think that answers the question, because effectively, as Helen said, we've got the GBP 500 million of targeted efficiencies. That gives us the chance to invest in the open. And Ofwat we're also very clear that in the rules for the reopeners, there's a lot of companies in the sector that will need to make sure that wherever the rules are set, they can afford to do it. A lot of companies are heavily geared. They'll need to make sure there's some kind of like in-period revenue and also some level of shadow RCV, I would imagine. So we'll expect to see those come through. Very good. Thank you, Julius. Over to Pat. Unknown Analyst: And before I start, I'd like to echo congratulations on your successful leadership at Severn Trent and wish you all the best, James, in your role as CEO. Sorry, I'm getting choked up. Olivia Garfield: I love it. Feel free to cry. I'm okay. If you want to cry, you need tissues. Unknown Analyst: I'm good. I'm good. I think I'll be able to get through it. My 2 questions, please. Firstly, it would be great to hear the team's thoughts on the CMA provisional determinations. I appreciate you haven't appealed, and I'm sure you don't regret that, but would be good to hear what your thoughts on the determinations were and what you'd be feeding back to the CMA here? And finally, on that topic, how you think we should be reading these decisions into what will feed into eventually AMP9? And then my second question is your conversations with the government and the new Secretary of State. I guess, I think our conversations with investors, what they want to see from the government is almost a pivot from, "hey, we're holding the sector to account to actually saying we're working with the sector to deliver better outcomes." I guess my question is, are you seeing that change in the government? Do you foresee a change in that messaging coming? Or do we need to see more delivery before we can start seeing the government sort of maybe being more cheerleading the sector as opposed to the current messaging? Unknown Executive: So I'll start with the second one first. I mean I'd rather you saw Emma Hardy's speech from the British Water Conference, but it is available on public record from last week. And I think that actually gives really good evidence that the message is changing. I though it was a very adult speech, I though it was very engaging, and it did highlight that actually there was shared desire to see the sector succeed. So I think there is absolute desire by both Emma Hardy and Emma Reynolds for the sector to do well. Now equally, though, your second point is true, the sector does need to deliver. So -- and we're really conscious of that. It's why we did the transition spend. It's why we're going early with our capital is that customers have seen pretty reasonably high bill increases after a period of clearly underinvestment, you could argue across the entire sector and then we've played catch-up. And I think what's come out of that, though is that there is clearly -- you have to evidence to customers that by the time they pay that bill, they're getting really, really great value, and we're very conscious that's an imperative. So I think the government is definitely changing its style and manner, but it has got to hold us to account and every company has got to step up and make sure they deliver their capital program and deliver their performance targets. So I think it's a 2-way contract, and we're confident of our part of it, and we think that will be -- that will come across. The other thing to note, I think, for investors is that I think government has been fair on calling out amazing performance. So we've seen quite a few clauses where government has called out the fact that we've had 6 years of 4-star status. No one have mentioned it yet, so I can't get it in. Since we have had 6 years of 4-star status, government has gone record and praised that excellent performance. That wouldn't have happened prior to this. We had 3, 4, 5 years of 4-star status, and it never got mentioned as a public record. We have seen that change as well. So I believe the moment has come when the rhetoric is moving. Now Shane, CMA please. Shane Anderson: So I guess from an investor or non-impellent company perspective, there's probably 2 positives to call out. So the first is the cost of capital is 30 basis points higher. So that is helpful given I think it was a Recommendation 23 government said the CMA should be setting a methodology for cost of capital. So that's good, which is also equivalent to our 30 basis points for outstanding that no one has mentioned yet, so I'll just keep bringing that up. And the other one is the frontier shift. So this has been a big debate amongst the regulators is what's the ongoing efficiency challenge each company should be delivering. Regulators have been saying it's 1%. The economy has been delivering much less and the CMA came out at 0.7%. So that's a useful precedent going forward. I think the other interesting thing from the CMA case is base costs. So none of the appellant companies raised base costs, but the CMA does a whole redetermination. So they've created their own models, which actually gives the sector less funding. So I wouldn't be worried about this in terms of the precedent setting because it goes against everything [indiscernible] has said, everything against the NAO has said because it's statistics led rather than engineering led. But it's still an interesting point, which is the companies are getting less money generally on base spending. But from an investor perspective, I think it's good for the PR29, higher WACC and a lower frontier shift. Olivia Garfield: Mark over to you. Mark Freshney: Wishing you all the best for the future Liv and looking forward to seeing what you're going to do next. Just 2 questions. Firstly, if there's 1 regret that you've got over the last 12 years at Severn Trent Liv, what would it be? And secondly, if there's one piece of advice that you would give James as you hand over the reins to him, what would that be? Olivia Garfield: All good questions. So there's one thing I've never done that I would have loved to have done. We've got the most amazing asset that brings water gravity fed from right up in the beautiful Welsh mid pop of Wales down into Birmingham. And it's the called Dee and [indiscernible] it's absolutely gorgeous. And back in the day, if I've been the Chief Exec 40 years ago, I could have just popped down it, gone and seen it. We closed it once or twice a year to do cleans, and I could have walked along it and seen it, and it's got beautiful, beautiful tiling right the way throughout it. I mean no one ever sees it. Unfortunately, health and safety means I've got to do a 2-week confined space course to actually be able to go down it. So I would have loved to have gone down it, but I've never found 2 weeks to just confined space training to go down it. So I guess that is my one physical asset regret that I've never seen. Other than that, the one unfinished business is clearly our performance on customer. So none of us remain happy that our CMEC scores are only mid-table. We'd like them still to be podium. So we've got good plotting plans to get there. And I know James will see those through, and he'll be able to then say, I knew I'd fix it now that Garfield is out of the way. So yes, so that is, I guess, the thing that we as a team still look at ourselves and say, how can we not be podium on that metric. So that will be that one. In terms of piece of advice, I get the same piece of advice to every new Chief Exec. So I'll give the same to James, which is never go to bed without having done every single piece of work that is in your to-do list because you've no idea what tomorrow brings. And sometimes you think tomorrow might be easier, might be lighter, there might be no issues. And it's amazing how often the next day has something totally different that you couldn't have foreseen. So never go to bed without a clean inbox, never go to bed all your documents marks up, you can sleep less, but you can't make up time again. So that is my piece of advice to every Chief Exec. Thank you, Mark. Good thoughtful questions. Alex, over to you. Alexander Wheeler: Echoing previous comments, congrats, Liv, on a successful tenure at Severn Trent and all the best in future endeavors. Many congrats to you as well, James. 2 from me, please. Just firstly, on the at least GBP 500 million capital efficiency. Just interested in how much of this is visible now? I'd assume buckets like procurement, I guess, you'd have pretty strong visibility on already. And then also, which of those 4 areas you noted in the presentation give the most upside opportunity given the at least GBP 500 million guidance point? And then just on spills, where does the 27% year-on-year weather-adjusted reduction compared to your planned run rate? And does this bring the target forward for when you expect to hit the 2030 number? Olivia Garfield: Very good. So Helen, do you want to talk first about at least GBP 500 million... Helen Miles: Yes. As I say in the presentation, Alex, we are always driving for efficiency. So -- and you know plug and play, we talked about that first in 2023. So we've been on this road for a long, long time. So we're really confident about the GBP 500 million. We've been planning it for a while. We're well advanced on most of it. And so we're in really good shape on it. And that's why we're sharing it with you today because we are really confident about it. In terms of the split, obviously, plug and play is a big part of it. But actually, it's quite evenly balanced across all of those areas, which is good. But with any of these things, as the program moves through, things become more prominent than others. So -- but it's pretty even split, and we're well advanced with all of those areas that I talked about. And I guess if there's any upside opportunity, I guess it would come from stuff like, if we did get capital reopeners and we could do more of that plug and play, that would yield an upside. So I think at the moment, we think about GBP 500 million is the right number. But I guess for it to increase, then you'd have to believe other growth was happening. So at the moment, that's the right number based on 60% RCV growth nominal. If we ended up with more capital reopeners, we'd, of course, look to deliver more efficiently. In terms of spills, good point. So just to remind you, I guess, of our spills ambitions, always good to rebase the target. So we said we wanted to get to around 14 by the end of the AMP, so under 14 by the end of the AMP, and we're expecting to do that this year, which would be excellent. Now that's one of our conditions for outstanding status. So that will be quite neat to tick that off in the first year of the AMP as well. In terms of what we said we were going to do this year is we said we'd do about a 25% year-on-year reduction. So that would have taken us down to 18.8%. So we are ahead of that. Now we are clear though that if weather was equalized for last year's abnormally biblically wet year, then we'd be about a couple of percent ahead of our run rate. And last year was particularly wet. It's not a normal year last year. This year it looks like it will end up normal. So I've had people say to me it's going to end up dry year. We don't believe that. We think it will end up about normal. So we think this year's performance will end up in about a normal year, and that means we're kind of like 40% ahead of a wet year, 27% ahead of a normal year. So marginally ahead of track. We've got a lot of solutions that go live in the next few months. So that will give us a very strong start again to next year's number. So next year's number we'll have the benefit of all the solutions now in the next few months, and they'll get a full year benefit. Obviously, we didn't get a full year benefit for lots of solutions this year. Hopefully, that all makes sense. Olivia Garfield: Very good. Okay. A.J., over to you. Unknown Analyst: I'd like to echo the thoughts. Thank you Liv for everything you've done for the sector and I wish you the best in your next endeavors. And congratulations, James. I guess my question is more around the infrastructure services, the doubling of EBITDA. And just to maybe get a little bit more understanding of the components that drive the growth and any sharing arrangements that we need to think about and maybe if possible, the profile of the step-up? Olivia Garfield: So we're definitely not going to give you the profile of the step-up, but nice try. And thank you for the nice comments at the start. So I guess -- and do you want to bring to life a bit of that, I guess, Helen, do you want to start? And maybe James might jump in. Helen Miles: Yes, I'll start. Yes. I love it, A.J. It doesn't matter what we give you, you always want more. You're insatiable. But yes, really pleased today to be able to share that we're expecting to double the EBITDA in Infrastructure Services. And it's a combination of all of the businesses within that. So obviously, we're -- in Green Power, we've continued to grow Green Power. We've got a big solar scheme that's just in progress at the moment. In services, we've got opportunities to win new contracts. So that's a key focus for us as well. And of course, property, we committed by 2032 to deliver GBP 150 million of profit, and we've got some great stuff coming through. It's been tough in property over the last couple of years, as I'm sure you'll know, but we're starting to see that turn a corner now. So that's in there as well. And we're really pleased to share today the 2 acquisitions we've made, one in water and one in waste. And the opportunity we see here is for Infrastructure Services to really benefit from the growth that's happening in the water sector, specifically Severn Trent Water, but it also helps us secure that supply chain as well. So the opportunity is there, and we're really, really excited about it. Olivia Garfield: And I guess it's worth bringing out how we think this actually underpins and helps to deliver the capital program because one of the other key parts is it's very nice to have an upside, isn't it, nice dividend cover, nice growth. But actually, it also helps lock in and secure our supply chain. James Jesic: Absolutely. I mean, Helen has covered the bulk of the business really well there. But this was a strategic play on our part. We identified across the sector there were definitely going to be pinch points in certain aspects of the delivery. So for instance, if you look at the major renewal program, most companies have doubled what they did in AMP7. We see that as a particular pinch point. So identifying that early allowed us to get on the front foot and hence, create and acquire these businesses. So in the first instance, we really see this as an opportunity to really help ensure that Severn Trent from a water perspective, really delivers its capital program and not only delivers it, but delivers it efficiently. Of course, then in the future, we can look at how we expand those particular businesses. Olivia Garfield: Ahmed? Ahmed Farman: Liv thank you from my side as well. And Congratulations to James. I just have sort of a couple of sort of questions. I wanted to go back to the reopener. Could you just sort of tell us a little bit about -- more about the process as to where we are? What are the next milestones and when you expect to get clarity on it? And then secondly, again, can you talk about the areas of focus within sort of this program? Because obviously, you have a huge capital delivery program already underway. So that's already a huge amount of work, et cetera. So I'm just trying to understand what areas could be of focus that could come through the reopeners. Olivia Garfield: Very good. So I'll get Shane to take you through the process. I mean, in terms of delivery, we've definitely got capacity later in the AMP. So let's be really clear on that. So if you look at our current run rate, we're calling GBP 1.7 billion to GBP 1.9 billion this year. But if you look at the in-sourcing we've done on some big areas, let's take mainslay. So we've in-sourced the workforce now of mainslay. We do minimal volumes this year internally, but that really grows in year 2 and year 3. So again, we have the capacity to do more with that workforce later in the AMP. So -- and I guess when you look at some of the acquisitions we just brought in as well, all of that just bolsters the fact that we've got a very, very large setup internally. And don't forget as well that the delay often for others on their capital spend is the design part. They haven't got the time to design it because we've got an in-house design team, and that means we were doing a lot of our design actually as part of transition spend in the latter part of the last AMP, we've actually fully -- we have fully designed by the end of year 3, this AMP. Again, that gives us the capacity for that team to move on to preplanning for AMP9 or to do more work on reopeners. So I think that's where the capacity comes from in our mind for the reopeners. Shane, how is the process work? Shane Anderson: So in December, we expect the update to the methodology. Then for the fast track process, you'd submit your business cases in May, you'd have a draft determination in July and then the final determination in December, so you can then flow the numbers through the charge setting process. And then in terms of the areas, so Ofwat's identified 10 priority asset classes from an asset health perspective, the big one being on gravity sewers and then there's also assets at the water and wastewater treatment works and various tanks. You've also got assets relating to growth. So whether that's building more water resource capacity, for example, boreholes or whether you're expanding wastewater treatment capacity to support new and faster growth in your regions. And then you've also got any new risk. So for example, if new legislation comes in relation to cyber or PFAS, then there's an opportunity there. So that will exist all AMP around. Olivia Garfield: Very good. Dominic, come back in for seconds. Dominic Nash: A couple of questions from me, please. Firstly, on the EPA. So congratulations getting your 4 star again. The environment agency is clearly going through consultation at the moment, I think it completed consultation with a 5 star. I just wanted to know that if we're going to run under the new regime, would you be a 5-star company or a 4-star company? Secondly, I was actually a follow-up on the PFAS question actually. You mentioned that the new regulations coming potentially or the new risk on PFAS. I think your area is one of the PFAS heavy areas of the U.K. I don't think you've got much in your totex for AMP8. Is it possible to sort of like give us sort of some color on the quantum of the potential PFAS expectation and how much we might be able to see in AMP8, please. Olivia Garfield: Very good. So 3 questions there. I mean, so annoyingly, as 5 star doesn't come in for a few years yet. So the consultation is out there, but it doesn't arrive until 2028. So we'll all have to satisfy ourselves with 4 stars for the next few years, I'm afraid. Dominic Nash: Sorry, does that mean that James might actually be a 5-star CEO. Olivia Garfield: You know what, I've had the same thought. And Dominic, it breaks my soul more than it breaks yours. So equally, as a top 100 shareholder in Severn Trent, you better be a 5-star company CEO. Otherwise, I'm going to be coming and having more conversations. So yes, so we only have only have 4 stars in the next 2 years. We're 10.5 months into the financial year at this stage and we're looking in good shape. Obviously, a long way to go, 6 weeks to go. It's never done until it's done, but we're working our socks off to try and cross the line on 4-star for this year. Then I think next year is a 4-star and another 4-star and then you get to a 5-star. So it is actually quite a while away until we get to 5 star. And we've been looking at all the metrics possible for a long period of time. We've been shadowing them. We've been getting ready and every around this table has every intention of moving to be a 5-star company when that goes live. Now that's the first question. But yes, you're right, James, will be the first 5-star Chief Exec and I won't be. On PFAS, I guess, just on the budgets, Shane, do you want to mention how much money we had to put aside. We actually have quite a nice bit of money actually, Dominic. Shane Anderson: It was over $100 million in relation to PFAS, plus additional $300 million in water quality. Olivia Garfield: Exactly. So we've got a few best GBP 0.5 billion in that water arena, just, I guess, to bring that to life. And typically, you're talking about tens of million pounds, tens of millions of pounds for a PFAS solution, not hundreds of millions of pounds per site, again, just to contextualize it, that was that. And then Bob, do you want to bring to life. I think sometimes it's interesting to context ourselves against us versus France, say, when you listen to PFAS, do you want to bring to life any thoughts on? Bob Stear: Well, perhaps one of the key things is Marcus Rink, the Chief Inspector from the drinking water inspector, actually gave a speech at the British Water Conference the other week. And he was talking about compare and contrast to Europe and the U.K. and he put the U.K. quite a way ahead in terms of -- we've been looking at PFAS for a long while, actually since Bruntsfield in 2005, when we had obviously the firefighting phones going to that system. So we're in really good shape. And for us, in our region, we've got our Witches Oak site up in Nottingham this year that we know exactly the process we're going to put in place to take out the PFAS. So it's actually -- it's all good news. Lots of research going into clever ways because it's easy to take it out. It's not so easy to deal with the stuff that you then do end up with. And there's a lot of research going on to make sure we find really efficient ways of dealing with that. So we're in good shape. Olivia Garfield: Very good. Bartek, over to you. Bartlomiej Kubicki: Thank you very much. And I would like to join all the congratulations, and thank you for all the great work. Just 3 questions, if I may ask, please. First of all, if we think about ODIs in AMP8 and you compare it to ODIs in AMP7 in terms of how much does it cost to earn additional GBP 10 million of ODIs. I just wonder, is AMP8 from this perspective much more challenging, meaning do you need to invest more to get the same result as in AMP7 in terms of ODIs? That will be the first question. Second question on this GBP 500 million of capital efficiencies. Maybe it was already discussed, maybe I didn't capture it, sorry for that. But what are you going to do with those efficiencies? Is it going to be reinvested into your network? And consequently, could it boost your ODI guidance or ODIs achievements in AMP8? And the last question on leakage as you spent some time on your presentation on leakage. I can imagine it's becoming more and more expensive to get additional 1 percentage point of leakage reduction. And I just -- I would like to ask you whether you think Ofwat is ready to pay more for reducing leakage by additional percentage points, meaning in AMP8, in AMP9, when it periodically should become much more challenging to reduce leakage, whether they are happy to grant you higher allowances to do so? Olivia Garfield: Very good. 3 very thoughtful questions. So I mean, you can't really work out like GBP 1 of ODI cost you X because it's very different per ODI. So each individual ODI is quite a different metric. And it depends on the weather conditions that happen in that particular year because that makes it harder or easier. And it depends on your start point on the targets. So it's not as easy to kind of say in AMP7 used to cost us X and AMP8 it cost us Y. That's not true. What we can say, though, is that if you look at AMP7 versus AMP8, we've got less measures to go after. That's better for us. We have 21 metrics now. We used to have 43 back in the day. Keeping 43 metrics green is harder than keeping 21 metrics green. That's one thing. And the second thing is we have a much larger base budget. So when you look across the piece, we're growing our RCV by 60%, aren't we this time around, and it was about 11% last time around. So we do have more generic investment. And so what you can do is invest more in capital solutions. So rather than investing in OpEx heavy solutions every year, you can actually fix the source of the problem. And so if you look at some of the big earners, like, for example, leakage or like, for example, spills, if you can fix that site permanently, you're going to earn reward on that site every year for the next number of years. So it is a very different dynamic, this AMP versus last AMP, I would say, on ODIs. So that's one. On the efficiencies, so what we've said is that we're going to make the efficiencies and then you should assume we're investing them as it currently stands. And whether we're investing them to land additional performance, like, for example, the EPA metrics, there are now more metrics and that will require more investment to hit those. It might be we're putting some of the metrics in to land force our status. It might be that we're saving some money for the capital reopeners, and we might do that, put some money aside because those reopeners are really good, so we might save some money on that, but that keeps the guidance on gearing 60% to 65% in shape. And it might be that you have a long hot dry summer, or like this one, and you have to spend a bit more money on moving the water around and creating more water. So it's just good prudent management to identify efficiencies early on. So you shouldn't currently assume more totex than plus 0. We've said that at the time, but you should feel very confident in our ability even in an inflation-heavy environment to still deliver our totex budgets. That's what we're currently saying. But we haven't been as clear as that. So I guess that's what we're saying is at least 0. And then on leakage, it's an interesting question. I'm not sure I'm in quite the same place. I think Ofwat does accept that leakage is more expensive to deliver, and that's why they've given us all the money for mainslay. So if you look at the money they have funded, they have funded GBP 0.5 billion worth of mainslay investment. That's new. That's fair. And then I guess for us, interest to talk about stuff we're doing on pressure management because that is funded by ourselves. There's just a better way to run the company. Helen Miles: Yes. So I think we've got to innovate on both find and fixed to keep the costs down. So from a fixed point of view, I've talked about Pegasus, so pressure control in valves across the network that we can automate, which reduce burst and leakage. But we're also -- we've gone really big in the last 6 months on Origin, which is a solution which we push into the pipes to seal the leaks, which means that we don't have to pay for expensive road closures or use our crews for 2 days when they can do a job in 20 minutes. So I think it's about innovation as well. Olivia Garfield: Very good. Thank you very much. So I think we have no further questions. I can't see any on the screen either. So in which case, I'm going to call it. So a massive thank you for anyone that dialed in for the half year subject Q&A. Much appreciate it. And thank you once again for all the support for the many questions, the guidance, the counsel over the years and well done to the team for a very strong first half to the year.
Operator: Good day, and thank you for standing by. Welcome to Kiwi Property FY '26 Interim Results. [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, Clive Mackenzie, Chief Executive Officer; and Steve Penney, CFO from Kiwi Property. Please go ahead. Clive Mackenzie: Thank you, Maggie. Kia ora, and good morning, everyone. Thank you for joining us for Kiwi Property's interim results announcement for the 6 months ended 30 September 2025. I'm Clive Mackenzie, the CEO of Kiwi Property. And today, I'm joined by Steve Penney, our CFO; and Fraser Gunn, our Head of Investor Relations. I assume you have a copy of our presentation in front of you. If not, you can access one from the Investors section of our website at kp.co.nz. A quick reminder that as usual, we have included detailed financial and property information in appendices to the interim financial presentation. Turning now to Slide 4 to look at our progress on key priorities over the last 6 months. Kiwi Property is focused on increasing long-term returns for its investors. We do this through the ownership, development and management of a portfolio of high-quality real estate. At the core of our strategy is an ambition to be New Zealand's leading creator and curator of retail-led mixed-use communities. We believe our strategic mixed-use assets located in metropolitan areas with great transport access such as Sylvia Park, LynnMall, Drury and The Base will continue to grow and that by prioritizing them, we will create the greatest value for our shareholders in the years ahead. We are pleased with our achievements in the first half of FY '26, making strong progress against each of our strategic priorities. The first priority we identified at our annual results earlier this year was to efficiently manage the balance sheet and free up additional investment capacity. As at the 30th of September, gearing remained relatively flat at 38.5% with the operation of the dividend reinvestment plan funding our CapEx requirements. Since balance date, we have agreed the sale of Sylvia Park Lifestyle to a large-format retail fund managed by Mackersy Property. The proceeds from this sale is approximately $53 million, with some of the proceeds to be reinvested into growth opportunities. The pro forma impact of the sale reduces gearing to 37.5%. The second priority was to continue to drive rent growth. Despite a weak economy and a challenging leasing market, during the first half of the financial year, we have delivered strong leasing outcomes across the portfolio with total rental movements, including new leasing and rent reviews up 3.5%. Office leasing spreads were up 3.4%, supported by the ASB lease extension and encouraging tenant demand for premium office space within the Vero Centre. Mixed-use leasing spreads were up 3.2%. Now turning to Slide 5. The third priority was to maintain strong discipline on costs. Through controlled management and a culture of continuous improvement, our employment and administrative expenses were down by 5% when compared to the same period last year and adjusted for one-off costs. The fourth priority was to progress the sell-down of Drury large-format retail sites. Around 77% of the large-format retail land intended to be sold at the development is now under contract with settlement and profit recognition expected from FY '27 to FY '29. I'll talk through the conditional sales of land in further detail later in this presentation. Drury land sales will help to fund the project's capital expenditure with minimal net gearing impact on the Kiwi Property balance sheet expected from the development. Now turning to Slide 6. As well as strong progress on our key priorities, a number of other business highlights over the last 6 months are worth noting. Strong leasing momentum was seen in a number of our assets. ASB's lease at their North Wharf headquarters was extended through to 2040, which was a significant milestone and provides long-term certainty of tenure at the asset. Resido, our build-to-rent asset adjacent to Sylvia Park, was 99% leased at the end of the period, and Vero Centre's leasing is progressing well with occupancy now at 94.3%, up from 92.4%. Sales and foot traffic were marginally up at our mixed-use centers over the last 12 months. Positively, sales are showing signs of improvement, up 1% in the last 6 months compared to the prior 6 months. Catalysts for further sales growth are expected through improving customer spend conditions following interest rate cuts and IKEA's first New Zealand store opening adjacent to Sylvia Park in early December. In November last year, we provided a convertible loan to Mackersy Property with the intention that this would convert to equity. With the earnings milestone in the loan agreement now met, we can confirm that this loan will convert to a 50% equity stake in early December, unlocking an additional source of capital and potential earnings growth over time. Mackersy has launched a new large-format retail fund with Sylvia Park Lifestyle as a cornerstone asset and is currently seeking investor interest. I'll talk through the new LFR proposition in further detail later in the presentation. Over now to Slide 7. With New Zealand's first IKEA opening next week adjacent to Sylvia Park, it would be remiss not to mention its significance for the Sylvia Park Precinct today. IKEA is one of the most highly anticipated retail openings in recent years. And once open, it is expected to act as a significant draw card to the Precinct. To ensure the seamless integration of the 2 sites, we have completed a pedestrian walkway between IKEA and Sylvia Park to encourage cross-shopping. This walkway entry point on Level 1 will be beneficial in driving foot traffic to Sylvia Park's upper floor retail. We anticipate that the opening of IKEA will drive additional customer activity and reinforce the long-term value proposition of Sylvia Park. Now turning to Slide 8. Among others in the property industry, Kiwi Property discussed the country's seismic regulations with government ministers and raised whether the mitigation costs associated with appropriately sized compared to the risk. We are pleased to see the proposed changes announced in September by Minister Chris Penk, which are expected to provide greater clarity regarding seismic strengthening obligations. Proposed legislation will remove the new building standards ratings. Instead, the legislation will target buildings posing substantive risk to life in medium or higher seismic zones. Auckland is set to be removed from the earthquake-prone building regime altogether due to low seismic risk, meaning seismic strengthening would not be mandatory for Auckland buildings. Kiwi Property's portfolio is predominantly Auckland-based with 86% of our assets based there when excluding held-for-sale assets. In the valuations of Kiwi Property's Auckland's assets, we currently have a combined present value of $83 million in seismic CapEx assumed to be spent over time. Across our portfolio, including held-for-sale assets, the total seismic CapEx provision have a present value of $116 million, which could significantly reduce once this legislation is passed and implemented. Kiwi Property's valuations currently remain unchanged and any potential CapEx savings from the reduced seismic upgrade requirements will depend on a variety of factors, including market reaction, tenant commitments and lender expectations. Over now to Slide 9. We're pleased to have continued to maximize the day-to-day operational performance of our assets. Despite the challenging leasing market, we have continued to grow rents and increased both our weighted average lease term and occupancy. As you can see on this slide, total rental growth from mixed-use office and retail leasing activity was up 3.5% for the half year. Driven by the renewal of ASB's lease at North Wharf, over 28% of our office space was re-leased or renewed with a spread of 3.4%. At the half year, 68% of our total portfolio of our income was subject to either a fixed or CPI-based review, allowing for future rental growth. Overall portfolio occupancy has increased 96.9% to 97.9% over the period. This increase was primarily due to the lease-up of Resido, which had 293 of 295 apartments leased as at 30 September and positive leasing momentum in the Vero Centre and Sylvia Park adjoining properties. Our weighted average lease expiry increased from 3.8 years to 4.3 years over the period, primarily due to the lease extension at North Wharf for a further 9 years. Turning now to Slide 10. Sales across our total portfolio were margin lower, down by 0.6% over the last 12 months. However, sales and foot traffic at our mixed-use assets were marginally up by 0.2% and 1.1%, respectively, compared to the previous period. Stronger mixed-use sales in the second half, up by 1%, shows there's momentum heading into the Christmas shopping period. Total occupancy costs were up to 15.5% from 14.5% across the mixed-use assets with a target TOC of 17% to 18%. This provides further scope for rental growth. Overall, sales appear to be recovering, and our hope is that this theme continues over the coming months. On now to Slide 11. Kiwi Property's asset values were marginally lower over the year with a fair value movement for the total portfolio down by 0.9% or $30.3 million over the last 6 months. Values look to have stabilized as interest rates continue to decrease with the investment portfolio capitalization rate broadly flat versus the prior year. The base valuation increased by 1.9%, thanks to continued strong leasing activity with a spread of 5.8% and occupancy at more than 99%. On the other hand, our Drury landholding valuation has seen a small decrease of $4.3 million or down 2.6%. This is primarily due to ongoing development investment. These capital works are expected to enhance the site's long-term value with short-term valuation movements expected during active project phases. I'll now pass over to Steve to talk through our FY '26 interim financial results on Slide 13. Steve Penney: Thanks, Clive, and good morning, everyone. Kiwi Property has delivered a strong overall rental performance in the last 6 months with net operating income up 5.7% across our portfolio compared to the prior period. Our focus on mixed-use assets has delivered through cycle net operating income growth of 6.9%. At Sylvia Park, the lease up of Resido has contributed to an additional $3.8 million in income compared with September 2024, while the ASB lease deal at Geneva House added $900,000. The Base continues to perform well with Te Awa's new medical and entertainment tenancies in Level 1 driving higher income up $0.5 million. These results reflect our ongoing commitment to optimizing portfolio performance even when market conditions are challenging. Turning now to Slide 14. Adjusted funds from operations, or AFFO, increased by $3.5 million or 7.2%. This was driven by higher net rental income and stable finance expenses over the period. Employment and administration expenses when normalized for one-off costs associated with the ASB lease extension and other transaction costs were lower by $600,000 or 5.1%, reflecting our continued focus on controlling costs and delivering operational efficiency. Although our half year dividend of $0.028 per share reflects an 88% AFFO payout ratio, we expect the final FY '26 dividend payout ratio to be at the lower end of our 90% to 100% AFFO target range. Turning over to Slide 15. Our total property assets, including our investment properties and Drury land classified under inventories was $3.3 billion as at 30 September 2025. Gearing remains relatively flat at 38.5% with proactive capital spend reduction and the dividend reinvestment plan supporting the stability. Pro forma gearing is expected to reduce to 37.5% following the completion of the LFR fund transaction. Net tangible assets per share were marginally lower at $1.12, down by 2% from $1.14. The interest cover ratio was 3.1x, up from 2.9x in March. Now over to Slide 16. Kiwi Property continues to be well supported by our banking group. In August, we increased our bank facilities by $35 million with headroom of $248 million as at 30 September. Our weighted average term to debt maturity was flat at 3.1 years. During the period, Kiwi Property took advantage of lower cost facilities during the refinance while still ensuring a healthy term to maturity was retained. To take advantage of lower relative interest costs after balance date, we refinanced the recently matured $100 million KPG040 green bond series with bank debt. Moving now to Slide 17. As a result of declining interest rates and lower cost bank facilities in our recent refinance, our weighted average cost of debt reduced by 41 basis points to 4.89% over the last 6 months. In this half year period, we entered into $95 million of new interest rate swaps. The proportion of fixed rate debt has decreased from 88% to 76% with an anticipated reduction in debt levels after completing proposed asset sales. We will continue to actively manage our hedging profile to provide greater certainty around interest costs. I'll now hand back to Clive who will resume on Slide 19. Clive Mackenzie: Thanks, Steve. We're pleased that our investment in Mackersy Property is progressing to the next phase, creating value for KPG shareholders. The strategy behind our investment in Mackersy was to support the growth of Kiwi Property by providing us with a potential new source of capital and delivering earnings growth from a scalable business. The original loan arrangement supported the growth of Mackersy's business before our investor converted from debt to equity. Mackersy has made strong progress over the last 12 months, and the equity criteria for conversion of loan has been met as expected. This will result in the conversion of our original $6.5 million loan to equity in early December. We look forward to becoming a 50% shareholder in the Mackersy Investment Management business, which currently has over $2.2 billion in assets under management. Over now to Slide 20. We are pleased to announce that Mackersy launched a new large-format retail fund, also known as the Mackersy LFR Fund in early November. The new LFR seed asset will be Sylvia Park Lifestyle, which is our LFR property adjacent to Sylvia Park. The fund will be managed by Mackersy with Kiwi Property retaining property management and leasing of its contributed assets. Kiwi Property intends to maintain a long-term interest of between 25% and 50% in the fund with the fund intended to grow over time. This transaction highlights the benefit of our investment in Mackersy, which can provide us with new sources of capital to support our strategic objectives. The LFR fund structure will enable us to release approximately $53 million in capital upfront, maintain control of key land holdings within the Sylvia Park precinct and partner on any future potential LFR developments at existing Kiwi Property sites. Turning now to Slide 21. With asset sales providing some capital for reinvestment, we expect to commence several key development projects in the near term, subject to Board approvals and final designs. These projects include an Asian supermarket, a new pedestrian plaza at Sylvia Park as well as an expansion of available retail space at The Base. These initiatives will diversify our tenant mix, revitalize key precincts and create additional retail space to meet growing demand. The estimated spend for these projects is approximately $32 million. Moving now to Slide 22. At Drury, we are pleased to be able to announce 3 further sales of large-format retail land following the unconditional sale of 1.2 hectares to Foodstuffs in April. Earlier this month, we confirmed the conditional sale of 6.4 hectares to Costco Wholesale, a major international retailer. This significant agreement will serve as a catalyst for further development and growth at the site. This sale, along with conditional sales to the Briscoes Group and Harvey Norman, will provide capital for reinvestment. Together with the recent Stage 2 Fast-track approval, this validates the strategic vision for Drury as Auckland's next major metropolitan center. Proceeds from all sales to date totaled $115 million with settlement and profit recognition expected in FY '27 to FY '29. Stage 1 civil works and power connections for the large-format retail sections are underway, and Stage 2 has now been granted consent under the Fast-track Approvals Act 2024, increasing the consented developable area to around 140,000 square meters. Turning now to Slide 23. Our Drury development covers a gross land area of 53.3 hectares with total acquisition and development costs to date of $141.4 million. The current market value at September 2025 is $162 million with a salable land area of 39 hectares. CapEx remaining post 30 September is estimated around $161 million with an estimated completed value of around $387 million. And our capital allocation framework, the Drury project, is classified as opportunistic with a target IRR of 15% to 20%, supporting our long-term value creation strategy. And finally, over to Slide 25 for our priorities and guidance for the remainder of the financial year. Kiwi Property delivered a robust operating result in the first 6 months of FY '26 and delivered on our key strategic priorities. Heading into the remainder of FY '26, we will continue to focus on our 4 key priorities, which we know will make an impact. First, we will continue to efficiently manage the balance sheet. Asset sale proceeds will allow us to enhance our existing high-quality assets and progress other investment opportunities as market conditions allow, in line with our capital allocation framework. Secondly, we will continue to drive rental growth with a focus on maximizing the operational performance of our high-quality assets. Thirdly, we look to maintain strong discipline on costs and great progress made to date in this area. And finally, we will look to progress the Drury Stage 1 civil works, which will bring land sales closer to settlement. This follows the 4 large-format retail land sales we have achieved at Drury over the last few months. As a business, our goal is to deliver sustainable earnings and dividend growth for our shareholders. I'm pleased to reconfirm the FY '26 full year dividend guidance of $0.056 per share. This represents a 3.7% increase on the prior year, in line with our intention to continue to deliver dividend growth over time. Kiwi Property has made great strategic progress over the last 6 months, and we will continue to look for ways to add shareholder value over the rest of the financial year. Thank you for joining us today. That concludes our overview of Kiwi Property's interim financial results for the 6 months to 30 September 2025. Today's presentation, along with our FY '26 interim report, is available on the Kiwi Property website. I'll now pass over to the moderator who will open the phone lines for questions. Operator: [Operator Instructions] First question comes from Nicholas Hill from Craigs Investment Partners. Nicholas Hill: I'd like to kick things off with a couple of questions on the performance of your retail and mixed-use assets. Would it be possible to talk to what was behind the decrease in specialty sales per square meter? Clive Mackenzie: Yes, there's probably a couple of things that are driving that. The first one, obviously, the economic climate would be the obvious one. But the other thing is we've seen, especially at Sylvia Park and The Base, a lot of our previously categorized specialty stores go up to many majors as they've increased their store size. And so those sales have gone out of the specialty store sales numbers. Nicholas Hill: Okay. And then just looking at Centre Place North, I believe, was the Kmart lease renewal the main driver increasing income? Or has there also been a change in occupancy? Clive Mackenzie: Sorry. Are you talking about The Plaza or Centre Place? Nicholas Hill: Sorry, I got my wires crossed. What's the one with the Kmart renewal? Clive Mackenzie: We did the Kmart renewal at The Plaza. Sorry, what was the question? Nicholas Hill: Was that the main driver in the increase in rental income? Or has there been a change in occupancy? Clive Mackenzie: That was the main driver, yes. Nicholas Hill: Okay. And then I guess just to clarify something for me. You've announced that you're selling effectively a 50% interest in the Sylvia Park lifestyle asset to Mackersy Fund for $90 million. That equates to about $45 million, but you say that it will release $53 million from capital. Where does the other $8 million come from? Steve Penney: So the gearing in the fund is slightly higher. So that's -- we get proceeds from the sell-down, and then we [indiscernible] gearing [indiscernible]. Nicholas Hill: Okay. And then last one for me before I let someone else have a go. How is the inquiry going for the last 2,000 square meters of the Vero Centre? Clive Mackenzie: Great question. In fact, we're very close to securing another 1,200 square meters of space. We're just getting the lease signed at the moment, which will take us down to effectively just under a floor. Operator: Next, we have Bianca Murphy from UBS. Bianca Fledderus: First question for me is just on Drury. So given the conditional nature of the land sales, are you able to share what specific conditions remain outstanding and what the key risks are to settlement timing there? Clive Mackenzie: Thanks, Bianca. Obviously, with [ fall ] sales, there's a number of conditions that need to play out. Firstly, we obviously have to do all the earthworks in terms of putting in the roads and the infrastructure so we can get a title. And for some of the international tenants, they require OIO as well. So those will be the main conditions across those tenants here -- or buyer, sorry. Bianca Fledderus: Yes. Yes. Okay. That's helpful. And then just on the Mackersy Fund, could you talk about which other assets in your portfolio you see as suitable to be transferred to the LFR funds at some point? Clive Mackenzie: In terms of the assets that we have in our portfolio, there's probably potential new developments. So for example, at Drury, there is still some LFR land that we haven't sold that could potentially end up in the Mackersy LFR fund. Also, there's an LFR site adjacent to the IKEA development, which also -- one develop could also be sold into that fund as well. So those are some of the more immediate ones, yes. Operator: Next, we have Nick Mar from Macquarie. Nick Mar: Just in terms of valuations, sort of intriguing you've executed the lease renewal at ASB, but the valuation is sort of flat despite cap rates. Can you just talk what else has sort of gone on there? What it would [ imply ] is what you're spending is in line or more than what the value of the issued [indiscernible]. Clive Mackenzie: I'll kick off, and then I'll hand over to Steve. Effectively, the valuers haven't moved the valuation. They've looked at market evidence out in the market. And I don't believe that the current market evidence justifies movement in the valuation. So that's probably the first point. I don't know, Steve, if there's anything else you want to add to that? Steve Penney: It's probably market reads as well, Nick. Sort of a soft listing office market in the moment. Nick Mar: But I guess you've just reset the rent on -- and the value [ has moved ] the cap rate, which would suggest that they have viewed it as a more attractive asset than it was prior to the lease renewal, so it's just a little bit intriguing, but no, that's fine. And then with the sort of where you've kind of cut up the portfolio between core and noncore. What is the sort of process around the balance of the noncore assets and how you want to sort of exit these over time? Clive Mackenzie: Yes. So for some time now, we've obviously called out which assets we regard as noncore. Obviously, our intention is -- and again, as we have called out before, we want to focus on mixed-use assets in the Golden Triangle, which is obviously part of the [ capital ] sort of area where we see there's the most opportunity for growth. And so that will mean, over time, we'll move out of those regional retail assets and CBD retail, which is -- sorry, CBD office, which is not [ over ] core to our strategy. So we'll continue that process. Obviously, we've got [ The Base ] held for sale so that sort of signals our intent in that direction as well. Nick Mar: Okay. And the office assets, is that something that might be likely to help you with? Or those sort of [ outweigh ] sales? And particularly with ASB following the lease renewal, have you had much sort of unsourced interest in that? And are you going to progress that? Clive Mackenzie: In answer to the first part of your question, yes, obviously, Mackersy is open to office assets as well as they have a number of office assets within their portfolio. Given the size of our offices, it's most likely they will be to the broader market. And yes, we have had some initial interest in ASB, but still early days in terms of progressing that. Nick Mar: No, that's great. And then just on sort of the rent was down or the total rent went down. Can you just talk through that and talk to what the leasing spreads [indiscernible]? Clive Mackenzie: Okay. Our leasing spreads at Sylvia Park were actually slightly up. So I'm not sure which number you're looking at in terms of that. I'll just turn to the right number. So our overall rent reviews were sort of 4.1%, and leasing spreads were sitting at around 3.2%. Steve Penney: You're looking at Slide 27 at the rental income? Nick Mar: Yes, yes. There's a $1.9 million surrender fee last year, so you've got to adjust it and normalize it for that. Operator: Next, we have Rohan Smit from Forsyth Barr. Rohan Koreman-Smit: Can I ask a couple of quick ones? Just on the second half guidance, it implies a bit of a weaker half. I believe there's a bunch of maintenance CapEx that kind of looks pretty seasonal and incentives. I think last time we spoke, you said there was going to be a reasonable number this year, and it's obviously not in the first half. Can you just give us some color on those 2 lines? Steve Penney: Yes. Maintenance CapEx will probably tick up a little bit. And the challenge for the second half of the year from a leasing perspective is you lose 2 months to do deals. So kind of running out of time to put those deals and to do the debt upside. So that's probably what we're seeing at the moment. In terms of debtor things like that, that's really stable. The provision for debt review slightly what -- [indiscernible] slightly but everything else looks [indiscernible] So it's more about it's a timing issue with leasing. Rohan Koreman-Smit: Sorry. You're saying the whole movement is a timing issue with leasing? Is that how I should read that because you typically... Steve Penney: [indiscernible] Rohan Koreman-Smit: Do you have some color on that? And also the incentives as well? I get -- I feel like maybe there's something that you provided ASB given earlier comments on the building valuation that -- are you capitalizing incentives there? Or are you running them through your P&L? Steve Penney: Capitalized [indiscernible]. Rohan Koreman-Smit: And sorry, maintenance CapEx? Steve Penney: Sorry, maintenance CapEx. That's generally second half of the year as soon we expect to do that and spend a bit more. So it will be pretty consistent with last year, maintenance CapEx. Rohan Koreman-Smit: Okay. And then just on the seismic disclosures, looking at your financial reports, when you go to last year's one, you had $42.8 million as a net present value of the provisions in the valuations. But today, you're telling us it's $116 million. What happened between FY '25 and now in terms of more than doubling your seismic provisions? Steve Penney: You're talking about different numbers. One is the movements last year, and then we reported the total number. We've never reported the total number before. Rohan Koreman-Smit: Okay. So these movements for the last -- so '25, you added $40 million, and then '24, you added another 40-ish. So that's a cumulative number, not the total? Steve Penney: It's the change in the period -- over the period. Rohan Koreman-Smit: Yes. Yes. Okay. And then just thinking about gearing because you've got a bunch of asset sales and it's going to take a while for you to sell down this Drury land. Where is your kind of target for gearing? Are we still kind of in that 25% to 35% range? Is that where we should think about you're gearing long term? Steve Penney: Yes. So we can see with the CapEx we've got in front of us and the asset sales that we were targeting at the moment, we can see it [indiscernible] pro forma gearing [indiscernible]. Keeping in mind that the expenditure Drury is over quite a long period of time. Clive Mackenzie: Yes. And any additional asset sales over time would reduce that amount down for the year. Rohan Koreman-Smit: Yes, cool. And then just last one, and I know we probably agree and disagree on this all the time, but you comment multiple times that the Drury land sales will be used to fund project CapEx, yet you're running the profit through AFFO. Are you going to be running a lower payout ratio in the medium term to retain those earnings, so to speak? Otherwise, whilst the Drury land sales will fund the project CapEx, your dividend will be part funded by debt. Steve Penney: Yes, we expect the payout ratio to be lower if you included the jury earnings in that. Yes, that's correct. Closer to the time, we'll provide the market an update. Operator: [Operator Instructions] Next question comes from Arie Dekker from Jarden. Arie Dekker: Just starting with Resido, net rental income was $3.6 million for the half, and your effective occupancy was pretty high given starting point was, I think, 82%. Can you just give an update on where your sort of outlook is now that it's fully leased and the starting rents have come in for year 3 stabilized income, which, I think, last year, you sort of sized at about $11.2 million. Steve Penney: Yes, it's probably a little bit over double what it is now, closer to $8 million, I'd say. Arie Dekker: And in terms of year [ 3 ]? Clive Mackenzie: Well, that's in terms of this financial year, yes. This financial year. Yes. Arie Dekker: Yes. Yes. So in terms of like with the rental growth that you'd sort of be expecting, does that mean sort of your outlook now, say, in 18 months or so time at the 3-year point would be sort of closer to $10 million? Steve Penney: Yes. It's come back a bit. Yes, rental is a softer market, but we expect it to pick up again [indiscernible] [ the market cycle. ] Arie Dekker: Okay. And then just in terms of the ASB, which has sort of come up in a couple of other threads of questions. I see in the commitments that there's a $22 million commitment -- future commitment for ASB North Wharf. Can you just sort of talk a little bit about the nature of that and over what time period that $22 million will be incurred? Clive Mackenzie: It's over the next couple of years, and it's -- there's some tenant fit out in there. There's some baseball works as well for additional space. There's a little bit of spend on green. Yes, there's bathrooms. Yes, it's basically -- it's a refresh of the tenancy for the next lease term, yes. Arie Dekker: Okay. And then just in terms of Vero, which is also going, I guess, through a bit of a partial renewal cycle, commitments there, $12 million. Is that sort of over a similar period as well, sort of next 12, 18 months and sort of associated with CapEx and also some incentives or CapEx only? Clive Mackenzie: That's sort of over the next 12 to 18 months, as you call out. And that's -- there's a combination of upgrading works as well sort of the entry lobbies in the trip and some CapEx as well. There's no incentives in that number. Arie Dekker: Great. And then just the last one for me. I mean I know it's a relatively small asset. I think you sort of paid $27.5 million for it 4 years or so ago. But the site that the city Impact Church used to occupy, what's sort of the future for that site now that you've sort of sold down an interest in the lifestyle asset? Clive Mackenzie: We're actually very close -- we're very close to finalizing a lease for the office space in that tenancy. So that vacant space will come out. But it's an asset which, over time, we may look to down weight our ownership of with regards to Mackersy into the LFR fund potentially as well, yes. Arie Dekker: All right. Kind of go down the way of the lifestyle asset. That's good. Operator: Thank you. Thank you for all the questions. This concludes today's Q&A session and the conference call. Thank you for participating. You may now disconnect. Have a great day.
Fabricio Bloisi: [Presentation] Hello partners. How are you? Welcome to our results call. I hope you received and you enjoyed our results today. I'm quite excited to what we shared today. At the same time, we could share you more about our growth not only that we are growing 20%, but even more important that our ecosystem thesis is working. So I enjoyed very much to share the numbers of Despegar. It's not only 5% of Despegar revenue coming from the iFood ecosystem, but we share the data week by week. You can see a very strong growth. I'm quite confident we will get to 10%, 15% in the short term. So this is the base of our thesis, our ecosystem thesis, we are growing very fast in iFood, but we are pushing Despegar to grow together. At the same time, we could share a little of our numbers in terms of results. You saw we grew 70% to $530 million. I think it's great to share this number with you. One year ago, I told you I expect us to be -- have more profit than the dividends, and I expect us to get to multiple billion dollars of profit. And many people said, I can't see Prosus doing that. So I hope you can see Prosus doing that today. We are going to get between $1.1 billion to $1.2 billion in adjusted EBITDA this year, excluding JET and LA CENTRALE. So we can expect I don't know $1.2 billion, $3 billion, $4 billion of EBITDA this year and for a couple of billion dollars of profit in the next few years. So I'm quite excited about our numbers in terms of results. We keep the discipline. We sold $1.2 billion, but we are on track to sell at least $2 billion this year of our assets. We keep our buyback. Now we sold -- we bought back more than $40 billion, generating more than $60 billion in results. So I think we keep the discipline, we keep the growth -- but I want to reinforce all of that is the foundation to how we are going to build a much bigger company. So innovation is growing amazingly [indiscernible]. I wanted to do a bigger session on innovation now, but because of the timing, we decided to focus on numbers today, but in a few weeks by December 15, maybe January 15, we are going to make a much longer presentation on how AI is changing our lives in terms of live commerce models, in terms of assistance. You saw we had 20,000 assistant already. So I could talk a lot about innovation. I hope you make questions about that. It's quite exciting. So our moment now is execution, execution, execution. We had some discipline also in M&A. A few M&As are focusing growth. For example, the Indian ones, [indiscernible] and [indiscernible], they are growing [indiscernible] is growing more than 120% year-over-year. We are very excited about that. A few M&As are increasing our profitability, like La Centrale and Despegar. So I think the company is doing good. I'm excited about the results. I hope you have many exciting questions for us today. And my priority now execute go to those few billion dollars in results. We are just getting started. We really want to build at least $100 billion outside of Tencent and one of the best tech companies in the world. Let's talk more about that today. So let's go for our questions. Mr. Eoin, right, guide us. Eoin Ryan: Speaking of just getting started, let's get started on the Q&A. Catherine, why don't you -- if you could remind the audience how to ask a question, please? And then I'll start off with a quick question. So please, Catherine. Operator: [Operator Instructions]. I will now hand back to your host, Eoin Ryan, to take your questions. Eoin Ryan: That's great, Catherine. Thanks very much. It's great to be here today, and it's good to hear from you guys. As you said, Fabricio, I think we're following through on our commitments. One such commitment was investment in our ecosystems. The biggest investment to date has been Jet, and I think it's on the minds of most of investors. So can you give us a little update? We're a few days in since the delisting of Jet? What's the future look like? Fabricio Bloisi: Let's talk about Jet. First, we closed the Jet transaction completely a few weeks ago. But just last Monday or Tuesday, we changed the management -- the Supervisory Board. So now I and a few other people from Prosus are part of the Supervisory Board of Jet for the last 6 days. So what I can tell you, we are very, very confident. As you saw, we shared lots of data on Despegar, how it's growing, how we are working on the ecosystem. On Jet, we have just 6 days. So it would not be appropriate to share today. What I can tell you, first, we are this week working a lot with Jet on our key set of culture to enable the company to think big, move faster and grow a lot. Jet is not growing over the last few years, as you know, obviously we know that's true. I'm very, very confident that together, we deliver a company that grow faster and is much better. The first big thing is on culture. It's happening right now the replanning of Jet. That's why I couldn't add the numbers because we need a few more weeks to have projections for Jet. At the same time, our focus besides culture. And again, you saw me here last we on [indiscernible], the results we have today is because of the change of culture 1 year ago. Besides of culture, technology and product are the 3 big areas of energy of our efforts. On technology, we need again to move faster and to make sure Jet becomes a more a tech-first company with first-class technology in the world using AI to take all its decisions. On products, we have to make sure that a few areas that Jet is a little say, behind, we get -- we move faster, for example, loyalty program that is core in Latin America, but it's not ready here in Europe. So we are going to push those 3 things. We expect to push it in November and December. Hopefully, in January, we have a few results to share. Today, it is still too soon. But I can tell you that I am -- Jet is not performing well. We all know that, but the level of confidence I have that we will have a company growing again and competing very well is very, very high. And probably you know I like some letters from the CEO, maybe we share a letter from the CEO, but we can share more inform Jet. But you have more specific questions, I can answer today. Eoin Ryan: It's the holiday season for letter writing, so maybe you can [indiscernible] investors there. Okay. Well, thanks. I'm sure there'll be some follow-up questions on that throughout the call. But let's open it up to the audience. And I think the first question is coming from Will Packer of BNP. William Packer: Two from me, please. Firstly, Fabricio, you talked to optimizing the buyback in your prepared remarks video. Could you help us think through the implications of that optimizing? Is it the current buyback run rate of $6 billion to $7 billion as the new normal for FY '26, '27 and beyond? Or should we think of you cutting the buyback? And then it sounds like it's fair to assume that there's going to be some flexibility of funding perhaps away from Tencent towards Meituan and free cash flow. In terms of my second question, the global online classified share prices have sold off sharply in recent weeks following the OpenAI Developer Day and Rightmove's AI profit warning. Fabricio specifically, Gen AI is central to your vision for the group. How are you thinking about the risk and opportunity for classifieds in terms of Gen AI? Does this recent sell-off make the sector an increasingly attractive potential use of your M&A firepower? Or would you rather see the dust settle first? Fabricio Bloisi: Thank you. Thank you for the questions. First, you asked about optimizing the buyback. You have lots of good numbers there. I don't need to repeat all of them. But in general, as we said, the buyback is more or less $6 billion to $7 billion this year. We have an open buyback. We are going to keep an open buyback the way it is. I like buybacks because I think we are if our company is cheap, we should be investing in our own company and increasing the value of the shareholders that want to stay. So we are going to keep doing that. On the other side, I think the company we have today is a very different process than it was 2, 3 years ago. Remember, again, 1 year ago, I said we are going to get to multiple billion dollars of profit. Many shareholders didn't see it coming. It is coming. But hopefully, you can see that in the numbers that we are sharing today. So Prosus is on a different moment. The discount is on a different moment. Tencent is on a different moment. I'm a big fan of Tencent. I think Tencent is going to be a big winner in the AI race. Tencent is positioned for that in China. And if you compare the multiples of Tencent versus everything else in U.S. There is a lot of space to Tencent keep growing. So it's exactly what I said, optimizing the buyback. We are going to keep the buyback as we have, but I'm not going to say names of other companies. People ask me not to name other companies. I can tell you that there is other companies in our portfolio that we believe has smaller growth potential than Tencent, growth and strategic potential than Tencent. And yes, we are going to sell these companies and use this money also to keep a buyback. So what we are going to see is optimize exactly that. Eventually, the buyback is, I don't know, $1 billion, maybe $0.5 billion is from Tencent, $0.5 billion is for other companies that we can sell and use the cash to -- I think the right word to use to make a better capital allocation, with the #1 company in China, growing fast, well positioned to win in the AI race. Not the best decision to me to sell Tencent even if we increase the value per share. So if we can optimize selling other things and increasing our participation, that's what we intend to do. We expect to sell at least $2 billion this year. And how can I say, you can expect that we are going to do buybacks using other source that is not Tencent. Unknown Executive: Just to remind shareholders, although we're selling our Tencent stake on a per share basis, we actually increased our exposure in Tencent by the share buyback with the other proceeds from other divestments. And I will further enhance on a per share basis the exposure to Tencent compared to continuing on the current path. So I think that is a critical way of how we can further enhance the share buyback. Eoin Ryan: For example, there's other company that we believe has less focus today than they should. We could sell that we believe has less focus and invest more or sell less of that we believe are performing well, has less focus and we believe are going to the Chinese market. So that's what I mean by optimizing. Unknown Executive: Those companies are the companies you're talking about as the additional EUR 2 billion, right? That's just to be clear. Fabricio Bloisi: At least 2 billion we already sold 1.2 billion, so at least -- and can we use this money to offset, let's say, sell 1 billion from other companies are true. Yes. Unknown Executive: That's something we've seen from the group in many years, a more active portfolio management. Fabricio Bloisi: Yes. The buyback was 100% automatically. That's what I don't mind. We should say we should sell more or less and we should select better what to sell to buy. Eoin Ryan: Great-- and to the second question. Fabricio Bloisi: Yes. The second question was on AI and classifieds, you said. Many people sometimes ask me, if I think -- I'm not the first one this week, if I think AI could have an impact on classifieds. My answer is it's much bigger than that. I think AI is going to have impact in classifieds on e-commerce and food delivery, in investing in analyst reports from banks, AI is going to have impact everywhere. Obviously, as you know, the market today is a little too heavy. So everyone looks like AI winner. But there will be AI wins that will create trillions of dollars of value, not only trillions of dollars of cost, but trillions of dollars of value, and it is going to happen. How I see that on classifieds. The point here is not if AI is going to hit your industry or not? Because if you think AI is not going to hit your industry, you are wrong. It will hit our industry. The point is how we play our game on that industry. And I think what we are doing here in [indiscernible] is very, very good. We are not like -- you said some other company or you said some classifieds went down [indiscernible]. Other -- the again, other classifieds companies, they have been much more conservative in technology, and they invested much less to be classified people were, how can I say, surfing the high profitability without investing a lot in technology. That's not our approach. [indiscernible] as a group is investing in large commerce model to understand the customers better than itself and use data to improve our companies. We're investing a lot on agents. We have more than 20,000 agents doing everything, including many things on classifieds. We're investing a lot in ventures and the only focus of ventures from now is not to be a venture capital that invest in everything, to invest in companies that can make our ecosystem run better or that can run better because our ecosystem. So these 3 areas has profound impact in our classified business. We are using the large commerce model to run better classified business and ads. On agents, we are running a lot of our services to agents, for example, taking care of customers, taking care of retailers. Remember our classifieds less horizontal, more focused in real estate and jobs and -- so we are taking care of the auto retailers and our partners. And third, we are investing in early-stage AI companies that can are betting in growing in classified. So we can make these companies grow faster. And we can also make our classifieds not only keep growing, but disrupt other classifieds. So yes, AI will have impact. I think Prosus is very well positioned about that because everything we are doing. We could talk about that for 1 hour. But part of our positive results, not because we are lucky or because our markets just grow is because we are selling better. We are reducing the cost of ads. We are increasing the efficiency of the company. We have -- we are reducing the requirement for hiring people because our agents expand our working capacity. So we are doing a lot of classifieds. For example, [indiscernible]. We just invested in one company that are automating through agents, the relationship between real estate and their customers. We are doing that by ourselves, and we invest in a company that is growing like 300%, doing the same thing. Our classifieds is very well positioned to use AI as a competitive advantage. So that's how I see growth. Operator: And the next question is going to come from [indiscernible]. Andrew Ross: I've got 2, please. First one is to follow up on Will's question on optimization of the buyback and to understand how it relates to where the discount is at a given period in time. It's been observable that the cadence of buybacks has slowed down in the last few months as the discount has stayed in that kind of high 20s to 30-ish percent zone depending on your definition of the NAV. So should we kind of see that as a signal that the company feels there's less attractive opportunities in buying its own shares relative to the rest of the NAV at these levels? And should we expect the buyback to move up or down depending on where the discount is? That's the first question. The second one is to follow up on the opening remarks on Jet. I appreciate it's going to be hard to give guidance today. But if you could give us a flavor like the level of investment that you'd like to put into Jet, that would be very helpful.. Fabricio Bloisi: Thank you, Andrew. On the buyback, I was concentrating the Jet. You want more information on... Unknown Executive: Whether it's a function of the discount coming down, the buyback. Fabricio Bloisi: What I said is what I don't like is to have a completely automatic thing. So it's a function of many things, how well we are doing, how fast we are growing, how profitable we are, how our discount is. You said that was around 26, 27 over the last 1 month, 2 months. I am an optimistic founder. So you can discount my optimistic opinion. But I will also 1.5 years later, remind you that we are delivering everything that we promised 1 year ago. We are delivering the growth, profitability, the discipline, the complete reset on culture and the innovation. So my optimistic vision is discount will go down more because if the business is very valuable and we have $1 billion, $3 billion, $4 billion in profits in our core that is playing well [indiscernible], et cetera, I will call you later to ask why is the reason to have this level of discount at $26 or $7 or $8 that it was. So considering all of that, the buyback is going to be more aggressive or less aggressive. My point on optimization now specifically is if we can keep buying back, but not only from Tencent, but from Tencent and other assets that we are selling, this is much better for us all. So that's what we are trying to implement now. I [indiscernible] another question. Unknown Executive: Yes, it was on the level of investment for Jet. Fabricio Bloisi: Yes, the level of investment for Jet. It's not the problem, to be honest, Andrew, not the problem today. So how I see that? First, would I invest more in Jet? Yes. My problem today is not invest more in jet that we became operators of the company 6 days ago. We are having the full week of meeting to plan the next 3 or 4 months. The government doesn't even have a plan for the next 3 or 4 months because their budget stops in December. So we are doing today to tomorrow, the planning for the next 3 or 4 months. So we had a discussion last week, should be doing like in 1 day a proposal. The answer is no, you have our guidance without Jet. We will give more information on the guidance with Jet as soon as we have it. But I want to reinforce first, the problem is not the level of investment to me. The problem is the efficiency, 2 things. First, Jet is under delivering what they promise their current guidance, what they are delivering is less than the current guidance. But second, the efficiency of the investment in Jet has to improve before any other movement. So I'm not going to increase investment directly in Jet, if I don't think we are making the I could put $100 million in Jet. It's not very well invested, it's not worthwhile. So right now, we are trying to rebalance return on investments on investments and help technology improve return on investments. That's why the guidance for the next 2, 3, 4 months, they are not very valuable because if we think we can improve a lot in 45 days, I have to run it first and see the results, then a new guidance. So that's why we need 45 days to have a better view on Jet numbers. But I just want to reinforce, Nico want to complement, but to reinforce our level of confidence that we can run Jet better in terms of growth and profitability is very, very high. And we will share in details more about that when we share more data on Jet. Unknown Executive: And Andrew, maybe just to comment on Fabricio said that Jet did not perform well. It was a listed company until last week. Last time it came to the market, you would have seen that order growth was negative 7%. Company guided at that stage given their own internal metrics in euro terms, they reported in euros EBITDA of about EUR 360 million for the calendar year FY '25, which is December '25. Now what I can say to you that some of those trends have continued during Q3, where we've seen further reduction in some of the order growth -- and that will cause and have an impact in terms of the original guidance. Our expectations measure against that is that I will materially invest EUR 360 million. Anyway, my confidence on Jet growing faster and improving result is very high. But since we have 6 days, you need to update the numbers on Jet in the next call. Unknown Executive: I think the important thing to point out here is that the acquisition was not made on the results of this year. The acquisition was made on the expectations for turnover multiyears, which is what you're talking about as planning has just begun on that. Fabricio Bloisi: Yes. So as I said, on these 6 days, we think the numbers are bad because of this reduction of 6% I believe that in 45 days with a strong reset and culture and moving faster in tech, we have good news to share, but we can do that today because it's too early. Eoin Ryan: Thank you, Andrew. And the next question we'll take from Cesar at Bank of America. Cesar Tiron: I just want to focus on M&A. So I have a couple of questions on it. The first one, do I understand correctly that the available firepower for M&A is still around $8 billion? That's the first one. The second one, should we expect you to pose a little bit M&A as you focus on integrating all these assets and focusing on the ecosystems? Or should we expect any large transactions in the next couple of months? And then the third one, it seems to me that you've been talking a lot more about India recently. Should we understand that this is back as a focus area for you? So I felt you talked a little bit more about it than at the Capital Markets Day, for example. Nico Marais: Let me take the first one. So Cesar, thanks for the question. So at the end of September, from a total group perspective, we had $20 billion of cash on the balance sheet, about $18 billion of that related to our central corporate cost, corporate cash position. And subsequent to September, we have settled, of course, the Jet acquisition as well as LA CENTRALE. So that was about $7 billion that were spent on that. So on a pro forma basis, it leaves us with about $11 billion of cash at the center. And obviously, we need some liquidity buffer against that. So what is available for M&A is, I would say, at least $8 billion and more from a balance sheet perspective. Fabricio Bloisi: That said, our priority is not to spend $8 billion or more or [indiscernible] on big acquisitions right now, big priority by far. I think I want to highlight one thing. First, our execution has been very, very good. We talk more about on those meetings, but [indiscernible] is doing very good, very profitable, growing well. So we have good expectations with LA CENTRALE synergies. And second, again, when we announced the -- just acquisition, many people said, but it's expensive. We really don't believe. I think we are paying -- we paid $4 billion to $5 billion in something that should have $15 billion. That's what we have to build. So my biggest priority by far is how we make sure get back growing with the best technology and products in the world and really win in Europe. That's our biggest priority by now. So as [indiscernible] read in the newspapers on the 2 or 3 rumors intends to expand $5 billion to $10 billion things. I can tell you that we read on the newspapers, the rumors, we are quite much focused in delivering right now. And again, I think now I have some reputation inside Prosus. We deliver the numbers we promised. And also, I always talk about transparency. We will give transparency just after a few more weeks or months or quarter. Unknown Executive: So like you said in your opening remarks, it's focused on execution, execution, execution, right? And then the other question that Cesar had was on India and whether it's a bigger focus right now. Fabricio Bloisi: Yes. We talked a lot about the last few days. I met Prime Minister 3 days ago. So it was all in the news that we are talking about. It was really great, to be honest. I'm always complaining Europe has to move faster and talk about creating big tech companies and meeting Prime Minister was how we move faster. He asked me, let's do more. So it was a very inspiring conversation. I think what we've done in India is very good. We are the biggest FTI, international investor in India. Many of our companies has more value to unlock. So we promised you a few IPOs in the last 12 months. Most of them happened. We still have an expectation that there will be another very big IPO and that's going to be big and good of our amazing company. So our returns on investment in India are quite positive. We invested in the last 1 month, I think, in 2 companies that are growing very fast, is growing 120% #1 company mobility [indiscernible] is growing very fast. I don't know now, maybe 70%, something around that. And they are very good online travel agents and travel and mobility, too. So I think we are keeping the consistency in the areas we want to invest. We are keeping the idea of ecosystem synergies and I expect a lot more good news from India, not only like spending a lot of money, but we put that in the presentations. PayU for years, including you, our analysts complaining that PayU has to perform better. PayU is profitable. Finally, after many years, the profitability of PayU is growing quarter-by-quarter quite well, month by month, even better. PayU is helping other companies to grow faster and other companies are helping Pay to grow faster. So and [indiscernible] Ixigo getting closer to our ecosystem will create another positive impact. We are excited that we are going to build more many billions dollars in value in [indiscernible]. Unknown Executive: I think -- and it's clear you can see the operational improvement in the owned and operated PU, but you're also seeing that increasing connectiveness of all of the individual pieces within the ecosystem working together a little bit more. Fabricio Bloisi: So you see this time we shared lots of data in Latin America. Probably you saw that Shark rev in the loyalty in the center and many business around benefit from these customers, and we even shared some data. We are doing the same thing in India. The results are good. We are going to share more data with that in the next few months. So we don't expect to spend $8 billion in India right now, but to keep having good results in terms of ecosystem building in India. And I think the latest investments are very good [indiscernible]. Unknown Executive: And with au now profitable, we can say that all of our main businesses are indeed profitable, which is something we've never been able to say. And when you think about millions to 1 billion and then to multiple billions, that's certainly a necessary thing. Fabricio Bloisi: All the business runs. Eoin Ryan: All right Cesar. So thanks very much for the questions, and we'll move to Michael. Unknown Analyst: Yes. First of all, thank you for letting us ask the questions and for the presentation. So the first one is actually in iFood. So with [indiscernible] now ramping up their presence in the Brazilian food delivery market, what are your thoughts? And what have you seen since October? And then how do you think this is going to impact iFood's growth trajectory over the next year to 2 years? And then maybe just touching on India. So you mentioned that there's a lot more collaboration between yourselves and the different companies that you have minority stakes in. How do you think about monetizing that going forward? Is that largely given from yourselves? Or are they providing data back at a higher rate? Unknown Executive: I understand the name of the question [indiscernible] yourself -- it's a connection of between the companies in India and particularly the minority trust companies and whether there's -- how do we facilitate data sharing to improve the [indiscernible]. Fabricio Bloisi: So first on iFood, I think many of you were in Brazil and visiting Brazil 1 or 2 months ago. The people that were there, they could see iFood is more than one business that they're doing the same thing for the last 5, 7 years. The reason iFood is growing so fast. We just got through including all the business, 160 million orders -- just to remind you, last time we met, celebrated $100 million $160 million orders is because it's a company innovating and rethinking how we offer business and offer the best technology for our customers. So obviously, we have competition now, more competition that is DT and [indiscernible] is also entering Brazil just entered. Those 2 companies entering a few cities, 2 or 3, spending a lot of money per order, like they have discounts of 20%, 50%, 60%, sometimes 70% in an order. So my advice to you, just check later how much they are paying to be there competing. And look, if you give a free meal to someone people, we eat for free. It will have it. But is it sustainable to have the best service, best offer over time. And remember, this is in the core, that is the food delivery. iFood today have besides the core, a big loyalty program that gives free delivery plus discount on Despegar, plus discount, I think, 1,000 other companies. We have fintech. We have dine-in. We have POS machines in the restaurants where we take transactions. We have [indiscernible] where we put orders in the restaurants. We have a credit card voucher credit card with 1 million people buying food with a credit card, paying to iFood. We have the business of ads that is going super well. We invest in 2. We bought one company we invested in [indiscernible], great company in terms of loyalty. We have classified the integration with Despegar is a big success. So everything that buys in iFood, they get 3 points to use on Despegar. We have a company for entertainment that is. We have -- we are launching now -- just now launching one city today this week, iFood plus Uber. So Uber has tens of millions of customers that are not iFood customers, and iFood has tens of millions of customers that are not Uber customers. I guarantee you that we are going to see a lot of cross-sell in the 2 best companies in the region. So some companies are investing a lot to have the offer that we had 6 years ago, and we welcome competition. This make everyone runs faster, but it's much more than let's make the next sale of a business and cash call this business. It is, can we be the best creating new business, innovating, moving faster, iFood is doing that. So if you study around the core food delivery, you see many business. Interesting thing for you because I know you like the numbers and more my things on innovation. Fintech, we spent 2, 3 years saying fintech is the future for iFood. Fintech numbers are growing very fast and profitability in fintech is growing very fast. So our profitability keeps growing because a few business we were investing 1, 2 years ago. I'll tell you true, fintech, groceries and selling to Whatsapp. We were losing money in the last 2, 3 years, now we are making money. So my point is a good business and there will be competition and let's fight for offering the best service for our customers. And I want to remind you, we are very focused in iFood chewing there. Some of our competitors are distracted all around the world. Even in their home markets, there is a lot of, I say, pressure to compete against other players. So we are confident, but we compete. Unknown Executive: And Michael, you also asked in terms of given the competitive environment, how do we see in terms of what the impact of that might be. And look, in terms of the high growth rates that we're very confident that for the second half of this year, we will continue to sort of stay at those levels. And we also reiterated our confidence in our overall guidance. iFood is also investing in new product, but also against some of the competitors, but we built a lot of that into our existing processes. And we are sort of reevaluating various other projects and elements to utilize and free up funding so that we can actually fight against the competitors without changing the sort of trajectory that iFood is on for this financial year. Unknown Executive: I think another important point though is the concept of competition for iFood is certainly not new. And over the years where they've actually had the most competition are the periods where we see the most growth. And one of the things that Diego often says is you focus on price, it's the race to the bottom, but you build a real moat through product. And what you've just described there is an ecosystem that is iFood within an ecosystem that is LatAm -- and I think you've highlighted, I think there's tremendous hidden value in that Pago business that we should and will have more to bring to you guys in the future. Now how about -- we touched on the India ecosystem. And the question there was whether -- how the business -- how you can really build the LCM and the connectivity between those businesses with them connecting data. Unknown Executive: And you asked about minority companies. Unknown Executive: Yes, exactly. Fabricio Bloisi: Look, my mind doesn't work like that. I remember the last results call, someone made the same question. If you are a minority, then you can't cooperate between the companies. I disagree. I absolutely disagree. I think we can cooperate with minority companies. We do it -- we don't do it because I call that and say, I'm boss doing what I'm saying. We do it because we call and say that's how we run fine-tuning our AI models. That's how we run customer support using AI. That's our KPIs on optimizing the partner -- our partners' relationship with agents. When we show off that to a good company, the company say, I want it. I'm going to get this data. I want to run my open just like that. With other companies, another story, we show off that to like, but [indiscernible] showed how they are doing, I think, was multi-language customer support and said, okay, this is very good. We want to use. We want to learn more from that. So the point is not being majority or minority. And if you need to be majority to do something good because there's something wrong or you are not selling well or the guy that is not the right guy. We can work with the minorities because we're saying this company can grow faster. These are the data and the technology that gets there. And we are cooperating well on that. One example, PayU is giving credit and working with customer profiles with users that we are minority investors, but the companies are growing faster because of PayU. That's why we are here. Eoin Ryan: And the other thing to take into account is the LLM so the LC that we're testing now in LatAm, and we're getting some of the results already in the deck. That's something that we can also bring to bear in the other ecosystems. Fabricio Bloisi: So today, we have an event with 80 people from all around the world being trained. We launched [indiscernible] AI house 2 weeks ago, where we have now a center of learning and knowledge of AI that everyone is traveling there to participate in the event. We are running today with 80 people inside process on fine-tuning large language models to optimize e-commerce transactions. So everything that we did in Latin America is now like now really today going to India and Europe. So we don't need to be my to do that. And we are quite confident we have a lot of growth. curiosity, I didn't use a lot of the time of the meeting today morning to talk only about tech and innovation, but it was too much information. So we said, let's focus on numbers today. We will get back soon as soon as all want to talk to me because I want to do it in 2 weeks. But we are going to share why we are more confident than ever that we are one of the best players in AI ecommerce in the world. So we'll talk more about that. Unknown Executive: You brought up the AI and I'll get to your questions again. But I think this is an important thing to pause out because this is something that is kind of inherent in the new culture. It's not something you would expect 1, 2 years ago. Can you talk a little bit about the AI has, why you opened it, what you're hoping to achieve because it is certainly no different. Fabricio Bloisi: I want to make Amsterdam the center of AI in Europe has a lot of knowledge but not vibrant community [indiscernible] every day there. So create a big space in Amsterdam, where every day we have a hackathon meeting of course. And it's open for 2 weeks. We are having every day a big event with hundreds of people, and we are helping the ecosystem and we are helping ourselves to, but we are contributing to make Netherlands a center in Europe AI. We also hosted last week, the House of opening was last week, 2 weeks ago, we hosted the Luminate an event in Europe talking about putting regulators and founders together to reinforce that [indiscernible] was one of the speakers there and President [indiscernible]. We are talking about Europe needs to move faster. Europe needs to play to win. There are many things in Europe regulation, including the AI, congratulations in Europe because we did a big change this week, including the [indiscernible] that we think should be taking more risk to create leaders. So is taking a much more aggressive or premanent position to say, let's lead technology and regulator to create a big European tech leader, and we are very confident on our actions. Unknown Executive: I would tell more time. That's great. Please. Are so we think don't kill my e-mail now. We'd love to have some of our investors and analysts at the AIS so we can match up certain events with your travel. So please reach out to IR. So let's move on. Thank you, Michael. We'll move on to Luke at Morgan Stanley. So let's move on. Thank you, Michael. We'll move on to Luke at Morgan Stanley. Luke Holbrook: I just wondered if I could pick up on this thread of more competition in food delivery. So you signaled more investment in Jet. Obviously, we heard from Delivery Hero and Talabat also pointed to more investment Dash as well being a big theme over the last month. But if we just map that through then for iFood, how can we see that progressing into FY '27? Is that kind of the trajectory that you see there? And just particularly in the context that you may need to -- do you feel like there needs to be more investment into dark stores or more 1P logistics? I'd just be interested to hear your thoughts there. And then just finally, I appreciate you might not be able to say anything, but the Delivery Hero situation. Obviously, you've got until mid-August to sell down to single digits. Is there anything that you can comment on in regards to that? Fabricio Bloisi: Okay. So on competition on Talabat, we have no access [indiscernible] Talabat. iFood made a projection for the year that included competitors, and we are going to deliver on our projection and our growth and everything else. So we are doing quite good. I can't talk today on the numbers for the next year. But as I told you, many of the business that we started 1 year or 2 years ago or 3 years or 4 years ago, they have become mature now. So iFood is more than the food delivery. One example is the iFood Pago. You remember me about that. Remember that Mercado Libre has half of its profit for Mercado Pago. iFood Pago is an important part of iFood already and it's growing. So I don't have any number today to share on the next year. I can tell you that what better for this year, we are delivering, we are happy with that. And we have to do the next year in 1 or 2 months. On the [indiscernible] Hero, I'm sorry, I don't have any update on that. We have an agreement. The agreement is for 12 months. We are going to deliver in the agreement that we made. Sometimes I talk in the press that I believe that this agreement is not the best thing for Europe. Europe would be better as a content if we have global tax champions that said we have an agreement. We are going to do the agreement according to the terms of the agreement, nothing to share. However, we are selling assets of Compass that has lower -- we are selling assets of companies. When I say we are going to sell $2 billion this year, it doesn't include delivery. So maybe we're going to sell more than $2 billion, maybe you're going to sell next year. We just don't have any update on that. Unknown Executive: Maybe just to add to that, a lot of the investments that we're making in iFood to drive the business forward regardless of the competition are exactly in the same areas that we now need to do even better because of the competition. For instance, optimizing the delivery aspect of the business cheaper food elements, the loyalty program. All of those things we have been doing. We're just accelerating and improving even more in those spaces. And now we have the AI elements that we can add to enhance that efficiency. Fabricio Bloisi: And to complement Nico's point on some of the investments we did on iFood over the last 5 years that are quite big, we can replicate that in Jet starting this week because only now we are in the management of Jet. So there is lots of upside inside the ecosystem. That's what I'm selling for 1 year to you. I think Google and Microsoft and Meta and Tencent are winning not only because they have one key product, but because they have a scale in an ecosystem that enable cross-sell AI technology. We have that, and we will have benefit on that on Jet and on [indiscernible]. Unknown Executive: I think one of the things that I think has done a fantastic job of in the past is areas that required investments to scale, then don't need all of that investment going forward. You take some of that from Area A and deploy it into Area B. So it's not incremental investment always in the asset. And I think one of the questions that we get underneath this perhaps is, what does this mean for kind of your future year guidance? And what -- is this a kind of a retrenchment or a return to kind of an investment cycle. But I think you were very clear at the beginning of the call that you expect to go from the 1-point-something billion today, even 3, you said more than that. And that includes investment in the other parts of the business and food. Fabricio Bloisi: So I ask you the credibility to think that first time we talk about $2 billion, everyone said, oh my God, I don't see how they can do it. You get to $2 billion. And -- so we are confident we are going to keep increasing our margins. Eoin Ryan: And I think they've probably said the same thing on 160 orders as I -- so thanks very much for that , and we will go to Robert Calabretta. Robert Calabretta: Yes, first question on the impact of agentic consumer applications on marketplaces. If you look at these agentic applications, people are using it for more and more tasks. In the case of process, I think you saw the first impact at stack overflow where people found coding suggestions of agentic applications better than browsing on the forum. But increasingly, it could be the case that purchasing decisions could also move towards these consumer-aggentic applications like ChatGPT. So I'm wondering, how do you plan to integrate your marketplaces inside of these applications and as user behavior shifts towards consumer agentic applications, yes, could some of marketplaces like Classifieds lose distribution leverage and the data advantage. So how will you address this to stay ahead? Yes. Maybe a second question on the IRRs. I think in the past, you targeted a 20% IRR target with a higher hurdle for start-ups and lower for high-quality, more mature businesses. If I look at, for example, La Centrale, which you're buying for around EUR 1 billion, clearly a high-quality business. it's growing at a CAGR of 13% EBITDA, and you expect that market growth to continue. So I think it's challenging maybe to get the 20% IRR. So I'm wondering what is kind of your lower hurdle in terms of larger investments in terms of IRR. So what is your minimum hurdle to make these deals? Fabricio Bloisi: I'll try to quickly just because of the time. But on the first one, what you just asked, life agents are going to compete against us, Yes. I told you in the beginning, I want to talk 1 hour about our strategy there. It's exactly about that. So what we are going to tell you soon is we are doing large commerce model. We are doing agents focusing our internal and partners, and we are doing life agents -- sorry, life assistance where we deliver this kind of service to our customers. And I think we will be very well positioned because of our ecosystem and how to offer there better than any other player outside. So I could talk about that for 1 hour, but I need you to read a little more. But I agree with you, Robert, it's a risk. Yes, it's an opportunity, too. We are moving fast to lead on that, including on many investments we made exactly on this area. So we are bullish and excited about what we can do in what we call life assistance. Next chapter to know more about that. The second is on IRR. We expect, yes, 20% IRR on La Centrale. Remember, La Centrale is a small company operating more isolated. We think that putting it together with everything we are doing outside, we are going to get good levels of growth, increasing profitability, and we expect it to get more than 20% La Centrale. Eoin Ryan: Great. Thanks. And it looks like will you're back in the line, you want to [indiscernible] I was very stressed. Operator: If you have more time and get back to Rogelio. Will, are you there? William Packer: Sorry, I was. Just wanted to come back. So thank you for your comments earlier, very useful. So it's pretty clear the $6 billion to $7 billion is the right kind of framing for the FY '26 buyback. When we think about FY '27 and beyond, is that the kind of level we should be thinking? Or is it just you're going to have optionality and decide depending on the relative appeal of different uses of capital? Fabricio Bloisi: Companies, they do a buyback very specific. I'm going to buy back $5 billion. We are doing an open buyback. So we are not exactly not saying this is the number for the next 1, 2, 3 years. So we don't have any number for next year. But as I told you before, what I don't like is to have an automatic thing. We have to analyze what we have opportunities, what we have, what's happening in the world. I'll give you one thing to think. I think [indiscernible] is ridiculous ship. But again, oh my God, we can have a company that's creating $1.5 billion close to that in profit and still have a discount. The world is not like that today. We have many companies valued at 100x revenues. having our cash position, maybe the world is going to change. That's my point. There's a lot of change ahead. I think Prosus is very well positioned. If the world change, we are going to become even a more attractive company because we are doing innovation, AI, we are generating cash and we have investment capacity. So for sure, since I have an open buyback, I don't need to think how it's going to work next year, 1 year in advance. I have to keep playing well with discipline, with good capital allocation. That's what you asked me 1 year ago. What I'm telling you now, 1 year after, we delivered the discipline. One year after, selling less Tencent and more other companies is good capital allocation because we believe much more in the growth of Tencent. But what I commit to you is we are going to keep executing well, but we don't have a guidance for next year yet. We don't have it. So in 6 months, maybe we can share it more. Again, I'm confident we are going to keep executing well what we have in terms of innovation delivery to me. I think next year is much more a year of opportunity for us than a year of, oh my God, how we are going to handle not delivering what we promise. Eoin Ryan: Okay. Thank you. Will 4 minutes left. So let's Thanks, Will. We'll try to get 2 in Nadim from SBG. Nadim Mohamed: Just 2 very quick ones from me. So we noticed that the likes of Rightmove and others are investing at quite a high rate in AI. This has the impact of weighing down on their profitability. I'd just like to understand how process have done it so that you have -- because we haven't really seen that impact on profitability with these substantial investments in AI and LCM. And then just on top of that, just how much of a differentiator is it when you're looking to acquire a business like La Centrale, the ability to bring these capabilities to the acquisition post deal? Unknown Executive: So the first question was how has OLX been able to do so well and expand margins meaningfully while investing in AI, whereas other companies, I won't repeat their name, have now had to kind of reset expectations because they're investing. And it's been a long journey of OLX investing in AI. Fabricio Bloisi: Yes. So I think it all started 1 year ago on culture, focusing results, innovating more. I think OLX is really delivering and operating well, but also it has the support of an ecosystem. So many of the things OLX is setting up right now, they are also learning and sharing from inside the ecosystem. Large commerce model, for example, the investment was in the holding and iPhone. And now that it is ready, we are pushing it through [indiscernible]. So I think -- look, that's the central story or thesis of Prosus. We can have one classified company operating in La Centrale region by itself or -- and that's my thesis together a bigger group that knows to operate classified and AI, we can make their performance better. The first big company we are operating at is Despegar. The number of Despegar doesn't look that big because April, May and June were bad were bad. I look to Despegar month by month, it is increasing every month for 6 months. So that's the difference. OLX benefits from that. And I think I'm quite sure is going to benefit from that too. Eoin Ryan: So the overall benefit of being part of the group. Nadim, thanks very much. We have to move to the last question. I think we're going to land this. Maddy take us home, please. Madhvendra Singh: Yes. Just 2 quick ones from my side. The -- your recent positive trip to India and the meeting with the Prime Minister Modi, would you say your CMD ambitions for India were too conservative in hindsight, I mean, with just about 1.3x revenues from FY '25 to FY '28 and just above 5% margins, that's what your CMD guidance was. So wondering whether that changes at all post the meeting with the Prime Minister. And then the second one, on the asset monetization opportunities outside of Tencent and [indiscernible], is there any major opportunities you can talk about? Fabricio Bloisi: So first, it was inspiring Prime Minister was really expiring -- but then you said many numbers, 13, 14, 15. I didn't connect those numbers super well. for you. Unknown Executive: Yes. So look, I think the numbers you is referring to related to essentially the long-term ambition that we shared at the CMD for India. But essentially, at that point, those are the control businesses at this stage in India. And obviously, we -- the ecosystem around that is much bigger. So it really depends how the control positions evolve over the next few years. So it could be substantially different depending on how we [indiscernible]. Fabricio Bloisi: Yes, makes total sense. That's why we didn't recognize the number because we are looking just to pay you. Our expectations are bigger than that. But that's the way it is. We have report on that. after talking with Prime Minister, if something changes. I'll tell you, yes, I'll tell you one thing. We did all the -- we moved faster in innovation within Brazil and Europe. That's the true thing that we're really running on AI. I think we are this big thinking. India has to lead. India cannot be one day behind Brazil and Europe. So expect more moves from us, making sure we have the best AI possible in India. Then another question? Unknown Executive: I forgot the other question. We've got 2 billion for this financial year. There are other assets that we can consider, but we're not going to sort of preannounce any at this stage. Fabricio Bloisi: Yes. There is some recommendation. We don't say we are selling this company. We probably can understand why. But our portfolio is much more than. So there is many others. Some of the others we talked about it here today, but there is many others, other 5 or 10, and there's many more billions we could sell, but we're not going to say exactly what. I can guarantee you this year, we sell $2 billion, probably in the next 6 months, we are going to announce how many billions we are going to sell the next year, at least a few more billions. Eoin Ryan: All right. Well, thank you for that, Maddy, and thank you very much, everybody, for joining us. there are a couple of words you want to leave us with? Fabricio Bloisi: Do you want to say a few final words? I have to say -- so a few final words. Today, the focus on numbers. And I'm happy. I think we are moving on the right direction on numbers. We will get to a few billion dollars in profit. There's much more to talk on execution of Jet, not for today and much more to talk on innovation, specifically the question that someone asked me today, I will talk exactly about that. So I am always unsure that we should be doing more and moving faster. I think we are moving well. Just getting started, but our thesis year ago is we are going to be a strong tech-focused operating company. We are going -- we are getting there. So I'm excited with the results. I hope you enjoy them too. And I hope we're going to keep sharing good news with you in the future. Thanks for coming, and thanks for being partners. Let's keep building the future together. Thank you. Eoin Ryan: Thank you very much, everyone. Thank you, guys. And there are a couple of questions here that I will follow up. And always, if you have follow-ups, please reach out directly to your friendly IR team, and we will see you very soon. Thank you very much. Bye-bye.
