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[speaker 0]: Thank you for your continued patience. Your meeting will begin shortly. And a member of our team will be happy to help you. Please stand while your meeting is about to begin. Welcome to the Post Holdings Fourth Quarter twenty twenty five Earnings Conference Call and Webcast. At this time, all participants have been placed on a listen only mode. Lastly, if you should require operator assistance, star zero. I would now like to turn the call over to Daniel O'Rourke, Investor Relations for Post. [speaker 1]: Good morning. [speaker 2]: You for joining us today for Post's fourth quarter fiscal twenty twenty five earnings call. I'm joined this morning by Rob Vitale, our President and CEO. Jeff Zadix, our COO and Matt Maynard, our CFO and Treasurer. Rob, Jeff and Matt will make prepared remarks and afterwards we'll answer your questions. The press release that supports these remarks is posted on both the Investors and the SEC filings portions of our website. And is also available on the SEC's website. As a reminder, this call is being recorded and an audio replay will be available on our website at postholdings.com. Before we continue, I would like to remind you that this call will contain certain forward looking statements, which are subject to risks and uncertainties that should be carefully considered by investors, as actual results could differ materially from these statements. These forward looking statements are current as of the date of this call and management undertakes no obligation to update these statements. This call will discuss certain non GAAP measures. For a reconciliation of these non GAAP measures the nearest GAAP measure, see our press release issued yesterday. And posted on our website. With that, I will turn the call over to Ron. Thanks, Daniel, and good morning, everyone. We had a good FY 2025 and we ended with a strong quarter. [speaker 1]: It was interesting [speaker 2]: year as we navigated regulatory changes tariffs, [speaker 1]: avian flu, [speaker 2]: and uncertain consumer sentiment. Despite this challenging environment, our portfolio of businesses displayed resilience and delivered strong results. We expect that the benefits of our diversification will allow us to navigate an environment of continued uncertainty. We expect to continue volume growth in our foodservice business especially in our highest value products. [speaker 1]: In retail, [speaker 2]: we remain disciplined in the face of a very challenging [speaker 1]: volume landscape. [speaker 2]: Keeping our focus on cost reduction and profitable brand investments. Jeff and Matt will provide detail on our FY twenty six outlook. But we will focus on what we can control and from that perspective [speaker 3]: I like our positioning. I expect foodservice to provide volume growth and our retail businesses to generate considerable cash flow to fund both organic and inorganic opportunities. In that vein, a highlight of FY twenty twenty five was our strong operating cash flow which allowed us to maintain flat net leverage while making key capital investments completing two tactical acquisitions and buying back over 11% of the company. With a step down in capital spending and the benefits from the new tax law, we expect a meaningful increase in FY 2026 free cash flow. Coupled with our long dated debt maturity ladder we can be opportunistic with our capital allocation decisions. Continue to review M and A opportunities. And we benchmark them against buying back our own shares. I would like to thank all of our employees for another successful year. The strength and diversification of our operating model combines with dedicated employees give me a great deal of confidence in continuing our track our track record of value creation. Before I turn the call over to Jeff, I want to make a personal comment. Bill has been a mentor business partner and friend for nearly thirty years. I expect that to continue regardless of titles. Jeff? Thanks, Rob, and good morning, everyone. We delivered strong consolidated results in Q4 Our cold chain businesses did a fantastic job in navigating HPAI. In addition, across the entire portfolio, cost reductions and manufacturing execution combined to more than offset the impact of lower retail volumes. At Post Consumer Brands, our branded and private label cereal businesses experienced consumption declines resulting from challenging category dynamics. In pad, our volume consumption was down versus a flat category driven primarily by Nutrish. As a reminder, we are adjusting the value proposition and messaging for this brand changes to be in market by the end of fiscal Q2. A bright spot in Pet was Kibbles and Bits, had a strong consumption volume versus the prior year. Spite of the volume challenges, we were successful in growing our consumer brands EBITDA margin excluding eighth Avenue. By 100 basis points driven by improved mix in cereal, and strong cost management across the segment. Our upcoming cereal plant closures will further help to alleviate the impact of cereal category declines. Setting aside HPAI, foodservice had strong underlying performance driven by growth in both egg and potato volumes. While a portion of Q4 egg volume growth was related to timing from improved egg availability customer inventory replenishment we continue to see strong demand in particular for our higher value added products. Volumes for these higher margin egg products grew nearly 9% in the quarter and approximately 6% for the full year. Our HPAI impacted egg supply came back online as expected in Q4 allowing us to continue gradually winding down pricing adders. As we enter fiscal twenty twenty six, we are well positioned to continue the normalized growth trend in this business. In Refrigerated Retail, dinner sides grew volumes in the quarter driven by targeted promotions and new label offerings that began shipping toward the end of the quarter. Private label offerings are expected to to contribute low single digit volume growth in FY 2026. Segment profitability had some continued tailwinds from HPAI pricing matters again this quarter. At Weetabix, our flagship yellow box product consumption performed in line with the improving cereal category which was down less than 1%. The noticeable improvement in The UK cereal category over recent quarters is an encouraging trend. Meanwhile, we continue to execute against our identified cost out opportunities as we consolidate our private label production resulting in a plant closure in mid fiscal year. Turning to FY 2026, have planned for a more normalized environment in our cold chain businesses as we begin the year with Ag supply back in balance, allowing us to focus on driving volume growth in both foodservice and refrigerated retail. For the balance of our portfolio, we're projecting some improvement in the silver category as we lap certain FY 2025 pressures However, we do not expect a full return to historical trends. To support volumes across the entire company, we will make targeted investments including innovation where we see profitable opportunities. However, as Rob mentioned, we remain focused on protecting margins and our strong cash flow. With that, I'll turn the call over to Matt. [speaker 2]: Thanks, Jeff, and good morning, everyone. Fourth quarter consolidated net sales were $2,200,000,000 and adjusted EBITDA was $425,000,000 Sales increased 12% driven by our acquisition of eighth Avenue. Excluding the acquisition, net sales declined driven by lower pet food and cereal volumes partially offset by avian influenza driven pricing and egg volume growth. Turning to our segments, Post Consumer Brands net sales excluding the contribution from eighth Avenue decreased 13% driven by lower cereal volumes decreased 8% due to category and competitive dynamics. At Pet, our volumes declined 13% driven by lost private label business we mentioned last quarter and we are continuing to experience consumption declines as we reset our Nutrish brand. Segment adjusted EBITDA increased 2% which includes a $20,000,000 contribution from eighth Avenue. Excluding eighth Avenue, adjusted EBITDA decreased 8% versus prior year as the impact of lower volumes were partially offset by improved cost management. Especially in SG and A. Moving to Foodservice, net sales increased 20% on both pricing and an 11% volume increase. Excluding the impact of our PPI acquisitions, volumes increased 9% on higher egg, potato and shake volumes. The increased volumes and avian influenza driven pricing drove the revenue increase. Adjusted EBITDA increased 50% driven by avian influenza driven pricing and the previously mentioned volume growth in our value added egg and potato products. Refrigerated Retail net sales were flat volumes excluding the impact of PPI fell 4%. The volume decline was driven by sausage and eggs which experienced elasticities due to pricing to offset input cost. Segment adjusted EBITDA increased 44% benefiting from avian influenza pricing adders and lapping some elevated SG and A costs in the prior year. Weetabix net sales increased 4% versus the prior year Foreign currency represented a tailwind of three sixty basis points. Overall, volumes decreased 3% as our core yellow box product volumes declined by 6%. Offset by volume growth in UFID, which was up 41% versus the prior year. Segment adjusted EBITDA increased 1% versus prior year due to current currency tailwinds, partially offset by lower volumes and increased inflation driven costs. Turning to cash flow. In the quarter, we generated $3.00 $1,000,000 from operations. Our free cash flow for the quarter was approximately $150,000,000 as we invested in key projects in both PCB and foodservice businesses. Free cash flow for the full year was nearly $500,000,000 driven by strong operating cash flow net of elevated CapEx. In the quarter, we repurchased 2,600,000.0 shares bringing our fiscal twenty twenty five total repurchases to 6,400,000.0 shares. We are active in share repurchase following the end of quarter, by net leverage in accordance with our credit agreement ended the fiscal year at 4.4 times relatively flat to how we began the year. Before we get to Q and A, I have a few comments on our fiscal twenty twenty six guidance. As stated in our earnings release last night, including two months of pasta contribution, we expect our FY twenty twenty six adjusted EBITDA to be in the range of $1,500,000,000 to 1,540,000,000.00 This range reflects approximately a 1% to 4% growth rate to a normalized FY twenty twenty five. Relative to FY twenty twenty five Q4, we expect Q1 adjusted EBITDA to decrease meaningfully driven by HPAI normalization and seasonality declines in U. S. And UK cereal partially offset by seasonality benefits in refrigerated retail. The full year, we expect second half favorability to the first half. Finally, CapEx guidance of $350,000,000 to $390,000,000 is down notably from FY 2025 as we completed key investments within PCB and foodservice. FY 2026 will continue to see elevated spending in foodservice we invest behind growth for both precooked and cage free. Thank you for joining us today and I'll now turn the call over to the operator. [speaker 0]: The floor is now open for questions. Our first question comes from Andrew with Barclays. Please go ahead. Your line is open. [speaker 2]: Good morning. Thanks. Morning. Thanks so much. Maybe Rob, to start off, we've certainly seen industry volume remain sort of challenged. We can see some of that reflected in your PCB segment in Cereal and Pet. You've been aggressively buying back your own shares in lieu of, I guess, more interesting portfolio opportunities. The last time valuations in the group were really under this much pressure was sort of the late 90s and the group got out of it through larger scale M and A. Perhaps this time is different. I think some investors maybe see the the current weaknesses maybe more structural rather than cyclical. And I guess I'm curious how this dynamic sort of informs your capital allocation decisions? And is M and A still the right approach given how cheap assets are? Or is buying back stock at these levels more sensible if one believes the terminal growth rate of potential acquisition candidates is simply lower going forward? I guess what I'm asking is, this represents another buying opportunity in the space like the late 90s or is it somewhat different? [speaker 3]: Well, if the ultimate question is it structural or cyclical, I think you have to tell us how long the cycle will last. I think it's different in the following manner. I think the big difference is the cost of capital has changed dramatically. We've been a long term decline. And now we're in what could be an inflection point where we see more increased pressure than decrease. And I think that starts to develop the strategy. And I think in lieu of a reflexive position of we're just going to use M and A to get bigger It needs to be a little more thoughtful and perhaps a little bit more focused around focus. That we can look at opportunities to be better rather than just bigger. That sounds a little bit cliche, but I think it's true. Where we have opportunities to [speaker 1]: be [speaker 3]: more focused in some area that I think we should take them. And where there are opportunities to be more efficient in other areas we should take them. From our perspective, don't necessarily differentiate between M and A and buybacks. What we try to do is compare them from a potential return perspective and a risk perspective. And then compare them. [speaker 2]: So [speaker 3]: we really don't look at it and say, if we buy back shares, we're going to shrink or or look at our multiple different we look at that and say, what is the best just risk return adjusted way to use our capital? [speaker 2]: Great. Thank you for that. I know on the last earnings call, I think you talked about all the asset optimization efforts, right, that you're undertaking in in ready eat cereal. That those could kind of get plant utilization maybe back up to around the mid-80s? But that the cereal category continued to be weak or below its historic rate. Of decline, maybe further actions on the cost side sort of would be need to be considered? And I guess I'm curious what sort of actions could we be talking about? And maybe are you considering any additional ones given I think your comments in the prepared remarks? That were don't see the category in fiscal twenty twenty six necessarily getting back to its what's been its longer or historical rate of decline? Thanks so much. [speaker 3]: Certainly there are additional opportunities we can take on cost reduction. But I think the magnitude start to get smaller as the bigger things like plant closure have occurred. So we are looking at things like line optimization rather than plant optimization. So they continue to be good opportunities, but we've obviously taking the larger ones first. [speaker 2]: Thank you. [speaker 0]: And we'll move next to Tom Palmer with JPMorgan. Please go ahead. [speaker 3]: Hey, good morning, thanks for the question. You have normalized guidance in [speaker 2]: I guess maybe thinking through those segments for fiscal 'twenty six, which ones do you kind of see as being more consistent [speaker 3]: with that normalized outlook after we adjust for M and A in AB and Flu? [speaker 2]: And maybe which ones are light? I mean, I know there was the PCB commentary, kind of curious, I guess, in the other areas. [speaker 3]: Thank you. [speaker 2]: Sure. So I think when we look at the PCB legacy business, we see that as more flat So not growing the 2% we have in our algorithm this year given what we've got going on in cereal but also the nutritious reset that won't take place till mid year. And in the balance of the portfolio honestly we see in line with those algos. Okay. Thank you for that. And I guess a follow-up on the agos. A quarter ago, talked about [speaker 3]: in foodservice around $115,000,000 EBITDA. [speaker 2]: Being like a normalized run rate. [speaker 3]: We have seen real volume strength in that segment. And and I appreciate [speaker 2]: why is one fifteen still the right number? Or or should we be thinking about something maybe a bit [speaker 3]: higher to start out the year? [speaker 2]: No. I mean we think 115,000,000 is the right number and that was really benchmark we put last quarter and I that's how we think about fiscal twenty twenty five. I think fair to assume that grows in line algo for fiscal twenty twenty six by the end of the year would be obviously something more like one and twenty But again, I think we talked about it last quarter as well. We would to have a quarter or two of some normalcy so we can get a better read on that As you pointed out, there's a lot of noise with AVEN in influenza definitely had some catch up this past quarter with customer inventory levels the past year had some avian flu, but given some of the challenges with AI. But really do see the base business continue to perform quite well. So think we'll revisit in another quarter, but how we benchmark normal normalized run rate was against that 115,000,000 and then growing 5% in fiscal twenty twenty six. Great. Thank you. [speaker 0]: We'll go next to Matt Smith with [speaker 1]: Stifel. Please go ahead. [speaker 2]: Hi, good morning. I wanted to ask about the performance in Refrigerated Retail. You had a nice 20% EBITDA margin in the quarter. But you called out some AI pricing benefits there. As we look forward, is this a business that's on solid footing to maintain a kind of a high teens EBITDA margin in a normal environment? Sure. So we definitely similar to foodservice, but on a much smaller scale, we had some pricing benefits that fell away at the end of the quarter. So that was a little bit inflated because of that, but we are seeing better performance and better volume performance around private label, which is improving capacity utilization. I think with that said in the holiday season for them, we've always had [speaker 4]: significant seasonality. I think high teens is reasonable when you talk about those periods. In our slower part of the year, you're going to return to more call it 16% or so margins. It's not going to be a high teens. [speaker 2]: Thanks, Matt. And Rob, as a follow-up to some of the commentary about the industry, we are seeing private label trends vary across post categories. Gaining some share in pet categories while having a softer performance in the cereal category currently. Is there anything to read through in terms of category by category how are trading down into private label? Any observation you have, whether it's price gap dependent or really category dependent? Thank you. [speaker 3]: You took the words right out of my mouth. It's really priced GAAP dependent. We're starting to see consumers be a little bit more gone to promotional activity and it moves inversely to that. [speaker 0]: And our next question comes from Scott Marks with Jefferies. Please go ahead. [speaker 2]: Hey, morning. Thanks so much for taking our questions. [speaker 4]: First thing I wanted to ask about in the prepared comments, [speaker 5]: you mentioned making targeted investments in 2026 with some innovation potential. Just wondering if you can kind of share some details about how you're thinking about some of those investments and maybe what categories you would like to invest in? And anything else you can comment on that. [speaker 1]: Thanks. [speaker 3]: It's the typical type of investment for [speaker 5]: brand [speaker 3]: innovation that you have seen historically. We took a pause on some of those during the pandemic and it's been something that we haven't been quick to renew in last couple of years, but it's going to be line extensions in in really every retail category So in cereal as an example, we're going to bringing some protein products We're going to be bringing some granola products which are areas of the category that are more [speaker 2]: that are [speaker 3]: growing better than the rest of the category. [speaker 5]: But you're going to see that sort of thing in our [speaker 3]: refrigerated retail business as well And in Pet, a lot of that is directed towards the Nutrish re launch [speaker 5]: although we'll see some smaller innovations in [speaker 3]: some of the other brands as well. [speaker 5]: Got it. Thanks for that. Next question for me, as we look at the foodservice business and some of the the demand for some of those value add products, sounds like you're expecting some of that momentum to sustain as we get into next fiscal year. Maybe what gives you confidence that that some of your operator partners will continue to continue to demand these products at these high levels and just any comments you can share about the overall backdrop for your operators right now? [speaker 3]: So there's a couple of things we would point to. One is it really a long of that business moving customers up the value chain. So starting from lower value added products moving them up to higher value added products and the value proposition that they see when doing so It's a function of the labor dynamic in their operations when they move up the value chain. So that's been a [speaker 5]: multiyear, almost decade long maybe multi decade long trajectory of the category, which we don't see any slowdown in that happening. The one more unique perhaps unique situation with avian influenza and the pricing that has the pricing dynamic that has been caused by that in chilled eggs [speaker 3]: has caused some customers to convert to liquid eggs, the ones that are able to convert. Because over this period of time liquid eggs have been less expensive than shell eggs. What we have seen in the past probably on a smaller scale than what we've seen this last cycle is that there's some stickiness to people who have converted to liquid eggs initially just for the pure price play. [speaker 5]: Because they find that the efficiency in their operations is such that even if the prices are more competitive with one another between liquid and shell eggs, that they find efficiencies [speaker 3]: in remaining with liquid eggs. [speaker 5]: So we have some belief that [speaker 3]: given what we've seen over the last twelve to eighteen months, [speaker 5]: that the stickiness of those customers that have converted will continue. Thanks so much. I'll pass it on. [speaker 0]: We'll go next to Michael Lavery with Piper Sandler. Please go ahead. [speaker 4]: Thank you. Good morning. [speaker 3]: Hey, Mike. [speaker 5]: Just on Pet can you maybe unpack some of the the key moving parts there? And maybe just remind us the cadence of some of the private label cuts and distribution losses or the co man cuts and when you lap those and just how to think about the puts and takes through the year? [speaker 4]: Sure. So a year ago we were working our way through fiscal twenty twenty five through some profit enhancing decisions we had made and we've fully lapped those as we exited '25. So in '26, what we've yet to lap then as we developed during 2025 as we lost some private label business We continue to pursue opportunities there, but we won't lap that until we get to the midpoint of the fiscal year. So I think as we think about the business and the volume trajectory first half of the year see really more down mid to high single digits. And then as we get to the midpoint of the year and Nutrish is on shelf and we lap that private label loss. We'd be back to more flat to maybe some slight growth year over year. [speaker 2]: Okay, great. That's helpful. And then [speaker 5]: you touched on some of the price gaps. Maybe just specifically for cereal, can you us understand what you're seeing there? How rational does pricing seem? And maybe any sense of why you're not seeing a little bit more benefit from trading down? [speaker 3]: We've had some pretty competitive pressure in promotional activities over the last several months. They seem to be changing And I think it's no more complicated than that as some of our competitors have been more promotional. The private label offering been less competitive. [speaker 1]: Okay. [speaker 0]: We'll go next to Mark Turrente with Wells Fargo Securities. Please go ahead. [speaker 5]: I guess first on the EBIT bridge and to [speaker 2]: 26, any changes to your underlying assumptions for the go forward ASAP new business I think you previously called out 45,000,000 to $50,000,000 EBITDA annualized plus the $15,000,000 synergies exiting the year. [speaker 5]: And then any color on contribution baked in for the [speaker 2]: business for the first quarter top line and EBITDA? [speaker 4]: Sure. So no change to the outlook. The 40 to 50 is how we think about the contribution in fiscal twenty twenty six. And then do have confidence in getting to a run rate and synergies by the end of the year. It's going to take some time all that's going on there. And then in terms of the pasta business in Q4, we called out about $20,000,000 contribution from 8th Avenue, so a little under the run rate obviously About half of that was pasta. So again, we're expecting just two months of pasta contribution this fiscal year. So two thirds of $10,000,000 before we close on the transaction in December. [speaker 2]: Okay. Thank you. And then just a little more on the volume trends in core grocery. Any color on progress through the quarter and how things have trended into the first quarter, have you seen any incremental pressure perhaps from SNAP, [speaker 5]: And then just what's factored into your outlook for this year? [speaker 4]: Yes. So I think what we factored in is fairly conservative. Again, think we believe there's we'll see some category improvement as we lap some challenges in the back half of of next year given some of the fiscal 'twenty six, I should say, given that some of the challenges we saw with Maha and other things that happens. In the spring. But we're not calling for a category getting back to normal in the back half of the year. So some marginal improvement year over year is really what we have. And I think Q1 and Q2 looking a lot like what we saw in Q3 and Q4 and then seeing some improvement in Q3 and Q4 is what's baked in our guidance. [speaker 1]: Okay. Thank you. [speaker 0]: We'll go next to John Baumgartner with Mizuho Securities. Please go ahead. [speaker 3]: Good morning. Thanks for the question. Wanted to go back, Rob, to your some of your comments around strategy. And cyclical versus structural. [speaker 5]: Over the years, Post has built this portfolio that's tilted more to value. [speaker 3]: Whether it's cereal, pet food, the 8th Avenue business here again, And I mean, the value has held up well. [speaker 5]: Against the macro over time. So it's been prudent. But I'm curious, given the headwinds now for lower middle income consumers, higher debt, SNAP reductions, and you're seeing the consistency from [speaker 3]: the premium eggs. Does it maybe warrant more initiatives in terms of addressing premium products, higher income households? Just how do you think about that in terms of future M and A or organic innovation and the capacity [speaker 5]: tilt the portfolio differently going forward? [speaker 1]: I think I would disagree that the [speaker 3]: around choice. the portfolio is built around value. I think the portfolio is built Because if you look at each line of we are in, have an array of price points. And that is true of eggs, cereal, potatoes. So that what we really like to do is appeal to the an array of consumers. And I think that the trends that you're focused you're raising rather than [speaker 2]: dictating [speaker 3]: the construct of the portfolio in total really dictate the direction of innovation. And I think in that context, it does suggest if we have the opportunity to do so to innovate more towards higher or middle income consumers. Okay. And then maybe just [speaker 5]: building on that in the refrigerated retail business, thinking about some of the side dishes I think that's been an area where private label has been a little bit of challenge the last year two. As we look forward now, supply chain issues have been cleared away. [speaker 3]: How do you think about investing in that business in terms of vehicle for innovation, you're hitting the convenience angle for consumers, expanding distribution growth, [speaker 5]: Where does your plan sort of sit for that side dishes business going forward now? So John, [speaker 3]: you've got a long history with us. So we went through a period of time when we first acquired the business that it was in private label and branded So to Rob's comment, we were participating up and down the value of that segment. At different price points. We went through a period of time when we did not have enough capacity to meet our branded demand So we exited private label so that we could focus on the brand In the meantime, some competitive private brand [speaker 1]: products [speaker 3]: got some traction And we have now gotten to the point where we have our capacity better aligned to the point where we have capacity that can meet both private label and branded [speaker 4]: demand. [speaker 3]: And because of that, we're choosing to pick and choose where we go, but to go after attractive private label opportunities in that in that category. While also maintaining the brand and continuing to invest in the brand. So the longer term or medium term goal in that category would be to to do exactly what Ross said play at the multiple price points not to be the omnipresent party in private label, but to be the party that wins where private label is most relevant at those retailers. [speaker 1]: Got you. [speaker 5]: Thanks, Jeff. Thanks, Rob. [speaker 1]: Thank you. [speaker 0]: Our last question comes from Carla Casella with JPMorgan. Please go ahead. Hi. We talked about a lot about the M and A as part of the strategy over the past. I'm just wondering how that environment looks today and if there are a lot of opportunities And then also if you're focused more on opportunities within any your key segments or would you add another leg to the stool? [speaker 3]: We tend to be entirely optimistic on the last part of your question. I think in order to have a successful transaction, we obviously need a And I think with the multiples where they are today, we've seen some reluctance to transact And again, we don't necessarily look at M and A as an objective in and of itself. We look at it as something an allocation of capital choice that we can use compared to [speaker 2]: buying our shares back or paying down debt. [speaker 0]: Okay. And given the 8th Avenue is behind you, any on coming to market to refinance [speaker 1]: some of the [speaker 0]: the draw on the revolver that you used for 8th Avenue? [speaker 4]: Yes. So we continue to monitor, Carlo, obviously, keep a close eye on that and the bond market, but we'll continue to look for the right pocket to do that. [speaker 0]: Okay, great. Thank you. Thank you. This concludes today's question and answer session. As well as Post Holdings fourth quarter twenty twenty five earnings conference call and webcast. Please disconnect your line at this time. Have a wonderful day. Thank you.
Peter Podesser: Good morning, ladies and gentlemen, and thank you for joining us in this call presenting our Q3 and 9-month figures as well as an overview of the business right now. Together with Daniel, we will lead you through all the key figures, but also key facts relevant to the 9-month period right now, but also naturally on to the outlook. And thereafter, we will be happy to answer all your questions. No question, we are looking back to a soft quarter. We're looking back also to a challenging period here in the business. We have to say, as also anticipated as this was one of the key reasons why we saw ourselves obliged to bring down the guidance back in Q3 at the end of July. But naturally, starting with this point, I think we want to give you, let's say, a solid and concrete analysis on this. If we look at the development here in the first 9 months, we see a slower growth than originally planned in core parts of the business. And if we look into the main reasons of deviations, I think we have to start off with the biggest impact on the defense business. In India, we saw a postponement of the follow-on programs here for our EMILY and JENNY deployments -- EMILY and JENNY fuel cell deployments to the Indian Army based on a decision that was basically a repurposing of funds during this current fiscal year. We have spent quite some time in various meetings on site in India. And I think within the last 3 months, we see -- I think we see solid signs and we see, let's say, basis also for a rebound within, let's say, the next fiscal year here for the business in India, maybe not back to immediately the levels of the 2024 business, but at definitely higher levels than we see it in '25. Two additional elements here. We have signed service and repair contracts, comprehensive maintenance contracts now for all the deployments with the Indian Army, which going forward as of Q4, and we have signed them last Friday. So going forward, this is basically also covering more or less local cost and also yield a proper capacity loading here for our operation in India. And we have also started last weekend local methanol filling here as we do it in other parts of the world, North America and Asia as well. So we are also able now to provide local methanol, address also cost concerns from customers there and also see this as a basis also for the rebound. So India, the first element here of deviation this year, definitely, I'd say, volume-wise, the biggest impact. If we look at our organic growth, we also see a growing -- we still see a growing business in the U.S. Overall, in the first 9 months, we see about 28% growth, but we have to say, especially with new customers, we were expecting also based on historical growth rates, a significantly higher growth. The overall economic uncertainties have an impact on decision-making of our customers there. And therefore, we have missed out on the original plan to see growth above 40%. As said, 28% organic in the first 9 months and a corridor that we also expect until the end of the year is per se, a solid growth number, but definitely not what we had planned for and what we expected. The third element, and Daniel will dive into this, yes, we have seen 3 functional currencies, I'd say, devaluating significantly against the euro, U.S. dollar, Canadian dollar as well as the Indian rupee with an impact on sales and earnings, getting into this in a bit. If we look now into, let's say, the reaction on these developments, I think we are seeing first fruits out of, let's say, cost alignment and cost measures that we have implemented right immediately in third quarter. We are seeing, let's say, a normalization, especially on IT and ERP spending and I think also functional cost, you will hear from Daniel is, I think, an alignment on what we implemented. As also mentioned before, we are not talking about here now a significant headcount reduction at all. I think we are in a selective hiring mode here in those areas where we see growth, and we are reallocating also resources to those areas where we see growth, and we are taking capacity out in those areas where we don't see growth. If we now look into the third quarter, we have to -- we are seeing a significant increase especially on the order intake side, which also is the basis for us expecting a strong fourth quarter. We are overall seeing an increase to a book-to-bill ratio of 1.2 compared to about 0.76 in the first half of the year. And combined with, let's say, a product mix also impacted and positively impacted by a higher defense sales ratio in the fourth quarter, we see a positive impact also in the fourth quarter. If we now look also into, let's say, the next steps of implementing our strategy, I think the acquisition of a 15% stake in Oneberry Technologies in Singapore is a key element, on the one hand, for the regional expansion of the business, we are seeing Singapore as the regional hub for the expansion in Southeast Asia. The closing process is in a final phase. And besides the regional expansion, I think we have a unique opportunity here to learn and to step into a business model that is highly attractive and profitable where Oneberry is operating under a security as a service business model for their AI-based unmanned security solutions from border protection to drone defense applications and critical infrastructure protection. Overall, we have an option also to take majority ownership, and we are working actively on this as also a platform for further growth in Asia as of 2026. Furthermore, important to inform you about the U.S. operation. We are on track for the ability to do the local production to ramp up the local production in our facility in Salt Lake City. Strengthening our local-for-local program here at the end helps us to reduce exposure to import tariffs. But over time, naturally also makes us less vulnerable and depending on exchange rate and currency risks by establishing a local supply chain. Our team from the U.S. right now is here in Europe for training. And therefore, we will be ready to have a first pilot series produced still this quarter and ready for production early 2026. So overall, looking at the sales performance, we see a decline of 2.4% as said, not happy with this performance, the reasons for the deviation, the reasons for the decline, the main reasons mentioned here. If we look into, let's say, the order intake, I mentioned this, seeing EUR 34.6 million in the third quarter, we see a significant increase to the previous quarters. So the book-to-bill ratio now is up 1.2% in this quarter, and this also naturally gives us a solid basis here now for the final weeks of the year. If we look at the overall backlog here being around EUR 79 million, that is definitely significantly lower than at the beginning of the year with EUR 104 million, reflecting the weak order intake we had, especially in the first 6 months of the year. Here, I would like to also draw your attention to the fact that we naturally have a part of the business being highly transactional, which means it's kind of a rolling order book that is turned around within the quarter. And we are looking here at a ratio between, let's say, slightly below 40%, up to 50% of the revenue also turned around within a quarter. So we are looking at, let's say, this year, EUR 14 million to EUR 15 million turnaround in the quarter. So -- having this in mind also, you put in perspective the order backlog. If we look at the segments, the big impact here on the revenue and the significant impact here was mainly on the clean energy segment. The biggest segment, clean energy still is accounting for about 69.7%, so almost stable to the year before, but still here, we see a drop in revenue of about, I'd say, 2.5%. I mentioned this, the U.S. and the Indian defense business being the biggest impacting factors. Looking at the end markets there, we still have to see that the Industrial part of the fuel cell business is growing above 10%, 10.8% and the security part in this, that is basically CCTV application, civil security business is running above 15% growth. So there is an intact growth curve, I think, visible. Looking at the Clean Power Management, around 30% of the business, a decline of 2%, strictly leading back to a single project missed in the Canadian oil and gas business of, I'd say, a EUR 2.8 million business here for power products, VFDs with one customer in Canada that was basically in our forecast, but lost to competition. Looking at the clean energy business in Canada, we see also this part on a solid growth curve. With this, I will hand over to Daniel leading you through the financial results here of Q3 as well as the first 9 months. Daniel Saxena: Good morning. Thank you for dialing in. Let me go into the margins a little bit as well as the cost basis. I think as a summary, what we could say is that those negative impacts that we have seen in the first half year have continued. To some extent, they have lowered, but there was still a negative impact. I believe from the cost base, you've seen we are running rather stable in the underlying because costs are rather optimized. But let me go into that quick and highlight certain developments. So when it comes to the overall gross margin in the first 9 months, we've seen the negative effects that we also have seen in the first half year, especially with regards to the segment's clean energy, which is the less favorable product mix with a lower share of the defense revenue. We mentioned that before, that really play an essential role in the unfavorable gross margin development that we've seen since the beginning of the year. But what we also have seen now is that the customs duty that have been introduced slowly negatively impact our gross margin. Like I said, it will be unlikely that we'll be able to avoid the entire customs impact. So we -- it is not that we'll see a huge impact, obviously a slight impact from those custom duties. And then what we also see in the segment clean energy is the less favorable exchange rate with regards to the U.S. dollar and the Canada dollar. So if we compare the average exchange rates of those 2 major currencies, the U.S. dollar in average depreciated by 1%. The -- Canadian dollar in average depreciated by 4%, which has an impact on the gross margin. So the overall group's gross margin 40% in the first 9 months, which is slightly below what we've seen in the 9 months of 2024, while we had a gross margin of 41.7% and it's also moderately below the level of the previous full year margin, which was 41%. Nevertheless, we consider the group's gross margin to be on a level with which we're not entirely satisfied for a good reason. At the beginning of the year, we had higher goals and higher targets. We may not have anticipated entirely the economic turmoil ahead of us at the beginning of the year. We may not have seen entirely the development of the exchange rate, but also the development in India, all of it has an impact on the gross margin, especially with regards to the segment clean energy. It is a heterogeneous development in the gross margin, we've seen that, we have a gross margin expansion in the segment Clean Power Management, where we see the gross margin going up to 29.7% from 26.9%. So that is something that we are happy and content with. The main reason for that, the increase is basically that in both main product line in that segment. So the power management solution, we were able to implement a higher pricing also because I mentioned that in the first half year report call already, also due to our own products that we've been operating, but we've also been able to implement higher prices in the drive motor control products. So if we then look at the EBITDA margin and the key impact on those operating expenses, R&D and G&A, I think there's -- again, there's 3 major topics that we've seen in the first half year, which is the extraordinary cost for exchange rate losses. That is the IT spending for the implementation of SAP as well as making our IT overall landscape more robust. We've seen those costs, or those expenses having come down in the third quarter, but there was still an extraordinary expense in there. And what we've also seen in the third quarter is a lower rate of capitalization of R&D, which is something we've had in the first 6 months and which is also something that will unlikely change because that is pure accounting and that has also impacted EBITDA negatively compared to the first 9 months in the last year. So if we add up those 3 facts and look at the last year, make a like-for-like comparison, those 3 effects together have impacted EBITDA negatively with approximately EUR 5.5 million, which really shows that our cost basis is solid. The earning power is still there. We believe we take those 3 effects away. We know that they're there, but you'll see that we didn't do that bad. Let me dig into the exchange rate losses. First of all, so you've seen we had an income from exchange rate gains of EUR 1.8 million in the first 9 months, which were entirely offset by the exchange rate losses of EUR 5.1 million in the first 9 months. So that comes to a net effect of EUR 3.3 million, which negatively impacted the EBITDA or 3.2% of revenues. So out of these exchange rate losses that we've seen, EUR 4.4 million or 85% is unrealized losses and out of which approximately EUR 4 million are related to intercompany positions, i.e., shareholder loans and intercompany receivables. I mentioned that already in the first half year. So that's why you would not see that in the cash flow statement. Yes, we'll book it, but this unrealized losses for the exchange rate. But still it does impact our EBITDA negatively with 3.2% rather highly. The next position is the extraordinary cost for IT in the G&A expenses. These are costs relating to the SAP implementation. So in the first 9 months, the total cost has been EUR 1.9 million. They have come down notably in -- the spending has come down notably in the third quarter, but it's still over the first 9 months translates into 1.8% negative impact of the revenues on the EBITDA. We also had costs for improving our IT system that amounted to approximately EUR 1.4 million in the first 9 months, which again would then mean a 1.4% negative impact on the EBITDA. Together, if you see the amount that we really spend on IT, and yes, it's necessary, we need to make our system more robust. We need to make a step forward in higher efficiency and automation in our system. So this is not something that we're just doing for doing it. It really means making the major steps in getting our system safer, more secure, more robust, increased efficiency, also increase effectiveness of our operations. While it's a huge investment that we've seen, we'll see further investment in the fourth quarter. We also will see some of those investments still in the next year until we got the system entirely implemented. And then the third impact is the lower rate of capitalized R&D expenses. So the total R&D spending amounted to EUR 8.7 million in the first 9 months of 2025 compared to EUR 7.5 million in the previous year's 9 months. So you see a decent hike in our R&D spending. But what you will also see is that in the previous years, approximately 23% of these costs were capitalized, in the current year, we are capitalizing 30% of the cost. So on a like-for-like basis, this would also translate into a negative impact on the EBITDA on EUR [indiscernible]. To go into this really briefly, so capitalizing R&D expenses is not a choice or not an option, which we do. It is, as I mentioned at the beginning of the call, it is an accounting principle. So projects can be capitalized, certain projects cannot be capitalized. And that's a little bit depending on your R&D focus, but also what you have in the pipeline. Remember, any capitalization going forward means also depreciation, additional cost. So it's not that you're optimizing your cost, you're just pushing those expenses into the future. In any event, it is what it is, but you'll see that our R&D spending as though it has increased, it has not a huge jump that you see in the P&L and the earning power, that's why I said at the beginning, is still at a decent level. So what does it mean for the adjusted EBITDA, for the adjusted EBITDA, it means that we reached EUR 10.81 million, which, of course, is significantly with 56% below what we've seen in the previous year's 9 months. It is, of course, a factor of revenue growth of gross margin and those negative effects in the other operating costs that I just mentioned. Depreciation and amortization, you don't see a big change in there. Depreciation, EUR 5.8 million versus EUR 4.5 million, 40% of the depreciation is IFRS 16 related. So you will not see a huge change in that position going forward either. That brings us to the adjusted EBIT, which is -- came up to EUR 5 million. That represents an adjusted EBIT margin of 4.9%. That's significantly lower from what we've seen in the first 9 years (sic) [ 9 months ] in 2024. Again, we're not entirely happy with that, as you can imagine. Let me finalize with the cash flow and our cash position. Cash freely available at the end of the first 9 months were EUR 40.8 million compared to EUR 60.5 million, which we had at the end of 2024. So it's EUR 20 million lower from what we have seen. The financial debt on the other side also decreased by approximately EUR 1 million to EUR 3.1 million, which gives us a net debt -- sorry, net cash position of EUR 37.6 million, pretty much EUR 20 million below what we've seen at the year-end. Our equity decreased by EUR 1.5 million. That is due to the negative earnings. But remember, the negative earning also those nonrecurring effects with regards to the IFRS 2 and the stock option programs that are reflected. Cash flow, the operating cash flow before the change in net working capital was EUR 10.5 million. That compares to EUR 18 million in the first 9 months of the previous years. So what we see is it is significantly lower, but it's still at a good level with EUR 10.5, so it is 40% -- sorry, what we see then is the net working capital development. The net working capital increased by EUR 21.5 million. That compares to EUR 2.5 million in the last 9 months. So the working capital ratio to last 12 months net sales went up to 40% as of September compared to 25%, what we see at the year-end. So we're really trying hard to manage that working capital. It is really the inventory that we need to look at. It's really looking at the accounts receivable. The largest impact is really the increase in the inventory, which has gone up by EUR 10.3 million. That has changed the days of inventory to 237 compared to 131 at the end of the year. That is an extreme high value, and we are fully aware of that. That is something that we need to manage more actively and bring it down. We are fully aware of that. We have a lot of material sitting in there. It is mostly fuel cell components and material, which we intend to bring down in the next 6 months. So it's nothing that is going to go bad or will become obsolete. It is really material that have been acquired as bought this program. You also see a large impact on the increase of the accounts receivables. They increased by EUR 8.1 million compared to year-end. That translates into a 12-month trailing days of sales outstanding of 114 compared to 90, which we had at the end of the last year. So we see an increase in the sales outstanding. We don't see any bad receivables out there. But this is something also that we are managing actively and intend to bring that number down again towards the 90 days. Then what you also see is that the accounts payables have gone down EUR 2.8 million. That brings the payables outstanding down 52 days from 66 days So then with the tax payments of EUR 1.4 million, you'll see that the operating cash flow after net working capital and tax is becoming very negative with very negative, it means minus EUR 12.4 million, all driven by the net working capital development. Cash flow from investing activities is much, much lower from what we've seen in the last year. We are looking at EUR 2.6 million compared to EUR 6.4 million in the last year. So all those large investments that we have made last year are done and completed. So EUR 2.6 million is at a decent level. It includes, of course, the capitalized R&D. Then you see the cash flow from financing activities of EUR 2.8 million, a large portion of that is related to leases. And if you add those numbers up, you'll see a change in the cash position of EUR 17.9 million, and then we'll still have to add the exchange rate impact on our cash in foreign currency. So overall, cash has reduced, like I said, in summary, mostly net working capital. We've seen the margin decline. Still, I think we are at a good level, but not a level which we are happy or satisfied with, and we are fully aware that we need to keep on working on further implementing measures and structures to optimize especially our cash consumption. With that, I'll return it to Peter. Peter Podesser: Thank you very much, Daniel. So summarizing where we are, I think on the basis of the performance to date, also, we talked about the order backlog and also, let's say, still some, I'd say, challenging macro conditions here. We've done, I think, a concise assessment here on the year-end forecast, and we are expecting the revenue at the lower end of the target corridor that we had out there -- that we have out there as a revised guidance. We see EBITDA adjusted as well as EBIT adjusted in the lower half of the corridor that is out there for EBITDA, the corridor is EUR 13 million to EUR 19 million and for the EBIT, respectively, it is the corridor of EUR 5 million to EUR 11 million. As said, we are expecting to end up in the lower half for both ratios. So looking at this, I think after years of continuous and significant growth and increasing profitability, while you see ourselves here clearly and honestly disappointed with those results here after 9 months. We also have to be self-critical here in terms of some maybe too aggressive and optimistic plannings in some areas, especially of the top line against the macroeconomic also environment that we are operating under. But at the same time, I think we have done a thorough analysis of the situation, we also see the reasons of deviations and we have implemented clear and targeted measures. We've talked about the cost part. I think on the inventory part, yes, the defense part of the business has downsides with, let's say, longer procurement cycles. But the good thing is those products are not turning anywhere that, as Daniel mentioned. So this is naturally the basis here for the improvement also on the cash flow side to get let's say, this out of the door as fast as possible. And that's why you see ourselves here, let's say, this clearly, let's say, a realistic moat, but with all the dedication to get this back to a growth curve. And again, I think for all of us here, we have an organic growth in the business, be it, let's say, our civilian security business, be it the industrial business, we are talking here about double-digit growth here between 11% and 15% and also our U.S. business, significantly above 20%. So the expectation there is to continue on this growth path to return to a growth path in India, as I said, service contracts in place, local methanol filling, all basis also for further, I'd say, satisfying the customers' needs there. And we've been intensively working on OEM programs on the defense part of the business in Germany as well as in NATO states. And naturally, we are expecting an impact of this in the year to come. We are doing, again, our regional expansion with the investment in Singapore. We expect a growth impact out of this. We are seeing our products performing properly well also for new applications like drone charging, and I also mentioned the drone defense activity here in Singapore. So all over, yes, the situation, especially the last 2 quarters are very, let's say, disappointing. We've taken the measures now, and we are looking at a strong year-end and again, a return to growth and improved profitability here based on all the measures that we mentioned together. With this, we close our presentation and would like to open the floor for questions. Thank you very much. Operator: [Operator Instructions] The first question comes from Karsten Von Blumenthal from First Berlin Equity Research. Karsten Von Blumenthal: My first question is regarding Oneberry. You have now a 15% stake. And perhaps you could shed some light on your future activities. You have a 50% option. When and how will you try to get this option? Daniel Saxena: So we have that option to be exercised in the short term. Short term within this year, potentially beginning of next year. That option apparently, as we said, is to increase our holding in Oneberry to a majority for a fixed valuation. So this is something that we intend to do, and we put this option in there in order to exercise it. And of course, we'll have to review certain things with the business. We'll have to complete a bit more on the due diligence side, everything that is such a process and then we will likely exercise that option. Peter Podesser: If I can add here, Karsten, just to, let's say, shed a little more light on, let's say, the business model. At the end, they are engaged in long-term multiyear contracts with the Singaporean government, the pipeline they have and the backlog they have is more than 90% government business there. And this is something that we want to continue to drive, but then also replicate this model to other parts of the region and if possible, also in other parts of the world, a rental business, so security, unmanned security automated based on, let's say, significant also, let's say, AI content to, let's say, recognition parameters here. At the end, with a higher profitability than we see it in our own business. And well, having been partners for quite some years, I think we also have a good trust base there to roll this out to other areas in the region as well as in other parts of the world. Karsten Von Blumenthal: So there's a high likelihood that you will be able to consolidate Oneberry next year when you exercise the option. Could you shed some light on sales and EBIT Oneberry reached, for example, last year in 2024 that we can have an idea what will be the impact on your P&L next year? Peter Podesser: I think we would -- at this point also of the negotiations there, I think it's good to have a ballpark figure here in terms of revenue, we're looking at about EUR 20 million revenue. And as that profitability, I'd say, above our own EBIT and EBITDA level. Daniel Saxena: Consolidation -- well, let's assume that we exercise that option, let's assume that we'll get the control as defined for consolidation, then currently, let's assume that we will close that transaction, then yes, we would consolidate Oneberry from next year on. The numbers we are saying are not in IFRS to be also to make that sure, right? We're talking about Singapore GAAP [indiscernible]. Karsten Von Blumenthal: All right. That is very helpful. Next question, you mentioned the postponement in India, and you said that you expect a rebound in 2026, but not as high as in 2024. Could you roughly tell us how high revenue was in India in 2024? Peter Podesser: Well, the defense revenue in India was around EUR 12 million. And being, let's say -- now, let's say, 60% below last year's revenue, as said, is one of the major impacting factors this year. The fiscal year there ends at the 31st of March, and that's why we are, as we speak now in the assessment of, I think, the right level of -- or the right budgeting level together with our partner on site and will naturally be based on the experience, a cautious assessment for next year, but still we expect a rebound and growth based on what we have learned over the last 3 months out there. Karsten Von Blumenthal: All right. One follow-up question regarding the U.S. You mentioned that you are on track for local production in your facility in Salt Lake City. Could you shed some light on the next milestones you want to reach? So when will production start? How quick do you want to scale it up? Peter Podesser: Pilots, we have our team of the U.S. right now in Europe for training for, I'd say, still the next weeks here. And then we do the first pilot trial still in December so that everything is geared up for 2026 series production. The plan here is to have especially, let's say, our high runners, the EFOY 2800 all produced locally next year. And that's why we are looking, let's say, at a shift here from production from Germany as well as Romania to the U.S., whereas the core elements as the specs still will be mounted here in Brunnthal. So it's pretty the same exercise we did here with India, and we did with Romania in the last, let's say, 12, respectively, 24 months. So we are not reinventing the wheel here. So it's basically copying the process. Karsten Von Blumenthal: Yes, that was certainly facilitated. Could you roughly give us an idea about the value of this shift in terms of revenue for 2026? Peter Podesser: You mean end customer revenue or simply the transacted systems? Karsten Von Blumenthal: No. What -- how much revenue will you generate with the U.S., or you plan to generate with the U.S. production next year roughly, very roughly. Peter Podesser: Well, this will be somewhat above EUR 10 million because still part of the products will be shipped from here as we are not transferring the whole product line over there. We also do refurb of old EFOYs here in the market where we will not shift the entire production of this and therefore, in the first, I would say, 2 years, we will still see a mix dominated by also the old version here that is in the market. And then step by step, I think we will fade this one out and then the entire production for the U.S. consumption of EFOYs is planned to be there. And in addition, naturally, we will also have to see how the defense part of the business evolves. I think -- we were particularly pleased to be invited by the U.S. Army on the occasion of the AUSA, this defense show here a couple of weeks ago to again reengage into a fuel cell development program, and they were particularly happy about the fact that we already had prepared local manufacturing capacity there, which I think is also a big argument for us being a partner for them doing the local production also on defense over time on site in the country. Operator: The next question comes from Michael Kuhn from Deutsche Bank. Michael Kuhn: Three essentially. First of all, you mentioned OEM programs in the defense space into 2026. Is there any possibility to roughly quantify that scope already? Or would that be too early? Second question would be on the contract loss you mentioned in North America, I think, where you lost versus a competitor. Was that a fuel cell competitor? Or was a customer there going for, let's say, a different technical solution? And last question would be on working capital. I think you talked about a 6-month time frame to reduce that. So just to confirm that and maybe get a confirmation on, let's say, that working capital won't dramatically change over the course of the fourth quarter. Peter Podesser: First, OEM programs in defense. I think with, let's say, all the experience we just are undergoing, yes, we are a little hesitant now to come out, let's say, with numbers on those programs that are still work in progress. What we see today is that, I'd say, with a very, let's say, favorable financing environment based on all the political decisions, we also see that still capacity, the capacity on the administrative part of the purchasing or procurement part, but also the capacity in, let's say, some of the OEMs manufacturing capacity is a limiting factor. And we, let's say, therefore, expect all this to happen, let's say, in 2026. Part of it, I would say, on the earlier part of '26. But I'd say the visibility at this point in time is not at the point where I would feel comfortable to, let's say, put numbers out. We are looking at programs in Germany, but we are also looking, as you recall, we have, let's say, this also partnership here with Polaris on where, let's say, our products are under a NATO procurement contract. So we know that this program, the tender has been awarded here to Polaris, but we have not been, let's say, informed about individual numbers here out of the different countries participating. And I think the same thing here now with our German program. We are working on it as soon as we have more clarity, even if this is still before Christmas, we would be, let's say, able to share this. On the contract loss in Canada, we are talking here -- we are not talking about the fuel cell business. So it is, let's say, on the power management side, where we are integrating VFDs where we are integrating equipment also from ABB, and this was a loss based on, let's say, tough pricing here with an oil and gas OEM. At the same time, I think we also see, let's say, that's a competitive market. So it's -- but it's the single reason for, let's say, seeing a deviation from the original plan here. Otherwise, in the, let's say, Canadian oil and gas business, also especially on the EFOY side, we are still on our growth plan. And the third question, I would hand over to Daniel for answer. Daniel Saxena: So with regards to the working capital, yes, there are 2 positions that we're really working on, as you rightly said, the first one will be inventory, bringing inventory down. That, of course, is a function apparently of selling and manufacturing those fuel cells because the largest part of the inventory increase, as I mentioned, is in the German entity and happening in Germany. So that is really our intent to get back to a normalized level, which would be looking at what we had at year-end. One impact that is -- one factor that is negatively impacting our inventory is the platinum pricing. Remember that a large part of our membrane is platinum that has been -- the price has increased significantly in the last 9 months to all-time high, I think the highest thing I've seen for a couple of years. The amount of platinum that we have in our inventory is over EUR 1 million. So of course that and we tend to buy platinum when it's at a low price or relatively low price. And then we intend to buy an amount of platinum that covers us for at least 2 to 3, sometimes 4 quarters. That is really making sure that we can lock in the cost. That will have an impact on our inventory, like I said, right now, we only have EUR 1 million. On the accounts receivable, yes, we intend to bring them down significantly. We expect collections. We don't see any receivable [indiscernible] write-off there. So that is something we expect to improve towards the year-end. I know you made the math with regards to revenue. So what we expect in terms of revenue in the fourth quarter. And currently, the higher revenues at the end of the quarter, the higher the accounts receivable, but everything that we have right now to turn around quickly. Operator: The next question comes from Malte Schaumann from Warburg Research. Malte Schaumann: First one is on the customer behavior. I mean, during the second quarter call, one of the reasons for the weak order intake in the first half of the year, you mentioned that especially new customers kind of hesitated to adopt new technologies, place orders, et cetera. Do you actually have in the recent weeks registered a change in the customer behavior or more or less the same U.S. tariff discussions, et cetera, and still lead to existing uncertainties? Peter Podesser: I think at the end, we see, let's say, with new customers still, let's say, hesitation out there. And I mentioned before also that the U.S. pattern of the business still, yes, seeing, let's say, a growth of significantly above 20% organically is a solid growth, but it's not at what we have seen here, let's say, historically over the last 3 years. And that's why I think we -- with the environment, let's say, not being more stable and continuing as it is in the macro part for the new customer business, we have also factored this into our year-end planning. Existing customers, I think, being -- we published a significant order a couple of weeks ago with one of our largest civilian fuel cell customers here in Europe. We see a consistent repeat business. As mentioned before, the overall CCTV part, civilian security part of the business is also above 15% growth. But the change or the decision-making to, let's say, embark on a new technology here and complementing the existing whatever battery and solar devices with fuel cells definitely is delayed with, let's say, the environment as it is. So therefore, I think we can differentiate this pretty clearly and see this also in, let's say, the customer behavior. Malte Schaumann: Okay. And then maybe kind of an early view next year or your level of confidence that order levels will -- would you expect kind of subdued order levels going into early next year and then hope for a recovery later next year? What's your visibility or your level of confidence then going into 2026, where do you see maybe increasing customer activity and where uncertainties still prevailing kind of reducing the visibility? I mean you have alluded to in some areas, still unstable situation, low visibility. But then on the other hand, you might have kind of gained some confidence in the meantime that, for instance, India will return as a major customer in defense. So maybe you can shed some light on what are your thoughts on maybe how 2026 can [indiscernible]. Peter Podesser: As you can imagine, now we are doing, let's say, a constant analysis on this and let's say, also assess, let's say, the regional part of -- or the different regions of the business and also the different end markets. And looking at where we are right now, I think we see, I'd say, this repeat part of the business on a constant, let's say, growth curve that we also would, let's say, assume as a basis, and we are also doing this in our planning right now because it's budgeting time. We are finalizing our planning rounds right now. So we are expecting, let's say, an organic growth out of this. We are seeing, let's say, signs of, again, improvement again in India, where we have this deviation this year. With this coming back to, let's say, a modest growth part, I think we are in a corridor here of mere organic part that is somewhere around, let's say, low double-digit growth. And we also do, I'd say, this analysis here on our, let's say, what we call this rolling part of the order book that is intra-quarter business transactional, where we have a pretty good view on it. As I said, this is between, let's say, 40% to 50% here that comes in and out within a quarter. So adding this all up, I think -- and then also looking at what we have, let's say, done on the cost side. We're also looking at our product pricing here based on raw materials, platinum being a big factor here. We will have to adjust this, and we are preparing for this. And therefore, I think a growth corridor just organically, as mentioned here of a good 10% is, I think, a solid ratio across everything. This does not include, let's say, a big impact also of when we look at, let's say, a larger defense program. And at the same time, we have just discussed with Karsten also the impact here of a potential majority acquisition of the Singapore business here adding up to, let's say, the planning then in 2026. Also, with the caveat, we have not exercised this option yet. But naturally, we have done this to go through this process and hopefully get to a positive end also here with our partner in Singapore. Malte Schaumann: Okay. Then Oneberry, in the press release, I think you laid out the scenario for potential significant growth in the years ahead. So maybe you can shed some more light on where do you see growth? I think you mentioned EUR 100 million potential revenue contribution. So maybe you can shed some more light on that number? And where does the growth primarily come from? And what should happen that this will materialize in maybe, I don't know what the time frame is 5 years, 5 years plus. So what are your thoughts on that? Peter Podesser: Yes. Oneberry has been very focused and fully entrenched in the Singaporean security architecture also by, let's say, family roots here of the owner of Oneberry. And also, let's say, looking where, let's say, such a family business then stays also in terms of, let's say, further investment into regional expansion, the planning of the owner here, the family owners was not to expand this and roll this out, let's say, into the region. With us being on board, this is a key element, really copying what we have -- what they have built up, integrating also our products into those security services and roll this out. And naturally, it is logical. We have done some business development in Indonesia. We have done in Malaysia and Thailand and in the Philippines. And this is, at the end, the overall business plan that we have already sketched out with them. But naturally, first of all, we need to take the next step and close the transaction and talk about, let's say, the option. And then it is initially a regional play, but we are also seeing large customers in our civilian security business looking for potential rental solutions, and we might also have to -- and be able to, let's say, copy this part or this business model here in other regions. And if we look at the, let's say, potential in, let's say, Asia, this is, let's say, what we have developed together as a scenario with the owner family of Oneberry that is also at the end, a reflection of what we see in terms of demand here in Asia, which at the end, again, is the most populous region. Time frame, yes, as you said, we are talking definitely midterm, and we are talking about a 5-year scenario. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Dr. Peter Podesser for any closing remarks. Peter Podesser: Well, with this, we thank you all for your time and interest. As always, we are at your disposal also for bilateral discussions here with Daniel, myself and also Susan. We are heading through some rough waters here. Stay with us. I think we have a solid plan ahead of us. And we have shown that we are able to, let's say, implement plans apart from naturally, not neglecting the fact that we have seen 2 very tough quarters behind us. Thank you very much.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Frontline Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that this conference is being recorded. I would now like to hand the conference over to your first speaker today, Lars Barstad, CEO. Please go ahead, sir. Lars Barstad: Thank you very much. Dear all, thank you for dialing into Frontline's quarterly earnings call. It's noticeable how everyone at Frontline and in the general tanker industry for that sake, walks with an energetic spring in their steps these days. We have previously argued that this market owes us money, and we have finally started to collect some of it. I'll try not to jinx it by using caps lock on absolutely everything, but it is a mild understatement that we are positively excited by the developments in this market that started to materialize during the third quarter of the year. Before I give the word to Inger, I'll run through our TCE numbers on Slide 3 in the deck. In the third quarter of 2025, Frontline achieved $34,300 per day on our VLCC fleet, $35,100 per day on our Suezmax fleet and $31,400 per day on our LR2/Aframax fleet. So far in the third quarter of '25, we have booked 75% of our VLCC days at $83,300 per day, 75% of our Suezmax days at $60,600 per day and 51% of our LR2/Aframax days at $42,200 per day. Again, all numbers in this table are on a load-to-discharge basis with the implication of ballast days at the end of the quarter this incurs. This means that although we continue to fix extraordinary freight rates every day, we are dependent on the cargo being loaded before New Year's Eve to account for that income in Q4. I'll now let Inger take you through the financial highlights. Inger Klemp: Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Let's then turn to Slide 4, profit statement, and we can look at some highlights. We report profit of $40.3 million or $0.18 per share and adjusted profit of $42.5 million or $0.19 per share in the third quarter. The adjusted profit in the third quarter decreased by $37.8 million compared with the previous quarter, and that was primarily due to a decrease in our time charter earnings from $283 million in the previous quarter to $248 million in the third quarter. That was a result of lower TCE rates in addition to fluctuations in other income and expenses. With respect to ship operating expenses, they increased $3.1 million from previous quarter, and that was due to a decrease in supplier rebates of $2.5 million and cost of $1.1 million due to change of ship management for 7 LR2 tankers. This was partially offset by a decrease in general running costs of $0.5 million. The administrative expenses, excluding synthetic option revaluation loss of $5.7 million this quarter and $1.7 million in the previous quarter decreased by $0.2 million from previous quarter. Let's then look at the balance sheet on Slide 5. The balance sheet movements this quarter are mainly related to ordinary items, the sale of one Suezmax tanker and also the prepayment of debt under revolving reducing credit facilities. Frontline has a solid balance sheet and strong liquidity of $819 million in cash and cash equivalents, including undrawn amounts of revolver capacity, marketable securities and minimum cash requirements bank as of September 30, 2025. We have no meaningful debt maturities until 2030 and no newbuilding commitments. Let's then look at Slide 6, that is the fleet composition, cash breakeven rates and OpEx. Our fleet consists of 41 VLCCs, 21 Suezmax tankers and 18 LR2 tankers. It has an average age of 7 years and consists of 100% eco vessels whereof 56% are scrubber fitted. We converted 7 existing credit facilities with aggregate outstanding term loan balances of $405.5 million and undrawn revolving credit capacity of $87.8 million into revolving reducing credit facilities of up to $493.4 million in September 2025. We subsequently prepaid a total of $374.2 million in September, October and November '25, leading to a reduction in fleet average cash breakeven rate of approximately $1,300 per day for the next 12 months. We estimate average cash breakeven rates for the next 12 months of approximately $26,000 per day for VLCCs, $23,300 per day for Suezmax tankers and $23,600 per day for LR2 tankers, with a fleet average estimate of about $24,700 per day. This includes dry dock costs for 14 VLCCs, 2 Suezmax tankers and 10 LR2 tankers. The fleet average estimate excluding dry dock cost is about $23,100 or $1,600 per day less. We recorded OpEx, including dry dock in the third quarter of $9,000 per day for VLCCs, $8,100 per day for Suezmax tankers and $9,100 per day for LR2 tankers. This includes dry dock of one VLCC and finalization of dry dock for Suezmax tanker, which entered dry dock in the second quarter. The Q3 '25 average OpEx, excluding dry dock was $8,500 per day. Then lastly, let's look at Slide 7 and cash generation. Frontline has a substantial cash generation potential with 30,000 earnings days annually. As you can see from the slide, the cash generation potential basis current fleet and TCE rates for TD3C for VLCC, TD20 for Suezmax tankers and average of TD25 and TC1 for Aframax LR2 tankers from the Baltic Exchange as of November 18, 2025, is $1.8 billion or $8.15 per share, providing a cash flow yield of 33% basis current share price. A 30% increase from current spot market will increase the cash generation potential to $2.6 billion or $11.53 per share. With this, I leave the word to Lars. Lars Barstad: Thank you, Inger. So let's move to Slide 8 and have a look at what's going on in our markets. As many of you have noticed, oil in transit has become kind of a more mainstream measure for investors that focus on shipping. It's now at record highs. This happens as export volumes grow from especially the Americas or around the Atlantic Basin, and we see a positive development in how oil trades. Policy does affect behavior, and it has opened the arbitrage between Atlantic Basin and Asia. The OPEC voluntary production cuts reversals are starting to express themselves in real export volume gains. Year-on-year for October, we're up 1.2 million to 1.3 million barrels per day, looking at the Middle Eastern producers, excluding Iran. There are increasingly logistical challenges around the trade of sanctioned exposed oil, and this was further amplified as LUKOIL and Rosneft were put under sanctions. We have a picture where we see very firm refinery margin environment supporting refinery crude runs. So it begs the question, when are we going to see -- perform. Resale asset values are starting to reflect the hike in freight rates as order books for tankers are near full through 2028. Let's move to Slide 9. The heading is the arb is back. The behavior of especially India, but also China is yielding an increased demand for compliant crudes, especially in the Middle East. This raises the crude price level for local crudes in the Middle East, causing Atlantic Basin grades to price their way into Asia. Since 2022 and Russia's invasion of Ukraine, the long-haul trade has suffered. We have seen Russian oil taking Asian market share and Europe relying more on Atlantic Basin barrels. This looks to reverse to some degree and could be a sustainable development going forward and means that we are back to the old school tanker market where the VLCC with its economies of scale leads the pack. This VLCC-centric trade pattern change has also been driven by very positive export numbers from Brazil, our new producer Guyana, Canada through the TMX pipeline and more recently, also U.S. The incremental barrel to the market now is compliant oil and compliant oil means compliant vessels. That means unsanctioned vessels and predominantly below 20 years of age. If this supply trend continues on the oil side, we are likely to see a sustained contango structure in the oil market developing. This will imply inventory builds. We are low on inventories in most regions of the world. It's unlikely to imply floating storage due to the financing cost, which is much higher now than it was in the last cycle, we had this effect to the market. But there is an equally interesting trading pattern that may develop and it's called time. When you can load the barrel in U.S. and sell it 2 months after in Asia, you're actually having a tailwind on that trade as the price of crude is increasing over time. Let's move to Slide 10. So the net fleet development, and this is kind of a recurring discussion I have with investors when we are out presenting our company. We have virtually 0 recycling or scrapping, but -- and we have actually a substantial order book, not a scarily big one, but there is still vessels to come, and that order book has been increasing. So what we've tried to do here is to put forward a couple of scenarios just to explain why we are so constructive on this market. So as -- so the order book continues to grow, and this is mainly due to limited offering of available modern tonnage on the water. This basically means that if you are a ship owner or an investor that wants to buy a ship, it's -- the best way to get access to tonnage is actually to go to the yard and you're not penalized by missing out on freight even though the ship is being delivered in 18 to 24 months. But this looks to change now. Now that you have spot rates that can give you $5 million to $6 million on the bottom line for a 50-day voyage, you start to think, should I go and access the retail market and get a ship that I can fix in the next cycle? Or do I go to the yard and order a ship that will be delivered in more than 24 months. This means that the owners can actually now start to pay up for a resale, and it makes economical sense to do so, assuming these rates stays around for a while. We continue to see the trend that other asset classes are populating the yards order books. There is now limited capacity left in 2028. If you look at the overall age profile of the global tanker market, and this is basically the key fundamental part of at least how we see this tanker market develop going forward or as I've said previously, the revenge of the old economy due to lack of investment in particularly tanker tonnage over a long period of time, we are in a situation where we will, every year, have a new batch of ships that are crossing this magical age cap, which we put at 20 years. If you look at the VLCC chart here on the top right-hand side, just to explain how we're thinking, if you assume absolutely no scrapping, no ships disappearing into the dark and basically every new ship being delivered on top of the existing fleet, we will have around 15% fleet growth towards 2019 -- 2029, sorry. But if you assume that VLCCs at least stop effectively trading when they turn [ 2022, ] that growth will only be 3.4% through 2029. But what is actually the more realistic case is that VLCC are either scrapped start to trade sanctioned oil or for other reasons, no longer part of the effective fleet at 20 years, will have a negative fleet growth with the existing order book, a negative fleet growth of 2% towards 2029. The other charts are basically showing more or less the same. I think this is kind of the key reason why we believe that there is some longevity in the market we have in front of us. Move to Slide 11, order books. And I've been quite repetitive on this. The order book on the asset classes that we are exposed to is in total 16.5% of the existing fleet, 19 above 20 years. If you put the threshold at 15 years, 44.3% of that fleet is above 15 and 21.6% of that fleet is sanctioned by either or OFAC U.K., EU and so on. We also have the highest average age in the tanker fleet for more than 20 years. So let's move to Slide 12 and the summary. And I called it old school bull market because some of the characteristics we see in this market, and I've been in this market for quite a while, meaning that I was actually around in the period from 2002 until 2008, we are actually seeing some of the same characteristics, where there is a proper trade going on between a charter and an owner and the brokers actually need to do some proper work to find the right ships and cargoes struggle to get offers basically. So we have high utilization. We have strong oil exports, and we have a positive change in trade lanes. As I've gone through limited growth in the compliant tanker fleet and with compliance, I also add under 20 years. And we also see the sanction trade sucking more tonnage in due to logistical challenges. The overall age profile is key, as I just mentioned, and despite the populated order books, effective fleet growth remains muted. We have firm refining margins and the winter market has actually already started. We are in a situation kind of on global S&D that we might come into a prolonged period of oversupply, and this may yield interesting trading developments, firstly, for oil, but also for shipping. And I can assure you, Frontline are prepared to offer outsized shareholder returns with our efficient profit for fleet. Thank you very much, and we'll open for questions. Operator: [Operator Instructions] Now we're going to take our first question. And it comes the line of Jonathan Chappell from Evercore ISI. Jonathan Chappell: Lars, to your last point about the outsized shareholder returns and then tying it into this financing update that you provided today. Completely understand, I think the dividend policy will remain as robust as it's been since the start of 2024. But are we looking at a new era now where you're looking at deleveraging the balance sheet as well? You're clearly in a strong enough market where the dividends can be strong, but you're still generating enough cash. where you can deleverage and you've done quite a bit of it in the last 3 months. So are we looking at a new Frontline where the balance sheet becomes as strong as maybe some of your public peers without violating your dividend policy? Lars Barstad: No. We are different from our peers. We're actually not particularly comfortable working with this kind of fairly low LTVs. I think as a result of we're being hesitant to invest in this market for reasons I actually described a little bit in the presentation. We've had values moving ahead. So resale values moving ahead of the market. We've had kind of -- since we are prepared, we want our assets to generate cash as quickly as possible. We've been hesitant to stretch kind of far out in time, tying up CapEx on assets that will come in a year or 2 years' time. And so we basically found -- and time charter rates haven't really defended this either. So we kind of just by pure being quite conservative on our financial analysis, we haven't really been kind of up for doing any massive moves since we did the Euronav transaction. So I think kind of that's more a result of it or that's more the reason for us being in this position rather than actively trying to reduce our debt. Jonathan Chappell: And then just a follow-up, I want to push back a little bit on Slide 10, but then offer an opportunity for you to push back to that. I think the premise of scrapping ships at 22 years and at 20 years, given the rate outlook that you just laid out in the prior slides is a bit misleading. I mean people don't scrap ships when they're making that much money. So maybe could you explain to us how those ships become less efficient or they don't have full utilization and they're still kind of like come out of the net fleet supply without them being actually scrapped because if investors are waiting to see big scrapping numbers over the coming years with rates as strong as you think they are, and I think they are, they may be disappointed. So how do those ships become less efficient and still kind of help utilization without actual scrapping? Lars Barstad: Well, as you know, I was going to push back on that. No, the thing is that why we haven't seen scrapping or recycling to be more politically correct, is the fact that you have an alternative use of these vessels, right? And the alternative use in the old days, it could be a conversion into floating storage or production units. There could be kind of other -- it could be floating tanks or whatever. But the alternative use that's been going on ever since 2019 or '18, '19 is the trade of sanctioned oil. And that has obviously paid a lot of money to the owners that have been willing to engage in this trade. The thing is that we circle around the compliant market, and we relate ourselves to the compliant oil market. And in a compliant oil market, even if you're Exxon or even if you're Shell or Glencore or whoever you are, you trade on the margin. If you're going to trade on the margin and you're trying to ensure 2 million barrels of oil on a plus 20-year ship, that price of that insurance is going to be so high that you will struggle to actually make the ends meet. So it means that -- and it also limits your optionality on how you can trade that oil because you have to take away kind of 80% of the terminals that just have a blanket ban on vessels that are older than 20 years of age. So effectively -- and we actually see this, you don't really need to look up which ships are sanctioned by OFAC. You can just draw a line at 20 years. The vessels and the Suezmax and VLCC side that are above 20 years and not sanctioned, you can literally count on one hand. And we actually see a big efficiency loss in the tanker space when the ship reaches 18 years. So -- and I think a little bit of a proof in the pudding here is that the compliant oil market has actually had a terrible development in volume for a sustained period of time. But still, we have had poor rates, but we haven't had like car crash kind of rates. And this is basically due to the fact that ships become less tradable, less efficient, limited use actually starting from the year -- from the turn at 17.5 years. So there could be that we'll have a wall of scrapping, but I actually don't think that's going to happen. I think kind of the alternative use is going to be around for a long time, unless, of course, the sanctions are lifted all around. But now we also have another problem here is that a sanctioned vessel is not easily recycled because the recycling industry is actually a real business, and they access financing and they deal in many ways in dollars. Where you are right, where ships can easily live kind of past the 20-year age kind of ceiling is if it's for specific use, let's use India as an example. If you're India flag and for an Indian refinery, to, of course, control the entire value chain on that oil trade, that ship can easily kind of trade until it's 25 years. But it will only be for the purpose of transporting feedstock to an Indian refinery. But that is only a small portion of the market. And even Indian refiners realize that they can't have too much of an exposure in that market because basically, you have virtually no other options than to do exactly that back and forth between the Middle East and India. Operator: And the next question comes from the line of Sherif Elmaghrabi from BTIG. Sherif Elmaghrabi: Lars, maybe first to just follow up on that line of thought about the sanctioned fleet. India and China are lifting more compliant barrels, as you said. And so there's more noncompliant vessels that maybe have less work. And I'm wondering what you see happening to the dark fleet right now given there's less work and also maybe in the next 6, 12 months, if that's a different picture. Lars Barstad: Yes. No, it's -- there is actually -- so for once, there are an increasing amount of vessels just sitting at anchor with no crew on and keys left in the ignition. These are kind of the first-generation sanctioned fleet that came out of Iran and Venezuela kind of 5, 6 years ago. And there, you will probably never be able to locate who was the owner. But then you have kind of what's in between, and there are actually initiatives or also commercially things that are being worked on, where you basically -- you can buy sanctioned vessels, but you need a license from -- and the most important license is from the U.S. And there is actually some motion in that work now where, of course, since the federal state in the U.S. was closed for a while here, it's not been particularly efficient for the last couple of months. But there is a discussion ongoing to -- if one can kind of set up some sort of mechanism where against a fine, you can actually access the recycling market, but only the recycling market alone. So I think that could be a solution as we proceed here. One side being that local governments actually need to take action to avoid environmental damage for those vessels left with keys in. But secondly, a growing industry around this kind of licensed but also find recycling work being done because kind of if you have -- if you're going to buy sanctioned vessels, it's actually worth 0. But then, of course, if it's worth half the normal recycling price, there is actually still money in it. So -- but I don't know if that's going to be the solution, but at least that is something that is being discussed. But it's still so that the sanctions are -- different countries kind of respect them to various degrees. Oil has a tendency to move anyway. So I have no illusions as to the vast amount of Iranian oil, which is currently kind of being clogged up a little bit, the vast amount of Russian oil, which struggles to find a home. I'm pretty sure it's going to find a home, and it's probably going to find a home on one way or another on ships that are either fully sanctioned, halfway sanctioned or whatever. So I think kind of that industry, that paralleled industry, we're probably stuck with for a while. But the incremental barrel now does not come from the sanction nations. It actually comes from the compliant fleet, and that's the only part of the market we really care about. Sherif Elmaghrabi: That's very interesting. So sticking with the compliant barrels now, you've highlighted the tailwind to futures curve, gifts cargoes lifted from Middle East to Asia. That's not floating storage, like you said. So I'm wondering how that affects vessel demand given it sounds like the contango in the curve lines up nicely with normal voyage time lines anyway. Lars Barstad: Yes. No. So currently, we don't really have the contango. And actually, I'm no expert on oil pricing, but I'm actually quite surprised of the firmness in the oil price considering the oil in transit numbers that we have. Mind you that oil in transit is a combination, of course, of backing up sanctioned oil. It's also backing up oil that was supposed to go to sanctioned terminals. And it's also -- but it's also commercial oil, which is backing up due to weather as well. That's a really old school winter market kind of thing is that there is actually some severe weather around key ports. So we're actually seeing extended kind of waiting time to discharge basically due to that. But with that kind of a pile of oil sitting or being kind of in the logistical chain, I'm surprised that we can have kind of front oil having at these levels. But anyway, if you believe in EIA or IEA or all the kind of market experts, we are actually going to be in an inventory build environment for the next 6 months-ish. But in order to get there, in order for that to be even feasible, we can't have a steep backwardation on oil. So then you get into this contango kind of shape of the curve. And that is interesting, as I mentioned in the presentation, because we tend to see trade lanes extend when you have some sort of carry in the oil curve. And it doesn't need to be supportive of floating storage because then you need like $2, $2.5 per month in order for that to make sense. But only a modest 50% -- sorry, $0.50 contango helps or increases the trading system basically because you get a little bit of tailwind as you try to position a cargo. Operator: And the question comes from the line of Omar Nokta from Jefferies. Omar Nokta: A couple of questions. I wanted to ask just about the LR2s. Obviously, there's a bit of a big gap between what's going on in majority and clean markets. And just wanted to -- if you can just remind us how you're trading those. And then also, do you have any comment regarding some of the chatter from last month that you had sold or in the process of selling that entire LR2 fleet. Lars Barstad: Yes. So let's do the last one first, and let's know and then do the first one. The kind of this spread right now surprises us a little bit as well. You're an expert analyst too. And you know that the kind of high refinery margins, a lot of oil going through the system normally yields a lot of product exports. And we haven't seen that yet. But I'd say that the setup for the LR2s look increasingly exciting because, number one, due to the relatively stronger crude markets, a lot of LR2s are actually trading dirty. So it means that there is a kind of limited amount of LR2s that are clean and ready to do a clean cargo at this minute. Secondly, the Suezmaxes in particular, are making so much money in crude that there is no economics in cleaning up to do a clean cargo at these levels at all. So my point is I don't think you need much in that market to flip it. And it can actually be quite good or you can get this kind of exponential freight development basically because you don't have the lid of a Suezmax cleanup or a VLCC cleanup on top of the LR2 market as it is right now. But I don't have a very good kind of factual answer to you on why we are in this situation. But I think we've already seen some kind of small signals that LR2s have run up $5,000 to $10,000 per day just in the last week. Now we're probably around the $35,000 per day mark, maybe a bit above. It doesn't need much to take it further. So let's see. Omar Nokta: Okay. Yes. So maybe some convergence is happening at the moment. Okay. And I understand Lars, it sounds like you said no comment regarding the sale of the LR2s. But humor me perhaps, if you were to potentially or if you were to consider selling those LR2s, what do you envision the use of proceeds would be kind of maybe along John's question, would it be more towards debt repayment, which it sounds like perhaps you don't want to do? Would it be a special payout? Or would you consider rolling into the Suezmax and VLCC classes? Lars Barstad: I think we've kind of between the lines, you're probably answering that in this presentation. And it's -- we kind of we've been very patient since we started to expand our VLCC part of the fleet. That's grown 33% in the last 5 years. We've doubled the kind of the amount of ships. Regretfully, the trading pattern that developed after Russia-Ukraine did not really support the VLCCs at all. Now that is -- and I don't want to jinx it, but it looks like at least right now, it's coming together. And it's the economies of scale that then gets into play. So kind of long term, if we were to divest of the LR2s, I think we also think that this market has some runway, just showing you kind of the fairly modest -- in our model, at least, the very modest growth total in supply of tankers and actually particularly so on the VLCCs and also our belief that the oil demand is probably going to grow for a few more years. I think it would be natural for us to focus on the big guns on the VLCCs. Omar Nokta: I feel like that's fairly clear between the lines. And then just a last one just in terms of the performance to date here in the fourth quarter. Clearly, a nice big increase in your earnings power coming here across all 3 segments. But this is one of those few times where there's such a gap in terms of what you're showing as a realized average to date in the fourth quarter and where spot rates are. And so you've covered, say, just looking at the VLCCs, 75% of 4Q is at $83,000, the spot market, say, well over 100,000. Load to discharge accounting makes things a bit tricky here as we think about the realized average for the full quarter. Do you think based off of where things are, that there's upside to that 83,000 figure in this quarter? Or are we looking at basically these 100,000-plus rates becoming much more of a January item? Lars Barstad: I think I'll answer that question by saying that in kind of the load dates that are being worked, so say you do a fixture today on the VLCC in the Middle East that has -- and the rates there are around $130,000 per day right now. That's for loading on the 11 -- 10 to 11th of December. So there kind of -- you have only 20 days that you would account for then in Q4 when you load that cargo. So half of it will actually come into January. But if you go to Brazil, for instance, you're already fixing kind of around the 20 mark, if not further out on loading. So then you only have like 5 to 10 days to account for that will actually affect Q4. And for U.S. Gulf loading, it will be more or less the same. So I'm not going to say no, we won't get more money into the chest before we close the year, but I can't categorically say yes either. We'll just have to see. Operator: The question comes from line of [ Devin Sangofrom Tech Investments. ] Unknown Analyst: Lars, I just wanted to ask more about the floating storage. And we're seeing that during the COVID. And how do you see this floating storage and how sustainable this demand? Lars Barstad: If I understood you correctly, so yes, we had very high floating storage during COVID. That was, of course, more due to the fact that the demand disappeared overnight and supply could not follow. But we were also in a 0 interest rate environment, which meant that the capital was basically free. And that is an important part of this because if you're going to purchase or take position of 2 million barrels, it's a sizable kind of amount of money, and we need to finance that. And that adds to the cost of storing on a vessel. So -- and this is why I mentioned that in order for floating storage to work commercially on ships, you basically need $2.5 per month or $2, $2.5 per month or thereabouts. And that's a pretty steep contango. And we're nowhere -- we're actually in slight backwardation right now. So it's nowhere near. The storage that we are seeing right now is more due to logistics or distress or weather. So it's not commercial in that way. I don't know if that answered your question. Unknown Analyst: Yes. The second thing is that I've seen that different -- U.S. has different part of sanctions for black -- dark fleet, U.K. has different, EU has different. And if you put -- so is there anything which has gone that total dark fleet under different sanctions are now getting tighter? And what's your view on that? Lars Barstad: Yes. No, you're right. But it's actually a very high degree of correlation between these sanctions. So normally, it's just a question of time. EU sanctions one vessel, then OFAC will do it 2 weeks after and then U.K. will do it more or less at the same time. So there's actually a lot of overlap between these various kind of regulatory entity or regulatory bodies. So -- but it's for sure, it's getting tighter. And this is global politics, right? I think one doesn't need to be a rocket science to understand that particularly U.S. is putting a lot of pressure on Russia right now, basically to prime them for negotiations. I think this Rosneft/LUKOIL sanction was -- that was a direct kind of hit on creating a lot of trouble for this industry and for Russia's export. You're talking about half their exporting volumes that were serviced by Rosneft and LUKOIL. But for sure, these molecules will, at the end of the day, find their way somewhere. But I think we're probably going to see this pressure continue until we have some sort of resolve on the whole situation. Unknown Analyst: And last, you've seen last year, Q4 was not great, the seasonality didn't come up. But this year, if I see Q4 is good, but how do you see Q1? Because Q1 is going to be as strong as last year or better than what we have seen looking at the current scenario? Lars Barstad: Well, you're asking me to give my view on one of the world's most volatile markets. Actually, the fact that it is -- this volatility tells you that this is not an efficient market. It's a market that's extremely difficult to predict. But what I can say is that from what we're seeing right now, we're not seeing any kind of weakness in this market. We're seeing an old school extremely tight physical shipping market. So -- but of course, who knows what can happen next week. Unknown Analyst: No, because see all the factors that the compliant crude producers have gaining market share, dark fleet is being targeted. The volumes overall, at least as of today, there is no debacle of China on consumption side. In fact, China is buying all the commodities in order to put the extra reserves. So put all things together, Q1 can sustain this rate. I'm not asking you to predict, but it looks like Q1 can be better or as good as Q4, if conditions sustain. Lars Barstad: Yes, yes, 100%. And we pointed to it in this report. There are some key fundamentals here that will not change short term. It's -- there are some key drivers to this market that we didn't have Q4 last year to put it that way. Operator: And the question comes from the line of [ Luis McKibben ] [indiscernible]. Unknown Analyst: Yes, Lars, I wanted to talk about Frame 7, Page 7, where you show the $11.50 a share generated with $149,000 daily VLCC rate. And having -- you were in the business back in the good old days of 2006 and '08 and also during COVID when they had the floating storage. But I think the rates went up to like $240,000, $260,000, $280,000, $300,000 a day. Is that right? Lars Barstad: Yes. That's right. Unknown Analyst: So if you were to get similar rates, your free cash flow would be in excess of $20 a share. Would that be correct? Lars Barstad: Yes. If you do that for 365 days, yes. Unknown Analyst: It could happen. All right. The other thing was that I read somewhere where India will not accept a tanker in excess of 22 years old. And I was wondering if China has a similar policy. Lars Barstad: Well, China is not kind of uniform in that respect. They have kind of 2 different oil systems, one being the -- what is referred to as the TPOs, but these are big refineries that they are privately owned. And they, of course, have a little bit of a different kind of requirement. The terminals are then also privately owned. But if you look at the government system in China and Unipec, which is kind of the biggest, they actually normally have a 15-year kind of threshold. But of course, they have maneuvering room between the 15 and 20, but you very rarely see them take a ship that is materially above 17 years old. So it's a little bit fluid. On India, I haven't seen or heard what you're referring to. All I know is that if you sail under an Indian flag and you're an Indian ship owner, they have at least up till now accepted trading all the way until 25 years. Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Lars Barstad for any closing remarks. Lars Barstad: Yes. No, thank you very much again for listening in. It's extremely exciting times indeed. And I wish you the best for the remainder of the year. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.
