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Operator: Good day, and thank you for standing by. Welcome to the Q4 2025 Real Matters earnings conference call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lyne Beauregard, Vice President of Investor Relations and Corporate Communications. Please go ahead. Lyne Fisher: Thank you, operator, and good morning, everyone. Welcome to Real Matters Financial Results Conference Call for the Fourth Quarter and Fiscal Year ended September 30, 2025. With me today are Real Matters' Chief Executive Officer, Brian Lang; Chief Financial Officer, Rodrigo Pinto. This morning, before market opened, we issued a news release announcing our results for the 3 months and fiscal year ended September 30, 2025. The release, accompanying slide presentation as well as the financial statements and MD&A are posted in the Investors section of our website at realmatters.com. During the call, we may make certain forward-looking statements, which reflect the current expectations of management with respect to our business and the industry in which we operate. However, there are a number of risks, uncertainties and other factors that could cause our results to differ materially from our expectations. Please see the slide entitled Cautionary Note regarding forward-looking information in the company slide presentation in more detail. You can also find additional information about these risks in the Risk Factors section of the company's annual information form for the year ended September 30, 2024, which is available on SEDAR+ and in the Investor Relations section of our website. As a reminder, we refer to non-GAAP measures in our slide presentation, including net revenue, net revenue margins, adjusted net income or loss, adjusted net income or loss per diluted share, adjusted EBITDA and adjusted EBITDA margin. Non-GAAP measures are described in our MD&A for the 3 months and fiscal year ended September 30, 2025, where you will also find reconciliations to the nearest IFRS measures. With that, I'll turn the call over to Brian. Brian Lang: Thank you, Lyne, and good morning, everyone, and thank you for joining us. I'll kick things off today by walking you through our thoughts on the full year. Rodrigo will then provide some color on the fourth quarter before I make some brief closing remarks. Our business demonstrated resilience and competitive strength throughout 2025 as we consistently launched new clients expanded market share and maintained strong financial discipline, which allowed us to deliver solid operating leverage. We launched 10 new clients and 1 new channel in U.S. appraisal in Canada, and both these segments continue to generate solid positive adjusted EBITDA. We expanded our U.S. title business by adding 7 some new clients in fiscal 2025, including a second Tier 1 lender, which marked another major milestone in the evolution of our title business. We have not let market headwinds deter us from executing on our strategy and improving our overall competitive position. We continue to outperform while leveraging the performance equity we've built in appraisal to cross-sell and expand our title client portfolio, establishing a solid foundation for a scalable business that will thrive under normalized market conditions. There is considerable upside for our business as pent-up demand continues to build, and the supply of homes on the market edges its way back to pre-pandemic levels. There are currently 51 million mortgages outstanding in the U.S. with over 12 million carrying interest rates above 6%. This is an increase of almost 30% in the refinance pool from last year at this time. A 50 basis point reduction in rate can represent hundreds of dollars in savings per month from many of these households once they refinance their existing mortgage. Given today's more favorable interest rate outlook, these dynamics clearly underscore the opportunity to unlock significant growth in mortgage origination volume. American homeowner equity is at an all-time high with roughly $17.8 trillion in aggregate equity and $11.6 trillion in tappable equity. Homeowners will continue to look for ways to access these funds to finance important life events. Additionally, new households will form as younger generations pursue homeownership as a means of achieving financial security. Our recent consumer mortgage survey indicated that future buyer intent to purchase remains relatively strong with 40% planning to purchase in the next 2 years while 50% of existing mortgage holders plan to refinance when rates ease. Turning to our financial performance for 2025 and we've reported consolidated revenues of $170 million in fiscal 2025, while our U.S. Title and Canadian segments achieved double-digit year-over-year growth in both revenue and net revenue for fiscal 2025. Our U.S. appraisal revenues were lower, mainly due to a purchase market that continues