Operator: Thank you for standing by, and welcome to the Phoenix Education Partners Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Beth Coronelli, Vice President of -- Investor Relations. You may begin. Elizabeth Coronelli: Good afternoon, and welcome to Phoenix Education Partners Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. Speaking today on the call will be Chris Lynne, Chief Executive Officer; and Blair Westblom, Chief Financial Officer. Before I hand you over to Chris, please keep in mind that certain statements and projections of future results made in this presentation constitute forward-looking statements, that are based on current market, competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. Listeners should not place undue reliance on such statements. We undertake no obligation to update publicly any forward-looking statement after this presentation, whether a result of new information, future events, changes in assumptions or otherwise. Please see our public filings, including our latest Form 10-K and earnings press release filed today and available on our website for a discussion of risk factors that relate to forward-looking statements. In today's presentation, we use certain non-GAAP financial measures. You should consider our non-GAAP results as supplements to and not in lieu of our GAAP results. We refer you to Form 10-K and earnings press release for reconciliations to the most directly comparable GAAP financial measures and related information. I'll now turn the call over to Chris. Christopher Lynne: Thank you, Beth, and good afternoon, everyone. Welcome to Phoenix Education Partners' first earnings call following our IPO in early October. We appreciate you joining us today as we share our results of the fourth quarter and full year ended August 31, 2025. Today, Blair and I will discuss performance highlights, recent developments and our outlook for fiscal year 2026. We appreciate your continued support and interest as we begin this next chapter as a public company. At the University of Phoenix, our mission is to expand access to higher education that helps students gain the knowledge and skills to achieve their professional goals, enhance the performance of their organizations and contribute to their communities. Serving working adults has been at the heart of our mission since our founding nearly 50 years ago. Our student body consists primarily of working adults who are seeking opportunities for career advancement, a growing segment of higher education. 75% are currently employed while pursuing a degree. The average age of our student is 38 years old. Over 50% of our students are first-generation college and almost 2/3 are caring for a family while pursuing their degree. We serve this underserved population by putting the needs of our students first, offering flexible career-relevant programs that empower working adults to grow professionally with programs tailored to the realities of balancing work and life. We operate a mission-driven culture built on modern technology, strong academic programs and a data-informed student experience, all centered on student success. Today, the university currently offers 72 degree granting programs and 33 nondegree certificate programs, each aligned to career relevant skills valued by employers. As part of this skills-aligned curriculum, our students have earned more than 900,000 skill badges, which serve as microcredentials, demonstrating mastery of specific competencies applicable in the workplace. Our transformative journey as a private company allowed us to focus on and deliver significant improvements in student retention, completion and satisfaction rates, demonstrating the strength and scalability of our model. As we begin our next chapter, we're continuing to focus on delivering strong student outcomes through personalized, career relevant and affordable solutions, positioning the university for continued momentum and profitable growth in the years ahead. In fiscal 2025, we delivered solid financial performance in line with expectations outlined during the IPO process, which reflects the strength of our mission-driven model and focus on student outcomes. Average total degrees enrollment grew to nearly 82,000 in fiscal 2025, up from approximately 79,000 in fiscal 2024, supported by strong student retention throughout the year. Expansion of enrollment affiliated with our employer relationships remained a key growth driver this year. Enrollment through these employer relationships grew to 32% of average total degreed enrollment, up from 30% in fiscal 2024, demonstrating strong sustained demand from working adults through this channel. As the U.S. workforce evolves due to advancements in technology and the half-life of skills continues to shorten, employers are increasingly prioritizing relationships with education providers that align with retention and upskilling strategies. We believe our affordable, adaptable and skills aligned programs remain attractive to employers that are focused on building and retaining talent. We continue to focus on improving student outcomes and increasing operating efficiencies through the use of AI and automation. We are leveraging machine learning and AI across the student journey to enhance marketing, retention and student-facing effectiveness and efficiency. Our technology platform supports long-standing models such as student engagement monitoring and AI-assisted enrollment support. And we are expanding into a wide range of AI capabilities that enhance personalization, streamline operating workflows and improve both student and staff experiences. As an update on accreditation, earlier this month, our College of Nursing received a 10-year accreditation from the Master of Science and Nursing Program from the Commission on Collegiate Nursing Education, a testament to our faculty and staff's commitment to academic excellence and professional quality. From a regulatory standpoint, we have a strong foundation and ongoing practices to promote compliance across all key metrics. In August of 2025, the Department of Education renewed our Title IV program participation agreement and approved recertification through June 30, 2031, reaffirming our continued eligibility for federal aid programs. Following the recent resolution of the federal government shutdown under a short-term funding measure last week, we note that the shutdown had no material impact on our business or our fiscal '26 outlook. During the temporary lapse in federal tuition assistance funding for active duty military students, we provided short-term financial relief to ensure their studies could continue uninterrupted, demonstrating our ongoing commitment to supporting students through periods of uncertainty and helping them stay on track towards their educational goals. In Q4, we continued to experience strong applicant demand and sustained improvements in enrollment productivity. We moved certain processes that deter and identify unusual enrollment activity to the top of the enrollment funnel at the application process. As expected, this stopped unusual enrollment activity earlier in the process and enabled our enrollment representatives to better serve our prospective students, resulting in increases in enrollment productivity. We continue to streamline this process, which is leading to continued improvements in productivity. We're continuing to enhance efficiency across the enrollment process by using advanced analytics, automation and artificial intelligence to better identify prospective students and personalized engagement efforts that are designed to lower acquisition costs and support improved conversion over time. Combined with automation and AI-assisted tools and enrollment, counseling and financial aid, these initiatives are designed to improve the overall student experience while driving continued efficiencies in our cost structure. These factors as well as continued improvements in retention supported the 5.7% year-over-year increase in average total degreed enrollment for the fourth quarter and support our outlook for fiscal 2026. As we look ahead to fiscal year 2026, we're encouraged by strong retention trends and steady demand across our programs. Our continued focus on student success and the learner experience is intended to support sustainable performance and position us for long-term growth. Becoming a public company marks an important milestone in our transformation, and we believe that we have built a strong foundation to deliver accessible skills-aligned education that empowers working adults to build job-relevant skills and pursue their professional goals. We'll continue to advance our mission through innovation, technology and a deep commitment to helping more adults achieve their educational and professional goals. With that, I'll turn it over to Blair to walk through our financial results and outlook for fiscal year 2026. Blair Westblom: Thank you, Chris, and good afternoon, everyone. Before reviewing the numbers, I'd like to note that unless otherwise stated, all comparisons are year-over-year. My comments today will cover our financial results for the fourth quarter and fiscal year 2025, key operating drivers and our outlook for fiscal 2026. In the fourth quarter, we delivered strong results as we finished the fiscal year. Net revenue grew 7.2% year-over-year to $257 million, supported by a 5.7% increase in average total degree enrollment to 79,300 students. Adjusted EBITDA rose 36% to $56.6 million, reflecting improved retention and related flow-through of increased net revenue, which underscores the strength of our operating model. Net income was $17.6 million compared with $10 million a year ago, mainly due to higher revenue and improved operating leverage, partially offset by strategic alternative expense in Q4 2025 associated with our IPO and the termination of a strategic deal we were pursuing prior to the IPO. Fiscal 2025 was a year of steady top line growth, expanding profitability and disciplined financial management. For the full year, net revenue increased 6% to $1.01 billion compared with $950 million in fiscal 2024. The increase is primarily driven by growth and average total degree enrollment, which increased 3.7% to 81,900, up from 78,900 the prior year and driven by strong retention. Net income for fiscal 2025 was $135.4 million compared with $115.1 million in the prior year. The increase reflects strong operating performance and continued margin expansion, along with a reduction in lease restructuring expense, partially offset by an increase in expenses associated with our strategic alternatives. Adjusted EBITDA was up 6.5% to $243.9 million compared with $229.1 million in fiscal 2024, reflecting top line growth and continued efficiency across our operating platform. Adjusted EBITDA margin expanded from 24.1% to 24.2% Instructional and support expenses increased from 42.5% of revenue in fiscal 2024 to 43.3% in fiscal 2025, due in part to an increase in financial aid processing costs as we adjust changes in financial aid processing associated with the new financial aid application and transition to disbursing financial aid funds to students one course at a time, which supports improved retention and responsible borrowing. General and administrative expenses declined approximately 120 basis points, reflecting natural operating leverage inherent in the business model. We have a strong balance sheet with no debt and meaningful cash flow that supports continued investment in our students and long-term growth opportunities. As of August 31, 2025, total cash, cash equivalents, restricted cash and marketable securities were $195 million compared with $383 million a year earlier. The decrease primarily reflects $251 million in distributions. Capital expenditures were $22.5 million or 2.2% of revenue, supporting initiatives that we believe will drive growth and further enhance our platform to support the student journey and operational efficiencies. Subsequent to the end of the fiscal year, we entered into a $100 million senior secured revolving credit facility, which was undrawn at close and currently remains undrawn. The revolver provides additional financial flexibility to support operations and liquidity needs if required. On October 10, 2025, we completed our initial public offering of 4.9 million shares of common stock at $32 per share, including the full exercise of the underwriter's option to purchase additional shares. All shares were sold by existing shareholders, and as a result, the company did not receive any proceeds from the sale. Following our IPO, our capital allocation priorities remain consistent, maintaining flexibility, driving sustainable enrollment growth and investing in initiatives that support student outcomes and enhance operational efficiency. We continue to focus on organic investments in technology and data capabilities and remain open to selective mission-aligned acquisitions that extend our reach into career-relevant learning. Our strong financial position allows for continued investment in the business while maintaining liquidity and returning capital to shareholders. Consistent with what we stated during the IPO process, we expect to pay quarterly dividends in the annual amount of $0.84 per share, commencing in the second quarter of fiscal 2026 and subject to, in each case, Board approval. Turning to our outlook for fiscal 2026. We are providing guidance for both revenue and adjusted EBITDA. We expect revenue in the range of $1.025 billion to $1.035 billion and adjusted EBITDA between $244 million and $249 million. These expectations reflect consistent top line growth and disciplined expense management, balanced with ongoing investment to support student outcomes. In summary, fiscal year 2025 reflected continued progress in strengthening the company's operating and financial foundation. We enter fiscal 2026 with a strong balance sheet, solid cash generation and clear priorities for investment and disciplined capital management. With that, I'll turn it over to the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Greg Parrish with Morgan Stanley. Gregory Parrish: Congrats on the strong finish to the year here. I thought maybe just to start with, unpack your expectations for FY '26. You're exiting at 7% growth, 6% enrollment growth, it's been accelerating and a lot of momentum. So what's driving the implied guidance for revenue of 2% to 3%, maybe sort of unpack that? And then what could potentially drive that figure higher or lower? Christopher Lynne: Greg, this is Chris. Thanks for the question. So yes, I'll give you a little bit of a backdrop on the revenue trends. If you look at fiscal '25 versus fiscal '24, you'll notice that we had healthy revenue growth at 6%, grew faster than our average total degree of enrollment. When you reflect on what drove that difference, we had stronger progression and retention in fiscal '25. We also had a scholarship a little over $5 million that we offered to support students in fiscal '24 in June that was not offered similarly in fiscal '25. And then we have the normal sort of timing differences that we will have year-to-year, just given on the academic calendar, for example, for undergrad programs, there's several tracks, 10 starts a year. But depending on where they fall quarter-to-quarter, you'll have a different number of calendar days, different size of cohorts on a year-to-year basis. The other driver was we did see a higher volume of students that went through our risk-free period in fiscal '25. The risk-free period is something long standing that we've had that has been developed for students that have attributes that correlate with lower success. So we want to give them a try before you buy opportunity. They have 4 weeks where they can get used to the online course environment and the course materials and a lot of the attributes -- some examples are no previous college credit or interestingly, if they maximize financial aid and they have high Pell grant, those tend to be attributes that put them through that risk-free period cohort. We saw larger volumes, as we've talked about at length during the IPO process and disclosed in our S-1, we also saw a spike in unusual enrollment activity last year. These are just -- I know we've talked about this a lot with the -- at least the analysts on this call. But we saw a spike in the summer of '24. We've since reflected and recognized that this was related to breakdowns and controls in the Department of Ed's financial aid from the FAFSA process. So what was happening in some cases is students with complete the financial aid form with the Department of Ed, sometimes with false identification and then they seek to enroll in institutions in order to be able to receive disbursements against those funds. We've always had long-standing processes here, and we were able to see this early and develop very robust controls that we talked about and feel very confident about where we stand with those currently. And we saw really strong results at the end of the year in terms of some of the productivity challenges from that. But as it relates to the trajectory, we did see large volumes in '25 versus '24 in students that went through that risk-free period. And the unusual enrollment activity and the students with the attributes like I described, they have very similar attributes. So many of the students that ended up being flagged with unusual enrollment, they also maximize financial aid. They also had no college prior credit. So that's the path at which we were able to control that activity. We did have a higher percentage of students that did end up persisting beyond the risk-free period into the initial courses and stopped out in their earlier courses. So despite the fact that our retention improved healthily in fiscal '25, we did have a higher percentage of students that didn't persist beyond the initial courses. And that did increase that revenue per average total degreed enrollment in fiscal '25 versus '24. So when you look forward to fiscal '26, part of what you're seeing in our outlook is, I mean, one is we're a new public company, and we want to put an outlook out there as a new company that we feel very comfortable with achieving, of course. But two, is related to the fact that currently, the students that we're bringing in are showing the attributes that we focus on in our enrollment process. We have a higher volume of students that have a higher propensity to succeed. For example, those are transfer credits. We're growing our B2B channel. And so we're not expecting to have the same experience in fiscal '26, but that revenue trajectory will sort of reverse in '26 and that's reflected in the trends that you're seeing in our outlook. I think what's important to mention in addition to all of that, just to provide color, is -- we talked a lot in the IPO process, but it's worth mentioning again that when we were putting the controls in place, an unusual enrollment activity, which we think we've handled very well. We noticed that -- or we actually made a decision in Q4 to move those controls, the detection and verification to the top of the enrollment funnel at the application process. We did this to better deferred the volume from even getting into our enrollment funnel and interacting with our people. That was effective. And so we saw a significant improvement in enrollment productivity because they were better able to sell -- serve well-intended students. So that's helped us return to healthier growth in new students. That's continued. We've continued to refine them. We continue to see improvements in productivity there. So it's important to note that the underlying applicant demand in fiscal '25 was strong. But we were challenged by having to put the proper controls in place for this sort of existential issue that we dealt with for the first part of the year with unusual enrollment activity which really, in our -- I guess, the best way to articulate is we lost opportunities in the earlier part of the year. And now that we have that under control, we're seeing that healthier growth from new students again. That, coupled with continuing retention, which we're seeing really at all-time highs as we continue to improve in '25 versus 24, are really carrying the underlying business drivers for fiscal '26. Operator: And the next question comes from Jeff Silber with BMO Capital Markets. Jeffrey Silber: I was wondering if you could just drill down into your total degree enrollment by different verticals. And I'm specifically interested in health care and nursing, I know some of the other companies have talked about some of the RN to BSN programs have gotten more competitive. Do you play there? Can you give us any color on that vertical specifically? That would be great. Christopher Lynne: Sure. We're seeing healthy growth in our nursing programs. It's a smaller portion of our overall total degreed enrollment. That is definitely an area where we continue to see opportunity, and we continue to see higher growth trends. Now we're growing across most of our programs right now. We're also seeing healthy growth associated with B2B, which is driving growth in business, IT, health care and also nursing. And so I think that's about like -- you've seen our breakdown of our degree programs. The majority are in business and IT. We're seeing growth there. But to your point, health care is a nice opportunity for us, and we continue to see healthy growth trends in that area. Jeffrey Silber: I'm sorry, just to reconfirm, you think you're seeing growth in all your programs? Is that correct? Christopher Lynne: The majority of them, if we go across the board, -- if I look at all of them, I mean just full disclosure, the one program that we saw really more flatness in last year was education, but we don't believe that was related to any kind of underlying demand trends. They have a lot more to do with some of the productivity challenges that we were wrestling through as we were getting our control framework in place for that unusual enrollment activity. And is that affected productivity, we think it had an impact on our education vertical. Operator: And the next question comes from Jasper Bibb with Truist Securities. Jasper Bibb: I was just hoping you could give a bit more detail on what you're assuming for enrollment growth and revenue per student underpinning that '26 revenue outlook? Christopher Lynne: Yes. The -- well, the revenue growth -- I mean, the guidance we're providing, Jasper, right now at the revenue growth level, which is in the outlook that Blair provided I do expect some reversing of the really higher revenue per student trends comparatively to say previous fiscal years that I mentioned in fiscal '25, we saw some of the growth in revenue per student due to students that persisted only into their initial courses. That reversal will bring -- if you do the math on revenue per average total degreed enrollment that will bring down that sort of formulaic metric in fiscal '26. We expect that to normalize at the end of the year. So at the later part of the year, likely primarily in Q4, you're going to begin to see trends that are more consistent to expectation in terms of average total degreed enrollment growth and revenue. And then when we look at the out years, we provided the guidance during the IPO process that we're expecting mid-single digits in revenue growth, and we continue to be confident in those -- in that outlook. Jasper Bibb: If I could just ask a quick follow-up. So about the kind of quarterly cadence of revenue in your outlook. I guess, as you kind of lap some of these headwinds you talked about in fiscal '25, it sounds like some of the back half of the year, the growth will be a little bit stronger than the first half. Just any more I guess is that accurate? And then any more detail you can provide on the quarterly cadence would be helpful. Christopher Lynne: Yes. I appreciate you asking that question because, yes, we have these sort of headwinds as you refer to them in terms of working through some of the challenges associated with getting the infrastructure in place and unusual enrollment activity. That did -- in one way that did actually lose us opportunity. We saw productivity challenges in terms of lower marketing efficiency, lower productivity enrollment. We're seeing that reverse already. We saw a reversal in both of those in Q4 and expect that to continue in fiscal '26. But we did have some of that revenue of those students that didn't persist beyond the initial courses. So arguably you could argue that's a headwind. I think it's the right type of headwind because we're attracting higher-quality student mix into the institution. So if I think about it, we're not providing quarterly guidance, but I will tell you that this was concentrated through Q2 and Q3 of last year. And so that's why we're expecting to reverse back to trends that you would expect based on our underlying sort of fundamentals in Q4. I do want to reinforce something because I know this is a lot as we kind of talk about these trajectory shifts year-to-year as we're seeing healthy new student demand, and we are seeing new student growth. We are seeing very healthy retention. So the fundamentals driving this year are healthy, which is why we're confident in the outlook that we provided. Operator: And the next question comes from George Tong with Goldman Sachs. Keen Fai Tong: I wanted to go back to the impact of suspicious activity controls enrollments. Can you quantify how much of the slower enrollment growth in fiscal '26 is due to less suspicious activity compared to, say, friction and legitimate enrollments? And then maybe talk about what gives you confidence that unusual enrollment activity won't spike again the following year and then force you to put some more controls in place that could impact enrollment? Christopher Lynne: Yes. George, thanks. Yes, great question. So it's hard to quantify specifically. But just to step back and so you understand what we're doing in our controls. We have advanced algorithms that have proven to be very effective. We have collected a lot of data and have expanded these algorithms where we have a high level of accuracy in identifying any risk of what you refer to as suspicious activity. And so when we hit thresholds, we'll stop matriculating that student or that prospective student immediately. Now whether or not that is actually a student that is exhibiting this bad actor behavior or not, we don't always know that. But we wanted to make sure we put controls in place to ensure that we had this issue managed. And I think as you've gotten to know us, like that is always going to be our first priority. So the early part of the year, a lot of the cost of that was we were -- these controls were further into the enrollment process. So we still had these students interacting with our people. And that created productivity challenges where you had lower conversion, which meant your marketing spend was less efficient. And our enrollment representatives weren't able to manage well intended students as well for obvious reasons. So that was a big driver. When we moved those controls up to the top of the application process going into Q4, we saw significant productivity improvements in the enrollment funnel because we had very little of this activity in the funnel. So we saw enrollment representatives, conversions went up. They were doing a better job serving well-intended students. We did have a little bit of friction. I know we talked about in the IPO process in that -- and we could literally measure it and see it and that we were creating controls. We were sending a lot of students to a verification loop in the application process, and that did catch some of the well-intended students. So we had some friction there. And that friction, we've been continuing to calibrate and we've been more effective in removing as we go forward. So today, we feel a lot better about that even than we did in Q4. And to your question about how do we know about whether or not we're going to deal with this again in the future. What I'd say is this activity is out there, like it's pretty well documented now that there's a lot of unusual enrollment activity in this space. So this is just a capability we've built that we feel is necessary that we feel really good about, but we're constantly looking at this. Not only do we have the controls to detect, verify and deter, but we're constantly looking at the data and updating the algorithms so that we can catch the activity early in the process, advance our algorithms and continue to deter it. So we feel good about our process. It's demonstrated consistency since we've put it in place at the end of Q3 when we completed that process. It's consistently been effective at keeping the matter under control. The last thing I'd like to mention, George, is just as a reminder, this -- the root of this issue was a breakdown in controls and the identity verification process with the Department of Ed. And they have publicly acknowledged that in the early summer. We met with the department in September, and we were confident that they've got a good handle on this and that they're going to put good processes in place with their new FAFSA in the near future here. And so that really should tamp down this issue for the entire higher education sector, which will be great. And that process of meeting with the department also reinforced the confidence in our control structure as well. Operator: And the next question comes from the line of Griffin Boss with B. Riley Securities. Griffin Boss: My question is regarding technology investment. So you talked about during the IPO process, the $500 million investment that was made into the technology platform. I'm curious what sort of capacity you have under the current platform? You've grown average enrollments from 70,000 to 80,000 over the last 2 to 3 years. Curious if you have the capability to expand enrollment another 10,000 just as a placeholder number without significant tech investment or what the expectation for investment is in the future to get that next 10,000? Christopher Lynne: Yes. Thank you for that question. Yes, we have plenty of scale on our platform to manage growth well beyond 10,000 incremental students. I would say that the investments we've made, we have that scale. We have a cloud-first, digital-first platform, very data-driven. What we're excited about is really the evolution of our investments in AI. Part of what we shared with you in the IPO process is that we've been doing AI and machine learning for several years. And so we have a lot of scale in terms of a lot of traffic coming to our website generated from our brand and marketing and then a lot of opportunities, one, to help those prospective students become new students as well as once they become students, we have thousands of opportunities to personalize that experience, leveraging data. And what we're seeing right now in this sort of AI moment with generative AI and Agentic AI are some really powerful use cases where we can really expand that capacity. So we're not -- we're early days in this, but from a technology investment perspective, yes, we have the scale and capacity. But what we're excited about is we've got a lot of use cases in production right now that we think are going to really elevate the value through an efficiency perspective, a student outcome perspective as well as our ability to expand growth. And so I added a little bit there, but I just wanted to emphasize that, that is an area of focus for us that we're excited about. Operator: The next question comes from Rob Sanderson with Loop Capital Markets. Robert Sanderson: My question is related to policy. Could you speak maybe to some of the announcements on priorities from the Department of Ed earlier this month and anything that investors should understand whether it's called for accreditation reform or anything else. And -- and just maybe up level a little, are there been any surprises on how changes outlined in the One Big Beautiful Bill Act are moving into implementation and what changes under new laws might mean for the university? Christopher Lynne: Thanks, Rob. Great question. Nothing has changed in terms of the updates in this area. I mean, obviously, there were some -- maybe not obvious to everyone, but there were some announcements this week that I'll speak to in terms of maybe where the Department of Education may end up potentially in other agencies and the like. But that was even sort of out there as a possibility back when we were going public. So nothing's really changed is really the punchline. But let me just give you a little bit of color. In terms of the One Big Beautiful Bill, we -- at a high level, there were a lot of things in that bill that we talked about, the [ Grad ] loan limits, the PLUS loan was eliminated. There were limitations on various types of Pell grants. All of those we didn't expect and still don't expect to have an impact on our students. There is the earnings threshold that we shared that could have an impact on some of our programs. But based on the knowledge we have today, we don't expect any material adverse impact, and we feel like we're in a good position to manage through anything that may come our way on that. So nothing's really changed there. What's left is the negotiated rule-making process with the Department of Ed. They did have their first phase of it, and some of the loan limits were discussed, and that all sort of fell in line with our expectations. So nothing new. They are going to take up the earnings threshold and some other matters in the next two sessions in December and January. And so there's a lot to learn there. But we feel really good about the interactions we're having with the department and with the process. And so there's nothing new that is concerning us. We feel generally pretty good about everything that we understand as it relates to the Department of Ed and to the Big Beautiful Bill. On the latest discussion, and it's pretty recent, there was, I think, the letter from Secretary McMahon about creating partnerships across agencies. So I think the headline is that this administration is looking to reduce the footprint of the official Department of Ed. And this may be done by moving aspects of the Department of Ed into other agencies. From what we know, we've had a very responsive department. So the post-secondary unit, it's been a two-way relationship. We've got our 6-year program participation agreement. They were very responsive and helpful in that process. So that's been our experience. If it's a lift and shift or a partnership, we don't anticipate any of the discussion that's going on in the press to impact us there. We feel the same about loans and grants. In fact, that's an area where we've actually seen this department, we believe, we can't see on the inside, but it looks like they've invested in enhancements in technology and the process. We met with them to talk about some of these changes around the FAFSA. So we feel good about that process. And if those resources move somewhere else, we wouldn't expect that to have any implications on our university. So A little color there, but the punchline really, Rob, is nothing's changed. Operator: And I'm showing no further questions at this time. I would like to turn it back to Chris Lynne for closing remarks. Christopher Lynne: Okay. Thank you, everyone. Fiscal year 2025 marked another year of meaningful progress across the university. We're excited about the next chapter of our journey as we continue to transform lives through accessible, high-quality education I want to close by thanking our faculty and our entire team for their unwavering commitment to our mission and for keeping our students at the center of everything we do, and thank you all for joining us today. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the BioLineRx Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn over the call to Irina Koffler, Investor Relations. Irina, please go ahead. Irina Koffler: Thank you, operator, and welcome, everyone. Thank you for joining us on our quarterly results conference call. Earlier today, we issued a press release, a copy of which is available in the Investor Relations section of our website. It was also filed as a 6-K. I'd like to remind you that certain statements we make during the call will be forward-looking. Because such statements deal with future events and are subject to many risks and uncertainties, actual results may differ materially from those in the forward-looking statements. For a full discussion of these risks and uncertainties, please review our annual report on Form 20-F and our quarterly reports on Form 6-K that are filed with the U.S. Securities and Exchange Commission. At this time, it is now my pleasure to turn the call over to Mr. Phil Serlin, Chief Executive Officer of BioLineRx. Philip Serlin: Thank you, Irina, and good morning, everyone, and thank you for joining us on today's call. As has been our practice, I will begin with a few prepared remarks before turning the call over to Mali Zeevi, our Chief Financial Officer, to briefly recap our financials. Afterwards, we will take your questions. Ella Sorani, our Chief Development Officer, is also available for Q&A. I would like to begin this morning with a recap of our very significant and transformational announcement that we established a JV with Hemispherian, a Norwegian privately held biotech company to develop GLIX1, a highly innovative molecule for the treatment of glioblastoma and other cancers. The JV combines our proven track record of clinical and regulatory success, having advanced APHEXDA through clinical development and FDA approval with Hemispherian's expertise in small molecule cancer drug discovery, specifically in the area of DNA damage response research that leverages a unique mechanism of action and targets cancer cells. With these complementary capabilities, I believe we are very well positioned to bring much needed innovation to the most challenging cancer types while creating long-term value for our respective shareholders. GLIX1 is a first-in-class oral small molecule. As mentioned, GLIX1 is a very innovative molecule with a unique mechanism of action that targets DNA damage response in cancer cells while sparing healthy cells. Based on this unique MOA, the fact that it crosses the blood-brain barrier as well as highly impressive preclinical results, the first indication to be investigated will be glioblastoma or GBM, both newly diagnosed and recurrent. The FDA cleared Hemispherian's IND in August. And with the JV now up and running, we are planning to initiate a first-in-human Phase I/IIa glioblastoma trial in the first quarter of next year. At the same time, GLIX1 is a versatile molecule that has shown compelling antitumor activity in a large variety of cancer cell lines and other cancer models as well, and we will continue to advance preclinical activities in support of potential trials in other high unmet need cancer indications. Briefly recapping the terms of the JV agreement, Hemispherian contributed the global rights of GLIX1 to the JV, and we are responsible for managing, performing and funding all JV clinical development activities. In consideration for our respective contributions as of the JV's inception, Hemispherian holds 60% of the JV's share and BioLine holds 40%. We will continue to increase our stake over time up to a 70% stake as we continue to invest additional capital into the program. The unmet need in glioblastoma is significant. It is the most common and aggressive form of primary brain cancer. The current standard of care treatment was established more than 20 years ago with only limited improvements since that time. Treatment includes surgical resection followed by radiotherapy and concomitant and adjuvant chemotherapy, but the prognosis for patients is poor with median survival of approximately 12 to 18 months following diagnosis. GBM occurs at all ages, but peaks with individuals in their 50s and 60s with an increasing incidence driven by an aging global population. New and better treatments are desperately needed that can improve survival, maintain quality of life and delay tumor progression. By 2030, the annual incidence of GBM is expected to be approximately 18,500 patients in the U.S. and approximately 13,400 across the EU 4+1, France, Germany, Italy, Spain and the U.K. This translates into total addressable markets across both the newly diagnosed and recurrent settings of more than $3.7 billion in the U.S. and Europe alone. We view this as a wide open market with few competitors. In terms of next steps, as mentioned, GLIX1's IND was cleared by the FDA this past August, and we are planning to initiate a Phase I/IIa study in the first quarter of next year. Data from the Phase I part of the trial is anticipated in the first half of 2027, but we may provide periodic updates earlier. Notably, 2 renowned experts in the area of glioblastoma, Dr. Roger Stupp and Dr. Ditte Primdahl of the Malnati Brain Tumor Institute at Northwestern University will serve as principal investigators for the study. We already talked about GLIX1's unique mechanism of action as well as the fact that we believe this novel molecule has potential clinical utility across a range of cancers. To that end, we were very pleased to announce just a few days ago that we received a notice of allowance from the USPTO for a key patent covering the use of GLIX1 for the treatment of all cancers in which cytidine deaminase or CDA is not overexpressed beyond a specific threshold. It is estimated that as many as 90% of all cancers, both solid tumor and hematological cancers fall into this category, and we have already seen potent antitumor activity in other cancer models in which GLIX1 has been evaluated. So while glioblastoma is our lead indication, as previously mentioned, we are planning to expand the development of GLIX1 into additional cancer indications once safety and dosing are successfully established. In this regard, we will continue to advance preclinical work in other cancers in parallel with our glioblastoma study. We believe the versatility of GLIX1 provides us with multiple opportunities to advance cancer patient care while creating value for our company. Importantly, this new patent broadens and strengthens GLIX1's patent protection until 2040 with a possible patent term extension of up to 5 years. In addition to the recently allowed U.S. patent just referenced, GLIX1 is covered by 2 additional key patent families covering its use alone and in combination with established anticancer agents. GLIX1 for use in treating cancer in the central nervous system, such as glioblastoma is covered by patents issued in the U.S., Europe and 13 other countries. The patents are valid until at least 2040 with a possible patent term extension of up to 5 years. And then GLIX1 in combination with PARP inhibitors for use in treating homologous recombination proficient cancers, which represent the majority of cancers is covered by a pending international patent application. Corresponding national-based patents if granted will be valid until at least 2044 with a possible patent term extension of up to 5 years. So we are very pleased to have brought this highly innovative molecule into our pipeline, and we look forward to keeping you apprised of our progress as we pursue its development in a range of very challenging cancers. Turning now to pancreatic cancer, or PDAC. Recall that we retained the rights to develop motixafortide in PDAC as part of the Ayrmid out-licensing agreement, and we continue to support its ongoing development in this indication. A randomized Phase IIb clinical trial sponsored by Columbia University and supported by both Regeneron and BioLineRx, known as CheMo4METPANC continues to enroll patients. The CheMo4METPANC trial is evaluating motixafortide in combination with the PD-1 inhibitor, cemiplimab and standard chemotherapies, gemcitabine and nab-paclitaxel. A prespecified interim analysis is planned for when 40% of progression-free survival events are observed. Results for this trial, if positive, could be a significant value inflection point for our company and signal new hope for patients suffering from this very challenging tumor type. We look forward to keeping you up to date on our progress with this important program. In terms of cash, our balance sheet remains strong. We ended the third quarter with cash and equivalents of approximately $25.2 million, which is sufficient to fund our operating plan as currently contemplated into the first half of 2027. We also have the potential benefit of royalties and milestone-driven revenue from our license agreements with both Ayrmid and Gloria Biosciences. Our goal continues to be to help as many patients as possible while creating enduring value for our shareholders. Before turning the call over to Mali to review our financials in more detail, I'd like to briefly touch on APHEXDA's performance in the third quarter. The Ayrmid team continues to make progress driving APHEXDA adoption, generating sales of $2.4 million in Q3 2025, which resulted in $0.4 million of royalty revenue to BioLineRx. We remain optimistic about the role that APHEXDA can play in the new multiple myeloma treatment paradigm and look forward to meaningful growth from this next-generation stem cell mobilization agent. Recall that when we executed the Ayrmid out-licensing agreement last year, we obtained not only the rights to commercialize APHEXDA in stem cell mobilization for multiple myeloma, but also the rights to develop motixafortide across all other indications, excluding solid tumor indications and in all territories other than Asia. This includes the evaluation of motixafortide in sickle cell disease. A Phase I investigator-initiated trial sponsored by Washington University School of Medicine recently concluded, and we are very pleased to announce that an abstract detailing final positive results for this proof-of-concept study has been accepted for presentation at this year's ASH Annual Meeting, which is taking place December 6 to December 9. Hitting a few of the highlights, the trial, which enrolled 10 subjects evaluated motixafortide both as monotherapy and in combination with natalizumab for the mobilization of hematopoietic stem cells for gene therapies in sickle cell disease. The study demonstrated that motixafortide alone and in combination with natalizumab was safe and well tolerated. In addition, motixafortide alone and in combination with natalizumab demonstrated robust hematopoietic stem cell mobilization in the peripheral blood, resulting in high collection yields. Furthermore, in 2 subjects who had previously undergone mobilization with plerixafor, motixafortide alone and in combination with natalizumab resulted in nearly 3x greater mobilization and subsequent collection yield of stem cells as compared to plerixafor. In conclusion, this trial demonstrated the potential of motixafortide alone and in combination with natalizumab as a novel G-CSF-free regimen to safely optimize hematopoietic stem cell mobilization in sickle cell disease. These results strongly support continued development in this indication. The current standard of care mobilization agent, G-CSF is contraindicated in patients with sickle cell disease. So there is an urgent need for an agent that can reliably produce the very large quantities of stem cells that manufacturing and transplantation require in this indication, around 20 million CD34+ cells per kilogram without further burdening already constrained apheresis capacity. We believe motixafortide has the potential to expand access to stem cell mobilization and transplantation in sickle cell disease, which is potentially curative for these patients. Now let me turn the call over to Mali to provide a financial update. Mali, please go ahead. Mali Zeevi: Thank you, Phil. As is our practice, I will only go over the most significant items in our financial statements, revenues, cost of revenues, research and development expenses, sales and marketing expenses, net loss and cash. I invite you to review the 6-K that we filed this morning, which contains our financials and press release. Total revenues for the third quarter of 2025 were $0.4 million, reflecting the royalties paid by Ayrmid from the commercialization of APHEXDA in stem cell mobilization in the U.S. Cost of revenues for the third quarter of 2025 was immaterial. Both revenues and cost of revenues in 2025 are not comparable to the same period in 2024, which primarily reflect a portion of the upfront payments received by us under the Gloria license agreement as well as direct commercial sales of APHEXDA by BioLineRx prior to the Ayrmid transaction in November 2024. Research and development expenses for the third quarter of 2025 were $1.7 million compared to $2.6 million for the third quarter of 2024. The decrease resulted primarily from lower expenses related to motixafortide following the out-licensing of U.S. rights to Ayrmid as well as a decrease in payroll and share-based compensation, primarily due to a decrease in headcount. There were no sales and marketing expenses for the third quarter of 2025 compared to $5.5 million for the third quarter of 2024. The decrease resulted primarily from the shutdown of our U.S. commercial operations in the fourth quarter of 2024 following the Ayrmid out-licensing transaction. General and administrative expenses for the third quarter of 2025 were $0.8 million compared to $1.4 million for the third quarter of 2024. The decrease resulted primarily from lower payroll and share-based compensation, primarily due to a decrease in headcount as well as small decreases in a number of general and administrative expenses. Net loss for the third quarter of 2025 was $1 million compared to net loss of $5.8 million for the third quarter of 2024. As of September 30, 2025, the company had cash, cash equivalents and short-term bank deposits of $25.2 million, sufficient to fund operations as currently planned into the first half of 2027. And with that, I'll turn the call back over to Phil. Philip Serlin: Thank you, Mali, and thank you to everyone joining this call. Operator, we will now open the call to questions. Operator: [Operator Instructions] The first question is from Joe Pantginis of H.C. Wainwright. Joseph Pantginis: If you don't mind, I'm going to ask all 3 of my questions at the same time because there is some background noise. So please bear with me. So first, I wanted to get a sense as we look towards the upcoming clinical study for GLIX1, as you look early on for PK and PD markers, are there any potential PD markers that you look to release that might be correlated with clinical activity as people look to tease out any additional information from the study, number one. Number two, what would you say your intermediate or longer-term needs are for manufacturing capacity for GLIX1? And number three, thank you for taking these as you look towards additional tumor indications, when do you think we might see some preclinical data readouts and what those indications might be? Philip Serlin: Thanks, Joe. So first of all, thanks for joining the call. Ella, do you want to take the question? Ella Sorani: Yes, sure. Joe, thanks for your question. So the first question with regards to PK and PD markers during the clinical trial of GLIX. PK is an easy one. Of course, we are planning to take extensive PK data during this trial. With regards to pharmacodynamic markers, we do have pharmacodynamic markers for GLIX1. However, they are from biopsies. And since we are talking in the first part at least of the study, about recurrent GBM -- biopsies during or following treatment will not be easy to be obtained. Having said that, if there are going to be surgeries along the trial, then we are planning to use those in order to get some input with regards to these biomarkers. I hope this answers the question. Joseph Pantginis: Yes. Philip Serlin: And as far as the immediate needs for manufacturing, I can say that we're manufacturing at a world-class CDMO. We don't anticipate any need to change manufacturers or whatever. I think the current manufacturer has more than enough capacity and the batch size is correct for us to move forward all the way to Phase IIa. Ella Sorani: And regarding your third question on results of preclinical models. So we are performing then with regards to when we will be able to present results probably in -- well, the plan would be in one of the conferences next year. Operator: The next question is from John Vandermosten of Zacks. John Vandermosten: So why the activities to commercialize APHEXDA are responsible at Ayrmid, I wanted to see if you can help me think about like a medium-term target for market penetration based on today's vantage point. Is that something you can help me with, Phil? Philip Serlin: We can't really help you with it. We're not -- we're no longer the owner, so to speak, of the asset in the territories that Ayrmid holds. And so we're not really giving guidance at this time since it's no longer our product. I wish I could give you a better answer than that, but I'm really not able to. John Vandermosten: Okay. And then shifting on to GBM. What would be a reasonable target for an improvement in overall survival for GBM that would get established pharma interested and get the FDA to be on board with approval? I know, again, that's well down the road, but I was wondering what you had in mind in terms of what would be material enough to get all parties, all stakeholders interested? Ella Sorani: Yes. So with regards to that, I think it depends, of course, if you're talking recurrent GBM or newly diagnosed GBM. I think for the newly diagnosed, the benchmark would be -- I mean, temozolomide was approved based on improvement of median overall survival of approximately 2.5 months. So that would probably be sufficient for -- in terms of improvement of overall survival for newly diagnosed GBM. For recurrent GBM, I think the bar would even be lower in terms of improved efficacy. John Vandermosten: Okay. That's very helpful. And then just a question on the financial statements. So your investments in the JV, how will they appear on your financial statements? Is that considered R&D expense? Or will it end up somewhere else? And I know there's a few different components there, like a periodic piece and then the investments in the JV itself. Philip Serlin: Yes. So we ultimately control the JV. We have control of the Board of Directors, and we also have control of the joint development committees, et cetera. So we're actually consolidating the JV in our financial statements. And so therefore, all of the expenses in the JV will be reflected in the specific financial statement line items as if we were -- as if it was just being done directly at BioLine. John Vandermosten: Okay. So those are all considered R&D expense, including that, I think that $80,000 amount. Philip Serlin: Yes, of course. Yes. That $80,000 amount is actually -- is for specific services, transition services and what have you. So it will all be reflected in R&D expenses, I believe you're correct. Operator: [Operator Instructions] There are no further questions at this time. Mr. Serlin, would you like to make your concluding statement? Philip Serlin: Yes, I would. Thank you, operator. In closing, we remain very excited about this new vision for BioLineRx and believe we have the expertise and resources to drive meaningful innovation for patients with some of the most challenging cancer types. I am very excited about what the future holds for BioLineRx in 2026 and beyond. Thank you all very much for your continued interest in BioLineRx. Be safe, and have a great day.