Phillip Bentley: Good morning, everyone, and welcome to Mitie's interim results presentation for the 6 months ended 30th of September 2025, H1 FY '26 as we call it, which as usual, we are broadcasting live here from The Shard We're also joined today by Chris Rogers, Mitie's new Chairman. Welcome, Chris. And I also welcome Sam White. Sam White is our long-awaited and much welcome Managing Director of Technical Services division, who joins us from Costain on the 1st of December. So thank you, Sam, for slipping off quietly here. Now it's just over 2 years ago since our Capital Markets event that we held here, where we launched the Mitieverse, if you remember, in our facilities transformation vision. And we've now reached the halfway mark in delivering our FY '25 to FY '27 3-year plan. As a reminder, our business model set out to leverage our scale, our technology and our capabilities to unlock the value of our customers' estates through facilities management, facilities transformation and with the recent acquisition of Marlowe Facilities Compliance. And as we say, to become the future of high-performing buildings and places. So -- and at this stage, I'm pleased to say that the business is on track and momentum is growing. Encouragingly, we have maintained double-digit revenue growth for the fifth successive 6-month period, significantly outpacing the market, and we've shown good margin resilience despite the headwinds from national insurance and wage inflation. We've delivered record contract wins again and renewals and have continued to grow the order book and pipeline again. Free cash flow generation was good and our leverage at 1x EBITDA is modest, hence, why we launched in October a new GBP 100 million buyback program over the next 12 months. We're confirming our FY '26 EBIT guidance of GBP 260 million with the integration of Marlowe going well. And AI, as I'll show, is having a wide impact in the business. And we're on track not only to deliver our ambitious FY '27 targets, but also to take us beyond '27 with our growing momentum. So I'll discuss all these points shortly after Simon takes you through the H1 '26 numbers. Simon Kirkpatrick: Thanks, Phil. Good morning, everybody. So as Phil said, we're now halfway through our 3-year plan. So before getting into the detail of the half 1 results, I'll give a little bit more color to the financial progress that we've made so far and the financial model that underpins our strategy. Our model is based on profitable growth and free cash flow generation, enabling us to compound earnings, drive value accretion and increase shareholder returns. At the Capital Markets event in 2023, when we launched the MITIEverse, we said revenue would grow in high single digits. At the halfway point of our plan, it's exceeded that target, growing at 12% a year, supported by the increasing pipeline and much larger order book that Phil just referenced. Operating profit is growing a little faster than revenue at 13% a year. And it's worth reminding ourselves that back in 2023, consensus profit for FY '26 was GBP 207 million. Today, we're forecasting GBP 260 million, having made 6 upgrades since then. Margins have been resilient despite the material external headwinds, and this good growth and increasing profitability has led to significant free cash flow generation, enabling us to return cash to shareholders and to pursue value-accretive M&A. As a result of these actions, our TSR since the capital market events is 68%, well above the FTSE 250 average of 30%, and we're compounding earnings with EPS growing faster than revenue at 18% a year. So with that as the backdrop, I'll move on to cover the half 1 results, starting with the headlines. Revenue is up 10.4% in the half to GBP 2.7 billion, driven by good organic growth of 6.4%. Operating profit has grown by 7.6% to GBP 108.8 million. And as Phil said, we've maintained margins at just over 4% despite significant profit headwinds. EPS is up 5.6% to 5.7p a share with profit growth and share buybacks offset by higher net finance costs. We've declared an interim dividend of 1.4p a share, up 7.7% on FY '25. And finally, we've had a free cash inflow of GBP 51.9 million with average daily net debt of GBP 332 million. Moving on then to cover the performance in more detail and turning firstly to revenue. This slide shows the key drivers of the revenue growth in the first half of the year with the good momentum from FY '25 continuing both organically and inorganically. The first block of the chart shows GBP 70 million of growth in core FM from wins and losses and incremental growth on existing contracts with wins significantly exceeding losses. Organic projects growth of GBP 48 million was driven by good growth in both divisions and includes a GBP 13 million reduction in revenue in Mitie Telecoms, where we've exited unprofitable contracts. Pricing accounts for GBP 77 million of additional revenue, and we've shown separately on this bridge, the GBP 41 million headwind from completion of the high-margin one-off surge security work last year. When we combine these 4 blocks, total organic growth for the half is 6.4%. Finally, acquisitions contributed 4% of growth in the half. This block includes the infill acquisitions we've made in the last 18 months, including Argus Fire and ESM as well as the Marlowe acquisition, which added GBP 51 million of revenue. Sticking with the group numbers. Next, I'll cover operating profit. And this slide shows the key financial themes for the half on a profit bridge, highlighting the resilience of our business model. Strategic profit growth of GBP 31.3 million more than outweighed GBP 23.6 million of profit headwinds. Our growth strategy is focused on core FM, projects and acquisitions, underpinned by margin enhancement initiatives. Core FM and projects grew by GBP 6.4 million in the half, driven by new wins, combined with a good projects performance across most sectors. These upsides significantly outweighed lost contracts as well as one specific contract provision, which reduced profit by GBP 5.4 million. I'll come back to this shortly when I cover Technical Services. Next, we added GBP 4.7 million of incremental profit from acquisitions, including GBP 3.1 million of profit from Marlowe. We've made good progress with margin enhancement initiatives, delivering GBP 10 million of profit, and we've turned the telecoms business around, making a small profit in half 1, which is a GBP 10.2 million year-on-year improvement. In terms of headwinds, the completed surge response work was a GBP 7.8 million profit headwind. We made GBP 6.2 million of investments to drive growth, including an extra GBP 2.8 million of contract mobilizations and the headwind from National Insurance and inflation was GBP 9.6 million, which I'll cover in a bit more detail now. Once again, we were successful in managing inflationary pressures in the period. Our contractual protections and strong customer relationships enabled us to pass on 95% of cost inflation to our customers, resulting in only a GBP 3.4 million reduction in profit. We expect cost inflation and pricing recovery in half 2 to be broadly consistent with half 1, resulting in a net P&L impact for the year of around GBP 8 million. We said in June that we expected our employers' NI bill to go up by around GBP 50 million in FY '26 and that we'd recover around GBP 35 million of that through contractual protections and commercial negotiations. Recovery in the first half of the year has been slightly better than we expected, leaving a residual cost of only GBP 6.2 million. As a result, we're forecasting a full year net impact of around GBP 13 million, all of which will be offset by MEI. Moving on then to cover the divisional performance. Over the past 2 years, we've been simplifying our divisional structure, consolidating 4 divisions into 2. First of all, we broke up Central Government and Defense, moving the more soft services-focused central government business into Business Services and the more engineering-focused defense business into Technical Services. We've also broken up Communities with the majority of it being amalgamated into Technical Services other than Immigration and Justice, which now sits comfortably in Business Services alongside the Security business. Turning then to Business Services in more detail. Revenue grew by 15.1% to GBP 1.4 billion, with particularly good performances in Security, Hygiene and in Spain. The Security business grew by 12.2% in the half despite the GBP 41 million headwind from completion of the surge work last year. Growth was driven by Fire Safety and security projects, both organically and inorganically as well as new wins and pricing. Growth of 13.3% in Hygiene was driven by some significant wins in FY '25 and pricing, and the business in Spain has grown by almost 1/3 as a result of the expansion into security and significant wins in the public sector. Underneath the total revenue line, we call out projects revenue, which has increased by 30.5% to GBP 167 million as a result of the growth in the fire safety and security projects that I just mentioned. Profitability in Business Services has been resilient, in line with the first half of last year at GBP 85.3 million, but margins have reduced by 90 basis points to 6%. Revenue growth, MEIs and the contribution from Marlowe have been positive drivers of profit in the half, but they've been offset by the headwinds from cost inflation, national insurance and the completion of the high-margin surge work. Moving on to Technical Services, which has grown by 5.4% to GBP 1.3 billion. Engineering, which includes our private sector maintenance contracts and larger engineering projects, grew by 4.8% in the half. New wins, project work and pricing more than offset the loss of one notable contract and the contracts that we've exited in the telecoms infrastructure business. The Defense growth of 5.2% and the HLG&E growth of 7.1% were largely driven by increases in project work. In Defense, this included projects for the DIO in Gibraltar and Cyprus. And in HLG&E, the projects growth was largely in the health care sector across a number of hospital contracts. These DIO and HLG&E projects, combined with good growth in data centers and power and grid, helped total TS projects to grow by 10.6% to GBP 469 million. This project's growth combined with MEIs and the turnaround in the telecoms business drove a 22.9% increase in profit, boosting margins by 60 basis points. However, although margins have improved, they continue to be impacted by the headwinds from inflation and national insurance as well as a provision for loss-making contract. As I said earlier, this contract was a GBP 5.4 million headwind to Technical Services profit in the half, but it will complete in May 2026. It sits in a structurally low-margin sector, which we're exiting. Without this contract provision, TS profits would have increased by 36% and margin would have been 40 basis points higher. We expect TS margins to improve significantly in half 2 as projects revenue and margin enhancement initiatives ramp up. My final P&L slide shows the consolidation of the group numbers with the business services and technical services profits that I've just talked through, combining with GBP 26.9 million of corporate costs to make up the GBP 108.8 million of group profit and the 4.1% margin. Corporate costs are a little higher in the period as a result of inflation and the national insurance increase. My last 2 slides cover cash flow and the balance sheet, and we generated a free cash inflow of GBP 51.9 million in the half, with the key driver being the operating profit of GBP 108.8 million. Other items was a GBP 25.6 million outflow of cash and was largely made up of acquisition-related costs as well as the costs of delivering our margin enhancement initiatives. Next, we have a cash outflow from working capital of GBP 24.4 million, driven by 3 key factors: our seasonal cash outflow in the first half, where we pay suppliers for the high volume of project work that's completed at the end of the previous year, the growth in the projects business, which consumes more working capital than FM and longer payment terms on a number of new wins, particularly in the retail sector. Offsetting these outflows, we've made further process improvements and rationalized our supply base. CapEx, leases, interest and tax was a GBP 61.1 million cash outflow, GBP 13.8 million higher than the first half of last year. The increase was driven by GBP 8.7 million of CapEx, largely for new contract mobilizations and GBP 3.7 million of additional interest as a result of our capital deployment actions. These capital deployment actions account for GBP 305.1 million of cash outflow, including GBP 41 million of dividends and GBP 228 million of cash consideration for Marlowe. Finally, at the bottom of the page, we see the overall increase in net debt of GBP 272.4 million. This increase results in a closing net debt of GBP 471 million and an average daily net debt of GBP 332 million, with the average leverage ratio of 1x remaining at the lower end of our targeted range. Debtor days are consistent with FY '25 and creditor days have improved as we rationalize our supply base and continue to improve our processes. ROIC reduced by -- ROIC reduced to 16.3% as a result of the Marlowe acquisition, where we've added GBP 380 million of invested capital, but only 2 months of operating profit. And finally, net assets increased to GBP 544 million after adding the net profit for the year and the shares issued for Marlowe, offset by dividends, share buybacks and market purchases for employee share schemes. So in summary, we've made a good start to FY '26. Revenue growth has been better than our high single-digit guidance, and we've maintained our margins despite the investments we've made and the headwinds from inflation, national insurance and the completion of the search work. We made a positive step forward in EPS despite higher interest costs. We generated good free cash flow and ROIC has fallen below 20%, but only temporarily. As we look ahead to the second half of the year, we expect revenue growth to continue in double digits. Margins will be higher than in half 1, and we remain confident of achieving our full year profit target of at least GBP 260 million. Finance costs will be higher as our leverage increases due to the acquisitions and the share buybacks and EPS will grow despite these higher finance costs and the shares issued to acquire Marlowe. Completing the FY '26 guidance, we expect free cash flow to be more than GBP 120 million this year and ROIC will increase back towards our targeted 20%. And on that note, I'll hand back to Phil. Phillip Bentley: Thank you, Simon. They seem a decent set of results to me. But I think more importantly now is to talk about where we are on our strategic journey since we pivoted our business model from service-led facilities management to project-led facilities transformation and then now to regulation-led facilities compliance. Just as a reminder, our strategic plan was focused on growth, growth over 3 pillars. And the foundation of our strategy pillar 1 was centered on growth from the core. Key account growth and scope increases, delivering condition-based maintenance, risk-based security, demand-led hygiene for our customers. And this is a heartland of facilities management. Pillar 2 of our growth strategy was centered on our projects capability and infill acquisitions, transforming the built environment, better workplaces, greater energy efficiency, higher security. This is a heartland of facilities transformation. And our third pillar of growth was M&A, bringing in new capabilities to meet our customers' evolving needs in sustainability, environmental compliance and fire and security. This was our move into facilities compliance with the acquisition of Marlowe. And taken together, our strategy set out to build an unrivaled set of integrated capabilities to deliver the future of high-performing places. Now any successful strategy needs to be underpinned by attractive macro trends and [ Mitie's ] from decarbonization, higher security, repurposing the grid, accelerating data center investments to increase public sector spending in defense, in justice, in health care and immigration. We're fishing where the fish are. And since we launched our new strategy, 2 further macro trends have emerged. Number 9 here, building compliance regulations are raising compliance requirements. Number 10, investments in water infrastructure will top GBP 100 billion over the next 5 years. These are themes that I will return to shortly. In terms of our performance, as Simon touched on, H1 revenue was good. New wins lapping a strong H1 FY '25 plus renewals grew to a record GBP 3.8 billion total contract value in the period. And more importantly, as a leading indicator of growing momentum, our order book grew 31% year-on-year to GBP 16.5 billion TCV. Now we split the order book by time buckets this time. And on the lower left, you can see that revenue expected to be produced from the order book over the next 3 years has grown by 32% to GBP 8.6 billion of TCF since this time last year. And on the right, you'll see how our pipeline has not only grown in size from GBP 17.6 billion TCV 2 years ago to GBP 33 billion TCV today, but it's also grown in quality. Let me explain that. The pipeline funnels opportunities from prospecting at the very early stages, such as identifying future bids on public sector frameworks through to a pre-qualification questionnaire as a bit of a mouthful, and becoming qualified to bid. And then on to a bid submission itself with the final stage of BAFO, best and final offer before a decision is finally made by the client. And as you can see, the quality of our pipeline has been growing. And at this time, at the moment, we've got over GBP 2 billion of TCV sitting in BAFO. This is another leading indicator of our growing momentum, particularly given our improving bid win rates. And it's this growing momentum anchored in the 4 strategic imperatives shown here, which gives us confidence that our business model will not only deliver our FY '25 to FY '27 ambitions, but will also sustain growth beyond this current 3-year plan. Sustaining growth, firstly, by capturing more of our clients' facilities management share of wallet by upgrading, cross-training our strategic client directors, SCDs, we've identified over GBP 1 billion of additional client spend that we could deliver. Secondly, sustaining growth by turbocharging projects, building a GBP 2 billion-plus division over the next few years and sustaining growth thirdly, in compliance and water. Following the Marlowe acquisition, we now have a GBP 550 million Fire & Security Environmental Services compliance business, and we aim to grow this to GBP 1 billion in the coming years. And finally, as our AI strategy drives efficiencies and costs out, we see margins expanding beyond FY '27. Now a little bit of detail on each of these imperatives, starting with SCD, strategic client directors and client share of wallet. By deepening our relationships within our strategic accounts, we know we can deliver more value to our clients. Integrated facilities management, IFM is only currently delivered to 40% of our top 50 contracts just 10 contracts where we've completed a share of wallet deep dive with Kevin, our Sales Director, we've identified a further GBP 500 million of work in security and hygiene, engineering and projects and in compliance currently delivered to our clients by third parties. Winning here requires more senior business builders with new propositions, a wider understanding of Mitie's capabilities and how AI and data can drive insights and upsells with stretch incentivization. And our best SCD of our largest strategic client is now leading this new team. And we know how to do it when done well. Take 2 examples here on the right. One is a retailer has gone from annual revenues of GBP 16 million at the start to an estimated GBP 55 million this year. We've added more facilities management services, increased projects. roof-mounted solar panels, for example, is a big push for this client. And that's before we talk to them about refrigeration services where we announced an infill acquisition today or about F-Gas compliance and water services for Marlowe. And second is a transport customer with annual revenues of GBP 25 million in FY '14. And today, that number is GBP 119 million, and we've added more sites and more services. And turning to the blue triangle in the upper right there, we always expected growth from the core of facilities management to be the biggest contributor of our 3-year plan. Growth from the core for me is probably the most important thing that we think about day-to-day. And we've outperformed our own expectations here and have already delivered over 90% of our GBP 600 million incremental growth target at the halfway stage of our strategy. Our Block 2 growth imperative is turbocharging projects in facilities transformation. And by any measure here, our performance has been outstanding with strong growth from the capabilities we've added in fire & security, power and grid and building engineering. An order book of GBP 2.9 billion today, up 53% year-on-year, a pipeline of GBP 6.9 billion, up 130% year-on-year and an average project size now at GBP 270,000 per job, up 80% year-on-year. And turning again to the Maroon triangle this time on the upper right. Again, we've outperformed our own expectations here and have just about delivered all of the GBP 200 million incremental growth that we set for FY '27 at the halfway stage in our strategy. Our final growth imperative is in the GBP 7.6 billion facilities compliance market, where the acquisition of Marlowe positions us as the leader -- market leader, providing us with a platform to accelerate growth. Adding Marlowe's capabilities to Mitie's existing Fire & Security business created a differentiated total fire offer with a full suite of active fire and passive fire solutions as well as creating the market-leading provider in security systems. But what really excites us about Marlowe on the right-hand side is their capabilities to build a total managed water solution. And as some of you will have already heard me say, water is the new energy. We buy it, we meter it, we recycle it and we report the usage of it. We've already signed up 2 existing Mitie clients to take these new water services literally in the last couple of months. But the really big prize for me is AMP8 Asset Management period 8, the latest set of regulations from Ofwat that will see GBP 104 billion invested in water efficiency, resilience and sustainability between 2025 and 2030. This is a material opportunity for Marlowe Environmental to deliver end-to-end solutions across the water services value chain from sourcing and metering through to transport, wastewater management and compliance and delivered at national scale. Simply put, our aim is to be the provider of choice for our clients as they navigate increasingly complex regulatory requirements and sustainability goals built around water. So take the public sector, for example, previously, Marlowe did not have pre-qual approval in public sector bids. But Mitie is a cabinet office approved strategic supplier, and we're already now precleared to participate in some material upcoming public sector bids. And on the right upper triangle, again, we set a target there of GBP 400 million of revenue from M&A step out. The step-out being facilities compliance. It's early days after less than 2 months of owning Marlowe business, but revenues will now grow rapidly as Marlowe scales up to approach the GBP 400 million target. Now whilst we are on the subject of Marlowe, it would be remiss of me not to take a moment to update you on our progress with the acquisition and the integration. The business is trading in line with our expectations and the synergy work streams are moving ahead. We're on track to deliver at least GBP 15 million of cost synergies in FY '27, and we'll exit FY '27 having fully integrated Marlowe and having captured the full GBP 30 million of synergies to be delivered in FY '28. We're removing duplicate corporate, administrative and other support functions through automation. We've reviewed procurement opportunities and moving the Marlowe supply chain to Mitie's preferred supply list and 3 sites in Marlowe's property portfolio have already been closed. We're exploring major efficiencies from automating field force scheduling and delivering route density savings. We've already migrated 1,500 of Marlowe's Environmental Services colleagues onto Mitie's HR platforms, putting in controls around pay rises and bonuses with the remaining fire and security colleagues to follow before the fiscal year-end. And we're migrating Marlowe's IT applications on to Mitie's Azure platform to raise cyber resiliency. So in short, we're making good progress. And of course, in FY '27 and beyond, Marlowe will be a positive to the group's total overall margin. A final contributor to our 5% margin target. And the last of our 4 imperatives is the execution of our AI strategy, reimagining and automating workforce and workflow management to drive better service efficiencies, reduce back-office costs across the business and drive margin accretion. And I've tried to capture our thinking in the next 2 slides, going back to the MITIEverse of the center there, the Mitie Command Center, which we introduced at our Capital Markets event in October '23. We haven't forgotten about it, creating the single pane of glass of the built environment. And our AI strategy has 4 components. Upper left, all our core systems, which are already cloud-based have been AI-enabled or in the case of Workplace+ and SAP will shortly be AI-enabled. Lower left, all of our major customer apps, Merlin for risk and for cleaning, ARIA, ESME and Net Zero are all interconnected via our HARK connected workplace to the IoT platform and they're producing real-time data. And the upper right, the output from our core systems and apps feeds our leading enterprise insight platform, Mozaic360, developed on Microsoft Fabric and integrating all the operational data across all our intelligent solutions. Mozaic360 provides comprehensive operational and strategic insights into the daily operations of the built environment of our clients. And finally, bottom right, as it were, our task mining from SkanAI has led to a growing number of AI bots or agents, enabling smarter, faster, more consistent ways of delivering tasks. But the real game changer since we launched our 3-year plan is the power of agentic AI and agentic mesh using the Microsoft Copilot Studio platform to connect and orchestrate our AI agents to deliver a single pane of glass in the MITIEverse Command Center. In Technical Services, we're orchestrating those AI agents which deal with our clients, those that execute work orders, those that interact with the supply chain, develop life cycle upgrades, close out jobs in the CAFM. When completed, this agentic mesh will provide that single pane of glass for workflow management. And in the MITIEverse Command Center and Business Services, a single pane of glass for workforce management will mesh all our recruiting, vetting, onboarding, training, deploying payroll AI agents with outputs from the supervisor layer highlighting productivity numbers, best-in-class performance. And the final output from the MITIEverse Command Center will be a large language model, answering questions such as how does my building running costs compare to others? Or what's the optimum way of reducing costs by 10%. These are the questions that today, although we have much of the data, we simply didn't have the processing power to answer. But with the MITIEverse digital twin of the built environment, we'll be able to provide better service, greater insights to our clients and also at a lower cost. So my expectation is that we'll have completed our agentic mesh by summer '26. So if you need a bit of a line down after that, let me wrap up. We've had a strong first half in FY '26 with double-digit revenue growth and good profit growth. Contract wins and renewals are at record levels as is our order book and bidding pipeline. Cash generation is good, and it shows we can undertake value-creating acquisitions and deliver shareholder value from buybacks. It's not either/or at Mitie. FY '26 profit will be at least GBP 260 million, and the Marlowe acquisition is progressing well. AI efficiencies will underpin our 5% margin aspiration. And with 18 months to go, we're on track to not only deliver our stretching FY '27 targets, but with our growing momentum, we're confident our strategy will carry us into FY '28. So with that, let me now turn over to Q&A. Thank you. We need some mics. We've got [ Demolo. We've got Marie ]. Alex Smith: Alex Smith from Berenberg. Just 2 quick questions for me. First one on the projects division, the turbocharging. I guess the sizes of the projects have grown. Can you highlight any key areas of focus? And are you happy with the risk profile of those projects? And then number two -- sorry, just on the growth in the pipeline. Immigration and Justice seems to keep growing there. I guess, kind of Prism renewals and your entrance into that division. If you could provide some color on that, that would be great. Phillip Bentley: So what I'll do is ask Mark Caskey, who runs our projects business. And I think -- I mean, this year, we should end close to GBP 1.5 billion. We've set a target of GBP 2 billion over the next couple of years. That's ahead of where we indicated before. And Mark, why don't you just give a bit of color. We had a Board meeting here earlier in the week, signing up some quite big projects in -- big opportunities in projects. So why don't you talk a little bit about that. Mark Caskey: Happy to, Phil. So thank you. Where do we see the biggest opportunities going? If you go back to the slide, Phil talked about -- sorry, a pipeline greater than GBP 7 billion, which is more than double up from where we were this time last year. And the growth is really coming from 3 areas. Firstly, being data centers. Secondly, being in the power and grid space, you think of everything around buildings need connections to the power systems, you've got battery storage and renewable projects that are underway. And then lastly, there's a significant amount of momentum in the marketplace at the moment around retrofitting the built environment. And if you think about our -- a lot of our project work sits on top of our FM clients and we dedicate project managers to those FM clients, that's where we're seeing the natural uptake. The risk profile, we're so -- I mean, very rigorous around from a contracting perspective, we've invested in our commercial function as well. So we're really sort of like on the ball when it comes to margin profiles. A lot of our projects are short cycles. So even if we are doing larger projects, they're often broken down into numerous phases so we can control the price risk, the delivery risk and the scheduling to manage against ultimately our client expectations. So... Simon Kirkpatrick: Just one -- thanks, Mark. Just one brief build on that, picking up on Mark's point about the short project life cycles. Phil picked it up on his slide, but you see on the turbocharging project side that the average size of our projects is GBP 270,000. So from a risk perspective, the majority of them are relatively small. They turn over relatively quickly. And importantly, 80% of them are with our existing customers. So we know the customers. We've got a good relationship. We can, therefore, negotiate decent commercial terms, and we know the estates that we're working on. Phillip Bentley: And on the prison immigration, I thought I might bring Jason in and stand up, Jason, if you look at the camera that way because Mark, you were sort of off -- you're off screen there. So next time, I ask you back again, come to the front here. But Jason runs our Business Services division, as you know, our largest. And as Simon said, we've moved the immigration and justice because there's a security element of immigration and justice, absolutely in our case. And we're already the largest provider of security services in the U.K., and we're building a strong position in both immigration and in justice. Jason Towse: Yes. Thanks, Phil. Look, the increased pipeline has been driven by, first of all, the announcements of the significant investments being made into the prison infrastructure, driven by the aging infrastructure currently in place and new prison places required. I think we have acquired leading capabilities in Mitie over the last 2, 3 years, and that's resulted in us being successful with Millsike, the U.K.'s first all-electric prison, where we successfully mobilized that prison and in the process of ramping up to full capacity. I was there yesterday and incredibly impressed by the standards that the Mitie people are delivering. But also that puts us in a good position, gives us a good foundation for future growth as more new prisons are getting built and more prison places coming available. And from an immigration point of view, we've all seen the increase in immigration centers. We have -- we are currently mobilizing our latest immigration center at Campsfield, and there's more new immigration centers being opened. And the third point is around the investments being made in the prison and probation estate, which is a significantly aging infrastructure and a current live contract in flight to upgrade all of those services. So 3 real key areas of interest for us with good capability and good opportunity for growth. Phillip Bentley: I mean just to take a little bit more on that, as you saw on the Slide 17, I mean, the pipeline, as you touched on, I've got a great question from Alex, GBP 8 billion. I think it's fair to say we've got a couple of quite big ones in the BAFO stage at the moment. We won't say any more at this point. We don't want to jinx it. But there are some big jobs coming down the track. Simon Kirkpatrick: And we should also say that whilst there is some concentration in immigration and Justice and Defense, actually, that growth in the pipeline that we've seen come through is spread across a number of sectors. So yes, immigration and defense, but also health care, transport and aviation, we've also seen some fairly chunky increases. Phillip Bentley: Sam? Samuel Dindol: Samuel from Stifel. Two questions from me, please. Firstly, on the strategic client directors, can you just remind us how they're incentivized and how you're sort of educating them about the Marlowe proposition? And then secondly, on facilities compliance, having covered Marlowe AMP8 and the water opportunity there is not something they particularly touched on. So I'd be interested to sort of get a sense of the opportunity you see now they're part of the bigger group and sort of what is going to be the typical AMP8 contracts you're sort of going to look to win? Phillip Bentley: Yes. Why don't -- I mean, Mark, I might get you back to the front here with a mic if you come to the front once I set you up on the SCDs, I'll answer the facilities compliance point first because the SCDs, we used to call them SAMs, strategic account managers, but we want them to be much more strategic in business building. And I think it's fair to say we've had people who are good operationally, but not necessarily people who are good client on the client really understanding the client's breadth of the share of wallet. And that's where Kevin Tyrrell, our Sales Director, has been working hard on growing that out. But in terms of incentives, I mean, we've -- talk about some of the people we've got and then we know how they're incentivized. It's going to be on the growth of the business of the client and specific to their account in terms of profit, revenue, Net Promoter Score and employee engagement. But I'll just say a little bit about that. Mark Caskey: In terms of our SCDs, we've identified our top 50 accounts. And part of their role and what we're supporting them with is bringing the best of everything of Mitie to the benefit of those clients, whether it's in hard services and engineering or soft services and/or projects. And what we've recognized as well is we're investing in our sales community or business development community to give them, let's say, the access to the resources to help them support our clients in terms of some of those conversations. Another area we're investing is our consulting capability. And again, whether it's workplace, facilities management, energy and sustainability consultants, we've got over 300 of them in the business, and we're allocating them to the SCDs to be able to have a different order of conversation with our clients to really bring the full value of Mitie to solving their business challenges and improving the value they get from their property portfolio. And as Phil said, on the incentives, we reward them for growth. We reward them for the full P&L stack that sits underneath their client responsibility. Phillip Bentley: And on the pipeline, I could show you that, Sam, but you might go to see it. This is our top 30 opportunities from the Marlowe opportunity. And the first one, I'm not going to say it is, is GBP 47 million, the largest. The point I would make as well is that we don't have not yet scrubbed the pipeline and the order book for Marlowe. So there is nothing in there at the moment in the numbers. We'd expect to have done so when we've got it all in the CRM system, Kevin, and we've actually qualified these opportunities. But -- and I deliberately said the point I made that Marlowe were not public sector bidders. They ended up doing some work in hospitals, but that's because CBRE gave them the job and it was public sector, but they hadn't contracted directly with public sector. We opened up that completely now. And there's some big bids already in play where we've made bids. We're waiting for answers, and we'd hope to announce those quite soon. But the opportunity is probably bigger than I expected. And once we've scrubbed it -- and actually, this is where we need to pivot Marlowe away from -- I've euphemistically used this phrase before, fire extinguishers in Scout huts and get into proper B2B. That's where the price -- that's why we bought the business. And we're quite excited about what it could look like. Tom, yes. Tom Callan: Tom Callan from Investec. I've also got 2. Just one on that GBP 2 billion pipeline that's BAFO. Can you just remind us in terms of the conversion -- the typical conversion of pipeline to order book and also typical contract length? Just trying to get a sense as what that might be... Phillip Bentley: Kev, I might bring you in on that as well, the back there. I know you like hiding in the back. But our win rate on -- there's 2 types of wins. There's wins around -- there's retention and we give you that number, and it's running at 80%. It's quite volatile in terms of if you lost a big contract in a short period of time. And then we've got wins on cold calls and wins on projects as well and the rates of those. But Kevin has been our Sales Director now for about 18 months, and we've got a lot more analysis now. Is it 18 months or 12 months' I can't remember? 18 months. Kevin Tyrrell: Yes. So conversion rate, we look at 2 different numbers. One of them is conversion rate of pipeline. The other one is conversion rate of tender win rate. So our tender win rate is things which come to market, we're actively bidding on. And our win rates have gone up into the low to mid-60s in the past 12 months. Our pipeline conversion rate is sitting about 27%. So it depends whether that pipeline converts into a tender, we bid on the tender, win rates are going up in that area. Phillip Bentley: And I think that's -- it's a double-edged sword for us because we try and take all our private sector clients away from a tender process in what we would call an off-market deal. But that's exactly what our clients do to us. I mean, we went for BT, but it stayed with the incumbent. And the number of -- in tech services, a number of clients that were in the pipeline never came to market. because they rolled it with the incumbent. And it's why -- but in public sector, you can't do that. You can't just do a quiet deal. So it's why there's more volatility in public sector because that is a straight shoot out on a tender process. So that's why not all of that pipeline ever comes to us. But that -- and that's why there's a predominance in the pipeline of government. We know that's definitely going to come out. We might hope NatWest comes out next year, which we do, but we don't know if it'll ever see the light of day. Okay. There's another one, James. Are you sleeping, James? Didn't your wife have another baby? James Beard: Still on the first one. Phillip Bentley: All right... James Beard: But not sleeping. James Beard at Deutsche Numis. I've got 3 questions, please. Firstly, going back to the projects business and the projected growth to GBP 2 billion revenues there. You've -- how much of that is driven by growth in -- expected growth in average ticket value versus just growth in the number of tickets that you're generating in that business going forward? Second question is on Marlowe. Can you just talk through what is happening with the existing customer base there, whether you are retaining or seeing the great of any sort of degree of retrenchment within that existing customer base? And then thirdly, on the telecoms business, noted the GBP 10 million profit swing in the first half. What is your expectation on the second half for that? Phillip Bentley: Okay. I'm just in the mid of speeding it up because otherwise, we'll be here for a while. But I mean, the projects, it's a bit of both. We sell more jobs, but there's some very big jobs out there. If you look at Longcross was a GBP 90 million job at the data center, and that was for only 1/3 of the full potential there. So you get some sense of the size of the scale. And Longcross in when fully built out is 90 megs what's Harlow, that's a lot bigger. Mark Caskey: It's 37 megs, but because they're densifying significantly, the amount of MEP you're putting into a data center now is increasing the average project size. Phillip Bentley: So there's some big stuff there. When you can think about the battery energy storage deal that we announced, Staythorpe, that's GBP 70 million. And there's a lot -- there's a big pipeline in battery energy storage as well. And what was the statistic? We -- our company that we bought ironically out of administration, G2E has done what, 25% of the U.K.'s battery. Mark Caskey: So the battery storage capability in the U.K. is about 4.5 gigawatts at the moment. And G2 Energy, which is the company that we acquired just over 2 years ago, have developed over 25% of that capacity in the U.K. And so they're a really powerful brand when it comes to investors and developers into energy storage and battery storage solutions. Phillip Bentley: Okay. Marlowe, look, we -- it happens every time. Every time we buy a business, if they do any work with a couple of our sworn enemies, they cancel it straight away and Marlowe had a bit of that, but it's not material. We've got it -- and for every bit of business that a competitor has taken away from us, we have work that we were doing with third parties that we can now give Marlowe. So you're going to -- you're not going to see a big change in that number for now. And then on Telco... Simon Kirkpatrick: Yes, just briefly on Telco. So you recall that we already initiated our turnaround plan on Telco, which was starting to have a positive effect in the second half of last year. And therefore, we won't see a big delta half-on-half this year versus last year in the second half. Phillip Bentley: It's growth that we need one of the reasons why we pulled back, we shared work that we were losing money on essentially. And then what we want to do is try and rebuild from a profitable level, but we've taken the revenue down by 50% -- 40%. Chris? Christopher Bamberry: Chris Bamberry, Peel Hunt. A couple of questions. You've also had a very successful period in terms of contract awards. How much would you put down that to what you've been doing over the past few years and perhaps what's been changing in terms of customer behavior? And secondly, on Slide 20, you identified GBP 0.5 billion of opportunities with 10 contracts. Just trying to get an idea of kind of a scale of uplift there, what was the revenues on those contracts? Phillip Bentley: Do you have Kevin, on the 10 -- I don't know if I have that we have to come back to you if you haven't got it. The 10 -- we don't have the revenue -- not on the top of my head, we'll come back to you on that. It's a fair question as a percentage of uplift. But just -- I mean, a quick way of doing it a different way is our top 25 clients generate 25% of our revenue and our top 50 generate 50%. Simon Kirkpatrick: It's a bit more than that actually, yes. So top 25 are closer to 40% actually. And the top 50 are just over 50%. So it's quite a concentration in that top 25. So given that we're taking the 10 largest there, we'll flesh it out. Phillip Bentley: Yes, we'll flesh that one out. I forgot the second question. What was it? What was the second question? So it's about -- the question was around winning contracts. It's quite volatile. I mean, it surprises me in some ways that it keeps going up because it is dependent on the size of some of the deals that are out there and it drives a weighted average. A big -- a government contract, I can think of 2 government contracts that are GBP 2 billion together, okay, that were at BAFO. So -- and that can be -- and because it's -- our public sector win rate, Kevin, will probably be a little bit lower than the number you gave. Kevin Tyrrell: So I guess there's a couple of things for me. I think building capability over the past few years, and we've seen all the capability we've built in our core FM service offering around hygiene, security and engineering, we continue to build. Continue to build capability around our project capability as well, strengthening of relationships on the back of really strong NPS. So strong NPS is the foundation for retention, which gives us the ability to continue to grow. So I think you apply good NPS, improving relationships with our clients, which we'll continue to do through the SCD program and building internal capability, the things which are enabling us to win. Phillip Bentley: That was a much better answer than mine, actually. But it actually reminds me because we've never had a group Head of Sales. Now you may say that's rather shameful in our fault. But we used to leave each business unit running its own stuff, doing its own stuff. And in the end, we decided that wasn't a good idea. So 18 months ago, we brought them all under Kevin. And you've replaced quite a few people now. And we do it through a standard way of bidding, standard reviews, all of the data is in this CRM system. And we've just become a lot more methodical than we used to be. And that hasn't -- the value of that hasn't finished playing out yet. We've still got people literally just having joined us less than 6 months ago who are with a top track record. And one thing I'd say, we've not had any difficulty attracting talent into Mitie. Any more? Excellent. Thank you for your support, as always, and we'll see you at the drinks and not -- what is it? The 20 -- 20 something. Next week. If you're not invited, go and see Kate. Thanks, everyone.
Masahiro Hamada: I am Hamada, Group CFO of Sompo Holdings. Thank you for joining our earnings call despite your busy schedule. I will go through the first half results and the full year earnings forecast for FY '25 as well as the shareholder return, all of which we disclosed today. Please turn to Page 3 of the presentation. This is the executive summary. First, the overview of the FY '25 first half results. Driven primarily by a decrease in nat cat in Japan and globally, profitability improvement in domestic P&C business and strong net investment income overseas, adjusted consolidated profit increased by JPY 78.1 billion year-on-year to JPY 247.4 billion. Next, the full year FY '25 earnings forecast. Based on the first half results, adjusted consolidated profit for the full year is revised up by JPY 77 billion from the initial forecast to JPY 440 billion. Although direct comparisons are not possible due to our transition to IFRS accounting this fiscal year, we expect to significantly surpass our previous record high profit. Last but not least, shareholder returns. The total shareholder return for the first half of FY '25 is JPY 145.5 billion, including JPY 77 billion of share buybacks. For the full year, in addition to the upward revision of adjusted consolidated profit, the plan for the sale of strategic shareholdings has also been revised up from JPY 200 billion to JPY 250 billion. Therefore, the total shareholder return comprised of the basic return and gains on strategic share divestitures is expected to be approximately JPY 250 billion, JPY 26 billion higher compared to the initial forecast. I will elaborate on these 3 key points on the following pages. Please turn to Page 4. The JPY 78.1 billion year-on-year profit growth was driven by profit increase of JPY 54.7 billion in the domestic P&C business. Compared to last fiscal year with significant hail damage, we had fewer major nat cat in the first half of this year. Improvement in the base profitability of fire insurance, thanks to the rate revision implemented in October 2024 as well as strengthened underwriting also contributed to the profit growth. The profit also grew for the overseas business by JPY 20.7 billion. Similar to the domestic environment, fewer natural disasters and increased investment income driven by growth in assets under management contributed to this profit growth. On Page 5, let me explain the upward revision of FY '25 full year forecast. Full year adjusted consolidated profit for FY '25 has been revised up by JPY 77 billion to JPY 440 billion from the initial forecast. On a year-on-year basis, it is to be a significant profit increase by JPY 116.3 billion, renewing record high both on a consolidated basis and for all business segments. Based on first half results, second half forecast has been revisited with a certain level of conservatism. On Page 6, I'll explain shareholders' return. As to interim shareholder return for FY '25, dividend per share is JPY 75 as initially forecasted, totaling JPY 68.5 billion. Share buyback with basic return and sales gains on strategically held shares combined amounts to JPY 77 billion. Full year shareholder return forecast for FY '25 is expected to be JPY 250 billion, up JPY 26 billion against the initial forecast, driven by increase in adjusted profit and increased reduction of strategic shareholdings. Lastly, some supplementary explanation on domestic P&C and overseas insurance. Please look at Page 7. First, let me explain domestic fire insurance. Fire insurance, even without favorable nat cat experience, it's showing strong improvement driven by rate increases and enhanced underwriting. Loss ratio of fire insurance for FY '25 full year without nat cat impact is expected to improve to 32% by 4.3 points year-on-year and by 2.4 points against initial forecast. Impact from last year's rate revision and underwriting enhancement is expected to continue and the positive profit is becoming well established. Meanwhile, motor insurance excluding nat cat impact remains in a different situation. Given the first half results, the assumption for the second half had been revisited and reflected in forecast. As traffic volume increased, rate of accident frequency in the first half FY '25 was up 0.6% year-on-year against the initial forecast of down 1%. Accordingly, full year forecast has been revised up to the level of the first half results. Unit repair cost in first half FY '25 was up 7% year-on-year, mainly driven by price hike of auto and its parts due to higher performance as well as inflation. Accordingly, full year forecast has been revised up to the level of first results. In January, auto insurance rates will be revised up by 7.5% on average. This revision has factored in higher-than-expected rate of accident frequency and unit cost, meaning midterm, our outlook for profitability improvement remains intact. Lastly, supplementary comment on overseas business. Currently, rate environment is becoming softer, but insurance revenue increased in all segments, namely commercial reinsurance and consumer, driven by geographic expansion and other growth strategies. Combined ratio is expected to be on a favorable level with certain level of prudence included. With that, I end my presentation. Long-term management strategies, including progress on MTMP will be explained at the IR meeting scheduled on November 25. Thank you for listening. Operator: So the first question is from Mr. Muraki of SMBC Nikko. Masao Muraki: This is Muraki from SMBC Nikko. My first question is on Page 5. So you show the breakdown of the upward revision that you made. And on the right-hand side, you see the factors. Of these, what are not one-off? And what will still prevail as you plan for next fiscal year? Unknown Executive: Thank you for the question, Mr. Muraki. So regarding your question around the factors driving the upward revision for this fiscal year, which will remain for next fiscal year? So first, with the domestic P&C business, compared to the initial plan, the upward revision was JPY 59 billion. As you can see on Page 5, lower natural catastrophe and larger loss experiences are going to be absent next fiscal year. So it will be adjusted to the normal year level. And for the higher investment gains at the outset of the year, we normally make conservative projections for the net investment income. So in that sense, most of this factor would also be taken out for next fiscal year. On the other hand, for the improved profitability for fire and casualty lines, as Mr. Hamada explained earlier, the improvement was driven by rate revisions and also stronger underwriting capabilities. So these positive factors would remain next fiscal year. And also, it is not indicated on the slide, but for the auto loss ratio, recently, it has been deteriorating. And compared to the initial plan, we expect the downward pressure to be JPY 3 billion on an after-tax basis. But as Mr. Hamada explained earlier, in January of 2026, we plan to execute rate revisions. And also with the following rate revisions, we aim to offset this negative impact. So the deteriorating loss on the auto policies will be absent next fiscal year. And moving on to the overseas insurance business. This fiscal year, we revised up the forecast by JPY 20 billion from the initial plan due to multiple factors. But most of this will not be remaining for next fiscal year. Specifically, this fiscal year, we are also benefiting from lower natural catastrophe overseas, and this will normalize for next fiscal year in our projection. On the other hand, the upside on the net investment income is stemming from the growth of the asset under management. So the positive impact on the investment side will remain. And for the insurance business, other than the nat cat risk, the change in the portfolio mix is impacting the profitability. And assuming that this portfolio mix will be similar to that of this year, this impact would also remain. So as a result, for the overseas business, the upside for this fiscal year will mostly be absent, and we expect to see growth without the one-off upside we saw this year. Masao Muraki: My second question is in a follow-up to my first one. So regarding achieving the ROE target for next fiscal year, can you update me on the necessity of adjusting the capital? Looking at Page 16, you have 10 points impact by the sales of the stocks sold by Sompo Holdings. And I assume that you have sold a lot of the Palantir shares. ESR is going up, but the base profitability is improving, and you would also get profit contribution from Aspen. So should you be able to still achieve that 13% ROE target without the capital adjustment? Or do you need to make that adjustment? Masahiro Hamada: Yes. Thank you for the question. So this is Hamada, and I will be responding to that question. On Page 19, we show the full year ROE target for FY '25, which is a first line on the table. Initially, we were expecting 10% ROE for the end of this fiscal year, but it has been revised up to 11.5%. But as we explained, there are many one-offs, primarily the nat cat impact. So when normalizing this, this 11.5% will be pushed down by a little over 1 percentage point. Also on a normalized level, the ROE for this fiscal year will be a little over 10%. And then we will have the Aspen impact and also improvement of the profitability. And with that, we can expect the ROE to be boosted by roughly 2%, but we will still be short of the 13% target. So beyond what I have explained, we are still considering this. So these are not fixed. But we have a few options. We can keep the current 13% target. And if it seems not doable, we may decide to adjust the denominator. Or as you said, this year, we have been actively selling our Palantir shares. And this is because the Palantir market cap increased significantly. And by selling our ownership, we saw some inflation of the denominator, which we were not expecting at the beginning of the year. So that has a negative impact of 1% on the ROE. So we can set the target for ROE, excluding this factor. So that will be a feasible option to consider. So leading up to the end of the fiscal year, we will discuss this matter in the management meeting. But having said all that, we cannot say that we do not need capital adjustment. We may need that or we may not need it. We cannot be too optimistic about the outlook. So we will continue to strive to build up both the denominator and the numerator. Operator: Next question is from Tsujino-san of Bank of America Securities. Natsumu Tsujino: So this time, you have revised the domestic business. As to fire insurance, profitability has been improved, while auto insurance is worsening. But fire has been performing well. So as Page 7 shows, well, this is the comparison with the previous year. On a full year basis, I don't expect that the comparison between first half basis, any case, the fire is getting better, auto is worsening. So I think that the similar trend that might be in the first half as well. My question is, to what extent auto has been worsened, maybe JPY 3.5 billion, as you mentioned earlier, and the improved profitability of fire insurance, that would have some impact in the next fiscal year. And in addition, auto insurance is going to be better -- should be better next year. Could you please give some color on that? Unknown Executive: Tsujino-san, thank you for the questions. First, about auto insurance, as you have pointed out correctly, increases in unit repair cost or in rate of accident frequency, some elements are behind the initial forecast. For the first half of the year compared to the previous year actuals, auto insurance losses have been aggravated by about JPY 2 billion after-tax basis. Given such situation on a full year basis, the worsening of about JPY 3 billion against initial forecast is expected. Meanwhile, as to auto insurance, in January next year, we are going to revise the rates and the rate increases will have full year impact for FY 2026. So while factoring in the shortfall against the initial forecast, we would like to make good catch-up so that we are going to achieve the earnings level expected for auto insurance in FY '26. With respect to fire insurance, its base profitability has been improving at every maturity. As a result of rate increases and other underwriting enhancement measures, we have been accumulating those efforts, and we are seeing good results this year. As you know, fire policy periods range from 1 year to 5 years. At every maturity, we will continue to improve our profitability. And we would like to make it sure that we are going to see good impact next year and beyond. Natsumu Tsujino: So my next question is, you have revised down the large losses. But without it, to what extent the business -- fire business has been improved. Large losses this time for this fiscal year, on a pretax basis, we assumed JPY 30 billion at the beginning of the year. Given the results of the first half, we changed it to JPY 26 billion. So after-tax basis, it's about JPY 3 billion add-on on the results. But as to this add-on, for example, as Page 5 shows, it will be included in the very first one, nat cat and large losses experience. And other than that, we have other elements such as the fire insurance, casualty, improved profitability and that impact will be felt next fiscal year. Operator: So next is Mr. Watanabe from Daiwa Securities. Kazuki Watanabe: Yes. This is Watanabe from Daiwa Securities. I have 2 questions. My first question is your thoughts about the sales of the Palantir stocks. Hamada-san, you have always said that you would like to use the proceeds of the Palantir share sales for M&A. So have you sold the Palantir shares this time to fund for the Aspen M&A? Or is it because the share price has gone up and the risk has also gone up? So that's why you decided to sell your stake in Palantir? Masahiro Hamada: Yes. Thank you for that question. My answer will be both. The share price has been rising significantly. And we are managing the exposure by setting an upper limit vis-a-vis our net asset value, and we have the opportunity. So we thought this was a golden opportunity. And we sold roughly 50% of what we owned. Kazuki Watanabe: I see. My second question is regarding dividend policy. In the Aspen M&A conference, you mentioned that the level of DPS may go up. But this time, you have not changed the dividend outlook. So if we were to raise the DPS, is it going to be happening from next fiscal year? Masahiro Hamada: Yes, like you said, we have not yet closed the Aspen deal, and we don't know the timing for that exactly. And we expect the profit contribution to be happening mainly from FY '26. So that's when we would like to raise the EPS. But other than that, we did revise up our outlook. So we discussed about the dividend. And basically, as we have been explaining, we basically do not want to lower the dividend and would like to raise it, reflecting our fundamental earnings capability. But this time, the upside mainly came from more moderate nat cat. So we decided not to change the dividend, and we would like to consider hiking the dividend next fiscal year. Operator: Next question is from Sato-san of JPMorgan Securities. Kazuki Watanabe: My first question is about Palantir and its size. So according to earnings report and looking at consolidated statement of changes in equity, I understand that you have transferred JPY 250 billion from investment in equity instruments to retained earnings. And you have about after-tax sales gains of JPY 90 billion from the selling of strategically held shares. That means about JPY 150 billion, the post-tax capital gains by selling Palantir shares. And earlier, you talked about the possibility of reusing those gains for Aspen. And as you explained at the time of the Aspen acquisition, there was some -- the investment profit loss in the funding, and you assumed about JPY 15 billion. Is there any expectation that this -- the loss can be alleviated or be less? Unknown Executive: Thank you for the question. And I cannot talk about details about any individual shares, but it seems that you have read correctly. And you're right about the first -- second half of your comments. When we were considering to acquire Aspen, of course, we did not think about how much we should use the capital gains from Palantir shares for the acquisition and so on. So we just set the rough percentage of the acquisition amount. And so based on that, I would say that the investment profit loss actually will be less than expected. Kazuki Watanabe: My second question is about domestic fire insurance and its improved profitability, especially when you look at expense ratio, in your plan, you originally assumed about 30% for fire insurance, if I remember correctly. But now I think it has been reduced, looking at Page 28. So original 30% expense ratio is now at 28.3%. And on an absolute amount basis, it has come down to some extent. So what kind of initiatives are involved there? Unknown Executive: Sato-san, thank you for the question. The expense ratio of fire insurance, well, initially, at the beginning of the year, we assumed about agent commission, and we were rather on the conservative side in assuming the commission level. But given the actuals, given the current status, what things are in a very favorable status and we have made revision. Kazuki Watanabe: I think it was part of your strategy to revisit the relationship with your agents. It's not that it is behind this revision. It's not emerging yet in this fiscal year. Am I right? Well, in that sense, I would say that the agent commission included, we are now working on the overall relationship with agents. And part of it is included in here as well. Operator: Next, Mr. Takemura from Morgan Stanley MUFG. Atsuro Takemura: Yes. This is Takemura from Morgan Stanley MUFG. I have one question, which is about how you think about ESR. So I am looking at Page 16 on the presentation. And you have indicated the impact of the Aspen deal, which is pushing down the ESR by roughly 30 percentage points, and you stand at 250.6%. So without the Aspen deal, it would have stood at 280% approximately. And moving on to the next slide on Page 17, you show that you have JPY 5 trillion of adjusted capital and risk amount of JPY 1.7 trillion. So the simple math keeps me 294%. And there's a difference of roughly 14 percentage points. So other than the Aspen deal, are there any factors that will be impacting the ESR? Unknown Executive: Yes. Thank you, Mr. Takemura. So regarding how we think about ESR, as we indicate on Page 17, and as you pointed out, we showed the adjusted capital and the risk amount. But this is a rough calculation, and we round down the numbers. So there is some gap between the simple calculation and the actual ESR, and that is the primary reason for that deviation. Atsuro Takemura: Also, you have sold some of the shares in Palantir. And even with that, the ESR will be in excess of 250%. In managing ESR, I'm sure that you are looking inorganic opportunities, including the one for the domestic well-being business. So a certain level of excess over 250% is going to be something that you will tolerate. So should we expect the ESR to be in excess of 250% to a certain extent? Masahiro Hamada: Yes, this is Hamada speaking. As we set the upper limit, we recognize that our ESR is in excess of that upper limit. And the reason we set the upper limit is because we want to achieve and manage the ROE. So we look at how is the ROE level and also how we strike balance between investment and shareholder return. So with that in mind, we deal with the capital that is in excess of the upper limit. Operator: Next question is from Sakamaki-san of Mizuho Securities. Naruhiko Sakamaki: Here is Sakamaki, Mizuho Securities. I have 2 questions, one for domestic business, another for overseas business. Starting with domestic business. I'd like to ask about combined ratio of auto insurance. Like fire insurance, expenses are lower than your initial forecast. Initially, you also assumed increase in systems investment expenses. So rate revision, agent commission and systems investment, all included. Could you please talk about profitability of auto insurance business? And if there's any time lag of booking for systems investment, could you please talk about that, too? That's my first question. Unknown Executive: Sakamaki-san, thank you for the question. As to expense ratio of auto insurance, here, the factors involved are more or less the same as factors for fire, namely the agent commission ratio, the contribution is significant there. And as to systems investment and other nonpersonnel costs and any potential time lag, well, things are moving on in line with the plan and the size or the amount involved remains unchanged from the initial forecast. Naruhiko Sakamaki: My second question is about overseas business. I would like to know more about the actual real performance. As to combined ratio assumption without discount, initially, it stood at 95%. It is now 94.9%. So the difference is only 0.1%. But the nat cat, the impact was revised down by $200 million. So maybe there are other factors which were actually worse than initial factors? Unknown Executive: So combined ratio without the discount, as we touched upon earlier, this fiscal year, the rate level and the contract terms, we are looking at those elements, and we are making a shift in our portfolio mix to casualty line. As to casualty line, for example, compared to property line, volatility is very low, while the expected loss ratio is a bit high. As a result, when combined ratio without the discount impact is in line with the initial forecast. The major reason there is the changes in the portfolio mix. So going forward, base loss ratio might go up, but the volatility will be less going forward. So compared to initial forecast, more changes in the portfolio mix. Operator: Sakamaki. So next, Mr. Sasaki from Nomura Securities. Futoshi Sasaki: Yes. This is Sasaki from Nomura Securities. I would like to ask 2 questions. First, on the improvement of the profitability for the domestic fire business. Is the magnitude of the profitability improvement going to get larger next year? My second question is regarding Page 56 of the presentation deck. You mentioned that for the overseas insurance business, the combined ratio compared to what you presented from the FY '24 results, the combined ratio projection seems to have been raised. Is it because the business is deteriorating from the original plan? Or is it because of the change of the portfolio mix that you explained earlier? Or is it both? And also, generally speaking, listening to the global insurance companies, they talk about the impact of the softening market. So looking at the Q3 and beyond and also for next fiscal year, what is your outlook for the overseas underwriting profit? Unknown Executive: Yes. Mr. Sasaki, thank you for those questions. First, regarding the improvement on the profitability of the domestic fire business, and is it going to be sustainable? As we explained earlier, as the policies are rolled over, we will see improvement in the profitability. So basically, this benefit will continue to be observed next fiscal year. But of course, the policies needing such improvement within our total portfolio will get smaller in terms of the proportion. So in that sense, if we look at the improvement year-over-year, the magnitude would be more moderate. And regarding your second question on the overseas combined ratio, like you mentioned, this is mainly because of -- due to the change in the portfolio mix and the impact is bigger than initially expected. Futoshi Sasaki: I have a follow-up question. So now looking at the same risk base or risk amount, do you see any lines of business where you see a big downward pressure on the rate? Or do you not have much visibility? Unknown Executive: Your question is around the overseas premium rate. Is that correct? Futoshi Sasaki: Yes, that is correct. Unknown Executive: Yes, I will take that question. It varies quite significantly depending on the line of businesses. As you know, for the property policies, we see softening of the market. On the other hand, for the casualty products, especially for the excess layer products, we continue to see relatively high rate. Also, we still see some hardening of the market. Also, we will underwrite in a selective manner to build a profitable portfolio. So that is what we have been explaining as a change in the product mix. Operator: Next question is from Majima-san, Tokai Tokyo Intelligence Lab. Tatsuo Majima: I also want to ask about fire insurance. So-called 2025 problem has arrived. It used to be like 30-year maturity, now more and more policies renew every 10 years or so. So from September '25 through September '26, during that 1 year, I think there will be more renewals than normal level. But that impact has not been factored in yet? That's my first question. The second question is about fire insurance premium. It seems that the premium is increasing faster from the first quarter to the second quarter this year. Is it because of some large policies? Or is it the phenomenon observed every year from first quarter to second quarter pace up in increase in premium? Unknown Executive: Majima-san, thank you for the question. As to your first question, fire insurance loss ratio and the impact of massive renewals coming up, if it is factored in or not. As to fire insurance loss ratio, as you know, denominator is insurance revenue or earned premium. And so -- as to massive renewals, basically, on a written basis, the renewals are expected to increase during this 1 year that you mentioned, but it would not give big impact on base loss ratio. As to your second question, fire insurance and its premium, you said that maybe there's some acceleration of the pace in the second quarter. Well, that is actually a phenomenon, which is unique for IFRS. In the first quarter, the insurance, the revenue was booked on the smaller side than the larger side. And in July to September period, usually partly because of nat cat, the fire insurance losses tend to be larger. So in the second quarter at IFRS because of this seasonality, insurance revenue tends to be booked larger. So it's not that there's some special factor or some unexpected against the plan happened. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Jose Antonio Calamonte: Good morning, everyone. Super happy to see you here one more time in our -- in this case, fiscal year '25 results announcement. And I'm going to cover the first part, the strategic part, and I'm going to then hand over to Aaron, who's our CFO, and I will give him the opportunity to introduce himself much better later. He will do a better job, and he's going to cover our financial results over fiscal year '25 and our outlook for fiscal year '26. And then we will move to Q&A that I'm sure this is what you guys are looking forward to. So let me start sharing with you a couple of reflections, and I promise I'm going to be short. Since I joined ASOS 4 years ago and since I became the CEO 3 years ago as well, I think it's clear in my mind, and I'm pretty sure you feel the same every time you come here, that this is a place full of energy, full of passion and with a very bold ambition to become the most inspirational destination for young fashion lovers in the planet. But it was also clear that we had a lot to do to get there. And what I'm going to try to do today briefly is to try to cover these 2 things. The first one is like -- and you already know, but I think it's always good to do a little bit of balance and to take stock. It's like what is it that gives us the right to compete in a market that is as dynamic as -- probably, I should say, ultra dynamic as our market and a market that is changing so much and where things like -- I mean, like AI is bringing a complete evolution to the market. So what is it that makes ASOS different and gives us the right to compete? And where are we in this journey to transform ASOS into this very ambitious vision that we have. So let me start with the first one. What is it that makes us different? And as I said before, we have a pretty bold ambition. We want to be the most inspirational destination for young fashion lovers in the planet, and we want to do it while at the same time, we have a business model that delivers excitement, but sustainability in terms of profit. So it is a really, really bold, if you want, ambition. And there are 3 main pillars that support this ambition, 3 main things that, in our mind, makes ASOS different and gives us the right to compete and to win. The first one is our obsession to always offer consumers the most relevant product. And relevant means it's the right product at the right time at the right price. We have a unique model here. We are -- we have a perfect blend between our brands and the best brands in the planet. And that is very weird to find. You're going to find great brands out there. You're going to find great retailers out there, but it's very difficult to find a formula like ours. And we are working very, very hard in making sure that our assortment is the most relevant all the time for consumers. And I hope during the course of these years, I have been able to convey how important both elements are our brands and our partners. And if not, hopefully, today, I will be able to do it so that you see that the value of our formula and why is it different. The second part is that we are obsessed with offering an inspirational shopping experience, and we offer today a different shopping experience. I'm going to say that with this picture you are seeing here that probably for you is just a nice and a beautiful picture. But in this picture, you see a model she's wearing 4 different brands. She's wearing Good American. She's wearing Mango, she's wearing ASOS Design and Dragon Diffusion. ASOS is the only place where you can see a picture like that. It's the only place where consumers can see a picture as realistic as this one because this is how they behave. Most consumers don't dress top to down with one brand. This is how they behave. And by the way, this is incredibly valuable for the brands as well because this is the only place where they can be in this type of context. And that makes ASOS shopping experience different and unique and inspirational, and we think that gives us the right to compete and a place in the market. And we do all that underpinned by an efficient operating model. We're obsessed with efficiency, with effectiveness. And this is really underpinning everything we do. That's what we -- that's why we're convinced we have a place in this market, and that's why we're convinced we can win and be relevant for our consumers. But to really deliver that, there was a lot to do. And I want to go fast over what we have done over the course of the last 3 years. I know 3 years is a very long period of time, but I think it's a good time to make this balance, and that's why I'm going to do it, and I'll not talk to you for too long. This has been a long journey with 3 clear steps. And I'm going to go fast over the first -- over the 3 steps. The first part of this journey was we had to deal with the legacy that we had. 3 years ago, this company had 2 main issues: stock and debt, very clear. We had GBP 1.1 million pounds in stock. That is a lot of stock. That is more than 100 million units in our warehouses. That is a lot of stock. During the course of these 3 years, and you have heard me a lot talking about stock, maybe too much. I'm not going to talk about stock today, but you have heard a lot of that from me, we have gone from GBP 1.1 billion to around GBP 400 million -- a little bit less than GBP 400 million in stock. That is a massive reduction of stock, somewhere between 50 million and 70 million units of stock reduction. That is really, really big, just put it into the context of the population of this country, and that will give you an idea of -- to what extent that was a big challenge. And why it was so important? Well, for a lot of reasons, but 2. One, we were sitting on a lot of money. Obviously, that is not very smart when you're sitting on money and you're not doing anything with it. And the other one, this old stock was preventing us from offering new stock to consumers. And remember, we want to offer the most relevant stock. The stock from last year and last, last year is the opposite of being relevant. So we really needed to clear that, and we've done it successfully. By doing that, we unlocked a great opportunity, which has been to optimize our footprint in terms of supply chain. And we have reduced our footprint in more than 50%. Obviously, that unlocks cost improvements, cost optimizations, and we have really seized that opportunity and taken it. And the second big challenge was debt. And as you have seen during the course of these 3 years, we have been restructuring our debt. We have been looking for flexibility and liquidity. The last time, it was last week. So you saw that we announced a successful restructuring last week that is giving us even more flexibility and more liquidity, and this is exactly what we wanted to get. And while we have done this, we have reduced our net debt in approximately 40%. So we can see there that we have successfully reset the essential foundations of our model. It was absolutely a must. There was no way to move on without doing that, and we are happy we've done it, and this is water under the bridge. Then we had to transform, refresh, I don't know which one is the right word, our business model. We were transitioning from a business model that was built on a lot of stock, as I said before, a lot of promotion, a lot of performance marketing into a business model based on speed, agility and profitability. It was very, very important to prove that we can make money while we do business. Otherwise, we become a different type of organization. And we started that journey by focusing on what is important to our consumers. That is to give them better product. This is what they want. They want relevant product, what they are looking for at the moment. They are not looking for a bargain necessarily. They're looking for something they like at a competitive price. And we did that built on 3 critical ideas. The first one was we want to make sure that we are first for fashion and the work behind that is speed. We have to be very fast to be able to offer our consumers what they want right now. This is one of the critical elements that our own brands play in that equation. They are our best opportunity to be super fast and react much faster to what the consumers are demanding. And that's why we're in a better place than just a pure retailer because we have a weapon they don't have. During these 3 years, we have been working on systematic solutions, not just a solution. We want a system that brings improvements and continues bringing improvements. And that is what we have done pretty much in everything we have been implementing and obviously, on the product side. And I think this is also a very important idea that I wanted to share with you, this obsession with systematic solutions. So we have been working on accelerating our time to market. And on average, we have accelerated our time to market by 30%. But if we go to our flagship project in this space, that is our Test & React that I also talked a lot about Test & React in the past, not today. It was a project. Today, it is more than 20% of our business in our own brands. Today, it's a reality that is really changing how we show in front of our consumers and the type of value proposition we can put in front of them. The second big idea was to bring more flexibility in the relationship we have with our partners. More flexibility means more ways of doing business, not just one avenue. Now we have several avenues. And this is helping us to do quite a few things. Obviously, one is to deepen the relationship with some of them. Some of them are growing very healthy because of that. And today, it has gone from a project to be more than 10% of our business with our partners, is done through these flexible models, either what we call partner fulfills when they do the delivery or ASOS fulfillment services where we take care of the delivery, but it's like businesses -- it's a different way of doing business. And also very important is the work we've been doing in how do we define our portfolio of brands, what we offer our consumers. I told you that this is about offering them relevant product. Not all the brands are relevant to consumers all the time. So in these 3 years, we have done a lot of, I don't know if the word is, cleansing or sharpening our brand portfolio. We had approximately 900 brands 3 years ago. Today, we will be more around 600. That has not been a journey of minus 300 because in this journey, we have added more than 100 new brands. So that gives you a little bit of the idea we have probably changed 50% of the portfolio one way or another. And we have not only done that, we are working more and more with our partners to develop exclusive products. Today, we develop exclusive products with approximately 40 brands. Again, our flagship project here is our collab with Adidas that you have seen all over the place. It's quite a unique collab. That is a multiyear type of collaboration that I think shows the role that ASOS can do with these type of brands, and it's generating a lot of positive effects with Adidas and a lot of interest in other brands, and we continue going in this direction. So we feel we have really had an impact on the assortment, on the value proposition our consumers see in front of their eyes. And this additional speed and this additional flexibility has been complemented with a very rigorous inventory management. Remember what I told you about systematic solutions before. We have a systematic way to deal with our inventory. We have a systematic way to tackle the problems early and not late. And putting together speed, flexibility and rigorous inventory management has helped us to significantly accelerate our stock turn or to reduce our -- I always -- reduce our cover, increase our stock turn. It's pretty much the same one way or another. In the last 2 years, we have reduced our cover by 20%, and that is having a very big impact on the quality of what our consumers see and what they're exposed to, but also our profitability because by offering our consumers better product, they buy more product at full price and then we can improve our margins. And that has had an impact, obviously, on our margins. We have systematically increased our gross margin. Last year, 370 basis points, we landed more than 47%. I remember 3 years ago when I said our ambition is to go to 50%, some people said, you are crazy, and probably they were right, but not because of that. Today, we're at 47%, and we are convinced we're in the right way to get to 50%. We are really taking the right steps to get there. And this is pretty much built on this flexibility and this capacity to sell more full price by coming faster to the market. That has been complemented with our effort in our efficiency. As I told you it is one of our pillars. We have looked for systematic solutions that is giving us relevant changes like we have significantly reduced our returns -- our underlying returns in 150 basis points or we have reduced our supply chain costs during the course of the last year, approximately 20%, and we continue finding new ways to improve our costs with these systematic solutions. When we put it all together, we wanted to change our business model to have a business model that gives us speed and profitability. I've been talking about the speed. Let me tell you about the profitability. Last year, we increased our EBITDA by more than 60%. We have increased our profit per order by 30% approximately. This is now a healthy business model that is producing profitability. So we feel in this second step of the journey, we have certainly moved the needle here, and we are in a place where we are now having a business model that is giving us what we wanted. That's why we feel that the time has come to really focus on reengaging with our consumers, focusing on bringing them back to ASOS on regaining their hearts and minds and again, positioning us as the most inspirational destination for young fashion lovers. And we are going to do that based on 3 main ideas. There's always 3. I'm sorry, I'm a pretty boring guy, but it's 3, 3, 3. You can call me Mr. 3, if you want. Three main ideas. The first one is a product we sell fashion -- I have told you many times, we are a fashion company that has technology that runs through our veins. So it's -- we are going to double down on all the exciting things we are doing to have the best product, the most relevant product in front of the eyes of our consumers. We're going to invest in putting our brand more in front of our consumers with a really ROI-driven mentality that is very important. And we are reinventing our shopping experience. Let me give you a little bit of color on each and every of these ideas, but this is what is giving us the confidence that we are in the right path to really return to sustainable and profitable growth. So let's talk about product. Let's talk about what is it that we're going to do this year. And the expression is quite simple. It's double down. We're going to continue doing what we've been doing, but more. So we're going to continue working on speed and flexibility. We're going to take our Test & React from 20% to 25%. We're going to take our flexible fulfillment from 10% to 15%. We're going to continue accelerating. We're going to continue going fast, fast, fast, more relevant, more relevant, more relevant. We're going to also invest more in quality. We are investing in fabrics. We're investing in [ workmanship ], in fits. We're going to continue doing that, investing in improving the sustainability of our fabrics and -- our materials, fabrics in general, not only fabrics, but also trends. And that can be seen in some of the new lines we've been launching recently. These are 3 examples here. You will see here a range, BreatheMax and AS Collective. Different lines we have launched recently, all of them with a focus in higher quality, all of them very successfully. They are having a very, very good reaction from our consumers and they are really resonating with them. And the last thing, we will continue sharpening our brand portfolio. That means new brands coming. So there are going to be more brands coming. That means more collaboration with the brands. The same thing we have done with Adidas, where we are going to -- this is a systematic solution again. We're going to start expanding that to other type of collaborations with other type of brands once we have shown to the world what we can do. Let me go to taking our brand in front of our consumers. And we're convinced that there has never been a better time to do that. And why is that? Well, first of all, because we have the right product. Second, because we have the right economics. As I told you, we have increased our profit per order by 30%. And third, because during the last years, we have learned a lot about how to do it, and we have increased the return on the ROAS of our marketing actions during the course of fiscal year '25. The second idea why we think there's never been a better time to do it is because we have a very, very clear strategy. We will continue increasing the ROAS of our performance marketing, where we are in a very positive path. And we are going to invest in expanding, in more frequency, in more breadth, in more quality of interactions with consumers. These interactions happen in real life, with pop-ups, with events. They happen in social, they happen in campaigns. And we have been learning how to do that, and we feel we are now much better equipped to do that. And what is giving us the confidence that this is true is that we are seeing very positive signs right now. We have seen that during the course of fiscal -- what we have a fiscal year '26, new consumers are growing in the U.K. by approximately 10%. We are seeing that we are getting more engagement and more average spend from our consumers. We are seeing that our retention rates in fiscal year '25 have improved in general, but more especially with our best consumers where they have improved 80 basis points. And we are seeing that some of these marketing actions, that it took us some time to learn, now they are having an impact. I just illustrated, for instance, with the pop-ups we are doing, at the beginning, we were really not getting there. The last 2 pop-ups we have done, one in the U.S. and one here, we have got sales per square meter -- sorry, I still think in square meters. I don't know how to do it in square feet. I still struggling with that. Sales per square meter, that are comparable with the most relevant operations in the market, and they are generating halo effects that are really visible for us, and we are seeing how it is impacting in the areas where we do these pop-ups. So we see it starting to work the way we want. So we are convinced this is the time to double down on what we're doing with marketing. And the last thing comes to the shopping experience. And let me go back to this idea that we offer a unique shopping experience. And again, this is -- you see a picture here, but what I see here is 3 brands perfectly blending into one picture. Here, you will see ASOS Design blending with another story and with ARKET. There is no other place in the planet where you can see that. That's why I say we always offer a unique experience, but we want to make it even more special for our consumers. This is going to be done on 3 axes, on 3 ideas. Again, 3, sorry. Outfits, outfits was always at the core of what we do, but we're going to take outfits to a different level, engagement and personalization. And all this is powered by AI. I know it's going to sound like, okay, you have to drop AI at a certain point in time. Now is the time to drop it. That is not the case. It's like AI is transforming this industry. I'm absolutely sure, and it's not just a belief because I believe in that, I'm seeing it. I'm seeing it with my own eyes, and I'm seeing it in ASOS. It's just like AI is opening possibilities that a few years ago, even months ago, but certainly years ago, were just like a dream, like an ambition, but it was not possible. Today, it's possible. And that is going to bring a lot of, I would say, tailwinds to the digital world. Tailwinds, yes. And we are right there to do it, and we are very, very much into it, always with this mentality of systematic solutions and with a mentality of very rigorous investment, but we are there. So this is something we have already started recently, and let me share with you some of the things we have started to do. One is the launch of our loyalty program, ASOS.WORLD, where we have launched a loyalty program really aligned with our value proposition of delivering excitement, inspiration. So it's not a loyalty program based on discounts. Sorry, if you were expecting that. This is giving access to consumers to exclusive products, early access, exclusive experiences. We launched it with a small cohort of consumers, I think it was in March. We really opened it to a bigger audience in the summer. In the U.K., both during the course of the first 6 months, we reached 1 million consumers -- 1 million members. Today, we are north of 1.6 million. We're very, very excited to see how fast this is growing and even more excited to see the impact design on consumers because what we see is that consumers that join our program increase their frequency and they not only increase their frequency, we get a more qualitative relationship with them. So we depend less on paid marketing, which obviously is good news for us. Second one is ASOS Live. We launched on-demand shopping platform. Every consumer that is interacting with that, 50% of them go to review the product, and they all increase the quality of their relationship with us, increase their conversion rates and the time they spend with ASOS, which is also very important for us. And the third one, the third example that I wanted to show you here is Topshop. We relaunched Topshop.com in the summer. We have seen that the vast majority of the consumers that are interacting Topshop.com are new consumers to ASOS. So it's not consumers from ASOS that now running through Topshop, it's new consumers to ASOS. And these are consumers that are coming with bigger baskets. So it's quite interesting way of capturing consumers. This is only the beginning. There is so much more to come. And I want to share with you just some examples because this is much more of the things that are coming. And I told you there are 3 main ideas. One is outfits. So you're going to see outfit generators. So consumers will be able to choose one item and then request that we generate an outfit for them, but we will use what we know about them and what we know about the trends to generate an outfit that is relevant for them in this moment. They're also going to be able to save outfits, to search outfits, to look for -- to look into the outfits of their celebrities they follow. So there's going to be a lot of a completely new experience or improved experience around the area of outfits that was already present in ASOS, as I've been telling you. Second idea was about engagement, and there's a lot about making it more immersive. And obviously, that means a lot of video. We're going to see much more video coming to the landing page, to the product pages, to the list pages. We're going to be -- we're going to see shoppable reels. We're going to obviously expand our loyalty program. Consumers will be able to search by trend, by occasion. We are going to incorporate much more community and influencers. There's a big, big change here. And the third idea that I told you is personalization, absolutely critical. There is this 4 you tap. We launched an AI Stylist in the past in a collab with Microsoft that we are going to improve even more in a renewal of our collaboration with Microsoft, and consumers will be able to personalize their search, make sure that the brands they love are more present in their search. So it's really a big, big change. But instead of hearing me talking, talking, talking, I thought that maybe it's interesting that you see it all together because when you see it all together is when it comes to life much better. So let me share with you, if I can. [Presentation] Jose Antonio Calamonte: They say that image is better than a thousand words, especially they are my words. So very, very ambitious program, really a step change in our customer proposition, in our shopping experience and a step change that is going to be delivered this fiscal year '26. And you're going to see a big change between what you see now and what you will see in a few months. So we are very, very excited about that. And I'm sure our consumers are going to be as well. This is such an amazing change. So let me conclude by kind of summarizing. As I told you, we have a very bold ambition. We think we have a place in the market and we can win, and we have to go through different steps to get there because it was a big change. We feel we have addressed these issues -- these legacy issues, and we have set the right foundations, structural foundations for this business. We have successfully transformed our business model so that we can offer to our consumers what they want in a profitable way. We are in the right moment, in the right time to really reengage with our consumers. We have a very clear plan. You've seen it. We have all the determination. The first signs we are seeing from the market are positive. We see growth in new consumers in the U.K. We see some geographies offering very interesting performance. We see visits doing much better. We see that the signs are here, and we are totally determined that now is the right time to do it. So now I'm going to hand over to Aaron. He's going to be really giving you the real stuff I gave you the blah, blah. So please, Aaron. Aaron Izzard: Thank you, Jose. But before I jump in, my name is Aaron Izzard, as I've met some of you before, but I'm really proud to be standing as CFO to present the FY '25 financial performance. And before I jump into the numbers, I think it's important to step back and say what was FY '25 about from a financial perspective? It was about delivering the second stage of our transformation, delivering sustainably profitable baseline for us to move forward and deliver against the third stage confidently. And it was really important to me in stepping into this role to make sure that we approach that second stage with the appropriate depth and rigor that it required to make sure that we can move confidently forward. That meant a deeper focus on variable and fixed cost optimization to make sure that we explored and delivered additional opportunities to set us up for FY '26. And the financial performance I'm going to talk you through reflects that. So I'll talk you through all the metrics. Firstly, GMV. This is our appropriate new measure for customer purchases, if you like, and it's our primary indicator of sales. So this reduced by 12% year-on-year, which is a reflection of the cautious consumer backdrop, but also the deliberate profitability actions that we took. Because of this, the quality of our sales improved. Gross margin increased by 370 basis points as a result of the increase in our full price mix and reduction in discounting. Cost to serve, whilst reduced by 12% in absolute terms, increased by 130 basis points, but when taking account of the deleveraging impact of our volume reduction of 200 basis points, there was around 100 basis points of efficiency improvements, which I'll talk about a bit more later. This contributed all of this together towards an improvement year-on-year in our EBITDA -- adjusted EBITDA of over GBP 50 million to GBP 132 million. From a balance sheet perspective, we reduced our stock further by GBP 118 million down to just over GBP 400 million. This is a reduction of 23%, reflecting the new operating model that is now fully embedded and the rollout of our new flexible fulfillment models. This represents the inventory cover that we will take forward, as Jose has already referred to. Free cash inflow of GBP 14 million, slightly reduced versus last year owed to the huge increase in -- reduction, sorry, in inventory that we delivered in FY '24, yet still the GBP 14 million was ahead of guidance. And finally, our net debt improved by GBP 112 million to GBP 185 million. This is as a result of the Topshop, Topman JV that we entered and the subsequent structural refinancing that we undertook in early FY '25. So looking at the geographies. As you can see, there was a reduction in GMV across these geographies, but the important point to note is that profitability improved across the board, which was our main priority for FY '25. There are a couple of geos though that I want to explicitly call out. The U.K. at minus 7% was more resilient as our home market, where consumers really responded to the product actions that we took, but also, of course, in a cautious consumer backdrop. And the other one is the U.S., minus 18%, does not tell the full story. The U.S. was the first market that we took deep profitability actions in FY '24 and many of those actions annualized in the second half of FY '25. When combined with the benefit of our sales of moving the fulfillment back to Barnsley and from the Atlanta closure, this opened up a wider assortment of product to the consumers. And those 2 actions combined with a number of other specific growth-driving activity that was in the U.S. H2 performance was minus 7% year-on-year. And Jose has already touched on it, but I'll talk a little bit more about some of the more recent trends later on. Key driver of our profitability improvement, as we've already said, was our gross margin improvements year-on-year. The main benefit within this was from the commercial model. And what this highlights, again, as Jose has already touched on, is that when we surface the right product, fresh product to consumers, they're willing to pay full price. And that's highlighted in the improvements in our margin through the new commercial operating model. We also delivered improvements through the success of our commission-based flex fulfillment models, and this contributed to the 370 basis points improvement in gross margin. It's important to note, though, that this isn't the result of profitability actions. This is a result of the improved offer that we've generated for the consumer and the gross margin is the output. More choice, newer, fresher product and a cleaner on-site experience all delivers a better experience, and that's resulted in the improvements in our gross margin. I've touched on this already, but our overall cost to serve in absolute terms reduced by 12%, but that is an increase as a percentage of sales to -- by 130 basis points. The volume deleverage, as I've mentioned, accounts for 200 basis points reduction, but also, we absorbed the inclusion of the Topshop royalties, which weren't prevalent in FY '24. That meant an underlying improvement in our efficiency, variable cost, in particular, efficiencies of around about 100 basis points, which was predominantly driven through supply chain, through reduction in returns rates, again, Jose has already touched on, but various different efficiency projects that we've landed. There is also a modest improvement in these numbers from a number of sizable projects that we landed towards the end of H2, most notably, the exit from the Atlanta warehouse, which generates annualized savings that we've talked about previously, but in particular, renegotiation of global distribution contracts, which has delivered a significant benefit, all of which will be felt in FY '26. All of -- the combination of embedded in this new operating model and the cost efficiencies more than offset the volume deleverage and was the main contributors towards our improvement in adjusted EBITDA of GBP 50 million year-on-year. This represents significant progress. And alongside those locked-in benefits that I've already mentioned that we delivered towards the end of Q4 gives us the platform to confidently move forward into our third stage of our transformation. Moving to cash. FY '25 saw modest inflow of cash of around GBP 14 million, ahead of our guidance, as mentioned, and as a result of our improved profit and discipline across the board. The new operating model delivered net working capital benefits of around GBP 40 million, as we normalize our inventory cover. Continued investment discipline reduced our CapEx by GBP 50 million year-on-year to GBP 86 million, although this increases to GBP 100 million when you include the Atlanta automation spend, which was subsequently reclassified to non-underlying. Net interest of GBP 33 million reflects reduced term loan interest from the refinancing that we did at the start of FY '25, but only includes half a year of the 2028 convertible bond interest. I'll talk a little bit more about structural free cash flow in the guidance section. Finally, before I move on to the outlook, I wanted to talk about the refinancing that hopefully you all saw announced last week. So maintaining our investment discipline is absolutely critical going forward to deliver on the final stage, but we embarked on this process in addition to the efficiency projects that we landed to create the investment fuel towards the end of FY '25. We embarked on this project and that one to increase -- improve our flexibility, as we move into the final stage. And I'm confident that this refi supports that flexibility required. This refinancing effectively replaces our first lien Bantry Bay facility, the RCF and term loan and delivers 3 significant improvements for us, extended term of 5 years out to 2030, additional liquidity headroom of GBP 87.5 million and a reduction in our interest rates, which delivers cash interest benefits on an LFL basis of around GBP 5 million. This refinancing reflects the strategic and profitability actions that we've taken and also reflects the partner confidence in our strategy going forward. So I'm just going to turn to outlook now. The clicker works. Thank you. So we expect in FY '26 with the new offer that we're accelerating for our GMV to show improving trajectory throughout the year. And within that, our GMV, we expect to perform around 3 to 4 percentage points ahead of revenue performance. Now we touched on it already, but we've already seen an improvement from the enhancements that we're making to the consumer offer in the metrics that we're seeing in FY '26. So there's been an improved sales trajectory, in particular, in the U.K. and U.S., some of our core markets. But more importantly, the lead indicator for midterm growth is new customer acquisition. And our new customer acquisition is improving across the board and is in 10 percentage points of growth in the U.K. year-to-date. We expect gross margin expansion of at least 100 basis points above 48%. And this, coupled with the efficiency benefits in the sizable projects that we landed towards FY '25, combined gives us the confidence in delivering GBP 150 million to GBP 180 million adjusted EBITDA in FY '26. We're expecting broadly neutral free cash flow in FY '26, which I'll come on to and talk about on the final slide. In the medium term, our guidance hasn't changed. We're expecting a return to GMV growth and adjusted EBITDA margin of 8%, which will contribute towards adjusted EBITDA sustainably being ahead of CapEx, interest and leases to generate structural free cash flow positive. Finally, I wanted to give a bit more context. I've been talking about this structural free cash flow throughout this presentation. But I think it's important to do that to look back over the last couple of years and how we generated our cash. And the chart on the left here shows that a big driver of our free cash flow positivity in the last couple of years has been through the benefits in working capital, as we've reduced our inventory. But we have shown improving structural free cash flow benefits in the left -- the far left-hand graph here, which shows our free cash flow, excluding working capital. We expect our FY '26 adjusted EBITDA of GBP 150 million to GBP 180 million to offset the CapEx leases and interest. But if I move -- if I use FY '26 as the platform for our medium-term aspirations and targets, there are a number of additional aspects in our midterm guidance, which we expect to deliver sustainable structural free cash flow generation. Improvements in our operating leverage through our GMV growth, continued expansion in our gross margin towards 50% and CapEx of 3% to 4% of sales will all represent opportunities to continue to enhance our structural free cash flow, and we are not reliant on any one of them individually to be able to deliver that. To wrap up, we're really, really pleased with the progress we've made in FY '25. FY '25 was about setting a structurally profitable base for us to move confidently into the third stage -- third and final stage of our transformation. And we're really, really confident in the plans that we've got in that final stage to be able to deliver growth and meaningfully free cash flow positive generation. Thanks for your attention. We'll now move to Q&A. Emily MacLeod: Thank you, Jose. Thank you, Aaron. For Q&A, as usual, we'll start with questions in the room first. If you could introduce yourself and where you're from before you ask your questions, that would be great. It looks like it's Anne first. Anne Critchlow: Anne Critchlow from Berenberg. I've got 2 questions, please. So I noticed that average basket value was up more strongly in the U.S. and the U.K. Just wondered if you could comment a little bit generally about average basket value, splitting it out between like-for-like inflation and mix. And do you see perhaps more potential to add more premium brands to the site? Is that the direction of travel? And then secondly, if you could just comment on performance by category, so womenswear, menswear, sportswear and formal versus casual, anything that's interesting and anything that you need to work harder on? Emily MacLeod: Thanks Anne. Jose, do you want to start with both of those questions. Aaron would follow... Jose Antonio Calamonte: Yes. Happy to do that. Good to see you. So we have seen average -- sorry, I was going to say ABV [indiscernible] shouldn't do that. Average basket value evolving positively during the course of the last -- not only the last 12 months, probably more the last 24 months. And we read that obviously, as an impact of our strategy to be able to have a more collective relationship with consumers and then they buy more full price, hence, less of a discount. So we've seen growth of 3% to 5% consistent year-on-year, one year and another year. And that has happened, if you want so far, not through a growth of number of units, but not with a decrease of number of units. So it's pretty much stable. It's more a growth of the value of the items consumers are putting in the basket. A different thing is what you were asking about more premium brands. And we have added a lot of brands, 100, during the course of the last 12 months. Some of them are more premium, and I was showing a picture with ARKET that can be considered for us a more premium brand or another story. In the other picture, it was Dragon Diffusion, but it is a bags brand, also can be considered more premium. It is having a very good -- Good American could be probably another example. It is having a very good reception with our consumers. So we are seeing an interest in brands that are -- I mean, the word premium is premium for our consumers in the perspective of the market. They are a little bit of mass market or higher up, the upper part of the mass market. The high end of the high street, probably I could say, is having a very good reception. Our consumers want relevant products. And when it's relevant, if it's a little bit more expensive, they are willing to pay the money for it. So certainly, it's a direction of travel. We are bringing more of these brands because we are seeing that our consumers are interacting well with them. So at the same time, we keep on bringing other brands that are lower price points, and we have other consumers that are fine with that. We always try to keep a very, very broad assortment for different type of consumers. So -- and then in the performance by category, we are happier with the performance in womenswear, definitely. It's the part that is working better. It's where we have put more effort. And -- I mean, not trying to damage anyone. Clearly, this is the core of our business, just like the business in fashion at least for ASOS is pretty much in womenswear. So this is where we're seeing a better performance. Sports, we are seeing a very good performance in apparel of sports, which was not the case in previous years that all the performance of sports was coming from footwear. Now it's coming more from apparel. Footwear is a little bit weaker, to be honest. And in our case, I mean, apparel is doing incredibly well, also fueled by some of the call-ups -- we are doing the call-up, we're doing with Adidas, is having a really big impact. So obviously, that is also doing it -- if you want, is amplifying the impact. In terms of categories, we are happy with jersey, with needs, but it's not -- there is not a clear standout, if you want, in terms of categories. So we're happy with what we're seeing in the collection and it's fairly well balanced. Emily MacLeod: John, would you like to go next... John Stevenson: Yes. John Stevenson at Peel Hunt. A couple of questions as well, please. Interested in the -- who the customer is in terms of the 10% growth in U.K. customer base you're seeing coming through. Are they hitting the same metrics as your existing core? Are they buying the same stuff for the KPIs you saying? Can you sort of talk about how you're attracting these guys in and what they're delivering to the mix? Secondly, just in terms of cost efficiency, Aaron, you mentioned, obviously, a lot of the work done last year. There's obviously a lot of like-for-like cost reduction coming in this year. Can we quantify that? And finally, if you can comment on what you think the right balance sheet structure will be for ASOS in the sort of 2, 3 years out? Emily MacLeod: Thanks, John. Jose, do you want to take the question on new customers first? And then, Aaron, you can take the second and third questions. Jose Antonio Calamonte: John, good to see. So yes, we are happy with what we're seeing in the U.K., seeing new customers. Obviously, it's very early to understand very well these new customers because the fact that they are new means that they have not interacted so much with us. But if you want in general terms, what we're seeing is that customers are improving the quality of the engagement with us. Let me explain what I mean with that. They're buying more categories. We are moving away from -- I mean, moving away, not completely, but we are reducing the amount of new customers that come on buy only one category. They're buying more categories. They are buying less promotion. We're also seeing that. And also, they are buying more fashion-oriented type of products. So in principle, it's all good signs because we know when consumers buy more categories or buy more fashion categories, they tend to be better consumers over time. But it's still early to know if that is going to have an impact or not. What we have seen is during the course of fiscal year '25, we have reduced churn on all types of consumers. So I think it's probably somehow correlated. Aaron Izzard: Thank you, John, for the question. I'll take the first part first. So the cost benefits I'm not going to quantify it, but what I can tell you is a number of the various different projects that we've done. So as I mentioned already, we have the benefit from the annualization of exit in Atlanta. We've already talked about the values there. Significant benefits from renegotiation of our distribution contracts, that's globally. It started in the U.K. As you can imagine, a sizable project that we expect to have huge benefits in FY '26. We are also reviewing all of our various different SaaS contracts and SaaS operations to streamline our underlying support in tech and continuing to review our returns fair use policy and various different activities to improve the experience for consumers, and that we expect that to improve our returns rate as well. In terms of the balance sheet structure in 2 to 3 years, look, our goal is to be neutral on debt and not have a net debt. But ultimately, what we want to do over the next few years is focus on growth. And the important thing for me when delivering the refinancing was making sure that we give the flexibility to the teams and the focus to make sure that if there are high ROI opportunities that we can invest in them for growth. But ultimately, we're building towards generating free cash flow and getting ourselves into a net neutral position, which will also help us capitalize, of course, on interest costs in the future. John Stevenson: How much of a restriction was the lack of headroom in the old facility? Did that actually stop you? Aaron Izzard: So I wouldn't say a restriction. Ultimately, we've created more flexibility. We had previously GBP 150 million term loan and the RCF wasn't available based on the ABL facility. What we've got now is a facility of GBP 150 million and GBP 87.5 million, which is readily available. So it creates additional headroom for us that allows us the flexibility, as we move forward. Emily MacLeod: Mia, I think you've got a question next. Mia Strauss: It's Mia Strauss from BNP Paribas. Just 2 for me. Maybe -- if we can maybe look at the customer profile over the last 5 -- say, 5 to 7 years, what sort of age demographic you're looking at? So maybe is the customer 5 years ago, someone who was 20 years old and they've now grown to 25? And do you have enough of the Gen Z cohort in that? Or do you need them? And then secondly, what sort of impact are you seeing from TikTok Shop? How you plan to compete with them? Because they're obviously more of a discovery sort of platform. So I appreciate the AI initiatives you're doing on your side, but is it maybe a little bit too late? Or just how you plan to address that? Emily MacLeod: Thanks. I think, Jose, if you take both of those questions, please? Jose Antonio Calamonte: So on the customer profile, obviously, we measure the average age of our customers. And what we have seen over the course of the last 5 years -- probably not sure 5, maybe it's a little bit too, but over the few years, is that it has not changed significantly. I think we have got, I'm going to try to be too precise, probably I'm wrong, 11 months older. So it's not a massive change. It's pretty much in the same space. You were dropping something interesting in the question that was like this Gen Z, do we need them? It's like our bull's eye, if I can use that expression, is 20-something. We used to use that expression. It's people in their 20s. Obviously, Gen Z would be probably a little bit young. But anyway, so -- but that doesn't really mean that we only talk to these consumers. You go to your bull's eye, but you know you have consumers that are older and younger for sure. So yes, having some Gen Zs -- of course, having Gen Zs plays a role, and we do have Gen Zs and actually, that's why we have such a broad assortment. We have some of our brands that are more targeted towards these younger consumers, whether Gen Zs or Gen Alpha, whatever they are now. So -- but it's not the core of our consumer. It's not that Gen Z is where we are -- it's not the bull eye, if that makes sense or not yet. One day, they will become bull eye. Then on the TikTok Shop, we are present in TikTok, which seems to be something really, really big in the U.S., not so big in the U.K. We are not seeing such a huge explosion in the U.K. We really use TikTok as a place of discovery, but not necessarily where people are executing the purchase. So we are present in TikTok with the TikTok Shop, and we also have our social marketing happening not only in Instagram, but also in TikTok, we're pretty active. And it's true. It's a place of discovery. It's a place where people go to find new brands. But at least in the U.K. and in Europe, we are not seeing this explosion that they seem to be having in the U.S. But we are there. And if that becomes a bigger channel, we will obviously capitalize on that because our obsession is to be where our consumers are. So it's like we are agnostic about that. It's like we want to be wherever they are. Mia Strauss: Just to follow up on that. Maybe what is your approach to the marketing side? So I appreciate that maybe the transaction doesn't happen on TikTok, but how do you get them from TikTok onto ASOS when you've got tools like the AI Stylist and things like that? Jose Antonio Calamonte: That's a great question. TikTok or Instagram could be similar. Obviously, we have a big presence there. We are working not only organically, we also work with content creators, with influencers from more well known to less well known. When we did, for instance, the relaunch of Topshop.com, we work with Cara Delevingne, super iconic, but we are working every day with influencers. So the ambition is, as I was saying before, to be where our consumers are, to be top of mind for our consumers. Then there is a transition into ASOS when they have more the intention to buy. Once they come to ASOS, tools like the AI Stylist plays a very important role in going back to this idea of the outfit. It's like consumers, what we see is that consumers don't buy one thing isolated. They want to buy a dress, but they want to understand how to wear this dress, which are the right shoes, which one is the right bag, which one is the right makeup, which one is the right. So there -- today, we have always been, in that sense, different because we've always brought this idea of outfits. But it was, if you want in a sense, a little bit static. It was much better than going to a physical store because in a physical store, you could see 10 outfits. And in ASOS, you could see 100,000 outfits. But it was static. Everybody was exposed to the same outfit. Suddenly, the AI Stylist, so AI as an enabler, is giving us the possibility to generate a specific outfit for every consumer, and that is incredibly powerful. What we're seeing is that the consumers that interact with the AI Stylist, they increase by 50%, I think it is, the amount of items they save for later. And we know that this is a leading indicator. When people start saving for later, they end up buying. So it is having a big impact. We're working -- as I said before, this is something we did in collab with Microsoft. We are not generating our own LLMs or anything like that. That would be completely crazy. And we will continue -- we are renewing our strategic alliance to continue developing that and to make it even better. The more we train the model, the better the model knows the consumers and the better the recommendations. And we are seeing an evolution there. So we see that there is a very natural flow from I discover a place where I can find what I want to I really want to transact with that place and then I want to do it in a more comprehensive way. Sorry, a very long answer. But don't let me talk too much because I could talk for hours. Emily MacLeod: Super. Sarah, do you want to go next and then Yash after? Sarah Roberts: Sarah from Barclays here. So just firstly, on the guidance of adjusted EBITDA of GBP 150 million to 180 million. Can you just take us through the puts and takes of what you need to believe in to get to the higher and the lower end? And at the higher end, do you have to believe in a return to growth next year? And then secondly, more broadly, we've seen a lot of headlines about agentic e-commerce in the news recently, potentially changing how consumers shop online. Just curious what your thoughts are on how ASOS fits into an agentic e-commerce world? Are you making investments in tech and product at the moment? And I suppose, are you -- could you consider partnerships with some of the AI players as we've seen Shopify do in the U.S. Emily MacLeod: I think, Aaron, if you take the first question on guidance and Jose, you can take the second one on agentic AI. Aaron Izzard: Yes. Great. Thank you, Emily. Thank you, Sarah, for your question. We've built our guidance for next year so that it doesn't require growth. That's the exact reason that we, you might say, extended our process on the second stage of this journey, creating us the flexibility, creating the investment fuel to be able to move confidently into the third stage. So within that guidance range, there is no explicit requirement for us to return to growth. But of course, what we've guided to is an improving trajectory on GMV, and that's what we're building towards. I think for us, really, the key thing is we've landed that second stage. We've created the efficiencies that enable us to move into structural free cash flow positive. The focus now is on making sure that we double down, as Jose said, on that final stage across investment in marketing, which will have a higher return on investment against it, against the customer experience and continuing to enhance our product offer. That's the focus. That's what we're getting everyone in this business focused on. And as we do that, it will enable us to continue to move through the guidance range. Jose Antonio Calamonte: Yes. So on agentic e-commerce, I guess you refer to checkout happening directly in ChatGPT or whatever of these things. So obviously, probably, we're going to get there. I think it's a very, very likely direction of trouble that is going to move from what today we call SEO more to, I think they call it GO -- sorry, I'm awful with these DLAs. There are so many. But -- so it's a different type of search engine type of optimization and marketing into this. And it will be a big change in the market. But at the end, the consumers will have to find a place to close the transaction. So obviously, we are open to that. I mean, as I said, we want to be wherever our consumers are, we don't skip. We just want to make sure that we offer the best assortment, the best shopping experience, and we are convinced that, that is the winning formula. Then you were talking about us partnering with AI specialists. And we do that. I mean we have -- as I said before, we have a strategic alliance with Microsoft. We have another alliance, an aesthetic project with a player called Sierra. Probably you guys never heard of them, but they are probably one of the biggest players in terms of AI solutions for customer care. And today, almost 50% of the interactions we have with customers in the U.K. happen through an AI solution and growing. And we're partnering with smaller start-ups as well. We have a partnership with a Turkish start-up. We have a partnership with some start-ups here in the U.K., in Israel. So we have a really big setup of different ways of approaching AI. As I said, we are doing that because we see that this is a fundamental change in the industry, and we are really embracing it. But we are doing that with a lot of rigor, making sure that our investments are really always under control, and they always bring value added to our consumers. So we're really focusing on that. But yes, we're really embracing the AI opportunity because we're convinced it is not going to change. It's already changing, as I said before, this market. I don't know if that was what you were looking for, Sarah. I hope it is. Emily MacLeod: Thanks. I think, Yash, you might end up being the last question in the interest of time. So just go ahead. Yashraj Rajani: Yashraj Rajani, UBS. So the first question is, if I just look at some of your competitors, whether it's the European pure plays or some of the U.K. omnichannel players, right, there's a big dichotomy in the performance of you versus them. And I appreciate there's been some legacy issues that you've been dealing with. But now that the legacy issues are behind us, who do you think you can take share from, especially given that some of these players are meaningfully larger than you, right? So that's the first question. And the second question related to that is, Jose, you spoke about trying to train the models and actually models getting better over time. Again, some of your competitors have bigger customer bases than you. Maybe they're a little bit ahead in some of that journey. So do you feel like you're playing a little bit of catch-up on that front? And if so, I mean, how are you making sure that you're getting in line or better than them? Emily MacLeod: I think Jose, if you take those questions. Jose Antonio Calamonte: Yes. So on our competitors, well, this is probably one of the most competitive markets in the planet. And I've said that so many times that that's why it's so fragmented. So we will be taking share from a lot of them, not just from one. It's not that we are going behind one. Our consumers today buy in ASOS. They buy in a lot of these competitors, you have implicitly mentioned. They are buying in other competitors you have not mentioned like secondhand or -- so there is like -- and we are not just going after one. We are not going after the entry price point. We're going after these individuals that they are interested in fashion at a competitive price. I think our current and future consumers are pretty much everywhere. There is not one target. There's not -- we're going to take it from competitor A, B or Z or whatever. We're going to take it probably from most of them. And this is what we're seeing in these new consumers that we are receiving. Actually, almost every consumer buys in more than one place. It's almost impossible to find a consumer that only buys in one place or consumers buy in different places. So it's also changing the share of wallet that they have here and there. On how do we train the models and if we are playing catch-up? That's quite an interesting question. When we talk to companies like Microsoft, clearly, we're not playing catch-up. We're ahead of the curve. We are one of their key partners globally to do that. So -- and it is true having a lot of information is very important. We have 16 million consumers, so we do have a lot of information. But it's not only the information you have, it's the quality of the information you have. And a lot of these competitors might not have the same quality of information. Omnichannel brands have normally less quality of information because -- so the offline interactions are less qualitative in terms of data, I mean. And even some of the online players, they are more worried about the transaction itself, where we're very worried about also the styling behind the transaction. So we have a very, very qualitative type of information about how consumers interact with different styling. And that is incredibly important for the journey we are trying to define, not for a different journey. So I think I'm convinced we're not playing catch-up. If anything, we're ahead of the curve, and we are determined to continue being ahead of the curve. Aaron Izzard: I think if I may, just to build on that. AI for us, we feel we're uniquely positioned to capitalize on AI, not only versus the offline players, but also if you think about the -- what Jose described around outfits and personalization, with this being a really core part of our proposition that we're going to add for consumers, that is different to what others are doing. And the use of AI can really turbocharge that, presenting outfits across tens of thousands of different products that we hold across a multitude of different brands and being able to surface them to the consumer in a really personalized way. I think this really gives us an opportunity for us to capitalize on, and that's how we're thinking about this with our new strategy and how we can utilize AI to turbocharge. Emily MacLeod: That's us at time. Thank you, everyone, for your questions. Jose, I'll just pass over to you. Jose Antonio Calamonte: Just wanted to thank all of you for coming here, especially on a Friday. I know it's not the easiest day to come. So thank you so much. As we both have said, we're incredibly excited about where we are and the prospects. We are very, very excited about the signs we're getting from the market at this beginning of fiscal year '26. And we will continue with this journey to completely finalize our journey to make ASOS the most exciting fashion destination in the planet, and I hope you guys will all witness this soon. So thank you so much, and looking forward to the next interaction with you guys. Thank you. Have a nice weekend.
Operator: Good afternoon, and welcome to the Tracsis Plc Final Results Investor Presentation. Today, we are joined by David Frost, CEO; and Andy Kelly, CFO. [Operator Instructions] I'll now hand over to David to begin the presentation. Thank you. David Frost: Yes. Thank you, Harry, and welcome, everybody. We appreciate you joining us today. It's a real pleasure to be here and presenting to most of you for the first time. Next slide. So on to the agenda. Andy and I will start by walking you through a review of performance in FY '25, and we'll then talk about the strategic direction, the growth opportunities and the outlook for Tracsis in FY '26 and beyond before we move on to take questions from you. Next slide. So just to set the scene from myself, a few key messages for FY '25. Firstly, performance improved in the second half, which meant we were able to deliver full year results that were in line with the revised guidance that we gave back in April. As part of that, we resolved the profitability issues in Traffic Data & Events, and we entered the new financial year in a much stronger position as a result of that. Secondly, we made good progress in the areas that matter most for the long-term success of the business. Recurring revenues are an important focus area for us, and they continue to grow at a healthy rate. We won new strategic multiyear contracts, both in pay-as-you-go and also in GeoIntelligence, which will support future revenue growth. And we also completed the transformation of our operating model, bringing the Rail Technology & Services division under a single global leadership while investing into next-generation product platforms, which we'll come on to later in the presentation. Market-wise, we continue to see uncertainty in U.K. rail, which looks very likely to persist through FY '26. Control Period 7 funding remains constrained, and the proposed renationalization of the train operating companies alongside the creation of Great British Railways is having a negative impact on procurement timelines. While the recently announced railways bill is a step forward, there is still a long way to go before GBR is fully up and running. So we cannot control the timetable, but Tracsis continues to be well positioned to help deliver the government's long-term strategic vision for the future of the U.K. railway. In our planning for FY '26, we had anticipated that these headwinds in the U.K. would continue. And so our expectations for the full year are unchanged and consistent with market expectations. In the immediate future, we are focused on building on our H2 performance with a major emphasis on execution. In parallel, we have a clear and focused strategy for driving longer-term growth and margin accretion. We will share more later in the presentation, there's no real change in direction, it's more about building on foundations and tightening up on how we put the strategy into action. Next slide. Before we go into the detail of the presentation, I thought it was appropriate to share and reflect on my first 100 days with the business. My first observation is that the fundamentals of the group remain really strong. Tracsis has a combination of market-leading technologies and deep domain expertise that differentiate us in the attractive transport end markets that we serve. We're continuing to win new strategic contracts and embed long-term customer relationships, which in turn support growing levels of annual recurring revenue. And the progress we've made in organizational transformation means we're now ideally placed to deliver our near-term priorities while positioning the business for future growth. Those near-term priorities are really clear for us. The leadership transition has been completed smoothly with a structured handover from my predecessor, Chris Barnes. There have been no other changes to the senior leadership team, and we are now focused on continuing to build organizational capability to support both FY '26 operational delivery and our longer-term growth ambitions. It's all about progressing the drivers of organic growth transformation, building the pipeline of future opportunity, investing in SaaS-native products and increasing penetration in international markets in a very disciplined way. We continue to believe that North America offers a significant long-term opportunity for the group. I have actually been there twice during my first few months and have met with customers, industry leaders and railroad CEOs while spending time with the Tracsis team in the region. It's pretty clear to me that we have a high-quality, well-differentiated profit -- product offering in North America with our PTC-enabled train dispatch software. The deployment with Northern Indiana that was completed in September of 2024 is operating well. And from my recent conversation with other railroad leaders, it's clear there's a healthy pipeline of opportunities across passenger, freight and industrial operators with the industry actively looking for credible new technology providers. It's no secret that our progress in winning new opportunities has been slower than we anticipated, but procurement timelines can be lengthy. Behind the scenes, the team have been working hard to build and progress our pipeline. We do need to remain patient, but I firmly believe North America is a key growth opportunity for us. And finally, we're continuing to review our portfolio alignment, something I know many investors are interested in. And to be clear, M&A remains very much a key component of our growth strategy and something that we're focused on. So with that, let me hand off to Andy, and he will talk you through the financial highlights for the year. Andrew Kelly: Thank you, David, and good afternoon, everyone. So as David mentioned, our performance for the year was in line with the guidance we gave back with the interims in April. And that includes a much improved second half trading performance following a softer first half of the year. The second half improvement included the recovery in our Traffic Data & Events businesses, where actions that we took early in the year helped to improve profitability as well as the benefit from delivering the first phase of development work on a Tap Converter contract that we announced in February 2025. The group is typically more profitable in the second half of the year. That reflects the seasonality of our revenue streams. And in H2 of FY '25, we achieved an adjusted EBITDA margin of 19.2%, which was 331 basis points higher than in H2 of the prior year. And overall, we delivered modest revenue growth year-on-year despite the market headwinds that we referenced earlier. Importantly, within this, we've continued to deliver stronger growth in recurring and transactional revenues, which are key long-term value drivers. And in combination, these increased by 8% over the prior year. The group's balance sheet remains strong. We saw a healthy improvement in free cash flow generation. And we ended the year with GBP 23.4 million of cash on the balance sheet, having fully completed the GBP 3 million share buyback that we announced in April. We put in place a new GBP 35 million RCM in the second half of the year, and this remains undrawn. And on the dividend, we've maintained our progressive policy. We're recommending a final dividend of 1.4p per share, which would result in an 8% increase in the total dividend to 26p. So looking at the financial performance in more detail. As usual, I'll start with the group consolidated performance and then break out the divisional results in more detail. So total group revenue of GBP 81.9 million was 1% higher than prior year on a reported basis. It was 3% higher on a like-for-like basis after adjusting to revenue from the lower margin, non-software-related consultancy activities that we exited at the end of FY '24. Adjusted EBITDA of GBP 12.6 million was slightly lower than last year. And this really reflects 3 main drivers. Firstly, the Control Period 7 funding headwinds impacted volumes of our Remote Condition Monitoring hardware in the U.K. Revenues here were 42% lower than in the prior year, and this had an adverse effect to profit of approximately GBP 1.5 million. As you'll probably recall from the interim results, we have seen a significantly lower level of profitability in our Traffic Data & Events businesses in the first half. Second half performance here was much improved, I'll talk more about that when we get to the divisional review. However, the total profit contribution from this part of the business was lower than we achieved in FY '24. And offsetting these headwinds, the rest of the group delivered an EBITDA performance that was approximately GBP 2 million higher than last year. That includes the benefit from exiting those lower-margin consultancy activities as well as healthy underlying growth across the rest of the U.K. rail portfolio, excluding Remote Condition Monitoring. Over the last 2 years, we have completed a program of actions to transform the group's operating model. That's focused, in particular, on integrating and enhancing our technology, development and delivery capabilities. And alongside this, we've been working hard to upgrade operational systems, streamline our operating footprint, exit from lower-margin activities and, in some cases, contracts and address other legacy issues that have restricted our ability to deliver revenue and margin growth. Our FY '25 results include the final tranche of costs associated with these actions, with GBP 2.4 million of exceptional costs charged to the income statement, of which GBP 2 million were cash costs. Our statutory profit metrics were improved versus prior year. In addition to a lower level of exceptional costs, this also includes over GBP 0.5 million of additional interest income on our cash balances, and that includes the benefit from having centralized our cash management actions, which is one of the work streams that we completed as part of those transformation activities. So turning now to divisional performance, and I'll start with the Rail Technology & Services division. Total revenue in this division was 1% higher than the prior year. As I previously referenced, that did include a lower level of Remote Condition Monitoring hardware revenue in the U.K. from CP7 headwinds. And excluding this, the rest of the portfolio delivered revenue growth of approximately 7%. And as you can see from the charts on the right-hand side of this slide, the quality of revenue in this division is improving. And in FY '25, we delivered further growth in recurring and transactional revenues, which are the drivers of long-term value. Recurring software license revenue increased by 6% to GBP 23.2 million. And transactional revenues from our smart ticketing and delay repay products grew by 17% to GBP 4.1 million. The balance of the revenue in this division includes that Remote Condition Monitoring hardware revenue as well as milestone-driven project and bespoke development work. This was overall 14% lower than in FY '24, principally driven by the lower level of Remote Condition Monitoring hardware in the U.K. There was a lower level of project revenue in North America that followed the go-live of our Train Dispatch product with Northern Indiana in September 2024. And from a divisional perspective, that was offset by the first phase of development work on the Tap Converter that started in the second half of FY '25 and will continue throughout FY '26. EBITDA of GBP 9.6 million was 2% lower than the prior year that includes the approximately GBP 1.5 million adverse impact from Remote Condition Monitoring, offset by growth across the rest of the U.K. portfolio. Turning next to our Data, Analytics, Consultancy & Events division. Revenue here was 5% higher than the prior year on a like-for-like basis after excluding the exited consultancy activities. This was principally driven by high activity levels in events, where we achieved a record year with revenue in excess of GBP 20 million. That more than offset an overall lower level of revenue from Traffic Data. You may recall from the interims, we had approximately GBP 0.5 million revenue headwinds as one of our largest customers suffered a cyber attack in our first half of our financial year. That has been fully resolved. Activity levels in Traffic Data and with that customer return to normal in the second half of the year. However, we weren't fully able to recover that lost revenue from H1. We also saw a slightly lower revenue contribution from our GeoIntelligence business based in Ireland. And after a very soft first half, full year profitability in this division was overall consistent with FY '24. That includes a much improved performance in Traffic Data & Events. And whilst the absolute EBITDA contribution from those businesses was still lower than the prior year, together, they achieved an H2 EBITDA margin performance that was approximately 400 basis points higher than in H2 of FY '24, and we expect to see a full year benefit from that in FY '26. The lower EBITDA contribution on the Traffic Data & Events side was offset by professional services. Our GeoIntelligence business post year-end has won a multiyear contract with the U.K. government, and that underpins our growth expectations for FY '26. And then turning lastly to cash. The group continues to deliver a healthy level of cash generation. Despite the slightly lower level of EBITDA, free cash flow generation in the year of GBP 7.7 million was GBP 2.3 million higher than in the prior year. That was driven largely by favorable working capital movements including an unwind of the large trade receivables position that we had at the end of FY '24. There was a lower level of cash outflows relating to transformational activities and higher net cash interest received. Of the GBP 1.4 million cash outflows for exceptional items in FY '25, GBP 0.4 million of that relates to costs booked in FY '24. And there's approximately GBP 1 million of cash outflows that we anticipate in FY '26 in relation to costs that have been booked in FY '25. We've continued to invest in product development through the year, including future enhancements for our train dispatch product in North America. We also invested to acquire and develop the AI platform that's used by our Traffic Data business. Overall, our total cash balance increased by GBP 3.6 million to GBP 23.4 million. That includes completing the full GBP 3 million share buyback in the second half of the year. So this leaves us well positioned to continue to invest in a disciplined way, consistent with our capital allocation framework. And the new RCF provides us with additional headroom, flexibility and strategic optionality to invest for growth while continuing to maintain a robust balance sheet. So with that, I'll now hand you back to David to update you on the group's strategy and growth transformation opportunity. David Frost: Yes. Thanks, Andy. As mentioned previously, we've refreshed our strategic thinking as we move into the next phase of growth. And look, our purpose is simple. We make transport work, but we do so while driving safety, efficiency and sustainability in our customers' operations. We want to lead the future of sustainable, intelligent transport, and this is a really dynamic and fast-moving space. Our world is becoming ever more digitized and more connected, and the importance of transport networks to support the way we live and work in safe, efficient communities is only going to increase. Our ambition is to be at the center of that, creating technology and solutions that revolutionize how the world moves and make a lasting difference. Next slide, please. At the highest level, we have a very substantial global transport market, which is growing at an attractive rate, fueled by the demand for safer, more sustainable and seamless journeys. There are endless opportunities for Tracsis within this, but we are choosing to play in rail and road segments of the transport market, where we have a presence today, deep domain expertise and cost leading technology. The tailwinds in these sectors increasingly align with the solutions that we provide from urbanization, population growth and aging infrastructure through to multimodal frictionless travel and the growing demand for digital transformation, automation and the deployment of AI, this is what we do. We are talking about long-term structural trends that play directly into our strengths, and we are well positioned to benefit from them. Next slide. So moving forward, we think of growth in the form of 4 transformation factors. Firstly, and importantly, our priority is to focus on our core markets continuing to expand into white space through cross-sell and upsell opportunities. Secondly, we will invest in our roadmaps, producing a pipeline of SaaS-native products that we can sell in our core and international markets. Thirdly, we will target international growth through the deployment of our go-to-market model, augmented by the new products and the services that we will develop. And then lastly, M&A will continue to play an important strategic role in supplementing and supporting our organic growth. We have a disciplined approach to investing in target opportunities, and all acquisitions will be fully integrated into the one Tracsis business structure. These 4 vectors give us a very clear, practical and deliverable pathway for long-term growth. Next slide. So our journey continues. We have a great business at Tracsis, one built on technology and deep domain expertise. We have completed the operational transformation phase, opening the door for the next logical chapter in our story, the growth transformation phase. There is an opportunity here for us to scale our business internationally, expand into attractive transport adjacencies and invest in SaaS-native products that address global market requirements while accelerating recurring revenue and margin accretion. Look, it's not going to happen overnight, but we feel we have the strategy, the capability and the ambition to deliver steadily and sustainably. We know what the building blocks are for us to make this long-term vision a reality, and we really look forward to sharing our progress with you all as we move forward. Next slide, please. Finally, we'd just like to recap on the key takeaways from today. We have delivered a much improved financial performance in the second half of FY '25, and our expectations for FY '26 remain unchanged, with ongoing U.K. rail uncertainty already factored in. Our short-term priorities are clear. Our underlying fundamentals remain strong, and we continue to win new multiyear contracts that grow our recurring revenue. In summary, we are prioritizing near-term delivery while we build for an exciting future, one defined by greater scale, improved margins and enhanced long-term value for our shareholders and other stakeholders alike. Next slide. So at this point, we're happy to take any questions. Operator: [Operator Instructions] We've had some pre-submitted questions and questions submitted live. The first one being, Tracsis is trading at its cheapest multiple since it was listed in 2007. You have over 20% of your market cap in net cash. Stock buybacks would create a lot of value for long-term shareholders at these depressed levels. How high are these on your capital allocation priorities and why? Andrew Kelly: Yes. Thanks for that, Harry. So in our announcement, we have laid out our capital allocation framework. So we've got clear priorities in 3 areas. So firstly, that's around organic growth, and that includes investment in new product development. Secondly, as David said, we see M&A as a core component of our growth strategy, applying very disciplined criteria to that with an intention to integrate acquisitions into our operating model. And then thirdly, from returns to shareholders perspective, we're committed to the progressive dividend. Right now, we haven't got any firm plans to do a further buyback, but as you can imagine. And as the question hints at the current levels, that will be something that we continue to review as we go forward. Operator: The next question is, what is the acquisition pipeline of good businesses like? David Frost: Yes. So look, coming into the business, I was really pleased to see that there is an active M&A pipeline. I think Andy and I would like to see more strength in that with higher-quality assets available to us, but having said that, we are actively pursuing opportunities today through this disciplined lens of making sure that it aligns fully with the strategic direction we're looking to take the business. So it must enhance the technology capability, it must help us to address the attractive adjacencies within the transport market and hopefully help us to progress on our internationalization plans that we have shared with you. So we expect M&A to be more of a bolt-on type approach, certainly for the near and midterm as we -- it's been 3.5 years since we've done an acquisition in this business. We believe we've got good foundation to get back onto the M&A trail, but do that in a very disciplined way. We're not considering anything transformational at this time because we do genuinely believe that there are good quality assets out there that fit the criteria that we are outlining here. And importantly, we now have the financial capital and financial firepower to be able to go and execute in this area of our strategy. Operator: The next question is, there is cash in the bank, and you recently agreed a new RCM. Does this mean you're weighing up something more transformational from an M&A perspective? David Frost: Well, I mean, I guess I've just covered that off in my previous answer to how we're thinking about disciplined approach on M&A. So nothing transformational on the agenda at this point in time, but certainly looking at bolt-on opportunity. Operator: This comes from an investor. If I hold for the long term, i.e., 3 to 5 years, what's the main reason Tracsis' share price should go up? Andrew Kelly: Well, we believe that there's an awful lot of growth opportunity available to the business. We have -- our top line has been flat for the last 3 years in this business while we've been delivering that transformation, while we've been putting those foundations in for future growth. So as David summarized at the start of the presentation, we've got extremely strong fundamentals here. We've got a rich IP in the business. We've got deep domain expertise. We've got a strong balance sheet, healthy cash generation, and a healthy capital position today. And we're embedded in a transport ecosystem and transport markets where we believe the digital journey has only just begun. So we see an awful lot of upside and future opportunity for the business. And that's really our focus as a management team is to deliver and execute on that and hopefully create a lot of sustainable value for all of our stakeholders going forward. Operator: Another question on cash. H1 revenue was flat, but cash increased. How did you manage to generate so much cash despite lower EBITDA? Andrew Kelly: So we have a fairly seasonal revenue pattern in this business, driven largely by the activity levels, particularly on our base side of the business in H2, but also in our Rail Technology business. So we typically end the year with a high trade receivables balance that unwound in the first few months of FY '25 as it typically does. So that helps to support the healthy cash generation in the first half of the year despite the lower EBITDA performance. Operator: You say Tracsis is the go-to U.K. Rail Technology provider. If this is the case, how much white space can there be in your core markets? David Frost: Yes. We think about core markets as geographically, U.K. and Ireland. And then from a transport market point of view, obviously, rail and road, but also some, what we call, land application areas for things like agricultural technology. So they are our core markets. And within that, there is a well-defined customer group that we serve today and have done since the birth of the business back in 2004. Having said that, we are well positioned across that customer group, but there is always opportunity for us to cross-sell and upsell the broader Tracsis portfolio. And I'll give you a good example of this because we think of this as land and expand. So when we sell to any customer, we do not sell the entire Tracsis portfolio on day 1, in fact, quite the opposite. We penetrate a customer by selling 1 part of our capability, and then we're really good at then landing and expanding. So once you are in, it gives you an opportunity to present the broader capability. Probably a good example case study to share with you is Transport for Wales, where we are now delivering both Rail and Road Technologies into that single customer, but that took time, took sort of patience and time for us to develop, but good example of our ability to do that. And that's what we mean by white space within our core markets. We are not selling the entire portfolio to every customer that we have today, and therefore, that continues to present opportunity for us as we go forward. Operator: Why would international growth create value for shareholders? Isn't the market saturated with solutions already? David Frost: I think the short answer is no to that. And hopefully, we've shared some of the color behind how we think about international markets today. We are -- Andy and I are very focused on firing up an organic growth engine in this business, something that we've not particularly had in the past. Tracsis has been borne out of a buy and build through acquisition principally. And we're now sort of turning attention to how do we really get organic growth to a level that we would like to see. And the investment in the product developments that we've talked to and then the disciplined internationalization of our business will be 2 growth factors that support the organic growth side of our strategy. Operator: The U.K. Rail Funding headwinds, especially the CP7 hardware revenue decline of 42% in 1 category, what contingency plans does management have if those headwinds persist? Andrew Kelly: Yes. Look, we see the headwinds in the U.K. Rail market at the moment persisting through FY '26 -- for our financial year FY '26, but we do see them as temporary in nature. The government has published the railways bill in the last few weeks, which is a key step on the path to creating Great British Railways. And we think when you look at the strategic objectives that are outlined in that bill around efficiency, around asset availability and network reliability and around rolling out pay-as-you-go ticketing, we think Tracsis is really well placed to support with that and to continue to be a key technology provider that enables that future. So I think it's less about having contingency plans. We have fully factored the current market conditions into our forward guidance and into our market forecasts. So we are not reliant on the market improving in order to achieve our FY '26 ambitions. And as David outlined when talking about those growth factors, we're laser-focused on being well positioned, maintaining that position in our core markets, ready to respond where those opportunities come, whilst also increasingly diversifying the business so that we're not fully reliant on factors that are fully within our control. Operator: Do the internationalization efforts imply incremental technology investment? How much incremental investment should we expect over the next couple of years? David Frost: Yes. We're going to start with rail in the international markets because that's where we think we are; a, the most mature and importantly, have the right products to position and sell into the international geographies. So that's kind of our start point how we're thinking about it. Undoubtedly, we will continue to invest in SaaS-native application software products. That is a commitment that we are making. And as we understand the requirements of international markets, we believe that will present further opportunity for us to consider the investment. But the important part of moving to SaaS-native products is that you are developing an offering that meets market requirements, not just the requirements of one specific customer. So that's one aspect of it. But we do genuinely believe that today, with some of the technology we have around digital ticketing, our capability around Remote Condition Monitoring and also some of the software around safe working practices are products that are right and ready to go into international markets today, and that's how we will be starting to move down that pathway. Operator: Due to time, this will be the final question today. What should we expect in terms of PAYG revenue contribution over the next 3 years? With the National PAYG rollout, should we expect revenues to grow substantially from this year's levels? Andrew Kelly: So if -- just as a reminder for everybody, it's all on the same page. So Tracsis secured the Tap converter contract in February 2025, which is to provide the back office technology solution that will underpin rolling out pay-as-you-go ticketing across the rest of the U.K. Rail Network. So we've got a contract to do the development work for that, which is giving us a full order book in that part of the business for FY '26. The rollout in terms of making that technology available to the customer will be delivered through the Rail Delivery Group and the transport operators. So we're not in full control of that. And therefore, we don't have full visibility right now in terms of exactly when that's going to happen and how that's going to happen. So when you step back from that, absolutely, we expect that as that technology gets rolled out and customer usage increases, our revenues there will increase, but we're not able at this point in time to be precise about the timing or even the quantum of that because it depends on a number of factors, including pace of rollout, speed of customer adoption, customer usage patterns, et cetera, et cetera. So in our forward guidance, we don't have any incremental pay-as-you-go transactional revenue in those numbers. As that comes into more focus, we will guide the market and guide investors. So we certainly see it as a significant opportunity for the business. We're just not able to fully size that ourselves at the moment. Operator: I'll now hand back to the management team for any closing remarks. David Frost: Yes. Thanks, Harry. So look, just in closing, again, much improved financial performance in second half '25. We feel good about our expectations in FY '26. They're unchanged despite some of the challenges ongoing in U.K. Rail. Short-term priorities for us are really clear, fundamentals underlying really strong. We're prioritizing near-term delivery, but we're also building for an exciting future. And hopefully, you've been able to see through sharing how we think about the growth factors going forward, there's an exciting future ahead for our business. And we really look forward to continuing to share progress with you as we go forward on this journey. So thanks for listening today. Thanks for your questions. Look forward to speaking with you all again in the future. Operator: Thank you to David and Andy for joining us today. That concludes the Tracsis final results investor presentation. Please take a moment to complete a short survey following this event. The recording of this presentation will be made available on Engage Investor, and I hope you enjoyed today's webinar. Thank you.
