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Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi S.p.A Second Quarter 2025 Financial Results. [Operator Instructions] Joining us on today's call, as usual, are Pasquale Natuzzi, Executive Chairman and Chief Executive Officer, Ad Interim; Carlo Silvestri, Chief Financial Officer; Mario De Gennaro, Chief HR Organization and Legal Officer. Furthermore, also joining us on today's call are Ms. Marilena Scaramuzzo, Treasury Vice President; Domenico Ricchiuti, Chief Operations Officer; and then Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I will now turn the conference over to Piero. Please go ahead. Piero Direnzo: Okay. Thank you, Donna, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2025 2nd quarter financial results. After a brief introduction, we will give room for the Q&A session. Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the United States securities laws. Obviously, actual results might differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial condition. Please refer to our most recent annual report on Form 20-F filed with the SEC for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. And now I would like to turn the call over to the company's Chief Executive Officer. Please, Mr. Natuzzi. Pasquale Natuzzi: Thank you. Good morning, everyone, and thank you for attending this conference call. While all the information regarding the performance of the first 6 months have been available on the press release, which we sent to all of you. I believe that for all stakeholder information, I would like to add also some additional information, which I believe are very important for everyone. What has caused the result, which everyone is lumpy, okay, starting by me, by the shareholder, by all the stakeholders and by the management has been caused primarily from the Chinese market and the American market. And I like to explain that, which I believe is very important. In China, China is an important market for us. So that's why like [Technical Difficulty] in china regarding the tariff. And that has caused in China a crisis, which has impacted on our business. The volume that were forecasted for China were very much higher, much, much higher than what we are doing today. To give you an idea, just in 2025, we closed 77 stores in China. But -- and we opened 30 new stores. So while we closed 77 stores between Natuzzi Italia and Natuzzi Editions, we opened 30 new Natuzzi store in China. So there is really a situation, let's say, complicated situation. But the fact that we are closing the store and opening a new store, 30 stores with the partners that are investing on our brand, this is something that needs to be told, needs to be understood from everyone. Now in many time, the tariff and the uncertainty between how much it would cost to import the product from China. In China, China has been always an important market for us, not only for distribution, but also for production. So our production for the United States for the second line and Natuzzi Edition has been always manufactured in China. But since the tariff war started in 2019 where was announced tariff of first 15% and then an additional 10% that caused decline in sales from China to America and was affected on our volume and consequently on balance sheet. Recently -- and that was last year, October when, again, tariff uncertainty and the relation between United States of America and China were arguing every morning. We decided to shut down our factory in Shanghai and open a small factory -- new small factory in Quanjiao is a province where the cost would be much lower than Shanghai. And we moved the production from Shanghai to Italy to supply the American market and cut down the fixed cost of obviously, the factory in China and improving production and cost efficiency in the Italian plants. That was last year -- October last year. Obviously, a few weeks later, start again tariff between Europe and China. So -- but when we decided to move the production from China to Italy, there was no idea that one day, the United States of America would ask a tariff also from Europe. And obviously, that has been also impacting negatively on our margin. Back to China. So again, we shut down 77 stores. We closed 77 stores in China and we opened 30 new stores in China, while also in the rest of the world, we opened also 12 new stores, and we shut down 17 stores. So I mean, the -- to improve our retail division by eliminating stores that are not qualified for the brand position. And to substitute with a new store in the appropriate location with update consumer experience, it's a process that we are pursuing, investing continually. And that's because of that for the all stakeholder interest, I would like just to show a little bit -- I mean, we don't give up as a company. We have been continuing to invest on our brand in terms of new product, new merchandising, I mean, exhibition. I'd like just to show you a little bit, okay? It's something very interesting for all stakeholders to understand. Piero, can you help me please to show the -- let's start from beginning. Want to start from here? No, no. I mean we go after, please, Piero. So in order to support the commercial development, we implemented several initiatives in 2025, trade fairs, client congress and design shows. Can we look that, please? Go ahead. Go ahead. I don't need to read all those things. Just show image. So last April, in Milano, the picture that you will see here that you see on this slide is our participation to Milano Fair last April. The reason why we -- and since the COVID, we haven't participated to fairs because unlikely retailer, they were not traveling. So after 6 years, we decided to attend again this fair in Milano and was really a success. Then you can see -- have all the information regarding the visitors, the number of company, the number of country, whatsoever. You will find all the information on the website, and we will provide also to send as we do with the press release, okay? Go to the next, please, Piero. So consequently, even in High Point, that building that you will see on green is our Natuzzi America headquarter in High Point, North Carolina. We attended 2 fairs this year, one in April and one in October, where obviously, we meet the customer, we show new project, we show new marketing plan. So these are all efforts that the company has made in 2025. Go to the next, Piero. Then we also organized the headquarter congress here in our -- in Italy where we invite the customer from emerging market primarily. Invite the customer from Italy, from Europe. They come in to our congress and they spend 1 to 2 days here in our headquarter to choose new project, new product, new marketing plan, update their store. It's really a very important activity that we do. For example, we have the summer edition, 80 clients from Europe and Far East and our Divani&Divani partners. So all the customers. This is another huge investment to organize those 2 congress in Italy, in our headquarter. We go to the next. Then we also organized this year 3 congress in China. One was in March with the launching of Feelwell concept, is a concept of comfort, which is very innovative, and we introduced it to 200 journalists, VIP and institutional guests and 320 dealers. That was March this year, 2025. In July, also in Wuxi was launched the new Natuzzi Italia store concept, 7 media interview, 40 articles published, 143 architects designed, 21 VIP dealers were there. Natuzzi Editions, another event, very important in last October in China with 150 dealers, 100 VIP and 5 media. So in other words, China, which is a very important market, which is unlikely is facing a crisis that we never would imagine before, we are closing stores that are not performing. We are opening 30 new stores, but we have been attending exhibition, congress and meeting the customer and promote the business. Go to the next, please, Piero. And then we have the design show. We had 10 design show. In February, we were in Riyadh Downtown Design. In April, Milano Design Week. In May, ICFF, New York, we were present there. June, Design Show Melbourne in Australia. July [ Casa Decor ] in Madrid. September, we were Dubai -- Mumbai Design Week. In November, we will attend again Mumbai -- no, Dubai, we were last week in Dubai with Design Week, and we will be next week in Mumbai again in India. And then the first week of December in Miami Art Basel. All those exhibition where we show our novelty, our new project are very, very important to get -- to be in touch with the market, with the customer, with the designer architect. And we were also in Osaka last April, the Expo Osaka. We were there 791 events organizing in Italian pavilion. 1,300 official delegation were there, 7,500 company representative. Okay. Next, please, Piero. Highlights, Trade and Contract. Those building that we show you we launched last November in Dubai, the first Natuzzi Harmony Residences. Then because the building is under construction, we already sold several apartment, Natuzzi apartment, all furnishing by Natuzzi. And so we already signed the second contract in -- always in Dubai with the same developer for another 80 apartments. And we signed another contract with an entrepreneur developer in Jerusalem in Israel, where we designed already the building, and we have the contract in our hands to develop this tower. Many other projects are in the pipeline. So that's all those information I gave to you just to show that despite the headwind we are facing in terms of business, we strongly believe that all those initiatives, all those, I mean, initiatives that we have made and we developed more than 30 new projects because obviously, when we attend the fairs and congress and those events specialized for architect, we show a new project, new project in order to stimulate interest in our brand, in our company. So again, we don't give up. We strongly believe in the future and all the investment made in 2025 makes me personally and makes the company confident about the potential growth of the business. So I can stop here for now, and I can -- I'm ready for any stakeholder to ask a question. Thank you very much for listening. Operator: [Operator Instructions] Our first question today is coming from David Kanen. David Kanen: The first one is I see that you've extended personally a credit line to the company of $15 million. What are the terms of that in terms of the interest rate and then also, you've referenced noncore assets that you can dispose of. Could you quantify for us some of those assets, what they're worth, tannery other property that you can potentially dispose of while we're transitioning the company to profitability? Pasquale Natuzzi: So as anticipated in the press release, the Board of Directors has just approved the guidelines of a multiyear restructuring plan basis and optimizing the cost structure, increasing the flexibility and developing the retailer business. To implement these activities in the plan targeted investments are likely to be required such as marketing, retailer, the managing and redundant workers and et cetera. Therefore, the board will be evaluating measures aimed to strengthen the capital structure to support the restructuring plan. Once the restructuring plan is finalized and approval by the competent corporate body, we will provide further information on the capital strengthening measures required. I have granted credit line to the company because as the majority shareholder, I'm firmly convinced that the effective implementation of the restructuring plan guidelines, particularly those relating to the Italian production hub and the general optimization of fixed cost together with our commercial initiatives can help the group to relaunch its activities and pursue sustainable profitability. This credit line will provide the resources needed to address the short-term needs and ensure the financial stability required to achieve the group strategic objectives set out in the restructuring plan. However, as I previously mentioned, together with the Board of Directors, we are evaluating a measure to strengthen the company's capital structure. In the current year, we -- that's it. So that's the story. Carlo Silvestri: David to further add is a 0 interest loan. And as you know, we are looking always for opportunity to, let's say, monetize some of our noncore assets. In specific for the tannery, we don't have any news so far, but we are actively looking for other opportunities to offset some of our noncore assets. And this would be also one of the point of our strategy for the near future regarding also the rightsizing of our industry operations facilities. David Kanen: Okay. That's helpful. Carlo, could you quantify for us 2 things. First, on the assets, give us a sense as to the value of some of these noncore assets as well as the tannery. How many millions are these assets worth? And then if you could give us some sense of the restructuring, once we move past it right now, our gross margins are last quarter at these volumes was only 34%. After the restructuring let's assume similar revenues, what type of gross margin do you think we can achieve. And then in terms of operating expenses, what kind of a reduction do you think we can get in operating expenses? And will we be positioned to be profitable as a $320 million company? Carlo Silvestri: Thank you very much for all the questions, David. Let me elaborate a little bit because it's a bit long. I will try to summarize it to be effective. First of all, in terms of assets. Okay. Our total net asset value is around EUR 70 million, okay. To specify which is core and noncore, for the moment, I cannot give you the precise figures because all the investigation and internal analysis and discussion with the Board are ongoing. So this will be, let's say, quantified in a way once the final setup of our operations is done. But as I said before, this is one of our strategic point. If talking about the tannery, the tannery had a value of EUR 5 million specifically, that was the last evaluation we had. But of course, David, we need to be aware that then we need to go on the market. And these are the latest valuation and specifically for tannery is not an easy market to find a buyer in this moment. For the other assets, when I talk about EUR 70 million is composed by the plants and the machinery. So also on this, we need to play careful. It's not a value that we can totally monetize because like for the machinery, it's a different way of evaluating. So this is for the assets. Allow now to discuss a bit about the gross margin. And as far I can give you indication on what we are working because, of course, the work is on process and so I can't disclose any further detailed information, but allow me to give you the sense of what we are doing. With Mr. Natuzzi and all the team, we are working to be sustainable, especially from the financial point of view. So when we talk about increasing marginality, this is one of the main points. The 34% has some factors that need to be specifically addressed. The first one is the impact -- direct impact on the lower retail sales that, as you know, has a higher margin. And this, we are working with Mr. Natuzzi and the commercial team to bring back the sales that will grant us a higher marginality. On the other topics, we are working on both operational efficiencies that they will increase the margin and will decrease as one of the reply to your question, all the industrial costs in a permanent way and working on the price list to adopt the profitability to the changing environment of business. So all of these activities together with other actions that are aimed to be more efficient from the cost point of view, targeting of decreasing and increasing the speed of that activity to the economic environment will improve our marginality. Therefore, we will go back to the trajectory with increasing margin and decreasing the sales to be breakeven. I hope being clear and replied to all your questions, David? David Kanen: Yes, that's very helpful. I appreciate the clarity and the detail. So are you saying at these levels, these depressed levels we're running at after the restructuring, your objective is to be breakeven. Did I hear that correctly? Carlo Silvestri: Yes, the trajectory of the plan is to be profitable. Yes, the trajectory of the plan is to be profitable, David, absolutely. David Kanen: Okay. Okay. And then in the past, I guess this would be a question for Pasquale Jr. I don't know if he's on the call, but if you can speak to the commercial initiatives, Mr. Natuzzi highlighted some of these large projects in Jerusalem and Dubai, et cetera. For next year, could you give us a sense as to your internal goal for annual run rate in commercial revenue? Is it $10 million a year, is it $20 million, $40 million? What is a realistic internal goal in terms of run rate? Because this is incremental, and I know there are companies that are doing hundreds of millions of dollars in this business. It seems like there's enormous upside to it. So if you can give us a sense as to the magnitude that would be really helpful. Pasquale Natuzzi: Okay. I can answer, David. Certainly, you're right. But to be honest, I mean, we want to communicate the real contract that we have in our hand. So we started with one contract in Dubai. Then we -- because it's been successful, now we have the second contract. And because it has been successful we have also contract in Israel. There are already 3 towers that we should develop. I mean, and we have other very important, very exciting project in the pipeline. But I mean, we are not ready now to tell you how much volume we are going to develop with the Trade and Contract business. Certainly, the fact that we've been attending two events in Mumbai and then in Dubai, in Riyadh, then even in New York, where we invest money and we need the architect, where a developer just -- I mean, we are promoting the business. And certainly, we are expecting to get good return, to be honest, okay? Carlo Silvestri: Yes. May I add also on this Mr. Natuzzi, David, to give you a magnitude, it is a start-up. So the number will be low in the beginning, but then there will be a multiply effect. The more projects we do, the more they know, the more we have. And specifically, when we talk about revenues on a yearly basis, there are 2 sides of the contract. The first one is design fees that we will get in the first phase of the contract. The second one is when we realize the project and we deliver all the merchandise that has a time line that we don't know and we cannot predict. So as a total ballpark, we are in a start-up phase and then on top of that, it's difficult for us as of today to understand the phasing of the delivery of the product. David Kanen: Okay. That's very helpful. And then is there a way that perhaps I can extrapolate if you can give me a sense maybe per unit, let's say there's a building that has 150 units in it, okay? What do you think the spend is, on average, what is the normal spend per unit? Is it, 4,000, 7,000? If you can give me some sense... Carlo Silvestri: It really depends on the project, David. It really depends on the kind of project. Pasquale Natuzzi: No. I mean if I understood well the question, David, I mean, we promote the Natuzzi Harmony Residences, and we promote apartment of different size. Then we give the liberty to the consumer to choose the Natuzzi product. So it depends. We can -- I mean so the amount of cost to furnishing each apartment could be very much different. It depends. Because as you know, each project we make is available in leather or is made in fabric. Could be -- the configuration could be a big one or a small one. It depends from the customer needs, the consumer needs. So I mean the price could be different. We believe that next year, while after we furnishing, we decorate several apartments. We should make -- we must be in the position to average them, and we can give you this information. David Kanen: Okay. And then let me move on to my last question, and then I'll go back into queue if there's anyone else that would like to pose questions is, could you give us an update on the permanent CEO search. Do you have candidates that you feel you're close to deciding on? And is that something that you expect perhaps by early next year will be finished? Pasquale Natuzzi: We engaged a head hunter company and started to propose some candidates. I already made one, I tell you one and I spent 2 hours time. Certainly, we need to find a CEO that should understand how to develop and manage high-end brand. One, we need to -- the same CEO needs to have experience also in managing a retailer. And the last and not the least, should also experience in operation because we are a company which we design a product, we manufacture product, we sell the product through the retailer. We are a global company so I mean it's not easy, but certainly, we will continue to do the search. There are certainly some people capable to manage our company. But that's -- we are going forward, be sure about that because I like to be the president of the company. I cannot be everything. I'm here to add to the company, obviously, because I feel responsibility for that. David Kanen: I'm going to try and squeeze one more question in there. My apologies. So the last quarter you reported was second, the June quarter. Clearly, the third quarter is over, are we basically maintaining the levels that we saw in Q2? Or have things gotten worse? Or are they slightly better in terms of the written orders? Pasquale Natuzzi: I mean I already declared on the press release, David, okay? I mean it's -- I mean, I hope I have been clear. I'm sure that I have been clear because I wrote, I read, I re-read again the press release. So do the same please, all right, and you will then understand the company direction. Operator: [Operator Instructions] We're showing no additional questions at this time. I'd like to turn the floor back over to management for closing comments. Piero Direnzo: So no further questions. Operator: That is correct. Pasquale Natuzzi: Okay. So thank you very much to everyone, to every listener. And I really appreciate your attendance. Thank you. Thank you very much. Piero Direnzo: Bye-bye.
Operator: Thank you for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation Conference Call on the Third Quarter 2025 Financial Results. We have with us Mr. Takis Arapoglou, Chairman of the Board; Dr. Nikolas Tsakos, Founder and CEO; Mr. George Saroglou, President and Chief Operating Officer; and Mr. Harrys Kosmatos, Co-CFO of the company. [Operator Instructions] I must advise that this conference is being recorded today. And now I pass the floor to Mr. Nicolas Bornozis, President of Capital Link and Investor Relations Adviser to Tsakos Energy Navigation Limited. Please go ahead, sir. Nicolas Bornozis: Thank you very much, and good morning to all of our participants. As you mentioned, I'm Nicolas Bornozis, President of Capital Link and Investor Relations Adviser to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the 9 months and third quarter ended September 30, 2025. In case you do not have a copy of today's earnings release, please call us at (212) 661-7566 or e-mail us at ten@capitalink.com, and we will have a copy for you e-mailed right away. Please note that prior to today's conference call, there is also a live audio and slide webcast which can be accessed on the company's website on the front page at www.tenn.gr. The conference call will follow the presentation slides, so please, we urge you to access the presentation slides on the company's website. Please note that the slides of the webcast presentation will be available and archived on the website of the company after the conference call. Also, please note that the slides of the webcast presentation are user controlled, and that means that by clicking on the proper button, you can move to the next or to the previous slides on your own. At this time, I would like to read the safe harbor statement. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of operations. And before turning the call over to Mr. Arapoglou, let me take the opportunity to congratulate Dr. Tsakos for your recent recognition in New York by the Philoptochos Society of the Greek Orthodox Cathedral, paying tribute to your personnel and the group's contribution to the Global Maritime Industry to Philanthropy, Education and Community Welfare. Congratulations. And at this moment, I would like to pass the floor to Mr. Arapoglou, the Chairman of Tsakos Energy Navigation. Please go ahead, sir. Efstratios-Georgios Arapoglou: Thank you, Nicolas. Good morning, and good afternoon to all. Thank you for joining us today for the announcement of the 9 months and third quarter results of 2025. No surprises. Our business model continues producing sustainable profits, beating estimates, as you saw, while at the same time, building up a solid stream of $4 billion of accretive future contracted revenue. This provides stability and more predictability in our results going forward, as we explained many times in the past and mitigate volatility in our stock price while maintaining a very solid cash position of nearly $300 million. These results are a product of high fleet utilization, best-in-class operating efficiency by now a trademark for TEN. We're reminding the market of our record 20 Vessel Newbuilding Program with deliveries starting Q1 2026 until Q4 2028, 10 of which the shuttle tankers with long-term accretive employment. The program includes, of course, 3 VLCCs, materially growing our presence in the sector -- in this sector of the market. At the same time, and as mentioned earlier, in earlier communications, we are focusing on selling our older tonnage in order to continue maintaining a young and very modern fleet. Lastly, as mentioned in our press release, after the $0.60 per share interim dividend in July, we declared payment of an additional $1 per share dividend. This will be paid in 2 equal tranches of $0.50 each, one in December 19, 2025, and one in February 19, 2026, in order to, going forward, gradually align dividend date to the timing of audited results as Nikos Tsakos will explain later. At today's stock price, the total dividend of $1.60 per share for the year represents a very attractive yield of over 4%. So congratulations once again to Nikos Tsakos and his team. Their proven track record and business model in a market with stronger tanker fundamentals and turbulent geopolitics. This ensures continued success. Thank you very much, and over to you, Nikos. Nikolas Tsakos: Chairman, thank you, and welcome, everybody, to our 32nd year 9 month call. First of all, I would like to congratulate Clio Hatzimichalis for becoming a full -- she is our lawyer keep us out of trouble for all this year. So we're very happy for her to join the main Board of the company and looking to spend much more time, productive time. Well, in September, when we reported our 6-month results, I think we were all satisfied. They were good results. We did not expect the market to take -- to become even better, even stronger. And that's where we are today. I think we're perhaps more than 50% higher on the spot market than we were back in September, which we were very satisfied having gone through the typical seasonal period and being with a lot of profitability. We had a couple of months of lull waiting for the developments of the IMO saga, I would say. I think rightly so, the postponement has been achieved, and that allows the shipowners and the related parties to this industry to be able to put more input and find solutions going for the -- going forward. So I think we welcome this development. Since that development has put the world in -- at peace, the end of too much tariffing each other has also been achieved and the market has gone from strength to strength. We are seeing a market which has limited supply of tonnage. And all our vessels right now are in very high demand. I was glad that we, of course, were way ahead of -- or beat the estimates, and we're looking forward because I think the quarter we're going through now is also going to be a very strong quarter. We just concluded our fourth long-term profit sharing almost arrangement today on our VLCCs with a very accretive minimum rates, minimum rates that we would be happy to have as fixed rates many years before, and that would be a minimum rate and then with unlimited upside for the company. And with this part of good news, I will ask George Saroglou, our President, to give us a quick update of what has happened in the last 9 months. George Saroglou: Thank you, Nikos. We are pleased to report today on another profitable quarter. Tanker markets have remained healthy during the course of the year. And as Nikos mentioned, energy majors continue to approach our company for time charter business. Since the start of the year, we have 40 new time charter fixtures and extension of time charters. And today, we have a backlog of approximately $4 billion as minimum fleet contracted revenue. We have a 32-year history as a public company. From 4 vessels in 1993, we have turned every crisis the world and shipping has faced through the years into a growth opportunity. And we have faced many crisis since the start of the new decades, a lot of which we did not actually expect. We faced a global COVID crisis in 2020 with lockdowns and unprecedented collapse in global oil demand. Then as the world was exiting COVID and we were trying to go back to normal, we've had the war in Ukraine in 2022 and a major -- which resulted in major disruption in energy trading. Then in late 2023, we had the attack of Hamas in Israel and the ensuing war and the continuous attacks of merchant vessels in the Red Sea until most of the shipping people decided not to cross the Red Sea anymore. The turmoil in the whole of Middle East, the unwinding of globalization, the introduction of tariffs in 2025, trade wars between the United States and China and the rest of the world and the decarbonization efforts of many global industries, including shipping, which, as you know, has the lowest carbon footprint when we compare while at the same time, it's the most efficient way to transport different land-scale cargoes around the world. So a lot to do in such a short time. So far, we have managed to navigate the TEN ship safely through these challenges, thanks to the company's crisis-resistant model. Let's hope we go back to more peaceful and normal times for all very soon. Today, TEN is one of the largest energy transporters in the world with a young, diversified, versatile fleet of 82 vessels, a pro forma fleet of 82 vessels. So in Slide 4, we list this pro forma fleet, and we start with the conventional tankers, both crude and product tankers. The red color shows the vessels that trade in the spot market, and we have 7 as we speak, and our new buildings under construction. With light blue, we have the vessels that are on time charter with profit sharing, 16 vessels and with dark blue, the vessels that are on fixed rate time charters, 39 vessels. In the next slide, we list the pro forma diversified fleet, which consists of our 2 LNG vessels and our 16 vessel shuttle tanker fleet. We are one of the largest shuttle tanker operators in the world with very young and technologically advanced vessels following the tender we won earlier in the year in Brazil, building the Samsung shipyard in South Korea, 9 shuttle tankers for Transpetro. We have 6 shuttle tankers in full operation after recently taking delivery of both Athens 04 and Paris 24, which commenced long time charters to an energy major. If we combine the 2 slides and account only for the current operating fleet of 62 vessels, 23 vessels or 37% of the operating fleet has market exposure, spot and time charter with profit sharing, while 55 vessels or 89% of the fleet is in secured revenue contracts, that is time charters and time charters with profit sharing. Our clients with whom we do repeat business through the years are the blue chip list of our world. ExxonMobil is the largest revenue client, followed by Equinor, Shell, Chevron, Total and BP. We believe that over the years, we have become the carrier of choice to energy majors, thanks to the fleet that we built, the operational and safety record, the disciplined financial approach and the strong balance sheet and financial performance. The left side of Slide 7 presents the all-in breakeven cost for the various vessel types we operate in TEN. Our operating model is simple. We try to have our time charter vessels generate revenue to cover the company's cash expenses, paying for the vessel operating and finance expenses, for overheads, chartering costs and commissions and let the revenue from the spot and profit-sharing trading vessels contribute to the profitability of the company. And thanks to the profit-sharing element for every $1,000 per day increase in spot rates, we have a positive $0.09 impact on the annual EPS based on the number of TEN vessels that we currently operate in -- have exposure to spot rates, and that is 23 vessels. We have a solid balance sheet with strong cash reserves. The fair market value of the operating fleet is approximately $4 billion against $1.9 billion debt, and the net debt to cap is around 47%. Fleet renewal and investing in eco-friendly greener tankers has been key to our operating model. Since January 1, 2023, we have further upgraded the quality of the fleet by divesting from our first-generation conventional tanker, replacing them with more energy-efficient newbuildings and modern secondhand tankers, including dual fuel vessels. In summary, we have sold 17 vessels with an average age of 17.3 years and capacity of 1.4 million deadweight tons and replaced them with 33 contracted and modern acquired tankers with an average age of 0.6 years and 3.4x the deadweight capacity of the vessels we sold. We continue to transition our fleet to greener and dual fuel vessels. We are currently one of the largest owners of dual fuel LNG-powered Aframax tankers with 6 vessels in the water. Global oil demand continues to grow year after every year. OPEC+ accelerated their voluntary production cuts, wars, economic sanctions, sanctions listed tankers and geopolitical events positively affect the tanker market and tanker freight rates. While the tanker order book remains at very healthy levels as a big part of the global tanker fleet is over 20 years. As we speak, almost 50% of the fleet is over 15 years and needs to be replaced soon. And with that, I will pass the floor to Harrys Kosmatos, who will walk us through the financial performance for the third quarter. Harrys? Harrys Kosmatos: Thank you. Thank you, George, and welcome, everyone, to our call. So I'll start with the 9-month highlights. So as the tanker markets continued their upward trajectory propelled by the crude sector and VLCCs in particular, available term rates for crude vessels merited a shift towards fixed employment in order to provide earnings visibility and further safeguard the cash generating ability of the fleet. To this effect and in line with the company's tried and tested employment model, bar some occasional aberrations for opportunistically capturing short-term fix reverted to the norm and operated most of the fleet during the first 9 months of the year in secured revenue contracts. In particular, with a fleet of almost 62 vessels in the water, similar to the corresponding 2024 9-month period, days under secured employment, that is vessels on fixed time charters and time charters for 47 provisions increased by 12%, while days on pure spot experienced a 32% decline. Of interest, days on profit sharing contracts alone increased by 18%, signifying TEN's commitment to maintaining a meaningful presence in the still lucrative spot market. Today, 23 vessels in the fleet, 7 on spot and 16 on profit shares do provide TEN with such operational latitude. As a result of this employment recalibration for the 9 months of 2025, TEN generated $577 million in gross revenues and operating income of $171 million, which incorporated $4.5 million of capital gains from the sale of 4 older vessels. Capital gains during the equivalent 2024 period were at $49 million from the sale of 5 vessels, highlighting TEN's policy to continue the strategic recycling of the fleet with newer, more eco-friendly vessels, new builders in the majority. In line with the above employment pattern and fewer vessels on dry dock compared to the 2024 9 months, 9 now from 11 last year, fleet utilization increased from 92.2% to 96.2% during the 2025 9 months. The fleet's Time Charter Equivalent rate for the first 9 months of 2025 settled at a healthy $30,703. During the 9-month period and in line with the reduction of the fleet's spot exposure explained above, Voyage expenses declined from $118 million in the 2024 9 months to $95 million now, a $23 million betterment. Charter hire expenses also decreased by $4.6 million, whilst vessel operating expenses increased by just over $7 million from the 2024 same period to settle at $155 million. As a result, operating expenses per ship per day for the 2025 9 months averaged still competitive $9,797, just 1/3 of the Time Charter Equivalent rate mentioned above. Depreciation and amortization came in at $126 million for the 9 months of 2025 from $118 million in the 2024 9 months, reflecting the introduction of 3 newbuilding vessels and the new depreciation calculation on the 2 vessels repurchased from lease structures. General and administrative expenses were at $32 million, reflecting the amortization of stock compensation awarded in July 2024, and scheduled to fully vest by July 2026. On the other hand, significant improvements were made in our interest costs as a result of declining global interest rates and despite $126 million increase in the company's debt obligations from the 2024 9 months due to new loans for TEN's Newbuilding Program. $72.7 million of interest costs now compared to $87.4 million in the 2024 9 months, a near $50 million saving. At the end of the 2025 9-month period with 61.2 vessels on average in the quarter and the 20 Vessel Newbuilding Program, our total debt obligations were at $1.9 billion, while net debt to cap stood at a comfortable 47.3%. TEN's loan-to-value for the 2025 9-month period was at a conservative 50%. Interest income came in at $7.7 million, a meaningful contribution. As a result of the above, the company during the first 9 months of 2025 generated a healthy net income of $103 million, which translates to $2.75 in earnings per share. Adjusted EBITDA for the 2025 9 months was at about $290 million, while cash at hand as of the end of September 2025, stood at a healthy $264 million after having paid $135 million in scheduled principal payments, $178 million in yard predelivery installments and capitalized costs and $20.3 million in preferred share coupons. And now let's move to the quarter 3 highlights. The third quarter of 2025 experienced similar movement in fleet employment patterns, which led to fleet utilization increasing from 92.8% in last year's third quarter to 94.8% during this year's third quarter, despite 4 vessels undergoing scheduled dry dockings during the period compared to 3 vessels in the 2024 third quarter. With vessels in the water slightly under the level of the 2024 third quarter, the fleet generated $186 million of gross revenues and $60.5 million in operating income, which included $8.9 million, call it $9 million of capital gains from the sale of 3 older vessels and not the similar performance from last year's third quarter, which did not incorporate any gains or losses from vessel sales. The resulting Time Charter Equivalent per ship per day was at $30,601, in line with the focus of diminishing our presence in the spot markets. Naturally, voyage expenses during the year's third quarter were lower compared to last year's third quarter, experiencing a $7.7 million decline to settle at $27.4 million. Operating expenses, on the other hand, increased in line with the introduction of 3 larger vessels and settled at $52 million. The resulting operating expenses per ship per day for the third quarter of 2025 came in at $9,904, again, ahead of the fleet average TCE and still competitive, thanks to the efficient and proactive management performed by TEN's technical managers. Depreciation and amortization were a touch higher from the 2024 third quarter levels at $42.4 million, again, reflecting the new vessel introductions and the 2 suezmax repurchased from sale and leaseback agreements. General and administrative expenses were $5 million lower from last year's third quarter at $9.2 million. Interest costs, again, following the downward trend in interest rates came in at $23.7 million from $32.2 million during last year's third quarter. In other words, savings of $8.5 million. On top of that, another $2.1 million in cash gains was realized through the interest income generated during the 2025 third quarter. As a result of all the above, TEN during the third quarter of 2025 reported $38.3 million of net income or $1.05 in earnings per share. The adjusted EBITDA during the third quarter of 2025 settled at about $96 million, reflecting the shift towards longer-term secured revenue contracts to meet our clients' increasing long-term demand. And with this, I pass it back to Nikos. Thank you. Nikolas Tsakos: Good. Thank you, Harrys. Since the figures are good, we didn't talk about them a lot. But as I said, I think we had good results in the first 6 months. The market had a long period, really expecting the developments of the net zero discussions at the IMO. And after the extension of the discussions, the market has taken off again, and we are looking at the business coming very strong in the spot market and a lot of employment. As we said today on our VLCCs has been extended for another 2 years and there's a huge appetite for business out there. There's an increasing presence of the gray fleet, a lot of breakdowns on those ships. And of course, we are going through, again, more than expected geopolitical challenges with hijacking of vessels like the recent one from Iran and the Somalia piracy on both on Greek vessels outside -- quite outside 500 miles away from the Somalia growth. So there's a lot of interference. And in the meantime, this has created a nervousness in the market going forward, which we are able to take advantage with our chartering strategy I described with 40 new ships totaling $4 billion of extended business over the next 5 years. And with that, we would like to open the floor to any questions. Operator: [Operator Instructions] Our first question comes from the line of Climent Molins with Value Investor's Edge. Climent Molins: I wanted to start by asking about the 12 VLCCs coming open throughout this month. You mentioned in the press release that the employment on the DS1 has been extended for 2 years. Could you clarify at what terms? And secondly, based on your data kit, the Ulysses should also come open this month. How do you plan to employ this vessel? Is there any appetite to trade on spot? Nikolas Tsakos: Yes. Thank you for your questions. We are trying right now to protect our ships from being actually hijacked by the major oil companies. So it's -- but joking apart, I think we are seeing a significant increase, a 20% increase from our profit-sharing arrangements of the past from our minimum profit sharing arrangements. So there is a significant appetite for the vessels out there. I cannot -- perhaps if you -- next week when you see Harrys in the states, he can give you more details on that. But of course, it's quite a positive situation. Climent Molins: Makes sense. I'll reach out. I also wanted to ask about the Maria Energy. It is fixed until February of next year, but the long-term contract you signed a while ago doesn't start until May, if I remember correctly. Do you plan to trade the vessel on spot once it comes off its current contract and before it starts the next one? Nikolas Tsakos: The vessel is actually fixed back to back to a 15-year employment. So there won't be any downtime between that other than the survey that she will have the scheduled survey, which will have to go before the delivery of this in April. So the vessel has been chartered back to back until she goes to her new charter. So there won't be any downtime. Climent Molins: Perfect. And final question for me. You have a couple of MR newbuilds delivering in early '26. Should we expect those to be fixed on long-term contracts before delivery? And should that be the case, what kind of duration are you looking at? Nikolas Tsakos: We're contemplating. As I said, there's a big appetite. We're here with our chartering team. They have, I think, 5 or 6 major oil companies looking for those ships. As you know, we're a big participant in the Cargill-Maersk pool. We're very happy with that performance of that pool. And I've been saying that for us, the best method or the only method of consolidation in our industry is through commercial pooling because whoever has a fleet of our size or smaller or around or bigger does not really -- you do not gain any economies of scale of just ordering more and more and more ships and running more ships because the ships are always there. So we are supporting the pool, and we're -- the pool has performed quite well. And we might be considering also pooling. Pooling gives you the upside of -- gives you full utilization and the upside of a spot market. Operator: Our next question comes from the line of Poe Fratt with Alliance Global Partners. Charles Fratt: Some of the questions were covered already, but when I look at your newbuild program, close to 20 major commitment. What are you looking at as far as the fleet renewal side? You've been active selling assets. Asset values are fairly firm in my mind. So what should we anticipate over the next, call it, year or so as far as on the asset sales side? Nikolas Tsakos: Our -- I say we are close to negotiating 5 of our first-generation vessels. And so if you put it in a 12 month -- if you put it -- if you take a 12 months forward, I think it would be perhaps double that, 10 vessels. We're looking to the transactions we have in mind would release close to $250 million of net cash, which is more than enough of what we need for our newbuilding program. Operator: Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Dr. Tsakos for any final comments. Nikolas Tsakos: Thank you. Well, I hope, first of all, thank you for listening in. The market looks getting firmer and firmer. And from what I understand from my kids that are studying on the East Coast, the weather is [indiscernible] yet. So we're looking for further call. We're looking forward to continue with this positive market. Right now, we're taking advantage as much as possible with the team. And I would like to wish everybody a happy Thanksgiving next week. And don't forget that the TEN's share price is right now on Black Friday prices. So before next Black Friday, you buy some more of that. And I will ask our Chairman to have a final word. Thank you. Efstratios-Georgios Arapoglou: Happy Thanksgiving for me, too. I think that we're looking forward to beating all estimates next time around, touch wood. And again, congratulations to Nikos Tsakos team for excellent performance. Nikolas Tsakos: Thank you all. Happy Thanksgiving. Thank you. Efstratios-Georgios Arapoglou: Thank you. Bye. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to the NetEase Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brandi Piacente. Please go ahead. Brandi Piacente: Thank you, operator. Please note that today's discussion will contain forward-looking statements relating to the future performance of the company and are intended to qualify for the safe harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect NetEase's business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including its annual report on Form 20-F and in announcements and filings on the Hong Kong Stock Exchange's website. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the third quarter 2025 earnings release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the NetEase corporate website at ir.netease.com. Joining us today on the call from NetEase's senior management are Mr. William Ding, Chief Executive Officer; Mr. Zhipeng Hu, Executive Vice President; and Mr. Bill Pang, Vice President of Corporate Development. I will now turn the call over to Bill, who will read the prepared remarks on William's behalf. Bill Pang: Thank you, Brandi, and welcome, everyone, to today's call. Before we begin, I would like to remind everyone that all percentages are based on RMB. The third quarter marked continued momentum and strong execution across our NetEase family. By uniting creativity with exceptional operations, we created more meaningful connections with players, driven by our diverse portfolio of games that expanded our global reach and reignited our player enthusiasm for our key franchises. Total revenues increased 8% year-over-year, reaching RMB 28.4 billion in the third quarter, and revenues from our games and related VAS grew 12% in the third quarter compared with the same period last year. Innovative creativity and long-term operation remain the defining force behind NetEase's ongoing player engagement and global expansion, whether for new launches or established titles. Our teams are dedicated to delivering unexpected gaming experiences and responsive live services that are winning over players worldwide. This strategic creative approach continued to gain traction overseas, amplifying the influence and excitement of multiple games in the third quarter, including our new releases. Destiny: Rising, our new free-to-play mobile sci-fi RPG shooter quickly topped iOS download chart in the United States and other major Western markets following its global launch on August 28. The game has received widespread acclaim, securing leading positions on iOS download chart across nearly 100 markets worldwide, featuring Destiny's iconic powerful game gunplay across diverse mode setting new time line. The game has earned positive feedback from long-time fans, while gaining traction within the broader shooter game community. The excitement continued in China, where Destiny: Rising debuted on October 16 and immediately topped our downloading chart, drawing in players nationwide to experience the streaming shooting action at their fingertips. Marvel Rivals continues to captivate superhero shooter fan base around the world. Kicking off its fourth season on September 12, the game introduced a wealth of refreshing new content, features, special events and team-ups. Following the update, it reached #3 on Steam's global top seller chart. The new map, K'un-Lun: Heart of Heaven transport players to the Asian East, while the debut of Angela and eagerly anticipated Vanguard spurred excitement across the player community. Additionally, inspired by Marvel Animation's Marvel Zombies, a limited time PvE Zombie mode was released, featuring challenging bosses, Zombie Namor and Queen of the Dead just in time for Halloween. Beyond the game, Marvel Rivals Ignite celebrated its grand finals at DreamHack Atlanta, held in collaboration with ESL FACEIT Group. Elite players from around the world showcased their exceptional skills and strategies, drawing massive engagement both on-site and online and reflecting Marvel Rivals growing appeal. As we continue to enrich our global portfolio through diverse partnerships, our original titles are also gaining increasing momentum worldwide. Delivering a distinctive survival open world experience to players globally. Once Human launched engaging updates in the third quarter [ organizing ] its growing global community. On October 30, the game introduced a major new scenario centered on the capture and customization of deviations alongside a significant refresh of the PvP experience that provides more intense combat options. The highly anticipated collaboration event with the global hit game Palworld also went live on the same day, bringing popular pros to a dedicated in-game island, which further invigorated the player community. We recently shared some of our upcoming international expansion plans at worldwide gaming events like Gamescom and Tokyo Game Show 2025, generating even more excitement in the community with engaging player interactions. We exhibited Where Winds Meet at Gamescom 2025, showcasing our creative ambition in cultural storytelling and next-generation Wuxia World building. In China, Where Winds Meet continue to captivate Wuxia fans with its narrative-rich setting, authentic Chinese martial arts theme and innovative gameplay that combines single and multiplayer. Each newly unveiled district not only engages our existing fans, but also attract new players, driving continued growth in both revenue and monthly active users to new highs in the third quarter. On November 14, we brought Where Winds Meet [indiscernible] open-world featuring dynamic combat to the global market on both PC and PlayStation 5. Within just 2 days, we achieved a peak of 190,000 concurrent players, secured the #5 spot among the most played games and #4 position for top seller globally on them. Additionally, it became one of the top 10 bestsellers across the United States, Germany, France and several other regions on PlayStation. This underscores the widespread appeal of our captivating Wuxia universe to an even broader audience. To further enhance community engagement, the mobile version has commenced preregistration and is set to launch soon. Our highly anticipated title, Ananta, also garnered significant attention at the Tokyo Game Show. Players showed enthusiasm for in-depth game trailers and engaging hands-on playcasting. They will draw in by the game's imaginative action design, high-fidelity visuals and modern urban storytelling. Setting a dynamic and immersive city environment, Ananta blends high-energy action with open-world freedom, offering players an experience that goes well beyond conventional gameplay. We are pleased to see mounting excitement and anticipation among this title, including recognition from the Japan Game Award 2025 Future Division, where it was named as one of the most promising upcoming games. Our groundbreaking MMO, Sword of Justice went global across mobile and PC platform on November 7, topping the iOS download chart in multiple regions. The international release included AI-powered MPCs and intelligent face creation system. We showcased this at the Tokyo Game Show in September, highlighting how emerging technologies are reshaping gameplay experiences. Sword of Justice also continued to engage domestic players in the third quarter with its ever-evolving gameplay and rich content. With the global version now live, Swords of Justice is bringing its immersive world and cutting-edge AI enhancement to broader international audience. On top of the new releases we have brought to the international stage, our established games are also gaining steam in multiple regions worldwide. Our realistic car simulation game, Racing Master has continued to gain popularity overseas through localized content, making it highly resonate with players in Japan since it launched there last year. Player engagement spiked in August during its anniversary celebration with carefully designed in-game content, boosting the game's performance in Japan. Exciting e-sports events like the Racing Master 2025 Legendary Cup Finals held in Bangkok in August, brought passionate racers and fans from across Asia together, uniting Racing Master's distinctive global community. As firm believers in live operations, we stay closely attuned to players' evolving expectations across every title, and our domestic games continue to deliver strong performances. Each game update present new opportunities to entertain, engage and grow our communities. This approach continues to resonate with players, driving steady growth across our domestic portfolio for both new titles and games that has been around for decades. Fantasy Westward Journey Online, one of our longest running flagship titles at 22 years and counting, amplifies our dedication to sustain high-quality operations. The game is built around an inclusive ecosystem that allows players of all types to find enjoyment. We continue to inject fresh vitality through new features and mechanics. In July, we launched our innovative unlimited server, which offers classic gameplay under a popular modern model that eliminates the entry barrier of upfront time-based payments. This generated substantial enthusiasm from long-time fans and newcomers alike, significantly boosting player engagement. As a result, it has achieved 4 successive record peaking concurrent player counts since the third quarter, reaching a height of 3.58 million in early November. Fantasy Westward Journey Mobile also continues to evolve as we regularly introduce new features that players love. To meet players' demand, we launched our new casual server, which is designed for fun and streamlined play. It offers Fantasy Westward Journey Mobile's signature gameplay in a lighter format featuring simple progression, low threshold and intuitive controls. With a surge of new and returning players, monthly active users reached a 2-year high in September. Another long beloved MMO, Tianxia, continues to engage its community with deeply resonated updates. In October, we concluded closed beta testing for Tianxia II Classic. This version recreates the game's iconic art style and slower paced gameplay, allowing players to experience its distinctive Chinese cultural event. Meanwhile, the existing Tianxia client will undergo a complete upgrade with player progression seamlessly shared with Tianxia: Wanxiang the brand-new cross-platform client powered by Messiah, our flagship in-house engine. The upgrade will both enhance graphic quality and expand access for players across PC and mobile platforms, allowing them to experience the Messiah universe everywhere. Identity V fan base maintained a high engagement level in the third quarter, supported by our steady cadence of seasonal updates and partnerships. New characters released along with each season update, including Hunter of QS and the Survival of Lanternist in the third quarter, infused new energy into Identity V's distinctive role, reinforcing Identity V as a top destination for asymmetric gameplay fans. In addition, the game's collaboration with the Palace Museum Classic on September '25 added Majestic rooftops of Forbidden City to Identity V's manner, adding a new layer of cultural depth. Eggy Party also experienced robust growth with the third anniversary celebration in July, sparking renewed enthusiasm across the player community. Daily active users exceeded 30 million and average play time hit record high, driving historical engagement level. Two new gameplay modes quickly followed in September. [ Spooky Treasure ] Squad presents an intense extraction experience and Crazy Farm introduces a casual and social farming simulator. Both were highly praised and attractive way of returning users during the National Day holiday. Meanwhile, we continue to evolve Eggy Party's AI-powered AIGC tool, making its map design faster, easier and more enjoyable. We believe that together, these innovations are keeping Eggy Party fresh and its community inspired. Thanks to this ongoing effort, we saw Eggy Party's performance recover to historical peak level in both daily active user and average play time, which we expect will pave the way for smooth development in the coming years. Another example of our player-first philosophy and commitment to innovative high-quality content is Onmyoji, one of China's earliest and most iconic anime style games. On September 10, we launched its ninth anniversary celebration, featuring rich new content and gameplay updates shaped by player feedback. The highlight was a new character Yuki Gozen whose beautifully crafted CG trailer gained widespread attention on social media from both long-time fans and broader anime community. It was broadly inherited for its innovative use of stereoscopic screen and 2D animation tags to create a naked-eye 3D visual effect. With strong community support, Onmyoji quickly entered China's top 10 iOS download chart, demonstrating the vitality of this enduring IP and the strength of our long-term operations. Our commitment to engaging players and continuous innovation is also evident in Naraka: Bladepoint. In the third quarter, we rolled out new heroes and exciting collaborations such as Armor Hero in September and the time-limited return of Nier in October. Naraka: Bladepoint esports present is also growing. The 2025 Naraka: Bladepoint Pro League, NBPL, autumn season marked its first professional league since being selected for the 2026 Aichi-Nagoya Asian Games, culminating its rolling finals in October. Now in its fourth year, NBPL has become the cornerstone of Naraka's esports ecosystem and China's top professional league for the title, driving increasing social media engagement across major platforms. We continue to expand our domestic portfolio with new lighthearted experiences that appeal to a wider range of audience. [indiscernible] our MMO featuring magical heartwarming creatures inspired by Chinese fairy tales, has built a dedicated fan base since its launch in August, designed with a portrait interface for easy one-handed play. The game combines the joy of capturing and nurturing creators with strategic term-based combat and building a homeland for them to thrive in. Backed by our players and supported by world-class partners and global teams, we're building enduring collaborations that keep expanding what's possible in gaming. Blizzard titles continue to elevate the gaming experience for Chinese players. World of Warcraft rolled out updates across both classic and modern servers during the third quarter, sustaining strong engagement among long-time fans and newcomers alike. To further enhance localized experience, the game just launched a highly anticipated China-exclusive Titan Reforged server this week, blending the nostalgia of classic expansions with modern gameplay elements. The new server fulfills players long-awaited expectations and has reignited excitement across the World of Warcraft community. Overwatch 2 has also recently introduced a new Chinese hero, Wuyang, further deepening the game's diverse roster of characters. Meanwhile, Hearthstone celebrated its 11th anniversary, amassing over 100 million registered players in China. A series of special anniversary events drove enthusiastic participations from both loyal fans and newcomers to the game. The Diablo franchise also continued to capture attention. Diablo 2 resurrected, the legendary remaster of the installment that helped define the franchise returned to China on August 27. Newest season released in October pushed the game's daily active player base to record high. In parallel, Diablo IV, the latest blockbuster bringing the series signature dark aesthetics to a new height, were launched in China on December 12. Furthermore, the genre-defining real-time strategy game, Starcraft II, also returned on October 28, triggering excitement among fans. Minecraft China Edition, the localized version of the globally popular sandbox game, reached 1.25 million concurrent players on August 17, an impressive milestone in its eighth year of operation. Committed to nurturing its UGC ecosystem, the game continues to enhance creation tools and expand exposure for community creators, now supporting over 300,000 creators. By delivering enriched locally tailored experiences, Minecraft China Edition has fostered a highly engaged and loyal player community. Beyond above titles, other globally renowned franchises in our portfolio also continue to thrive in China, engaging vast creative community and expanding local ecosystems. Along with our expanding global presence and evolving development capabilities, our domestic community continue to thrive. Regardless of geographies or genre, we'll continue to put player first and work closely with our partners to deliver memorable high-quality experiences across our beloved franchises and existing new titles still yet to come. Turning to Youdao. Youdao continued to solidly execute its AI native strategy in the third quarter with healthy development of both its education and advertising businesses. For learning services, Youdao Lingshi grew gross billing by over 40% year-over-year in the third quarter. Notably, they partnered with the Yau Mathematical Science Center of the Tsinghua University, providing technical support to a platform, which is designed to identify and support mathematically gifted students. The platform is currently being piloted in top-tier schools with a national rollout plan following further refinement. Youdao's online marketing services achieved robust growth in the third quarter. As we advance the use of AI across multiple advertising processes, we further enhanced our expertise in programmatic advertising and influencer marketing campaigns, elevating the efficiency and effectiveness of advertising. For smart devices, we continue to enrich our offerings with technology upgrades. In the third quarter, we launched a new tutoring pen, Youdao Space X, which features a series of intelligent capabilities such as precise scanning for long-form and multi-graphic problems to help students learn more effectively. Turning to Yanxuan. The business continued to perform well across major e-commerce platforms, led by steady development in its core categories such as pet food, home sense and home goods. Propelling technology-driven innovations, Yanxuan's product launches have consistently stood out in the market. Its new pet food product is a refined production process, making it smoother and easier for pets to digest, earning a widespread praise for addressing common digestive issues. Across the NetEase family of businesses, we continue to build on our foundation of creativity, quality and disciplined execution. Looking ahead, we are focused on advancing our development capabilities and global reach, scaling our original IP into lasting franchises and elevating every experience we deliver. Guided by innovation and the trust of our communities, we're shaping a future defined by meaningful growth and enduring impact. That concludes William's comments. I will now provide a brief review of our 2025 third quarter financial results. Given the limited time on today's call, I'll be presenting abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. As a reminder, all amounts are in RMB unless otherwise stated. Total net revenue for the third quarter were RMB 28.4 billion or USD 4 billion, representing an 8% increase year-over-year. Total net revenue from our games and related VAS were RMB 23.3 billion, up 12% year-over-year. Specifically, net revenues from online games were RMB 22.8 billion, up 3% quarter-over-quarter and 13% year-over-year. The quarter-over-quarter increase in online games net revenue was due to higher net revenues from self-developed games such as Fantasy Westward Journey Online and Sword of Justice as well as certain licensed games. The year-over-year increase was attributable to higher net revenue from self-developed games such as Fantasy Westward Journey Online, Eggy Party and newly launched Where Winds Meet and Marvel Rivals as well as certain licensed games. Youdao's net revenue reached RMB 1.6 billion, representing a 15% increase quarter-over-quarter, driven by growth in smart devices and online marketing services. Year-over-year revenue rose by 4%, attributed to a higher contribution from online marketing services. NetEase Cloud Music net revenue of RMB 2 billion, stable quarter-over-quarter, but down 2% year-over-year. Notably, revenue from membership subscriptions continued to show healthy growth both sequentially and year-over-year. Revenues from social entertainment services and others, though still lower compared with the same period last year, stabilized quarter-over-quarter. Net revenues for innovative business and others were RMB 1.4 billion, down 15% quarter-over-quarter and 19% year-over-year. The sequential decline was mainly driven by Yanxuan due to its high base during the 618 e-commerce festival. The year-over-year decrease reflected an increase in certain intersegment transaction elimination and to a lesser extent, decreased net revenue from Yanxuan and certain other businesses. Gross profit for the third quarter of 2025 was RMB 18.2 billion, up 10% year-over-year, primarily driven by increased net revenue from online games. This quarter, our total gross profit margin was 64.1%. Looking at our third quarter margin in more detail. Gross profit margin was 69.3% from games and related VAS compared with 68.8% in the same period of last year. The improvement was mainly driven by a higher mix of PC games in China, which typically have higher margins. Our gross profit margin for Youdao was 42.2% compared with 50.2% in the same period last year. The decrease was mainly due to the declined gross profit margin of online marketing services. Gross profit margin for NetEase Cloud Music was 35.4% in the third quarter versus 32.8% in the same period a year ago. The margin improvement was primarily driven by steady growth in our core online music business with lower contributions from social entertainment and other lower-margin services. For innovative business and others, gross profit margin was 43.0% compared with 37.8% in the third quarter of 2024. Despite the impact of intersegment elimination mentioned earlier, the improvement was mainly driven by better margins at Yanxuan and the higher revenue contribution from certain innovative business with relatively stronger margins. The total operating expenses for the third quarter was RMB 10 billion or 36% of our net revenue. Taking a closer look at our cost composition. Our sales and marketing -- our selling and marketing expenses as a percentage of total net revenue were 15.7% compared with 14.5% for the same period last year, primarily due to increased marketing expenditure related to online games. Our R&D expenses maintained stable at 16% of total net revenues in the third quarter compared with 16.9% for the same period last year, reflecting our consistent investment in content creation and product development. The effective tax rate was 13% for the third quarter. As a reminder, the effective tax rate is presented on an accrual basis in accordance with applicable policies and our operations. Our non-GAAP net income attributable to shareholders for the third quarter totaled RMB 9.5 billion or USD 1.3 billion, up 27% year-over-year. Non-GAAP basic earnings per ADS for the quarter was USD 2.09 or USD 0.42 per share. Additionally, our cash position remains robust with net cash of approximately RMB 153.2 billion as of September 30, 2025, compared with RMB 142.1 billion at the end of last quarter. In accordance with our dividend policy, we are pleased to report that our Board of Directors has approved a dividend of USD 0.11 per share or USD 0.57 per ADS. The company announced today that its previously approved share repurchase program of up to USD 5 billion for the company's ADS and other shares in open market or other transactions will be extended for an additional 36 months until January 9, 2029. As of September 30, 2025, approximately 22.1 million ADS has been repurchased under this program for a total cost of approximately USD 2 billion. Thank you for your attention. We would now like to open the call to your questions. Operator, please. Operator: [Operator Instructions] Your first question comes from Xueqing Zhang with CICC. Xueqing Zhang: [Foreign Language] [Interpreted] Congratulations on the third quarter. My question about Fantasy Westward Journey. Given that FWJ PC has consistently set new record for online player count since this summer, we would appreciate that the company is sharing its operational structure for this evergreen title. And we have several follow-up questions on it. Firstly, what's the core driving factors behind the unlimited player server. And secondly, what's the user profile? What's the ratio of retaining players to new players. And lastly, is this model replicable across other flagship titles? William Ding: [Foreign Language] Bill Pang: [Interpreted] Okay. I'll do the translation. The longevity of Fantasy Westward Journey online PC is based on highly stable economic system and unique enriched gaming experiences which are very rare in most other games. Our team has been dedicated to providing sustainable fun experience, stable ecosystem and innovative content. This commitment has been recognized and appreciated by the players as well as we can see from the market. In the unlimited server, we have removed the upfront time-based payment, streamlined the gameplay and systems, offered a lighter gameplay format, while preserving the core designs that has evolved in our classic server over time. Compared with the comprehensive and diverse game experience on the content, unlimited server offers enjoyable experiences in the simple -- more simple direct manner with a smooth learning curve, unlimited server has attracted both many former players back to the game as well as new players. This user demographic of unlimited server actually also benefited the classic server by introducing additional new and returning players. Fantasy Westward Journey online as a legacy game has been operated for 22 years. We remain committed to the innovation and diversified experience to meet -- continues to meet the demand from our community. Looking ahead, we will continue to focus on long-term development, providing our broad player community with various choices in one game. Operator: Your next question comes from Thomas Chong with Jefferies. Thomas Chong: [Interpreted] Can management comment about the gaming trend in China as well as overseas. On the other hand, can management also talk about the overseas expansion strategy? William Ding: [Foreign Language] Bill Pang: [Foreign Language] [Interpreted] Okay. I will do the translation. During our business operations process of doing business in overseas market, we have accumulated successful experiences, which is powered by the strong development capability we have in-house here. For example, in Japan, we have Knives Out as identified been very popular in national network games. And last December, we released Marvel Rivals globally, super successful. And just November 15 this month, we released Where Winds Meet in global markets. And all this product achieved a very good level of success overseas, and we hear a lot of positive feedback from the community as well. In the -- what we see is that in the overseas market, NetEase as one of the most prominent game developing powerhouses in our industry. And we are the only company that bring the purely truly Chinese authentic online games to global market. For example, Where Winds Meet, it's a very Chinese [Technical Difficulty] and we're the only big successful companies that bring this level of authentic experience to the online gamers globally and received very positive feedback. Looking ahead, we believe we have the capability to bring more and more success cases to overseas markets and provide gamers from the globe with more and more high-quality content and services. We have confidence in that. William Ding: [Foreign Language] Bill Pang: [Interpreted] Yes, there are some further comments from William. One is that actually also in this month, we also rolled out our Sword of Justice into the global market. And of course, 3 years ago, we rolled out Naraka: Bladepoint PC on global market. And as you heard, we showed our games to public for both ANANTA and Sea of Remnants. The market has very big expectations. We showed ANANTA game show this year, and it's been named one of the most promising upcoming games by the Japan Games Award 2025 Future division. NetEase, we are based in China, and we are also carving our territory in the global market. That is what we have been doing. We have some successes, and it's -- we're going to keep doing. Operator: Next question comes from Ritchie Sun with HSBC. Ritchie Sun: [Foreign Language] [Interpreted] Regarding Identity V, we have seen the volatility in grossing and DAU in recent months. Can management discuss the reasons behind it and the strategy to improve the performance? Secondly, World of Warcraft and Hearthstone have returned to China for 1 year already and about to face tough comps. Can management discuss the performance metrics now versus 1 year ago and plans to drive sustainable growth in the future? And the Diablo IV is also coming back soon. Can management discuss the monetization potential considering the more intense competition in the ARPG genre? William Ding: [Foreign Language] Bill Pang: [Interpreted] Okay. I will translate this part first. Indeed, it's true that there has been some influence from competing products during the summer holidays, particularly among general users in lower-tier cities. However, we also have noticed that the impact has eased since the start of back-to-school time. And in fact, talking about September, Identity V actually has reached historical high starting from the new semester compared to the same period in previous years. While Q4 historically has never been the peak season for Identity V, the team is focusing on preparing new content and marketing campaigns for the Chinese New Year cycle. During this period, we observed the demand -- the diversified demands on diversified gameplays from community. So we have been preparing more comprehensive and large-scale side game modes while on the other hand, we're also working on the next chapters of the game. William Ding: [Foreign Language] Bill Pang: [Interpreted] Thank you, Yes. As we approach the end of current expansion of World of Warcraft, it is indeed expected to see decline in performance compared to this launch period. Meanwhile, Hearthstone has steady maintained its cadence of expansion updates over the past years. With different operation strategy from the past, the performance of both games actually maintained higher than status than when the operation closed previously. Moving forward, we'll continue to deepen our collaboration to sustain our unique competitive offerings in the China market. And one specific example I want to give here is the Titan Reforged Server for Warcraft. That indeed was initiated by -- together by our Chinese team and the U.S. team. Together, we set the target and designed together and developed specific for this demand and the result is very good. So that is one example to see by working closer together, we can achieve better result compared to the past. Talking about Diablo, Diablo IV has its own unique quality, and we have brand-new business plans in place for it. We believe it will secure its deserved market share and commercial performance in the ARPG segment after launch. In addition, StarCraft II has achieved record high user engagement since its launch, infusing vitality into the RGS genre. Operator: Your next question comes from Alicia Yap with Citigroup. Alicis a Yap: [Foreign Language] [Interpreted] So just wanted to follow up. I think management earlier mentioned ANANTA was recently showcased at the Tokyo Game Show and has a pretty good feedback. So just wanted to know more details about the user feedback. And then how should we think about the market positioning and also the differentiation of this game? And then it also seems that the game included a pretty decent rich content and also the innovative gameplay. So any comments on that? And then are there any updates regarding the next testing timing and also the official launch timing in 2026 that you can share? William Ding: [Foreign Language] Bill Pang: [Interpreted] We showcased the latest update and playtesting of ANANTA at the Tokyo game show, which attracted significant attention on social media across the world, winning one of the most promising upcoming titles by the Japan Game Award 2025 Future Division. We believe with a blend of colorful quality content, innovative monetization strategy as well as our focus on long-term operations we anticipate the game will secure a new position within the industry ecosystem. We're currently planning to further enhance our development process, the development process is on track now, and we'll proceed with testing and launches as scheduled. And when time comes, we have further updates to share. Operator: Your next question comes from Jialong Shi with Nomura. Jialong Shi: [Foreign Language] [Interpreted] We noticed from media, it seems to us the number of new games in your pipeline every year is smaller than in the past few years. If our observation is correct, just wonder what is your current strategy towards launching new games into the market. And if NetEase does not launch as many new games each year, what will be the growth driver for your online gaming business? William Ding: [Foreign Language] Bill Pang: [Interpreted] Okay. I will do the translation. The whole company will be very focused on our success products. And among the already success product, we'll keep refining and keep focusing. We don't want to distract too much focus to charter many, many new products, which we don't have super confidence. For new projects, we will look at product more prudently and more focused, making sure that whatever new product we're building, it has confidence power in the content market. We actually don't see this to contradict with another. We believe being focused is one of the core competence a company needs to have. That's our view. Operator: Our next question comes from Felix Liu with UBS. Felix Liu: [Foreign Language] [Interpreted] My question is on the recent news of organizational changes in your game department. Will these changes impact the near-term operations of the related games? And how does management think about the current organizational structure under the context of your game strategy? And should we expect more changes to come? William Ding: [Foreign Language] Bill Pang: [Interpreted] Okay, I will do the translation. Regarding the recent adjustment and changes, it's part of the company's normal personnel turnover process and has been carried out without impacting daily operations of our game. That's rest assured. The adjustment is aiming to make the operation more focused and efficient, allowing us to concentrate -- keep concentrating on creating enduring high-quality product. For example, for existing evergreen titles, we asked our teams to stay focused continuously refining and optimizing the games. For new titles that show evergreen potentials, we'll allocate sufficient resources to develop them into Evergreen long-lasting successful games. However, for teams that are not keeping pace with the market trends or user demand, we also must trim decisively to make sure a healthy development of our core initiatives. NetEase has been especially for 28 years, and our commitment to creating high-quality products has remained unchanged. We'll allocate more resources to evergreen titles and provide more opportunities to teams who are creative and willing to innovate. Operator: Your next question comes from Lincoln Kong with Goldman Sachs. Lincoln Kong: [Foreign Language] [Interpreted] So my first question is about AI. So we have actually seen some of the games like Eggy Party or Justice Mobile has already integrated with AI applications. So going forward, for our existing portfolio and the new games, how should we think about AI can bring additional opportunities to our gamers? And the second question is in terms of the future new games. Given that the company now focus more on quality of those new games, so how should we think about the potential important game genre going forward? Specifically like for the shooting game genre globally, I think we have seen a rapid growth. So how would NetEase sort of differentiate ourselves in this shooting genre? William Ding: [Foreign Language] Bill Pang: [Interpreted] Okay. I'll do translation. First of all, regarding the question on AI, we have been using AI in development and AI is very important in game development and operation, and we have accumulated tons of hands-on in this area. And compared -- especially compared to many of our peer companies from overseas, we have more hands-on experience in this area. We have deployed massive resources in the research of AI and how to use AI in the process of game development, innovation and operation. Actually, the user experience is the best answer to guide us on how we should deploy technologies. But we don't think we have time here today for the detailed specific user experience explanations. Regarding your next question on the future direction of product, as we explained, we'll focus on the concentrating resources on building really high-quality flagship products, the product that we have conviction on the success. We won't do aggressively blindly open many projects. That's not our direction. We'll be focused on -- we'll do focused targeted approach to the new project. And in the future coming years, we believe NetEase compared to most -- many other companies in our industry globally, we are one of the companies that has clear vision on the future in future products, and we will make ground breakthroughs. Operator: Your next question comes from Yang Liu with Morgan Stanley. Yang Liu: [Foreign Language] [Interpreted] Let me translate my question. My question is about the Sea of Remnants this new game. Could the management share about the R&D development and expected launch timing? And what will be the commercial strategy for this title? And is there any direct peers or competitor for this game? And what NetEase can do to differentiate? William Ding: [Foreign Language] Bill Pang: [Interpreted] I will do the translation. First of all, the Sea of Remnants is a very important product to us. We focus on that very much. The team has very rich development and operational experience in the company. And the game is built on our self-developed game engine will support both PC, mobile and console as well. On the detailed gameplay and content, we believe we have a clear decisions on how to do that. We believe it's going to be a fresh experience in the market. It's going to be a multi-character cultivation kind of type, but not the traditional way. The sailing experience on the ocean as well as the rich combination between characters and classes, we believe it will bring a fresh unexperienced ocean experience to the gamers. Operator: And that concludes the question-and-answer session. I would like to turn the conference back over to Brandi Piacente for any additional or closing remarks. Brandi Piacente: Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly. Have a great day. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Louise Curran: Good morning, everyone. I'm Louise Curran, Head of Investor Relations at Johnson Matthey, and a very warm welcome this morning to our half year results presentation. Thank you, everyone, for coming along to the Andaz today, and welcome to those joining on the webcast as well. A little bit of admin before we start, if you could please turn your phones off or on to silent. And I'll point your attention to the cautionary statement. I'm very pleased today to welcome Liam Condon, Chief Executive Officer; and Richard Pike, our CFO. In terms of agenda, we'll follow the usual format. Liam will run you through an overview. Richard will then take you through the financial results, and then Liam will cover our strategic progress in the half. And we'll, of course, leave plenty of time at the end for Q&A, both in the room and then on the webcast. And with that, I'll hand over to Liam. Liam Condon: and big congratulations to you on your new role. And a big thanks also to your predecessor, Martin Dunwoodie, who've done great work for us. A warm welcome to everybody here in the Andaz Hotel. I'm really happy there's so many people here, so we can get some heat into the room because it was a very cold morning. And a warm welcome to everybody who's joining us online today. So I'm just going to hit some of the highlights of the half and then talk about some of the key priorities that we're working on that we're going to give you more color on throughout the presentation today. So first of all, I think the standout was the underlying operating performance increasing by 38%, an 11% increase in Clean Air and a 33% increase in Platinum Group Metals. So in the environment we're in, I think, a very strong overall performance and a good indication of the progress we're making here. Secondly, -- and Richard will talk extensively about this. You will see very good progress on our implementation of our new cash-focused business model. We had a significant cash outflow in the first half of last year. This time around, you will see a -- not a significant, you'll see a significant turnaround and a small inflow. So that's quite a big movement. And there is a lot more to come in the second half and then, of course, in the subsequent years. And the building blocks behind that, Richard is going to talk to you about. And the third point, which is very important as well, the sale of Catalyst Technologies to Honeywell is on track. We had said that, that will close in the first half, calendar half of '26, and that remains the case. And once we close that deal, as we said, we'll be returning GBP 1.4 billion to shareholders upon closure. A final point I'd make is we did -- we have made some announcements this morning around organizational changes. And I'm sure we'll -- I'll be talking a little bit about this later on, what the rationale behind that is. I'll make it clear for the purpose of today's presentation, Richard is in his CFO role only. When we get to the Q&A, you can gladly ask him about his motivation for the new role going forward. But first and foremost, it's the CFO role for today's presentation. So a couple of the top or a few of the top priorities that we have for the next 6 months for the full year and then subsequently and just the progress we're making around that. I've already mentioned the sale of Catalyst Technologies, and we'll unpick that a little bit later on. So what still needs to happen. But here, we're fully on track for that closing in the first half of calendar '26. Second one, we've spoken extensively about our ambition to significantly increase the margin of Clean Air. And here, you can see, again, very strong progress, a 200 basis point increase in the margin for Clean Air, an increase in absolute profitability. So despite declining volumes, this is a really strong performance and leaves us completely on track for our target of 14% to 15% margin of -- by the full year this year. And with that, on track for our ambition '27-'28 of getting to basically 16% to 18% margin. Very strong performance from Platinum Group Metal Services with 33% increase in underlying operating profit. This was clearly helped also by Platinum Group Metal pricing, the trading business -- but it's also refining, which has been doing well. And it's also efficiencies, which is where we've simply been running the business more efficiently. So a strong underlying performance here. Our new PGM refinery, which is a huge investment. And I think against the background of the importance of critical minerals, it's hard to underestimate how important this is, both for JM, I think the U.K. and globally. This is the world's biggest refining plant for platinum group metals that we're building in Royston out beside Cambridge. This is on track to start commissioning in -- by March of 2026. It's a very big capital project. It's about GBP 350 million capital expenditure here. And we do have a small delay of a few months. But because we have our ongoing refinery, our old refinery, our 60-year refinery, still running in parallel, this has no impact on our guidance or our ability to deliver to our customers. So in the bigger context, it's a smaller delay, but important to flag it, but it's a few months. On Hydrogen Technologies, we are on track. And again, this is now almost end of November. We're very much on track for breaking even by the end -- or have run rate breakeven by March '26. This is something that we had committed to, and we have line of sight of that. And we're confirming that again today. I think there was some skepticism that we might get there, but we absolutely have line of sight to that. And that's why we are reconfirming that we will break even with that business or have run rate breakeven by March '26. And then the final point, and again, Richard will talk to this extensively, is the significant improvement in free cash flow and the building blocks going forward to give you that confidence that we will be generating GBP 250 million free cash flow going forward on a consistent basis. And what's behind that, Richard will explain. So they're kind of the highlights. We'll unpick different elements of this as we go through the presentation. But first, I think it would be helpful to go through the detail of the half year results, and then I'll come back and share some more color on these strategic priorities. And with that, Richard, over to you. Richard Pike: Thanks, Liam. Good morning, everybody. So building on Liam's introduction, just to remind everybody, we've now treated Catalyst Technologies discontinued. So the results that we'll present are excluding CT. Obviously, still a very much an integral part of the group until we affect the sale to Honeywell, but all the numbers in here are talking about essentially the remaining business going forward. So as Liam said, I think we're really pleased with this in terms of -- against the targets we set out in May, actually, we think we've made really strong progress pretty much across the board against where we said we would focus. So you can see that despite sales being modestly down as a result of primarily Clean Air volume decline, basically, you're seeing strong improvement in underlying operating profit significantly because we're focusing on the things that are within our control. That feeds through to earnings per share. And to my mind, and I will, as Liam said, spend quite a bit of time on this. I think for me, possibly, despite those headline operating profit numbers, which I think are really quite impressive in the current environment, I think the free cash flow focus in the modest time we've actually started to shift gear on this is moving very well in the right direction. Our net debt is up. That's primarily because CT had cash outflow in the first half and the dividend. So -- and we've also had a significant stock build in our U.S. refinery because we took it down for a maintenance shut in October. So despite the stock build and despite metal prices being higher, I actually think this is all quite a good news story, and I'll talk about how that's going to play through in the second half. As a result of which we're maintaining our dividend at 22p per share. In terms of looking at the P&L, I mean, I've just touched on the highlights there. The only real thing I go to draw out is the interest charge you can see is higher year-on-year. That's because we had a couple of one-off nonrecurring items in the prior year. This level of interest charge gives you a feel for the run rate of where interest cost is on an ongoing basis. Coming down to the businesses. So in Clean Air, pretty much if you look across the piece in terms of how we're performing. LDD pretty much in line with market. Europe has been difficult for us this year, but pretty much in line. LDG, worse than market. But if you recall, several years ago, we made a shift from gasoline towards diesel to the primary focus. So we came out of a number of those. We've had platforms that were on running off over time, and this is the picture you're seeing that running off. In more recent times, we had an increased focus primarily towards hybrid. You've seen that in some announcements, but they take a while to come through. So sort of you've got a gap between when we announce something and it's in the numbers. So there's no surprises in here from our point of view. And actually, HDD, we're actually start ahead of the market. So in the area that we consider is likely to continue to grow going forward and where we're strongest in terms of market share and positioning, we're actually doing better than the market as well. Over and above the sales position, basically, what you can see here is the strong focus on our costs. I said basically the full year, if you looked at our plan to get us from the sort of 12% last year into the mid-teens this year, a lot of that will be about overhead reduction. You can see that coming through in terms of the margin improvement. Also the operational excellence, commercial excellence, those areas are getting more ingrained in the organization. So I think this gives us a strong belief that actually we're heading towards that 16% to 18% margin range. PGMS, good half. We had a weak first half last year. We have been benefited from higher metal prices this year versus last year. And actually, it's been a more volatile trading environment. So the trading side of our business benefits when it's more volatile. So those things have been through, but pleased there in terms of year-on-year improvement. And there's a lot of focus at the moment. Liam touched on, obviously, the build of our 3CR facility. That's critical for us going forward. We've still got a couple of years of running this old asset. So focusing on consistency of operations and actually maintaining our assets in a reliable fashion as possible is really key to Liam's point around delivering for our customers. That's where the strong focus is in the side of the business. Hydrogen, as Liam just said, you can see here improvement year-on-year in terms of the run rate. For those eagle eye of you, you'll notice that our losses in the first half of this year are higher than the second half of last year. That's because we have a weighting in terms of when we recognize our revenues, it's second half weighted. And so we've got line of sight, very clear line of sight in terms of our contractual position with our customers, see what's coming through, hence real confidence about that getting to a breakeven run rate by the end of the year. And as I said, despite actually the profit number being in really good shape, this is probably where I'm most pleased actually in the first half. So you can see, obviously, with a starting point of profit improvement, that's a good starting point for our cash generation. But the really important thing here is that movement in working capital. And these things take a while to bed down. I talked at the year-end about the fact that actually, there's quite a lot of areas which are not rocket science. But in an organization that's not particularly being cash orientated, some of these things are sort of ingrained processes that need to change. And we've started with payables. I'll come back to that. There's more to do on receivables and inventory. Some of those things take longer. But actually, what you can see here is actually a shift in focus. There's still a lot to do here. This is nowhere near job done. It's a modest cash inflow in the first half. But given we have circa GBP 200 million of stock build associated with the refinery shutdown in October, and we've had higher metal prices, I actually think this is really positive because that stock build will unwind in the second half, and we've got ongoing focus in other areas. So to touch on those actions, particularly around the cash side of the to actually replicate the CT profits that sort of lost with the sale, we've said that we need to take a significant amount of overhead out. We used to be a much bigger group. We still have some overhead that sort of reflects the situation of the legacy of us being a bigger group. We're losing CT, a much more simple group. And actually, our overheads need to reflect that. We're making progress. And a decent chunk of that is on the Clean Air side. We talked about the fact that the most of the difference between the 12% last year and 14% to 15% this year was going to be about overhead reduction. You can see that actually Clean Air is already delivering on that and more to come in the second half. And a similar amount is coming through on the group side of things. And as Liam will come back to the organizational structure, as we simplify our group structure, simplify the way in which we run things, that will feed through to greater levels of overhead reduction going forward. CapEx, we're still at elevated levels, and that's going to continue through this year and next year, primarily because of 3CR, but also other areas within PGMS infrastructure, which feed into 3CR. And so our target of getting down to GBP 120 million, which is close to depreciation, we're on track for, but you're going to see that higher level of CapEx. And that's why, to a certain extent, not just that reason, but why it's quite important we're focusing on working capital in the near term because that working capital saving offsets some of that higher CapEx in the next couple of years. If you think about all of this coming together, what we said at the year-end was we'll