Richard Friedland: Good morning, everyone, and a very warm welcome to Netcare Limited's presentation of the audited group results for the year ended 30th of September 2025. A special word of welcome to our Chair, Alex Maditse, members of the Netcare Board, our ExCo, and our senior management teams. Let me, at the outset, also express my sincere thanks to all of our management teams and Netcare staff across all of our divisions for their incredibly hard work, collective efforts and commitment over the past year. And also my personal thanks to our Board members for their support and sage guidance. I will begin with an overview of the group performance as well as that of the operating divisions, before handing over to our Chief Financial Officer, Keith Gibson, who will unpack our financial results in more detail. I will then conclude by providing more detail on the progress we have made on rolling out our strategy and also present our outlook and guidance for the 2026 financial year. Just a quick reminder of the comprehensive and growing array of facilities and services we provide within the Netcare ecosystem across 10 unique divisions. Of course, the most important aspect and most valuable asset there are our people within the Netcare family, more than 18,000 full-time employed health care professionals and health care workers, and that excludes or should also exclude our contracted workers, more than 7,000 caterers, cleaners and security staff. Looking now at our overall performance. Despite a very challenging macroeconomic environment, Netcare has produced a strong financial performance, achieving excellent traction on our strategic projects. This performance was characterized by a robust financial performance with all in-year strategic objectives achieved, strong operating leverage supported by what we have defined as the group's growing digital dividend and also reduced strategic costs. We maintained a strong financial position with an improved ROIC of 12.6% and a cash conversion of 111.3%. In line with our capital allocation policies, we have returned ZAR 1.8 billion to shareholders through ordinary dividends and share buybacks in this past financial year. Our digital data and AI strategy continues to gain momentum and is truly transforming our delivery of quality care with now 92 publicly reported quality outcomes and 29 peer-reviewed publications this past year. Our advanced digital and analytic capabilities continue to unlock value with ZAR 587 million of cumulative CareOn savings and cost avoidance achieved since 2022. Phase 2 of our environmental sustainability strategy is on track to meet our 2030 targets and pleasingly, potentially ahead of schedule. And this solid operational performance translated into our strong financial metrics and ongoing operating leverage. And so turning to the numbers. The strong financial performance can be seen across all our key metrics when compared to last year. Revenue for the full year rose by 4.5% to ZAR 26.3 billion, and we continue to achieve good operating leverage as evidenced by the 8.4% increase in EBITDA to ZAR 4.9 billion. Our EBITDA margin increased by 60 basis points to 18.6%. Adjusted headline earnings per share rose by 20.7% to ZAR 1.372. Despite the significant share buyback program, our net debt-to-EBITDA ratio strengthened to 1.1x versus 1.2x last year. And finally, as a result of the improved performance, we are pleased to declare a final dividend of ZAR 0.49 per share, which, together with the interim dividend, amounts to a total distribution of ZAR 0.85 for the year, which is 21.4% higher than last year and represents 62% of adjusted headline earnings per share. Let's now unpack the operational performance of our respective divisions in more detail. This slide demonstrates our activity and occupancy in the hospitals and emergency services. Total patient days grew by 0.7% year-on-year with the Hospital division growing by 0.8% and Akeso by 0.5%. Average full week occupancies improved to 65% in the acute hospitals and remained steady at 70.3% in our mental health facilities. Let's now examine the financial results of the Hospital and Emergency Services in more detail. Revenue grew by 4.9% to ZAR 25.7 billion and EBITDA by 8.8% to ZAR 4.8 billion. Operating profit rose by 11.5% to ZAR 3.5 billion, demonstrating an outstanding operating leverage of more than 2.3x. Acute hospital revenue per paid patient day increased by 4%, reflecting higher volume growth from lower cost network options and data-driven clinical cost efficiencies passed on to medical schemes. Surgical cases continued to contribute more than 70% of revenue despite the out-migration of lower-margin surgical cases. Pleasingly, we also experienced a 4% increase in births, supported by a recently launched Birthwise offering, as well as an increased number of specialists. Overall EBITDA margin for the segment rose by 70 basis points to 18.5% versus 17.8% in the 2024 financial year. As outlined on this slide, this expansion was underpinned by digital efficiencies, stringent cost management and lower strategic costs. EBITDA margin for the Hospital and Pharmacy subsegment was up 20 basis points to 18.8% versus an 18.6% margin in the 2024 financial year. We've grown our specialist base by granting admitting privileges in acute and mental health facilities to a net 117 new specialists. This can largely be attributed to our fully integrated, digitized and data and AI-driven ecosystem, clinical centers of excellence furnished with outstanding equipment and technology, including 4 Level 1 Trauma Society of South Africa accredited trauma facilities and 2 World Stroke Organization accredited stroke centers, a first in Africa and 2 of only 34 such accredited facilities worldwide. Finally, turning to our Primary Care division. Revenue declined by 7% to ZAR 662 million. This was impacted by lower activity and the nonrenewal of a large occupational health contract. However, if normalized for the nonrenewal of this contract, the division experienced an underlying 2.8% growth in revenue. EBITDA margin increased by 150 basis points to 24.5% versus 23% in the 2024 financial year, driven by ongoing operational efficiencies. Our occupational health client base has now been diversified through the addition of several new contracts. And despite the loss of a major contract, we remain optimistic that by leveraging Netcare's digital capability, the division is favorably poised to secure further growth and opportunities. I will now hand over to Keith to unpack our financial performance in more detail. Keith Gibson: Thank you, Richard, and good morning, ladies and gentlemen. I'll be stepping you through Netcare's financial performance for the year ended 30 September 2025. By way of overview, the business delivered an excellent trading result and maintained its strong financial position during the 2025 financial year. The business was able to expand its EBITDA margin and demonstrate pleasing operational leverage by keeping a tight rein on costs, aided by digitization benefits and lower strategic costs. At the bottom line, the business delivered growth in its adjusted headline earnings per share in excess of 20% from strong operational performance, combined with a lower weighted average number of shares in issue. Netcare's statement of financial position remains in a healthy state with return on invested capital or ROIC demonstrating a 90 basis point improvement to 12.6%, along with an exceptional cash conversion of 111.3% for the year. In line with our capital allocation practices, we continued our share buyback program, which commenced in September 2023. And to date, we have invested ZAR 1.9 billion to repurchase 149 million shares in the market, which represents 10.4% of the total ordinary shares in issue at the end of September 2023. This next slide demonstrates Netcare's consistent track record in delivering meaningful operating leverage while still maintaining a conservative level of gearing. And despite the challenging backdrop of the past 5 years, the graphs illustrate that during FY 2025, the business has converted a 4.5% growth in revenue into 8.4% EBITDA growth and 11.3% growth in operating profits, achieving 2.5x operating leverage. And the graph on the bottom right reflects the group's net debt of just under ZAR 5.5 billion at 30 September 2025. And even after funding the substantial share buybacks in the past 2 years, the group's gearing levels, as measured by the net debt-to-EBITDA metric, remain conservative, improving from 1.2x at the previous year-end to 1.1x at September 2025. Moving on to the group statement of profit or loss for the year ended 30 September 2025. And first, I should point out that to aid comparability, the numbers reflected in this slide exclude the impact of exceptional items, unless otherwise indicated. Revenue for the year amounted to ZAR 26.3 billion compared to ZAR 25.2 billion in the prior year, growing by 4.5%. EBITDA for FY 2025 grew by 8.4% to ZAR 4.9 billion against ZAR 4.5 billion in FY 2024, with EBITDA margin improving by 60 basis points from 18% to 18.6%. Strategic costs for the year amounted to ZAR 60 million, reducing notably from the prior year's ZAR 131 million. The lower incidence of load shedding in the current year required less use of generators and consequently, expenditure on diesel reduced from ZAR 47 million to ZAR 13 million. However, this benefit was mostly offset by further increases in electricity tariffs. And in addition, the business spent ZAR 12 million on emergency water purchases during periods of municipal outage. Operating profit increased by 11.3% to almost ZAR 3.6 billion compared to ZAR 3.2 billion in the prior year. Other net financial expenses of ZAR 555 million were marginally lower than the prior year's ZAR 561 million, reflecting the combination of a lower cost of debt on higher average debt balances over the course of the year. The IFRS 16 interest charge attributable to lease liabilities of ZAR 541 million increased from ZAR 511 million in the prior year. Earnings from associates and joint ventures showed pleasing improvement to ZAR 70 million, driven by the performance of National Renal Care, who experienced strong growth in Renal Dialysis Services. Profit before tax increased by 15.9% to ZAR 2.5 billion. The group's tax charge amounted to ZAR 695 million at an effective rate of 27.5%, which is slightly lower than the prior year. Profit after tax before exceptional items amounted to ZAR 1.8 billion, representing a 16.1% improvement from ZAR 1.6 billion in FY 2024. In the current year, exceptional net costs of ZAR 19 million after tax were recognized as compared to a net ZAR 28 million in FY 2024. The exceptional items relate to impairments of properties and an investment in an associate, offset by a gain on an insurance claim from the fire at the Netcare Pretoria East Hospital. Profit for the year, inclusive of exceptional items, amounted to ZAR 1.8 billion, being 17% higher than the prior year's profit of ZAR 1.5 billion. Next, we'll analyze earnings and returns to shareholders in the form of headline earnings per share, dividends and share buybacks. And as can be seen in the table on the top left of the slide, HEPS amounted to ZAR 1.337 for the year, which is an 18.3% improvement on the ZAR 1.13 reported in FY 2024. Adjusted HEPS, which is the primary measure used by management to assess performance, and strips out exceptional and unsustainable items, amounted to ZAR 1.372 for FY 2025, increasing by 20.7% from the prior year's ZAR 1.137. The Board has resolved to pay a final dividend of ZAR 0.49 per share, which, along with the interim dividend of ZAR 0.36 brings the total dividend for the year to ZAR 0.85 per share. This is an increase of 21.4% year-on-year and equates to 62% of adjusted HEPS. In addition, we continued with our share buyback program, which commenced in September 2023, and the details of this are set out in the table on the top right-hand side of the slide. During the current year, 64.2 million shares were acquired at an average price of ZAR 13.24 per share, amounting to ZAR 855 million. Collectively, since commencement of the share buyback program, the group has repurchased 149 million shares on the market for ZAR 1.9 billion, equating to an average price of ZAR 12.69 per share. And lastly, turning to the table in the bottom right section, we see that between the 2024 final dividend, the 2025 interim dividend and the shares bought back in FY 2025, ZAR 1.8 billion was returned to ordinary shareholders in the current year. And if we add the ZAR 595 million in respect of the 2025 final dividend that is to be paid on the 26th of January 2026, a grand total of ZAR 2.4 billion will have been returned to shareholders. Moving on to the group's statement of financial position. I'll begin with the usual reminder of our capital structure policy, which is to maintain a strong statement of financial position and to retain an investment-grade credit rating, while reducing the cost of capital with a safe level of debt. As at 30 September 2025, total assets amounted to ZAR 29.2 billion, increasing from ZAR 28.4 billion at September 2024. CapEx spend during the year amounted to ZAR 1.6 billion, of which ZAR 288 million relates to expansionary projects and the balance of ZAR 1.3 billion relates to replacement CapEx. Total shareholders' equity remained flat at just under the ZAR 11 billion mark with the benefits of an improved operating performance being offset by ordinary dividend distributions and share buybacks of ZAR 1.8 billion during the year. And finally, since September 2024, the group has experienced an increase of 90 basis points in ROIC to 12.6%. Next, we'll review the group's debt position. Gross debt amounted to ZAR 7.4 billion at 30 September 2025, offset by cash balances of ZAR 1.9 billion. Therefore, net debt totaled ZAR 5.5 billion at the year-end, increasing by ZAR 172 million from September 2024, and remembering that ZAR 1.8 billion was outlaid in the current year in ordinary dividends and share buybacks, along with CapEx of ZAR 1.6 billion. Net debt-to-EBITDA improved slightly to a comfortable 1.1x coverage at September 2025 against 1.2x coverage at September 2024. And for clarity, this metric is calculated on EBITDA measured after the adoption of IFRS 16 against bank debt only. Inclusive of lease liabilities recognized under IFRS 16, net debt-to-EBITDA coverage is 2.3x, improving marginally from 2.4x at September 2024. In line with our policy, we retained our credit rating of AA- for long term and A1+ for short term as published by GCR in February 2025. The cost of debt at the year-end of 8.4% reduced by 70 basis points from 9.1% at September 2024. However, the average cost of debt over the course of the year only reflected a 10 basis point improvement from 9.3% to 9.2%, indicating that the full benefits of the reduction in rates during FY 2025 will reflect in the 2026 results. Currently, approximately 30% of the group's debt is at fixed interest rates, which is achieved with the aid of interest rate swaps. The growing EBITDA resulted in further strengthening of the EBITDA to net interest cover to 4.5x against a comparative cover of 4.3x, while the interest cover metric improved from 3x cover last year to 3.3x cover in FY 2025. And the business continues to generate strong cash flows, which is aided by disciplined working capital management. And lastly, we'll consider our debt facilities. At the year-end, Netcare had cash balances of ZAR 1.9 billion on hand, and we also had committed but undrawn debt facilities of just over ZAR 1 billion, and this gives the group access to collective resources of ZAR 2.9 billion from which to fund our future needs. Our debt tenure reflects a manageable and appropriately staggered maturity profile, noting that there are minimal maturities in FY 2026, and the group, therefore, has sufficient capacity to manage its future operating and capital requirements. And finally, I'd like to convey my appreciation to our finance staff for their considerable efforts in compiling the financial results and related materials. And I'll now hand back to Richard, who will update you on the progress of our key strategic projects and our guidance for the 2026 financial year. Richard Friedland: Thank you, Keith. Let's now take a closer look at progress across our key strategic initiatives. In this section, I will give a brief recap of Netcare's strategy and then discuss the launch of the next phases, followed by updates on our other strategic initiatives. Just a quick recap of Netcare's strategy. We are 6 years into our 10-year journey, which is aimed at transforming the way we deliver health and care. Our intention is to empower people to become equal and active participants in their own health care, allowing them to take co-responsibility for their health and wellness. To achieve this, we are leveraging off our unique ecosystem of assets and services and utilizing the benefit of digitization, data and AI to the benefit of all of our stakeholders to create what we have termed person-centered health and care that is digitally enabled and data and AI-driven. And through this, we are intentionally committed to creating a sustainable competitive advantage for the group. Just to recap, our strategy has 3 fundamental phases as demonstrated on this slide. As previously indicated, we have largely completed the first phase. There are still elements of this phase which will yield significant additional efficiencies, and I'll elaborate on these later. This has enabled us to embark on the very exciting second and third phases, which are being rolled out coterminously. All of this is also underpinned by adopting a human AI collaborative approach as we embrace all that AI has to offer. Our strategy has enabled us to widen the digital divide between ourselves and our competitors, and importantly, to expand the benefits we derive. And as I mentioned earlier, what we call our expanding digital dividend. So what exactly do we mean by widening the so-called digital divide and expanding our digital dividend. Essentially, we have broken this down into 4 distinct categories: ongoing operational efficiencies, improving consistency and quality of patient care outcomes, increasing person-centered patient, clinician and funder centricity, and increasing our ability to understand and proactively manage risk. And importantly, in this fully digitized environment, we will retain our human touch and adopt automation with a human heart. In terms of ongoing operational efficiencies, since 2022, we've achieved over ZAR 587 million of cash savings and cost avoidance. This has been achieved in the various categories highlighted on this slide. We're currently in the process of digitizing our HR platform and streamlining our administrative and financial processes through robotic process applications and AI agents across all Netcare divisions. This is expected to begin yielding structural efficiencies from H2 of next year and will contribute fully to our overall efficiencies in the 2027 financial year. The table on this slide unpacks the overall costs and benefits of this first phase. We have invested CapEx of ZAR 320 million and incurred ZAR 350 million in implementation costs to make the business digitally enabled. Cash savings and cost avoidance of ZAR 587 million have been achieved since 2022, of which ZAR 256 million was achieved this past financial year. The IRR continues to improve, now producing an IRR of greater than 25% compared to that of 23% we had reported on last year. And as you can see from the graph on the right-hand side, the gray bars represent the implementation costs, which were previously classified as strategic costs, and the blue bars represent the ongoing operational and licensing costs associated with the digital platforms. The solid black line represents the benefits or operational efficiencies we've achieved to date and the dotted gray line plots our original forecast as per our original business plan. As one can clearly see, we've exceeded our own forecasts again this year. We had forecast benefits of ZAR 178 million, but achieved efficiencies of ZAR 256 million. And what is important to emphasize is that these benefits or operational efficiencies represent both actual cash savings and cost avoidance benefits. Turning now to the second element of benefits derived from our digital dividend, that of improving the consistency and quality of patient care outcomes. And just to highlight a few examples, what is so critically important is our ability to audit and accurately measure and manage quality of care versus relying on manually input so-called reported outcomes and adverse incidents. I say that because there is so much noise and debate around the quality of care and outcome metrics, both within the public and private sector. However, we have realized that relying on nurses or doctors to manually record drug administration times or report adverse events and complications most often leads to underreporting and inaccurate representation of the true quantum of these metrics and is hence often more flattering than reality. Only digital reporting, ladies and gentlemen, with a clear audit and time trail is a truly objective assessment of the reality at the bedside. As a result of this, we've significantly reduced adverse drug interactions and prescribing errors through electronic prescribing and accurate recording of the drug administration times. Through AI-driven machine learning, we continue to enhance our ability to detect life-threatening conditions such as sepsis and other conditions several hours prior to onset and therefore, reduce potential morbidity and mortality. And through the analysis of clinical outcomes, we're able to assist clinicians in their rational choice of medications based on both statistically valid outcomes and price. I'm delighted and excited to announce that we will be introducing unique medical-grade wearable devices for all our patients in general wards, maternity, psychiatry and rehabilitation wards. This transformational development commences with an extensive pilot at a flagship facility. The Corsano device made in Geneva, Switzerland by the founders of Frederique Constant brand of watches is FDA certified and has also achieved the European Union CE certification for a full range of clinical parameters. This includes blood pressure, heart rate, oxygen saturation, respiratory rate, skin and core temperature, sleep hygiene, cardiac arrhythmias and atrial fibrillation. The advantages of this wearable device are numerous and include: most importantly, it offers accurate, noninvasive, continuous and proactive patient management rather than the historic intermittent and reactive observation. It will provide our nurses with the ability to identify patient deterioration earlier and intervene and escalate care before the need becomes apparent. It will integrate with our CareOn EMR and be augmented by our AI-driven early warning systems and predictive algorithms, providing clinical decision support and assisting nurses and clinicians with real-time monitoring to provide better and safer care. In terms of increasing person-centered patient centricity and empowering patients to become equal and active partners in their own health, we launched the Netcare app. As you can see from the list of features on this slide, the app is aimed at improving ease of access before treatment whilst in one of our facilities and everywhere in between. Importantly, we've developed, with Microsoft, a large language model AI assistant to help de-jargonize medical records and the summary of the care they received within our facilities. Since the launch of our app more than 2 years ago, over 850,000 people have downloaded it, of which more than 332,000 are active users. Our experience across 45 hospitals over the past 6 years is that our EMRs offer enormous benefits to clinicians. They encourage a multidisciplinary approach and enhanced collaboration between clinicians, allied health professionals, pharmacists and nurses. Our EMRs are mobile and portable and can be accessed away from the bedside and outside the hospital. As a result, they have significantly improved clinicians' work-life balance. With the introduction of our analytics database and AI, we can now work in partnership with our clinicians to further improve patient safety outcomes and reduce the cost of care. And we continue to introduce data and AI-driven digital clinical decision support tools to assist our clinicians on best practice to achieve better outcomes. This slide demonstrates some of the AI, data and analytical tools we are making available to our clinicians to further improve patient care, safety and outcomes. The qSOFA score for early detection of bloodstream infections or sepsis allows for the identification of clinical deterioration using an artificial neural network. It does this by using real-time heart rate, blood pressure, respiration and oxygenation, and is live in CareOn across all ICUs. It was improved in May of this year by the South African Health Regulatory Authority or SAHPRA. We've developed an emergency department conversion rate tool to ensure appropriate admissions into our hospital out of our emergency departments. The model uses age, route of admission and clinical severity to predict admission risk, and we're hoping for SAHPRA approval early in 2026. Acute kidney or renal failure is a very common in-hospital complication and is associated with a high morbidity and high mortality. Therefore, being able to predict and detect this early will substantially improve patient outcomes. We've developed a core machine learning model to predict renal failure and the deep learning artificial neural network will be developed in 2026. I'm delighted to announce that we will also be introducing an AI-driven ambient listening and dictation tool for all our clinicians, allied health professionals, pharmacists and nurses in 2026. This has been developed in-house. AI-enabled transcription captures dictation and conversations to create structured clinical notes. This allows clinicians and nurses to be fully engaged with patients rather than having to focus on typing notes. We are evolving the tool into a full AI clinical assistant that can prepare referral letters, coding, orders and prescriptions. And most importantly, it will substantially reduce admin time, while also improving the quality and completeness of clinical records. Finally, digitization has allowed us to substantially enhance our partnership with funders. Our digital funder portal allows medical schemes 24/7 seamless access to patient records and information needed to approve both the level of care and the length of stay. And importantly, the funder portal reduces the need for on-site funder case managers. Big data enables a structured approach to align clinical outcomes, patient experience and cost efficiency. It allows us to deliver sustainable, high-value care, which underpins alternative reimbursement models, clinical products and value-based contracts in partnership with funders. Turning now briefly to 2 other strategic initiatives. South Africa's private health care sector serves fewer than 1 in 6 citizens, leaving a large unmet need, particularly within the middle market, which comprises 1/3 of all households and over half of total consumer spend. To address this gap, Netcare made a strategic move some years ago to build a financial services platform from scratch, launching Netcare Plus in mid-2021. By integrating multiple financial services licenses, Netcare Plus enables greater access to affordable private health care. Momentum has accelerated meaningfully in the past financial year. Insured lives have grown by 49%, supported by strong corporate and retail channel growth. Netcare Plus' contribution to the broader Netcare ecosystem increased by 87%, demonstrating its ability to influence customer behavior and drive sustained long-term value for the group. In terms of our environmental sustainability program, in Phase 1, we achieved a 39% reduction in energy intensity per bed and ZAR 1.5 billion in cumulative savings and cost avoidance. In terms of our 2025 targets, we've achieved a 14% reduction in water usage compared to the 2024 financial year and an overall reduction of 40% since 2013. We have increased general waste and health care risk waste diverted from landfill to 80% and 31%, respectively, in the past financial year. Our wind power renewable energy initiative remains on track. Our first power purchase agreement covers 6 Eskom supplied facilities. These hospitals are expected to receive up to 100% renewable electricity by September 2026. Negotiations are underway to add 12 municipal-supplied facilities to this agreement. In parallel, we've initiated the deployment of battery storage and advanced energy management systems to enhance grid independence and resilience. For Phase 2 to 2030, our strategy is aligned with the JET IP, and our goals for 2030 remain to reduce Scope 2 emissions to 0, reduce Scope 1 and 2 emissions by a combined 84% to achieve 100% renewable energy utilization and 0 waste to landfill and a 20% reduction in water utilization. Pleasingly, a 28% reduction has already been achieved by 2025 and therefore, having already exceeded this target, it will be revised. Given the significant progress we've made on this important strategic initiative, we may be in a position to achieve our overall 2030 targets as early as 2028. And we're also finally delighted to announce that we've won further global awards for environmental sustainability this year, taking our total to 51 awards. Alongside our commitment to operational quality patient care and financial excellence, we remain equally committed to broadening access to health care and economic participation. This slide demonstrates a few areas of our involvement ranging from supporting health care education and supporting the most vulnerable in our society and broader communities. In terms of health care education, to date, 27 black PhD scholars have been awarded the Professor Bongani Mayosi Netcare Clinical Scholarship. And of these, 17 have already graduated. Ladies and gentlemen, the knock-on multiply effect of this is extraordinary. Nine of these PhD graduates have attained professorships in various clinical specialization fields. The graduates themselves have authored a remarkable 993 peer-reviewed journal publications and 64 book chapters, which have garnered over 92,000 citations. They, in turn, have supervised 193 Masters students and 122 of these have since graduated and a further 46 PhD candidates have been supervised, of which 11 have graduated. In terms of the most vulnerable in our society, who often face the scourge of gender-based violence, we supported more than 16,000 survivors through our network of 37 rape crisis centers. Through the Ncelisa Milk Bank established by Netcare, 269 babies benefited from the breast milk bank at Rahima Moosa Mother and Child Hospital with 47 donors. And in terms of community involvement, the Netcare Foundation broadens access to life-saving procedures for indigent patients, including cataract, cochlear implants and craniofacial procedures. These results would not be possible without our people within the Netcare family, and we are pleased to have gained recognition as a top employee and the health care company that students most want to work for. Finally, turning to our outlook and guidance for the new financial year. We are guiding to patient day growth of between 0.8% to 1.5% for our acute hospitals, and in total, an overall 1.8% to 2.4% growth compared to this past financial year. Our guidance for revenue growth is between 4% and 5% versus that of 2025. The EBITDA margin is expected to benefit from operational efficiencies of a high 2025 base of 18.6%. And finally, we expect to spend ZAR 1.9 billion on CapEx in financial year 2026, including ZAR 566 million on expansionary CapEx. And that colleagues, ladies and gentlemen, concludes the formal presentation of our results. We're now happy to open the webcast to questions. Thank you. Unknown Executive: Thank you, Richard. Our first question comes from Wealthvest. Well done on the results. Could you provide some color on the Curo acquisition and strategy? Do you see this becoming a meaningful part of the business? And is this margin accretive? Richard Friedland: Sorry, could you just repeat that? Unknown Executive: Sure. Well done on the results. Could you provide some color on the Curo acquisition and strategy? And do you see this becoming a meaningful part of the business? Is this margin accretive? Richard Friedland: Yes. Thank you very much for that question. We're delighted that we've taken a 47% stake in Curo. We're busy bedding down that acquisition and so didn't make an announcement officially, but we'll certainly do so in the coming months. Curo is a leading home care provider -- or provider of home care health, and we are embracing that out-migration towards home care, and we see it as a critical element in our broader strategy. And yes, absolutely will ultimately be accretive to our earnings. Unknown Executive: Thank you, Richard. We have a question from Bateleur. The 2.5x operating leverage was impressive. As you look ahead to next year, with further margin expansion guided, how is management thinking about what can be achieved, especially given strategic investment benefits continue to exceed expectations? Keith Gibson: Yes. Thanks for the question. Yes, the operating leverage, looking backwards, is something we're very proud of achieving in a very difficult environment. I think from a forward-looking perspective, as we have indicated, we believe that we will be able to expand our margins next year. But I think, we just have to bear in mind that there are positive and negative factors within the environment, and we do have to absorb factors such as the growing proportion of cases that we see coming from discounted network options as an example. But yes, we do see further legs on our strategic projects. And yes, we're very grateful to have them. Unknown Executive: Thank you, Keith. Another question for you from Truffle. Please can you elaborate on the ZAR 566 million expansion CapEx? And why was your depreciation so low, especially in the second half? Keith Gibson: Yes. Thanks for the question. So we have quite a number of projects in the 2026 financial year. Just to call out a few of those, we have the new Akeso facility in Montana. We are putting in quite a number of hospital new beds and conversion beds. And we're also replacing a LINAC machine at one of our cancer care centers as well as investing further in the Akeso Alberlito and Polokwane facilities and building out a new sub-acute within primary care. Unknown Executive: Thank you, Keith. Another one for you from Truffle. Why do you indicate that the FY '25 base is high? Any abnormal benefits in 2025, or any changes expected in 2026? I think you did cover some of those in the first question. Keith Gibson: Thanks. Yes. I think I did touch on that briefly in the previous question. I guess it's really just to indicate that the market remains extremely difficult and that there are a number of headwinds that we battle each year. Notwithstanding that, we're grateful for the benefits that we have from our strategic investments. Unknown Executive: Thank you. There are no further questions. I'll hand over to Richard just for some closing comments. Richard Friedland: Thank you very, very much, colleagues, ladies and gentlemen, for affording us your time this morning, and we remain available to take any questions, clarifications or queries you might have. Thank you very much.
Olivia Garfield: Good morning, and welcome to the Severn Trent Results Presentation Half Year Q&A session. We've got myself, Helen and the entire senior team here. And of course, the new Chief Executive of Severn Trent, James Jesic, is also with us. And obviously, this is my final results presentation. So we'll be trying to get lots of questions on the business topics and on the results. We're pleased with our performance over the last 6 months, and we look forward to taking questions on them. So Sarah, over to you first. Sarah Lester: Good morning. Well, we knew the day would come Liv. To simply say thank you feels way too small given everything you've done. But until I think of something better, I'll just leave it with thank you. James, a much deserving successor, super thrilled, super excited for you for the team and for everything that lies ahead. But I guess it is on with the show. So a couple of questions from me, please, on the results today. Firstly, on that ODI guidance upgrade, I mean, you could have waited until deeper into winter to upgrade, but you didn't. Wondering what gives you conviction to upgrade that guidance today? Then a cheeky half question, please, on the AMP8 total ODI guide. Do we get to increase that by GBP 15 million today, too? I suspect the answer is no on that. And then the final one, please, and while we're on the outperformance topic, about parking ODIs, wondering what other tools are in the Severn Trent toolkit that can contribute to sustained strong total outperformance in the next few years. And I promise I'm not asking numbers, just more initiatives and areas of opportunity. Olivia Garfield: Brilliant. Okay. So first of all, thank you very much. There are 11,000 Severn Trent's that work their stocks off every day to land out performance, and they will be really pleased that we started strongly. So let's go for the half question first. We're not giving you more of an upgrade than the at least GBP 300 million. So it is a strong first 6 months, and we still got 4.5 years to go, but we will keep that under review, and we'll share more news at the right point in time. In terms of why we're so confident, I'm going to answer that. But I mean, fundamentally, you'll have seen -- we're saying 3 things. The first thing we're saying is that about 90% of measures are green, and that means we're doing very well across the entire basket of ODIs, and that's what gives us confidence because you will always have some ups and downs over the winter period, as you said. The second thing is quite a lot of measures, they do close off at the calendar year-end. So there are, remember, a number of measures where we're actually 10.5 months through the performance and that gives us a chance to give some indication of those. So that's also helpful. Pollution, spills are good examples there, where they're almost complete for the year, which helps us give clearer guidance now at this stage and maybe later in the year. And the third thing is that we're just really getting into our mojo operationally. It's a brand-new 5-year period. We felt confident that now that the measures were against the sector, they're like-for-like, against everybody else, we always saw that our overwhelming strong performance would come through, and that's beginning to come through. So Steph, which are the measures you're excited about on the ODIs? Stephanie Cawley: Yes. So we're doing really well across the piece, but it's the big 3 that we're really excited about, so it's spills, pollutions and leakage. I've just talked briefly about leakage. You know it's a 3-year roll-in measure. So we've got 2 strong years in the bag already. We're on track to deliver our eighth year hitting the leakage target. We're finding and fixing more leaks than ever. We recovered really quickly after the summer despite the fact that we had 1/3 more burst than we'd normally see during that period. doing some great work with Pegasus units to reduce pressure, which also means we see less leakage. So we think we're set up really well for the rest of the AMP. Olivia Garfield: Now going on to your second question, which is just wider, what gives us confidence for the future over the next 5 to 10 years? I think there's a couple of areas I'll go to. So I'm going to hand to Helen first of all, because financing is important in the sector. We do own that financing outperformance. And we've had a very strong last couple of years actually on financing. So I'll get to Helen talk about financing. I don't think it's worth getting into totex and I'll get to James to talk about partly why the PCDs are an upside for us. Remember, we're guiding to up to GBP 50 million on PCDs, but also on totex overall and give some sense of it. And the part of it there, I think he'll talk through is some of the innovation we're putting in place and some of the kind of the strategic decisions we've made on in-sourcing and plug and play. And then I think I'll just get Shane to mention, when you look at the future, there is going to be more opportunity for RCV growth. That stores it locks in long-term stored value. I'll get Shane maybe to talk through what we think is going to come next in the RCV growth opportunity above and beyond the current locked in pricing. So Helen? Helen Miles: Yes. So Sarah, thanks for the question. I think we talked about in the results about our financial strength. And I believe that underpins our ability to continue to outperform on financing. We've -- I'm really pleased we've been able to guide today to 60% to 65% gearing by the end of the AMP. And I think that demonstrates our commitment to maintaining that financial strength as we go into the next AMP. But if you look at our financing specifically, our structure has worked for us in terms of we've got one of the lowest index-linked financing in the proportion in the sector. That's really worked for us certainly over the last 5 years and is continuing to now. But we've also had a very specific program about diversification. And we've -- over the last 6 months, we've hugely diversified our sources of finance in terms of geographic. And we've recently welcomed another 5 banks into our into our financing as well. So there's so much positivity out there in the market, so much demand for our financing with the tighter spreads in the sector, I'm extremely confident that as we go out to the market, we'll continue to raise financing significantly lower than the cost that the regulator allows. Olivia Garfield: Very good, James. James Jesic: Sarah, first of all, thank you for your kind words, hugely appreciated. I guess when you look at the size of the plan that we've got for AMP8, gives us loads of opportunities to actually deliver more for our customers, more for the environment and, of course, more for our shareholders. I think what we're really focused on and what I've been focused on is how do we innovate, how do we create more efficiency into our program to not only deliver a bigger bang for our book, but also ensure that we have plenty of choices. Now some things that I've shared with you previously are around things like innovation we're doing around AI and how we improve our design. So that will create a lot more efficiency in that space, but also our plug-and-play program where we're using far more modular solutions to increase efficiency in our capital delivery. So there's lots of things that we're doing. And of course, we're always happy to share. Olivia Garfield: Very good. And I guess what's going to come next year in terms of that performance, plus performance on totex and RCV growth? Unknown Executive: Yes. And we focus on RCV growth at the moment. So whilst we have 60% nominal RCV growth, there's an opportunity to get -- put forward additional cases to Ofwat. These are called the reopeners. It's quite similar to green recovery, where we got GBP 500 million. That was additional LCV growth. And there is a high bar though for this. I should just be clear. It's not super easy. So you've got to be on track with your capital program. You're going to be able to demonstrate that your supply chain has capacity and you've got capacity to deliver more. And they are a large business cases. As you've seen in PR19, green recovery, PR24, you're going to submit quite a lot of evidence to Ofwat to get these approved, and you've got to have strength in the balance sheet. So there is a high bar, but Ofwat will be publishing further guidance in December, and we'll be responding to that. So you probably have 2 -- we think there's 2 streams. There's a fast track route, which will be funding next year or there's a slow track route, which runs over 2 years. So I guess you can work out which one we're going to go for Sarah. But in terms of the quantum, until we have the final methodology from Ofwat in December, we probably can't comment any more on that. Olivia Garfield: Very good. Fantastic. You can come back later with any more questions. I'm going to hand to Dominic now. Dominic? Dominic Nash: I think you're going to be getting quite a lot of recurring comments this morning, Liv. So first of all, clearly, congratulations on your next adventure and also your decision and also clearly, I think that will continue to be a poor place in your absence. I look forward to hearing what you're going to be getting up to next, maybe I don't know, sumo wrestling training might be something we can hear about. And James, clearly, you're also going to be sitting there thinking, oh my word, I've got big shoes to fill. So I'm sure you'd be reiterating, so sure it will be fine. A couple of questions for me, please, actually. 1 actually, Liv, on your decision to step down. Could you give us some words as to -- in your experience, what do you think has happened to the role of CEO in the water sector? And do you think the special measures bill that came through has had any impact in your decision to step down? And do you think that it's having a decision -- having an impact on the ability to attract, retain sort of senior staff? The second question I've got is on your 13% RoRE that you're guiding for '25 -- '26. You're basically saying, look, it's going to be 13% because we've got higher inflation. But on the normalization, the ODIs look like they're going to be nothing out of the ordinary this year versus the 5-year guidance. The totex looks like you're guiding to potentially more outperformance to come or efficiency, which I guess might be reinvested. And financing is financing. So if we normalize for inflation, is it fair to say that 13% ROE isn't going to be materially different to what we now expect for the full AMP. And third question, apologies on something that I've been sort of thinking about, which is on your low rainfall I think the Met office is suggesting we're going to have a very dry winter as well following the dry summer, where it doesn't look like it today. Are you concerned at all about your water resources in your region? And what can you do to give sort of long-term resilience? Olivia Garfield: Really, what a full range of questions. There's nothing left, I think, after Dominic's done those 3. So the first thing is, no, the special measures is totally fine. So let's be really clear on that. And the record there were thousands of people that internally that would love to be Chief Executive Severn Trent, never mind you get externally. So we are an absolutely lovely company that employs beautifully cheerful people that does an amazing mission based in the fab part of the country. So no, I fundamentally disagree that the special measures would have any impact on the Seven Trent will being anything other than highly, highly attractive and it's totally unrelated. I've been here nearly 12 years. And I used to believe that chief execs, I guess, you kind of like you go through the first wave 5, 6 years, and then you got to unravel your first wave of bad decisions. And then you go through another wave of it, you've got to unravel your second wave of bad decisions. And then eventually, you wake up and you realize you've got amazing successes internally. And the job actually at a certain point in time is you've got to hand over to the next generation. They're going to be the perfect answer to the next wave, and that's what we've got. I know James is going to be a rock star. I know the senior team are fab, and I think this is the right time. So I'm not going for another job. I always said I'd never apply for another job whilst was at Severn Trent. So I will eventually take another job. I'm not going to sit in my like of walk the dog every day. But there is no plan. The plan is for the next few months to be sat on James' shoulder, helping him out as he picks up the role. So that's the first one is that it's a brilliant job and company lucky to have James and James is lucky to have the job. Now on the second, I don't actually quite make the same math as you on the RoRE. So I hear your point on the 13% for this year that a whole chunk of it is either financing or inflation. Yes. But if we add up for the 5 years, not the same. So we've got GBP 300 million worth of outperformance. That's chunky. That's decent in anybody's percentage RoRE number. We've got the outstanding status as well, which is 30 basis points. That's chunky in anybody's number. And we've always said that there will be more outperformance across other areas, right? We'll be looking to land that. Financing is part of it. We've guided to at least 0 on totex. We said that there are some areas like Bioresources where we are a sector leader. It's likely that outperformance might come down the line, just not ready to call it yet. And then, of course, we're having a very strong start. So we're calling at least 300 now. Every single member of the Severn Trent family will be looking to try and improve that over the next couple of years. So for others, they might need to rely solely on financing and on inflation. The Seven Trent, not true. And if you look at our history, what you tend to find is when you look at the bars over a 5-year period, all of them begin to look good and you begin to see some really good performance in a whole range of areas. So that was that one. Now low rainfall again. So I hear it because the EA have published a whole lot of drought situation messages, and they're right to do that across the country. But if you actually look at our reservoirs, and that's what's interesting, is we have -- I'm going to pass to Bob now to give an update and he's going to take you through 3 things. 1 is don't forget the sources of water we have. 2 is we're going to give you some news in terms of latest levels. And the third thing is just to remind you of our track record of the last time we did actually have a host-pipe ban. So Bob, on to those 3. Bob Stear: Yes, great. So 1995 was the last time we had a host-pipe ban, of course. And as you know, Dominic, we've got -- our water comes from 3 main sources: underground in our boreholes from rivers and from reservoirs. So I guess the thing that people really noticed, of course, over the summer is the low reservoir levels. And this summer was a hard summer for us. We work really, really hard to avoid having to put a temporary use ban on again, which we managed brilliantly, a combination of asset-related interventions and great customer comms. But the great news is actually, we've actually had a really wet autumn so far. So we're in good shape. In fact, our biggest reservoirs around the Derwent area and Elan Valley, each went up by more than 10% over this last weekend. So they're all in really good shape as it happens. So I understand the question, but we're in good order. Thank you. Olivia Garfield: You always send the interesting question is to go back to what was the performance in 2022, which was the last dry year, and we're like 15%, 17% ahead of where we were on exactly the same day in 2022. So we feel confident and in good shape. Okay. And then we go to Julius, next. Julius Nickelsen: Congratulations to the strong results. And obviously, very sad to see you Liv. So thank you also from my side and all the best to you, James. Just 2 questions from me. The first one on the 60% and 65% gearing. Just wondering, does that hold also if that additional topics through the reopeners comes in? Or do you need to wait to assess how big that potentially could be? And then the second one on CEO succession, maybe to give you a little bit of an off [indiscernible] here, but what makes you think or like what convinces you that Severn Trent even without you Liv, can continue to be like the highest quality company in the sector and continue to outperform on the ODIs like it has done in the past would be interesting to hear your thoughts. Olivia Garfield: I'll do the first -- the second one first, and then I'll hand to Helen and probably Shane just to talk through the gearing and the reopeners. I mean, so I am just one person. So I know I'm a big personality, and I know I'm noisy, but I am literally just one person. And I don't actually deliver any individual ODI, do I? So I guess we could argue I'm not the person who's going to fix the leaks, I'm not the person who's going to fix the fills. And I'm definitely not the person who's going to stop pollution over the course of the next few hours. So that is the team. And what we've done this whole team and also the 50 [ FT ] is created a culture, where our people love performance and every single in our body culturally loves the fact that we are a leader in our sector, and that will make absolutely no difference that I'm not going to be here. It is ingrained in our DNA is the desire to do brilliant for our customers and to make sure that we perform every day. And if you go to any communication cell or any depot or any team meeting, then you'll see that, that's how we're set up, how we thrive is on that level of personal competition between teams, county place county, the ability to kind of add value and find new ideas, and I know I will continue. And don't forget as well, James was part of all that success. He did run operations in the transformational areas where we went from not doing so well in ops to doing brilliantly. So I guess you could argue James might have been involved in that. And then he's run capital during the era that we've gone from kind of like GBP 0.5 billion up to a GBP 2 billion. You could argue we probably added some value in that space as well. So James has been a core part of that entire journey. So the only difference now is he's going to be in a different chair, but he'll still be bringing that same value and that same value add. So I've got no qualms at all this performance will continue. Helen? Helen Miles: Yes. Julius, thanks for the question. Yes, really pleased we've been able to give gearing guidance today. 60% to 65% at the end of the AMP. And from my perspective, that's our path what we're committing to. We've said repeatedly, we're fully equity financed for the AMP, and that obviously remains true with that gearing. And we've also said we're committed to our stable credit ratings. So there's plenty of headroom in there for that. In terms of reopeners, still lots of unknowns, but my expectation is even with reopeners, we intend to meet that gearing level. So it shouldn't make any difference. But obviously, as Shane said earlier, we're waiting to see the financing rules to determine what that allows us to do. I think the other thing to note is I talked about in the presentation about GBP 500 million capital efficiencies. And obviously, one of the things that, that will allow us to do is invest more. We want to invest as much as we can. And that's why we're constantly driving for those capital efficiencies. Olivia Garfield: Brilliant. I think that answers the question, because effectively, as Helen said, we've got the GBP 500 million of targeted efficiencies. That gives us the chance to invest in the open. And Ofwat we're also very clear that in the rules for the reopeners, there's a lot of companies in the sector that will need to make sure that wherever the rules are set, they can afford to do it. A lot of companies are heavily geared. They'll need to make sure there's some kind of like in-period revenue and also some level of shadow RCV, I would imagine. So we'll expect to see those come through. Very good. Thank you, Julius. Over to Pat. Unknown Analyst: And before I start, I'd like to echo congratulations on your successful leadership at Severn Trent and wish you all the best, James, in your role as CEO. Sorry, I'm getting choked up. Olivia Garfield: I love it. Feel free to cry. I'm okay. If you want to cry, you need tissues. Unknown Analyst: I'm good. I'm good. I think I'll be able to get through it. My 2 questions, please. Firstly, it would be great to hear the team's thoughts on the CMA provisional determinations. I appreciate you haven't appealed, and I'm sure you don't regret that, but would be good to hear what your thoughts on the determinations were and what you'd be feeding back to the CMA here? And finally, on that topic, how you think we should be reading these decisions into what will feed into eventually AMP9? And then my second question is your conversations with the government and the new Secretary of State. I guess, I think our conversations with investors, what they want to see from the government is almost a pivot from, "hey, we're holding the sector to account to actually saying we're working with the sector to deliver better outcomes." I guess my question is, are you seeing that change in the government? Do you foresee a change in that messaging coming? Or do we need to see more delivery before we can start seeing the government sort of maybe being more cheerleading the sector as opposed to the current messaging? Unknown Executive: So I'll start with the second one first. I mean I'd rather you saw Emma Hardy's speech from the British Water Conference, but it is available on public record from last week. And I think that actually gives really good evidence that the message is changing. I though it was a very adult speech, I though it was very engaging, and it did highlight that actually there was shared desire to see the sector succeed. So I think there is absolute desire by both Emma Hardy and Emma Reynolds for the sector to do well. Now equally, though, your second point is true, the sector does need to deliver. So -- and we're really conscious of that. It's why we did the transition spend. It's why we're going early with our capital is that customers have seen pretty reasonably high bill increases after a period of clearly underinvestment, you could argue across the entire sector and then we've played catch-up. And I think what's come out of that, though is that there is clearly -- you have to evidence to customers that by the time they pay that bill, they're getting really, really great value, and we're very conscious that's an imperative. So I think the government is definitely changing its style and manner, but it has got to hold us to account and every company has got to step up and make sure they deliver their capital program and deliver their performance targets. So I think it's a 2-way contract, and we're confident of our part of it, and we think that will be -- that will come across. The other thing to note, I think, for investors is that I think government has been fair on calling out amazing performance. So we've seen quite a few clauses where government has called out the fact that we've had 6 years of 4-star status. No one have mentioned it yet, so I can't get it in. Since we have had 6 years of 4-star status, government has gone record and praised that excellent performance. That wouldn't have happened prior to this. We had 3, 4, 5 years of 4-star status, and it never got mentioned as a public record. We have seen that change as well. So I believe the moment has come when the rhetoric is moving. Now Shane, CMA please. Shane Anderson: So I guess from an investor or non-impellent company perspective, there's probably 2 positives to call out. So the first is the cost of capital is 30 basis points higher. So that is helpful given I think it was a Recommendation 23 government said the CMA should be setting a methodology for cost of capital. So that's good, which is also equivalent to our 30 basis points for outstanding that no one has mentioned yet, so I'll just keep bringing that up. And the other one is the frontier shift. So this has been a big debate amongst the regulators is what's the ongoing efficiency challenge each company should be delivering. Regulators have been saying it's 1%. The economy has been delivering much less and the CMA came out at 0.7%. So that's a useful precedent going forward. I think the other interesting thing from the CMA case is base costs. So none of the appellant companies raised base costs, but the CMA does a whole redetermination. So they've created their own models, which actually gives the sector less funding. So I wouldn't be worried about this in terms of the precedent setting because it goes against everything [indiscernible] has said, everything against the NAO has said because it's statistics led rather than engineering led. But it's still an interesting point, which is the companies are getting less money generally on base spending. But from an investor perspective, I think it's good for the PR29, higher WACC and a lower frontier shift. Olivia Garfield: Mark over to you. Mark Freshney: Wishing you all the best for the future Liv and looking forward to seeing what you're going to do next. Just 2 questions. Firstly, if there's 1 regret that you've got over the last 12 years at Severn Trent Liv, what would it be? And secondly, if there's one piece of advice that you would give James as you hand over the reins to him, what would that be? Olivia Garfield: All good questions. So there's one thing I've never done that I would have loved to have done. We've got the most amazing asset that brings water gravity fed from right up in the beautiful Welsh mid pop of Wales down into Birmingham. And it's the called Dee and [indiscernible] it's absolutely gorgeous. And back in the day, if I've been the Chief Exec 40 years ago, I could have just popped down it, gone and seen it. We closed it once or twice a year to do cleans, and I could have walked along it and seen it, and it's got beautiful, beautiful tiling right the way throughout it. I mean no one ever sees it. Unfortunately, health and safety means I've got to do a 2-week confined space course to actually be able to go down it. So I would have loved to have gone down it, but I've never found 2 weeks to just confined space training to go down it. So I guess that is my one physical asset regret that I've never seen. Other than that, the one unfinished business is clearly our performance on customer. So none of us remain happy that our CMEC scores are only mid-table. We'd like them still to be podium. So we've got good plotting plans to get there. And I know James will see those through, and he'll be able to then say, I knew I'd fix it now that Garfield is out of the way. So yes, so that is, I guess, the thing that we as a team still look at ourselves and say, how can we not be podium on that metric. So that will be that one. In terms of piece of advice, I get the same piece of advice to every new Chief Exec. So I'll give the same to James, which is never go to bed without having done every single piece of work that is in your to-do list because you've no idea what tomorrow brings. And sometimes you think tomorrow might be easier, might be lighter, there might be no issues. And it's amazing how often the next day has something totally different that you couldn't have foreseen. So never go to bed without a clean inbox, never go to bed all your documents marks up, you can sleep less, but you can't make up time again. So that is my piece of advice to every Chief Exec. Thank you, Mark. Good thoughtful questions. Alex, over to you. Alexander Wheeler: Echoing previous comments, congrats, Liv, on a successful tenure at Severn Trent and all the best in future endeavors. Many congrats to you as well, James. 2 from me, please. Just firstly, on the at least GBP 500 million capital efficiency. Just interested in how much of this is visible now? I'd assume buckets like procurement, I guess, you'd have pretty strong visibility on already. And then also, which of those 4 areas you noted in the presentation give the most upside opportunity given the at least GBP 500 million guidance point? And then just on spills, where does the 27% year-on-year weather-adjusted reduction compared to your planned run rate? And does this bring the target forward for when you expect to hit the 2030 number? Olivia Garfield: Very good. So Helen, do you want to talk first about at least GBP 500 million... Helen Miles: Yes. As I say in the presentation, Alex, we are always driving for efficiency. So -- and you know plug and play, we talked about that first in 2023. So we've been on this road for a long, long time. So we're really confident about the GBP 500 million. We've been planning it for a while. We're well advanced on most of it. And so we're in really good shape on it. And that's why we're sharing it with you today because we are really confident about it. In terms of the split, obviously, plug and play is a big part of it. But actually, it's quite evenly balanced across all of those areas, which is good. But with any of these things, as the program moves through, things become more prominent than others. So -- but it's pretty even split, and we're well advanced with all of those areas that I talked about. And I guess if there's any upside opportunity, I guess it would come from stuff like, if we did get capital reopeners and we could do more of that plug and play, that would yield an upside. So I think at the moment, we think about GBP 500 million is the right number. But I guess for it to increase, then you'd have to believe other growth was happening. So at the moment, that's the right number based on 60% RCV growth nominal. If we ended up with more capital reopeners, we'd, of course, look to deliver more efficiently. In terms of spills, good point. So just to remind you, I guess, of our spills ambitions, always good to rebase the target. So we said we wanted to get to around 14 by the end of the AMP, so under 14 by the end of the AMP, and we're expecting to do that this year, which would be excellent. Now that's one of our conditions for outstanding status. So that will be quite neat to tick that off in the first year of the AMP as well. In terms of what we said we were going to do this year is we said we'd do about a 25% year-on-year reduction. So that would have taken us down to 18.8%. So we are ahead of that. Now we are clear though that if weather was equalized for last year's abnormally biblically wet year, then we'd be about a couple of percent ahead of our run rate. And last year was particularly wet. It's not a normal year last year. This year it looks like it will end up normal. So I've had people say to me it's going to end up dry year. We don't believe that. We think it will end up about normal. So we think this year's performance will end up in about a normal year, and that means we're kind of like 40% ahead of a wet year, 27% ahead of a normal year. So marginally ahead of track. We've got a lot of solutions that go live in the next few months. So that will give us a very strong start again to next year's number. So next year's number we'll have the benefit of all the solutions now in the next few months, and they'll get a full year benefit. Obviously, we didn't get a full year benefit for lots of solutions this year. Hopefully, that all makes sense. Olivia Garfield: Very good. Okay. A.J., over to you. Unknown Analyst: I'd like to echo the thoughts. Thank you Liv for everything you've done for the sector and I wish you the best in your next endeavors. And congratulations, James. I guess my question is more around the infrastructure services, the doubling of EBITDA. And just to maybe get a little bit more understanding of the components that drive the growth and any sharing arrangements that we need to think about and maybe if possible, the profile of the step-up? Olivia Garfield: So we're definitely not going to give you the profile of the step-up, but nice try. And thank you for the nice comments at the start. So I guess -- and do you want to bring to life a bit of that, I guess, Helen, do you want to start? And maybe James might jump in. Helen Miles: Yes, I'll start. Yes. I love it, A.J. It doesn't matter what we give you, you always want more. You're insatiable. But yes, really pleased today to be able to share that we're expecting to double the EBITDA in Infrastructure Services. And it's a combination of all of the businesses within that. So obviously, we're -- in Green Power, we've continued to grow Green Power. We've got a big solar scheme that's just in progress at the moment. In services, we've got opportunities to win new contracts. So that's a key focus for us as well. And of course, property, we committed by 2032 to deliver GBP 150 million of profit, and we've got some great stuff coming through. It's been tough in property over the last couple of years, as I'm sure you'll know, but we're starting to see that turn a corner now. So that's in there as well. And we're really pleased to share today the 2 acquisitions we've made, one in water and one in waste. And the opportunity we see here is for Infrastructure Services to really benefit from the growth that's happening in the water sector, specifically Severn Trent Water, but it also helps us secure that supply chain as well. So the opportunity is there, and we're really, really excited about it. Olivia Garfield: And I guess it's worth bringing out how we think this actually underpins and helps to deliver the capital program because one of the other key parts is it's very nice to have an upside, isn't it, nice dividend cover, nice growth. But actually, it also helps lock in and secure our supply chain. James Jesic: Absolutely. I mean, Helen has covered the bulk of the business really well there. But this was a strategic play on our part. We identified across the sector there were definitely going to be pinch points in certain aspects of the delivery. So for instance, if you look at the major renewal program, most companies have doubled what they did in AMP7. We see that as a particular pinch point. So identifying that early allowed us to get on the front foot and hence, create and acquire these businesses. So in the first instance, we really see this as an opportunity to really help ensure that Severn Trent from a water perspective, really delivers its capital program and not only delivers it, but delivers it efficiently. Of course, then in the future, we can look at how we expand those particular businesses. Olivia Garfield: Ahmed? Ahmed Farman: Liv thank you from my side as well. And Congratulations to James. I just have sort of a couple of sort of questions. I wanted to go back to the reopener. Could you just sort of tell us a little bit about -- more about the process as to where we are? What are the next milestones and when you expect to get clarity on it? And then secondly, again, can you talk about the areas of focus within sort of this program? Because obviously, you have a huge capital delivery program already underway. So that's already a huge amount of work, et cetera. So I'm just trying to understand what areas could be of focus that could come through the reopeners. Olivia Garfield: Very good. So I'll get Shane to take you through the process. I mean, in terms of delivery, we've definitely got capacity later in the AMP. So let's be really clear on that. So if you look at our current run rate, we're calling GBP 1.7 billion to GBP 1.9 billion this year. But if you look at the in-sourcing we've done on some big areas, let's take mainslay. So we've in-sourced the workforce now of mainslay. We do minimal volumes this year internally, but that really grows in year 2 and year 3. So again, we have the capacity to do more with that workforce later in the AMP. So -- and I guess when you look at some of the acquisitions we just brought in as well, all of that just bolsters the fact that we've got a very, very large setup internally. And don't forget as well that the delay often for others on their capital spend is the design part. They haven't got the time to design it because we've got an in-house design team, and that means we were doing a lot of our design actually as part of transition spend in the latter part of the last AMP, we've actually fully -- we have fully designed by the end of year 3, this AMP. Again, that gives us the capacity for that team to move on to preplanning for AMP9 or to do more work on reopeners. So I think that's where the capacity comes from in our mind for the reopeners. Shane, how is the process work? Shane Anderson: So in December, we expect the update to the methodology. Then for the fast track process, you'd submit your business cases in May, you'd have a draft determination in July and then the final determination in December, so you can then flow the numbers through the charge setting process. And then in terms of the areas, so Ofwat's identified 10 priority asset classes from an asset health perspective, the big one being on gravity sewers and then there's also assets at the water and wastewater treatment works and various tanks. You've also got assets relating to growth. So whether that's building more water resource capacity, for example, boreholes or whether you're expanding wastewater treatment capacity to support new and faster growth in your regions. And then you've also got any new risk. So for example, if new legislation comes in relation to cyber or PFAS, then there's an opportunity there. So that will exist all AMP around. Olivia Garfield: Very good. Dominic, come back in for seconds. Dominic Nash: A couple of questions from me, please. Firstly, on the EPA. So congratulations getting your 4 star again. The environment agency is clearly going through consultation at the moment, I think it completed consultation with a 5 star. I just wanted to know that if we're going to run under the new regime, would you be a 5-star company or a 4-star company? Secondly, I was actually a follow-up on the PFAS question actually. You mentioned that the new regulations coming potentially or the new risk on PFAS. I think your area is one of the PFAS heavy areas of the U.K. I don't think you've got much in your totex for AMP8. Is it possible to sort of like give us sort of some color on the quantum of the potential PFAS expectation and how much we might be able to see in AMP8, please. Olivia Garfield: Very good. So 3 questions there. I mean, so annoyingly, as 5 star doesn't come in for a few years yet. So the consultation is out there, but it doesn't arrive until 2028. So we'll all have to satisfy ourselves with 4 stars for the next few years, I'm afraid. Dominic Nash: Sorry, does that mean that James might actually be a 5-star CEO. Olivia Garfield: You know what, I've had the same thought. And Dominic, it breaks my soul more than it breaks yours. So equally, as a top 100 shareholder in Severn Trent, you better be a 5-star company CEO. Otherwise, I'm going to be coming and having more conversations. So yes, so we only have only have 4 stars in the next 2 years. We're 10.5 months into the financial year at this stage and we're looking in good shape. Obviously, a long way to go, 6 weeks to go. It's never done until it's done, but we're working our socks off to try and cross the line on 4-star for this year. Then I think next year is a 4-star and another 4-star and then you get to a 5-star. So it is actually quite a while away until we get to 5 star. And we've been looking at all the metrics possible for a long period of time. We've been shadowing them. We've been getting ready and every around this table has every intention of moving to be a 5-star company when that goes live. Now that's the first question. But yes, you're right, James, will be the first 5-star Chief Exec and I won't be. On PFAS, I guess, just on the budgets, Shane, do you want to mention how much money we had to put aside. We actually have quite a nice bit of money actually, Dominic. Shane Anderson: It was over $100 million in relation to PFAS, plus additional $300 million in water quality. Olivia Garfield: Exactly. So we've got a few best GBP 0.5 billion in that water arena, just, I guess, to bring that to life. And typically, you're talking about tens of million pounds, tens of millions of pounds for a PFAS solution, not hundreds of millions of pounds per site, again, just to contextualize it, that was that. And then Bob, do you want to bring to life. I think sometimes it's interesting to context ourselves against us versus France, say, when you listen to PFAS, do you want to bring to life any thoughts on? Bob Stear: Well, perhaps one of the key things is Marcus Rink, the Chief Inspector from the drinking water inspector, actually gave a speech at the British Water Conference the other week. And he was talking about compare and contrast to Europe and the U.K. and he put the U.K. quite a way ahead in terms of -- we've been looking at PFAS for a long while, actually since Bruntsfield in 2005, when we had obviously the firefighting phones going to that system. So we're in really good shape. And for us, in our region, we've got our Witches Oak site up in Nottingham this year that we know exactly the process we're going to put in place to take out the PFAS. So it's actually -- it's all good news. Lots of research going into clever ways because it's easy to take it out. It's not so easy to deal with the stuff that you then do end up with. And there's a lot of research going on to make sure we find really efficient ways of dealing with that. So we're in good shape. Olivia Garfield: Very good. Bartek, over to you. Bartlomiej Kubicki: Thank you very much. And I would like to join all the congratulations, and thank you for all the great work. Just 3 questions, if I may ask, please. First of all, if we think about ODIs in AMP8 and you compare it to ODIs in AMP7 in terms of how much does it cost to earn additional GBP 10 million of ODIs. I just wonder, is AMP8 from this perspective much more challenging, meaning do you need to invest more to get the same result as in AMP7 in terms of ODIs? That will be the first question. Second question on this GBP 500 million of capital efficiencies. Maybe it was already discussed, maybe I didn't capture it, sorry for that. But what are you going to do with those efficiencies? Is it going to be reinvested into your network? And consequently, could it boost your ODI guidance or ODIs achievements in AMP8? And the last question on leakage as you spent some time on your presentation on leakage. I can imagine it's becoming more and more expensive to get additional 1 percentage point of leakage reduction. And I just -- I would like to ask you whether you think Ofwat is ready to pay more for reducing leakage by additional percentage points, meaning in AMP8, in AMP9, when it periodically should become much more challenging to reduce leakage, whether they are happy to grant you higher allowances to do so? Olivia Garfield: Very good. 3 very thoughtful questions. So I mean, you can't really work out like GBP 1 of ODI cost you X because it's very different per ODI. So each individual ODI is quite a different metric. And it depends on the weather conditions that happen in that particular year because that makes it harder or easier. And it depends on your start point on the targets. So it's not as easy to kind of say in AMP7 used to cost us X and AMP8 it cost us Y. That's not true. What we can say, though, is that if you look at AMP7 versus AMP8, we've got less measures to go after. That's better for us. We have 21 metrics now. We used to have 43 back in the day. Keeping 43 metrics green is harder than keeping 21 metrics green. That's one thing. And the second thing is we have a much larger base budget. So when you look across the piece, we're growing our RCV by 60%, aren't we this time around, and it was about 11% last time around. So we do have more generic investment. And so what you can do is invest more in capital solutions. So rather than investing in OpEx heavy solutions every year, you can actually fix the source of the problem. And so if you look at some of the big earners, like, for example, leakage or like, for example, spills, if you can fix that site permanently, you're going to earn reward on that site every year for the next number of years. So it is a very different dynamic, this AMP versus last AMP, I would say, on ODIs. So that's one. On the efficiencies, so what we've said is that we're going to make the efficiencies and then you should assume we're investing them as it currently stands. And whether we're investing them to land additional performance, like, for example, the EPA metrics, there are now more metrics and that will require more investment to hit those. It might be we're putting some of the metrics in to land force our status. It might be that we're saving some money for the capital reopeners, and we might do that, put some money aside because those reopeners are really good, so we might save some money on that, but that keeps the guidance on gearing 60% to 65% in shape. And it might be that you have a long hot dry summer, or like this one, and you have to spend a bit more money on moving the water around and creating more water. So it's just good prudent management to identify efficiencies early on. So you shouldn't currently assume more totex than plus 0. We've said that at the time, but you should feel very confident in our ability even in an inflation-heavy environment to still deliver our totex budgets. That's what we're currently saying. But we haven't been as clear as that. So I guess that's what we're saying is at least 0. And then on leakage, it's an interesting question. I'm not sure I'm in quite the same place. I think Ofwat does accept that leakage is more expensive to deliver, and that's why they've given us all the money for mainslay. So if you look at the money they have funded, they have funded GBP 0.5 billion worth of mainslay investment. That's new. That's fair. And then I guess for us, interest to talk about stuff we're doing on pressure management because that is funded by ourselves. There's just a better way to run the company. Helen Miles: Yes. So I think we've got to innovate on both find and fixed to keep the costs down. So from a fixed point of view, I've talked about Pegasus, so pressure control in valves across the network that we can automate, which reduce burst and leakage. But we're also -- we've gone really big in the last 6 months on Origin, which is a solution which we push into the pipes to seal the leaks, which means that we don't have to pay for expensive road closures or use our crews for 2 days when they can do a job in 20 minutes. So I think it's about innovation as well. Olivia Garfield: Very good. Thank you very much. So I think we have no further questions. I can't see any on the screen either. So in which case, I'm going to call it. So a massive thank you for anyone that dialed in for the half year subject Q&A. Much appreciate it. And thank you once again for all the support for the many questions, the guidance, the counsel over the years and well done to the team for a very strong first half to the year.
Operator: Good day, and thank you for standing by. Welcome to Kiwi Property FY '26 Interim Results. [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, Clive Mackenzie, Chief Executive Officer; and Steve Penney, CFO from Kiwi Property. Please go ahead. Clive Mackenzie: Thank you, Maggie. Kia ora, and good morning, everyone. Thank you for joining us for Kiwi Property's interim results announcement for the 6 months ended 30 September 2025. I'm Clive Mackenzie, the CEO of Kiwi Property. And today, I'm joined by Steve Penney, our CFO; and Fraser Gunn, our Head of Investor Relations. I assume you have a copy of our presentation in front of you. If not, you can access one from the Investors section of our website at kp.co.nz. A quick reminder that as usual, we have included detailed financial and property information in appendices to the interim financial presentation. Turning now to Slide 4 to look at our progress on key priorities over the last 6 months. Kiwi Property is focused on increasing long-term returns for its investors. We do this through the ownership, development and management of a portfolio of high-quality real estate. At the core of our strategy is an ambition to be New Zealand's leading creator and curator of retail-led mixed-use communities. We believe our strategic mixed-use assets located in metropolitan areas with great transport access such as Sylvia Park, LynnMall, Drury and The Base will continue to grow and that by prioritizing them, we will create the greatest value for our shareholders in the years ahead. We are pleased with our achievements in the first half of FY '26, making strong progress against each of our strategic priorities. The first priority we identified at our annual results earlier this year was to efficiently manage the balance sheet and free up additional investment capacity. As at the 30th of September, gearing remained relatively flat at 38.5% with the operation of the dividend reinvestment plan funding our CapEx requirements. Since balance date, we have agreed the sale of Sylvia Park Lifestyle to a large-format retail fund managed by Mackersy Property. The proceeds from this sale is approximately $53 million, with some of the proceeds to be reinvested into growth opportunities. The pro forma impact of the sale reduces gearing to 37.5%. The second priority was to continue to drive rent growth. Despite a weak economy and a challenging leasing market, during the first half of the financial year, we have delivered strong leasing outcomes across the portfolio with total rental movements, including new leasing and rent reviews up 3.5%. Office leasing spreads were up 3.4%, supported by the ASB lease extension and encouraging tenant demand for premium office space within the Vero Centre. Mixed-use leasing spreads were up 3.2%. Now turning to Slide 5. The third priority was to maintain strong discipline on costs. Through controlled management and a culture of continuous improvement, our employment and administrative expenses were down by 5% when compared to the same period last year and adjusted for one-off costs. The fourth priority was to progress the sell-down of Drury large-format retail sites. Around 77% of the large-format retail land intended to be sold at the development is now under contract with settlement and profit recognition expected from FY '27 to FY '29. I'll talk through the conditional sales of land in further detail later in this presentation. Drury land sales will help to fund the project's capital expenditure with minimal net gearing impact on the Kiwi Property balance sheet expected from the development. Now turning to Slide 6. As well as strong progress on our key priorities, a number of other business highlights over the last 6 months are worth noting. Strong leasing momentum was seen in a number of our assets. ASB's lease at their North Wharf headquarters was extended through to 2040, which was a significant milestone and provides long-term certainty of tenure at the asset. Resido, our build-to-rent asset adjacent to Sylvia Park, was 99% leased at the end of the period, and Vero Centre's leasing is progressing well with occupancy now at 94.3%, up from 92.4%. Sales and foot traffic were marginally up at our mixed-use centers over the last 12 months. Positively, sales are showing signs of improvement, up 1% in the last 6 months compared to the prior 6 months. Catalysts for further sales growth are expected through improving customer spend conditions following interest rate cuts and IKEA's first New Zealand store opening adjacent to Sylvia Park in early December. In November last year, we provided a convertible loan to Mackersy Property with the intention that this would convert to equity. With the earnings milestone in the loan agreement now met, we can confirm that this loan will convert to a 50% equity stake in early December, unlocking an additional source of capital and potential earnings growth over time. Mackersy has launched a new large-format retail fund with Sylvia Park Lifestyle as a cornerstone asset and is currently seeking investor interest. I'll talk through the new LFR proposition in further detail later in the presentation. Over now to Slide 7. With New Zealand's first IKEA opening next week adjacent to Sylvia Park, it would be remiss not to mention its significance for the Sylvia Park Precinct today. IKEA is one of the most highly anticipated retail openings in recent years. And once open, it is expected to act as a significant draw card to the Precinct. To ensure the seamless integration of the 2 sites, we have completed a pedestrian walkway between IKEA and Sylvia Park to encourage cross-shopping. This walkway entry point on Level 1 will be beneficial in driving foot traffic to Sylvia Park's upper floor retail. We anticipate that the opening of IKEA will drive additional customer activity and reinforce the long-term value proposition of Sylvia Park. Now turning to Slide 8. Among others in the property industry, Kiwi Property discussed the country's seismic regulations with government ministers and raised whether the mitigation costs associated with appropriately sized compared to the risk. We are pleased to see the proposed changes announced in September by Minister Chris Penk, which are expected to provide greater clarity regarding seismic strengthening obligations. Proposed legislation will remove the new building standards ratings. Instead, the legislation will target buildings posing substantive risk to life in medium or higher seismic zones. Auckland is set to be removed from the earthquake-prone building regime altogether due to low seismic risk, meaning seismic strengthening would not be mandatory for Auckland buildings. Kiwi Property's portfolio is predominantly Auckland-based with 86% of our assets based there when excluding held-for-sale assets. In the valuations of Kiwi Property's Auckland's assets, we currently have a combined present value of $83 million in seismic CapEx assumed to be spent over time. Across our portfolio, including held-for-sale assets, the total seismic CapEx provision have a present value of $116 million, which could significantly reduce once this legislation is passed and implemented. Kiwi Property's valuations currently remain unchanged and any potential CapEx savings from the reduced seismic upgrade requirements will depend on a variety of factors, including market reaction, tenant commitments and lender expectations. Over now to Slide 9. We're pleased to have continued to maximize the day-to-day operational performance of our assets. Despite the challenging leasing market, we have continued to grow rents and increased both our weighted average lease term and occupancy. As you can see on this slide, total rental growth from mixed-use office and retail leasing activity was up 3.5% for the half year. Driven by the renewal of ASB's lease at North Wharf, over 28% of our office space was re-leased or renewed with a spread of 3.4%. At the half year, 68% of our total portfolio of our income was subject to either a fixed or CPI-based review, allowing for future rental growth. Overall portfolio occupancy has increased 96.9% to 97.9% over the period. This increase was primarily due to the lease-up of Resido, which had 293 of 295 apartments leased as at 30 September and positive leasing momentum in the Vero Centre and Sylvia Park adjoining properties. Our weighted average lease expiry increased from 3.8 years to 4.3 years over the period, primarily due to the lease extension at North Wharf for a further 9 years. Turning now to Slide 10. Sales across our total portfolio were margin lower, down by 0.6% over the last 12 months. However, sales and foot traffic at our mixed-use assets were marginally up by 0.2% and 1.1%, respectively, compared to the previous period. Stronger mixed-use sales in the second half, up by 1%, shows there's momentum heading into the Christmas shopping period. Total occupancy costs were up to 15.5% from 14.5% across the mixed-use assets with a target TOC of 17% to 18%. This provides further scope for rental growth. Overall, sales appear to be recovering, and our hope is that this theme continues over the coming months. On now to Slide 11. Kiwi Property's asset values were marginally lower over the year with a fair value movement for the total portfolio down by 0.9% or $30.3 million over the last 6 months. Values look to have stabilized as interest rates continue to decrease with the investment portfolio capitalization rate broadly flat versus the prior year. The base valuation increased by 1.9%, thanks to continued strong leasing activity with a spread of 5.8% and occupancy at more than 99%. On the other hand, our Drury landholding valuation has seen a small decrease of $4.3 million or down 2.6%. This is primarily due to ongoing development investment. These capital works are expected to enhance the site's long-term value with short-term valuation movements expected during active project phases. I'll now pass over to Steve to talk through our FY '26 interim financial results on Slide 13. Steve Penney: Thanks, Clive, and good morning, everyone. Kiwi Property has delivered a strong overall rental performance in the last 6 months with net operating income up 5.7% across our portfolio compared to the prior period. Our focus on mixed-use assets has delivered through cycle net operating income growth of 6.9%. At Sylvia Park, the lease up of Resido has contributed to an additional $3.8 million in income compared with September 2024, while the ASB lease deal at Geneva House added $900,000. The Base continues to perform well with Te Awa's new medical and entertainment tenancies in Level 1 driving higher income up $0.5 million. These results reflect our ongoing commitment to optimizing portfolio performance even when market conditions are challenging. Turning now to Slide 14. Adjusted funds from operations, or AFFO, increased by $3.5 million or 7.2%. This was driven by higher net rental income and stable finance expenses over the period. Employment and administration expenses when normalized for one-off costs associated with the ASB lease extension and other transaction costs were lower by $600,000 or 5.1%, reflecting our continued focus on controlling costs and delivering operational efficiency. Although our half year dividend of $0.028 per share reflects an 88% AFFO payout ratio, we expect the final FY '26 dividend payout ratio to be at the lower end of our 90% to 100% AFFO target range. Turning over to Slide 15. Our total property assets, including our investment properties and Drury land classified under inventories was $3.3 billion as at 30 September 2025. Gearing remains relatively flat at 38.5% with proactive capital spend reduction and the dividend reinvestment plan supporting the stability. Pro forma gearing is expected to reduce to 37.5% following the completion of the LFR fund transaction. Net tangible assets per share were marginally lower at $1.12, down by 2% from $1.14. The interest cover ratio was 3.1x, up from 2.9x in March. Now over to Slide 16. Kiwi Property continues to be well supported by our banking group. In August, we increased our bank facilities by $35 million with headroom of $248 million as at 30 September. Our weighted average term to debt maturity was flat at 3.1 years. During the period, Kiwi Property took advantage of lower cost facilities during the refinance while still ensuring a healthy term to maturity was retained. To take advantage of lower relative interest costs after balance date, we refinanced the recently matured $100 million KPG040 green bond series with bank debt. Moving now to Slide 17. As a result of declining interest rates and lower cost bank facilities in our recent refinance, our weighted average cost of debt reduced by 41 basis points to 4.89% over the last 6 months. In this half year period, we entered into $95 million of new interest rate swaps. The proportion of fixed rate debt has decreased from 88% to 76% with an anticipated reduction in debt levels after completing proposed asset sales. We will continue to actively manage our hedging profile to provide greater certainty around interest costs. I'll now hand back to Clive who will resume on Slide 19. Clive Mackenzie: Thanks, Steve. We're pleased that our investment in Mackersy Property is progressing to the next phase, creating value for KPG shareholders. The strategy behind our investment in Mackersy was to support the growth of Kiwi Property by providing us with a potential new source of capital and delivering earnings growth from a scalable business. The original loan arrangement supported the growth of Mackersy's business before our investor converted from debt to equity. Mackersy has made strong progress over the last 12 months, and the equity criteria for conversion of loan has been met as expected. This will result in the conversion of our original $6.5 million loan to equity in early December. We look forward to becoming a 50% shareholder in the Mackersy Investment Management business, which currently has over $2.2 billion in assets under management. Over now to Slide 20. We are pleased to announce that Mackersy launched a new large-format retail fund, also known as the Mackersy LFR Fund in early November. The new LFR seed asset will be Sylvia Park Lifestyle, which is our LFR property adjacent to Sylvia Park. The fund will be managed by Mackersy with Kiwi Property retaining property management and leasing of its contributed assets. Kiwi Property intends to maintain a long-term interest of between 25% and 50% in the fund with the fund intended to grow over time. This transaction highlights the benefit of our investment in Mackersy, which can provide us with new sources of capital to support our strategic objectives. The LFR fund structure will enable us to release approximately $53 million in capital upfront, maintain control of key land holdings within the Sylvia Park precinct and partner on any future potential LFR developments at existing Kiwi Property sites. Turning now to Slide 21. With asset sales providing some capital for reinvestment, we expect to commence several key development projects in the near term, subject to Board approvals and final designs. These projects include an Asian supermarket, a new pedestrian plaza at Sylvia Park as well as an expansion of available retail space at The Base. These initiatives will diversify our tenant mix, revitalize key precincts and create additional retail space to meet growing demand. The estimated spend for these projects is approximately $32 million. Moving now to Slide 22. At Drury, we are pleased to be able to announce 3 further sales of large-format retail land following the unconditional sale of 1.2 hectares to Foodstuffs in April. Earlier this month, we confirmed the conditional sale of 6.4 hectares to Costco Wholesale, a major international retailer. This significant agreement will serve as a catalyst for further development and growth at the site. This sale, along with conditional sales to the Briscoes Group and Harvey Norman, will provide capital for reinvestment. Together with the recent Stage 2 Fast-track approval, this validates the strategic vision for Drury as Auckland's next major metropolitan center. Proceeds from all sales to date totaled $115 million with settlement and profit recognition expected in FY '27 to FY '29. Stage 1 civil works and power connections for the large-format retail sections are underway, and Stage 2 has now been granted consent under the Fast-track Approvals Act 2024, increasing the consented developable area to around 140,000 square meters. Turning now to Slide 23. Our Drury development covers a gross land area of 53.3 hectares with total acquisition and development costs to date of $141.4 million. The current market value at September 2025 is $162 million with a salable land area of 39 hectares. CapEx remaining post 30 September is estimated around $161 million with an estimated completed value of around $387 million. And our capital allocation framework, the Drury project, is classified as opportunistic with a target IRR of 15% to 20%, supporting our long-term value creation strategy. And finally, over to Slide 25 for our priorities and guidance for the remainder of the financial year. Kiwi Property delivered a robust operating result in the first 6 months of FY '26 and delivered on our key strategic priorities. Heading into the remainder of FY '26, we will continue to focus on our 4 key priorities, which we know will make an impact. First, we will continue to efficiently manage the balance sheet. Asset sale proceeds will allow us to enhance our existing high-quality assets and progress other investment opportunities as market conditions allow, in line with our capital allocation framework. Secondly, we will continue to drive rental growth with a focus on maximizing the operational performance of our high-quality assets. Thirdly, we look to maintain strong discipline on costs and great progress made to date in this area. And finally, we will look to progress the Drury Stage 1 civil works, which will bring land sales closer to settlement. This follows the 4 large-format retail land sales we have achieved at Drury over the last few months. As a business, our goal is to deliver sustainable earnings and dividend growth for our shareholders. I'm pleased to reconfirm the FY '26 full year dividend guidance of $0.056 per share. This represents a 3.7% increase on the prior year, in line with our intention to continue to deliver dividend growth over time. Kiwi Property has made great strategic progress over the last 6 months, and we will continue to look for ways to add shareholder value over the rest of the financial year. Thank you for joining us today. That concludes our overview of Kiwi Property's interim financial results for the 6 months to 30 September 2025. Today's presentation, along with our FY '26 interim report, is available on the Kiwi Property website. I'll now pass over to the moderator who will open the phone lines for questions. Operator: [Operator Instructions] First question comes from Nicholas Hill from Craigs Investment Partners. Nicholas Hill: I'd like to kick things off with a couple of questions on the performance of your retail and mixed-use assets. Would it be possible to talk to what was behind the decrease in specialty sales per square meter? Clive Mackenzie: Yes, there's probably a couple of things that are driving that. The first one, obviously, the economic climate would be the obvious one. But the other thing is we've seen, especially at Sylvia Park and The Base, a lot of our previously categorized specialty stores go up to many majors as they've increased their store size. And so those sales have gone out of the specialty store sales numbers. Nicholas Hill: Okay. And then just looking at Centre Place North, I believe, was the Kmart lease renewal the main driver increasing income? Or has there also been a change in occupancy? Clive Mackenzie: Sorry. Are you talking about The Plaza or Centre Place? Nicholas Hill: Sorry, I got my wires crossed. What's the one with the Kmart renewal? Clive Mackenzie: We did the Kmart renewal at The Plaza. Sorry, what was the question? Nicholas Hill: Was that the main driver in the increase in rental income? Or has there been a change in occupancy? Clive Mackenzie: That was the main driver, yes. Nicholas Hill: Okay. And then I guess just to clarify something for me. You've announced that you're selling effectively a 50% interest in the Sylvia Park lifestyle asset to Mackersy Fund for $90 million. That equates to about $45 million, but you say that it will release $53 million from capital. Where does the other $8 million come from? Steve Penney: So the gearing in the fund is slightly higher. So that's -- we get proceeds from the sell-down, and then we [indiscernible] gearing [indiscernible]. Nicholas Hill: Okay. And then last one for me before I let someone else have a go. How is the inquiry going for the last 2,000 square meters of the Vero Centre? Clive Mackenzie: Great question. In fact, we're very close to securing another 1,200 square meters of space. We're just getting the lease signed at the moment, which will take us down to effectively just under a floor. Operator: Next, we have Bianca Murphy from UBS. Bianca Fledderus: First question for me is just on Drury. So given the conditional nature of the land sales, are you able to share what specific conditions remain outstanding and what the key risks are to settlement timing there? Clive Mackenzie: Thanks, Bianca. Obviously, with [ fall ] sales, there's a number of conditions that need to play out. Firstly, we obviously have to do all the earthworks in terms of putting in the roads and the infrastructure so we can get a title. And for some of the international tenants, they require OIO as well. So those will be the main conditions across those tenants here -- or buyer, sorry. Bianca Fledderus: Yes. Yes. Okay. That's helpful. And then just on the Mackersy Fund, could you talk about which other assets in your portfolio you see as suitable to be transferred to the LFR funds at some point? Clive Mackenzie: In terms of the assets that we have in our portfolio, there's probably potential new developments. So for example, at Drury, there is still some LFR land that we haven't sold that could potentially end up in the Mackersy LFR fund. Also, there's an LFR site adjacent to the IKEA development, which also -- one develop could also be sold into that fund as well. So those are some of the more immediate ones, yes. Operator: Next, we have Nick Mar from Macquarie. Nick Mar: Just in terms of valuations, sort of intriguing you've executed the lease renewal at ASB, but the valuation is sort of flat despite cap rates. Can you just talk what else has sort of gone on there? What it would [ imply ] is what you're spending is in line or more than what the value of the issued [indiscernible]. Clive Mackenzie: I'll kick off, and then I'll hand over to Steve. Effectively, the valuers haven't moved the valuation. They've looked at market evidence out in the market. And I don't believe that the current market evidence justifies movement in the valuation. So that's probably the first point. I don't know, Steve, if there's anything else you want to add to that? Steve Penney: It's probably market reads as well, Nick. Sort of a soft listing office market in the moment. Nick Mar: But I guess you've just reset the rent on -- and the value [ has moved ] the cap rate, which would suggest that they have viewed it as a more attractive asset than it was prior to the lease renewal, so it's just a little bit intriguing, but no, that's fine. And then with the sort of where you've kind of cut up the portfolio between core and noncore. What is the sort of process around the balance of the noncore assets and how you want to sort of exit these over time? Clive Mackenzie: Yes. So for some time now, we've obviously called out which assets we regard as noncore. Obviously, our intention is -- and again, as we have called out before, we want to focus on mixed-use assets in the Golden Triangle, which is obviously part of the [ capital ] sort of area where we see there's the most opportunity for growth. And so that will mean, over time, we'll move out of those regional retail assets and CBD retail, which is -- sorry, CBD office, which is not [ over ] core to our strategy. So we'll continue that process. Obviously, we've got [ The Base ] held for sale so that sort of signals our intent in that direction as well. Nick Mar: Okay. And the office assets, is that something that might be likely to help you with? Or those sort of [ outweigh ] sales? And particularly with ASB following the lease renewal, have you had much sort of unsourced interest in that? And are you going to progress that? Clive Mackenzie: In answer to the first part of your question, yes, obviously, Mackersy is open to office assets as well as they have a number of office assets within their portfolio. Given the size of our offices, it's most likely they will be to the broader market. And yes, we have had some initial interest in ASB, but still early days in terms of progressing that. Nick Mar: No, that's great. And then just on sort of the rent was down or the total rent went down. Can you just talk through that and talk to what the leasing spreads [indiscernible]? Clive Mackenzie: Okay. Our leasing spreads at Sylvia Park were actually slightly up. So I'm not sure which number you're looking at in terms of that. I'll just turn to the right number. So our overall rent reviews were sort of 4.1%, and leasing spreads were sitting at around 3.2%. Steve Penney: You're looking at Slide 27 at the rental income? Nick Mar: Yes, yes. There's a $1.9 million surrender fee last year, so you've got to adjust it and normalize it for that. Operator: Next, we have Rohan Smit from Forsyth Barr. Rohan Koreman-Smit: Can I ask a couple of quick ones? Just on the second half guidance, it implies a bit of a weaker half. I believe there's a bunch of maintenance CapEx that kind of looks pretty seasonal and incentives. I think last time we spoke, you said there was going to be a reasonable number this year, and it's obviously not in the first half. Can you just give us some color on those 2 lines? Steve Penney: Yes. Maintenance CapEx will probably tick up a little bit. And the challenge for the second half of the year from a leasing perspective is you lose 2 months to do deals. So kind of running out of time to put those deals and to do the debt upside. So that's probably what we're seeing at the moment. In terms of debtor things like that, that's really stable. The provision for debt review slightly what -- [indiscernible] slightly but everything else looks [indiscernible] So it's more about it's a timing issue with leasing. Rohan Koreman-Smit: Sorry. You're saying the whole movement is a timing issue with leasing? Is that how I should read that because you typically... Steve Penney: [indiscernible] Rohan Koreman-Smit: Do you have some color on that? And also the incentives as well? I get -- I feel like maybe there's something that you provided ASB given earlier comments on the building valuation that -- are you capitalizing incentives there? Or are you running them through your P&L? Steve Penney: Capitalized [indiscernible]. Rohan Koreman-Smit: And sorry, maintenance CapEx? Steve Penney: Sorry, maintenance CapEx. That's generally second half of the year as soon we expect to do that and spend a bit more. So it will be pretty consistent with last year, maintenance CapEx. Rohan Koreman-Smit: Okay. And then just on the seismic disclosures, looking at your financial reports, when you go to last year's one, you had $42.8 million as a net present value of the provisions in the valuations. But today, you're telling us it's $116 million. What happened between FY '25 and now in terms of more than doubling your seismic provisions? Steve Penney: You're talking about different numbers. One is the movements last year, and then we reported the total number. We've never reported the total number before. Rohan Koreman-Smit: Okay. So these movements for the last -- so '25, you added $40 million, and then '24, you added another 40-ish. So that's a cumulative number, not the total? Steve Penney: It's the change in the period -- over the period. Rohan Koreman-Smit: Yes. Yes. Okay. And then just thinking about gearing because you've got a bunch of asset sales and it's going to take a while for you to sell down this Drury land. Where is your kind of target for gearing? Are we still kind of in that 25% to 35% range? Is that where we should think about you're gearing long term? Steve Penney: Yes. So we can see with the CapEx we've got in front of us and the asset sales that we were targeting at the moment, we can see it [indiscernible] pro forma gearing [indiscernible]. Keeping in mind that the expenditure Drury is over quite a long period of time. Clive Mackenzie: Yes. And any additional asset sales over time would reduce that amount down for the year. Rohan Koreman-Smit: Yes, cool. And then just last one, and I know we probably agree and disagree on this all the time, but you comment multiple times that the Drury land sales will be used to fund project CapEx, yet you're running the profit through AFFO. Are you going to be running a lower payout ratio in the medium term to retain those earnings, so to speak? Otherwise, whilst the Drury land sales will fund the project CapEx, your dividend will be part funded by debt. Steve Penney: Yes, we expect the payout ratio to be lower if you included the jury earnings in that. Yes, that's correct. Closer to the time, we'll provide the market an update. Operator: [Operator Instructions] Next question comes from Arie Dekker from Jarden. Arie Dekker: Just starting with Resido, net rental income was $3.6 million for the half, and your effective occupancy was pretty high given starting point was, I think, 82%. Can you just give an update on where your sort of outlook is now that it's fully leased and the starting rents have come in for year 3 stabilized income, which, I think, last year, you sort of sized at about $11.2 million. Steve Penney: Yes, it's probably a little bit over double what it is now, closer to $8 million, I'd say. Arie Dekker: And in terms of year [ 3 ]? Clive Mackenzie: Well, that's in terms of this financial year, yes. This financial year. Yes. Arie Dekker: Yes. Yes. So in terms of like with the rental growth that you'd sort of be expecting, does that mean sort of your outlook now, say, in 18 months or so time at the 3-year point would be sort of closer to $10 million? Steve Penney: Yes. It's come back a bit. Yes, rental is a softer market, but we expect it to pick up again [indiscernible] [ the market cycle. ] Arie Dekker: Okay. And then just in terms of the ASB, which has sort of come up in a couple of other threads of questions. I see in the commitments that there's a $22 million commitment -- future commitment for ASB North Wharf. Can you just sort of talk a little bit about the nature of that and over what time period that $22 million will be incurred? Clive Mackenzie: It's over the next couple of years, and it's -- there's some tenant fit out in there. There's some baseball works as well for additional space. There's a little bit of spend on green. Yes, there's bathrooms. Yes, it's basically -- it's a refresh of the tenancy for the next lease term, yes. Arie Dekker: Okay. And then just in terms of Vero, which is also going, I guess, through a bit of a partial renewal cycle, commitments there, $12 million. Is that sort of over a similar period as well, sort of next 12, 18 months and sort of associated with CapEx and also some incentives or CapEx only? Clive Mackenzie: That's sort of over the next 12 to 18 months, as you call out. And that's -- there's a combination of upgrading works as well sort of the entry lobbies in the trip and some CapEx as well. There's no incentives in that number. Arie Dekker: Great. And then just the last one for me. I mean I know it's a relatively small asset. I think you sort of paid $27.5 million for it 4 years or so ago. But the site that the city Impact Church used to occupy, what's sort of the future for that site now that you've sort of sold down an interest in the lifestyle asset? Clive Mackenzie: We're actually very close -- we're very close to finalizing a lease for the office space in that tenancy. So that vacant space will come out. But it's an asset which, over time, we may look to down weight our ownership of with regards to Mackersy into the LFR fund potentially as well, yes. Arie Dekker: All right. Kind of go down the way of the lifestyle asset. That's good. Operator: Thank you. Thank you for all the questions. This concludes today's Q&A session and the conference call. Thank you for participating. You may now disconnect. Have a great day.