Jakub Frejlich: Welcome again. We are sitting here in Orlen headquarters in a meeting room to discuss Q3 and 9 months of 2025 ending September 30 financial and operating results. We are here in the room with Slawomir Jedrzejczyk, Group CFO; Daniel Obajtek; and my name is Jakub Frejlich, I'm Head of Investor Relations. Please don't -- please mind that we're doing it old school without video. So this is normal [indiscernible] function or technical problem. We would like to keep it that way for the time being and maybe further. So we will kick off. We're still having some joiners coming in. But since this is 5 past already, we'll be kicking off. And now I'll hand over to Slawomir, please. Unknown Executive: Thank you, Jakub. So good morning, ladies and gentlemen. Let me start only by saying it's good to be back. Warm welcome to everyone. It's my pleasure and privilege to present Orlen quarterly results. I would like to start with the highlights. First of all, macro environment and mixed views on that. First of all, lower oil and gas prices. So as you know, that impacted our upstream business. However, very good refining environment, very high margins. In petrochemicals, still, we see market pressure, both in terms of margins and volumes. Electricity, stable prices. And in terms of retail, fuel retail, we observed lower fuel consumption, especially in diesel. And let's look at operations, and this is very positive news, I believe. We delivered very good results in operations, higher gas production, distribution and sales, higher throughput and wholesale fuel sales. However, lower sales in petrochemical, as I said, higher electricity production and higher nonfuel sales in retail. So as a result, if we look into the financials, we delivered very solid EBITDA, close to PLN 9 billion, very high cash flow from operations altogether for the first 9 months of 2025, PLN 34.4 billion. And we managed to continue our CapEx program. Altogether, we spent PLN 21.1 billion for the first 3 quarters, and we paid record high dividend of PLN 7 billion. So as a result, we managed to decrease our debt level by PLN 6 billion in 2025. So now let's move to Slide #4, which is highlights, financial results highlights. As you can see, revenue dropped to PLN 61 billion in the third quarter. However, that was due to the fact that oil and gas prices were lower. Then very solid EBITDA, close to PLN 9 billion altogether, close to PLN 30 billion in the first 3 quarters. Very good cash flow from operations, as I said, although in the third quarter, slightly lower than in past quarters due to the fact that we increased our working capital by PLN 2 billion in the third quarter due to the fact that the prices increased and the volume increased. CapEx, we continue our CapEx program. Our budget was PLN 35 billion. So currently, after 3 quarters, PLN 21.1 billion. I will come back to this in the slide dedicated to CapEx. And as a result, free cash flow close to PLN 1 billion and very, very safe net debt position and net debt-to-EBITDA of 0.14x. So now let's move to EBITDA delivered by segments. As you can see, we delivered good results in all the segments, Upstream and Supply, PLN 3.3 billion; downstream, PLN 2.4 billion; Energy, PLN 2.2 billion and customer and products, PLN 1.6 billion. So altogether, PLN 8.9 billion. And what's very interesting, I believe, is that the bottom is a change year-on-year. So in Upstream, it's minus PLN 3.2 billion, but I would like to pay your attention that basically the results of '24 were, let's say, inflated, PLN 1.8 billion out of this PLN 3.2 billion is basically higher gas prices we achieved in '24 due to the fact that we contracted '24 based on '23 prices, PLN 0.8 billion is basically purchase price allocation that inflated results in '24. So you may say that this drop is, of course, due to the fact that there were lower prices of oil and gas. However, please bear in mind that '24 is not comparable due to those 2 one-offs, let's say. In Downstream, PLN 1.9 billion higher results, which is, I believe, great due to fantastic macro environment in refining from the refining margin point of view. Very solid results in Energy and Consumer Products. Corporate functions increased by more than PLN 200 million. PLN 100 million is, you may say, phasing and PLN 100 million is due to the fact that we increased our labor and general expenses by a few percentage points year-on-year. Now let's move to Slide #6, where we present our operational results. And this is evidence what I said that from operations, it was a very good quarter. So we increased production and wholesale gas sale in upstream and supply. We slightly increased crude oil throughput and wholesale fuel sale by 1 percentage point. However, you can observe here minus 16% drop in petrochemical, and this is clear evidence that petrochemicals under huge pressure, both from petrochemical margin perspective as well as volumes. In energy, steady growth in almost all areas, gas distribution plus 3%; heat generation, plus 5%; electricity generation, plus 7%. And what's very important, renewables generation increased by 43%. So what I can say is that currently in the electricity generation, renewables constitute 17%. This is 4 percentage point increase as compared to last year. As regards Consumer and Products, very good results in the retail gas and electricity sales. However, we see some pressure on the consumption of fuel in Poland, especially diesel. That's why you can see that our retail fuel sales dropped by 2 percentage points. Now let's move to each segment where we elaborate more. So let's start with Page #7, Upstream and supply. We managed to produce up to 200,000 BOE per day. Majority of this -- more than half of this is, of course, Norway, but then we have Poland and the remaining amount is Canada and Pakistan. Majority of this is gas production. And if you can see, the result is lower by PLN 3.2 billion. But as I explained, upstream Poland and Upstream International, this negative -- huge negative impact of lower gas and oil prices was to some extent or even a big extent, offset by higher production, both in Poland and Norway. And this PLN 2.8 billion, as I explained before, basically, this is lower realized gas sale price. So you may treat it as a kind of one-off from '24 and negative impact of the settlement of PPA, this is PLN 0.8 billion again from 2024. So now let's move to Downstream. And definitely, high refining margins help us a lot. So in the third quarter, that was almost doubling USD 15.2 per barrel. However, petrochemical margin is under pressure, 16% drop to PLN 168 per ton, but was very good. I believe crude oil production improved by 1%. So utilization of our Polish operations was basically 100%, whereas Lithuania, 94%. And in Czech Republic, that was lower utilization, 75% due to plant and unplanned shutdowns. So there was a failure in Litvinov. So that's why we produced less petrochemical products. So as you can see on this slide, petrochemical is minus PLN 92 million contribution to EBITDA LIFO. However, if it hasn't been for Litvínov failure, I believe that would be a kind of slight plus in the petrochemical business as well. However, we all know that we are looking at downstream business from the whole value chain perspective. So of course, great refining is offset by weak petrochemical business. However, altogether, I believe Downstream delivered very solid results of PLN 2.4 billion. Now let's move to Energy. The biggest improvement, higher result by PLN 500 million basically and the biggest improvement is in distribution networks of PLN 318 million, and that was basically due to increase in gas distribution volumes and higher gas and electricity distribution tariffs. In all other areas, as you can see, heating, conventional energy, new energy and electricity trading, we delivered positive results as well. Now let's move to Consumer & Products. Very stable result in retail, fuel and shops. And we see some pressure on the consumption and on the volumes. That's why it was a slight -- slight drop in this -- in that area. However, we managed to regain that drop from the nonfuel sale. We continued our promotions during summer period. So that decreased the margins. However, we managed to regain that from the nonfuel sale. And this increase of PLN 300 million is basically retail electricity and gas. But please bear in mind that part of this increase was again a kind of one-off from '24 that was positive impact of the settlement of PPA, roughly PLN 100 million, so slightly inflated the results. Altogether, PLN 1.6 billion EBITDA, very good result in Consumer Products. Now let's move to CapEx. So you can see the split of CapEx, our budgeted CapEx for '25, PLN 35 billion, and that's almost evenly spread across upstream supply, downstream and energy. However, in the past quarters, we indicated that our CapEx program is roughly between PLN 33 billion and PLN 35 billion. So looking at utilization of CapEx -- realization of CapEx for the first 3 quarters, probably we may expect to be at the closer to the lower end of this range. However, we'll see how this develops in the fourth quarter. Of course, we continue our projects in upstream and supply to increase our production according to our strategic goals. In downstream, of course, we have 3 areas of projects. One is enlarging value chain, which is new chemical project. Then we improve our product slate, and this is the construction of, for example, hydrocracking unit in Mažeikiai or hydrocracking oil block in Gdansk. And of course, we are doing projects that create biocomponents, second-generation bioethanol like [indiscernible] bioethanol in Jedlicze. In energy, of course, we all know that energy transformation is not only renewable energy, but we need to absolutely enlarge and modernize distribution network. So that's why you can see expansion and modernization of power grid and gas distribution network. And our key projects in the renewables energy is, of course, Baltic Sea. So we continue this project, and we target in the second half of 2026 to have this farm fully operational. We continue as well our CCGT project and Ostroleka and Grudziadz second half of '26 should be operational. And of course, we started the new projects like CCGT, Gron, the second plant and in Gdansk. As regards Consumer and Products, we expand and modernize and rebrand our fuel network stations, and we build alternative fuel stations network. So this is ongoing tasks, and we allocate sufficient CapEx for that project. So now let's move to our liquidity position. On Slide #12, we present the waterfall. So we generated -- or we delivered PLN 34.4 million operational cash flow. That was, of course, inflated by a working capital decrease, PLN 4.8 billion altogether for the first 3 quarters. However, the first quarter itself was a kind of minus PLN 2 billion. So we observed this effect of increasing oil and gas prices and volumes increase. So we spent investment cash flow PLN 21.9 billion. That includes our leasing cash out and managed to pay a record high dividend of PLN 7 billion. So altogether, we decreased our debt by PLN 6 billion. So we are in a very good financial position for the next years to come. We all know that we have quite significant CapEx program for the next 3 years. So this safe debt position is very helpful. Maturity, this is very important as well. Average maturity. We have like 2022 and '23, so like 7 years -- 6, 7 years of average maturity. So to finalize outlook, which is probably the most interesting slide in my presentation because here, we present how we see the macro environment and our operations. So we believe that we see fourth quarter so far, at least '25 as compared to third quarter '25 positive in upstream -- positively in Upstream and Energy segments, more or less stable in downstream and lower due to seasonality in customer and products. If we deep dive a little bit in all the segments. So in Upstream and supply, higher production because we don't have any significant maintenance works. We expect higher gas prices due to seasonality and higher sales volumes as well. However, lower oil prices that can, of course, impact the upstream business as well. But altogether, we believe it can be, at least, as I said, so far, good quarter for us. From the energy point of view, again, seasonality, so higher production sales and distribution, higher heat production, higher electricity quotations and higher gas prices may affect slightly negatively, of course, in Energy segment, however, altogether, positive as well. And mixed views in downstream, of course, refining is absolutely great, as we know. So this continues to be great. However, we may expect a little bit lower throughput, lower fuel wholesale volumes due to seasonality and of course, challenging environment in petrochemical business. So that's why, all in all, probably a kind of stable situation is the most probable outcome in downstream. And Consumer & Products, due to seasonality, we expect lower fuel sale and energy and gas negative as well. Of course, higher gas sales volumes, but we expect a negative impact of electricity tariff reduction and maintained frozen prices for household. So that concludes my presentation. So we are ready now for Q&A. So Jakub? Jakub Frejlich: Yes. Thank you very much. As usual, I would like to take your questions by saying who raised their hand first. And surprisingly, but not so much to ourselves. It's Anna from UBS, who's going to be asking the first question. Please go ahead. Anna, we can't hear you. Anna Butko Kishmariya: Can you hear me now? First will be around the wholesale margin in the refining. Can you please provide more details around what is the dynamic there? Because it looks like given how strong the refining margins currently are, it should be a very good support for the downstream segment in fourth quarter? And my second question will be around Azoty Polymers, if you can provide any color around when can we expect any updates for the deal? Unknown Executive: Thank you for your questions. As regards to the first one, we have Slide #17, where we present the kind of the most current macro situation in the fourth quarter. As you can see, model refining margin is absolutely extraordinary. This is 18. per barrel. We all know the macro environment, I believe. So I'm not going to elaborate much on that. This is definitely due to shortage of supply and basically the situation in Russia or the war in Ukraine. So this continue to be like that. Of course, in our base case scenario for the next quarters to come, we don't assume such a high refining margin. This is definitely extraordinary from our perspective. As regards the polymers projects, I can only confirm what is officially published. That means that we put on our offer of 1 billion cash-free debt-free and our offer is valid officially till the end of this year. So we are waiting still for the response of Grupa Azoty. So no progress official progress at least from what we are hearing in that area. Hopefully, this will develop in a positive way, but it's too early to conclude. Anna Butko Kishmariya: But regarding the wholesale refining margins, which you mentioned are a bit on the lower side. What's driving that? Unknown Executive: You mean this model refining margin, as I explained. Anna Butko Kishmariya: No, no, no. Like in the comments for the downstream segment, for example, one of the reasons you mentioned like lower wholesale margin. So can you please clarify there, what does it mean? Unknown Executive: Yes. This is more or less like inland premium we generate, and this is due to seasonality and lower consumption. So that's why this is our indication that in the wholesale business, the margins can be slightly lower. So this is basically the explanation. Anna Butko Kishmariya: And do you see those getting worse in fourth quarter or it will be stable? Unknown Executive: Sorry? Please say it again? Anna Butko Kishmariya: Comparing in fourth quarter to third quarter, do you expect it to worsen further? Or will it be stable? Unknown Executive: You mean fourth quarter? Anna Butko Kishmariya: Third quarter versus third quarter. Unknown Executive: We expect to be slightly lower, of course, as we indicated here, lower wholesale margins in refining. But slightly lower due to seasonality, basically. So this is not going to be a significant impact, I guess, as positive impact of model refining margin, definitely. Jakub Frejlich: Tomasz Krukowski. Santander. Unknown Executive: We can't hear you. Tomasz Krukowski: I think you can hear me now. Tomasz Krukowski, Santander. Three questions. The first one is specifically to Mr. Andre. And actually, I would like to hear your view on the dividend policy of the company. The company has a dividend policy. We are aware of that. But I'm wondering whether do you fully support this policy or you would like to introduce some changes to it. So this is the first one. The second is on the Energa situation. If you could give us some color in direction the analysis which you are performing is going? And the third one is on the refining. You already mentioned that you do not expect the refining macro to be so strong going forward. But actually, what is your reading of the situation right now? I mean, do you see any kind of lack of the product on the market, which is driving the prices? How is the situation with the Russian imports? What's your take on this? Unknown Executive: Thank you so much. As regards dividend policy, of course, we have official dividend policy, which was approved by the Management Board and Supervisory Board. So definitely still valid. And I'm in a position individually to change it, of course. I can give you just my comment on dividend, and I express those comments all the time. I was CFO in Orlen a few years ago. basically, my view is that the best dividend policy is basically to prove to the market that we are a dividend-paying company and consistently each year to pay slightly higher dividend. So if there is no extraordinary situation, my personal view is that Orlen absolutely should be a dividend-paying company, and we try to pay slightly higher each year, which was included in the strategy of Orlen from '25. And the second point, Energa, my comment on Energa is as follows. We have 4 segments, as we know, and we are much bigger due to those acquisitions we did a few years ago. So now absolutely, we should focus on creating a very efficient 4 business lines. And we are working on this efficiency in all the segments, so not only Energy segment, but as well in upstream and supply and customer and product. So this is the task which is ahead of us. We should create as agile and as flexible organization as we can. Of course, we are very, very complicated business, but we should be, as I said, as agile and flexible because macro environment can be challenging, can be dynamic. So that's why we are focusing to create in energy as well a very solid business line. However, no formal final decisions have been made so far. So it's difficult for me to comment at this stage apart from all official information we put is going to happen with Energa. As regards to refining margin, so I believe I said that this is basically perception of the market and the shortage of fuels, which is due to the fact that some installations in Russia were attacked by Ukraine. So basically, there's a shortage of fuel, and this is basically the -- we don't expect the situation continue in a sense that it would be absolutely unwise to create base case scenario based on this margin. So that's why I said that in our base case scenario for the next year and for the next years, of course, we don't assume double-digit refining margins so that we are a little bit conservative, let's say, looking into the current situation. And it's better to be conservative, I believe, in this area than to create a business plan and then CapEx and cash out based on the huge refining margin. So that's my comment on that. Tomasz Krukowski: And actually, do you see the lack of the product on the market? Do you have the clients calling you and saying, giving more diesel or sending more diesel? Unknown Executive: As regards our markets, no, we don't see a shortage. So from our perspective, absolutely, we are fully full of products. Jakub Frejlich: [indiscernible]. Unknown Analyst: Okay. So the first question, again, about dividend policy. Will the payout still be based on operating cash flow rather than free cash flow? Unknown Executive: So as I said the policy. And of course, unless we change it, we are going to follow it. So as regards to dividend policy, this is, as you know, up to 25% operational free cash flow minus interest, but this is up to. So each time each time, as you can imagine, we look before we give the final recommendation as regards to dividend payout, we look into current financial situation, current financial sting. And of course, we will propose this dividend in the second quarter of next year, probably. So we have still 2 quarters to go. So we will see how the market develops, how our cash flow look like, how our CapEx programs continue, and then we'll make the final decision. But yes, this is our... Unknown Analyst: Okay. So you don't assume any changes in dividend policy? Unknown Executive: Unless we update our strategy and we change. Unknown Analyst: Okay. The second question from my side. isn't your approach too conservative when you look at downstream segment for the fourth quarter, assuming current $25 a barrel refining margin? Unknown Executive: Of course, this is our perception. Maybe that's my view. It's better to be slightly less conservative than more optimistic. However, this is our assumption based on 6 weeks of the fourth quarter. So still, we have 6 weeks to go, and anything can happen. So this is our impression so far. And if you look purely from the refining margin, model refining margin perspective, which is more than PLN 18 billion -- USD 18 per barrel. So this is absolutely great. However, we have some challenges, as you know, in petrochemical business. Petrochemical margin is lower than the third quarter. Of course, our volumes should be slightly higher. We still don't know from the operations point of view, how our assets will operate. So that's why we are more cautious on that. That's why we present more or less stable situation. So stable situation means small pluses, small minuses, and we'll see. We'll see how the fourth quarter. Jakub Frejlich: We don't have follow-ups, please, Ricardo [indiscernible]. Ricardo Nasser de Rezende Filho: Can you hear me? Jakub Frejlich: Yes. Ricardo Nasser de Rezende Filho: A couple of questions on my side, if I may. The first one is on the CapEx. You mentioned that you're probably going to be at the lower end of the guidance of PLN 33 billion for this year. Can we assume that those -- that the PLN 2 billion would be spent next year? Or do you expect some CapEx savings and you might not have to disburse those PLN 2 billion? And then the second one is on the Consumer Products segment. You're talking about some of the margin pressures because of promos during the summer, just how the market is in Poland now. Do you still see some pressures there and you're still doing -- having to do some promos? And when should we expect margins to stabilize or even see some inflection on the margin side? Unknown Executive: Thank you so much. So as regards CapEx, -- if you assume that we have the budget of PLN 35 million, and I said that the range was PLN 33 million, 35 million. So basically, there are 2 items -- 2 big items that affects lower CapEx utilization. First one is CapEx spend on gas ships. Probably we explained that, that in the base case CapEx, we assumed 4 ships to be delivered. However, this year, only 2 will be delivered and the next 2 will be delivered next year. So that's why out of PLN 2.4 billion CapEx, PLN 1.2 billion will be booked this year and PLN 1.2 billion will be booked next year. So this is a kind of movement to next year. And second billion, we explained probably as far as my colleague told me, it was first quarter upstream, upstream projects. So we decided to just not to continue with one of the projects. That's why we decreased the CapEx plan for upstream. So it's difficult for me to say whether this is postponed or not, but because in Upstream, of course, we have our plan to deliver more production in the next years to come. So definitely, in Upstream, we'll prepare the CapEx for '26, which is appropriate to the targets we initiated in our strategy. So this is as regards CapEx. As regards Consumer & Products, I would say the margins are stable, and this is a kind of market time to time, we create promotions. If we create promotions, basically, we create promotions and to decrease the margins or to decrease the sales prices. And as a result, the margin slightly decreases. However, our goal is to regain this in nonfuel sale. We have more customers enrolling to our VITAY program as a result, so loyalty program. So definitely, we are going to continue with that. Ricardo Nasser de Rezende Filho: And if I may follow up on the upstream. On the strategy update, you had mentioned that you were looking at potential M&As in North America and the North Sea as well to increase your upstream production. Is there any updates on that front? Unknown Executive: I can give you a little bit kind of my personal view and the corporate view as well. Basically, we have quite significant CapEx for the next years, 3 years to come. Our flexibility in this CapEx is not very significant as we know. And in our strategy, we indicated that we have CapEx, basic CapEx and options for M&A. And this M&A -- in M&A, definitely, we have flexibility. So that's why I'm very cautious as regards putting any meaningful targets in M&A. We need to look into our cash flow position. We need to look into the macro environment development, and then we'll decide how much money we have -- we can allocate for M&A projects. So at this stage, I can confirm there are no meaningful projects on the table as regards upstream in U.S. Jakub Frejlich: [indiscernible]. Unknown Analyst: I got a question on your Upstream and Supply segment. First of all, can you tell us what kind of production dynamics do you expect next year? I think you mentioned that you plan to upgrade production in the next years. And the second question, can you tell us anything on your gas wholesale margins going forward? When I look at your gas contracts signed for next year, I see very big spreads. And can you comment on it? Unknown Executive: So as regards to the gas production, we are in the process of budgeting for '26. So I will not give you at this stage a kind of precise number, of course. And I can confirm what's in the strategy we put as far as I remember, the number of PLN 6 billion production from Norway, like PLN 4 billion from Polish operations. So this is a kind of target for 2030. So step by step, we are going to increase this number. As regards TO the -- can you be more specific as regards to the wholesale margin? You mean wholesale in Poland or wholesale from the kind of U.S. contracts. And... Unknown Analyst: What I mean is the gas margins in Poland, the margins which you book in the upstream and supply segment. So what I mean is the contract signed on TGE, yes, compared to 1 month TTF? Unknown Executive: Of course, we should look into development of gas prices, of course. And you are perfectly right in a sense that I explained a little bit this positive impact in '24. So '23 gas prices were very high. We booked at the high level, then prices dropped. So as a result, we managed to deliver roughly PLN 1.8 billion extra money. As regards to development of gas prices, of course, this is a big question, what kind of development we will see in the 2026. So at this stage, we don't provide a kind of full visibility on our goals. But generally, is going to be more stable than it used to be in the previous year. So I would not assume a very significant differences year-on-year on that. Unknown Analyst: Okay. So if you look at the EBITDA of the upstream segment this year and a scenario for next year that it is stable. Is it like reasonable? Is it optimistic or pessimistic at this moment? Unknown Executive: At this moment, I would assume stable, definitely. So we had this big drop as compared -- 2025 as compared to '24. So if you look longer term, like '26, '25, so it should be more or less -- I would assume this is the most realistic scenario, maybe slightly lower, but generally, not such a significant difference as '24, '25. Unknown Analyst: Okay. Okay. Understood. And a follow-up on CapEx. You mentioned that this year's CapEx will be like in the lower range, like closer probably to PLN 33 billion. And can you say anything about next year's CapEx? Will it -- is the PLN 33 billion benchmark a good one? Or should we expect higher CapEx because where there were some -- a few delays and I don't know, investments kick in. Can you say anything about this? Unknown Executive: Okay. At this stage, I can refer only to our strategic plan. And if you look into the strategic goals, of course, the CapEx is higher than 33%. So I would not assume at this stage that 33% is our benchmark. So please refer to our strategic plan, which is still valid. And -- of course, in the strategic plan, we indicated this M&A as well, which is flexible. So we will be very cautious on that area. But definitely, the range in the strategic plan was higher, as you know. Jakub Frejlich: [indiscernible]. Unknown Analyst: I got 2 questions, if I may. The first question will be a follow-up on refining because you said that you expect lower throughput. Is this because of the -- strictly because of the seasonality? Or do you have like planned turnaround on your plants in fourth quarter? And if so, which installations are you going to turn around? Unknown Executive: Basically, this refers to the planned shutdowns. So for example, in Orlen Lietuva, we have vacuum Flesher and this braking shutdown, plant shutdown. So that's why utilization of Orlen Lietuv is going to be below 80%. As regards Czech Republic, we have planned shutdowns as well in the steam cracker. So utilization of Czech Republic, if you assume roughly 85% would be the good assumption. As regards quartz, we are, of course, trying to achieve as much. It should be close to 100%. However, we have some shutdowns as well. So all in all, probably will be slightly lower than 100%. So if you summarize everything and compared to the third quarter, you can assume slightly lower throughput. Unknown Analyst: Okay. And second question will be about your Orlen project because I think it was like that you plan to come up with some review of that project in September, maybe lower -- maybe changing something in a budget or in assumptions for that project. Is there anything we should know about this? Or you are going to come up with... Unknown Executive: We continue our project. Yes, yes. Thank you for this question. We continue this project. We have only one item still on the table, which is final agreement with general contractor, CHT. And our goal is at least to conclude this up to the end of this year. However, we'll see how the situation develops. And when we have this final agreement with synchronized all the timetables and created the budget, the final kind of budget allocation and budget update. And once we are ready, we'll go to the market and communicate the full picture of that investment. So we should expect that probably first quarter next year. Jakub Frejlich: It does seem that the last speech [indiscernible] because there are no further questions unless this is for the -- we have a follow-up from Tomasz, good timing. Tomasz Krukowski: Yes. Just one on the CapEx. There's quite a lot of investments, especially in the downstream and in energy, which will be completed next year in 2027. And could you give us an estimate what kind of contribution to EBITDA would you expect from those completed investments in 2026 and in 2027, given current macro conditions, not the one which you had when you started those projects, but those that are at this moment. Unknown Executive: One minute ago, I was happy that I answered all the questions. However, finally, there is a question I cannot answer. So sorry for that, but those are the numbers we basically don't specify in details. And first of all, let's wait let's wait for these projects to be concluded. Once they are concluded, we look at into the macro environment, and then we may discuss in more detail. So sorry for this. But at this stage, please allow me not to give you any specific numbers. Tomasz Krukowski: But in general, do you expect this contribution to be positive? Or you think that there are going to be some projects which will be burning at the beginning? Unknown Executive: We believe that all the projects will be positive. However, the question is about the returns. And that's why we book this kind of impairments. Maybe this is the topic we can elaborate. In the third quarter, we booked PLN 1.1 billion impairment of new chemical projects, PLN 0.3 billion on the bottom of the bar in Mažeikiai. So you can -- this is a clear evidence that those projects are not delivering the return higher than weighted average cost of capital. However, this is not negative projects from the EBITDA point of view because it hasn't been negative from the EBITDA, it's a kind of wise move to just basically close this down, as we know. So you can assume definitely positive and which projects are difficult from the return perspective, you can observe our impairments, which we post. Jakub Frejlich: Now it seems that we left you speeches. So we will be concluding before the market opens. Thanks very much for answering this wake-up call from Orlen today. We may consider doing that going forward to have it before the session kicks off, but we're open for your feedback. Thanks very much for joining us today. If you have a spare hour in half an hour, we're having a press conference, including the CEO, so you can access it online. But for joining us. Thanks very much for your insightful questions, and see you in a quarter unless we see on the road before. Unknown Executive: Thank you very much. Thank you Bye-bye. Jakub Frejlich: Thank you very much.
Jonathan Oatley: Good morning, ladies and gentlemen. I'll just start with a few introductions for those of you who don't know us. My name is Joe Oatley. I'm the Chairman. To my immediate left, Frank Doorenbosch, CEO; and to his left, Ian Tichias, CFO. The bit of introduction is, I believe you should be able to submit questions at any time during the presentation, and then we'll come back to them and answer them at the end. I think the key takeaway for me from this set of half year results is, it's really steady progress, a really robust performance, and we've delivered what we said we're going to deliver. In a moment, Frank and Ian will take you through the details, and I don't want to steal their thunder, but there is one thing I wanted to just pick out and highlight. Some 3 years ago, we set off on a journey of transformation under Frank's leadership, and he set some quite stretching and ambitious financial goals for the business on return on sales and return on capital employed. And I'm really proud and delighted that the business is now at a level of performance and achievement where we are meeting those goals. You'll see some more detail on that as we go through. As we're now moving into the next phase of our strategy where we're seeking growth on top of that stable platform that we've now delivered, it's important to remember that we will continue our focus on cost discipline. We'll continue our focus on capital discipline and we'll continue our laser focus on operational effectiveness and operational performance. And those are the underpins for our future success. I think with that, I'll hand over to Frank to take us through the presentation. Frank Doorenbosch: Thank you, Joe. So yes, good morning, and thank you all for joining us. As Joe said, I'm Frank Doorenbosch. I'm the CEO of Carclo. And today, we are presenting our half year results. And besides Joe, I'm also very pleased to say that we have delivered on our projection. So through the agenda, this morning presentation will have 3 parts. First, I will take you through the journey, the transformation we've executed over the past 3 years. Ian Tichias, our CFO, will then walk you through the status, the financial results and what they mean for our balance sheet. And I will close with the future, how we scale this platform further. So let's begin. When I took over the helm at Carclo in 2022, we set out to transform this business from volume to value. Three years on, the transformation is complete. We've rebuilt the portfolio. We strengthened the margins. We improved capital efficiency, and we fortified the balance sheet. This was disciplined, structured and deliberate. So let me show you what we delivered. Before we discuss financials, let me start with something more important, safety. We maintained our incident frequency ratio at 0.6 in the first half, sustaining the significant improvement we achieved in full year '25. There is a saying we use internally. Safety is operational excellence in disguise. When you perfect the art of preventing accidents, you accidentally perfect everything else. This is not just good ethics, it is good business. This culture of operational excellence flows through everything we do in quality, efficiency, margin discipline. You will see that in the numbers. So we delivered on our projections, 4 numbers will tell the complete story. 10.1% return on sales as we transitioned from volume to value; 28.8% return on capital employed to optimize capital deployment; 1.4x leverage, strengthening our balance sheet; and GBP 57.2 million in revenue via disciplined portfolio repositioning. Four metrics, one story from volume to value. So let me put those numbers in context. In '23, we have set medium-term targets that were ambitious, but we knew they were realizable in the business we are, 10% return on sales and 25% return on capital employed. We have now exceeded both 10.1% return on sales and 28.8% return on capital employed. This wasn't luck. It was portfolio discipline and operational focus. And we've done it while reducing leverage from 2.5x in FY '22 to currently 1.4x. Control before growth, that was the plan, and we delivered it. This chart shows the portfolio transformation from FY '22 to today. We stopped the Manufacturing contract, which would deliver insufficient margin when we would have started that into with manufacturing. We've also exited low-margin, capital-intensive business. GBP 13 million of revenue we have choose to walk away from. The overhaul of asset revitalization project is now behind us, and we are now moving to focus ourselves on scalable growth and innovation programs. And in the past 3.5 years, we have grown the chosen CTP Manufacturing Solutions by 4% cumulative growth rate and Specialty by 14%, both on a constant currency basis. The results versus FY '22 when we started. Our portfolio margin has expanded from 4.1% to 10.1% return on sales. Our capital productivity has quadrupled and our balance sheet leverage has improved from 2.5x to 1.4x. The portfolio reset is complete. We now focus our talent, capital and engineering capabilities on highly critical opportunities in regulated markets. So here's what it looked like across our divisions. Our CTP Manufacturing Solutions demonstrate the disciplined portfolio management and strategic resilience. In FY '23, we generated GBP 92 million from our core focused portfolio. The COVID-19 PCR testing boom temporarily inflated FY '23 results. As the market normalized, we've experienced the expected decline through FY '24 to GBP 85 million. However, this masks the real story, our deliberate pivot towards high-value life science and safety and security solutions. Since FY '24, we have delivered consistent growth, reaching GBP 19 million in the trailing 12 months half year '26. This steady upward trajectory reflects the strength of our repositioned portfolio and validates our strategic focus on sustainable, high-value market segments. The business we've built today is more resilient. It's more focused, it's more valuable and positioned for continued growth in markets with strong structural demand. And Specialty, GBP 10 million was delivered with 14% cumulative growth rate in the last 3.5 years, mainly driven by our aerospace manufacturing. The CTP Design & Engineering operates on a project basis, driving natural volatility. FY '24's peak reflected our asset revitalization program, addressing years of underinvestment across our partnerships. With operational excellence restored and margins expanded, we are pivoting to growth and innovation programs, recurring revenue streams built on sustained asset quality. We're staying on top of our maintenance to ensure we will never slip back. The portfolio is optimized for sustainable growth in high reliability precision solutions in restricted regulated markets of life sciences, aerospace and safety and security. Strategic exits are complete, low-margin. Capital-intensive business is eliminated. The result, Carclo has stronger margins, enhanced ROCE and a scalable platform for growth. That's the journey. And now Ian will take over and get you through the numbers in detail. Ian Tichias: Thanks, Frank. It is a pleasure to announce our half year results for the financial year 2026, which we believe demonstrate continued performance in line with our expectations. Starting with the overall group financial performance. On a reported headline basis, revenue has dropped, and that's something I will explain in more detail on the next slide as it has been impacted by some FX headwinds as well as comparing to HY '25, which included revenue from sites impacted by our exit from the non-core activities completed a year ago. Despite this drop in reported revenue, we have grown underlying operating profit from GBP 3.4 million in HY '25 to GBP 5.5 million this year. And alongside that, EBITDA has grown to GBP 8.6 million, which is now 15% of revenue when compared to 11% a year ago and 13% at the last year-end in March. This excellent EBITDA delivery has driven positive cash generation, which after accounting for the expected working capital outflow in the period is still strongly positive at GBP 3.9 million. Net debt now stands at GBP 24.5 million. Now I will cover the detailed movement in net debt later, but key to point out that this is now 3% lower than the same time last year. So moving to look at the revenue profile. The profile demonstrates the benefit of the hard work of previous years as we have tightened the product portfolio and focused on key value drivers across the business. We have absorbed negative FX impact of GBP 1.5 million on revenue, primarily coming from the translation of our U.S. business and the impact in the last 6 or 7 months of the GBP-U.S. dollar rate as well as other currencies from the various markets in which we operate. Within CTP, our focus has been on portfolio refinement and completing strategic customer projects. Accordingly, D&E project revenue has dropped GBP 2.9 million. As we have previously discussed, we have exited non-core primarily short-run business. The final site exit related to this was in the comparative reporting period last year. Accordingly, there is GBP 2.2 million revenue included in last year's numbers. So pleasingly, allowing for this, on a like-for-like basis, our CTP Manufacturing Solutions revenue has grown by 4.5% in constant currency. The Specialty division also continues to thrive and grow, and we report 14% growth in the business, driven primarily by the aerospace sector. As Frank has previously told you, we are delighted to deliver improved margins. This is demonstrated by exceeding the medium-term target we set ourselves a couple of years ago by hitting a return on sales of 10.1%. This has come about through consistent delivery of improved margins over time. For this reporting period, we have continued to improve efficiencies through reduced wastage, materials usage and more efficient power usage. And this focus on a more streamlined value-added portfolio has enabled us to absorb increases in labor costs and some non-repeatable costs. So moving now to look at the divisional breakdown and firstly, with CTP. So as previously described, revenue is down on a reported basis. CTP Manufacturing Solution has increased 4.5% on a like-for-like basis, allowing for the GBP 2.2 million from site closures last year. D&E revenue reduced by 44% to GBP 4 million. And as a result of the portfolio reset, we have had lower customer activity, primarily in the U.S., which has been the key driver. Performance in EMEA. Project activity is strong in EMEA with revenue up 21% compared to the previous year. We have grown operating profit due to the self-help increased efficiencies that I just mentioned. And through enhanced machine utilization, rigorous cost control initiatives, we have steadily improved margins for several reporting periods now, and this trend has continued throughout HY '26. This sees our operating margin in CTP increased from 8.1% -- 8.2%, sorry, to 13.8% and is also up from the 12% in FY '25. So turning now to Specialty. The robust demand in aerospace, coupled with a return to growth for light and motion in this business unit have driven growth of GBP 1 million, which is over 14%. The operational focus and discipline in the business has also increased operating profit margin to over 21%. So now moving to look at our cash generation. Strong EBITDA growth has driven operating cash generation of GBP 3.9 million. This has been partially offset by an anticipated normalization of working capital. At the year-end, we previously talked about working capital being particularly low due to higher-than-normal provisions and accruals, and this has largely been unwound as we anticipated. And accordingly, working capital is now at 7.5% of revenue. This is at the higher end of the range we have previously talked about and should now be at a normalized level. Looking at net debt. This has dropped to GBP 24.5 million on the next slide, please. So this has now dropped to GBP 24.5 million when compared to a year ago. In comparing to the year-end balance of GBP 19.2 million, it has increased, and this is primarily due to the one-off pension deficit recovery payment made in April '25 of GBP 5.1 million. This payment was made as part of the refinancing arrangements we completed in April. Our new facilities with our lending partner, BZ is working very well, and we are very pleased with this arrangement. Moving now to the topic of the pension scheme deficit. At the last results presentation, we discussed how we are being proactive in managing the deficit and acknowledging that the subject of the deficit has previously been somewhat ignored. I think it's important to acknowledge the significance and also the actions we are taking with a proactive approach to reducing the deficit. We are aligned and work collaboratively with the trustees, which is vital to managing the position and reducing the technical provisions deficit. Since March '21, the deficit has reduced from GBP 83 million to GBP 61 million at the end of March '25 and further reduced to around GBP 53 million at the end of September. This has been achieved through a combination of higher investment returns and company contributions. Having a clear and agreed deficit recovery plan is important in derisking cash flow for the company. This chart shows that as we have continued to deliver performance, growing EBITDA, we have also been able to manage the risk more closely, seeing pension administration costs come down and accordingly, the cash cost and risk to the business has reduced. We will continue in our approach to further derisk the company cash flows. So finally from me, in summary, the business is more financially resilient. We have a stronger balance sheet with well-managed working capital and net debt. Delivering higher margins is now a solid trend, supporting good quality of earnings, and we continue to make sure our assets deliver more for the business. Thank you very much. I'll hand back to Frank. Frank Doorenbosch: Thank you, Ian. So you've seen the journey. You've seen the status. Let me now show you how we scale from here. Next slide, please. This pyramid shows our strategic road map. The foundation is complete. You saw the proof in Ian's numbers, financial resilience, operating excellence. And that foundation gives us the platform to move into Phase II, disciplined expansion and Phase III, innovation. From control to growth, that's where we are now. Let me show you the markets we are targeting. We're positioned in 3 high-growth, highly regulated markets. The IVD solutions, so our diagnostic consumables, we partner with 6 of the top 10 IVD OEMs and the market is growing with 5.6% cumulative growth rate between now and 2030. Drug delivery, auto-injectors and inhalers, custom solutions with regulatory excellence, the market is growing at 10.8%, which is the fastest of the 3 and delivering good opportunities for us. In aerospace, for our extreme performance parts, we are the leader in the [ MRO ] cables and wires, and we're adding machining to our portfolio. The market itself grows at 5.6%, with our additional machining portfolio addition will bring us to the high double-digit growth. We've got 3 restricted regulated markets. We've got strong positions and we've got structural tailwinds. And we're focused on where we have competitive advantage. So why do we win in these markets? Three reasons: technology, trust and transformation. Technology. We've got 40-plus years of precision engineering experience. We've got ISO 13485, FDA and AS9100 registered sites and our manufacturing platform now delivers 85% plus overall equipment efficiency. Trust. We partner with key players in all these respective markets. Our average relationship tenure is 15 years plus. And with 98% plus on-time delivery performance, we also there deliver on our commitments. Transformation. We've delivered it. 10.1% RoS, nearly 2.5x FY '22; 28.8% ROCE, 4x '22. And we've approximately invested GBP 14 million in the period FY '22-FY '25 to uplift our organization. So technology validates us. Trust creates stickiness and transformation proves execution. That's our competitive advantage. So we are now investing to widen our competitive moat through proprietary innovation with 3 priorities. The technology platform, for example, the C-Mould, our new modular tooling system, which accelerates time to market for our partners by 40%. We build it once, we deploy it globally. It's scalable capitation and replicatable region to region. In product innovation, working on an inhaler platform, which integrates counter and reusable holder. And on material development, we're managing wettability tuning for fluids. It's platform-led solutions for regulated markets. And digital intelligence. Our platform [ Syncura ], will be a digital layer for packaging and devices, real-time orders ready and traceability. So innovation isn't an idea. It is a system and our begins long before the product. We're building defensible IP that compounds our competitive advantage. So let me bring this together and why we are confident in delivering sustainable profitable growth and ensuring value for all stakeholders. Again, we've achieved the milestones set in 2023. 10% return on sales, target met; 28.8% ROCE, target exceeded. Recent highlights reinforce confidence. Safety culture is embedded with an IRR of 0.6. We've got a 5-year contract renewal from our major customer secured in July. We've got GBP 36 million in financing funding arranged in April. Now we're focused on 3 growth priorities: Life Sciences expansion, advancing our presence where high-precision solutions remain in robust demand. Specialty growth, sustaining the momentum in Aerospace with our Specialty division and further margin enhancement, continuing the journey from volume provider to value solution partner. So yes, we are confident in delivering sustainable profitable growth and ensuring value for all stakeholders. So thank you, and we're happy to take your questions. Jonathan Oatley: Thank you, Frank. I'm slightly disturbed that I don't have any questions showing on my system. Can I just check? Hold on. Let me refresh and see if it comes through. We do have one question coming from Chris. And the question is for the full year -- looks like this one is for you, Ian. Will the full year accounts include distributable reserves? Ian Tichias: Well, I'm not going to be in a position to forecast our numbers for the full year. So it's quite difficult to actually answer that directly. But we are confident in terms of how we are performing at the moment and confident in delivering our full year numbers. Jonathan Oatley: Okay. Another one just coming from Andrew. In previous presentations, you reported on the improving trend in environmental sustainability for the group. Seeing that nothing is included this time, I wonder if you could provide an update? Still with you, Ian. Ian Tichias: Yes, happy to take that. So we do tend to focus on that in our full year results. But I can kind of talk to the fact that we measure our energy intensity ratio, which is a measure of our carbon emissions per GBP 1 million of revenue. That's consistently dropped in the last 3 years. And actually, the reporting period now for HY '26 shows a continuation of that. So we're at 76.4 now, which is actually a 25% reduction from the number of 3 years ago. Jonathan Oatley: I'll just allow another minute or 2 to see if anybody has any further questions. There's nothing else showing on my screen. Ian Tichias: I can probably just add to that, actually. We are also in the process of establishing a governance structure for our ESG and our sustainability targets. And as I said, we'll report more on that full year. Jonathan Oatley: Okay. I think if we have no further questions, Frank, do you want to say a couple of words to wrap up, just to summarize? Frank Doorenbosch: Yes. I'm extremely proud to be -- being part and coaching the journey of this team. We've got a very, very motivated team to change in this organization. We've been able to keep ourselves focused and disciplined. And at the end, people are now focused on the growth. We now restructured in the right way, got the right platform. We've done it in 2.5, 3 years. That was within the plan. We always said medium term to get somewhere. I know people were very skeptical in the beginning, but we said the returns were there now. I think we are return-wise roughly where the market asks us to be. And now it's for us delivering the growth in the future. Jonathan Oatley: Thank you very much. Thank you, everybody, for joining. We hope to see you all in just over 6 months' time when we're doing the full year results. Ian Tichias: Thank you very much. Frank Doorenbosch: Thank you.
David Lockwood: So good morning, everyone, and welcome to the half year results for the period to 30th September 2025. My name is David Lockwood, CEO of Babcock. We've got a very exciting 29.5 minutes coming and then a super exciting minute after that because apparently, there is a fire alarm test, which may or may not be canceled because we -- obviously, health and safety comes first in our company. And if it does happen, it will go on for a minute. So you need to pay attention for 29.5 minutes, and then you can do your e-mails for a minute, okay? And if you're online and the fire alarm test happens, I hope they're going to mute it for you, but if they don't, I'm sorry. So what to say about this half? It's been a really good half. It's been a good half to be part of actually because all of the groundwork we've put in place over the last few years, we're really seeing come to bear. So good momentum across all of the business in the defense area, driving some really strong financial results with year-on-year increases across all of our metrics that David has decided he wants to explain to you, but they are really good. Constantly delivering to customers. When I come back up, I think it's this -- we always said that the market was there for us. What we needed to do was deliver well. That would expand margin. That would then expand the market and that would drive growth. And I've got a couple of examples later. But we're seeing that happen across the business. We have some very interesting market dynamics, commitments to budget growth, but also fiscal pressures sort of counteracting that and seeing interesting behaviors in governments, but net positive in all of our markets actually. And that's left us with a confident outlook for '26 and also an ability to recommit to our medium-term guidance. So before I come back into all of that color, David will put that into a financial context. David Mellors: Thank you very much. Good morning, everyone. Okay. My main 3 messages for today are: this is a really good set of interim results on all financial measures, number one; number two, the margin improvement of 7.9% is encouraging and gives us confidence in the 8% full year target; and number three, with a good level of full year revenue under contract at H1, we're confident in the full year expectations. Summary numbers first and there are some pretty positive numbers on this summary slide, and I'll move through them fairly quickly before we come back to detail. So organic revenue growth was 7%. Operating profit margin increased 90 basis points, to 7.9%. These first 2 delivered an underlying operating profit up 19%, to GBP 201 million. All the above led to earnings per share up 21%, enabling a 25% increase in the dividend. Cash conversion was 83%, delivering free cash flow of GBP 141 million, and we've executed GBP 49 million of the share buyback in H1, and we'll complete the rest over the course of H2. So let's break down the organic revenue growth first. This summarizes the 7% organic growth by sector. Three of the four sectors grew in the period, led by Nuclear, as you can see, but with good performances in Marine and Aviation. The Land sector revenues were lower in the period as a result of the nondefense businesses, and I'll come back to the sector detail in a moment. Next, the summary of profit. In absolute terms, Marine, Nuclear and Aviation drove the profit improvement, resulting in the group delivering GBP 201 million for the half, a 19% improvement on H1 last year, as I mentioned. The other bit of good news on here is that all four sectors contributed to margin progression in the period, helping the group to 7.9%. And whilst we're on margin, we set ourselves a target of 8% for this year, as you know, and 9% plus for the medium term. And hopefully, this slide will give you some confidence that we're on track. As you can see from the line graph on the left-hand side, we make progress every period, and we'll continue to do this. On the right-hand side are the activities that deliver the margin across the group. You've seen these before. There's nothing new here. They're all still relevant, and there's plenty more to do in these areas across the group. So that gives us confidence in the 8% for this year and the 9% plus in the medium term. And one other thing that we noticed when we put this slide together is that we delivered in absolute terms in H1, the same amount of profit that we did in full year '21. And I know full year '21 was a low base for all sorts of reasons, but we have had a few issues to deal with along the way. So doubling in those 5 years wasn't bad at all. So that's the summary. On to the sectors. These are the usual busy sector slides with lots of content for reference. So I'll just pick out the key points. It was a good performance in Marine, with revenue growing 6% organically, profit up 38% and margins moving upwards by 160 basis points. Compared to last year, the performance improvement was largely driven by the LGE business and by the Skynet contract. On LGE, you remember last year that it booked a record order intake of over GBP 400 million, and we knew that was a surge following the sort of new ship-build market dynamics, and we're delivering that over this period and the start of next. And also the Skynet contract, which successfully mobilized last year. In the period, we had additional services contracted and that also helped drive revenue and profit growth for Marine. And just for reference, the Type 31 revenues that go through here, we did about GBP 100 million in the first half, which is flat on the same period last year. And you know we booked the revenues at 0% margin on Type 31. So on Nuclear. Nuclear had another strong period with both Cavendish and submarine support activity growing very well and more than offsetting the expected reduction in infrastructure revenues. So I'll just expand on those a little. So Cavendish grew 25%, largely in clean energy with more work at Hinkley Point. The submarine support work grew 31%, with activity increases both at Clyde and Devonport, benefiting from some of the infrastructure upgrades at Devonport as well as productivity improvements at both locations. Infrastructure or MIP revenues reduced as expected following the opening of 9 dock last year and 15 dock nearing completion. And all of the above enabled the profit increase of 18% and the margins to reach 9.1%, so the first sector in the group to hit the 9% mark. Moving to Land. Revenue decreased 11% organically in the half. Defense revenues in the U.K. were largely flat due in part to the mobilization period of the DSG reframe contract, and we're expecting this to start to grow in the second half. The nondefense revenues that weighed on the sector were the rail business and the South African vehicle business, and we have a cautious view of the rail business revenue, in particular, in the second half. But pleasingly, despite the top line, margins still managed to progress 20 basis points, with the overall sector now at 7.9%. On to Aviation. We've been waiting for Aviation to take a step forward for some time. And for me, the winning of Mentor 2 in France at the end of last year was the start. So the 26% organic growth was due to 3 main factors: firstly, the mobilization of Mentor 2 as well as increasing aircraft support contracts in France as the defense business takes root; secondly, scope growth and additional services in the U.K. defense contracts; and third, the mobilization of the new Canadian BC HEMS contract. Moving to profit. Achieving some sort of scale on the top line has allowed profits and margins to approach a sensible level. This was assisted by some renegotiation of old contracts in the period, allowing margins to rise to 7.2%. Moving to the cash flow. Again, this is another detailed slide because you need the detail for reference, but I'll just pick out the key numbers. The most important is the free cash flow number at the bottom, GBP 141 million. This is substantially better than we've ever done in H1 before. This is, of course, partly due to the growth in the profit, but it's also due to the reduction in pension deficit payments following the long-term deals we did last year. Only 3 years ago, the pension cash outflow was GBP 90 million in the half. And now as you can see, it's GBP 7 million. So much more of the cash that we earn in the operations is now available for the group to invest. Moving back up to the middle of the table, we have operating cash flow of GBP 166 million with a conversion of 83%. Within that, we managed to keep working capital pretty flat. So there was an outflow of GBP 32 million. There's a little bit of inventory increase in there and then the usual pattern of payments, VAT and annual licenses and what have you. So basically, the rest of working capital was largely flat, which is good. CapEx was GBP 46 million for the half, very similar to the first half of last year. And again, CapEx will be H2 weighted. And lastly, I've put some full year guidance on the slide here. As usual, pensions, interest and tax are H2 weighted. I'll come on to capital allocation in a moment, but you know one of our top priorities is a strong balance sheet, and that's important for customers and other stakeholders given the critical things we do. Getting from a weak balance sheet to a strong one was always essential, but getting there by now was even more critical because all of our debt and bank facilities fall due over the next 18 to 24 months. So to get ahead of this, we've already gone out and refinanced the revolver in the last couple of months. We now have a new GBP 600 million 5-year facility with extension options, and we expect to refinance the first of the bonds in Q4. So on to capital allocation. This is the same capital allocation policy we've been -- published a few years ago, and we keep repeating. The priority order hasn't changed, but I'll just pick out a few status updates. Priority #1, organic investment. We're working on a number of relatively significant investment opportunities to enhance growth, so-called strategic growth CapEx. The kind of things that we're looking at are facility expansion and build and operate models to enable new work or greater capacity. An example of this would be in Rosyth, where we're looking at a new build hall and also to upgrade the missile tube facility to allow greater production. The status of priority 2 and 3, the balance sheet, the dividend, we've already mentioned. Then on the 3 capital allocation options on the bottom. On the left, we have a pipeline of potential bolt-on acquisitions that we're tracking, and we are working on a couple, and we'll keep you posted as they progress. Moving to the middle box, pensions, there's no news. That's tracking really well. So all going okay. And on the right-hand side, shareholder returns, you know we're executing the GBP 200 million share buyback. And the buyback also serves as an investment return floor for other options to beat before they get considered. So before I hand back to David, I'll just go back to the summary again. So point one, really strong half on every measure. Two, margin progression, very encouraging, and the 8% margin for the year is in sight. And three, given the revenue cover at the half, we're confident in the full year. And with that, I'll now hand back to David. David Lockwood: I'm not doing my e-mails. It's just checking for the alarm. Right. Actually, before I go to my slides, when David was going through that, it occurred to me I haven't got a Type 31 slide, which kind of shows that it's become business as usual. But I just thought because we're bound to get questions, I'd try and not get questions by talking about it quickly here. So I see the next 12 months for Type 31 is important, but then every 12 months is important. And the way we see Type 31 is in 2 chunks. So chunk 1 is ship 1. We need to finish ship 1, which is always going to be the prototype because it's first of class, first of yard. We all knew that. We also knew that a lot of the build was done during lockdown, and we talked before about how we had to adjust our processes. So that's a project. I don't think -- that's a project, to finish ship 1. And it's really important that gets done in the next 12 months because that's the flagship for all the export orders and the growth. Ships 2 to 5 are all about production, production norms and so on. And if we look at ship 3 because that's the one that's right down the production curve, that's the one that becomes the reference, and that's going really well. So there's 2 distinct things: driving a production facility; building a pipeline of ships and finishing the prototype. Those 2 things we'll report on the full year. They're both where we want them to be at the moment, but there's a lot to do on both of those. So that's kind of how we see it. And that's why there's sort of nothing to talk about. So I haven't got a slide because the project on finishing 1 is the project and then the production build is the production build. So no questions on Type 31, please. The over -- so David did a couple of history charts. We said 5 years ago, 2 things: one is that this is a people business; and secondly, that our growth and our margin expansion is delivered by those people working in the best possible way to improve our delivery to customers. There was no lack of sort of -- no lack of market. We just had to perform. And our performance, as you have seen, has improved and improved. And I've just got a couple of examples of how that's worked. So 5 years ago, the DSG contract was in a lot of trouble. We had external reports and Boatman and all this stuff. The first thing we did was fix the delivery. That led to growth through the order we booked for the 5-year extension, which is quite a different contract in terms of mindset from the original contract in that it's all about driving output, and it's more customer focused. That's gone really well. That improved performance means we've won the contracts for frontline support in places like Ukraine, where we have people deployed, but also that confidence people have in us as an engineering company. In the Land domain, means we've delivered the Jackal program. And what all of that has meant is we are now Toyota's sole partner in Europe, for taking the Land Cruiser into a military variant. We call it the GLV, the General Logistics Vehicle. The big program in the U.K. is the Land Rover replacement, but there are multiple programs outside the U.K. as well. Toyota are one of the world's great engineering companies. There would -- there is no way they would have agreed to work with us without us solving our engineering pedigree by fixing the past. The same is true with the Common Armoured Vehicle program in Europe led by Patria, the 6x6 variant, which the U.K. has just joined -- DSEI joined the program, the technical program, which is a step towards buying the vehicle, where we are the U.K. build partner and engineering partner. Again, couldn't have happened with our performance of 5 years ago. Now we're the natural choice. And then finally, for the 120-millimeter mortar program, that's Singapore Technologies, Singaporean engineering, world renowned. They don't work with companies that aren't -- don't match their engineering standards. So we've gone from fixing a legacy U.K. program which the outside world thought was a disaster case through to 3 really, really major companies, Patria, Toyota and Singapore Technologies deciding we are the exclusive partner for the European market because our engineering meets their standards. And that's how delivery doesn't just drive margin and growth in what you do, but it changes your reputation. And the same is true. David talked about expanding missile tubes. Missile tubes, we have 80% of the joint Columbia Dreadnought program. So this is a key component of -- in fact, it's central to -- literally central, it goes right in the middle of the submarine. It's central to the next-generation deterrent submarine for the U.K. and the U.S., and we have 80% of the delivery when the program is dominated by Columbia. Obviously, they buy a lot more Columbia's than the U.K. buy Dreadnought because our engineering is the best in the world at doing these things. And that's been -- that growth gets driven by our investment in automation, all the things David talked about. But those techniques are the ones that are driving the improvements in Type 31 so that ship 3 is this real high-value, low-cost production build ship, and you can take production norms across because you know you can do complex things well. But also because it's nuclear, it gets us into a whole pile of nuclear build opportunities for radioactive handling because people know we can do -- we can build nuclear stuff. And then if you look into the opportunities, Rosyth is probably the most capable facility in the U.K. for building -- supporting the build of AMRs and SMRs, obviously, Rosyth build reactors, but everything that goes around it, which is very significant, it's the most obvious place to build it. And because of our pedigree and because of the lack of build capacity in the world, moving into broader submarine build. So going from an okay high-integrity engineering program to being a recognized world-class high-integrity engineering facility in 5 years is quite a thing and drives a whole host of opportunities. And there are multiple other areas in the business where we could make the same track through. But it starts with, there is no lack of demand as the next few slides will show, the question is, have you got the pedigree to own that demand? So what is the demand? It's driven, as we said at the full year, by global insecurity and threats, and share prices move around, but is there a peace in Ukraine, isn't there a peace? Europe will continue to want to strengthen its defenses. It may be a few basis points up or down on the high-level statement, but the world is materially less secure now than it was 5 years ago. And for all the reasons I've just outlined in 2 areas, but we could go across a whole range of things. Babcock is, I think, as well-positioned as anyone and better positioned than most to take advantage of that because we're now combining -- as those who came to DSEI, we're now combining some innovative digital. And in fact, we launched our first AI product at DSEI. We're combining the ability to get the best out of legacy while delivering new at the same time. And I think that's a unique combination. And across into civil and -- civil nuclear, we are the U.K.'s only significant nationally owned nuclear business at a time when sovereignty and security and energy is at the forefront. So whether it's AMRs, SMRs, building out large reactors, as David said, clean energy has driven huge growth this half and will continue to drive it. In my mind, the civil nuclear business is -- we're only just beginning to tap the opportunities. So I think all of that is really good. And if you look at us in U.K. Defense, having a resilient industrial base is really important. That is physical -- that is facilities, it's the equipment and infrastructure we have on those facilities and it's people. We are a people-based business. So David said there's some strategic investment necessary to drive this growth, and it's true. But there's also our commitment to people and investing in skills. So a couple of things, which as -- I said to the press this morning I get quite frustrated about because I think this is one of our biggest achievements, people. And I think the people pipeline will drive our high-quality growth. So just a couple of facts. So we were Company of the Year for the Association of Black and Minority Ethnic Engineers. Is that a big thing or not? Well, it wasn't Google. It wasn't Oracle. It wasn't people -- it wasn't people with big bases here. It was an engineering company working in defense and nuclear that does some quite heavy stuff, that operates in some quite difficult to get to facilities, Plymouth is not the easiest place to go. It's not the M4 corridor. It's not that. And we won, okay? I think that's pretty cool from where we came from. We've got a 35% increase in minority representation in our early careers. I think that's pretty cool. And this year, we had our highest intake over early careers. That's apprentices and grads to you and me, highest intake. And we also had the highest subscription. So not only did we take more, but we have more candidates for every post than ever before. And for the first year ever, our intake was 50-50 gender balanced. So from where we were 5 years ago as an employer, we are in just an utterly different place. And that pipeline of people is necessary to drive the pipeline of growth. So I think that's really cool. And then you can see all the other things that, that leads to. We spend GBP 550 million with small and medium enterprises. So we drive the economy in the regions we work in. As I've just said in the growth thing, we partner with a whole bunch of really high-quality engineering companies who see us as the best of breed in the U.K. We contribute GBP 4.3 billion to the U.K. economy, which is pretty important in the current climate. And you can read the whole slide at your leisure. And we are working with the government. I spend a lot of time with the government, and I'm a core member of the Defense Industrial Joint Council, there are some permanent and rotating members, driving how the U.K. Defense does its business differently. So we are right across U.K. Defense, from the people, the supply chain and into the government. And then Nuclear, it's great that Nuclear is in our core. I think civil nuclear, there's the big stuff, Hinkley and Sizewell C. There's SMRs, MEH is mechanical, electrical, handling, which is, if you like, the mechanical and electrical plumbing of a major nuclear power station, which is quite a complex thing. So we are the lead in the alliance. That's growing dramatically. And we have seen actually real progress more than I would have guessed 6 months ago. So we know where the first 3 SMRs are going to go. We did funded work for Centrica and X-energy, X-energy is U.K. partner, for AMRs in Hartlepool, which is a massive rollout. So real momentum -- more momentum, I would say, in civil nuclear than I was expecting in the last 6 months. I think that's really positive. And then we all know about defense nuclear. David has touched on the numbers. I will talk about the FMSP follow-on. So FMSP is Future Maritime Support Program. That's how we support the nuclear fleet. There's some surface ship stuff in there, but it's basically the submarine fleet. That contract comes to an end at the 31st of March next year. So we've been busy with funded work to work with the customer on the successor program. If you look at -- so 5 years ago, when we were doing the work, 2020-ish, just as I was coming in, that was pre forceful invasion, pre the current Chinese activity. It was -- FMSP is very much a cost-driven program. The metrics are very cost driven. The successor is going to be very output driven because 5 years later, what we really need is submarine availability, not cost out. And that's just the changing environment. And so it's not surprising that we and the government are taking a lot of time to make sure that, that program is going to work for us and for them to drive a new set of outcomes. So you should not, in any way -- in fact, I had a call with the government yesterday on this, and we are completely aligned that the job is to get the right contract for both of us and that -- the fact it might take us right -- we might end up using every minute through to midnight on the 31st of March when I should be relaxed and David probably having kittens. You shouldn't worry about that. It's because we are trying to -- this is genuine transformation. And then AUKUS, H&B Defense, our joint venture with HII has finally got its first orders. There's a lot of activity now in Australia. I think the Trump -- President Trump review definitely shone a light on some of the areas where we were moving forward, but not fast enough as the 3 nations. So I think we'll see a lot more progress on infrastructure, training and support in the next 12 to 18 months. So all together, Nuclear looking really positive. And where does that lead us then? For those of you who came to the Rosyth Capital Markets Day teach-in, whatever we call it, you will have seen the scale of our capability, but also the scale of opportunities in Denmark, Sweden, Indonesia, and New Zealand. And there's a lot to be decided in the next 12 to 18 months. I think since we stood up at the full year, all of them have progressed positively from our point of view. Nothing is done until it's done, and these are big governmental decisions. So you've got to win the officials over, and then you've got to win the political debate. So it's not done until it's done, but they're all pointing in the right direction, I think. Advanced manufacturing, you've seen the journey we've been on. We have a range of really significant opportunities there. AUKUS, I've just touched on. FMSP, I've just touched on. And the land vehicles, we went through as an example. So if you just look across that without even thinking about the fact we've won our first defense order in South Africa on submarines or -- yes, we've won all the stuff that -- the churning of the engine that generates smaller orders, which is still going really well. I think the growth opportunities are really significant. And the fact that we are now in discussions with Korean companies to do the kind of things we've done with Singaporean and European companies and Japanese companies, it just shows that we are now firmly established on the international stage as one of the credible partners. So summary. I'll summarize, David's summary. By the way, it's 9:32, so no alarm, that was cool, and that shows our influence. Strong financial results. Metrics, great. I hope you've got a flavor of how delivery is driving this business forward, not just 6 months to 6 months, but establishing multiyear relationships with governments and industrial partners that will underpin sustained consistent growth. And that helps us get the best out of the market dynamic, but also going back to that kind of fiscal versus defense pressures helps us manage those, which is why we kind of feel confident about this year and beyond. So with that, we'll go to the appendix. No, we won't. There should have been a question slide. We'll have questions instead of going to the appendix. If it's Type 31, I probably will get upset. I'm just warning you, I'm just putting it out there. Sash Tusa: Sash Tusa from Agency Partners. It's a Marine question, but not a Type 31 question. You specifically referenced this big slug of liquid gas equipment orders that you won last year and are now delivering out. Should we see that as being a bubble? Or is that now the ongoing run rate of the business? Are you replenishing those orders at broadly that rate so that you can keep up this sort of level of revenues? That's my first question. David Mellors: So it's definitely a record order intake. If you remember, for 2 or 3 years, we were waiting for them to come, and then it all came in a period. So the next 12 months, 18 months or so will be the delivery of those. We are obviously winning new orders, but not at that rate, and we never expected to because it matches the ship-build market. Sash Tusa: Okay. And then Aviation question. BA, Boeing, Saab announced teaming to offer T-7 for the U.K. How does that affect your involvement with MFTS? Because they are pitching this as a very, very broad military pilot training contract rather than just supply of aircraft. Where does the replacement of the Hawks fit in with MFTS? David Lockwood: So as you know, the Hawk is outside the scope of MFTS anyway. So we go up to the Textron -- we go up to the Textron and then we do some -- we do the maintenance of the legacy Hawk fleet, but BAE Systems supply it. So it's not a particularly big thing. And there's still a debate about how government will procure the next jet trainer. Sash Tusa: But there's always overlap, or rather there's a wavy line in terms of the capabilities of different aircraft types and therefore, how much of the syllabus you can do? So clearly want to grab more of the syllabus. David Lockwood: So that's true. If you look at most -- so the Germans are now coming out, for example, if you look at most pilot training, the cost per hour in the lead-in jet is multiple times the cost per hour in the turbo -- turboprop. So I would say, on a cost and actually also for those governments who report emissions, from a cost and emissions point of view, you want to maximize simulator, then you want to maximize turboprop, and you want to minimize jet for both cost and emissions. At the front, on your right. James Beard: It's James Beard from Deutsche Bank. Two questions, please. Can you talk through the building blocks from a margin perspective in H2? Obviously, you've done a 90 basis point margin uplift in H1, which given that you've retained your 8% margin guidance for the full year implies relatively modest or circa 10 basis point margin uplift in the second half. And then second question, you gave some interesting color around the people agenda during the presentation. Can you talk about the other side of the funnel in terms of churn rates? And I guess, in particular, in the U.K. Nuclear business, one would guess that demand for labor significantly outstrips supply at the moment and what you're doing. What initiatives you're taking to sort of combat any unwanted attrition in that side of the business? David Lockwood: I'll do the people one and David can do the number one. So you're right. So our churn rates are significantly down. It is a bit regional. So it's not so much the business is in. It's the business location. So if you're in civil nuclear in Warrington, we're probably the highest paying employer. My Warrington colleagues may not agree with that, but we probably are. In Bristol, it's quite different because there's a lot of high-paying jobs in the Bristol. So it's more a regional issue than an activity issue. But we've done a bunch of things from -- you will remember from the full year, we've had our first ever all employee free share scheme, to start anchoring people in. We've historically had very low take-up on a lot of the benefit schemes we've had. And so we've got a Babcock bus actually, the blue double-decker bus that is going around all our sites, doing open sessions. We've got 10,000, I think, more inquiries in the U.K. onto that -- onto all our employee platforms now as a result of that compared with a year ago. So we're taking all of those. And I could go on and on and on. There's a whole bunch of things we're doing to make people realize the full benefit of being part of Babcock. And if I look at our global people survey, which we do every year, which finished a couple of -- finished a month ago, a lot of those measures, which are kind of indicators of attrition, would I recommend the company as a place to work? Am I going to -- do I think I'm going to be here in 5? All of those continue in a positive direction. And interestingly, when we did the Board presentation 2 days ago, there were a number of those metrics were against the benchmark. So our partner who does all the independent survey, they give you these benchmarks. In the U.K., a number of these engagement scores are going backwards over the last 3 or 4 years. Ours are going forward. So we're kind of bucking the trend on engagement. So lots of stuff actually. David Mellors: And on the margins, so lots still to do. Obviously, very encouraging in the first half. The building blocks are largely the same, actually. If you look back, maybe just comparing against first half of last year isn't that helpful. If you look back, the margins really sort of inflected about a year ago. So if you look at second half of last year, first half of this year, you'll see a trajectory that 20, 30 basis points for the second half maybe -- it would be achievable in some of the sectors. There's no particular building block in the second half that wasn't there in the first. It's the same dynamics. LGE and Skynet and Marine, the businesses going forward in Nuclear, infrastructure coming off a bit, rail in Land, and everything going well in Aviation. So we're very confident in the 8%, but I think just comparing against the first half of last year misses the shape of the curve, if you see what I mean. David Richard Farrell: David Farrell from Jefferies. I think I've got 3 questions. Firstly, in the release, you talked about GBP 300 million tender related to the SMRs for owner engineering services. Could you explain a little bit more what that entails and then the potential for that to grow into other areas? David Lockwood: Yes. So that's the customer side work basically to support the delivery of the SMR program. One of the things you may have seen in Great British Nuclear's announcement is, the kind of conflict of interest, the thing that they're managing. So you can't sit both sides of the equation. You can't set the question and answer it. So I think that's just for the current rollout. So there's -- the opportunity is, if you look at the expectation of SMR volumes, you can kind of multiply that by the volume. So it's quite significant. David Richard Farrell: Okay. Some of your peers have obviously suffered in the wake of the SDR and the release of contracts from the U.K. MOD. Just wondering to what degree you've seen kind of any impact there, acknowledging you have slightly different kind of characteristics in your order book? David Lockwood: Yes. Well, I think you've answered the question almost. We have a very different characteristics. So like some others, we have a framework and then call off. But for us, the framework is the dominant bit, and the call-off is kind of the icing. Whereas in some other contracts, the framework is a smaller partner, for the call-off, is more important. So I think it's just the structure of the contracts really. We have more resilient contract structures. David Richard Farrell: Okay. And then probably for the other, David, a question around the bond refinancing. David Lockwood: No, I'd like to answer that -- I wouldn't. David Richard Farrell: It's quite simple. David Mellors: You're saying he can't do simple, is what you're saying. David Lockwood: He's saying you can't do simple. David Mellors: Probably right. David Richard Farrell: Do you need to refinance both of them at the same size? David Mellors: No. So I think size and duration are things that we will work on over the next few months. George Mcwhirter: George Mcwhirter from Berenberg. You mentioned about some bolt-on M&A that you have been looking at. Can you just go into a bit more detail about that, please? Firstly, that's the first question. David Lockwood: So sort of, but we can't -- obviously, any specifics, as David said, there are a couple in process. They're covered by NDAs and confidentialities. We can't be specific, except to say when we did the Capital Markets Day 18 months ago, we talked about areas that we wanted to move into. So we've already done -- we talked about the need to become more digital. We've talked about the need to have greater access to autonomy and so on. So you could imagine that anything we're looking at is consistent with the strategy we laid out 18 months ago. George Mcwhirter: The second one is on FMSP successor. In terms of the length of the contract and size and the contracting terms that you're looking at, can you just go into a bit of detail about that, please? David Lockwood: So what can I say that I haven't already said? So the terms will be, as I've said, output not -- will be more heavily weighted towards output rather than cost. Obviously, cost really matters. Government wants to do a lot with its money, wants to do it efficiently. So I'm not saying cost doesn't matter, but it will be weighted more heavily towards output. I think duration is still unclear about what is optimal. And it kind of depends who does what on investment profile and some of the things that David talked about what -- and there could also be scenarios where you would have things outside -- a bit like MIP is outside FMSP, and yet it exists, as David described, to drive it. There's kind of what's inside and outside the envelope. So that's all the stuff we want to get right so that we don't create -- we create a framework that can deal with anything that might happen in the period the contract covers and not suddenly wonder who does what on something. Christopher Bamberry: Chris Bamberry. Three questions, if I may. First, in terms of the pipeline, what are the major decisions you're expecting over the next 12 months? David Lockwood: So we said at the Marine Capital Markets Day that if a number of customers want to hit their in-service dates, they have to make their decisions in the next 12 to 18 months, and that was 3 months ago. We had that -- so that's probably still about true. So it's now 9 to 15 months. It is a fact of working with all governments that they like to hold the end date, but take longer than they thought to make the decision. So we're encouraging all of those decisions to get made early. And I think because of the situation in the world, whether you're in the South China Sea or whether you're in Europe, there are external pressures encouraging decision-making. So I'm optimistic those decisions will get made in that period and hopefully towards the front end of that period. Christopher Bamberry: Second, you won your first defense contract in South Africa. I was wondering if you could give us a bit more color on that market and the potential there. David Lockwood: Yes. So I mean, I think almost since the Rainbow Nation started, South Africa hasn't really had an identified need for a defense force. So it's kind of gone backwards for a period. And now whether it's pirates moving further and further down the Western Coast of Africa, whether it's incursions into their territorial waters by other people, there is a bigger and bigger need. So I think, actually, for different reasons from some other markets, there's now a recognition that they need to reactivate. So if we execute this program well, I'm very optimistic that it's kind of a good market for us because it's big enough to be meaningful, but it's not big enough to interest a Lockheed Martin or someone like that. So it's an ideal sort of market for us. Christopher Bamberry: And final question. Could you give us perhaps a bit more color on how DSG has performed under the new contract? David Lockwood: Yes. So far, so good, really. Nothing else to say. It's going well. I can't think of... David Mellors: It is going -- well, we're not going to give all the internal KPIs. But yes, mobilization is good. Christopher Bamberry: Hitting all the KPIs, et cetera? David Mellors: Sorry? Christopher Bamberry: Hitting all the KPIs, et cetera? David Lockwood: No one hits all the KPIs. Christopher Bamberry: A reasonable number? David Lockwood: Yes. If we hit all the KPIs, they would argue they set the wrong KPIs. So you can't hit all the KPIs, but hitting the volume, we'd expect to. Behind you. Benjamin Pfannes-Varrow: Ben Varrow from RBC. First one, just on -- you've made a point about the CapEx projects here. Can you shed any more light on those at this point? David Lockwood: And they're not all in the U.K. So if you take Mentor 2, for example, we buy the platforms and then there's a progressive sort of handover. So that's a good example. If you look at modernization in New Zealand, there's a big debate about who funds what. They probably can't fund everything. If you look at infrastructure for AUKUS in Australia, who funds what. So there's just a lot of -- and it's similar in the U.K., but there's a kind of the whole build -- I don't think anyone wants to do a PFI, which is kind of a build and forget, which is just kind of an off-balance sheet financing thing where the financing is more important than the thing. But I think what people are looking at now is a kind of build and operate so that you have operate skin in the game for doing the build properly. So that's the sort of direction of travel. Benjamin Pfannes-Varrow: Okay. And also with regard to your sort of 2 specific ones, obviously, with Rosyth. David Lockwood: David mentioned those, so you better talk about the Rosyth's expansions. David Mellors: Sorry, what was the question? Benjamin Pfannes-Varrow: So the actual -- the CapEx projects that you mentioned for Rosyth. Can you give any more sense? David Mellors: Yes. So obviously, we've got a pipeline of ship-build activities that we talked about in the Capital Markets Day. We'll need extra capacity. So we're looking at a new build hall for that. We want to ramp up the missile production volume. David Lockwood: Missile tubes. David Mellors: Sorry. David Lockwood: Not missiles. David Mellors: Missiles. That's what we want to ramp up. So we'll be looking to invest in that as well. So this is all stuff to enable greater scale, growth and productivity. Benjamin Pfannes-Varrow: I assume you can't say anything on sort of decision points or when you pull the trigger on missile tubes? David Mellors: Well, I mean, it's -- those two. Well, the first one is our decision, and we've got to make that decision based on what we see in the pipeline and how close it is and how certain we are. So we'll just have to keep you posted on that. The missile tubes, obviously, we will do in tandem with the customer. So -- but again, we'll talk in the next few months, certainly within the next 12. David Lockwood: Because we built the last build hall so recently, we have -- what can cause delay in a build hall? Things like the condition of the ground. You got to put foundations in, and you have to make them stronger because the ground is -- but because it will be right next to the existing one, we know everything about that. We know how we build it. We would use the same contractors. So it's a -- although it will be a big thing, it's relatively quick. So we can align it quite closely to the order intake maturing. Benjamin Pfannes-Varrow: And last one, just a bit on visibility. Obviously, in the first half, you've had Nuclear, I guess, in particular, come in a bit stronger. So can you chat through just about the visibility on that and how that perhaps comes in a bit quicker sort of in submarine support and also on the Cavendish side? And I guess the question sort of rolls in, can you maintain those growth rates? David Mellors: Yes. So we've got pretty good visibility. I mean, I always look at the revenue under contract for forecasting. So -- but we generally have very good visibility of stuff that isn't under contract yet. So you can't necessarily be absolutely sure of timing, but you've got a pretty good idea. So I start with what's under contract. In terms of visibility in Nuclear, it's good. We've got a pretty good idea on both naval and civil, what's coming down the track. Timing isn't always precise, but you've got a pretty good idea. They're obviously doing extremely well, but a 14% growth rate is pretty punchy to be -- to straight line out into the future. It's definitely all sustainable revenue. There's nothing one-off in there. But it can't keep going at 14%. But it is the high-performing business, and it will continue to be for the near term at least. Benjamin Pfannes-Varrow: Just a follow-up question to the last one on civil nuclear. You've given it a lot of prominence in the presentation. It's only about 5% of the group. I think at the teaching you did in May, you talked about sales at least doubling over the medium term. given how much is going on there and the prominence you've given it today, are you thinking more positively? I mean, can you update on the at least double? Is it now going to be a meaningfully bigger opportunity? David Lockwood: So that was a teach-in on Cavendish, which is the nuclear consulting business. So it excluded -- we made reference to, but the numbers excluded build opportunities for building elements of SMRs and AMRs. So can I give an update? I think the risk is on the upside, how about that? Is that enough? Do you want to? David Mellors: Yes. Look, I mean, I don't think we can -- we said we'd double the business by 2030, just to be precise. I don't think we're going to change that right now. Everything we've seen in the market is encouraging. And there are some potentially big things there, but I think we have to just wait a little bit longer to see how they -- how and when those things crystallize before we start changing numbers. Benjamin Pfannes-Varrow: Just to follow up. I actually didn't know that. I'm not an expert on nuclear engineering, say the least. So what is -- when you talked about the business doubling, I thought it was civil nuclear in its entirety. So just how big is the buildup? And maybe if we look beyond the medium term because it might take longer. I mean, just how big can the civil nuclear holistically get to for you? David Lockwood: If you include build -- so one of the interesting things is how we choose to report it because typically, everything that happens in Rosyth gets reported in Marine because Marine owns Rosyth. So it would depend how we reported it. But if you believe -- if you just look at the Hartlepool 6 gigawatts of AMRs, if we were a material build partner of that, and we are X-energy's partner in the U.K., then we're talking about civil nuclear production would probably become bigger than the consulting -- the engineering consulting business of Cavendish. That's a huge if, but just to give you a scale thing. Benjamin Pfannes-Varrow: Sorry. That's for one of the SMRs, is it? David Lockwood: No. This is AMRs. This is just Hartlepool AMR thing. Benjamin Pfannes-Varrow: This is just Hartlepool? So if Hartlepool, AMRs go ahead, SMRs go ahead in the numbers, it's multiples then of Cavendish, is what you're saying? David Lockwood: If we win the build because we don't build that either at the moment. So there's a huge if. Benjamin Pfannes-Varrow: And who else could do the build? David Lockwood: Well, it kind of partly depends whether the U.K. Government decide that U.K. SMRs and AMRs have to be built in the U.K. Because if they decided not, which -- if there's a change in government, it might be the case, and there could be -- there are places outside the U.K. you could build them. There aren't -- there's not that much U.K. competition. David Richard Farrell: David from Jefferies. A follow-up question, please. Just around kind of the share buyback. We've obviously talked about kind of CapEx potential. You talked about kind of M&A. Do you think that you could do both of those and still reload the buyback at the end of this year? David Lockwood: Yes. So the great thing about having cash is that you actually have a capital allocation problem, which is relatively new for this company for a long time. In my mind, the buyback creates the hurdle for all other investments. So we know what return the buyback gives shareholders. And therefore, our job as management is to find alternatives to recommend to the Board, which we believe provides superior returns to buyback. And if we don't find them, then buyback becomes a likely option. So I think it's hard to say, can you do both because it depends how many superior options we come up with. But I think that's -- I think I'm looking at Ruth, and she's nodding. It is our job as management to come up with superior options to buyback. That's our job. In 1 minute's time, this will be the longest half year presentation I've done in 14 years. I just thought I'd let you know that. Sash Tusa: I'll drag the question out then. David Lockwood: Go on then, record-breaking you. Sash Tusa: First of all, continuing on nuclear. I probably may have missed -- you said that MIP was basically flat. Did you actually give an absolute number for MIP revenues in the half year? David Mellors: For the half? Yes, it's on the slide. So it's GBP 215 million. Yes. It was down. It wasn't flat. It was down. Sash Tusa: Okay. And then the other side of David's question about Cavendish. You actually haven't talked very much about the Nuclear side of Cavendish in this set of numbers. What's happening at the moment with AWE and particularly with the 2 very big AWE capital projects as part of the Fissile Materials Campus? David Lockwood: Yes. So those are still evolving. I think all of our debates with AWE about what our role should be, a very positive. Yes, very, very positive. They've ultimately got to decide how to chunk up those 2 big programs. I think there's no doubt that AWE wants to be the overall contractor. So it's not going to go to a GOCO or anything like it. But the question is then, how do they chunk it up underneath? And I think so far, those are very intelligent and sensible conversations between us and them. I couldn't put a number or duration on it. But you're right, I didn't mention it, but it's going -- it's a very positive conversation. Sash Tusa: And I mean, just to extend that, if you had to estimate whether ultimately that scale of build work is bigger or smaller than the AMRs and SMRs? David Lockwood: Gosh. David Mellors: Go on. David Lockwood: That's an impossible question and a very unfair way to finish. And I'm never going to talk to you again. Great. Well, thank you for your questions. That's an hour up. If you've got any more questions, I'm sure Andrew will answer them. Thank you.