to operate at its lowest level in decades. Consolidated net revenue decreased modestly to $45 million from $46 million in fiscal 2024, and we posted an adjusted EBITDA loss of $3.2 million compared with positive adjusted EBITDA of $1.9 million in fiscal 2024. In U.S. appraisal, revenue was down 7% from fiscal 2024 to $121.8 million principally due to a lower addressable market for purchase mortgage originations. Fiscal 2024 also included significantly higher origination volumes from a temporary reallocation of market share with one of our leading clients, which made 2024 a tough comparable period. We posted U.S. appraisal net revenue margins of 26.3% in fiscal 2025 within our target operating model range of 26% to 28% and the segment recorded positive adjusted EBITDA of $13 million. On the performance front, we wrapped up fiscal 2025 by extending our track record of holding top positions on lender scorecards and we launched 3 new clients in our U.S. appraisal business, including a top 15 mortgage lender. In fiscal 2025, we invested in our U.S. appraisal business as we prepare for the rollout of the new uniform appraisal data initiative, which will modernize appraisal forms across the industry. Our team has been at the forefront of this multiyear industry-wide change working with lenders, regulators and appraisers to ensure we continue to deliver the best performance and fulfill our commitment to providing extraordinary experiences for our clients and their customers. Our platform and ongoing investments in the right technology have solidified our leadership position in the appraisal industry, it's the reason why lenders continue to choose to partner with Solidifi, our brand has never been stronger. This year brought significant progress for our U.S. Title segment. While volume headwinds continue to weigh on the mortgage industry, lenders are investing in capacity ahead of a potential mortgage recovery. This shift, along with our investment in sales helped drive momentum in our U.S. title sales pipeline. We launched 7 new U.S. title clients in fiscal 2025, including a second Tier 1 lender and the largest credit union in the U.S. Thanks to this expanded client base, we closed fiscal 2025 with a daily order run rate in U.S. title that has more than doubled compared to the start of the year. During fiscal 2025, our U.S. Title segment served as a significant driver of top line growth, as revenues were up 21%, principally as a result of a 41% increase in refinance origination revenues. Home equity revenues also increased 28% year-over-year due to net market share gains with existing clients and growth in reverse mortgage transactions. With the change in our revenue mix and increase in volumes, net revenue margins increased by 680 basis points from fiscal 2024 to 53.1% and net revenue was up 39%. We posted an adjusted EBITDA loss of $7.3 million compared with a loss of $6.8 million in the prior year, primarily attributable to higher operating expenses incurred to strengthen our sales capabilities. Outside of this investment in sales, almost each additional dollar of net revenue we earned dropped to the bottom line. Even with the recent increase in our title volume run rate, we still have the capacity to almost double our volumes with the existing cost base outside of variable cost increases. In Canada, revenue was up 12% year-over-year from higher market volumes and net market share gains with new and existing clients. We launched a total of 7 new clients in Canada in fiscal 2025, including the largest direct response home and auto insurance group in the country. Canadian net revenue margins held strong at 18.8% in fiscal 2025, and net revenue was up 11% from fiscal 2024. The Canadian segment generated positive adjusted EBITDA of $4.7 million, an increase of 15% from fiscal 2024. With that, I'll hand it over to Rodrigo to look at the fourth quarter. Rodrigo? Rodrigo Pinto: Thank you, Brian, and good morning, everyone. During fiscal Q4, the average 30-year fixed mortgage rates declined from about 6.67% in early July, roughly 6.3% by the end of September, while the 10-year U.S. treasury yields declined from 4.4% to roughly 4.2%. With the exception of 1 week in September, where the 10-year was closer to 4%, the spread between 30-year mortgage rates and 10-year treasury yields narrowed by about 15 basis points, ending the quarter near 210 basis points signaling easing risk premiums in the housing finance market. The change in interest rates drove some activity in refinance mortgage origination volumes for a short period towards the end of the quarter, similar to what we experienced in fiscal Q4 last year. We continue to believe that we have a large and expanding long-term opportunity ahead of us, and so we remain focused on things we can control, including continuing to exercise discipline when it comes to our expenses, the timing of investment decisions