Operator: Good afternoon, and welcome to the Manolete Partners Plc Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Mena Halton. Good afternoon to you. Philomena Halton: Thank you. Good afternoon. I'm Mena Halton, CEO. I was appointed as CEO in August of this year, but I'm not new to the company. I joined Manolete in 2014, and I've always been and remain very close to the operation of the business. I'm joined today by our Head of Finance with Rachel Lindley-Janes. In terms of agenda, Rachel will take you through our financial highlights for the half year. I will then go through a company overview, KPIs and some case studies. Following that, Rachel will take you through our financial results in more detail, and we will finish with current trading strategy and investment case, followed by Q&A. Over to you, Rachel. Rachel Janes: Thank you, and thank you all for joining us today. We're just going to have a brief look at the financial highlights of this interim results presentation. So total revenue is down at 12.7%. So that is down 12% year-on-year -- year on half year on half year. Realized revenue is up GBP 14 million, which is down 7% on the same period last year. Gross profit of GBP 4 million, down 10% on the same period for the prior financial year. Gross profit margin is up at 31%, fairly stable at 30% from the last half year. Overheads has stayed generally flat, but we will go into those in more detail at GBP 3.9 million versus GBP 3.7 million. EBIT is at GBP 0.1 million profit. Same period last year was GBP 0.7 million profit, and there is some one-off effects in there, which you need to take into account, which will be considered later on as well. Net cash generated from completed cases is actually up 3% at GBP 7.8 million. Our cash balance was up 67% at GBP 1.1 million, and our net debt has decreased by 9% to GBP 10.8 million. As Mena mentioned, we'll talk about the financials in more detail later on in this presentation. But for now, back to Mena. Philomena Halton: Thanks, Rachel. So starting with the basics. What is Manolete and what do we do? So we're the U.K.'s leading insolvency litigation financing company. We're often referred to as a litigation funder, but that actually is a misnomer as we purchase claims for the most part. And we have a unique business model, which is not offered by competitors. So we purchase claims from insolvent U.K. companies, taking assignments from the liquidator or the administrator. And those liquidators or administrators are office holders and they are insolvency practitioners and they are licensed. So purchasing the claim gives us full control over the conduct of the claim, settlement, costs and management. And insolvency is the only area of law where this is possible. Outside of insolvency, it's not possible to assign a course of action. So on assignment, we are the claimant. So we are in the driving seat. We fully control litigation. And importantly, we can draw a line if needed. And this contrasts with litigation funding where the funder is effectively a checkbook only and cannot control the litigation. So in terms of our track record, we financed over 1,700 claims. We've completed more than 1,300, and we've delivered in excess of GBP 175 million. And we have a consistently high return achieved across the 16-year trading history, as you'll see from a later slide. So we provide a solution to a problem faced by the insolvency market. Office holders routinely uncover actionable claims in insolvency, such as breach of duty against the former directors, antecedent transaction claims, overdrawn director loan accounts and claims against advisers or banks. But the insolvent estate will typically lack funds to pursue litigation. And if there are funds in the estate, the office holder may be reluctant to risk those funds on litigation. If it's a company claim, it will be immediately met with a security for cost challenge. If it's an officeholder claim, the IP is personally liable with an adverse cost. So he really is between a rock and a hard place. So we provide the solution to that problem. We purchased the claims by way of assignment. That gives the insolvent estate immediate value with an upfront payment, so that helps the IP with his WIP. We assume all risk, cost and management of litigation, and we provide the IP and the estate with an indemnity in respect of adverse costs. So we completely derisk the estate and we derisk the IP. On realization, the net award is divided between Manolete and the estate and agreed shares. And the rising volume of U.K. insolvencies continues to expand the pool of claims available to us. So the market, there are 3 types of corporate insolvency, which give rise to claims that we can take assignment of. So the first is the creditors voluntary liquidation. This is the bulk of the insolvency market. The word creditors in the title is slightly misleading because a resolution for winding up an appointment of a liquidator is actually passed by the members of the company. And in most SMEs, the members and the directors are one and the same. So actually, these are director to instigated liquidations. And these typically give rise to lower and mid-value claims such as overdrawn directors loan account, breach of duty and antecedent transactions. As you see from the graph, there is a steady rise in the number of CVLs. So that is a really good source of claim referrals for us. And then we come on to compulsory liquidations. This involves a winding up petition issued in the court and is usually presented by a creditor. And post-COVID, compulsory liquidations have increased year-on-year, as you can see from the chart. And what's particularly interesting about compulsory liquidations is that HMRC is a major petitioning creditor. And that's good for Manolete because claims arising in compulsory liquidations on HMRC petitions can frequently give rise to high-value claims against directors and connected parties in relation to areas such as tax avoidance, VAT fraud and payroll fraud. And we have particular expertise and good track record in these areas, and these claims tend to be high value. And then the third form of insolvency, which gives rise to claims within purchase is administrations. Now this is the more common insolvency path for larger U.K. companies and administrations have taken longer to return to pre-pandemic levels of activity. Primarily in administration, the focus is restructuring and rescue, perhaps a trading administration or a sale of the business is a going concern. But in addition to those aspects, there will be claims. An administrator is under a duty to investigate and realize claims just as a liquidator is. And these claims tend to be higher value. So the administrations tend to give rise to higher value breach of duty and antecedent transaction claims. And also claims against banks and claims in professional negligence, such as claims as against auditors and solicitors. And again, these tend to be high-value claims and more importantly, they are insured claims. Moving on to the next slide. We are the dominant third-party funder in the insolvency market. We are the 5-time winner of the industry's TRI award for litigation funding, and we're the only firm to be ranked band 1 for insolvency litigation funding in the Chambers guide every year from '21 to '25. I know there are a lot of awards and lots of talk about awards, but this award is very much a recognized badge of honor in the legal and insolvency world. The category for insolvency litigation funding as opposed to mainstream funding was introduced in 2021, and Manolete has been ranked band 1 every year. So no other funder has ever been ranked band 1, and we hope that, that continues. In terms of top market positioning, we have full U.K. nationwide coverage, ensuring engagement with insolvency practitioners and insolvency solicitors across the country. So sometimes claims come to us direct from the IP. Sometimes claim is referred by solicitor on the IP's behalf. So it's really important that we maintain good relationships with both the IPs and external insolvency lawyers. We have a fantastic in-house legal team, and they are the engine room of the business. They source the work, they generate the cash realizations and they grow the business. So as the legal team grows, the business grows. When I joined Manolete in 2014, there was a legal team of 1, and that was me. It is now 18 very experienced and very talented insolvency litigation experts. We maintain good relationships with these key stakeholders in the insolvency business. So that's [ R3, ] ICAEW and the IPA. And these partnerships confirm our position at the center of the insolvency profession and support our exceptional referral network. We regularly present insolvency industry events, and we also produce our own series of webinars, podcasts and presentations. We are very visible and very active in the market. So the next slide is business mix. And insolvency claims fall into 2 categories. There's the company claims so their claims that existed before they went into an insolvency process, the claims vest in the company. And then there are the office holder claims which arise on the insolvency. But importantly, both categories of claim can be assigned. So typical company claims include breach of duty and overdrawn director loan account. Office holder claims include claims such as transactions undervalue and preference. To give you an example, a director gifts GBP 100,000 to his wife 6 months prior to CVL at the time when the company is insolvent. That's a transaction at undervalue and the wife must repay. If the GBP 100,000 was repayment of the loan, that's a preference. And again, the wife must repay. And there is an overlap between claims. So in the example, there is a completing claim against the director in damages for breach of duty because he's the party who caused the company to make the payment, which was either a transaction at undervalue or a preference. There's a pie chart there showing the percentages of case types we deal with. As you'll see, we do a lot of directors' loan accounts, which I've referred to previously. Most SMEs will operate a DLA, nothing wrong with that. But of course, it's a debt and it must be repaid. In certain circumstances, the DLA may also be breach of duty. A director may be liable for the overdrawn DLA of his co-director in breach of duty and a Co-Director may also be liable under Section 213 of the Companies Act if the DLA hasn't been approved under Section 197 of the Companies Act. Then we have unlawful dividends. If the company declares a dividend without sufficient distributable reserves or without complying with Part 23 of the Companies Act, and that dividend is unlawful and it's repayable by the shareholder. Again, there's a corresponding breach of duty claim against the director because he's the party that's procured the company to pay to declare the unlawful dividend. Breach of duty, there's a lot of overlap with the other claims, but you can have stand-alone breach of duty. A good example of that would be the director who files full VAT returns that incurs the company in a large penalty imposed by HMRC. The director is then liable in damages to the extent of the penalty imposed as a result of his making the false filings. Preference transaction at undervalue already covered. Wrongful trading, this is where a director continues to trade beyond the point where he knew or ought to have known there was no reasonable prospect of the company avoiding insolvent liquidation. And in those circumstances is liable to contribute to the assets of the company. And then we have miscellaneous other. So this can be claims such as professional negligence or claims against banks. Just to give you an example of a bank claim, one we've got ongoing at the moment. The director was regularly withdrawing very large sums of cash from the bank. This quite properly raised a red flag with the bank. So the cashier asked the director to explain why he was extracting these extremely large sums of cash and taking them home in a carrier bag to which the director applied, well, it's to pay the wages, and the cashier said, okay, that's fine off you go. But having asked the correct question, the cashier then took the wrong action because this is a company that did maintain a proper payroll and the employees were paid by bank transfer from that bank account. So obviously, his answer that the cash was to pay wages was completely wrong. So that gives a rise to the claim against the bank in negligence or breach of duty. And so hopefully, that gives you some flavor of the sort of cases that we regularly deal with. Next slide is our route to market. So first of all, the company enters into the insolvency process, which can be one of the three types which we've just looked at. The IP is appointed. He then has a duty to investigate the dealings and affairs of the company and to identify assets. And of course, the claim is an asset of the company, just as the stock or the plant and machinery and the IP has a duty to realize that asset to realize that claim for value. Where there are insufficient monies in the estate to pursue the claim, the IP refers the claim to us and we take it forward. We have a very rigorous selection process, and that's based on ability to pay and merits. And actually, ability to pay is the matter we look at first because you could have the best claim in the world, but if the guy isn't good for the money, there is absolutely no point. So when we reject a claim, it tends to be for lack of assets concerns on recoverability rather than lack of legal merit. And the next slide is an overview of the funnel. So it's the life cycle of Manolete's cases. So we're getting a new case inquiry that can be from the IP or from his solicitor and that comes into the legal team. We then make an offer if we like the case and the net worth stacks up, we make an offer, it's signed. And 29% of inquiries are progressed signed cases. As I mentioned, our most frequent reason for rejection of a case is concerns on recoverability. When we do make an offer, they tend to be accepted. It's quite unusual for an offer of ours not to be accepted. Then we complete the case, and that's usually by settlement. And then the cash is collected, and when the cash comes in, we are reimbursed our upfront payment, our initial consideration to the IP, and we are reimbursed our legal costs. This takes us to the net realization, which is divided between Manolete and the estate in the agreed shares. And those agreed shares are usually 50-50. But on larger cases, there is a ratchet in favor of the estate. So as the numbers get into the higher echelons, then the estate share increases. So to try and bring all that to life, there's a couple of case studies. So the first one is a case study of the completed case. So here, the company was wound up. IPs were appointed liquidators. The liquidators carried out investigations and they identified that very significant amounts of company money have been applied towards the building and refurbishment of a property owned by the wife of the director. So that clearly gave rise to claims against the director and breach of duty, but he had been made bankrupt on the petition of HMRC, so he couldn't be pursued. So we then -- well, the liquidator then looked at claims against the director's wife, who was the owner of the property. His solicitors advanced those claims in pre-action correspondence, but the claims were denied. He was met with a brick wall and he had no funds in the estate to take the claim further. So at that point, the claim was assigned to us. We paid an initial consideration of GBP 10,000 and agreed a split of net realization. So we purchased the claim in May 2024. We settled it in January 2025 at GBP 850,000 and that GBP 850,000 cash settlement was paid to us in full in October 2025. So from that GBP 850,000, we repaid our initial consideration of GBP 10,000. We repaid our legal costs of GBP 42,905. And I think that's a good illustration of the very tight control we exercise over costs. Costs of GBP 42,000-odd and a recovery of GBP 850,000 is very good cost control. So our share of the net realization was GBP 393,837. So good cash result in a short period of time, and we took assignment of claim in May 2024, all cash received just over -- just over 1.5 years later. The next case study is an example of an ongoing case, and it's an example of a high-value case arising in a compulsory liquidation on an HMRC petition. So here, the company was wound up on petition of HMRC, IP's appointed liquidators. And they carried out an investigation and identified claims against the former directors in relation to a very large-scale VAT fraud. Now urgent action was needed to prevent dissipation of assets. An application was needed for a freezing order, which is a very expensive procedure, but there were no monies in the estate. So the liquidators referred the claim to Manolete. We took assignment for initial consideration of GBP 10,000 in an agreed split of net realization. We purchased the claims in September 2025, and we very swiftly obtained freezing orders to preserve the assets and issued proceedings. So that's a good example of a case which needed expensive but urgent action. The IP just didn't have the funds. So we step in, we provide the solution. We take assignment of the claim. We issue proceedings and we obtain a freezing order all very, very quickly. Now we come on to KPIs. So the first chart shows you our new case inquiries for this half year. As you'll see, there have been a steady rise in the number of cases referred to us. 505 cases were referred in the first half of the current financial year, and that's the highest half year number ever. The next graph shows new signed cases. Again, strong case signings. More cases have been signed in the first 6 months of the current financial year than in H1 2025. Then we come on to expected gross settlement values. Now there's been a lot of emphasis on the numbers of cases signed. And of course, that is very important, but the values of those signed cases is perhaps even more important. And I'm very pleased to say that the gross settlement values are on an upward trajectory, as you can see from the graph. Then we come on to our completed cases. The numbers of cases completed is on an upward trend. And there is a pattern that realized revenue is better in the second half of the financial year, and we expect that to be repeated in FY '26. Then we come on to net cash receipts from completed cases. And again, you can see a pattern of receipts being better in the second half of the financial year. And again, we hope that pattern to be repeated in FY '26. Then we come on to the detailed graph, which I mentioned earlier, and I hope this is particularly helpful as it tracks our performance since 2010. There's a lot of information here, and it will be put on our website. So I will leave you to look at that. But I would just like to highlight the key points, which are that 1,335 cases have been completed, generating a total aggregate value of GBP 175 million. Only one small case from 2020 remains in progress, and that demonstrates the highly efficient and effective Manolete model in the world of litigation. Litigation can obviously be very -- often be very lengthy. We get through litigation quickly. Of the 1,335 completed cases, we have recovered GBP 129 million of net retained proceeds. IRR, 130%; ROI, 111% and a consistent performance over 16 years across many hundreds of granular cases. Next slide is cartel cases. And these arise from the 2016 European Commission decision as to the involvement of various truck manufacturers in a price fixing cartel. We've purchased 22 antitrust claims from insolvent companies impacted by that 2016 decision. And the 2016 European Commission decision resulted in a cartel record-breaking fine. These antitrust claims are very different to our core insolvency business and are unlikely to be repeated. And in this litigation, liability is usually not the main issue, and the focus shifts to causation and loss, along with the truck manufacturers actively relying on the pass on defense, i.e., we may have -- you may have been overcharged, but you pass that on to your customer. In early 2023, the Competition Appeal Tribunal in the U.K. delivered a landmark judgment in the BT Royal Mail claim, establishing key principles for damages in these cases. A broad approach was adopted for the overcharge caused by the cartel at 5%, which supports our current net book value. And because this is such a specialist area, we have retained Fideres LLP who are retained -- who are specialist valuation experts, and they have provided input into the total claim value to support our net book value. As to the current position, the trial window for the second wave of truck cartel proceedings in the competition appeal tribunal is scheduled to commence in September 2026. Our claims are currently stayed pending the outcome of the second wave truck proceedings. We have settled one claim and we are in ongoing settlement negotiations with a view to hopefully settling the remaining claims. Now back to Rachel for some more detail on the financial results. Rachel Janes: Thank you, Mena. So you've already had a brief look at our financial results in the opening slide, but this is just going to give you some more detail and some more idea of what has been happening in the 6 months of this year so far. So as mentioned, our gross total revenue was down to 12.7%. This is from GBP 14 million of realized revenue, a decrease from GBP 15 million, which is down to part of the cartel claim being settled. And we have had a lower-than-average completion -- lower-than-average realized revenue of completed cases in the year. We don't know why this is. It's just to litigation, unfortunately, just the timing of items, but it is something that we are looking into for the second half of the year. Unrealized revenue was negative GBP 1.3 million versus negative GBP 0.6 million for the same period last year. This does, however, include the conversion of the first part of the settlement with the Cartel from unrealized revenue to realized revenue. It also then has the GBP 0.8 million fair value write-off of the first settlement and the GBP 1.1 million negative impact of the fair value write-down of the remaining portfolio following the settlement with a singular manufacturer. Gross margin stayed relatively steady at 31%, same period last year at 30%. But as we expect to see larger cases complete, then hopefully, our gross margins will continue to increase as the amount of work and costs associated with large cases are often mirroring those of the smaller cases, but with a higher return. Overheads of GBP 3.9 million have increased by GBP 132,000. So this is mainly due to the increase in bad debt charge. There is another slide that I will talk through in a moment, specifically around admin and overhead costs. All our overheads have remained relatively flat with a small decrease in staff costs, offsetting minor increases in professional fees. EBIT of GBP 0.1 million compared to GBP 0.7 million for the same period last year. But if you exclude the adjustment to the first cartel settlement and subsequent revaluation of the remaining portfolio of GBP 1.9 million, which was communicated in July to the market, the adjusted EBIT would be GBP 2 million, which is a significant improvement on last year when you remove the one-off trading updates that have happened this year in terms of cartel. EBIT margin has decreased to 1% from 5%. But again, if you exclude that GBP 1.9 million of the cartel revaluation and write-off, the EBIT margin will be at 14%, which highlights the good cost control on completed cases and our steady overheads, endorsing management's year-end comments on the scalability of the business. Loss before tax was GBP 0.7 million. Same period last year was GBP 0.2 million loss. Net of finance charges of GBP 0.7 million versus GBP 0.8 million last year. We benefited slightly in interest and finance charges from the improved rate of SONIA which was negotiated with the RCF that was signed in March 2025. As mentioned, we've gone into a bit more flavor on admin expenses this year, just so people can see where the value of our flat structure really is. So as mentioned, overheads have increased by GBP 132,000 or 4% from the same half year last year. This clearly -- this table clearly highlights that staff costs have remained stable. They have decreased year-on-year, but we have seen 2 new hires in the last few months of the financial -- of the half year. We've hired a new legal head who starts in October, and we do have the incoming CEO (sic) [ CFO ] In December 2025, which then should normalize the staff costs. Bad debt has increased by 43%. As already mentioned at our trading statement for the AGM, we have seen a small number of larger debtors default recently. Although action is being taken by the legal team, there is unfortunately going to be some fallout from some of those, and therefore, the company has provided for them as needed. This is a key area of control and review by the Board and everyone within Manolete at the moment who has an ongoing kind of role within that individual debtor. Professional fees increased by 14% compared to the same period last year. This is due to an increased use of advisers due to everything that has happened in the company and on the Board in the last 6 months as well as some inflationary measures as well in there. Marketing costs have stayed fairly flat, and these are closely monitored by our [ Andrew Cockerill, ] who prepares the budget and monitors everything along these lines on a regular monthly basis. If you exclude bad debt from our admin expenses, they're actually 2% lower than last year. So you have 3,184 versus 3,256, which then, like I said, it just shows that the business structure is moving forward. And hopefully, in the future, that will help to bring in more revenue going forward. So then we go to our balance sheet. So our investment in live cases stood at GBP 40 million at the 30th of September 2025, compared to GBP 39.5 million at the same period prior. This is net of the conversion of the singular cartel, and this helps to show that the case that we have signed in these 6 months really bring future value to the business because although we have had a large settlement for the cartel, our value of our investments has not decreased year-on-year. We have trade receivables of GBP 30 million as of the 30th September 2025 compared to GBP 29.3 million at the same period prior, including a GBP 6.6 million concentration in a singular large debtor who will be paying over the next 7 years. Debtors after -- as we've already discussed and communicated, there has been some more defaults. And so this is a key monitor for the Board in the future months. Cash was held at GBP 1.1 million. Our debt drawdown on our RCF remained the same at GBP 12.5 million. It's worth noting that the long-term loans in the balance sheet for 30th September 2025 includes the capitalization of fees that will be amortized over the life of the loan in relation to obtaining the new RCF. We were hoping that some of the money from the cartel settlement would help to reduce our overall loan drawdown; however, because of the small number of debtors that have defaulted, we have used this money instead to continue investing in live cases. Just to give you a bit of an idea of our trade receivables, yes, we have had some large defaults come through. But as you can see, 58% of our trade debtors are not yet due. So this is future cash in the business that has not yet hit the terms of the settlement agreement. On top of that, 9% is due within 6 months overdue. And those that are more than 6 months overdue mainly relate to judgments. So with judgments, we try to settle with debtors in mediation, and it's a signed settlement agreement where the debtor will agree to pay a certain amount over a certain period of time. When mediation can't -- when a settlement can't be reached, we will then take it to the court and obtain judgment. So judgments are the court ordering a debtor to pay us a certain amount of money rather than them agreeing to do it. And therefore, it takes longer for us to enforce these judgments as it sometimes means that we need to take out charge in orders over assets and therefore, the rest of the chain to try and realize the actual cash in total. On the cash flow statement, we are at GBP 14.5 million of first cash receipts up from GBP 14.3 million in the same period last year. This does include the receipt from a singular cartel case. I will provide some more detail on the cartel case in a couple of slides; however, we cannot, for confidentiality reasons, disclose the number of the gross settlement. Net cash generated from completed cases was up 4% at GBP 7.9 million, and our cash flow from operating activity was 1% (sic) [ GBP 1 million ] versus GBP 1.2 million. So it shows that during the half year, the company has managed to generate enough cash to fund all its overheads, investment in new cases and investment in ongoing live cases. Sorry, just to note as well, the overheads have gone up slightly on this because we did have a one-off payment earlier in this 6-month period in relation to the RCF fees. So cartel settlement. Unfortunately, I know there was a lot that people would want to ask, but we cannot go above what has been mentioned already in our July RNS. It's under strict confidentiality agreement, and therefore, I can't share anything further than what's already in the market. But just to remind you, we said we're a single manufacturer on our cartel portfolio. It resulted in a fairly quick cash turnaround with cash being paid at the end of July and Manolete retaining approximately GBP 3.2 million of that cash, which represented full reimbursement of any costs associated with that manufacturer of the cartel and our share of the profits. So as mentioned, the settlement resulted in a noncash write-down of GBP 0.8 million as a write-off with a singular manufacturer. And then when reviewing our cartel -- remaining cartel portfolio in light of this, we then took a GBP 1.1 million further write-down on the remaining portfolio. Therefore, combined with the above-mentioned cash write-down of GBP 0.8 million, the GBP 1.1 million, the total effect on unrealized revenue is GBP 1.9 million, as you've seen how it affects our numbers when we talk through the P&L. The net asset value of the remaining unsettled cartel portfolio as of the 30th of September 2025 was GBP 10.1 million. And then thank you for listening, and I will hand you back over to Mena to talk about current trading strategy and investment case. Philomena Halton: Thank you, Rachel. So current trading, we've had a strong start to the second half of the financial year. As of the 10th of November, we had already signed 38 new case investments. During the same period, we completed 23 cases. Therefore, the number of live cases in progress as of the 10th of November was 469. New case referrals remain buoyant at close to record levels, and we have a new CFO joining in December. So overall, the Board remains confident in the prospects for the business, expecting a return to higher average settlement values in the second half of the year and total realized revenues, excluding the cartel settlement being weighted towards the second half as it has been in previous years. In terms of strategy, no big changes here. Our focus remains firmly centered on U.K. insolvency claims. That's our area of expertise, and it's the largest and most established market for assignments. Opportunities in other jurisdictions arise, and we do consider them, but these will be exceptional rather than core. We have financed some litigation in the Channel Islands we're often offered litigation in places such as the Cayman Islands and BVI. But so far, we haven't financed anything there. Really, we like to stick to U.K. insolvency claims. That's where we have our expertise, where we control what's happening. And we are experts in the law and the practice and the procedure of that litigation. In terms of portfolio construction and capital allocation, we aim to increase the volume of high-quality new case investments while maintaining a balanced risk-adjusted portfolio. And that's across small claims, which are up to GBP 100,000, mid-market claims which are between GBP 100,000 and GBP 1 million and large claims which are GBP 1 million plus. And as I've mentioned previously, we have seen an increase in higher value claims, which is good news because whilst we can make smaller claims work, obviously, the capacity to make higher profits is better with higher value claims. So this balanced portfolio approach enables disciplined deployment of capital while preserving liquidity, diversification and market resilience. Looking at market dynamics and strategic positioning, since the withdrawal of the COVID era restrictions, which ended in April 2022, the U.K. insolvency landscape has normalized with a steady resurgence of larger -- arising particularly from administrations and compulsory liquidations in particular, where they are -- where HMRC is the petitioning creditor. So these market conditions continue to support our strategy of targeting a robust pipeline of higher value, higher impact claims, strengthening long-term returns and market leadership. So our investment case, as set out at the beginning, we are -- we remain the U.K.'s leading insolvency litigation financing company. We're the only listed funder whose model is based on buying the claims rather than simply funding them, and that is a key differential. This structure is unique to the U.K. insolvency regime enabled by the Insolvency Act 1986, as amended by the Small Business Enterprise Employment Act 2015. And it's this legislation that enables us to purchase both the company claims and the office holder claims. We have a strong expertise and nationwide reach. We have national coverage supported by a highly experienced in-house legal team drawn from partner and senior associate level across leading insolvency practices. Strong market drivers, a record number of U.K. insolvencies, rising CVLs and HMRC petition activity create sustained opportunity. We're the dominant third-party funder in the sector, and we take on only cases meeting strict quality and recovery criteria. Compelling economics, short case duration, average time to completion is 13.7 months. Highly cash generative, demonstrating consistent growth in operating cash flow, high operational leverage, profitability scales materially as average case values continue to arise, proven returns. Long-term performance includes ROI 111%, IRR 130% and a 2.1x MoM. So that concludes our presentation, but we have had some questions. Philomena Halton: So thank you very much for your questions. So to start with, we have received a couple of questions regarding capital allocation with the main question being whether we should consider the time is right to commence a share buyback program, i.e., obviously, the share price is low. So in answer to that, our priority continues to be investment in cases where we can see very strong returns. Whilst we wouldn't rule out considering a share buyback when the time is right, that course of action is not a priority at the current time. And the Board agrees that cash is much better spent on investing in new cases and growing the company. And it's important to emphasize that capital has been reinvested in claims with higher values than last year. So we think that is the best deployment of our capital. The next question is, you have recently taken over as CEO from the company's founder, Steven Cooklin. As the new CEO, do you intend to do things differently? And what is the strategy going forward? Well, I should say I was delighted to be appointed CEO of Manolete in August of this year to build on the work of Steven. And during this first -- in the first half saw the settlement of our first cartel claim that saw a record number of completions, albeit at a lower-than-normal average value. So going forward, the strategy is to continue our focus on adding and completing more higher-value claims, realizing revenues and expanding our talent pool for the future. So we will be recruiting more lawyers into the in-house legal team. The next question is, do you plan to make any changes to the company's approach to fair value accounting and the satisfaction of IFRS 9? I think that's probably best answered by Rachel. Rachel Janes: Yes. It's a question we get a lot. We've looked into it many times as a company. We have looked into detail in various different approaches to satisfying IFRS 9 -- IFRS 9 even, sorry, while complying with the accounting standards. And the approach is currently working well, and it's agreed with the auditors. Separately, I should point out that we do have a new CFO, Will Sawyer, he will be joining on the 15th of December. So I'm sure it will be something that he can look into on a separate note as well when he wants to come in and have a look at under the skin of how Manolete runs. Thank you, Mena. Philomena Halton: Thank you for answering that one, Rachel. Next question, the change of CEO came almost immediately after U.S. private equity firm, Brightlight Capital acquired a 10% stake in the company, a clear signal that it sees significant value to be unlocked relative to the current share price. Are these 2 events connected in any way? Well, there was a very short answer to quite a long question. And the very short answer is that these 2 events are entirely unrelated. Then the next question asks if we can give a little more color around current trading, what we are seeing in the market and the outlook for Manolete? So the most significant factors in the first half of the financial year was the first truck cartel settlement. But that has been combined with a lower-than-average case settlement during a quiet summer. Trading in September showed a marked improvement, and I'm pleased to say this has continued in October. New case referrals remain buoyant at close to record levels, in fact. And we expect a return to higher average settlement values in the second half of the year and total realized revenues, excluding cartel, being weighted towards the second half. There's another question here. Could you explain why there was a sudden spate of low-value settlements in the first 6 months of the year? I wish I did have an answer for this, but actually, there is no specific explanation. It's simply the nature of the business that we're in. The process is not linear. As we've mentioned, most cases settle at mediation, and that requires consensus where there are opponent on the timing of that mediation. For example, I'm dealing with a large claim against the bank. This isn't the cash in the carrier bag one, this is another one. And in this case, the bank indicated earlier in the year that it would mediate yet, we'll come and talk to you. But then the bank pulled back and said it wanted to mediate at a later point. It now wants to defer the mediation until after the next directions hearing. So I'm as confident as I can be that the bank will mediate, but I can't say precisely when. Another example, a colleague has been running a large breach of duty claim and the other side did mediate. But on the day, they weren't prepared to settle at a sensible level. So we can't settle cases at any cost. So I told my colleague to withdraw from negotiations and issue the claim. So I suspect there will be a second mediation in the future. But again, I don't know when. But we have to make the right litigation decisions to maximize realizations. Then we've also been asked about the bounce back loan opportunity, which is something that has been mentioned previously. So we are continuing to pursue breach of duty claims in relation to director misuse of bounce back monies as part of our ordinary business. Nearly every case refers includes a claim relating to bounce back loans. There was widespread misuse of this scheme, as you know, a lot of directors just viewed it as free company money to spend on cars or holidays or on a house. In fact, anything apart from proper purposes of the company. We also worked on a pilot with Barclays Bank, and we achieved very good results. We're currently, again, achieving good results on a second pilot with the official receiver, but it's not on a large scale. So although we have achieved very good results and we've been given the opportunity to take on this work, so far, there has been no wider take-up on our offering on bounce back loans. So no further progress at the moment. There are some more questions here. Yes. What progress is Manolete making in increasing the share of the insolvency market that it handles? Yes, we're making a lot of progress. It's hard to measure it in exact terms, but the case numbers -- the numbers of cases referred is going up and up and up since you've seen from the charts. We do have competitors, but they haven't been able to get anything like the grip on the market that we have. And of course, they don't offer the same model that we do. What we offer is unique to us. So again, it comes back to the legal team. As the legal team grows, they bring with them their contact books and they get out in the market flying the flag from Manolete amongst those contacts and making new contacts. So that's how we grow the business and grow our market share of the insolvency market. Rachel Janes: Are you seeing an uptick in large company administration? Philomena Halton: Yes. Sorry, I can't see the question or just finding the question. Yes. Thank you, John, for your question, which I've now managed to read. Are you seeing an uptick in large company administrations? Yes, they are recovering slowly post-COVID, and we are seeing more large value claims and administrations are a good source of those large value claims. But this is very much a market that we are targeting and aiming to get more of moving forward. That is a real focus for the legal team. So in a nutshell, yes. And then there's a question from Richard. Thank you, Richard. Are you considering entering adjacent litigation finance segments? I'm not sure if that mean is -- question is whether we are considering venturing into areas beyond insolvency litigation. If that is the question, then the answer is no. And a nutshell, we'll stick to what we know and what we're good at. And of course, where we can buy the claims as opposed to simply funding them. If that wasn't the question, then I'm sorry, and perhaps do please follow up afterwards. And if, in fact, it's a different question, I'll give you a different answer. What else have we got? Rachel Janes: I've got one about corporation tax, which I can cover what you have... Philomena Halton: Yes, please, Rachel. Rachel Janes: Thank you. So there's a question saying when we expect to restart paying corporation tax. So as most of you know, we made a loss a few years ago. And therefore, we converted that into a deferred tax asset to offset against future profits. This is now second year, third year of that. So once that's now, I think we have about [ GBP 0.2 million ] in relation to corporation tax, our deferred tax asset at the moment. So maybe this year, who knows? That's the forward-looking plan, hopeful. So yes, thank you. Operator: Perfect. That's great. Mena, Rachel, if I may just jump back in there. Thank you for addressing those questions from investors today. And of course, the company can view all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. But Mena, before I redirect investors to provide you with their feedback, which is particularly important to the company, could I please ask you for a few closing comments? Philomena Halton: Yes. I'd just like to thank those who are listening this afternoon and those who may be listening at a later time, thank you for your interest in the company, and thank you for your questions. I hope we've answered some of them. If there are any questions outstanding that we haven't answered, then do please follow up. But thank you for your interest in the company. Operator: Fantastic. Mena, Rachel, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Manolete Partners Plc, we would like to thank you for attending today's presentation, and good afternoon.
Fabricio Bloisi: [Presentation] Hello partners. How are you? Welcome to our results call. I hope you received and you enjoyed our results today. I'm quite excited to what we shared today. At the same time, we could share you more about our growth not only that we are growing 20%, but even more important that our ecosystem thesis is working. So I enjoyed very much to share the numbers of Despegar. It's not only 5% of Despegar revenue coming from the iFood ecosystem, but we share the data week by week. You can see a very strong growth. I'm quite confident we will get to 10%, 15% in the short term. So this is the base of our thesis, our ecosystem thesis, we are growing very fast in iFood, but we are pushing Despegar to grow together. At the same time, we could share a little of our numbers in terms of results. You saw we grew 70% to $530 million. I think it's great to share this number with you. One year ago, I told you I expect us to be -- have more profit than the dividends, and I expect us to get to multiple billion dollars of profit. And many people said, I can't see Prosus doing that. So I hope you can see Prosus doing that today. We are going to get between $1.1 billion to $1.2 billion in adjusted EBITDA this year, excluding JET and LA CENTRALE. So we can expect I don't know $1.2 billion, $3 billion, $4 billion of EBITDA this year and for a couple of billion dollars of profit in the next few years. So I'm quite excited about our numbers in terms of results. We keep the discipline. We sold $1.2 billion, but we are on track to sell at least $2 billion this year of our assets. We keep our buyback. Now we sold -- we bought back more than $40 billion, generating more than $60 billion in results. So I think we keep the discipline, we keep the growth -- but I want to reinforce all of that is the foundation to how we are going to build a much bigger company. So innovation is growing amazingly [indiscernible]. I wanted to do a bigger session on innovation now, but because of the timing, we decided to focus on numbers today, but in a few weeks by December 15, maybe January 15, we are going to make a much longer presentation on how AI is changing our lives in terms of live commerce models, in terms of assistance. You saw we had 20,000 assistant already. So I could talk a lot about innovation. I hope you make questions about that. It's quite exciting. So our moment now is execution, execution, execution. We had some discipline also in M&A. A few M&As are focusing growth. For example, the Indian ones, [indiscernible] and [indiscernible], they are growing [indiscernible] is growing more than 120% year-over-year. We are very excited about that. A few M&As are increasing our profitability, like La Centrale and Despegar. So I think the company is doing good. I'm excited about the results. I hope you have many exciting questions for us today. And my priority now execute go to those few billion dollars in results. We are just getting started. We really want to build at least $100 billion outside of Tencent and one of the best tech companies in the world. Let's talk more about that today. So let's go for our questions. Mr. Eoin, right, guide us. Eoin Ryan: Speaking of just getting started, let's get started on the Q&A. Catherine, why don't you -- if you could remind the audience how to ask a question, please? And then I'll start off with a quick question. So please, Catherine. Operator: [Operator Instructions]. I will now hand back to your host, Eoin Ryan, to take your questions. Eoin Ryan: That's great, Catherine. Thanks very much. It's great to be here today, and it's good to hear from you guys. As you said, Fabricio, I think we're following through on our commitments. One such commitment was investment in our ecosystems. The biggest investment to date has been Jet, and I think it's on the minds of most of investors. So can you give us a little update? We're a few days in since the delisting of Jet? What's the future look like? Fabricio Bloisi: Let's talk about Jet. First, we closed the Jet transaction completely a few weeks ago. But just last Monday or Tuesday, we changed the management -- the Supervisory Board. So now I and a few other people from Prosus are part of the Supervisory Board of Jet for the last 6 days. So what I can tell you, we are very, very confident. As you saw, we shared lots of data on Despegar, how it's growing, how we are working on the ecosystem. On Jet, we have just 6 days. So it would not be appropriate to share today. What I can tell you, first, we are this week working a lot with Jet on our key set of culture to enable the company to think big, move faster and grow a lot. Jet is not growing over the last few years, as you know, obviously we know that's true. I'm very, very confident that together, we deliver a company that grow faster and is much better. The first big thing is on culture. It's happening right now the replanning of Jet. That's why I couldn't add the numbers because we need a few more weeks to have projections for Jet. At the same time, our focus besides culture. And again, you saw me here last we on [indiscernible], the results we have today is because of the change of culture 1 year ago. Besides of culture, technology and product are the 3 big areas of energy of our efforts. On technology, we need again to move faster and to make sure Jet becomes a more a tech-first company with first-class technology in the world using AI to take all its decisions. On products, we have to make sure that a few areas that Jet is a little say, behind, we get -- we move faster, for example, loyalty program that is core in Latin America, but it's not ready here in Europe. So we are going to push those 3 things. We expect to push it in November and December. Hopefully, in January, we have a few results to share. Today, it is still too soon. But I can tell you that I am -- Jet is not performing well. We all know that, but the level of confidence I have that we will have a company growing again and competing very well is very, very high. And probably you know I like some letters from the CEO, maybe we share a letter from the CEO, but we can share more inform Jet. But you have more specific questions, I can answer today. Eoin Ryan: It's the holiday season for letter writing, so maybe you can [indiscernible] investors there. Okay. Well, thanks. I'm sure there'll be some follow-up questions on that throughout the call. But let's open it up to the audience. And I think the first question is coming from Will Packer of BNP. William Packer: Two from me, please. Firstly, Fabricio, you talked to optimizing the buyback in your prepared remarks video. Could you help us think through the implications of that optimizing? Is it the current buyback run rate of $6 billion to $7 billion as the new normal for FY '26, '27 and beyond? Or should we think of you cutting the buyback? And then it sounds like it's fair to assume that there's going to be some flexibility of funding perhaps away from Tencent towards Meituan and free cash flow. In terms of my second question, the global online classified share prices have sold off sharply in recent weeks following the OpenAI Developer Day and Rightmove's AI profit warning. Fabricio specifically, Gen AI is central to your vision for the group. How are you thinking about the risk and opportunity for classifieds in terms of Gen AI? Does this recent sell-off make the sector an increasingly attractive potential use of your M&A firepower? Or would you rather see the dust settle first? Fabricio Bloisi: Thank you. Thank you for the questions. First, you asked about optimizing the buyback. You have lots of good numbers there. I don't need to repeat all of them. But in general, as we said, the buyback is more or less $6 billion to $7 billion this year. We have an open buyback. We are going to keep an open buyback the way it is. I like buybacks because I think we are if our company is cheap, we should be investing in our own company and increasing the value of the shareholders that want to stay. So we are going to keep doing that. On the other side, I think the company we have today is a very different process than it was 2, 3 years ago. Remember, again, 1 year ago, I said we are going to get to multiple billion dollars of profit. Many shareholders didn't see it coming. It is coming. But hopefully, you can see that in the numbers that we are sharing today. So Prosus is on a different moment. The discount is on a different moment. Tencent is on a different moment. I'm a big fan of Tencent. I think Tencent is going to be a big winner in the AI race. Tencent is positioned for that in China. And if you compare the multiples of Tencent versus everything else in U.S. There is a lot of space to Tencent keep growing. So it's exactly what I said, optimizing the buyback. We are going to keep the buyback as we have, but I'm not going to say names of other companies. People ask me not to name other companies. I can tell you that there is other companies in our portfolio that we believe has smaller growth potential than Tencent, growth and strategic potential than Tencent. And yes, we are going to sell these companies and use this money also to keep a buyback. So what we are going to see is optimize exactly that. Eventually, the buyback is, I don't know, $1 billion, maybe $0.5 billion is from Tencent, $0.5 billion is for other companies that we can sell and use the cash to -- I think the right word to use to make a better capital allocation, with the #1 company in China, growing fast, well positioned to win in the AI race. Not the best decision to me to sell Tencent even if we increase the value per share. So if we can optimize selling other things and increasing our participation, that's what we intend to do. We expect to sell at least $2 billion this year. And how can I say, you can expect that we are going to do buybacks using other source that is not Tencent. Unknown Executive: Just to remind shareholders, although we're selling our Tencent stake on a per share basis, we actually increased our exposure in Tencent by the share buyback with the other proceeds from other divestments. And I will further enhance on a per share basis the exposure to Tencent compared to continuing on the current path. So I think that is a critical way of how we can further enhance the share buyback. Eoin Ryan: For example, there's other company that we believe has less focus today than they should. We could sell that we believe has less focus and invest more or sell less of that we believe are performing well, has less focus and we believe are going to the Chinese market. So that's what I mean by optimizing. Unknown Executive: Those companies are the companies you're talking about as the additional EUR 2 billion, right? That's just to be clear. Fabricio Bloisi: At least 2 billion we already sold 1.2 billion, so at least -- and can we use this money to offset, let's say, sell 1 billion from other companies are true. Yes. Unknown Executive: That's something we've seen from the group in many years, a more active portfolio management. Fabricio Bloisi: Yes. The buyback was 100% automatically. That's what I don't mind. We should say we should sell more or less and we should select better what to sell to buy. Eoin Ryan: Great-- and to the second question. Fabricio Bloisi: Yes. The second question was on AI and classifieds, you said. Many people sometimes ask me, if I think -- I'm not the first one this week, if I think AI could have an impact on classifieds. My answer is it's much bigger than that. I think AI is going to have impact in classifieds on e-commerce and food delivery, in investing in analyst reports from banks, AI is going to have impact everywhere. Obviously, as you know, the market today is a little too heavy. So everyone looks like AI winner. But there will be AI wins that will create trillions of dollars of value, not only trillions of dollars of cost, but trillions of dollars of value, and it is going to happen. How I see that on classifieds. The point here is not if AI is going to hit your industry or not? Because if you think AI is not going to hit your industry, you are wrong. It will hit our industry. The point is how we play our game on that industry. And I think what we are doing here in [indiscernible] is very, very good. We are not like -- you said some other company or you said some classifieds went down [indiscernible]. Other -- the again, other classifieds companies, they have been much more conservative in technology, and they invested much less to be classified people were, how can I say, surfing the high profitability without investing a lot in technology. That's not our approach. [indiscernible] as a group is investing in large commerce model to understand the customers better than itself and use data to improve our companies. We're investing a lot on agents. We have more than 20,000 agents doing everything, including many things on classifieds. We're investing a lot in ventures and the only focus of ventures from now is not to be a venture capital that invest in everything, to invest in companies that can make our ecosystem run better or that can run better because our ecosystem. So these 3 areas has profound impact in our classified business. We are using the large commerce model to run better classified business and ads. On agents, we are running a lot of our services to agents, for example, taking care of customers, taking care of retailers. Remember our classifieds less horizontal, more focused in real estate and jobs and -- so we are taking care of the auto retailers and our partners. And third, we are investing in early-stage AI companies that can are betting in growing in classified. So we can make these companies grow faster. And we can also make our classifieds not only keep growing, but disrupt other classifieds. So yes, AI will have impact. I think Prosus is very well positioned about that because everything we are doing. We could talk about that for 1 hour. But part of our positive results, not because we are lucky or because our markets just grow is because we are selling better. We are reducing the cost of ads. We are increasing the efficiency of the company. We have -- we are reducing the requirement for hiring people because our agents expand our working capacity. So we are doing a lot of classifieds. For example, [indiscernible]. We just invested in one company that are automating through agents, the relationship between real estate and their customers. We are doing that by ourselves, and we invest in a company that is growing like 300%, doing the same thing. Our classifieds is very well positioned to use AI as a competitive advantage. So that's how I see growth. Operator: And the next question is going to come from [indiscernible]. Andrew Ross: I've got 2, please. First one is to follow up on Will's question on optimization of the buyback and to understand how it relates to where the discount is at a given period in time. It's been observable that the cadence of buybacks has slowed down in the last few months as the discount has stayed in that kind of high 20s to 30-ish percent zone depending on your definition of the NAV. So should we kind of see that as a signal that the company feels there's less attractive opportunities in buying its own shares relative to the rest of the NAV at these levels? And should we expect the buyback to move up or down depending on where the discount is? That's the first question. The second one is to follow up on the opening remarks on Jet. I appreciate it's going to be hard to give guidance today. But if you could give us a flavor like the level of investment that you'd like to put into Jet, that would be very helpful.. Fabricio Bloisi: Thank you, Andrew. On the buyback, I was concentrating the Jet. You want more information on... Unknown Executive: Whether it's a function of the discount coming down, the buyback. Fabricio Bloisi: What I said is what I don't like is to have a completely automatic thing. So it's a function of many things, how well we are doing, how fast we are growing, how profitable we are, how our discount is. You said that was around 26, 27 over the last 1 month, 2 months. I am an optimistic founder. So you can discount my optimistic opinion. But I will also 1.5 years later, remind you that we are delivering everything that we promised 1 year ago. We are delivering the growth, profitability, the discipline, the complete reset on culture and the innovation. So my optimistic vision is discount will go down more because if the business is very valuable and we have $1 billion, $3 billion, $4 billion in profits in our core that is playing well [indiscernible], et cetera, I will call you later to ask why is the reason to have this level of discount at $26 or $7 or $8 that it was. So considering all of that, the buyback is going to be more aggressive or less aggressive. My point on optimization now specifically is if we can keep buying back, but not only from Tencent, but from Tencent and other assets that we are selling, this is much better for us all. So that's what we are trying to implement now. I [indiscernible] another question. Unknown Executive: Yes, it was on the level of investment for Jet. Fabricio Bloisi: Yes, the level of investment for Jet. It's not the problem, to be honest, Andrew, not the problem today. So how I see that? First, would I invest more in Jet? Yes. My problem today is not invest more in jet that we became operators of the company 6 days ago. We are having the full week of meeting to plan the next 3 or 4 months. The government doesn't even have a plan for the next 3 or 4 months because their budget stops in December. So we are doing today to tomorrow, the planning for the next 3 or 4 months. So we had a discussion last week, should be doing like in 1 day a proposal. The answer is no, you have our guidance without Jet. We will give more information on the guidance with Jet as soon as we have it. But I want to reinforce first, the problem is not the level of investment to me. The problem is the efficiency, 2 things. First, Jet is under delivering what they promise their current guidance, what they are delivering is less than the current guidance. But second, the efficiency of the investment in Jet has to improve before any other movement. So I'm not going to increase investment directly in Jet, if I don't think we are making the I could put $100 million in Jet. It's not very well invested, it's not worthwhile. So right now, we are trying to rebalance return on investments on investments and help technology improve return on investments. That's why the guidance for the next 2, 3, 4 months, they are not very valuable because if we think we can improve a lot in 45 days, I have to run it first and see the results, then a new guidance. So that's why we need 45 days to have a better view on Jet numbers. But I just want to reinforce, Nico want to complement, but to reinforce our level of confidence that we can run Jet better in terms of growth and profitability is very, very high. And we will share in details more about that when we share more data on Jet. Unknown Executive: And Andrew, maybe just to comment on Fabricio said that Jet did not perform well. It was a listed company until last week. Last time it came to the market, you would have seen that order growth was negative 7%. Company guided at that stage given their own internal metrics in euro terms, they reported in euros EBITDA of about EUR 360 million for the calendar year FY '25, which is December '25. Now what I can say to you that some of those trends have continued during Q3, where we've seen further reduction in some of the order growth -- and that will cause and have an impact in terms of the original guidance. Our expectations measure against that is that I will materially invest EUR 360 million. Anyway, my confidence on Jet growing faster and improving result is very high. But since we have 6 days, you need to update the numbers on Jet in the next call. Unknown Executive: I think the important thing to point out here is that the acquisition was not made on the results of this year. The acquisition was made on the expectations for turnover multiyears, which is what you're talking about as planning has just begun on that. Fabricio Bloisi: Yes. So as I said, on these 6 days, we think the numbers are bad because of this reduction of 6% I believe that in 45 days with a strong reset and culture and moving faster in tech, we have good news to share, but we can do that today because it's too early. Eoin Ryan: Thank you, Andrew. And the next question we'll take from Cesar at Bank of America. Cesar Tiron: I just want to focus on M&A. So I have a couple of questions on it. The first one, do I understand correctly that the available firepower for M&A is still around $8 billion? That's the first one. The second one, should we expect you to pose a little bit M&A as you focus on integrating all these assets and focusing on the ecosystems? Or should we expect any large transactions in the next couple of months? And then the third one, it seems to me that you've been talking a lot more about India recently. Should we understand that this is back as a focus area for you? So I felt you talked a little bit more about it than at the Capital Markets Day, for example. Nico Marais: Let me take the first one. So Cesar, thanks for the question. So at the end of September, from a total group perspective, we had $20 billion of cash on the balance sheet, about $18 billion of that related to our central corporate cost, corporate cash position. And subsequent to September, we have settled, of course, the Jet acquisition as well as LA CENTRALE. So that was about $7 billion that were spent on that. So on a pro forma basis, it leaves us with about $11 billion of cash at the center. And obviously, we need some liquidity buffer against that. So what is available for M&A is, I would say, at least $8 billion and more from a balance sheet perspective. Fabricio Bloisi: That said, our priority is not to spend $8 billion or more or [indiscernible] on big acquisitions right now, big priority by far. I think I want to highlight one thing. First, our execution has been very, very good. We talk more about on those meetings, but [indiscernible] is doing very good, very profitable, growing well. So we have good expectations with LA CENTRALE synergies. And second, again, when we announced the -- just acquisition, many people said, but it's expensive. We really don't believe. I think we are paying -- we paid $4 billion to $5 billion in something that should have $15 billion. That's what we have to build. So my biggest priority by far is how we make sure get back growing with the best technology and products in the world and really win in Europe. That's our biggest priority by now. So as [indiscernible] read in the newspapers on the 2 or 3 rumors intends to expand $5 billion to $10 billion things. I can tell you that we read on the newspapers, the rumors, we are quite much focused in delivering right now. And again, I think now I have some reputation inside Prosus. We deliver the numbers we promised. And also, I always talk about transparency. We will give transparency just after a few more weeks or months or quarter. Unknown Executive: So like you said in your opening remarks, it's focused on execution, execution, execution, right? And then the other question that Cesar had was on India and whether it's a bigger focus right now. Fabricio Bloisi: Yes. We talked a lot about the last few days. I met Prime Minister 3 days ago. So it was all in the news that we are talking about. It was really great, to be honest. I'm always complaining Europe has to move faster and talk about creating big tech companies and meeting Prime Minister was how we move faster. He asked me, let's do more. So it was a very inspiring conversation. I think what we've done in India is very good. We are the biggest FTI, international investor in India. Many of our companies has more value to unlock. So we promised you a few IPOs in the last 12 months. Most of them happened. We still have an expectation that there will be another very big IPO and that's going to be big and good of our amazing company. So our returns on investment in India are quite positive. We invested in the last 1 month, I think, in 2 companies that are growing very fast, is growing 120% #1 company mobility [indiscernible] is growing very fast. I don't know now, maybe 70%, something around that. And they are very good online travel agents and travel and mobility, too. So I think we are keeping the consistency in the areas we want to invest. We are keeping the idea of ecosystem synergies and I expect a lot more good news from India, not only like spending a lot of money, but we put that in the presentations. PayU for years, including you, our analysts complaining that PayU has to perform better. PayU is profitable. Finally, after many years, the profitability of PayU is growing quarter-by-quarter quite well, month by month, even better. PayU is helping other companies to grow faster and other companies are helping Pay to grow faster. So and [indiscernible] Ixigo getting closer to our ecosystem will create another positive impact. We are excited that we are going to build more many billions dollars in value in [indiscernible]. Unknown Executive: I think -- and it's clear you can see the operational improvement in the owned and operated PU, but you're also seeing that increasing connectiveness of all of the individual pieces within the ecosystem working together a little bit more. Fabricio Bloisi: So you see this time we shared lots of data in Latin America. Probably you saw that Shark rev in the loyalty in the center and many business around benefit from these customers, and we even shared some data. We are doing the same thing in India. The results are good. We are going to share more data with that in the next few months. So we don't expect to spend $8 billion in India right now, but to keep having good results in terms of ecosystem building in India. And I think the latest investments are very good [indiscernible]. Unknown Executive: And with au now profitable, we can say that all of our main businesses are indeed profitable, which is something we've never been able to say. And when you think about millions to 1 billion and then to multiple billions, that's certainly a necessary thing. Fabricio Bloisi: All the business runs. Eoin Ryan: All right Cesar. So thanks very much for the questions, and we'll move to Michael. Unknown Analyst: Yes. First of all, thank you for letting us ask the questions and for the presentation. So the first one is actually in iFood. So with [indiscernible] now ramping up their presence in the Brazilian food delivery market, what are your thoughts? And what have you seen since October? And then how do you think this is going to impact iFood's growth trajectory over the next year to 2 years? And then maybe just touching on India. So you mentioned that there's a lot more collaboration between yourselves and the different companies that you have minority stakes in. How do you think about monetizing that going forward? Is that largely given from yourselves? Or are they providing data back at a higher rate? Unknown Executive: I understand the name of the question [indiscernible] yourself -- it's a connection of between the companies in India and particularly the minority trust companies and whether there's -- how do we facilitate data sharing to improve the [indiscernible]. Fabricio Bloisi: So first on iFood, I think many of you were in Brazil and visiting Brazil 1 or 2 months ago. The people that were there, they could see iFood is more than one business that they're doing the same thing for the last 5, 7 years. The reason iFood is growing so fast. We just got through including all the business, 160 million orders -- just to remind you, last time we met, celebrated $100 million $160 million orders is because it's a company innovating and rethinking how we offer business and offer the best technology for our customers. So obviously, we have competition now, more competition that is DT and [indiscernible] is also entering Brazil just entered. Those 2 companies entering a few cities, 2 or 3, spending a lot of money per order, like they have discounts of 20%, 50%, 60%, sometimes 70% in an order. So my advice to you, just check later how much they are paying to be there competing. And look, if you give a free meal to someone people, we eat for free. It will have it. But is it sustainable to have the best service, best offer over time. And remember, this is in the core, that is the food delivery. iFood today have besides the core, a big loyalty program that gives free delivery plus discount on Despegar, plus discount, I think, 1,000 other companies. We have fintech. We have dine-in. We have POS machines in the restaurants where we take transactions. We have [indiscernible] where we put orders in the restaurants. We have a credit card voucher credit card with 1 million people buying food with a credit card, paying to iFood. We have the business of ads that is going super well. We invest in 2. We bought one company we invested in [indiscernible], great company in terms of loyalty. We have classified the integration with Despegar is a big success. So everything that buys in iFood, they get 3 points to use on Despegar. We have a company for entertainment that is. We have -- we are launching now -- just now launching one city today this week, iFood plus Uber. So Uber has tens of millions of customers that are not iFood customers, and iFood has tens of millions of customers that are not Uber customers. I guarantee you that we are going to see a lot of cross-sell in the 2 best companies in the region. So some companies are investing a lot to have the offer that we had 6 years ago, and we welcome competition. This make everyone runs faster, but it's much more than let's make the next sale of a business and cash call this business. It is, can we be the best creating new business, innovating, moving faster, iFood is doing that. So if you study around the core food delivery, you see many business. Interesting thing for you because I know you like the numbers and more my things on innovation. Fintech, we spent 2, 3 years saying fintech is the future for iFood. Fintech numbers are growing very fast and profitability in fintech is growing very fast. So our profitability keeps growing because a few business we were investing 1, 2 years ago. I'll tell you true, fintech, groceries and selling to Whatsapp. We were losing money in the last 2, 3 years, now we are making money. So my point is a good business and there will be competition and let's fight for offering the best service for our customers. And I want to remind you, we are very focused in iFood chewing there. Some of our competitors are distracted all around the world. Even in their home markets, there is a lot of, I say, pressure to compete against other players. So we are confident, but we compete. Unknown Executive: And Michael, you also asked in terms of given the competitive environment, how do we see in terms of what the impact of that might be. And look, in terms of the high growth rates that we're very confident that for the second half of this year, we will continue to sort of stay at those levels. And we also reiterated our confidence in our overall guidance. iFood is also investing in new product, but also against some of the competitors, but we built a lot of that into our existing processes. And we are sort of reevaluating various other projects and elements to utilize and free up funding so that we can actually fight against the competitors without changing the sort of trajectory that iFood is on for this financial year. Unknown Executive: I think another important point though is the concept of competition for iFood is certainly not new. And over the years where they've actually had the most competition are the periods where we see the most growth. And one of the things that Diego often says is you focus on price, it's the race to the bottom, but you build a real moat through product. And what you've just described there is an ecosystem that is iFood within an ecosystem that is LatAm -- and I think you've highlighted, I think there's tremendous hidden value in that Pago business that we should and will have more to bring to you guys in the future. Now how about -- we touched on the India ecosystem. And the question there was whether -- how the business -- how you can really build the LCM and the connectivity between those businesses with them connecting data. Unknown Executive: And you asked about minority companies. Unknown Executive: Yes, exactly. Fabricio Bloisi: Look, my mind doesn't work like that. I remember the last results call, someone made the same question. If you are a minority, then you can't cooperate between the companies. I disagree. I absolutely disagree. I think we can cooperate with minority companies. We do it -- we don't do it because I call that and say, I'm boss doing what I'm saying. We do it because we call and say that's how we run fine-tuning our AI models. That's how we run customer support using AI. That's our KPIs on optimizing the partner -- our partners' relationship with agents. When we show off that to a good company, the company say, I want it. I'm going to get this data. I want to run my open just like that. With other companies, another story, we show off that to like, but [indiscernible] showed how they are doing, I think, was multi-language customer support and said, okay, this is very good. We want to use. We want to learn more from that. So the point is not being majority or minority. And if you need to be majority to do something good because there's something wrong or you are not selling well or the guy that is not the right guy. We can work with the minorities because we're saying this company can grow faster. These are the data and the technology that gets there. And we are cooperating well on that. One example, PayU is giving credit and working with customer profiles with users that we are minority investors, but the companies are growing faster because of PayU. That's why we are here. Eoin Ryan: And the other thing to take into account is the LLM so the LC that we're testing now in LatAm, and we're getting some of the results already in the deck. That's something that we can also bring to bear in the other ecosystems. Fabricio Bloisi: So today, we have an event with 80 people from all around the world being trained. We launched [indiscernible] AI house 2 weeks ago, where we have now a center of learning and knowledge of AI that everyone is traveling there to participate in the event. We are running today with 80 people inside process on fine-tuning large language models to optimize e-commerce transactions. So everything that we did in Latin America is now like now really today going to India and Europe. So we don't need to be my to do that. And we are quite confident we have a lot of growth. curiosity, I didn't use a lot of the time of the meeting today morning to talk only about tech and innovation, but it was too much information. So we said, let's focus on numbers today. We will get back soon as soon as all want to talk to me because I want to do it in 2 weeks. But we are going to share why we are more confident than ever that we are one of the best players in AI ecommerce in the world. So we'll talk more about that. Unknown Executive: You brought up the AI and I'll get to your questions again. But I think this is an important thing to pause out because this is something that is kind of inherent in the new culture. It's not something you would expect 1, 2 years ago. Can you talk a little bit about the AI has, why you opened it, what you're hoping to achieve because it is certainly no different. Fabricio Bloisi: I want to make Amsterdam the center of AI in Europe has a lot of knowledge but not vibrant community [indiscernible] every day there. So create a big space in Amsterdam, where every day we have a hackathon meeting of course. And it's open for 2 weeks. We are having every day a big event with hundreds of people, and we are helping the ecosystem and we are helping ourselves to, but we are contributing to make Netherlands a center in Europe AI. We also hosted last week, the House of opening was last week, 2 weeks ago, we hosted the Luminate an event in Europe talking about putting regulators and founders together to reinforce that [indiscernible] was one of the speakers there and President [indiscernible]. We are talking about Europe needs to move faster. Europe needs to play to win. There are many things in Europe regulation, including the AI, congratulations in Europe because we did a big change this week, including the [indiscernible] that we think should be taking more risk to create leaders. So is taking a much more aggressive or premanent position to say, let's lead technology and regulator to create a big European tech leader, and we are very confident on our actions. Unknown Executive: I would tell more time. That's great. Please. Are so we think don't kill my e-mail now. We'd love to have some of our investors and analysts at the AIS so we can match up certain events with your travel. So please reach out to IR. So let's move on. Thank you, Michael. We'll move on to Luke at Morgan Stanley. So let's move on. Thank you, Michael. We'll move on to Luke at Morgan Stanley. Luke Holbrook: I just wondered if I could pick up on this thread of more competition in food delivery. So you signaled more investment in Jet. Obviously, we heard from Delivery Hero and Talabat also pointed to more investment Dash as well being a big theme over the last month. But if we just map that through then for iFood, how can we see that progressing into FY '27? Is that kind of the trajectory that you see there? And just particularly in the context that you may need to -- do you feel like there needs to be more investment into dark stores or more 1P logistics? I'd just be interested to hear your thoughts there. And then just finally, I appreciate you might not be able to say anything, but the Delivery Hero situation. Obviously, you've got until mid-August to sell down to single digits. Is there anything that you can comment on in regards to that? Fabricio Bloisi: Okay. So on competition on Talabat, we have no access [indiscernible] Talabat. iFood made a projection for the year that included competitors, and we are going to deliver on our projection and our growth and everything else. So we are doing quite good. I can't talk today on the numbers for the next year. But as I told you, many of the business that we started 1 year or 2 years ago or 3 years or 4 years ago, they have become mature now. So iFood is more than the food delivery. One example is the iFood Pago. You remember me about that. Remember that Mercado Libre has half of its profit for Mercado Pago. iFood Pago is an important part of iFood already and it's growing. So I don't have any number today to share on the next year. I can tell you that what better for this year, we are delivering, we are happy with that. And we have to do the next year in 1 or 2 months. On the [indiscernible] Hero, I'm sorry, I don't have any update on that. We have an agreement. The agreement is for 12 months. We are going to deliver in the agreement that we made. Sometimes I talk in the press that I believe that this agreement is not the best thing for Europe. Europe would be better as a content if we have global tax champions that said we have an agreement. We are going to do the agreement according to the terms of the agreement, nothing to share. However, we are selling assets of Compass that has lower -- we are selling assets of companies. When I say we are going to sell $2 billion this year, it doesn't include delivery. So maybe we're going to sell more than $2 billion, maybe you're going to sell next year. We just don't have any update on that. Unknown Executive: Maybe just to add to that, a lot of the investments that we're making in iFood to drive the business forward regardless of the competition are exactly in the same areas that we now need to do even better because of the competition. For instance, optimizing the delivery aspect of the business cheaper food elements, the loyalty program. All of those things we have been doing. We're just accelerating and improving even more in those spaces. And now we have the AI elements that we can add to enhance that efficiency. Fabricio Bloisi: And to complement Nico's point on some of the investments we did on iFood over the last 5 years that are quite big, we can replicate that in Jet starting this week because only now we are in the management of Jet. So there is lots of upside inside the ecosystem. That's what I'm selling for 1 year to you. I think Google and Microsoft and Meta and Tencent are winning not only because they have one key product, but because they have a scale in an ecosystem that enable cross-sell AI technology. We have that, and we will have benefit on that on Jet and on [indiscernible]. Unknown Executive: I think one of the things that I think has done a fantastic job of in the past is areas that required investments to scale, then don't need all of that investment going forward. You take some of that from Area A and deploy it into Area B. So it's not incremental investment always in the asset. And I think one of the questions that we get underneath this perhaps is, what does this mean for kind of your future year guidance? And what -- is this a kind of a retrenchment or a return to kind of an investment cycle. But I think you were very clear at the beginning of the call that you expect to go from the 1-point-something billion today, even 3, you said more than that. And that includes investment in the other parts of the business and food. Fabricio Bloisi: So I ask you the credibility to think that first time we talk about $2 billion, everyone said, oh my God, I don't see how they can do it. You get to $2 billion. And -- so we are confident we are going to keep increasing our margins. Eoin Ryan: And I think they've probably said the same thing on 160 orders as I -- so thanks very much for that , and we will go to Robert Calabretta. Robert Calabretta: Yes, first question on the impact of agentic consumer applications on marketplaces. If you look at these agentic applications, people are using it for more and more tasks. In the case of process, I think you saw the first impact at stack overflow where people found coding suggestions of agentic applications better than browsing on the forum. But increasingly, it could be the case that purchasing decisions could also move towards these consumer-aggentic applications like ChatGPT. So I'm wondering, how do you plan to integrate your marketplaces inside of these applications and as user behavior shifts towards consumer agentic applications, yes, could some of marketplaces like Classifieds lose distribution leverage and the data advantage. So how will you address this to stay ahead? Yes. Maybe a second question on the IRRs. I think in the past, you targeted a 20% IRR target with a higher hurdle for start-ups and lower for high-quality, more mature businesses. If I look at, for example, La Centrale, which you're buying for around EUR 1 billion, clearly a high-quality business. it's growing at a CAGR of 13% EBITDA, and you expect that market growth to continue. So I think it's challenging maybe to get the 20% IRR. So I'm wondering what is kind of your lower hurdle in terms of larger investments in terms of IRR. So what is your minimum hurdle to make these deals? Fabricio Bloisi: I'll try to quickly just because of the time. But on the first one, what you just asked, life agents are going to compete against us, Yes. I told you in the beginning, I want to talk 1 hour about our strategy there. It's exactly about that. So what we are going to tell you soon is we are doing large commerce model. We are doing agents focusing our internal and partners, and we are doing life agents -- sorry, life assistance where we deliver this kind of service to our customers. And I think we will be very well positioned because of our ecosystem and how to offer there better than any other player outside. So I could talk about that for 1 hour, but I need you to read a little more. But I agree with you, Robert, it's a risk. Yes, it's an opportunity, too. We are moving fast to lead on that, including on many investments we made exactly on this area. So we are bullish and excited about what we can do in what we call life assistance. Next chapter to know more about that. The second is on IRR. We expect, yes, 20% IRR on La Centrale. Remember, La Centrale is a small company operating more isolated. We think that putting it together with everything we are doing outside, we are going to get good levels of growth, increasing profitability, and we expect it to get more than 20% La Centrale. Eoin Ryan: Great. Thanks. And it looks like will you're back in the line, you want to [indiscernible] I was very stressed. Operator: If you have more time and get back to Rogelio. Will, are you there? William Packer: Sorry, I was. Just wanted to come back. So thank you for your comments earlier, very useful. So it's pretty clear the $6 billion to $7 billion is the right kind of framing for the FY '26 buyback. When we think about FY '27 and beyond, is that the kind of level we should be thinking? Or is it just you're going to have optionality and decide depending on the relative appeal of different uses of capital? Fabricio Bloisi: Companies, they do a buyback very specific. I'm going to buy back $5 billion. We are doing an open buyback. So we are not exactly not saying this is the number for the next 1, 2, 3 years. So we don't have any number for next year. But as I told you before, what I don't like is to have an automatic thing. We have to analyze what we have opportunities, what we have, what's happening in the world. I'll give you one thing to think. I think [indiscernible] is ridiculous ship. But again, oh my God, we can have a company that's creating $1.5 billion close to that in profit and still have a discount. The world is not like that today. We have many companies valued at 100x revenues. having our cash position, maybe the world is going to change. That's my point. There's a lot of change ahead. I think Prosus is very well positioned. If the world change, we are going to become even a more attractive company because we are doing innovation, AI, we are generating cash and we have investment capacity. So for sure, since I have an open buyback, I don't need to think how it's going to work next year, 1 year in advance. I have to keep playing well with discipline, with good capital allocation. That's what you asked me 1 year ago. What I'm telling you now, 1 year after, we delivered the discipline. One year after, selling less Tencent and more other companies is good capital allocation because we believe much more in the growth of Tencent. But what I commit to you is we are going to keep executing well, but we don't have a guidance for next year yet. We don't have it. So in 6 months, maybe we can share it more. Again, I'm confident we are going to keep executing well what we have in terms of innovation delivery to me. I think next year is much more a year of opportunity for us than a year of, oh my God, how we are going to handle not delivering what we promise. Eoin Ryan: Okay. Thank you. Will 4 minutes left. So let's Thanks, Will. We'll try to get 2 in Nadim from SBG. Nadim Mohamed: Just 2 very quick ones from me. So we noticed that the likes of Rightmove and others are investing at quite a high rate in AI. This has the impact of weighing down on their profitability. I'd just like to understand how process have done it so that you have -- because we haven't really seen that impact on profitability with these substantial investments in AI and LCM. And then just on top of that, just how much of a differentiator is it when you're looking to acquire a business like La Centrale, the ability to bring these capabilities to the acquisition post deal? Unknown Executive: So the first question was how has OLX been able to do so well and expand margins meaningfully while investing in AI, whereas other companies, I won't repeat their name, have now had to kind of reset expectations because they're investing. And it's been a long journey of OLX investing in AI. Fabricio Bloisi: Yes. So I think it all started 1 year ago on culture, focusing results, innovating more. I think OLX is really delivering and operating well, but also it has the support of an ecosystem. So many of the things OLX is setting up right now, they are also learning and sharing from inside the ecosystem. Large commerce model, for example, the investment was in the holding and iPhone. And now that it is ready, we are pushing it through [indiscernible]. So I think -- look, that's the central story or thesis of Prosus. We can have one classified company operating in La Centrale region by itself or -- and that's my thesis together a bigger group that knows to operate classified and AI, we can make their performance better. The first big company we are operating at is Despegar. The number of Despegar doesn't look that big because April, May and June were bad were bad. I look to Despegar month by month, it is increasing every month for 6 months. So that's the difference. OLX benefits from that. And I think I'm quite sure is going to benefit from that too. Eoin Ryan: So the overall benefit of being part of the group. Nadim, thanks very much. We have to move to the last question. I think we're going to land this. Maddy take us home, please. Madhvendra Singh: Yes. Just 2 quick ones from my side. The -- your recent positive trip to India and the meeting with the Prime Minister Modi, would you say your CMD ambitions for India were too conservative in hindsight, I mean, with just about 1.3x revenues from FY '25 to FY '28 and just above 5% margins, that's what your CMD guidance was. So wondering whether that changes at all post the meeting with the Prime Minister. And then the second one, on the asset monetization opportunities outside of Tencent and [indiscernible], is there any major opportunities you can talk about? Fabricio Bloisi: So first, it was inspiring Prime Minister was really expiring -- but then you said many numbers, 13, 14, 15. I didn't connect those numbers super well. for you. Unknown Executive: Yes. So look, I think the numbers you is referring to related to essentially the long-term ambition that we shared at the CMD for India. But essentially, at that point, those are the control businesses at this stage in India. And obviously, we -- the ecosystem around that is much bigger. So it really depends how the control positions evolve over the next few years. So it could be substantially different depending on how we [indiscernible]. Fabricio Bloisi: Yes, makes total sense. That's why we didn't recognize the number because we are looking just to pay you. Our expectations are bigger than that. But that's the way it is. We have report on that. after talking with Prime Minister, if something changes. I'll tell you, yes, I'll tell you one thing. We did all the -- we moved faster in innovation within Brazil and Europe. That's the true thing that we're really running on AI. I think we are this big thinking. India has to lead. India cannot be one day behind Brazil and Europe. So expect more moves from us, making sure we have the best AI possible in India. Then another question? Unknown Executive: I forgot the other question. We've got 2 billion for this financial year. There are other assets that we can consider, but we're not going to sort of preannounce any at this stage. Fabricio Bloisi: Yes. There is some recommendation. We don't say we are selling this company. We probably can understand why. But our portfolio is much more than. So there is many others. Some of the others we talked about it here today, but there is many others, other 5 or 10, and there's many more billions we could sell, but we're not going to say exactly what. I can guarantee you this year, we sell $2 billion, probably in the next 6 months, we are going to announce how many billions we are going to sell the next year, at least a few more billions. Eoin Ryan: All right. Well, thank you for that, Maddy, and thank you very much, everybody, for joining us. there are a couple of words you want to leave us with? Fabricio Bloisi: Do you want to say a few final words? I have to say -- so a few final words. Today, the focus on numbers. And I'm happy. I think we are moving on the right direction on numbers. We will get to a few billion dollars in profit. There's much more to talk on execution of Jet, not for today and much more to talk on innovation, specifically the question that someone asked me today, I will talk exactly about that. So I am always unsure that we should be doing more and moving faster. I think we are moving well. Just getting started, but our thesis year ago is we are going to be a strong tech-focused operating company. We are going -- we are getting there. So I'm excited with the results. I hope you enjoy them too. And I hope we're going to keep sharing good news with you in the future. Thanks for coming, and thanks for being partners. Let's keep building the future together. Thank you. Eoin Ryan: Thank you very much, everyone. Thank you, guys. And there are a couple of questions here that I will follow up. And always, if you have follow-ups, please reach out directly to your friendly IR team, and we will see you very soon. Thank you very much. Bye-bye.