sell CT, well on track, as Liam said, and he'll come back to that. Basically Clean Air, get it to 16% to 18% margin, well on track, get 3CR built. Yes, we've had a couple of hiccups, if you like. So we had industrial action with one of our contractors. And that's led to lack of productivity in terms of the people on site. So that pushes out the schedule and so on and so forth. I think what's been really important since the summer, our team where we changed the number of members, the general contractor and the subcontractor with in distraction have worked really hard to get to a schedule that everybody believes in, the detailed level of work that underpins that, everybody signed off on. Everybody is holding hands and actually intent actually we're really confident about the plan we've got in place. And if we actually generate the working capital improvements we promised for the next couple of years, that will actually underpin our cash generation while we're still spending more CapEx to then get to a situation of lower CapEx going forward, which underpins why we get to the GBP 250 million of sustainable cash flow from '27, '28. We've talked about this a few times, but just to reiterate on the shareholder return side, on the GBP 1.4 billion that we're returning, I spoke to pretty much every shareholder through the year-end process about where preference was. I think everybody recognizes that whilst there might be a preference in some areas for share buybacks, it would take us about 6 years to return this through share buybacks. So that's not realistic. So the majority is going to come back through a special dividend with the share consolidation and then the balance going back through share buybacks probably during the course of calendar '26. And then ongoing from '26, '27 onwards, we promised about GBP 200 million of returns from there. Depending on how the share buybacks play out, share consolidation and so forth, they also determine how many shares we have an issue and things. But I think you're looking at a situation where we'd like to have about 1/3 dividend, 2/3 share buybacks from '26, '27 onwards. And then outlook for the year, my last slide, basically. We're in good shape. We're very much expecting to deliver on our promises for the full year. PGMS will be down year-on-year in the second half. We've touched on this before. There's low metal recoveries, there's higher maintenance costs given the age of the asset, but nothing different to what we actually said at the year-end. So we feel we're in good shape for the year. We feel we're in good shape in terms of delivering on our '27, '28 targets. And on that, I'll hand back to Liam to give you a bit more detail. Thank you. Liam Condon: Great. Thanks a lot, Richard. So if we jump in on the strategic topics, the first one, which is top of mind is probably the Catalyst Technology sale. So what still needs to happen on this? Well, we have a binding sales and purchase agreement with Honeywell, which is publicly available, where also what needs to happen is listed in that document. But in essence, it's 2 things. One is the regulatory approvals. We need regulatory approval in 12 jurisdictions. We have 11 and the 12th is progressing smoothly as planned. So we believe that's very much on track. And then there's the carve-out, which is 2 elements. This is basically the legal reorganizations which is very much on track. And then the transitional service agreements and long-term supply agreements to ensure that customers and employees are looked after, and that's all very much on track as well. So they are the 2 big elements that need to happen for us to close. And then based on where we are today and the very good collaboration with Honeywell, our expectation is, as we have previously stated, that we will close in the first half calendar of '26. I think it's important to note that the business has been -- had a weaker performance or the CT business had a weaker performance versus prior year, significantly weaker. This is completely market related. And if we look at it from a market share point of view, the CT business has maintained market share in every key market and in some instances, even improved the overall market share. So the underlying performance from a market point of view is very good. It's just the market is pretty weak right now. We have continued to win new significant new sustainability-related projects. These are typically in the sustainable aviation fuel space. So the pipeline remains very, very robust. And with that, the growth outlook for that business remains very strong. So that's the overall situation for Catalyst Technologies and the sale to Honeywell, which is very much on track. Now if we go to new JM then without CT, we had outlined previously what we're really doing here is focusing on our core competency of Platinum Group Metals. This is what this company has done for over 200 years. We would consider ourselves world champions as far as Platinum Group Metals is concerned. We don't think there's anybody who can manufacture, trade and recycle as well as we can, and that's what we're really known for. And we build businesses that typically use Platinum Group Metals, and there are multiple applications. The biggest is, of course, Clean Air, catalytic converters. But within the PGM business, there's many other industries that are served and serviced by the PGM business. And as we outlined, we have a big opportunity now with a more streamlined group to run the business much more efficiently. To be very honest, we don't -- you don't need a big corporate center if you have 2 businesses that are very closely interlinked with each other, the PGM and the Clean Air business. So -- and I'll explain this a little bit later when we talk about organizational design, there's plenty of opportunities for us here to further streamline how we run the business to be simply more successful in the market. Now if we go to the first of the big businesses in here. Just a reminder again of our ambition, we said by '27, '28, we want to achieve at least GBP 2 billion in sales and a 16% to 18% margin. You'll recall in 2022, we were at a margin of 8.7%. This half, you can see that we're up to 12.4%. -- so a really significant jump in the last few years. And we have line of sight to the 14% to 15%. And with that, we think from a trajectory point of view, we're very much on track here. Now if we have a look at how we're doing from a winning point of view, and Richard explained a little bit what's happening in the market. Question is that kind of at least GBP 2 billion, what's the confidence level? Well, at least 90% of that business has already been won. So that, I think, should underpin our confidence in this business. So very strong overall win rates. And what's, I think, been really encouraging recently because we've been focusing on the hybrid space, we've actually started winning business with leading Chinese OEMs who are typically the leading hybrid players. And if you can win with a Chinese OEM in China, then your -- both your technology and your cost must be really good. And this is not just servicing then the Chinese market. This is also for export to the rest of the world. So this is actually a significant step forward and gives us a lot of confidence in the portfolio and again, our ability to win in this space. Lots of progress on partnerships with our strategic customers. And the point that I won't elaborate on much this year, but right now, but rather talk about it more extensively at the full year results. We do have a small kind of almost like a start-up business within Clean Air. And I think there's a general perception that Clean Air is maybe sunset industry sunset business. But there are elements that are growing, like, for example, the hybrid business, like, for example, the heavy-duty diesel business. But there's also something what we call Clean Air Solutions, which is using the core emissions technology of Clean Air for nonautomotive type use cases, typically stationary use cases. And one -- and the example that's mentioned here is we've just won several multiyear contracts for emission control technology for engine systems for data centers. And of course, data centers is a hyper growth area right now. Most of those data centers are fueled by fossil fuels. So they require emission control technology. Otherwise, you're going to have toxic fumes. And that's where our core competence is again. So this is an area that's growing, and we'll unpick that further at full year. But I just want to highlight, there's -- within Clean Air, there's enough opportunity in here to give us a lot of confidence about the targets that we've set for '27, '28. Now beyond winning commercially, we do continue to drive efficiency. This is really important for us. This is also why our margin has been improving. There's been a significant reduction in overheads, especially SG&A, some R&D as well. And as we do that and as we're winning business, I think where we're really encouraged is our Net Promoter Score has actually increased significantly. This is almost unheard of that the Net Promoter Score is up 15 points. This means at a point in time where we are improving our profitability, our customers are thinking more highly of us. That's not necessarily to be taken for granted. And it's really a sign of how much value the commercial teams together with the tech teams are adding for our customers. So I think really strong progress here. And we will continue on the journey of footprint optimization. When we started in '22, we had 50 production lines. We're down to 21 now. And that journey of consolidation between production lines and site consolidation will continue, and it continues at the pace that the market is evolving. The market evolves faster in a certain direction, we can move faster from consolidation or we move slower. So we just adapt to what's happening in the market. But all of this gives us, again, the strong confidence that we can -- we'll get the margin up to 16% to 18% by '27, '28. So that's Clean Air. If we go to Platinum Group Metals, -- and again, in a world that's very concerned about critical minerals, this is a jewel in the crown, I think, for the U.K., but for -- basically from a global point of view to have the know-how and portfolio and the people that we have for this business, very profitable business that has a big moat around it. And we've given out the targets, the guidance, GBP 450 million sales by '27, '28 and a circa 30% operating margin. You can see there's 3 parts to this business. In essence, it's producing products, so typically alloys, anything that uses PGMs for multiple different industrial and other applications might be for life science, might be for defense. There's many different use cases, and we produce products often customized for our customers then. We also refine. We're the world's biggest refiner and recycler. And again, this -- the vast majority of that happens in the U.K. currently with a very old refinery and in future with a brand spanking new refinery, which will be absolutely state-of-the-art. There will be nothing else out there in the world like what we will have then when this is complete, which is relatively soon. And we also have a trading business. So we buy and sell and manage metals on behalf of our customers. And that's important because this stuff is super valuable. A normal -- an average industrial company doesn't really have the infrastructure from a security and a logistical point of view to actually manage precious metals. We have all of that. And this, again, this is a service component that we offer for our customers. So fantastic business. I mentioned both myself and Richard have mentioned how important the new refinery is. And we're very -- we're on track now to start commissioning by March of '26. This is really important. Richard already elaborated, there was some industrial action that's cost us a few months. But it means we will still be fully operational within the calendar year '27. And to underpin that confidence about being fully operational, we also have a clear plan to start decommissioning the old refinery within '27 as well. So by the end of '27, we'll start decommissioning the old refinery. And we always said we would only start decommissioning when we're 100% certain that the new refinery is up and running. And from everything that we can see today, we have complete line of sight of that. As Richard said, we have our best teams on this. Everyone has joined hands. It's got the utmost focus, and we're very confident about the schedule that's in place now. And thankfully, we still have the old refinery to keep supplying customers as long as this one is not up and running, but it will be up and running in calendar '27. And the old one, we will then start to take down. So that's the overall situation for 3CR, and that's why we're very confident that this will be a big, big benefit for us going forward. Now besides the business, I mentioned earlier on that we have an opportunity to basically streamline how we run the business. And again, if you think about the situation, CT is moving out. With Clean Air and PGMs, we have 2 businesses that are intricately linked through Platinum Group Metals. They all use lots of Platinum Group Metals. We manufacture products. We also recycle products on behalf of our customers. We manage their metals. So there's a lot of synergy in here. So we gave a lot of thought together with our Board about how we could set ourselves up for success in the future and really accelerate progress. And what we've agreed on is a new streamlined organizational model. So we're moving away from divisions and sectors with individual CEOs. And given that we'll only have 2 businesses that are intricately linked, we're going to move to an operating model where we have one Chief Operating Officer who can ensure that we're tapping into all the synergies across those businesses. And basically, we'll move from 9 people on the Executive Committee down to 6. And I think this is -- it's a good reflection if you think where our business was and is, it will be a smaller business going forward. So the streamlining should really start at the top. This is a team that's been working together very intensively and very successfully, particularly since this summer on developing the new strategy, the new JM going forward. We have a lot of fun together. And based on kind of how we're all interacting with each other and looking at the strengths of different people, what we've decided is Richard will become the Chief Operating Officer. And for those of you who are not so familiar with Richard's extensive curriculum vitae, he has a lot of experience running operations in other industrial companies, both on the manufacturing and the recycling side. He's super passionate about operations. He loves getting into the detail. And he wants to make sure that we can deliver on all these cash commitments that we're making. So he wants to be on the front line managing this. So we think this is a great move. And we're really lucky within JM that we have Alastair Judge, who many of you possibly know. Alastair is the current Head of Strategy and Operations. Alastair used to be the Interim CEO for Clean Air. So he knows Clean Air intricately, and he used to be the CEO for Platinum Group Metals. So there's nobody who kind of knows the business better than Alastair. What's important is Alastair is also a chartered management accountant. And for the vast majority of his working life, he's worked in financial roles. He was intricately involved in -- together with the entire team in developing the cash-focused business model going forward. So we think it's a great combination to have Alastair as the new CFO, Richard as the COO and then everybody else on the team who's a fantastic team, all working really closely together to deliver on our commitments. So we're absolutely convinced that this organizational model will help us to accelerate progress, and this is the way we're going. Maybe on that, because we have Anish with us here today in the audience, let me say Anish will be leaving. There was an announcement made today. Anish is taking up a great new role. He'll become Group CEO in another company. And that's a fantastic development. I'm super happy, Anish, for you personally. Anish has really strengthened Clean Air. And I think the most important thing Anish has done, he's developed a great team. There is a fantastic team within Clean Air. They're all ready to step up and they're all ready to support Richard. So I think this is -- for all of us, it's actually a really good news story. So big thanks to you, Anish, on behalf of everything that you have done for us. What's not on here is CT. The CT CEO will continue to report to me directly, but this is the new JM going forward. So will not be a member of this executive team and will continue to report to me as long as CT is within JM, which is up until the first half of the calendar year '26. So I hope that's relatively clear. Now this team also is -- has been placing a lot of emphasis on developing the right culture for us to be able to succeed with our commitments. And just to give you a few data points on how we're doing on that front, this is really important for us that we have a culture that really enables implementation of the strategy and not one that's holding us back. For us and particularly, I think anybody in the process-related industry, what's really important, everything starts with safety. Every meeting starts with a safety moment, really important for us. But it goes deeper at JM when we think about safety, it's about looking after each other. It's about taking pride in your workplace. It's about caring. And if you're -- I just have a fundamental belief if your safety stats are improving, probably your culture is going in the right direction. It's a sign that people care. It's a sign that they're looking out for each other. It's a sign they're taking more pride in their work. That's really important. And we've seen a significant improvement in our safety stats. We know we still have a long way to go. We need to continuously improve here, but it's important that we're seeing progress, and we are seeing progress here. Second one, and I've already mentioned Clean Air. It's not just Clean Air, all of our businesses. We've seen a significant improvement in customer satisfaction as measured by Net Promoter Score. Again, 13 points up for JM in total. That's an almost unheard of increase. in a very difficult market environment where everybody is dealing with lots of issues, our customers are thinking much more highly of us because they can see the value that we bring to them. So -- and this is really important for us that we have the customers front and foremost, we track this rigorously. Third point, data point, also super important, employee engagement, which is typically an early indicator of performance. There's usually a lag between where your engagement is and then how your performance turns out. And typically, when you have lots of change, external change, internal change, your employee engagement will drop typically. We've actually seen -- we've just measured this in October. We do this every 6 months. And we've seen another good increase in employee engagement. And this is over 80% of all of our employees reply to this survey. So this is a really big population and a good increase in engagement. So again, these are all data points that tell you something is improving and give us confidence that we can continue to drive performance. We've aligned incentives. We never had targets for cash in the past. We always -- it was always underlying OP and margin where typically and sometimes sales would typically be the KPIs we would use. Now we also have clear targets and incentives for cash so that people have skin in the game for what we have committed to externally. And that, we believe, is also helping us drive performance, which you can see then in the results that we've delivered in the first half. So just a reminder of what you can expect from us by '27, '28, at least mid-single-digit CAGR in pro forma operating profit going forward for which we're very much on track then this year so far. Annualized free cash flow of at least GBP 250 million and returns, as Richard outlined, returns to shareholders of at least GBP 200 million per annum. So that's what you can expect from us. Tracking progress, as usual, we give some milestones that hopefully enable you beyond the financial reporting just to be able to hold our feet to the fire because we need to do that for ourselves, but we want to be transparent about it. These are the areas that we think matter the most. And we give you a kind of a traffic light, and we'll do this every half year. And whenever there's any significant change to any of these variables, we will update you. As you can see, everything is on track. We've put the refinery on yellow because we have a few months delay. But again, this has no impact whatsoever on our guidance or our financials because we have the ongoing refinery, which will ensure that our customers continue to be supplied. So that's overall the strategic milestones. We'll continue to update you on that. And then just in summary, again, we think we've had a good start with the new model, significant increase in profitability, turnaround in cash with lots more to come and the sale of Catalyst Technologies on track. And we believe the organizational changes we're making will actually help us accelerate progress. So we have a lot to do. We have a lot to look forward to. And now we look forward to your questions. Thank you very much. Louise Curran: So thank you, Liam and Richard, for the presentation. We'll firstly take questions from the room, and then we'll move to questions from the webcast. [Operator Instructions] So Geoff? Geoffery Haire: It's Geoff Haire from UBS. Just first of all, on the ramp-up cost that you sort of alluded to back in May this year for the new refinery, I think you said it would be about GBP 20 million to GBP 30 million. Could you give us an update on what that would be now that you've got more line of sight as it were to when that refinery is coming online? Richard Pike: Still similar, Geoff. I mean, basically increased maintenance costs, dual running, lower metal and that sort of order. So in terms of what we set out in May, that's still sort of trajectory we're looking at. Geoffery Haire: Okay. And the second question I just wanted to ask was, and I don't want this to sound shirlish, but obviously, you've done a lot of work on working capital. Why has that not been able to be done before? And also, do you run the risk that you're working your inventory levels are too low for what you need to produce within the business? How do you manage that risk? Richard Pike: Yes. Look, this has been a growth-focused business. Actually, if you look at where over time, the capital has been deployed, where people have been focused in growth. And generally, when you actually focus on growth, you're actually growing working capital. It's not been focused as much on net cash generation. So to be fair to people, when you target a particular way and that's what we focused on, there are other things that you don't focus on. Now whether we should or shouldn't, it's sort of a bit irrelevant because you can't change the past. What I would say is there is a significant opportunity. [indiscernible] opportunity in payables because we've been paying people too quickly, actually and sometimes ahead of when we actually needed to. There's a significant opportunity in receivables because we've actually been collecting monies too slowly, and we carry far too much inventory. So we're way off a situation where we're potentially driving this to levels that are unsustainable. We actually -- we're only scratching the surface today. Louise Curran: Tristan? Tristan Lamotte: Tristan Lamotte, Deutsche Bank. was wondering a question on PGMS. Could you talk through conditions in -- currently in PGMS and why it would be down in H2? And I'm particularly interested in volumes and feedstock availability. And then linked to that, what kind of PGMS trajectory do you see in the next few years? And is there any change to that trajectory at all with the plant pushout? Richard Pike: We are seeing higher metal prices. So that feeds through in terms of underlying refining performance and to our trading side and that's because of increased volatility in the trading environment, our trading business makes more money when the environment is volatile. So that's benefiting. On the flip side, we have had one of the large mines in the U.S. that's closed. So therefore, there's been lower volumes on the refining side. But as I've also mentioned, because we're actually in a transition phase through to getting 3 built, we have got dual running costs. We've got lower metal recoveries because we've recovered metal over time. And I mentioned at the full year, we had a very strong second half last year, particularly because of metals and other one-off items. So once you've had a one-off item, it doesn't necessarily repeat, that means the following year, it will be down. So the fact that we've got higher running costs and lower one-offs is actually feeding into the second half. But it's exactly the same as what we said in the year-end. We said we'd actually dip before we actually came back. So you've got a decline trajectory through to '26, '27 and then recovery from '27, '28 forward as we get the new refinery up and running. Tristan Lamotte: And then -- I'm not sure if that's working. Yes. And then on exceptionals, just generally at a kind of group level, are you expecting that level to stay similar to H1 and H2? And does that come down into next year? Or what kind of trajectory are you seeing on that? Richard Pike: Yes. There's 2 real items Andre on non-underlying items. One is the costs associating with reducing overheads, i.e., losing people. And the other is the ongoing Clean Air footprint consolidation. So as we take lines out and take sites out, the cost of closure. Those costs you can see in the first half in terms of key categories, that will continue in the second half and continue into next year. And I indicated at the full year that if we're taking around about GBP 100 million of overhead out, that actually you'll be looking at a similar level of costs associated with that as well as Clean Air. So you'll see not exactly like-for-like, but you'll see that sort of overall level across the next couple of years. Louise Curran: I think the next question from Alex. Alexandro da Silva O'Hanlon: Congratulations on a strong first half. Alex O'Hanlon from Panmure Liberum. Just a couple of questions from me. The first is kind of on culture. Obviously, going through quite a big transition at the moment. And you pointed to the engagement score being like kind of upticking a little bit. Just kind of interested in kind of what you're doing to manage that culture during quite a big transition and how you are kind of confident that you can keep that high, that engagement score. Liam Condon: Yes. Thanks a lot, Alex. So we've actually spent a lot of time with leadership explaining we need people to be talking to people. When you've got this much change going on, what you don't want to be doing is communicating through slides and just webcast. We need line managers to be talking to their people to be listening to what their concerns are, taking them seriously and then working on an action plan to address those concerns. So very specifically, one of the elements we track is -- and we can see this from a people management point of view, has there been follow-up related to the engagement survey? Have your actions been -- have your concerns been taken seriously. And we can track literally across the board where it's working, where it's not working and where it's not working well, we then intervene with the line manager and give them support. And if they're not able to come along with the journey, then, of course, we have to take other consequences. But it's really about strong people leadership, listening to concerns, putting an action plan in place. so that people can see their issues are being dealt with and not some generic 40,000-foot kind of strategic stuff, but the issues that they're dealing with on the front line. So we place a lot of attention on that. I think that's the single biggest issue that we can do. And the second one would be everything related to safety because people can understand it's really important that everyone can go home safely to their families every day. And the amount of attention we put on that is quite exceptional. We dedicate a whole -- apart from the fact that every meeting starts with safety every time religiously, we dedicate an entire day every year where we shut down everything and just go through a whole raft of safety measures and trainings. And then we -- throughout the year, we'll have various elements around that as well. So I think it's just walking the talk really and showing people that we care and that with that, they should care too. And I think that's working. Alexandro da Silva O'Hanlon: Perfect. The second question was just on the GBP 2 billion of sales for Clean Air in '27, '28. Obviously, you've got kind of 90% of that in orders already, the same as at the full year. I think at the analyst call at the full year, you mentioned that there are tenders out that could even see you get up to 100%. So I'm just interested in how should we think about that number moving forward? Is it going to be kind of lumpy? Or should it kind of gradually tick up over the next couple of years? Liam Condon: Should the 90% go up to -- yes, yes. Yes, it -- I mean -- I think it's a good one to hand over to Anish just to give a bit of flavor on what kind of contracts we've been winning recently that are not yet in the 90%. So the 90% for sure, increases significantly going forward, but the quality of those wins, I think, is quite exceptional. Maybe, Anish, you can share just some examples of that. Anish Taneja: Yes, of course. Good morning, everyone. And I think it's a fantastic question. With me moving on, I can speak more openly, obviously. So there's one recommendation I want to give you when you look at the businesses. 90% of the GBP 2 billion already won is a great number. But to look at the quality behind it is absolutely crucial because when you look to the automotive environment today, not every tender has the same value in the future because you got to make sure that you win with the winners in the right markets. So let me give you an example with a brand that is clearly going to win in the next 10 years in South America, that's a better tender than maybe with a smaller brand in Europe because it just gives you more run rate, it gives you higher margins, it gives you a longer runway. So when we assess the quality of what we have won, we always look to how long is the contract in which market are we winning? What's the regulations there? How long will combustion engines be surviving in that market? And how is that OEM positioned to be a real winner. So that's the first thing. And then I can tell you the good situation that you have at GM right now is when you have won 90% already today, the total sales funnel is obviously above 100%. So theoretically, you could make it to even more than the GBP 2 billion. But obviously, you're not going to win everything in the funnel. But I can tell you, we are going to win some stuff in the funnel. For example, we have just received verbally the confirmation that we've won a huge LDG tender in Europe with a very big OEM, which is going to give us access to 20% of the hybrid market in Europe. That's going to be huge. So when that's confirmed in writing, I'm sure my colleagues, and it's my farewell present to Richard, will talk to you about that, and it's going to uplift that number. So that's how you have to see it. Louise Curran: We'll just check any more questions in the room. Just wait for the microphone. Thank you. Unknown Analyst: Just a quick question on the -- you mentioned the new contracts for data centers. It might be too early to share, but is there a rough value of those contracts you could share? And I just wondered if that's a new sort of start-up business, does it have any initial margin erosion impact? Or is that one you hit the ground running minutes? Liam Condon: Yes. So we're not sharing the financials now, but we will at full year simply because we want to have a bit more meat on the bones, to be very honest. Although this is a nascent business, it's using the core footprint of Clean Air. So there's no additional investment required in that regard. And this is not something that would be dilutive on the margin. So it's an area that we think is hyper attractive for us. But we'd simply like to have a bit more -- we'd like to show a fuller picture. And right now, it's more or less saying we're actually, we're winning contracts in this space. Multiyear means 5- to 10-year contracts. And what's kind of behind that from a financial point of view, we'll unpick further full year. Louise Curran: Any more questions in the room? So in which case, we'll move to the webcast. So sticking with PGMS, there's a question from Chetan Udeshi from JPMorgan. I think probably, Liam, you referenced the growing importance of critical metals. Are you seeing any change in customer behavior in terms of how they deal with PGM services? Is this business moving to a long-term take-or-pay contract? Can it reduce the lumpiness in earnings in this business? Liam Condon: Yes. We're both looking who's best to answer. It's a very -- maybe I'll start, Richard, and then you chime in. So de facto, we're not seeing -- and there's various moving parts when you think about PGMs. We're not seeing a significant change in customer behavior because these are precious metals. They've always been precious metals. It's just the focus on them has ramped up considerably. I think going forward, there's a keener awareness of where PGMs are actually sourced from. So for example, there is an ongoing discussion in the U.S., a very active live discussion that palladium being sourced from Russia should have significant tariffs on it, which is not the -- or should be sanctioned, which is not the case today. There is a body in the U.S. who has found that there has been some dumping going on there. And if that is the case and palladium is then sanctioned, Russian-sourced palladium is sanctioned in the U.S. that will have an impact in the market. It doesn't impact us because we have -- we do not source any palladium from Russia. That is not the case with all of our competitors. So there is a stronger focus on the source of PGMs going forward. The fact that recycled PGMs have close to zero carbon footprint is something that customers like. They just haven't been willing to pay for it previously. I think as carbon pricing ramps up going forward, that will become more of a topic as well. But the fact though, we don't get a premium because the product is recycled. It's a globally traded product. There's one price as opposed to a differentiation between a lower zero carbon source of PGMs and something where there's a much stronger carbon footprint. So overall, I think from a contractual point of view, we are having discussions and have been having discussions with customers about a fee-for-service type of a model as opposed to just taking a percentage of the value of whatever it is that we're recycling. If you move to a fee-for-service model, that would reduce volatility. That's always a commercial negotiation where there's -- it can go either way. Some customers want that type of a service, some don't. So we make it very much customer dependent, but that's the way we think about it. I don't know, Richard, if there's anything to add to that? Richard Pike: Just try not to replicate anything Liam said, but just for anybody who's less familiar with PGMS, the 3 bits of this business. There's a refining operation where we refine our customers' metal. So it's really, really important that they trust what we do that we take their metal and return as much PGM content as is possible. When I was at the PGM week in New York a couple of months ago, I saw 12 of our top 20 customers. That came out really strong. And obviously, we've been in this industry for 200 years. And the trust in JM, which is fundamentally important. It is -- we are a commodity refiner, so cost per unit is important, but trust in what we do is really important. And I think we stand out there. We have a products business. So we turn PGMs into products. That we do a whole variety of things for our customers. And actually, we're actually, I think, more inventive than others. Quite often, if we see things go away, we're quite often better at providing solutions than that keeps people coming back. And then we have a trading business where I mentioned both metal price and volatility is quite important. Liam talked a little bit about contractual situation. But if you look at the volatility, to Chetan's question, the volatility of returns is primarily about PGM prices, these commodities. So you can't fully get away from that because of commodity and prices will go up and down. What we can do is smooth things. And so as prices have been at 12-, 13-year highs recently, we have looked to lock in a bit more of next year's and the year after's pricing. But that's -- you can only smooth things. Taking a hedge is a gamble because at the end of the day, things can go up or down. So we can remove to some degree, some of the volatility, but you can't remove it entirely. What we can do is we can ensure that we've got consistent refining operations and actually ensure we deliver for our customers on time and deliver their promises. But actually, we've got our cost base in the right place to ensure that we're as competitive as anybody else, and then we manage our commercial situation where we smooth that volatility over time. And those are things that we're looking at in the underlying business model. Louise Curran: The next question, sticking with PGM Services is from Adrian Hammond from Standard Bank Securities. Could you please give some color on autocat recycling volumes? Are volumes still subdued? And how does this differ regionally? Richard Pike: Yes, they are still subdued at the end of the day, although the penetration of electric vehicles has slowed, it's still an increasing space. We have seen down. We haven't seen it come back yet. We do expect to see some degree of recovery there, but it's not feeding through in the market just yet. Liam Condon: Yes. And maybe to add to it, I mean, we had been expecting for some time that the U.S. would bounce back from a kind of recycling point of view on the autocat side. And it hasn't -- so far, it hasn't. And there was kind of -- what we were hearing anecdotally was with pricing where it was, there wasn't enough of an incentive to actually encourage more recycling. With prices where they are now, what we're hearing is the incentive has definitely increased to actually start recycling more. So we've got anecdotal evidence that things are starting to move in the U.S., but we'd like to see it in hard data before we would say it's real. Louise Curran: The next question is on Clean Air from Chetan Udeshi from JPMorgan. Have you seen any shift in Clean Air volume momentum in the current quarter? There were some concerns that there might have been some prebuild in the supply chain ahead of U.S. tariffs. Liam Condon: Do you want -- Anish, do you want to -- here you go. Anish Taneja: Very clear answer, no. So there has nothing been like that. Maybe as a little explanation, you know that we are winning our business, as Richard has described perfectly, very long before we actually produce, which is actually an opportunity for us and not a risk. We can talk about pricing excellence in that time with our customers. Lots of topics there where we can uplift the price. And then the second thing is as we are delivering to Cannes that supply chain is hold very tight. There's opportunities we have taken now on the working capital side. There's more opportunities there for GM in the future. So that's very, very good, organized, very good process and the risk of high inventory builds before certain effects, for example, summer breaks or factories or tariffs or anything has not happened. Louise Curran: Thanks, Anish. The next question now is around Catalyst Technologies from Ella Harvey at Lombard Odier. How does the weaker performance in the segment impact the sale? Liam Condon: Thanks, Ella. So as outlined, the conditions for the sale are related to regulatory approval and to the carve-out, both of which are very much on track. So the market performance is not a condition. Louise Curran: I think that's it in terms of webcast questions. So we'll just do a final check in the room. I think that's good. So thank you very much, everyone, in the room and for your attention on the webcast. And hopefully, we'll see as many of you as possible over the next couple of weeks or so as we do roadshows. Thank you very much. Richard Pike: Thanks a lot, everyone. Thank you.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Volex plc Interim Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. And I'm sure the company will be most grateful for your participation. I'd now like to hand over to Group Chief Executive, Nat Rothschild. Good afternoon. Nathaniel Philip Victor Rothschild: Good afternoon, everyone, and welcome to the Volex half year results presentation. I'm going to provide you with a summary before handing over to Jon, who will give you more detail on the performance in each market. Following this, I'll update you on our strategy before we take questions at the end. Before we turn to the results, I'd like to talk to you about a further step in our strategic journey I'm delighted that Dave Webster has agreed to join as our Non-executive Chair, enhancing an already exceptional Board of Directors. Dave has unique industry experience. In his current role, he's led the transformation of CPM, a global leader in advanced process automation equipment. And prior to that, he was the driving force for growth and transformation as the CEO of Electrical Components International or ECI, a leader in consumer electrical and off-highway harnesses. He brings decades-long customer relationships in our space, particularly in North America, and he will strengthen the Board's sector insight. His experience will be invaluable as we scale our North American operations and deepen our customer partnerships in this important market. This month, incredibly marks 10 years since I joined the Board of Volex and became Executive Chairman in effect, combining the Chairman and CEO roles. I came into a business that was in decline with less than $400 million of revenue and a market cap of about GBP 50 million. And in fact, it dropped down to GBP 30 million at the low and I set about building a new organization, including talent from within Volex who had not been given the leadership they deserved. So with this excellent team to support me, a lot of hard work and endless travel, we've created one of the true standout success stories in U.K. industrials. A significant architect of this success is John Molloy, our global COO. And he will continue in the same role and is every bit is committed to the business as I am, and both of us have very significant personal investments in Volex. Indeed, my move into the Chief Executive position in Volex merely underlines my deep and ongoing commitment to driving further growth and customer engagement. I will continue to lead from the front, delivering our ambitious plans and bringing in new customers. And I'd also like to say that none of this would be possible without Jon Boaden exceptional financial skills and cool head as the business has become increasingly complex. I'm very grateful to Jon who is sitting next to me. I'm very much as well looking forward to working with Dave and the existing Board to pursue growth in our markets. There are very substantial opportunities ahead, and we have big ambitions. This is a sensible time to align more closely with corporate governance best practice given the scale of our organization and the strong performance we are setting out today. Moving on to the results. We've delivered another excellent first half with revenues of $584 million at an operating margin of 9.8%. We've generated further strong organic growth at 13% despite a challenging macroeconomic backdrop. And in particular, we've seen very strong growth in electric vehicles and data centers. And later in the presentation, Jon will take you through exactly what has happened in each sector. The strong performance is proof that our strategy is working. Investment we chose to make in previous years is supporting growth this year and beyond. Our capabilities make us a first choice provider of critical connectivity solutions for global technology businesses. As the world changes, we're changing with it, and we are evolving our footprint to follow the demands of our customers who are reconfiguring their supply chains to deal with tariff challenges. Our move towards centers of excellence where we can deliver a range of the most advanced Volex solutions in a single location has resonated strongly with customers. It also gives us the opportunity to rationalize smaller sites, thereby improving the overall efficiency of the group. We continue to win new projects with our customers, particularly with electric vehicle customers and in the North American off-highway space. Our first half performance positions us strongly relative to our 5-year plan, which, as you may recall, sees us getting to $1.2 billion of revenue by the end of FY '27. Our strong results for the first half or another significant step towards these objectives. Before we break out the individual markets, it's worth talking about how our customer-centric approach delivers deeply embedded customer relationships, giving us confidence in our strategy. As you should all know by now, we work with the biggest technology brands in the world who have earned recognition as leaders in their fields. They trust us to deliver manufacturing solutions that meet or exceed their quality, reliability and functionality requirements. Although our assemblies might be a small part of large and complex systems they play a critical role every time. This is no different whether we are powering a domestic appliance that brings convenience to everyday life or connecting the key components at the heart of life-saving technology. We've built a business that revolves around the customer. We anticipate their needs and rise to their challenges. Our engineers define innovative production solutions and optimize processes for products that are assured to perform in challenging environments. This creates strong customer lock-in and sticky relationships. In many cases, regulatory requirements form a barrier to our substitution in the supply chain. In others, our deep expertise and consistently strong delivery position us as a preferred manufacturing partner. So this customer-led approach, disciplined reinvestment and daily operational excellence form the foundation of a business that compounds value over time. Many of our largest customers have been working with Volex for longer than I have been operationally involved in the business. Over the past decade, revenues have trebled given by expanding share with existing customers, winning new products and customer projects and customers and a targeted acquisition strategy. Operating margins have strengthened from 2% to a consistent 9% to 10% range, maintained successfully for the past 5 full years. And as a result, operating profit has grown from $7 million in FY '16 to $106 million in FY '25. This performance reflects stringent cost control, relentless operational improvement, talent attraction and retention from the top to the bottom of the organization, plus targeted investments in future growth, each aligned with our customers' priorities. And this combination of growth and margin expansion has translated into basic earnings per share rising from $0.015 in FY '16 to over $0.36 in FY '25. Volex continues to steadily build capability, deepen relationships and deliver consistent, sustainable returns creating shareholder value that compounds year after year. I'll now hand over to Jon to take us through the financial performance in the end market. Jonathan Boaden: Thank you, Nat. So first and foremost, I'm incredibly pleased with the results that we've been able to deliver and this is an excellent performance of $584 million of revenue in the first half of the year, which represents organic growth of 13%. Profitability is towards the top end of our margin target at 9.8%, which means we've delivered $57.2 million of adjusted operating profit in the first half of the year. With lower interest costs, that means we've increased basic earnings per share by 30% to $0.197 per share on an adjusted basis. We've maintained a strong track record around return on capital employed despite the investment that we made in our business, which includes putting in additional working capital to support customers. And as a result, we've stayed at 20% return on capital employed. These results are an indication of a business that is in great shape and navigating dynamic market conditions effectively. Over the next few slides, I'm going to take you through what we've seen in each of our end market verticals. We've established a market-leading capability in electric vehicles and are recognized for our proficiency in both designing and producing key components to power the next generation of transports. Our long-standing partnership with leaders in EV technology has positioned us well to support a broad cross section of the EV market. Much of our 13% organic growth has come from expanding our capabilities laterally to meet evolving market demand. This includes delivering complete AC charging solutions through integrated end-to-end manufacturing. Consumer demand for electric vehicles has continued to grow in our key markets in the U.S., Europe and China. EV sales as a percentage of new car sales recently hit 30% in Europe and 58% in China. While changes in government incentives in some markets such as the U.S. may soften short-term consumer demand, long-term prospects across key geographies are strong. Our footprint allows us to be flexible around customer requirements. For example, we are moving a new program to Mexico to support the customers' tariff optimization strategy. And while this will push out the timing of the initial ramp-up, it is exactly the type of dynamic problem solving that strengthens relationships. With enhanced capabilities supporting a wide range of global automotive brands, we have confidence in our ability to grow EV in the medium term. It's worth starting the explanation about consumer electricals with some context about the performance we've seen over the last 18 months. We have what you might call a post destocking rebound in the first half of FY '25 when we hit $132 million of revenue. This normalized to $125 million in the second half of FY '25. For the first half of this year, we delivered $126 million, slightly down versus a year ago and more in line with the H2 performance. This represents an organic decline year-on-year of 6%. Main voltage power cord continue to represent the largest share of what we do. We work with some of the biggest consumer brands in the world where reliability, reputation and customer experience are key priorities. These brands choose Volex because they have confidence in our ability to exceed their quality and safety demands. Vertical integration and scale in this market means that we have relationships with all the major domestic appliance manufacturers. This is giving us significant traction as we continue to push our harnessing capabilities, an area where we see strong opportunities for growth. In fact, harnesses and other complex assemblies now constitutes almost 1/3 of revenues. In the second half of the year, we have a new incremental harness opportunities in Europe. We've seen some secondary impacts from tariffs on European domestic appliance manufacturers. Some of the Chinese competition have reallocated their marketing spend from the U.S. to Europe and are pushing inventory into the European market in response to U.S. tariffs. This is likely to result in some short-term rebalancing with medium-term growth weighted more towards harnessing opportunities. Now moving on to medical. Although medical is the smallest of our sectors, we proudly support health care innovators whose technologies are transforming patient outcomes and improving lives. Our assemblies distribute power and data through sophisticated medical equipment, ensuring reliability, accuracy and patient safety. The first half of the year has seen disruption in demand for complex medical devices, reductions in spending for both medical research and public health care and the impact of tariffs are leading to reduced or delayed orders for some large medical equipment. The effect is different between customers with some customers continuing to increase demand during the period, but others looking to reduce orders and manage inventory levels. We have the flexibility to manage this variability within our operations and support customers as demand pattern shift. It is against this backdrop that we saw our sales in the medical sector declined by around 10% organically during the first half of the year. It is likely that the uncertainties caused by the impact of tariffs and policy changes will continue in the short term and will result in a headwind to medical demand. However, we remain very positive in relation to the medium term. This is partly due to the success in winning new projects with significant medical brands, expanding the range of customers that we work with. In addition, structural growth drivers are very strong in this sector with rising demand due to demographic change and advances in technology, creating new diagnostic and treatment options. And with our significant and in-depth understanding of our customers' requirements, we are well positioned to meet the needs of these health care innovators. We've seen excellent organic growth of 48% in complex industrial technology with data centers a significant part of that, but we've also had growth across the other categories. Outside data centers, which I'll come back to shortly, we're delivering complex assemblies, both wire harnesses and printed circuit board assemblies into highly specialist and demanding applications. Our customers need exceptional quality and complete confidence that the solution will work first time and every time. Meeting their challenging technical and scheduling requirements takes coordination across our operations and engineering experience to support the build process. When we successfully deliver, we unlock additional project opportunities and further repeat business, which contributes to our growth. We are well positioned in the U.S. market with advanced facilities, which are accredited to deliver defense and aerospace products. This includes involvement in major programs that is stepping up to address current defense challenges. Our overall organic growth outside data centers was over 20%, and much of this came from defense projects. In parallel, we're seeing increased demand from core industrial applications such as building environmental systems. Although the end users are different in all cases, customers are relying on us to deliver a complex solution with maximum reliability in a competitive way. Our additional capacity in Mexico is an important part of fulfilling these requirements. In data centers, we're supplying high-performance copper data interconnect, operating at speeds of up to 800 gigabits per second. These cables form the critical physical links between servers, switches and storage systems within data center racks, enabling ultra-low latency, high bandwidth connectivity for AI and cloud applications. Growth in data center investment globally is fueling demand for these products and revenue is up by 80% compared to the comparative period. As with so much of our portfolio, our ability to manufacture in a variety of locations gives us a competitive advantage given in the ever-changing tariff landscape. And finally, turning to off-highway. Here, we've delivered really strong organic growth of 20% in the first half. This included a project for specialist military vehicles in Europe that doesn't repeat in the second half of the year. This was a project that we were able to win because of our ability to move quickly and respond to customer demand. Our success in this market is down to supporting specialist vehicle manufacturers in areas such as construction, agriculture and large passenger vehicles who have demanding requirements across a significant variety of products. Our ability to leverage our advanced manufacturing platforms to deliver efficient and repeatable solutions despite variable lot sizes is a differentiator in this market. We're making excellent progress in the North America, where expanded capacity and our highly skilled engineers and sales colleagues are securing new project wins. This comes at a time when U.S.