Operator: Hello, and welcome, everyone, joining today's Matthews International Fourth Quarter and Year-End Fiscal 2025 Financial Results. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Chief Financial Officer, Steve Nicola. Please go ahead. Steven Nicola: Thank you, Nikki, and good morning. I'm Steve Nicola, Chief Financial Officer of Matthews. And with me today is Joe Bartolacci, our company's President and Chief Executive Officer; and Dan Stopar, our incoming Chief Financial Officer, beginning December 1. Before we start, I would like to remind you that our earnings release was posted on the company's website, www.matw.com, in the Investors section last night. The presentation for our call can also be accessed in the Investors section of the website under Presentations. Any forward-looking statements in connection with this discussion are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Factors that could cause the company's results to differ from those discussed today are set forth in the company's annual report on Form 10-K and other public filings with the SEC. In addition, we will be discussing non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. In connection with any forward-looking statements and non-GAAP financial information, please read the disclaimer included in today's presentation materials located on our website. Now I will turn the call over to Joe. Joseph Bartolacci: Thank you, Steve. Good morning. Thanks for joining us today to discuss the financial results for Matthews fiscal 2025 fourth quarter and 2025 year-end. Before sharing our solid results for the fourth quarter, I want to take a step back on our strategic progress. Earlier this year, we laid out several objectives: simplify our corporate structure, expand our work with -- in higher growth and higher-margin businesses and reduce our costs. I am proud to say that we have taken decisive actions throughout the year to deliver against each of those goals. I would like to spend a few minutes elaborating on our progress across each of these buckets. The divestiture of SGK and Warehouse Automation at compelling valuations have clearly simplified our story. In selling SGK, we retained a 40% stake in the new company, Propelis, that is outperforming expectations. Thus, we expect to reap a significant benefit when we exit this business, which is likely over the next 18 to 24 months. From a commercial perspective, the market response to Propelis has been very favorable. Propelis is now operating at an EBITDA run rate significantly higher than the $100 million that was assumed at the time the deal was closed. After a period of consolidation post COVID, CPGs are realizing the need to innovate in order to strengthen their brands. Thus, the Propelis core packaging business is having a strong performance. Plus, given our new scale, we are seeing opportunities on the marketing side of the business that neither business had the scale to deliver on before the transaction. Note that over $50 million of synergies are yet to be executed with a significant portion of those synergies to be delivered next year. We expect this to be a highly favorable transaction. Once we exit, we will have a significantly delevered our business, putting us in a position to further increase shareholder value. Building on this, last week, we announced an agreement to sell our Warehouse Automation unit to Duravant LLC, a global leader in engineered equipment and automation solutions. Under the deal terms, Matthews will receive $230 million comprised of $223 million in cash consideration plus the assumption of certain liabilities. After taxes, fees and payments of other liabilities, we expect that $160 million will be applied to debt reduction, significantly reducing our total debt. We believe this to be a highly attractive transaction as well that enables us to further reduce our debt position and strengthen our balance sheet as we work towards our long-term target of 2.5x while enhancing our ability to pursue additional strategic initiatives. The value of our Warehouse Automation business was highly underappreciated by the market, but this transaction reflects its true value. At over 3x revenue and 15x adjusted EBITDA, this transaction was very accretive. Assuming that HSR approval is secured within the customary 30-day period, we expect the transaction to close before the end of December. To further simplify our operating structure, we also expect to complete a few smaller transactions, including the sale of our Saueressig packaging and [indiscernible] GmbH in the next -- in the near term. We continue to actively evaluate other strategic portfolio opportunities assisted by JPMorgan, and we will update you accordingly. As I'll discuss in more detail shortly, across our business segments, we have made important growth investments to better position the company for long-term success. The Dodge acquisition is delivering even better-than-expected results in memorialization. And in October, we acquired substantially all the assets of Keystone Memorials, a wholesale manufacturer of granite materials in Georgia. This highly strategic investment drives equipment, 22 acres of property and 30,000 square foot production facility in Elberton, Georgia that will enable us to produce personal mausoleums, a growing segment of the market. In the Industrial Technologies segment, we launched our new printhead, Axian in October, and I'm pleased to report that the initial response from the market has been overwhelmingly positive. In addition, we have continued advancing efficiency actions, resulting in a reduction of full year corporate costs on a year-over-year basis of $8.5 million. In addition, we reduced our debt by $66 million. Finally, from a governance perspective, we have put in place meaningful adjustments to enhance accountability. We declassified our Board and removed supermajority voting requirements. And on Wednesday, we announced the appointment of Michael Nauman as Matthew's Chairman of the Board. Michael succeeds Alvaro Garcia-Tunon, who retired -- who will retire as Chairman and from the Board and -- as Chairman and from the Board when his term expires at our annual meeting. Michael's extensive technical expertise, M&A experience and leadership come at a transformative time for Matthews as we focus on long-term value creation for our shareholders. We look forward to the contributions that Michael will bring to the Board as Chairman. Turning to our fourth quarter performance. We're very pleased with the company's results. We had a strong finish to the year in a challenging economic environment, driven by improved year-over-year performance in our Memorialization and warehouse automation business units. Additionally, we saw the benefits of our focus on reducing corporate and other nonoperating costs, which added to our strong operating results. From an EBITDA and adjusted earnings per share perspective, our results were higher for the quarter than prior year when you exclude the impact of the SGK divestiture, a strong performance. Let's move on to the specific business units, beginning with Memorialization, which reported higher revenues and adjusted EBITDA on a year-over-year basis. As we reported in May, the Dodge acquisition contributed significantly to our performance in the fourth quarter. We're very pleased with the progress they are making on the integration process as synergies are being captured ahead of plan. Additionally, we are preparing to initiate cross-selling activities and expect this acquisition to be a strong contributor to revenues and EBITDA in fiscal 2026. As for Industrial Technologies, revenues were lower year-over-year, reflective of our ongoing challenges in the engineering business. In Warehouse Automation, we capitalized on the market recovery underway and strong order rates to drive strong revenues and adjusted EBITDA in Q4. This strong performance is reflected in the robust market interest and valuation we received for this business. With respect to our product identification business, building on my earlier comments about the launch of Axian, we also received GS1 certification as the only jetting unit able to meet 2D code quality standards, which can be read at speeds we believe that no other competitor has achieved. This is yet another key differentiator for this novel technology. GS1 certification is the global standard for adoption of the 2D codes, which are beginning to be required across the world. In the current environment, tariffs have impacted all of our businesses and for the most part, we have been successful in mitigating these costs by passing along higher prices. This remains a volatile topic, as you all are aware, but the team has so far done excellent work in managing in this difficult environment. Finally, moving on to the Engineering business segment. Let me first provide an update regarding our proprietary dry battery electrode technology. For almost 2 years, we have been in a prolonged dispute with Tesla addressing their false ownership claims arising from our proprietary advanced rotary processing and calendaring offerings, frequently referred to as the all-in-one solution for the dry battery electrode. We have already successfully prevailed in numerous rulings against Tesla in recent years. Notably, however, I am at a slight disadvantage speaking in any form about the details of our dispute as I cannot further explain components of the litigation given certain matters have been or are being addressed through confidential arbitration. That said, Tesla's vigorous efforts to claim ownership rights in our solutions, solutions that we have been working on and refining with our German engineering team for over 2 decades, further confirm our position that our proprietary technology is highly valuable and sought after. Specifically, many parties continue to show keen interest in our DBE offerings. Consistent with prior rulings, I remain confident we will maintain our ownership rights in our proprietary DBE technology. Indeed, certain rulings have already reinforced Matthew's long-standing leadership in the design, development and manufacturing of continuous process machinery for battery electrode production, including our proprietary dry battery electrode solution. With respect to business activity for the engineering business, during the quarter, we received an order for a production scale machine for a U.S.-based solid-state battery manufacturer, which we will hope will be one of many delivered as this novel technology comes to market. DBE is considered the best solution for solid-state batteries given the lack of solvents in the production process. We expect as more companies come to market with solid-state solutions, interest in our proprietary technology will continue to grow. Also in December, we will engage with a domestic energy solutions provider to prove our equipment's efficacy for a $50 million U.S.-based opportunity for a battery separator line, another product in our energy storage portfolio. We expect this opportunity will convert to an order in early fiscal 2026 as the customer works towards securing supply agreements. Our pipeline of opportunities remain steady with quotes in excess of $150 million, and we expect to announce more orders in 2026. Looking ahead, with regards to the energy business, we are exploring multiple partnerships with several industry participants. Our intent is to partner with others who can help us expand adoption of this technology around the globe. We are open to partnering directly on projects as well as looking for direct investments into the business. This will not be an immediate event, but has been one of the focuses of our strategic alternative efforts. Finally, concluding with a few comments looking forward to 2026. We believe a full year contribution from the Dodge acquisition will enable Memorialization to grow in fiscal 2026. Additional cost reduction actions at the engineering business are planned for next year to mitigate any further declines in the business as we work towards converting several opportunities into orders. Based on these factors and inclusive of our 40% interest in Propelis, we expect our adjusted EBITDA guidance to be at least $180 million for fiscal 2026. Recognize that we will have multiple transition services agreements in place from various divestitures, which will limit our ability to take more significant action to reduce our overhead, but we are working on and expect corporate costs to be materially lower after the expiration of those agreements. Finally, our evaluation of strategic alternatives is continuing. However, we will be prudent in making decisions focused on achieving appropriate value for our shareholders. Like we have demonstrated by the sale of our Warehouse Automation business and the merger of SGK, we know what the true values of our businesses are, and we'll be patient in our process. Now I'll turn it over to Steve for a discussion. Steven Nicola: Thank you, Joe. Before starting the financial review, I want to give a reminder on the financial reporting with respect to SGK. As you are aware, the divestiture of SGK closed on May 1, 2025, and as such, our consolidated financial information reflects the financial results of the SGK business through the closing date. As part of the transaction, the company received a 40% ownership interest in the newly formed entity, Propelis Group. Please note that as a result of the integration process of Propelis Group and transition to its own stand-alone reporting systems, our 40% portion of the financial results of Propelis will be reported on a 1-quarter lag. As a result, except as otherwise noted, the consolidated financial information discussed today only includes our 40% interest in the financial results of Propelis for the months of May and June 2025. Similarly, our financial statements to be included in the annual report on Form 10-K will only reflect our portion of the results of Propelis for May and June 2025. However, in Joe's remarks in the press release yesterday, we provided our adjusted EBITDA results for fiscal 2025, inclusive of estimated Propelis results for July through September 2025 for your reference. Now let's begin the financial review with Slide 7. For the fiscal 2025 fourth quarter, the company reported a net loss of $27.5 million or $0.88 per share compared to $68.2 million or $2.21 per share a year ago. The change primarily reflected significant restructuring charges a year ago, including a goodwill write-down compared to litigation costs and other restructuring costs and asset write-downs for the current quarter. Consolidated sales for the fiscal 2025 fourth quarter were $319 million compared to $447 million a year ago. The decrease primarily reflected the divestiture of the SGK business on May 1, 2025. The consolidated sales impact of the SGK divestiture was approximately $120 million for the current quarter. Sales for the Industrial Technologies segment were lower for the quarter, offset partially by higher sales for the Memorialization segment. Consolidated adjusted EBITDA for the fiscal 2025 fourth quarter was $51.5 million compared to $58.1 million a year ago. The decline primarily reflected the SGK divestiture. The Memorialization segment reported higher adjusted EBITDA and corporate and other nonoperating costs were lower for the quarter, which were partially offset by a decline in adjusted EBITDA for the Engineering business. On a non-GAAP adjusted basis, net income attributable to the company for the current quarter was $15 million or $0.50 per share compared to $16.6 million or $0.55 per share last year. The decline primarily reflected the impact of the SGK divestiture. With respect to Propelis, based on preliminary financial projections that were provided to us, their current estimate of adjusted EBITDA for July through September 2025 was $32.2 million. Please note that these projections are unaudited and subject to review and as a result, may change. Our 40% portion of this amount would be $12.9 million. Accordingly, adjusting for the impact of the 3-month lag, the company's consolidated adjusted EBITDA for the fiscal 2025 fourth quarter would have approximated $57 million compared to the $58.1 million generated a year ago. Please see the reconciliations of adjusted EBITDA and non-GAAP adjusted earnings per share provided in our earnings release. Please move to Slide 8 to review our segment results. Sales for the Memorialization segment for the fiscal 2025 fourth quarter were $209.7 million compared to $196.8 million for the same quarter a year ago. Acquisitions, primarily Dodge, contributed sales of approximately $11 million to the current quarter, which were offset partially by the disposition of the European cremation equipment business. Higher sales volumes for Bronze Memorials and inflationary price increases also contributed to the improvement of the segment sales. Granite Memorials and casket sales volumes declined, primarily resulting from lower U.S. casketed deaths. Additionally, Granite Memorial sales a year ago were favorably impacted by the working down of backlogs that had accumulated during the pandemic. Cremation equipment and related sales were also lower than a year ago. Memorialization segment adjusted EBITDA for the current quarter was $45.1 million compared to $40.5 million for the same quarter last year. The increase primarily resulted from the benefit of inflationary price realization and cost savings initiatives, offset partially by the impact of higher material costs. Acquisitions and the disposition of the unprofitable European cremation equipment business also contributed to the increase in the segment's adjusted EBITDA. Please move to Slide 9. Sales for the Industrial Technologies segment for the fiscal 2025 fourth quarter were $93 million compared to $113.9 million a year ago. The decline mainly resulted from lower sales for the segment's engineering business. The decline was offset partially by higher sales for the Warehouse Automation business. In addition, the shutdown of the unprofitable automotive business contributed to the segment's year-over-year sales decline. Changes in foreign currency rates had a favorable impact of $3.4 million on the segment's current quarter sales compared to a year ago. Adjusted EBITDA for the Industrial Technologies segment for the current quarter was $11 million compared to $15.9 million for the same quarter a year ago. The decrease primarily resulted from the impact of lower engineering sales, offset partially by the segment's cost reduction actions in its engineering business and the impact of higher Warehouse Automation sales. Please move to Slide 10. Sales for the Brand Solutions segment were $16.2 million for the quarter ended September 30, 2025, compared to $135.9 million a year ago. Sales for the current quarter consisted of the segment's European packaging operations. The decrease resulted from the divestiture of the SGK business on May 1, 2025, which had an impact of approximately $120 million for the quarter. Adjusted EBITDA for the Brand Solutions segment was $7.4 million for the current quarter compared to $17.3 million a year ago. The current quarter mainly reflects the company's 40% interest in Propelis as our European packaging business reported relatively breakeven results, which was generally consistent with the same quarter a year ago. The decrease in the segment's adjusted EBITDA resulted from the divestiture of the SGK business. Please move to Slide 11. Cash flow provided by operating activities for the fiscal 2025 fourth quarter was $10.3 million compared to $35.9 million a year ago. For the fiscal year ended September 30, 2025, cash flow used in operating activities was $23.6 million compared to cash provided by operating activities of $79.3 million last year. Cash costs in connection with acquisitions and divestitures, litigation and restructuring of the German operations and the unfavorable working capital impact related to the Tesla project were the significant factors in the operating cash flow decline for the current year. Outstanding debt at September 30, 2025, was $711 million and net debt, which represents debt less cash, was $678 million. Net debt declined modestly for the fiscal 2025 fourth quarter. The company's net leverage ratio at September 30, 2025, based on trailing 12 months adjusted EBITDA was $3.6 million. With the pending sales of our Warehouse Automation business and our European packaging and tooling business, both of which are expected to close in the early part of fiscal 2026, we expect significant reduction in our debt levels. Net cash proceeds from the Warehouse Automation sale, net of income taxes and other costs are projected to be $160 million. This business has a relatively low tax basis and is predominantly a U.S.-based business. Net proceeds from the sale of the European packaging and tooling business are projected to approximate $30 million. The buyer is assuming pension and certain other obligations with the transaction. For the fiscal 2025 fourth quarter, the company purchased 5,262 shares under its stock repurchase program at an average cost of $20.33 per share. These repurchases were solely related to withholding tax obligations for vested equity compensation. For the year ended September 30, 2025, the company repurchased approximately 568,000 shares at an average cost of $21.54 per share. Finally, the Board declared this week an increase in the quarterly dividend to $0.255 per share on the company's common stock. This represents the 32nd consecutive annual dividend increase since becoming a publicly traded company. The dividend is payable December 15, 2025, to stockholders of record December 1, 2025. This concludes the financial review, and we will now open the call for any questions. Nikki? Operator: [Operator Instructions] We'll take our first question from Colin Rusch with Oppenheimer. Colin Rusch: Congratulations on the progress with the customers on the battery side. Can you talk a little bit about the opportunity set when you think about solid-state and ultracapacitors, given what we're seeing with data center power needs and power buffering. Are you seeing any incremental interest on the ultracapacitor side or changes in chemistry that may be more attuned to some of the stationary power application rather than the mobile applications? Joseph Bartolacci: Certainly, Colin, thank you. Good to talk to you. You know a lot more about the energy storage business than many of our investors do, and that's important because factually, you're absolutely correct. The reality is that our dry battery electrode technology applies far more than just the energy that goes into a vehicle, whether it's ultracapacitors who we're having multiple discussions with or whether it's for storage capacity for anything from data centers to anything else. The customer I referred to that is looking at a $50 million order next year is exactly that. It is storage. It is not for automobiles. So we're seeing increased interest. The technology is highly valuable and focused on any type of energy storage, and we're looking to expand upon that opportunity everywhere we look. Colin Rusch: And then with the strategic review, you've been able to divest a number of businesses. You're potentially in a more flexible cash situation. How should we think about M&A and augmenting some of the technology portfolio that you guys have a really solid foundation with here as you look at some of these bigger opportunities starting to emerge in a more concrete way? Joseph Bartolacci: Well, right now, Colin, we're focused on reducing our debt, and we're going to get that in line. And we have a target here of coming at 2.5 or better when we look at our debt. The exit of SGK will clearly, clearly put us well below that target, and we're very comfortable being there. As I said in my comments, that will open up the opportunities for strategic initiatives. And whether it be on the energy side, whether it be on the memorialization side or the execution of our new printheads, we will look at it diligently and try to be prudent about that decision as we go forward. Imminently, though, we do not have anything on the table that we'd be focused on as we try to get out the door of what we do have. There's a lot on our plate right now, folks with 3 transition services agreements, divestitures happening, restructuring associated with that. We have enough on our plate right now to deal with. And I would say in the near term, we're focused solely on debt. Operator: Our next question comes from Liam Burke with B. Riley Securities. Liam Burke: Joe, you called out a firm order, and then you also called quantified another potential order. You also quoted pipeline opportunities. Is it -- are your customers less reticent to start working with you even though the Tesla lawsuit has not been completely resolved yet? Joseph Bartolacci: I would say that they're less -- not less, reticent as much as they're more dependent on the market environments in which they operate. And when it comes to EV, there is overcapacity on the battery side. We are looking at a fairly significant opportunity, we believe, in the European market where one of our potential customers has had success and is looking at the building of a new factory over there. When we look at solid state, that's another completely different market, smaller volumes at this point in time, but higher -- let's call it, efficiency when it comes to the battery itself. As Colin mentioned earlier, included in there are some opportunities when we look at ultracapacitors, another form of energy storage. So I would tell you, Liam, they're not so much worried as much of that as they are in making sure they have market opportunities. Liam Burke: Fair enough. And on Memorialization, cremation, is that still -- how is that doing? Joseph Bartolacci: The business itself or the trend? The business itself is doing fine. We are -- as Steve mentioned in his comments, we sold our underperforming European business, which had been a drag for us for a while. We had shut down our -- many of you may know, we have a facility in Apopka, Florida. From an efficiency standpoint, we looked at opportunities on the West Coast to be able to support that market more locally. We have shut down that facility, integrating that also into Apopka. We still have room for improvement in the business, but it continues to operate at a pretty good rate. Operator: We will move next with Dan Moore with CJS Securities. Will Gildea: This is Will, on for Dan. Can you provide an update on beta testing for the new Printhead solution? What are the key steps before you can commercialize it more broadly? And how should we think about the TAM for that product over the next 2 to 3 years? Joseph Bartolacci: So I mean, key steps is, it's in market. So we will start deliveries here in December. Recognize that we had literally 2 trade shows where our trade -- our booth was overwhelmed, both with competitors as well as with customers. Comments like this is finally an alternative to continuous inkjet. The 2D code thing that I mentioned on my call, getting GS1 certification is big, but we're still early in the process. So the steps that we are going through right now is we have limited chips, so we will begin that process of selling that, but it will be a limited amount. The market TAM that we're going after is over $2 billion. I don't need to have a lot of that TAM to be successful for this part of our business. So I'm looking forward to where this goes. And we'll continue to refine the yield that we're receiving on those -- the chips as we move forward. So multiple steps to really creating the value that this opportunity is for us. Will Gildea: And looking at the balance sheet, the $300 million 5-8 bonds aren't due for another 2 years. What are your options to call or refinance early if you were to choose to do so? Steven Nicola: Well, we're in a call period right now that started October 1. And so that will last, obviously, through the end of the term of the bonds. So as you would expect with the proceeds that we're seeing from some of the divestitures not only the SGK divestiture that's closed, but the warehouse divestiture and the packaging and tooling that are pending. Looking at that 5 and 5-8 bond is something that is definitely on our radar in terms of evaluating the alternatives for it. Operator: Our next question comes from Justin Bergner with Gabelli Funds. Justin Bergner: Just to start, could you elaborate the solid-state opportunities for energy storage, which end markets are those primarily feeding? Joseph Bartolacci: So I'll give you an example. We're not going to name the names of the customer that we already -- that we received the order for. That is -- they have demonstrated the capacity for motorcycles as an example. But imagine anything from small appliances to larger vehicles. I think if you spoke to people that are highly focused on the energy space, they would expect solid state to be long term, solution for all batteries, but I think we're still a while away. At the end of the day, the application of solid-state better density, lighter weight, more safety, a faster charge, all the things that have been the challenges to adoption is addressed by solid state. Justin Bergner: Okay. When you say there's excess capacity in the battery side as it relates to the automotive opportunity for energy storage, is what you're saying effectively that even though you have a better solution with the wet, I guess, capacity already installed, you need to see incremental capacity before customers come to you independent of the legal dynamics? Joseph Bartolacci: Well, clearly, as capacity expands and more importantly, as capacity localized, meaning whether it's produced in North America, right now, China has an overcapacity of battery production capabilities. But as both governments and clients demand localized support, that will change the demand for it as well. But depending on your projections on what battery needs will be over time, we're only scratching the surface of where total capacity for batteries needs to be. I mean, adoption rates are going to determine that. But if you believe what you hear, the trend towards electrification is only just beginning. It's just where we are today relative to adoption of EVs and other energy storage solutions that is EVs and other energy users like that, that our current capacity is overcapacity. So what I'm saying in my comment is not necessarily that there's -- we have to wait for expansion. We have to wait also for localization and also have to kind of deal with the fact that the economics of our solution are better. And as they amortize existing footprints, we can make an easier discussion about replacing their current technology with new technology. Justin Bergner: And then just the certification for the new chip head -- product ID solution. What is the significance of that certification? Joseph Bartolacci: It's massive because GS1 -- if you think about -- I'll try to put it in the simplest terms. So when barcodes came out, you had multiple different readers and everybody had their own solutions. GS1 certification is the standardization so that there'll be one reader capability and one standard for adoption across. So now we all have one individual -- one standardized reader that allows many manufacturers to produce it. Our equipment today is the only equipment that can -- that allows that reader to read at speeds that allow them to remain at current levels. When you walk into a Walmart, I'll give you an example. When you walk into a Walmart, you can scan self-service yourself, and it doesn't really matter to you how long that reader takes to read that barcode. But when you have what they call professional scanners, I mean those are the people standing behind the cash register and actually taking your orders and running them through. If you notice how fast they swipe it, that is critical for efficiency at a retailer. The retailers demand that standard in order to be effective. Our technology, because of our ability to print in multiple sizes, and that's the biggest, we get -- we can produce at multiple size prints with highly, highly defined marks are the only ones that can operate at the speed. So you can swipe just as fast as you do with a barcode. Justin Bergner: Got you. All right. And then one last cleanup question, if I may. So you mentioned $160 million net proceeds from Warehouse Automation and $30 million of net proceeds from European packaging and tooling, both to close in the first quarter. Just how much liability reduction should we also factor in whether it's pension or securitized receivables on top of that $160 million and $30 million? Steven Nicola: Yes. With respect to the packaging and tooling business, Justin, that number is going to be close to $10 million. And with respect to the Warehouse Automation business, that's a little less than $10 million. That's the difference between the $230 million and the $223 million. Joseph Bartolacci: Yes. So it's already included in our calculation. The net of $160 million is what we expect to apply. Justin Bergner: Okay. So the $160 million would be the debt reduction, but then there would be, I guess, the $7 million or a little bit less than $10 million of liability reduction on top of that? Steven Nicola: That's right. So again, if I just quickly run through the math, $230 million was the total value, about $7 million of assumed liabilities. So the cash portion was $223 million. And then there's a significant tax bite out of that plus transaction fees and some other costs to take it down to $160 million. Operator: At this time, there are no further questions in queue. I will now turn the meeting back to Mr. Nicola for final comments. Joseph Bartolacci: Okay. Thank you very much. I'm going to take this off of Steve for a second before he kind of closes out here. For those of you that have been fortunate enough to hear Mr. Nicola speak for the last 20-odd years, many of you know that Steve has announced his retirement effective here December 1. On behalf of Matthews International Corporation, its Board of Directors and its shareholders, I want to thank Steve for his over 25 years of service to this corporation and to the shareholders and wish him well in his retirement. So I'll turn it over to Steve to close it, but then say goodbye. Steven Nicola: All right. Thank you, Joe, and thank you, everyone, for listening and your support all these years. So have a wonderful day and a great weekend. Take care. Operator: Thank you. And this brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Thanks for your patience, and also, welcome to join us for MINISO Group 2025 September Quarter Earnings Results Presentation. [Operator Instructions] We have already announced the 2025 September quarter performance early today, and you can also check our slides on investor relationship website. First of all, we are very happy to have Mr. Ye Guofu, the founder and the CEO, and also Mr. Zhang, our CFO, to join us for the webcast. Before we proceed, please refer to the safe harbor statement in our earnings release, and we are also going to make forward-staking statements. Today, we're going to discuss non-IFRS financial indicators today. And we have already included that into and explained that in the filings we filed to the regulators. And we also have already adjusted it with comparable indicators reported by IFRS. Otherwise noted, all the currencies in this presentation are in RMB. In addition, we also include financial and business slides for this presentation. [Operator Instructions] If you are using Zoom Meeting, you will be able to see the slides on the screen. And you can also check for the slides after the call on our IR website. Now let's welcome Mr. Ye to start the presentation. Guofu Ye: Good day, and welcome to MINISO Group 2025 September Quarter Earnings Results Presentation. This quarter, the group continued to deliver accelerated growth with revenue increased by 28.2%, supporting the high end of our guidance. And you can see multi-key indicators, including same-store sales and adjusted operating profit, either met to exceed our prior guidance, demonstrating the resilience and growth potential of our business model. Today, I'm going to walk you through quarterly performance highlights and share with you some of our insights for strategic initiatives. In September quarter, the total GMV grew by 28%, revenue increased by 28%. Same-store sales being accelerated, reaching mid-single-digit growth. Our 2 flagship brands, MINISO and TOP TOY demonstrating accelerating revenue momentum in Q3. MINISO brand grew by 23%, while TOP TOY delivered exceptional revenue growth of 111%. On the profitability front, the group maintained a stable GP margin of 44.7%, and the GP margin approached to RMB 2.6 billion, grew by 27.6%. This quarter marked a significant milestone as our adjusted operating profit crossed RMB 1 billion threshold for the first time, grew by 40.8%, reaching RMB 1.02 billion. Our adjusted operating margin stood at 17.6%, show sequential improvement from Q2. Coming next, I'm going to walk you through our quarterly performance across MINISO China, MINISO International and TOP TOY. Starting with MINISO domestic operation, revenue grew by 19.3%. The performance is outstanding, whether compared with China's total retail sales of the consumer goods grew by 3.4%, while online retail sales of the physical goods grew by 7.5% of the same period or measured against our previous guidance. What makes me particularly proud is the growth was coming from same-store sales growth, indicating high-quality growth that is more sustainable with lower operational risk, reflecting our continued enhancement of MINISO's core operational capacity. Entering into Q4, same-store growth still remained robust with strong National Day holiday performance, driving low double-digit same-store growth for the entire month of October. This quarter, we achieved a net addition of 102 MINISO stores domestically. Year-to-date 2025, we have accumulated a net increase of 21 stores. Our franchise base has already surpassed 1,100 for the first time. Since the beginning of this year, our franchise network welcomed new partners with diverse breakthrough and resources, enhancing MINISO franchise system, not only in scale, but also in business ecosystem sophistication. MINISO China business has significantly outperformed the broader consumer market, fundamentally driven our enhanced systematic operation capacity, take Q3 happy holiday shopping at MINISO campaign as an example. Based upon the comprehensive data analysis across multiple categories during holidays and also weekend, we forecasted that toy would be the category with greatest performance elasticities. Consequently, from the early product development to inventory planning, we allocated sufficient resources and capacities for toy category, and we also leverage the summer scenarios. For China front, we secured a prime location in top-tier shopping district with peak summer periods in advance of the PoPark stores, where for our regular store, everything from creative display merchandising to visual presentation of the promotion materials was deeply aligned with seasonal atmosphere and the core product highlights, achieving end-to-end customized operations. Compiled with the TNT brand endorsement announcement in August, we ultimately created powerful strategies of the right type channel, right timing, right product and the right marketing, maximizing the growth potential of our summer toy category. Turning to our international markets. In Q3, revenue exceeds RMB 2.3 billion, grew by 28%. Our international MINISO store network expanded at a net 170 stores during the quarter with year-to-date net addition of 306 stores. Our largest international market, United States, delivered revenue growth more than 65%, with same-store sales growth in a low double digit, exceeding our expectation. Our operational initiative in U.S. continued to strengthen and stable our long-term growth and continued to improve new store success rate, brand recognition and also with consumer retention across multiple dimensions. Starting from this year, we have a store expansion committee structure and a clustered store opening model, opening multiple stores at the same time in different locations. This can actually improve the management efficiency, and also, with great brand exposure, attracting great consumer attention. Year-to-date 2025, new member acquisition in U.S. market have grown by 100%. By progressively building bidirectional communication channels with consumer, we enable the companies to more precisely understand the consumer preference. Our membership program not only driven our revenue growth, but also providing critical data insights and consumer touch points for further enhancing repeat purchase rate. Regarding the product assortment, our IP product launch cadence operates like the release of the same, different season and monthly features, providing freshness to the consumer and encouraging the store activities. You can see that for beauty, consumer electronics, food and beverage, mainly served to drive the basket attachment and repeat purchase once consumers are in store. MINISO is committed in creating balanced product portfolio to achieve a more stable store operating model to address diversified consumer needs across different shopping occasions. The stronger result of the MINISO in both China and the U.S. market are giving us tremendous confidence in both international markets. Our experience in both major markets has provided proven systematic insights across 4 disciplines: optimizing store site selection, creating differentiated store formats, achieving precise product channel alignment and orchestrating full funnel market synergies, all of which can help to consolidate operational stability and long-term growth. International markets represent our key opportunities for MINISO's long-term expectation. We will systematically replicate and scale up our validated operational framework to more countries and regions. Every initiative is facing on the long-term sustained profitability, ultimately unlocking tremendous potentials of the global markets. TOP TOY delivered outstanding revenue growth by 111% in Q3, store account expanding a net increase of 40 locations, reaching 307 in total, including 292 in China, 50 outside China. Benefiting from the enhanced product competitiveness, particularly the rapid scaling of our proprietary IP, and it's actually achieved a very good growth, especially our proprietary IP, [indiscernible]. TOP TOY achieved a middle single-digit same-store sales growth in Q3 with significant gross margin optimization. TOP TOY also continued to elevate store presentation, transforming proprietary IP into more immersive experience, continue to contribute to our owned IP and proprietary IP and brands. This quarter, we achieved 2 significant milestones. First of all, our global network store number already surpassed 8,000 milestone. And our brand presence is actually in key global markets from Asia to Europe, from Americas, from established commercial districts to emerging neighborhoods. Our product and service are reaching an ever-expanding consumer base, marking a new chapter for our global expansion. The second milestone was our quarterly revenue crossing RMB 5 billion threshold for the first time, while a single quarter adjusted operating profit also break through RMB 1 billion mark for the first time. Moving forward, we will transition from scale-driven growth to a new development paradigm, emphasizing on both quality and scale, taking confidence and measured steps along the pathway of high-quality development. Achieving high-quality development need strategic directions and sustained execution excellence. For the past quarter, both our channel upgrades and IP metrics strategy have delivered significant breakthroughs. On the channel upgrade front, our inaugural MINISO FRIENDS store that has been inaugurated in high mall in Shenzhen. The FRIENDS format represent a crucial innovation with MINISO's channel upgrades with the following features. First of all, store design and product curation emphasize on IP content presentation, creating unique shopping experience akin and movie release schedules based upon the synchronized IP launch reason. Secondly, leveraging MINISO's comprehensive category coverage and multi-IP metrics product development, MINISO has already become an anchor tenant for selecting shopping malls so that we will be able to enjoy primary location with favorable lease terms and more marketing support from the mall operator. Thirdly, MINISO FRIENDS store positioned at accessible luxury store, designed for mid- to primary shopping center represent a strategic channel segmentation initiative for MINISO Group. Regarding proprietary IP, by November 2025, we have already contracted 16 pop toy artist IPs, building a rich and diversified owned IP portfolio with enriching IP value of our core objective. Our first artist at trendy district has already been launched at Beijing Road Play Grand store in Guangzhou. Through comprehensive scenario-based renovation of the designated area of the store on third floor, we precisely embedded the exclusive bird view of our TOP TOY IPs. The competitive island area generated a sales performance exceeding a typical store's entire monthly sales result in just 2 weeks. Furthermore, we created atmospheric installations and interactive elements that align the IP character personas transforming every space into extension of the IP storytelling. When consumer enter this immersive store environment, they not only experience the characters appeal and narrative depths of our system, but also deepen their IP understanding and emotional connections through the experimental touch point, facilitating meaningful transmission from product purchase to IP affinity, strengthening the emotional bond between consumer and IPs. I believe over the longer run, MINISO's core competitive advantage in category architecture and IP portfolio will become increasingly pronounced. Geopolitical macroeconomic uncertainties represent universal challenges to all companies. We are already well positioned for that. MINISO maintained the industry's most balanced and diversified IP portfolio with IP assets spanning international renowned licensed properties, primary domestic content, proprietary IP across multiple development tracks. Our extensive category cover enable rapid product assortment and also merchandising adjustment based upon the seasonal needs. And more importantly, we also have precise capture emerging trends and end-to-end channel control capacity, allow our operation to be more adaptive to the market change. Looking to the future, MINISO will capitalize on the expansive opportunities with lifestyle consumption sector, driving high-quality performance through continued strategic evolution. That conclude my remarks. I mean, next, I will turn the floor to Eason, who will walk you through our first 3 quarters' financial performance, please. Eason Zhang: Okay. Thank you. Hello, everyone. Welcome to join us for our September quarter earnings release. In front of you is a wonderful scorecard, which is actually showcasing how we leverage flexibilities and high-quality growth to navigate the future development. So first of all, let me help you to review our performance against our guidance. There are 4 guidance we provide you from revenue to SSSG and adjusted operating profit. We hit our profits. And there you can see actually regarding the guidance of the revenue growth. Well, for SSSG, we gave the guidance of a lower single-digit growth, but we made it mid-single digit. But a few points I'd like to share with you. For MINISO China, we made it to a high single-digit growth for SSSG, while at the same time for MINISO International, and we also made a middle single-digit growth. For TOP TOY, it also registered a mid- to high single-digit growth number. It is also worth mentioning that many of our stores in international market are franchised stores. The control is less than the direct operated stores. But even against such a backdrop, we will be able to have a low and positive growth among our 3,000 stores worldwide, while at the same time, you can also see adjusted operating profit also registered a double-digit growth, reaching 50%, where for the adjusted operating profit margin, our previous guidance was a minor improvement month by month. But actually, we made a net profit, 17.86%. And the decrease has already been narrowed down from 2.3 percentage to 2.1 percentage. From a revenue perspective, there are a few things I'd like to draw your attention to. First of all, 28.2% of the growth with RMB 5.8 billion revenue already go beyond our expectation. It's also the first time for the group's revenue to exceed RMB 5 billion. Our Q1 revenue growth was 80.92%, and also Q2, 23.13%, where for Q3, that was 28.2%. And you can also see that we foresee for Q4, the revenue growth would be around 25% to 30%, continue to deliver our commitment for a full year revenue growth by 25%. Well, let me also dive into our operating segments. MINISO Mainland China revenue grew by 90.3%. MINISO International growth was 27.7%, reaching RMB 2.3 billion. TOP TOY revenue surged by 111.4%, reaching RMB 570 million, significantly exceeding our expectation. Breakdown into domestic versus international, group's Mainland China revenue grew by 25%, and international revenue grew by 32.9%. We'll break down to different brands. For MINISO, as a brand with GMV close to RMB 35 billion to RMB 40 billion, and we'll still be able to manage a revenue growth by 23%. While for TOP TOY, the growth was more than 111%, as I mentioned. High-quality growth is inseparable from SSSG. In Q3, SSSG performed good, which can help to drive the same-store growth by a mid-single-digit number, among which in Q3, MINISO Mainland China same-store sales achieved high single-digit growth. Overall revenue growth was approaching 20%. October continued a strong same-store momentum, reaching a low double-digit growth, while for international same-store growth was a low single-digit number. Strategic markets like North America, Europe showing outstanding same-store performance. U.S. and Canada achieved low double-digit same-store growth in Q3, too. While for TOP TOY, same-store sales grew by mid-single-digit number, in line with our expectation. The improvement is because we captured the strategic and high potential product category with multiple sales opportunities. We also optimized the product assortment. We leveraged direct sourcing and international market, enhancing the merchandise dollar capacity, while at the same time, we always focus on product, coordinating with frontline operation, strengthening the refined product assortment management, conducting customized product development and also create some regular best sellers. More importantly, we emphasize on seasonal and holiday opportunities. We organized holiday plus IP-themed pop-up stores to stimulate the sales performance. Our directly operated market are the closest one to our headquarters management radius and also the first place where our strategies and adjustments take effect. The domestic market is our largest, most mature, but also most competitive intense market. Achieving positive same-store growth in such a fierce competition market in China not only validates our effectiveness of the measures we take, but also reflect our rapid market response capacity and strong execution. Through channel and store format differentiation, we continue to explore the boundaries of the same-store efficiency, continue to open up long-term store expansion opportunities. Excellent same-store performance has also emerged in our strategic directly operated market like U.S. Stores are the smallest profit-generating units, just like the sales of the body. Pursuing high-quality growth requires refined optimization of the store model beyond the traditional mall stores. We also actively explore plaza store. We leverage scientific decision-making to be selective for store opening, cluster openings and refined store staffing, continue to optimize profitabilities for the stores, allow the smallest profit unit can fully realize the potential in driving future high-quality growth. We are very happy to see that for our international directed operating stores, including U.S. and Canada, show significant Y-o-Y improvement in operating profit margin in Q3. We plan to first extend our China-U.S. success experience to Southeast Asia market in 2026. We will be in Southeast Asia market for nearly 10 years. Markets like Indonesia contribute substantial profits to company every year. However, alongside the local macroeconomic downturns and the social unrest, we faced certain operating challenges, especially the need for upgrading channel product assortment, organizational and Thailand improvement. The market optimization, we bottomed out this year. It's going to be the key focus of our strategy in 2023, and we are very confident to achieve success in those markets similar to what we accomplished in China in 2025. This quarter, the GP margin was 44.7%, used to be 44.9% same period last year. Looking at the first 9 months of 2025, GP margin was 44.4%, which was 44.1% last year. And I also mentioned our GP margin has climbed from 27% in 2021 to 44% today, increased by 70 percentage points over 4 years. This improvement stemmed from, first of all, continued increased contribution from our international revenue and also upgrades and solid execution of IP strategy. As international-directed operated business continued to expand along with category structured adjustment between quarters, seasonal fluctuations are inevitable. Going forward, we will continue to focus on balancing product price and volume. For IP product, we will persist in product innovation and value for money. And for non-IP products, we will emphasize product profitability and quality to price ratio, achieving better sales performance while maintaining overall GP margin. For this quarter, deducting the equity payment expenses and incentives, our SBC grew by 33.7%, representing 27.6% of the revenue. It is worth noticing SBC, share-based compensation, altogether totaled RMB 176 million, significantly increased compared with the previous period, primarily due to the TOP TOY equity incentives plan. The selling expenses, excluding SBC, grew by 36.5%. The increase was because our international-directed operational store investment, including the labor cost, leasing, depreciation and optimization grew by 40.7% in Q3. Well, you can see in Q1, this number used to be 71.4%, and 56.3% in Q2. So you can see directly operated store, their selling expenses growth has been clearly slowed down, while at the same time, the directly operated store revenue growth was close to 70% higher than the growth rate of the related expenses with significant deceleration because of our continued refined operation and strict expenses management. Well, coming next, let me also touch upon YH. Our investment in YH began to impact our financial statement last quarter. We accounted for these transactions using the equity method. The YH investment affect our net profit by RMB 146 million this quarter, which has been included from the non-IFRS financial metrics. Well, let's also talk about effective tax rate. With IFRS categories, our effective tax rate was 33.9% compared with 24.8% same period last year. 33.9% of the tax rate sounds to be relatively high, but it's not the true tax burden. It's primarily due to the share-based compensation and YH losses, where those items can't be deducted pretax under the tax law, but they actually didn't generate income tax relief, resulting in a higher effective tax rate on our financial statements. These expenses totaled around RMB 320 million. If we're excluding those impacting the nonoperating related items, our adjusted effective tax rate was 22.8%, 1% lower than last year. Let's also talk about profitability. Adjusted operating profit grew by 40.8% and reaching RMB 1.02 billion. Those were actually showcasing our operating quality. Adjusted operating margin was 7.6%, down by 2.1%, but a great improvement compared with Q1 and Q2. The decline in adjusted operating margin was due to the structural changes of the revenue composition. Looking at each of our major business segments, operating profit margin were either flat or improved. For example, international directed operating business maintained a high operating profit margin by a low single-digit number. China franchise business and international agent business have a flat growth, but why we see a 2.1% decline, the key reason is because international-directed operating revenue proportion continued to go up. The business profit margin still facing some gap compared with asset-light franchise and agents business model, causing dilution of the overall profit margin. But you can see as U.S. and Canada already have the directed operating model, the operating profit margin for international-operated -- directly operated business will continue to improve, especially we see low double-digit growth of the U.S. directly operated business going to bless the local profit margin, but we are operating in different countries and regions. We inevitably face profit fluctuations due to the regional economic and social environment. Our team is still young. Capacity needs to be improved, but there is significant room for growth. Q3 adjusted net profit grew by 11.7%, and adjusted EPS grew by 12.7%, adjusted EBITDA grew by 90%. The Y-o-Y also accelerated by quarter-by-quarter, but adjusted EBITDA margin was 23.4%. For the working capital, our inventory turnover remained robust and efficient. As of Q3, MINISO brand inventory turnover was 87 days compared with 104 and 94 days in Q1, Q2. You see our inventory efficiency improved in Q3. And at the same time, as of September 30, our cash reserve was RMB 7.77 billion, remained robust. And our net cash flow from operating activities reached RMB 1.3 billion with a net cash -- net profit to cash ratio 1.7. Capital expenditure was RMB 330 million. Free cash flow was RMB 970 million. In first 9 months of this year, net cash flow from operating activity was RMB 2.01 billion, exceeding adjusted net profit for the same period. Capital expenditure was RMB 770 million. Free cash flow was RMB 1.55 billion, demonstrate our high-quality profitability, efficient working capital management and our stable business, providing fuel for our future high-quality development. Last, but not least, I'd like to walk you through the outlook. Despite pressures and challenges in the micro consumption data, we remain confident achieving full-year guidance, having a 25% full-year revenue growth and RMB 3.65 billion to RMB 3.85 billion in operating profit. We see Q4 revenue grow by 25% to 30%, with China and U.S. same-store sales achieved double-digit growth. For the full year, we expect the China and the U.S. same-store grow by a mid-single-digit number. We expect Q4 operating profit will register double-digit Y-o-Y growth. Operating profit margin will still decline due to the revenue structural changes, but the decline would be modest, close to Q3. North America is about to enter into peak shopping season. China Q4 will maintain rapid growth. Even continued macro weakness in Southeast Asia may bring some impact, but our global business layout will diversify our operating risks. We will continue to talk to the capital market regarding the progress and the expectations. Thank you very much. Thank you. Let's now move into Q&A session. Operator: [Operator Instructions] First of all, let's welcome Michelle to raise a question, please. Michelle Cheng: Congratulations on the company's high-quality performance in September quarter. I have 2 questions. My first question is regarding domestic MINISO business. From the macro perspective, since Q2, despite consumption slowdown, we still see that MINISO's same-store sales and overall revenue growth continue to be accelerated. Particularly, we noticed the company seemed to have accelerated the rollout of the new store format. For example, Chairman Ye mentioned the MINISO FRIENDS as a new format. In your previous interview, Chairman Ye, you also mentioned you are going to renovate 80% of your domestic stores. Can you share with us the current progress of those store renovation, the targets? What about the unit economies? Anything you can share with us? This is actually my first question regarding domestic MINISO stores. And I also have another question regarding international outlook. Just now, Eason walked us through the Q4 outlook. Is it possible for you to elaborate on that because Q4 is always a peak season. Last year, we saw some adjustment. While for this year, enter into Q4 peak season, is there something worth noticing regarding inventory preparations, marketing, store operations? Can you share your work on the next year international strategy planning? Those are the 2 questions I have. Guofu Ye: We are extending the space. We upgrade from the small to large with greater frontage and better display space. The larger stores truly provide consumers with a better experience with more display space, larger, more attractive displays. We want to give more consumers a wonderful shopping experience. Moreover, opening large stores has a higher barrier to entry. Only MINISO's extensive IP portfolio and category place can truly support a large store format. If you don't have enough IP and product category, you won't be able to accommodate large stores. Our 2025 channel optimization achieved initial success, and we have accumulated systematic methodologies and experience. However, the number of the optimized store isn't large yet. In the upcoming years, we will proactively plan and implement store optimization work, hoping that we can optimize more stores next year. The pace of the store renovation would be gradual. We are not going to rush for that. Most importantly, we need to have the right location selection. Many existing stores already have a good profit margin. We will advance our strategy based upon the lease and the new store site selection. Thank you, Michelle. Let me just give a few updates. In the first 3 quarters, we've relocated and expanded and optimized more than 200 stores. The optimized sample store show significant store efficiency improvement, maintain healthy sales per square meter and the rent-to-sale ratio declined by a low single digit. This can help to driving high performance while achieving win-win for both companies and franchisees. Both parties have seen revenue and profit growth from the optimized stores. Store optimization will become a regular part of our channel expansion work. Well, regarding the outlook of the Q4, a few points I'd like to share with you. I think the September ordering conference was very successful with record high ordering amounts. 5 categories each exceed RMB 100 million in orders, and all specialized sections broke historical records. Category were quite evidenced. For IP merchandise, we have a strong creative outlook, where for value for money products, we continue to enhance cost and pricing competitiveness. Well, additionally speaking, our international, localized IP design and category implementation has already been improved. For example, the Mickey Merlion limited edition launched in Singapore in October, an airport store exclusive that perfectly match channel and merchandise. The product has extremely scarcities and differentiation. It actually created a new single store record. Our executive bearer was even asked by tourists at the airport to borrow her passport so that they can purchase more Mickey Merlion product from initial market insights to creative design to logistics support to integrated marketing every step worked closely, demonstrating IP merchandise store operation and marketing capacity integration. This is a very good and replicable IP operation model. This above demonstrated deeper collaborations between IP partners across entire value chain, including channel, product, operation, design. This month, Zootopia film would be released worldwide. And yesterday, Director of the Zotopia was also providing us very good comment on MINISO pop-up store by weaving ourself design product. We remain confident about long-term international opportunities. MINISO's achievements in both China and the U.S. market over the past years give us strong confidence in international market growth potential. The practice in the 2 major markets have provided us with proven systematic insights, optimizing store opening decision mechanism, creating differentiated store model and to be precise to have the product channel matching and full funnel marketing synergy. International markets are MINISO's core potential field for the long-term growth. Those proven, systematic, operational framework will gradually be replicated and extended to more countries and regions with every step centered on long-term sustainable profitability. And ultimately, we will be able to steadily release the tremendous global market opportunities. Operator: Next question, let's welcome Lina from HSBC. Hau-Yee Yan: Can all of you hear me? Operator: Yes, please. Hau-Yee Yan: Eason and Mr. Ye, congratulate on company's IP strategy success. I have a question to you. I know that IP means a lot for your same-store sales growth. There are some pulse-like growth where we know that for many of the investors, we really would like to know how sustained your growth would be when you just do IPO? Your product category are quite similar to Muji. But how are you going to comment on the non-IP product, especially from the existing suppliers? For example, if you're going to benchmark with Muji, Muji also registered a very good growth in China for the past few quarters, I'd like to ask you, how sustainable the growth would be? What are those categories that are going to register sustained growth in the near future? What would be your plan? Guofu Ye: We can see within the consumer conception, the most important and the best one is interest-driven consumption. And you can also see the most promising one is also the interest-driven consumption. Consumers no longer just pursue product functionality contributes, but also value the aesthetic identity, social labels, killing experience and spiritual satisfaction behind the product. That would be the ultimate pursuit for consumers. Going forward, consumer will pay for passion, pay for emotions. This interest-driven, emotionally connected consumption demand has higher stickiness and prime space and also becoming the company's core lever to navigating circles and building differentiated competitiveness. The IP transformation is not abandoning our existing category advantage, but rather IP plus core categories do well drive, allow our 10 years of accumulated experience to unleash greater value. Our supply chain resources covering the home goods, cosmetics, stationeries, [indiscernible], toys and snacks, along with the mature multi-category product development capacity, which are a great way to support our IP strategy implementation. MINISO is a very unique business model worldwide. IP empowerment isn't only about single point best seller, but also the full scenario penetration. Our product development capacity's key is understanding category and better understanding how IP can empower categories rather than printing a logo. For example, since November, MINISO's seasonal product has grown very fast, plush socks, scarves and gloves has captured and converted the traffic brought by IP. Our original key category are the perform [indiscernible] store. Essential categories, including home goods, cosmetics and stationery products, contribute our traffic -- stable traffic and repeated purchase, where IP is a growth catalyst, enhancing product design appeal and the brand pioneer through collaboration and same sale rules. We can also leverage IP popularities to boost the core category sales. The model is quite unique because single IP brands lack multi-category supply chain support, making full scenario coverage difficult. Traditional general merchandise brands lack mature IP development and operation capacity, but our 10 years of accumulated multi-category supply chain plus IP-integrated development capacity allows IP to rapidly penetrate into high-frequency consumption scenario, where key categories can leverage IP to break through the growth bottlenecks. Ultimately, forming a healthy growth structure of having essential category men traffic and category boost to profit. Operator: Let's also welcome Mr. Wei, Xiaopo from Citi. Xiaopo Wei: Can all of you hear me? Yes, great. My first question is quite forward-looking. Just now, I see Eason has already provided the guidance for the Q4 performance. As Eason, you are quite conservative about the guidance, so I think I don't have any doubt on that. But a question I may have is that U.S. business has a strong Q4 seasonality, where Q1 in 2026 will see seasonal declines. In your prepared remarks, you also mentioned you are improving your operational efficiency to buffer the seasonality impact. Is it possible for you to share with us from Q4 2025 to Q1 2026, whether the so-called seasonal decline trend would be similar to last year or narrow down compared with same period of last year? This is my first question. My next question, Mr. Ye, you mentioned about the China IP go for international market. You have already signed 16 artists. Then you're probably going to bring those IP outside China. Mr. Ye, according to your experience, in international market, for Chinese IP go for international business, how long will it take to develop them there? And whether it's going to hurt your profitability? Eason Zhang: Let me just respond to your questions regarding the seasonality of the U.S. business. And Mr. Ye will answer the second question. I think the questions are well raised. For the past 3 to 4 years, especially starting from 2021, and we started to work for direct operated business in U.S. Q1, generally speaking, is a low sales season in U.S. The store sales in low season will be around 10% to 20% lower than peak season in Q4. This is the common practice of the U.S. retail industry, but how we can iron out the seasonalities. One thing is store operation, where another thing is the store opening. You can see that our U.S. store, they do have a very good experience. A key takeaway is that in Q4 of the previous year, you have to make sure your stores being well prepared for presence. In Q4 of this year, we're going to have all the stores ready and not open new stores next year in Q4 in order to make sure that all stores are well in place in the first 3 quarters of every year. For example, in 2026, when I tell you how many stores we're going to have in U.S.? We need to make sure at least half of those promised stores are already been contracted. This is also a common practice in retail industry in U.S. In Q1 of 2026, you see we have a very nice store opening growth to iron out the seasonality on scale, where on the other side, regarding the business operation, we're not going to smooth out or iron out, but we are going to follow the trend because the essence of the retail is to capture and satisfy the consumer needs. For U.S. and the European market, they do have a very strong seasonality and the festival attributes. This is something we can work on. For consumers, they have very different needs in different seasonality. For example, Black Friday is coming. It's the peak season for consumers to spend, and the consumer willingness to consume were peaked. We have already made inventories ready. We have worked on the supply chain, making sure we have enough inventories to take care of the shopping festival needs from the consumer. And you can see in U.S., Q4 is still going to register good growth. We're not going to give up on the golden growth opportunity in Q4 just because of seasonality difference compared with Q1 of next year. We're going to leverage the seasonality dividends, having good marketing, seasonal disciplines as well as strategic inventory building, translating seasonal fluctuations into an exemplifier of our business. This is how we respect the market and also be able to continue to follow the retail development. Well, you can see that MINISO brand Chinese IP overseas will definitely leverage our unique advantage, not letting China IP to go it alone. We're going to leverage our past licensed IP experience and massive IP portfolio for mutual empowerment. For example, on first of this month, MINISO Canada National flagship store has its grand opening. Such a prime store provided best stage for IP going overseas, representing a key milestone for MINISO global IP strategy. The Canada National flagship store open day sales again broke North American new store open sales record. Such successful opening was inseparable from the IP catalyst. The event was featured by [indiscernible] surprise, triggering people to check in and purchase the product. Coordinating with this store opening, our gifted bear family made its overseas debut with very cute and lovely design that filled with the opening atmosphere as a joy for energy. The Chinese IP go for international market is not starting from 0. It was standing on the shooter of the giants to -- for steady growth. We have every confidence leveraging our store resources worldwide and a very successful experience to bring Chinese IP international wide. Operator: Coming next, let's welcome Samuel from UBS, please. Samuel Wang: I have a question also concerning U.S. market. Recently, no matter for the capital market or investors, we find out the U.S. consumer market has been relatively weakened recently and especially the performance of the retail market in U.S. was not looking right. I would like to ask you, what do you see in the U.S. market, especially in October, what would be the SSSG in U.S.? In that way, how you're going to find your own measures? And also, for U.S. market, specifically, how we're going to look into a full-year revenue and profit guidance for U.S. market? Eason Zhang: I'm Eason. Let me just respond to your question. U.S., indeed, we see some of the high-frequency consumption data, especially credit data consumption from the U.S. was quite weak. But it was actually external macro environment pressure that it cannot be avoided. What we can do is to strive to be the best of ours and give our all. I have already mentioned to you the 3 strategies being mentioned. For example, the thing was to take care of the holiday, early preparation, sufficient inventories and good adoptions. Now, we have already been prepared for the decorations ahead of the time, finished creating holiday shopping experience. And the store inventory is more abundant than last year. We expect that the U.S. Q4 revenue growth would be a low double-digit growth, where for Q4 revenue growth would be 50% to 55%. The same-store growth will be low double-digit growth. Well, for Q4, I think the scale growth would be slower than Q3. It's because we are slower than last year for numbers of the stores opened and the cadence, but still, the profit is going to generate a healthy growth. Thank you, Samuel. Operator: Let me also welcome Xu, Xiaofang from Citic. Xiaofang Xu: I have a question regarding your proprietary designer IP. I can surely feel the company investors and the consumers have a high expectation of a proprietary designer IP. Looking to the next 3 years, how the designer and the proprietary design IP may look like? Are you going to have a designer ecosystem organizing the trendy toy communities exhibitions, where you invest in the secondhand market? Guofu Ye: By end of June, we have already signed 9 designer IPs. And by Q3, we signed 16. We are proactively discovering highly potential original toy art IPs globally, working hard to build MINISO trendy toy IP landscape. When there is one IP breaks out, it will definitely show exponential growth. The upper limit for proprietary IP volume is anchored to the trillion level interest to consumption market. Generation Z has already become the key consumption force, close to RMB 260 million of them, and their annual consumption would be more than RMB 5 trillion, and they are happy to pay for emotional value. And -- but at the same time, proprietary IP growth always have the risk backstops. We continue to test market through small batch trial sales data iteration, but adjust our design style and the category based upon the market needs and feedback. Such model allow proprietary IP to grow steadily within a very safe trial and error framework, avoiding traditional IP incubation pain points of high investment, high risk and unpredictable returns. We're going to continue. Where for MINISO, we have a great advantage, full category coverage, omnichannel penetration, global layout, full funnel operation. Our stores themselves are theme park ecosystems. MINISO LAND and MINISO FRIENDS has a checking area with proprietary IP characters, placing IP characters sculptured model in the most prominent areas. We also have audience zones like Shiba signing event. And we also have the dedicated product display areas and interactive activities like the gifted bear family plush [indiscernible] that you can see when you visit MINISO stores. Products are key in IP ecosystem. Good product doesn't consume IP, but actually enhance IP value. Yu Yu second-generation ring [indiscernible] has excellent sales with the product innovation and liability maximizing secondary creation attributes. In marketing, MINISO plush festival gifted bear mascot performed supporting store opening activities, and screens in store checkout areas play cute gifted bear family in cartoon clips in snow form that can help enhance IP exposure and strengthen IP personalities and images. Operator: Coming next, we're going to have Runbo from CICC. Runbo Yang: Maybe we will move to our next analyst first. Let's also welcome Shi, Di from Huatai Securities. Can you hear me? Di Shi: Yes. My question is regarding your China business. I find out your store format is more in retail, including the SPACE, LAND and FRIENDS stores and flagship stores. And can you break down on the appropriate proportion structures of different store types in sequential expansion plans? And for your store renovation and upgraded stores, how it's going to drive your domestic business growth? Guofu Ye: In the near future, we're going to have 2 kinds of the store models, different models are going to have different VE and logo. The first one is the Wonderland and the regular stores for -- we leverage meaningful space, meaningful land and meaningful land to provide people a Wonderland experience. But at the same time, we also have the regular stores, benchmarking the higher tier and the newer tier cities, asking for the prime location, where we're going to make sure it can cover as many as the traffic possible. Looking at the quantities and different store types, more will still be the flagship stores and existing store location optimization expansion, where we have 2 logos for the regular stores. We have 2 store types. When consumers come to our store, when they look at our exterior design, they will surely understand what are those MINISO LAND, FRIENDS and SPACE, what are the regular stores, where at the same time, we can see still -- we're going to continue to work on the flagship store and the store door renovation, where we're also going to leverage our brand priming and bargain power to leverage the best location in the commercial districts and continue to upgrade our channel. We're also going to leverage 8,000 stores to have a good and high-frequency consumer feedback to provide us the market data and continue to empower our channel upgrading and also lay a solid foundation to further improve our product performance. So that's the reason starting from this year on, our store type is going to be more diversified. Well, at the same time, even for the MINISO, we have MINISO SPACE, MINISO LAND and MINISO FRIENDS. And in the near future, we're also going to have the Super MINISO. Well, for regular stores, we do have the regular stores, small stores, car parks and also the train station stores. By so doing, we're going to be more focused on our IP strategy and making sure we really roll out the product for the price to quality product, which will make our store presence more clear to the consumer, which will also create good space for our IP strategy to continue to navigate the market development. Operator: Coming next, we're going to have Runbo from CICC to raise a question. Runbo Yang: Can all of you hear me? Operator: Yes. Runbo Yang: My name is Runbo. Congratulate on the continued optimization of the company. And 2 questions. First of all, I see your domestic business continue to go up with more larger and well-performed stores being demonstrated. What would be your next year business development and your store number forecast? My second question, for outside China, especially outside China, U.S., what would be the retail market you see now? Do you see some pressures? What will be the regional difference -- performance difference? Eason Zhang: I'm Eason. Let me just respond to your question. In China, we have already confirmed, in China, we are going to seek for high-quality growth, inseparable for the store growth, where in China, we have a mid-double-digit or even high-double-digit growth, which would be supported by SSSG improvement. Well, for this year, our internal KPI assessment also introduced SSSG and hoping that we're going to improve our performance in 2026. The SSSG target for 2026 are not being confirmed yet, but we hope we can have the best-in-class SSSG in our industry. Regarding international business, in Q3, the international market that performed weak are the third-party agency markets, especially in Southeast Asia and Latin American markets. There are some macroeconomic seasonalities. For example, the local currency exchange rate fluctuations and also the consumption tax changes. But we are happy to see that from beginning to now, the terminal GMV growth is much better than our shipment GMV growth. In other words, our agency inventories would be quite healthy. They can still travel light in 2026. In some key markets, like Southeast Asia, GMV already been accelerated in Q3 with a double-digit growth. And we also see there are some comparable listed companies in Southeast Asia, say October consumption stay improved, but we're still observing the performance. Thirdly, we will also be proactive in adjusting the product assortment channel. Many of our investors have already joined us for the order meeting with the new heights being achieved. I surely believe those high order would continued to be converted into revenue contribution in the next few quarters. More importantly, we are very confident that our success in U.S. and China proven our business ability and resilience. We have every confidence to that. For overseas market, we do have the direct sales and agency business. Direct sales would be something we can reach first, which can actually showcase our key market sensing capacities, fast response, where agency market, it was somewhat not easy to be well managed, and we are adjusting the assortment and the channel. We have already identified the root cause. Let's leave more time for further execution to improve the performance. Operator: Final question, Anne from Jefferies. Can you hear me? Kin Shun Ling: I have 2 questions to you. Now, you see your equity incentives plan was registered a high number. Eason also mentioned there are some equity incentives from TOP TOY included into Q3 performance. Is it possible for you to share with us regarding equity incentives plan? What are the KPIs inside? And how it may look like in next quarter? Will you continue to have such equity incentives in the next few quarters? My second question for TOP TOY, I think your drafted prospectus has already been filed. What would be your IPO schedule for TOP TOY? What would be the relationship between you and the TOP TOY? I know you may have some related party transactions. And many of the profit and sales being given to TOP TOY. But once TOP TOY has been IPO-ed or spin offed, what will be the relationship between the 2 entities? And how can we protect the interest of the stakeholders of the MINISO? Guofu Ye: For this quarter and the next quarter, the expenditure was relatively high due to the equity incentives plan for TOP TOY. As you have already mentioned that for TOP TOY, its revenue doubled this quarter, significantly exceeding expectation. We believe excellent team in excellent sector combined with incentives, they can release more growth potential. TOP TOY has always been MINISO's fully consolidated subsidiary. So MINISO shareholders were also benefited from TOP TOY's high growth. The IPO plan is advancing now. We will inform the market when any progress being made. Both industry and the TOP TOY brand are in rapid development period. As a leading player, TOP TOY's market share continues expanding from user to category to region. We continue to explore the boundary. TOP TOY also see abundant market opportunities. The only reason for IPO is hoping TOP TOY can become stronger and continue to expand its business, fully capture the broad opportunities in the trendy toy market. Okay. Let me just give one more comment for Anne. Internally, we actually made some long-term discussion. There's no better strategies to advance by having both entities, MINISO and TOP TOY, would be the best strategy. We can leverage MINISO's full category and omnichannel operation and global presence along with TOP TOY as a specialized trendy toy brands. The trendy toy market is growing very fast with explosive growth rate. I believe both business would be able to let our business to be the top one in the dual market. You were worried about SBC expenses. It's going to be RMB 100 million for this quarter and another RMB 100 million for next quarter. It's actually a normal accounting that after we have been IPO-ed. For MINISO, in 2020, after IPO, you can see that SBC and the team equity incentives plan, it's going to be diluted and amortized a few quarters after the IPO, and it's going to have higher IPO in the first few quarters, but going to be smaller in the next few quarters. Operator: Ladies and gentlemen, we conclude the earnings call for September quarter. Thank you very much for your participation. If you have any follow-up questions, please contact our IR team. I wish you a wonderful weekend. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, and thank you for standing by. Welcome to VinFast Auto Limited Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker today, Ms. Nhi Nguyen. Please go ahead. Hoang Nhi Nguyen Le: Thank you, operator, and good morning, everyone. Welcome to VinFast quarterly earnings call. Joining me today are Chairwoman of the Board, Madam Thuy Le; Deputy CEO of Investments, Ms. Anne Pham; and our CFO, Ms. Lan Anh Nguyen. Before we begin, please note today's call will include forward-looking statements under U.S. federal securities law. These statements reflect our current views on future events, financial operational performance and other matters that involve risks and uncertainties, which may cause actual results to differ materially. Please refer to our most recent filings with the SEC for a discussion of these risk factors. We will also reference certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP figures, along with explanation of their use is included in our presentation issued earlier today. With that, I would like to invite Madam Thuy to begin the management remarks. Thuy Thu Le: Thank you, Le. Hello, everyone, and thank you for joining us today. In addition to Lan Anh, our CFO, I'm very pleased to have Anne Pham, Deputy CEO of Investment on the call with us today. This quarter VinFast marked a significant milestone. We became the first automobile brand in Vietnam to surpass 100,000 vehicle sales within the first 3 quarters of a single year. This follows 13 consecutive months as the nation's best-selling carmaker, underscoring our unrivaled leadership in the domestic automotive market. Growth across our core international markets also continued to gain momentum. Before I go into the country updates, I would like to start with the 3 key takeaways for this quarter. First of all, VinFast remains in growth mode, both at home and abroad. In the third quarter, we delivered 38,195 EVs, representing a 74% increase year-over-year and 7% quarter-over-quarter growth. For the first 9 months of 2025, VinFast delivered 110,362 EVs to customers globally, representing a 149% increase year-over-year. We remain on track for our 2025 guidance to at least double the volumes. VX 3 and VX 5 together contributed 47% of total deliveries, while the Green series accounted for 25% of deliveries. We delivered 120,052 e-scooters and e-bikes, representing a 535% increase year-over-year and 73% quarter-over-quarter growth. The number of EV deliveries to related parties, including GSM, represent 26% of total deliveries. E-scooter deliveries to related parties, including GSM, accounted for less than 1% of total volume, reflecting overwhelming demand from retail consumers. The strong momentum in our e-scooters volume showcases the accelerated shift towards electric 2-wheelers following the announcement of a new policy to restrict gasoline motorbikes from entering central district in Hanoi and Ho Chi Minh City, starting in mid-2026. In Vietnam, we are strengthening our leadership position by broadening our EV e-scooter lineup and deepening our presence in the B2B fleet channel. Internationally, we continue to expand our green mobility ecosystem, a key differentiator for Vintast while growing our dealership network and introducing new products as each market matures. The second takeaway for this quarter is about investing in innovation, which is central to Vintast's long-term competitiveness. Our R&D investments are focused on 3 critical areas: vehicle platform, electrical and electronic architecture and autonomy. Anh will share more details shortly on this exciting road map. Last but not least, we are prioritizing top line growth through targeted investments while viewing cost rationalization as a disciplined medium-term priority. As I have shared before, finding the balance between growth and cost remains a long-term priority. This principle continues to guide our decisions as we invest in expansion and R&D in the near term to strengthen our foundation for the future. Lan Anh will provide more color on this in her remarks. Now let me go into the detailed update by market, starting with Vietnam. Based on aggregated data from Vietnam's Automobile Manufacturers Association and domestic manufacturers. The auto industry reported a mixed result for the quarter with sales dipping in August due to a typhoon before rebounding in September. The industry delivered 94,593 passenger vehicles, flat compared to Q3 2024 volumes, whereas Vintage Vietnam volumes grew 82% year-over-year during the same period. During this quarter, we ramped up production of the VF 3 at the Hà Tinh factory and launched 2 new models, the Limo Green, a 7-seater MPV received strong market response with over 2,000 units delivered in September. We also proudly delivered the Lac Hong 900 LX fleet to the Ministry of Foreign Affairs, marking the first Armored EV certified to VPAM VR7 standards, one of the most recognized international standards for vehicle armored. In our 2-wheeler segment, we continue to see strong momentum. As policies accelerate the phaseout of gasoline motorbikes, consumers are looking to switch to electric 2-wheelers. VinFast now offers a full product range of electric 2-wheelers from affordable models for students to premium options for professionals. Two new e-scooter models with expanded range are planned for 2026. V-Green, an affiliated charging company is expanding battery infrastructure nationwide. Now turning to our international markets, starting with India. Our CKD factory in Tamil Nadu commenced operation this August, partnering with an initial 38 local suppliers. We plan to further expand our local supplier network to enhance localization and strengthen the Made in India footprint of our vehicles. Sales in our first month in India exceeded our internal forecast, reflecting a decisive market debut and a stronger start than any of our previous Asia launches. In October, VinFast ranked within the top 8 for EV registration in the country. As of September 30, we opened 20 dealer stores, announcing financing partnerships with leading domestic banks and third-party aftersales service network. Moving over to Indonesia, where the overall auto market declined about 11% year-over-year from January to September, though BEV sales rose sharply to around 55,000 units, up from about 43,000 units a year ago. VinFast joyed the GAIKINDO Association recently and is now ranked fifth amongst the top 5 BEV brands year-to-date and 15th amongst the 45 automakers. Despite temporary disruption from the August protest, we have expanded our dealership network to 33 locations. Year-to-date, VinFast has captured approximately 5% of Indonesia's BEV market. Indonesia is the first market where we introduced our green mobility ecosystem in partnership with GSM, an affiliated company. GSM now operates in 4 cities in Indonesia and serves passengers at Jakarta, Soekarno-Hatta International Airport. With GSM using VinFast vehicles on the road and V-Green emerging as the second largest charging network in Indonesia, we are strengthening awareness of VinFast holistic offering and setting ourselves apart from other OEMs. In the Philippines, we are capitalizing on this momentum with a stronger marketing push in the last quarter to build awareness of our core products, the VF 3, VF 5 and VF 6. We are introducing a residual value guarantee program this month and expanding our battery subscription model. These programs are unprecedented in the Philippines auto market, and we are proud to be pioneering such consumer-first policies. VinFast continues to grow in line with overall market. As of September 30, we had 13 showrooms. As consumer confidence in VinFast grows, local enterprises are also embracing our green mobility vision. GSM Philippines has partnered with Xentro Motors to deploy 2,000 VinFast EVs across Metro Manila and key urban centers, a strong endorsement of our sustainable mobility model. In the U.S., we opened our first dealership in California and aim to strengthen brand visibility across the U.S. by partnering with our dealer network. Through joint participation in major events such as Electrify Expo in Chicago, New York and Dallas, key markets where our top dealers are based, we strengthened collaboration and amplify their local market presence. Planning also continues for our North Carolina manufacturing facility, which will support our long-term U.S. growth strategy. Over in Europe, our debut at Busworld Brussels was well received, marking an important milestone for VinFast's entry into Europe's commercial vehicle segment. Our EB 12, the full-size 12-meter city bus already meet UNECE and CE standards is now available for order in Europe while the more compact EB 8 will be introduced at a later stage. In Middle East, we announced our strategic partnership with the Arabian Automobile Association to launch comprehensive roadside assistance for VinFast customers across 6 countries in the region. Taking a step back, when we look at the progress that we have made across our international markets, we recognize that as a new engine, it will take time for both our brand and green mobility ecosystem to fully mature from expanding our dealership network to improving charging accessibility through V-Green and ensuring consumers benefit from a competitive total cost of ownership, we are executing our vision to make sustainable mobility accessible to everyone with deliberate thoughtfulness and discipline. As we look ahead, innovation remains at the heart of our journey. With that, let me turn it over to Anne, who will share more about our exciting R&D road map and how these investments are shaping VinFast's future. Anne Pham: Thank you, Madam Thuy. At VinFast Mobility Day held at Hai Phong Automotive Factory on November 10, we unveiled our product innovation and R&D road map as we're investing in shaping the future of mobility in years to come. In 2026, VinFast will offer 3 distinct brands. The first one, VinFast, comprised of smart EVs for everyday life designed for mainstream consumers who want reliability, safety, technology, attractive cost of ownership and best-in-class warranties. The Green series, EV solutions for commercial purpose and raise utilization for fleets. And last but not least, the Lac Hong series, which is designed and catered to the ultra-luxury market that embodies Vietnamese hospitality, premium materials and quality craftsmanship. We're investing in the latest technologies to enhance customer experience and strengthen our competitiveness. VinFast is evolving its technology stack around 3 pillars: vehicle platform, architecture and autonomy. By increasing commonality and reducing components, our next-generation platform will be more cost efficient to produce and have more enhanced features. We are also reengineering our EE system into zonal architecture. All core softwares will now be owned and controlled by VinFast for suppliers to provide standardized hardware platforms. The centralized computing hub, which is essentially a vehicle supercomputer, enables rapid OTA updates, faster feature deployment and consistent system stability. Finally, on autonomy, VinFast is taking a 2-step approach towards our ADAS autonomous driving road map, choosing to work collaboratively with external partners while strengthening our in-house capabilities. At Mobility Day, we unveiled a demo of our robotaxi project, whose intelligent system utilizes low computing power and vision-only technology. This approach allows for lower hardware cost, higher energy efficiency and greater scalability. Our vision is that VinFast will be a multi-brand full-line EV manufacturer spanning passenger, commercial and autonomous segments. We will move from building EVs to building an entire mobility ecosystem for everyone everywhere. With VinFast still very much in its growth phase, achieving our vision requires continued investment in R&D to strengthen our long-term competitiveness. There are still significant white space opportunities across our core markets, and our strategy remains to stay nimble and responsive to market dynamics while creating the right conditions for sustained EV adoption over the long term. With that, I'll now hand it over to Lan Anh, who will walk you through the financial highlights for the quarter. Anh Thi Nguyen: Thank you, Anne. I'd like to frame our financial results win in the context of our 100,000 vehicle milestone, a significant achievement reaching record time. Now let me walk you through our results in more detail. The company's strategy in Q3 2025 continued to focus on driving top line growth. As a result, total revenue was USD 719 million, representing a 47% year-over-year increase and 9% quarter-over-quarter. We entered Q4 2025 with strong order backlog from the Green series. Cost of goods sold for this quarter was USD 1.1 billion, an increase of 85% year-over-year and 21% quarter-over-quarter, reflecting the continued ramp-up in deliveries. Gross margin was negative 56.2% in the third quarter of 2025 compared to negative 24% in third quarter of 2024 and negative 41.1% in the second quarter of 2025. Gross margin this quarter was primarily impacted by the recognition of cost of goods sold for vehicles already delivered under customer contracts, while the revenue recognition will occur in the subsequent period. This amount was USD 176 million and reflects a timing difference rather than an economic loss. We also recorded higher warranty costs in the U.S. and Europe as we shifted to third-party service workshops. Excluding the impact mainly due to delayed revenue recognition and NRV adjustments, gross margin would have been negative 17.1%, an improvement from negative 20.8% in Q2 2025 and negative 27.3% in the same period last year. Moving to the operating expenses. R&D expenses were USD 106 million, an increase of 15% quarter-over-quarter and 28% year-over-year as we booked the development cost for the Green Series Lac Hong and EC Van and for models that we plan to launch on our new vehicle platform in 2026. As a percentage of revenue, R&D in Q3 2025 was 15%, marking the fifth consecutive quarter where this is under 20%. Our existing models will undergo a technology refresh on the new vehicle platforms, which will drive additional R&D in 2026. SG&A expenses for the quarter was USD 172 million, an increase of 27% quarter-over-quarter and 25% year-over-year. The higher SG&A expense was due to an impairment charge of USD 49 million that we booked for the battery project and closure of our D2C showrooms in the U.S. and Europe. Adjusted EBITDA, which excludes net loss from financial instruments was negative USD 576 million and adjusted EBITDA margin was negative 80.2%, excluding the impact mainly due to the delayed revenue recognition and NRV adjustment, adjusted EBITDA margin would have been negative 33.1% compared to the negative 44.9% in the same period last year. Net loss for this quarter was similarly impacted. Net loss was negative USD 953 million and net loss margin was negative 132.7%. Excluding the impact mainly due to delayed revenue recognition and NRV, net loss was negative 81.8% compared to negative 109.1% in the same period last year. CapEx for this quarter was USD 261 million, an increase of 24% quarter-over-quarter and 108% year-over-year, driven by CapEx for the new factories overseas and for the expansion in Vietnam. Finally, an update on our liquidity and the previously announced grant and borrowing commitment in late 2024. As of 30th of September, VinFast outstanding borrowing from Vingroup under this commitment were USD 460 million. The company received a total of USD 1.1 billion disbursement from our founders pursuant to the grant agreement. Our total available liquidity as of 30 September is USD 3.7 billion, which reflects cash proceeds from the Novatech spin-off transaction, fundraising commitment from Vingroup, our founder and an ELOC facility. Operator, let's open for Q&A. Operator: [Operator Instructions] First question comes from the line of Anand Balaji from Cantor Fitzgerald. Anand Balaji: This is Anand on for Andres Sheppard at Cantor. Congrats on the quarter. So I just wanted