Matias Cardarelli: Good morning, everyone. It is a pleasure to share PPC's progress at the halfway point of our FY '26. Results to date reflect not only continued progress, but also building on the foundations cemented last year, driving sustainable growth and operational improvement. I want to extend a warm welcome to all of our investors, our Board, employees and members of the media as well as other stakeholders who have joined us today. Your ongoing support and confidence in PPC remain critical as we advance our turnaround journey. Brenda Berlin, our CFO, and I will share the first half FY '26 financial results, key highlights of the year and progress on our strategy implementation. I will start with the business highlight, followed by Brenda's review of the financials. Then I will return for the business review and outlook. We will have time for your questions at the end of the presentation. Last year, we presented a new direction for PPC, a fundamental shift in the group's strategy, culture and focus areas. Steadily and consistently, we have been rebuilding PPC. FY '25 marked the beginning of this pivotal chapter for PPC in which we implemented structural improvements and delivered a strong recovery in our financial performance. This strong momentum has continued into FY '26. Central to this transformation is our turnaround strategy, Awaken the Giant. It is ambitious by design and grounded in the confidence that our success would come from internal drivers regardless of macroeconomic or competitive pressures. By unlocking internal value and sharpening our competitiveness, we have laid the foundations for growth and sustainable value creation, which is reflected in the numbers over the last 18 months. I believe our message might have been difficult to grab at first, but we believe it has led to a better understanding of our industry and business drivers. Clarity matters to both understand what is driving our current results, but also the PPC potential. PPC was struggling for relevance and stuck in a negative and confusing narrative. This remains, to some extent, in the sector today. Our results are becoming a reference point in the sector as a consequence of our focus on profitability and value to shareholders. We got off to a strong start in FY '25. And now in the first month of FY '26, we continue to deliver ahead of our FY '25, FY '30 strategic plan. This progress is evident in profitability, margin and cash flow generation. It is also clear in the significant increase in return on invested capital, reflecting a clear shift towards shareholder return and growth. Importantly, the quality of our earnings. This means that our performance is underpinned by solid fundamentals, sustainable margins and prudent capital allocation. This guarantees that the growth is achieved responsibly and maintained over the long term. This is PPC today, delivering ahead of plan with quality earnings and definitely more to come. Let me make a moment to highlight what truly sets PPC apart in our markets. Why is PPC delivering the best in sector results? From the beginning, we stated that our focus was on the quality of revenue, ensuring margins that they are both leading and sustainable. A purely revenue-driven approach might deliver short-term gains. But in a competitive context, it becomes a race to the bottom that erodes margins, value and risk the sustainability of the sector. Instead, we leverage our competitive advantages to deliver value to customers through high-quality products rather than only competing on price. We can also leverage our unique footprint, capacity availability and asset flexibility to allow access to key regions and markets. On top of this advantage, our focus has been on optimizing our production and distribution model. This enables us to plan and realize more effective contribution margins, ensuring that every sale brings the most value. Continued capital investment in our assets is another clear differentiator, one that sets us apart now and will have an even greater impact in the future. In a competitive market, we know that technology, asset age and maintenance are critical for margin enhancement. We continue to invest in and maintain our assets to enhance capacity and efficiency. Well-maintained assets and the newest technology position us strongly for growth and further competitive advantage. When it comes to product offering, I want to address an important aspect of our business related to our competitive position in our markets. Firstly, PPC operates in all cement segments across most regions. This allows us to stand out in the marketplace and attract a full range of customers. We are a premium brand because we are a premium quality. Our premium quality is matched by our ability to scale, guaranteeing supply and consistency to meet the diverse needs of our customers across all segments. Finally, our management team brings over 100 years of combined cement industry experience, both locally and internationally. This depth of expertise in our first and second line of management allow us to execute effectively on our strategy. Looking at the results for the 6 months ended in September 2025. You can clearly see the positive impact of the turnaround in all key metrics. When we launched the Awake in the Giant strategy, we set out clear metrics to define sustainable success and unlock future growth. Those were EBITDA, EBITDA margin, free cash flow and ROIC. The combination of these indicators determines quality earnings and shareholders' returns. We keep progressing in all of them. EBITDA has grown 24% to ZAR 983 million. EBITDA margin expanded by 2.6 percentage points to 18.3%. Free cash flow from operations surged 32% to ZAR 661 million. Record dividends declared for Zimbabwe, reaching USD 20 million from USD 4 million last period. And lastly, ROIC improved significantly to 13.4% from 7.1% last period. What is driving these results is the cumulative effect of multiple initiatives, building on the momentum established over the past 18 months. These continuous improvement efforts are already delivering and importantly, are expected to have an even greater impact going forward. The growth in the first half results is especially noteworthy because it was largely driven by our South African cement business, which expanded EBITDA by over 30% with an EBITDA margin of 17.5% -- in Zimbabwe, a very high demand boosted volumes, revenues and EBITDA. However, the planned kiln maintenance shutdown in Q1 increased our reliance on imported clinker, which temporarily impacted our margins. Overall, the business generated record cash flows, driving higher dividends. In summary, we delivered quality earnings growth, strong cash generation and improved returns. I will hand over to Brenda now to cover the financial review. After that, I will deal with the business review and outlook. Brenda Berlin: Thank you, Matias, and good morning, ladies and gentlemen. Matias has already touched on some of the key metrics. But as usual, I will start with reemphasizing some of the key features of the consolidated group, followed by some more detail on the SA & Botswana Group and then Zimbabwe. I will then close on capital allocation, capital expenditure and returns to shareholders. Moving to the consolidated group key features. Group revenue increased by 6.2% to ZAR 5.4 billion. I will go into a little bit more detail later as to the split of this increase across the SA & Botswana cement, materials and Zimbabwe. The increase in revenue, combined with continued cost control resulted in the expansion of the EBITDA margin by 2.6 percentage points to 18.3%. The increase in EBITDA by 23.5% to ZAR 983 million is also reflected in the 32% increase in adjusted headline earnings per share. The pro forma adjustment relates to adding back the unrealized foreign exchange losses on hedging instruments taken out to derisk PPC's balance sheet from rand weakness in constructing RK3. The group continued investing in equipment and spent ZAR 225 million on CapEx during the 6 months, almost all of which was maintenance expenditure. No expenditure was capitalized for RK3, but there were advanced payments totaling ZAR 317 million in the period, which are reflected in working capital. Adding back the ZAR 317 million paid to RK3, net cash inflows from operations increased significantly from ZAR 500 million in the comparable period to ZAR 661 million in the current period, an increase of some 32%. The ROIC of the group expanded by 6.3 percentage points to 13.4%, which is well ahead of the plan. Before going into the income statements of the respective businesses, this slide just sets out some key points to contextualize the results. The SA operations had a strong performance with EBITDA increasing by 36%. The Zimbabwean operations had an extended planned shutdown of the kiln in Q1 of the current period. Matias will go into more detail on these 2 points in the business review. Notwithstanding the Q1 shutdown, PPC Zimbabwe generated strong cash flows and declared $20 million in dividends during the 6 months. This compares to ZAR 4 million in the prior period. As mentioned already, we paid ZAR 317 million in advanced payments for RK3. The unrealized foreign exchange losses that are adjusted for in the pro forma HEPS amounts to ZAR 54 million after tax. The SA & Botswana Group ended the period at a gearing ratio of net debt to EBITDA of 0.1x, well below the target range of 1.3 to 1.5x. This slide sets out the key line items on the consolidated group income statement. Before going through the numbers, an overall point is that it is worth noting how clear and simple the income statement is now. It is significantly less confusing to go from EBITDA to profit after tax. A few years ago, there were no less than 9 line items below trading profit compared to the current 4. It is much easier to manage and understand a clean income statement. As mentioned, I'll cover both the SA & Botswana Group and Zimbabwe in a bit at the EBITDA level. The absolute increase in EBITDA of ZAR 187 million is reflected in an increase in trading profit as depreciation was almost flat over the 2 periods. Moving on to some relevant items below the trading profit line. The fair value and foreign exchange losses in the current period include ZAR 74 billion pretax unrealized foreign exchange losses that I've already talked about regarding the pro forma HEPS adjustments, ZAR 34 billion in realized FX losses on the advanced payments made for RK3 and ZAR 15 million loss on translation of foreign currency-denominated monetary items for PPC Zimbabwe and PPC Botswana. Net finance costs reduced by ZAR 15 million. Finance costs themselves reduced as we had both lower borrowings and lower interest rates compared to the prior period. Investment income or interest received also reduced due to lower average cash balances. The cash proceeds received on the sale of the Rwandan operation were held for almost the entire period before a special dividend was paid out in September 2024. Closing this slide with the effective cash tax rate of 33%. This is in line with the prior period and previous guidance. The single biggest item in the current period that increased the effective rate from the statutory rate of 27% is withholding taxes paid on dividends declared by PPC Zimbabwe. This is the final slide of the consolidated group. As usual, it depicts the contribution to both revenue and EBITDA by the SA & Botswana Group and PPC Zimbabwe, respectively. The numbers inside the wheel depict the current half year percentages with the prior period shown on the outside. As can be seen, the relative contribution from the SA & Bots Group at a revenue level declined by 5% from 70% to 65% and increased by 6% at the EBITDA level. I will now move on to give an overview of the SA & Botswana Group, followed by Zimbabwe. The SA & Botswana Group is an aggregation of 3 components, with the main driver being SA & Bots Cement. The materials businesses comprise ready-mix, ash and aggregates with PPC Limited and other being essentially listed company overhead. Matias will go deeper in the business review, so I will just touch on a few key features on this slide. Regarding South Africa and Botswana Cement, strong growth in Q2 followed a weather disrupted Q1. The focus remained on contribution margin and cost efficiencies, resulting in a very sound 31% EBITDA growth. The Materials segment shows a significant but not material decline in EBITDA. The EBITDA for the aggregates and ready-mix businesses were more or less flat compared to the prior period with the ash business responsible for the overall decline. Volumes in the ash business declined by 42% compared to the prior period. Dealing with PPC Limited and other, in the prior period, all of the centralized group services costs were in the segment. As of 1 October 2024, all group services staff were transferred to SA Cement being the main reason for the improvement in cost in the segment. On the next slide, I will deal with the cash flow bridge for the SA & Bots Bo Group, but the gearing being net debt to EBITDA remains very low at 0.1x. To remind you, it is expected to peak for 1 year in FY '27 when the construction of RK3 is largely completed. In this peak funding year, we expect to be below 2x when the required net debt-to-EBITDA covenant is 2.5x. Dealing now with the SA & Botswana Group cash flow. What is shown on the slide is the waterfall for the current period up to in the first instance, net cash generated by the core business of ZAR 256 million. Dealing with this section first. What you can see is strong operating cash flow before working capital changes of ZAR 584 million, a small working capital release of ZAR 11 million, bearing in mind the ZAR 410 million reduction in working capital for the year ended 31 March 2025. Taxes, CapEx and other core operational business activities are then depicted to arrive at the net cash generated. What is shown after net cash generated are nonoperational items with the material items being essentially, the investment in RK3 is showed at ZAR 351 million, being both the advanced payments and realized ForEx losses. Dividends received from PPC Zimbabwe of ZAR 211 million versus PPC share of the USD 12 million paid in the current period with a further $8 million being declared, but only paid subsequent to 30 September. Distributions to shareholders in the current period of ZAR 274 million being the ZAR 0.176 per share declared in June 2025. Overall, net cash decreased by ZAR 193 million in the current period, leaving gross cash at ZAR 543 million at 30 September 2025. Drawn long-term facilities remain at ZAR 500 million, plus ZAR 2 million in accrued interest, which leaves net cash at ZAR 41 million at half year-end. The reason for the small gearing ratio on the previous slide is that capitalized leases have to be deducted as debt for the gearing covenant. Set out on this slide are the key metrics for Zimbabwe. We keep this slide in U.S. dollars so that you can see the numbers in PPC Zimbabwe's functional currency. There was a strong increase in sales revenue of some 25%, which is in line with volume increases as demand remained high. Q1 margins were affected by the need to import clinker during the planned shutdown, but exceeded the prior period margin in Q2. CapEx increased by $2.3 million due to the extended Q1 shutdown compared to a much shorter stop in the comparable period. Record dividends declared of $20 million. As I mentioned on the previous slide, $12 million was actually paid in the current period with PPC share of the remaining $8 million received in November 2025. Repatriation of dividends remains consistent. Cash balances at the end of the period was strong at $14.4 million, 96% of which is in hard currencies. We are progressing steadily on the conditions precedent to the sale of the Arlington property transaction. Moving on to the last slide on capital allocation now. On the left-hand side of the slide, you can see the actual CapEx spend for the group over the last 2 years. The forecast spend for FY '26 is also shown. The budgeted ZAR 450 million for the group in FY '26 includes some catch-up on value accretive and reprioritized projects deferred from FY '25. This increase on the actual FY '25 spend is almost all attributable to the SA & Bots Bulks Group. The spend on RK3 has commenced. The previous forecast spend for this FY '26 was ZAR 1.18 billion. And as you can see, this has reduced to ZAR 920 million due to timing adjustments. Return on invested capital, or ROIC, remains a key focus, and all expansion capital has to meet stringent criteria. The ROIC for H1 FY '26 is set out on the top right and has consistently improved since 30 September 2024 when it was 7.1% and 10.6% at 31 March 2025. We expect ROIC to weaken in the short term being H2 FY '26 and FY '27 as CapEx is spent on RK3 with no associated return. Thank you. I will now hand you back to Matias for the business review. Matias Cardarelli: Thank you, Brenda. Before we dive into the business review of the period, I want to take a moment to reflect on what has enabled us to deliver these results. From the very beginning, our top priority was to build a strong foundation for PPC. This meant a fundamental change to the core of the organization. I was very frank about the scale and gaps we found from the organizational culture to governance, controls, management information, people skills and importantly, leadership from the top to the various level in the company. Difficult decisions were necessary and were indeed taken. It was the only way to turn around PPC. In my view of leadership, bridging the gap between words and actions is essential. Authenticity and accountability are not buzzwords. They underpin trust. PPC's leadership team is committed to transparency and delivery. In this context, we act quickly and decisively. We address long-standing issues, brought in critical expertise, strengthened processes and controls and realign priorities to ensure a focus where it matters most. These actions had an immediate impact in all areas of the organization and meaningfully improved the financials. While this process is far from being completed, we have made good progress. This year, we conducted a pulse survey on employee engagement. The survey was designed to capture the voice of employees, providing a clear understanding on how the turnaround is being experienced across the organization. In the context of change, it was vital to understand the general sentiment. Participation was very high at 93% and feedback was extremely positive regarding the need for the turnaround, belief in the strategy and confidence in leadership. This alignment between management and our teams ensures the sustainability of the turnaround process. On the back of the positive trajectory established in the last financial year, in FY '26, we needed to deliver consistent and sustainable progress across the business. I am pleased to report that our group results reflect this. As I mentioned before, the key highlights of the current results is the sustained growth trajectory with expansion across all the key financial indicators. In the first half of FY '26, the main driver was the solid performance of our South African cement business. The second leg of our performance was in Zimbabwe, with EBITDA increasing and EBITDA margin recovering strongly in Q2. As we presented before, the Awaken the Giant turnaround is anchored by 4 key pillars and 8 supporting commitments. We track performance of these initiatives, both at operational level and at [ESCO] level to embed these priorities into our company DNA. While we have made progress across all 4 areas, there is still room for improvement. Two areas have developed faster and continue to gain traction. Regarding the Less is More pillar, simplification and standardization are delivering value and a new wave of initiatives will bring additional gains as we further optimize our production and sales mix. The cost mindset pillar has had a radical impact from the beginning with strict control over noncore expenses, overheads reduction and supply contracts renegotiation. Importantly, this cost discipline is expanding and will have a compound effect in the periods ahead. The operational turnaround, even with a well-maintained asset base takes more time. We are progressing and taking firm steps. We are now in the first year of our 3-years plant performance improvement plan, which has established benchmark metrics, clear targets and robust actions plans. The supply chain area is more advanced and continues to drive results. The in-source new logistics area continues to deliver material savings. The centralization of procurement last year, coupled with streamlined processes is transforming procurement from a reactive function to a proactive driver of cost savings and working capital efficiency. On the commercial pillar, as I mentioned before, the progress will go hand-in-hand with our competitiveness evolution. As our competitiveness improves, we are increasingly able to roll out our commercial strategy. We have started to combine higher revenue with growing margins. Market share at all costs has never been and will never be our strategy. The giant is moving, powered by productivity and efficiency gains, disciplined product mix with savings being realized throughout our cost base. Let me take you through the results per segment and introduce the operational metrics driving our business performance. Turning now to the South African cement business that delivered remarkable positive numbers. In the context of a low growth market and intense competition, our performance marks a material improvement driven by consistent execution and clear focus. EBITDA growth of 31% period-on-period and EBITDA margin expansion to 17.5% are particularly noteworthy. When it comes to revenue, we must clearly separate the 2 quarters of the period. In Q1, the abnormal and persistent rainfall affected both sales and production in our Slurry and Dwaalboom plants. In the second quarter, we saw a strong rebound of our sales across key regions, such as Mpumalanga, Limpopo and the Western Cape. Overall, cement sales grew by 2% due to a strong 10% increase in the second quarter. This growth not only reflects pockets of higher demand, but also demonstrates our improved competitive position and ability to recover market share profitability. Our operational discipline is evident in the 5% reduction in cash cost per ton. To secure contribution margin per ton and gross margin growth, the cost management in place was critical and marked by tight control of variable and fixed costs, outperforming inflation, significant logistics savings after in-sourcing the function and continued overhead savings. Following the quick wins achieved in outbound logistics with a rand per ton per kilometer cost reduction of 14% in FY '25, in H1 FY '26, we delivered a further reduction of 13% comparing to the previous period. It is noteworthy that we have more logistic initiatives planned to benefit FY '27. On the operational front, we have seen real progress, driving both lower variable cost and carbon emissions, including higher production levels of clinker and cement in our integrated plants, lower clinker incorporation and a 3 percentage point improvement in the kilns OEE. In short, a very positive performance and trajectory in South Africa. Turning to our South African material business. Overall, revenue declined by 7% to ZAR 494 million. EBITDA was ZAR 14 million down from ZAR 28 million in the same period last year. The reduction in EBITDA was driven by the ash segment. The ash segment with volumes down by 42% period-on-period continues being impacted by some of our customers moving to low-quality unclassified ash. In ready-mix, period-on-period, volumes fell by 8%, mainly due to adverse weather condition in Q1. We are seeing projects ramping up towards the end of the second quarter. Aggregates, on the other hand, delivered positively with volumes up 11% period-on-period. However, the cost improvement were offset by an increase in a noncash rehabilitation provision, leaving EBITDA flat comparing to the prior period. Turning to Zimbabwe. In the first half of the year, we continue to deliver EBITDA growth and record level of cash generation, underscoring the strength of our business and the potential of the market. Revenue for the first half surged by 25% to USD 106 million, reflecting a robust market demand. The demand for cement is high, and PPC is uniquely positioned to supply into this growing market. With our premium brand, national footprint and the full range of product, we are able to deliver consistently to our growing customer base. EBITDA grew by 13.6% to USD 25 million with an EBITDA margin of 23.6%. EBITDA and EBITDA margin strengthened considerably in Q2 and have remained strong. The previous year assessment of root causes of the operational inefficiency and unplanned stoppages led to a target 3 years plan to improve equipment reliability at our Colleen Bawn plant. These root causes do not need to be addressed only with CapEx, but with planned maintenance and the right expertise. To this point, PPC Zimbabwe has entered into a technical agreement with Sinoma overseas to strengthen our local capabilities. The Q1 Colleen Bawn plant stoppage was the commencement of this 3 years plan. This stoppage in a context of a very high demand lead to a higher consumption of imported clinker and consequently, higher cash cost per ton of cement. Since then, operations have normalized, and we are operating at our expected margins. The recent introduction of slag-based product is also already having a positive impact. The reduction of clinker content by 5% to 10%, depending on the product support cost efficiency, brings additional cement production capacity and reduce CO2 emission. In summary, Zimbabwe remains a strong contributor to the group, and we are well positioned to continue benefiting from a high demand context. Again, I will share my confidence in our turnaround process. This early delivery in FY '25, combined with compound momentum in H1 FY '26 has only strengthened that confidence. As we look ahead of FY '26, our message remains unchanged. We started this year with a strong foundation, and we are determined to build on that success. The Awaken the Giant strategy remains solid. In South Africa, relative to the prior period, we expect EBITDA to maintain a growth trajectory in the second half of FY '26. This is particularly significant given that we will compare against an outstanding H2 in FY '25, which we saw over 80% growth period-on-period. Our commitment to cost discipline and quality revenue growth will sustain this positive trend. In Zimbabwe, we anticipate another record year with EBITDA expected to surpass last year's high and additional dividends are projected in the second half of FY '26. As I mentioned, the market is very active, and we are focused on capturing this demand. Importantly, certain key projects will also go live in FY '26 and further progress will be made on our strategic initiatives. These investments are designed to unlock new value, drive efficiency and position us for both short-term gains and sustainable growth well into the future. As Brenda highlighted, the discipline in capital allocation will remain, ensuring a solid balance sheet and financial resilience. In summary, both group EBITDA and EBITDA margins are expected to increase in FY '26 from FY '25 levels. The giant is not just a wake, it's moving with a clear direction. As I mentioned, we are also getting real traction on strategic projects. These are not longer just plans for the future. They are becoming the reality of a more efficient, environmental-friendly and sustainable PPC. Alongside our turnaround initiatives, we have been diligently implementing structural projects that are reshaping PPC. Let me start with our new solar project, which perfectly align returns and environmental sustainability. In South Africa, we have rolled out the installation of solar facilities at our 2 main plants, Dwaalboom and Slurry. Each site has a peak capacity of 10 megawatts. Both plants are already generating electricity. And once fully operational, this solar installation will supply approximately 30% of each plant annual electricity needs. The financial impact in FY '27 will be substantial. In Zimbabwe, the solar project is advancing with our partners to install a 20-megawatt solar plant with battery backup at our Colleen Bawn. Since currently after logistics, electricity is our main cost there, the impact is expected to be significant. This project is planned to go live in FY '28 as defined in our strategic plan and will be a step change for PPC. This investment will not only improve our cost base and strengthen our energy security, but also demonstrates our commitment to environmentally sustainable operations. In the middle section, we have the new Western Cape plant. I am pleased to report an update on the RK3 project, a game changer for PPC and the South African cement industry. The project remains on schedule and within the approved budget. We have made progress in several fronts. Engineering and design are nearly complete. Manufacturing of key equipment has started with the first delivery already on site and civil works are advancing as planned. Importantly, our project governance, cost control and reporting structures remain robust and effective. Overall, the RK3 project is progressing, and we remain confident in our ability to deliver this critical investment on time and within budget. Turning to the last image, the calcined clay testing. We are proud to have conducted industrial trials of calcined clay in the Western Cape. Calcined clay, a new extender could be a true innovation in the cement space in Southern Africa. As we align our carbon emission targets with our business performance targets, this innovative technology is a sustainable cementitious product alternative, potentially at a considerably lower cement production cost. We are in early stages of the trial, but we are excited about its potential. This slide has not changed since we presented in our last Capital Market Day. The plan and goals for FY '30 remain in place. This image tells a simple but powerful story. We set out a clear and ambitious plan, and we are already ahead. We started by rebuilding PPC's foundations and driving significant improvement step by step. The Awaken the Giant strategy is our guide, and the results are visible. Stronger EBITDA and EBITDA margin, rising ROIC and consistent growth in cash generation. We are delivering. And as we look ahead, our plan remains unchanged. We will consolidate the gains in FY '26 and FY '27 to set the stage for the next step change in FY '28 with the RK3 plant fully operational. Our targets are ambitious and achievable, sustainable EBITDA margins above 21% and ROIC well ahead of our cost of capital by FY '28. This is not about short-term wins or changing direction with every headwind. It's about building for the long term, staying the course and proving that we do what we say. The foundations are now strong. The momentum is real, and we have a track record of delivery. The present and future of PPC are exciting, not just because of the results we have delivered this past 18 months, but because we have proven what is possible when an aligned and experienced team execute the right strategy with discipline and a clear understanding of our business. Our strategy remains to continue making PPC a stronger and more competitive business on that, consistently delivering improved financial performance and generating real cash back profits. This journey has already begun, and the results are concrete and tangible. Yet, as proud as I am of these achievements, the future holds even more exciting chapters for PPC. Thank you for your support and for being part of this Awaken the Giant journey. Now we will have time for some Q&A. Unknown Executive: Good morning. We have a number of questions here, and I'll just take them in order as they've come in. Matias Cardarelli: Okay. That's good. Unknown Executive: The first 3 questions are all from Titanium Capital, Charles Boles. On Slide 5, you talk about the importance of a strong asset base. Is there an issue in Zimbabwe with the age/efficiency of the plant? Is PPC at risk if Dangote proceeds to build capacity in Zim as speculated in the press? Matias Cardarelli: Okay. First of all, Charles, thank you very much for your question. I don't know exactly when you made that question, but probably that address the main things about your question about Zimbabwe. Yes. Of course, we are updating the technology in Zimbabwe, and we are improving our maintenance there. That is why we commented today that we have put in place a 3 years plan that started this year with the first shutdown in Q1 of FY '26 in our Colleen Bawn plant. The second thing that we are doing in Zimbabwe, as you have seen in the presentation, is we are starting our solar project, which is going to bring a significant savings and also is going to improve significantly our CO2 emissions. The third thing that we commented today is that we have signed an agreement with Sinoma Overseas recently to be able to have the support of the biggest and most important engineering cement company in the world to upskill our talent in Zimbabwe to make all this process faster and more sustainable. On the other hand, please remember that we have the newest plant in Zimbabwe in Harare. And overall, we have good assets there. But yes, it's very important to update and to well maintain our assets to run there. In the case of Dangote, allow me to say this respectfully. I think it's very important to differentiate between announcement and reality. We all read that announcement when Aliko Dangote visited the President in Zimbabwe last week. We don't have any indication that, that project is going to materialize anytime soon. We monitor all of those news. So we don't see that something that is at least for the moment, real. I think I will take advantage of this question also to comment something also in the direction of trying to differentiate between announcement and reality. It's probably that in the following weeks, we are going to see an important announcement in the South African cement industry with probably the arrival or the change in some shareholders of one of the cement companies. I'm sure that, that situation when it's going to be announced, is going to come with a lot of announcement of a big investment, et cetera. I think it's very important for investors nowadays to be able to clearly differentiate between what people say and what people really do. This will help, I think, investors to take the right investment decisions. The second one... Unknown Executive: The second question also from Charles. We understand there is a dispute with Cashbuild. Could you give us some understanding what this dispute relates to? Matias Cardarelli: Well, Charles, I'm not aware of any dispute with Cashbuild. Honestly, Cashbuild is an important customer for us. We have a proactive working relationship with them. Yes, what is true is that Cashbuild approach, generally speaking, is mostly about price. They are looking for the lowest price cement price that they can get. And for us, it's very clear, our driver is contribution margin. We are not in the game of dropping prices to protect volumes or to gain market share like many other cement producers do in South Africa. So we don't have any dispute that really as far as I know, with Cashbuild. We have good working relationship with them. And Cashbuild and any other customer have the right to decide if they would like to buy our product or they prefer to buy product for another cement company. We believe that PPC put in place the best value proposition, which is not only price but also quality and services. So this is our proposal. No, I'm not aware of any dispute with Cashbuild that we have. Unknown Executive: Thanks, Matias. Last question from Charles. Afrimat has increased output from the Lafarge facilities. There is also more capacity coming online in Mozambique plus growing imports. Do you expect this will put cement pricing under pressure going forward? Matias Cardarelli: Well, it's a strange question because that Afrimat is bringing more capacity to the market. That is the question? Unknown Executive: From the Lafarge facilities. Matias Cardarelli: Because this is the public information. Afrimat had 2 major breakdowns in the past 6 months in both kilns, particularly one of them, a very serious one that prevented them for supplying cement to the market. Actually, there was a kind of shortage of cement at the moment and some Afrimat customers were looking for other supply sources. And Afrimat also needed to go to buy clinker that was also not easy for them because there is not a lot of extra capacity clinker in the market. So I'm not sure what do you mean by Afrimat increasing output. What we have read and listened from Afrimat is that Afrimat is saying that it's going to increase their presence in the 32.5% market in the inland region, meaning South Thimphu, Malanga and Limpopo, which is important to clarify that, that is a market that is the red ocean of the red ocean in the country. It is the low-strength market where operates all the blenders, all the importers, all the integrated plants. So that announcement from Afrimat probably indicates that, yes, there is going to be an increased price pressure on that particular segment, which is a segment that -- for us is not very relevant. We don't -- that is just a small percentage of our sales, it's not a market that for us is relevant. So probably, if AfriSam tried to get some market share in that red ocean market, we might see some price pressure, but in that particular market, the low strength 32.5 market in the inland region. Unknown Executive: Thank you. Moving on to [Marco Rus from OIG Invest]. Given the material USD exposure from RK3 and your current [FEC] position, what is management's outlook for the ZAR USD over the next 12 to 24 months? And how do you plan to manage or hedge your ongoing dollar exposure going forward? And Brenda, before you answer that question, there is a second question, which is related from [Clifford Wrye], which is also asking what are the expected future exchange losses if the rand to the USD remains as is? And what was the hedge price on the USD and what considerations were taken to come up with the hedge option? So perhaps you can answer all of those, I think, at the same time. Brenda Berlin: Of course. So just to break it up into maybe bite-sized chunks. So first of all, we took a decision to hedge the full U.S. dollar exposure for RK3. We averaged at a rate at $18.50. It was the rate that the Board -- when the Board contemplated the business case, it was based on that exchange rate for the CapEx. So the full U.S. dollar exposure is hedged. On the unrealized losses, it's a little bit -- it's a question of timing. So we've realized -- we've got unrealized losses now as we mark-to-market of the hedges. Had we raised the creditor, there would have been matching gains. So what's going to happen in our income statement over the next 18 months is there will be a match. There will just be timing differences. So overall, gains on the creditors will offset losses on the hedge. In terms of hedging instruments, I think that was the last one. We looked at a range, a big range and ultimately decided on sort of quite clean, simple forward exchange contracts taken out over the period in which we expect to spend the CapEx. Unknown Executive: I have a few questions here from Warren Riley of Bateleur Capital. I'm going to take them one at a time, just I think it's easier to ask. Can you talk to outlook for fixed capital investment in South Africa? Have you begun to see any larger projects coming to tender? And is this majority private sector investment? Matias Cardarelli: Paulo can take this one. Paulo Marques: Thank you for the question. Well, at the moment, we are still seeing fixed gross capital formation at a depressed level. But on a more positive note, we see some movement on those tenders process. We know that those tenders process are long given that are public entities. And in terms of the dynamics and the movement, it's positive. In terms of works on the ground, no, we haven't still started seeing some of -- all of those projects coming to a start. Unknown Executive: Thanks, Paulo. The second question from [Warren] is what are the SA Botswana cement volumes growing at in Q3 to date? Matias Cardarelli: Sorry, we don't share that information. About. Unknown Executive: Sorry, Warren, well, can't give you an update on that. The third question is, can you provide the exit run rate for Zimbabwe EBITDA margin in Q2? And can this be sustained into the second half of FY '26? And then I think combined because I also talked to Zimbabwe, what impact is the 30% import surcharge having on demand and domestic pricing? Matias Cardarelli: The run rate for EBITDA margins in the second half of FY '26, that is the question, is it? Unknown Executive: Yes. So basically... Matias Cardarelli: We expect a range between 25% to 30% EBITDA margin there and definitely could be sustained. I mean this year probably has been -- not probably as we shared, has been impacted because when we were in the long shutdown of our kiln in Colleen Bawn was when the demand started to surge. So we needed to import more clinker, and that is why that EBITDA growth, cash flow growth, dividend growth, but EBITDA margin was temporarily impacted. So the run rate for the second half would be an EBITDA margin between 25% to 30% and sustainable. Unknown Executive: And the other question, is that what the impact of the 30% import surcharge, so that's irrespective of... Matias Cardarelli: Yes. I mean it has been important. But I mean, not because we have particularly gained a lot of market share because our position there is very solid. And actually, we sell everything we produce. So I think it's important in terms of giving the industry, the support you expect from government to make big investment. As you all know, we are a capital-intensive industry, which requires big investment. And this kind of decision from government in Zimbabwe gives the industry the encouragement to invest in the long term. That is... Unknown Executive: Thanks Matias. And expecting there are no further questions. Matias Cardarelli: Okay. Thank you very much. Have a nice day.
Peter Meintjes: Good morning, everybody, and welcome to the Pacific Edge 1H Financial Results Presentation. I'm Pacific Edge's CEO, Dr. Peter Meintjes. And with me today is Grant Gibson, our CFO, and available online for questions is our Chairman, Chris Gallaher. But just an important notice to take notice of when considering the information in today's presentation. So, our financial results for this half are below our expectations. We ran fewer tests than we had desired. We have ran fewer commercial tests than desired and our operating revenue is down. However, we maintain that we are in the strongest strategic position yet. And despite a net loss of $19.1 million and cash of $22.1 million in the bank, we want to highlight for investors the importance of the strategic milestones that we have managed to achieve through this half. And we managed to do this maintaining a U.S. market presence to position ourselves to successfully appeal Medicare tests and commercial tests. And so while there have been some challenges associated with non-coverage determination being the predominant feature of operating the market and we have had to migrate our customers from Triage to Detect. Our U.S. sales per FTE has maintained its -- our sales force efficiency has been maintained, and we are operating as well as we can under the circumstances. Most importantly, though, we have an expert Contractor Advisory Committee, a C-A-C or CAC that has been convened by Novitas for February 19 in 2026. And this acknowledges the weight of the evidence behind urine-based biomarkers for hematuria evaluation in general, of course, driven by the evidence portfolio of Cxbladder. We also, in the half, achieved an absolutely critical milestone with longer-term economics for Triage Plus being locked in at USD 1,328 per test, a significant uplift from our previous $760 per test for the prior generation. Given this market position, though, we are considering capital alternatives to meet longer-than-expected Medicare re-coverage time line. We wanted to remind all our investors of how Pacific Edge creates value and specifically with adoption, retention and revenue generation, evidence coverage and guidelines and research and development because while our revenue -- adoption revenue and retention and revenue generation is somewhat down, we continue to be market-leading in the performance of our evidence coverage and guidelines, and we maintain our strength in development of new products within our research, development and innovation. In fact, we have the strongest position we have ever had. We are in the strongest position we have ever been in to drive Medicare policy change. The importance of the Contractor Advisory Committee cannot be understated. We currently -- since 2020 or between 2020 and April 2025, Pacific Edge had reliable reimbursement from Medicare, but no coverage policy with coverage policy language explicitly documented at Novitas. And while that was good for revenue growth in our business and the subsequent non-coverage determination has obviously been a challenging headwind for us to navigate, it will become a defining change for Pacific Edge to have positive coverage language and actual positive Medicare policy change as a consequence of the Contractor Advisory Committee. And so these Contractor Advisory Committees are generally convened ahead of developing new or substantially revised Medicare medical policy of an LCD and it's worth noting given that our current status is non-covered, we expect that a substantially revised medical policy would lead to a coverage policy after considering all of the evidence. Of course, this has been precipitated by 2 things. One, the strength of our evidence from our STRATA Study, but two, that the STRATA Study has already been recognized as something sufficient to drive policy change with the AUA Guidelines. And that allowed the biomarkers for the first time to be used for microhematuria evaluation. The purpose of a CAC is to discuss -- evidence of this CAC is to discuss evidence for the use of urine-based biomarkers in patients with microhematuria. And given the recent published evidence for Triage Plus, we expect that Triage Plus will also be considered as part of that Contractor Advisory Committee in February. The people who make up a Contractor Advisory Committee, and I look forward to questions on this later, are health care professionals, beneficiary representatives and representatives of medical organizations. And Pacific Edge has been given the opportunity by engaging with Novitas to nominate urologists that we believe are familiar with the latest evidence for urine-based biomarker testing for patients with hematuria. And among those are many of our clinical advisers who are familiar with Cxbladder specifically. The meeting date is set for the 19th of February at 6:00 p.m. East Coast Time, which will be noon on Friday, February 20 in New Zealand. So as we look to our evidence road map, the evidence generation road map, the top 4 studies have been highlighted. That highlight represents that these are all new publications that have not previously been considered by Novitas, and we expect that all of these can be considered firstly by the CAC and in the creation of the integration draft policy, but ultimately, in the final policy as it is developed. One thing that has changed is we've historically reported in this view, the study from Kaiser Permanente, but we have separated out the publication time lines for our core evidence that's internally developed and independent studies like the Kaiser study. And so you'll see that on a later slide in this presentation. Looking at the following slide. This is one of key significance to many investors. This is management's best understanding of the time lines that Novitas is operating under given the information that we have. Of course, acknowledging first that we have had a Medicare non-coverage determination for Triage, Monitor, Detect and Triage Plus since April 24 this year, but that was on an evidence review that was limited to evidence published prior to the 9th of September 2023, which at this stage is very stale evidence on which to have based the decision. Pacific Edge has submitted reconsideration requests of the -- what's known as genetic testing for oncology specific tests, L39365 for Triage and for Monitor. Pacific Edge has submitted a new LCD request for hematuria evaluation for Triage and Triage Plus. This is important regardless of whether Novitas elects to make a change to 39365 or establish a new LCD, the critical distinction between prior reliable reimbursement with the absence of any positive policy and what we are trying to achieve through a CAC and draft LCD language is the establishment of clearly articulated language that supports the appropriate use of non-invasive urine-based biomarkers, for example, Triage and Triage Plus in the evaluation of hematuria patients. No prior policy exists for that, and that is one of the reasons that Novitas is following this robust approach in using a Contractor Advisory Committee. So, Novitas controls all the timings of these events. And while from our perspective, announcing a CAC to convene on the 19th of February is a delay from our prior expectations, given the robustness of the process, this is something that we see as tremendously positive because of the increased certainty in medical policy change that we expect to come from convening a CAC. Furthermore, evidence published after the Contractor Advisory Committee, they can also be submitted during the comment period. So, those studies highlighted in yellow, that's not the limit of what can be considered for the coverage policy. That's just the limit of what can be considered during the Contractor Advisory Committee. Our independent studies also supplement our primary evidence generation portfolio, the most important of which is the real-world utility study of Triage in microhematuria patients at Kaiser Permanente, but we also wanted to highlight that some of our investigator-initiated trials that have been part of a program of work for the last 2 or 3 years, the first one of those is reaching maturity. It's going through peer review at the moment, and we are optimistic that it will publish in Q1 2026. This is evidence that is not necessarily -- well, I'll retract that. In the first of these, the one from Kaiser Permanente is extremely relevant in the changing of medical policy for an organization like Novitas. The patient preference, for example, is less likely to sway organizations like Novitas that are extremely influential in helping physicians adopt our test for our sales force because we are able to make very, very clear that patients actually prefer to use our test when offered the alternative. And that is somewhat of a no-brainer. The difference between an invasive procedure and a non-invasive procedure, patients typically prefer non-invasive to actually show that with data will be a first-of-kind study and that has been developed under the banner of our investigator-initiated trials. And what you can see in the bullet points below, 74.2% preferred Monitor versus cystoscopy and comparable diagnostic performance is shown. And we expect this research to be published as an abstract for AUA 2026 and possibly before that will even come out in print. Importantly, our budget impact models continue to demonstrate the economic value for Cxbladder. We've updated this slide to highlight the value proposition when performing this -- when running a budget impact model using Triage Plus. And so where with Triage, you were able to rule out, I believe, 78% of microhematuria patients, with Triage Plus, we're able to rule out 85% of hematuria patients. And the greater number of patients that you can rule out, the greater value you are creating for hospital systems that deploy this kind of testing across the patient population that they serve. Again importantly, this is not the end of the road for Pacific Edge in terms of developing budget impact models. And we are targeting a publication for Triage Plus in FY '27. And we are targeting a publication -- or sorry, we are targeting commencing work for a budget impact model for Surveillance Plus in FY '28. And also along the general theme of health economics and sustainability, there is also a publication that we are working on with collaborators at the Canterbury Health System in New Zealand about the carbon footprint impact of implementing Cxbladder at primary care and draft presentations at conferences have already been communicated. So talking about some of the numbers explicitly here. Global commercial test volumes of 13,191 for 1H '26 were down 10% on the 2H figures amid the challenges of selling a test that is not covered by Medicare. The reduced reach of our sales force as our sales force continues to shrink, but that has been partially offset by a 5.4% uplift in APAC. Our response to the Medicare non-coverage has been a very important focus for us in this half. Cxbladder Detect is something that has not had new evidence generated for some time and is not included in the guidelines. Consequently, all the tech customers were migrated over to Triage, accelerating a plan we had hoped to implement at the time of launching Triage Plus with coverage, and that has created some operational challenges as we do that. But nonetheless, that allows us to collect revenue on the Triage tests through the appeals process. The sales force continues to be focused on patients that are suitable for Cxbladder Triage, which are younger patients with commercial insurance and typically with microhematuria presentations. Our sales performance has been sustained from an efficiency standpoint in 1H '26. The clinical commitment that we measure as tests per ordering clinician has fallen, reflecting the disruption of transition from Triage -- sorry, a disruption to Triage from Detect and challenges of selling a test not covered by Medicare. But we are well ahead of the low point we had in Q3 2022 of 160, and we've largely been able to maintain our sales force efficiency at 403 for this quarter. Our sales FTE are down to an average of 12 in Q2 '26 from greater than 30 as we continue to focus on cash conservation where prudent. Importantly, foundations for growth, we have U.S. cash collections processes continue to improve, although a loss of Medicare coverage has impacted our testing volumes. Denied Triage tests will be appealed to an Administrative Law Judge, ALJ. And given the guideline inclusion, we expect we can successfully make the case that Triage has been used in a medically reasonable and necessary fashion. Unfortunately, appealing takes time, but we are appealing over 2,000 tests to Medicare and commercial providers through external review. And for Medicare, it takes 6 to 9 months. For commercial payers, it can take longer than that in excess of a year. So, Medicare tests completed in 1H that have been denied for payment have had no revenue recognized in this half, but we expect to recognize some revenue again in the second half when we have successfully appealed. There are measures in place to mitigate the loss of Medicare coverage and including enhanced patient responsibility, increased utilization of appropriate patient types through EMR integration and improving the medical necessity documentation to improve the payment success that we have during billing and appeals processes. And improved cash collections are typically permanent improvements, although we are in a situation with a non-coverage determination. So some of those things are challenging for the current half, but we expect a resumption of those improvements after we establish -- reestablish coverage. So, consolidating New Zealand and developing Australia and APAC, we continue to seek a national hematuria evaluation pathway in New Zealand. And we're working with local urologists and with Te Whatu Ora to affect that. In Australia and South -- and the Asia Pacific regions, Southeast Asia is still in business development. We're planting early green shoots there. But we are also working on a number of contracting arrangements with Australian hospitals, and we hope to have some non-material announcements about progress in that area in the coming months. We also continue to drive value through product innovation. And our next generation of tests is our major focus of the Research Development & Innovation pillar and specifically the development part of that. We've been working very hard on Triage Plus and Surveillance Plus. Triage Plus has been analytically validated and clinically validated for all hematuria patients, micro and gross hematuria patients. That's a broader indication than for Triage and a broader indication than what the guidelines currently support. And this bodes well for an expanded patient population as and when Triage Plus complete -- as and when we complete our credible study for the utility of Triage Plus. It also has a higher price. That price is still in draft, but is expected to become final within the next few days and effective on -- sorry, January 1 next year. It is currently being run in early access with a select few customers as we -- and we are leveraging the AUA Guideline for Triage in appealing Triage Plus tests as well. With Surveillance Plus, we are looking at recurrent disease in non-muscle invasive bladder cancer patients. The product is still in development and is the improvement over the Monitor product that we currently have. And Surveillance Plus has deviated from Triage Plus through the development process. And this is, of course, expected that they serve a different patient population and different markers are informative and the work that we've done internally has demonstrated to us that the DNA markers from the ddPCR are more informative than the RNA markers that we historically used in Cxbladder Monitor to the point that we can actually exclude the RNA markers from the final product. And we have taken that product through a freedom to operate, which has been completed satisfactorily and gives us the freedom to operate. And we are taking it through a provisional patenting process. We are also seeking a technology crosswalk for Surveillance Plus to a test that has an $1,800 price point in the Medicare fee schedule and are hopeful for a claim-by-claim reimbursement because there is no coverage -- there's no non-coverage determination for Surveillance Plus. And so our expected path is to get it coded, get it priced by crosswalk to the candidate mentioned here and then to initiate claim-by-claim reimbursement until the local coverage determination incorporating Surveillance Plus is developed. That we expect to take a number of years. We have not put specific timings on that, but that is the future state that we imagine for our business with Triage Plus for the risk stratification of hematuria patients and Surveillance Plus for the surveillance of non-muscle invasive bladder cancer patients for recurrence. I wanted to also highlight the importance of the DRIVE Study. So the DRIVE Study has been referred to for a number of years. It was started as far back as 2019. It began enrolling and enrolled largely entirely for veterans population. And the study confirmed the superior performance characteristics in both gross hematuria and microhematuria for Triage Plus over our existing tests. And it also works on a broader range of hematuria patients as established in the clinical validity. So hopefully, we made clear in the diagram on the left that while the AUA Guidelines recommends Triage for a narrow patient population, and that's based on the STRATA evidence. The STRATA evidence itself actually covers patients that were in the low-risk group, intermediate risk group and the high-risk group and the STRATA study can be used to justify using Triage in any of those risk categories for microhematuria. But the DRIVE Study has validated Cxbladder Triage Plus for all of the risk categories of microhematuria and the gross hematuria patients, so the broadest range of patients in hematuria evaluation. We remind our investors of the opportunity that we are chasing here. So with the increase of our test price to $1,328, we've increased our estimate of the TAM in the U.S. while maintaining the TAMs for APAC and Europe constant. And it is a substantial TAM at full volume of $10.8 billion. And specifically, we are targeting the patients that are referred for clinical work. That's how we determine our TAM that using Triage Plus for the intended use at the point of being referred for clinical workup gets us the largest possible TAM and the evidence we are generating is for that. We're also looking to expand our market opportunities with innovation at the product level. And for this, we have made clear for investors that we are pursuing an IVD product that is a simplified version of the assay that we currently run as a service. And over time, we will be able to simplify the product -- simplify the service to the point of being able to put it in a kit and allow labs other than Pacific Edge in appropriate jurisdictions where we have sought. We've completed all the product registration and market access initiatives to be able to run that test in clinical routine. So the benefits of this approach are that IVDs can be run by any accredited lab partner in any geography. The customer-side logistics are easier, faster and customer service is local. Lab partners make a margin by running the IVD test, which increases their enthusiasm and motivation for sales and marketing efforts in their territory. It is a decentralized deployment, which allows faster scalability, and we need to focus on scaling our logistics, but the clinical operations can be scaled very dramatically by working with established partners in the region and as they focus on customer acquisition. So the work that we're doing, Pacific Edge is simplifying the test and accelerating the development of an IVD called Triage Plus IVD for decentralized lab deployment and international market expansion with the key objectives of: one, establishing an IVD regulatory framework for our next-generation tests that include Europe, FDA and ISO-13485 for the rest of the world. And then we're targeting prototypes by the end of FY '26, manufacture and commencement of clinical and analytical validation commencing in FY '27. I'll now turn to Grant for our financial performance for the half. Grant Gibson: Great. Thanks, Peter. So in the first half, our operating revenue was down to $5.9 million from $10.9 million in the second half of '25. So, all that reduction is actually from the U.S. market. As Peter mentioned, the loss of Medicare coverage has meant that total tests post 24th of April have not been accrued or included revenue and will only recognize revenues if we are successful at the ALJ appeal level, which, as Peter noted, it's going to take 6 to 9 months for us to be able to refresh those tests if they're successful. Volumes have also been impacted by the disruption caused by the loss of coverage and transitioning clinicians from the previously dominant tests in the U.S. market to Triage. We've also have reduced sales FTE as we've looked to manage our costs through this time. So with the drop in the U.S. revenue, APAC contributed 15% of the revenue for the half, up from 8% in the second half of FY '25. So, we continue to maintain a U.S. presence that positions us for an affirmation of Medicare coverage. We're reducing operating expenses where possible. So in the second half of '25, we actually dropped our cost base by 5.9% in the first half of this year. As we continue to focus on expenses, we can reduce them where possible. Our operating cash flows of $19 million were higher than the $12.3 million in the second half of '25. But we do note that cash outflow in the first half of the year is generally higher in the second half, with payments that cover a 12-month period weighted towards the first half. As noted, we've also been impacted by the loss of Medicare coverage and we expect to receive revenue for tests that we performed in the first half, 6 to 9 months after as we take them through the ALJ appeal level. Cash at the end of the half was $22.1 million and we did a capital raise of $20.7 million in August 2025. As Peter has noted though, with the delay of the re-coverage, we expect that we will need to complete capital initiatives and/or reduce cash burn and we're in the process of considering options. Our operating expenses were down 5.9% in the second half. So of those, the lab costs were down approximately 10% based on lower test volumes. Our research costs were also down 4.5%, and some of the clinical studies come to an end and the cost base -- and the costs related to those start to reduce. Our sales and marketing were down 9% as we managed our FTE in the U.S. market to ensure that we were prudent with our operating expenses. General and admin costs were up 3.4%. We had some late legal fees relating to our efforts to overturn the Medicare loss of coverage in late FY '25 that come into this first half. And I'll pass you back to Peter. Peter Meintjes: Thanks very much, Grant. As we look forward, from my perspective, it's extremely important for investors to understand that this is -- Pacific Edge is in the strongest strategic position than we ever have been. And my conviction is underpinned by a number of long-term value creation notes here, medium-term value creation and near term. And so in the long term, the price increase that we have for Triage Plus provides us with extraordinarily improved economics. And so as that test becomes our dominant test, when it has successfully achieved coverage, we are in a vastly different operating position than we are today and then we were when we had a $760 price with increased margin and margin percentage. Surveillance Plus, while in development, is also seeking a direct technology crosswalk to an $1,800 price point based on its final product configuration. And that, we think, is a very important long-term consideration for generating value for investors. So, our continued investment in innovation and product development for IVD kits supports our ambitions to enter international markets and to adopt a decentralized deployment model and that remains a focus of us in a smaller capacity, but is something we continue to try to activate. In the medium term, the DRIVE publication provides a clinical validation of Triage Plus that we believe is sufficient for inclusion alongside other tests in the AUA Guidelines and is sufficient for Novitas to make a positive coverage determination. So, we are delighted that, that has been published in time to be considered firstly by the CAC and secondly, when Novitas begin to draft policy. Our clinical evidence generation program is scheduled out for over 4 years to deliver strategic milestones that will deliver sustained value creation for shareholders with multiple catalyzing events. And AUA Guideline inclusion demonstrates that the success of this strategy that can be repeated to expand the indications for existing products and establish new indications for new products. In short, we know what it takes to get a product included in guidelines, and we expect of ourselves to be able to do it again. Commercial headwinds, acknowledging that there remain some, commercial headwinds is important. There remains a non-coverage determination for Triage, Detect, Monitor and Triage Plus, and it creates challenges for our sales and marketing teams in that operating environment. and additional challenges for reimbursement. But we are doing everything that we can from an appeals standpoint and doing everything that we can to convince customers of the value of the test despite the Medicare non-coverage determination given the AUA Guideline inclusion. The convening of the Contractor Advisory Committee is a major catalyst for forward-looking policy. And specifically, as I mentioned before, it will be the first time that there will be coverage policy language that would be proposed by Novitas not just paying for our tests on a claim-by-claim basis. And that provides us with the greatest certainty of enduring coverage from Novitas, but also the greatest ability to improve the success percentage of being paid on Medicare Advantage tests and for commercial payers. So the commercial catalysts for near-term value creation, the AUA microhematuria guidelines are an enabler of sales, marketing and reimbursement activities. But because of the language associated with Triage and the language associated with intermediate risk patients, we have to reeducate our customer base and that has proved to be challenging at least initially, and we're continuing to work on that. We are continuing to seek payment from Medicare for all Triage tests performed on Medicare patients through the Medicare Appeals process relying on the AUA Guideline, and we are doing the same through the external review process for commercial insurers. We also expect through the efforts that we've made in digital development to increase the percentage of electronically ordered tests. And that, of course, is expected to lead to stickier customers and more reliable payment over time. And we are -- as mentioned earlier, Cxbladder is under consideration by Te Whatu Ora for a national pathway in New Zealand and we're optimistic that, that will be -- that we will learn something in FY '27 about the status of implementing Cxbladder in that national pathway. We thank you for your time, and we look forward to taking your questions. Operator: [Operator Instructions] And your first question comes from the line of Rob Morrison of Craigs Investment Partners. Rob Morrison: Congratulations on getting Novitas to open that committee, looking forward to a positive result from that. So on the call and in the documentation, you speak about the options available to you include raising capital and/or burn reduction. Have you reduced your burn so far in the second half? Peter Meintjes: We have made modest reductions to our burn. And I think as Grant highlighted, we actually do expect -- there are a number of expenses that are front loaded for the year and we expect the second half to have a lower burn rate than the first half, yes. Rob Morrison: Okay. But it won't be something like -- so the cost base in the first half was $26 million. You wouldn't expect that to half. It might be down, I don't know, like low tens of percentages. Peter Meintjes: We would not expect it to half, yes. Rob Morrison: Cool. So, you've given best and worst-case scenarios for re-coverage, which look to be between June and September quarter 2027. Could you give us a bit of a flavor for the assumptions behind that? Peter Meintjes: Yes. Absolutely. So from our perspective, it always feels like Novitas is acting very slowly. But the reality is, in March 2025, they had a change in personnel, a new person joined in May, which was a month after we lost coverage. And so since being newly appointed in the role and with the -- it's been less than 6 months of non-coverage and less than 6 months of a new Medical Director at Novitas to actually get Novitas to initiate a CAC. What it would have been great if they could have scheduled that CAC for November, but they didn't. They scheduled it for February. And so while that is a prima facie delay in time lines, that's the greatest level of confidence that we have ever had in forward-looking policy. So, I think from Novitas' perspective, they would consider how quickly they're acting to be very quick, whereas from our perspective, it feels very slow, particularly since we have a high burn rate. Past the CAC, there is no commitment to the time line. And so we're clear that these are management estimates, but the assumptions in why we think it might be on the shorter side are that they have restricted the Contractor Advisory Committee to the microhematuria guideline and tests that fit into that, which is very narrow. And so consequently, the policy that they could develop would also be narrow and the number of products that they would have to consider would be relatively narrow. And the AUA research team have already done the research and created the guidelines. So, they have a step up. So from the 20th of February, we estimate it would be around 3 months for them to develop draft policy and publish it because of the narrow scope. If it was a broader scope, we think they would take longer. So, that's one of the main assumptions. We also believe that they have -- that there is a lot of pressure from the AUA. And that pressure from the AUA will also encourage Novitas to act quickly, but within the bounds of the process they are obligated to follow as outlined by the program integrity manual. But once draft policy is published, it would then be at 60 days of notice and comment. And any time after they have successfully considered all of the comments, they could then publish with 45 days of becoming effective. And we think that they are motivated because of the aforementioned factors, the narrow scope of pressure from the AUA and ongoing dialogue that we have with them in formal situations that we think that they could act quickly. Nonetheless, we paint the worst-case scenario for our investors out of an abundance of caution and acknowledge also that even after the CAC, there is a non-zero chance that they don't develop policy at all. We consider that to be extremely unlikely, but Novitas does control it. Rob Morrison: Okay. And just to read that back to you, so the committee will happen in Feb, 3 months to draft the policy and publish it, but then there's kind of a year in there for various other processes that need to occur based on your conversations with Novitas. Peter Meintjes: Yes. So, I would point you to Slide 7 of our deck, the Medicare re-coverage and estimated time lines. And so we are estimating Q3 to Q4 of 2026. But we are highlighting that the -- and that's based on those assumptions that Novitas is under pressure to act quickly and has the information they need to act quickly given the CAC formation and the narrow scope. But we also note for investors that it could be between Q2 and Q3 that they have given that is 12 months after when they open. Operator: [Operator Instructions] And your next question comes from the line of Matt Montgomerie of Forsyth Barr. Matt Montgomerie: Just on your language, Pete, in terms of the CAC meeting, it's coming across extremely positive in terms of the likelihood that you think there will be a re-coverage decision. I'm keen to double-click on that a little bit around, is that extreme positivity coming from precedent around CAC meetings? Or is it coming from direct conversations that are being had between you and others in the industry? Peter Meintjes: It's coming from multiple sources. But probably the most relevant one is just the facts that are specific to this situation. So the facts in this situation are that there is a guideline that recommends the use of our products and others for hematuria evaluation and there is no policy at Novitas for hematuria evaluation. This has practicing urologists and the entirety of the AUA quite frustrated, confused, annoyed in your preference there that they are unable to use guideline recommended testing on their Medicare patients without having to go through extra administrative procedures, et cetera. They basically believe that Medicare should fall in line with what urologists have recommended. So when we think about -- and so that's one set of facts is that there is a guideline. There's also the evidence for Triage Plus as well. And then there is the non-coverage determination. So if you've got a non-coverage determination and the purpose of a Contractor Advisory Committee is to make changes to policy, we're going to be changing it from a non-coverage determination to something else. And while we cannot rule out that it will change -- that it will just change the language and still be a non-coverage determination, the overwhelming odds are that when you have clinical utility data, guidelines and physician opinion in a Contractor Advisory Committee saying, we want this test, we need this test. This is how we want to practice medicine. That's what the result needs to be from Novitas. Now, what is Novitas' job in the situation? It's not to tell urologists know. Novitas' job is to figure out the appropriate policy so that only the appropriate patients are getting the testing and getting and they are only paying for when appropriate patients are getting the test. So that's -- it moves from an if to a how. Does that make sense? And does that answer your question for you? Matt Montgomerie: Yes, no, that's a good response. And then secondly, going back to one of Rob's question. I was wondering, Grant, if you could give us guidance for second half OpEx. Presumably, you've got pretty good foresight on it given that the CMS changes won't be coming through in the second half. And clearly, the rope for cash is relatively limited at the present time. So, I assume you've got quite structured plans in place for the second half. Grant Gibson: Yes, we do. We've got to continually balance that though with the expectation of reaffirmation of Medicare coverage. So if we do cut too deep, that will take a long time to get us back and we don't believe that that's in the benefit of the long term value of the shareholders. So it is a continuing balance. You will see though that if you look at our FTE numbers in the U.S., we have reduced our sales presence in the U.S. We are looking at other areas where we can continue to reduce costs, but I won't actually put a figure on that. Matt Montgomerie: But it would be fair to assume -- it'd be fair to assume like the decline will be relatively small then on that basis in the second half? Grant Gibson: Yes. As Peter mentioned before, we won't be halving or anything of that space. We need to maintain a strong presence in the U.S. really for re-coverage. Peter Meintjes: Yes. A lot of the support that we get from the AUA is essentially contingent on maintaining a presence in the market commercially and fighting the fight together. Matt Montgomerie: Yes. And then one more on sort of the non-CMS U.S. price. Looks like it collapsed or fell quite meaningfully in the half. Could you just sort of talk through this and then what the CMS contribution was in the half in the very short period in April that you had coverage? Grant Gibson: I wouldn't -- I don't think your classification is actually correct. Medicare dropped to basically 0 from 24th of April. So it was like the tap got turned off when the non-coverage came through. Other reimbursement has been reasonably strong and continuing to increase. As Peter mentioned, we are focusing more on commercial payers as that patient mix moves more towards the Triage intermediate risk. And we are working on growing the revenue from those commercial payers as well. So, Medicare is the big story in our reimbursement mix that has dropped to basically 0 until we go through these ALJ appeals. Peter Meintjes: That's right. The last thing that Grant said there, it's like it has dropped to 0. We cannot confidently accrue until we have developed a pattern with the ALJ, and we are yet to have an ALJ scheduled. The government shutdown, we do believe has delayed some of the scheduling here, but we have probably half a dozen or a dozen tests that are ready for scheduling. We don't have that yet. So, we anticipate to have at least some success that we can point at. And while we have modeled for ourselves 0 success at the ALJ because we believe it is responsible to do so, we actually expect on the basis of the fact pattern that evidence up until 2023 was the only thing that was considered in policy that went into effect in 2025 when in 2024, there was a randomized controlled trial that was ignored. There was an additional analytical validation that was ignored. And then earlier in 2025, there was a guideline that was created on the basis of those pieces of evidence. We think that an Administrative Law Judge is going to understand that fact pattern and find in our favor. Now, is that more work for us? Yes, it is. But we are up for that challenge because we think we should have that revenue. Notwithstanding, even if we are successful at that, that does not ameliorate the operating challenges that we have in driving volume when physicians have to go through extra administrative lengths to manage patients when there is a non-coverage determination. It's just more admin basically. Matt Montgomerie: Just on the CMS mix, like I appreciate, it's gone to 0 since late April. But if we sort of pro rata the revenue from the first half of last year within CMS on the 24 days that you had coverage, it implies and then do the same for volumes. It implies that non-CMS U.S. revenue was sort of flat on the second half of last year, strong volume growth. But like I suppose the math is the math, the missing piece that I don't have is what the CMS revenue contribution was in 1H '26 to then sort of work it out? Like my estimate here is sort of a shade under $1 million. Peter Meintjes: I don't think there's anything additional we can really give you on that, Matt. We don't break down costs. Grant Gibson: We'll see if we can come with something. Matt Montgomerie: We can take it offline. That's fine. Operator: And that does conclude questions by the phone. I would like to hand over for any written questions. Grant Gibson: Okay. Andrew, your first question was about the Kaiser study. I believe that's been covered on Slide 8. So, that is going through the final stages prior publication. So, that should be available for the CAC meeting. Okay. Next question from [ Andrew ]. The Novitas CAC, while it's very disappointing with the meeting pushes out the potential time line for reinstatement of Medicare, is it reasonable to actually feel optimistic that Medicare coverage will be obtained? I believe we've answered that one. And given the clinical evidence, will the CAC meeting review the Kaiser study? So again, we answered that. Okay. Andrew, so Triage Plus pricing in the U.S., at its 2025 AGM, Pete discussed that under the Protecting Access to Medicare Act, the price of Triage Plus will over time decline from the original technology resources based pricing down to the value-based pricing. Are you able to give any indication as to how long this initial technology and resource-based pricing will be in place and when the change to value-based pricing will occur? And has this changed some or fixed in over a period of time? Peter Meintjes: So great question. Triage Plus is what's called a CDLT, a clinical diagnostic lab test, which means it is subject to PAMA review every 3 years. It's only subject to that review after it reaches a certain threshold. And so it will be -- it will be a number of years before it crosses that threshold. But when it crosses that threshold, the math on this is something that I can sort of describe in general terms, but it will be imprecise. It is available for people to go and do their own research on. But you can roughly -- it roughly approximates the average of the private payers. It is also worth noting though -- so it doesn't include zeros. So if a private payer gives you -- declines your test, that doesn't count towards your average. If a private payer pays for your test but pays you 0, it also doesn't count. But you take the average of what private payers pay you and it becomes that. Now, there is a theoretical situation in which it actually doesn't come down at all, particularly since our Medicare price is $1,328 and our commercial price is $3,995 a test. And what are colloquially termed Cadillac plans, they actually pay the full amount for that kind of test. So, $1,328 in the context of genomic test is not high. It is, we believe, a good price for the value that it delivers to the system based on how much -- based on the budget impact modeling that we have done. When we publish the budget impact model, we can be more precise -- sorry, when we publish the budget impact model for Triage Plus, we can be more precise about what value we deliver to the health system. But we actually expect that it could rise as a consequence of value-based practices as well. And that is totally possible and within the rules of PAMA, but it only happens if private payers are paying more on average than less. But given the low technology resources pricing we have today, compared to other genomic tests, it is also possible that, that number goes up. It's a long way away. And I don't think that this should be a significant part of anybody's model at this time. Grant Gibson: Okay. [ Adrian ], I'm going to combine both your questions. So, you did ask on the second half cash burn, and we provided answers that we can on that. Any capital initiative, is it likely to follow the tone of that CAC meeting in the 16th of February? And how much would you be looking to raise? Is $50 million reasonable for additional equity through re-coverage? Peter Meintjes: So, I don't think we can comment on any of the specifics that are noted in that question. But we do believe that the Contractor Advisory Committee, that will be open to the public to dial in. The details will be on Novitas' website. When we have the details, we will likely make those available to our New Zealand audience because it's actually geo-blocked their website and you might not be able to access it, but we will figure out a way to get those details through to our shareholders who would like to dial in. And we're anticipating an overwhelmingly positive Contractor Advisory Committee, but we will leave that to shareholders in the market to decide what they think from that language. Noting the timing, we will try to coalesce and condense everything that happens on that call and distill it down for our investors and our shareholders and provide a market update after the Contractor Advisory Committee summarizing our view of that. But the other elements of your question, I can't comment on. Grant Gibson: Great. And that's the end of the online questions. Peter Meintjes: Well, thank you very much, everybody. That's everything for me today. I appreciate your time, and thank you, Grant. Thank you, Chris. Grant Gibson: Thank you.