-based manufacturers are looking for regional production to manage their supply chain objectives. Let me step you through what we've achieved in margins during the period. We are blending together various operating margins across our entities and then adding in investment in capacity growth and capability expansion. These investments include adding incremental manufacturing space or additional salespeople. On a year-on-year basis, we've improved our first half margins to 9.8%, which is towards the top end of our 5-year plan margin range of 9% to 10%. In achieving this, we've identified cost optimization improvements worth 0.7%, which broadly offsets the impact of inflation during the period. The optimization includes further benefits from rolling out automation as well as the productivity actions highlighted as part of the integration of Murat Ticaret. We also achieved savings through site rationalization of 0.5%. We have a mix benefit, which reflects lower consumer power cord sales and higher revenues from our data center customers. There was a small adverse impact from the weakening of the U.S. dollar, which is our main sales currency. Overall, 9.8% is a very strong first half result, particularly given the amount of investment that has gone into our business recently, Nat will come back to the theme of investment shortly. So now moving on to cash flow. As in previous years, there are some factors in the first half that tend to result in lower cash generation in H1 compared to the second half of the year. EBITDA was up to $73.6 million, a 20% increase over the comparative period. Capital expenditure was lower at $21.3 million, which is approximately 3.6% of revenue and well within the 3% to 4% range that we had guided to. Once again, we had an increase in working capital and higher inventory is a big driver in this. About half of the increase in inventory is coming from data centers, where we hold stock in hub locations to support timely fulfillment of demand. The remaining increase in inventory is across our other go-to-market sectors and reflects the impact of increased demand as well as building buffer stock to support relocation activity. Part of this expansion includes an increase in defense projects, where we hold a greater level of raw materials for operational reasons. Interest and tax are similar to the comparative period, which reflects the timing of tax payments and current debt interest costs in our growing business. The repayment of leases shown below free cash flow includes the exercise of an option to secure the freehold of 2 existing sites at a significant discount to market value, providing greater security and control. Our covenant net debt ratio, which is our preferred way of looking at leverage and excludes operating lease commitments, improved from 1.3x to 1.1x, giving us great balance sheet strength and flexibility. Our capital allocation priorities are unchanged from prior years. Our primary focus is on organic investments. In addition, we continue to explore acquisition opportunities in a disciplined way. I'll now hand back to Nat to update on our strategy. Nathaniel Philip Victor Rothschild: Thank you very much, Jon. I wanted to return to the key pillars of our strategy and outline how this contributed to our first half performance. First and foremost, we are in the right markets where we are winning new business, and I'm particularly pleased with the progress we've been making in off-highway in North America. Our team is getting a huge amount of traction with customers who are looking for a high-quality and cost-effective solution. It is an opportune time for Dave Webster to join our organization. And later this month, Dave and I will be on the road meeting with our customers and visiting a brand-new site we are opening this month in Central Mexico. The substantial growth we have delivered in the last 2 years reflects our ongoing investment program. For example, our product development strategy in EV is delivering growth. Our global capacity investments have given us capability in the right locations to support our customers' tariff mitigation strategies. And this is particularly the case in Mexico, where we have an abundant pipeline of opportunities, many of them new just in the last 6 months. We are a critical manufacturing partner for our customers who depend on our engineering capabilities, our attention to detail and our ability to meet challenging specifications. We build deep relationships by exceeding their expectations. Moving complex production from a competitor or between sites is a big decision. In the last 12 months, we relocated multiple programs for our customers without any major surprises and they have confidence in our ability to deliver. Our people are central to our performance. We trust our teams to deliver. We put our skilled managers at the heart of customer relationships. With the demand into our facilities in North America, we've been augmenting our team in the region, and we are seeing the benefits of this. And finally, acquisitions have been a significant element of our growth story, although it's just over 2 years since our last deal. In the first half of the year, we looked at a handful of varied opportunities but nothing met our strict criteria. With a huge amount of organic growth and new customer programs to deliver, we are looking for well-run businesses with strong management teams that can slot into our organization. We are continuing to pursue some interesting opportunities, but we won't compromise on our acquisition criteria. Every deal we do has to be the right deal for Volex. This investment approach is an important part of how we drive consistent growth and how we position ourselves to win incremental programs with new and existing customers. The qualification process we go through for major new programs is understandably stringent given our critical role. We built capacity ahead of demand based on market knowledge, so we can dedicate space to customers during the qualification process. This has been very successful. Take Batam, Indonesia, where we have now almost filled the additional space we opened last year and also Tijuana, Mexico where we are experiencing strong demand for tariff-free manufacturing, having doubled the size of the facility last year. This month, as I mentioned just a moment ago, we are opening a further purpose-built site in Central Mexico, doubling our capacity in this area. However, footprint is only part of the story. We need to have the right capabilities in our facilities to support evolving requirements and to enhance efficiency. An increasing number of our new programs are built to be highly automated from day 1. In addition, we are retrofitting automation technology to existing lines, reducing operating costs and enhancing throughput and yields. Our vertical integration is at the core of our competitiveness and this differentiates from many of our competitors. And we are currently rolling out additional specialist wire products that we extrude ourselves as well as making complex plastic components and connectors in-house. Our investment in product development focuses on both power products to meet evolving demands in the EV space as well as the next generation of data center cables. And we continue our strong focus on cash payback with the majority of capital programs achieving cash payback within 2 years and often much quicker. This market-leading approach to investment, it helps us to secure benefits quickly and gives us confidence to continue investing in our business. So it seems like yesterday, but we are 3.5 years through our 5-year plan. And our first half revenues of $584 million is a significant demonstration that our strategy is working. It's also proof that we are rapidly closing in on our target of achieving $1.2 billion of revenues. We've been comfortably maintaining our operating margins towards the upper end of the 9% to 10% range, and we are achieving this even after significant investment in growth. And this gives us a high degree of confidence that we will achieve the 5-year plan. So now is the time to summarize our performance and take you through the outlook for the second half. These are, once again, excellent results, a real achievement against the backdrop of tariff-related uncertainty and difficult macroeconomic conditions. And our growth is proof that the strategy is working powered by our investments in incremental capacity and capability. And in addition, as we scale up the business, we continue to achieve healthy margins at the top end of our target range as our operating leverage increases. We have confidence to invest and to pursue acquisitions because we have a strong balance sheet and very significant financial flexibility. And looking forward, we are off to a very good start for the second half of the year. We are mindful of the challenges for short-term uncertainty, particularly arising due to tariffs. However, this is a diversified business with deep long-term customer relationships. Those customers have supported our ability to grow despite these tough conditions, and we expect second half revenues to be broadly in line with the first half. In fact, we see the changing global trade environment as an opportunity for Volex. With our geographic capabilities and ability to support customers moving manufacturing between countries, we are well placed to secure further growth. Given our sustained focus on long-term value creation and our tremendous progress against our current 5-year plan, we have started working on a new 5-year plan and this new plan will reflect the strong and scalable business we have created and set out our ambitions for both revenue growth and margin improvement for the next stage in our journey. We will share this plan with investors in due course. And now we would be very happy to take your questions. Operator: [Operator Instructions] Jon, Nat you've had a number of questions from investors today. So thank you, firstly, to everybody for engagement. Jon, if I may just hand back to you, if you can take us through the Q&A and then I'll pick up from you at the end. Jonathan Boaden: Yes, of course. Thank you, Mark. Yes. So I'm going to collate the questions because often we get several questions on the same topic. So what I want to try and do is try and answer as many as possible and go through a broad cross section of the things that are being asked today. So the first question, one of the pre-submitted questions is, will your manufacturing center around Turkey or might you expand in the U.S. partly in order to mitigate the impact of tariffs? Nathaniel Philip Victor Rothschild: Do you want me to answer that one? So look, we've got 5,000 people in Turkey. We have, I think, 8 sites there at the moment. So we're committed to Turkey. We have more than enough expansion space at the moment, should we need it. And we've also just opened a brand-new low-cost site in the center of Turkey, where labor costs are highly competitive. I think in North America, North America has always been a critically -- the critically important market for us. And if you look at what we've done in Mexico where we have doubled the size of our Tijuana site, and as I said, at least one occasion in my presentation, we've opened a new purpose-built site or we're going actually next week to open a new purpose-built site in Central Mexico. So we are covered for the U.S. market through our investments in Mexico. So I think the -- and we have 2 sites -- 2 existing sites, 2 specialist sites in the U.S.A. at the moment. Jonathan Boaden: There's another question here about -- we announced that we were manufacturing partners for AFC Energy. And the question was to understand how significant that partnership is. Nathaniel Philip Victor Rothschild: So I think that you would need to go and extrapolate from the AFC business plan what -- how big the opportunity could be. But we have the capability to take costs out of the AFC, the portable hydrogen generators that AFC makes. And AFC's success will be contingent on dramatically reducing the cost of those generators. And we're working with AFC as we speak. And I think you need to look at their management team to answer that question. Jonathan Boaden: There's a question about when the San Luis Potosi facility will be operational, which is actually operational now. It opened at the beginning of the previous week. And Nat and I, as well as John Molloy and Dave Webster actually going to San Luis Potosi to see the new facility and to cut the ribbon on the site, but also more importantly, as an opportunity to introduce Dave Webster to the operations of Volex and to also take the chance to meet with customers. So that's a really exciting trip for us. So there's a question about Medical organic revenues have declined by 9.9%, driven by reduced global spending on health care and research. What is the plan to turn this around? And that's a question from Anthony. And I'll start and if you like Nat, you can add your thoughts. But really, we're not planning to do anything different in medical. Because actually, the strategy we have is working. We have some excellent deep relationships with customers. We have some excellent facilities and overall, we see very long-term structural growth drivers in the medical market, and we feel that we're well positioned. And it's a great strength in the portfolio effects we have across the 5 markets that if one of those markets is experiencing a short-term dip for various reasons, in this case, it's related to tariffs and changes in legislation, then we can still deliver 13% organic growth across the piece. So we don't feel that we need to do anything significantly different in medical because we're already doing all the right things. Nathaniel Philip Victor Rothschild: Yes. And just to add, if you strip out our largest medical customer, we grew organically year-on-year in Medical by a few points. And the medical business we have requires very little capital investment. So the sites we've got, for example, in Poland, and in Slovakia that are exclusively medical, they kick out big dividends up to the group every year. They have very, very healthy margins. The business is incredibly sticky. And we've managed to grow our -- we've managed to diversify our medical business tremendously over the last 10 years. And I'm very optimistic about the medical business. I think the amount of destocking that's occurred over the last 12 months. I think some of the customers have gone too far, and I think you can have a really kind of rip come back next year. Jonathan Boaden: Good. Thanks, Nat. It's a question from Stuart about the fact we referenced tariff-related uncertainty multiple times. And he'd like us to explain which specific tariff regimes by region products are the most material to Volex's P&L. So in terms of tariffs, it's our strategy with tariffs from the beginning has been to pass the costs on to our customers, and we've done that in 100% of cases that we pass through the cost of tariff to our customers. And in these results, there's only really 2 areas which we referenced in the presentation where we've seen the impact of tariffs. Part of it is in Medical, where some of our particularly euro-centric customers are seeing reduced demand as they sell into the U.S. And the other area that we mentioned in the presentation is in relation to consumer electricals where Chinese competition are flooding the European market with product at the moment, and there will be a rebalancing that will occur over a period of time in terms of demand. And we addressed the Medical piece earlier on why we still feel very confident in Medical. And in terms of the consumer piece, as we've talked about in the presentation, the big opportunity in consumer is around harnesses. Now quite often for domestic appliance manufacturers, we will sell them a power cord for $1, a harness for a washing machine or an other domestic appliance, we might sell that for $6. So you can see quite quickly that if we can grow the share of that harness market, that, that could have an appreciable impact on our revenue over a period of time, and that's very firmly where we have our sight set in that consumer electricals business. So there's a question from Peter about which of our 5 end markets, EV, consumer, medical, complex industrial technology and off-highway, do you expect to grow the fastest and why? And I feel that that's a question that's best saved for when we release our new 5-year plan. We've clearly seen tremendous growth over the life of the current 5-year plan, particularly in EV, in complex industrial technology. And the next 5-year plan that we will set out in due course will give an indication of where we think that future growth can come from. But overall, we feel very positive about the opportunities in end markets. And to that end, is there a particular end market that you feel particularly optimistic about, Nat, in terms of long-term growth opportunities? Nathaniel Philip Victor Rothschild: Well, true to form, I still feel optimistic about all of them. But I would pick out -- I think, look, we said it a lot that you have a situation where labor rates are going up in Mexico, and there is an opportunity to showcase low-cost manufacturing in Southeast Asia. And the -- it's reason of consumer electricals and then it's, for example, the commercial HVAC market, which are really suited for manufacturing in Southeast Asia. And those are areas of business that require less capital investment than some of our other silos. And I think those are very interesting areas. So there's a little piece of -- a growing piece of complex industrial technology, which -- and then there's the consumer electrical side where we are seeing -- we're getting great traction. So I've always said that the consumer electricals side of our business is very, very underappreciated. And where we came from 10 years ago, we had a non-vertically integrated power cord business and we had no consumer electricals harnesses at all. Now we have a business doing around $0.25 billion a year of revenue. And it's a very, very underappreciated part of our portfolio. Jonathan Boaden: Good. Thank you, Nat. So there's a question which is asking for -- from RW asking for some clarification because there's a statement I made, which is along the lines of that there's an increase in working capital driven by investment in inventory. And I mentioned that part of that is because we're operating through a hub model in data center sales. And the question is, can I please explain what that hub model means. Now how that works, how certain customers ask us to support them is by putting inventory into hub locations, particularly in the U.S., and that allows us to manufacture in Asia, and then we ship to the hub locations and then that inventory is available for the customer to pull to meet their requirements. And it works very well for the customer because that inventory sits on the Volex balance sheet which is one of the reasons why you see this adverse movement in working capital. But for operational reasons, from a customer's perspective, they like that confidence that as there are peaks and troughs in demand of their particular use case. So when they're building data centers that they need to move very quickly to populate the data center with infrastructure, which includes all the service switches. And then, of course, the cables that critically connect all of those things together. They want the confidence that they can go to these hub locations in the locality of where the data centers are being built and move very quickly to achieve their build-out requirements. There's a question from [indiscernible] about if we could explain or if I can explain the decline in revenue in Asia. So within the earnings release. We report revenue both in terms of the go-to-market sector, for example, EV or consumer electricals, but we also report a regional split and there is a reduction in Asia and quite a significant increase in North America, and it really just reflects the end markets where we've seen the biggest pull of data center products and the particular customer mix in those markets. So it's just really a function of how we report where particular customer revenue comes from as noted in that release. Question from Melvin. How significant is the volatility of the copper price to the business and what stocking, destocking is taking place in response. So as we've said previously, and remains to be the case for assemblies and products where copper is a significant element of the bill of materials, it is our policy to pass that copper risk through to the customer. So there is a repricing mechanism around copper and when copper goes up, then we're able to charge higher prices, which means our margins remain consistent in the face of copper volatility. And that is a process that has worked very well for us, but it also is something that's very well understood and accepted by the customers. And we haven't seen any significant evidence that customers are either stocking up or destocking in advance of anticipated moves in the copper market. So of course, the copper market moves very regularly and sometimes quite unpredictably. And for some of our customers where they choose not to take that risk, then we back off that risk ourselves by going up to a bank and hedging the copper exposure. There's a question here from Anthony saying that the markets have reacted favorably to these results has been seen by a substantial increase in the share price. Do you think the present share price and market cap is a true reflection of the value of the business? Or do you think the business is still undervalued given the future growth opportunities? Nathaniel Philip Victor Rothschild: So look, I think investors have to decide how to value Volex. I think given our growth rate, our organic growth rate, where we compare against other U.K. industrials, we should trade on a higher multiple. Jonathan Boaden: Good. There's a question from Theo about has Volex ever considered entering the grid electrical cable market given its growth? And if not, why? So I think this is referring to more like the national grids that the supply side of the electricity distribution market. Do you have any thoughts on that, Nat? Nathaniel Philip Victor Rothschild: This is a different business to us. So this is a business that is dominated by companies like Prysmian and Nexans and other large multinational businesses. And this is not what we do. And Also, the business has much lower margin characteristics. Those are sort of single-digit operating margin businesses. So we're looking for niches. We're trying to be maneuverable. We're looking for more -- for kind of less commoditized business. Jonathan Boaden: Yes. Great. There's a question about the percentage of revenue that each of our largest customers make up in the markets that we operate in? Well, in terms of customer concentration that we have a very broad range of customers. And there's nothing that we, from a management perspective, feel particularly concerned about in terms of customer concentration risk. We do have some larger customers, which tend to be very well-known household names that are leaders at the frontier of technology developments and in particular, we see that within complex industrial technologies and within the EV sector. And what's great with working with companies at the forefront of technology is through our manufacturing partnerships and the complex products that we offer to them, we're able to learn a lot about developments in the technology, and that helps us as we engage with other customers who are perhaps a bit behind the -- a bit further from the leading edge. There's a question about whether the boost that gold miners have had this year with rising gold prices has led to an increase in demand for off-highway vehicles to sort of support the gold market. Now I don't think we have seen anything down to that level of granularity. But perhaps a few words on where you see things in the off-highway space and particularly, I suppose, obviously, you have North American opportunity? Nathaniel Philip Victor Rothschild: Well, interestingly, we won a contract with Fortescue to make the wire harnesses that go into the next generation of electric mining trucks and I went down to their headquarters last year and met Dr. Andrew Forrest and had a tour. And that contract has actually unfortunately, gone away because of the decision by Fortescue to move all their production to China and partly because of some of the decisions that this government has taken. And we're trying now to kind of requalify ourselves on the China part of that business. But that's an example of exactly the type of business that we like to do, which is a big off-highway super customized, heavy harness with tons of complexity to it. Overall, the off-highway business has grown 20% in organically through our acquisition of Murat in Turkey in 2022, we've got almost every single one of the major customers and we're now trying, as we said in previous calls, we're trying to then cross-sell those opportunities into other geographic locations. So that includes North America and obviously, Asia as well. Jonathan Boaden: There's a question I'll take from Nick. Given I run one of our support functions, the finance team. And it's about given the growth of AI, what steps are Volex taking to implement AI in our own organization. And it's a good question that there's a tipping point now in terms of how these technologies have developed that it does allow you to run things in a more efficient way. And AI is just one of the avenues that we are looking at and actually using on a regular basis to become more efficient in the back office of Volex. And that's really important because as we grow revenue, if we want to look to enhance our margin position, and we need to do that through further operating leverage, which is all about running as efficiently as possible in the support functions of the organization so that the operating leverage comes through. And as well as AI that we're using cloud technology, we're using lots of applications. We're rolling out a new ERP system, which is going incredibly well and is giving access to a new feature set, and we're using more tools for greater collaboration across the business. So all of these things come together to put us in a position where we're enhancing the efficiency. I think as a final question. We had a question from Chris who says excellent results, well done. I know it's somewhat futuristic, but do you see data centers opening into space? So I didn't know whether you had -- any thoughts on that as we come to close the Q&A session. A rather left field question for the very end. Nathaniel Philip Victor Rothschild: Well, maybe on asteroids as well in space, but it's -- no, the answer is I don't have any great insight into the thinking of Elon Musk. He is the only person who could possibly pull something like that of. Jonathan Boaden: Very good. Thank you. Operator: That's great. Jon, Nat, thank you very much indeed for updating investors. And of course, if there are any further questions, Jon will give those to you post today's call. Thank you once again to you both. Nat, perhaps before I redirect those on the call to give you their feedback, which I know is particularly important to you both, perhaps I could just ask you for just a couple of closing comments. Nathaniel Philip Victor Rothschild: Well, it's 10 years since I've been doing this, and I think it's 5 to 6 for you now, isn't it as well. So we're in the midst of the journey, and we're grateful for the support of all of the retail investors and also the Investor Meet platform, which is very important to us, and we look forward to seeing you in 6 months' time. Operator: That's great. Jon, Nat, thanks once again for updating investors. If I please ask investors not to close this session as we'll now automatically redirect you to provide your feedback. It only take a few moments complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Volex plc, we'd like to thank you for attending today's presentation.
Magdalena Komaracka: Good afternoon. Welcome warmly at the PZU Group results for the third quarter 2025 presentation. It will be led by our CEO -- PZU CEO, Bogdan Benczak; and Tomasz Kulik, CFO of PZU Group and Management Board member of other PZU companies. Bogdan Benczak: Good afternoon. I'm extremely pleased to welcome you at the presentation of the PZU Group results after 9 months. That's my lifetime and first-time opportunity to -- for me, to manage this presentation. So please understand my unwanted mistakes. Let me start with the key achievements and plans. As you have already seen in our press release, and in our stock exchange communication after 9 months, we've reached PLN 23.1 billion in sales with the consolidated profit of PLN 5.2 billion, capital position 234% of solvability and 246% of stand-alone solvability and the dividend yield for the dividend paid in October is at around 8%. aROE is at the level above 20%. That's a very good position, sort of a head start for me as the acting CEO of the PZU Group. Let me stress that the growth that you've seen in insurance refers mainly to non-life insurance and in particular, non-motor insurance. I'm extremely happy with this result because this is close to my heart. We've had a major growth in foreign markets where we are present in Lithuania, Latvia, Estonia and Ukraine. We've had growth in Life Insurance segment, especially in Individual Life Insurance segment. And we've managed to substantially improve the results after 3 quarters, our capital position is very strong. It's robust and figures are really, really good. The results after 3 quarters and parameters -- profitability and capital adequacy parameters will allow us to pay an attractive dividend in the next year and about the level of the dividend, well, the details of the dividend, if the trajectory is kept could be discussed the next year after the recommendations and the approval of the Management Board and the Supervisory Board. Income and net profit more than PLN 5.2 billion with a share of PLN 3.6 billion from insurance services and PLN 2.2 billion from investment portfolio. We are proud with the results in insurance service increase of 73%. We do know, however, that the last year was truly exceptional. And we had some additional compensation PLN 222 million paid because of the flooding. I believe it's even more last year, we reported PLN 275 million more than PLN 0.5 billion gross of compensations paid. So the third quarter, PLN 1.5 billion and 127% year-to-year growth in insurance service and 85.8% of combined ratio. This shows our diversification. We've got a pillar of insurance services. We've got a pillar of banking activities, and we are working to consolidate further our health pillar, so PLN 3.6 billion result in insurance service, cess PLN 2.2 billion on investment portfolio and combined ratio, as I said, 85.8%. This is a very good result. And we are also happy to -- with our high operating margin in life insurance and with this, we are able to get to an aROE at 22.1%. After 3 quarters, we have a 2-digit dynamics in non-motor insurance. 2-digit is a success and it's a source of pride for us. We've managed to have a growth in this segment. This is a core activity, 77% extremely important for us, especially that the number of initiatives have been launched and actions campaigns for this segment, and now we see a tangible result of our efforts. Individual Insurance segment has also seen improvement in efficiency in our sales network. We've also launched some new products. And here, we also have a 2-digit dynamics in Individual Protection Insurance segment. This shows that when you focus well and define your priorities, clearly, you can be really effective, and this is our case, and we truly deliver. Health pillar. Again, 2-digit dynamics. We are particularly pleased with a number of results. We do see the room for improvement, but quarter-to-quarter and quarter after quarter, we are able to improve in this pillar. Tomasz will give you some more details how referrals to our network of branches -- own branches have improved. He will tell you what kind of tools are used and what tools are actually the best to improve the referral rate. Indeed, as I said, we see the room for improvement, but we've been consistent, and we've been implementing a recovery program. And as you can see, the results are there. We are also happy to see a 2-digit growth in external customers number in our 2 investment fund companies, TFI. This pillar is on the rise and we look into the future with optimistic perspective. This is yet another source of diversification for our revenues within the group. We've managed to increase the value of assets within the group by PLN 20 billion year-to-year. When you have revenue, you have a better solvability ratios. Our credit rating is a A- and positive outlook granted by Standard & Poor's Global Ratings. They've kept the Polish rating as well. So you see that the situation is stable. Group solvability -- solvency ratio is at 234%. We are above the EU average for European insurers. 81% of our investment portfolio is made of bonds, including 65% represented by sovereign bonds. We are aware that our investment portfolio is conservative, but it produces stable and predictable yield on deposits. One more item effective reinsurance protection. Reinsurance program was launched some years ago. It turned out to be effective when we were struck by catastrophic events on the territory of our country, 45% of our reinsurers have AA rating and the remaining 55% half A rating. I presented briefly the financial results. And now let me move to the priorities of the PZU Group for 2026, 2027. This is a sort of an opening statement as a person appointed the CEO of the group. We have a very strong financial position, thanks to our scale to our profitability and our diversification. We have a solid market share. We are leaders in Non-life Insurance and in Life Insurance segments with 30% and 44% of share, respectively, for both of them. We are growing in terms of scale after 9 months, we have PLN 23 billion in insurance services. We have profitability. We are profitable, and we are better than our competitors in terms of technical profitability, for non-life insurance and technical profitability for life insurance according to the data from the 6 months. We are then positioned among the top European insurers. And let me point out that the PZU Group is a financial conglomerate, but we are diversified. We are #1 in Poland for non-life and life insurances and in top 3 for health. We are 30 among banking, #3 in terms of investment funds. And our Baltic-country companies are leaders in their respective local markets and contribute to our consolidated financial results. I hope I'm not committing a blunder by showing you this chart, but this is a moment when we can be proud of our achievements. I don't know what the cost of PZU is right now. But as we announced our results, the price of shares has skyrocketed 61%. So that has gone down a bit. But since 2024, we were growing by 71% versus 46% of the week 20. So this is very good news and if you have a look at our European peers and their valuation, there is room for growth for us. And this is precisely our ambition, the ambition of the Management Board to improve our position respectively versus our peers. So the group is likely to grow, and it will grow. But we are also aware of some negative trends on the market. That's why we're focusing on opportunities. So this means demographic and social changes and also the fact that the forecast for the Polish economy are positive. We would like to tap into the growth of the Polish GDP and take advantage of it because I think that the economic growth will have a positive impact on the capabilities of customers who will be able to take out more insurance policies and now the demographic and social changes. So the purchase power of society is growing. Therefore, we think that both investments and life insurance will grow and so will be the value of the property to be insured, and this will also mean some benefits for us through the amount of the premium and now the aging society. Let me address that. We think that this means a higher demand for health and protection products, meaning life insurance. There is also a pressure related to the negative market trends, namely the TPL market is changing. It's moving more towards what we call the soft cycle. We are now nearing the soft cycle. But we can see that there is a huge competitive pressure in segments that continue to be profitable like the MOD and non-motor. So this is a trend we have to face because this is a threat. But at the same time, this is an opportunity, namely the fact that intermediaries are growing, 50% of distribution is now done through brokers and multi-agencies and this is a challenge the group has to face. Also, interest rates will be going down, and this will have an effect on the investment result, and this will also affect the contribution of our banking pillar to our consolidated result. And also higher corporate income tax for banks will have an effect on us as well. Now these are our plans, and I would like to highlight some thanks as CEO, namely over the last 2 months, the group has done the following. We have set priorities for our initiatives and strategies. We have assigned responsibility for specific projects to specific people. And also, we have grouped initiatives. This will help us reverse trends in some market segments, but it will also help us stay the leader of the insurance market in Poland and we will be the leader in terms of profitability and the market share because we already got there but we will be also creating new solutions and products in the market. So from my point of view, the most important thing for us is non-life and mass insurance. We have to improve our pricing here and there are also other initiatives leading to an improvement in the effectiveness of our sales network, and I'm referring to our agents who are our edge -- our advantage, and I believe that they will make a contribution to our results. But at the same time, I think that developing our collaboration with multi-agencies would be an interesting opportunity for the group because traditionally speaking, in this segment, the group was not strong and unlike our peers, our competitors, but I think, and I believe that if we make some moves in terms of pricing and tariff setting, if we modify our distribution and develop the right skills and if we have the right tools at the front end, we will be able to increase sales in this channel as well, keeping our profitability at the same time. Also, now let me address the implementation of the new system of claims handling, and this covers both the non-life and the life insurance company. Obviously, the non-life company is a priority here because I can see that in this company, in particular, there is a huge technical -- technological debt, which is something I realized when I came back to the company. And I think that here, there's a lot of room for improvement of our profitability. And now I personally would like to focus on Health. I would like us to carry out the strategy, which would lead us to the results, the target figures that have been provided for in our strategy, and this could be a strong pillar that has a positive effect on our operations. I can see room here for organic growth, greenfields. But also, we have an opportunistic approach here because we are looking for acquisitions. And we are doing this to improve the take-up, the utilization of our health business in our own clinics, facilities and also to address and eliminate the white spots in Poland. And I'm referring to the coverage of the territory of Poland with our health facilities. So speaking about the investment activity, decreasing interest rates are a negative trend. We would like to manage our own portfolio in an effective way. But at the same time, we want to develop product offer for our external customers and partners so that the investment pillar can increase its role -- its share in the PZU Group's revenue. Now speaking about motor insurance, we are relatively happy with this segment because it has a positive contribution to our P&L account, but we would like to grow outside through inward reinsurance. We have proven partners through the MG model and we believe that this will lead us to positive results. Individual life insurance is what we do, new products, activating the sales network to reach our target customers. So we would like to focus on individual continued products and we would like to reach the silver and middle age generations as well. Now group insurance. So traditionally, it's a strong segment for the company. Currently, the margin is very satisfactory. It goes beyond our strategic expectations. But we would like to be more swift here and respond faster to the changing market, and we'd like to gradually transform here to change the group insurance into an employee's benefit made up of the insurance component, health component and also other elements to be used as a benefit for employees. Bancassurance, we are focusing strongly on the collaboration with Pekao SA and Alior, but we are active on the market. We collaborate also with other companies from outside the group. Now international business, we would like to take advantage of the synergy. We've had some successful projects in our foreign companies. But we are also looking into how to make the most of our companies, let's say, in Ukraine for future projects like the recovery of Ukraine. And obviously, hopefully, the war ends as soon as possible so that we can take advantage of the reconstruction. But for the time being, the contribution of our international companies is at the satisfactory levels of the Baltic countries, combined ratio is at the level of the parent company. So we are very happy with that. Now the group is transformation and the growth of the organization. Let me stress one thing. According to current strategy of PZU, the Solvency -- the new Solvency II regime was to take effect. This was the assumption of the strategy according to our estimates. So new regulations and a new way of appraisal of our assets -- banking assets. This would lead to a drop in our liquidity of 190% to this level and we were expecting this. And even at this level, we have a permanent contribution of the same dividend policy of the group. And this is our starting point. We are also undergoing the reorganization of the PZU Group. We have signed memorandum with Pekao SA and now the group, the PZU Group is getting ready for the baseline scenario and this scenario has been described in the term sheet. There are factors we cannot have impact on. I mean by that legislative changes. Without any amendments to the legal framework, we will be unable to do the reorganization and revamping as described in the documents signed with Pekao SA. We are awaiting further steps, but we do see risks that these regulatory changes will come into effect at a later date than the day defined in the term sheet. And we work together with the Pekao SA on how to react and to see if we are going to sign a new memorandum or not. And I think that we will know that in December, once we've known the exact deadlines. But we do stay in close contact with all stakeholders. So that will be for our Copenhagen project. We do follow up the development on the market. And in the media coverage -- what happens in the media coverage, the Minister of State Assets announced that securing state interest in this project is a key priority for him. Within the group, we are preparing the deployment of a new organizational model, the design works are underway, and we stay in close contact with the supervision authority to know if we will have the endorsement, but we do realize that the challenge is huge. When I joined PZU Group, my first -- one