to start with some autonomy items from the Mobility Day a couple of weeks ago. So I was wondering maybe what's your expected time line and cost expectations for developing your autonomy stack. Last we spoke, there's a lack of formal regulatory framework in Vietnam for AV. So what are the potential gating factors for this? Thuy Thu Le: Anand, good to hear from you again. Well, we developed both the autonomy stack both internally as well as leveraging other suppliers. So I think the plan for launching is next year in 2026 for the low-cost version for like robotaxi in our Group ecosystem, in Vingroup ecosystem or in Vingroup development, probably around 2028. Anand Balaji: Got you. And for the second question, I was wondering if you could refresh us on your capital needs and potentially when are you guys targeting a positive gross margin? If we could just get a little color on your trajectory on that front. Thuy Thu Le: Well, I think as of now, we have -- our total liquidity is like $3.7 billion at the end of the quarter. So we're good for another 18 months based on our current projection. Yes. And so right now, we're keeping our head down to execute on our operational milestones, and we wait for the market to be better for EV. Operator: Our next question comes from the line of James McIlree from Chardan Capital Markets. James McIlree: I was -- can you help me understand the percent of sales in Q4 you think are reasonable to come from outside of Vietnam? That is in the first 3 quarters, it's been 90% to 95% of the vehicle sales in Vietnam. And the question is, is that likely to continue in Q4? Or is there a larger contribution from non-Vietnamese locations in Q4? Thuy Thu Le: James, good to hear from you. I think in Q4, you will see a little bit more from outside of Vietnam, proportionately a little bit more from outside of Vietnam than in the first 3 quarters. The ramp-up will be mostly come from India, a little bit from Indonesia and some smaller relatively from U.S., Europe as well. It takes time for our overseas market to ramp up. So it takes a few more months to -- for manufacturing for the whole organization to operate to function kind of seamlessly, but it's coming. You're going to see a bigger portion next year coming from overseas markets. James McIlree: Okay. Appreciate that. And secondly, it was mentioned that there would be an increased R&D in order to support the new platform, I was hoping you could help me understand how much that increase might be? Are we talking a 5% increase over current levels, a 20% increase over current levels? I'm just trying to get a feel for how big that increase might be. Thuy Thu Le: So I think Lan Anh I will give you a little bit more specific, but I think this year, we target to spend about $1.6 billion in CapEx and R&D, and we have spent about $1.1 billion in the first 3 quarters. Over 35% is capitalized R&D for the new models and product like uplift refreshes and over 65% is to build the CKD facility in -- across Asia in [indiscernible], in Vietnam, India and Indonesia. And I think most of -- for the new platform, most of it has been spent so far. There's -- because we already launched the new platform on the Limo Green, and we started rolling out on other models in 2026. So most of the spending is already there. Anne, you want to go further into details? Anh Thi Nguyen: Yes. So for the R&D for the new platform that we focus in 2025 to 2026 and the spend for R&D expected to normalize from 2027. And actually, for the flexible payment timing, we're going to manage the pace of spending to ensure about the target to launch the new platform also improved for the cost optimization. Thuy Thu Le: Yes, talking about cost optimization, that's actually a very good point because some of the vehicles, right? The loan cost can be reduced by like 50%. So really, I mean, the investment is worth. James McIlree: Okay. And one more, if I might. When we think about the new platform in 2026, can you give us an idea about how many of the units might come from the new platform? Thuy Thu Le: How many units per year, how many units -- which vehicles? I mean... James McIlree: As a percent of sales for 2026, how many -- what percent of sales will come from the new platform? Thuy Thu Le: Pretty much Asia will all come from the new platform, pretty much. I think probably around 80% would come from new platform, 70%, 80% and then the rest is the old platform. But at the beginning of the year, they all roll out, but gradually in the new year. So at the beginning of the year, there will still be legacy platforms and then we start rolling out one by one in the new year. So maybe a little bit positive, probably 50-50 or something. Operator: There are currently no more questions from the phone line. Please continue. Hoang Nhi Nguyen Le: Thank you. We have the first question from the webcast audience. As more dealerships close in the U.S., what are VinFast's plans for long-term support? Madam Thuy, would you like to take the question? Thuy Thu Le: Well, we -- realistically, we're waiting for the new platform to be developed to roll out in like North America and Europe to get us to profitability. So we're not going to -- given -- in the U.S., given the tariff situation and the instability in the EV market, we just need to see how that settle before we kind of push hard in the U.S. So there would only be like this year and maybe next year as well, there would only be a certain number of vehicles that we can share across the dealership. So we -- of course, we would like our -- the dealerships that are committed to us to be profitable and have enough vehicles to get to profitability quickly. So I think until we see some growth and stability in the U.S. market, we don't intend to open more dealerships. Instead, we cultivate the relationship with the existing dealers and make sure that they can get to profitability faster. Hoang Nhi Nguyen Le: We have the next question from the webcast. Why did loss per car increase Q-over-Q in Q3 despite surge in volumes? What should we expect for loss per car in October and Q4? Ms. Lan Anh, would you like to take the question? Anh Thi Nguyen: Yes. For the car loss for this quarter, that's primarily due to the certain orders that we already delivered our vehicles, but yet recognized as a revenue. Even though the related goods like our vehicle transfer out of stock, that's because for the revenue recognition in line with the accounting standards, so we yet recognize as a revenue. So the revenue is expected to be recognized for -- in the subsequent period. So on an adjusted basis, excluding these orders, the results show a slight improvement compared to the previous quarter. Hoang Nhi Nguyen Le: Thank you, Ms. Lan Anh. We have the next question from the webcast. Please provide 2026 guidance for 4-wheeler and 2-wheeler delivery volumes and EBITDA expectation. Anh Thi Nguyen: So we plan to release our 2026 guidance early next year, and we expect that we maintain a strong growth trajectory in 2026 because we prioritize volume expansion to reach the economies of scale. Hoang Nhi Nguyen Le: Thank you, Ms. Lan Anh. We have the next question from the webcast. Do you plan to introduce a hybrid model? And when will it launch? Ms. Anne, would you like to take the question? Anne Pham: Thank you, Le. Well, as an innovation-driven company, our R&D team continuously explores advanced technologies, including powertrain solutions to enhance product performance and deliver superior customer experience. So today, our core team strategy remains focused on fully EVs. The decision to launch any new product undergoes rigorous testing and commercial validation, and we'll only do so once these standards have been fully met. At the moment, we're not working on any hybrids in the R&D platform. Hoang Nhi Nguyen Le: Thank you, Ms. Anne. We have the next question from the webcast. You mentioned a solid order backlog going into Q4. Which models are seeing the strongest demand within that backlog? And are you on track for 2025 target? Madam Thuy, shall you like to take the question? Thuy Thu Le: So as of mid-October, we are seeing a very strong order backlog from the Green series, particularly the Limo Green, the new MPV 7 seaters and the Minio Green, which together make up about 50% of our total backlog. So we can't deliver enough vehicles to meet our backlog. In October, deliveries in Vietnam surpassed 20,000 units, making VinFast the first brand in the country to sell more than 20,000 cars in a single month. And in Vietnam alone, we have cumulatively delivered over 120,000 EVs. We remain positive about our 2025 guidance. And I think we are going to have -- we're reaching a 30,000 vehicles delivery per month. So [indiscernible]. Hoang Nhi Nguyen Le: Thank you, Madam Thuy. We have the next question from the webcast. Regarding the cooperation agreement with Saigon Glory, what is the rationale for entering into a real estate development when cash flow should be focused on vehicle production. Are there any near-term plans to enter other real estate projects or partner with [ VinFast ]? Madam Thuy, would you like to... Thuy Thu Le: Well, our core priority remains EV innovation and driving cost down and the technology refresh program is fully funded with the cash that Madam Nguyen has mentioned earlier and the liquidity that we've secured for the next few years. The investment cooperation that VinFast recently entered into is a 5-year passive investment under which VinFast may contribute up to around USD 800 million in VND equivalent, while our partner provides development rights and expertise. The investment assures full capital recovery of the investment amount of around up to $800 million at maturity, generating a committed pretax profit of approximately above USD 830 million, subject to the full amount of committed investment being invested. The capital contribution is supported by unused funds or spare liquidity to the extent that it has not been used and disbursement of capital is expected to be in line with the implementation progress of the invested project without materially affecting operating cash flow of global EV manufacturing and expansion plans of VinFast. Hoang Nhi Nguyen Le: We have the next question from the webcast. Will ASP need to be much lower compared to Q3 in order to achieve '25 volume guidance? Ms. Lan Anh, would you like to take the question? Anh Thi Nguyen: So far in 2025, our ASP has been weighted towards our more affordable models. So for the full year, we expect that the VF 3, VF 5 make up just under the 50% of total deliveries. So for the rest of the year and looking ahead to 2026, our current sales spend poised to more like a balanced mix with VF 3, VF 5 on one side and the Green series along with the VF 6, VF 7 on the other, especially as we begin ramping deliveries for India. So for ASP, we're assuming it remains roughly flat in the coming period. The higher ASP from VF 6, VF 7 is expected to be offset by the slightly lower ASP from the Green series. Hoang Nhi Nguyen Le: Thank you, Ms. Lan Anh. We have the next question from the webcast. Could you give us an update on the production ramp-up at Hà Tinh plant? Anh Thi Nguyen: Sure. Thanks, Le. The Hà Tinh factory is ramping up very well. It is currently producing 15 jobs per hour compared to the maximum of 35 jobs per hour. We've shifted production of our smaller models from Hai Phong to Hà Tinh as well, and the plant has already produced several thousand VF 3 units in the third quarter as part of its ramp-up. Looking ahead, Hà Tinh will be the main production site for the Minio Green, VF 3 and the EC Van. Hoang Nhi Nguyen Le: Thank you, Ms. Anh. We have the next question from the webcast. As you look into 2026, which markets or product lines will be VinFast's biggest growth drivers? Thuy Thu Le: In 2026, we expect more contribution as the Green series scale more and the new VF 6 and VF 7 platform will come online. These products are designed to be more competitive, both from the cost as well as market perspective. So that contribution should build steadily as we move through 2026 and into 2027. Across our international footprint, we anticipate more meaningful volumes coming from India, Indonesia and the Philippines as we expand the lineup in each of the markets. Vietnam will remain our anchor market in the near term. For the next year, we expect Vietnam to account for roughly 70% to 80% of total deliveries with the balance coming from international markets as they continue to scale up. Hoang Nhi Nguyen Le: We have the next question from the webcast. How is battery costs tracking in the past few quarters? How is it expected to trend in the upcoming quarters? Anh Thi Nguyen: Thank you, Le. Battery costs have continued to decline quarter-over-quarter, extending the downward trajectory established in 2024. On the average, we have seen battery prices come down by approximately 10% or 12% year-over-year across various models. We are transitioning to a new more cost-efficient battery generation underpinned by our suppliers' technology advancement that meaningfully lower unit cost. And also, we expect like further cost optimization going forward, driven by continued improvements in battery technology and manufacturing efficiency. Hoang Nhi Nguyen Le: Thank you, Ms. Lan Anh. We have the next question from the webcast. Further sharing regarding the new lines of vehicle, you mentioned 3 brands. Can you share the philosophy around that? And what is the split percentage for each brand to contribute? Anne Pham: Thank you. I think, first of all, it is still a little bit early for us to break out the expected financial contribution from each brand. The primary objective behind establishing the 3 brands is really to sharpen our customer segmentation, ensuring that each brand has a clearly defined audience and purpose. With a portfolio that spans more than a dozen models, creating intuitive brand spaces help our customers immediately understand what each line represents and which use case the brands serve. Strong brand segmentation also allows us to fine-tune pricing strategies, tailor our marketing messages and run more targeted campaigns for each customer group. It helps us to optimize our product road map and go-to-market approach by reducing overlap and minimizing cannibalization between brands. Over time, as the brand architecture matures and our market scale, we'll also have better visibility to commence on the individual brand contributions towards our top line and bottom line. Hoang Nhi Nguyen Le: Thank you, Ms. Anne. We have the next question from the webcast. How is VinFast and V-Green planning to accelerate the rollout of its battery swap network for e-scooters? Thuy Thu Le: Okay. So V-Green plans to leverage the strategic partnership to accelerate the rollout of battery swapping for e-scooter in Vietnam. So V-Green is working with a really large retail organizations in Vietnam like IPT Retail, a lifestyle electronic retail network with Viettel Post to allow us to put the swapping -- battery swapping stations at the subloocations, co-locate shopping station with the postal and distribution hubs for Viettel Post. So this not only give us access to large high traffic sites, but also create synergies with existing delivery and shipping fleet. To scale even faster, it could explore a franchise or revenue sharing model like we did with the EV battery -- EV charging stations. And we expect that the cooperation as well as the rollout of the battery swapping locations to increase very quickly, especially now that in major cities in Vietnam, like in Hanoi and Ho Chi Minh City from mid-2026, right, the 2-wheelers -- internal combustion engine 2-wheelers are no longer allowed in central locations. Hoang Nhi Nguyen Le: Yes. Thank you, Ma'am Thuy. And on that topic, we also have another question from the webcast. Your 2-wheeler business has delivered exceptional volume growth this year. And we've seen at least one major legacy competitor publicly acknowledge the impact that recent government policies have had on their sales VinFast appears to be one of the clearest beneficiaries of this policy to shift towards encouraging electric 2-wheelers. With these tailwinds in place, how are you thinking about the outlook for 2-wheeler business in 2026? Thuy Thu Le: I think in 2026, we -- the 2-wheeler business for VinFast will grow at an accelerated level, demonstrative of the ongoing electrification megatrend and policy tailwinds in Vietnam. While we have not provided the guidance for 2-wheeler business, yet, VinFast has been continuously increasing our production in response to the market opportunity and remain optimistic about the outlook for this market segment. This year is the first time we have seen 2-wheeler volumes outpaced 4-wheelers in our business. And this segment contribution to overall revenue is still under 10%. So next year is going to be a big year for 2-wheelers in Vietnam and 2-wheeler will also start. So we target like 1.5 million 2-wheelers in deliveries in 2026 in Vietnam alone. So about 60% of the total new sales in Vietnam. So that is our target. And we will start rolling out in, I think, earlier in the year in Indonesia, in the Philippines and later in the year in India and maybe other markets as well. So it's going to be -- next year is going to be a good year for our 2-wheelers. Hoang Nhi Nguyen Le: Thank you. And we have the next question from the webcast. How do you view VinFast international markets in terms of near-term profitability versus long-term ecosystem development? Anh Thi Nguyen: Well, first of all, VinFast does not disclose profitability on a market-by-market basis. As with most global OEMs, the development of our ecosystem in new international markets will take time to reach scale and mature as what Madam Thuy has explained a little bit earlier on this call. It's important to underscore that we manage profitability at the enterprise level, reflecting the full portfolio of products, regions and ecosystem services rather than evaluating performance by individual model or individual geography. Hoang Nhi Nguyen Le: Thank you, Ms. Anh. We have the next question from the webcast. Can you provide a little bit of update on the North Carolina facility? Thuy Thu Le: There's still no change to our plan to have our North Carolina facility SOP by 2028, and we will provide more update on the resumption of construction in 2026. Hoang Nhi Nguyen Le: Thank you, Madam Thuy. We have the next question from the webcast. Can you please break down the liquidity runway that the company has continued to implement its strategy over the next 12 months? Ms. Lan Anh, should you like to take the question? Anh Thi Nguyen: So for the -- our total liquidity as of the 30th of September 2025 is USD 3.7 billion, providing us with approximately 18 months of runway of support operations and growth plans. So like for the cash and cash equivalent, we have the USD 349 million. We have like the USD 930 million of the fundraising commitment from Vingroup, USD 837 million from our founder and the remaining from like the ELOC facility and also for the announced completed Novatech spinoff transaction. Hoang Nhi Nguyen Le: Thank you, Ms. Lan Anh. We have the next question from the webcast. Are new dealerships currently in the pipeline do you plan to open in California? Madam Thuy, should you like to take the question? Thuy Thu Le: We are exploring a few dealership candidates in California right now with the opening of the dealership -- first dealership in San Diego in August. Right now, we still have 2 or 3 territory open in California for applications. I mean California accounts for about 35% of the EV sales in the whole U.S. So we can -- we need a strong presence in California. Hoang Nhi Nguyen Le: Thank you, Madam Thuy. On the U.S. topic, we have the next question from the webcast. How much inventory does VinFast have in the U.S.? And do you expect to sell in the U.S. in 2026? Thuy Thu Le: So VinFast has proactively reached vehicles to the U.S. before April 20. The remaining stock is still sufficient for a few months of sales, and we are planning new shipments to the U.S. as well. Hoang Nhi Nguyen Le: Thank you, Madam Thuy, thank you Ms. Lan Anh. That's all the questions we get from the webcast today. Thank you, everyone, for attending. Operator, back to you. Operator: Thank you. Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
David Lockwood: So good morning, everyone, and welcome to the half year results for the period to 30th September 2025. My name is David Lockwood, CEO of Babcock. We've got a very exciting 29.5 minutes coming and then a super exciting minute after that because apparently, there is a fire alarm test, which may or may not be canceled because we -- obviously, health and safety comes first in our company. And if it does happen, it will go on for a minute. So you need to pay attention for 29.5 minutes, and then you can do your e-mails for a minute, okay? And if you're online and the fire alarm test happens, I hope they're going to mute it for you, but if they don't, I'm sorry. So what to say about this half? It's been a really good half. It's been a good half to be part of actually because all of the groundwork we've put in place over the last few years, we're really seeing come to bear. So good momentum across all of the business in the defense area, driving some really strong financial results with year-on-year increases across all of our metrics that David has decided he wants to explain to you, but they are really good. Constantly delivering to customers. When I come back up, I think it's this -- we always said that the market was there for us. What we needed to do was deliver well. That would expand margin. That would then expand the market and that would drive growth. And I've got a couple of examples later. But we're seeing that happen across the business. We have some very interesting market dynamics, commitments to budget growth, but also fiscal pressures sort of counteracting that and seeing interesting behaviors in governments, but net positive in all of our markets actually. And that's left us with a confident outlook for '26 and also an ability to recommit to our medium-term guidance. So before I come back into all of that color, David will put that into a financial context. David Mellors: Thank you very much. Good morning, everyone. Okay. My main 3 messages for today are: this is a really good set of interim results on all financial measures, number one; number two, the margin improvement of 7.9% is encouraging and gives us confidence in the 8% full year target; and number three, with a good level of full year revenue under contract at H1, we're confident in the full year expectations. Summary numbers first and there are some pretty positive numbers on this summary slide, and I'll move through them fairly quickly before we come back to detail. So organic revenue growth was 7%. Operating profit margin increased 90 basis points, to 7.9%. These first 2 delivered an underlying operating profit up 19%, to GBP 201 million. All the above led to earnings per share up 21%, enabling a 25% increase in the dividend. Cash conversion was 83%, delivering free cash flow of GBP 141 million, and we've executed GBP 49 million of the share buyback in H1, and we'll complete the rest over the course of H2. So let's break down the organic revenue growth first. This summarizes the 7% organic growth by sector. Three of the four sectors grew in the period, led by Nuclear, as you can see, but with good performances in Marine and Aviation. The Land sector revenues were lower in the period as a result of the nondefense businesses, and I'll come back to the sector detail in a moment. Next, the summary of profit. In absolute terms, Marine, Nuclear and Aviation drove the profit improvement, resulting in the group delivering GBP 201 million for the half, a 19% improvement on H1 last year, as I mentioned. The other bit of good news on here is that all four sectors contributed to margin progression in the period, helping the group to 7.9%. And whilst we're on margin, we set ourselves a target of 8% for this year, as you know, and 9% plus for the medium term. And hopefully, this slide will give you some confidence that we're on track. As you can see from the line graph on the left-hand side, we make progress every period, and we'll continue to do this. On the right-hand side are the activities that deliver the margin across the group. You've seen these before. There's nothing new here. They're all still relevant, and there's plenty more to do in these areas across the group. So that gives us confidence in the 8% for this year and the 9% plus in the medium term. And one other thing that we noticed when we put this slide together is that we delivered in absolute terms in H1, the same amount of profit that we did in full year '21. And I know full year '21 was a low base for all sorts of reasons, but we have had a few issues to deal with along the way. So doubling in those 5 years wasn't bad at all. So that's the summary. On to the sectors. These are the usual busy sector slides with lots of content for reference. So I'll just pick out the key points. It was a good performance in Marine, with revenue growing 6% organically, profit up 38% and margins moving upwards by 160 basis points. Compared to last year, the performance improvement was largely driven by the LGE business and by the Skynet contract. On LGE, you remember last year that it booked a record order intake of over GBP 400 million, and we knew that was a surge following the sort of new ship-build market dynamics, and we're delivering that over this period and the start of next. And also the Skynet contract, which successfully mobilized last year. In the period, we had additional services contracted and that also helped drive revenue and profit growth for Marine. And just for reference, the Type 31 revenues that go through here, we did about GBP 100 million in the first half, which is flat on the same period last year. And you know we booked the revenues at 0% margin on Type 31. So on Nuclear. Nuclear had another strong period with both Cavendish and submarine support activity growing very well and more than offsetting the expected reduction in infrastructure revenues. So I'll just expand on those a little. So Cavendish grew 25%, largely in clean energy with more work at Hinkley Point. The submarine support work grew 31%, with activity increases both at Clyde and Devonport, benefiting from some of the infrastructure upgrades at Devonport as well as productivity improvements at both locations. Infrastructure or MIP revenues reduced as expected following the opening of 9 dock last year and 15 dock nearing completion. And all of the above enabled the profit increase of 18% and the margins to reach 9.1%, so the first sector in the group to hit the 9% mark. Moving to Land. Revenue decreased 11% organically in the half. Defense revenues in the U.K. were largely flat due in part to the mobilization period of the DSG reframe contract, and we're expecting this to start to grow in the second half. The nondefense revenues that weighed on the sector were the rail business and the South African vehicle business, and we have a cautious view of the rail business revenue, in particular, in the second half. But pleasingly, despite the top line, margins still managed to progress 20 basis points, with the overall sector now at 7.9%. On to Aviation. We've been waiting for Aviation to take a step forward for some time. And for me, the winning of Mentor 2 in France at the end of last year was the start. So the 26% organic growth was due to 3 main factors: firstly, the mobilization of Mentor 2 as well as increasing aircraft support contracts in France as the defense business takes root; secondly, scope growth and additional services in the U.K. defense contracts; and third, the mobilization of the new Canadian BC HEMS contract. Moving to profit. Achieving some sort of scale on the top line has allowed profits and margins to approach a sensible level. This was assisted by some renegotiation of old contracts in the period, allowing margins to rise to 7.2%. Moving to the cash flow. Again, this is another detailed slide because you need the detail for reference, but I'll just pick out the key numbers. The most important is the free cash flow number at the bottom, GBP 141 million. This is substantially better than we've ever done in H1 before. This is, of course, partly due to the growth in the profit, but it's also due to the reduction in pension deficit payments following the long-term deals we did last year. Only 3 years ago, the pension cash outflow was GBP 90 million in the half. And now as you can see, it's GBP 7 million. So much more of the cash that we earn in the operations is now available for the group to invest. Moving back up to the middle of the table, we have operating cash flow of GBP 166 million with a conversion of 83%. Within that, we managed to keep working capital pretty flat. So there was an outflow of GBP 32 million. There's a little bit of inventory increase in there and then the usual pattern of payments, VAT and annual licenses and what have you. So basically, the rest of working capital was largely flat, which is good. CapEx was GBP 46 million for the half, very similar to the first half of last year. And again, CapEx will be H2 weighted. And lastly, I've put some full year guidance on the slide here. As usual, pensions, interest and tax are H2 weighted. I'll come on to capital allocation in a moment, but you know one of our top priorities is a strong balance sheet, and that's important for customers and other stakeholders given the critical things we do. Getting from a weak balance sheet to a strong one was always essential, but getting there by now was even more critical because all of our debt and bank facilities fall due over the next 18 to 24 months. So to get ahead of this, we've already gone out and refinanced the revolver in the last couple of months. We now have a new GBP 600 million 5-year facility with extension options, and we expect to refinance the first of the bonds in Q4. So on to capital allocation. This is the same capital allocation policy we've been -- published a few years ago, and we keep repeating. The priority order hasn't changed, but I'll just pick out a few status updates. Priority #1, organic investment. We're working on a number of relatively significant investment opportunities to enhance growth, so-called strategic growth CapEx. The kind of things that we're looking at are facility expansion and build and operate models to enable new work or greater capacity. An example of this would be in Rosyth, where we're looking at a new build hall and also to upgrade the missile tube facility to allow greater production. The status of priority 2 and 3, the balance sheet, the dividend, we've already mentioned. Then on the 3 capital allocation options on the bottom. On the left, we have a pipeline of potential bolt-on acquisitions that we're tracking, and we are working on a couple, and we'll keep you posted as they progress. Moving to the middle box, pensions, there's no news. That's tracking really well. So all going okay. And on the right-hand side, shareholder returns, you know we're executing the GBP 200 million share buyback. And the buyback also serves as an investment return floor for other options to beat before they get considered. So before I hand back to David, I'll just go back to the summary again. So point one, really strong half on every measure. Two, margin progression, very encouraging, and the 8% margin for the year is in sight. And three, given the revenue cover at the half, we're confident in the full year. And with that, I'll now hand back to David. David Lockwood: I'm not doing my e-mails. It's just checking for the alarm. Right. Actually, before I go to my slides, when David was going through that, it occurred to me I haven't got a Type 31 slide, which kind of shows that it's become business as usual. But I just thought because we're bound to get questions, I'd try and not get questions by talking about it quickly here. So I see the next 12 months for Type 31 is important, but then every 12 months is important. And the way we see Type 31 is in 2 chunks. So chunk 1 is ship 1. We need to finish ship 1, which is always going to be the prototype because it's first of class, first of yard. We all knew that. We also knew that a lot of the build was done during lockdown, and we talked before about how we had to adjust our processes. So that's a project. I don't think -- that's a project, to finish ship 1. And it's really important that gets done in the next 12 months because that's the flagship for all the export orders and the growth. Ships 2 to 5 are all about production, production norms and so on. And if we look at ship 3 because that's the one that's right down the production curve, that's the one that becomes the reference, and that's going really well. So there's 2 distinct things: driving a production facility; building a pipeline of ships and finishing the prototype. Those 2 things we'll report on the full year. They're both where we want them to be at the moment, but there's a lot to do on both of those. So that's kind of how we see it. And that's why there's sort of nothing to talk about. So I haven't got a slide because the project on finishing 1 is the project and then the production build is the production build. So no questions on Type 31, please. The over -- so David did a couple of history charts. We said 5 years ago, 2 things: one is that this is a people business; and secondly, that our growth and our margin expansion is delivered by those people working in the best possible way to improve our delivery to customers. There was no lack of sort of -- no lack of market. We just had to perform. And our performance, as you have seen, has improved and improved. And I've just got a couple of examples of how that's worked. So 5 years ago, the DSG contract was in a lot of trouble. We had external reports and Boatman and all this stuff. The first thing we did was fix the delivery. That led to growth through the order we booked for the 5-year extension, which is quite a different contract in terms of mindset from the original contract in that it's all about driving output, and it's more customer focused. That's gone really well. That improved performance means we've won the contracts for frontline support in places like Ukraine, where we have people deployed, but also that confidence people have in us as an engineering company. In the Land domain, means we've delivered the Jackal program. And what all of that has meant is we are now Toyota's sole partner in Europe, for taking the Land Cruiser into a military variant. We call it the GLV, the General Logistics Vehicle. The big program in the U.K. is the Land Rover replacement, but there are multiple programs outside the U.K. as well. Toyota are one of the world's great engineering companies. There would -- there is no way they would have agreed to work with us without us solving our engineering pedigree by fixing the past. The same is true with the Common Armoured Vehicle program in Europe led by Patria, the 6x6 variant, which the U.K. has just joined -- DSEI joined the program, the technical program, which is a step towards buying the vehicle, where we are the U.K. build partner and engineering partner. Again, couldn't have happened with our performance of 5 years ago. Now we're the natural choice. And then finally, for the 120-millimeter mortar program, that's Singapore Technologies, Singaporean engineering, world renowned. They don't work with companies that aren't -- don't match their engineering standards. So we've gone from fixing a legacy U.K. program which the outside world thought was a disaster case through to 3 really, really major companies, Patria, Toyota and Singapore Technologies deciding we are the exclusive partner for the European market because our engineering meets their standards. And that's how delivery doesn't just drive margin and growth in what you do, but it changes your reputation. And the same is true. David talked about expanding missile tubes. Missile tubes, we have 80% of the joint Columbia Dreadnought program. So this is a key component of -- in fact, it's central to -- literally central, it goes right in the middle of the submarine. It's central to the next-generation deterrent submarine for the U.K. and the U.S., and we have 80% of the delivery when the program is dominated by Columbia. Obviously, they buy a lot more Columbia's than the U.K. buy Dreadnought because our engineering is the best in the world at doing these things. And that's been -- that growth gets driven by our investment in automation, all the things David talked about. But those techniques are the ones that are driving the improvements in Type 31 so that ship 3 is this real high-value, low-cost production build ship, and you can take production norms across because you know you can do complex things well. But also because it's nuclear, it gets us into a whole pile of nuclear build opportunities for radioactive handling because people know we can do -- we can build nuclear stuff. And then if you look into the opportunities, Rosyth is probably the most capable facility in the U.K. for building -- supporting the build of AMRs and SMRs, obviously, Rosyth build reactors, but everything that goes around it, which is very significant, it's the most obvious place to build it. And because of our pedigree and because of the lack of build capacity in the world, moving into broader submarine build. So going from an okay high-integrity engineering program to being a recognized world-class high-integrity engineering facility in 5 years is quite a thing and drives a whole host of opportunities. And there are multiple other areas in the business where we could make the same track through. But it starts with, there is no lack of demand as the next few slides will show, the question is, have you got the pedigree to own that demand? So what is the demand? It's driven, as we said at the full year, by global insecurity and threats, and share prices move around, but is there a peace in Ukraine, isn't there a peace? Europe will continue to want to strengthen its defenses. It may be a few basis points up or down on the high-level statement, but the world is materially less secure now than it was 5 years ago. And for all the reasons I've just outlined in 2 areas, but we could go across a whole range of things. Babcock is, I think, as well-positioned as anyone and better positioned than most to take advantage of that because we're now combining -- as those who came to DSEI, we're now combining some innovative digital. And in fact, we launched our first AI product at DSEI. We're combining the ability to get the best out of legacy while delivering new at the same time. And I think that's a unique combination. And across into civil and -- civil nuclear, we are the U.K.'s only significant nationally owned nuclear business at a time when sovereignty and security and energy is at the forefront. So whether it's AMRs, SMRs, building out large reactors, as David said, clean energy has driven huge growth this half and will continue to drive it. In my mind, the civil nuclear business is -- we're only just beginning to tap the opportunities. So I think all of that is really good. And if you look at us in U.K. Defense, having a resilient industrial base is really important. That is physical -- that is facilities, it's the equipment and infrastructure we have on those facilities and it's people. We are a people-based business. So David said there's some strategic investment necessary to drive this growth, and it's true. But there's also our commitment to people and investing in skills. So a couple of things, which as -- I said to the press this morning I get quite frustrated about because I think this is one of our biggest achievements, people. And I think the people pipeline will drive our high-quality growth. So just a couple of facts. So we were Company of the Year for the Association of Black and Minority Ethnic Engineers. Is that a big thing or not? Well, it wasn't Google. It wasn't Oracle. It wasn't people -- it wasn't people with big bases here. It was an engineering company working in defense and nuclear that does some quite heavy stuff, that operates in some quite difficult to get to facilities, Plymouth is not the easiest place to go. It's not the M4 corridor. It's not that. And we won, okay? I think that's pretty cool from where we came from. We've got a 35% increase in minority representation in our early careers. I think that's pretty cool. And this year, we had our highest intake over early careers. That's apprentices and grads to you and me, highest intake. And we also had the highest subscription. So not only did we take more, but we have more candidates for every post than ever before. And for the first year ever, our intake was 50-50 gender balanced. So from where we were 5 years ago as an employer, we are in just an utterly different place. And that pipeline of people is necessary to drive the pipeline of growth. So I think that's really cool. And then you can see all the other things that, that leads to. We spend GBP 550 million with small and medium enterprises. So we drive the economy in the regions we work in. As I've just said in the growth thing, we partner with a whole bunch of really high-quality engineering companies who see us as the best of breed in the U.K. We contribute GBP 4.3 billion to the U.K. economy, which is pretty important in the current climate. And you can read the whole slide at your leisure. And we are working with the government. I spend a lot of time with the government, and I'm a core member of the Defense Industrial Joint Council, there are some permanent and rotating members, driving how the U.K. Defense does its business differently. So we are right across U.K. Defense, from the people, the supply chain and into the government. And then Nuclear, it's great that Nuclear is in our core. I think civil nuclear, there's the big stuff, Hinkley and Sizewell C. There's SMRs, MEH is mechanical, electrical, handling, which is, if you like, the mechanical and electrical plumbing of a major nuclear power station, which is quite a complex thing. So we are the lead in the alliance. That's growing dramatically. And we have seen actually real progress more than I would have guessed 6 months ago. So we know where the first 3 SMRs are going to go. We did funded work for Centrica and X-energy, X-energy is U.K. partner, for AMRs in Hartlepool, which is a massive rollout. So real momentum -- more momentum, I would say, in civil nuclear than I was expecting in the last 6 months. I think that's really positive. And then we all know about defense nuclear. David has touched on the numbers. I will talk about the FMSP follow-on. So FMSP is Future Maritime Support Program. That's how we support the nuclear fleet. There's some surface ship stuff in there, but it's basically the submarine fleet. That contract comes to an end at the 31st of March next year. So we've been busy with funded work to work with the customer on the successor program. If you look at -- so 5 years ago, when we were doing the work, 2020-ish, just as I was coming in, that was pre forceful invasion, pre the current Chinese activity. It was -- FMSP is very much a cost-driven program. The metrics are very cost driven. The successor is going to be very output driven because 5 years later, what we really need is submarine availability, not cost out. And that's just the changing environment. And so it's not surprising that we and the government are taking a lot of time to make sure that, that program is going to work for us and for them to drive a new set of outcomes. So you should not, in any way -- in fact, I had a call with the government yesterday on this, and we are completely aligned that the job is to get the right contract for both of us and that -- the fact it might take us right -- we might end up using every minute through to midnight on the 31st of March when I should be relaxed and David probably having kittens. You shouldn't worry about that. It's because we are trying to -- this is genuine transformation. And then AUKUS, H&B Defense, our joint venture with HII has finally got its first orders. There's a lot of activity now in Australia. I think the Trump -- President Trump review definitely shone a light on some of the areas where we were moving forward, but not fast enough as the 3 nations. So I think we'll see a lot more progress on infrastructure, training and support in the next 12 to 18 months. So all together, Nuclear looking really positive. And where does that lead us then? For those of you who came to the Rosyth Capital Markets Day teach-in, whatever we call it, you will have seen the scale of our capability, but also the scale of opportunities in Denmark, Sweden, Indonesia, and New Zealand. And there's a lot to be decided in the next 12 to 18 months. I think since we stood up at the full year, all of them have progressed positively from our point of view. Nothing is done until it's done, and these are big governmental decisions. So you've got to win the officials over, and then you've got to win the political debate. So it's not done until it's done, but they're all pointing in the right direction, I think. Advanced manufacturing, you've seen the journey we've been on. We have a range of really significant opportunities there. AUKUS, I've just touched on. FMSP, I've just touched on. And the land vehicles, we went through as an example. So if you just look across that without even thinking about the fact we've won our first defense order in South Africa on submarines or -- yes, we've won all the stuff that -- the churning of the engine that generates smaller orders, which is still going really well. I think the growth opportunities are really significant. And the fact that we are now in discussions with Korean companies to do the kind of things we've done with Singaporean and European companies and Japanese companies, it just shows that we are now firmly established on the international stage as one of the credible partners. So summary. I'll summarize, David's summary. By the way, it's 9:32, so no alarm, that was cool, and that shows our influence. Strong financial results. Metrics, great. I hope you've got a flavor of how delivery is driving this business forward, not just 6 months to 6 months, but establishing multiyear relationships with governments and industrial partners that will underpin sustained consistent growth. And that helps us get the best out of the market dynamic, but also going back to that kind of fiscal versus defense pressures helps us manage those, which is why we kind of feel confident about this year and beyond. So with that, we'll go to the appendix. No, we won't. There should have been a question slide. We'll have questions instead of going to the appendix. If it's Type 31, I probably will get upset. I'm just warning you, I'm just putting it out there. Sash Tusa: Sash Tusa from Agency Partners. It's a Marine question, but not a Type 31 question. You specifically referenced this big slug of liquid gas equipment orders that you won last year and are now delivering out. Should we see that as being a bubble? Or is that now the ongoing run rate of the business? Are you replenishing those orders at broadly that rate so that you can keep up this sort of level of revenues? That's my first question. David Mellors: So it's definitely a record order intake. If you remember, for 2 or 3 years, we were waiting for them to come, and then it all came in a period. So the next 12 months, 18 months or so will be the delivery of those. We are obviously winning new orders, but not at that rate, and we never expected to because it matches the ship-build market. Sash Tusa: Okay. And then Aviation question. BA, Boeing, Saab announced teaming to offer T-7 for the U.K. How does that affect your involvement with MFTS? Because they are pitching this as a very, very broad military pilot training contract rather than just supply of aircraft. Where does the replacement of the Hawks fit in with MFTS? David Lockwood: So as you know, the Hawk is outside the scope of MFTS anyway. So we go up to the Textron -- we go up to the Textron and then we do some -- we do the maintenance of the legacy Hawk fleet, but BAE Systems supply it. So it's not a particularly big thing. And there's still a debate about how government will procure the next jet trainer. Sash Tusa: But there's always overlap, or rather there's a wavy line in terms of the capabilities of different aircraft types and therefore, how much of the syllabus you can do? So clearly want to grab more of the syllabus. David Lockwood: So that's true. If you look at most -- so the Germans are now coming out, for example, if you look at most pilot training, the cost per hour in the lead-in jet is multiple times the cost per hour in the turbo -- turboprop. So I would say, on a cost and actually also for those governments who report emissions, from a cost and emissions point of view, you want to maximize simulator, then you want to maximize turboprop, and you want to minimize jet for both cost and emissions. At the front, on your right. James Beard: It's James Beard from Deutsche Bank. Two questions, please. Can you talk through the building blocks from a margin perspective in H2? Obviously, you've done a 90 basis point margin uplift in H1, which given that you've retained your 8% margin guidance for the full year implies relatively modest or circa 10 basis point margin uplift in the second half. And then second question, you gave some interesting color around the people agenda during the presentation. Can you talk about the other side of the funnel in terms of churn rates? And I guess, in particular, in the U.K. Nuclear business, one would guess that demand for labor significantly outstrips supply at the moment and what you're doing. What initiatives you're taking to sort of combat any unwanted attrition in that side of the business? David Lockwood: I'll do the people one and David can do the number one. So you're right. So our churn rates are significantly down. It is a bit regional. So it's not so much the business is in. It's the business location. So if you're in civil nuclear in Warrington, we're probably the highest paying employer. My Warrington colleagues may not agree with that, but we probably are. In Bristol, it's quite different because there's a lot of high-paying jobs in the Bristol. So it's more a regional issue than an activity issue. But we've done a bunch of things from -- you will remember from the full year, we've had our first ever all employee free share scheme, to start anchoring people in. We've historically had very low take-up on a lot of the benefit schemes we've had. And so we've got a Babcock bus actually, the blue double-decker bus that is going around all our sites, doing open sessions. We've got 10,000, I think, more inquiries in the U.K. onto that -- onto all our employee platforms now as a result of that compared with a year ago. So we're taking all of those. And I could go on and on and on. There's a whole bunch of things we're doing to make people realize the full benefit of being part of Babcock. And if I look at our global people survey, which we do every year, which finished a couple of -- finished a month ago, a lot of those measures, which are kind of indicators of attrition, would I recommend the company as a place to work? Am I going to -- do I think I'm going to be here in 5? All of those continue in a positive direction. And interestingly, when we did the Board presentation 2 days ago, there were a number of those metrics were against the benchmark. So our partner who does all the independent survey, they give you these benchmarks. In the U.K., a number of these engagement scores are going backwards over the last 3 or 4 years. Ours are going forward. So we're kind of bucking the trend on engagement. So lots of stuff actually. David Mellors: And on the margins, so lots still to do. Obviously, very encouraging in the first half. The building blocks are largely the same, actually. If you look back, maybe just comparing against first half of last year isn't that helpful. If you look back, the margins really sort of inflected about a year ago. So if you look at second half of last year, first half of this year, you'll see a trajectory that 20, 30 basis points for the second half maybe -- it would be achievable in some of the sectors. There's no particular building block in the second half that wasn't there in the first. It's the same dynamics. LGE and Skynet and Marine, the businesses going forward in Nuclear, infrastructure coming off a bit, rail in Land, and everything going well in Aviation. So we're very confident in the 8%, but I think just comparing against the first half of last year misses the shape of the curve, if you see what I mean. David Richard Farrell: David Farrell from Jefferies. I think I've got 3 questions. Firstly, in the release, you talked about GBP 300 million tender related to the SMRs for owner engineering services. Could you explain a little bit more what that entails and then the potential for that to grow into other areas? David Lockwood: Yes. So that's the customer side work basically to support the delivery of the SMR program. One of the things you may have seen in Great British Nuclear's announcement is, the kind of conflict of interest, the thing that they're managing. So you can't sit both sides of the equation. You can't set the question and answer it. So I think that's just for the current rollout. So there's -- the opportunity is, if you look at the expectation of SMR volumes, you can kind of multiply that by the volume. So it's quite significant. David Richard Farrell: Okay. Some of your peers have obviously suffered in the wake of the SDR and the release of contracts from the U.K. MOD. Just wondering to what degree you've seen kind of any impact there, acknowledging you have slightly different kind of characteristics in your order book? David Lockwood: Yes. Well, I think you've answered the question almost. We have a very different characteristics. So like some others, we have a framework and then call off. But for us, the framework is the dominant bit, and the call-off is kind of the icing. Whereas in some other contracts, the framework is a smaller partner, for the call-off, is more important. So I think it's just the structure of the contracts really. We have more resilient contract structures. David Richard Farrell: Okay. And then probably for the other, David, a question around the bond refinancing. David Lockwood: No, I'd like to answer that -- I wouldn't. David Richard Farrell: It's quite simple. David Mellors: You're saying he can't do simple, is what you're saying. David Lockwood: He's saying you can't do simple. David Mellors: Probably right. David Richard Farrell: Do you need to refinance both of them at the same size? David Mellors: No. So I think size and duration are things that we will work on over the next few months. George Mcwhirter: George Mcwhirter from Berenberg. You mentioned about some bolt-on M&A that you have been looking at. Can you just go into a bit more detail about that, please? Firstly, that's the first question. David Lockwood: So sort of, but we can't -- obviously, any specifics, as David said, there are a couple in process. They're covered by NDAs and confidentialities. We can't be specific, except to say when we did the Capital Markets Day 18 months ago, we talked about areas that we wanted to move into. So we've already done -- we talked about the need to become more digital. We've talked about the need to have greater access to autonomy and so on. So you could imagine that anything we're looking at is consistent with the strategy we laid out 18 months ago. George Mcwhirter: The second one is on FMSP successor. In terms of the length of the contract and size and the contracting terms that you're looking at, can you just go into a bit of detail about that, please? David Lockwood: So what can I say that I haven't already said? So the terms will be, as I've said, output not -- will be more heavily weighted towards output rather than cost. Obviously, cost really matters. Government wants to do a lot with its money, wants to do it efficiently. So I'm not saying cost doesn't matter, but it will be weighted more heavily towards output. I think duration is still unclear about what is optimal. And it kind of depends who does what on investment profile and some of the things that David talked about what -- and there could also be scenarios where you would have things outside -- a bit like MIP is outside FMSP, and yet it exists, as David described, to drive it. There's kind of what's inside and outside the envelope. So that's all the stuff we want to get right so that we don't create -- we create a framework that can deal with anything that might happen in the period the contract covers and not suddenly wonder who does what on something. Christopher Bamberry: Chris Bamberry. Three questions, if I may. First, in terms of the pipeline, what are the major decisions you're expecting over the next 12 months? David Lockwood: So we said at the Marine Capital Markets Day that if a number of customers want to hit their in-service dates, they have to make their decisions in the next 12 to 18 months, and that was 3 months ago. We had that -- so that's probably still about true. So it's now 9 to 15 months. It is a fact of working with all governments that they like to hold the end date, but take longer than they thought to make the decision. So we're encouraging all of those decisions to get made early. And I think because of the situation in the world, whether you're in the South China Sea or whether you're in Europe, there are external pressures encouraging decision-making. So I'm optimistic those decisions will get made in that period and hopefully towards the front end of that period. Christopher Bamberry: Second, you won your first defense contract in South Africa. I was wondering if you could give us a bit more color on that market and the potential there. David Lockwood: Yes. So I mean, I think almost since the Rainbow Nation started, South Africa hasn't really had an identified need for a defense force. So it's kind of gone backwards for a period. And now whether it's pirates moving further and further down the Western Coast of Africa, whether it's incursions into their territorial waters by other people, there is a bigger and bigger need. So I think, actually, for different reasons from some other markets, there's now a recognition that they need to reactivate. So if we execute this program well, I'm very optimistic that it's kind of a good market for us because it's big enough to be meaningful, but it's not big enough to interest a Lockheed Martin or someone like that. So it's an ideal sort of market for us. Christopher Bamberry: And final question. Could you give us perhaps a bit more color on how DSG has performed under the new contract? David Lockwood: Yes. So far, so good, really. Nothing else to say. It's going well. I can't think of... David Mellors: It is going -- well, we're not going to give all the internal KPIs. But yes, mobilization is good. Christopher Bamberry: Hitting all the KPIs, et cetera? David Mellors: Sorry? Christopher Bamberry: Hitting all the KPIs, et cetera? David Lockwood: No one hits all the KPIs. Christopher Bamberry: A reasonable number? David Lockwood: Yes. If we hit all the KPIs, they would argue they set the wrong KPIs. So you can't hit all the KPIs, but hitting the volume, we'd expect to. Behind you. Benjamin Pfannes-Varrow: Ben Varrow from RBC. First one, just on -- you've made a point about the CapEx projects here. Can you shed any more light on those at this point? David Lockwood: And they're not all in the U.K. So if you take Mentor 2, for example, we buy the platforms and then there's a progressive sort of handover. So that's a good example. If you look at modernization in New Zealand, there's a big debate about who funds what. They probably can't fund everything. If you look at infrastructure for AUKUS in Australia, who funds what. So there's just a lot of -- and it's similar in the U.K., but there's a kind of the whole build -- I don't think anyone wants to do a PFI, which is kind of a build and forget, which is just kind of an off-balance sheet financing thing where the financing is more important than the thing. But I think what people are looking at now is a kind of build and operate so that you have operate skin in the game for doing the build properly. So that's the sort of direction of travel. Benjamin Pfannes-Varrow: Okay. And also with regard to your sort of 2 specific ones, obviously, with Rosyth. David Lockwood: David mentioned those, so you better talk about the Rosyth's expansions. David Mellors: Sorry, what was the question? Benjamin Pfannes-Varrow: So the actual -- the CapEx projects that you mentioned for Rosyth. Can you give any more sense? David Mellors: Yes. So obviously, we've got a pipeline of ship-build activities that we talked about in the Capital Markets Day. We'll need extra capacity. So we're looking at a new build hall for that. We want to ramp up the missile production volume. David Lockwood: Missile tubes. David Mellors: Sorry. David Lockwood: Not missiles. David Mellors: Missiles. That's what we want to ramp up. So we'll be looking to invest in that as well. So this is all stuff to enable greater scale, growth and productivity. Benjamin Pfannes-Varrow: I assume you can't say anything on sort of decision points or when you pull the trigger on missile tubes? David Mellors: Well, I mean, it's -- those two. Well, the first one is our decision, and we've got to make that decision based on what we see in the pipeline and how close it is and how certain we are. So we'll just have to keep you posted on that. The missile tubes, obviously, we will do in tandem with the customer. So -- but again, we'll talk in the next few months, certainly within the next 12. David Lockwood: Because we built the last build hall so recently, we have -- what can cause delay in a build hall? Things like the condition of the ground. You got to put foundations in, and you have to make them stronger because the ground is -- but because it will be right next to the existing one, we know everything about that. We know how we build it. We would use the same contractors. So it's a -- although it will be a big thing, it's relatively quick. So we can align it quite closely to the order intake maturing. Benjamin Pfannes-Varrow: And last one, just a bit on visibility. Obviously, in the first half, you've had Nuclear, I guess, in particular, come in a bit stronger. So can you chat through just about the visibility on that and how that perhaps comes in a bit quicker sort of in submarine support and also on the Cavendish side? And I guess the question sort of rolls in, can you maintain those growth rates? David Mellors: Yes. So we've got pretty good visibility. I mean, I always look at the revenue under contract for forecasting. So -- but we generally have very good visibility of stuff that isn't under contract yet. So you can't necessarily be absolutely sure of timing, but you've got a pretty good idea. So I start with what's under contract. In terms of visibility in Nuclear, it's good. We've got a pretty good idea on both naval and civil, what's coming down the track. Timing isn't always precise, but you've got a pretty good idea. They're obviously doing extremely well, but a 14% growth rate is pretty punchy to be -- to straight line out into the future. It's definitely all sustainable revenue. There's nothing one-off in there. But it can't keep going at 14%. But it is the high-performing business, and it will continue to be for the near term at least. Benjamin Pfannes-Varrow: Just a follow-up question to the last one on civil nuclear. You've given it a lot of prominence in the presentation. It's only about 5% of the group. I think at the teaching you did in May, you talked about sales at least doubling over the medium term. given how much is going on there and the prominence you've given it today, are you thinking more positively? I mean, can you update on the at least double? Is it now going to be a meaningfully bigger opportunity? David Lockwood: So that was a teach-in on Cavendish, which is the nuclear consulting business. So it excluded -- we made reference to, but the numbers excluded build opportunities for building elements of SMRs and AMRs. So can I give an update? I think the risk is on the upside, how about that? Is that enough? Do you want to? David Mellors: Yes. Look, I mean, I don't think we can -- we said we'd double the business by 2030, just to be precise. I don't think we're going to change that right now. Everything we've seen in the market is encouraging. And there are some potentially big things there, but I think we have to just wait a little bit longer to see how they -- how and when those things crystallize before we start changing numbers. Benjamin Pfannes-Varrow: Just to follow up. I actually didn't know that. I'm not an expert on nuclear engineering, say the least. So what is -- when you talked about the business doubling, I thought it was civil nuclear in its entirety. So just how big is the buildup? And maybe if we look beyond the medium term because it might take longer. I mean, just how big can the civil nuclear holistically get to for you? David Lockwood: If you include build -- so one of the interesting things is how we choose to report it because typically, everything that happens in Rosyth gets reported in Marine because Marine owns Rosyth. So it would depend how we reported it. But if you believe -- if you just look at the Hartlepool 6 gigawatts of AMRs, if we were a material build partner of that, and we are X-energy's partner in the U.K., then we're talking about civil nuclear production would probably become bigger than the consulting -- the engineering consulting business of Cavendish. That's a huge if, but just to give you a scale thing. Benjamin Pfannes-Varrow: Sorry. That's for one of the SMRs, is it? David Lockwood: No. This is AMRs. This is just Hartlepool AMR thing. Benjamin Pfannes-Varrow: This is just Hartlepool? So if Hartlepool, AMRs go ahead, SMRs go ahead in the numbers, it's multiples then of Cavendish, is what you're saying? David Lockwood: If we win the build because we don't build that either at the moment. So there's a huge if. Benjamin Pfannes-Varrow: And who else could do the build? David Lockwood: Well, it kind of partly depends whether the U.K. Government decide that U.K. SMRs and AMRs have to be built in the U.K. Because if they decided not, which -- if there's a change in government, it might be the case, and there could be -- there are places outside the U.K. you could build them. There aren't -- there's not that much U.K. competition. David Richard Farrell: David from Jefferies. A follow-up question, please. Just around kind of the share buyback. We've obviously talked about kind of CapEx potential. You talked about kind of M&A. Do you think that you could do both of those and still reload the buyback at the end of this year? David Lockwood: Yes. So the great thing about having cash is that you actually have a capital allocation problem, which is relatively new for this company for a long time. In my mind, the buyback creates the hurdle for all other investments. So we know what return the buyback gives shareholders. And therefore, our job as management is to find alternatives to recommend to the Board, which we believe provides superior returns to buyback. And if we don't find them, then buyback becomes a likely option. So I think it's hard to say, can you do both because it depends how many superior options we come up with. But I think that's -- I think I'm looking at Ruth, and she's nodding. It is our job as management to come up with superior options to buyback. That's our job. In 1 minute's time, this will be the longest half year presentation I've done in 14 years. I just thought I'd let you know that. Sash Tusa: I'll drag the question out then. David Lockwood: Go on then, record-breaking you. Sash Tusa: First of all, continuing on nuclear. I probably may have missed -- you said that MIP was basically flat. Did you actually give an absolute number for MIP revenues in the half year? David Mellors: For the half? Yes, it's on the slide. So it's GBP 215 million. Yes. It was down. It wasn't flat. It was down. Sash Tusa: Okay. And then the other side of David's question about Cavendish. You actually haven't talked very much about the Nuclear side of Cavendish in this set of numbers. What's happening at the moment with AWE and particularly with the 2 very big AWE capital projects as part of the Fissile Materials Campus? David Lockwood: Yes. So those are still evolving. I think all of our debates with AWE about what our role should be, a very positive. Yes, very, very positive. They've ultimately got to decide how to chunk up those 2 big programs. I think there's no doubt that AWE wants to be the overall contractor. So it's not going to go to a GOCO or anything like it. But the question is then, how do they chunk it up underneath? And I think so far, those are very intelligent and sensible conversations between us and them. I couldn't put a number or duration on it. But you're right, I didn't mention it, but it's going -- it's a very positive conversation. Sash Tusa: And I mean, just to extend that, if you had to estimate whether ultimately that scale of build work is bigger or smaller than the AMRs and SMRs? David Lockwood: Gosh. David Mellors: Go on. David Lockwood: That's an impossible question and a very unfair way to finish. And I'm never going to talk to you again. Great. Well, thank you for your questions. That's an hour up. If you've got any more questions, I'm sure Andrew will answer them. Thank you.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Moog Inc. Fiscal 2025 Fourth Quarter and Full Year Earnings Call. [Operator Instructions] I will now hand the conference over to Aaron Astrachan, Head of Investor Relations. Aaron, please go ahead. Aaron Astrachan: Good morning, and thank you for joining Moog's Fourth Quarter 2025 Earnings Release Conference Call. I am Aaron Astrachan, Director of Investor Relations. With me today is Pat Roche, our Chief Executive Officer; and Jennifer Walter, our Chief Financial Officer. Earlier this morning, we released our results and our supplemental slides, both of which are available on our website. Our earnings press release, our supplemental slides and remarks made during our call today contain adjusted non-GAAP results. Reconciliations for these adjusted results to GAAP results are contained within the provided materials. Lastly, our comments today may include statements related to the expected future results and other forward-looking statements, which are not guarantees. Our actual results may differ materially from those described in our forward-looking statements and are subject to a variety of risks and uncertainties that are described in our earnings press release and in our other SEC filings. Now I'm happy to turn the call over to Pat. Patrick Roche: Good morning, and welcome to our earnings call. We closed out fiscal 2025 with an exceptional fourth quarter performance. We achieved record results. This performance capped an outstanding full year in which we achieved strong growth, continued margin expansion and improved free cash flow, continuing our improvement journey launched at our 2023 Investor Day. Our fourth quarter set a new high watermark for performance. Record-breaking results included delivering over $1 billion in quarterly sales, hitting an all-time high 12-month backlog of $3 billion, thus achieving our highest quarterly adjusted operating margin and adjusted EPS and free cash flow. Our successful execution of strategy has resulted in a financially stronger business with outstanding fiscal 2025 results. Our focus on customer drove records for orders, backlog and sales, which are respectively up 36%, 20% and 7% relative to prior year. Our success at growing the business and our focus on operational execution enabled us to drive record adjusted margin and EPS whilst overcoming tariff headwinds. Finally, we improved free cash flow relative to prior year with an outstanding performance in the last 2 quarters. Our results demonstrate our dedication to driving improved operational and financial performance. Our focus is on delivering for our customers and driving ongoing continuous improvement. Our success is driven by our employees' commitment to making this both a great place to work and a strong company. And for that, I want to thank all of those dedicated staff who contributed to our performance over the last 12 months. Now let's turn attention to our end markets and the macro environment, starting with Defense. The Defense market continues to be strong. We're experiencing a secular increase in Defense spending within the U.S., NATO Nations and Indo-Pacific allies, which will continue for the foreseeable future. In addition, there is a growing sense of urgency to increase industrial capacity in these regions. We are well positioned to respond to these demands across a broad-based opportunity set with both primes and new entrants. We're winning in the U.S., we're expanding in Europe, and we're gaining a foothold in Australia. Moving to Commercial Aerospace. Our customers have strong backlogs and our intent to drive increased production rates. Boeing broke ground on a second final assembly building in Charleston, South Carolina as part of its $1 billion commitment to the 787. In addition, 737 MAX rates are set to increase. We continue to see stability and have confidence in the demand outlook. We maintain a stable production plan that supports our customers' needs. On the aftermarket side, we continue to benefit from increased airline activity and aging fleet, increased wide-body fleet utilization and our ability to maintain a strong aftermarket position. Finally, within Industrial markets, we continue to have relative stability. We see steady growth in the medical end market and outsized growth in data center cooling. This is reflected in progressive growth in our 12-month industrial backlog over the last 2 quarters. Overall, end market conditions are very favorable for our business. Now turning attention to our leadership priorities, starting with customer focus. We are incredibly pleased to have our operational performance, officially recognized by our customers. We received the Crystal Excellence Award from CAE for outstanding operational performance and deep commitment to sustainability. We also received a supplier award from Lockheed Martin for a 100% on-time delivery over the last 12 months on the PAC-3 missile program. Our focus on operational excellence ensures that we deliver for our customers and expand our business. Our strong customer value proposition was further reflected in several notable contract awards. We secured an order under the SGT Stout program for our reconfigurable integrated weapons platform. This will equip the fifth of the Army's 8 battalion and extends our production horizon through to 2027. We leveraged our established presence in Australia to win an important position on future guided multiple launch rocket system production in Australia with Lockheed Martin. This represents the first geographic expansion of our missiles business. Finally, we're making substantial progress extending our presence on collaborative combat aircraft. We provide Kratos with flight control and actuation products on the XQ-58 also known as Valkyrie, and the BQM-177, and are in continuing discussions for additional products on their future CCA platforms. This is a great illustration that we deliver fit-for-purpose solutions, not just for advanced military aircraft, but also for the emerging collaborative combat aircraft market. Finally, I saw firsthand how our operations are responding to changing customer needs. Our electric motor and pump operation in Murphy, North Carolina, is a key production site for data center cooling pumps. Our team has done a remarkable job meeting the increased volume requirements from our hyperscaler customers. We've doubled volume over the last 9 months, and I expect this pace of growth to continue in fiscal '26. Our ball and roller screw operation in Bergamo, Italy, is working with an industry disruptor to apply roller screws in a new and extremely demanding application environment. Our team has demonstrated significant agility and accelerated the pace of development, producing 8 prototypes within a year. This underpins my firm belief that we can respond to the expectations of fast-moving new entrants in any market. Now turning to our employees and communities. We're committed to the development of our people and in support of our host communities. We invested in a dedicated hands-on training center for our East Aurora campus. This unit trains machinists and assembly and test operators. It supports onboarding, upskilling and recertification of employees across our Western New York campuses. It is driving a significant improvement to quality, consistency and efficiency of skills training. Our investment was complemented by financial support from the U.S. Navy Maritime Industrial base. We collected over 43,000 pounds, which is close to 19.5 metric ton of waste with a collective effort of almost 1,000 volunteer staff across 19 sites in 15 countries during the week of action in September. This is a notable example of our staff supporting their local communities. Now shifting to financial strength. We're seeing our financial performance improved through solid growth and consistent focus on pricing and simplification. We have embedded 80/20 into approximately 80% of our businesses by revenue. Our focus is further strengthening maturity with 80/20 champions working with business leaders to solve the most relevant challenges. 80/20 insights are leading to data-driven business decisions that are improving profitability. Voice of the customer. We've prioritized key customers covering over 1/4 of our business by revenue, including hundreds of interviews. We're getting actionable insights that will support business growth. We are clear within the organization on how best to serve our most important customers. Simplification. Customer and product profitability analysis is allowing us to focus resources and reduce complexity. Segmented income statements now widely used across the organization are driving better profitability. Simplification has also been achieved through the sale of noncore businesses and product line asset disposals through focused factory approach, which aligns clearly with end market requirements and through consolidation of facilities. These are all ongoing activities within our business. Our simplification initiatives delivered similar margin benefits to that of pricing and volume growth together in the fiscal year. The solid improvement was partially eroded by margins. I look at multiyear trends helps illustrate the profound impact that simplification is having on our business. From fiscal '22 to fiscal '25, while controlling headcount increases to just 4% and reducing our factory space by 8%, we've driven a 27% increase in sales. These achievements reflect strong operational performance and increase our financial strength. Now let's reflect on the improved financial performance over that same period relative to our Investor Day goals. Sales growth was ahead of expectations at 8% CAGR, adjusted margin enhancement exclusive of tariffs averaged 110 basis points or 330 basis points cumulatively and ahead of our 100 basis point average goal. Adjusted EPS growth of 16% CAGR met our goal. Finally, while free cash flow has improved over the last couple of years to 46%, it is short of our target range. We were ambitious for our business at Investor Day in 2023, and I'm proud of the progress that we've made and -- that we've achieved over subsequent quarters and years. Now moving to FY '26. Our FY '26 guidance will further cement this solid multiyear performance improvement. Sales will be up 9% year-over-year, and adjusted operating margin, exclusive of tariffs in both years will be up 70 basis points. FY '26 adjusted EPS will be up 15% and free cash flow will strengthen to 60%. In addition to our ongoing margin enhancement actions, we've launched initiatives that specifically focus on structural change that we believe are necessary to enhance free cash flow. These initiatives will deliver impact over the next few years and make a contribution in fiscal '26. Our Commercial Aircraft business is the most significant contributor to our total trade net working capital requirements. This is because our own manufacturing and supply chain network is complex and dispersed across multiple global locations. In addition, we shielded our supply chain from variations in our customers' demand and challenging terms and conditions. We have multiple actions underway that will help address this situation. Over a few years, these actions will significantly reduce trade net working capital as a percent of sales. We're committed to execute these initiatives with the same focus that we've applied to our margin enhancement journey. I look forward to describing these initiatives over the coming quarters. And with that, let me hand over to Jennifer for a detailed breakdown on the quarter and our fiscal 2026 guidance. Jennifer Walter: Thanks, Pat. Before I get into our financial performance, I'll note an update to our previously reported results. I'll then provide a summary for FY '25, followed by a more detailed review of our fourth quarter financial performance. I'll wrap up with our initial guidance for FY '26. We're revising previously reported results to reflect the correction of an accounting error that we identified this past quarter. The error relates to the accounting for a certain group of Commercial Aircraft aftermarket contracts. We have also reflected other previously recognized immaterial out-of-period items in the correct periods. The net impact of these changes increases our net earnings per share by $0.13 in fiscal year '23, $0.05 in fiscal year '24 and $0.06 in the first 9 months of fiscal year '25. Additional detail can be found in supplemental schedules in our press release and in our upcoming 10-K filing. I'll now move to our financial results, starting with the year. Fiscal year '25 was marked with record sales, expanding operating margins and improved cash flow generation. Sales for FY '25 were $3.9 billion. This represents a 7% increase over FY '24. Our Aerospace and Defense segments drove this growth. Commercial Aircraft sales increased 15% due to strong aftermarket sales and the ramp-up on wide-body programs. Sales in Space and Defense increased 9% due to strong broad-based Defense demand. Military Aircraft sales also increased 9% as activity increased on the MV-75 and new production programs. Industrial sales decreased 4% as a result of divesting two businesses at the beginning of FY '25. Our adjusted operating margin of 13.0% increased 30 basis points over FY '24. Excluding this year's pressure from tariffs and last year's employee retention credit benefit, operating margin increased 120 basis points. Operating margins expanded in each of our segments except for Commercial Aircraft. In Industrial, our operating margin expanded 80 basis points to 13.5% as we continued our simplification initiatives. Military Aircraft operating margin increased 40 basis points to 12.3% as a result of stronger business performance and pricing. Our operating margin in Space and Defense increased 20 basis points to 13.5% due to profitable sales growth, offset by last year's employee retention credit benefit and this year's increased investments in product development, business capture and operational readiness. In Commercial Aircraft, our operating margin decreased 30 basis points to 12.4% as pressure from tariffs was partially offset by the sale of a noncore product line. Adjusted earnings per share in FY '25 were $8.69, up 11%. The increase relates to the higher level of sales and to some extent, the increase in operating margin. For the year, we generated free cash flow near the high end of the range that we shared a quarter ago. We invested in our business in FY '25 to support our strong growth both through capital expenditures and within working capital. Let's shift over to our fourth quarter results. We had a great quarter. Sales were over $1 billion for the first time. Adjusted operating margin was above plan, and adjusted earnings per share significantly exceeded the high end of our guidance range. In addition, we generated about $200 million of free cash flow, which is around 2.5x the level of our adjusted net earnings. We took $18 million of charges in the fourth quarter that we've adjusted out of the operating profit numbers we'll describe. Charges included $10 million associated with the settlement of a legal dispute, $5 million associated with simplification efforts and $3 million associated with acquisition fees. In addition, we took a $4 million tax charge associated with simplifying our legal entity structure. I'll now talk through our fourth quarter results, excluding these charges. Sales in the fourth quarter of $1 billion were 14% higher than last year's fourth quarter. Commercial Aircraft, Space and Defense and Military Aircraft were each up double-digit percentages and Industrial was also up nicely. The largest increase in segment sales was in Commercial Aircraft. Commercial Aircraft sales of $252 million increased 27% over the same quarter a year ago. The increase was driven by volume on major production programs as well as aftermarket associated with strong fleet utilization on the 787 and A350 programs. Space and Defense sales were $307 million, up 17% over the fourth quarter last year. Our sales this quarter were at a record level, reflecting broad-based Defense demand. We're seeing demand particularly strong from missile control and satellite components. In Military Aircraft, sales of $236 million were up 10% over the fourth quarter of last year. Activity on the MV-75 program continued to increase. We also benefited from new pricing primarily within aftermarket. Industrial sales were $253 million in the quarter, up 5% over the same quarter a year ago, or 7% when adjusting for divestitures we completed at the beginning of FY '25 and foreign currency effects. We had higher sales for IV pumps and administration sets as we fulfill backlog that's built up from previous part shortages. Sales of enteral feeding administration sets were also strong, reflecting current demand. Sales also grew within the expanding data center cooling market. We'll now shift to operating margins. Adjusted operating margin in the fourth quarter was 13.7%, up 20 basis points from the fourth quarter a year ago, reflecting operating strength offset by tariff pressures. Our Defense businesses are up significantly, while Industrial is up nicely and Commercial Aircraft is down considerably. Military Aircraft operating margin of 14.1% in the fourth quarter, up 210 basis points from the fourth quarter last year. We benefited from pricing activities, both for the OE and aftermarket as well as a favorable mix. Space and Defense operating margin was 15.1% in the fourth quarter, up 190 basis points. The increase was driven by profitable sales growth offset partially by increased business capture, product development and operational readiness investment. Industrial operating margin was 13.9%, 70 basis points above that of the same period a year ago. We benefited from a favorable sales mix and simplification initiatives, including divestitures. These benefits were partially offset by the impact of tariffs. Commercial Aircraft operating margin was 11.4%, down 440 basis points from the fourth quarter last year. The decrease was driven by tariff pressure and to a lesser extent, an unfavorable sales mix. Our adjusted effective tax rate in the fourth quarter was 24.1%, up from 19.0% in the fourth quarter last year. In last year's fourth quarter, we benefited from an incentive associated with capital investment in one of our U.K. sites. Putting it all together, adjusted earnings per share came in at $2.56, up 19% compared to last year's fourth quarter. The increase reflects the higher sales level. Let's shift over to cash flow, which was at a record level this quarter. In the fourth quarter, we generated about $200 million of free cash flow. This represents free cash flow conversion at around 2.5x the level of adjusted net earnings. The key driver to the strong cash generation this quarter was working capital, in particular, customer advances. Capital expenditures were relatively high compared with spend levels in recent quarters. This past quarter was elevated as certain Commercial Aircraft production was moved into one of our focused factories to optimize our manufacturing space. Our leverage ratio was 2.0x as of the end of the fourth quarter, putting us at the low end of our target leverage of 2 to 3x. Our capital deployment priorities center around organic growth, and we'll pursue strategic acquisitions that will fit in nicely within our business. We strive to have a balanced capital deployment strategy over the long term. Now let's shift over to our initial guidance for the year. Fiscal year '26 will be another great year in which we continue to build our financial strength. We'll achieve a record level of sales, further expand our operating margin and make meaningful progress towards generating strong free cash flow. We're projecting sales of $4.2 billion in FY '26, a 9% increase compared to FY '25. We're projecting the largest sales growth in our Aerospace and Defense segment with a modest increase in Industrial. The largest increase in sales will be in Commercial Aircraft. Sales are projected to grow 15% to $1.0 billion, driven by increased production rates for narrow-body and wide-body programs. Sales will also increase from pricing initiatives, both for the OE and in the aftermarket. Space and Defense sales are projected to increase 11% to $1.2 billion. We're seeing strong Defense demand across our entire book of business, in particular, for controls for missiles and in the European ground vehicles market. In addition, the acquisition of COTSWORKS is contributing 3 percentage points to our sales growth. Military Aircraft sales are projected to increase 7% to $1.0 billion. The increase will be driven by pricing changes that have already been secured and to a lesser extent, growth in new production aircraft. These increases will be offset somewhat by declines in certain legacy programs that are nearing end of life production. Industrial sales are projected to increase 3% to $1.0 billion, driven by increased demand for data center cooling pumps. Let's shift over to adjusted operating margin. We're projecting our operating margin in FY '26 to be 13.4%, a 40 basis point increase over FY '25. Excluding the impact of tariff pressure in FY '26, our operating margin would be 14.2%, in line with the long-term target we shared in our 2023 Investor Day presentation. Military Aircraft operating margin will increase 200 basis points to 14.3%, driven by increased pricing in both OE and in the aftermarket. Industrial's operating margin is also projected to be 14.3%, 80 basis points over FY '25. The increase reflects the benefits of further portfolio-shaping activities. Our operating margin at Space and Defense will remain flat at 13.5%. We'll continue to benefit from profitable sales growth. Net benefit will be offset by continued investments in product development. In Commercial Aircraft, our operating margin will decrease 90 basis points to 11.5%. Tariffs are pressuring this business. Excluding the incremental impact of tariffs, operating margin in FY '26 would expand 60 basis points over FY '25 as the benefit associated with secured price increases will more than offset an unfavorable sales mix. Our effective tax rate will increase to 25.0% in FY '26. Recently enacted legislation helps us from a cash flow perspective through accelerated deductions that causes us to lose some of the related permanent benefits that affect our tax rate. For FY '26, earnings per share are projected to be $10 plus or minus $0.20. That's up 15% over FY '25 adjusted earnings per share. The increase reflects a higher sales level and to a lesser extent, a higher operating margin. For the first quarter, we're forecasting earnings per share to be $2.20, plus or minus $0.10. Finally, turning to cash. We're projecting free cash flow conversion to be about 60%, an improvement over FY '25. Our strong sales growth requires increased working capital, so we're mitigating that through various initiatives. Within Commercial Aircraft, we've already had success in pushing out material receipts, and we will also be destocking later in the year. We anticipate a use of cash in the first quarter to be in excess of $100 million, reflecting normal timing of compensation payments and the timing of incoming receipts and customer advances. Overall, FY '25 was a year marked by record sales and strong operational performance, and we're looking forward to another great year in FY '26. And now I'll turn it back to Pat. Patrick Roche: Now before I move on to closing out, let me just correctly state the impact of simplification from earlier. Simplification initiatives delivered similar margin benefits to pricing and volume growth together in fiscal '25. This solid improvement was partially eroded by tariffs. Now with that, I think we've completed a fourth quarter with exceptional financial results, an outstanding full year, and we're guiding that the business will continue to perform well based on our view of the markets and our success in driving business improvement. And with that, let me open the floor up for questions. Operator: [Operator Instructions] Your first question comes from the line of Jon Tanwanteng with CJS. Jonathan Tanwanteng: Really nice quarter and outlook there. I was wondering if you could focus a little bit more on the cash flow, if possible. Just how do you expect that to phase through the following 3 quarters after Q1? And then maybe talk about some of the underlying items that you addressed in your prepared remarks. You talked about factor improvement, supply chain improvements as well as the terms from your customers. Maybe talk about how those layer in over the next 1 or 2 years and when you expect to hit the target range of 75% to 100% conversion? Jennifer Walter: Sure. I'll start with our forecast for the year. So again, it's at 60% free cash flow conversion. As we've got a nicely growing business, you can see all the organic growth that we've had this past year, we're continuing to see even accelerated growth into next year, that requires working capital. It also requires capital expenditures. We've been investing and we continue to invest in our facilities, and that uses some cash. We are having some initiatives that are mitigating the impact, particularly in Commercial Aircraft. And Commercial Aircraft is growing, and that does have the longest cash conversion cycle within our business. . One of the things that we're doing, and we're already seeing results just a few weeks into the beginning of our year is on material receipts. We are pushing out some of the material receipts that were scheduled to come into the year such that they will be pushed outside of fiscal year '26. So we have a plan for the year, and we've already made nice progress in our FY '26 goal with activity that we've had already. Later in the year, we're going to work on some destocking by bringing in less than we're shipping. We're obviously making sure that we're shipping according to what we need to do for our customers' requirements, but trying to make sure that we can bring in only what's needed, balancing what's already on hand so that we can bring our physical inventory balance down. So those are some of the activities that we've got going on in FY '26. We also have stronger sales or stronger earnings. So that's contributing to some of the growth that we're seeing in fiscal year '26. One area -- other area of pressure that we're seeing is in our receivables, and that's just the timing of when we're going to have our earnings, our sales and then the ultimate collection of it. So in a growing business, where we've got more sales and earnings towards the back end of the year, which is what we're projecting. We're going to have the higher receivables there, and so that will pressure us for the full year. So when we look out beyond fiscal year '26, so we like that we're seeing an improvement from what we had in fiscal year '25. Our target still remains long term for the 75% to 100% free cash flow conversion level. And as Pat mentioned in his prepared remarks, there's a number of activities that we've got going on. I shared a couple of the ones that are going to impact us from fiscal year '26. But there's other things that are already underway that are going to help us in the future so that we can get into that range. Patrick Roche: Yes. So thanks, Jennifer. So I think Jennifer covered some of the here and now things we're doing with material receipts on the cash flow side. But if I look at the structure of that business, we receive supply variations or demand variations coming in from our customers, and we're not in a great position at the moment to reflect those through to our suppliers. We have too many of the suppliers on fixed POs, which means they have certain delivery dates defined up to 1 year or 1.5 years in advance, and we need to change the structure of that over the coming couple of years. We're making good progress towards that end, but we'll report more on that in future quarters. So that's a sort of a structural change, which helps us deal with demand variation on the customer side. I think on the term side that I mentioned, that's -- we have pretty long payment terms with our customers. We need to consider how we're dealing with our supply side in that whole conversation about POs, flexibility, working to forecast rather than working to fixed orders. That's part of the change that's going on there. Jonathan Tanwanteng: Great. And second, if you could, just on the negative, I guess, incremental margin Commercial Aircraft for '26, I know you mentioned that it was mostly a tariff impact on pricing, but I was wondering if there's any mix in there as well. I know you had a very strong aftermarket year this year and production from -- on the [ OE ] side is supposed to ramp up pretty strongly. Is that a component there? Or is there anything else going on just on the margin for Commercial in '26? Jennifer Walter: Yes, there is some negative mix. We have our commercial aftermarket, which is more profitable than our OE portion of the business, becoming a smaller percentage of the entire segment sales. So there is a negative mix impact there. I would say the tariffs is a very significant impact on this business, though. Patrick Roche: Jon, the last thing I was going to add in, when we transitioned back to that subsequent question was to do with our own configuration of manufacturing plants and the movement of product between them. So every transition from one plant to another adds time to the overall cash conversion cycle that Jennifer was talking about, but it also adds buffer stocks and other increases in work in progress. And so we're trying to work that down as well. And so line-replaceable unit by line-replaceable unit, we're working to consolidate the manufacturing footprint and the supplier footprint such that overall conversion time from starting a product production through to delivery to the customer, that overall lead time through the entire network is reduced. That's what takes time to do with projects underway at the moment that are actually working that, and that's what I hope to give updates on in future quarters. Operator: Your next question comes from the line of Mike Ciarmoli with Truist. Michael Ciarmoli: Maybe Jennifer, just to stay on the -- and Pat as well to stay on the cash flow, you mentioned trying to make some of these structural changes. And Jennifer, you called out working capital, and I think you called it out specifically in that Commercial Aircraft. Can you give us a sense of where you're trying to get that working capital as a percent of revenue to where it is now? And then even just more on maybe some of the bridging items to cash next year. I'm assuming CapEx stays elevated at that 4% to 5%. You did get, I guess, a good tailwind on customer advances this quarter, maybe $74 million or so. But how does that look in '26 on the advanced side? Jennifer Walter: Sure. Let me start off with our working capital targets. Right now, we're just putting something out for '26. But based on the comments that you heard Pat describe longer term, we're certainly wanting to make a much more meaningful impact beyond '26 in that. We're not ready to share that yet at this point, but we'll continue to give updates as we move further. But I would reiterate that we still believe that our business when we get through these initiatives, we'll be in the 75% to 100% free cash flow conversion rate. When I look at some of the individual pieces for fiscal year '26, we're anticipating, obviously, we've got a higher level of earnings and then I'll start with some of our working capital items. We'll probably use a little more working capital than we did this year. I would note that physical inventories will plan on keeping around the same level of growth in physical inventories that we had this year. So with the growing business, we certainly need more, but we're able to even a growing business, keep it to the same level of growth that we have this year. We will see some pressure from billed receivables and advances. Our advances were very strong. And I called it out in their fourth quarter comments because it was even -- we expected fourth quarter to be strong. It was well stronger than what we had projected. And so that actually pulled a little bit in from '26 into '25 for us. But when we look at customer advances, it's still going to be positive for next year, just not as strong as it was in fiscal year '25. So those are some of the things that we've got. I would say, capital expenditures are going to stay around the same level as a percentage of sales that we had this year. Again, we are investing in our business for that long-term growth that we've got. This year, we ended at around $145 million. We're projecting to go to $160 million, it's around the same percentage of sales that we have though before. So those are some of the bigger pieces within our cash flow as we're looking out for next year. Michael Ciarmoli: Got it. Got it. And then specifically on the CapEx, I mean we've certainly seen and heard about a number of the projects you're doing. But how are you guys thinking about the return profile on some of those projects and when we should really start to see the benefits and maybe even see some of that CapEx start to trend lower as you complete some of these projects? Jennifer Walter: I would say there's different nature of different projects. So some of the projects are things that we get benefit as we get captured in rates as we do project production over the next couple of 2, 3 years type of thing. So we see the benefit or the recovery really in the next couple of years from that standpoint. Some of it is for anticipated growth and it's the growth that we are seeing. Another aspect of some of the things that we're doing, especially in the automation space, is actually being able to take on these contracts. Otherwise, we would not have had the space, the efficiency and the throughput to get through the increasing volumes that we've had. So it's already -- so those are already improving for our -- coming through from our sales and efficiencies. Operator: [Operator Instructions] Your next question comes from the line of Tony Bancroft with GAMCO Investors, Inc. George Bancroft: Yes. Congratulations, Patrick and Jennifer. Very well done. Just on your growth sort of growth platforms, the MV-75, CCA, F-47, maybe potentially F/A-XX in the space satellites and missiles. Can you just sort of talk about what's in that space where possibly you could do? Is there any M&A in that space that you could do or sort of maybe some more color on what that looks like, where you could maybe grow that? Patrick Roche: Yes. Thanks, Tony, for the question. Thanks for the compliment as well. We are active and have continued to be active in maintaining a funnel of potential acquisition targets. We are interested in growing the business and the Defense side is where we're getting great returns. So it is an attractive area. We have to see what comes up. We're interested in building out the business both here and overseas. I mean, I called out an example where organically, we're using our footprint in Australia to build out our missiles business. We're looking at opportunities to do that in Europe as well. And so if there's acquisitions that fit that agenda, we're interested. Operator: [Operator Instructions] We have a follow-up question from Mike Ciarmoli of Truist. Michael Ciarmoli: Pat, you guys seem to be getting hit a little bit harder on tariffs, maybe in Aerospace. I mean I would have thought you would have seen it a little bit more in Industrial. Is it really just a function of the contracting environment that you can pass these tariffs through? Or there certain materials that you're having to procure? Or what's kind of behind the pressures more concentrated in aircraft? Patrick Roche: So first point is that it's a highly global manufacturing and supply chain structure around that Commercial Aircraft business, unlike the Military Aircraft business, which is mostly U.S.