Peter Meintjes: Good morning, everybody, and welcome to the Pacific Edge 1H Financial Results Presentation. I'm Pacific Edge's CEO, Dr. Peter Meintjes. And with me today is Grant Gibson, our CFO, and available online for questions is our Chairman, Chris Gallaher. But just an important notice to take notice of when considering the information in today's presentation. So, our financial results for this half are below our expectations. We ran fewer tests than we had desired. We have ran fewer commercial tests than desired and our operating revenue is down. However, we maintain that we are in the strongest strategic position yet. And despite a net loss of $19.1 million and cash of $22.1 million in the bank, we want to highlight for investors the importance of the strategic milestones that we have managed to achieve through this half. And we managed to do this maintaining a U.S. market presence to position ourselves to successfully appeal Medicare tests and commercial tests. And so while there have been some challenges associated with non-coverage determination being the predominant feature of operating the market and we have had to migrate our customers from Triage to Detect. Our U.S. sales per FTE has maintained its -- our sales force efficiency has been maintained, and we are operating as well as we can under the circumstances. Most importantly, though, we have an expert Contractor Advisory Committee, a C-A-C or CAC that has been convened by Novitas for February 19 in 2026. And this acknowledges the weight of the evidence behind urine-based biomarkers for hematuria evaluation in general, of course, driven by the evidence portfolio of Cxbladder. We also, in the half, achieved an absolutely critical milestone with longer-term economics for Triage Plus being locked in at USD 1,328 per test, a significant uplift from our previous $760 per test for the prior generation. Given this market position, though, we are considering capital alternatives to meet longer-than-expected Medicare re-coverage time line. We wanted to remind all our investors of how Pacific Edge creates value and specifically with adoption, retention and revenue generation, evidence coverage and guidelines and research and development because while our revenue -- adoption revenue and retention and revenue generation is somewhat down, we continue to be market-leading in the performance of our evidence coverage and guidelines, and we maintain our strength in development of new products within our research, development and innovation. In fact, we have the strongest position we have ever had. We are in the strongest position we have ever been in to drive Medicare policy change. The importance of the Contractor Advisory Committee cannot be understated. We currently -- since 2020 or between 2020 and April 2025, Pacific Edge had reliable reimbursement from Medicare, but no coverage policy with coverage policy language explicitly documented at Novitas. And while that was good for revenue growth in our business and the subsequent non-coverage determination has obviously been a challenging headwind for us to navigate, it will become a defining change for Pacific Edge to have positive coverage language and actual positive Medicare policy change as a consequence of the Contractor Advisory Committee. And so these Contractor Advisory Committees are generally convened ahead of developing new or substantially revised Medicare medical policy of an LCD and it's worth noting given that our current status is non-covered, we expect that a substantially revised medical policy would lead to a coverage policy after considering all of the evidence. Of course, this has been precipitated by 2 things. One, the strength of our evidence from our STRATA Study, but two, that the STRATA Study has already been recognized as something sufficient to drive policy change with the AUA Guidelines. And that allowed the biomarkers for the first time to be used for microhematuria evaluation. The purpose of a CAC is to discuss -- evidence of this CAC is to discuss evidence for the use of urine-based biomarkers in patients with microhematuria. And given the recent published evidence for Triage Plus, we expect that Triage Plus will also be considered as part of that Contractor Advisory Committee in February. The people who make up a Contractor Advisory Committee, and I look forward to questions on this later, are health care professionals, beneficiary representatives and representatives of medical organizations. And Pacific Edge has been given the opportunity by engaging with Novitas to nominate urologists that we believe are familiar with the latest evidence for urine-based biomarker testing for patients with hematuria. And among those are many of our clinical advisers who are familiar with Cxbladder specifically. The meeting date is set for the 19th of February at 6:00 p.m. East Coast Time, which will be noon on Friday, February 20 in New Zealand. So as we look to our evidence road map, the evidence generation road map, the top 4 studies have been highlighted. That highlight represents that these are all new publications that have not previously been considered by Novitas, and we expect that all of these can be considered firstly by the CAC and in the creation of the integration draft policy, but ultimately, in the final policy as it is developed. One thing that has changed is we've historically reported in this view, the study from Kaiser Permanente, but we have separated out the publication time lines for our core evidence that's internally developed and independent studies like the Kaiser study. And so you'll see that on a later slide in this presentation. Looking at the following slide. This is one of key significance to many investors. This is management's best understanding of the time lines that Novitas is operating under given the information that we have. Of course, acknowledging first that we have had a Medicare non-coverage determination for Triage, Monitor, Detect and Triage Plus since April 24 this year, but that was on an evidence review that was limited to evidence published prior to the 9th of September 2023, which at this stage is very stale evidence on which to have based the decision. Pacific Edge has submitted reconsideration requests of the -- what's known as genetic testing for oncology specific tests, L39365 for Triage and for Monitor. Pacific Edge has submitted a new LCD request for hematuria evaluation for Triage and Triage Plus. This is important regardless of whether Novitas elects to make a change to 39365 or establish a new LCD, the critical distinction between prior reliable reimbursement with the absence of any positive policy and what we are trying to achieve through a CAC and draft LCD language is the establishment of clearly articulated language that supports the appropriate use of non-invasive urine-based biomarkers, for example, Triage and Triage Plus in the evaluation of hematuria patients. No prior policy exists for that, and that is one of the reasons that Novitas is following this robust approach in using a Contractor Advisory Committee. So, Novitas controls all the timings of these events. And while from our perspective, announcing a CAC to convene on the 19th of February is a delay from our prior expectations, given the robustness of the process, this is something that we see as tremendously positive because of the increased certainty in medical policy change that we expect to come from convening a CAC. Furthermore, evidence published after the Contractor Advisory Committee, they can also be submitted during the comment period. So, those studies highlighted in yellow, that's not the limit of what can be considered for the coverage policy. That's just the limit of what can be considered during the Contractor Advisory Committee. Our independent studies also supplement our primary evidence generation portfolio, the most important of which is the real-world utility study of Triage in microhematuria patients at Kaiser Permanente, but we also wanted to highlight that some of our investigator-initiated trials that have been part of a program of work for the last 2 or 3 years, the first one of those is reaching maturity. It's going through peer review at the moment, and we are optimistic that it will publish in Q1 2026. This is evidence that is not necessarily -- well, I'll retract that. In the first of these, the one from Kaiser Permanente is extremely relevant in the changing of medical policy for an organization like Novitas. The patient preference, for example, is less likely to sway organizations like Novitas that are extremely influential in helping physicians adopt our test for our sales force because we are able to make very, very clear that patients actually prefer to use our test when offered the alternative. And that is somewhat of a no-brainer. The difference between an invasive procedure and a non-invasive procedure, patients typically prefer non-invasive to actually show that with data will be a first-of-kind study and that has been developed under the banner of our investigator-initiated trials. And what you can see in the bullet points below, 74.2% preferred Monitor versus cystoscopy and comparable diagnostic performance is shown. And we expect this research to be published as an abstract for AUA 2026 and possibly before that will even come out in print. Importantly, our budget impact models continue to demonstrate the economic value for Cxbladder. We've updated this slide to highlight the value proposition when performing this -- when running a budget impact model using Triage Plus. And so where with Triage, you were able to rule out, I believe, 78% of microhematuria patients, with Triage Plus, we're able to rule out 85% of hematuria patients. And the greater number of patients that you can rule out, the greater value you are creating for hospital systems that deploy this kind of testing across the patient population that they serve. Again importantly, this is not the end of the road for Pacific Edge in terms of developing budget impact models. And we are targeting a publication for Triage Plus in FY '27. And we are targeting a publication -- or sorry, we are targeting commencing work for a budget impact model for Surveillance Plus in FY '28. And also along the general theme of health economics and sustainability, there is also a publication that we are working on with collaborators at the Canterbury Health System in New Zealand about the carbon footprint impact of implementing Cxbladder at primary care and draft presentations at conferences have already been communicated. So talking about some of the numbers explicitly here. Global commercial test volumes of 13,191 for 1H '26 were down 10% on the 2H figures amid the challenges of selling a test that is not covered by Medicare. The reduced reach of our sales force as our sales force continues to shrink, but that has been partially offset by a 5.4% uplift in APAC. Our response to the Medicare non-coverage has been a very important focus for us in this half. Cxbladder Detect is something that has not had new evidence generated for some time and is not included in the guidelines. Consequently, all the tech customers were migrated over to Triage, accelerating a plan we had hoped to implement at the time of launching Triage Plus with coverage, and that has created some operational challenges as we do that. But nonetheless, that allows us to collect revenue on the Triage tests through the appeals process. The sales force continues to be focused on patients that are suitable for Cxbladder Triage, which are younger patients with commercial insurance and typically with microhematuria presentations. Our sales performance has been sustained from an efficiency standpoint in 1H '26. The clinical commitment that we measure as tests per ordering clinician has fallen, reflecting the disruption of transition from Triage -- sorry, a disruption to Triage from Detect and challenges of selling a test not covered by Medicare. But we are well ahead of the low point we had in Q3 2022 of 160, and we've largely been able to maintain our sales force efficiency at 403 for this quarter. Our sales FTE are down to an average of 12 in Q2 '26 from greater than 30 as we continue to focus on cash conservation where prudent. Importantly, foundations for growth, we have U.S. cash collections processes continue to improve, although a loss of Medicare coverage has impacted our testing volumes. Denied Triage tests will be appealed to an Administrative Law Judge, ALJ. And given the guideline inclusion, we expect we can successfully make the case that Triage has been used in a medically reasonable and necessary fashion. Unfortunately, appealing takes time, but we are appealing over 2,000 tests to Medicare and commercial providers through external review. And for Medicare, it takes 6 to 9 months. For commercial payers, it can take longer than that in excess of a year. So, Medicare tests completed in 1H that have been denied for payment have had no revenue recognized in this half, but we expect to recognize some revenue again in the second half when we have successfully appealed. There are measures in place to mitigate the loss of Medicare coverage and including enhanced patient responsibility, increased utilization of appropriate patient types through EMR integration and improving the medical necessity documentation to improve the payment success that we have during billing and appeals processes. And improved cash collections are typically permanent improvements, although we are in a situation with a non-coverage determination. So some of those things are challenging for the current half, but we expect a resumption of those improvements after we establish -- reestablish coverage. So, consolidating New Zealand and developing Australia and APAC, we continue to seek a national hematuria evaluation pathway in New Zealand. And we're working with local urologists and with Te Whatu Ora to affect that. In Australia and South -- and the Asia Pacific regions, Southeast Asia is still in business development. We're planting early green shoots there. But we are also working on a number of contracting arrangements with Australian hospitals, and we hope to have some non-material announcements about progress in that area in the coming months. We also continue to drive value through product innovation. And our next generation of tests is our major focus of the Research Development & Innovation pillar and specifically the development part of that. We've been working very hard on Triage Plus and Surveillance Plus. Triage Plus has been analytically validated and clinically validated for all hematuria patients, micro and gross hematuria patients. That's a broader indication than for Triage and a broader indication than what the guidelines currently support. And this bodes well for an expanded patient population as and when Triage Plus complete -- as and when we complete our credible study for the utility of Triage Plus. It also has a higher price. That price is still in draft, but is expected to become final within the next few days and effective on -- sorry, January 1 next year. It is currently being run in early access with a select few customers as we -- and we are leveraging the AUA Guideline for Triage in appealing Triage Plus tests as well. With Surveillance Plus, we are looking at recurrent disease in non-muscle invasive bladder cancer patients. The product is still in development and is the improvement over the Monitor product that we currently have. And Surveillance Plus has deviated from Triage Plus through the development process. And this is, of course, expected that they serve a different patient population and different markers are informative and the work that we've done internally has demonstrated to us that the DNA markers from the ddPCR are more informative than the RNA markers that we historically used in Cxbladder Monitor to the point that we can actually exclude the RNA markers from the final product. And we have taken that product through a freedom to operate, which has been completed satisfactorily and gives us the freedom to operate. And we are taking it through a provisional patenting process. We are also seeking a technology crosswalk for Surveillance Plus to a test that has an $1,800 price point in the Medicare fee schedule and are hopeful for a claim-by-claim reimbursement because there is no coverage -- there's no non-coverage determination for Surveillance Plus. And so our expected path is to get it coded, get it priced by crosswalk to the candidate mentioned here and then to initiate claim-by-claim reimbursement until the local coverage determination incorporating Surveillance Plus is developed. That we expect to take a number of years. We have not put specific timings on that, but that is the future state that we imagine for our business with Triage Plus for the risk stratification of hematuria patients and Surveillance Plus for the surveillance of non-muscle invasive bladder cancer patients for recurrence. I wanted to also highlight the importance of the DRIVE Study. So the DRIVE Study has been referred to for a number of years. It was started as far back as 2019. It began enrolling and enrolled largely entirely for veterans population. And the study confirmed the superior performance characteristics in both gross hematuria and microhematuria for Triage Plus over our existing tests. And it also works on a broader range of hematuria patients as established in the clinical validity. So hopefully, we made clear in the diagram on the left that while the AUA Guidelines recommends Triage for a narrow patient population, and that's based on the STRATA evidence. The STRATA evidence itself actually covers patients that were in the low-risk group, intermediate risk group and the high-risk group and the STRATA study can be used to justify using Triage in any of those risk categories for microhematuria. But the DRIVE Study has validated Cxbladder Triage Plus for all of the risk categories of microhematuria and the gross hematuria patients, so the broadest range of patients in hematuria evaluation. We remind our investors of the opportunity that we are chasing here. So with the increase of our test price to $1,328, we've increased our estimate of the TAM in the U.S. while maintaining the TAMs for APAC and Europe constant. And it is a substantial TAM at full volume of $10.8 billion. And specifically, we are targeting the patients that are referred for clinical work. That's how we determine our TAM that using Triage Plus for the intended use at the point of being referred for clinical workup gets us the largest possible TAM and the evidence we are generating is for that. We're also looking to expand our market opportunities with innovation at the product level. And for this, we have made clear for investors that we are pursuing an IVD product that is a simplified version of the assay that we currently run as a service. And over time, we will be able to simplify the product -- simplify the service to the point of being able to put it in a kit and allow labs other than Pacific Edge in appropriate jurisdictions where we have sought. We've completed all the product registration and market access initiatives to be able to run that test in clinical routine. So the benefits of this approach are that IVDs can be run by any accredited lab partner in any geography. The customer-side logistics are easier, faster and customer service is local. Lab partners make a margin by running the IVD test, which increases their enthusiasm and motivation for sales and marketing efforts in their territory. It is a decentralized deployment, which allows faster scalability, and we need to focus on scaling our logistics, but the clinical operations can be scaled very dramatically by working with established partners in the region and as they focus on customer acquisition. So the work that we're doing, Pacific Edge is simplifying the test and accelerating the development of an IVD called Triage Plus IVD for decentralized lab deployment and international market expansion with the key objectives of: one, establishing an IVD regulatory framework for our next-generation tests that include Europe, FDA and ISO-13485 for the rest of the world. And then we're targeting prototypes by the end of FY '26, manufacture and commencement of clinical and analytical validation commencing in FY '27. I'll now turn to Grant for our financial performance for the half. Grant Gibson: Great. Thanks, Peter. So in the first half, our operating revenue was down to $5.9 million from $10.9 million in the second half of '25. So, all that reduction is actually from the U.S. market. As Peter mentioned, the loss of Medicare coverage has meant that total tests post 24th of April have not been accrued or included revenue and will only recognize revenues if we are successful at the ALJ appeal level, which, as Peter noted, it's going to take 6 to 9 months for us to be able to refresh those tests if they're successful. Volumes have also been impacted by the disruption caused by the loss of coverage and transitioning clinicians from the previously dominant tests in the U.S. market to Triage. We've also have reduced sales FTE as we've looked to manage our costs through this time. So with the drop in the U.S. revenue, APAC contributed 15% of the revenue for the half, up from 8% in the second half of FY '25. So, we continue to maintain a U.S. presence that positions us for an affirmation of Medicare coverage. We're reducing operating expenses where possible. So in the second half of '25, we actually dropped our cost base by 5.9% in the first half of this year. As we continue to focus on expenses, we can reduce them where possible. Our operating cash flows of $19 million were higher than the $12.3 million in the second half of '25. But we do note that cash outflow in the first half of the year is generally higher in the second half, with payments that cover a 12-month period weighted towards the first half. As noted, we've also been impacted by the loss of Medicare coverage and we expect to receive revenue for tests that we performed in the first half, 6 to 9 months after as we take them through the ALJ appeal level. Cash at the end of the half was $22.1 million and we did a capital raise of $20.7 million in August 2025. As Peter has noted though, with the delay of the re-coverage, we expect that we will need to complete capital initiatives and/or reduce cash burn and we're in the process of considering options. Our operating expenses were down 5.9% in the second half. So of those, the lab costs were down approximately 10% based on lower test volumes. Our research costs were also down 4.5%, and some of the clinical studies come to an end and the cost base -- and the costs related to those start to reduce. Our sales and marketing were down 9% as we managed our FTE in the U.S. market to ensure that we were prudent with our operating expenses. General and admin costs were up 3.4%. We had some late legal fees relating to our efforts to overturn the Medicare loss of coverage in late FY '25 that come into this first half. And I'll pass you back to Peter. Peter Meintjes: Thanks very much, Grant. As we look forward, from my perspective, it's extremely important for investors to understand that this is -- Pacific Edge is in the strongest strategic position than we ever have been. And my conviction is underpinned by a number of long-term value creation notes here, medium-term value creation and near term. And so in the long term, the price increase that we have for Triage Plus provides us with extraordinarily improved economics. And so as that test becomes our dominant test, when it has successfully achieved coverage, we are in a vastly different operating position than we are today and then we were when we had a $760 price with increased margin and margin percentage. Surveillance Plus, while in development, is also seeking a direct technology crosswalk to an $1,800 price point based on its final product configuration. And that, we think, is a very important long-term consideration for generating value for investors. So, our continued investment in innovation and product development for IVD kits supports our ambitions to enter international markets and to adopt a decentralized deployment model and that remains a focus of us in a smaller capacity, but is something we continue to try to activate. In the medium term, the DRIVE publication provides a clinical validation of Triage Plus that we believe is sufficient for inclusion alongside other tests in the AUA Guidelines and is sufficient for Novitas to make a positive coverage determination. So, we are delighted that, that has been published in time to be considered firstly by the CAC and secondly, when Novitas begin to draft policy. Our clinical evidence generation program is scheduled out for over 4 years to deliver strategic milestones that will deliver sustained value creation for shareholders with multiple catalyzing events. And AUA Guideline inclusion demonstrates that the success of this strategy that can be repeated to expand the indications for existing products and establish new indications for new products. In short, we know what it takes to get a product included in guidelines, and we expect of ourselves to be able to do it again. Commercial headwinds, acknowledging that there remain some, commercial headwinds is important. There remains a non-coverage determination for Triage, Detect, Monitor and Triage Plus, and it creates challenges for our sales and marketing teams in that operating environment. and additional challenges for reimbursement. But we are doing everything that we can from an appeals standpoint and doing everything that we can to convince customers of the value of the test despite the Medicare non-coverage determination given the AUA Guideline inclusion. The convening of the Contractor Advisory Committee is a major catalyst for forward-looking policy. And specifically, as I mentioned before, it will be the first time that there will be coverage policy language that would be proposed by Novitas not just paying for our tests on a claim-by-claim basis. And that provides us with the greatest certainty of enduring coverage from Novitas, but also the greatest ability to improve the success percentage of being paid on Medicare Advantage tests and for commercial payers. So the commercial catalysts for near-term value creation, the AUA microhematuria guidelines are an enabler of sales, marketing and reimbursement activities. But because of the language associated with Triage and the language associated with intermediate risk patients, we have to reeducate our customer base and that has proved to be challenging at least initially, and we're continuing to work on that. We are continuing to seek payment from Medicare for all Triage tests performed on Medicare patients through the Medicare Appeals process relying on the AUA Guideline, and we are doing the same through the external review process for commercial insurers. We also expect through the efforts that we've made in digital development to increase the percentage of electronically ordered tests. And that, of course, is expected to lead to stickier customers and more reliable payment over time. And we are -- as mentioned earlier, Cxbladder is under consideration by Te Whatu Ora for a national pathway in New Zealand and we're optimistic that, that will be -- that we will learn something in FY '27 about the status of implementing Cxbladder in that national pathway. We thank you for your time, and we look forward to taking your questions. Operator: [Operator Instructions] And your first question comes from the line of Rob Morrison of Craigs Investment Partners. Rob Morrison: Congratulations on getting Novitas to open that committee, looking forward to a positive result from that. So on the call and in the documentation, you speak about the options available to you include raising capital and/or burn reduction. Have you reduced your burn so far in the second half? Peter Meintjes: We have made modest reductions to our burn. And I think as Grant highlighted, we actually do expect -- there are a number of expenses that are front loaded for the year and we expect the second half to have a lower burn rate than the first half, yes. Rob Morrison: Okay. But it won't be something like -- so the cost base in the first half was $26 million. You wouldn't expect that to half. It might be down, I don't know, like low tens of percentages. Peter Meintjes: We would not expect it to half, yes. Rob Morrison: Cool. So, you've given best and worst-case scenarios for re-coverage, which look to be between June and September quarter 2027. Could you give us a bit of a flavor for the assumptions behind that? Peter Meintjes: Yes. Absolutely. So from our perspective, it always feels like Novitas is acting very slowly. But the reality is, in March 2025, they had a change in personnel, a new person joined in May, which was a month after we lost coverage. And so since being newly appointed in the role and with the -- it's been less than 6 months of non-coverage and less than 6 months of a new Medical Director at Novitas to actually get Novitas to initiate a CAC. What it would have been great if they could have scheduled that CAC for November, but they didn't. They scheduled it for February. And so while that is a prima facie delay in time lines, that's the greatest level of confidence that we have ever had in forward-looking policy. So, I think from Novitas' perspective, they would consider how quickly they're acting to be very quick, whereas from our perspective, it feels very slow, particularly since we have a high burn rate. Past the CAC, there is no commitment to the time line. And so we're clear that these are management estimates, but the assumptions in why we think it might be on the shorter side are that they have restricted the Contractor Advisory Committee to the microhematuria guideline and tests that fit into that, which is very narrow. And so consequently, the policy that they could develop would also be narrow and the number of products that they would have to consider would be relatively narrow. And the AUA research team have already done the research and created the guidelines. So, they have a step up. So from the 20th of February, we estimate it would be around 3 months for them to develop draft policy and publish it because of the narrow scope. If it was a broader scope, we think they would take longer. So, that's one of the main assumptions. We also believe that they have -- that there is a lot of pressure from the AUA. And that pressure from the AUA will also encourage Novitas to act quickly, but within the bounds of the process they are obligated to follow as outlined by the program integrity manual. But once draft policy is published, it would then be at 60 days of notice and comment. And any time after they have successfully considered all of the comments, they could then publish with 45 days of becoming effective. And we think that they are motivated because of the aforementioned factors, the narrow scope of pressure from the AUA and ongoing dialogue that we have with them in formal situations that we think that they could act quickly. Nonetheless, we paint the worst-case scenario for our investors out of an abundance of caution and acknowledge also that even after the CAC, there is a non-zero chance that they don't develop policy at all. We consider that to be extremely unlikely, but Novitas does control it. Rob Morrison: Okay. And just to read that back to you, so the committee will happen in Feb, 3 months to draft the policy and publish it, but then there's kind of a year in there for various other processes that need to occur based on your conversations with Novitas. Peter Meintjes: Yes. So, I would point you to Slide 7 of our deck, the Medicare re-coverage and estimated time lines. And so we are estimating Q3 to Q4 of 2026. But we are highlighting that the -- and that's based on those assumptions that Novitas is under pressure to act quickly and has the information they need to act quickly given the CAC formation and the narrow scope. But we also note for investors that it could be between Q2 and Q3 that they have given that is 12 months after when they open. Operator: [Operator Instructions] And your next question comes from the line of Matt Montgomerie of Forsyth Barr. Matt Montgomerie: Just on your language, Pete, in terms of the CAC meeting, it's coming across extremely positive in terms of the likelihood that you think there will be a re-coverage decision. I'm keen to double-click on that a little bit around, is that extreme positivity coming from precedent around CAC meetings? Or is it coming from direct conversations that are being had between you and others in the industry? Peter Meintjes: It's coming from multiple sources. But probably the most relevant one is just the facts that are specific to this situation. So the facts in this situation are that there is a guideline that recommends the use of our products and others for hematuria evaluation and there is no policy at Novitas for hematuria evaluation. This has practicing urologists and the entirety of the AUA quite frustrated, confused, annoyed in your preference there that they are unable to use guideline recommended testing on their Medicare patients without having to go through extra administrative procedures, et cetera. They basically believe that Medicare should fall in line with what urologists have recommended. So when we think about -- and so that's one set of facts is that there is a guideline. There's also the evidence for Triage Plus as well. And then there is the non-coverage determination. So if you've got a non-coverage determination and the purpose of a Contractor Advisory Committee is to make changes to policy, we're going to be changing it from a non-coverage determination to something else. And while we cannot rule out that it will change -- that it will just change the language and still be a non-coverage determination, the overwhelming odds are that when you have clinical utility data, guidelines and physician opinion in a Contractor Advisory Committee saying, we want this test, we need this test. This is how we want to practice medicine. That's what the result needs to be from Novitas. Now, what is Novitas' job in the situation? It's not to tell urologists know. Novitas' job is to figure out the appropriate policy so that only the appropriate patients are getting the testing and getting and they are only paying for when appropriate patients are getting the test. So that's -- it moves from an if to a how. Does that make sense? And does that answer your question for you? Matt Montgomerie: Yes, no, that's a good response. And then secondly, going back to one of Rob's question. I was wondering, Grant, if you could give us guidance for second half OpEx. Presumably, you've got pretty good foresight on it given that the CMS changes won't be coming through in the second half. And clearly, the rope for cash is relatively limited at the present time. So, I assume you've got quite structured plans in place for the second half. Grant Gibson: Yes, we do. We've got to continually balance that though with the expectation of reaffirmation of Medicare coverage. So if we do cut too deep, that will take a long time to get us back and we don't believe that that's in the benefit of the long term value of the shareholders. So it is a continuing balance. You will see though that if you look at our FTE numbers in the U.S., we have reduced our sales presence in the U.S. We are looking at other areas where we can continue to reduce costs, but I won't actually put a figure on that. Matt Montgomerie: But it would be fair to assume -- it'd be fair to assume like the decline will be relatively small then on that basis in the second half? Grant Gibson: Yes. As Peter mentioned before, we won't be halving or anything of that space. We need to maintain a strong presence in the U.S. really for re-coverage. Peter Meintjes: Yes. A lot of the support that we get from the AUA is essentially contingent on maintaining a presence in the market commercially and fighting the fight together. Matt Montgomerie: Yes. And then one more on sort of the non-CMS U.S. price. Looks like it collapsed or fell quite meaningfully in the half. Could you just sort of talk through this and then what the CMS contribution was in the half in the very short period in April that you had coverage? Grant Gibson: I wouldn't -- I don't think your classification is actually correct. Medicare dropped to basically 0 from 24th of April. So it was like the tap got turned off when the non-coverage came through. Other reimbursement has been reasonably strong and continuing to increase. As Peter mentioned, we are focusing more on commercial payers as that patient mix moves more towards the Triage intermediate risk. And we are working on growing the revenue from those commercial payers as well. So, Medicare is the big story in our reimbursement mix that has dropped to basically 0 until we go through these ALJ appeals. Peter Meintjes: That's right. The last thing that Grant said there, it's like it has dropped to 0. We cannot confidently accrue until we have developed a pattern with the ALJ, and we are yet to have an ALJ scheduled. The government shutdown, we do believe has delayed some of the scheduling here, but we have probably half a dozen or a dozen tests that are ready for scheduling. We don't have that yet. So, we anticipate to have at least some success that we can point at. And while we have modeled for ourselves 0 success at the ALJ because we believe it is responsible to do so, we actually expect on the basis of the fact pattern that evidence up until 2023 was the only thing that was considered in policy that went into effect in 2025 when in 2024, there was a randomized controlled trial that was ignored. There was an additional analytical validation that was ignored. And then earlier in 2025, there was a guideline that was created on the basis of those pieces of evidence. We think that an Administrative Law Judge is going to understand that fact pattern and find in our favor. Now, is that more work for us? Yes, it is. But we are up for that challenge because we think we should have that revenue. Notwithstanding, even if we are successful at that, that does not ameliorate the operating challenges that we have in driving volume when physicians have to go through extra administrative lengths to manage patients when there is a non-coverage determination. It's just more admin basically. Matt Montgomerie: Just on the CMS mix, like I appreciate, it's gone to 0 since late April. But if we sort of pro rata the revenue from the first half of last year within CMS on the 24 days that you had coverage, it implies and then do the same for volumes. It implies that non-CMS U.S. revenue was sort of flat on the second half of last year, strong volume growth. But like I suppose the math is the math, the missing piece that I don't have is what the CMS revenue contribution was in 1H '26 to then sort of work it out? Like my estimate here is sort of a shade under $1 million. Peter Meintjes: I don't think there's anything additional we can really give you on that, Matt. We don't break down costs. Grant Gibson: We'll see if we can come with something. Matt Montgomerie: We can take it offline. That's fine. Operator: And that does conclude questions by the phone. I would like to hand over for any written questions. Grant Gibson: Okay. Andrew, your first question was about the Kaiser study. I believe that's been covered on Slide 8. So, that is going through the final stages prior publication. So, that should be available for the CAC meeting. Okay. Next question from [ Andrew ]. The Novitas CAC, while it's very disappointing with the meeting pushes out the potential time line for reinstatement of Medicare, is it reasonable to actually feel optimistic that Medicare coverage will be obtained? I believe we've answered that one. And given the clinical evidence, will the CAC meeting review the Kaiser study? So again, we answered that. Okay. Andrew, so Triage Plus pricing in the U.S., at its 2025 AGM, Pete discussed that under the Protecting Access to Medicare Act, the price of Triage Plus will over time decline from the original technology resources based pricing down to the value-based pricing. Are you able to give any indication as to how long this initial technology and resource-based pricing will be in place and when the change to value-based pricing will occur? And has this changed some or fixed in over a period of time? Peter Meintjes: So great question. Triage Plus is what's called a CDLT, a clinical diagnostic lab test, which means it is subject to PAMA review every 3 years. It's only subject to that review after it reaches a certain threshold. And so it will be -- it will be a number of years before it crosses that threshold. But when it crosses that threshold, the math on this is something that I can sort of describe in general terms, but it will be imprecise. It is available for people to go and do their own research on. But you can roughly -- it roughly approximates the average of the private payers. It is also worth noting though -- so it doesn't include zeros. So if a private payer gives you -- declines your test, that doesn't count towards your average. If a private payer pays for your test but pays you 0, it also doesn't count. But you take the average of what private payers pay you and it becomes that. Now, there is a theoretical situation in which it actually doesn't come down at all, particularly since our Medicare price is $1,328 and our commercial price is $3,995 a test. And what are colloquially termed Cadillac plans, they actually pay the full amount for that kind of test. So, $1,328 in the context of genomic test is not high. It is, we believe, a good price for the value that it delivers to the system based on how much -- based on the budget impact modeling that we have done. When we publish the budget impact model, we can be more precise -- sorry, when we publish the budget impact model for Triage Plus, we can be more precise about what value we deliver to the health system. But we actually expect that it could rise as a consequence of value-based practices as well. And that is totally possible and within the rules of PAMA, but it only happens if private payers are paying more on average than less. But given the low technology resources pricing we have today, compared to other genomic tests, it is also possible that, that number goes up. It's a long way away. And I don't think that this should be a significant part of anybody's model at this time. Grant Gibson: Okay. [ Adrian ], I'm going to combine both your questions. So, you did ask on the second half cash burn, and we provided answers that we can on that. Any capital initiative, is it likely to follow the tone of that CAC meeting in the 16th of February? And how much would you be looking to raise? Is $50 million reasonable for additional equity through re-coverage? Peter Meintjes: So, I don't think we can comment on any of the specifics that are noted in that question. But we do believe that the Contractor Advisory Committee, that will be open to the public to dial in. The details will be on Novitas' website. When we have the details, we will likely make those available to our New Zealand audience because it's actually geo-blocked their website and you might not be able to access it, but we will figure out a way to get those details through to our shareholders who would like to dial in. And we're anticipating an overwhelmingly positive Contractor Advisory Committee, but we will leave that to shareholders in the market to decide what they think from that language. Noting the timing, we will try to coalesce and condense everything that happens on that call and distill it down for our investors and our shareholders and provide a market update after the Contractor Advisory Committee summarizing our view of that. But the other elements of your question, I can't comment on. Grant Gibson: Great. And that's the end of the online questions. Peter Meintjes: Well, thank you very much, everybody. That's everything for me today. I appreciate your time, and thank you, Grant. Thank you, Chris. Grant Gibson: Thank you.
Unknown Executive: Good afternoon, everyone. Thank you for joining us on today's webinar. Before we begin, I'd like to announce that we will be referring to today's earnings release, which was sent to the newswires earlier this afternoon. I'd also like to remind everyone that this conference call could contain forward-looking statements about Destiny Media Technologies within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon current beliefs and expectations of management and are subject to risks and uncertainties, which could cause actual results to differ materially from those forward-looking statements. Such risks are fully discussed in the company's filings with the SEC and SEDAR, and the company does not assume any obligation to update information contained in this call. During the webinar, we will discuss certain non-GAAP financial measures. The non-GAAP financial measures are presented in the supplemental disclosures and should not be considered in isolation of or as a substitute of or superior to the financial information prepared in accordance with GAAP and should be read in conjunction with the company's financial statements filed with the SEC and SEDAR. The non-GAAP financial measures used in the company's presentation may differ from similarly titled measures presented by other companies. A reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures can be found in the earnings press release. Also, I would like to mention that following the presentation, there will be a questions-and-answers session during which you can submit questions by selecting the Raise Hand icon at the bottom of your screen. Your questions will be polled in the order that they are received and at which point you'll be prompted to unmute your microphone before speaking. With that, I'd like to turn the call over to your host, Fred Vandenberg, Chief Executive Officer. Frederick Vandenberg: Thanks, Michelle. Today, we have myself. As Michelle said, I'm the Chief Executive Officer of Destiny doing business as Play MPE. Along with me, we have Assel is our Chief Financial Officer. Assel will be talking about significant components of our financial results. And we have Jen, who leads our strategic accounts. Jen will outline some of the achievements we made in the sales and marketing area. The first thing I wanted to talk to you today about was the modernization of our platform. We undertook a process to move away from the PC application several years ago. The basic features of that were done a few years ago, and in the recent past, we've made 2 significant achievements that have resulted in the retirement of the older platform. The first was we transitioned our client -- our largest client to the online platform. We did that in April of 2023. So it's a little older now. That transition went flawlessly. But due to the quantum of the data and the historical catalog of the world's largest record label, we maintained redundancy of that platform for -- until this year. Also, internally, we have a very sophisticated list management system, which is essentially the core of what we sell to our customers. We made many upgrades to that system, and we were able to retire that component as well. So we were able to achieve cost savings of not maintaining 2 different platforms. The result of these investments are really the cost savings in the 3 main ways: reduction of platform investments, but also we made a lot of upgrades that make the list management maintenance more efficient, plus our client processing systems are more efficient. This is a pretty big deal for us. The other investment that we announced back in August was the launch of Caster and Caster+. Now essentially, Caster+ is the old Caster, [ that's the sending side ] of Play MPE. And Caster now is the self-service component. This investment really helps us in 3 main ways. It allows us to sell at scale, so customers can self-sign up and distribute content without any Play MPE staff involvement. This also allows us to more easily set up trial accounts. This is an important thing to know and even important for our own staff to be aware of. This is really essentially the best way to sell. Our platform is -- the value proposition of our platform is not an easy one to explain. So the best way to sell it is to get people in it, see how easy it is, see how effective it is, see the information relayed back, and really just become hooked. It becomes an indispensable part of their workflow. Customers in our industry are hesitant for change. But with this, we can get them in the platform and trying it out. Also, it allows us to more easily set up reseller arrangements, whether it's white labeling, OEM, or partnership agreements. There are several label management services companies where they provide more enhanced distribution in a lot of different ways. Play MPE really is regarded as a leader in radio. That reputation helps us in that avenue, and we can partner with those label services companies to effectively increase our channel distribution. And now with the Caster, it's a little bit more easy to achieve that. We made a lot of improved sales and marketing capabilities. I'll let Jen really touch on those, but it's probably worth mentioning because it's a pretty significant change. The last -- sorry, not the last thing, but the profitability. We are a B2B company in niche business. We have a very strong position in that niche. We've had some success in growing, but it's at a rate of a little less than 10% while we modernize our platform. We have the largest record label as a customer. We've modernized the platform and improved our sales process, so we can continue to target revenue growth while reducing costs and improving shareholder value. MTR. In early fiscal 2022, the Board of Directors wanted to pursue an adjacent business to grow and diversify our revenue base. This led to the launch of MTR last year. MTR fits into a fast-growing radio tracking and analytics market. We've seen research reports where this market is in excess of $3 billion. And we believed that we could target a portion of that as a complementary business opportunity. When we pursued this, we targeted -- we had a targeted approach given our size and cost profile, where we only started tracking airplays for customers that would track at a smaller scale, and we started that in the United States, so we could get some real market feedback and assess our success. We had validated this need. It was an unmet customer need for our smaller customers. And that is ultimately who forms our customer base right now. This is a relatively low-cost entry into the market -- into a very large market, with a short payback period if we achieved certain targets. And when I say low cost, it's really a low cost to the size of the market. The company spent a little less than $600,000 in direct cost in developing MTR, which is a larger expense for a small company. But it was a big opportunity. Since that investment, competitive solutions have emerged, including Apple's free service. Apple's free service does pose a little bit of a drag on our sales. But anybody who's really commercially interested in growing their music presence is probably looking for more details. Certain customers that are really cost conscious can use this for free. We have not achieved our sales targets, and we're operating at a small loss. We do have repeat customers, though, and we're exploring ways to expand our sales approach and target markets. We're expecting to do ad tracking trial in early calendar 2026. We're targeting larger volume sales where this is where you get synergistic sales with Play MPE that our sales team can target the same customers with 2 different products. There's also a lot of other value adds with MTR. We are tracking more customers for Play MPE because of MTR. So it's not just that we're selling MTR to Play MPE customers. We are selling Play MPE to customers on MTR. We do also have advantages in that we're providing both the distribution services and the tracking, which really provides some interesting and valuable data points. We see insights of how customers are using Play MPE and how that results in their airplay tracking, the numbers, so we can provide some really valuable insights to improve their results. We're just trying to figure out how to monetize that information. And it also proves out the value of Play MPE. We've always known that Play MPE was an effective distribution tool, but now we can really draw the line between the distribution and the airplay. Lastly, I want to be clear on this one because I think maybe some comments I've made in the past have not been. We resolved our litigation in October. There was an outstanding claim against the company. The judgment was in our favor, and we were awarded costs. Those costs have not been reflected in the financial statements, but we expect them to be a reasonably large number, and we'll pursue them. And with that, I will turn it over to Assel. Assel Mendesh: Thank you, Fred. I will walk you through our financial performance for fiscal year 2025. So we'll start from the revenue. Our revenue overall was up by 2.3%, and it is 2.6% if we look at the constant currency basis. The major label side was up by $149,000, which is 6.8% for the year, while independent label revenue segment declined by $75,000, which is 3.4% decline. And decline occurred despite the increase in the number of total Caster customers, which was up by 7.4%, as well as the increase in new customers, which was 11.8%. The total number of releases stayed relatively the same, but what we see is the average spend declined by 10% per customer, or 3.2% per release. We believe that there are largely 3 factors that affected that, first being the general economic conditions; second being the volume discounts we gave early in the year, total was approximately $52,000. These discounts were intended to encourage larger sales, but the expected uplift didn't materialize. So the structure has now been revised for fiscal 2026. And the last one is that for the period of time, we had reduced sales staffing, which has since been addressed. And MTR revenue still less than 1% of total revenue, but it is up by 345% versus last year. Final point to note about revenue is that it is largely denominated in U.S. dollars. Right now, it is 91.8% in U.S. dollars. And now let's move on to the expenses and overall results. Cost of revenue, as you can see, declined -- sorry, was up by $76,000, which is 12.5%, mostly MTR-related data hosting and processing fees. The operating expenses increased by approximately $751,000, which is 20%. And mostly the drivers are, as you can see: amortization, which is noncash amortization of the software capitalized in the previous years of $364,000; onetime nonrepeating litigation-related costs of $249,000; onetime recruitment costs of $28,000; and MTR-related operating expenses of $61,000. As a result, adjusted EBITDA was down by $375,000. And turning to the liquidity. The cash balance was pretty strong, USD 1.12 million. The slight change versus last year is just the timing of our AR collection that cleared just a couple of days after the year-end. And the company continues to operate with no debt or any other material capital expenditure commitments. So that was all for the financial results. And now I'll pass to Jennifer to cover sales and marketing portion of today's call. Unknown Executive: Thank you, Assel. I'd like to start off with key marketing achievements for 2025. This included expanding our social media presence, improved digital marketing and site enhancements, as well as customer retention and reengagement sales outreach. Our new lead tracking has now given us full visibility from lead creation to conversion, identifying affiliate partnerships as the highest source. Our strongest partner provided 392 new accounts, 25 new customers, and our website organic referral traffic provided 1,919 new accounts and 379 new customers. We localized our sites, which launched -- we completed 3 major localized sites, U.S., Canada, and Australia. We've updated our Spanish site and our Latin America launch is planned post main site updates. SEO and organic traffic exceeded our targets. Our organic traffic was up by 46% on a goal of 20%. We had a goal of 10 keywords resulting in a first page ranking on search, and we have identified 20. And growth has primarily been driven by brand-aware users. Conversions and sales improvements. Our new account sales are up by 41%. That's 314 to 443, and our conversion rate has increased by 46% from the 6.5% conversion to 9.5%. Time to purchase has significantly dropped from lead to sale has gone from 59 to 24 days and from account to sale has gone from 40 to 24 days. Time between first and second sale on Caster has dropped from 115 to 39 days. On our partnership channels, we have outperformed with our largest partner delivering exceptional low-cost new accounts and customers with high LTV. Other partners have provided leads that significantly boosted our site referral traffic. Future looking, we will continue to expand our social media presence, evaluate our e-mail marketing campaigns, drip flows, and improve lead flow, and we'll focus on supporting our larger customer retention and improve our revenue per purchase. Moving on to our key sales achievements for 2025. Our total revenue was up 2.3%. We saw strong growth from our largest enterprise customer, which lifted total revenue of majors. Independents have softened due to volume discounts, as previously mentioned, economic factors, and a lower per-customer spend. Customer acquisition and platform growth, we saw growth in new customers in 2025. Our MTR platform is accelerating and structural corrections are in place to support a stronger 2026. Increased customer engagement. Our primary focus has been and will be to continue deepening engagement with our major labels through increased personal interaction and relationship building as well as attendance at key networking events in Canada and the U.S. Strengthening our value proposition, we've developed new sales tools and executed a full communications push around our Caster enhancements, focused on increasing reporting and analytics to strengthen our value proposition. Forward thinking will be focused on the player recipient relationship to build traction in underrepresented genres as well as our core formats, Triple A, Americana, Country, Non-Comm, and Christian. We're actively looking at complementary music technologies to explore strategic partnerships and potential expansion into adjacent service offerings. That concludes our sales and marketing summary, and I'll pass it over to you, Michelle, to open up for questions. Unknown Executive: [Operator Instructions] Our first question today is from [ Andy Sudiak ]. Can you advise the plan to increase shareholder value and if there is a plan to return value to investors in some capacity? Frederick Vandenberg: Thanks, Andy. The Board is considering alternatives on how much to invest for growth. Essentially, the issue before us is do we pursue a value approach even though we're small, or do we continue to invest into product development for growth and diversification. We've already achieved some cost reductions that we've talked about during the call. And I've made some recommendations to the Board. I'm just gathering some more information for them for their consideration. As far as returning that capital to the shareholders, there are a couple of different ways to do that, and we're going to pursue the most efficient, whether tax efficient or efficient for our shareholders, as possible. Unknown Executive: We have another question from [ Andy ]. What percentage of the market does Play MPE feel they currently have? Frederick Vandenberg: That's a little bit of a challenge to figure out. I think it's probably still between 5% and 10%. We are targeting growth. And I think with the recently launched Caster and Caster+, we can more easily integrate with the partners that we spoke about, essentially that can act as resellers. We're really regarded as the market leader when it comes to radio. That reputation hurts us and helps us. It helps us essentially in the industry, but maybe it hurts us in the sense that we're perceived as being more than a niche than we really are. But that's -- I think we can still grow quite a bit. We've made some improvements with the sales and marketing team, and we can grow from there, sell what we have. Unknown Executive: Our next question is from Thomas. Unknown Analyst: First of all, I just want to say thanks for bringing in Jennifer and Assel. I think it's bringing more color and it's pretty appreciated. The first question is on the litigation cost. I'm not sure how much you can disclose or tell, but should we assume that total cost of last couple of years could be recouped? Is that how it works normally? Or... p id="35782327" name="Frederick Vandenberg" type="E" /> It's a little bit complicated. Essentially, the way it works is you get an award of cost. And if it's your lowest award, you get probably 25% of your cost back. I don't think that -- there's a number of things that go into it, but essentially, that would be our worst-case scenario. And I think that we're very much likely not to be in there. There are double costs in certain circumstances, which brings us up to 50%, and then there's special costs. Essentially, those kick in at certain times based on certain events. It gets kind of complicated, but we expect a reasonably healthy award. Unknown Analyst: And is it -- without being too specific, is it like a onetime payment? Or do you guys have to agree with the payer on a schedule? Or is it a onetime payment or...? Frederick Vandenberg: Well, I do know it's not quite as easy as that. First is you define what the award is based on a schedule. So we have yet to do that. Then we set a schedule with the claimant. Unknown Analyst: And do we have a sense of the timing approximately? Or is it a couple of months, a couple of years, or I don't know? Frederick Vandenberg: I don't know. I can't answer that question. Unknown Analyst: I think it was last call, you've talked about having a consultant reviewing the business holistically. Did he present his findings or whatever or...? Frederick Vandenberg: Yes, he presented his findings. There was not anything revelatory in the report, I would say. So it really just highlights that we're taking, I think, the right approach to our growth strategy. And we're pretty strong in our position in the market, and we can grow from there. Unknown Analyst: And now that self-serve is available, is the goal to also run ads locally at multiple places in the plan? Or what's the strategy behind figuring out which market to kind of...? Frederick Vandenberg: Yes. Essentially, that's right. We have different markets where self-serve checkout can be used. We're very strong in that market, but they're generally small, so it doesn't -- it's kind of difficult for us to scale in those markets when we are using our staff. So that's one area where we would be using self-serve checkout. It's probably worth me reiterating what I said earlier about the billing of it. The billing of self-serve checkout, which we call Caster now, helps us in that what you just asked me about, the selling within a local territory and people can help themselves and come in, sign up, check out, and purchase from that way. And we can do that very efficiently and profitably now. It also helps us provide trial accounts. So we can provide trial accounts to larger strategic customers, and we're doing that as we speak. And we can do that now because essentially we restrict the trial use to a particular area. Before we couldn't do that. And then also, there's really savings in terms of our own staffing in client processing that is maybe hidden from the top line. It reduces our burden -- overhead burden. Unknown Analyst: Not sure if there are other people in line, but I have a couple more. Why did the currency -- not the currency but the denomination of revenue was mostly U.S. Wasn't it half and half almost with euro before? What changed there? Frederick Vandenberg: That's our largest customer moving from euro to... Unknown Analyst: Okay So there's nothing other than that [indiscernible]. And one more question. I'm just trying to figure out. Should we expect any more hires in the coming months or...? Frederick Vandenberg: No, I don't -- I think we're staffed up sufficiently. Unknown Analyst: And just to voice back on the first question from Andy, I guess I would like, as a shareholder, to see buybacks. I think with the current share price, I think there could be meaningful value created with not much dollars. Yes. I mean, it's just my opinion. Frederick Vandenberg: Noted. Yes. It's a good strategy for that, for sure, yes. Unknown Analyst: I mean, yes, I guess you could retire another what, 5% on -- I mean, there's not much stuff in the market. Frederick Vandenberg: Yes. With the TSX trading, that's the rate-limiting step on our buyback at 5%. But yes, we can do that. Unknown Analyst: Is there additional cost to do a substantial issuer bid or at least try or I don't know even if there's just admin costs related to those or...? Frederick Vandenberg: I don't believe so. But I still think we're limited potentially by the TSX. But I will -- that is one thing I will look into. Unknown Analyst: Yes. I mean, I guess another point as a shareholder, I would like to see is seeing more insider purchases on the market, at least from the Board. I think it hasn't been -- it's been a while since I've seen some. I know a couple of them are probably maxed out, but a couple of them I haven't seen probably any buys. I mean just me voicing an opinion. Frederick Vandenberg: Well, you did see me buy. Unknown Analyst: Yes, I've seen yours. Frederick Vandenberg: I bought in... Unknown Analyst: August. Frederick Vandenberg: Yes, in August, you saw that, okay. That was not in the ESPP. So I mean, I know it's -- anyway. Yes. Okay. Unknown Analyst: I mean, you don't have to answer anything. I was just voicing something I think a couple of people probably would like to see as well. And I know I've mentioned it last time, but I still haven't seen the replays from Q2 and Q3 on the website. I mean this time, I just took screenshot, but I'd kind of like to see the slides, but to circle back, but I mean, just if you ever have time. Frederick Vandenberg: Yes, I'll check on that. Unknown Executive: Thank you. That concludes all the questions for today. Thank you very much, everyone. Frederick Vandenberg: Thanks, everyone.