and how we scale based on volumes. We'll do what's necessary to grow our client base and our market share with our clients, managing our operating efficiency to drive operating leverage and margin expansion while maintaining a strong balance sheet. Turning to our fourth quarter financial performance. I'll start with our U.S. Appraisal segment where we recorded revenues of $33.1 million, down 2% from the same period last year. Revenues from purchase mortgage originations declined principally due to a lower addressable market. However, revenues from refinance mortgage originations increased due to higher addressable mortgage origination volume from refinance transactions. As Brian mentioned earlier, the comparable quarter also included higher purchase and refinance volumes from a temporary reallocation of market share from one of our leading clients, which returned to prior levels over the course of fiscal 2025. Home equity revenues were relatively flat and accounted for 27% of the segment's revenues. U.S. appraisal net revenue was $8.4 million for the fourth quarter compared with $9 million in Q4 '24, and net revenue margins decreased by 120 basis points, mostly due to the distribution of transaction volumes as it relates to geographies, clients and product mix. Fourth quarter U.S. appraisal operating expenses decreased 8% year-over-year to $4.5 million. We posted U.S. appraisal adjusted EBITDA of $3.9 million down 4% from the fourth quarter of fiscal 2024. However, adjusted EBITDA margins increased by 110 basis points to 46.3%, compared with the fourth quarter last year as the decrease in net revenue was offset by lower operating expenses. Turning to our U.S. Title segment. Fourth quarter revenues increased 18% year-over-year to $2.9 million and refinance origination revenues were up 17%, principally due to net market share gains with existing and new clients and higher refinance mortgage origination volume. U.S. title net revenue was $1.6 million, up 28% from the fourth quarter last year and net revenue margins increased to 54.2% from 49.8% due to higher refinance origination volumes. U.S. title operating expense were up 16% year-over-year, primarily due to additional hires to accelerate the deployment of new title clients, and we recorded an adjusted EBITDA loss of $1.7 million for the U.S. Title segment compared with a loss of $1.6 million in the fourth quarter of fiscal 2024. If we excluded the investment we made in our title sales capabilities, the vast majority of the incremental net revenue we recorded in the quarter would have flowed to the bottom line. In Canada, fourth quarter revenues increased 6% year-over-year to $10 million due to higher market volumes and net market share gains with new and existing clients for our appraisal services. Insurance inspection revenues were relatively flat. Net revenue was up 5% to $1.9 million and adjusted EBITDA increased to $1.3 million from $1.2 million in the fourth quarter of fiscal 2024. In total, fourth quarter consolidated revenue and net revenue were relatively flat compared to the prior year at $46 million and $12 million, respectively as increased revenues from our U.S. Title and Canada segments were partially offset by a decrease in revenues of our U.S. Appraisal segment. We recorded consolidated adjusted EBITDA of $0.1 million, down from $0.6 million in the fourth quarter of 2024. We ended the year with a very strong balance sheet with no debt and cash of $40 million at September 30, 2025. The decrease in our cash balance from prior quarter was mainly due to timing of collections and change in working capital which we expect to normalize in the first quarter of fiscal 2026. With that, I'll turn it back over to Brian. Brian? Brian Lang: Thank you, Rodrigo. Throughout fiscal 2025, the company continued to execute our strategy by focusing on performance, market share expansion, new client growth and maintaining strong financial discipline. Our U.S. Appraisal and Canadian segments consistently delivered positive adjusted EBITDA in fiscal 2025, reflecting their resilience and operational efficiency amid market headwinds. These segments continue to contribute stable earnings, underscoring the strength of our business model. Additionally, the U.S. Title segment achieved a return to growth during the year. This positive momentum marks a meaningful step forward on our path toward reaching our target operating model. The progress in U.S. title, coupled with continued discipline and execution across our business units position us well for future growth and profitability. Heading into fiscal 2026, we are optimistic about the potential for growth from pent-up demand in an increasingly stable market environment. With more than 12 million mortgages outstanding and interest rates exceeding 6%, the pool of refinance candidates has increased by nearly 30% in the last year alone and with sustained consumer demand