-based or North American-based at least. So that's one difference between them structurally. The Section 232 tariffs, which impact steel and aluminum, obviously, have an impact on materials moving in and out as part of that business. And then as you know, we have a major manufacturing location in Baguio in the Philippines. Now fortunately, many of our customer contracts are ex-factory, ex-works, in nature. So in some of those cases, we're shielded from the impact of the tariff ourselves, but the combination of all of those tariffs that I mentioned and some customer contracts that aren't set up that way means that it does have an impact most heavily felt in commercial relative to other segments. Does that help? Michael Ciarmoli: Okay. Okay. Yes, that's helpful. And then just Commercial Aircraft, you're guiding for 15% growth. It sounded like you're going to be dealing with a little bit of destocking. I'm assuming that's on the 87 and the A350, but you're still getting pretty good growth. Can you maybe parse out, I mean, between aftermarket and OE growth next year in aircraft? Jennifer Walter: Yes. I'll start with the general comment as we -- and then we'll do the aftermarket part of it. Yes, the destocking. So of course, we're going to meet our customers' requirements and what they're doing from that side of it. So it's really us managing it on the supply chain side of things when we're talking about the destocking. We'll continue to ship as we have already previously continued to, but we have some opportunities in the supply chain to delay such that it doesn't impact what we're getting out the door. So that's really helpful. Patrick Roche: I think if I look into '26, a lot of the growth is coming on the OE side. Some of that also is narrow-body actually, and we don't talk about that a lot in the calls because of the lower content value on the narrow-body aircraft, but the volumes there are beginning to pick up as well, and that seems to be coming through. Michael Ciarmoli: Okay. Got it. And then maybe just a final one on cash, Pat and Jennifer. I mean the 60% conversion. Last year proved to be a bit of a challenge with a couple of downward revisions. I mean, as you guys contemplated and set the 60% conversion, I mean the confidence level, I think I previously asked for some of those bridging items. But I guess just the line of sight and confidence to that 60% right now? Jennifer Walter: Yes, we're confident in our projection that we've got out for this year. We've got the increase in our earnings, and it's being driven by our sales growth. The sales growth is strong. You heard Pat talk about the backlog. So that's certainly contributing to it as well. We do have customer advances in line in sight. Not to the extent that we had last year, but we have those in sight, so we can do that. And then I mentioned a couple of the areas where we have -- especially on pushing out some of the material receipts. We've already achieved that. We've actually pushed some of those out already. So we're seeing that -- we know that, that progress is going to come through for us. So we are confident in our projection for next year. Operator: There are no further questions at this time. I will now turn the call back to Pat Roche for closing remarks. Patrick Roche: So that concludes our earnings call. I appreciate you taking the time to listen to our update on the business, and I look forward to updating you again on our next quarterly call. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Hello, and welcome to the X Financial Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Victoria Yu. Please go ahead. Victoria Yu: Thank you, operator. Hello, everyone, and thank you for joining today's call. The company's financial results were released earlier today and are available on our Investor Relations website at ir.xiaoyinggroup.com. On the call today from X Financial are Mr. Kan Li, President; Mr. Frank Fuya Zheng, Chief Financial Officer; and Mr. Noah Kauffman, Chief Financial Strategy Officer. Mr. Li will start with a brief overview of our business progress and financial performance. Then Mr. Kauffman will go over some Q3 metrics and highlights. After that, Mr. Zheng will share updates on financials, regulatory insights and our 2025 outlook. Afterwards, Mr. Li, Mr. Zheng and Mr. Kauffman will be available to answer your questions during the Q&A session. I remind you that this call may contain forward-looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and involve known or unknown risks, uncertainties and other factors. These factors are difficult to predict and many are beyond the company's control, which may cause actual results, performance or achievements to differ materially from those described in these statements. Further information on these and the other risks can be found in our SEC filings. The company undertakes no obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required by law. It is now my pleasure to introduce Mr. Kan Li. Kan Li: Thank you, Victoria, and hello, everyone. The third quarter of 2025 marked a very different phase for our business compared with the strong momentum we experienced in the first half of the year. After a record performance in Q2, we deliberately moderated our growth pace to navigate a more regulated and disciplined operating environment. During the quarter, we facilitated and originated RMB 33.64 billion in loans representing an 18.7% increase year-over-year, but 13.7% decline sequentially from the previous quarter. This moderation was intentional as we prioritized asset quality and risk management over near-term volume expansion. Our team remained focused on maintaining prudent risk discipline while serving qualified borrowers and protecting portfolio health, enhancing our technology platform, data analytics and underwriting precision to improve decision-making and efficiency, strengthening partnerships and operational process to support long-term scalability under evolving regulatory standard. We also continued improving borrower experiences by simplifying application flows, accelerating approval times and expanding transparency across our credit and repayment channel. At the same time, we refined our collection infrastructure and monitoring system to proactively managing credit risk and improve repayment outcomes. These initiatives allow us to better serve customers while protecting the platform's long-term stability. Despite a softer operating backdrop, we maintained solid profitability and positive earnings. Total net revenue reached RMB 1.96 billion, reflecting a 23.9% increase year-over-year though down 13.7% sequentially from Q2 record level. This performance demonstrates our ability to adapt quickly and maintain resilience through disciplined execution and operational control. Credit quality. We did observe early signs of credit pressure during the quarter, consistent with broader market trends. As of September 30, our 31- to 60-day delinquency rate rose to 1.85% compared with 1.16% at the end of Q2 and 1.02% a year ago. Our 91 to 180-day delinquency rate increased to 3.52%, up from 2.91% in Q2 and 3.22% in Q3 2024. This movement reflects a more cautious borrower environment and rising repayment stress among certain segments. In response, we lightened our underwriting criteria reinforced collection effectiveness and expanded borrower engagement. While we expect conditions to remain challenging in the short term, these steps position us well to preserve asset quality and protect the long-term stability of our platform. With that, I'll now turn the call over to Noah, who will walk through additional financial and operational highlights from the third quarter. Noah? Noah Kauffman: Hello, everyone. It's great to speak with you again. As Kan mentioned, the third quarter required a measured approach following a very strong first half. We deliberately tempered origination growth to ensure prudent risk management and operational stability amid an evolving regulatory environment. I'll begin with an update on that context and then discuss our operational and financial positioning. On the regulatory environment, China's fintech sector remains under close supervision with regulators continuing to prioritize consumer protection, transparency and responsible lending practices. During the quarter, authorities reiterated these objectives and discussed further measures to lower borrowing costs for consumers and promote more sustainable development across the online lending industry. We fully support these efforts and continue to operate with a compliance-first mindset. While these changes may continue to exert pressure on industry pricing and profitability, we believe that a clearer and more consistent framework will ultimately favor disciplined, well-capitalized and transparent platforms. Our long-standing commitment to regulatory alignment and strong internal controls remains a core foundation of our business. On the operational overview, during the quarter, we facilitated RMB 33.64 billion in loans, up 18.7% year-over-year and ended the period with RMB 62.83 billion in outstanding loan balance, up 37.3% from last year. We facilitated approximately 3.48 million loans, representing a 32% increase year-over-year with an average loan size of RMB 9,654. Our active borrower base was approximately 2.44 million, 14.4% lower sequentially, but 24.2% higher year-over-year. These figures demonstrate the resilience of our franchise even as we moderated new origination activity to preserve credit quality. We refined our risk models, reduced exposure to lower tier channels and focused more heavily on established higher-quality borrower sources. We also continued to strengthen our AI-driven analytics to improve borrower identification and early delinquency detection. On financial positioning, from a financial perspective, the third quarter reflected the necessary adjustment phase following our record first half. Profitability remained positive but contracted sequentially as overall activity normalized. Year-over-year, revenue and earnings growth was supported by the scale achieved earlier in the year that we recognize that the operating environment will likely remain challenging for several quarters. Our focus now is on cost efficiency and disciplined execution, ensuring that every aspect of our expense structure reflects today's more measured pace of activity. We also maintained a conservative capital position and ample liquidity. Our balance sheet continues to generate healthy cash flow and remains a source of strength for the organization. We are managing funding and capital deployment with caution, maintaining flexibility to adapt to any future regulatory or market adjustments. Our financial strategy remains centered on capital efficiency and long-term value preservation. We continue to deliver returns on equity above 20%, supported by tight cost management and share repurchases that have reduced our outstanding share count. Even as industry conditions soften, we remain focused on stability, liquidity and financial discipline rather than pursuing growth at the expense of prudence. Looking ahead, our priorities remain clear: safeguard asset quality, strengthen liquidity and maintain financial resilience. The external environment may stay uncertain but our disciplined financial management and focus on operational control position X Financial to navigate continued volatility and adjust responsibly as the market evolves. With that, I'll now hand the call over to Frank to discuss our financial performance in greater detail. Go ahead, Frank. Fuya Zheng: Thank you, Noah. Hello, everyone. I will walk through our third quarter financial results and discuss our capital position and outlook. The financial highlights. In the third quarter of 2025, total net revenue was RMB 1.96 billion, representing a 23.9% increase year-over-year, but a 13.7% decline from Q2. The year-over-year growth was supported by higher average loan balances and the carryover effect of prior facilitation activity, where the sequential decline reflect our intentional reduction in loan volumes. Income from operations was RMB 331.9 million down 29.9% year-over-year and 46.4% sequentially, primarily due to higher provision for credit losses and a guarantee liability. Our operation margin was 18.5% compared with 29.7% in Q2 and 32.2% a year ago. Net income came in at RMB 421.2 million, up 12.1% year-over-year, but down 20.2% sequentially. Non-GAAP adjusted net income was RMB 438.2 million, up 1% from last year and down 26.1% from Q2. Basic and diluted earnings per ADS were RMB 10.56 and RMB 10.08 respectively, while return on equity stood at 21.5%. These results reflect the impact of higher provision and lower volume, but also show that our core business remains profitable and cash generative despite a more cautious operational environment. Balance sheet liquidity. Our balance sheet remains strong. Total assets stood at RMB 14.69 billion, up 26.4% year-over-year and the total shareholders' equity was RMB 7.93 billion, up 15% year-over-year. We ended the quarter with approximately RMB 1.55 billion in cash and restricted cash, providing ample liquidity to support operations and capital returns. Capital returned to the shareholders. From January 1, 2025, through November 20, 2025, X Financial repurchased an aggregate of approximately RMP 4.26 million ADS, including approximately 3.80 million ADS and 2.76 million Class A ordinary shares, for a total consideration of approximately $67.9 million under its share repurchase program. The company now has approximately $48 million remaining under its existing $100 million share repurchase plan, which is effective through November 30, 2026. This program underscores the company's confidence in its long-term growth outlook and its commitment to enhancing the shareholder value. Repurchases under the program remains subject to market conditions and other factors and may be modified or suspended at the management's discretion. Outlook for Q4 2025. Based on current trends, X Financial expects the total loan amount facilitated and originated in the fourth quarter of 2025 to be in the range of RMB 21 billion to RMB 23 billion. The total loan amount facilitated and originated for the full year 2025 is expected to be in the range of RMB 128.82 billion to RMB 130.8 billion. This guidance reflects a measured pace of origination following the sequential decline in the third quarter and the management's continued focus on asset quality, credit discipline and the probability optimization rather than aggressive volume expansion. The company remains attentive to evolving regulatory landscape and the changing credit conditions while maintaining confidence in resilient borrower demand, prudent risk control and disciplined execution to support sustained long-term growth. With that, I hand the call back to our President, Kan Li for closing remarks. Kan Li: Thank you, Frank. The third quarter marked a period of recalibration for our company. We have made a deliberate choice to prioritize quality and discipline over near-term growth, ensuring our platform remains resilient amid a changing operating landscape. While we expect challenges to persist in the coming quarters, we remain confident in our ability to navigate them with prudence, maintain profitability and position X Financial for steady, sustainable performance over time. Victoria Yu: This concludes our prepared remarks. We will now open the call for questions. Operator, please go ahead. Operator: [Operator Instructions] The first question today comes from Chen Yang with [indiscernible]. Unknown Analyst: So my first question is around the take rate guidance. So the management has provided guidance on the fourth quarter loan origination volume, which is quite 30% lower than prior levels. What would be the expected take rate for the fourth quarter given the current risk situation which may be stabilizing or deteriorating in the past week or so or the past 2 months. And my second question is around the capital allocation. So given the business volume is already lower since the third quarter and maybe even further reduced in the coming years, the return on equity may drop significantly in the future. So is the company considering returning more capital to shareholders and keep the company running on a smaller book while higher capital efficiency? So I will also translate my question in Chinese, if that would help. [Foreign Language]. Fuya Zheng: This is Frank. I'll answer your take rate question and let Kan answer your return on capital question. Noah will take a capital return question. You start to see the effect of impact of this so-called new regulation in the third quarter a little bit. But I think the full impact will not be fully realized in another quarter 2 or so. So I think at this time, whatever talking about next year regarding even take rate is very premature, and we have a very wide guess gap. But we also did not never disclosure to take rate before. So we are not going to do that. But I will say that, I think that this new regulatory regime will have a material negative impact on everything on volume, on margin, on profitability, and take rate is part of a effect of profitability. So you will -- you will -- you can assume the take rate will have a material negative impact in the future. That's I can -- at the best I can discuss with you. Noah, do you want to have a second question to answer? Noah Kauffman: Thanks, Chen, for the question. So on capital return. Capital return remains an important part of our strategy. We've been making active share repurchases, buying approximately [ $67.9 million ] through November 20. And as Frank mentioned before, we still have about $48 million remaining under the $100 million authorization, which runs through November 2026. We'll continue to use the program in a disciplined manner subject to market conditions, and we view repurchases at current valuation levels and attractive investment in our own business. On the dividends, of course, we maintain a recurring dividend and based on the current profitability profile, even with the industry-wide margin pressure that Frank just spoke to, we expect to be able to maintain and sustain the dividend at the current level. We believe having sufficient -- we believe we have sufficient earnings power and balance sheet strength to support that commitment. And more broadly, just in terms of how we think about capital allocation, the Board regularly evaluates optimal capital allocation, including balancing organic growth, share repurchases and dividends. And so today's share price buybacks, I think, still remain a compelling use of capital, but we remain open-minded and focused on whichever option delivers the highest long-term value for shareholders. So in summary, we intend to continue executing the buyback program prudently, maintain the current dividend and allocate capital in the way that best supports sustainable growth for shareholders. Operator: The next question comes from Joseph Martelli with [ Spark Capital ]. Unknown Analyst: How does the team view the regulatory environment going ahead into early 2026? And may we have more color on the uptick in delinquencies? Kan Li: I'll take that question. I think, again, it's very difficult to forecast what the regulators will do in the future. So our approach has always been just be compliant with whatever regulations specified. So that being said, what we saw right now is regulators are very focused -- very focused on the consumer protection. So our approach has -- considering that we have lowered our loan volume, that we are not aggressively growing our portfolio in the sense that we are trying to shrink our portfolio a bit in order to making sure that we are not generating a lot of complaints from our side. I think that's probably what we can do at this moment. Sorry, what's your -- I think you have the -- can you repeat second part of it? Unknown Analyst: I was asking about the delinquencies, the uptick in them and how we might see that continuing? Kan Li: Yes. I think we do. Yeah, I think whenever there's a huge impact on the industry and especially considering that the overall economy in China right now is not at the greatest time. So I think it's natural for us to see an uptick in the portfolio delinquency. I think that's what we're experiencing right now. Our forecast, again, the forecast future is very difficult for us, but we do think that the delinquency rate will continue to climb. So Frank just mentioned that we think it's going to take 1 or 2 quarters for it to stabilize. So even though that we are not sure when it's going to stabilize. And our approach can only be that we are trying to be very stringent in our credit policy. That is why you see our portfolio scale begin to drop. Fuya Zheng: Let me just say a few more words. On the redisclosure of 91 days and 180 days delinquency rate for the Q3 is like 3.52%, which is higher than previous quarter 2.91% and the previous 3.22%. So it's higher than previous quarter, higher than last year. We have been -- everyone is having -- trying to -- everyone's best -- to its best to control it. By the time we try -- the delinquency rate is still developing, still not stabilized yet. But we believe maybe in a month or 2, it should be stabilized. Unless there's more negative impact from the new measures were coming up. Otherwise, we fully anticipate within like 1 or 2 months, delinquency rate will be stabilized very soon in 1 or 2 months. I hope that will add some color to your question. Operator: [Operator Instructions]... Noah Kauffman: Joseph, if I could just add a little bit to what Frank and Kan have already said just on the delinquency side. So -- of course, we see higher delinquencies in Q3 consistent with the broader industry environment. The macro backdrop has been challenging, and that's affected borrower repayment behavior across multiple segments in response. Of course, we've tightened the underwriting standard and shifted further towards higher-quality borrowers and intensified our collection and verification process. These actions basically give us confidence that we can appropriately -- will be appropriately reserved for current delinquencies and potential losses. But I think a key point that both Frank and Kan were pointing to is that the loans typically have a duration of 10 to 12 months. And so when delinquencies rise in a particular period, those vintages generally run off within a few quarters and the newer vintages originated under the tighter underwriting become a larger share of the book. The result is a natural credit cycle effect where you have elevated delinquencies from prior vintages working through the system. And then performance gradually reverts towards historical norms as the tightened vintages season. The entire industry is, of course, in a contractionary phase with most platforms tightening risk criteria and pulling back from higher-risk segments. While this environment can temporarily put pressure on borrowers and repayment behavior, it also sets the foundation for better quality vintages going forward. So as the older weaker vintages mature and exit the portfolio, we expect credit metrics to gradually normalize over the medium term. The near-term volatility is still possible and presumably likely. Our focus remains on prudent underwriting and disciplined portfolio management and strong collections, and we will continue to provision conservatively and manage the book to ensure losses remain within our tolerance. That's all for me, but thanks for the question, Joseph. Operator: [Operator Instructions] The next question comes from [ Ramzi ] with NTS Trading. Unknown Analyst: I have 2 questions. Well, the first one is given the concerns around the credit quality, I'm curious if any of the funding partners have reduced their funding commitments or changed or structured their terms. And then the second question, which I think, Noah, you did go over, but I want to know if management -- or what would it take for management to consider being more aggressive on the share buyback program, just given the depressed price? And have you guys ever considered anything such as an accelerated share purchase program? That is all yes. Noah Kauffman: This is Noah. Thanks very much for your question. So I guess, first to the first part on the funding and liquidity. Our funding and liquidity position remains stable. As of September, we held about RMB 1.5 billion in total cash and restricted cash which provides a solid liquidity buffer for our operations. We manage liquidity conservatively and maintain sufficient cash to support near-term needs across servicing, collection and platform operations. On the funding side, we work with a diverse network of institutional partners, including banks and licensed consumer finance companies that originate loans through the platform. And these relationships have been built over many years, and the vast majority of our partners have completed the required regulatory white listing and continue to operate with us normally. Regarding our actual funding costs, we did see a general rise in funding rates from 2024 into 2025, in line with the broader industry trends. However, on a quarter-to-quarter basis, funding costs have been relatively stable, and we've not experienced any material disruption in accessing funding. And so looking ahead, as regulatory implementation becomes clear and both banks and platforms adapt fully to the new framework, we're hopeful that the funding costs will gradually normalize from the elevated levels seen this year. Basically, clarity and consistency in the regulatory environment should also help reduce risk premiums over time. So we'll continue to maintain prudent liquidity management, keeping adequate cash reserves and coordinating closely with funding partners and ensuring our platform remains compliant and attractive from a risk management standpoint. As far as what would motivate us to do a more aggressive buyback. I don't know, Frank, do you have any comments on that? Fuya Zheng: Yes. We have almost continuously to do the buyback in this year from May 2025 all the way down to late November. And we did most of buybacks from open market. We still believe the buyback is the best way to return shareholder value. But the result is not that great. And currently, our stock is a little bit higher, maybe 50%, 60% higher than the same period last year. But a lot of our peers, their stock is already below last year's period. But almost everyone, the balance sheet is more strong than -- at this time, the balance sheet is more strong than the same time last year. So I think the market is assuming we're not just -- don't have -- the stock price tells us the market believe us probably do not even have a future. And also, we will waste our money in our hand and just waste it. Otherwise, not make anything new. But I think that is not the belief we have. We think we have -- we can -- we believe we can do both. We can take care of the shareholder return and maybe do something new. And whether Chinese cash loan market is totally dead or not, once again, we will have that judgment to maybe a little bit long, maybe in another quarter or 2. But I think even with that new regulatory regime, I think we are -- we still have -- at least we still have cash to do something new, right, to try something new. So that's regarding the buyback. And also, I'd say it again, we are -- as Noah already said, we are determined to maintain the current dividend rate which is $0.28 for 2 times in a year. So based on current stock price, $9, it is a 6% yield. So I think even without buyback, it's a decent return for the shareholder. It's better than you put the money in the banks, right? And so that's our thinking. We will continue to do and we will maybe rely on more next year, rely more on the dividend side instead on the buyback side. And that's what I try to say. Thank you. Noah Kauffman: Just to add on really quickly to what -- I think as the valuation became deeply disconnected from the fundamentals of the stock trades at levels that imply excessive credit or regulatory risk relative to our performance. Buybacks would become the highest return on capital. But I think as it stands, historically, it's always a trade-off between ROIC from organic growth versus share repurchases versus dividends. Hope that answers your question. Unknown Analyst: We can say too now, right now, the markets are pricing that isn't the case. But it's just a matter of what makes the most sense for X via... Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Victoria Yu for any closing remarks. Victoria Yu: Thank you, everyone, for joining us today. If you have additional questions, please reach out to our Investor Relations team directly. We appreciate your interest and look forward to speaking with you again soon. Operator, back to you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Ubisoft H1 Fiscal Year 2026 Earnings Webcast and Conference Call. [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, Yves Guillemot, Ubisoft Co-Founder and Chief Executive Officer. Please go ahead, sir. Yves Guillemot: Welcome, everyone, and thank you for joining us today. Before we begin, I would like to start with the reason for the delay in publishing our results. First, we have appointed a new panel of auditors that was approved at the AGM last July. Their position as part of their review of the H1 financial accounts required a restatement of our financial year '25 annual accounts that had been previously approved by our former panel of statutory auditors in May. In this context, we required additional time to finalize our accounts for our Board of Directors to approve them. Frédérick will walk you through this point in more details later in the call. The closing of our strategic transaction with Tencent, which will see Tencent become a minority shareholder in our new subsidiary, Vantage Studios, is now imminent, as all conditions precedent have been satisfied. This will mark a pivotal milestone in Ubisoft transformation, significantly strengthening our financial position by bringing in EUR 1.16 billion of cash, enabling the group to deleverage as planned. It will also empower Vantage Studios to accelerate the growth of our 3 flagship IPs under a dedicated leadership team. In a highly competitive market, Ubisoft delivered net booking above guidance on the back of stronger-than-expected partnerships that underscore the appeal and reach of our brands. Our portfolio showed contrasting dynamics this quarter with softer trends for Rainbow Six Siege, reflecting a phase of evolution for the game in an intense competitive first-person shooter environment, offset by strong performances across the rest of the catalog. The Assassin's Creed franchise exceeded our expectations, confirming its positive momentum and ability to engage players over time. The Division 2 also continued to perform strongly, benefiting from the momentum of the Battle for Brooklyn expansion, with the game's first semester already exceeding last year's annual bookings. Additionally, the progress we've made in addressing our fixed cost base brings with it confidence that we can continue to drive structural efficiencies across the organization that together with top line growth, will contribute to ensure a return to strong cash generation in the coming years. Vantage Studios represents a key element of the transformation of the company toward a new operating model built around creative houses. We will have finalized the design of this new organization by the end of the year. These creative houses will be autonomously efficient, focused and accountable business units, each with its own leadership, creative vision and strategic road map. This group-wide transformation reflects our ambitions to renew how we create and operate in order to deliver great games for our players and lasting value for our partners and shareholders. The full details of this new operating model will be unveiled in January. On the innovation side now, we are making great strides in applying GenAI to high-value use cases that bring tangible benefits to our players and teams. It's a big -- it's as big as a revolution for our industry as the shift to 3D, and we have everything to lead on this front. On the player experience side, we are continuing to make progress on groundbreaking player-facing generative AI application, building on our NEO NPC announcement in 2024. We have already advanced from prototyping to player reality, and we are looking forward to sharing more before the end of the year. On the production side, we now have teams in all our studios and offices embracing this new technology and constantly exploring new use cases in programming, art and overall game quality. On the transmedia side, we also, after greenlighting the Assassin's Creed live-action TV series in July, I would like to highlight the recent success of the animated Netflix series, Splinter Cell: Deathwatch that premiered on October 14, obtaining an 86 score on Rotten Tomatoes and landing the daily top 10 across more than 12 countries, including 6 consecutive days in the U.S. This strengthens our brand's long-term value ahead of the Splinter Cell's remake currently in development at the Ubisoft Toronto Studios. Last but not least, I would like to celebrate the successful launch of Anno 117: Pax Romana that expands the city-builder genre. This level of quality, innovation and sales set the standard against which we want to measure our future releases performance in the coming years. So I will now let Frédérick give you details on half year performance. Frédérick Duguet: Thank you, Yves, and hello, everybody. H1 net bookings stood at EUR 772 million, up 20% year-on-year with 34 million MAUs and 88 million unique users across consoles and PC, slightly down year-on-year when excluding XDefiant from the base. Turning to our second quarter. Net bookings stood at EUR 491 million, above guidance and up 39% year-on-year. The outperformance was driven by stronger-than-expected partnerships, demonstrating the power and attractiveness of our portfolio as well as a meaningful contribution from live TV and animated series. Excluding partnerships, overall back-catalog performance this quarter was robust and in line with expectations, broadly stable year-on-year, but marked by contrasted dynamics. The Assassin's Creed franchise posted a strong performance in Q2, with both Assassin's Creed Shadows and the rest of the brand’s catalog overperforming. In the year to date Assassin's Creed has generated 211 million session days, around 35% higher than the last 2 years' average. Shadows benefited from the launch of the New Game+ mode, which was widely anticipated by the community and introduced greater difficulty and new challenges for players. The Claws of Awaji expansion released on September 16 and contributed to re-engaging players. It was praised as a solid addition to the base game, offering new unique boss fights in a beautiful and dark atmosphere. Looking ahead, Assassin's Creed Shadows will reach a broader audience with its launch on the Nintendo Switch 2 on December 2. Beyond Shadows, the rest of the AC back-catalog also performed strongly, highlighting the strength of the franchise. Turning to the current quarter, we launched Valley of Memory on November 18, a free major update for Assassin's Creed Mirage, which brought new content and a fresh chapter in Basim's story set in AlUla. First feedback from the community is very positive, with player activity on Assassin's Creed Mirage doubling following the launch of the update, enabling the game to reach the 10 million player mark. In a highly competitive first-person shooter market, Rainbow Six Siege continued to attract new players this quarter, with acquisition levels twice as high year-on-year, and sustain activity levels, with unique players stable quarter-on-quarter and up double-digit year-on-year. Session days and playtime also increased both sequentially and year-on-year. However, as part of the evolution of Siege and its move to free access, a temporary surge in cheating has impacted activity and player spending versus expectations. With additional resources now in place and further hires planned, the team has identified the main issues and is actively addressing them with a robust plan in place. Having focused most of this year on establishing a new foundation for the game, the team is exploring a new seasonal approach that introduces multiple updates throughout each season, focusing on the core gameplay experience and heavily engaged players. This shift is designed to offer a steadier stream of fresh experiences with more variety keeping players engaged and supporting long-term franchise growth. The Siege community remains highly engaged and passionate about the game’s success. The development team is equally committed to working closely with players to address recent feedback, with a strong focus on anti-cheat measures and gameplay balance. As announced at the Munich Major on November 16, starting in Season 4, the team will double the number of anti-cheat updates per week and introduce new prevention solutions. On the balancing front, the team is accelerating efforts in Season 4, with four balancing updates per season planned for Year 1, aligned with the new content cadence. To celebrate Siege’s 10-year anniversary in December, players can look forward to daily rewards and a special in-game event launching mid-December. Elsewhere in the catalog, I would like to highlight a few notable performances. The Division 2 continued to benefit from the momentum of the Battle for Brooklyn DLC release in May, as well as regular content updates, continuing to attract new players to the game. Along with rising player numbers, player engagement is up, with a record second quarter in terms of Session Days since financial year '21. The game’s performance this semester has already exceeded last year’s annual net bookings. Avatar: Frontiers of Pandora posted a strong performance this quarter on the back of the July third person update announcement, that was widely anticipated by the community. The game also regained momentum with the announcement of the From the Ashes expansion that will come along with the movie. Star Wars Outlaws launched on Nintendo Switch 2 in September to strong critical and player reception. The release expanded the game’s audience and was praised for its exceptional visuals, technical optimization, smooth performance and seamless transition to Nintendo’s new hardware. Total digital net bookings reached EUR 436 million, up 62% year-on-year and PRI stood at EUR 323 million, up 110% year-on-year. Both of these metrics benefited this quarter from tailwinds linked to partnerships. Within PRI, mobile amounted to EUR 26 million, slightly down year-on-year. First, you will find our non-IFRS P&L on Slide 7 of our presentation. Gross margin was strongly up year-on-year by more than 3.5 percentage points, which reflects the fact that this semester saw more high-margin partnership than the first semester last year. R&D was down year-on-year, and we come back -- I will come back to that point in the following slide. SG&A was down 16%, reflecting lower variable marketing expenses due to the absence of major releases this semester, while last year's first half saw the release of Star Wars Outlaws and XDefiant Overall non-IFRS EBIT came back to the positive zone at EUR 27 million this semester, which marks a strong improvement to last year's EUR 250 million loss. Please refer to our press release or presentation appendix for the full IFRS to non-IFRS reconciliation. Turning now to Slide 8. P&L R&D was down year-on-year and mainly reflects lower depreciation of in-house software-related productions coming from the absence of new AAA releases this semester compared with accelerated depreciation for Star Wars Outlaws and XDefiant last year. For its part, total cash R&D was down 11% or EUR 70 million and reflects our continued efforts addressing our fixed cost base. Looking at cash flow statement on Slide 9. Free cash flow stood at minus EUR 251 million compared with a negative EUR 126 million the previous year. This free cash flow consumption mostly reflects the following impacts. On the one hand, a negative EUR 139 million cash flow from operations, reflecting the fact that we had no new releases this semester, which was half the outflow of last year, again, illustrating a strong improvement versus the year before. And on the other hand, a negative EUR 102 million change in working capital requirements, notably driven by trade payables decrease comparing with a significant higher gain in receivables last year, which mainly reflects cash in from Q4 fiscal year '24 partnerships. Non-IFRS net debt stood at EUR 1.15 billion, slightly up versus last year, and cash and cash equivalents amounted to EUR 668 million, down EUR 265 million versus last year, mostly driven by the reimbursement of around EUR 245 million in debt. The -- sorry, the EUR 1.16 billion cash injection from the Tencent transaction will deleverage the group and strengthen its balance sheet. I would now like to provide an update on the continuous progress we have been making on the group's transformation. First, all conditions precedent of the transaction with Tencent have been satisfied, enabling the sale of a minority stake in our new subsidiary, Vantage Studios to Tencent to close in the coming days. This marks a major milestone in our transformation journey. The proceeds of this transaction will deleverage the group on a consolidated non-IFRS net debt basis while providing enhanced financial flexibility to support our strategic transformation. A new leadership team is being formed around Vantage Studios, including heads of franchises to drive creative excellence and operational agility across each brand on their path to building annual billion euro brand ecosystems. Second, we will have finalized by the end of the year, the design of our new operating model built around creative houses, independent business units with the objective of driving stronger creative vision, greater focus, efficiency, autonomy and accountability. We will unveil the full details of this model in January. Overall, we benefit from a strengthened balance sheet. Our non-IFRS net debt position stood at EUR 1.15 billion at end September with a cash and cash equivalent position of EUR 668 million. The EUR 1.16 billion proceeds from the Tencent transaction will enable us to deleverage the group and notably proceed with the early repayment of the term loan and Schuldschein loans, which have an outstanding principal amount of approximately EUR 286 million. Of note, EUR 210 million were due next month. Additionally, we will cancel the undrawn revolving credit facility and initiate discussions with our banking partners with the objective of putting in place a new facility designed to support our strategic ambitions, in line with the broader transformation currently underway. Overall, we plan to rely on a very comfortable cash and cash equivalent position at end of March 2026 of around EUR 1.5 billion. Third, we continue to make progress on our new cost reduction program, which targets at least EUR 100 million in fixed cost savings by fiscal year '27 versus fiscal year '24 -- versus fiscal year '25, sorry. Thanks to continued discipline in hiring and targeted restructuring efforts. The group's global head count stood at 1,797 at the end of September, representing a decrease of around 1,500 employees over the past 12 months and about 700 since the end of March. Since the end of the semester, a targeted voluntary leave program and a proposed restructuring were introduced at our Nordic studios. Overall, the H1 fiscal year '26 fixed cost base stood at around EUR 701 million, a decrease of EUR 69 million or 9% year-on-year, including a favorable EUR 19 million foreign exchange impact. Out of the EUR 69 million reduction, approximately EUR 55 million came from lower capitalized investments. Before I turn to the outlook, I would like to cover an IFRS update. As Yves mentioned, we had to delay publishing our results. Towards the end of the review process of our H1 financial accounts, our new panel of auditors reviewed the analysis that had led to the fiscal '25 accounts being validated by our former panel of auditors in May. This related specifically to the IFRS 15 revenue recognition of one meaningful partnership in fiscal '25. The new panel of statutory auditors considered that utilization-based payment schedules must now be recognized under IFRS 15 as revenues over utilization even if the commitments are firm. This ultimately led to the restatement of our fiscal '25 account as per IAS 8. We then had to assess the impact of this restatement as well as the implication of this new position on the second partnership booked in Q2 along the same initial principles. The combined effect of what I've just described results in the company not complying with its leverage covenant ratio under certain existing financing agreements at September 30, 2025. However, this is being addressed by the aforementioned actions relating to the concern debt instruments. The restatement of the prior year financial accounts are detailed in the appendix of our press release, and the IFRS accounting restatement has no impact on the group's non-IFRS indicators given the firm nature of these amounts and has no impact on the operating cash flow profile of the group. Beyond this technical restatement, I want to make one thing clear. Our approach to B2B partnerships as a critical complement to our B2C business has always been and will continue to be centered around maximizing the value of our catalog, which we measure in terms of cash flow generation over time. Turning to the full year outlook. The stronger-than-expected benefit from partnership increases our visibility for the fiscal year in a context where, on the one hand, there remains a number of new releases to come by the end of the fiscal year. And on the other hand, Rainbow Six Siege faces an increased competitive FPS environment. In this context, we reaffirm our full year objective with net bookings to be stable year-on-year, non-IFRS operating income to be around breakeven and negative free cash flow, reflecting the group's transformation. Following the closing of the Tencent transaction, we expect to maintain a consolidated non-IFRS net debt position of around 0. Looking at Q3, we expect net bookings of approximately EUR 305 million, which will represent a slight increase year-on-year. Q3 will notably see the releases of Anno 117: Pax Romana as well as the Avatar Frontiers of Pandora from the Ashes expansion. Anno 117: Pax Romana launched on November 13, and marked a bold new chapter for the Anno franchise, building on the series strong momentum and releasing simultaneously for the first time on PC and console, it showcases impressive scale, striking visual fidelity and a deep economic simulation. The title has already received strong industry recognition, including winning Best PC Game at Gamescom and has now launched to strong critical reception with an 85 Metacritic score, the best score ever in the franchise, which translates into solid consumer spending growth after 1 week compared to the successful Anno 1800. IGN awarded it 9 out of 10 calling it "a gorgeous antique city-builder that is worthy of a standing ovation". For the first time in the series, players can choose their starting province is defined by distinct cultural identities and unique gameplay mechanics that emphasize player choice. This innovation expands the game's depth and replayability, laying the foundation for sustained player engagement and rich post-launch experience. The Avatar: Frontiers of Pandora - From The Ashes expansion is set to launch on December 19. Timed to coincide with the theatrical release of Avatar: Fire and Ash. This bold expansion sees players embark on the journeys of So’lek, a battle-hardened Na’vi warrior who seeks revenge against the ruthless Ash clan. The expansion introduces new visceral gameplay set in a ravaged Kinglor Forest and unveils a new subregion known as The Ravines. Ahead of that, a highly anticipated free update introducing a third person mode will arrive on December 5 and will feature long requested by the community. Together, this content should further strengthen engagement and extend the game's momentum into the holiday season. And for its part, Q4 will see the release of the Prince of Persia: The Sands of Time remake, Rainbow Six Mobile, The Division Resurgence as well as an unannounced title. Beyond fiscal '26, we expect to return to positive non-IFRS operating income and free cash flow generation in fiscal '27 and to see significant content coming from our largest brands in fiscal '27 and fiscal year '28. Finally, as always, here are a few fiscal '26 housekeeping items for modeling purposes. The stock-based compensation is expected at around EUR 32 million, down versus prior guidance and reflecting the lower share price. The non-IFRS net financial charge, excluding foreign exchange, is expected at around EUR 45 million, unchanged versus prior guidance and reflecting a year-on-year increase, primarily attributable to a lower interest income. The non-IFRS tax rate is not relevant in the context of breakeven non-IFRS operating income and the number of diluted shares is expected at around EUR 132 million, reflecting the fact that with an expected negative net income, the dilutive nature of our instruments no longer kicks in. We are now ready to take your questions. Operator: [Operator Instructions] And your first question today comes from the line of Aleksander Peterc from Bernstein. Aleksander Peterc: The first one would be pertaining to the breach of covenants. So although this is quite temporary, I'd still like to know if there are any of your other debt instruments that don't have these covenants, but have a standard cross-default clause that could be enforced. Is that a risk over the coming days or not? It's just a hypothetical, but just to clear that for me. And the second question is, given your below expectations third quarter, it seems to me that the implied fourth quarter is extremely strong, down only 15% year-on-year. But last year, you had the Assassin's Creed Shadows release, which has delayed and that's propped up the fourth quarter quite substantially. So can you help us understand how are you going to achieve this super strong fourth quarter? Frédérick Duguet: Yes. Thank you, Aleks. Yes, so that's on your first question, so we are addressing the topic by settling the repayment of our covenant-based debt, Schuldschein and term loan, and we are canceling the RCF before building a new credit backup line facility by repaying EUR 286 million in principal amount, keeping in mind that we were anyway preparing to repay EUR 210 million that were due in December and EUR 50 million in September. So overall, the net acceleration is estimated to be around EUR 25 million if we look at the impact on the medium-term cash trajectory for the company. So that has nearly no impact. We don't expect any impact on the overall debt structure. And keeping in mind that we will benefit from a very comfortable EUR 1.5 billion cash and cash equivalent position at the end of March. In terms of Q4, yes, as you mentioned, it would be significantly lower than the Q4 that we posted over the last 2 years. Keeping in mind that Shadows only impacted Q4 last year for 10 days. So this quarter will benefit from slate of new releases, including the remakes of Prince of Persia: The Sands of Time, Rainbow Six Mobile, The Division Resurgence and unannounced title. We have a meaningful contribution of partnerships, B2B partnerships, but to a lower extent than last year. We expect a strong Rainbow Six Siege that will go through the Six Invitational and starting into the next year. We will have the follow-on sales impact from Anno 117 and the Avatar expansion. So all this will contribute to the key building blocks of Q4. Operator: [Operator Instructions] And your next question comes from the line of Nick Dempsey from Barclays. Nick Dempsey: So my first question is, have the auditors looked at all of the partnership deals that you have done going back several years, so we can be comfortable that what we are seeing here is the final restatement impact, we won't get more, for example, at the full year '26 results. Second question, if I look at the restatement for FY '25 and the restatement for the last 12 months period, it seems quite a big difference. I understood something, but can you perhaps explain the difference between those 2 restatements, given that I thought it related to particularly one partnership deal? And then the third question, in terms of any partnership deals landing in Q4, do you have good visibility on when they land and whether they will land? Frédérick Duguet: Yes. So on the first question, so there is no risk on the prior year financial accounts. It's, by the way, interesting to have in mind that when you look at the many partnerships that we've been signing over the last 7 years, if you look at all the partnerships between fiscal year '19 and fiscal year '25, all of them have converted into cash. So that traces back to the quality of the earnings and the very strong cash conversion coming from these various partnerships. In terms of -- so on your following questions, I understand that you're talking about the fiscal '25 restatement. So it refers to a meaningful partnership. And if you look at the first half fiscal '26, you see the difference between IFRS revenues and non-IFRS net bookings, and you'll see that also it's driven by the second partnership that I mentioned earlier. And in terms of Q4, so as we said, we've had an increased visibility on this B2B partnerships performance. And so yes, we have a meaningful contribution that is expected in Q4, but to a lower extent than last year. Nick Dempsey: But you have full visibility on that landing in that time frame or you don't? That was my question. Frédérick Duguet: Yes, we have a good pipeline of partnerships that we are working on. Operator: There are currently no further questions. I will hand the call back to you. Yves Guillemot: So thank you very much for your questions, and have a good day or a good evening. Thank you. Frédérick Duguet: Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to Auna's Third Quarter 2025 Earnings Conference Call. My name is Eric and I'll be the operator for today's call. [Operator Instructions] And please note that this call is being recorded. [Operator Instructions] Now I would like to turn the call over to Ana Maria Mora, Head of Investor Relations. Ma'am, please go ahead. Ana Maria Mora: Thank you, operator. Hello, everyone, and welcome to Auna's conference call to review our third quarter results. Please note that there is a webcast presentation to accompany the discussion during this call. If you need a copy of the presentation, please go to our Investor Relations website or contact Auna's Investor Relations team. Please note that when we discuss variances, we will be doing so on a year-over-year basis and in FX-neutral or local currency terms with regard to Mexico and Colombia, unless we note otherwise. Let's move to Slide 2. In addition to reporting unaudited financial results in accordance with International Financial Reporting Standards, we will discuss certain non-IFRS financial measures and operating metrics, including foreign exchange neutral calculations. Investors should carefully read the definitions of these measures and metrics included in our earnings press release of yesterday to ensure that they understand them. Non-IFRS financial measures and operating metrics should not be considered in isolation as a substitute for or superior to IFRS financial measures and are provided as supplemental information only. Before we begin our remarks, please also note that certain statements made during the course of today's discussion may constitute forward-looking statements, which are based on management's current expectations and beliefs and which are subject to a number of risks and uncertainties that could cause actual results to materially differ, including factors that may be beyond the company's control. This includes, but are not limited to, our target leverage ratio, the expected resolution of the issues with physicians, suppliers and information systems in Mexico, the results of the key initiatives we are implementing in Mexico, the expected capacity and market of Torre Trecca once built, the execution of our strategic plan including the recovery of our growth levels and the rollout of the AunaWay in Mexico, our collaboration with Sojitz Corporation of America, our planned investments in Mexico and the creation of further growth and sustainable value for our stakeholders. For a description of these risks, please refer to our Form 20-F filing with the U.S. Securities and Exchange Commission and our earnings press release. Slide 3, please. On today's call, we have Suso Zamora, our Executive Chairman and President; Gisele Remy, our Chief Financial Officer and Executive Vice President; and Laurent Massart, our Executive Vice President of Strategy and Equity Capital Markets. They will discuss Auna's consolidated and segment financial and operating results for the third quarter, and will also provide updates on our various strategic growth initiatives. After that, we will open the call for your questions. Suso, please go ahead. Jesús Zamora Leon: Thank you, Annie. Good morning, everyone, and thank you for joining today's results call. In this quarter, we're reporting weaker financial results, a flat quarter principally dragged down by our Mexican operations. However, in Mexico, we are seeing evidence of stable and growing operational activity, the strength of our business model, the stage of development of our operations and the resilience of our owners integrated regional platform were reflected in the strong results of our Peruvian and Colombian segment in the third quarter, which partially offset the 5% decline in total adjusted EBITDA that was the result of Mexico's performance. Peru's strong top line and EBITDA growth was driven by a still improving health care pricing mix and strong insurance MLR as well as robust growth in plans. Our risk mitigation measures implemented in Colombia strengthened EBITDA and cash flow there. At our Mexico business, despite soft results, our hospital operations remained stable during the quarter, and we saw a second consecutive quarter of higher surgery volumes as well as an increase in oncology and cardiology services. However, the quarter was marked by slower-than-expected recovery from legacy doctors volumes and an impact from the implementation of new hospital information and ERP systems at Doctors Hospital. We are making important inroads that are positioning Auna to capture the many long-term growth opportunities that we see in Mexico. We anticipate 2026 to be a year of full recovery in Mexico, and with the New Mexico team in place, we remain very bullish in the medium term. Despite lower adjusted EBITDA, Auna's leverage was unchanged, thanks to less gross debt at the end of the quarter. Further, our debt profile improved significantly with our successful refinancing earlier this month. Our adjusted net income was a solid PEN 58 million for the quarter. And now let's turn to Slide 5. Peru and Colombia drove the 1% increase in FX-neutral consolidated revenue. Their top lines in local currency grew 9% and 4%, respectively, partially offset by Mexico's 12% decline. Capacity utilization, shown in the bottom left of the slide, decreased 3 percentage points to 64%, unchanged versus the second quarter. On a year-to-year basis, a 1.5 percentage point increase in Peru's total capacity utilization was more than offset by a 5.2 percentage point decrease in Colombia and a 4.4 percentage point decrease in Mexico. While lower utilization in Mexico was due to a year-over-year decrease in surgery volumes and emergency visits, Colombia's decrease has been a result of the risk mitigation measures that we implemented there earlier in the year, including proactively managing contracted services with government-intervened payers, while Peru's decrease was a function of the addition of beds to the operating capacity. Finally, I'd like to highlight that the total operating capacity utilization in Mexico modestly grew from the previous quarter. Planned memberships grew 8% at OncoSalud, while its MLR fell further to 49.3%. Now let's take a closer look at the segment results, beginning with Mexico on Slide 7. Of course, there were several bright spots in Mexico during the quarter. First, surgery volumes increased for the second consecutive quarter, as I noted before. Second, oncology and cardiology services, which are integral to our long-term growth strategy, increased 48% versus second quarter 2025, accounting for 15% of Mexico's revenues. Let me highlight this. An important part of our high complexity footprint in Mexico is growing. And relatedly, third, the revenues from Opción Oncología’ increased 21% over the previous quarter as well. This is where Auna makes a huge difference in the transformation of health care in Mexico. This is exactly where we make the difference with patients, payers and physicians. Weighing on revenue this quarter was a slower market. Also affecting our revenue was a slower-than-expected recovery in volumes, which were impacted by the doctor supplier relationships that have slowed the implementation of the AunaWay model in this market. It is important to note that we have experienced similar hurdles when disrupting Peru's and Columbia's health care markets. Another factor was unexpected problems in migrating Doctors Hospital to new information and ERP systems, which affected billings. The implementation of these systems is part of a broader multiyear IT transition to harmonize technology across Auna's businesses and geographies as well as to improve the quality of data and information that we use to manage Auna and to serve patients. Lower revenues impacted Mexico's gross profit, and therefore, adjusted EBITDA, and there were other factors, including a higher mix of lower-margin services related to service contracts at our OCA facility has for state employees. Nevertheless, the margin was 29% in the third quarter. Before discussing the performance of our other business segments, I'd like to give an update on the key growth initiatives that we have underway in Mexico, which we have summarized on Slide 8. So attracting and retaining and investing in talent is integral to our growth strategy in Mexico. Health care talent is thin in the Monterrey marketplace. However, we have revamped the leadership team in Mexico. Alejandro Torres leads our Monterrey health care operations. Previously, he held senior roles at Star Médica and TecSalud. We also hired a new Chief Medical Officer, a prestigious and very credible physician in Monterrey, who is having a significant and positive impact as we engage with physicians to grow our practices and improve medical resolution for our patients. We've also hired a new Head of Commercial Operations joining the company this week as well as other senior leaders for our Mexican hospitals. All of them bring to Auna significant, combined and complementary experience in Mexico's health care market as well as decades of experience in Monterrey. We are rolling out a series of package service offering and strengthening our collaboration with leading physicians to further penetrate 3 important market segments. This, of course, will expand revenue streams and increase capacity utilization at our health care facilities. One is the Out-of-Pocket segment, which is profitable and currently only represents 8% of our revenue in Mexico and which we intend to increase to 20% by the end of next year. In the third quarter, we increased this segment by 15%. In the Corporate segment, we continue developing attractive cost-effective packages to deliver additional services to the employees of corporate clients. Another attractive segment is government agencies. Accordingly, we are evaluating tailored services for the employees of municipalities that run Monterrey as well as those of government entities within it. Physician engagement and productivity are also integral to our Mexico strategy, including attracting the best doctors and nurses in high complexity management. This includes a series of productivity and quality initiatives that have been gaining momentum. By targeting just 140 of our top physicians who represent approximately 25% to 35% of our revenues at each of our hospitals, we've improved our alignment with them, with payers and with suppliers as well. This simple initiative has enhanced medical practices, improved operating performance, cost predictability and of course, control. Last month, half of those doctors experienced a double-digit increase in productivity month-over-month. Additionally, in the same month, we were able to attract a group of 10 physicians from a competing local hospital. On the payer front, we aim to expand Auna's participation with some of Mexico's largest insurance company preferred provider networks. Consequently, commencing in 2026, our health care facilities anticipate supporting heightened patient access and service volumes, thereby propelling capacity utilization. Scaling and enhancing Auna's oncology capabilities is another key component of our growth strategy in Mexico. At the end of October, we hosted Auna's Second Oncology Congress in Monterrey, an event that gathered more than 70 oncologists from across Mexico. We also used the occasion to officially inaugurate a new OncoCenter at our Doctors Hospital. It will serve as a center of excellence, providing oncology services in a single location and improving patient care and experience while being integrated with Auna's regional health care network. Our oncology efforts are already paying off, and this new center should significantly increase our activity in Monterrey. This is, again, the implementation of the AunaWay, which will grant Auna the differentiating aspects that will sustain our high growth ambitions in high complexity. Lastly, on this slide, there is the implementation of a new comprehensive IT system for our Mexico operations to bring it to our standards. Among many benefits, it will enhance the integration of financial and operational data, improve management visibility across the businesses, help us better control costs as well as enhance decision-making at our health care facilities. Let's move to Slide 9 to discuss Peru's third quarter performance. Our Peru business, Auna's scalable, integrated and best practice health care platform, demonstrated the strength and predictability of our model when it's operating at scale. As it further penetrated the country's health care market and expanded its business with third-party payers, health care revenues grew 9%, mainly on increases in ticket and volume of emergency visits and ambulatory care. OncoSalud, the health plans business, increased revenues 8%, primarily due to the increase in membership and to annual price adjustments. We continue to see substantial opportunity ahead and Peru will remain a key contributor to Auna's growth. Peru's adjusted EBITDA increased 15%, with a margin increasing 1.1 percentage points to 22.7% driving EBITDA growth were higher efficiencies with respect to surgical procedures and improved pharmaceutical costs at OncoSalud, which contributed to its low MLR. Turning to Colombia on Slide 10. Colombia's top line grew 5%, primarily the result of implementing risk-sharing models like prospective global payments, which are unique, given the difficulty to replicate them, produce stable margins and high occupancy and produce a reliable and positive cash cycle. These represented 18% of Colombia's revenue, up from 14% in the third quarter of 2024. Also, as of the end of the third quarter, the share of revenues from Nueva EPS, one of the major government-intervened payers in Colombia decreased from 20% in last year's quarter to 13%. And we added Salud Total as a payer under a new PGP program, reflecting the success of our efforts to diversify the payers that Auna serves in the country. And despite the lower surgical volumes stemming from us, limiting services to intervene payers, higher average tickets for surgery and an increase in chemotherapy and imaging services more than offset this decrease and contributed to the quarter's revenue growth. That growth drove an 18% increase in Colombia's adjusted EBITDA and margin expansion of 1.7 percentage points in addition to lower impairment losses in the quarter, and offset by increases to doctor remuneration. That concludes my review of the quarter. Now over to Gisele for her part of today's presentation. Gisele Ferrero: Thanks, Suso. On Slide 12, we break down the revenue contributed by each geographic component of Auna's diversified regional platform. As you can see in the bar charts, Peru still accounted for well over half of our platform's third quarter and year-to-date revenues. And with its top line increasing 9% in the quarter, Peru continues being a strong and reliable driver of growth and cash flow. Colombia, despite the risk mitigation measures that we put in place to maintain a healthy cap cycle, also contributed to revenue growth, growing 4% in local currency for the quarter. Regarding Mexico, we note, again, that the 12% revenue decline was a product of a still slow recovery of volumes, a slower market and also included nonoperating impacts such as the multisystem migration. Finally, as Suso pointed out, we expect Mexico's revenue to begin growing again next year. Let's now turn to Slide 13. Peru was also a strong contributor of adjusted EBITDA growth at 15% growth. It also had a solid margin of 22.7% in the quarter. And despite us favoring cash preservation over growth, Colombia also supported our profitability while expanding its margin versus last year's quarter, thanks to increased revenues and lower provisions. Mexico accounted for the 5% FX-neutral decrease in our consolidated adjusted EBITDA due to the significant revenue decrease as well as the quarter's mix of payers and services. We expect EBITDA growth in 2026 as we advance the implementation of our business model, as various growth initiatives gradually gain traction and as we bring the learnings from the systems implementation at Doctors Hospital for the next phase of migrations. On Slide 14, we break down the year-over-year change in adjusted net income. The biggest one being Mexico's impact on operating income. This was partially offset by PEN 11 million of additional finance income related to FX and PEN 21 million or 16% decrease in interest expenses, both of which you can see in the middle of the bridge. There was also a PEN 31 million decrease in non-cash and extraordinary items, which include a positive impact in 2025 from the OCA holdback obligations from the third quarter in 2024. Let's now move to the cash flow bridge on Slide #15. Our pretax operating cash flow decreased 5% to PEN 595 million during the 9-month period, mainly due to lower revenues in Mexico and accounts receivable delays related to the systems integration there. Another contributing factor was the payment of performance bonuses to doctors at Opción Oncología as part of their transition to Auna. Compared to the second quarter of this year, our pretax operating cash flow increased 65% sequentially with improved collections and cash conversion in Colombia. Because Auna is a major health care provider in the country, this means that intervene payers generally make us a priority with regard to outstanding payments and collections remain healthy. However, the situation with the intervene payers remains fluid, and we continue being vigilant. Near the center of the bridge, you see PEN 119 million of investments. This is 31% lower than the first 9 months of 2024. These investments mainly consisted of PEN 98 million in CapEx; PEN 21 million in amortized payments related to the OCA holdback obligations, which were completed in the second quarter; and the IMAT Oncomedica earnout which currently only have an outstanding balance of PEN 12 million. Moving further along the bridge, you see PEN 336 million of cash used for financing, which was 3% below last year's 9-month period. This amount consists of PEN 163 million of term loan payments, PEN 26 million of hedge premium and swap interest payments, PEN 58 million of interest paid on our 2029 notes, PEN 50 million of interest paid on our working capital facilities, and finally, PEN 39 million of borrowed working capital. That brings us to our cash position at the end of the quarter, which was a healthy PEN 226 million, albeit 4.2% lower than the beginning of the year. Now a few words about our debt, beginning on Slide #16. We continue to maintain a healthy debt structure and remain committed to improving our leverage to 3x net debt to EBITDA in the medium term. As part of our efforts to effectively manage Auna's liabilities, we took advantage of market conditions in the debt market as well as continued appetite from both bond investors as well as banks in order to undertake the recent $765 million debt refinancing that we communicated to the market earlier this month. Our refinancing included the successful issuance of $365 million of senior secured notes. We also closed on a $400 million equivalent term loan in Mexican pesos. This matches Auna's business exposure to Mexico. The loan also contemplates an incremental $60 million equivalent tranche in Peruvian soles, which we expect to disperse in the very near term. Both the U.S. dollar bond as well as the Mexican peso term loan represent 125 basis points in savings versus the interest rates on the previous debt structure. We are also very pleased to have added new lenders to the debt structure, including the IFC, which not only participated in the Mexican peso term loan, but also anchored 10% of the bond offering. Overall, in addition to extending our maturities, reducing financing costs and enhancing short-term liquidity, the refinancing gives us more financial flexibility to continue to invest in our medium- to long-term growth initiatives. For these reasons, the rating agencies applied a B+ rating to the 2032 notes and consider the transaction credit positive. That concludes my review of the results. Before we take your questions, Suso would like to provide a wrap-up on the quarter. Jesús Zamora Leon: Thank you, Gisele. I would like to conclude today's presentation with a summary of our strategy and priorities as we look ahead to the end of 2025 and into 2026. As our third quarter demonstrates, Auna's diversified footprint and integrated model provides enduring resilience. Peru embodies Auna's scalable, integrated and best practice health care platform and demonstrates the strength and predictability of our model when operated at scale. Peru continues to make strong contributions to Auna's near to midterm growth driven by an improving MLR, consistent profitability and our proven vertically integrated model operating at scale. The key lever we're engaging now is more growth in mid-segment market as well as risk sharing with private and public payers. In Peru, the recent milestone of Trecca reinforces the strong confidence in Peru's health care future and highlights the long-term opportunity we continue to see in the country. Peru continues to be a formidable growth market for Auna, as we roll out our capabilities in a market that has a private insurance penetration of only 6% and where we envision taking a sizable piece of the next racket of partially insured and uninsured in the country. In Colombia, measured growth continues to fuel the business and our risk mitigation strategy has truly paid off. Despite difficult externalities, results were very strong this quarter as Auna successfully diversified away from intervene payers and prioritized reliable cash flows from PGPs in the past year. Colombia remains a key market for us and an important contributor to scale and medical best practices across the region. As I have tried to communicate, we are focused on Mexico. We have a great, new, highly experienced team of local leadership that is excited about what we can do in Monterrey and in the country, leading the charge to reignite growth. We have made real progress seeing a second consecutive quarter of volume recovery in surgeries and stellar 48% growth in oncology and cardiology services. It is also important to note our recent public announcement on our partnership with Sojitz. This will allow us to accelerate growth in Mexico beyond what we can achieve on our own, while maintaining our disciplined deleveraging path and our target of bringing leverage below 3x. Finally, we remain acutely focused on our fellow investors and shareholders. Following the successful completion of our debt refinancing this quarter, we've already executed a major step in strengthening the capital structure and reducing long-term financial risk. In the remainder of the year, we will continue to evaluate all options to support and enhance shareholder value, as we strongly believe that Auna's current share price does not reflect the intrinsic value of our integrated platform and its long-term potential in the Latin American health care market. We are excited about what we can deliver in 2026. Thank you for your time, and we are now ready to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Mauricio Cepeda with Morgan Stanley. Mauricio Cepeda: I have 2 questions, a little bit more about future strategy. So on your plans for Mexico and this MoU that you announced with Sojitz. Could you explain or walk us through the rationale for expanding in Mexico so soon? And how this new agenda align with your goal to deleverage Auna and to ramp up operations in Mexico? And my second question is about Colombia. Do you think that a potential change in the country's leadership there could help ease these pressures on the EPS? Or are there deeper structural issues that might limit any meaningful improvement over the next few years? Jesús Zamora Leon: Thank you, Mauricio. So on Mexico, so as we've always represented, Auna is a growth story and notwithstanding 2025 results, we do have a very interesting opportunity, growth opportunity in Mexico, repeating what we've done elsewhere. As our insurance plans have solidified certain service offerings in the different cities Guadalajara and Tijuana and [indiscernible] and Mexico City as well, some of those create opportunities for investment in the future. Today, I have to be very, very clear. Today, leverage is a key concern, and we want to bring it below 3x. So we don't have a balance sheet to use to allocate capital. Today, the share is really depressed. So we were also limited there in terms of issuing of shares. So we have found with Sojitz a really interesting opportunity . We've been working with Sojitz, a great an admirable company and a set of executives. And we have engaged with Sojitz for the last 5 years looking at different opportunities to collaborate. The MoU we negotiated during the last few months formalizes our relationship and puts up a framework to co-invest together in Mexico. So investors must read the press release that we issued a few months ago about what we plan to do in Mexico with this MoU with Sojitz. It is an MoU to accelerate Auna's growth in Mexico. Sojitz is a great partner, and we're very excited as together, we will be able to achieve more. This was -- this is again, this helps us capture the opportunity in Mexico, maintaining our leverage target. That's very important for us. On the EPS in Colombia, I think the political environment in Colombia, given elections, in particular, will not change things in the next 6 months. I'm not as optimistic either for the full year 2026, but I think that the sector is stressed enough to require of some action from the government. And I see there's certain milestones that are important. [indiscernible] which is the intervene insurance, EPS insurance payer, they have been recently capitalized by the central government, making it again a creditworthy institution. So I do see certain actions that are going to be fundamental in bringing stability to Colombia's health care sector. But I see because of the lateral year, I see some delay on that, maybe to the second semester next year, most probably the year after that. But again, our preferred status as a provider of high complexity services to most of the insurance companies in Colombia that grants us faster payments, good margins, large volumes. This has been tested in the worst of times in Colombia. So I'm not at all pessimistic on what Auna positioning in a very difficult circumstance in Colombia will produce, I think, attractive returns and growth. I want to highlight our Columbian operations continue to grow, notwithstanding the situation in Colombia. We're very privileged to have the positioning, the trust of many patients, the trust of many payers. And we're excited about Colombia, notwithstanding the uncertainties in the political environment. Thank you, Mauricio. If I forget anything, Gisele, please complement if need be. Gisele Ferrero: Yes, Mauricio, just to complement on the second part of the Colombia question, I would add, as Suso has mentioned that we remain very constructive on Colombia. As you know, it's an integral part of the Auna platform. And we have been able to manage the situation successfully even with the context of the external headwinds. We are constructive that there are some political noises that impact the flow of payments, and we do think that towards the end of next year and going into 2027, there will be certain opportunities for catalysts in the operation. And also kind of to add to Suso's point and clarify, as we've mentioned, we've reduced our exposure materially to [indiscernible] over the past year from 20% to 13% of the Colombian revenues. They have recently -- also, we've seen the announcement, the shared stakeholdership between the government vis-a-vis [indiscernible] and we also see that the government's direct stake in this payer is a positive sign. Jesús Zamora Leon: And Gisele, I also want to complement again the -- my previous response, Mauricio. Again, Auna has a very attractive pipeline in Mexico because of Sojitz and a limited balance sheet today and the share price. We want to make sure we can continue to act in the pipeline within the partnership of Sojitz. That's a critical part of that response, Mauricio. Mauricio Cepeda: Yes. But is it -- just a follow-up, is could be part of this interest of Sojitz to invest in Auna itself and helping the capital structure or it's just for new opportunities? Jesús Zamora Leon: I think that -- I mean I don't want to speak for Sojitz, but the dialogue that we've been having for years is very clear. They like our integrated model. They like Auna. We've been discussing things previously on Peru. They like the insurance business integrated to the health care side. So I don't want to -- it's a wide range opportunity to discuss things in the MoU, but I think it's not limited to new things, it's limited to making sure that we can push the growth opportunity of Auna, particularly in Mexico, but also I think of all Auna. Operator: [Operator Instructions] There are no more questions from the phone lines. So I will now turn the call over to Ana Maria Mora from Auna, who'll proceed with questions from the webcast platform. Ana Maria Mora: Thank you, operator. So the questions, we're going to see that repeated, so if we miss anything, please let me know, but internally. But the first question on the webcast comes from Joseph Giordano from JPMorgan. If could you provide more details around the partnership with Sojitz and Trecca project? What are the advancements in Mexico over Q4 '25? And when should we see the operations getting back to 2024 levels in terms of operating leverage? Jesús Zamora Leon: Great. I'll take part of it and Gisele, if I forget anything, please complement. So on Trecca, I think on Sojitz we spoken a lot about -- we make sure that we keep the market updated as we progress with that MoU. So on Trecca, Trecca is a public-private partnership awarded to Auna back in 2010. So these are some of the hidden opportunities we have within Auna. We've been working with Salud, which is a Social Security Peru and PROINVERSIÓN, the investment promoting agency there to amend the concession and to get all the necessary permits to start the project. What we disclosed is that the building permit was authorized, which was a big hurdle in the last couple of years. I want to summarize, this is a very interesting project. As one sees health care in the world. One sees, of course, in limited, but in Latin America, for us, it will be sizable total addressable market of private payers. And then a large segment of indirectly or directly state-owned payer. So this is a contract, it's an 18-year contract with a 2-year building period. So we'll start building mostly at the beginning of next year. It will take us 2 years, and then we have 18 years. During those 18 years, we're talking about 1.9 million ambulatory services, 0.5 million prevention package services and others that sum up to 3.2 million services a year. This is a big endeavor to serve social security beneficiaries in Peru. This contract will deliver certainly sales of over $200 million a year when it scales. It's a very interesting opportunity as we grow our footprint, not only within our total addressable market in the private sector, but also indirectly with the state-served sector. So I'm really excited about Trecca. It's not only about Peru. These are the conversations that we have with government authorities in Mexico as well. So it's really interesting to prove capabilities to deliver services to millions. And I think that's what we are going to show we can do in the next couple of years with respect to Trecca. Gisele... Gisele Ferrero: Yes. I would complement there, Suso, with respect to Trecca the way that public-private partnerships are structured in Peru. This can be structured in such a way that it's debt-neutral for Auna. Jesús Zamora Leon: That's very important. Thank you, Gisele. This and the pipeline in Mexico is debt-neutral to debt reduction for Auna, very important. We're going to continue to grow without exposing our balance sheet to any additional debt. This public-private partnerships in Peru have a certain -- have a very defined process as the state finances not only the building but also all the services. So this will have no impact on leverage for Auna. There were some other questions from Joe, I think, Gisele. Gisele Ferrero: Yes, which we covered the subject announcement as well as the progress that we're making in Mexico. Jesús Zamora Leon: Great. I did -- so I think Joe also asked something about whether we're going to get back to 2024 levels in terms of operating leverage. And I know that we're reluctant to give a lot of numbers -- forward-thinking numbers or guidance. 2025 will be a flat year. 2026 will be a growth year. And definitely, it will be a growth year in Mexico. Ana Maria Mora: Thank you, Suso. Let me continue with the questions since we're getting plenty of questions right now. The next question comes from [indiscernible]. So on the turnaround and expected inflection, we understand the turnaround strategy is in motion, but what key KPIs should we track to confirm a tangible recovery in 2026? For instance, occupancy, payer mix, surgical productivity. When do you expect to see meaningful improvements in revenues and EBITDA? There is also another question on recent share price weakness. The share has underperformed despite resilient operations in Peru and Colombia. Do you have visibility on whether specific institutional investor has been exiting? Are you in conversations with such holders to reinforce the investment case? And just 1 more. The third one that I need to read it, but we probably already answered it. On Sojitz potential, could you provide more detail on next steps with Sojitz Mexico? Do you see any opportunities for co-investment in new assets or potential partial assets, asset sales to accelerate returns on capital? Jesús Zamora Leon: Great. So I think I'll take first. The share price question. So first of all, we are convinced the current prices now reflect the company's fundamentals. There has been no significant change from what we've been reporting to the company's fundamentals. We are, of course, always evaluating alternatives to support and enhance shareholder value, and we will be sharing with all of you these as we progress and these are things that we'll be discussing at the Board level very soon. Now we can speculate a little bit because we saw from public filings early this year that one of our competitors in Mexico had made a filing with the Mexican antitrust authority where they request to buy more Auna's shares. From public recent SEC filings, we can see that this leading health care player in Mexico has been selling stock consistently in the past month, which makes us suspect the requests did not move forward. No, we can't be certain of this. There's nothing -- a lot of information that's public, except what has been declared to SEC. And we've seen very high volumes in comparison to what we've seen in the past that coincide with this antitrust findings. So that's our speculation. We, of course -- the recent filings were made public a week ago, and we're making sure that we can approach whoever is selling and see if we can try to propose some block trades that would not impact the share price as it has impacted. Again, I want to insist there is nothing within the company fundamentals has changed in the last 45 days when the stock has dropped, I think, I don't know, I don't know a number, 25% or 30%. Nothing is changed in Auna to produce that. Ana Maria Mora: Thank you, Suso. So let's go to the next question. It comes from [indiscernible] from Deutsche Bank. Please comment on return on investment time line on Mexico performance and commentary on the share price performance. Jesús Zamora Leon: So on the share price, I think we've covered. Gisele, do you want to talk about return on investment? Gisele Ferrero: Sure, of course. So I think it's important to note that we evaluate all our investments as well as our operations throughout Auna from a return on invested capital perspective. And that is why we are constantly looking for ways to optimize those returns by making our assets more productive and reducing the amount of invested capital. Specifically in the case of the investment time line on Mexico, as we've mentioned in the call, we have had setbacks this year as a product of the factors that have already been discussed. However, we do expect 2026 to be a growth year for Mexico. Ana Maria Mora: Thank you, Gisele. The next question comes from [indiscernible] from Fundamental Capital. Regarding expansion plans, are you planning to add more beds in Peru? And in Mexico, about the 500 million in expansion plans, how many beds do you expect to add there? Jesús Zamora Leon: So we don't give guidance on projections on capacity growth. But directionally, you will see Auna increase capacity, not only of beds, but of chemotherapy and radiotherapy and surgery rooms, which, of course, fill our beds in Peru, in particular. Some growth there. We see some plans that would be mostly inaugurated in 2027, not 2026. We see ourselves also investing in countries or cities in which we have already large hospital footprint, more in ambulatory care as [indiscernible] particularly oncology, orthopedics and cardiology is moving towards outpatients. And in Mexico, we see ourselves trying to repeat our strategy of urban ecosystems of health care and high complexity that requires beds of -- between 75 to 150 beds minimum landing in each of the cities to produce this urban ecosystem of health care. Ana Maria Mora: Thank you, Suso. The next question comes from [indiscernible]. And the question after that comes from [indiscernible] SG Analytics. I'm just going to bundle them because they're very similar and related to the same topic. And it's about the partnership with Sojitz. Could you clarify whether this collaboration is intended to be part of the previously announced $500 million investment plan for Mexico over the next 3 to 5 years. Or is this a separate initiative? And additionally, how should we think about Sojitz's role in terms of co-investment, capital contributions or participation in the execution of the pipeline. Do you have -- could you provide light on what is the nature of the $500 million investment? And are there any quantifiable impacts on the top line? Thank you. Jesús Zamora Leon: So I think we've -- and I think I made the case that yes, the $500 million is related to our MoU Sojitz. So the opportunity is a 5-year opportunity of $500 million. And what we've signed MoU with Sojitz, it doesn't have a specific number on it, but it's a sizable part of our investment plan in Mexico. Of course, this partnership will produce significant top line growth, and we've seen in the past also in our EBITDA growth. And of course, it is the intention of all these investments is to continue to grow our top line at high-teens and above. Am I forgetting anything, Gisele or Annie? Ana Maria Mora: I think you're good. I'm going to read the next one or unless Gisele wants to chip in. Gisele Ferrero: No, I think we're good. Jesús Zamora Leon: Okay. Ana Maria Mora: Okay. So the next one comes from [indiscernible] from Deutsche Bank. Please comment on the insurance risk management policy of Auna at a group level. Jesús Zamora Leon: Great. That's a great question. It's a complex answer, but we managed risk very much in relation to MLR by policy type, I can talk about oncology, for example. So we manage the underlying oncology risk of our insurance plan with a 50% MLR. That as a goal produces 2 distinct action paths. One is pricing, and the other one is cost containment. Cost containment will be managed by making sure doctors adhere to our protocols, that we purchased the most effective drugs and devices and therapy treatment, that at scale are difficult to replicate by others. And that produces in a consistent fashion that 60%. We're doing the same thing with the very few policies that we have in Peru and general health care with really also attractive MLRs in which we are contain underlying risk. So by this ability to manage all these plans continuously. We reprice continuously, and we contain costs and see things that creep up and how we -- and we contain them on a continuous basis every month in different practices with doctors meeting a lot of the discussion of why not to include that service, why not to include that drug because we're always about scale at the plans and what we deliver for plan members. Ana Maria Mora: Thank you, Suso. And this is the last question we have on the website. It comes from [indiscernible] from HSBC. If I recall correctly, the preferred payer network and bundled package for corporates in Mexico were discussed last year. Have they been launched or are these initiatives different? How do you plan to increase out-of-pocket sales mix in Mexico? Jesús Zamora Leon: Great. So the preferred payer network has been launched, but it's a continued dialogue with payers now. We are very excited and very enthusiastic and we believe that in this -- these things are negotiated, we negotiate every year, so we are in the midst of that. And I think we're going to have really positive results these coming weeks to be in the most preferred networks of the largest insurance companies in Mexico for our operations in Monterrey. So this continues. It's not something that's done in -- it's about cost containment again and how we dialogue with payers now. The out-of-pocket sales mix is something that we, I think, have been doing in Monterrey with less ambition. And we're definitely moving that. I think as I mentioned in the press release. We are trying to double the penetration of sales -- more than double the penetration of sales by out-of-pocket patients. And we do that by 2 things principally. A lot of packages from attorney for certain preventive procedure colonoscopies and even surgeries, orthopedic surgeries as well. We package services in an integrated way from diagnosis all the way to the post surgery aggressively with good margin, but aggressively with respect to what the patient sees in other hospitals. And secondly, we've launched, I think, midyear, we've launched a very -- is a very fast-paced response to out-of-pocket patients that come in to ask for a quote of certain services. And our ambition is to capture anything that comes into the hospital quote and not lose it. So we're being very aggressive in pricing for our out-of-pocket patients. I must insist the out-of-pocket category has very high margins. So there's a lot of cushion to be very aggressive in those. So we've launched an internal process that is very agile, has urgency to respond and to capture the out-of-pocket patient that comes in. Gisele Ferrero: Perhaps I would add there, Suso, to further clarify to [indiscernible] question what Suso presented today were 6 very important and concrete initiatives that we're working on in the Mexican operation. Some of them are new, others have already been rolled out, but are continuing to evolve in their level of maturity and these are the actions that are concrete and taking us to resume growth in 2026. Ana Maria Mora: Thank you, Gisele, and thank you, Suso for your answers. I don't see any other questions on the call. So at this point, I'd like to turn the call back to Suso for his closing remarks. Jesús Zamora Leon: Thank you very much, Annie, and thank you very much the Auna team as well as all the shareholders and investors that follow us and as well as the research community that also follows us. It's been a difficult year, yes. We've done a lot of things. Some of them we can share with the public investors, some of the things that are in process of being implemented. Mexico. There's no doubt, Mexico will be a huge and growth market for Auna. We're really excited what we can bring to the table. We can see evidence of the engagement with a lot of counterparties with respect to that. Sojitz and their interest in Mexico is a testament to what we're doing and what the opportunity is. So a difficult year, yes. Very promising future for Auna in Mexico and the rest of the region, no doubt. I want to also highlight, sometimes we represent Peru as a mature market. We are the dominant player there and it's not a mature market. Trecca demonstrates how Auna can have a significant increase. It's not even mapped anywhere of how we grab more and more market share from -- not from the established traditional players, but from the state and from the out-of-pocket. Colombia growing, not withstanding the difficulties in Columbia. I don't want to minimize the difficulties of Colombia. We're growing. We're growing profitably, even more profitably, we're collecting well in a very stressed market. This is what Auna can do. And Sojitz, Trecca all these things are hidden gems that we have that will produce significant growth results in the future. We will definitely do something about the share price. We're not going to stay without acting on it, and we'll be discussing that at the Board level at the right time as well. Thank you very much for your support. Thank you very much for your coverage. And with that, I would like to end the earnings release call and the Q&A section of it. Thank you very much. Operator: This concludes today's conference call. You may now disconnect.