of my first task was to stabilize the situation within the organization. We have 2 collective bargainings and we managed -- we had collective bargainings and we managed to close 2 -- to settle 2 disputes, and we are now in a dialogue with social partners. I do hope that by the end of the year, we will be able to find settlements in other disputes. We focus on a transparent and open communication with social partners in these collective bargainings. And I do hope we will be successful. We are preparing for the cultural transition. We want to transform our governance and culture. We want to be more agile, and we want to shift from silo thinking to a tribal thinking. It's a huge challenge ahead. But within the group, together with the other leadership team members, we believe that we are on the right track. For technology. Well, in our previous meeting, we already said that we had a serious technology that within the group. The Management Board and especially [indiscernible] has been working in that. We've designed a plan to replace the key IT systems and we want to have low-code platforms to -- because we want to act swiftly and in an agile way or respond to any market developments. I've already said that we will have some new claims handling processes. We estimate that by the end of the first semester of 2026, we will already have all the analysis at hand and the provider will be selected and that we will be able to trigger the deployment. We've been implementing our corporate social responsibility policy. We want to build a society resilient to ongoing and current challenges. I'm sure you know our campaign champion slowed down. That's a road safety campaign. I'm sure you know the visualization and look at me moustache only in November because we have another health awareness raising campaign. I wear moustache this month because that's how I see my role as a leader -- as the CEO of the leader of the market leader. Its high profitability and yield, but it's also a major key player and a participant of the social life. Just don't forget we have people to live for talk to your family members about health, about prevention, about screening just go do screening tests. And my colleague does not wear moustache. I encourage him to do the same. That will be the overview of our achievement -- efforts behind these achievements and plans for the future, my personal ambitions as the CEO -- acting CEO for now of the PZU. And now I will move to Tomasz, who will give some more detailed brief of our business in the third quarter 2025. Tomasz Kulik: Thank you very much. I try to be brief to get some time for the sum up by segment and to have a question-and-answer session. Let me start with some important factors impacting our results. We will start with non-life insurance. It was flat. However, over the same period we had some major rises on revenues from insurance services. There is a stratification among corporate clients, a drop of 9%, but the revenue grew by 7%. Why? Well, it's long-term business. The long-term business is still in our portfolio. We do provide our services, and that's an element of our exposure, and there is a different format used for the reporting to the supervisory authority. Our competitors would report that as a recent premium, especially that there was no change in coverage over the period, and we could not reprice that part of business. This is an element of our exposure, as I've said. And we had some major rises in corporate and mass segments. Under the previous standard, we had the different measurement premium and that value reflects better what happens on the revenue side. Now motor insurance, continued drop, especially Link4 portfolio mass insurances, a multi-agency nonprofitable channel, there has been a reduction. The channel was not among the top profitable entities last year in 2025 for the whole group and for Link4. In 2025, we focus mainly on profitability and yield where such yield is achievable. And we skip any formats that historically are no longer attractive to us. There has been a slight adjustment, therefore, but just have a look the difference between written premium and revenue on insurance, which are -- the difference is the source of this adjustment. Here, in this segment, you have -- we have 3% -- growth of 3%. That's for health, either [indiscernible] of the existing portfolio or new contracts, new protection, insurances. This is a result of consistent work on the portfolio, and we added some new products, which help us improve our insurance margin. We had an 8% increase in individual health insurances. It was quite high, especially that the last year, the starting point was also quite solid. And we had a major share of investment products, including life and endowment insurance products. Quasi investment products sold through different channels, including through banks. And despite that, we still have a rise of 8% for individual health insurances and regular protection insurance products registered a 20% dynamics. For the segment of Non-life Insurance, we've opened stand-alone products in bancassurance, Alior Bank and education. We've already launched what was announced upon the publication of our strategy. We started to go beyond Poland in active reassurance format. We want to be present in foreign markets outside Poland. We are in the stage of studying these markets, together with our reassurance partners and because the balance sheet is good, we have enough space to take on some more risk. And we want to limit anti-selection at the very start of that journey. So we had a fresh start, that is a strong team. And I do hope that in the incoming quarters, we will be able to give you some more details on revenues in this specific channel. We still focus on building and expanding skills in underwriting and bancassurance. We wanted to improve analytical skills of our teams. Let us move to Life Insurance. We have some additional products, serious diseases, treatment abroad. These are elements that are now covered. We are an aging society, and we have ailment typical of much mature and aging societies. So health insurance is a topic of focus for us. We have an attractive offer with very, very hard premiums, and this offer really resonates among customers, attract a lot of customers. In group insurance, we offer a new product based on the insurance sum and the insurance sum is calculated based on the remuneration level. This is a pilot project. We've been testing that solution, and we have also products in bancassurance. Health area, the CEO has already given you the details. We have had growth in both subscriptions and insurances, 15% year-to-year. And the same applies to medical facilities, whether it's occupational medicine or fee-for-service model, we have to digit it's more than 12% always. We are growing, thanks to our partners. We have partnered medical facilities. We want to be present everywhere and to attract more and more customers. We act as an adviser. We can suggest our own facilities or partner facilities simply to streamline the cost -- the average cost of medical procedures. We also increased the number of online visits, and there is a channeling of patients inflows to our medical facilities, 40% of all patients in the third quarter. Assets under management, whether it's the TFI PZU or our group banks, we have TFI PZU as a leader PLN 3.5 billion, a large share in banks and growing scales of assets in ECS. And now for product. A new fund, private debt fund which is done together with the Bank Pekao SA with joint allocation, both for us, for the bank. It's over PLN 100 million. It's a fund to finance companies as a long corporate debt with the offer is directed at the clients of private banking of Pekao SA and it looks like a good top-up of our offer in terms of the attractiveness of the investment, especially with this type of assets in mind. Now Innovate Poland, which recently was inaugurated by the CEO. So over to the CEO. Bogdan Benczak: Innovate Poland, this is the Poland version of the program and PZU is one of the originators of the project. We are the private company, the joint projects together for the Polish Development Bank and the Polish expansion fund, which are public entities. We have done this to diversify our portfolio and to get extraordinary rates of return. This is also aligned with our strategy, because we've been diversifying our revenue on deposits. Thirdly, we see it as a project where there is a room for synergy with other projects that we have now in the pipeline. We collaborate with the highest number of start-ups in Poland. We have the PZU Ready project, which is for start-ups. So we can see some synergies here and the possibility to fund some of our partners with money from this Innovate Poland fund. Also additionally, thanks to the ideas of the project and some accreditation procedures and certification procedures, we think that this will let us to achieve synergy and speed up the certification and speed up the selection of funds we would like to invest in the future. Thank you. Tomasz Kulik: Now our collaboration with banks -- bancassurance. Here, the sale measured through written premium quarterly reached PLN 600 million. So it's a very important distribution channel. It's growing, thanks to the same groups of products and the growing offer. And this time, stand-alone products have been added to our offer. So we hope that this channel will only continue to grow. And now I would like to walk you through the financial results in Q3 with a breakdown into segments. So first, general results. The highest top line ever in Q3 and the highest result ever for the group. So top line now the growth year-to-year is around 5% with an important contribution of the non-life mass insurance, especially non-motor because here, the growth rate is almost 10%, 8.1% growth, corporate and non-life insurance. Group individually continued insurance are a bit lower, but the baseline was very high, and we will tell you what has happened here in this segment, double digit, 18% of growth in individual protection insurance and life insurance, a very high contribution from our foreign companies. So this actually generated our insurance revenue in this quarter. Now net insurance revenue is the same as the gross amount that the year-to-year, a lot has been happening on the side of the costs, especially if you think about the claims and benefits. Here, you can break it down into 3 areas. So first, no comparability because let me remind you that last year, we were speaking from the point of view of the operations, and we were facing the flood and its consequences on the very next day after the flood and we were already there. So Q3 last year and the reported results was affected by this -- by this mass incident and actually brought the result down by PLN 265 million -- rather PLN 275 million. At the same time, the frequency of claims was lower in motor insurance, which also had an effect on the rate of return and MOD and MTPL in both segments, which is good news. At the same time, the reserves from previous years were overrated mainly because of the reversal of the trends of indexation. And I'm speaking here about PLN 56 million, the overestimate. There was also a drop in the reserve of the [indiscernible] provision. Cost effectiveness is very important for us. This concerns how to reach customers in an effective way, also how much we want to spend on customer service. In both terms, we have increased our effectiveness. So we have increased the effectiveness of our administrative costs, personnel costs and technological cost is offset by other cost categories. So this means an improvement which translates into index which is lower by 30 basis points. The same goes for the cost of acquisition. And also now let me mention something that actually proves the quality of our business, the net contribution and the improvement of the loss component. As you can see, the new loss component and the amortization. Overall, has a positive effect on the result. In all the segments, it's worth over PLN 90 million. So it's very good news especially if you think about what's happening in the Non-life and the Motor Insurance segment. Q3 ends at the level of [ 505 ], a huge change, 170% here year-to-year with strong growth and financial income, PLN 360 million with a growth of 45% year-to-year. This is the final result. And this mostly generated by the increase in the corporate debt and the improvement of the profitability of corporate capital instruments. So the final results for nonbanking amounts to PLN 1.419 billion. The banker segment is flat, 2.2% is a slight adjustment. This is -- this means that the result is PLN 1.9 billion and with very high profitability of equity over 25%. And this is much higher than expected when we published our strategy at the end of last year. Now we have improved cost effectiveness both on the side of life and non-life. And again, this is good news because this has had an effect on the result. And now let's have a look at the segments. So first, let's start with the mass segment. The dynamic in non-motor insurance was a bit different because the growth rate was almost 10% and mostly household insurance, but also PZU [indiscernible] PZU company and offer for SMEs. This is a new approach to the insurance sum with a aggressive pricing. So this led to an important increase compared to Q3 last year. Motor insurance is quite flat, especially if you think about all the things happened with Link4. As we have already mentioned, Link4 needs to focus on bringing back profitability this year, but a slight increase in the acquisition costs. Now quality has improved. Speaking about the expenses and the cost structure in this segment has changed totally. The share of cost in revenue has gone down, but there is also a lower liability for current claims. So there are some massive claims payouts, but also -- that were the last year, not this year, but also there has been an improvement in motor insurance. As I've told you in Q3, we had an improvement in the loss ratio -- loss frequency concerning this product. So a smaller loss component and the amortization of the loss component from last year gave us overall PLN 40 million, which contributed to the result of the SKU and with a positive effect of the overvaluation, overstatement of the reserves from last year. So PLN 715 million. This is the overall result in this segment with the effectiveness ratios improved practically in every area. Now the motor market and how the trends are going to translate into the results in the upcoming quarters. So first of all, the price dynamics in MOD and MTPL. MOD now, it achieved the highest values in December, January and Q1 this year. The growth rate was at the level of 7.6%, with a drop to the level of 1.5 percent point. But still, it's a positive unlike MOD, which is minus 3%, the previous was MTPL. So for MOD, maybe the only positive thing is that maybe we have already hit the bottom and then we'll pick up. But in MOD, well, it still continues to be quite a profitable product at the end of Q2, which is the last publicly available data, it has a 7% of -- almost 7% of profitability. And MTPL now. In Q1, this profitability was quite high and quite surprising. Now we are at the level of 0 given that the price is not growing anymore at the same rate. For MOD, there is no effect of the increase of the value of the cars. This was a phenomenon that was there after the pandemic for some time, but this was the main driver of growth that now has disappeared. This slide is based on the PAS data. So cannot be directly referred to our reporting. Corporate Insurance segment, high dynamics, more than 8%, both for non-motor insurance, it's almost 7% and motor insurance Link4. Well, it's similar to mass segment, the acquisition costs are lower. The costs of acquisition are similar to mass segment structure of expenses has changed more or less 4% drop due to better cost efficiency, and that's an important parameter for the results of this third quarter, much more than the improvement in quality. We just look at net loss. The net loss also had a positive impact on corporate clients. Current liabilities have gone down. We had lower payments and lower liabilities in non-motor insurances. As you see a bunch of factors that help us to get a double growth up to PLN 309 million. It's similar to mass segments. We've seen the improvement in all major product group. Group individual continued insurance. We started with a high base and then we had increases. However, what I would like to stress is a lower allocated premium for future expected claims and benefits. We had a drop of 64% in this loss component. We've had a better alignment and a more conservative approach. We just thought that the loss ratio and mortality could be higher, but not -- it did not happen. We had very positive variations on these components last year. Because we had better alignment for 2025, we've managed to get a better share of CSM. And with that, we got 26% increase year-to-year. It's not only a standard scale up. We've also changed cost and actuarial assumptions regarding insurance liabilities. That is why we have a 1.5% increase in insurance revenues. We had lower payments under individual continued health insurance, and there was a slight increase -- general slight increase in health insurances with positive cost components. And we end Q3 in operating result of PLN 550 million and a profitability of 27%. Mortality. In the 3Q -- well, 3Q is usually a period of seasonally moderate number of deaths and that was the case this year with a slight improvement year-to-year compared to 3Q 2024, we had an improvement of 3.3%. So the number of compensation benefits to death ratio, it remains positive for us compared to the similar period. So it's better by 10%, around 10%. Individual protection insurance. In this segment, you see very high increases 18.1%. We've already mentioned that. It's basically due to 2 products, individual insurance, which profits and individual protection insurance, PLN 17 million and PLN 14 million increases, respectively, for both of them over that period and CSM has grown considerably 21% year-to-year. And this was a result of better cost effectiveness. Because of that, we decided to change the assumptions regarding costs and the share of costs in contracted insurances. These increases come mainly as a result of scale-up of our businesses, and this translates into better operating results, 10% compared to the previous year. So this quarter is closed with PLN 120 million contribution of that segment to the consolidated results. Let me now move to the CSM balance sheet value. It will be recognized in consolidated results. As you can see, we've had some major increases for CSM from existing businesses and new businesses. For existing businesses, we've had some positive impact of rate indexation, rate tarification and there was also a change in assumptions, and that influenced our way of thinking our approach to costs of that service in the future. Let me mention 2 points regarding that change. The change is usually introduced in quarter 4. This year, we've introduced the change in quarter 3 because there has been some earlier dates set for reporting. So we want to be ready for February because we want to change, be more proactive in communication with the market, and we want to report faster. But sometimes, we were unable to get involved in some communication because we had a delayed reporting. That is why some procedures were implemented earlier and among them were the procedure on the update of technical assumptions and for CSM, we got a very positive effect because we got better cost efficiency in the end. As you can see in both segments, there has been a major improvement. Investment results 5.7% in interest. We also see an increase and the same can be said about debt instruments, the same parameter was different a year before. Last year, we wanted to seize the opportunity on the market, and we wanted to extend the portfolio. There was some negative valuation of these instruments. Also last year, we had depreciation write-off on 1 corporate exposure item. And that's why you've seen a major increase year-to-year, there has been an increase for capital instruments, indexing, private equity and health sector, all of them contributed to this class of deposits. We note a positive contribution to investment real estate assets with a level of 5.7% at the end. And I will end with solvency. It's extremely secure. Results are very high, and we can adopt an extremely optimistic outlook for the year to come. As you see and as you hear, third quarter is the time of growth of our own funds with a slight increase in Solvency II requirement. The increase was observed for both insurance business and for banking -- Bancassurance segment. What's our trajectory and what's the state of play. Gross insurance revenue. Here, we need to look for and prospect new sources inward reassurance. And definitely, as the CEO has said, we need to step up our efforts to get our ambitious goal and to deliver what we've defined by the end of 2027. Value-based thinking pays off. And just have a look at our ROE. We are within the range of our strategic goals for both life and non-life insurance, profitability. We have high Solvency II ratio, and we didn't have reorganization. We just have changes as part of the Solvency II regulation. We've known the details for some time. And now we can say that depending on different scenarios, we are quite well prepared. We are a value-based company and that is why we are selected by investors who believe that we will be able to provide high value and high return on dividends so the dividend per share will be really high. So as I've said, we are really prepared for that. That would be the sum up of the results for quarter 3 and our trajectory in the state of play. And now I give the floor to our CEO, and please feel free to ask any questions. Bogdan Benczak: It was very solid, good positive 10 months. That would be my final word. Bogdan Benczak: Yes, I have to speak to the mic. We had very good 10 months. And now I open the question-answer session. I look at the chat, but let us start with people who are physically in the room. Any questions from the audience in the room. So let us start with questions on non-life insurance. Magdalena Komaracka: Autonomous Research. I will translate that into Polish. To what extent was the combined ratio in Poland in 3Q by favorable weather conditions and/or reserve releases in the third quarter. Unknown Executive: Let me phrase it that way. I would like to stress firmly the following thing. Our DNA includes a conservative approach to liabilities, including insurance liabilities. So we will not act unpredictably here. We have reserves. The level of reserves is absolutely adequate to the market situation -- persisting market situation. These reserves are also adequate because they will allow us to cover all insurance liabilities whatever the scenario. So our insurance portfolio is like this. And the economy has an effect on it as well, and this is what has happened in Q3. So the first thing that happened was the following. And this was purely economical. The inflation got down. And this is about modeling results for the capitalized value. And together with the drop in the inflation rate. So there is also a huge correlation between the indexation level decided by the courts and also the trends of the inflation, the CPI or the salaries inflation. So we see some room for a drop in the level of reserves. And at the same time, we will remain as conservative as before because in the upcoming years, probably we won't have double-digit figures as in the previous years. And this is because the inflation rate is on a very good trajectory to reach the inflation rate goals, as mentioned by the Polish National Bank. So PLN 50 million for MTPL. This was 1 of the reserves I'm referring to. The second parameter is the following. Let me remind you -- but years ago, given the case law, whenever there were injured people in a car accident that actually survived but they were in persistent vegetative state, the family had to look after a person -- bedridden people or seriously ill. So we are speaking here about their mental psychological consequences, which led to claims and in 2017, 2018, we created a reserve for that purpose. But we can see that there are fewer and fewer claims, where courts decides the money to be paid. And this was for years, 1998, 2017, so 20 years of liability. And now we are gradually decreasing that reserve, and this also has had an effect to the overestimate of PLN 21 million on the results. So this is what it looks like in the non-life insurance segment and I hope this addresses your question. Magdalena Komaracka: The second question is from HSBC. How does business mix shift from motor to non-motor impact your combined ratio over the next few years? Can this shift to higher-margin non-motor offset pressure from softer market conditions? Unknown Executive: So we made it very clear in our strategy. What we really are focused on is the growth of profitability that's in our DNA. That's why it was our conscious decision to limit situations, which are not very attractive in terms of value generation. We have told you about the Link4 portfolio situation. We also repositioned PZU SA and the effect of which has been and probably will be the increase in the share of the non-motor segment line of business. What we think is still relevant is that the mass and corporate segment with the mixed portfolio, which brings together motor and non-motor insurance. Here, we want to have profitability managed by combined ratio, but at the levels of no more than 90%. This is our target. Hence, the new activities whose purpose is also to make more room for more revenues in a situation of a soft market. Magdalena Komaracka: And now speaking about motor insurance, given the pricing pressures in motor insurance, what levels do you have to sustain your core in the upcoming period? Bogdan Benczak: Well, I think it depends on how the market behaves. Because the claim inflation rate has been going down. So when you think about the average price of compensation and motor insurance, we can't be too optimistic about the levels of this and the fact that they will start at the same level. So frequency might have an effect, and this is precisely what happened in Q3, but the inflation trends will also have an effect. What we see is the following situation. The MOD market remains to be profitable -- remains profitable, and we are a bit more profitable here. But please bear in mind that we are using a different standard and the one that allows us to gather market data. So if the situation continues, probably this will lead to a compression of margins and whether it's 5% because this is very, very stable and the profitability is going down very slowly but steadily. Anyway, it's very difficult to predict. Now we have negative data from 2 quarters. Q2 and Q3, the negative adjustment is minus 2.8%, and we'll see how it continues at the end of the year, because the end of the year is a very interesting time because some are already positioning themselves for the next year, some are still trying to deliver targets from the current year. So it's interesting things to happen. So if we are able to grab this opportunity and position ourselves the right way, we might even benefit from this situation in Q4. And now MTPL. We don't want to grow at any cost in channels where there is no value for us. So maybe as discussed in our strategy, we will continue to grow but slower, but we will be able to generate value for our shareholders or for our customers because we have a very big portfolio and also, I think that we have mentioned pricing and other issues and we're getting better at the offering to our customers. So if nothing happens, we think there will be a slight depreciation of the margin on MTPL, but we still think it's going to be a profitable product but also depends on the market and the situation. Today, the market is not profitable. And there are companies that generate value and there are some that loss value. And we want to be among the former, but it means that it's very hard work, and it's very nuanced in terms of accepting risking and portfolio and tariff settings in the mass insurance are part of PZU's activity and the part of our priorities. Of course, there is the market situation, but also we have a list of activities that help us improve like pricing, claim handling, frauds. So we have to analyze thoroughly what's going on in the market, but there are also things happening inside PZU. Magdalena Komaracka: And there is also 1 more question from [ Trigun ] about the Motor Insurance segment. So what's behind this very significant improvement in the profitability quarter-to-quarter. Unknown Executive: And we have answered this question already. Well, there is 1 more element that also happened in Q2, the amortization versus the new creation of loss component, the amortization is higher and has a positive contribution to the result. Magdalena Komaracka: There is 1 more question, a new one from HSBC. Historically, so -- is this the moment in the market where the pressure allows it to reverse? I mean, become more profitable? So historically speaking, where are we. So is it subsidizing 1 product with another? Unknown Executive: I think that the Polish market changed significantly when the pandemic started. Let me remind you. In 2019, we told you that a new underwriting cycle was beginning, but the pandemic was a game changer. And first, we had gigantic profits. This was largely because there was no traffic and no insurance incidents. But then people started to work half remotely and half in the office in a hybrid way the traffic came back to the street. And you could see that this cycle was very much disrupted by the pandemic, and the cycle took overall 6 -- almost 7 years. So it's difficult to find a similar period in the past. So historically speaking, in a totally different legislative environment, there was a point where both MOD and MTPL products were not profitable, and this was when the regulator, the financial authority started its interventions. And that was 2017 as far as I remember when the new regulations on the price adequacy took effect. The purpose was to curb the situation that had been happening back then. So now it's difficult to imagine a situation or a huge technical losses offset. And everyone is happy. Why? Usually such a model has a very negative effect on the capital position and insurance companies need to guarantee the right capital to cover and to pay insurance liabilities. So the rules have changed a bit here. So after such a long cycle, it's difficult to compare this time to a similar moment in 2015 or '17. And this approach could be also seen in our strategy, but it looks like we are going to move in a much narrower corridor historically speaking, maybe with a pricing cycle or an underwriting cycle. But it's time span is going to be totally different unprecedented. Let me stress one thing. We are far from a negative technical result, far from it. That's not our philosophy. Magdalena Komaracka: We have 2 more questions regarding results and communication, 1 from HSBC and [ Trigun ]. Regarding non-motor insurances, do you see any one-offs. That will be from [ Trigun ]. And from HSBC, weather losses were having in 2024, but would you describe 2025 as a normal year? If not, how much should we normalize for weather? Unknown Executive: Well, let me phrase it this way. Depends what you understand by normal. The flood, we experienced last year. It's not a regular event. And it's recurring event that should be included in the forecast for every year. I believe that technically speaking in non-motor insurance, it's quite okay. We had some frost in the second quarter for PLN 10 million. Apart from that, there were now other massive events, the ones we had last year, like flooding. So again, what is normal? What does it mean normal? We had more violent weather incidents that's for sure and we have some unseen events. For instance, a heavy rainfall during winter. And we believe that these events may have impact on the claims side. But this is a quotation element. The parameters, which influenced the level of risks are also taken into account when the quotation is being produced. Right now, we've changed our way of thinking. We know that we may have clients on -- in the flooding areas. We have flood protection, not far from the Vistula River in Warsaw, and we have big villas. And when we produce quotation for insurance for such large villas, we will do a totally different valuation than the valuation for a small 3-room flat, somewhere in the tenement building. So these elements unprecedented weather events are already piece and parcel of our quotation methodology. So again, normal for us here means positive. This year is positive. Magdalena Komaracka: I still have 1 question about investment -- about holding. So about investments. It's from Autonomous Research. You've mentioned pressure on investment income in insurance and the contribution from banks, given the duration and maturity profile of your fixed income portfolio, what pace of compression should we expect on the fixed income yield in banking? Can lending growth potentially offset pressure on net interest margins? Tomasz Kulik: Let me answer the following way -- give you the following answer. I will take the perspective of the last 12 months because we started efforts in this area in the third quarter of 2024. What happened there then was that we simply wanted to use what happened around us. So in order to extend and in some way freeze our debt portfolio, mainly sovereign bonds portfolio. We simply seized the opportunity of very positive environment and positive external parameters. And there were some positive results last year. We managed that. And we believe that we can benefit from this on -- in the long term. If interest rates go down by 100 -- 100 basis points, we will be between PLN 80 million and PLN 110 million, PLN 120 million corridor. That would be our position right now. We will do our best to offset that corridor, and we can afford that today, considering our capital position right now. So we can increase that level -- slightly increase that level of acceptable risk. And the share of debt -- corporate debt instruments in our investment portfolio. This share is not excessively big. And the CEO said today that the sovereign debt treasury -- debt share in our portfolio corresponds to 65%. So it's 65% of the whole debt portfolio, and we are not representative Europe-wise when compared to other European peers. So we still have some room, but it needs to be meaningful if you have no reasons to rely on out-of-the-box solutions, you won't use out-of-the-box solutions. However, the number of possibilities is limited. This is not a very deep market. The Polish market is not very deep. And we do have some strategies which try to go beyond the Polish market as sort of a change of cap, and we will think about it if there are new drops of interest rates. And this will be aligned with the new organization and with the new -- with our strategy. Magdalena Komaracka: And we have the last question about holding. Could you remind us of the time line to complete the merger with Bank Pekao or reorganization? And could you provide an update on the legislative process that will enable the merger -- the reorganization? Unknown Executive: Well, you should have been closed by the end of the second quarter, it should be closed by the end of the second quarter 2026 according to the time sheet. Legislative process. The draft will be sent to the parliament. We are just ahead of the parliamentary work. And it's too early to answer the question on the shares and the price of shares. Magdalena Komaracka: And brokerage house of Citi Handlowy Bank. I have a very specific question, but I know that the CEO has such a background. I have a question about the presence -- your presence in the Baltic states. There have been some details in the presentation, but what is the cycle? What's the stage of the cycle? And what are the risks? What are the threats? Bogdan Benczak: Well, the market is similar to the Polish market. There are less insurance companies, but the competition is similar. There is a different mix, slightly different mix split by industries. Traditionally, transportation, logistics, furniture and wood industries. These are the traditional industries within the mix. As you probably know, we are facing a major challenge in Lithuania, there has been a 10% tax on revenues from insurance that has been just introduced, 10% of the written premium tax. And we -- just want to know how this tax on the 10% of the written premium will be calculated. We know that the proceeds from the tax will be used to finance the defense spending. And I believe that this may have an impact on the insurance market in Lithuania. There are no implementing acts and some business lines will be exempted. This is the situation in the Lithuanian market. As you probably know, a long time ago, as part of the transaction with RSA acquired Lithuanian Latvian PZU and the branch of [indiscernible] in Estonia. Right now, [indiscernible] is faring extremely well. They are agile. They are the market leader and they represent the sales mix as we do. They have their own network of insurance agents and they also have cooperation with external channels, a strong position of brokers within the network, similar to multi-agencies in Poland, similar price leverages. The mass segment is most developed for medics. For us, it's health insurance, and it's in Lithuania, the same sector is now on the rise in Lithuania and Latvia, the most developed and Lithuania developing. In both cases, we have good profitability. And the reasons for that are similar to the causes in Poland, the difficulties in accessing public health care. In Estonia, the situation is slightly different, public health care services are of high quality, and that's why health insurance is not a widespread product. And there is a high level of digitization, plus need for quick response. So when you get the request for quotation need to react immediately. We are market leader in non-life in Lithuania. We are market leader as a stand-alone company without consolidation, so as a stand-alone company. And we are also a leader in Latvia. And in Estonia, we are #3. As far as I know, for non-life. Our life insurance company in Lithuania has started to show a positive dynamic. So there has been some growth. But undoubtedly, we need to speed up and we are right now thinking how to reposition the company on the market. The Lithuanian company has a branch in Estonia [indiscernible] has a branch in Estonia. Many years ago, we bought a branch actually and Volta is a standalone company headquartered in Riga, combined ratio and written premiums. I don't know if we have data on that. Let me show you the exact slide. And if you add to Ukrainian companies, PLN 2.3 billion of written premium for third quarter alone. So the Baltic countries plus Ukraine. It's integrated, consolidated in 2025. 86.5% of combined ratio, Baltic States and Ukraine and then the conversion of local currencies. I have to check for written premiums. We actually, you got me, you got me with your question. I have to check and get back to you with the details. However, the combined ratio is at 86.5%, and it's similar to PZU's combined ratio, and the product mix is also close to what we have here. Distribution channels. When we bought Estonian branch Bancassurance and City Bank had a major share. Now this share has shrinken and there is a bigger share of broker and agent sales -- broker and agent-mediated sales. So bancassurance still counts, but its share is not that important. Many years ago, I was involved in the acquisition of this business and I can tell you and Tomasz will agree with me probably that all the basic assumptions were delivered with a surplus. So all the companies are agile, and they have a very successful contribution. And now Ukraine. We are now undergoing a very, very deep restructuring of the companies and this year, Q3 has witnessed a strong pickup in terms of sales and the combined ratio is at the level of 94. So there is no reason to be ashamed given the extreme conditions over the circumstances. So we can be actually proud of it. Magdalena Komaracka: Any more questions? No more questions online. Bogdan Benczak: So thank you very much for your attention, and we hope we see you -- we'll see you again in -- after Q4 and we will be informed about the date of the conference in the current report. Magdalena Komaracka: Thank you very much. It has been very stressful, but also a very interesting experience. And please have a look at our website and our awareness campaigns. Thank you.
Nini Arshakuni: Welcome to Lion Finance's Third Quarter results call. My name is Nini Arshakuni. I'm Head of Investor Relations, and I will be the moderator for today's call. I'm joined on this call by Archil Gachechiladze, our Group CEO; Hovhannes Toroyan, who's the Chief Financial Officer of Ameriabank, our banking subsidiary in Armenia; and Akaki Liqokeli, our Group Economist, who will be covering the macro. We're pleased to report another set of solid results for the quarter with very strong customer franchise growth across our business operations in Georgia and Armenia. Our loan book grew 22% in constant currency. It was even more -- with even stronger growth in the Armenia operations. Overall, our profit for the quarter amounted to GEL 547 million, an 8% increase versus the prior year. Return on average equity stood at solid 28%. Cost to income was 35.3%, an improvement versus the prior quarter. And our cost of credit risk ratio was 0.5%, and we maintained robust asset quality across the whole business. Before we dive into the details of these results, we'll first start with the macroeconomic developments, and Akaki will kick off, and then we'll hear from Archil and Hovhannes. And in the end, we'll open the floor for questions. Akaki, now you can start the macro part, and let's move on. Akaki Liqokeli: Thank you, Nini. Hello, everyone. I will be presenting the macroeconomic update for our core markets, Georgia and Armenia. Let's start with growth performance. In the first 9 months of the year, both economies delivered solid growth numbers, supported by robust domestic demand and resilient external sector inflows. Accordingly, we have maintained our full year real GDP growth forecast for 2025 at 7.5% for Georgia and 5% for Armenia. That said, the uncertainty around the baseline remains elevated due to geopolitical instability in the region and domestic political tensions. Nevertheless, the demonstrated resilience of the economies, along with continued improvements in relations between Armenia and Azerbaijan has strengthened the outlook. And we have revised our expectation for 2026, is the strong growth will persist at 6% real GDP growth in Georgia and 5.5% growth in Armenia. Importantly, our projections are in line with the latest IMF forecast, which place Georgia and Armenia among the top performers in the region in terms of average real GDP growth over the next 5 years. Turning to the composition of growth. Both economies have increasingly shifted to domestic demand drivers, particularly consumption, which is supported by sustained increases in household income from employment and remittances. And ongoing fiscal expansion in Armenia is also helping in this regard. Investment spending is also contributing positively, aided by ongoing public infrastructure projects. External sector inflows are also contributing to growth. The income from exports, tourism and remittances is increasing at a solid pace in Georgia. We also see that the inflows have gained momentum in Armenia after one-off highs registered last year. Also, the nontravel export of services, particularly IT and transport, demonstrate solid growth and contributing to overall hard currency inflows. The strength of inflows is supporting the stability of local currencies as well. Georgian lari and Armenian dram have been broadly stable against the U.S. dollar over the last 2 years in contrast to most peer currencies. The real exchange rates are also adjusting smoothly after strong depreciations in previous years. This is working through lower inflation with no impact on nominal exchange rates. We expect GEL and Armenian dram to remain stable over the medium term, supported by solid macro fundamentals and prudent policies. Exchange rate stability is also essential for keeping inflation low and stable, which we have observed in both countries in recent years. However, more recently, we have seen some uptick in inflation in Georgia, where the headline number was 5.2% year-on-year in October. This is mostly driven by price increases on several food items from last year's low levels. And we expect this to be temporary and short-lived as inflation expectations remain well anchored as reflected in low core inflation numbers and the National Bank of Georgia maintains moderately tight monetary policy with the refinancing rate at 8%. In 2026, as inflation pressures ease, we see scope for 0.5 percentage point cut -- rate cut by the NBG. On the Armenian side, the inflation is more stable, and refinancing rate is slightly lower at 6.75%. In 2026, we also expect a limited space for cuts within 25, 50 basis points. The central banks of Georgian and Armenia have been also very active in foreign currency purchases this year. And as a result, there is -- official reserve levels have reached record high numbers. And they are also converging toward the minimum adequacy levels. According to our estimates, [ $6 billion ] will be sufficient to reach the debt level in Georgia and [ $5 billion ] in Armenia, and those levels are quite realistic to be achieved in the following year. Strong reserve positions are essential for macroeconomic stability as well as fiscal discipline that we also observe in both countries. Georgia remains on a consolidation path with tightly managed fiscal deficit within 3% of GDP and also the government targets to reduce further the debt level below 35% of GDP. On the Armenian side, the temporary increase in spending needs has led to somewhat elevated budget deficits in the following years. But notably, this is -- more spending is going to CapEx projects, and the government is committed to maintain the public debt below 55% of GDP, and this is also supported by ongoing IMF arrangements. Lastly, a few words about the banking sectors, which benefit from favorable macroeconomic conditions in both countries. Lending growth has converged to the nominal economic growth in Georgia. And in Armenia, we also see some moderation to more sustainable levels as the mortgage subsidy program is phasing out. Loan dollarization has been stable after substantial decreases in previous years, which contribute to lower exposure to exchange rate risk and the asset quality remains solid with Armenia and Georgia among the top countries in the region in terms of low nonperforming loans according to IMF. So this concludes my part. Back to you, Nini. Nini Arshakuni: Thank you, Akaki. Now we'll move to discussing our performance in Georgia and Armenia separately, and Archil will first start with Georgian operations and strategic highlights, and then we'll move to Armenia. Archil Gachechiladze: Hello, everyone. Thank you for joining the call. Let me share the presentation. Nini, can you see me share the screen? Nini Arshakuni: We see the screen. We don't see -- yes, now we see the presentation. Archil Gachechiladze: Excellent. So thank you again for joining the earnings call. We will discuss some of the numbers here. So I will present the operating parameters of our Georgia subsidiary, then Hovhannes will present the Armenia side, and then I'll summarize in terms of the overall revenue numbers and costs and so forth. So the Georgian subsidiary had a very good showing of return on equity of 32% with 16% year-on-year growth in loans and 14% in deposits as well as continuing to increase its retail coverage with retail monthly active users achieving 1.74 million users, up by almost 15% year-on-year. Just a kind reminder basically that our mobile application retail as well as business is basically financial superapp with a lot of different capabilities, including not only daily banking and multicurrency accounts attached to a single card and so forth, but peer-to-peer payment and bill split and so forth as well as fractional trading on U.S. markets, low-cost fractional trading and many other capabilities. And for that reason and not just that, but as our overall digital capabilities of the bank, we have been recognized second time in a row by Global Finance as the Best Digital Bank in the World, and in the run-up to this competition for the best in the world, there were some big global names, including Revolut and others. So it's -- I would like to congratulate our team behind this effort. And it is a nice achievement and recognition for our bank to have that given that our home markets are rather small on a global scale. So what we see here is that we are going from strength to strength in terms of the monthly active users. You can see this number here, the middle gray line, which is up by 14.7% that I already mentioned. And the daily engagement is very good. Basically, it's about 50% now, which is very strong. What's also notable is that our business users are growing year-on-year monthly active user of our business mobile application is up 19%, which is quite incredible. In terms of the shares sold digitally, we have achieved a new high of 70%, which is very good. So more and more of our loans and deposits and cards and other packages are acquired fully digitally. And on top of that, our NPS score, we achieved a new high of 74% -- not percent, 74, I apologize, in terms of the NPS showing, which shows you the strength of our franchise and the satisfaction of our customers with our services and daily banking that they do. That has translated into a 21% increase in terms of volumes of payments, that's POS terminals and e-commerce with a slight pickup in the market share year-on-year. Some people have asked the question in terms of this used to be 57%, that's restated to exclude peer-to-peer payment that went through the card rails, but that's not really an acquiring business. So we excluded that. And if you restated it for longer term, that's -- those are the numbers. In terms of number of people using -- unit individuals using our cards, year-on-year, it's up