for housing and an improved interest rate forecast, market conditions for our business are becoming increasingly positive. We see clear potential to unlock significant growth in mortgage origination volumes. As our business scales and more transaction volumes flow through our platform, we expect to expand our margins and profitability in line with our target operating model. Our team remains focused on increasing market share with our existing clients by optimizing scorecard performance and pursuing new client relationships, especially in U.S. title. Our business was built to thrive in the peaks and to withstand valleys of the cyclical mortgage market, and we look forward to the opportunity that lies ahead. With that, operator, we'd like to open it up for questions now. Operator: [Operator Instructions]. And our first question comes from Stephen Machielsen of BMO Capital Markets. Stephen Machielsen: So in past calls, there's some optimism about the more traditional lenders getting a bit more aggressive in taking share. How is that playing out right now? Are you still optimistic that they're -- they and your clients are going to be taking share from nontraditional lenders? Brian Lang: Stephen, thank you. Appreciate the question. So I think there's a couple of dynamics going on in the market right now, which gives us optimism that a bunch of the larger banks will definitely continue to, I think, make an impression. So the first one is, as you heard us mention, the spreads are definitely coming down. So that, for us, sort of gives the -- that there's going to be impact by the rates coming down, people are seeing more confident in the market. So I think that's sort of piece one. Piece two is we can see when we look at the rates that are posted over the last couple of months, we are definitely seeing a more aggressive position by some of the really big bank lenders in the U.S. So I think both the spread coming down sort of much more normalization of the spread when we take a look forward, I think, has an impact along with the fact that a lot of those Tier 1 big banks are starting to step into the market and get more aggressive on their rates. Stephen Machielsen: Okay. Thanks to the color on that. I just -- in the same vein, now let's talk about your U.S. title pipeline. Do you get the sense that the companies in that pipeline are more or less willing in the current environment to take on a new vendor like yourself? Like I'm just wondering how the temperature has changed over the past 3 to 6 months? Brian Lang: Thanks. Well, I think it sort of linked somewhat to the conversation around spreads. So spreads, I think there's a normalization happening there. So that, for us, says that there's more optimism around the market. So I think that, along with -- we've had another rate cycle like we had last year in September, where we had the rates come down. And so I think last year, that was very helpful for us, Stephen, because I think it unlocked some of the sales potential in the market where lenders started realizing that if rates do move and volumes clock up they're going to need capacity in order to deliver against those. We've had sort of the same reflection of that increase in volume this past September. So we had another bump in volume, it was -- rates came down a chunk and volume did go up. And so I think that, again, reinforced to lenders. That when the rates come down, there is that optimism around the refi pool, which as we mentioned, has grown 30% year-over-year. So we're now up to $12 million above 6%. And I think all of those elements definitely lead into lenders being a lot more confident now than they were 12, 18 months ago on rates at some point coming down, the volume coming back in the market. So we've seen the sales pipeline move. We've seen more activity in the sales pipeline. We've been able to move deals forward with more pace than we did in 2024. And our view is that, that will continue, and we're seeing that happening now as we move into 2026. Stephen Machielsen: All right. Good to hear that you've been able to move some of those deals forward. My final question is more for Rodrigo. It looks like there was a rather large receivables build in the quarter. Is there anything to call out there? And will it be pretty quick unwind? Rodrigo Pinto: Stephen, yes, no, thanks for the question. No, nothing unusual there. That's a regular collections of accounts receivable subsequent to the quarter, I would say, immediately after the quarter, a large collection was made. So no, there's nothing unusual relating to the receivables and cash balance. Operator: And our next question comes from Robert Young of Canaccord Genuity. Robert Young: You noted the volume increase in title with the new Tier 1, like you said it's up 2x year-over-year. How do you think about that increase relative to where your expectations were on the ramp of this Tier 1. And