Operator: Welcome to the Geospace Technologies Fourth Quarter 2025 Earnings Conference Call. Hosting the call today from Geospace is Mr. Rich Kelley, President and Chief Executive Officer. He is joined by Mr. Robert Curda, the company's Chief Financial Officer. Today's call is being recorded and will be available on the Geospace Technologies Investor Relations website following the call. [Operator Instructions] It is now my pleasure to turn the floor over to Rich Kelley. Sir, you may begin. Richard Kelley: Good morning, and welcome to Geospace Technologies conference call for the fourth quarter of fiscal year 2025. I am Rich Kelley, the company's Chief Executive Officer and President. I'm joined by Robert Curda, the company's Chief Financial Officer. In our prepared remarks, I will first provide an overview of the fourth quarter, and Robert will then follow up with more in-depth commentary on our financial performance as well as an overview of our financials. I will then give some final comments before opening the line for questions. Today's commentary on markets, revenue, planned operations and capital expenditures may be considered forward-looking as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on what we know now, but actual outcomes are affected by uncertainties beyond our control or prediction. Both known and unknown risks can lead to results that differ from what is said or implied today. Some of these risks and uncertainties are discussed in our SEC Form 10-K and 10-Q filings. For convenience, we will link a recording of this call on the Investor Relations page of our geospace.com website, which I invite everyone to browse through and learn more about Geospace, our subsidiaries and our products. Note that today's recorded information is time-sensitive, and may not be accurate at the time one listens to the replay. Yesterday, after the market closed, we released our financial results for the period ended September 30, our fourth quarter of fiscal year 2025. For the 3 months ended September 30, 2025, we reported revenue of $30.7 million with a net loss of $9.1 million. For the full 12 months of our fiscal year, we had $110.8 million in revenue, with a net loss of $9.7 million. The mixed fiscal year performance across the market segments continues to reinforce our vision of diversification and innovation for the company. Our Smart Water segment delivered another strong year exceeding expectations with double-digit revenue growth for the fourth sequential fiscal year. The Hydroconn connector Line continued to gain market share and drove significant revenue gains compared to last year. We are also seeing increased market acceptance of the Aquana products, both domestically and in the Caribbean markets. For international markets, we will build upon the municipal water management model in the U.S. and address challenges of water scarcity, environmental changes and natural disaster mitigation. Domestically, we'll remain focused on the increased success and interest we have seen in both the municipal and multifamily residential markets. We anticipate continued market demand for both the Hydroconn and Aquana solutions. Continued market uncertainty and volatility in oil prices resulted in lower revenue from Energy Solutions. We experienced another year of reduced offshore exploration activity, increased competition and consolidation. These factors have led to decreased utilization of our ocean bottom node rental fleet that has negatively impacted segment revenue. Despite lower revenue, we achieved strategic wins in this segment. As reported on June 16, 2025, we were awarded a major Permanent Reservoir Monitoring contract with Petrobras, followed by the release and completed major sale of our ultra lightweight land node pioneer to several customers, including Dawson Geophysical, a long-time valued partner. We have a strong backlog going into next fiscal year. And while there are encouraging signs, the short-term exploration market remains uncertain due to continued pressure from low oil prices. However, long-term demand forecast should drive more favorable market conditions in future periods. Our Intelligent Industrial segment continues to provide steady predictable revenue from our industrial sensors and contract manufacturing solutions. As previously announced, to increase revenue from this segment, we acquired Geovox Security Inc., the exclusive licensee of a human heartbeat detection algorithm developed by Oak Ridge National Labs. The Heartbeat Detector complements our border and perimeter security portfolio. It further serves to advance our strategy towards adding more solutions with a move toward annual recurring revenues. We also restructured our Exile product portfolio to increase revenues and improve margins. Both Heartbeat Detector and Exile have been -- have seen increased interest in their respective markets. While Energy Solutions continues to play a key role in our overall strategy, we will continue to drive growth and profitability through diversification. We see incredible opportunities in our Smart Water and Intelligent Industrial Segments to leverage our technology and manufacturing capabilities. We remain well positioned to exploit the tremendous potential we have created with our products and services portfolio, our talented staff and our continuing diversification into new high-margin markets. Additionally, our current backlog places us in a strong position going into the next fiscal year and beyond. Executive leadership continues to address workforce costs and development expenses on our path to sustained profitability. We will continue to pursue growth through acquisition with immediately accretive additions to top line revenue. And now I will turn it over to Robert to provide more detail on our financial performance. Robert Curda: Thanks, Rich, and good morning. Before I begin, I'd like to remind everyone that we will not provide any specific revenue or earnings guidance during our call this morning. In yesterday's press release for our fourth quarter ended September 30, 2025, we reported revenue of $30.7 million compared to last year's revenue of $35.4 million. The net loss for the quarter was $9.1 million, or $0.71 per diluted share, compared to last year's net loss of $12.9 million, or $1 per diluted share. For the 12 months ended September 30, 2025, we reported revenue of $110.8 million compared to revenue of $135.6 million last year. Our net loss for the 12-month period was $9.7 million, or $0.76 per diluted share, compared to last year's net loss of $6.6 million or $0.50 per diluted share. Revenue for our Smart Water Segment totaled $8.5 million for the 3 months ended September 30, 2025. This compares to $11.9 million in revenue for the same period a year ago, a decrease of 28%. For the fiscal year, revenue for this segment totaled $35.8 million versus $32.4 million for the same prior year period for an increase of 10%. The decrease in revenue for the 3 months period is due to decreased demand for our Hydroconn universal AMI connectors. Typically, we expect a slight seasonal drop in demand for these products during the fall and winter months. The 12-month increase in revenue is due to the increased demand for our Hydroconn connectors. Fiscal year 2025 marks the fourth annual year with double-digit percentage revenue growth from these connectors. For the 3-month period ended September 30, 2025, revenue from our Energy Solutions segment totaled $15.7 million for a decrease of 11% when compared to $17.6 million from the same prior year period. Revenue from the 12-month period was $50.7 million, a decrease of 35% when compared to revenue from the same prior year period of $78 million. The decrease for the 3-month and 12-month period is due to lower utilization and sales of our marine ocean bottom nodes, particularly -- partially offset by sales of our ultralight land node known as Pioneer. Revenue from our Intelligent Industrial segment totaled $6.4 million for the 3-month period ended September 30, 2025. This compares with $5.8 million for the equivalent year ago period, representing an increase of 9%. Revenue for the 12-month period ending September 30, 2025, was $24 million. This compares to the prior year period of $24.9 million, a decrease of 4%. The increase in revenue for the 3-month period was due to higher demand for our industrial sensors and contract manufacturing services. The decrease in revenue for the 12-month period was primarily due to revenue recognized for the 3 and 12 months ended September 30, 2024, on a government contract completed in the fourth quarter of fiscal year '24 and lower demand for our imaging products, partially offset by an increase in demand for our industrial sensors and contract manufacturing services. Our 12-month cash investments into our rental fleet and property, plant and equipment was $9.1 million, and we invested $1.8 million in the acquisition of the Heartbeat Detector product line. As of September 30, 2025, we have $26.3 million of cash and $8 million of additional available liquidity from our credit facility. Additionally, as of September 30, 2025, we have working capital of $64.1 million, which includes $28 million of trade accounts and financing receivables. That concludes my discussion, and I'll return the call to Rich. Richard Kelley: Thank you, Robert. The ongoing trade disputes and related tariffs have impacted our material costs. We are working to mitigate the impact to our customers, but our product costs were higher in Q4, and we anticipate similar impacts in fiscal year 2026. The government shutdown resulted in delays related to our projects for the U.S. Navy as well as potential opportunities with the Department of Homeland Security and Customs and Border Protection. Now that Congress has passed the continuing resolution, we are working with our partners to better understand the new time lines for the relevant projects. This concludes our prepared commentary, and I'll now turn the call back to the moderator for any questions from our listeners. Operator: [Operator Instructions] We'll take our first question from Bill Dezellem with Tieton Capital. William Dezellem: You had mentioned the gross margin or cost of goods under pressure, specifically tied to tariffs. So Energy solutions segment was the one that had the greatest pressure and most noteworthy. Would you talk in more detail about that phenomenon given that you had higher revenues and lower profitability in that segment? Richard Kelley: Bill, yes, specific to Energy Solutions, there was actually another weighing factor on that, which is the ongoing price pressure and commoditization of the -- in the land market. And so we did have a nice sale and revenue recognition on our Pioneer sales, but the margin results on that were lower. We also had higher-than-expected manufacturing costs because these were the first units that were built. We've since resolved some of those, and we expect better margins going forward. With regards to the tariff impact overall, we try to build and source as much from the U.S. as we can. However, there are certain components that we have to source overseas. Our procurement team and supply chain team have been working to try to mitigate that as much as possible. We've also been closely following the developments in the ongoing trade disputes. And we're hoping that some of that gets resolved now that it seems that there's a number of agreements in place now. William Dezellem: So walk us through how much of the impact, the margin impact this quarter was transitionary here this quarter versus what you would expect to last longer, if you would, please? Richard Kelley: I don't really have a good feel for the -- if you're looking for percentages, Bill, I haven't taken as deep a dive as I need to on that. We are monitoring it. The procurement team, like I said, is trying to do their best to resolve some of that. The other thing, too, is I want to make a comment. We've talked about this in the past, which is the ongoing capacity and underutilization of the manufacturing. Okay. Anything else, Bill? William Dezellem: Yes. Did you have something more you wanted to add to that? Richard Kelley: No, I was just looking at another note I had. I think we're okay. William Dezellem: So then the way to think about this is that you had inefficiencies with manufacturing of Pioneer given that it was your first order. And there is some commodity pricing, that probably sticks around, but your manufacturing inefficiencies, those will improve and tariffs, you're still trying to get your head wrapped around what the longer-term implications are of those. Richard Kelley: That's a pretty good summary, Bill. Yes. I would say that now that we've built our first several runs of Pioneer, our manufacturing costs are much more in line with what we expected. So we do expect improved margins on that. Some of the tariffs have resolved since we bought those early -- because for those particular orders, we bought those components earlier in the year when the tariffs were actually higher, and we've mitigated some of that as well. So we do expect improved margins on that product line going forward. William Dezellem: So then in your opening remarks, you referenced that you had expected ongoing margin pressure. My initial read on interpreting those comments would have been that this level of gross margin for the Energy Solutions would continue, particularly with the PRM contract, but that is not at all what you're trying to communicate. It sounds like that you have mitigated a lot of those impacts and the margin will maybe be a bit less than historical, but much closer to normal margins than what you had this quarter. Richard Kelley: I would parse that just slightly different. I would say that on PRM because there's not the same pricing pressure on that product line as we see on the land nodes and even on the ocean bottom nodes that we expect better margin performance on the PRM project going forward. So I think that will help balance out some of the lower margin performance on these other products. William Dezellem: Great. Have I taken up my time or may I ask a couple of additional questions? Richard Kelley: You could ask one more question, Bill, how about that? William Dezellem: That's fair. So the government has a couple of different initiatives where they are looking at you all, I believe, the Customs Border Patrol, the military. Update us what you are seeing, hearing and thinking that there may be for a decision matrix with the government activities, please? Richard Kelley: So I'll speak to the tunnel detection on Customs and Border Protection to start with. That has been very quiet from CBP since even before the government shutdown. We anticipate probably some feedback early next year. I don't anticipate with them just not coming back online and trying to understand where they're at with their projects and with the holidays coming up, I don't anticipate really hearing much more until the quarter after next, basically our Q2, Q1 calendar year. Specific to the Navy, we did continue to have informal conversations. We know that, that project is going to be delayed until probably our Q3 before we see any kind of movement on that, maybe even closer to Q4, so middle of the summer next year. Both projects are -- as far as we know are still anticipated, it's really a question of where on the time line it's going to be. Operator: [Operator Instructions] We'll take our next question from Sheldon Grodsky with Grodsky Associates. Sheldon Grodsky: Early this year, you announced 2 large projects, the Brazilian project and another sale of nodes. Have any of these been shipped yet? Or are you still waiting for these to be shipped? Richard Kelley: Sheldon, I appreciate the question. So on the Permanent Reservoir Monitoring project for Petrobras, that is a long-term project for us. We have actually not shipped any of that. We will make our first shipment -- our planned first shipments on that probably the early to middle of next year. So let's say, spring/summer time will be some of the anticipated first revenue recognition on that. And then that revenue recognition will go into fiscal year 2027 for us. That project is expected to last between 12 and 18 months. with regards to the large contract we sold to Dawson Geophysical for -- I'm sorry. Robert Curda: I think he's talking about Mariner contract. Richard Kelley: Yes. On the Mariner contract -- I'm sorry, let me defer it to Robert. Robert Curda: Yes. So earlier this year, we announced the Mariner contract. We have not shipped that contract yet. It's been deferred by our customer due to delays from their customer. Richard Kelley: I do want to speak to the Pioneer sale that we had. That was a large channel count and those shipments were broken into smaller shipments between this quarter and next quarter. So we have shipped some of those units this year. We anticipate a majority of revenue recognition in Q1 with some of the revenue in Q2. Operator: Thank you. And at this time, there are no further questions in queue. I'd like to now turn the meeting back to our presenters for any additional or closing remarks. Richard Kelley: Thank you, Stephanie, and thanks to all of you who joined our call today. We look forward to speaking with you again on our conference call for the first quarter of fiscal year 2026. Goodbye, and happy holidays. Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect.
Jose Antonio Calamonte: Good morning, everyone. Super happy to see you here one more time in our -- in this case, fiscal year '25 results announcement. And I'm going to cover the first part, the strategic part, and I'm going to then hand over to Aaron, who's our CFO, and I will give him the opportunity to introduce himself much better later. He will do a better job, and he's going to cover our financial results over fiscal year '25 and our outlook for fiscal year '26. And then we will move to Q&A that I'm sure this is what you guys are looking forward to. So let me start sharing with you a couple of reflections, and I promise I'm going to be short. Since I joined ASOS 4 years ago and since I became the CEO 3 years ago as well, I think it's clear in my mind, and I'm pretty sure you feel the same every time you come here, that this is a place full of energy, full of passion and with a very bold ambition to become the most inspirational destination for young fashion lovers in the planet. But it was also clear that we had a lot to do to get there. And what I'm going to try to do today briefly is to try to cover these 2 things. The first one is like -- and you already know, but I think it's always good to do a little bit of balance and to take stock. It's like what is it that gives us the right to compete in a market that is as dynamic as -- probably, I should say, ultra dynamic as our market and a market that is changing so much and where things like -- I mean, like AI is bringing a complete evolution to the market. So what is it that makes ASOS different and gives us the right to compete? And where are we in this journey to transform ASOS into this very ambitious vision that we have. So let me start with the first one. What is it that makes us different? And as I said before, we have a pretty bold ambition. We want to be the most inspirational destination for young fashion lovers in the planet, and we want to do it while at the same time, we have a business model that delivers excitement, but sustainability in terms of profit. So it is a really, really bold, if you want, ambition. And there are 3 main pillars that support this ambition, 3 main things that, in our mind, makes ASOS different and gives us the right to compete and to win. The first one is our obsession to always offer consumers the most relevant product. And relevant means it's the right product at the right time at the right price. We have a unique model here. We are -- we have a perfect blend between our brands and the best brands in the planet. And that is very weird to find. You're going to find great brands out there. You're going to find great retailers out there, but it's very difficult to find a formula like ours. And we are working very, very hard in making sure that our assortment is the most relevant all the time for consumers. And I hope during the course of these years, I have been able to convey how important both elements are our brands and our partners. And if not, hopefully, today, I will be able to do it so that you see that the value of our formula and why is it different. The second part is that we are obsessed with offering an inspirational shopping experience, and we offer today a different shopping experience. I'm going to say that with this picture you are seeing here that probably for you is just a nice and a beautiful picture. But in this picture, you see a model she's wearing 4 different brands. She's wearing Good American. She's wearing Mango, she's wearing ASOS Design and Dragon Diffusion. ASOS is the only place where you can see a picture like that. It's the only place where consumers can see a picture as realistic as this one because this is how they behave. Most consumers don't dress top to down with one brand. This is how they behave. And by the way, this is incredibly valuable for the brands as well because this is the only place where they can be in this type of context. And that makes ASOS shopping experience different and unique and inspirational, and we think that gives us the right to compete and a place in the market. And we do all that underpinned by an efficient operating model. We're obsessed with efficiency, with effectiveness. And this is really underpinning everything we do. That's what we -- that's why we're convinced we have a place in this market, and that's why we're convinced we can win and be relevant for our consumers. But to really deliver that, there was a lot to do. And I want to go fast over what we have done over the course of the last 3 years. I know 3 years is a very long period of time, but I think it's a good time to make this balance, and that's why I'm going to do it, and I'll not talk to you for too long. This has been a long journey with 3 clear steps. And I'm going to go fast over the first -- over the 3 steps. The first part of this journey was we had to deal with the legacy that we had. 3 years ago, this company had 2 main issues: stock and debt, very clear. We had GBP 1.1 million pounds in stock. That is a lot of stock. That is more than 100 million units in our warehouses. That is a lot of stock. During the course of these 3 years, and you have heard me a lot talking about stock, maybe too much. I'm not going to talk about stock today, but you have heard a lot of that from me, we have gone from GBP 1.1 billion to around GBP 400 million -- a little bit less than GBP 400 million in stock. That is a massive reduction of stock, somewhere between 50 million and 70 million units of stock reduction. That is really, really big, just put it into the context of the population of this country, and that will give you an idea of -- to what extent that was a big challenge. And why it was so important? Well, for a lot of reasons, but 2. One, we were sitting on a lot of money. Obviously, that is not very smart when you're sitting on money and you're not doing anything with it. And the other one, this old stock was preventing us from offering new stock to consumers. And remember, we want to offer the most relevant stock. The stock from last year and last, last year is the opposite of being relevant. So we really needed to clear that, and we've done it successfully. By doing that, we unlocked a great opportunity, which has been to optimize our footprint in terms of supply chain. And we have reduced our footprint in more than 50%. Obviously, that unlocks cost improvements, cost optimizations, and we have really seized that opportunity and taken it. And the second big challenge was debt. And as you have seen during the course of these 3 years, we have been restructuring our debt. We have been looking for flexibility and liquidity. The last time, it was last week. So you saw that we announced a successful restructuring last week that is giving us even more flexibility and more liquidity, and this is exactly what we wanted to get. And while we have done this, we have reduced our net debt in approximately 40%. So we can see there that we have successfully reset the essential foundations of our model. It was absolutely a must. There was no way to move on without doing that, and we are happy we've done it, and this is water under the bridge. Then we had to transform, refresh, I don't know which one is the right word, our business model. We were transitioning from a business model that was built on a lot of stock, as I said before, a lot of promotion, a lot of performance marketing into a business model based on speed, agility and profitability. It was very, very important to prove that we can make money while we do business. Otherwise, we become a different type of organization. And we started that journey by focusing on what is important to our consumers. That is to give them better product. This is what they want. They want relevant product, what they are looking for at the moment. They are not looking for a bargain necessarily. They're looking for something they like at a competitive price. And we did that built on 3 critical ideas. The first one was we want to make sure that we are first for fashion and the work behind that is speed. We have to be very fast to be able to offer our consumers what they want right now. This is one of the critical elements that our own brands play in that equation. They are our best opportunity to be super fast and react much faster to what the consumers are demanding. And that's why we're in a better place than just a pure retailer because we have a weapon they don't have. During these 3 years, we have been working on systematic solutions, not just a solution. We want a system that brings improvements and continues bringing improvements. And that is what we have done pretty much in everything we have been implementing and obviously, on the product side. And I think this is also a very important idea that I wanted to share with you, this obsession with systematic solutions. So we have been working on accelerating our time to market. And on average, we have accelerated our time to market by 30%. But if we go to our flagship project in this space, that is our Test & React that I also talked a lot about Test & React in the past, not today. It was a project. Today, it is more than 20% of our business in our own brands. Today, it's a reality that is really changing how we show in front of our consumers and the type of value proposition we can put in front of them. The second big idea was to bring more flexibility in the relationship we have with our partners. More flexibility means more ways of doing business, not just one avenue. Now we have several avenues. And this is helping us to do quite a few things. Obviously, one is to deepen the relationship with some of them. Some of them are growing very healthy because of that. And today, it has gone from a project to be more than 10% of our business with our partners, is done through these flexible models, either what we call partner fulfills when they do the delivery or ASOS fulfillment services where we take care of the delivery, but it's like businesses -- it's a different way of doing business. And also very important is the work we've been doing in how do we define our portfolio of brands, what we offer our consumers. I told you that this is about offering them relevant product. Not all the brands are relevant to consumers all the time. So in these 3 years, we have done a lot of, I don't know if the word is, cleansing or sharpening our brand portfolio. We had approximately 900 brands 3 years ago. Today, we will be more around 600. That has not been a journey of minus 300 because in this journey, we have added more than 100 new brands. So that gives you a little bit of the idea we have probably changed 50% of the portfolio one way or another. And we have not only done that, we are working more and more with our partners to develop exclusive products. Today, we develop exclusive products with approximately 40 brands. Again, our flagship project here is our collab with Adidas that you have seen all over the place. It's quite a unique collab. That is a multiyear type of collaboration that I think shows the role that ASOS can do with these type of brands, and it's generating a lot of positive effects with Adidas and a lot of interest in other brands, and we continue going in this direction. So we feel we have really had an impact on the assortment, on the value proposition our consumers see in front of their eyes. And this additional speed and this additional flexibility has been complemented with a very rigorous inventory management. Remember what I told you about systematic solutions before. We have a systematic way to deal with our inventory. We have a systematic way to tackle the problems early and not late. And putting together speed, flexibility and rigorous inventory management has helped us to significantly accelerate our stock turn or to reduce our -- I always -- reduce our cover, increase our stock turn. It's pretty much the same one way or another. In the last 2 years, we have reduced our cover by 20%, and that is having a very big impact on the quality of what our consumers see and what they're exposed to, but also our profitability because by offering our consumers better product, they buy more product at full price and then we can improve our margins. And that has had an impact, obviously, on our margins. We have systematically increased our gross margin. Last year, 370 basis points, we landed more than 47%. I remember 3 years ago when I said our ambition is to go to 50%, some people said, you are crazy, and probably they were right, but not because of that. Today, we're at 47%, and we are convinced we're in the right way to get to 50%. We are really taking the right steps to get there. And this is pretty much built on this flexibility and this capacity to sell more full price by coming faster to the market. That has been complemented with our effort in our efficiency. As I told you it is one of our pillars. We have looked for systematic solutions that is giving us relevant changes like we have significantly reduced our returns -- our underlying returns in 150 basis points or we have reduced our supply chain costs during the course of the last year, approximately 20%, and we continue finding new ways to improve our costs with these systematic solutions. When we put it all together, we wanted to change our business model to have a business model that gives us speed and profitability. I've been talking about the speed. Let me tell you about the profitability. Last year, we increased our EBITDA by more than 60%. We have increased our profit per order by 30% approximately. This is now a healthy business model that is producing profitability. So we feel in this second step of the journey, we have certainly moved the needle here, and we are in a place where we are now having a business model that is giving us what we wanted. That's why we feel that the time has come to really focus on reengaging with our consumers, focusing on bringing them back to ASOS on regaining their hearts and minds and again, positioning us as the most inspirational destination for young fashion lovers. And we are going to do that based on 3 main ideas. There's always 3. I'm sorry, I'm a pretty boring guy, but it's 3, 3, 3. You can call me Mr. 3, if you want. Three main ideas. The first one is a product we sell fashion -- I have told you many times, we are a fashion company that has technology that runs through our veins. So it's -- we are going to double down on all the exciting things we are doing to have the best product, the most relevant product in front of the eyes of our consumers. We're going to invest in putting our brand more in front of our consumers with a really ROI-driven mentality that is very important. And we are reinventing our shopping experience. Let me give you a little bit of color on each and every of these ideas, but this is what is giving us the confidence that we are in the right path to really return to sustainable and profitable growth. So let's talk about product. Let's talk about what is it that we're going to do this year. And the expression is quite simple. It's double down. We're going to continue doing what we've been doing, but more. So we're going to continue working on speed and flexibility. We're going to take our Test & React from 20% to 25%. We're going to take our flexible fulfillment from 10% to 15%. We're going to continue accelerating. We're going to continue going fast, fast, fast, more relevant, more relevant, more relevant. We're going to also invest more in quality. We are investing in fabrics. We're investing in [ workmanship ], in fits. We're going to continue doing that, investing in improving the sustainability of our fabrics and -- our materials, fabrics in general, not only fabrics, but also trends. And that can be seen in some of the new lines we've been launching recently. These are 3 examples here. You will see here a range, BreatheMax and AS Collective. Different lines we have launched recently, all of them with a focus in higher quality, all of them very successfully. They are having a very, very good reaction from our consumers and they are really resonating with them. And the last thing, we will continue sharpening our brand portfolio. That means new brands coming. So there are going to be more brands coming. That means more collaboration with the brands. The same thing we have done with Adidas, where we are going to -- this is a systematic solution again. We're going to start expanding that to other type of collaborations with other type of brands once we have shown to the world what we can do. Let me go to taking our brand in front of our consumers. And we're convinced that there has never been a better time to do that. And why is that? Well, first of all, because we have the right product. Second, because we have the right economics. As I told you, we have increased our profit per order by 30%. And third, because during the last years, we have learned a lot about how to do it, and we have increased the return on the ROAS of our marketing actions during the course of fiscal year '25. The second idea why we think there's never been a better time to do it is because we have a very, very clear strategy. We will continue increasing the ROAS of our performance marketing, where we are in a very positive path. And we are going to invest in expanding, in more frequency, in more breadth, in more quality of interactions with consumers. These interactions happen in real life, with pop-ups, with events. They happen in social, they happen in campaigns. And we have been learning how to do that, and we feel we are now much better equipped to do that. And what is giving us the confidence that this is true is that we are seeing very positive signs right now. We have seen that during the course of fiscal -- what we have a fiscal year '26, new consumers are growing in the U.K. by approximately 10%. We are seeing that we are getting more engagement and more average spend from our consumers. We are seeing that our retention rates in fiscal year '25 have improved in general, but more especially with our best consumers where they have improved 80 basis points. And we are seeing that some of these marketing actions, that it took us some time to learn, now they are having an impact. I just illustrated, for instance, with the pop-ups we are doing, at the beginning, we were really not getting there. The last 2 pop-ups we have done, one in the U.S. and one here, we have got sales per square meter -- sorry, I still think in square meters. I don't know how to do it in square feet. I still struggling with that. Sales per square meter, that are comparable with the most relevant operations in the market, and they are generating halo effects that are really visible for us, and we are seeing how it is impacting in the areas where we do these pop-ups. So we see it starting to work the way we want. So we are convinced this is the time to double down on what we're doing with marketing. And the last thing comes to the shopping experience. And let me go back to this idea that we offer a unique shopping experience. And again, this is -- you see a picture here, but what I see here is 3 brands perfectly blending into one picture. Here, you will see ASOS Design blending with another story and with ARKET. There is no other place in the planet where you can see that. That's why I say we always offer a unique experience, but we want to make it even more special for our consumers. This is going to be done on 3 axes, on 3 ideas. Again, 3, sorry. Outfits, outfits was always at the core of what we do, but we're going to take outfits to a different level, engagement and personalization. And all this is powered by AI. I know it's going to sound like, okay, you have to drop AI at a certain point in time. Now is the time to drop it. That is not the case. It's like AI is transforming this industry. I'm absolutely sure, and it's not just a belief because I believe in that, I'm seeing it. I'm seeing it with my own eyes, and I'm seeing it in ASOS. It's just like AI is opening possibilities that a few years ago, even months ago, but certainly years ago, were just like a dream, like an ambition, but it was not possible. Today, it's possible. And that is going to bring a lot of, I would say, tailwinds to the digital world. Tailwinds, yes. And we are right there to do it, and we are very, very much into it, always with this mentality of systematic solutions and with a mentality of very rigorous investment, but we are there. So this is something we have already started recently, and let me share with you some of the things we have started to do. One is the launch of our loyalty program, ASOS.WORLD, where we have launched a loyalty program really aligned with our value proposition of delivering excitement, inspiration. So it's not a loyalty program based on discounts. Sorry, if you were expecting that. This is giving access to consumers to exclusive products, early access, exclusive experiences. We launched it with a small cohort of consumers, I think it was in March. We really opened it to a bigger audience in the summer. In the U.K., both during the course of the first 6 months, we reached 1 million consumers -- 1 million members. Today, we are north of 1.6 million. We're very, very excited to see how fast this is growing and even more excited to see the impact design on consumers because what we see is that consumers that join our program increase their frequency and they not only increase their frequency, we get a more qualitative relationship with them. So we depend less on paid marketing, which obviously is good news for us. Second one is ASOS Live. We launched on-demand shopping platform. Every consumer that is interacting with that, 50% of them go to review the product, and they all increase the quality of their relationship with us, increase their conversion rates and the time they spend with ASOS, which is also very important for us. And the third one, the third example that I wanted to show you here is Topshop. We relaunched Topshop.com in the summer. We have seen that the vast majority of the consumers that are interacting Topshop.com are new consumers to ASOS. So it's not consumers from ASOS that now running through Topshop, it's new consumers to ASOS. And these are consumers that are coming with bigger baskets. So it's quite interesting way of capturing consumers. This is only the beginning. There is so much more to come. And I want to share with you just some examples because this is much more of the things that are coming. And I told you there are 3 main ideas. One is outfits. So you're going to see outfit generators. So consumers will be able to choose one item and then request that we generate an outfit for them, but we will use what we know about them and what we know about the trends to generate an outfit that is relevant for them in this moment. They're also going to be able to save outfits, to search outfits, to look for -- to look into the outfits of their celebrities they follow. So there's going to be a lot of a completely new experience or improved experience around the area of outfits that was already present in ASOS, as I've been telling you. Second idea was about engagement, and there's a lot about making it more immersive. And obviously, that means a lot of video. We're going to see much more video coming to the landing page, to the product pages, to the list pages. We're going to be -- we're going to see shoppable reels. We're going to obviously expand our loyalty program. Consumers will be able to search by trend, by occasion. We are going to incorporate much more community and influencers. There's a big, big change here. And the third idea that I told you is personalization, absolutely critical. There is this 4 you tap. We launched an AI Stylist in the past in a collab with Microsoft that we are going to improve even more in a renewal of our collaboration with Microsoft, and consumers will be able to personalize their search, make sure that the brands they love are more present in their search. So it's really a big, big change. But instead of hearing me talking, talking, talking, I thought that maybe it's interesting that you see it all together because when you see it all together is when it comes to life much better. So let me share with you, if I can. [Presentation] Jose Antonio Calamonte: They say that image is better than a thousand words, especially they are my words. So very, very ambitious program, really a step change in our customer proposition, in our shopping experience and a step change that is going to be delivered this fiscal year '26. And you're going to see a big change between what you see now and what you will see in a few months. So we are very, very excited about that. And I'm sure our consumers are going to be as well. This is such an amazing change. So let me conclude by kind of summarizing. As I told you, we have a very bold ambition. We think we have a place in the market and we can win, and we have to go through different steps to get there because it was a big change. We feel we have addressed these issues -- these legacy issues, and we have set the right foundations, structural foundations for this business. We have successfully transformed our business model so that we can offer to our consumers what they want in a profitable way. We are in the right moment, in the right time to really reengage with our consumers. We have a very clear plan. You've seen it. We have all the determination. The first signs we are seeing from the market are positive. We see growth in new consumers in the U.K. We see some geographies offering very interesting performance. We see visits doing much better. We see that the signs are here, and we are totally determined that now is the right time to do it. So now I'm going to hand over to Aaron. He's going to be really giving you the real stuff I gave you the blah, blah. So please, Aaron. Aaron Izzard: Thank you, Jose. But before I jump in, my name is Aaron Izzard, as I've met some of you before, but I'm really proud to be standing as CFO to present the FY '25 financial performance. And before I jump into the numbers, I think it's important to step back and say what was FY '25 about from a financial perspective? It was about delivering the second stage of our transformation, delivering sustainably profitable baseline for us to move forward and deliver against the third stage confidently. And it was really important to me in stepping into this role to make sure that we approach that second stage with the appropriate depth and rigor that it required to make sure that we can move confidently forward. That meant a deeper focus on variable and fixed cost optimization to make sure that we explored and delivered additional opportunities to set us up for FY '26. And the financial performance I'm going to talk you through reflects that. So I'll talk you through all the metrics. Firstly, GMV. This is our appropriate new measure for customer purchases, if you like, and it's our primary indicator of sales. So this reduced by 12% year-on-year, which is a reflection of the cautious consumer backdrop, but also the deliberate profitability actions that we took. Because of this, the quality of our sales improved. Gross margin increased by 370 basis points as a result of the increase in our full price mix and reduction in discounting. Cost to serve, whilst reduced by 12% in absolute terms, increased by 130 basis points, but when taking account of the deleveraging impact of our volume reduction of 200 basis points, there was around 100 basis points of efficiency improvements, which I'll talk about a bit more later. This contributed all of this together towards an improvement year-on-year in our EBITDA -- adjusted EBITDA of over GBP 50 million to GBP 132 million. From a balance sheet perspective, we reduced our stock further by GBP 118 million down to just over GBP 400 million. This is a reduction of 23%, reflecting the new operating model that is now fully embedded and the rollout of our new flexible fulfillment models. This represents the inventory cover that we will take forward, as Jose has already referred to. Free cash inflow of GBP 14 million, slightly reduced versus last year owed to the huge increase in -- reduction, sorry, in inventory that we delivered in FY '24, yet still the GBP 14 million was ahead of guidance. And finally, our net debt improved by GBP 112 million to GBP 185 million. This is as a result of the Topshop, Topman JV that we entered and the subsequent structural refinancing that we undertook in early FY '25. So looking at the geographies. As you can see, there was a reduction in GMV across these geographies, but the important point to note is that profitability improved across the board, which was our main priority for FY '25. There are a couple of geos though that I want to explicitly call out. The U.K. at minus 7% was more resilient as our home market, where consumers really responded to the product actions that we took, but also, of course, in a cautious consumer backdrop. And the other one is the U.S., minus 18%, does not tell the full story. The U.S. was the first market that we took deep profitability actions in FY '24 and many of those actions annualized in the second half of FY '25. When combined with the benefit of our sales of moving the fulfillment back to Barnsley and from the Atlanta closure, this opened up a wider assortment of product to the consumers. And those 2 actions combined with a number of other specific growth-driving activity that was in the U.S. H2 performance was minus 7% year-on-year. And Jose has already touched on it, but I'll talk a little bit more about some of the more recent trends later on. Key driver of our profitability improvement, as we've already said, was our gross margin improvements year-on-year. The main benefit within this was from the commercial model. And what this highlights, again, as Jose has already touched on, is that when we surface the right product, fresh product to consumers, they're willing to pay full price. And that's highlighted in the improvements in our margin through the new commercial operating model. We also delivered improvements through the success of our commission-based flex fulfillment models, and this contributed to the 370 basis points improvement in gross margin. It's important to note, though, that this isn't the result of profitability actions. This is a result of the improved offer that we've generated for the consumer and the gross margin is the output. More choice, newer, fresher product and a cleaner on-site experience all delivers a better experience, and that's resulted in the improvements in our gross margin. I've touched on this already, but our overall cost to serve in absolute terms reduced by 12%, but that is an increase as a percentage of sales to -- by 130 basis points. The volume deleverage, as I've mentioned, accounts for 200 basis points reduction, but also, we absorbed the inclusion of the Topshop royalties, which weren't prevalent in FY '24. That meant an underlying improvement in our efficiency, variable cost, in particular, efficiencies of around about 100 basis points, which was predominantly driven through supply chain, through reduction in returns rates, again, Jose has already touched on, but various different efficiency projects that we've landed. There is also a modest improvement in these numbers from a number of sizable projects that we landed towards the end of H2, most notably, the exit from the Atlanta warehouse, which generates annualized savings that we've talked about previously, but in particular, renegotiation of global distribution contracts, which has delivered a significant benefit, all of which will be felt in FY '26. All of -- the combination of embedded in this new operating model and the cost efficiencies more than offset the volume deleverage and was the main contributors towards our improvement in adjusted EBITDA of GBP 50 million year-on-year. This represents significant progress. And alongside those locked-in benefits that I've already mentioned that we delivered towards the end of Q4 gives us the platform to confidently move forward into our third stage of our transformation. Moving to cash. FY '25 saw modest inflow of cash of around GBP 14 million, ahead of our guidance, as mentioned, and as a result of our improved profit and discipline across the board. The new operating model delivered net working capital benefits of around GBP 40 million, as we normalize our inventory cover. Continued investment discipline reduced our CapEx by GBP 50 million year-on-year to GBP 86 million, although this increases to GBP 100 million when you include the Atlanta automation spend, which was subsequently reclassified to non-underlying. Net interest of GBP 33 million reflects reduced term loan interest from the refinancing that we did at the start of FY '25, but only includes half a year of the 2028 convertible bond interest. I'll talk a little bit more about structural free cash flow in the guidance section. Finally, before I move on to the outlook, I wanted to talk about the refinancing that hopefully you all saw announced last week. So maintaining our investment discipline is absolutely critical going forward to deliver on the final stage, but we embarked on this process in addition to the efficiency projects that we landed to create the investment fuel towards the end of FY '25. We embarked on this project and that one to increase -- improve our flexibility, as we move into the final stage. And I'm confident that this refi supports that flexibility required. This refinancing effectively replaces our first lien Bantry Bay facility, the RCF and term loan and delivers 3 significant improvements for us, extended term of 5 years out to 2030, additional liquidity headroom of GBP 87.5 million and a reduction in our interest rates, which delivers cash interest benefits on an LFL basis of around GBP 5 million. This refinancing reflects the strategic and profitability actions that we've taken and also reflects the partner confidence in our strategy going forward. So I'm just going to turn to outlook now. The clicker works. Thank you. So we expect in FY '26 with the new offer that we're accelerating for our GMV to show improving trajectory throughout the year. And within that, our GMV, we expect to perform around 3 to 4 percentage points ahead of revenue performance. Now we touched on it already, but we've already seen an improvement from the enhancements that we're making to the consumer offer in the metrics that we're seeing in FY '26. So there's been an improved sales trajectory, in particular, in the U.K. and U.S., some of our core markets. But more importantly, the lead indicator for midterm growth is new customer acquisition. And our new customer acquisition is improving across the board and is in 10 percentage points of growth in the U.K. year-to-date. We expect gross margin expansion of at least 100 basis points above 48%. And this, coupled with the efficiency benefits in the sizable projects that we landed towards FY '25, combined gives us the confidence in delivering GBP 150 million to GBP 180 million adjusted EBITDA in FY '26. We're expecting broadly neutral free cash flow in FY '26, which I'll come on to and talk about on the final slide. In the medium term, our guidance hasn't changed. We're expecting a return to GMV growth and adjusted EBITDA margin of 8%, which will contribute towards adjusted EBITDA sustainably being ahead of CapEx, interest and leases to generate structural free cash flow positive. Finally, I wanted to give a bit more context. I've been talking about this structural free cash flow throughout this presentation. But I think it's important to do that to look back over the last couple of years and how we generated our cash. And the chart on the left here shows that a big driver of our free cash flow positivity in the last couple of years has been through the benefits in working capital, as we've reduced our inventory. But we have shown improving structural free cash flow benefits in the left -- the far left-hand graph here, which shows our free cash flow, excluding working capital. We expect our FY '26 adjusted EBITDA of GBP 150 million to GBP 180 million to offset the CapEx leases and interest. But if I move -- if I use FY '26 as the platform for our medium-term aspirations and targets, there are a number of additional aspects in our midterm guidance, which we expect to deliver sustainable structural free cash flow generation. Improvements in our operating leverage through our GMV growth, continued expansion in our gross margin towards 50% and CapEx of 3% to 4% of sales will all represent opportunities to continue to enhance our structural free cash flow, and we are not reliant on any one of them individually to be able to deliver that. To wrap up, we're really, really pleased with the progress we've made in FY '25. FY '25 was about setting a structurally profitable base for us to move confidently into the third stage -- third and final stage of our transformation. And we're really, really confident in the plans that we've got in that final stage to be able to deliver growth and meaningfully free cash flow positive generation. Thanks for your attention. We'll now move to Q&A. Emily MacLeod: Thank you, Jose. Thank you, Aaron. For Q&A, as usual, we'll start with questions in the room first. If you could introduce yourself and where you're from before you ask your questions, that would be great. It looks like it's Anne first. Anne Critchlow: Anne Critchlow from Berenberg. I've got 2 questions, please. So I noticed that average basket value was up more strongly in the U.S. and the U.K. Just wondered if you could comment a little bit generally about average basket value, splitting it out between like-for-like inflation and mix. And do you see perhaps more potential to add more premium brands to the site? Is that the direction of travel? And then secondly, if you could just comment on performance by category, so womenswear, menswear, sportswear and formal versus casual, anything that's interesting and anything that you need to work harder on? Emily MacLeod: Thanks Anne. Jose, do you want to start with both of those questions. Aaron would follow... Jose Antonio Calamonte: Yes. Happy to do that. Good to see you. So we have seen average -- sorry, I was going to say ABV [indiscernible] shouldn't do that. Average basket value evolving positively during the course of the last -- not only the last 12 months, probably more the last 24 months. And we read that obviously, as an impact of our strategy to be able to have a more collective relationship with consumers and then they buy more full price, hence, less of a discount. So we've seen growth of 3% to 5% consistent year-on-year, one year and another year. And that has happened, if you want so far, not through a growth of number of units, but not with a decrease of number of units. So it's pretty much stable. It's more a growth of the value of the items consumers are putting in the basket. A different thing is what you were asking about more premium brands. And we have added a lot of brands, 100, during the course of the last 12 months. Some of them are more premium, and I was showing a picture with ARKET that can be considered for us a more premium brand or another story. In the other picture, it was Dragon Diffusion, but it is a bags brand, also can be considered more premium. It is having a very good -- Good American could be probably another example. It is having a very good reception with our consumers. So we are seeing an interest in brands that are -- I mean, the word premium is premium for our consumers in the perspective of the market. They are a little bit of mass market or higher up, the upper part of the mass market. The high end of the high street, probably I could say, is having a very good reception. Our consumers want relevant products. And when it's relevant, if it's a little bit more expensive, they are willing to pay the money for it. So certainly, it's a direction of travel. We are bringing more of these brands because we are seeing that our consumers are interacting well with them. So at the same time, we keep on bringing other brands that are lower price points, and we have other consumers that are fine with that. We always try to keep a very, very broad assortment for different type of consumers. So -- and then in the performance by category, we are happier with the performance in womenswear, definitely. It's the part that is working better. It's where we have put more effort. And -- I mean, not trying to damage anyone. Clearly, this is the core of our business, just like the business in fashion at least for ASOS is pretty much in womenswear. So this is where we're seeing a better performance. Sports, we are seeing a very good performance in apparel of sports, which was not the case in previous years that all the performance of sports was coming from footwear. Now it's coming more from apparel. Footwear is a little bit weaker, to be honest. And in our case, I mean, apparel is doing incredibly well, also fueled by some of the call-ups -- we are doing the call-up, we're doing with Adidas, is having a really big impact. So obviously, that is also doing it -- if you want, is amplifying the impact. In terms of categories, we are happy with jersey, with needs, but it's not -- there is not a clear standout, if you want, in terms of categories. So we're happy with what we're seeing in the collection and it's fairly well balanced. Emily MacLeod: John, would you like to go next... John Stevenson: Yes. John Stevenson at Peel Hunt. A couple of questions as well, please. Interested in the -- who the customer is in terms of the 10% growth in U.K. customer base you're seeing coming through. Are they hitting the same metrics as your existing core? Are they buying the same stuff for the KPIs you saying? Can you sort of talk about how you're attracting these guys in and what they're delivering to the mix? Secondly, just in terms of cost efficiency, Aaron, you mentioned, obviously, a lot of the work done last year. There's obviously a lot of like-for-like cost reduction coming in this year. Can we quantify that? And finally, if you can comment on what you think the right balance sheet structure will be for ASOS in the sort of 2, 3 years out? Emily MacLeod: Thanks, John. Jose, do you want to take the question on new customers first? And then, Aaron, you can take the second and third questions. Jose Antonio Calamonte: John, good to see. So yes, we are happy with what we're seeing in the U.K., seeing new customers. Obviously, it's very early to understand very well these new customers because the fact that they are new means that they have not interacted so much with us. But if you want in general terms, what we're seeing is that customers are improving the quality of the engagement with us. Let me explain what I mean with that. They're buying more categories. We are moving away from -- I mean, moving away, not completely, but we are reducing the amount of new customers that come on buy only one category. They're buying more categories. They are buying less promotion. We're also seeing that. And also, they are buying more fashion-oriented type of products. So in principle, it's all good signs because we know when consumers buy more categories or buy more fashion categories, they tend to be better consumers over time. But it's still early to know if that is going to have an impact or not. What we have seen is during the course of fiscal year '25, we have reduced churn on all types of consumers. So I think it's probably somehow correlated. Aaron Izzard: Thank you, John, for the question. I'll take the first part first. So the cost benefits I'm not going to quantify it, but what I can tell you is a number of the various different projects that we've done. So as I mentioned already, we have the benefit from the annualization of exit in Atlanta. We've already talked about the values there. Significant benefits from renegotiation of our distribution contracts, that's globally. It started in the U.K. As you can imagine, a sizable project that we expect to have huge benefits in FY '26. We are also reviewing all of our various different SaaS contracts and SaaS operations to streamline our underlying support in tech and continuing to review our returns fair use policy and various different activities to improve the experience for consumers, and that we expect that to improve our returns rate as well. In terms of the balance sheet structure in 2 to 3 years, look, our goal is to be neutral on debt and not have a net debt. But ultimately, what we want to do over the next few years is focus on growth. And the important thing for me when delivering the refinancing was making sure that we give the flexibility to the teams and the focus to make sure that if there are high ROI opportunities that we can invest in them for growth. But ultimately, we're building towards generating free cash flow and getting ourselves into a net neutral position, which will also help us capitalize, of course, on interest costs in the future. John Stevenson: How much of a restriction was the lack of headroom in the old facility? Did that actually stop you? Aaron Izzard: So I wouldn't say a restriction. Ultimately, we've created more flexibility. We had previously GBP 150 million term loan and the RCF wasn't available based on the ABL facility. What we've got now is a facility of GBP 150 million and GBP 87.5 million, which is readily available. So it creates additional headroom for us that allows us the flexibility, as we move forward. Emily MacLeod: Mia, I think you've got a question next. Mia Strauss: It's Mia Strauss from BNP Paribas. Just 2 for me. Maybe -- if we can maybe look at the customer profile over the last 5 -- say, 5 to 7 years, what sort of age demographic you're looking at? So maybe is the customer 5 years ago, someone who was 20 years old and they've now grown to 25? And do you have enough of the Gen Z cohort in that? Or do you need them? And then secondly, what sort of impact are you seeing from TikTok Shop? How you plan to compete with them? Because they're obviously more of a discovery sort of platform. So I appreciate the AI initiatives you're doing on your side, but is it maybe a little bit too late? Or just how you plan to address that? Emily MacLeod: Thanks. I think, Jose, if you take both of those questions, please? Jose Antonio Calamonte: So on the customer profile, obviously, we measure the average age of our customers. And what we have seen over the course of the last 5 years -- probably not sure 5, maybe it's a little bit too, but over the few years, is that it has not changed significantly. I think we have got, I'm going to try to be too precise, probably I'm wrong, 11 months older. So it's not a massive change. It's pretty much in the same space. You were dropping something interesting in the question that was like this Gen Z, do we need them? It's like our bull's eye, if I can use that expression, is 20-something. We used to use that expression. It's people in their 20s. Obviously, Gen Z would be probably a little bit young. But anyway, so -- but that doesn't really mean that we only talk to these consumers. You go to your bull's eye, but you know you have consumers that are older and younger for sure. So yes, having some Gen Zs -- of course, having Gen Zs plays a role, and we do have Gen Zs and actually, that's why we have such a broad assortment. We have some of our brands that are more targeted towards these younger consumers, whether Gen Zs or Gen Alpha, whatever they are now. So -- but it's not the core of our consumer. It's not that Gen Z is where we are -- it's not the bull eye, if that makes sense or not yet. One day, they will become bull eye. Then on the TikTok Shop, we are present in TikTok, which seems to be something really, really big in the U.S., not so big in the U.K. We are not seeing such a huge explosion in the U.K. We really use TikTok as a place of discovery, but not necessarily where people are executing the purchase. So we are present in TikTok with the TikTok Shop, and we also have our social marketing happening not only in Instagram, but also in TikTok, we're pretty active. And it's true. It's a place of discovery. It's a place where people go to find new brands. But at least in the U.K. and in Europe, we are not seeing this explosion that they seem to be having in the U.S. But we are there. And if that becomes a bigger channel, we will obviously capitalize on that because our obsession is to be where our consumers are. So it's like we are agnostic about that. It's like we want to be wherever they are. Mia Strauss: Just to follow up on that. Maybe what is your approach to the marketing side? So I appreciate that maybe the transaction doesn't happen on TikTok, but how do you get them from TikTok onto ASOS when you've got tools like the AI Stylist and things like that? Jose Antonio Calamonte: That's a great question. TikTok or Instagram could be similar. Obviously, we have a big presence there. We are working not only organically, we also work with content creators, with influencers from more well known to less well known. When we did, for instance, the relaunch of Topshop.com, we work with Cara Delevingne, super iconic, but we are working every day with influencers. So the ambition is, as I was saying before, to be where our consumers are, to be top of mind for our consumers. Then there is a transition into ASOS when they have more the intention to buy. Once they come to ASOS, tools like the AI Stylist plays a very important role in going back to this idea of the outfit. It's like consumers, what we see is that consumers don't buy one thing isolated. They want to buy a dress, but they want to understand how to wear this dress, which are the right shoes, which one is the right bag, which one is the right makeup, which one is the right. So there -- today, we have always been, in that sense, different because we've always brought this idea of outfits. But it was, if you want in a sense, a little bit static. It was much better than going to a physical store because in a physical store, you could see 10 outfits. And in ASOS, you could see 100,000 outfits. But it was static. Everybody was exposed to the same outfit. Suddenly, the AI Stylist, so AI as an enabler, is giving us the possibility to generate a specific outfit for every consumer, and that is incredibly powerful. What we're seeing is that the consumers that interact with the AI Stylist, they increase by 50%, I think it is, the amount of items they save for later. And we know that this is a leading indicator. When people start saving for later, they end up buying. So it is having a big impact. We're working -- as I said before, this is something we did in collab with Microsoft. We are not generating our own LLMs or anything like that. That would be completely crazy. And we will continue -- we are renewing our strategic alliance to continue developing that and to make it even better. The more we train the model, the better the model knows the consumers and the better the recommendations. And we are seeing an evolution there. So we see that there is a very natural flow from I discover a place where I can find what I want to I really want to transact with that place and then I want to do it in a more comprehensive way. Sorry, a very long answer. But don't let me talk too much because I could talk for hours. Emily MacLeod: Super. Sarah, do you want to go next and then Yash after? Sarah Roberts: Sarah from Barclays here. So just firstly, on the guidance of adjusted EBITDA of GBP 150 million to 180 million. Can you just take us through the puts and takes of what you need to believe in to get to the higher and the lower end? And at the higher end, do you have to believe in a return to growth next year? And then secondly, more broadly, we've seen a lot of headlines about agentic e-commerce in the news recently, potentially changing how consumers shop online. Just curious what your thoughts are on how ASOS fits into an agentic e-commerce world? Are you making investments in tech and product at the moment? And I suppose, are you -- could you consider partnerships with some of the AI players as we've seen Shopify do in the U.S. Emily MacLeod: I think, Aaron, if you take the first question on guidance and Jose, you can take the second one on agentic AI. Aaron Izzard: Yes. Great. Thank you, Emily. Thank you, Sarah, for your question. We've built our guidance for next year so that it doesn't require growth. That's the exact reason that we, you might say, extended our process on the second stage of this journey, creating us the flexibility, creating the investment fuel to be able to move confidently into the third stage. So within that guidance range, there is no explicit requirement for us to return to growth. But of course, what we've guided to is an improving trajectory on GMV, and that's what we're building towards. I think for us, really, the key thing is we've landed that second stage. We've created the efficiencies that enable us to move into structural free cash flow positive. The focus now is on making sure that we double down, as Jose said, on that final stage across investment in marketing, which will have a higher return on investment against it, against the customer experience and continuing to enhance our product offer. That's the focus. That's what we're getting everyone in this business focused on. And as we do that, it will enable us to continue to move through the guidance range. Jose Antonio Calamonte: Yes. So on agentic e-commerce, I guess you refer to checkout happening directly in ChatGPT or whatever of these things. So obviously, probably, we're going to get there. I think it's a very, very likely direction of trouble that is going to move from what today we call SEO more to, I think they call it GO -- sorry, I'm awful with these DLAs. There are so many. But -- so it's a different type of search engine type of optimization and marketing into this. And it will be a big change in the market. But at the end, the consumers will have to find a place to close the transaction. So obviously, we are open to that. I mean, as I said, we want to be wherever our consumers are, we don't skip. We just want to make sure that we offer the best assortment, the best shopping experience, and we are convinced that, that is the winning formula. Then you were talking about us partnering with AI specialists. And we do that. I mean we have -- as I said before, we have a strategic alliance with Microsoft. We have another alliance, an aesthetic project with a player called Sierra. Probably you guys never heard of them, but they are probably one of the biggest players in terms of AI solutions for customer care. And today, almost 50% of the interactions we have with customers in the U.K. happen through an AI solution and growing. And we're partnering with smaller start-ups as well. We have a partnership with a Turkish start-up. We have a partnership with some start-ups here in the U.K., in Israel. So we have a really big setup of different ways of approaching AI. As I said, we are doing that because we see that this is a fundamental change in the industry, and we are really embracing it. But we are doing that with a lot of rigor, making sure that our investments are really always under control, and they always bring value added to our consumers. So we're really focusing on that. But yes, we're really embracing the AI opportunity because we're convinced it is not going to change. It's already changing, as I said before, this market. I don't know if that was what you were looking for, Sarah. I hope it is. Emily MacLeod: Thanks. I think, Yash, you might end up being the last question in the interest of time. So just go ahead. Yashraj Rajani: Yashraj Rajani, UBS. So the first question is, if I just look at some of your competitors, whether it's the European pure plays or some of the U.K. omnichannel players, right, there's a big dichotomy in the performance of you versus them. And I appreciate there's been some legacy issues that you've been dealing with. But now that the legacy issues are behind us, who do you think you can take share from, especially given that some of these players are meaningfully larger than you, right? So that's the first question. And the second question related to that is, Jose, you spoke about trying to train the models and actually models getting better over time. Again, some of your competitors have bigger customer bases than you. Maybe they're a little bit ahead in some of that journey. So do you feel like you're playing a little bit of catch-up on that front? And if so, I mean, how are you making sure that you're getting in line or better than them? Emily MacLeod: I think Jose, if you take those questions. Jose Antonio Calamonte: Yes. So on our competitors, well, this is probably one of the most competitive markets in the planet. And I've said that so many times that that's why it's so fragmented. So we will be taking share from a lot of them, not just from one. It's not that we are going behind one. Our consumers today buy in ASOS. They buy in a lot of these competitors, you have implicitly mentioned. They are buying in other competitors you have not mentioned like secondhand or -- so there is like -- and we are not just going after one. We are not going after the entry price point. We're going after these individuals that they are interested in fashion at a competitive price. I think our current and future consumers are pretty much everywhere. There is not one target. There's not -- we're going to take it from competitor A, B or Z or whatever. We're going to take it probably from most of them. And this is what we're seeing in these new consumers that we are receiving. Actually, almost every consumer buys in more than one place. It's almost impossible to find a consumer that only buys in one place or consumers buy in different places. So it's also changing the share of wallet that they have here and there. On how do we train the models and if we are playing catch-up? That's quite an interesting question. When we talk to companies like Microsoft, clearly, we're not playing catch-up. We're ahead of the curve. We are one of their key partners globally to do that. So -- and it is true having a lot of information is very important. We have 16 million consumers, so we do have a lot of information. But it's not only the information you have, it's the quality of the information you have. And a lot of these competitors might not have the same quality of information. Omnichannel brands have normally less quality of information because -- so the offline interactions are less qualitative in terms of data, I mean. And even some of the online players, they are more worried about the transaction itself, where we're very worried about also the styling behind the transaction. So we have a very, very qualitative type of information about how consumers interact with different styling. And that is incredibly important for the journey we are trying to define, not for a different journey. So I think I'm convinced we're not playing catch-up. If anything, we're ahead of the curve, and we are determined to continue being ahead of the curve. Aaron Izzard: I think if I may, just to build on that. AI for us, we feel we're uniquely positioned to capitalize on AI, not only versus the offline players, but also if you think about the -- what Jose described around outfits and personalization, with this being a really core part of our proposition that we're going to add for consumers, that is different to what others are doing. And the use of AI can really turbocharge that, presenting outfits across tens of thousands of different products that we hold across a multitude of different brands and being able to surface them to the consumer in a really personalized way. I think this really gives us an opportunity for us to capitalize on, and that's how we're thinking about this with our new strategy and how we can utilize AI to turbocharge. Emily MacLeod: That's us at time. Thank you, everyone, for your questions. Jose, I'll just pass over to you. Jose Antonio Calamonte: Just wanted to thank all of you for coming here, especially on a Friday. I know it's not the easiest day to come. So thank you so much. As we both have said, we're incredibly excited about where we are and the prospects. We are very, very excited about the signs we're getting from the market at this beginning of fiscal year '26. And we will continue with this journey to completely finalize our journey to make ASOS the most exciting fashion destination in the planet, and I hope you guys will all witness this soon. So thank you so much, and looking forward to the next interaction with you guys. Thank you. Have a nice weekend.