by 13.9%. So given our high penetration, it's an incredible number, well above 1.5 million now. And so it's 2.5% up Q-over-Q. Loan growth was 16.5%, constant currency, 16.1% and a quarterly number of 3.6% on a constant currency basis, which is very strong showing the markets growing about 13%. Deposit was up also by 14%, a slight bump on a quarterly basis. Capital position remains strong. CET1 and Tier 1 is a big focus, obviously, because the sub debt is widely available for a number of providers. So it's more tightly managed. But this is plenty of capital. And as a reminder, we target a management buffer of 1.5% above the minimum requirement. We can go slightly lower, if need be, but basically, that provides a slightly higher cushion that we target. Now I would like to ask Hovhannes to step in and present the shiny results that Ameriabank has. Hovhannes Toroyan: Can you see my screen? Nini Arshakuni: Yes, Hovhannes. Yes. Hovhannes Toroyan: Yes. Perfect. Thank you, everyone, for your time. For the Armenian operations, I want to mention that our profit grew 22% year-over-year to reach GEL 111.5 million. Our return on equity also improved quarter versus quarter to reach 21.8%. As Archil already mentioned, both loan and deposit portfolios grew at significant rates, namely loan book grew 36.5 percentage point in constant currency basis and deposit portfolio grew 28.6% again, in constant currency basis. We continue our expansion in terms of acquiring more customers. And here, you can see that both total customer base, monthly active customers as well as MAU/DAUs are increasing pretty solidly, and I'll be talking about it on the next slides. Here, again, likewise, we're working on developing superapp locally that is becoming more and more popular. Indeed, the usage of our mobile application that is called MyAmeria has increased more than 60%. That is also remarkable given the high penetration that we have in the local market. And there, we have several different features, more than actually 100 new features introduced during this quarter. And we also introduced our loyalty program that we hope will tie up our customers with us in the long term. As we spoke last quarter, we have launched MyAmeriaStar, this is application for kids, 2 quarters ago. And we can be very happy that it's gaining more and more popularity among children and is serving to become a financial educational platform for a number of kids in Armenia. In terms of digital usage, as I mentioned, if you look on our growth on an annual basis, it's mostly at or about 60% for both MAU and DAU, and we are very also happy and proud to share that also our digital uptake has improved more than 5 percentage point quarter-over-quarter. That is also remarkable given this very rapid growth of the number of customers that we have, number of MAU and DAU. Here, I also want to mention that we have been doing a number of campaigns to attract new-to-bank customers as well as to activate the customer base that we have. And we are offering a number of perks and benefits to our customer base. So when we'll be talking about fees and commissions, the costs on there are running a bit faster related to card transactions due to the campaigns that we are doing. For the loan and deposit portfolio, again, we have remarkable results, 36.9% on loans. It's very important to note that the growth is very balanced, both on the corporate and retail side. Also, just to remind that last year, we had elevated demand for the mortgages due to this tax rebate program. I want to mention that on one hand, the growth pace of the mortgages has decreased, but it's higher than whatever we had in 2023 and 2022. So there is a very healthy growth continuing in this market. So we have no fears about any potential bubbles in this sector. As for the deposits, again, 28.8% growth year-over-year. And here, I also want to mark another milestone agreement that we announced very recently with another DFI, EBRD. We have been very active with our DFI partners to attract more liabilities to support our long-term growth. As for the capital position and liquidity position, I'm very happy to also mention that there is improvement in both areas. Our headroom versus requirements has improved versus quarter 2. Also, the Central Bank of Armenia has made -- officially introduced the changes to the local regulation, where in line with a couple of other changes. Now banks can do perpetual bonds as part of their regulatory equity. Also, there is significant improvement in our liquidity ratio. You can see 202% and 121% for NFSR and LCR ratios. So we are standing very sound, both in terms of capital position as well as liquidity. Our NPS has also further improved to 77.4. It's 1.4 percentage point increase versus previous year-end. And obviously, with the remarkable growth rates of the loans and deposits, our market share both for loans and deposits has increased by 1.6 percentage point. So as we announced earlier, we see significant untapped market opportunities, and we will be working towards increasing our market share in the local market. With this, I can conclude and pass the floor back to Nini. Thank you. Nini Arshakuni: Thank you, Hovhannes. And I'll now hand it over to Archil for the overall group overview. Archil Gachechiladze: Congratulations to the whole Armenian team. I think it's incredible results in terms of balance sheet growth, but also in terms of the -- fundamentally, our coverage and rolling out of our retail products and enhancing monthly active users there. So with 300,000 people using our products there monthly, that's about 10% of the population. In Georgia, we're covering 45%. So there's plenty of opportunity to grow and roll out our daily banking excellent services to more and more clients. So in terms of how this translates into the overall numbers, you can say that our operating income grew by 15.6%. And you see an equal distribution of 13.4% in Georgia and 21.3% in Armenia. In terms of the net interest income, the growth was stronger than the overall revenue, which was 18.4% in Georgia and 30% in Armenia, so translating into 21% growth of net interest income year-over-year. And net noninterest income was rather subdued, and we have discussed it in our results as well, and I'll go into detail in terms of FX and non-FX numbers on the next slide. So net fee and commission income grew by only 4.8% for the overall group. In Georgia, it was 8.6%. Last quarter, I said in Georgia would be high single digits. So that's more or less what we have there. And in Armenia, it was down by 17.8%, largely due to the massive spending on the client acquisition and reactivation that Hovhannes mentioned as well. In net FX, it has been largely flat, slight decrease in Georgia, 3.3% year-over-year, partly due to the stability of the currency. So this line of revenue is more juicy when there's more volatility in the currency. In both markets, the stability has been there because basically, there's a strong inflow into the country and both national banks are basically providing the lower target basically through which they're not allowing the currency to get stronger, but they are refilling the reserves, which -- that kind of stability is not great for us, obviously. But overall, it's still solid numbers. Operating expenses were up 17.1%, about 15.4% and 16.6% in Georgia and Armenia, and the other business was a bit slightly higher. But overall, Q-over-Q, there was a slight improvement in cost-to-income, but year-over-year slight [ decrease ] from 34.8% blended to 35.3% blended. That remains our focus. And from next year, we should expect neutral to positive operating jaws. Loan portfolio growth and deposit portfolio growth for both countries were very positive in this quarter. In Georgia, we grew by 16.1% in constant currency year-over-year and in Armenia was incredible 36.5%. And as Hovhannes has mentioned, it was well distributed between retail and corporate. So it's all very good and strong growth in deposits as well. So all in all, that -- yes, one other good news was that as we deployed more liquidity in Georgia, we had a slight pickup in the net interest margin in Georgia and a 10 basis point pickup in Armenia as well. And so all in all, it translated into an increase of 20 basis points Q-over-Q, which was welcome news. Cost of credit was 0.5%, and that's more closer to the normal levels. And we guide between 80 and 100 basis points through the cycle, but we are in a good benign environment. So that's what it is. We had a slight pickup in NPL ratios, which was mostly on the SME side, reclassifying some small hotels, mainly in the regions that have not performed very well. There's no systemic underlying issue in any of these segments there. So that's about that. So the profit was up by 7.5% year-over-year, although that basically does not show the fundamental pre-provision size of the business grew about 15%, which is something that we focus on as well. Return on equity is 27.8%. All in all, strong showing. We are announcing a dividend -- quarterly dividend of GEL 2.65 per share as well as recommending to do the buybacks of GEL 51.5 million for this quarter, and it's a buyback and cancellation, as you know. And you see over the last 5 years how the number of share has been reducing because of this type of capital returns that we do. This is what we promised to do, and we are continuing to do that. I'll wrap it up here and open for Q&A. Nini, anything to add? Nini Arshakuni: Yes, we can start the Q&A, nothing to add. So to ask questions, please use the Raise hand button or the Q&A chat, and please introduce yourself when you speak. So we have the first question from Jens Ehrenberg and let me bring him on the line. Jens Ehrenberg: I hope you can hear me all right. A couple of questions from my side. And sorry, I should have introduced myself. It's Jens Ehrenberg from Cavendish. Firstly, I suppose looking at loan book growth, which has been pretty strong across both markets. Are there any key growth levers you'd look at over the next 12 to 18 months that we should be mindful of? Then secondly, just on the level of NIMs. I mean it's great to see how robust they've been in the quarter. I suppose in the face of uncertainty around global rates, how should we think about this going forward? Are you sort of confident in the stability of those margins? Or is there anything we should be mindful of? And finally, more on the sort of digital side of things, particularly on the retail side. Thinking back to sort of the time of the demerger, to what extent do you believe that, I suppose the market actually appreciates the franchise value that you've built on the back of the digital retail offering? Archil Gachechiladze: So thank you. So for loan growth, I'll say Georgia and then maybe Hovhannes can cover the Armenian side. So we guide -- we don't guide Georgia separately, but our expectation is between 10% and 12%, 13% medium term, although as long as the growth of the Georgian economy remains above 5%, which is the medium to long term expectation of Georgian growth, not long term, but medium term, that allows us to grow faster than that. So we have been able to grow -- as the market grows at 13%, we have been able to grow at 16%. There's no particular sites other than -- so retail and corporate, both are growing very strongly. SME has not been growing strongly. It's high single digit there. And we are in discussion with policymakers how to support SME growth, SME loan growth there. But in terms of Georgian corporates are in excellent shape. They've delevered as the denominator of the economy overall grew their profitability as well as margins were in excellent shape over the last 3, 5 years. So they're delevered and able to invest in many different sectors. Energy remains a big sector that should attract a lot of investment over the next 3 years in Georgia. So -- and consumer is still growing very well because the income levels have been growing at double digits 5 years in a row, 5 years, every year, double digit, which is excellent growth that we are seeing. And Hovhannes, do you want to say about loan growth in Armenia and then I'll switch to NIM? Why don't you cover NIM as well in Armenia and then I'll turn to Georgian side. Hovhannes Toroyan: Sure. Yes. Absolutely. So for the loan growth, we do anticipate for the market like lower double-digit growth for the next couple of years. For Ameriabank, our estimate is to keep it between 15% and 20%, maybe a bit higher for the initial years and then going slightly lower towards like 3, 4 years horizon. But we should be able to keep it between 15% and 20% growth for the next 3 to 4 years. As for NIM, we do think that the level of the NIM where we are is fairly stable. So we do not anticipate any sharp changes either way, either up or down. So there could be 10, 15 basis point change over time. But overall, we think this is -- in terms of midterm, this is -- this could be a guiding figure for the management. Archil Gachechiladze: Thank you, Hovhannes. I'm a bit more optimistic on the loan growth side. As long as we grow on retail side as we want to, I think it should provide 20-plus percent growth, but we'll see. On the NIM, in Georgia, it's broadly stable. We are in a good shape there. I don't expect any major changes. Obviously, this business just happens. So we'll see [Technical Difficulty] there is no reason to expect a particular movement there. On the franchise value side, you're absolutely right. So a lot of people are focused on book multiple because there's this understanding that banking is all about the balance sheet play and somebody can bring a couple of billion dollars and recreate this franchise. And I don't think that is right. I mean when there's the front end, it's not just the balance sheet, the front end, which basically -- that's why I focus so much on the NPS, on the top of mind, most trusted bank. So this shows the stickiness of the customer revenue and so forth, which translate then into growth [indiscernible], but also, it's the stickiness of such revenue. And unfortunately, the market has not given us credit for it because we're still trading around 5x P/E, while historically, we used to trade at 8, 9, sometimes 10x. And if you ask me, and maybe that's subjective, but also objective measures show that we are in the best shape in terms of the franchise quality that we have ever been on the Georgian side, and now it's joined with Armenia, it's getting better and going from strength to strength there as well. So unfortunately, not yet appreciated, but hopefully, it's coming, right? There were a few questions typed into the Q&A side. Nini, do you want to cover those? Nini Arshakuni: Yes. So maybe if we kind of categorize them, there are 2 questions on the market shares. For -- on the Armenian side, basically, the question is what percent market share is attainable in the next few years? And then for Georgia, the question is, given already large market share, how much more market share could be BOG gain in the next few years? So maybe we'll cover the market share questions first. Archil Gachechiladze: I can cover both, Hovhannes, sorry. In Georgia, regulator has basically said that they would like to keep the concentration constant and not increase it too much, i.e. below 40%. So we have basically -- so there's more capital requirement as we go above 40% in deposits, which we are currently -- we have about 50 basis points extra for that. So we intend to keep it just under 40%, a slight percentage or 2% gain still available on the loan side. So there's not much to gain there, a little bit. But in Armenia, we would like to grow towards 30% and slightly above that over the next few years. So that the scale advantage that we currently have actually translates into good advantage in cost-to-income ratio as well. Nini Arshakuni: Okay. Then [ Mike Gabon ] has a few questions. One is if we can give more color into the potential perpetual bond issuance from Armenia? Archil Gachechiladze: Hovhannes, do you want to say anything? But be aware of the public market rules there. Hovhannes Toroyan: Sure. So we have not formally yet discussed and approved internally. So I would really prefer to refrain from giving any guidance, but we will definitely -- I mean, we have been working with some of the bankers to understand actually [Technical Difficulty] market opportunities. And also, we clearly understand our needs. I just can say that this is very good tool to improve the efficiency and cost structure of the equity. And we are actually seriously considering that opportunity. But once approved by our ALCO committee and then by the Board, I think after that, we can disclose more. Nini Arshakuni: Thank you, Hovhannes. So another question is from Mike Gabon as well on the Bank of Georgia's recent eurobond issuance. The question is if -- why did we issue this 3-year bond if we have so much capital and why in Georgian lari and why 11.5%, which Mike thinks is a high rate? So [indiscernible]. Archil, can you take it? Archil Gachechiladze: Yes. I think lari instrument has not been present on the local -- on the international market for some time. So I agree that 11.5% was a bit disappointing. But it's unfortunate that the people have not been looking at the lari's strength for a long time because there was no instrument, lari instrument outstanding. So that's partly due to the fact of the high interest. But we would like to have some public financing available in U.S. dollar as well as lari. There's no need for U.S. dollar at this point. But in lari, there was need. So that's why we raised it. Given how we are deploying it, we thought it was a good idea. So I don't know what you are referring to. So if we didn't think it was a good idea, we would not raise it, but we think it's a good idea. And it does help us to de-dollarize the balance sheet, which has a marginal improvement on the liquidity requirement as well. So that helps as well overall, which every time you de-dollarize either because of funding basically or the loans, then it helps you with the lower liquidity requirement. So marginal side is pretty good. It provides longer-term value as well, 3 years is better than most of the deposit, which is either current or 1 year. Nini, next question. Nini Arshakuni: Yes. So the next 2 questions come from [indiscernible] Capital. The first is, please comment on the fee and commission income Q-over-Q decline and outlook for the next several quarters. Maybe we'll take that first. And then the second is on the operating leverage. You mentioned positive operating leverage effects ahead. Could you guide us a bit with what cost -- with respect to cost-to-income ratio for GFS and AFS. Archil Gachechiladze: Yes. So on the fee and commission income, so basically, we will have improvement. It was not decline. It was a small increase, 3.8%. But we should be in Georgian side, growing double digit in the fourth quarter and then going forward, we should -- that should stick. In Armenia, it's a bit more bumpy, could be given the fact that we are in a very high expansion period of grabbing new clients and so forth. So there should be improvement, but we don't provide more guidance than that. And the same is true for cost-to-income as well. So we are guiding either neutral or positive or slightly positive operating jaws for next year, but we don't want to provide more breakdown than that. Nini Arshakuni: Thank you, Archil. So now we have a raised hand from Simon Nellis from Citi. So I'll let him talk. Simon Nellis: I was hoping you could elaborate a bit more on what was driving the margin expansion in Georgia, I think, a little bit over the quarter in Armenia as well. I know you're guiding for broadly stable margins, but can you kind of give us some thoughts longer term about the sensitivity of your margin in both markets to rates, which might come down, I guess? And what is your rate view kind of going forward over the next 12 to 24 months? Archil Gachechiladze: Yes. Let me do that on the Georgian side. So basically, I'll start with the last one. So first -- sorry. First was deploying higher liquidity. So we had slightly higher liquidity than normal. And as we were deploying it, we thought that it would translate into a slight pickup. So there was a pretty simple exercise there. Our -- in the mix, we have slightly higher consumer. So consumer is growing slightly more than other stuff. So that's also helping the margin. So that's why it's north of 6% instead of historically lower. So if you rewind 5, 10 years before, sometimes we have had it at 7%, 8%, but then we have had it just about 5% as well. Right now, it's 6%, partly due to the mix and high interest rate environment. Now talking about interest rates, as our Chief Economist, shared with you, we expect around 50 basis point reduction at the end of 2026 in lari. And that should be either neutral or maybe 10 basis point reduction over time. So initially, it's slightly positive, in fact, because we have short term and fixed lari is more of the assets, are in fixed short term than the funding. So that, in fact, has a slight pickup of 10 basis points or so. But then over time, it neutralizes up. And in Armenia, Hovhannes, do you want to say a few things? Hovhannes Toroyan: In Armenia, we also have a short position on interest rate on the FX. So technically, the decrease of the rates of USD or euro LIBOR will affect slightly positively, but that's not going to be anything significant because we do not really keep a very big position, I mean, open position. As for the NIM, yes, we did have a 0.1 percentage point improvement in NIM. But here, we again are guiding it to be flat in the Q4 and probably in the next couple of quarters. This was due to a slight increase in the yield of the loans. But at the same time, we also note that short term, our cost of funding has gone up slightly, and that was mainly driven by our attraction of DFI funding. That is slightly more expensive as of today. But given the long tenure of those facilities, we have estimated that through the lifetime, the average cost of that fund will be slightly lower than the local borrowing. So we are currently paying a bit more than the local market, but with the expectation to be paying less within the expectation that the rates will go down. Nini Arshakuni: Let's see. So we have one question from [indiscernible] on the Georgian business. What is your market share in private banking affluent retail in Georgia? And asking specifically about retail deposit market share. And how much is the share of these deposits in your total deposit base? And what is the dollar... Archil Gachechiladze: Yes, it's -- we cannot exactly measure the market share, but my estimate is somewhere between 45% plus/minus. And in terms of the total share, I don't remember. So we'll probably have to get back to you. So there's the solo, which is upper premium segment, which is substantial, and we do disclose. But in terms of what you are asking for, I think it's more like wealth management. I'm not sure we disclose the breakdown of that, but we can get back to you on that. In terms of how much we are paying, it's the average deposit cost, I also don't remember. We'll need to provide that to you. Nini Arshakuni: So overall, part of the cost in Georgian operations cost of client deposits in foreign currency is 1.4%, but that's blended across all segments. Archil Gachechiladze: Correct. Nini Arshakuni: I see Jens' hand, but he might have just forgotten to -- yes, he put it down. Let's see what else. Then we have one raised hand from [indiscernible] think from Armenia, but let's see if -- [ Gohar ], do you have a question? Maybe it's accidental. Archil Gachechiladze: There are a few questions from Mike Gabon that are in Q&A. Do you want to cover those? Nini Arshakuni: Yes. Let's see. Questions on Armenia. Is there a higher regulatory capital requirement on foreign currency in Armenia? That's probably for Hovhannes. And also, is there any notable inflows, outflows of foreign currency into and out of Armenia? Hovhannes Toroyan: We do have higher capital requirement for FX-denominated loans, and that has been enforced from 2004. So it's not new to us. On average, I would say, because there are different weights, risk weights for different asset classes, but most of the FX-denominated assets have approximately 50% more capital requirement or their risk weights are about 50% higher. And the second part was about the cap... Nini Arshakuni: About the foreign currency inflows in and out of Armenia. Any notable foreign currency inflows happening in and out of Armenia? Hovhannes Toroyan: Yes. I think Akaki also presented that when we look at the remittances, for instance, I mean, there is very healthy growth in Armenia. If I'm not mistaken, it's about 16% year-over-year. And that positive trend is continuing both in 2025 and was also there in 2024. Nini Arshakuni: Hovhannes, and then the clarifying question was that the cap -- Mike was asking about the cap, any cap on deposits in foreign currency or any additional requirements? Hovhannes Toroyan: There is no any capital requirement for FX-denominated deposits, but there is a higher regulatory cost in terms of higher required reserves for foreign currency-denominated deposits regardless where they're attracted from. And now with these new changes to the regulation, the Central Bank of Armenia is also introducing higher requirements for concentrated attractions for our customers in terms of calculation of NSFR and LCR, probability of the outflow. But again, we did our internal analysis. And due to this increased requirement to this concentrated means, the requirement for liquidity position for Ameriabank will not change. That is very immaterial change. So we're going to be, as I presented, well above the required thresholds. Nini Arshakuni: Okay. Thank you, Hovhannes. Another question is regarding the potential M&A opportunities, if we can comment on any potential M&A plans and if we have any interest in Central Asia, I think that's the question in summary. Archil Gachechiladze: There's no comment that we can provide in terms of our expansion, but we are scanning the market, and that would be East Europe -- Central and Eastern Europe, Southeast Europe, Central Asia, mainly 2 countries, which is Kazakhstan, Uzbekistan, we're always looking. But we are concentrated on top banks, top 3, maybe top 5 for larger banks. We don't like turnaround stories. We like stories where we can enhance and so forth. So there's no immediate update there. Should I cover the next one? [ Bruno Berry ] is asking about capital distribution. Nini Arshakuni: Yes. So the range of 30%, 50%, which is our medium -- like the target, where do we expect it to be in the near term? And what are our thoughts regarding the split between dividends and buybacks? Archil Gachechiladze: We expect it to be in low 30s as we guided a couple of years ago for 2, 3 years. And that's because the growth, we remain on the higher side, and we have been growing more than our medium guidance, medium-term guidance. So that's why we are deploying capital there. And in terms of the split of capital returns, roughly 2/3, 1/3 has been dividend and buybacks, and we'll probably stick to that. Nini Arshakuni: The next question is from Ben Maher on the line. Benjamin Maher: Can you hear me? Nini Arshakuni: Yes. Benjamin Maher: Just a quick one on -- I think you mentioned some regulatory changes in Armenia. I'm interested if you have any -- do you expect any further regulatory changes or any headwinds as we move into next year across Georgia or Armenia? Any color would be helpful. Hovhannes Toroyan: There's nothing material coming up in Armenia. Archil Gachechiladze: There's nothing immediate in Georgia, either. There's plenty of discussion in terms of open banking and how this is affecting and encouraging fintechs and so forth, but there's no particular big change right now. Nini Arshakuni: No more questions. Archil Gachechiladze: So with that, thank you very much for joining our quarterly call. Third quarter was a record high. This is the first time that we made more than $200 million equivalent, right? Nini, maybe you correct me if I'm wrong. But I think it was the first time and given the fact that we'll be growing quarter-by-quarter, hopefully, we can deliver value to our shareholders. Armenia remains a very strong case and prospects there are also very positive, medium- to long-term prospects given the fact that Azerbaijan and Turkish borders remain closed while there's an in-principle agreement already to open those up, but this will take time, a few months but less than a year, hopefully. And that means that the economy will open up with plenty of opportunities that will emerge, and we are very well placed there to fund and provide funding for growth to go there. And Georgia remains and continues to be a very strong economy. So more and more people appreciate how strong the economy and numbers have been. As you can see, the growth has been good, high single digit. Inflation is under control. CPI picked up, but core inflation remains at 2.4%. And all of this basically translates into a strong economy, people benefiting with average incomes growing double digit, and all of this is reflected in our strength. And Georgia, so on the macro side, it's a very good story. On the franchise value, I think we are stronger than we've ever been. So we are very well placed to benefit from this medium-term wave, which is called investment in the middle corridor, be it through this highway being discussed from Azerbaijan to Armenia or being through a more established Georgian route. In both cases, we're very well placed to benefit from this medium-term movement. And all of that, I think, will translate into long-term value creation. So thank you for joining this call, and we look forward to seeing you in one quarter. Nini Arshakuni: Thank you, and take care. Bye.
Operator: Good morning. My name is Melissa, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Bath & Body Works, Inc. Third Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. During the question and answer portion, you may ask a question from the phone by pressing star one. I'll now turn the call over to Luke Long, Vice President of Investor Relations. Luke, you may begin. Luke Long: Good morning, and welcome to Bath & Body Works, Inc. third quarter 2025 Earnings Conference Call. Joining me on the call today are Daniel Heaf, Chief Executive Officer, and Eva C. Boratto, Chief Financial Officer. In addition to this call and this morning's press release, we have posted a slide presentation on our website that summarizes the information in these prepared remarks and provides some related facts and figures regarding our operating performance and guidance. As a reminder, some of the comments today may include forward-looking statements related to future events and expectations. For factors that could cause the actual results to differ materially from these forward-looking statements, please refer to the risk factors in Bath & Body Works, Inc. 2024 Form 10-Ks. Today's call also contains certain non-GAAP financial measures. Please refer to this morning's press release and supplemental materials for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure. With that, I'll turn the call over to Daniel. Daniel Heaf: Thank you, Luke, and good morning. Let me begin by acknowledging that our third quarter results and our lower expectations for the fourth quarter don't live up to the expectations we all have for this brand. I joined Bath & Body Works, Inc. to accelerate growth, and I remain confident in our ability to do so. Today, I will set up a clear diagnosis for what's been challenging our performance and the actions we are already taking to address it. While the consumer environment is tougher, this is no excuse. As we continue to underperform the sector, we're focused on addressing the issues within our control to return to growth. Our transformation started the week I joined with our no-regret move, and the whole company is working with the utmost urgency. But this will take time. 2026 will be a year of investing behind our brand to strengthen our fundamentals and position our business for sustainable long-term growth. Before I outline what must change, let me ground you in what endures: the competitive advantages that give us the right to win. We are a market leader in attractive growing consumer categories. We are an iconic American brand recognized worldwide. We have a vault of beloved fragrance franchises with each of our top five franchises generating over $100 million in annual revenue, and our largest fragrance generating over $250 million yearly. We operate more than 2,400 stores around the world, employ a community of exceptional associates, have 40 million active loyalty members, and benefit from a fast, largely domestic supply chain. Our business model generates strong margins and high free cash flow conversion. Despite these strengths and the revenue growth in recent quarters, I concluded that swift and decisive action is needed to build the engine to drive sustainable long-term growth. From my first day, we have refocused on putting the consumer at the center of everything we do and listening closely to their feedback and insights. This has guided a disciplined end-to-end review of every aspect of our business: product, brand, digital, stores, operations, and talent. The plan we are announcing today and the actions we are taking and the strategic investments that we are making are the result of that comprehensive review, not a reaction to a single quarter. Let me first give you the diagnosis in four clear points. Firstly, we pursued adjacency to attract new consumers, but that strategy has not delivered the growth we expected, and it reduced focus in investing in our core categories. Secondly, collaborations that should have been used to drive excitement, energy, and equity into our brand have been used to carry quarters. Thirdly, as these strategies and other tactics have not delivered growth, we have relied on deeper and more frequent promotions. Great value and exciting deals have been part of our brand, and that will not change. However, over-reliance on promotion delivers diminishing returns and erodes brand equity, and that is what has happened here. While all these efforts appeal to our existing consumers, they did not grow our customer base, and we have not attracted a younger consumer. Finally, our organization has become slow and inefficient. Unnecessary complexity has reduced our speed, dampened our innovation, and we prioritized efforts that were not targeted to acquiring a new and younger consumer. Unlocking the next phase of growth requires decisive action. We are investing in new talent, focusing our teams on the highest value work, and moving at the speed of the consumer while optimizing expenses to fuel innovation and long-term performance. Our strategy is guided by what we have seen working in the marketplace. Over the years, consumers have evolved. They seek greater efficacy, ingredient-led products, modern packaging, emotive storytelling, and elevated multi-channel experiences. Our competitors have risen to meet those needs. We have not. In some cases, as with our formulations, we have invested in these attributes, but we have not communicated them consistently and effectively. Today, we are announcing a holistic growth plan to revitalize Bath & Body Works, Inc. across brands, product, and the marketplace, designed to drive value for our stakeholders. We are reclaiming our legacy as an innovative brand rooted in nature and benefits and leading the world in scent and self-care. This plan, the consumer-first formula, focuses our investment behind our four largest revenue-driving opportunities. These strategic priorities have already been communicated across the organization, and work is well underway. The first pillar of our plan is to create disruptive and innovative products that serve the needs of today's consumer. Desire will be designed. We will develop products in our core category to deliver luxury scents with benefits created to be accessible to everybody. Thoughtfully sourced and ingredient-led, refocusing on what made Bath & Body Works, Inc. distinct. In 2026, we will reinvest in our core categories. We are returning to best-in-class product leadership in body care, home fragrance, and soaps and sanitizers. Two, consumer muses. Designed with deep consumer insights guide our every decision. Jen, who demands bold fragrance, fun, seasonality, and value. And Zoe, who craves clean products with elevated scent and design at an accessible price point. These two muses keep us true to today's consumer while providing opportunities to engage new and younger consumers. We are making changes to better serve these muses, embedding consumer insights at the start of product development, accelerating new franchise development, and leveraging rapid testing to inform our innovations. Consumers will start to see these new products in 2026. From body care to home fragrance, we are introducing new forms, vessels, and formulas in our core categories that will drive growth and elevate the overall experience. To sharpen our focus and make our in-store experience less overwhelming, we will cut our assortment and reduce complexity, concentrating on fewer, more on-trend product priorities. Starting in the first half of next year, you will see thoughtful edits to our assortment and selective category exits such as hair and men's grooming as we refocus on the core. The second pillar of our strategy is to reignite our brand and reclaim cultural relevance. In 2026, we will market fewer, bolder, more targeted product moments with stronger creator advocacy and a more aspirational positioning. You can already see early proof points of this strategy in our touch of gold collection. We are recruiting a network of influencers to ignite social buzz while communicating credible science-based claims that differentiate our products from our competitors. We will make big bigger by elevating and amplifying two iconic Bath & Body Works, Inc. New consumers will discover and love these fragrances when we treat them with the reverence they deserve, elevate, and market them properly. We will deliver more impactful visual experiences in all our channels and across social platforms. The third pillar of our strategy is winning in the marketplace. Discovery should feel effortless. We will make it simpler for a new and young consumer to find us, love us, and buy us wherever they shop. We will elevate our owned retail channels and thoughtfully expand our distribution to new channels, positioning ourselves directly in the path of our consumer. As part of this, we will continue to enhance our app and website to increase engagement, to make product discovery easier, to deliver richer brand and product stories, and to reduce purchase friction. This work is already well underway. For example, our mobile homepage has undergone a refresh, and in early 2026, we will invest in a permanently lower and more competitive free shipping threshold. We will also expand thoughtfully into marketplaces and select wholesale channels, with Amazon expected to go live in 2026. In anticipation of an Amazon launch, we are curbing brand-dilutive gray market selling by restricting bulk purchases from resellers online and in-store. Amazon will enable us to reach new consumers and reengage loved ones, and we will launch with a curated assortment of evergreen hero products and, over time, introduce products designed to acquire new consumers. Our brand-operated channels will always carry the widest assortment and offer the most immersive brand storytelling. And to encourage new consumers to enter our operated stores, we will pilot updated merchandising, improved navigation, and refreshed retail marketing in 2026. Our final pillar is operating with speed and efficiency. We expect to fund investments through better execution, timing inventory, shortening cycle times, and implementing a multi-year cost savings program. Consistent with the focus of the Consumer First Formula, this initiative prioritizes high-value consumer-focused activities funded through value engineering and sourcing optimization. We have planned to deliver $250 million in cost savings over the next two years, with over half identified for 2026. These savings will be reinvested into revenue-generating activity in product and brand. A transformational plan requires transformational leadership, and we are putting the right leaders in the right roles with clear accountability. Earlier this month, we welcomed Mally Bernstein as our Chief Commercial Officer, overseeing the full marketplace across stores, digital, and wholesale channels. She brings extensive multi-channel retail experience within our sector, backed by a proven track record of impressive results. We're equally thrilled to welcome Varonis Gabai as our product and merchandising advisor. Her creative vision, strategic insight, and global experience in beauty will add invaluable perspective to our transformation. In addition, we also now have in place new leaders across digital, wholesale, and human resources, and we will continue to invest in talent to support the execution of our plan. As a result of our no-regret moves that I outlined six months ago, some of our strategic actions are already visible to the consumer, but it will take time before we see the benefits in our financial performance. I believe that we have the foundation, the plan, and the focus to deliver sustainable growth and shareholder value. We are acting with urgency and clarity, putting the consumer at the center of every decision. I am confident in Bath & Body Works, Inc.'s future and the immense opportunity we have in front of us. And now I'll hand over to Eva. Eva C. Boratto: Thank you, and good morning, everyone. As Daniel emphasized, our path forward is anchored to the four pillars of our consumer-first formula: creating disruptive and innovative products, reigniting our brand, winning in the marketplace, and operating with speed and efficiency. To attract a new and younger consumer to the brand and unlock our next era of growth, we will invest behind our strategy as we also drive diligent cost discipline to fund the actions we're taking. Our team is already hard at work unlocking the targeted $250 million of additional cost savings over the next two years. While we are moving with pace, this strategy will take time to impact our financial performance. Now turning to the financials, I'll begin with a summary of the third quarter. I'll then provide an update on our Q4 guidance. As Daniel noted, the Q3 results didn't live up to the expectations we have for this brand. In Q3, we delivered net sales of $1.6 billion, down 1% to the prior year, and adjusted earnings per diluted share of $0.35, both below our expectations. Relative to our expectations, the Villains collection did not generate the consumer excitement, traffic, or sales that we expected. Our start to holiday in late October has been very challenging. I'll provide more color on that shortly. Versus prior year, all of our core categories declined low single digits. This underscores the need to focus investment in our core categories. In U.S. and Canadian stores, net sales totaled $1.2 billion, flat versus the prior year. Direct net sales were $299 million, a decrease of 7% compared to last year. When adjusted for Buy Online Pickup in Store, which is reported as store sales, digital net sales were down 1%, a sequential improvement from Q2 performance. While we continue to make progress on our app and mobile web enhancements, there is substantial work ahead to develop a best-in-class experience. International net sales were $73 million in the third quarter, an increase of 6% and in line with our expectations. International system-wide retail sales grew 16% in the quarter, a continued acceleration as the business has stabilized since the effects of the war in the Middle East. Our third quarter gross profit rate of 41.3% was below our expectations and decreased 220 basis points compared to the prior year, driven by a 260 basis point decrease in merch margin. Our merch margin was negatively impacted by approximately $35 million or roughly 200 basis points from tariffs. We increased our promotional activity to clear seasonal product as we ended the quarter with clean inventory. The merch margin decline was partially offset by D and O, driving 40 basis points of leverage, which benefited from the exit of a third-party fulfillment center in Q1. SG&A as a percentage of net sales was 31.2%, representing 120 basis points deleverage compared to the prior year. The deleverage was driven by soft sales performance, investments in new stores, and higher healthcare costs. In response to weaker sales, we acted quickly to flex costs down, such as store payroll and incentive compensation, which partially offset the deleverage. Bringing it all together, third quarter operating income was $161 million, down 26% to last year. Turning to real estate, our portfolio remains healthy with 59% of our fleet in off-mall locations. In the third quarter, we opened 40 new North American stores, primarily in off-mall locations, and permanently closed 10 stores, primarily in mall. Internationally, our partners opened 10 new stores and closed three stores during the quarter, and we ended the quarter with 544 stores. Our international store expansion plans for 2025 remain on track with at least 30 planned net new store openings. Moving to our Q4 guidance, the trends we experienced at the end of the third quarter have continued into the first few weeks of Q4, with sales to date down high single digits. Macro consumer sentiment is weighing heavily on our consumers' purchase intent. Recent data shows consumer confidence continued to decline due to a number of factors, including concerns about job loss and affordability. This dynamic negatively affected our start to the holiday season and our largest quarter. This impact is compounded by a highly competitive retail marketplace. Our research indicates that our customers are waiting for deeper discounts before making purchases. In this volatile environment, we are providing cautious guidance that assumes these early Q4 trends persist through the season. While we are taking action to strengthen our performance, with that as context, we expect Q4 sales to be down high single digits versus last year and gross profit rate to be approximately 44.5%, which includes the impacts of tariffs and higher promotional levels, which we believe are required to compete effectively. We expect our SG&A rate to be approximately 24%, reflecting top-line declines partially offset by disciplined cost management. We are aggressively managing cost while working closely with our teams to ensure that any reductions do not compromise the consumer experience. Moving down the P&L, we expect interest expense and other of approximately $60 million and a tax rate of approximately 25% and weighted average diluted shares outstanding of approximately 204 million. Considering these inputs, we are forecasting fourth quarter earnings per diluted share of at least $1.70. At this point, we believe this guidance represents a floor for Q4 performance, and we are working with urgency to improve upon it. For the full year, we are lowering our net sales guidance from 1.5% to 2.7% growth to a decline of low single digits and are lowering our adjusted earnings per diluted share guidance range from $3.35 to $3.60 to at least $2.87. You can find additional details of our guidance in our slide presentation. Now for an update on capital allocation. We are planning for capital expenditures of approximately $240 million during the year, down from previous guidance as we prioritized highest return projects. In the third quarter, capital expenditures totaled $81 million, bringing the year-to-date total to $174 million. Our full-year free cash flow expectation is now approximately $650 million, reflecting our current performance trend partially offset by our ongoing inventory management actions and reduction to capital expenditures. In Q3, we returned $41 million to shareholders through dividends and repurchased 3 million shares of common stock for $87 million at an average price of $29.25 per share. Year-to-date, we have returned $126 million to shareholders through dividends, and we have repurchased 11.5 million shares of common stock for $343 million. In closing, we are focused and moving with urgency against the actions we must take to return our brand to growth. On our Q4 earnings call, we will update you on our 2026 outlook and the strategic KPIs to measure our continued progress. I'd like to extend my gratitude to our teams across the company for their hard work. Let's now open it up for Q&A. Operator: Thank you. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, I ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Ike Boruchow with Wells Fargo. Ike Boruchow: Hey, good morning, Daniel, Eva, Luke. I guess, Daniel, my question would be, can you help us understand bigger picture kinda what changed between when you first joined the company? I believe you kinda talked to an expectation to accelerate growth while expanding margins. Obviously, today's expectations for Q4 revenue to be down, margins to compress goes against that. You maybe just walk us through what exactly has changed, what you've learned since you've been there? Exactly how should we be thinking about what Q4 guidance kind of means to next year would also be helpful. Thank you. Daniel Heaf: Good morning, Ike, and thank you for the question. So let me start by reemphasizing that the third quarter results and the lower expectations for the fourth quarter don't live up to the expectations that we all have for this brand. The brand is not fulfilling its potential. I joined to accelerate growth, and I remain confident that we will do so. Directly to your question, what's changed, if we unpack our Q3 performance, we declined in each of our core categories, and that really the diagnostic I gave in our opening remarks. That focus on adjacencies has resulted in underinvestment in our core and not keeping pace with our consumer. But again, you know, this strategic reset is the result of months of detailed analysis in every part of our business. It isn't a reactive reaction to the quarter. If we look across the last few years, and you guys all know this, while we've been able to drive some growth in some quarters, we've lagged the market. We lagged the beauty and fragrance sector, and the growth that we've delivered was not durable. I've talked about that, you know, since I arrived, and now is the time to address that. We've laid out the diagnosis clearly. We've laid out a very clear plan on how we're going to put the consumer back at the center, reignite the brand, begin creating innovative, coveted, disruptive products in our core categories again. And those four pillars of our strategy have already been communicated to the whole company. Work is well underway. And what gives me confidence, honestly, in this plan is that this is a pattern I've seen many times in my career and many other places, many other companies, and this is really about going back to what made this company so great but evolving to meet the needs of today's consumer. We will deliver coveted product. We will deliver elevated experience, but that change isn't gonna happen overnight. Now to the next, what this means for Q4, an excellent question, and the macro is a significant factor in our Q4 guide. Eva, can I hand to you for some more color on that? Eva C. Boratto: Sure. Good morning, Ike. So I guess I said in my prepared remarks, right, the outlook we're providing for Q4 reflects what we believe is the floor. Right? We saw material changes in trends by the macro coming into the quarter. We've seen some modest improvement since the government reopened, and we're further taking actions to improve that. That said, our underlying core performance was weak, as Daniel said. If you looked at our Q3, we were down 1%. But if you were to normalize for the expansion of the fall sale extension, we were probably down closer to 3%. So if I look forward to 2026, our current view is that we do not expect to deliver growth for the full year. These initiatives that we've laid out today will become visible to consumers throughout the year, but realistically, we don't expect it to impact the business in any meaningful way until the second half of the year. Digital is the fastest growing space in beauty. We know those enhancements are underway. As Daniel said, evolving our core product, which is critical to attract that new customer, that will start to become visible in the second half of the year. So we are here. We are working with urgency, driving the changes we need to drive that durable growth, and we'll have more details on our Q4 earnings call. Operator: Thanks so much. Thank you. Our next question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question. Matthew Boss: Great. Thanks. So Daniel, maybe to pick up on that. So on the new strategy, so the last two years, the company's talked positively about adjacencies and collaborations. But now that strategy is wrong, and the focus is on the core to drive durable growth. So could you provide maybe some of the key KPIs that you're watching to gain confidence in this new strategy? And you cited the change won't happen overnight, I mean, what do you see as a reasonable timeline for stabilization? Daniel Heaf: Great. Thank you, Matt, for the question. So, first, I'm going to say that this strategy has been communicated to the whole company. Work is, as Eva said, underway. Teams are working feverishly against those four priorities, but let me show some progress that is already evident. Firstly, let's take a look at talent in a very short amount of time. We've added tremendous talent to our team where we saw gaps and where we saw a need to improve our executional ability, we've moved with speed. A couple of moves I'd highlight, we've brought in Varonis Gabai. She obviously brings global beauty experience, creative vision, and has worked at iconic brands across Estee Lauder and L'Oreal. Craig Smith, in digital, two decades of building digital transformation at Burberry, Apple, LVMH, Dan Kudrow, unrivaled wholesale experience for more than thirty years at brands like L'Oreal and BIC, and as you'll have seen in the press release last week, Mally Bernstein, a transformational retail leader who has a track record in driving incredible results across beauty and omnichannel businesses. So where we saw gaps, we've already addressed that. Next, when you think about the things that we talked about on the call that we expect to be delivering in the short term, winning in the marketplace, we know we need to be more convenient to consumers. We know that we need to be in their path, and you'll see us launch on Amazon early next year. And I mean, we already know that we're doing somewhere between $60 to $80 million of gray market sales in that channel that is brand dilutive and product dilutive. So launching there is an incredible sales opportunity, but also an opportunity to reignite the brand, that second pillar of our strategy. And then from day one, you know, we have recognized the digital opportunity, and we are moving with pace there. We relaunched our app. We relaunched the website. We have new product photography coming in on roughly about 500 of our current SKUs, elevated claims, and messaging. But we know we have got so much further to go. We are working with pace, but the opportunity there is enormous. If we think about just the penetration of digital sales. So, Eva and I were talking about this just last week. In soaps and sanitizers, the percentage of e-commerce sales in that category is about 40% to 45%. Our current e-commerce penetration is 20%. That just represents the incredible opportunity that we have to drive growth and acquire new customers in the digital channel. Now when it comes to metrics, of course, there's all the normal metrics that we're going to be tracking and delivering revenue, operating income, EPS. But where I'm really focused is in total active consumers and growth in our core categories. Underneath that, of course, we are measuring the retail equation. And if you think about digital in the most recent quarter since we've made some of the modest changes already, we're seeing an increase in traffic. We're seeing an increase in dwell time. So these are good leading indicators for the progress that we are making. Eva C. Boratto: And, Daniel, if I could just add, Matt, to your question about stabilization, I'll just say again, we don't expect growth in the full year next year, but we certainly expect business to improve as we progress throughout the year. And in the second half of the year is where more of our consumer-first plan initiatives will come to fruition with new product with, you know, further time under our belt in terms of digital. And we'll continue to update you as we progress on this plan. Matthew Boss: Helpful color. Best of luck. Luke Long: Thank you. Operator: Our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question. Lorraine Hutchinson: Thank you. Good morning. Daniel, it's that the underlying business is worse than you thought when you first joined. And it will take time to return to growth. Does your plan require more investment than you had originally thought? And how should we think about margins in 2026 as we balance these investments with cost cuts? Daniel Heaf: Lorraine, yeah, you know, the reason we did such a comprehensive diagnostic across the business, it was about discovering and laying out exactly what is holding this incredible brand back, and, you know, it's clear to me that the core is weaker, and some of that was masked by promotions and collabs and anniversarying some of those adjacent product launches. So 2026 will be absolutely about investing behind our brand and our product, investing in the things that the consumer sees, strengthen our fundamentals, and position this brand for long-term sustainable growth. Now, as Eva mentioned in her opening remarks, the teams are already hard at work in unlocking $250 million of additional savings to help fund these investments, and we have, and before I arrived, this team has a strong track record in looking for efficiencies to fund investments. They've done that successfully over the last few years, and yeah, of course, you know, until we see that top-line growth, which, you know, we are pursuing with vigor, we will be pressurized by deleverage. Operator: Thank you. Our next question comes from the line of Alex Straton with Morgan Stanley. Alex Straton: Great. Thanks so much. Maybe just on the cost savings program, that $250 million in the next couple of years. Can you just go through where exactly you're trimming and how they're from the cost reduction that was pursued under Gina? And then does all that get reinvested so we're sort of in the same margin place? Or just help us with how we should think about SG&A and how it should grow in relation to sales over time as we're thinking about the out-year margin trajectory? Eva C. Boratto: Sure. Alex, this is Eva. So we're really proud of the savings that we've over the past couple of years, delivering about $300 million in savings. We're targeting, our goal is another $250 million, as Daniel said. As I think about where that will come from, continued activities like value engineering opportunities. We have further opportunities in sourcing optimization. Also, logistics operations. Daniel spoke about SKU simplification. That simplification will bring cost reductions over time, and we'll continue to optimize our overall operations to drive cost savings. As we prioritize focusing on high-value consumer focus areas. You know, we're working hard to fuel and fund the investments that are over the next couple of years. I would think about the savings that we're driving are offsetting the investments and are not flowing to the bottom line. In the shorter term, there could be some mismatches that investments outpace savings. We'll have more details. There. Our focus is to make the right investments to drive the go durable growth and do that in a responsible way. Operator: Thanks a lot. Good luck. Luke Long: Thank you. Eva C. Boratto: Thank you. Our next question comes from the line of Paul Lejuez with Citi. Kelly Crago: Hi, this is Kelly on for Paul. Thanks for taking our question. I just first, I got a two-parter here. One on the Amazon partnership. If you could just elaborate on the product that's gonna be in that channel versus the store, and if that makes you, you know, the expanded distribution, whether that makes you rethink your store growth and your store base. And then secondly, on free cash flows, you know, still very strong free cash flow year despite weakness in the business. Any color on how we think about free cash flow for 2026? Any kind of floor you could provide there would be great. Thanks. Daniel Heaf: Thanks so much, Kelly. Let me just go, I'll start by just touching on the Amazon partnership. Obviously, that's part of our third strategy, win in the marketplace, and that is about being in the path of the consumer. As I said, in answer to an earlier question, we know our consumer is already there. We are doing millions of dollars of sales in that channel. We're going to start with a small assortment. It's really gonna be some of our evergreen product, and we're really going to make sure that we get that absolutely right, that we test and learn, that we build the right PDP, the right ratings, and the reviews, that we're offering the right fulfillment services before we start to thoughtfully expand that assortment with new products that will be targeted at acquiring a new consumer. But we're feeling very optimistic about that component of our strategy. And maybe, Eva, if I hand over to you on the free cash flow. Eva C. Boratto: Thanks, Kelly, for the question. I'll just reiterate, we are a strong cash-generating business. And overall, our capital allocation priorities remain the same. Investing in the business, and you've heard us say, that those investments will increase next year to support our transformation. Maintain a strong balance sheet, and return cash to shareholders, which we've done over the last three years returning $1.5 billion. We are headed into our biggest quarter of the year. So as I think about cash for next year and projections for next year, we'll come back to you in February on that, but we remain focused on continuing to focus on working capital and driving cash out of the business. Luke Long: Thank you. Operator: Our next question comes from the line of Mark Altschwager with Baird. Please proceed with your question. Mark Altschwager: As you pivot back to the core categories, can you talk about the innovation pipeline over the next twelve to eighteen months and how you're thinking about the balance between legacy franchises and then some of the ingredient-led or demands for the younger consumers you're targeting? Daniel Heaf: Yes. Thanks, Mark. So let me start by saying that in our core categories, we remain the market leader. It is without question where we have the greatest right to win, and we started this work for our strategy in designing those two consumer muses. It is not about leaving our current customer behind and reaching for a new consumer. It is about serving both. If you think about Jen, she is probably more atypically the kind of customer that we have today. And we believe that we can elevate our product proposition and continue to attract more of those customers as well as reaching for a new younger consumer, the Zoe, if you like. And what she requires is, as you say, more ingredient-led, cleaner, stylishly or more sophisticated design in packaging. And that is where our investment is headed. So, you know, without question, we have underinvested in our core. Let's take a look at our packaging. Some of our core forms, I don't think have been restaged for a decade. Right? That will change. We are already building a very strong pipeline of innovative new concepts, and we expect them to come to life in the back half of the year. And I'm excited about what I'm seeing from the product design and merchandising team. Eva C. Boratto: And Daniel, if I could just add, in addition to the innovation, we are taking immediate actions on the innovation front. And we've changed, and we're involving consumer testing much earlier in the process to ensure as we shape this innovation to attract that new consumer, we are hitting the mark. As Daniel said earlier, we're making choices to exit categories that haven't been successful for us, that increase complexity, such as men's grooming and hair, and we'll continue to work to optimize our portfolio as well. Daniel Heaf: Yeah. And Mark, I just wanna follow-up on your question. You know, you talked about the new products, and you also talked about let's call it the core or the carryover product. Which in some ways I think hints at what we have to do. As I said in my opening remarks, we have these fragrances. It's been one of the big things that was upside on what I thought when I arrived. Some of those biggest fragrances are doing over $250 million a year annually, and they sit on a shelf in the less hand side of our store, and they operate somewhat like an annuity. Customers come in and they buy them. But we haven't treated them with the reverence and with the marketing they expect. So part of that second pillar of our strategy is reigniting our brand, and part of that is about showing the reverence for those iconic franchises, those iconic fragrances, building a world around them, taking them out to new consumers in alternative distribution channels. I'm sure that future Zoes and future Jens are going to love some of the products that we already have, and it's just about making the big bigger. Mark Altschwager: Thank you. Quick follow-up for Eva. Just the earnings reset here, leverage ratio is edging higher. How comfortable are you with the leverage ratio medium term and just any shift we should think about and how you're balancing buybacks with potential debt reduction? Thank you. Eva C. Boratto: Sure. We've made tremendous progress over the last couple of years, bringing the leverage ratio to our target two and a half times level. This challenging period will put pressure on that. We will, you should expect we will pay our debt down that comes due in January 2027, and we'll work vigilantly to bring our balance sheet to the position that we want to. And as I said earlier, our capital allocation priorities are the same. Operator: Our next question comes from the line of Adrienne Yih with Barclays. Adrienne Yih: Daniel, thank you so much for the detail. This is really refreshing to hear this strategy and the movement of the business. But in doing so, I guess, can you help us understand the timing of the exit of the non-go-forward categories? Is that sort of like a Q1 thing? I'm sure those hangover inventory. What's the best method of exiting those categories without kinda further putting kind of brand pressure, right, as you kind of exit those? And then within the non-core categories, you know, we had talked about SKU rationalization, and, obviously, you're talking about focusing on fewer of the things that mean something. So how many of the kind of alternative scents and kind of that newness that you bring to, you know, the seasonal scents will now go away to help focus. Thank you. Daniel Heaf: Okay. Thank you so much for the question. Let me just underscore that everything that we do at this company is subject to rigorous testing. That is something that we have instigated, as Eva said, as part of our product development process, and that is true the way we think about our assortments. So we're not pursuing a SKU rationalization target for the sake of having a target. We're pursuing it because the customer tells us that our proposition in-store is too overwhelming and confusing. So this is the outcome that we want is to be able to entice new consumers into our stores and onto our digital platform. They can find what they want easily and fall in love with what they like easily. So I think about it less as a number to hit and a set of categories to exit than I do about reaching a consumer outcome. That said, we'll begin to rationalize our SKUs and begin to exit these categories in spring, so in the first quarter of next year. And we will ramp that up with testing and as we move through the balance of '26. But it's really test, learn, and make sure that we are bringing the new products to market, that we're elevating, as I said, some of those new, some of those core franchises that are already large so that there were filling the gap. It's less about, I would say, hitting the number. Eva C. Boratto: And, Adrienne, your question on hangover of inventory. As you know, we have two seasonal, two semiannual sale periods that we're able to use to clear inventory. The company has a long history of successfully doing that. Despite the pressures in Q3, we were able to exit Q3 with clean inventory as we used that fall sale period. So we'll be really thoughtful on our inventory management and our decisions around timing and when to exit. Adrienne Yih: Okay. Helpful. And then, Eva, just a little bit of help on the exit categories. What's the aggregate dollar amount that they contributed in 2025? And how should we think about the wraparound tariff pressure into 1Q? Thank you. Eva C. Boratto: Okay. So I'll take the tariffs first. Overall, the tariffs I would think about on a full-year basis, it's basically comparable to 2025. In 2025, we had about a 100 basis point of impact to the year. Expect that to be pretty comparable in 2026. Now the timing of that first half will have a bit more of a headwind given when tariffs started, with the reverse impact in the second half. In terms of the dollars of the exited categories, we'll have more to say as we build toward 2026. We don't expect that to be a meaningful drag. They're not, you know, the problem is those adjacencies haven't grown in the way that we had expected, and they are not significant, the ones that we are starting to take out. So we're looking at every merchant does. SKUs that are not contributing that much and SKUs that are not productive, and that's where we're starting in that long tail. Luke Long: Thank you. Operator: Our next question comes from the line of Jonah Kim with TD Cowen. Please proceed with your question. Jonah Kim: Thank you for taking my question. Daniel, just on the competitive dynamics within the presence and body mix category, I know a lot of new entrants have entered the category in the last few years. How are you assessing the competitive dynamics there? And then you also mentioned shortening lead times. Which category needs more work in your view? Thank you so much. Daniel Heaf: Right. So, yeah, we operate in a very competitive sector. I love the sector. It still continues to grow. It's a young sector with youth and innovation at its heart, and I think that obviously we operate as the market leader in these categories. We have a right to win. We're building on a solid base. For me, some of the problems that we have in our product are what I would call perception problems. We have fantastic formulations that are clean, but we have not communicated those benefits consistently and effectively. So, we know in our product testing with consumers and some of the blind that we do that we far outperform some of those competitors that are often talked about, but we don't market it correctly. We don't put it in elevated packaging. And as a result, the consumer doesn't see us as having the attributes that they need. And then in some of the areas that we're looking at, we will launch new forms and new vessels and those types of things and new formulations. And those sort of things take longer than just chasing into demand, which is what our supply chain is really good at. But together, the teams at Bath & Body Works, Inc. and our fragrance house partners and our manufacturing partners, we are all working day and night to make sure that we are bringing this new innovation to market, and we're looking forward to starting that journey in 2026. Eva C. Boratto: And, Daniel, if I could just add one thing? As you look at these categories that we're in, that we're all excited about and are growing categories, growth in digital is outpacing, for sure, the market. So the strategies that we're talking about today and the investments we're making in our own digital experience as well as alternative distribution and our presence on Amazon, we think are key elements to capturing and bringing that new consumer in as well. Daniel Heaf: And part of that, we've talked about being in the path of the consumer, and that, of course, is what drives everything in this business now, putting the consumer at the center. But, you know, I'm looking forward to competing with those competitors on that playing field. Right? We have left Amazon wide open for competitors to play. That is changing. We have left other wholesale partners wide open for those competitors to play. That is going to change also. So to me, I'm looking forward to putting our product front and center, telling bold and emotive stories, and winning in the full marketplace. Jonah Kim: Got it. Thank you. Operator: Our next question comes from the line of Jay Sole with UBS. Please proceed with your question. Jay Sole: Daniel, I wanted to just follow-up on that last question. Is there a tension at all between entering Amazon and potentially other mass market channels and sort of maintaining an iconic brand image? And if so, how do you feel about navigating that? Daniel Heaf: No. I think about it not as either or. I think you look at some of the world's luxury brands, and they're on Amazon. And I think it's as much as a sales opportunity as I think it's a brand opportunity. I can't wait to tell an elevated story about this brand in third-party channels, and in particular, the largest shop in the world on Amazon. Why would I believe to do to change product perception? Will be in all channels. Particularly on social channels, actually, and that work, that what I call brand reignition work and brand reigniting work, is well underway. And by that, I mean, have seen visuals. We have seen photography, we have seen tone of voice. And everybody who's seen it is blown away by it. Customer testing just this week and our consumers, both current and future, love the direction that we are taking this brand. Jay Sole: I understand. And maybe if I can just on that. I mean, what about just the concern that, you know, entering Amazon will cannibalize traffic into the stores? And, you know, obviously, create a separate issue. Daniel Heaf: Well, our product is already on Amazon. We're doing $60 to $80 million roughly in sales on that product to the of our product from gray market on Amazon today. So just going there and making it a brand accretive experience, making it a profit accretive experience is the first thing that we look to do. And actually, I think that telling the story of our brands across digital channels will drive traffic in stores. And then finally, we have a very wide assortment, maybe too wide an assortment in places, and so we have an opportunity to use that assortment thoughtfully across multiple channels to drive differentiated propositions to acquire different types of customers. And so I think that this strategy is wholly accretive. Operator: Thank you. Our next question comes from the line of Olivia Tong with Raymond James. Please proceed with your question. Olivia Tong: Great. Thanks. Good morning. Really helpful diagnosis of the areas of improvement. And I know Amazon was something you've been hinting at for some time, so I'm sure you're excited to get going on that. A couple of questions with that. Can you talk about the sales expectations and the margin profile of launching on Amazon? You obviously mentioned the $60 to $80 million in sales already. Clearly, your hope is to go above that, but just trying to think about the arc of building on that and then the margin as well, whether that you expect that to be similar margins, dilutive, accretive, that would be helpful. On the exit of the categories, the ancillary categories that you launched into a couple of years ago, could you help us understand a little bit of the decision making as to why not continuing to run the business? Of course, it's a distraction, but it is offering some sales. And a lot of the heavy lifting, more importantly, has already been done. And I would imagine that, you know, that's something that could work in other channels. And then, Eva, one for you is just around how we should think about the cash flow progression next year. You talked about earnings, but would love to hear your views in terms of the working capital in particular given logic and continuing channels, clearing out the old inventory, how you think about the arc in working capital. Thank you so much for those questions. Daniel Heaf: Great. So, I'll start on Amazon and then move to adjacencies, then I'll hand to Eva for cash flow. On Amazon, we're very excited about the opportunity, as I'm sure you can hear. We believe it's the right thing to do for our consumer, and it sits squarely in our third pillar of our strategy. The plan is to go slow to go fast. Right? We're gonna launch with a tight assortment. We're gonna make sure that we are optimizing those pages for the Amazon consumer, that we're providing the right level of product description, that we're providing the right level of PDP, that we build up a really incredible bank of ratings and reviews. And as we start to gain success in that channel, we will build out the assortment over time. But as I said in my opening remarks, our owned channels will remain the widest expression of our assortment and the purest expression of our brand. So we'll be very careful to make sure that we're using that channel to attract a new consumer or a lapsed consumer, and we're not just taking the assortment, handing it over to a different channel, and expecting, you know, and taking a margin hit as a result of doing that. So go slow in the first half to speed up as we move sequentially through the year. And then when it comes to adjacencies, you know, I wanna just clarify what I said. We are no longer going to invest in adjacencies. We are going to invest in our core. We have told you of two categories that we plan to exit in hair and men's grooming. We haven't, at this point, signaled that we are exiting whole adjacencies. But we, you know, I actually agree with your question. What is the most thoughtful way to use the money that has been used, that has been spent in these areas to potentially build this business over time, but it won't be something that we're continuing to invest in formulas, in packaging, and in other ways. We've got to get back to the core. We aren't simply just abandoning those adjacencies. We intend to maximize the sales opportunity from those. Eva C. Boratto: Yeah. And on your cash flow progression for next year, as a reminder, and I'm sure you know this, Olivia, right? We generate all of our cash in the Q4 period. We typically like to start the year with about $500 million of cash to fund the business through the first nine months, in inventory throughout the year. We're building our plans for 2026 now. As I spoke about, there will be greater investments related to this transformation. That could put a little bit more pressure on that first nine months of next year. But we'll manage our cash effectively throughout the year. On the margins for our adjacencies in Amazon in particular, it's our goal to have a comparable margin structure over time. We're gonna test and learn our way into this, as Daniel said. Luke Long: Thank you. Operator: Final question this morning comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question. Dana Telsey: Hi. Good morning, everyone, and good to hear of the plan. As you think of the loyalty customers, which I think number 39 million the last time we heard, how do you break them down through the transformation strategy that you put in place and the diligence you've done, what are you seeing about that consumer? What are you learning? Who's coming? Who's going? Any updates there? Daniel Heaf: Yeah. Thanks. I'll start, and maybe, Eva, you can follow-up a little bit more detail. So as I've always said, our loyalty program and that loyal consumer that we have today is a competitive advantage, and we're gonna continue to build on it. In fact, I think in the recent 14 million loyalty customers. So it is a competitive advantage. We're going to continue to leverage it to drive sales, to drive building the basket of our existing consumers. Eva, maybe if I can give you ask you for a little bit more detail. Eva C. Boratto: Sure. Sure. I think that loyalty customer, we've continued to drive the strongest retention rate. With our changes in our loyalty program, we've seen an increase in reward redemption. That brings along with it an incremental spend. We're seeing good visits, good spend across all of our deciles. And the team, the marketing team, the loyalty team really continues to focus on how can we continue to engage and excite those very valuable loyalty members that drive 80% of our sales. Dana Telsey: Got it. And then with the reset going on, collaborations have been a big focus over the past few years. With the refocus on the core, how do you see the opportunity for collaborations? How do you maximize the strength of the product with the opportunity to enhance with sales or margins with collaborations? Daniel Heaf: Right. I appreciate the question. So, I can clarify what our collaboration strategy is. So make no mistake, we love collaboration. Right? They are a way to drive energy, equity, and excitement and buzz into the brand. And we actually have lined up for the next fiscal, some really, really exciting collaborations. But strategically, collaborations should be used to drive energy into the brand and energy into some of those franchises and collections. Energy that builds everyday luxuries, energy that builds White Barn, energy that builds the seasonal collection like fall, not necessarily something that sort of stands alone and is there to carry the quarter. You know, we don't wanna get into positions where a collaboration like Villains was something that was the difference between where we guided our Q3 and where we ended our Q3. We want to use them more tactfully, more thoughtfully to drive long-term brand equity into our brand, into our franchises, and into some of those iconic fragrances that I've referenced in today's call. Operator: Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to Mr. Heaf for any final comments. Daniel Heaf: Well, thank you, everybody, for joining us this morning. Thank you very much for your thoughtful questions, and just let me restate, I came to Bath & Body Works, Inc. to accelerate growth, and I remain absolutely confident in our ability to do so. Work to restoring our brand and achieving sustainable growth, as you've heard on today's call, is already well underway, but it will take time and focus. We've aligned our teams to the vision and the strategy, creating disruptive and innovative products, reigniting our brand, winning in the marketplace, and operating with speed and efficiency. To attract a new and younger consumer to the brand and unlock what I know will be the next era of growth for this brand. You've heard today that we are driving early progress across those priorities, and we look forward to sharing more updates in the quarters ahead. I want to say a special thank you to our associates and our store teams for delivering joy this holiday season. We have the platform. We have the plan. And we absolutely have the team to win. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Non-GAAP results during this conference call and in our earnings snapshot slides have provided schedules reconciling these results to our GAAP results in our earnings press release. All of these materials are posted on our website. Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted. All forward statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs, and projections will result or be achieved. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties, and other factors that can cause actual results to differ materially from our expectations. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in our filings with the SEC. And with that, I'll turn it over to Robert. Robert Kyncl: Thanks, Kareem, and hello, everyone. If you hopped on the call early, you just got a taste of the range of our artist roster. From the massive breakout track from Somber to the latest chart toppers from Cardi B and Twenty One Pilots, to the resurgent Goo Goo Dolls' 1998 hit "Iris," which currently sits in the global top 15 on Spotify. It's an incredibly exciting time to be at Warner Music Group Corp. Against the backdrop of a rapidly changing landscape, we've improved our market share and delivered profitable growth all while realigning our company to capitalize on the tremendous set of opportunities we have ahead. Our growth plan continues to bear fruit; we've seen steady global market share gains over the past year. In the United States, we're up 0.6 percentage points over the prior year quarter according to Luminate. Globally, our share of the Spotify top 200 has jumped by around six percentage points versus fiscal 2024. And for the entire quarter, we had the number two market check. Importantly, carrying this momentum into fiscal 2026 as we continue to execute on our strategy. I'll dig into this in more depth but first, let's cover our Q4 highlights. I'm pleased to say we've seen acceleration on the top and bottom lines, driven by impressive performance across the company. Total revenue grew 13% and on an adjusted basis recorded music subscription streaming increased 8.4%. These results prove that our strategy is working. Let me paint you a picture from just a year ago when both the industry and Warner Music Group Corp. were in a much different place. A year ago, Warner Music Group Corp. was facing market share pressure. Today, we've laser-focused our resources and investment on the highest return areas of our core music business. This has led to market share gains that have translated into strong measurable improvement in our financial performance. A year ago, the music industry was navigating the transition from just volume-driven streaming growth to growth that is driven by volume and wholesale price increases. Today, our new agreements with key DSP partners better reflect music's ever-growing value and provide greater certainty around our economics. A year ago, our operational structure wasn't optimized to navigate a more globalized and digital environment. Today, we focus and simplified our organization to deliver greater intensity and impact. I'm pleased with the progress that we've made and I'm truly grateful to our leadership team, our operators across the globe, and our amazing artists and songwriters for pushing Warner Music Group Corp. to new heights. All of these actions have better positioned us to execute quickly and effectively on the opportunities we see ahead, and to maximize the value we deliver to artists, songwriters, fans, and shareholders. Let's turn to the impressive run of hits we've been seeing with our new releases as well as our catalog successes. On new releases, in September alone, we had back-to-back number one albums in two of the world's biggest music markets. Thanks to Cardi B and Twenty One Pilots in the United States and Ed Sheeran and Biffy Clyro in the UK. On the international front, we had number ones in China, India, Finland, Italy, and Spain. And on Billboard's Latin Airplay chart. And in a terrific vote of confidence, our legendary superstar Madonna has returned to where it all began for her, Warner Records, with a new album coming in 2026. Kareem Chin: The performance of our global catalog division in Q4 showcased our ability to revitalize our timeless legacy. Robert Kyncl: Making it relevant to a range of new audiences. A major highlight was the release of the 1973 album by Fleetwood Mac's "Tusk" featuring Lindsey Buckingham. A targeted marketing campaign capitalized on fan demand sending it to number 11 on the main Billboard album chart and number six in the UK. A remarkable achievement for an album more than a half-century old. Warner Chappell continued its resurgence with our songwriters contributing to seven of Luminate's mid-year top 10 most streamed songs in the world. And in the United States. And multi-Grammy winner Amy Allen held the top spot on the Billboard Hot 100 songwriters chart for nine weeks in 2025. These Q4 success stories capped off a year of achievements. During fiscal 2025, our recording artists sat atop the Billboard Global 200 for twenty-two weeks. That's a 42% share of the number one spot on the chart. With Atlantic, Warner Records, and Warner Chappell hotter than ever, we're delivering success across geographies and genres. Next, I'd like to cover our focus on increasing the value of Streaming's growth formula is made up of three components: market share, global subscriber growth, and wholesale price. Against the backdrop of healthy subscriber growth and a market share improvement, we've also made progress on wholesale price. Since the beginning of 2025, we've signed renewals with four of the largest DSPs. All of these deals have wholesale price increases, providing certainty around economics setting up monetization models for the future use cases. A critical component of ensuring we grow the value of music is addressing the promise as well as the potential risks of generative AI. First, we need to acknowledge the reality that generative AI technology has arrived and it is not going away. So we need to be proactive and lean into the future. The music industry is no stranger to disruption. From the invention of the phonograph, to the Napster era, to the rise of the day streaming ecosystem, the introduction of new technologies over many decades has posed both challenges and opportunities. AI represents another defining moment and as always, our focus remains on protecting the rights of our artists and songwriters, while simultaneously growing new revenue streams on our behalf. With this in mind, we've developed a set of principles that will govern how we engage with AI platforms. We will only make agreements with partners who commit to licensed models, while securing economic terms that properly reflect the value of music. Crucially, our artists and songwriters will have a choice to opt in to any use of their name, image, likeness, or voice in new AI-generated songs. We believe that the combined power of our music with innovative technology drives greater engagement and interactivity for fans, and will result in significant incremental revenue over time. I'm pleased to say we've already done deals with partners like Oudio, Stability AI, and Clay, that are consistent with these principles that I just outlined. Our ability to sign three deals with three new companies in quick succession highlights the attractiveness of the music business, and the opportunity to create value through new technology. These agreements enable us to get ahead of the game ensuring that our artists and participate fairly in the AI revolution. As I mentioned earlier, we've taken major steps to optimize our organization to drive efficiency and effectiveness. All while reaccelerating growth and gaining market share. Among our recent changes, are some moves designed to foster closer collaboration. We've directly aligned Atlantic and Warner Records in the UK with their counterparts in the US. Creating a more seamless transatlantic approach to breaking artists globally. In Italy, we organized our operations into two frontline labels, Atlantic and Warner Records, mirroring the label structure in the US and the UK. We've also unified our Australasia and Southeast Asia businesses to create bigger opportunities in this region. Additionally, we streamlined operations and strengthened the impact for artists in Central Europe, by merging Benelux with Germany, Switzerland, and Austria. On the tech front, we've continued to modernize our infrastructure including strengthening our global digital supply chain to position the company for further scale and growth. We've implemented tools to help artists and songwriters make faster, smarter data-driven decisions about their careers, as well as tools for employees to be better informed and more effective. Our emerging stars are building the catalogs of tomorrow laying the foundation for future stability. While our recent superstar releases have set us up well for 2026. In Q1, we have highly anticipated new albums from Fred Again, FKA Twigs, Not For Radio, Ayanna Kamura, and Robert Plant, along with deluxe album additions from Ed Sheeran, Cardi B, and Pink Panthers. We also have new singles from Charlie XCX, Charlie Puth, Jisoo, Hilary Duff, Tiesto, Alex Warren, David Guetta, and Teddy Swims, and many, many more. We're proud of the progress we've made in 2025 and I look forward to carrying this momentum into 2026 and beyond. And now I'll pass it over to Armin. Armin Zerza: Thank you, Robert, and good morning, everyone. First, I'd like to thank our teams around the world for the tremendous work they have been doing to accelerate top and bottom line growth while we organize our company for the future. As Robert mentioned, Q4 has been a quarter of acceleration as we delivered record high quarterly revenue as well as our highest year-over-year growth in nearly two years. This reflects steady progress on market share, with notable improvement in the second half of the fiscal year. In quarter four, total revenue growth of 13% reflects double-digit growth across recorded music and music publishing. This was highlighted by a sequential improvement recorded music streaming and 64% growth in artist services SWMX led merch campaigns for Oasis, and My Chemical Romance. These projects demonstrate our capabilities to support our artists capitalize on the opportunities grow revenue streams beyond core music. More on that to come. Recorded music subscription streaming grew 8.4%, underpinned by global subscriber growth and supported by a strong market and charge share performance. As a reminder, calendar year 2026, will start to see the impact of wholesale price increases from our new DSP deals. Which should provide incremental tailwinds. Ad support streaming grew 3% on an adjusted basis by the performance of our music, and the timing of certain DSP payments. Music publishing grew 13% driven by double-digit growth across performance mechanical, and sync. Adjusted OIBDA rose by 12% and our margins declined slightly due to revenue mix. As a significant growth in artist service revenue carries a lower margin profile. For full year 2025, we delivered total revenue and adjusted OIBDA growth of 8% on an adjusted basis reflecting our impressive recovery from the first half. This was spot added by high single-digit recorded music subscription streaming growth. Also achieved operating cash flow conversion of 47% we increased our A and R investments. We remain committed to delivering our target conversion range of 50% to 60% over the long term. As of September 30, we had a cash balance of $532 million, total debt of $4.4 billion, and net debt of $3.8 billion. Our weighted average cost of debt was 4.1%, and our nearest maturity date remains 2028. With our strategy in place, a clear road map to deliver higher, more consistent growth, and drive shareholder value, we are extremely excited about the opportunities ahead. We're operationalizing the strategic pillars that Robert laid out, through several key priorities and initiatives. Which I shared on our last earnings call. I'd like to provide an update on our progress. Robert Kyncl: First, Armin Zerza: On investing into core music to accelerate growth, we're making progress across geographies and vintages. Recall, we prioritized investments in markets with the most attractive return profiles. As a result, we are now growing market share in every key region. Including the US, the largest music market of the world. Additionally, our balanced approach to driving performance across vintages, has resulted in higher new release market share than by Atlantic, as well as a jump in global catalog share. As Robert mentioned, this has improved our Spotify top 200 share by six percentage points. In addition to these investments in our core, we see tremendous opportunity to accelerate growth in distribution and direct to consumer. We have a large and growing distribution business today, And under new leadership, we have been building or acquiring new capabilities to accelerate profitable growth in 2026. We also see tremendous opportunities to capitalize on the passionate demand from fans all over the world for physical music direct to consumer offerings. Areas adjacent to our core music business. More on this in upcoming quarters. Second, on our commitment to driving efficiency to free up more capital to invest, and enhance our margins, we are on track to deliver against our reorganization and related cost savings program of $200 million in annualized savings in 2026 increasing to $300 million in 2027. Third, we committed to driving incremental growth and value creation through accretive M&A. We have developed a robust deal pipeline, and look forward to sharing updates in the near future. These efforts will be turbocharged in a capital efficient manner through our joint venture with Bain, but also through organic investments as we improve free cash flow. Finally, our focus on thoughtful capital allocation is delivering. As the investments we are making in the highest repertoire markets which include the US, UK, Mexico, China and Japan, are delivering share growth. In addition, we're improving capital spend efficiency And with the bulk of our major tech investments behind us, we should see an improvement in our free cash flow starting in 2026. Looking forward, we see an attractive formula for us to drive shareholder value and are excited to be operating in a healthy industry with an immense set of opportunities. Macro factors that underpin our outlook include robust global subscriber growth, a rising wholesale price environment, underpinned by contracts that better reflect music's increasing value, new premium offerings from DSPs, and AI emerging as an incremental top and bottom line opportunity for the music industry and our artists and songwriters. We are poised to capitalize on this environment with a strategy will see us intensify our investments to deliver more consistent higher growth improve margin and drive shareholder value. For 2026, we expect to see strong top line growth which we look to bolster through focused organic investments initiatives in our core music business and high impact accretive M&A. As well as contribution from adjacent areas such as distribution, and direct to consumer offerings. In addition, we will drive bottom line growth via operating leverage and our cost savings plan. Which will contribute 150 to 200 basis points of adjusted OIBDA margin improvement. We expect savings to increase sequentially as we progress through the year. And finally, we see tremendous potential in new incremental growth areas particularly in AI licensing deals which we plan to discuss in future calls. In conclusion, we are proud of how we rebounded from a challenging first half in 2025 to deliver solid top and bottom line growth in the second half. With strong momentum as we head into 2026. We look forward to providing regular updates as we meet our milestones. With that, take your questions. Kareem Chin: Thank you. Operator: Please ensure that your phone is not on mute when called upon. Thank you. Your first question comes from Kutgun Maral with Evercore ISI. Your line is open. Kutgun Maral: Great. Good morning and thanks for taking the question. There's a lot to unpack, but one area that I'd love to get your updated outlook on is with rights monetization, especially in the context of rising music engagement across platforms? We've seen the pace of innovation and product rollouts across the DSPs accelerate meaningfully everyone from the streaming services to artists to even a ticketing platforms like Ticketmaster is exploring new ways to leverage AI. All with the goal of driving deeper engagement. That said, there's an ongoing debate between those who see the labels as uniquely positioned to benefit from these innovations and those who believe that the labels will remain maybe more passive beneficiaries and therefore not necessarily see upside. So Robert, you've already touched on parts of this, but as you've gone through the latest round of DSP renewals, clearly continue to engage with other partners across the ecosystem, how are you thinking about Warner Music Group Corp.'s role in capturing incremental value this next chapter of industry growth? Thank you. Robert Kyncl: Thank you. I will start with the word incremental that you just mentioned. We see this as an incremental sorry. We see this as an incremental opportunity