Operator: Good day. Thank you for standing by. Welcome to Semtech Corporation's Third Quarter Fiscal Year 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following our prepared remarks, there will be a question and answer session. Please be advised that today's conference call is being recorded. I would now like to hand the call over to Mitch Haws, Senior Vice President of Investor Relations for Semtech. Thank you. Please go ahead. Mitch Haws: Thank you, and welcome to Semtech's Third Quarter 2026 Financial Results Conference Call. Participants on today's call are Hong Hou, our President and Chief Executive Officer, and Mark Lin, our Executive Vice President and Chief Financial Officer. Hong Hou: But before we begin, I would like to highlight upcoming investor events, including the UBS Technology Conference in December, the Consumer Electronics Show in January, and the Needham Growth Conference in January. Today, after market close, we released our unaudited results for 2026, which are posted along with an earnings call presentation on our Investor Relations website at investors.semtech.com. Today's call will include various remarks about future expectations, plans, and prospects, which comprise forward-looking statements. Please refer to today's press release and see Slide 2 of the earnings presentation as well as the Risk Factors section of our most recent Annual Report on Form 10-Ks, for a number of risk factors that could cause our actual results and events to differ materially from those anticipated or projected on today's call. You should consider these risk factors in conjunction with our forward-looking statements. We will refer primarily to non-GAAP financial measures during today's call. Please see today's press release and Slide 3 of the earnings presentation for important information regarding notes on our non-GAAP financial presentation. The press release and earnings presentation also include reconciliations of our GAAP and non-GAAP financial measures. With that, I will turn the call over to Hong. Hong Hou: Thank you, Mitch. Good afternoon to all of you joining the call today. The Semtech team made solid progress again this quarter, driving strong sequential and year-over-year revenue and earnings growth. Aligning our data center roadmap to capture major growth and design win opportunities ahead, further strengthening our financial profile all while executing on the R&D roadmap and portfolio expansions we believe establish a foundation for growth. Looking at Q3, net sales were $267 million, up 4% sequentially and up 13% year-over-year, driven by the momentum of our data center and LoRa portfolio. Adjusted operating margins grew 180 basis points sequentially and 230 basis points year-over-year. Adjusted diluted earnings per share were 48¢, up 17% sequentially and 85% year-over-year. Again, this quarter, the core assets we have delineated, namely data center, LoRa, and Perse, together strongly contributed to our revenue deals. We continue leveraging our R&D resources to expand our portfolio, including in LoRa, with multiple protocol integration showcasing WiSAN and LoRaWAN synergy for smart infrastructure. And the new TIA and driver building blocks that establish new performance standards for 1.6 multimode optical transceivers in AI data centers. In addition to our strong financial performance, we further optimized our capital structure with a successful convertible offering. The collective actions taken over the past few quarters have provided Semtech significant balance sheet flexibility, resulting in nominal interest expenses and a much improved cash flow generation. This improved financial position allows us to accelerate investments in our core technologies. Finally, portfolio optimization remains a key focus. At the beginning of our fourth quarter, we completed the acquisition of the Force Sensing business, including its technology products, and key employees from Provo. By leveraging Semtech's customer penetration, global sales, and support network, and our existing capacitive sensing product portfolio, we expect to accelerate the proliferation of the advanced force sensing human-machine interface solutions and the MEMS sensors by targeting leading computing, smartphone, wearable, and automotive applications. In addition, we are making solid progress on the divestiture of noncore assets. With our new financial adviser, we have engaged in diligence conversations with a number of interested parties, which has generated multiple indications of interest. We believe this asset represents a very compelling synergistic value to these potential acquirers. Now let me move the discussion to our end markets. From Q3, infrastructure net sales were $77.9 million, up 6% sequentially and up 18% year-over-year, strongly supported by our data center business. Net sales for data center were a record $56.2 million, up 8% sequentially and up 30% year-over-year, benefiting from strong demand for our broad portfolio including our market-leading fiber edge TIAs, whose net sales set another record. Moving into Q4 and the next fiscal year, we expect an acceleration of sequential and year-over-year growth for the data center business. This conviction is supported by our expectation of continued increases in AI CapEx, expanding customer engagement, and a strong demand pipeline for high-performance, low-power solutions, including the incremental contributions from linear pluggable optics or LPO and the coverage linear equalizers. We believe our low-power analog solutions are a core enabler for making next-generation data centers scalable at 800 gig and 1.6 t. With hyperscale and AI data centers capacity, major down electric consumption every incremental watt saved in networking connectivity, multiplied by tens of millions of ports, will enable a meaningful increase in compute capacity. By delivering best-in-class efficiency and sync signal integrity at the physical layer, analog solutions give cloud and AI operators the flexibility to adopt new 1.6 base of topologies. Whether that is the higher density switches, new optics architectures, or more disaggregated racks, while staying within strict power, thermal, and transmission latency envelopes. To support data center build-outs, we are seeing broad-based demand acceleration, supported by customer forecasts for 800 gig TIAs through 2026. Beyond 800 gig, we are actively supporting a wide range of customers on their 1.6 t transceiver designs and deployment with both TIAs and drivers. And we expect 1.6 volume ramps to begin early in calendar year 2026, concurrent with the deployment of 1.6 switches. Regarding LPO, we have secured design wins with several leading US hyperscalers with our TIAs and drivers in 800 gig transceivers and AOCs. And we continue expanding our customer pipeline through engagement with our optical module customers. We expect a meaningful revenue contribution from TIAs for LPOs starting in Q4, and the momentum to build into calendar 2026. In parallel, we are accelerating our R&D roadmap and targeting initial sampling of 1.6 LPO drivers and TIAs before year-end. Regarding active copper cables, customers benchmarking ACCs against the competing technologies are seeing clear advantages. Excellent signal integrity, lower latency, and more importantly, power consumption up to 90% lower than DSP-based AEC solutions. We expect to ramp ACCs with a major hyperscaler during calendar year 2026. With this deployment transitioning, incorporating ACCs in place of AEC or DACs, we anticipate broader market penetration. As this hyperscaler demonstrates ACC's benefit versus the incumbent technologies, our engagements with additional ACC customers are intensive and broad-based. And we anticipate more design wins over the coming quarters. In addition, a number of customers, including our Android customer, are evaluating the integration of our copper edge linear equalizers on their PCB boards and connectors to improve signal integrity of the high-speed links. We anticipate designing of onboard copper edge use cases over the coming quarters. Moving forward, we believe our broad portfolio of fiber HTIAs and our rapidly emerging copper edge and LPO solutions position us for accelerating data center revenue growth throughout 2026. Now moving to our high-end consumer end, net sales for Q3 were $41.9 million, up 2% sequentially and up 5% year-over-year. Year-to-date, net sales were $118.5 million, up 6% compared to the same period last year. Drills from a high-end consumer portfolio are outpacing market metrics, such as worldwide handset unit volume deals by a considerable margin, demonstrating market share gains, customer adoptions of our differentiated solutions, and the strong supply chain execution. In addition, our per se sensing technology continues to be designed in a growing range of applications, including smart glasses and smartphone platforms supporting both existing designs and new launches over the coming quarters. As I referenced earlier, we completed the acquisition of the leading force sensing portfolio from QUVO at the '4. The integration is well underway, with our first product shipped starting last week, and we look forward to this company's expanding our sensor portfolio with a proven IP and paired with our global go-to-market engine unlocking cross-selling opportunities across a diverse array of leading customers. The combination of these unique capabilities provides a robust set of touch and gesture detection capabilities. Moving to our industrial end market, Q3 industrial net sales were $147.2 million, up 3% sequentially and up 12% year-over-year, driven by another quarter of strong LoRa performance. LoRa-enabled solutions net sales were $40 million, up 10% sequentially and up 40% year-over-year, supported by the continued expansion across several end markets and multiple applications in verticals such as smart utilities, smart buildings, smart city, and asset management. Looking ahead, we believe we are well-positioned to drive LoRa adoption with additional capabilities and features. Our recently launched Gen 4 LoRa plus transceivers offer integrated multiprotocol connectivities in addition to the LoRa LoRaWAN capabilities in a single chip across both sub-gigahertz and 2.4 gigahertz frequency bands. This simplifies hardware design, lowers the bond cost, and enables customers to create a unified design supporting multiple protocols, thus enabling deployments for customers rolling out solutions across different geographies and regions. The LoRa plus transceiver now delivers data rates of up to 2.6 megabits per second on both sub-gigahertz and 2.6 gigahertz bands. This capability enables faster transfer of video images and richer sensor data while maintaining ultra-low power consumption and enables applications that were not practical before. We are also continuing to see good traction in commercial drones. LoRa enables long-range communication up to 10 kilometers for applications like agriculture monitoring, livestock tracking, and infrastructure inspection. With Gen 4's higher data rate, drones can now transmit images and sensor data in real-time while covering larger areas efficiently. Our IoT systems and connectivity business recorded Q3 net sales of $88.3 million, down 1% sequentially and up 7% year-over-year. We see strong design win momentum as IoT transitions from 4G to 5G, leveraging our market leadership. As of this quarter, we have completed all the necessary certifications for 5G REDCap modules, and the products are now commercially available. The business pipeline continues to be strong, thanks to the broader market recovery and the favorable geopolitical environment for this business. Networking solutions with routers, gateways, and services in the portfolio had a strong execution quarter, advancing strategic initiatives across the carrier partnerships, software platform innovation, and market positioning. We expanded our 5G standalone capabilities with support for network slicing, enabling dedicated first responder network slices on T-Mobile's key priority and Verizon's frontline networks. We believe this persistent AirLink as a differentiated solution for mission-critical public safety communications where quality of service and network prioritization are essential. We launched the AI-powered support tools, delivered our next-generation management platform supporting both cloud and on-prem customer requirements, and announced a strategic partnership with the GTEC, extending our reach by embedding AirLink connectivity into their rugged computing ecosystem. The mission-critical cellular router market continues growing in double digits with accelerating 5G refresh cycles, and we believe we are well-positioned to capture share through our carrier relationships, ecosystem partnerships, and differentiated rocket science and lessons. We also launched the industrial first single vendor offering with Skylow, providing access to terrestrial and satellite networks through a single SIM and delivering the industry's first complete device-to-cloud terrestrial and satellite IoT solution from a single partner. Our strong results this quarter reflected the impact of our focus on growth of our core assets, disciplined R&D investments, and the deep and expanding partnerships we are building with our customers. As power constraints intensify for our customers across all our end markets, we believe Semtech is uniquely positioned to lead a world of web ultra-power efficient solutions spanning high-bandwidth data center networking, LoRa connectivity for rapidly expanding IoT use cases, and sensing technologies that enable the functionality of next-generation AI interfaces. We see significant opportunities ahead and are focused on executing against them while continuing to create long-term value for all of our stakeholders. Now let me lay out my priorities for the next few months. First, capture growth opportunities in our core assets. Through selective strategic investments, we plan to fill key capability gaps leveraging our operational excellence. We will also focus on ensuring capacity availability, particularly against the backdrop of tight supply and geopolitical uncertainties. Second, focus on the divestiture of noncore assets. This will help address margin disparities and enable us to focus fully on our core business priorities. Third, strengthen our winning culture and elevate our company mindset to work great as a new normal. In the year of Semtech rising, we fixed the balance sheet, aligned our core portfolio with market growth drivers, and built a strong foundation of winning culture. Building on the momentum of these successes, we are now embarking on the journey of the Semtech transforming, paving the way towards Semtech excellence and solidifying our position as a global leader in enabling next-generation data center, LoRa-based IoT, and our expanded sensing portfolio. With that, I will now turn the call over to Mark for additional details on our financial results and our outlook for 2026. Mark Lin: Thank you, Hong. For Q3, we recorded our seventh consecutive quarter of net sales growth, with record net sales of $267 million above the midpoint of our outlook, up 13% year-over-year. Net sales trends by end market reportable segment, geographic region are included in the accompanying earnings presentation. Adjusted gross margin was 53%, at the midpoint of our outlook. Total semiconductor products gross margin was 61.3%, up sequentially from 60.7% and up year-over-year from 59.9%. Total semiconductor products gross margin reflects meaningful sequential and year-over-year net sales gains in data center and LoRa. IoT systems and connectivity gross margin was reflective of mix related to net sales growth in cellular modules, with Q3 at 36.6%, compared to 39.5% in Q2 and 41% in the prior year period. Adjusted net operating expenses were $86.5 million, below the midpoint of our guidance range, benefiting from prudent cost control and a relatively stronger U.S. Dollar. Adjusted operating income was $54.9 million, up 13% sequentially and up 26% year-over-year, resulting in an adjusted operating margin of 20.6%, up 180 basis points sequentially and up 230 basis points year-over-year. Adjusted EBITDA was $62.7 million, up 11% sequentially and up 23% year-over-year. Adjusted EBITDA margin was 23.5%, up 160 basis points sequentially and up 190 basis points year-over-year. Adjusted net interest expense was $2.5 million, down 86% year-over-year. The capital structure changes completed in October were in effect for only two weeks of the quarter, so the bulk of the benefit will be realized starting in Q4. To summarize these changes, we issued a $402.5 million convertible note, inclusive of the green shoe, due November 2030, with a coupon of 0%, and a conversion premium of 42.5%. Along with the offering, we entered into cap calls which increased the conversion premium to 100%. As such, until we reach an effective conversion stock price of $141.82, the 2030 note will not factor into non-GAAP dilution. And of course, cash interest is due on the note. Net proceeds from the 2030 note along with the issuance of 5.3 million shares, and $3.5 million in balance sheet cash, were used to fully retire our 2028 notes with a coupon of 4% and about $219 million of the 2027 notes with a coupon of 1.625%. We also fully repaid our term loan, for which we were incurring cash interest at about 5.8%. Our debt currently consists of $402.5 million of the 2030 notes and $100.5 million of the 2027 notes. Currently, annualized interest expense is under $3 million, compared to $75 million for the third quarter of last year. Our significantly reduced cash burden from interest allows us to continue our acceleration of investments in strategic, high-growth areas of our business, while driving earnings growth and positive cash flow. We were well-positioned for the Force Sensing portfolio acquisition, which closed at the beginning of Q4, which we expect will integrate very well into our sensing portfolio. Other net non-operating expenses were $400,000, primarily from foreign exchange revaluation losses. We recorded adjusted diluted earnings per share of 48¢, up 17% sequentially from $0.41 and up 85% from 26¢ recorded a year ago. Our income statement results have translated to strengthening cash flow. Operating cash flow for Q3 was $47.5 million, sequentially up 7% from $44.4 million and up 60% from $29.6 million a year ago. Free cash flow for Q3 was $44.6 million, sequentially up 8% from $41.5 million and up 53% from $29.1 million a year ago. We ended Q3 with a cash and cash equivalents balance of $164.7 million. At the end of Q3, net debt sequentially decreased $20.8 million to $338.3 million. Along with debt reduction, strong business performance contributed to an adjusted net leverage ratio of 1.5 as of the close of Q3, sequentially from 1.6 and down year-over-year from 7.2. Now turning to our fourth quarter outlook. We currently expect net sales of $273 million, plus or minus $5 million, up 9% year-over-year at the midpoint. We expect net sales from our infrastructure end market to increase sequentially, supported by projected sequential data center growth of approximately 10%. We expect net sales for our high-end consumer end market to decrease about 3% sequentially. Typical seasonality in this end market is expected to be partially offset primarily by market share gains, but also from projected contributions from the newly acquired Force Sensing portfolio. We expect net sales from our industrial end market to be about flat, with LoRa decreases offset by growth in IoT systems and connectivity. Based on expected product mix and net sales levels, we expect adjusted gross margin to be 51.2%, plus or minus 50 basis points. Our consolidated adjusted gross margin outlook reflects sequential mix changes in the industrial end market. We project strong net sales growth from cellular modules, a part of our IoT systems and connectivity business, with gross margins that are considerably below the corporate average. Lower net sales with gross margins considerably above the corporate average are expected at about the midpoint of the $30 million to $40 million range we provided during last quarter's call. That said, our gross margin outlook for our total semiconductor products is expected to be 60.5%, plus or minus 50 basis points, up 220 basis points year-over-year at the midpoint, and incorporates our projections of data center net sales growth. Adjusted net operating expenses are expected to be $91.2 million, plus or minus $1 million, resulting in an adjusted operating margin at the midpoint of 17.8%. Included in the higher fourth quarter adjusted operating expense outlook are R&D costs associated with the addition of the Force Sensing business, along with increased investment in support of our growing data center portfolio. We have demonstrated strong returns on our R&D investment and expect incremental returns from our future investments. Adjusted EBITDA is expected to be $56 million, plus or minus $3 million, resulting in an adjusted EBITDA margin at the midpoint of 20.5%. We expect adjusted interest and other expense net to be approximately $5 million. We expect an adjusted normalized income tax rate of 15%, consistent with Q3. These amounts are expected to result in adjusted diluted earnings per share of $0.43, plus or minus $0.03, based on a weighted average share count of 95.7 million shares. Hong Hou: Thank you, Mark. We can now turn the call back over to the operator for the question and answer session. Operator: Thank you. And with that, we will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. The confirmation tone will indicate that your question is in the queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. One moment while we poll for questions. And our first question comes from the line of Rick Schafer with Oppenheimer and Company. Please proceed with your question. Rick Schafer: Thanks. And congrats, you guys. My first question, I guess, is really on CopperEdge. It sounds like ramping with your lead CSP this quarter. And I'm just really curious, sort of, I mean, that's breaking the ice. I mean, does that how does that set you up with other CSPs next year? You know, basically, does this validation from this lead customer speed deployments or wins with other CSPs? And is there any sense that you have today or maybe it's just too early to know, but any sense of how many ACC or CopperEdge customers you expect to ship to next year? Hong Hou: Rick, thank you very much for your questions. So for the CopperEdge in the ACC to supporting a leading hyperscaler, they have the product designed into three programs. And then anticipate the ramp to start in 2026. But we supply our CopperEdge ICs to cable manufacturers, so they certainly need the product earlier than that. And we, right now, have all the things ready to go and based on the forecast they provided. So we need to make capacity available to support their very rapid ramp. And in our Q4, our revenue is just a starting point for that customer. But the substantial ramp is going to be throughout the fiscal year 2026. As for you mentioned about, yeah, there's about icebreaking adoption. Definitely, we view this as a catalyst because the benefits of the ACC over the competing technology are very obvious, especially in the power savings. And it's when we engage with the different hyperscalers, we sense that, you know, ACC is typically adopting the platform design. So, certainly, now we see the broader base awareness of this advantage and the deployment by this hyperscaler certainly will provide a strong reference point for other hyperscalers to use in their future platform designs. As for how many, we have been working with our cable partners and engaging pretty much with every hyperscaler out there. I do expect more design wins in the coming quarters. Rick Schafer: Thanks, Hong. And maybe for my follow-up, you know, it's just a question I think we all get a lot, and you do too, I'm sure, is just sort of how do you approach sizing the ACC opportunity? I mean, is a good product sort of the roughly $100 million, you know, DAC cable market? Or, you know, I guess just sort of a starting point some way to kind of size that market and as part of your answer, I'd be curious just to understand better where we clearly see the benefits in terms of latency and power of AC but where like, what kind of workloads or what kind of designs where does win versus AEC? Like, where's some of the lowest hanging fruit you know, for Semtech there? Hong Hou: Yeah. So what we see, the ACC, it's positioned in a sweet spot. Between DAC, which had a signal integrity limitation for transmitting over a longer distance at a high speed. Then AEC, which is certainly can transmit with a longer distance, but with a significantly higher power consumption. So, certainly, if you look at the AEC plus DAC is a huge TAM. And, ACC, as I said, is so uniquely positioned. It will chip away a substantial portion of it as we start deploying the hyperscalers. So over time, we'll have a better idea how do we quantify the opportunity in the future. Rick Schafer: Thanks a lot. Hong Hou: Thank you. Operator: Thank you. And our next question comes from the line of Sean O'Laughlin with TD Cowen and Company. Please proceed with your question. Sean O'Laughlin: Hey. Thanks, guys. Thanks for letting me ask a question, and congrats on the solid results here. You mentioned Hong, you mentioned Q4 growth in data center. Think you used the word meaningful contribution from LPO in the quarter. Maybe you could just either talk about that deployment specifically, or if you can't get into any details onto that deployment, but in general, how do you envision LPO coming to the market? Is it sort of like on the ACC side where it's very project-specific and therefore kind of concentrated and lumpy? Or do you sort of envision it to fold into the mix over time like the, you know, like a CPU server chip of all would have been to the new generations. Hong Hou: Yeah. Hi, Sean. Thank you for the question. So we see a strong sequential growth opportunity in Q3 for Q4 for our data center business. As we mentioned, we anticipate approximately 10% quarter-over-quarter growth. That's on top of 8% sequential growth from Q2 to Q3. And the majority of the growth is going to be on the fiber edge product. In LPO, we are gaining more hyperscaler design wins. We anticipate a meaningful contribution for LPO. If I have to say meaningful, you know, for, you know, Q4, mid-single-digit level. And, ACC contribution now Q4 is still going to be very nominal. As I mentioned early on that, the hyperscaler ramp in volume in their racks for the interconnect is going to be starting in 2026. We'll probably be three to four months prior to that, getting the ramp going to supply to cable manufacturers to get the ACCs ready. Sean O'Laughlin: Great. Thanks for that, Hong. And then I just had a quick question for Mark. On the gross margin side in Q4, understood on the mix shift within IoT, I guess, of two questions around that. Is this sort of a permanent mix shift that you're anticipating or is this just sort of a temporary LoRa was strong in Q3, going to dip a little bit in Q4, so that'll balance out longer term. And then, well, I guess, maybe this part is I don't know if this is a Hong question or a Mark question, but one of the suppliers on the foundry side in your space talked about, you know, some significant CapEx that they were anticipating on the silicon photonics, but especially the silicon germanium side. And just wondering if you anticipate any sort of headwinds on that side as, you know, the as you mentioned, the entire market goes through a capacity constraint environment here. Mark Lin: Thanks for your question, Sean. Let me try to address gross margin first and clarify there. On the positive side, semiconductor gross margins driven by data center and LoRa, you know, up was 61.4% in Q3, 140 basis points year-over-year, up 60 basis points quarter-over-quarter. SIP gross margin signal integrity products, which encompasses data center, it was gross margin for Q3 was 65.1%. Up 70 basis points quarter-over-quarter, 200 basis points year-over-year. And the reason I'm providing these statistics is, you know, what we have what we've delineated as our core portfolio. Right, of data center, or per se, those are our faster-growing markets. And those gross margins, hopefully, you can see it, are above the corporate gross margin averages. So as those businesses, we believe, will continue to ramp, we believe they'll be accretive to the gross margins. On the IoT systems and connectivity side, we mentioned that we're going to have growth in cellular modules, where, you know, gross margin is less than a third of our semiconductor products. And we also have normally lower sales from LoRa. In terms of where that's heading, you know, we've talked about what's in our core portfolio and what is not in our core portfolio. And I think from what Hong mentioned, one of the top priorities is we're looking at portfolio rationalization there, partially to remove that margin disparity. On your question on foundry, Hong Hou: Maybe I can answer that one. Yeah, Sean. You are right. The silicon germanium technology platform right now is widely used in making physical media devices. The TIAs and drivers, but also in silicon photonics. That is why my first priority over the next few months is to make capacity available. That foundry is our close partner. We have a long-standing relationship over the last decade and a half. And they have been providing excellent support to us. Another nuance related to the component availability is a co-planning process with our customers and with our customers' customers sometimes. And that is a process we have implemented a few quarters ago. It has been working extremely well. So even they share their visibility even in a business development stage. And based on the understanding and based on our triangulation, we have the wafer start in the fab. And typically, the lead time is six months plus or minus. But with the planning process, we gained the visibility. We can start earlier and we have never really let our customers down with our key components. Sean O'Laughlin: Great. Thanks, guys. Congrats again. Operator: Thank you. And our next question comes from the line of Harsh Kumar with Piper Sandler. Please proceed with your question. Harsh Kumar: Yeah. Hey. Thank you, Hong. Hong, last call, I think I was giving you a little of a hard time on lack of sequential growth in the data center business. And I think suffice to say, you've fixed that, going forward. But I did have a question on that. My question is, LPO seems to be a little bit earlier than ACC and it seems to be coming on. You're excited about it. But almost everybody I know struggles with the scope and size of that market. So maybe if I can ask you again, or not again, but if I can ask you to just help us understand how big can LPO be as a business, and maybe what is your positioning in the LPO business. And then as a follow-up on the ACC side, I wanted to ask you ACC, are you seeing applications that replace ACC? I'm sorry. AEC. Or just brand new applications. Hong Hou: Yep. Thank you, Harsh. So first of all, on the data center growth, yes, so we're seeing very strong momentum and booking and outlook and forecast is very strong throughout 2026. And the LPO is we're pretty excited about the first meaningful ramp in our Q4. And as I mentioned before, the LPO gives us an incremental opportunity to bring more content in the transceivers. So we benefited from a strong backdrop of the transceiver demand. With the real-time solutions where we provide market-leading TIAs, by offering LPO, we have opportunities to offer drivers in addition to TIAs. So that will increase our TAM by 150%. So we certainly welcome that transition and definitely the rollout of MNP LPO will cannibalize the DSP-based solutions. But, will they do it any day with the increased TAM? ACC, on the other hand, is a net gain. So right now, with the air pocket, we're experiencing from the early adoption in the rack interconnects, the ramp with these hyperscalers is going to be giving us an acceleration of data center revenue. The adoption dynamics for LPO and ACC is a little different. LPO tends to be gradual. Because in their switch fabric, they can as soon as they as long as they have the confidence in the signal integrity on the host they plug into, they can use LPO. ACC, on the other hand, is more the platform-based. When they design the new rack platform, and they will have the power consumption envelope and ACC provides, you know, 90% of power saving compared to AEC. That is a huge amount. When you look at it as rack design right now, any rack, they probably have anywhere from 100 to 200 cables inside. So, each connector, you know, each cable has two connectors on each end. That you can translate into significant power savings. So ACC is encroaching into the established AEC market. But also DAC market. And because the short connects are predominantly DAC-based. But with the ACC availability, especially for 200 gigabit per line, and ACC is expected to be mainstream for longer than meter reach in the future. Harsh Kumar: Understood. Very helpful as always. And my next question was the Force Sensing acquisition. I don't know much about it. Maybe you could tell us just really quickly, given this is an earnings call, just really quickly what the product does and how you intend to use it, and how much revenue and kind of OpEx you had because OpEx jumped up quite a bit. Hong Hou: Yeah. So the Force Sensing is a capability, you know, you need to touch it and to activate it. We have the capacitive sensing that based, you know, when you have your human body close to the sensors, you change the dielectric constant, you can activate the sensing. But with the Force Sensing, you need to apply the force to activate it. It combines with capacitive sensing very nicely to offer broader capabilities for smart wearable and computing and automotive platforms. The asset we acquired from QUVO was originally at a company called Next Input. They were founded in 2012. And about four and a half years ago, it was acquired by QUVO. And the technology is very differentiating. They have over 175 patents issued and under applications. When we were looking at how to grow the core asset, and how do we fill the gaps in capabilities, the Force Sensing was on our roadmap. And just optimistically, we found this asset available. So we got them acquired and got them nicely integrated. The acquisition happened slightly less than a month ago, but as I mentioned, the integration has already been very successful. So we made the first shipment of the product with our fulfillment infrastructure last week. As for the incremental R&D increase, it's still a lot better to buy this asset than otherwise internally investing. And so it's largely a technology tuck-in. The revenue contribution at this point is immaterial. But we do project a very healthy synergy and a very healthy contribution of this technology and asset to our future revenue. Mark Lin: And, Harsh, just to double-click on OpEx. While there is incremental OpEx from our sensing portfolio, including this force sensing product, we're also increasing R&D in the data center. So the areas where we're investing, the core areas and these assets isn't changing. And we've been able to deliver some pretty good returns in data center, LoRa, and sensing with some nominal increases in OpEx. We expect to be doing the same in Q4. Harsh Kumar: Thank you so much. Operator: Thank you. And our next question comes from the line of Christopher Rolland with Susquehanna International Group. Please proceed with your question. Christopher Rolland: Hi. Thanks for the question, guys. And congrats on the results. I guess, first, a clarification and then a question. The first clarification is you talked about a customer integrating linear equalizers on PCB in the coming quarters. If you could talk a little bit about that, is that a high-volume win or more of a test case? And then just a clarification, you said that you are ramping LPO with several leading US hyperscalers. Are those the same two that you were talking about last quarter, or are there additionals for LPO? Thank you. Hong Hou: Yeah. Thank you, Chris, for the questions. First, on the customers evaluating the linear equalizer in the PCBs or connectors. Those are for the high-volume applications for the high-speed traces. And some customers are planning to do it in the PCBs. And some other customers are seeing the marginal loss of signal integrity from the host, from the ASIC to the port. So, they are evaluating using a linear equalizer to bridge the signal integrity. And it's pretty exciting. So there's a pretty broad base and one of the three, four customers. Those type of applications. As for the LPOs, we stopped counting how many hyperscalers are planning to use it. I will say, at this point, the conversation almost saying, you know, when I was talking to the teams and when I was engaging with our customers, doing the optical modules, the CIOE in Shenzhen and ECOC in Copenhagen. And we were joking. It's more like a who are not planning of using LPO and why? So I would say this technology, at this point, is not if, but more like a when. And what platform they're going to be using it. And we're really excited about the marked starting point of the ramp, but we do expect acceleration throughout 2026. Christopher Rolland: That's fantastic, Hong. And then secondly, I'll leave it up to you at Dealer's Choice. Either Pawn in China and when we should get confirmed tenders and what you're hearing there. Or, LoRa, kind of your outlook there. It seems like this Gen 4 has some new use cases, which is pretty cool. You can answer either or both. Hong Hou: LoRa, one question, LoRa. So yes, Gen 4 is gaining tremendous momentum. And the multiprotocol is really very exciting. So we plan to provide SDK and software stack to enable WiSAN first and to enable a security application, combined with a LoRaWAN. Christopher Rolland: Thank you. Very cool. Operator: Thank you. And our next question comes from the line of Tim Arcuri with UBS. Please proceed with your question. Tim Arcuri: Thanks a lot. Hong, your tone on divestiture has definitely changed versus what it was three or so months ago. It was sort of put on hold a little bit, and now sounds like you have another adviser, and you have some folks who are interested. And so can you just like, what changed and was it you weren't getting the price you wanted? And now these buyers are more interested in engaging at a price that you're happy with. What's can you just walk through, like, the evolution of what sort of change there, and maybe how close are you to do you think executing something? Hong Hou: Thank you for the question, Tim. So the simple answer is nothing has changed. So this time around, you know, we definitely have more dedicated mind share from the potential acquirers. And because the geopolitical situation is a little bit more settled, and also, they're seeing some of the tailwinds playing into the reality. And into the new business opportunities, the backlog, and also what projected Q4 sequential growth. So, you know, to the right acquirers, this really represents a pretty significant synergistic value to them. And as for the timing, we really cannot predict. But rest assured, this is my top priority. Tim Arcuri: Okay. And then, just on the rack, so it sounds I mean, you're kind of it sounds like you're semi promising Kyber in 2027. And I just want to make sure, do you have a lot of visibility on that just given what happened this year with the black ball racks? I just want to talk through how much confidence that you actually have on that that you would be ramping on Kyber in '27 because it does sound like you're kind of semi promising that. Thanks. Hong Hou: Tim, I would shy away from the specific platform, but go back to the fundamentals. So there's really not a whole lot of different ways to improve the signal integrity, especially when you get the high-speed signal launched into very thin metal traces. So you're going to lose the signal strength. You're going to distort the signal and you need to condition that. And there's no better or more seamless way than getting a linear equalizer integrated on the board. If they have other ways to do it, they would do it as well. So that's a fundamental belief. And that's the use case that we've seen with the multiple customers who are interested in incorporating linear equalizer on PCBs. Tim Arcuri: Okay. Thank you. Operator: Thank you. And our next question comes from the line of Tore Svanberg with Stifel. Please proceed with your question. Tore Svanberg: Yes. Thank you, Hong. Thank you, Mark. Hong, my first question is on ACC. You mentioned the three programs there with the lead customer ramping in '26. I know you can't talk about specifics, but could you at least confirm that all three programs are, you know, either cable or PCB board? And are they all based on the same speeds? And if so, what are the speeds? Hong Hou: Hey, Tore. Thank you for the question. All three programs are for 200 gigabit per second trace. And they are all in cable forms. Three programs, of them are the chip onboard. Tore Svanberg: Yeah. Thank you for confirming that. And as my follow-up, and sort of back to the Sierra Wireless gross margins, they've been under quite a bit of pressure. I mean, I understand the mix of modules versus services and so on and so forth. But you know, we're also hearing about, you know, component costs going up, whether it's memory or, you know, modem chips or anything like that. So how should we think about that gross margin not just next quarter, but, you know, over the next few quarters? Mark Lin: Yeah. So, Mark, you want to Yeah. So on the gross margin for that the ISC business, so you mentioned memory. Maybe I'll just get to the point. In terms of let's say, inflationary cost on the palm, we're not experiencing that. Especially memory. We have a few choices there in terms of suppliers. So in their for ISC, it really is mix. That's the primary driver of gross margins. As we as cellular modules is a higher percentage, the gross margin goes down. And, you know, if we have more in terms of services or a router business, gross margin of that business goes up. But at this point, as we're guiding next quarter, we're seeing really strong orders and expectations for customer delivery ramps into Q4. Tore Svanberg: So, Mark, this so this this is basically 5G modules that are ramped this quarter. And because they're lower margin than services and software, that's basically what's weighing on it. Mark Lin: That's right. But it's both 4G and 5G. But, of course, 5G is definitely a tailwind. Correct. Tore Svanberg: Yeah. Great. Thank you very much. Congrats. Operator: Thank you. And our next question comes from the line of Quinn Bolton with Needham and Company. Please proceed with your question. Quinn Bolton: Yes. Thanks for taking my question. I wanted to follow-up on that last question. Just, Mark, maybe you can level set us. I think you said the semiconductor gross margin for the fourth quarter would be 60.5. Don't know if you gave an ISC gross margin, but it looks like it's got to be pretty materially below the 36.6 that you did in the third quarter. So just wondering if you could give us some range where you think that ISC gross margin comes out in the fourth quarter. Mark Lin: Yes. At this point, I'll just say that the ISE gross margin will be lower primarily due to the drivers we talked about with cellular modules. On the again, on the positive side, semiconductor gross margins, was 60.5%, plus or minus 50 basis points. So still quite healthy, and we expect that to continue to grow. Well, we're only guiding on one quarter. Right? The drivers of gross margin between data center, LoRa, and per se, our sensing business now is expected to be accretive to the gross margin. Quinn Bolton: Got it. And then I'm not sure if it's for Mark or Hong. It does sound like you may be getting closer to a potential divestiture based on your comments in the script. I think in the past, you described a divestiture of noncore assets as being nondilutive to EPS because you would take deal proceeds and pay down high-interest rate term loan debt. Well, you've now done that interest expense annually is less than $3 million. So I guess I'm hoping you could comment now without the balance sheet, would a divestiture of noncore assets be dilutive to EPS? Mark Lin: At this point, we're looking at the lower gross margin portions of our business. So that would be something that, at this point, without naming all the specific assets that we're looking at, let's say it's nominal impact to an immaterial impact. Quinn Bolton: Okay. Thank you. Operator: Thank you. And our final question comes from the line of Cody Acree with The Benchmark Company. Please proceed with your question. Cody Acree: Yeah. Thanks, guys, for taking my questions. Hong, if any, maybe go back to the ACC opportunity for a minute. Can you talk to some of the market's concerns around the reliability of ACC? In earlier testing. Is that contributing to any of the hyperscaler what it looks like to be maybe incremental delays in the program ramp I believe was expected to begin here in Q4, and now it's like a more into next year. Hong Hou: Cody, yeah, thanks for the question. I'm not aware of any reliability you were mentioning about the ACC. So there's some chattering. Like, this is more like a couple of years ago by not really the players no longer active in the industry, and there's some false start but false start but there are no any issues we are aware of, and we have deployed a significant amount of ACCs in the industry. So I mean, we haven't heard anything bad. And then with the hyperscalers, they have gone through months of qualification. And reliability testing, system validation process. They're very careful, and they're very technically capable. We haven't heard any concern about that. Cody Acree: Alright. Great. Thanks for that clarification. Can we go to your discussion of ensuring capacity availability you just talk about some of the strategies that you might be able to employ specifically on the wafer side you mentioned earlier? Hong Hou: Yeah. So, in a way, talk about silicon photonics silicon germanium semiconductor platform to support silicon photonics and our PMD physical media devices. And there are more than one location. And we try to make mark capacity available by engaging and qualifying manufacturing from other sites and other countries. So that not only unlocks some additional opportunity, capacities, but also makes it more robust from the geopolitical point of view. So that's what I mean. That's the focus for the near term. Cody Acree: Would you look at anything like, dedicated capacity commitment, or investment on your part? Hong Hou: So the capacity, you know, certainly, we have been increasing the CapEx investment in the back end. Example, testing. But for the foundry capacity, we are primarily working with our partners to qualify their foundry from different locations. Cody Acree: Alright. Great. Thank you, guys. Mark Lin: Thank you. Thank you, Cody. Operator: Thank you. And with that, there are no further questions at this time. I would like to turn the call back over to Mitch Haws for closing remarks. Mitch Haws: That concludes today's call. Thanks to all of you for joining us today. Look forward to seeing you at various investor events over the coming weeks. Operator: Thank you, Mitch. And with that, this does conclude today's teleconference.
Operator: Attention, everyone. Please remain holding. The call will begin momentarily. Good afternoon, and thank you for attending today's Blue Bird Fiscal 2025 Fourth Quarter and Full Year Earnings Call. My name is Jayla, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. At this time, I'd like to pass the conference over to our host, Mark Benfield. Please proceed. Mark Benfield: Thank you. Welcome to Blue Bird's fiscal 2025 fourth quarter earnings conference call. The audio for our call is webcast live on bluebird.com under the Investor Relations tab. You can access the supporting slides on our website by clicking on the presentations box on the IR landing page. Our comments today include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted on the following two slides, in our filings with the SEC. Blue Bird disclaims any obligation to update the information in this call. This afternoon, we will hear from Blue Bird's president and CEO, John Wyskiel, and CFO, Razvan Radulescu. Then we'll take some questions. Let's get started. John? John Wyskiel: Thanks, Mark, and good afternoon, everyone. And thanks for joining us today. It's great to be here, and we're excited to share with you our fiscal 2025 fourth quarter and full year financial results. The Blue Bird team did an outstanding job once again delivering record sales and adjusted EBITDA for the year. Razvan will be taking you through the details of our financial results shortly, so let me get started with some of the key takeaways for the fourth quarter and full year on slide six. As shown in the first box, Blue Bird beat guidance on all metrics and delivered a record year. And this is despite the impact and challenges associated with the administration policy on tariffs which continues to create some pricing uncertainty in the overall market. This uncertainty, coupled with the fourth quarter typically being the lightest order period, reduced our backlog to 3,100 units. We will talk further on this, but we would consider 2025 fourth quarter ending backlog as still in the range. And in fact, today, our backlog is up to nearly 4,000 units and 850 EVs. Once again, we had a strong operational execution and performance for the quarter. It is a testimony to the team's dedication. During the quarter, we also furthered our long-term manufacturing strategy by beginning scope development and automation business cases for our new factory. Once again, we are looking at where we can apply production automation, automated material movement, and manufacturing execution systems, which will bring shop floor connectivity and ease of data collection. As I explained before, this fits into our manufacturing roadmap, which will result in cost reduction steps for the future and will improve our overall long-term competitiveness. In terms of pricing, we remain extremely disciplined. Bus prices remained higher than the previous year and the previous quarter. This process is very much how we manage the business. Our track record in dominance in alternative powered vehicles continues. Our EV demand is stable despite the tariff pricing uncertainty and EPA funding. The outlook in this area, though, remains strong. Alt Power is a segment we created more than fifteen years ago and we continue to maintain our lead position. During the quarter, we also looked at our long-term investment thesis and have further defined our roadmap for both manufacturing and product. Again, we will invest in projects that have a clear and strong returns profile, and I look forward to sharing more in our next earnings call. We recognize investing in our operation and product portfolio will improve the overall business. Consistent with what I communicated in the last two calls, it's our objective to position this business to be a strong long-term investment. And finally, we continue to manage the impacts of the administration executive orders and tariff volatility. We are fortunate to be well positioned to navigate this situation to a margin neutral outcome. Overall, adjusted EBITDA came in at $221 million for the year or 15% of revenue. That's $38 million better compared to last year's record year. Let's turn the page and take a closer look at the financial and key business highlights for the year on slide seven. We sold 9,409 buses in 2025 and recorded revenue of $1.48 billion. A record year and $133 million ahead of last year. On the EV side, we sold 901 electric vehicles, 9.6% of volume, and our long-term outlook for EVs remains optimistic. As already mentioned, adjusted EBITDA for the year came in at $221 million, $38 million stronger than last year. And free cash flow came in at an outstanding $153 million. Razvan will talk more to this and her outlook later in the call. Turning to the right side of the page, I'll start with backlog. Our backlog finished the year at 3,100 units. This drop was a function of industry volatility and the period itself. Fiscal fourth quarter is typically and historically the lightest order period for Blue Bird. Razvan Radulescu: Our 2025 order intake for the quarter was in line with the ten-year prior average, validating there were no performance issues during the quarter. More recently, we are also seeing our strategy on providing pricing stability into June and next year paying off. Our backlog has increased some 800 units since year-end. Overall, the fundamentals are still there. The fleet is aging. We are coming into a heavy replacement cycle. And there have been industry supply issues the last few years leaving pent-up demand. So all of this continues to point towards this situation being more temporary than long-lasting or structural. Year-over-year selling prices for buses was up almost $8,300 per unit. But, of course, this also includes tariff recovery as part of our margin neutral strategy. With tariffs excluded, pricing is still up year-over-year. And part sales totaled $103 million for the year. All powered buses represented a strong 56% of mixed unit sales for the year. Again, this compares with a typically less than 10% for our major competitors. And we benefit from higher margins and higher owner loyalty with their gas and propane products. As we are the exclusive supplier to the industry today. At the end of the quarter, we had 901 EVs booked and 680 EVs in our order backlog. Our latest guidance reflects approximately 750 EV unit sales for fiscal 2026. Our EV backlog is deep enough that it'll push some bookings into fiscal 2027. Again, we remain optimistic on EVs in the school bus sector. EVs are a perfect fit for school buses when you look at the duty cycle, available charging intervals, range, and the proven health benefits to our children. John Wyskiel: Similar to last quarter, we continue to see rounds two and three of the EPA clean school bus program flowing to our end customers. And we continue to see that rounds four and five are still in play. The government shutdown has created some delay, but we are hopeful to soon hear when and how these funds will be administered. And reimbursement funds continue to flow for an $80 million MES contract with the DOE. This is for their funding towards our new plant in Fort Valley. There's been a lot of rumor in the areas of best grant but there's been no unfavorable direction provided to us from the DOE. As a reminder, this project adds 400 well-paying American jobs to a century-old American company with an iconic brand. To build clean school buses, providing our children with the benefits of clean air. As I have said in prior earnings calls, it is really a great story. Overall, we beat our guidance for the twelfth consecutive quarter and for the full year. With an overall 15% adjusted EBITDA and record profits in Q4 for the full year, I'm very proud of our team's accomplishments. So we'd like to now hand it over to Razvan to walk through our fiscal 2025 fourth quarter and full year financial results as well as our full year guidance in more detail. Razvan? Razvan Radulescu: Thanks, John, and good afternoon. It's my pleasure to share with you the financial highlights from Blue Bird's fiscal 2025 fourth quarter and year-end record results. The year-end is based on a close date of 09/27/2025 whereas the prior year-end was based on a close date of 09/28/2024. We will file the 10-K today, November 24, after the market close. Our 10-K includes additional material and disclosures regarding our business and financial performance. We encourage you to read the 10-K and the important disclosures that it contains. The appendix attached to today's presentation includes reconciliations of differences between GAAP and non-GAAP measures mentioned on this call as well as other important disclaimers. Slide nine is a summary of the fiscal 'twenty five fourth quarter and full year record results. It was another outstanding operating quarter for Blue Bird. With significantly improved volume and with high margin units across all powertrains, driving both our top line and our bottom line results. Beat the adjusted EBITDA quarterly guidance provided in the last earnings call and in fact, we delivered the best quarter ever for Blue Bird. With $68 million adjusted EBITDA margin. The team continued to push hard and did again a fantastic job and generated 2,517 unit sales volume which was 51 units above prior year Q4 volumes. All-time quarterly record net revenue of $409 million was $59 million or 17% higher than prior year driven by increased prices and the higher number of EV units. Adjusted EBITDA was a quarterly record of $68 million driven by higher volumes in EV units, improved pricing, and operational improvement in efficiencies and quality. Adjusted free cash flow was $60 million a $10 million increase versus the prior year fourth quarter, driven by strong operating margins and working capital improvements. John covered already the record fiscal twenty five year-end key figures, with 9,409 units, $1.48 billion in revenue, $221 million or 15% in adjusted EBITDA, and a record $153 million in free cash flow close to 70% of the adjusted EBITDA. I will provide more details on our full year results later in the presentation. Moving on to Slide 10. As mentioned before by John, our backlog at the end of Q4 has softened at just over 3,000 units including 680 EVs. This was due to the uncertainty of bus pricing driven by the tariffs over the last six months. Our mitigation actions, combined with us recently locking our tariff charges for new orders with deliveries until June 2026, drove an improved order intake during fiscal twenty six Q1 as expected with our backlog currently sitting at nearly 4,000 units including over 850 EVs. Breaking down the quarterly record $409 million in revenue, into our two business segments, The vast net revenue was $384 million, up by $61 million versus prior year. Our average bus revenue per unit was up $21,000 to $153,000 per unit, which was largely the result of pricing actions taken over the past year and higher EV product mix. EV sales in Q4 were 233 units as expected, or 149 units higher than last year. Parts revenue for the quarter was slightly down year over year at $25 million. This continued great performance was in part due to strong demand for our parts, as the fleet is still aging. Gross margin for the quarter was 21%, or 4.1 percentage points higher than last year due to our sustained operational performance and our pricing overtaking the inflation costs, including the effects of tax. Fiscal twenty twenty five Q4, adjusted net income was $43.4 million an outstanding $17.6 million or 68% improvement year over year. Adjusted EBITDA of $68 million or 16.6% was up compared with prior year by $26.6 million or a 64% improvement. Adjusted diluted earnings per share of $1.32 was up $0.55 versus the prior year. Slide 11 shows the walk from fiscal twenty four Q4 adjusted EBITDA to the fiscal twenty five Q4 results. Starting on the left at $41.3 million. The impact of the bus segment gross profit in total was $27.6 million split between volume and pricing effects, net of material cost increases, $23.3 million plus efficiency and quality improvements of $4.3 million. The parts segment gross profit was slightly down by $800,000 driven by slightly lower sales, as mentioned earlier in the call. Overall, the SG&A and other income expenses were flat year over year. Sum of all of the above-mentioned developments drives our record fiscal twenty five Q4 reported adjusted EBITDA result of $67.9 million. Moving to Slide 12, I will cover some more details regarding our full year record results. Breaking down the $1.48 billion revenue into our two business segments, The bus net revenue was $1.377 billion, up by $134 million or 11% versus prior year. Our average bus revenue per unit was $146,000, an increase of $8,000 per unit versus the prior year. Which was largely the result of pricing actions taken over the past year and improved EV product mix. EV sales for fiscal twenty five were 901 units as expected, an increase of 197 units or another 30% improvement versus last year, and the same percentage growth of the year before. Part revenue for the year was flat at $103 million maintaining the already very strong prior year level. This performance was in part due to increased demand for our parts of the fleet still aging. Gross margin for the year was a record 20.5%, 1.5 percentage points higher than last year due to our sustained operational performance and our pricing overtaking the inflationary cost year over year, including the tariff effect. In fiscal 'twenty five, adjusted net income was $144 million a $29 million improvement year over year for a 25% improvement. Record adjusted EBITDA of $221 million or 15% was up compared with prior year by $38 million for a 21% improvement. Adjusted diluted earnings per share of $4.38 was up 92¢ versus the prior year. Slide 13 shows the walk from fiscal 'twenty four adjusted EBITDA to the fiscal 'twenty five results. Starting on the left at the prior record of $183 million the impact of the bus segment gross profit in total was $48 million driven mainly by the volume and pricing effects, net of material cost increases. On the operations side, the labor and health care cost increases were offset by improved efficiencies and quality improvement. Par segment gross profit was slightly down just under $1 year over year, due to slightly lower sales. These great improvements were offset by planned increases of $9 million in our fixed cost mainly personal and fringes slash health care related SG&A and engineering, as we continue to invest into our business and our people. The sum of all of the above-mentioned developments drives our new record fiscal twenty five adjusted EBITDA result $221 million or 15%. Would like to remind you that 15% adjusted EBITDA was our long-term target not too long ago, and we delivered it ahead of the plan and with relatively low units sold under 9,500, compared to the pre-COVID years. Moving on to Slide 14. We have extremely positive development year over year, also on the balance sheet. We ended the year with $229 million in cash, and this is after we repurchased $40 million worth of shares during the year. Our liquidity set at a record $371 million at the end of fiscal twenty five a $100 million increase compared to a year ago. The operating cash flow was a very strong $176 million in this year, driven by an improvement in operations and margins and improvements in working capital. The adjusted free cash flow was also a new record at $153 million fiscal twenty five. Or a 70% conversion from adjusted EBITDA of $221 million. On Slide 15, we want to share with you our confirmed fiscal 'twenty six guidance. We have a number of both tailwinds and headwinds and we maintain a cautious stance given the volatility of tariffs and other government policies related to EVs. As tailwinds, we have an aging fleet driving strong demand stable pricing and still a solid industry backlog. We offer not only diesel and gasoline school buses, but we have the only propane fuel school bus in the industry. With clean fuel and best in class total cost of ownership. Are also leading in the EV segment. And are confident that the still upcoming orders from rounds two and three of the EPA clinical bus program. Will improve our already very strong EV backlog. Additionally, at the end of fiscal twenty six, are planning to bring to market our new commercial chassis product. John Wyskiel: Okay. Razvan Radulescu: With headwinds, the tariffs are still unpredictable at times. And the material costs people and health care costs, as well as supply inflation pressures are still present. The backlog is lower year over year. However, it is still significantly above pre-COVID levels for this time of year. And finally, we expect to deliver a much higher number of EVs in the second half versus first half similar to fiscal twenty five. In summary, we are maintaining our units and revenue midpoint guidance to $9,500 and $1.5 billion respectively, And given our record fiscal twenty five results, we are also maintaining our adjusted EBITDA guidance of $220 million or 14.7%. With a range of $210 to $230 million and fourteen point five percent to 15% margin. Moving to Slide 16, we laid out for you the quarterly guidance for fiscal 'twenty six, and also shown the actuals by quarter for fiscal twenty five. Essentially, we are targeting a repeat of our all-time record fiscal twenty five performance in fiscal twenty six. Despite the unfavorable tariff environment, and slightly lower EV volumes. Starting in Q1 with the seasonal lowest number of production weeks in the year, due to year-end holidays, We expect to sell approximately 2,100 units, including 100 EVs, and generate $325 million in revenue with adjusted EBITDA of $40 to $45 million. In Q2, we expect our total volume to go up to approximately 2,200 units including 150 EVs and generate $350 million in revenue with adjusted EBITDA of $45 to $50 million. In Q3 and Q4, we expect an increased number of total units with 225 EVs in Q3 and two hundred seventy five EVs in Q4 driving quarterly revenue around $400 to $425 million and adjusted EBITDA of $60 million to seventy million dollars per quarter as shown. On Slide 17, in summary, our fiscal 'twenty six guidance for net revenue is $1.45 billion to $1.55 billion with adjusted EBITDA of $210 million to $230 million and free cash flow of $10 million to thirty million after deducting $100 million in extraordinary CapEx for the new plant. We expect fiscal 'twenty six to be another strong year for Blue Bird on our path of profitable growth. Speaking of profitable growth, let's look again on Slide 18 at some of our principles for running the business and touch on some capital allocation points. We strongly believe that revenue is vanity, profit is vanity, and cash is king. Let's cover these points one by one. On the revenue side, we are focusing on executing our organic growth an emphasis on alternative fuels. However, we do still offer diesel for those that continue to request it. We are not chasing market share, yet we are reengaging with some of the national large fleet as already shown in fiscal twenty five. While we continue to be laser focused on our core school bus business, have planted the seeds for adjacent market growth in the commercial step and chassis business. As well as with MicroBird with the new plant launched this summer in New York State. Looking at profit, we continue to be very disciplined in our margin management. We have implemented a price increase of $3,500 per bus for all orders received after 11/18/2025 to cover for new standard safety features For example, industry first driver airbag, and the expected variable cost increases, and we continue to execute on our margin neutral tariff strategy. We continue to monitor our backlog and keep it above one quarter of production providing us with the ability to schedule our mix and manage our supply chain efficiency. Finally, we work relentlessly on reducing our variable cost through continuous cost improvement quality improvement, manufacturing on one shift, supply chain management, and skill forward buy. John Wyskiel: We Razvan Radulescu: Looking at cash, we plan to invest over the next two years up to $200 million into our future manufacturing capabilities while also returning value to our shareholders through stock buybacks. We already completed $50 million buyback through fiscal twenty five Q4. We expect another $10 million in the current quarter they have a new program announced in the last earnings call for up to $100 million over the next two years. And we plan to achieve this while maintaining great liquidity and a strong cash position and they have flexibility in case we decide to pursue strategic and focused attractive M&A opportunities. Moving on to slide 19. Given our strong business momentum and record results of fiscal 'twenty five, Today, we are reconfirming the medium-term outlook at 15% margin with volumes of up to 10,500 units, including 500 commercial chassis, generating revenue around $1.6 billion and with adjusted EBITDA of approximately $240 million. Starting in 2029 and beyond, our long-term target remains to drive profitable growth So now it's on higher levels, towards $1.8 to $2 billion in revenue, comprising of 12,000 to 13,500 units including 1,000 to 1,500 commercial chassis, and generate EBITDA of $280 to $320 plus John Wyskiel: million or 15.5% to 16% plus Razvan Radulescu: at best in class levels. The profitable growth comes not only from improved EV mix, driven by sustained state funding, and improved EV total cost of ownership over time, but also from our new Blue Bird commercial chassis addressable market expansion as well as our Micro Bird joint venture new plant expansion in The USA which went live this summer. Continue to be incredibly excited about Global's future and now I'll turn it back over to John. John Wyskiel: Thank you, Razvan. Let's move on to Slide 21. We've shown this slide on several earnings calls so I won't spend much time on it today as our priorities remain consistent. The chart on the left side of the page outlines the Blue Bird value system as a company. Taking care of our employees, delighting our customers and our dealers, and delivering profitable growth. The right side of the page outlines how we get there. And, of course, the objective of delivering sustained profitable growth to our investors is at the center of it all. And when you turn to page 22, it really summarizes what a great year 2025 was and what a bright future the company has. As we invest in the business with a longer-term perspective, we see our outlook only getting stronger. Starting at the top, we built 9,409 units for fiscal twenty twenty five. But with a 6% CAGR projected for the school bus market, as well as entering new market adjacencies, we see our long-term volume growing to 13,500 units between school bus, commercial chassis. Our revenue for fiscal twenty twenty five was up 10% from the prior year ending at just under $1.5 billion and our profitability soared 21% in 2025 to $221 million adjusted EBITDA. But when you factor in these growth opportunities, our long-term outlook shows the company reaching $2 billion in revenue and $320 million or 16% plus in adjusted EBITDA. And at the bottom of the page, you will see EVs are still very relevant for us. This year, EV sales grew 28% to 901 units. And our long-term outlook shows a thousand units plus. Overall, the achievements in 2025 were simply outstanding. But with the strong fundamentals of the industry and with our investment in the future, the outlook for the company is nothing but promising. There's a lot to be excited about. So I'll wrap it up on slide 23. First, this great company and iconic brand is almost a 100 years old. Blue Bird has stood the test of time. And it continues to be poised for an exciting future. We delivered an outstanding 2025 just under $1.5 billion in revenue, and $221 million or 15% in adjusted EBITDA. We remain confident that the clean school bus funding program will continue. The bipartisan initiative, it's 100% appropriated. And eliminates harmful tailpipe toxins benefiting our children and communities. And we remain optimistic on overall near and long-term volume. The fundamentals of this industry are solid. And this kind of performance has put Blue Bird in a position to focus longer-term as we invest and enter new segments, and upgrade our operations and product. As always, I want to thank our employees, our dealer network, supply partners, and, of course, our investors. All are critical to our success. Similar to my message in the last calls, I remain excited about Blue Bird. 2025 has been an incredible year with record results. And beating guidance. This company has such a rich history and an exciting future. Thank you. So that concludes our formal presentation for today. And I'd now like to hand it back to our moderator for the Q&A session. Operator: Followed by one on your telephone keypad. If for any reason you would like to remove that question, it is star followed by two. Again, to ask a question, it is star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking a question. I'll pause briefly here as questions are registered. Our first question comes from Mike Shlisky with the company D. A. Davidson Companies. Mike, your line is now open. Mike Shlisky: Good afternoon, and thank you. I want to get a little bit more detail on the federal EB bus program if you could. How important is that to the fiscal twenty six guidance? Do you have to see money flow again for you to make the difference that you put in there for EVs for the year? Can you help us also on whether the state and local subsidy programs that are out there across a lot of different states have they increased over the last twelve months or so, and have state and local kind of overtaken federal as the driver of EV demand? John Wyskiel: Hi, Mike. Thanks very much for the question. I would say that when you look at everything we have EVs are relevant, and rounds three is flowing, as you know. But I don't think it's contingent when we look at our outlook to have to keep having to have rounds four and five come through. We have a strong outlook I think it's stable. Yeah. So I think it's with the state mandates that we see out there, I think it supports demand. I don't know if Razvan has anything to add. Razvan Radulescu: Yeah. So for fiscal twenty six, it does not rely on any round four or five, and we also have a very strong backlog. So we feel very good about the 750 guidance of EV. And there is some upside potential up to 1,000 units in this year. Mike Shlisky: And then just looking at the '26 outlook, I know that most years, the real order season, she was charged after Christmas break, and I know it's on November here. So I guess, I mean, being flat at a very high level is probably not the worst thing in the world coming up here, but do you are you kind of taking a conservative stance till you start hearing from people ordering after the Christmas break? Do you think maybe we'll get a much better picture of what real demand is on the next earnings call? You know, just kind of looking at the slide that you just talked about, John, at the end there, the industry outlook for retail sales is quite a bit higher, not a little bit higher at these 2026. And 2025, but your definitely doesn't really imply that at this time. So gonna help us to kind of reconcile the broader industry your season, and your outlook that you put forth today. John Wyskiel: Yeah. Yeah. Thanks, Mike. No. We have maybe a couple things. Yeah. Certainly, you look at the demand in the out years, it's strong. I mean, we know the fundamentals. Right? The replacement cycle is coming due. When you look at things like student enrollment, it's stable. There's a lot of things that support the demand going up. And then from our end, of course, we have the capability of producing some extra demand as well. And that includes, of course, in a couple of years, our new factories. So we'll be able to support that. But overall, yeah, I have probably less of a wait-and-see type of approach with this one that you kind of alluded to in the beginning. I think everything there is underneath, and everything we can see, including our backlog in the last quarter, seems strong. So I feel comfortable. I don't know if, again, Razvan or Mark, if you guys have anything to add. Mike Shlisky: Take that as a no. What was my next question here, if you don't mind? So my last one here is on the commercial chassis project that you guys are working on. Just give me a little bit more detail there. You know, what number of customers are testing it? What kind of customers what the initial what the early reactions have been, and your confidence that there's a real ramp in '27 taking place here. John Wyskiel: Yeah. I'll comment on a couple of things. First, we've got a couple of prototypes that have been built and bodies have been mounted, and they're now going through calibration as well as some early testing or, I'll say, some testing in general. The product's been well received by the customers that looked at it. They seem to be favorable. The market we know is open to another competitor. And then as you know, we have capacity. So I think more to come as we start, you know, getting past the hurdle of release, if you will. But indications seem good for the product. Mike Shlisky: Great. I appreciate the answers. I'll pass it along. Razvan Radulescu: Thanks, Mike. Operator: Next question comes from Eric Stine with the company Craig Hallum. Eric, your line is now open. Eric Stine: Hi, everyone. Eric. Hello. Hey, Eric. Hey. So maybe just sticking with, I guess, the commercial chassis, but also tagging into fiscal twenty six. I mean, is it, I know that you expect some contribution in Q4, or fiscal Q4. I mean, is it fair to say, though, that, that is a pretty minimal contribution? That's really not a you know, driver of low end to high end. As we think about the year? Razvan Radulescu: Yeah. You are correct, Eric. We have in our guidance approximately 100 commercial chassis and in terms of moving from low end to high end of guidance, they are not material at this point in time. Eric Stine: Okay. Got it. And so then thinking about the guide, I mean, yes, you're factoring in tariffs are still an issue, but I guess, arguably, maybe calm down a little bit year over year. I know you are seeing some benefit from the stable pricing that you've got at least through a portion of fiscal twenty six, Then you also mentioned the price increase, and so I would assume that that's more for the second half. So I mean, clearly, you are guiding to a bit of a ramp throughout the year. I know you've talked about that, you know, really with the backlog, even if it's down a little bit, you know, there's not that typical seasonality that would have been seen in years past. So I mean, it's pricing kind of the main determinant here and the reason for that ramp? I mean, other than EV mix, I guess. Razvan Radulescu: Yeah. It's Razvan. So we have a couple of factors I mean, first of all, it has to do with the number of production weeks that are in the year. Q1 is the lowest number of weeks Q2 is slightly up, and then Q3 is the highest one. And then Q4 again goes down a little bit. So you have the production seasonality. The new price increase, talked about the $3,500 per bus This is for new orders. And it will materialize in They go most likely at the end of the backlog, and it's for new orders. Q3 a little bit and then into Q4. In terms of tariffs, we are monitoring the situation. We have provided tariff charge stability to our customers and orders. All the way through June right now. So depending on how the reality of tariffs materializes until then, there is still a little bit of risk. And, therefore, we are probably conservative in terms of the guidance for the first half. And then we expect to ramp in the second half. Eric Stine: Got it. Alright. That is helpful. And then maybe last for me, just coming back to the order environment, and, you know, I do appreciate that after the holidays, that's when things pick up, but a nice bounce back here, I guess, as of a week ago. I mean, as you've talked to dealers, it sounds like you feel that that is sustainable and that those are trends that, you know, maybe are more normalized after that period where there was a lot of tariff uncertainty and that really impacted the orders. Is that a fair characterization of your view? John Wyskiel: Yeah. For sure it is, Eric. When you look at it, if you go back to the beginning of the year, there was constant change in tariffs. And I think it had some impact in terms of maybe, you know, districts seizing up on some orders. They were just waiting to see. But you can certainly see it now. It's starting to stabilize. Like, you said. We have pricing out to the end of or to June rather for, that's firmed. I think all of those suggest just what you indicated is that there's some stability coming back into the order cycle. Eric Stine: Okay. Thank you. Razvan Radulescu: Thanks, Eric. Operator: One moment, team. I'm having some technical difficulties on my end. Next question comes from Greg Lewis with the company BTIG. Greg, your line is now open. Greg Lewis: Hey, thank you and good afternoon and thanks for taking my questions. If we if I was thinking about the backlog and just on Slide seven, you kind of outlined what has happened quarter to date for the total backlog, but you didn't kind of you didn't update the, the EV side. Not sure if if we have that information, but just kind of as as we think about the backlog as a percentage of the fleet on the EV side, is kind of the bookings that were done or the the order book growth you know, quarter to date, does it kind of mirror what we have in the current order book, or was there you know, a little bit of underperformance or overperformance on EVs with the quarter to date earnings or orders. Razvan Radulescu: Yeah. Hi, Greg. This is Razvan. Thanks for the question. I had it actually in my remarks. The EV corresponding number is 850. So we had an increase also in EV throughout the course. Greg Lewis: Okay. And on a percentage basis, about the same grade. And then the other question I had was I'm not sure if it was today or last week, but I guess in New Jersey, came out with updated an updated incentive program ZIP I guess they were at least $37 million. For additional buses. Kind of curious was that something that the the you know, Blue Bird and and the market was expecting? Did it kind of come out of nowhere? And just as we think about what New Jersey did or or announced, should we be thinking about and and I know you kind of talked about it in the remarks. But should we be thinking about other states kind of following through with updated programs that you're at least tracking or watching, or was this kind of just like a one-off? John Wyskiel: Yeah, Greg. I think each state is different. In terms of how they apply funds, but it could it's a testimony to the state funding. It's there. It's real, and it's and it's flowing. And we know there are certain states that are aggressive in this area in terms of EV mandates. Greg Lewis: Okay. So was this largely expected, or was this something that we kind of knew it was gonna happen, we didn't know the timing of it? John Wyskiel: This particular program I would say, wasn't a cornerstone of our communications here, but it's the trend we see across the country and what we talk about. On these calls is that outside of the federal side, there is real demand at the state level. So we continue to see a general trend of growth in these types of state-level programs. I was gonna say from a macro level, we knew that things would flow, but we don't really necessarily get into each state and the analysis of each, single grant. Greg Lewis: Yeah. Now we're trying to do that. It's a lot of leg work. Anyway, hey, guys. Thanks for taking my questions, and have a great night. Razvan Radulescu: Thanks. Operator: Our next question comes from Sharif Elsabi with the company Bank of America. Sharif, your line is now open. Sharif Elsabi: I guess just looking at the midpoint of guidance, it seems to indicate a little bit of a lower price mix in the second half of the year versus the first half? Understand there's the chassis product coming in the fourth quarter and likely some tariff impact given the second half weighting of EVs. But I was just wondering if there's any other puts and takes we should be considering with regards to the first half versus second half price mix. Razvan Radulescu: Actually, this is Razvan. So as I mentioned before, the price increase I talked about will come only at the tail end of the fiscal year. And then you have numerous other factors. You have the product mix. You have the fleet mix. So all of them are baked into our detailed bottom-up forecast. But overall, I would say, in general, we look at pretty flat pricing other than the pricing that I talked about. And the wildcard is still the tariffs at this point in time. We have not communicated Q4 tariffs. Charges yet. As we are waiting and monitoring what will be the development on the cost side on the government policy related to tariff by the So overall, I would say, still, we are forecasting very strong EBITDA margins in the 15-16%. We will update the guidance as needed in the next quarters to come. Sharif Elsabi: Thank you. Operator: Our next question comes from Craig Irwin with the company Roth Capital Partners. Craig, your line is now open. Craig Irwin: Good evening and thanks for taking my questions. Razvan, the last several years, Blue Bird has provided on a quarterly basis, the dollar value of the backlog. And for a number of years, also, the dollar value of the EV backlog know, you gave us the $6.80 and $8.50 and, you know, obviously, the $30.68. Do you have those two financial metrics for us on this call? Razvan Radulescu: Yeah. I mean, definitely, we can provide those in our follow-up calls if you request this level of detail. And right now, we're focused more on the units at this point in time, but, definitely, those are available if requested. Craig Irwin: Fantastic. I'll definitely ask for that. Thank you. Operator: Our next question comes from Chris Pierce with the company Needham. Chris, your line is now open. Chris Pierce: Hey. Good afternoon. Can you hear me? John Wyskiel: Hey, Chris. We got you, man. Chris Pierce: Cool. Thank you. I just wanted to ask two questions on industry competitive dynamics. I know you have peers that are owned by companies that sell Class A trucks into The US and that are seeing section two thirty two tariffs and are talking about you know, losing share of that part of the business. Do you think we'll see here? Is it too early to talk about potential competitive shifting dynamics in the school bus market as they maybe try to make up for lost units in other parts of their business, or is that kinda too early to tell? Have you seen anything along those lines? Razvan Radulescu: This is Razvan. I think it's too early to tell, and that's probably more of a question that you have to ask them how they manage between the different sections of the business. But so far, we haven't seen any meaningful change from that. Chris Pierce: Okay. And then I know in your prepared remarks, you talked about student enrollment numbers. I guess, there are smaller competitors that are kinda working on optimizing school bus schedules. So it looks like there's less you know, just more throughput on the buses that run versus running a total number of routes. Is that something you're seeing where you kinda do you have software like that where you kinda bid on larger contracts? And larger school districts, or are school districts where we're trying to reduce the number of buses increase students per bus, or is that also kinda early days? John Wyskiel: No. That's not something that we generate or produce. But, obviously, we work with fleets or providers that do have that software. I mean, there's and you know some of them that are out there. It's not something we do. Yeah. But in terms of impact to the order or general demand, we haven't seen anything meaningful. At this point in time coming out through higher utilization of school buses. If this was your question. Chris Pierce: Okay. Thank you, boss. Razvan Radulescu: Thanks, Chris. John Wyskiel: Chris. Operator: Questions registered in queue. I'd like to pass the conference back over to our hosting team. For closing remarks. John Wyskiel: All right. Thank you, Jayla, and thanks to each of you for joining us on the call today. Blue Bird has delivered another year of record results, beating guidance, and demonstrating our credibility rather. This is despite a challenging environment. With the fundamentals of the industry, I remain enthusiastic for Blue Bird and its future, and we look forward to updating you on our progress next quarter. Should you have any questions, please don't hesitate to contact our Head of Investor Relations, Mark Benfield. Blue Bird continues to be stronger than ever and has an amazing future ahead as we approach our one hundredth anniversary in a couple of years. Thanks again from all of us at Blue Bird, and have a great evening. Operator: That will conclude today's conference call. Thank you for your participation and enjoy the rest of your day.