for not just for Warner Music Group Corp., but for the music industry as a whole. Armin Zerza: Secondly, Robert Kyncl: We are determined and have decided that we're the drivers, not the passengers, of this incremental opportunity. The reason for that is the space is moving lightning fast. There's a great demand for IP. There's a great demand for stardom. And companies like ours who are working to represent both of those need to drive this change. That's exactly what we decided to do. I posted a blog post last night in case not all of you got a chance to read it, please do. It's listed on our website. It outlines our principles under which we focus and and guide our deal making in the age of AI. There are three simple principles. We'll do agreements with partners commit licensed models. We'll do it on economic terms that properly reflect the value of music, what I mean by that is that our deal terms are tied to usage and revenue growth. And importantly, that artists and songwriters have the opportunity and right to opt in for any any new songs that implicate their name. Image. Likeness, and voice. We see this as an incremental opportunity because the past has shown us that changes like this create one. If you go back twenty, twenty-five years, with the democratizational distribution, It has unlocked unlimited shelf space. Which has unlocked deep personalization of music for users, which has unlocked growth and volume of people signing up for subscription services. Enjoying them. And it has unlocked tremendous value in catalogs and music IP overall for all of us. It has been a net positive force that has that has created a lot of value. See AI as the the the marketization of creation. And we we believe that it brings what we've lacked. Which is interactivity which is generally correlated with value creation. If you look at across all kinds of media industries, Armin Zerza: The more Robert Kyncl: Forward you are with your content, you focused on it and watching it or whether you're interacting with your hands and your fingers, or whether you go in person and engage, the value per hour goes up. That's why we're focused on it. That's why I believe this is a tremendous incremental opportunity for us. And, and we are going to be in the driver's seat. In terms of our approach, in addition to our three principles. Our strategy is simple. We have three l's. Legislate, litigate, and license. And you you're familiar with our legislation efforts like the no pics app, that we're working on in DC. On the litigation front. We're also familiar with various lawsuits which have been out there. But we use those first two in order to achieve the third, which is license, because that is the most powerful lever chart the path for the future for our artists and songwriters. To drive the incremental value and to make sure that we have our fair and correlated share of the usage and revenue driving. So we're really excited about this. Company is energized. And Armin Zerza: Yeah, Robert Kyncl: Onward. Kutgun Maral: Very helpful. Thank you. Operator: The next question comes from Benjamin Black with Deutsche Bank. Your line is open. Benjamin Black: Great. Good morning. Thank you for taking my questions. Two for Armin. Armin, could you talk about the building blocks behind your expectation for top line growth in 2026? Maybe dig into how you're thinking about paid streaming growth, just given the broader expectation for wholesale or per sub minimum increases beginning in calendar 2026? And then secondly, on margins, cost savings aside, how much margin expansion do you expect to deliver organically next year? And I mean, what's your longer-term margin target? Perhaps talk us through the puts and takes in achieving that as you look to drive incremental revenue growth in lower margin areas like distribution and DTC? Thank you very much. Armin Zerza: Well, first of all, Ben, Robert Kyncl: We are, first, very, very happy with the results we delivered Armin Zerza: In the last two quarters, not just the last quarter. And as it relates to streaming, we believe that we results are pretty much reflective of what we should expect in the '26. Now to your question on additional growth building blocks, starting in calendar year '27, sorry, '26. There are a few that I'd like to mention. The first one is that in addition to their market share momentum that we have seen in global subscriber growth, we will, of course, benefit from the contractual wholesale price increases that we have agreed now with several top ESPs. As Robert mentioned, we have actually agreements now with four of the five top ESPs in 2026. Start to to start to increase wholesale price prices starting in calendar year '26. Second area is that in addition to the investments that we have been doing on high ROI markets and projects, we have a very robust pipeline of accretive M&A that will start to materialize in 2026. Including on many projects that we have been working on, throughout joint venture with Bain. The third area is that we are working or have been working on expanding adjacent areas. One area I'd like to mention is distribution. You know, we have a new leader there, and we've done a lot of work to better understand how we can accelerate growth in this area. We do not feel confident that we can accelerate growth in that area starting in Colombia at '26. And last but not least, there are many upside opportunities that are not included in our guide, like premium offerings from DSPs. And, obviously, AI is an opportunity as Robert just discussed. Finally, from a leadership perspective, we are very confident that we have now leadership in place across the company that will help us deliver and accelerate growth. Now to your margin question, Ben, we have a very strong program to improve margin over time. The first program we are implementing is a big strategic reorganization. And as you have seen, why we're doing this over a reorganization, we're actually accelerating growth. That program will deliver $100 million of savings in fiscal year twenty-six and up to $300 million in fiscal year twenty-seven. So we're actually very, very comfortable with our guide of margin expansion of hundred and fifty two twelve basis points next fiscal year. In addition to that, we will improve margin through operating leverage. There are a few areas which we are leveraging. The first one is as we accelerate our high margin streaming business, margin will improve The second one is through our work on on accretive M&A, especially catalog M&A, which is higher margin accretive businesses will improve margin. And last but not least, is repricing with float. Through the margin. So net, we're really, really confident in our margin building book, not just from cost savings perspective, but also overall from our organic perspective. In fact, in the mid to long term, we are targeting margins in the mid to high 20s. And you shouldn't be surprised about that when you look at our EBITDA margins in fiscal year twenty twenty-five. Closed '25 with an EBITDA margin of about 25%. As you know, EBITDA includes our normalized cost savings, We're now basically delivering over the next couple of years. And so you should expect over time that our adjusted OIBDA will approach our adjusted EBITDA margins in the mid-20s, and then we'll start build on that to continue to grow margin. Benjamin Black: Thank you. Very, very helpful. Operator: The next question comes from Peter Supino with Wolfe Research. Your line is open. Peter Lawler Supino: Good morning. I wondered if you would talk about your successful market share gains over the last year Maybe discuss what you're doing differently Benjamin Black: And if you could provide any context on how each of your flagship Peter Lawler Supino: Frontline labels are performing. Thank you. Sure. Thank you. So first, Robert Kyncl: I'm just pleased to say and keep on reiterating that our strategy is working. It's great for it to show up in the results and and see the progress that we're making You know, our market share hasn't grown just in one or two places. It's really been broad based. Across both our flagship labels as well as all of our regions. In the US, we've increased by 0.6% The U. S. Year on year in Q4 twenty twenty-five. This is according to Eliminate. And we had similar improvement around the world in EMEA, LatAm, and APAC. And then and plus six percentage points on Spotify top 200 in fiscal twenty-five And notably, we've occupied the number two spot for nearly half the year there. Which is incredible. So it it is really great to see the the company firing on all cylinders creatively. As well as financially. And, it really has come come down to a lot of focus on artist development, which obviously has been there. You know, for for a long time. It's it's in our DNA, and we continue to lean lean into it. But we also focus on our distribution business, focus on our catalog, We've had a lot of success in terms of revitalizing our catalogs, seeing excess of Buckingham Mix, which was originally released in 1973. Being 11 on Billboard Album chart and six in The US, it's incredible to see the power of IP and what it is that we can do with it. In terms of our returning artists, Cardi B and Twenty One Pilots being number one our albums in The US, and Ed Sheeran and Biffy Claro in The UK. And, obviously, with know, I mentioned our our development stories with Alex Warren you know, spending ten weeks on number one. At number one on Billboard Hot 100 and Global 200 and Somber. Number one on Spotify Global Chart, and set there for three set in the top three for over ten weeks. So it's it's just broad based. Know, artist opened, returning artists, catalogs, all regions. All divisions. So it's just been lot of work that really started to hit together. And and we just we have really focused on our operations, making sure that we're making the right decisions. Around capital allocation. And and that we have strong pipelines both for our artist releases as well as for M&A, as Armen mentioned. So our playbook is working and our investment as our investment is a key priority in markets, and it's really bearing fruit. Operator: The next question comes from Michael Morris with Guggenheim Securities. Your line is open. Michael C. Morris: Thank you. Thanks for the details and for taking my questions. Wanted to follow-up on some of the growth components that you highlighted as we look into 2026 and beyond. Benjamin Black: First, on your M&A plans, Armen, you alluded to M&A as a potential accelerant to growth in the coming year. And can you share more detail on what we can look forward to and how much of an incremental growth driver this can be for you? And then also you just mentioned distribution as a strategic focus area. And a potential driver of growth as early as 2026 as well. So can you expand on this a bit? What changed about your strategy if anything? And what gives you confidence that this can be a bigger contributor to growth in the coming year? Thanks. Armin Zerza: Thank you. So on the M&A side, we have a very strong pipeline in place. Which as I mentioned, we expect to start the materialize starting in calendar year '26. As you probably know, we are focused on a few, large opportunities. Where we, as a publisher, can add value in a way that creates value not just for artists and songwriters, but also in a way that delivers a strong return for us. The key focus simply is our capital of business. Or couple of businesses out there in the market. Why? Because they are highly accretive and therefore deliver top and bottom line growth. We'll do this in a very capital efficient way, as we mentioned before by our joint venture with Bain. Which will provide us with more than more than a billion dollars of funding. And it's obviously a key neighborhood accelerate growth in this area. Now from a status perspective, we've been working very well with Bain as a partner. We are very pleased with the progress that we have been making So we'll hear from us soon starting in 2026 about some of those acquisitions, which gives us confidence that this can accelerate growth, in addition to the other billing box I discussed before. From a distribution perspective, distribution is a significant part of our industry. And very often a source of new talent. And in fact, we haven't talked too much about this, but actually have a large growing and profitable distribution business today. And as we have announced before, we have recently appointed a new leader with Alejandro as you know, has been leading our Latin America business for many years. And as you probably know, this business is heavily distribution focused, yet Alejandro and his team grew this business double digit. And, frankly, at attractive margins for a long time now. So really encouraged by what he has done with his business, and, therefore, he is the perfect leader for distribution business. We spent a lot of time with him to better what we need to win in this marketplace. Not just in Latin America and in The US, but also globally. And we have spent quite some time now to build capabilities that allow us to provide better customer service on the one hand, but also to integrate clients faster and more efficiently so we can grow this business profitably. So we're now at a point where we are really, really confident with that we can accelerate growth on this business. Particularly starting in 2026. Now having said all of this, you know, as I talked before many times, we're looking at our from a portfolio planning perspective. So we do this in a way that grows our business on the one hand, but also enhances margin. So net, both these strategies are really for our portfolio strategy to accelerate growth and enhance marketing over time. Michael C. Morris: Thank you. Appreciate it. Operator: The next question comes from Douglas Creutz with TD Cowen. Your line is open. Douglas Lippl Creutz: Hey, thank you. Robert, I know one of your priorities has been to make sure that company is investing in the right technologies to position for future growth. And Benjamin Black: Wondered if you could share some color on how those investments are contributing Douglas Lippl Creutz: To the growth outlook you laid out today? And then also Benjamin Black: Whether some of those priorities might be changing given the rapidly evolving landscape? Thank you. Robert Kyncl: Sure. Douglas Lippl Creutz: You. Robert Kyncl: Yeah. The priorities are not changing. They remain the same. We're focused on you know, as you think about our business, it's a large scale business with lots of SKUs lots of albums, lots of songs, lots of artists. And and they have to be managed across large number of DSPs. And so we're in a high volume business. And it requires infrastructure solid, strong infrastructure that is scalable. And so we focused on that strengthened our digital supply chain. Sped up our songwriter payments, more transparent accounting, In publishing, we stabilized and upgraded our core systems, which would include royalty processing and sync licensing systems. And we're nearly fully live with our financial transformation initiative, which unlocks whole host of benefits and a better and more insightful p and l. More transparent for artists and songwriters, etcetera. So so we've really focused a lot on core infrastructure. So that can accelerate the business handle the volume Armen mentioned, you know, the deal pipelines that we have. Whether it's organic ones or M&A. All of that requires infrastructure. So we've been focusing on that, preparing the company for growth. And and that will continue. And we've made a lot of progress in that area, so that's why we feel confident about our acceleration. Armin Zerza: I just wanna add to that. Obviously, this also helps us scale many of our services globally. There's a key enabler also for the cost savings program. We're implementing that discussed last time. Operator: The next question comes from Cameron Manson Perron with Morgan Stanley. Your line is open. Cameron Manson Perron: Thank you and good morning. You highlighted having deals with four of the top Benjamin Black: Five DSPs and having secured kind of wholesale rate increases across all of those platforms. I'm wondering, Robert, you've talked in the past about kind of the benefits of variability in licensing terms across platform partners and that being positive with regard to facilitating experimentation. Is that still would you say that's still the case across the new platforms that you've locked in deals with? Or have we reached kind of more of a a standardized type of deal structure at this point in time? Thanks. Robert Kyncl: Sorry. Can I just clarify your question? Are you talk you were talking about existing DSPs or new platform? Douglas Lippl Creutz: Like, DSPs existing, the four of the five larger existing ones? Robert Kyncl: Right. And the and the question is on sorry. I couldn't really fully understand the question. I really just trying to Cameron Manson Perron: Yeah. Really just trying to clarify you know, in the past, you've talked about the benefits of having kind of variation in your DSP deals. I'm wondering if that's still the case or if there is more standardization kind in conjunction with locking in wholesale rate increases. Robert Kyncl: Got it. Thank you, sir. Thank you for the clarification. Look. We generally, when you when you begin you have different partners. Which are different objectives, and you strike slightly different deals. As time goes by, businesses grow, things standardize more. So do the deal terms. Obviously, different platforms are slightly different. Some have free funnels. Some don't, etcetera. So that kind of variability. However, we strive for a fair marketplace where people where our partners pay the same prices for the content that we license to them. So consistency is very important for us. And making sure that no partner feels disadvantaged versus another one. And that we have a very healthy competition on fair and square term. So there's much more standardization in place. It was in the in the past. Cameron Manson Perron: Got it. And then if I could follow-up on the market share gains that you've hadn't been able to deliver on this year. How do you think with regard to the savings initiatives, like how do you balance those two in terms of trying to deliver on your savings initiatives, but and reinvesting to continue to drive market share gains in the future? Thanks. Armin Zerza: Yeah. Maybe I can take that. We we are we are very focused on ensuring that we actually invest more in our core repertoire markets and key genres. As well as in the most promising projects So from a savings perspective, we are not cutting our spending on the front line as we call it. So we're actually increasing in in our investments. Savings are mostly reflective of us becoming more efficient on the back office side. Robert mentioned technology as a key enabler. So I'll give you a few example. In finance, we have just introduced SAP. We're obviously dealing with millions of transactions. This will enable us to become more efficient as a finance organization. In marketing, as we kind of organize our data, we are leveraging more and more the you know, standard dataset we have to drive marketing efficiencies. Making, you know, we're now introducing AI. We actually have introduced the deal office globally and working with an AI company to help us optimize our deal making. So think about the savings really coming from becoming more operationally efficient as a company and back office savings. Which we leverage to invest more in the most promising markets more in the most promising artists, more in the most promising genres. And that's really how we balance this. Cameron Manson Perron: Got it. That's helpful. Thank you. Operator: The next question comes from Ian Moore with Bernstein. Your line is open. Ian Moore: Hi, thank you. Benjamin Black: So looking through the AI licensing announcements that have come out in the past, you know, couple weeks, looks like these, these services kind of point to different Ian Moore: Very different parts of the value chain. Benjamin Black: We got some professional grade production tools in there, some more like list Ian Moore: Discovery platforms. Benjamin Black: I was wondering how you could you know, if you could maybe bucket the commercial opportunity Ian Moore: You see across, like, the spectrum of, of new services that you're licensing to? Thank you. Douglas Lippl Creutz: Sure. Robert Kyncl: So first, I'd like to say it's it's a it's a very energizing moment. In the industry. When you see so many new companies popping up attracting venture capital. You know, we have not had this in the last to fifteen years. All of the players, they have been established in the first decade, really. And now there's a crop of new companies new investment, new excitement, new talent, just tremendous momentum. So we decided that we are going to seize this opportunity not going to be a passenger. We're going to be the driver. Because it is important to get in early. Set the terms, define the future for us rather than let other people define it for us. That means that this will cut across all the different segments that you highlighted. There may be professional content. There may be user content. There's all kinds of consumption, creation, It's it's certainly a lot of work for our teams, but it's it's very exciting and energizing. And the opportunity that we see is one of interactivity. Interactivity is something that drives value It's been proven over and over, whether it's in the video gaming industry, even going to a concert is interactive. You know, the revenue per hour is always higher. Somebody is looking at something with their eyes and using their fingers and their hands, create something. So the value gets created and and we'll capture it. And what happens is also that there's a very, very high correlation between interactivity and iconic familiarity. It thrives on it. What does that mean? It means that stars will get bigger. That will be they'll benefit from this trend. And that iconic IP. Benefit from this trend. So we're focusing on all of the elements here we want to make sure that that we capture this incremental and expensive opportunity. And I I think of it a bit more like user generated content early on on YouTube. That started, and it was seen as a threat. And in fact, it has actually developed in something that was very, very positive. And commercially successful. For all parties involved. So very excited about this, and we're open for business. Kareem Chin: Thank you. Operator: Your next question comes from Kannan Venkateswar with Barclays. Your line is open. Kannan Venkateswar: Thank you. Benjamin Black: Robert, maybe just Kannan Venkateswar: Following up on that point and maybe Richard Scott Greenfield: Presenting a little bit of a pushback to see what your reaction would be. But why isn't AI a threat to an equal measure? That you know, obviously, your content can be used yours and other label content can be used to to create new forms of content or at least the models can be trained on it. And over the longer time horizon, that could completely bypass you know, content creators theoretically. And that's obviously a big debate. So I would love to get your reaction on that. Then more on the financials. I mean, if you look at the guidance for next year in terms of margin expansion, I think the growth in EBITDA that's implied by that is roughly equal to or most of the growth seems to be coming from the cost cuts. And so in terms of operating leverage, would be great to understand, I mean, underlying trends excluding things like M&A for instance, or cost savings? How you guys are trending? If you could just get some more details, that would be Thank you. Robert Kyncl: Sounds good. I'll take the first part and Armin will take the second. So of course, with every change, every technolog technology could technology change, there's always a threat and an opportunity. The market position of distribution was a threat. Everybody was predicting our demise. And, you know, sidestepping the the major music companies And, obviously, opposite has proven to be true over time. And we believe the same happens here. Of course, we look at the threat, that this could pose in terms of dilution, etcetera. But at the same time, need to focus on how do we actually turn this into an advantage for all of us and drive the value of the industry. And the value that we provide. It's also important to to know that and I've said this many times before. The value of the large music companies and the contribution that we have to the inter industry. Is rising. Not declining. With all of these challenges, is becoming a much more of a big business to big business interaction. It is very hard for individual creators to deal with large technology companies. That is much better for these matters to be handled by large music companies, large IT companies who have the capabilities know how, technology, the scale, to ensure the right outcomes. So we view this as this is our role. This is our role is to shape the industry. And make sure that it benefits artists and songwriters. As well as us and our shareholder. Richard Scott Greenfield: Armen? Armin Zerza: On the margin, I think it's important to note that our guide is, of course, after investments we make into the business. It's really a net margin guide. The guide is also mostly focused on two areas. One is the cost savings program that we deliver, two is the organic margin growth that we planted River and definitely three drivers that will help us do that. One is as we start to accelerate our streaming business, that is a higher margin business that is actually margin growth already for us. Two, PSM price increases will go to the bottom line and will help us improve margin. And three, there are certain inner value areas. So think about this as a net margin guide. But the biggest organic drivers for us will be one, streaming growth, and two, the PSM price increases that we'll see. Richard Scott Greenfield: Thank you. Operator: That is all the time we have for questions. I will turn the call to Robert Kyncl for closing remarks. Robert Kyncl: So thank you. Thank you for your attention today. Just wanna reiterate that evident from our results that our strategy is working. It's a labor of quite a few years of work. Both on the technology front on the investment front, on artist development, administration. It's really all divisions at the company. Have been, firing on all cylinders. And it's great to to see it all come together. Through a sustained growth, mark market share expansion, Richard Scott Greenfield: And Robert Kyncl: On top of it now us accelerating and seizing the opportunity to shape the AI future. And create new incremental business that will be set up the right way for the future to capture the right possibilities both creative and economic for artists and songwriters. And our shareholders. Thank you so much for being here. Talk to you in Kareem Chin: Ninety days. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Thank you for standing by. Ladies and gentlemen, welcome to the Diana Shipping Inc. Conference Call on the Third Quarter 2025 Financial Results. We are joined by the company's Chief Executive Officer, Ms. Semiramis Paliou. At this time, all participants are in a listen-only mode, followed by a Q&A session. Please note that this conference is being recorded. We now turn the floor over to Ms. Semiramis Paliou. Please go ahead. Semiramis Paliou: Good morning, ladies and gentlemen, and welcome to Diana Shipping Inc. Third Quarter 2025 Financial Results Conference Call. I'm Semiramis Paliou, the CEO of the company, and it's my pleasure to present alongside our team, Mr. Anastasios C. Margaronis, Director and President, Mr. Ioannis G. Zafirakis, Director, Co-CFO, and Chief Strategy Officer, Mr. Dave Vander Linden, Director, and Ms. Maria Dede, Co-CFO. Before we begin, I'd like to remind everyone to review the forward-looking statement on Page four of the accompanying presentation. The dry bulk market posted a solid performance in Q3. Cake once again has performed especially towards the end of the quarter. Yet after a lackluster first half of the year, we finally saw some tailwinds in the Panamax Sector. The main reason for this was the fact that China imported no soybeans from the U.S. in September, which marked the first time since November 2018 that shipments fell to zero. This impact was somewhat offset by the fact that South American shipments surged from a year earlier, therefore increasing sun miles and providing upward pressure on the Panamax sector. Overall, bulk carrier markets picked up after a softer half 2025 due to a record September for Chinese imports, reaching 200 million metric tons. Subsequently, Q3 achieved record Chinese imports of nearly 580 million metric tons. The quarter also saw continuing war-related activity in both the Red Sea and the Black Sea. This situation remains volatile, and avoidance of the area is likely to continue. Because of the Capesize resilience and the improvement in the smaller sizes, we were able to secure several charters across all segments in the fleet at higher levels than previously and again at a considerable premium over the spot market. Turning to Slide five, let's review our company's snapshot as of today. Diana Shipping Inc., founded in 1972 and listed on the New York Stock Exchange since 2005, operates a fleet of 36 dry bulk vessels, one of which is mortgage-free. Our fleet has an average age of just under five years and a total deadweight capacity of approximately 4.1 million tons. We anticipate the delivery of two methanol dual-fuel newbuilding Kamsarmax dry bulk vessels at the end of 2027 and early 2028, respectively. Fleet utilization reached 99.5% for 2025, highlighting our effective vessel management strategy. As of September, we employed nine individuals at sea and ashore. Financially, our net debt stands at 54% of market value, supported by $140 million in cash reserves as of quarter-end and total secured revenues of approximately €150 million as of November 12. Moving on to slide six, let's go over the key highlights from the second quarter and recent developments. In June, continuing the renewal and modernization of our fleet, we announced the sale of motor vessel Selena for a purchase price of approximately $11.8 million before commissions. She was delivered to her new owners in July 2025. In September, we signed a term loan facility with the Bank of Greece, secured by five vessels, and drew down $55 million. In September, we released the company's 2024 ESG report, highlighting our ESG strategy and commitment to sustainable practice. You can find a copy of that on our website. As of September 29, 2025, we have acquired 14.9% of Genco Shipping and Trading Limited issued and outstanding common shares. As of November 12, 2025, we have secured $25.4 million of contracted revenues for 87% of the remaining ownership days of the year 2025 and have secured $118 million of contracted revenues for 50% of the ownership days of the year 2026. Finally, we are pleased to declare a quarterly cash dividend of $0.01 per common share with respect to 2025, totaling approximately $1.16 million. Maria Dede: Slide seven summarizes our recent chartering activity. Semiramis Paliou: From July 1, 2025, until November 12, 2025, we have secured time charters for 14 vessels. Six Ultramax vessels at an average daily rate of $13,800 for an average of 333 days. Maria Dede: For Panamax, Kamsarmax, and post- Semiramis Paliou: vessels at an average daily rate of $12,900 for an average of 331 days. And for Capes and Newcastle MAX vessels, at an average of $24,500 for an average of 380 days. Slide eight highlights our disciplined chartering strategy. We focus on staggered medium to long-term charters to avoid clustered maturities, ensuring earnings visibility and resilience against market downturns. This disciplined chartering strategy has secured €149 million in contracted revenues, resulting in an average time charter rate of $16,200 per day with an average contract duration of one year and 1.17 years. For the rest of 2025, only 13% of days remain unfixed. Now, I'll pass the floor to our Co-CFO, Maria Dede, for a more detailed financial analysis. Thanks, Semiramis. Good morning and welcome to our call. I will begin with an overview of our financial performance for the third quarter and the nine-month period ended September 30, 2025, followed by a discussion of our capital structure, breakeven analysis, and dividend. We start with the financial highlights for 2025. Time charter revenues were $51.9 million, slightly lower than €57.5 million in the same quarter last year. This decline reflects the sale of two vessels earlier this year and one vessel in September 2024. Adjusted EBITDA was $20.3 million compared to $23.7 million in the third quarter last year, consistent with the smaller fleet. Net income, however, nearly doubled to $7.2 million from $3.7 million in 2024. This was driven by lower expenses and the €10.6 million gain from the valuation of our investment in Genco, partly offset by a loss in Ocean. Diluted earnings per common share were €0.05, up from zero point in 2024. On the balance sheet, cash decreased to €133.9 million as of September 30, 2025, from $207.2 million as of December 31, 2024. This reduction reflects cash deployed in strategic investments during this nine-month period, including €103.5 million paid for the acquisition of 14.93% ownership interest in Genco, €23 million invested in share repurchases of our common stock, and $12 million invested in Greenwood and Ecogast, two of our equity method investments. Maria Dede: To strengthen liquidity, we sold two of our older vessels in the Semiramis Paliou: fleet, generating approximately $23 million and drew down €55 million under a new loan facility with National Bank Greece. By optimizing capital through vessel sales and the new loans, we strengthened liquidity while fine-tuning our fleet for efficiency. As a result, long-term debt increased slightly to €651.1 million as of September 30, 2025, from $637.5 million at year-end 2024. Operationally, this quarter was smooth with no surprises and with results reflecting the smaller phase. During the quarter, we operated an average of 36.2 vessels compared to 38.7 vessels in the same quarter last year following the sale of Houston in September 2024, Armenia in March, and Celina in July 2025. This reduction affected ownership available and operating days. Time charter equivalent averaged $15,178 a day, a 1% decrease compared to $15,103 per day in the third quarter last year due to softer charter rates. Fleet utilization remained strong at 99.4%. Special operating expense for the quarter decreased by 6% to $20 million compared to $21.2 million in the third quarter last year due to the smaller fleet size. On a per-share basis, daily operating expenses rose 1% to $6,014 compared to $5,906.04 last year, mainly due to higher crew costs. For the nine months ended September 30, 2025, Time Charter revenues dropped by 6% to $161.5 million from $171.1 million for the same period last year. Net income fell to €14.7 million compared to €3 million in the same period last year, an increase driven by non-operating gains compared to losses in the same period last year, and the absence of debt extinguishment losses seen in 2024. Time charter equivalent improved to $15,173 per day compared to $15,162 per day in the same period last year. Debt utilization remained high at 99.5%. Daily operating expenses for the nine-month period rose slightly to $5,941 compared to $5,910 for the same period last year, again due to higher crew costs. The average rate of our fleet is approximately twelve years. The next slide, you can see our debt structure and amortization schedule. We have maintained a disciplined approach to leverage. Our debt structure includes both fixed and variable rate instruments with projected loan balances declining steadily through 2032. Our $175 million senior unsecured bonds and other loan maturities coming due in '29 and beyond will be addressed well in advance to ensure liquidity stability and minimize refinancing rates. In the next slide, we compare our free cash flow breakeven to EBIT against estimated revenues for the remainder of 2025 and 2026. As of September 30, 2025, our cash flow breakeven rate stood at $16,800 per day. For the remainder of 2025, potential revenues include the estimated revenues for the unfixed days based on FSAA could reach $29.1 million at an estimated average time charter rate of $18,900 per day. For 2026, potential revenues could reach $224.7 million at an average time charter rate of $17,102 per day. While projected revenues for 2025 may not recover breakeven, the outlook for 2026 looks positive, supporting a return to cash flow profitability. This slide highlights dividend distributions. Since 2021, the company has consistently delivered quarterly dividends in both cash and shares. In line with this policy, we declared a dividend of 1% or $0.01 per share for 2025, bringing cumulative dividends spent since 2021 to $2.69 per common share. In summary, despite a small fleet, we delivered strong profitability, optimized our capital structure, and maintained high operational efficiency. Our liquidity actions and proactive debt management provide resilience and flexibility for future opportunities. I will now hand over to Anastasios C. Margaronis, who will provide an overview of the dry bulk market. Operator: Thank you, Maria, and welcome to the participants of this latest Anastasios C. Margaronis: quarterly earnings call of Diana Shipping Inc. Starting with the geopolitical and trade development in bulk shipments. The bulk carrier market has weathered well the continuous announcements of new tariffs as well as several changes in the U.S. tariff regime with its trading partners. As of November 18, the twelve-month time charter rate for a typical case without scrubbers stood at around $24,000 a day. The equivalent rate for the Kamsarmax was $15,600 per day. For the Ultramax, about $15,900 per day. All these rates were up on the levels we saw at the beginning of the year and from three months ago. On November 19, the BCI was $2,300.0636 and the Baltic Panamax Index at $18.95. In the meantime, the five PC route weighted time charter average for Capes stood at $30,154 per day, while the Panamax five TC route averaged rates stood at $17,057 per day. As a result, sentiment remains high and some newbuilding orders are already appearing across the size sector, most of them for ships with deliveries from 2028 onwards. As mentioned by Clarkson, the recently announced U.S.-China trade war truce includes the U.S. pledge to reduce tariffs on imports from China from 30% to 20%. The resumption of China's purchases of U.S. soybeans, the rollback of China's export restrictions on rare earth, and most notably the suspension for a year of the introduction of the USDR sport fees and the reciprocal port fees for some U.S.-linked vessels entering China. According to Comodo Research, the purchase of U.S. soybeans by China represents a supporting factor for midsized bulkers for the rest of the year and into 2026. Exports to China will be much stronger over the next few months, and this will be a very helpful tailwind for the dry bulk carrier market. This is according to Clarksons, even though China had earlier this year sourced soybeans for purchase to replace U.S. produce from Brazil, which involved a longer lading voyage than from the U.S. Lower volumes, though, were shipped, can be partly explained by the fact that China has been relying on the drawing down of elevated domestic stocks. In the next slide, we look at the macroeconomic development and consideration. Economies around the world are showing signs of relatively steady growth going forward. Latest growth forecasts provided by the IMF and the OECD predict growth in Chinese GDP at around 4.8% this year and 4.2% in 2026. The equivalent figures for India are 6.6% and 6.2%. For the U.S., 2% for this year and 2.1% for 2026. For the Euro area, 1.2% this year and about the same for next year. For the world, the figure stands at 3.2% for this year and 3.1% in 2026. Let's look at the main commodities now that are being shipped in bulk. Global steel production, according to Braemar, is down by 1.2% year to date at 1,373 million metric tons. This has been having its effect on demand for metallurgical coal and iron ore. Chinese steel product exports are increasing strongly by over 5% year on year so far, which could help partially explain the continued demand by China for iron ore. Braemar reports that it is heavy engineering and ambitious investment in energy and industrial parks driven by AI that will probably support steady demand in China going forward as opposed to traditional construction demand on real estate and infrastructure projects. So for iron ore, Clarksons predict a slight increase of about 1% per annum in total imports at 1,621 million tonnes for 2026. The C1-two iron ore project in Guinea has exports starting this month, and volumes are expected to build up from this year to '28. Long haul exports to China should support pan mild demand. However, Clarksons reminds us that uncertainty remains around how the iron ore market will absorb the new volume. Operator: Going forward. Anastasios C. Margaronis: For coal, we have coking coal shipments which are expected to remain more or less flat in 2026 and 2027, with support coming mainly from Indian demand as domestic coking coal reserves deplete and feed production keeps increasing. Thermal coal shipments are expected to go down by between 31% in 2026 and 2027, respectively. Coal imports to China have continued to go down about 10% so far this year, with demand being partially satisfied by imports from Mongolia and produce from domestic mines. Indian imports are projected to drop by 6% in 2025 due to increased domestic production. In the medium term, demand will pick up as new thermal energy capacity outpaces domestic mining output. For grain exports, according to 2% in 2025, and by about the same in 2026 to reach 566 million. Brazilian grain exports and increased soybean exports from the U.S. should keep supporting this trend hopefully well into 2027. As regards the minor bulk trade, according to Clarksons, these trades are expected to grow by about 4% this year and by a further 2% year on year in 2026 at €2,400 million every sum. Approximately similar growth rates are expected for 2027 depending on key macroeconomic trends and geopolitical tension. Maria Dede: Bauxite, cement, Anastasios C. Margaronis: seed products, and forest products are expected to be the main commodities shipped in large volumes going forward. Turning to the next slide. On talent supply. According to Clarksons, the bulk carrier fleet is forecast to grow by 3.1% this year and by 3.4% in 2026. For Capes, the projected tonnage increase is only 1.4% in 2025 and 2.2% in 2026. For Panamaxes, the fleet projected increase is 3.5% this year and 4.6% in 2026. According to Braemar, the bulk carrier fleet order book stands at 106.2 million deadweight tons, which represents 10.9% of the existing fleet. This total is made up of €37.8 million deadweight of Capes, which is about 9.3% of the fleet, 38.2 million deadweight of Panamax Kamsarmaxes, about 14.1% of the fleet, and €28.4 million deadweight in Handymaxes, which are about 11.2% of the fleet. For Capes, the order book is certainly manageable going forward, and so it is for Handymax. The Panamax fleet, where the order book is higher, includes, however, 467 ships based from 2005 and earlier. On the recycling side, according to Clarkson, the recycling market has been dominated for most of the year by low activity and cautious sentiment. Softening steel prices, particularly in India, have dampened the appetite for tonnage by major scrap buyers. The average price for a handysize bulkhead offered for demolition has dropped to around $400 per lifetime display. The forecast for dry bulk carrier demolition sales this year is about 4.6 million deadweight tons, for 5.3 million in 2026, and about $7 million in 2027 when various regulations and aging of large sections of the bulk carrier fleet take their toll. The average age of dry bulk demolition candidates has gone up from 25.2 years in 2015 to 29.3 years in '25. Turning to asset prices now. As Heartland Shipping Services pointed out, the combination of less ordering this year and more potential output at yards may have implied a crash in new building prices. This has not occurred. New building prices have softened during the last quarter by just 1%, and by between 34% year on year across the tariff with eight new buildings being voted at around $73 million. Capesize Max is at around $36.25 million, and Ultramax is for 2020 delivery at around $33.5 million. Secondhand bulk prices have crept up during the last quarter. The price of refinery has moved up by about 4% to $65 million, and Newcastle MAX at around $72 million, and Capesize MAXs of the same vintage have also gone up by 4% to €33 million, while Ultramax prices have increased to $32 million. Finally, let's look at the outlook for our industry. According to Clarkson, 2025 should prove to be a slightly softer year for bulk carrier earnings than 2024, with the fleet projected to grow by 3% and demand by not much more than 1%. But Clarksons also point out that dry bulk trends have firmed in recent months amid a rebound in the coal trade and strong iron ore, bauxite, and grain export volume. In a nutshell, dry bulk demand trends have firmed in recent months. Looking out to 2026, Clarkson's sees a base case outlook of another moderate year for bulk carrier earnings, possibly like 2025. Dry bulk trade is currently projected to grow by about 2% in ton miles, slightly below fleet growth of about 3%. Markets could be balanced with support from special surveys and falling vessel speed. The Capesize market is expected to outperform the smaller segment. Looking further ahead, projections are much less reliable, even though the supply-demand numbers for 2027 are similar to those in 2026. Factors such as Chinese demand trends, the impact of environmental policy, Red Sea danger zone development, and demolition trends will continue to influence the supply-demand balance going forward. During the last slide, Slide 18, we can have a quick look at factors which are, according to analysts, going to affect the market on the positive and the negative side. On the positive side, we have strong South American grain exports and increased soybean exports from the U.S. to China, we have a gradual resolution of reciprocal tariffs between the U.S. and its trading partners, Red Sea rerouting expected to continue for the rest of the year and well into 2026, strong steel product exports by China, and the commencement of iron ore shipments from Simandou in Guinea. On the negative side, though, we have worldwide lower steel production at Southside India, bulk carrier fleet growth outpacing demand for both this year and next, let's all indicate sector. Increase in wind, nuclear, and solar power production, particularly in China, anticipated long-term reduction in coal imports by China, positive failure in trade talks between the U.S. and the trading partners leading to higher tariffs and trade disruption. On this note, I will pass the call to our CEO, Semiramis Paliou, for some important takeaway points from this earnings call. Thank you. Semiramis Paliou: Thank you, Anastasios. And before concluding today's presentation, I'd like to highlight our ongoing ESG initiatives Diana Shipping Inc. is committed to promoting eco-friendly technologies and modernizing our fleet, transparently sharing emission data to ensure accountability, building on partnerships and collaborations to advance our sustainability goals, and developing an equitable, diverse, and inclusive program while continuously investing in our people. In summary, moving on to slide 20, Diana Shipping Inc. stands on a strong foundation built on over years of industry experience and twenty years on the New York Stock Exchange. It is a seasoned management team adept at addressing industry challenges, has a strong shareholder relationship and a disciplined strategic approach, a solid balance sheet with a strong cash position and a countercyclical mindset, and an ongoing fleet modernization effort, a focus on rewarding our shareholders when possible, and a strong ESG strategy. With that, thank you for joining us today. We now look forward to addressing your questions during the Q&A session. Operator: We will now begin the question and answer session. Then one if you're using a speakerphone. The first question comes from Christopher Barth with Arctic Securities. Please go ahead. Christopher Barth: Hello, good afternoon, and thank you for the presentation. How should we think about your quite significant stake in Genco now? Is there any Ioannis G. Zafirakis: sort of dialogue with the Board? You previously mentioned that the holding is of strategic character, but I mean, they tightened the poison pill with the 15% threshold now. So sort of how does that impact your thoughts on sort of further dialogue here? And if you are just sort of opting for a passive stake, would you consider a Board seat? Ioannis G. Zafirakis: Hi, Christopher. This is Ioannis Zafirakis speaking. As we have said in the past, our position in Genco has strategic value. Nevertheless, we are observing at the moment, and we are examining our various options on Ioannis G. Zafirakis: what we'll do Maria Dede: and how to do it. Ioannis G. Zafirakis: We are not in contact with the current management of Genco. And we are observing the development. Christopher Barth: Thank you very much, Ioannis. And just a second question for me, if that's okay. Can you just comment a bit around the recent development in Ocean Tau? Do you still have a holding there? And what's the percent if that's the case? Ioannis G. Zafirakis: Diana Shipping Inc.'s interest in Ocean Farm is very minimal after the latest raising of equity that they did, the one before the sovereign one. And it is certainly not material at this stage. So there is nothing to comment. Christopher Barth: Okay. Thank you very much. That's it from me. Operator: This concludes our question and answer session. I would like to turn the conference back over to Ms. Semiramis Paliou for any closing remarks. Semiramis Paliou: Thank you for joining us for Diana's third quarter 2025 financial results. We look forward to presenting to you again in the next quarter. Maria Dede: Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.