Regina: Good afternoon. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agilent Technologies, Inc. Fourth Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. Tejas, you may begin the conference. Tejas: Thank you, and welcome, everyone, to Agilent's conference call for the fourth quarter fiscal year 2025. As many of you know, I recently joined Agilent after a fun senior stint in Wall Street. And I'd just like to say how excited I am to be joining the team at such a pivotal time in our journey. With me on the line are President and CEO, Padraig McDonnell, CFO, Adam Alanoff, and Rodney Gonzalez, Vice President, Controller, and Principal Accounting Officer who served as interim CFO until Adam's arrival. Joining the Q&A will be Simon May, President of the Life Sciences and Diagnostics Markets Group, Angelica Riemann, President of Agilent CrossLab Group, and Mike Zhang, President of the Applied Markets Group. This presentation is being webcast live. The press release for our fourth quarter financial results, investor presentation, and information to supplement today's discussion along with the recording of this webcast are available on our website at investor.agilent.com. Today's comments will refer to non-GAAP financial measures. You'll find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in metrics are year over year, and references to revenue growth are on a core basis. Core revenue growth is adjusted for the impact of currency exchange rates and any acquisitions and divestitures completed within the past twelve months. Guidance is based on forecasted exchange rates. During this call, we will make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. Agilent assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risk and other factors. And now I'd like to turn the call over to Padraig. Padraig McDonnell: Thank you for joining today's call. Before I talk about our results, I want to start by introducing Adam Alanoff, our new CFO, who officially joined Agilent last week. Adam joins us after a distinguished tenure at Amgen. We advanced through a series of finance, strategy, and transformation leadership roles, over a total of nineteen years. Most recently serving as Vice President of Investor Relations and Treasurer. I'm looking forward to leveraging Adam's expertise in strategic planning and M&A, and his commitment to cross-function collaboration will be invaluable to Agilent in the years ahead. Adam, would you like to say a few words? Adam Alanoff: Thanks, Padraig. I'm thrilled to join Agilent at such an exciting time. My interactions with the leadership team over the past few weeks both within the finance function as we contemplated the guide, and with the broader team, have only reinforced my optimism for what lies ahead. I'm looking forward to working with the team to drive growth and innovation, advance operational excellence, and preserve Agilent's history of financial discipline. Padraig McDonnell: Great to have you on board, Adam. I also want to take a moment to express my sincere appreciation for Rodney stepping in as interim CFO over the past four months. His long distinguished career at Agilent demonstrated he was more than capable of helping us bridge this important transition. Now let me talk about the Q4 results. It was another strong quarter. The Agilent team executed exceptionally well, delivering the solutions our customers need in a market that is showing continuing signs of normalization. In the fourth quarter, Agilent reported $1.86 billion in revenue, growing 7.2% on a core basis. Our sixth consecutive quarter of core growth acceleration. This performance came in above the high end of our guidance. Our customer-first approach is paying dividends with top-line results that compare very favorably with our peers. Momentum remained broad-based across the portfolio supported by strong LC and LCMS demand and share gains, CDMO upside, solid double-digit contributions in key regions, and a replacement cycle that continues to accelerate. These trends reflect our structurally resilient portfolio and performance that tracks above the broader market. At the same time, our Ignite operating system continues to improve the effectiveness and efficiency of our organization. Ignite helped deliver more than 200 basis points of sequential margin improvements compared with last quarter, while funding incremental performance-driven variable pay. The bottom line result was fourth-quarter earnings per share of $1.59, above the midpoint of our guidance. Simply stated, in a dynamic environment that continues to evolve, the Agilent team delivered for our customers and our shareholders. As we close the 2025 fiscal year, I want to highlight four key dimensions where we made exciting progress this year and that will drive our growth for the future. First, the innovative products and services that we develop with a customer lens to create differentiated value. Second, the extraordinary customer intimacy and trust our unified sales and service organization creates that unlocks high-quality lead generation and funnel conversion. Third, the increased capabilities and level of talent throughout Agilent. Fourth, the Ignite operating system that enables us to effectively combine these elements to drive long-term growth and maximize value for customers, shareholders, and employees. Let's start with innovative products and services. The success of our customer-focused innovation was on display throughout the year with products and services that differentiate us from the competition and drive our growth by solving real customer problems. This includes our next-generation Infinity 3 that is delivering as much as 30% improvement in productivity for our customers. Infinity 3 drove double-digit healthy growth in the second half of the year. That is underpinned by customers returning to buy large volumes of additional units because of their great experiences. Our Pro IQ LCMS also has seen an amazing ramp. Its unique value proposition for pharma and biotech is driving strong customer interest, as well as sales that are well ahead of our already robust expectations. The summer launch of our Pro IQ drove overall LCMS growth of more than 50% in the first full quarter. And last month, we introduced our Alturo BioInert column. Customers are rapidly adopting the Alturo column, and the column's ramp is an order of magnitude greater than past column launches. This is a clear indication of just how important increased sensitivity and resolution are in key applications that support oligos and GLP-1s. These results also highlight new product launch excellence across the organization. When it comes to artificial intelligence, we are using AI to accelerate our innovation engine and drive operational excellence. For example, AI generates 80% of our engineering drawings, based on product specifications and customer needs, thereby increasing design productivity and reducing custom design cycle times by 75% for our GC products. In our operations, our order fulfillment team is leveraging Agilent AI for testing, inspection, and control to eliminate redundant shifts, reduce downtime, and improve quality. Our second key dimension, extraordinary customer intimacy, centers on a cornerstone of continued success. Leveraging our unified sales and service model to maintain lasting customer relationships. Our commercial team members are uniquely positioned as trusted customer partners. Agilent's commercial model is a unified end-to-end organization to provide presales consultations, a modern and easy-to-use e-commerce platform, and a highly experienced deep technical post-sale service and support that ensures customer success. Our field service engineers build long-term relationships with our customers by partnering with them to solve their most critical problems. Those relationships provide highly valuable insights that fuel a vital and growing portion of our demand generation programs. Insights from our service team now account for 30% of all sales leads. And these leads come with an order conversion rate that is more than double that associated with the rest of the sales funnel. Because of our uniquely deep connection with our customers, it will come as no surprise that they consistently rate Agilent services as best in class. We don't take this privileged position for granted. That's why we continuously implement new ways to enhance customer intimacy. In terms of AI and customer intimacy, we are working to deploy AI within our CRM to support our sales team with predictive insights, automating tasks, and proposing personalized content in service of our customers. We're also using virtual agents to complement on-site support in select markets to resolve customer issues more quickly. The third dimension is our increased capabilities and level of talent throughout Agilent. We've leveraged our deep bench of in-house talent and complemented it with external hires that bring fresh perspective and domain expertise. At an executive level, in addition to Adam, we brought on Megan Henson to lead our HR team to help us build on our strong culture. August Beck, who joined us from Thermo Fisher as our Chief Technology Officer, brings deep scientific knowledge and analytical technologies and a proven ability to lead innovative R&D teams. And most recently, Jaidip Ganguly joined from Gilead to drive world-class manufacturing while leveraging our global scale to realize increased efficiencies. While these individuals are important and visible additions to our leadership team, all Agilent employees are focused on accelerating the pace of innovation, driving superior execution, and most importantly, delighting our customers. Finally, we are bringing together these foundational strengths through our Ignite operating system, our fourth key dimension. We launched Ignite at the start of the year to improve the pace and quality of our execution and to usher in a new mindset that leverages the power of the enterprise to maximize both growth and stakeholder value. Some examples of Ignite's early success include enhanced top-line growth through the creation and implementation of an enterprise pricing program that drove performance across the year, more than doubling our price growth compared with FY '24. Faster decision-making and improved efficiency by reducing layers of bureaucracy, meaningful procurement cost savings through globalization of vendor contracts, that leverage increased scale for additional negotiating power. And we saw the power of Ignite in real-time this year as it enabled the immediate creation of our tariff task force to drive a rapid and coordinated response to global tariff changes. The cross-functional task force rapidly developed a unified strategy and executed a suite of interconnected projects that greatly accelerated our tariff mitigation efforts. As a result, we are highly confident that we will fully mitigate current tariffs in FY '26. All told, Ignite has already delivered well over $150 million in annualized savings. The Ignite operating system is able to quickly assemble knowledge from across the organization, develop a thorough and actionable enterprise plan, and actively drive implementation and quantify outcomes. This is critical as Agilent continues to evolve. Finally, and this is important, Ignite has strengthened our organization's readiness to identify, acquire, and integrate attractive assets. Integration of BioVectra is one example. It's been a highly productive year for Agilent. We've laid a robust foundation upon which we can drive long-term differentiated growth and value. Now let me share some additional details of our Q4 results starting with our end markets. We continue to see signs of improvement in the pharma market. The Agilent team was able to leverage those conditions in our customer-centric approach into an excellent 12% growth during the quarter. We also saw a nice pickup in spending among our biotech customers. That spending grew into the low twenties during the quarter, and low double digits ex CDMO, which was led by our large accounts. Our customer-focused solutions for oligotherapeutic developments, peptide-like GLP-1s, and Infinity 3 drove our performance in pharma to low double-digit growth in LC, and mid-teens growth in LCMS platforms. That performance is above that of our peers and points to share gains across the replacement and greenfield opportunities. Our specialty CDMO business continues to be a differentiated growth driver. It represents nearly 20% of LDG revenue and grew more than 40% on a core basis during Q4. During the quarter, commercial programs drove 60% of our NASD revenue. The capacity increases we implemented at BioVectra in the third quarter enabled a record fourth quarter that was in line with our elevated expectations. Even as the intra-quarter cadence shifted revenue to October. Chemical and advanced materials grew 7%, as we continue to see strong demand in the Americas and Europe. Chemicals customers continue to invest in capital equipment, to meet the demand driven by reshoring of downstream customers in the semiconductor market, increasing global competition for critical resources, and an enhanced focus on regional supply chain security. Diagnostics and clinical continues to be a durable mid to high single-digit performer with 7% growth in the quarter. We're excited about the upside potential here as our new Dako Omnis family penetrates medium and low throughput labs. Environmental and forensics grew 9%, as the approaching implementation of a revised EU drinking water directive drives investment in new capabilities. Also, commercial labs and forensic customers in the Americas are moving quickly to spend the capital budgets before year-end. Even as US government spending in this end market remains muted. Our market-leading PFAS business grew high single digits in Q4 and almost 40% for the year, despite meaningfully tougher comps and the US EPA headwinds we mentioned last quarter. Environmental use cases remain the bulk of our PFAS revenue, though growth is increasingly coming from our end markets such as food and CAM. Our business in the food market finished a strong year with a growth of 7% in the quarter. Finally, academia and government, our smallest end markets, at 7-8% of annual revenue, declined 10% in the quarter. To no one's surprise, federal spending reductions had an increased impact on instrument spending in the US. In summary, our growth across major end markets continues to run ahead of our peers supported by stronger LC and LCMS adoption, healthy contributions from specialty CDMO platforms, and solid traction in applied workflows. We continue to see nice momentum in our instrument portfolio, with instrument book-to-bill exceeding one for the seventh consecutive quarter. We are in the early stages of a normalized replacement cycle and gaining share against the plus the growth of our installed base enables robust attach rates for consumers and service offerings to lend meaningful durability to our top line for your strong recurring revenue. As we look to FY '26, our priorities remain clear. Advance our Ignite operating system, sharpen commercial execution, capture opportunities from improving end markets, innovative new products, and a multipronged replacement cycle. In our end markets, we expect continuation of positive trends in pharma. This will be enabled by improved visibility around pricing, and a stabilizing tariff environment. As well as the very early stages of pharma reshoring that we anticipate could start to materialize in orders towards the end of the year. And while it's too soon to call an inflection, the accelerating pace of M&A and improving funding environment into October bodes well for our small and midsized biotech customers in FY 2026. We remain bullish on demand outlook for specialty CDMO pharma services, with strong market momentum in our key modalities like siRNA and GLP-1s. We expect to drive mid-teens growth in the coming year as we get ready for opening new capacity in 2027. We expect applied markets will continue to grow as customers adapt to shifting macro conditions, and structural drivers like the expansion of PFAS testing and semiconductor reshoring support durable long-term demand. In diagnostics and clinical, we see continued strength as testing demand grows and our expanded Dako Omnis offerings enable new placement opportunities. In our smallest end market, academia and governments, we are not expecting a meaningful recovery in FY '26. As ongoing US federal spending headwinds seem to be unlikely to abate soon. Putting it all together, incorporating the stronger baseline comparison for FY '26, we're starting the year with an expectation of 4% to 6% core growth. We believe this range is a prudent initial guide that takes into account secular growth drivers. This includes instrument replacement cycles, demand for our specialty CDMO services, with that of these specific needs in GLP-1s and PFAS, and pharma and semiconductor reshoring. This allows for unevenness in ongoing recovery dynamics across our markets. We anticipate these growth drivers reinforced by Ignite to provide continued momentum. We also expect to deliver 75 basis points of operating margin expansion in FY 2026 at the midpoint. This target allows us to make critical investments to drive innovation, expand our digital commercial capabilities, and prepare for the opening of our new CDMO capacity in 2027. All while absorbing incremental material costs driven by tariffs and assumptions for a steady end market recovery. This margin expansion translates into 9% operating profit growth at the midpoint, demonstrating the strong operating leverage inherent to our model. For FY '26 earnings per share, guiding 5% to 7% that includes an EPS growth headwind of three percentage points from the one-time step-up in tax rate reflecting the new global minimum tax regulations. Adjusted for this tax dynamic, underlying EPS growth would have been in the high single to low double-digit range. Our financial discipline remains unchanged. We are deploying capital where it delivers the highest long-term value. Balancing investments and innovation, M&A opportunities, as well as strategic capacity expansion while returning capital to shareholders. Let me turn it over to Rodney, who will provide additional details on the fourth quarter results and our guidance for next year. Rodney Gonzalez: Thanks, Padraig, and good afternoon, everyone. In my comments today, I'll provide additional detail on revenue in the quarter as well as walk through the income statement and cover other key financial metrics. I'll then cover our new full-year and first-quarter guidance. Q4 revenue was $1.86 billion, above the high end of our guidance. On a core basis, we posted growth of 7.2% while reported growth was 9.4%. Currency had a favorable impact of 0.9% while M&A contributed 1.3%. The BioVectra acquisition is reflected in core growth starting in October. At a business segment level, LDG grew 11%, well ahead of guidance bolstered by the strong performance in our LC and LCMS instruments and robust CDMO results. AMG grew 3% as expected. Led by high single-digit growth in GC and GCMS as we see increasing benefit from the instrument replacement cycle in those platforms as well. ACG grew 6% in line with our guidance with high single-digit growth in the rest of the world, offset by mid-single-digit declines in China. On a geographical basis, both the Americas and Europe saw healthy 11% growth with broad end market strength, outside of academia and government. China declined 4% and the rest of Asia ex China grew 4%. Results in China were below our low single-digit growth expectations, though revenue contributions remained stable around $300 million per quarter. India grew in the high teens in Q4 with double-digit growth in pharma and greater than 20% growth in each of our applied markets. This balanced strength across our geographies which saw us deliver double-digit growth ex China remains a key differentiator of our performance profile. Gross margins in Q4 improved sequentially by 100 basis points and came in at 54.1%. On a year-over-year basis, were down 100 basis points due to tariff headwinds. Operating margins were 27.2%, up more than 200 basis points sequentially driven by leverage on volume, strong pricing, and tariff mitigation. We delivered this result despite absorbing an incremental 60 basis point sequential headwind from performance-driven variable pay. Absent the variable pay dynamics that reflect better business conditions and our strong execution. Operating margins would have expanded by 270 basis points over the prior quarter. Well above our guide of 230 basis points of sequential expansion. On a year-over-year basis, operating margins were down only slightly due to tariffs. Now moving below the line, we had $10 million in other income, while our tax rate of 12% was as expected. Finally, we had 284 million diluted shares outstanding in the quarter. Putting it all together, Q4 earnings per share was $1.59, that was above the midpoint of our guidance and grew 9% from a year ago. Now let me turn to cash flow and the balance sheet. Operating cash flow was $545 million in the quarter, and we invested $93 million in capital expenditures. We purchased $85 million in shares and paid $70 million in dividends during the quarter. More recently, we increased our industry-leading dividend by 3%. And we ended the quarter with a net leverage ratio of 0.8 pointing to our robust balance sheet that leaves ample room for capital deployment optionality. Now let me share some additional details on the outlook for next year and the guidance for our first quarter. We expect FY '26 revenue to be in the range of $7.3 to $7.4 billion on a reported basis. This represents an increase of 4% to 6% on a core basis as currency is expected to be a 1% tailwind during the year. To help with your models, I want to provide you with additional details on expectations for growth in our end markets during the year. Starting with pharma, we anticipate high single-digit growth improving market conditions, and the strength of our offerings in key high-demand applications create a favorable environment. The applied markets, we expect mid-single-digit growth in chemical and advanced materials, low single-digit growth in environmental and forensics, and flat growth from food, where we have especially difficult year-on-year compare against a strong China stimulus tailwind FY '25. In Diagnostics And Clinical, We Anticipate Mid Single Digit Growth In Academia And In Government, We Are Guiding To A Low Single Digit Decline, As We Don't Foresee Meaningful Recovery In The US. By business segment, we are guiding both the life science and diagnostics markets group, and the Agilent CrossLab's group to grow mid-single digit and the applied markets group to grow low single digit in FY 2026. Finally, by geography, we expect The Americas to lead the way with mid to high single-digit growth while Europe and Asia ex China grow mid-single digits. Building on the momentum we saw in the back half of the year. In China, we are incorporating a flat assumption for FY 2026, consistent with what we saw in China this year. Based on our latest expectations around stimulus timing, we are taking a prudent approach and substantially moving stimulus benefits from our FY 2026 revenue guidance. Moving down the P&L, we expect to deliver 75 basis points of operating margin expansion in FY 2026 at the midpoint. We anticipate a more gradual start given typical seasonality and the lack of tariff headwinds in the '25. With momentum building through the year. Reflecting the latest global tax regulations, we see our tax rate increasing to 14.5%, a 2.5% increase compared with last year. We also expect $30 million in other income and we are planning any dilutive repurchases to maintain 284 million diluted shares outstanding for the year. Putting this all together, FY '26 non-GAAP earnings per share are expected to be between $5.86 and $6. Representing earnings growth of 5% to 7%. For your P&L modeling, let me share some additional expectations we have incorporated into our guidance for the year. Because of Ignite, we expect pricing to continue to improve. With an opportunity to grow well above 100 basis points. This guidance also incorporates achieving full mitigation of existing tariffs over the course of the year. Using cost savings, and pricing actions. As is typical, we expect to see substantial sequential improvement in operating margins over the course of the year. Finally, we anticipate operating cash flow will be in the range of $1.6 to $1.7 billion and expect to invest $500 million in capital expenditures. To help with phasing, we are expecting revenue seasonality similar to FY '25. Meanwhile, earnings will be slightly more biased towards the second half given the tariff impact on the P&L in the first half. Now moving to the first quarter, we expect our reported revenue to be in the range of $1.79 to $1.82 billion. This represents an increase of 4% to 6% on a core basis, while currency is expected to be a 2.5% tailwind. First-quarter EPS guidance is $1.35 to $1.38, with 285 million diluted shares outstanding. Now I'd like to turn the call back to Padraig for closing comments. Padraig? Padraig McDonnell: Thanks, Rodney. As you've heard, we built excellent momentum across FY '25 in a dynamic environment. Our distinct growth drivers under the Ignite operating system are fuel for success. We are poised to benefit from a broadening end market recovery, win share, and deliver resilient above-peer growth and margin performance over the long term. With our innovation engine accelerating, our focus on customers intensifying, and our best-in-class commercial team executing, we are entering FY '26 from a position of strength. Thank you all for your attention, I'll turn it back over to Tejas for Q&A. Tejas? Tejas: Thanks, Padraig. Operator, can you please share the instructions for the Q&A? Regina: At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Our first question will come from the line of Tycho Peterson with Jefferies. Please go ahead. Tycho Peterson: Hey, thanks. Padraig, I'm wondering if you can comment on BioVectra. You guys had guided, I think, closer to $35 million and came in around $22 million. So maybe just talk about dynamics there. And then you're taking CapEx up $100 million. Is that all CDMO? Padraig McDonnell: Yeah. So we're very pleased with the BioVectra coming in strong for the year, driven by GLP business. So Q4 growth was a good was a was an easy compare but pleasing nevertheless. So we came in against, what we thought for the year. We have key molecules planned for 2026. We're very, very happy about the book of business we have for BioVectra, and it was an outstanding integration from our side, which bodes well for the future for future M&A as well. But on the CapEx side, Adam, do you wanna give some color? Adam Alanoff: Sure. Thanks. So the incremental $100 million investment is really around incremental NASD capacity as well as incremental consumable expansion. Tycho Peterson: Okay. And then follow-up on margins. You know, obviously, a focal point especially coming out of last quarter. Maybe just talk on the 75 basis points you're guiding to the gives and takes there. And if the top line ends up at the high end, could you do better? Padraig McDonnell: Yeah. So on margin, I think, you know, we have a prudent margin for 26 set in, and we're gonna go through some of the differences on the call. But, Adam, do you wanna go through some of the ideas you have on margin? Adam Alanoff: Sure. So if you think about the margin for 26, at the midpoint, we're guiding 75 bps improvement on a year-over-year basis. And that's really driven by Ignite, pricing optimization, some operational efficiencies that you see in the number, and that includes some of the tariff mitigations. And then volume growth. The other piece which I think is important, which I wanna highlight as this more than offsets inflationary impact, and we're making incremental investments in growth and innovation as well as adding strategic capacity. So let me just quickly talk about those incremental investments in growth because I think it's something that Padraig talked about with our capital allocation strategy. So one, we're making digital advancements for our commercial teams and customers. The second, adding AI across the enterprise, and we're really being focused there on a number of projects. And then importantly, we're continuing to invest in our core R&D portfolio for our products. And with August coming on, we're trying to make sure that we're investing in the most high-impact projects. Tycho Peterson: Okay. I'll leave it at that. Thanks. Regina: Our next question will come from the line of Patrick Donnelly with Citi. Please go ahead. Patrick Donnelly: Hey, guys. Thank you for taking the questions. Padraig, maybe just on the general tone from biopharma customers in recent months. Obviously, there's some big announcements. It sounds like things ticked up a little bit both on pharma and biotech. Can you talk about maybe specifically on the instrument side, what you've been seeing? Again, it does sound like biotech is loosening up a little bit for you guys. Sounds like pharma is maybe a little more constructive. Maybe just talk about what you're seeing there. And then even if you get into year-end here, is there already signs of what the budget flush could look like? What are you guys seeing there? Could that be a little more normal than past years? What are the conversations look like there? Padraig McDonnell: Yeah. Thanks, Patrick. So pharma, largest market, grew 12% overall in the quarter. And what we're seeing is the MFN tariff deals have really reduced uncertainty for our customers. You know, our biotech grew in the low twenties or, I would say, low double digits ex CDMO. And the US biotech recovery is starting in well-funded large caps releasing capital spend. Think what you're seeing in the small to mid biotech, you're seeing improved funding backdrop. And you're seeing that with, like, recent M&A exits, although it really is too early to call an inflection point on that side. But what's driving this is really, I would say, our really strong momentum and our innovation around Infinity 3. It's coming in extremely well, and ProIQ LCMS resonating extremely well. We had 50% growth for the single quad in Q4. And all of these things bode well for the future, and that was backed up with our Alturo BioInert column. So I would say in terms of the budget flush, we have good visibility and it's more of a typical calendar year-end budget push. So we're expecting that to be more normalized. Patrick Donnelly: Okay. That's helpful. And then maybe on the NASD business, it sounds like that's doing well, double-digit growth, pretty safe for 26%, I guess, given what you're seeing. You just talk about the visibility there? Is that fully booked out through '26? And then you talked about the expansion, the capacity expansion plan as the year goes. Can you talk about, I think it's Train C and Train B, when those come online, where those are leaning towards in terms of market need, marketing indication, is there an impact to margins of those ramp? I know NASD is accretive on the op margin side. But as those trains open up, does that change anything? I know there's few questions on ASP in there, that color would be great. Thank you, guys. Adam Alanoff: Yeah. Padraig McDonnell: Thanks, Patrick. So I'm gonna start off and hand it over to Simon. So we're really pleased with CDMO results in FY '25, and we're excited about how the book of business is building for '26 with recent wins and we're seeing movements towards commercial programs. But, Simon, do you want to give some more color on that? Simon May: Yeah. Again, I think we've had a very strong year here in FY '25. We've been very pleased with the execution, very pleased with the way the order book has been developing. We've seen a lot of further reasons to validate the siRNA modality. Just in the last couple of weeks, there was another FDA approval. So we think that we are really well positioned here in coinciding the strength of the modality, the future outlook of the modality, and our competitive position in the market. So as we look ahead to FY 2026, I'd say we've got a very robust order book as we enter the year for pretty much the full year. So I think it's mainly a case of execution on existing capacity in FY '26. But then as the question indicated, we've got the capacity expansion starting to see the finish line coming to sight there towards the end of '26, and we're looking to go live in '27 with Train C. As is always the case with the capacity expansion, there'll be dynamics there around amortization and growing into the skin. I think we've got the basis pretty well covered there in '26. And we're well ahead in our thinking where that's in that respect in '27. Regina: Our next question will come from the line of Dan Leonard with UBS. Please go ahead. Dan Leonard: Thank you. My first question is on China. Can you talk about the downside variance on China in the quarter? Were the drivers of that and performance by end market perhaps? Padraig McDonnell: Yes. Thanks, Dan. So, yes, Q4 in China was down 4%, and that was below our low single-digit August guide. But all markets were down low to mid singles except A&G, which was up five benefiting from some academic stimulus. But a comp with peers, I think, was in line with key peers. But mix, I think, is an important factor, Dan. So first of all, we saw growth in biopharma and CAM. But we saw declines in food and environmental. And we say pharma small molecule was stable. But overall, you know, it's a very stable business. You're gonna have quarters, some swings or variance between quarters, but we're seeing sustainable $300 million per quarter as we go forward, and we expect FY '26 to be flat, like FY 2025 was flat. I will say, though, if you look at our business given our long-standing customer relationships, our recent win rate scale and our scale and our visibility into our direct channel, we're very confident in terms of what our market share being stable in '25. And, of course, we're gonna continue with that in '26. Dan Leonard: Appreciate that. And then a follow-up, Padraig. I think you mentioned that there were some pharma reshoring assumptions in your guidance for 2026. How important is that to your forecast? Any way to put some context or dimensions around that? Thank you. Padraig McDonnell: Yeah. So we're in a lot of conversations with some key pharma companies around reshoring and talking about what it means for their R&D and tech investments. They're focusing on shovels in the ground under lab equipment needs, and we expect by the '26 that we'll get some orders in that area. So we're estimating the opportunity of about $1 billion by 2030. But we're limited in seeing the order benefited at the '26. We see an overall $1 billion addressable market opportunity for Agilent about in '20 by 2030, and we expect about one-third of that. But overall, I think so there's upside in the forecast around reshoring. Dan Leonard: Thank you very much. Regina: Our next question comes from the line of Doug Schenkel with Wolfe Research. Please go ahead. Doug Schenkel: Afternoon, and thank you for taking the questions. I just wanted to start on GLP-1s. How big is this business? I'm thinking it's probably around $100 million coming out of last year. And then I guess if that's right, how much of it is LC versus services? What's your positioning with generics coming online in different geographies, like in India and China, Canada, just to name a few? And should we think about the growth outlook for '26? Padraig McDonnell: Yeah. Thanks, Doug. So Agilent's GLP benefit really comes from two forms, our CDMO business, largely around BioVectra, where we're working on synthetic peptide manufacturing, and our analytic tools like our LCMS and Altura columns supporting QA, QC solutions. And so we're actively involved with many of the GLP-1 manufacturers, and of course, on the analytical tool side, Infinity 3 is a really key component. If you look at Q4, revenue was about $40 million for GLP-1. That split about 60% for BioVectra and 40% for the analytical lab. And BioVectra added about $25 million. If you look overall in '25, and I would say we saw about a 20% growth rate in the analytical lab in Q4. I think the GLP-1 revenue is about $130 million. 50 split evenly between both the bio and the analytical lab. And if you think about the analytical lab, we grew 40% in the analytical lab in GLP-1. Alturo columns really helping towards the end and, of course, the Infinity 3. So overall, it's a really important business for us, and we're seeing a long runway into '26 both on both sides of the business. India is a particularly part of where you see the GLP-1, where you see the patent cliffs coming. We've been doing a lot of investment in India around our experience center for customers. Workflow helper customers. So we expect in India we're gonna take a lot share as it goes into '26. Doug Schenkel: Alright. Super, super helpful, Padraig. One more on a completely unrelated topic, the academic and government end market. I think you guys were down 10% constant currency in the quarter, if I updated the model right. You know, I think this is a little bit surprising given seasonality and the fact that there was a little more certainty about the funding environment. Maybe the ops was the government shutdown. I'm just curious if you could tell us a little bit about what you saw over the course of the quarter and heading into calendar year-end? Thanks again, and happy Thanksgiving, everyone. Padraig McDonnell: Yeah. Thanks, Doug. So academia and government declined about 10% for Q4. That was a slightly bigger decline than we put out in guidance. I would say ex US, very stable sequentially, and, however, we faced tougher year-over-year comps with Americas down mid-teens, and I would say the rest of the world was down mid-single digits. US federal spending reductions were really the material impact. You know, the instruments were down mid-twenties for the Americas. While I would say, chemistries and cons or chemistries and services were resilient, at low single digits for the Americas. So we're seeing reasonable lab usage. I would say on the US government shutdown that you described there, Doug, we saw no material impact from that. We're expecting continued softness in FY '26 in Americas as US federal spending reductions continue. As we go forward. But I will say it's our smallest market and it's about 1% of our overall business in the US and the NIH spending. Regina: Our next question will come from the line of Brandon Couillard with Wells Fargo. Please go ahead. Brandon Couillard: Hey, thanks. Good afternoon. Padraig, I mean, if we look at the ACG business, you said all regions ex China grew high single digits in the fourth quarter, but I think you only talked about mid-single-digit growth in '26. Do you expect to see a halo benefit as the instrument cycle continues to escalate next year? Or are you just sort of being conservative here to kind of unpack how you're thinking about HCG in 2016? Padraig McDonnell: Yeah. Thanks for the question. I'm gonna kick it off, and I'm gonna hand it over to Angelica. So we saw healthy high single-digit growth ex China in ACG. We continue growth in our installed base and ramping attachment rates and we're confident that ACG is well-positioned to really sustain the long-term recurring revenue ramp. It was really a solid quarter, and we saw 6% growth in Q4. At the high end of our guidance, and that was 8% ex China. But, Angelica, you wanna give some more color? Angelica Riemann: Yeah. Sure. Hi, Brandon. So, you know, we're very excited by the continued growth that we're seeing in ACG, largely by the size of our installed base, but also the customer's utilization of assets in their laboratory. We've seen some great adoption of our recent chemistry's launch, the Altura column. We also launched recently a remote plus services offering, which allows us to support customers and build stronger relationships with customers that may have capabilities in-house. But want to leverage the capabilities and the know-how of the Agilent field service engineers to be able to get them back up and running when they have unplanned or unexpected downtime. And we're still seeing a great amount of interest in improving lab productivity. We're seeing continued adoption of our open lab chromatography data system and our enterprise content management capabilities as customers are looking to better manage the data coming out of their instruments, and we're seeing some good growth in our automation. So when you look across the port we have a lot of things to take as momentum going into FY '26. And, certainly, we see tech refresh and see we see replacements of instruments in the laboratory, those provide long-term growth as those instruments continue to be used in we'll be connecting to those with our recurring revenue stream accordingly. Brandon Couillard: That's great. Thanks. And then, I'm not sure if this is better for Rodney or Adam. Just a clarification. What was net pricing in the fourth quarter? And I think you talked about 100 basis points in fiscal '26, but that there could be upside to that. Maybe from some of the AI tools. Can you just clarify what you're penciling in for pricing next year? Thanks. Rodney Gonzalez: North of 100 basis points. Brandon Couillard: In the fourth quarter, Rodney? Rodney Gonzalez: In the fourth quarter, we were closer to 150 basis points. Regina: Our next question will come from the line of Vijay Kumar with Evercore ISI. Please go ahead. Vijay Kumar: Hi, Padraig. Thanks for taking my question, and congrats on the nice sprint here. Hey, my first one on order commentary here in the quarter. How did orders in a backlog grow? I'm curious. I know last quarter you were speaking about stimulus, China-related stimulus, maybe some pharmacopoeia updates out there. So I'm curious if any of that is showing up in orders? Padraig McDonnell: Yeah. So I can talk, you know, our book-to-bill was greater than one, you know, orders continue to, I would say, continue to be positive. As we go through the quarter. It's been very stable through the quarter in terms of our order rate. And of course, a win-loss ratio, etcetera. I will talk a little bit about Syminas. You know, the first one, the SAMR tender, it shifted, I would say, from Q1 to later in the year in '26, and we're expecting roughly about $10 million GACC orders in '26, which was smaller than expected, but that is excluded from our '26 guide. Anything on the I think in the abundance of caution, we're excluding it from the '26 guide. So if anything comes in on that side, it will be upside. And I will say that we have a very strong track record and a win rate with stimulus in China. Winning 50% of the first-round tenders. So we're seeing how the year plans out and staying very close to our customers on that. Vijay Kumar: That's helpful. Then maybe my follow-up on margins. Gross margins were a little light in. What are you assuming for gross margins in fiscal 2026? Should we see gross margin expansion? Could you just quantify what is tariff versus FX dynamics on gross margins? Padraig McDonnell: Rod, do you want to take this one? Rodney Gonzalez: Yeah. I'll take this one. So we're not guiding gross margins, but we should see gross margin expansion. Again, from a tariff standpoint, we do think we'll be fully mitigated on tariffs in the second half, and that'll be a mix of both pricing and cost reduction activities. So that in itself will be helping help the margin picture along with pricing and leverage. The other thing that we the other thing that was impact for this year has been BioVectra now that that's been annualized. It won't be a it won't be necessarily the impact a drag to the gross margin line. Vijay Kumar: Understood. Thank you. Regina: Our next question will come from the line of Jack Meehan with Nephron Research. Please go ahead. Jack Meehan: Thank you. Good afternoon. I had a couple of questions. Just wanted to unpack some of the competitive dynamics going on in the LC business. So the first one is in LDG. Were a few stats thrown around. I think I heard double-digit growth in the second half. Or LCLS CMS instruments. What was the fourth-quarter number? Was it also double-digit? And I heard the pharma data point. Can you just talk about how that business is doing and some of the other end markets? Padraig McDonnell: Yeah. So in the fourth quarter, we saw low double-digit growth in LC and, actually mid-teens growth in LCMS, so a very strong performance. And as we talked about the replacement cycle before, we're in the early innings of a replacement cycle, and that accelerating with a lot of adoption of the Infinity 3 some initial purchases a number of quarters ago, and customers coming back for more on that one. I would say when you look at the independent market share data, we're gaining share in both those areas, so that's very good to see as we go forward on it. And I would say, overall, it's the new innovation, but execution by the team, but also an improving pharma sentiment, particularly with having reduced incentive certainty around the MFN and tariffs. The other thing that we're really seeing in pharma across the globe is reshoring is not just happening in the US, but supply chains are being consolidated in different People are looking for capacity expansion. We're the benefact of that in QAQC downstream testing, and that will continue, I think, through the year. And, of course, as reshoring comes online in '27. But I don't know if you wanna add any more color on that, Simon? Simon May: Yeah. I think you covered pharma really well. Padraig, a few other key end markets, mid-single-digit growth in food. We saw declines in academia and government consistent with what we've been seeing elsewhere. Environmental and forensics was growth in the twenties. And, again, in terms of the growth drivers, all the key things that we've talked about already, the continuing traction we see with Infinity 3 is just phenomenal. Likewise, the ProIQ market acceptance is really terrific. And in terms of replacement cycle, we still see that we're kind of early to mid-inning here. I think we've knocked off the lowest hanging fruit. But as we continue to iterate the productivity features of our lab assist software, we see that the Infinity 3 value proposition will continue to be very strong, and we think there's still plenty more legs left in that. Jack Meehan: Great. Regina: Next question will come from the line of Dan Brennan with TD Cowen. Please go ahead. Dan Brennan: Great. Congrats on the quarter. Maybe for Padraig, just when you think about the guide, for 26 at a high level, the 4% to 6%, you've given a lot of color on segmenting. And customers. But if you zoom out, you finish this year around 5%. The guide next year incorporates that at the midpoint again. You've discussed a lot of momentum building. So do you feel like the guide fairly balances the puts and takes around the globe, or do you think there's some conservatism more so baked in? Just can you give a sense on kind of the overall kind of four to six guide? Padraig McDonnell: Yeah. So I think, first of all, we're set up for success really by innovative products coming online, and the ones that have come online are unified sales and service connection with the customers. The winning team at Ignite wrapping together. So I just said we have good momentum coming out of the year. Key markets are improving. The top line four to six is prudent, but I think is appropriate given macro uncertainty. And, of course, we're coming into some tougher compares. And I would say, you know, if you look at the high end of our guide, if you see the expecting biopharma recovery to continue and broaden, that's gonna be positive. As I said before, the China stimulus is not in the guide, so that would be positive as well. And we're making investments in the business. Right? We've invested a lot in the business, and we're gonna continue to do that. Particularly in innovation and digital, as Adam talked about. So, you know, but we wanna see, small to midsize cap biotechs to continue to improve. We're seeing the early shoots on that one. And, of course, A&G is academia and government is an area that we're watching. We wanna see that stabilize and relative to our current expectations of the low single-digit decline. So overall, when you put it together, strong momentum come out of 25, and in '26, we're watching the different portions of it. Dan Brennan: Great. Thanks for that. And then maybe just one on the GC upgrade cycle. Just your 10% growth in the quarter overall, which was solid. I think you said mid-single-digit for '26. And you gave some color. Just any more color on the upgrade cycle as it progressing versus expectations. Is it ratable in '26? Just what's, you know, what's kind of assumed on that front? Thank you. Padraig McDonnell: Yeah. No. Thanks. I'm gonna start off and hand over to Mike here in the room. So first of all, I think we had high single-digit growth in GC, which was really great. We talked in the quarter about the start of a GC replacement cycle, which is generally longer replacement cycle than LC. But, Mike, do you wanna give some color on the replacement cycle? Mike Zhang: Yeah. For Edgar, first of all, thank you, Dan, for your question. The replacement cycle for the GC and the GCMS is very important for us. And here's what we've seen. The first four, I think the cycle is being normalized. It was under pressure for the last few years because of the global challenges and certainty. We've seen the pace is coming back and normalized. That's number one. Number two, I just wanna let you know we are the market leader. We have a very large install base. And as you can imagine, it's actually aging, and we have a lot of, you know, kind of demand. Which will create a sustainable tailwind for us. In the coming, you know, year. Last thing I wanna highlight, now under Ignite Transformation, we accelerate our innovation. Very excited about the new product coming out, and that will further sustain this revenue cycle. So in short, I think there are big opportunities, and the cycle has been normalized. And we have tremendous innovation come out. I went to sustain it. Dan Brennan: Great. Thank you. Regina: Our next question will come from the line of Michael Ryskin with BofA. Please go ahead. Michael Ryskin: Great. Thanks for taking the question. Maybe first one on tax rate. You talked about the higher tax rate for 2026, talking about global tax. Curious, we've been talking about tax rate potentially drifting higher. For a while. It seems like it's a pretty big jump this year. Is this something new that's developed recently? Or is this just sort of the same global tax codes we've been talking about for a while? And then just any potential to offset that as you go through the year? Just how do we think about that going forward? Padraig McDonnell: Yeah. Thanks, Michael, for the question. I'm gonna hand this one over to Adam for some commentary. Adam Alanoff: Sure. And thanks. So tax rate's increasing 250 basis points and it's really driven by a combination of things that, you know, they take time to come together, and now they have. One of them is pillar two. The other is OB three. Then there's other jurisdictional changes. And so as we've kind of put them together, in our tax provision, we've now solidified on this 250 basis point increase. I would you know, as you think about it going forward, you know, we have no information that this would change meaningfully going forward. But the thing I wanna highlight and point out is that we're more than offsetting this incremental tax burden, and that's really through operating performance above the line. So we'll continue to seek ways to further mitigate the P&L impact via Ignite in our global network strategy. So if you think about the business, being able to offset such an impact below the line, above the line, is really something that gives me a lot of confidence in this organization and shows the agility of the organization. To navigate. Uncertainty. Michael Ryskin: Okay. Thanks. And then, for the follow-up, I wanna touch on M&A and capital deployment. Patrick, you talked about the health of the balance sheet and maybe looking to do a couple of more deals, bolsters from the portfolio. Could you just talk about what the deal funnel looks like now, appetite for deploying cash next year, sort of what kind of deals you're looking at in terms of size and any specific areas you're focused on? Thanks. Padraig McDonnell: Yeah. So we, I'm gonna start off and then hand over to Adam here. So our capital allocation priorities are not changing. And if you think about M&A, you know, we have capacity to do M&A, but we're gonna remain very disciplined. Linked with our strategy. And we don't talk really about size. We talk about fit and shareholder return on M&A about how it's going to drive us forward. What I will say about our M&A target list, it's very it's a shorter, very high-quality list that we continue to develop. And, of course, we continue to keep everybody updated as we go through the year, and we're looking for growth opportunities where we have a right to win. And, of course, the BioVectra integration, having been such a great integration this year, bodes extremely well for the future. But, Adam, do you wanna give some broader capital allocation color? Adam Alanoff: Sure. Thank you. So our capital allocation priorities aren't changing as Padraig said, and I think that's very important. We're gonna continue to invest in innovation as you hear in our guide. We're gonna use our balance sheet to invest in M&A and then make strategic capacity in expansion. The other piece I'd highlight is we're gonna continue to return excess capital to shareholders as you see in our guide as well. And then the one note I would highlight in addition to what Padraig said about remaining disciplined, it's about the right opportunity. It's about making sure we understand the value drivers and how we can maximize on those. Then it comes down to making sure that we pay the right price so that we're disciplined about price. Then focusing on integration upfront. In my experience, I've lived through integrations. And the best are those that you plan for upfront, and it's not an afterthought. And I can assure you it won't be here. The Ignite operating system, as I've dug into it, gives me a lot of confidence. And then as Padraig said, the recent experience with BioVectra gives me more confidence. So I think we're ready to go, and you should expect to see consistency with what we've said on our capital allocation priorities. Tejas: Regina, to help us get to as many analysts as possible, could we please limit it to one question per analyst for the remainder of the call? Regina: Our next question will come from the line of Dan Arias with Stifel. Please go ahead. Dan Arias: Good afternoon, guys. Thanks for the questions. Padraig, you mentioned upside potential for the Omnis franchise. Is that more of a placement comment or a pull-through comment? Where do you think the opportunity is strongest there? Padraig McDonnell: Thanks. On the Yeah. So, I'm gonna hand it over to Simon for some color on the Omnis franchise. Simon May: Yeah. It's a bit of both. We've recently launched the Omnis family, and we've been very happy with the uptake from those systems. And if we look year over year across the entire Omnis Instruments franchise, we've seen double-digit growth in instrument placements. We're also focused on menu expansion. That's a key product development initiative. Here over the next twelve to twenty-four months. And I think we're gonna see momentum from both of those. We see momentum already on the instrument placements. So I think it bodes well for the future. We've talked a few times about this franchise now, how we see really durable mid-high single-digit growth through a combination of these portfolio investments, but also the very strong macros that underpin this business with aging populations, cancer incidents, and so on, not to mention the emerging therapeutics that are supporting diagnosis and therapy guidance. So we put all that together, and we're bullish about the future. Regina: Our next question will come from the line of Casey Woodring with JPMorgan. Please go ahead. Casey Woodring: Awesome. Thanks for fitting me in, guys. Appreciate it. I guess, within pharma in the quarter, excluding the CDMO, could you break down large molecule versus small molecule growth? Last quarter, you talked about you did biopharma spend ex NASD. Sounds like that got a lot better this quarter, specifically in biotech. And then, you know, maybe what's factored into the guide for large molecule versus small molecule in 2026? Excluding the CDMO? Thanks. Padraig McDonnell: Yeah. So I think we saw growth on both sides. I would say, you know, we're equally placed both large, large molecule was about 10% growth, small molecule in around the same area in around the same growth rate. It's roughly a 50-50% split for Agilent. We saw that in the quarter. We expect that to continue. Regina: Our next question will come from the line of Catherine Schulte with Baird. Please go ahead. Catherine Schulte: Hey, guys. Thanks for the question. I guess I'll ask the annual Lunar New Year timing question. I think that was a two-point headwind in the first quarter last year, but it's back to falling in 4% to 6% guide for 1Q, does that mean more like two to four ex Lunar New Year and know, if so, what's kinda driving that sequential slowdown there? Thanks. Padraig McDonnell: Yeah. So I think, you know, if you look at our Q1 guide or we're assuming low single digits growth for China on a reduced stimulus volume. That's about a negative 700 basis point year-over-year impact and that's offset by the favorable lunar year timing, which about 800 basis points. But the Q2 will be, I would say, meaningful impact by Lunar New Year timing and, I would say, a tougher comp. But overall, I think it balances out over those quarters. Regina: Our next question comes from the line of Luke Surgatt with Barclays. Please go ahead. Luke Surgatt: Great. Thanks for squeezing me in. I just wanna follow-up on Donnelly's question earlier in the call about and you guys were talking about, you know, keeping the flywheel going and investing back in the R&D as the top line continues to accelerate or be strong. So, you know, after you're pretty much done, you've you guys had a pretty big launch here across many different platforms. So give us an up where are you looking to deploy that R&D? Know, where are the new high-growth areas that you guys would like to be bigger in, or is this just kind of updating parts of the portfolio that have been underinvested? Padraig McDonnell: Yeah. What I would say is that we have, you know, a very key innovation focus with our new CTO, August. And what we're looking at is really looking at our portfolio of innovation across the company. We simplified the company structure where we went from, you know, about 20 product lines to nine. So the ability to get the right innovation dollars into the right place is much clearer and faster now. What you're gonna see is that you're gonna see that in a number of platform launches, and next coming years, but also areas where we need to accelerate in certain areas like oligos, GLP-1s, and workflows around that side. And I would say software is a key area for us. It's an area where we have a lot of focus across the company in the ACG group. We're gonna be asymmetrically investing in our software products and also making sure we have the right software for particular workflow. So overall, I would say it's refocusing but I would very a very agile refocusing of our R&D dollars. Luke Surgatt: Hey. Just how turn the go ahead, Regina. Regina: I'll turn the call back to you, Tejas. Tejas: Thank you. Thanks, everyone, for joining us. And, happy holidays and happy Thanksgiving. Regina: This concludes today's conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Central Garden & Pet Company's Fourth Quarter and Fiscal 2025 earnings call. My name is Paul and I will be your conference operator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will hold a question and answer session. Instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Friederike Edelmann, Vice President, Investor Relations. Please go ahead. Friederike Edelmann: Good afternoon, everyone, and thank you for joining Central Garden & Pet Company's fourth quarter and fiscal year 2025 earnings call. Joining me today are Nicholas Lahanas, Chief Executive Officer; Bradley G. Smith, Chief Financial Officer; John Edward Hanson, President of Pet Consumer Products; and John D. Walker, President of Garden Consumer Products. Nicholas will start by sharing today's key takeaways followed by Bradley, who will provide a more in-depth discussion of our results. After their prepared remarks, John D. Walker and John Edward Hanson will join us for the Q&A session. Before they begin, I would like to remind everyone that all forward-looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from those forward-looking statements expressed or implied today. A detailed description of Central Garden & Pet Company's risk factors can be found in our annual report filed with the SEC. Please note that Central Garden & Pet Company undertakes no obligation to publicly update these forward-looking statements to reflect new information, future events, or other developments. Our press release and related materials, including GAAP reconciliation for the non-GAAP measures discussed on this call, are available at ir.central.com. Last but not least, unless otherwise specified, all comparisons discussed during this call are made against the same period in the prior year. If you have any questions after the call or at any time during the quarter, please do not hesitate to contact me directly. And with that, let's get started. Nicholas? Nicholas Lahanas: Thank you, Friederike, and good afternoon, everyone. I'd like to begin by highlighting three themes we will focus on today. First, fiscal 2025 was a year of meaningful progress and tangible accomplishments across Central Garden & Pet Company. Our record bottom-line performance underscores the strength of our business model, the rigor of our execution, and the relentless commitment of Team Central. Second, we continue to strengthen our foundation by streamlining operations, consolidating facilities, optimizing our portfolio, and driving efficiencies that enhance our cost structure and position us for sustained profitable growth. And third, as we enter fiscal 2026, we're energized by our momentum and the opportunities ahead. Powered by our central-to-home strategy and sharp disciplined execution, we're poised to accelerate our long-term agenda with even greater focus and agility. Now let me expand on each of these points. First, our fiscal 2025 achievements. Thanks to the hard work and dedication of our more than 6,000 employees, we closed the year with expanded gross margins, record EBITDA, and record earnings per share. These results underscore the strength and resilience of our business model as well as the drive and commitment of our people. We delivered consistent performance while advancing portfolio optimization and maintaining disciplined cost management. Throughout the period, we upheld operational rigor, streamlined our footprint, and drove efficiency initiatives across both segments. We also navigated variable weather conditions by simplifying our business and tightly managing costs, actions that have made our model even more resilient and predictable. Results reflected the transition of two third-party product lines in our Garden Distribution business to a direct-to-retail model. At the same time, we continue to deliberately reduce our exposure to low-margin durable products in both pet and garden. A strategic move that, while creating short-term top-line pressure, strengthens our portfolio and positions us for sustainable profitable growth. We ended the year with record results, a fortress balance sheet, and strong momentum as we head into fiscal 2026. Second, advancing our cost and simplicity agenda. Our initiatives continue to deliver measurable sustainable benefits, enhancing productivity, expanding margins, and positioning us to fuel future growth. We've largely completed our multiyear supply chain network design project, a major milestone that has strengthened customer alignment, increased service speed, and improved cost efficiency across our logistics network. The project also established enterprise-wide e-commerce fulfillment capabilities and modernized our distribution footprint. Together with the sale of our Garden Distribution business and the intentional exit of the Pottery business, this work has enabled us to close 16 legacy facilities to date. By the end of the calendar year, we will be operating a modern, high-performing infrastructure anchored by DTC-enabled fulfillment centers in Salt Lake City, Eastern Pennsylvania, and Covington, Georgia. A network built for speed, efficiency, and growth. Across our footprint, systems, and processes, we're streamlining operations, boosting productivity, and freeing up resources to reinvest in the business. These actions are making Central Garden & Pet Company simpler, stronger, and better positioned to scale, creating a more resilient, cohesive, and predictable company that delivers consistent performance, adapts with flexibility, and is poised to capture the full potential of the opportunities ahead. Third, outlook for fiscal 2026. We entered the year with strong momentum, clear priorities, and a unified focus on delivering results. Our diversified portfolio, operational agility, and prudent cost management give us confidence in our ability to deliver profitable growth despite the current global macro environment and policy shifts. We expect consumers to remain focused on value and performance with a promotionally active but stable retail environment and continued channel shifts from pet specialty to e-commerce. We're delivering with precision to offset cost inflation, tariffs, and supply chain complexity through productivity gains driven by our cost and simplicity agenda and pricing discipline. After incorporating these factors and our operating plans, we expect fiscal 2026 non-GAAP earnings per share to be $2.70 or better, supported by margin expansion and operational performance. As always, our outlook excludes potential impacts from acquisitions, divestitures, or restructuring actions, including activities related to our ongoing cost and simplicity agenda. We remain confident that the central-to-home strategy is the right path and the foundation for long-term value creation. We're combining the agility of a startup with the strength and scale of a category leader, empowering business units to innovate quickly while leveraging Central Garden & Pet Company's operational and financial capabilities to accelerate growth. By sharing tools, data, and talent across the organization, we're building a connected enterprise. One that learns faster, executes smarter, and compounds its competitive advantage over time. This approach enables us to bring new ideas to the consumer faster, capture opportunities sooner, and scale what works across our platform. Looking ahead, we'll continue to balance sensible cost and cash management with targeted investments that fuel organic growth, particularly in innovation, e-commerce, and digital technology. A key priority is making our data AI-ready, improving accessibility, quality, and integration to generate deeper insights and unlock meaningful value and competitive advantage across the business. These strategic investments are already translating into stronger innovation momentum. Recent launches highlight how we're combining insights, performance, sustainability, and consumer impact. Examples include wild bird feed, our redesigned Pennington feeding frenzy, and 3D Pro lines that elevate visibility and engagement both online and at retail, supported by a robust digital marketing program. Worry Free 30% Vinegar, a high-performance multipurpose cleaner six times stronger than standard vinegar. Farnam Endure Gold Fly Spray, a next-generation EPA-approved formula that delivers long-lasting and highly effective fly control, bringing advanced performance and care to horse owners. In parallel, M&A remains a strategic lever for growth. We're actively pursuing margin-accretive consumable businesses that complement our portfolio and expand our presence in attractive categories. While market engagement has increased, deal flow in our core categories remains somewhat limited. We expect activity to accelerate as market conditions continue to improve. I want to thank our team across Central Garden & Pet Company for a record year of meaningful progress and unwavering focus. We've done a tremendous amount of foundational work and as a result, we're entering fiscal 2026 with the business performing at a very high level. With strong financial flexibility and an improving M&A landscape, we're confident in the road ahead. That confidence is reinforced by the strength of our retail partnerships, which continue to deepen and drive mutual growth. As recognition of that strength, we were honored to be named Lowe's Lawn and Garden Vendor Partner of the Year and KT was recently recognized with the NCAP's 2025 Pet Amazon Best in Class PDP Award, for Excellence in product content and presentation. And with that, I'll hand it over to Bradley. Bradley? Bradley G. Smith: Thank you, Nicholas. Building on Nicholas's remarks, I will begin with our fiscal 2025 results. Net sales were $3.1 billion, a decrease of 2%. While variable weather and softer demand in pet durables created meaningful headwinds, the overall sales decline for the year was driven entirely by two key factors. First, our proactive decision to reduce exposure to lower-margin businesses, including pet and garden durables, as well as our UK operations. This step is part of our ongoing effort to optimize the portfolio, improve margins, and strengthen the foundation for sustainable growth. Second, the transition of two third-party product lines in our Garden Distribution business to a direct-to-retail model. Importantly, our remaining portfolio grew slightly for the year and delivered record sales across several key businesses, including Wild Bird, Dog Treats, Equine, and our professional portfolio, a clear sign that our underlying business is strong and that our strategy is working. Non-GAAP gross profit was $1 billion, up 4.5%, and non-GAAP gross margin expanded 210 basis points to 32.1%, largely supported by productivity initiatives. Both segments contributed to the improvement. Non-GAAP SG&A expense was $738 million, roughly in line with the prior year. As a percentage of sales, non-GAAP SG&A was 23.6%, compared with 23%, mostly due to lower volume and the sequencing of productivity and commercial investments. Throughout the year, we balanced sensible cost management with continued investment in long-term growth drivers. Non-GAAP operating income for the year increased to $265 million from $223 million, and non-GAAP operating margin expanded to 8.5% from 7%, supported by structural cost improvements and overall strong execution. Non-GAAP adjustments totaled $15 million in fiscal 2025, all related to our cost and simplicity agenda. In our Garden segment, these adjustments largely reflected the consolidation of two legacy distribution facilities, one in Ontario, California, and another in Salt Lake City, Utah, into a single larger and more modern site in Salt Lake City. That work began in the third quarter and continued into the fourth quarter, resulting in $5 million in SG&A charges. In our Pet segment, the adjustments were mainly related to the strategic wind-down of our UK operations and the transition to a more profitable direct export-only model. This initiative spanned the second through fourth quarters and resulted in $10 million in total charges, $6 million in cost of goods, and $4 million in SG&A. Below the line, net interest expense was $33 million compared with $38 million by higher interest income from larger average cash balances. Other expense was $500,000 compared with $5.1 million as we lapped the prior year impairment charge on two minority investments. Non-GAAP net income totaled $174 million, up 22%. We delivered record GAAP and non-GAAP earnings per share of $2.55, up $0.93, and $2.73, up $0.60, respectively, exceeding both our guidance and last year's performance. Adjusted EBITDA for the year was $371 million compared to $334 million. Our effective tax rate for the year was 24.4% compared to 23.2%, due primarily to the non-deductibility for tax purposes of losses incurred in connection with the wind-down of our UK operations. Now turning to the consolidated financials for the fourth quarter. Fourth quarter net sales were $678 million, up 1% versus the prior year, led by strength in Garden. Non-GAAP gross profit for the quarter was $197 million compared with $174 million, and non-GAAP gross margin expanded 310 basis points to 29.1%. It's worth noting that we lapped a significant grass seed inventory charge that was taken in last year's fourth quarter. Excluding the impact of that charge, our gross margin rate was consistent with the prior year as productivity improvements effectively offset the initial impact of tariffs. Most of our actions to mitigate tariff-related cost increases are only now beginning to flow through the P&L, positioning us for additional benefit going forward. Non-GAAP SG&A expense for the quarter was $198 million, a 7% increase, and as a percentage of net sales was 29.2% compared with 27.7%. The increase largely reflects the cadence of investments tied to our productivity and commercial initiatives. Non-GAAP operating loss for the quarter was $649,000 compared with $11 million, and non-GAAP operating margin improved to negative 0.1% from negative 1.7%. Non-GAAP adjustments for the quarter totaled $6 million, including $3 million related to our UK operations and $3 million associated with the Garden facility consolidation. Of the total, $5 million was recorded in SG&A and $1 million in cost of goods. Below the line, net interest expense was in line with the prior year. Other expense for the quarter was $600,000 compared with $6 million. Non-GAAP net loss for the quarter was $5 million compared with $12 million. GAAP loss per share was $0.16 compared with $0.51, and non-GAAP loss per share was $0.09 compared with $0.18. Adjusted EBITDA for the quarter was $26 million compared with $17 million. Now let me provide highlights from the fourth quarter from our two segments, starting with Pet. Net sales for the Pet segment were $428 million, a decrease of 22%. Due to the closure of our UK operations and lower durable sales, both the result of deliberate actions to simplify the business and enhance profitability. These impacts were partially offset by strong growth in our Animal Health businesses, particularly within our professional portfolio and equine. While demand for durables remains soft, consumables performance continued to be relatively stable, supported by positive point-of-sales trends in the fourth quarter. Consumables now represent roughly 84% of total Pet segment sales, an all-time high, highlighting the strength and resilience of our core business. Across the Pet segment overall, we maintained our market share and delivered gains in dog chews, pet bird, equine, and flea and tick, as well as in our professional portfolio. E-commerce continues to play an important role in our channel mix, representing 27% of total Pet segment sales, consistent with the prior two quarters, reflecting steady consumer engagement across digital platforms. Non-GAAP operating income was $31 million compared with $35 million due to slightly lower volumes combined with the timing of investments and productivity and commercial initiatives. Non-GAAP operating margin contracted to 7.2% from 8%. Adjusted EBITDA for the segment was $41 million compared with $45 million. Now moving to Garden. Net sales for the Garden segment were $250 million, a 7% increase. We benefited from an extended selling season driven by favorable fourth-quarter weather following a cool and wet third quarter. We also saw improved sell-through aided by additional product placements, strong retail execution, and disciplined inventory management. Our wild bird, grass seed, fertilizer, and packet seed businesses delivered particularly strong quarters with growth in both sales and share across retailers and channels. The strong fourth-quarter rebound made this our biggest point-of-sale year ever in Garden despite the reduction in our distribution business, variable weather earlier in the year, and lower home center traffic, a testament to the agility of our teams and the strength of our retail partnerships in Garden. Garden e-commerce sales grew at a double-digit rate across every category, surpassing 10% of total segment sales for the first time. Enhanced product content, improved videos, and targeted new item introductions increased click-through, add-to-cart, and conversion rates across retailer platforms. Results remained especially strong in wild bird and grass seed, where we continue to lead the category and deliver robust growth across both pure play and omnichannel partners. Given the garden industry's relatively low digital penetration today, we see significant runway for sustained online growth across our categories in future quarters. Non-GAAP operating income came in at $1 million, an increase of $26 million, with non-GAAP operating margin expanding to a positive 0.4% from a negative 10.6%. Adjusted EBITDA totaled $11 million, an improvement of $25 million, underscoring the strong finish to the year. Turning now to the balance sheet and cash flows. Cash flow from operations was $333 million in fiscal 2025, compared with $395 million a year ago. Our ongoing focus on working capital efficiency resulted in an additional $36 million reduction in inventory, our tenth straight quarter of year-over-year improvement. CapEx for the year was $41 million, about 4% lower than last year, reflecting prudent investments primarily in productivity-enhancing initiatives and essential maintenance projects. Depreciation and amortization were $85 million, 7% below the prior year, consistent with our focus on efficient capital deployment. At year-end, cash and cash equivalents totaled $882 million, up $129 million, underscoring our strong liquidity and consistent cash generation. Total debt was $1.2 billion, unchanged from the prior year. Gross leverage ended the year at 2.8 times, both below last year and our target range of 3 to 3.5 times. Net leverage was approximately 0.8, supported by our solid cash position, and we had no borrowings outstanding under our credit facility at year-end. This balance sheet strength provides the flexibility to invest in growth, maintain financial resilience, and return value to shareholders. Looking ahead to fiscal 2026, and as Nicholas mentioned earlier, we are guiding non-GAAP EPS to $2.70 a share or better, reflecting continued focus on operational excellence, margin expansion, and disciplined cost management. While the tariff environment remains fluid, we currently project incremental year-over-year gross tariff exposure of roughly $20 million over the next twelve months. The majority of the exposure is within the Pet segment. We are expecting to offset most of the tariffs through pricing, portfolio, and supply chain actions. We plan to invest approximately $50 million to $60 million in CapEx, primarily maintenance and productivity initiatives across both segments, underscoring our commitment to high-return projects that strengthen operations and enhance profitability. For the first quarter, we expect non-GAAP earnings per share of approximately $0.10 to $0.15, consistent with normal seasonal trends. It's important to note that last year's first quarter benefited meaningfully from favorable timing of both shipments and promotional activity. This year, we also have one less shipping day between Christmas and the end of our fiscal quarter ending December 27. In addition, the results will reflect a temporary shipment hold we initiated with a large retailer and the shifting of certain orders into the second quarter. As a reminder, the first quarter is typically one of our smaller periods and not indicative of full-year performance. As always, our outlook excludes any potential impacts from acquisitions, divestitures, or restructuring activities that may occur during fiscal 2026, including projects under our cost and simplicity agenda. That concludes our prepared remarks. Operator, please open the line for questions. Operator: Thank you. We will now be conducting a question and answer session. Our first question is from Bradley Bingham Thomas with KeyBanc Capital Markets. Bradley Bingham Thomas: Good afternoon. Thanks for taking my question. I wanted to ask about the operating margin at a high level. You all have been doing a tremendous job of driving improvements and efficiencies. And so as we think about this upcoming fiscal year, I was hoping you could talk about some of those puts and takes and how they sort of are expected to net out between cost and simplicity, tariffs, demand challenges, etcetera. Thank you. Nicholas Lahanas: Brad, this is Nicholas. Yes, we're going to continue to work on cost and simplicity. So we have every intention of expanding margin into 2026. We may not get as dramatic results as we've got in the last few years because we're seeing that the low-hanging fruit has been picked in a lot of ways. The other thing I would say, don't underestimate the effect that product mix has. So we have to see how that plays out as well. But I would say for right now, as we put together our plans for 2026, we are expecting to continue to expand margin. Bradley Bingham Thomas: Great. And if I could ask a follow-up with respect to the Garden segment. It seems like some really strong execution there. I know that the months ahead will be important as we try to figure out what sell-in can look like for the spring 2026 garden season. But can you give us a little more color about how you're feeling about that? And what the outlook of that garden category may be for next year? John D. Walker: Brad, it's John D. Walker. I'll take that question. Thanks for the question. I'd say that we're looking forward, of course, everything's dependent on what takes place in season, particularly around weather. But I'd say going into it, we are cautiously optimistic. I think one of the things that gives us reason to believe is our year-over-year points of distribution or total distribution points. That's SKU store combinations. Distribution gains, if you will. We feel great about that. It's gonna, you know, we're gonna show an increase year over year. If you exclude the pottery business that we exited, our points of distribution will be up 8% year over year. And if you look at manufactured products that we manufacture in our plants, it will be up double digits. So I think that strong distribution base execution by our team going into season, the controllable causal factors, we feel great about. It's up to mother nature to do her part. But I'd say, cautiously optimistic would be my terminology looking at the season. Bradley Bingham Thomas: That's very helpful. Thank you so much. Operator: Our next question is from James Andrew Chartier with Monness, Crespi, and Hart. James Andrew Chartier: Hi, thanks for taking my question. I just want to talk about, it looks like corporate expense was up about $11 million in the fourth quarter after being down in the first three quarters. So just wanted to get some more color on that. And then can you quantify the impact of tariffs on the fourth quarter? Please? Thanks. Bradley G. Smith: So corporate expenses, I mean, a lot of it had to do with kind of a quarterly variation of timing expenses during the year when compared to last year. So there was that element. But on top of that, we had some investments that we made to support commercial growth in '26, some of which we recorded in corporate. And then we also had some other miscellaneous true-ups we had related to certain reserves and whatnot. So it was really a combination of three different elements. Nothing that would suggest anything structural on a full-year basis going into this year? James Andrew Chartier: Great. And then on the tariff? Bradley G. Smith: Yes. So tariffs, gross tariffs were, I want to say roughly $7 million to $8 million in the fourth quarter. James Andrew Chartier: Okay. And then you talked about investing behind, I think, a new product launch for pet. Just curious what that spend looked like and then how that product performed for you? John Edward Hanson: Yeah. We've got a this is John. The product launch we mentioned was the Farnam Endure Gold Fly Spray and that's a new EPA-approved product. And the efficacy, you know, is significantly better. We're in the process of launching it right now. Customer feedback is really strong. But, you know, it's a bit of a seasonal business. So we're really see that takeaway really until next season, kinda March, April, May, June. We also made some incremental investment at Farnam in Q4. Bradley G. Smith: That ended up paying off quite well where we took several SharePoints in equine during the quarter. John Edward Hanson: Yes, we did. And we continued to invest where we see high opportunity and high return, that was one of them. And that was focused on digital and content and paid off. James Andrew Chartier: Great to hear. Thank you. Operator: Our next question is from Robert James Labick with CJS Securities. Robert James Labick: Good afternoon. Thanks for taking our questions. Of sticking with the tariff theme, obviously, you're navigating it through it like everyone else as well. You said price is going to be one lever. Can you talk have your retail customers accepted your pricing? Have they passed it along? Kind of when will you know consumer I guess, acceptance and elasticity? How are you thinking about those? Bradley G. Smith: Maybe I'll answer the first part where we are in the negotiations and John, maybe you can jump in on the others. Yes, I would say we're more than halfway there in terms of negotiations with customers. It's almost exclusively on the pet side of it on Garden. And they've obviously been very challenging. We had to hold some shipments as a result of those discussions with one of our customers, which we mentioned a bit earlier. So we are expecting to be done with those discussions, I think, kind of end of this quarter, maybe early Q2. John, you want to comment on the consumer part and passing through to retailer? John Edward Hanson: Yes. So we haven't seen the prices go up yet in the marketplace. You know? So a little bit TBD. Now we can, you know, model what we've done in the past, and we do a good job of doing that. And that speaks to probably around a one elasticity. And it's been pretty consistent. But we do everything we can to in these tariffs. Right? We look at country of origin and we look at our SKUs and make sure we got the right SKUs. And if we have to optimize them, you know? And then pricing, you know, is a partnership with the customer. And we do it as last resort. But we do do it and have done it before. Bradley G. Smith: Yeah. And we don't price to build margin. We price to offset some of the costs. That's something we're very, very disciplined about. Yes. I mean, Nicholas mentioned earlier that we're in a position to modestly expand margin this year and is clearly going to be the ongoing cost and simplicity efforts, including the tariff products as well as other projects we've got going on that really are going to be needed to get us over the line. And be able to expand margin. Robert James Labick: Okay, great. And obviously, you've had a lot of progress over the last few years cost and simplicity and the margin improvement. You talk about how much you're you said, I guess, in Q4 a little bit you reinvested for growth in 2026. How do you think about changing the investment level or either promotional activity or brand building as you continue to get this margin improvement from cost and simplicity? John Edward Hanson: Yes. We're definitely up in our game in terms of investment around the consumer, around digital. Bradley G. Smith: And also we want to up our game around innovation. So really those are the three areas we need to get better at and put some money behind. John Edward Hanson: We're trying to stay agile in a lot of ways. So the great thing about digital is we can make an investment and see how it does. And pivot based off of that. So when we see something that works, we tend to, you know, continue to feed the beast. And then if something doesn't, you know, we'll pivot and continue to tweak. So it's a very dynamic agile way of promoting product. Mainly through retail media. John Edward Hanson: But we're also building out a lot more content we have in the past. And you can see that with our feeding frenzy, you know, wild bird product, that's out there now. And we've had some nice results there and plan on building on that. That's really a really nice case study for the company, and we're gonna be doing more of that going forward. Robert James Labick: Thank you. Operator: Our next question is from Brian McNamara with Canaccord Genuity. Brian McNamara: Afternoon, guys. Thanks for taking the questions. So I know you don't guide on the top line, but I was hoping you could provide some kind of high-level thoughts on how you see 2026 potentially playing out? And what outside of weather could drive better or worse top-line trends? Nicholas Lahanas: Yeah. I mean, our view right now is that the top line is going to be challenging. Once again, as it was in 2025. We think '26 is going to be extremely challenging. For reasons that we sort of outlined, we've got a little bit of a headwind with tariffs. Consumer confidence is at a low point right now. So we really need to see how the consumer is going to react to pricing. And really, you know, their behavior and the whole notion of the bifurcation of income. Right now is very real. We're seeing it in both of our categories. So it's a little bit of a wait and see. Think, you know, again, we're not gonna guide on that top line, but you know, we make every effort possible to grow every year. And that's what we're gonna do going into twenty-six. So that's about all we can say right now. More to come. As we get deeper into the year. And then, you know, as always, weather is gonna play a pretty big impact, particularly on the garden side. Bradley G. Smith: Hey, Nicholas. I think one thing that I would add to that is the SKU rationalization and some of the portfolio that we've done has also been a drag on the top line, but it's one of the reasons why our margins have been so strong. Nicholas Lahanas: So we'll continue to look at SKU rationalization. It's an ongoing process. Brian McNamara: Yep. That's absolutely right. Great. Brian McNamara: And then secondly, I know you mentioned, I think, durables are 16% of your pet sales. How did durables do overall as a category that still a double-digit decline in Q4? John Edward Hanson: Yes. It's yeah, 16% is the right number and it was a double-digit decline in Q4. Keep in mind what Bradley said as well. You know, a big piece of that decline was our proactive decisions to discontinue low-margin no-margin SKUs. And that was completed in half one. So we're lapping that. We've got another first half of next year to lap that. But that was a huge contributor to the decline. Bradley G. Smith: Yeah. I mean, the hope is kind of as we get into the second half of this year, we'll be at a point where, you know, year-over-year durables trends are not significant enough that we're discussing it quarterly. Brian McNamara: Great. And then what's the company's house view on pet ownership trends currently? And kind of what data do you focus on to inform that view? John Edward Hanson: Yeah. We've got a variety of sources of data. The view is it's stabilizing and is pretty stable right now. We do have a live animal business as well. And in Q4, we saw that stable kind of up slightly also slightly, but we'll take it. Right? So as we look forward into next year, we do believe that stabilized. You know? And if I looked at the categories that we compete in for the year, you know, I would hope they'd be up. They'd be stable or up slightly. You know, low single digits. Nicholas Lahanas: Yeah. Just to pile on to what John said, our live goods, our live animal business sequentially had less and less declines. And actually, Q4 posted about a 1% gain. And you know, that gives us some optimism because it's quite a trend. You know, we can see the trend heading in a very positive way. Brian McNamara: Great. And then just the last one on capital allocation. I know that company repurchased quite a bit of stock from Q1 to Q3 and very little in Q4, and you're sitting on a record cash balance. I'm curious how we should read that as the M&A pipeline improves? Are you keeping dry powder or is it something else? Bradley G. Smith: We're definitely keeping dry powder. We're actively on the hunt. We are, as you know, Brian, the market is not as robust as we'd like it to be in terms of interesting opportunities, particularly in margin-accretive pet consumables, which is a bit our bull's eye. But we're continuing to be optimistic that we're going to find some deals to do this year. Nicholas Lahanas: But we're also still remaining opportunistic on the stock price. Even this quarter, we bought back about $18 million in the quarter. So when we see dips, we're going to take advantage of those because we do have conviction that it's undervalued and a tremendous opportunity here. We'll always be there to return money to shareholders. Brian McNamara: Great. So I appreciate the color. Operator: Thank you. Our next is from Andrea Teixeira with JPMorgan. Andrea Teixeira: Hi, good afternoon, everyone. Thanks for taking the question. First, can you comment on the pricing that you're embedding into fiscal 2026? And understandably, mentioned durables may still have a double-digit decline. I understand the first half similar to what happened in this quarter. Given the timing of some of the SKU rationalization. So maybe if you can kind of, like, let us know how the underlying price pricing embedded into your guide? And then my second question also related the guidance since fiscal 'twenty-six. On the margin front, you obviously made significant progress in your rationalization process. What should we be thinking about margins going forward? Should we be keeping that same progress I mean, taking the fourth quarter, of course, there's some seasonality there. So if you can help us kind of, parse out how we should be thinking about margins. Thank you. Nicholas Lahanas: Thanks, Andrea. Yes, pricing, we're looking to take some price fairly modest, about 1% going into 2026. Really designed to just offset tariffs and some commodity exposure. So pretty modest overall, nothing like we had a few years ago when inflation went completely bananas. In terms of margin, we go into every year wanting to expand margin. That's really part of our financial algorithm. Q4, we expanded by 310 basis points. Going forward, it's going to be a little bit more modest. We've gotten through a lot of the low-hanging fruit, but we are planning on expanding margin into 2026 for the total company. Andrea Teixeira: Okay. Thank you. Operator: Our next question is from William Michael Reuter with Bank of America. William Michael Reuter: Hi. So my first question is in lawn and garden. So you said your points of distribution, excluding the exit of pottery, was up looks to be up 10% for next year. It sounds like there maybe is, like, 1% price in there. If weather were to be equal, I don't see why we wouldn't see a lot of growth in the lawn and garden revenues next year. I guess, what is the conservatism that's off that and that your tone doesn't sound more bullish? John D. Walker: Well, I did say cautiously optimistic. But just to add a couple of the a little more color. So excluding the pottery exit, will be up high single digits in items that we manufacture will be up double digits. So, yes, we're optimistic. Very bullish. With regard to that. Weather is always an unknown. And, you know, we don't plan for improvement in weather year over year. However, if there is improvement in weather, then I think we have a very we have a very outlook on the year. So again, you know, I'm just trying to keep it somewhat cautious before the season. We are a seasonal business. Last year during the peak sixteen weeks of the season, we had rain on eight of those weekends. So, hopefully, year over year, there's improvement there. And if there is, then I think we feel great about our prospects for the year. Bradley G. Smith: With top line, we are also remember, we're still unwinding a large vendor that has chosen to go direct. And so that's gonna be a headwind in '26 as well. Similar to what we had in 2025. William Michael Reuter: The same vendor? Bradley G. Smith: Yeah. William Michael Reuter: The eight of 16 key weekends, when does that period start for you? John D. Walker: March through May. William Michael Reuter: Okay. So, basically, March 1 is the first of those days. Okay. And the second is gonna be a little bit of a follow-up, but you know, you are seeing modest M&A. When asked about share repurchases, you said you purchased $18 million. It's just so small in the context of how much money you guys have. Do you I mean, are you just gonna sit on the cash and until the M&A environment and opportunities become more plentiful? Or, you know, would you consider either a large dividend or share repurchase at some point? Nicholas Lahanas: Well, the $18 million is just this quarter. If you look at last year, did over $150 million, which is a little more relevant. We're going to probably go through that with our Board, not something we're prepared to discuss right now. My bias and Bradley's bias would be to hang on to the money a little while longer and really look for M&A. For us, that's a lot more exciting, helps grow the top line. Helps fill out the portfolio. We believe that's really why a lot of shareholders hold the stock. Is our ability to do M&A. It's really foundational. The company. So that would be our bias. That said, we want to make sure we're doing right by our shareholders. And why we continue to buy the stock back. William Michael Reuter: Got it. Okay. Cool. I'll pass to others. Thank you. Operator: Our next question is from Carla Casella with JPMorgan. Carla Casella: Hi, thanks for taking the question. First one is around you mentioned some shipments that were going move from 1Q into 2Q. Did you quantify that? Bradley G. Smith: No. Will you? Nicholas Lahanas: No. No. Okay. That number is a moving that number is evolving. So it would just be a Yeah. Carla, we won't quantify it because there's a number of factors that are at play. It's not only shipments that we know of right now, but and we've talked about this lot. Over the years. When we get into that December time frame, so towards the '1, you're competing for trucking with, you know, with the large retailers as they're kinda winding down Christmas. And a lot of times, we don't know if the trucks are gonna show up. And so what we had last year was, you know, all the stars sort of aligned for Q1. If you recall, last year, Q1, we had a little bit of a, you know, call to pull forward. We had, you know, shipments that normally ship in Q2 fall into Q1. Our top line was up. And then Q2 early on was a little bit softer. We have a little bit of the reverse effect that we think is gonna happen. And, I mean, the delayed shipments we know about, but then there's also the noise of will those trucks show up sort of at the December, which is a bit of a coin flip. John D. Walker: Yeah. Nicholas, I'll add a little more color to that. So Carla, this is John D. Walker. And on the garden side of the business, at the '1, we received a lot of the orders for retailers that are setting their stores for the upcoming season, the lawn and garden season. And a lot of that typically ships between Christmas and New Year's. Oftentimes, they don't want to bring in inventory before Christmas. And this year, our fiscal quarter ends on the twenty-seventh. So we have one shipping day after between Christmas and New Year's. We haven't even received all of those orders yet from retailers. And really, as Nicholas said, trying to pinpoint exactly what is going to shift in Q1 and what's going to shift into Q2. Intuitively, it tells us that some shift to Q2 will happen, but it's really hard to quantify it this early. Does that make sense? Carla Casella: Okay. Great. Yeah. That does. And that's super helpful. Other thing is you talked about that you're seeing the income dispersion that we're also hearing a lot of retailers talk about. Are you seeing also can you talk about whether you're seeing strength or weaknesses in any of your different channels, home centers, specialty pet, mass, etcetera? Nicholas Lahanas: I mean, the biggest trend we're still seeing is sort of the migration to online. Overall across both segments. Pet being more developed online than garden. But if you look at the garden growth rate, it's been just tremendous. You know, we have 60% growth on the garden side with some of the online retailers. And it's quickly catching up. I think you're just seeing some volume leap, brick and mortar. And go in online. I think some of the retailers that have robust omnichannel strategies are the ones winning right now. So we're seeing some of that. As far as the income and that diversion of income, the bifurcation of income rather, I'm not sure we're seeing it in any specific channel. I'll let John and John D. Walker weigh in on it. But as far as where we're sitting, we're not seeing a ton of it. John Edward Hanson: Yeah. On the pet side, I would add, I don't think we're seeing a ton of it. The pet specialty channel, as we've communicated in the past, remains challenged. Foot traffic has been a bit of a challenge. I do believe as we see live animals stabilize, that's going to be good for that channel. But bifurcation of income, we're not I can't call anything specific out. Carla Casella: Okay. Great. Thanks a lot. Operator: And that was our last question. And with that, we're going to close the call. Happy Thanksgiving, and we'll take your questions if you have any during the quarter. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.