then I'm curious about how you think about the near term, just given the rates ticking up and the fact that title does lag appraisal. So should we expect a slowdown in title similar to what we're seeing in appraisal as the lag -- as we move in that lag or maybe just some thoughts around those items. Brian Lang: Sure. So I think the first area you were talk -- you were asking about was around the ramp-up of our second Tier 1. So I would say that it launched a little later than we would have liked. And so we're actually very happy with the ramp-up. As you know, usually, there's a quarter or so of slow ramp-up as we get going. We definitely have seen this lender ramp up with a good amount of pace. They are also being reasonably aggressive in the market from a rate standpoint. So we're very happy with the volume that's coming in from that Tier 1. Now that only started happening in the very back end of the quarter. So you're going to see some of that revenue come through in Q1. And as I say, I think we're in very good shape. Our plan, of course, is to get them up to the market share that we expect in the next couple of quarters. And so we're very optimistic about the volume ramp with that particular customer. I think also importantly is the look forward on some of the customers in the pipeline. We've got a handful of both another Tier 1. We've got a significant servicer as well as some other top 50s that are currently moving to implementation. So over the next few quarters, we plan to bring all of those customers on, Rob, which I think is a dovetail to the last question around optimism in the pipeline. I think the investment that we've made in sales is definitely paying off. And so I think we're going to see some positive ramp there. On the second question, I think it was around -- I'm not sure whether the question was around the difference in appraisal and title from a purchase and refi standpoint or that this lag piece... Robert Young: And timing, I know title lags, and so given you're seeing the weakness in appraisal, is that something we should expect rolling into title? Rodrigo Pinto: No, Rob. So I'll jump on that one. No, no, not really, Rob. It's -- again, I would say the slowdown in appraisal is more related to the purchase market where it doesn't impact the title side. However, to your point, the change in rates, yes, there's a little lag there, but will be within the quarter, right? The rates didn't fluctuate for such a long period of time that would cross quarters. So within the quarter, you should see similar trend from a refinance perspective for both, but appraisal has the impact of purchase. Robert Young: Okay. And then my second question, this might be a tricky one. But if we look back to last year, we saw a similar sort of a volume bump and then there was a cooling off. And it seems very similar at a high level, to what we're seeing right now. And I was curious if you just sort of maybe unpack it a bit for us to tell us what's different or the same this time around. Brian Lang: Well, we're early in the quarter, Rob. So it's still a little hard to do a very direct comparison. But to your point, we have seen something quite similar, which is when the rates come down, and they didn't come down that far as you know, they came down sort of in the high 5s. We definitely see a good bump in volume. And so from our standpoint, that really underlies the opportunity, which is the rate does not have to come down very far, right? So relative off of the 6.3-ish percent we're at now, when you get down 50 basis points, you start seeing volume moving up. So I think that's what we are expecting. There has been a -- because we're back up at 6.2%, 6.3%. There's a little bit of a reconforming to where we were before September. But when we look longer term at the business, if there is that movement, which we'll have to see going into next year, again, we're going to have to see what happens. What we do know is that there is a lot of focus on this, as you know, in the U.S., around affordability. You've heard all the sort of recent ideas on how we might be able to do that. And the big difference now is there's even a larger pool of refinance candidates than there were last year, it's up 30%. So we're optimistic that pool is bigger. There's -- we see now the movement of the opportunity when the rates come down, and it doesn't have to come down significantly. So I think we could see some real traction in the next few quarters, again, depending on what happens with rates. Robert Young: Okay. And last for last one. Sorry if I missed it, but I'm not sure if you addressed or talked about rocket and its acquisition of Mr. Cooper. I think that happened -- that closed a little faster than expected. And I was curious if you could give us an update on what your outlook is with Rocket and the upside from Redfin and Mr. Cooper. I'll pass the line. Brian Lang: Sure. Yes. So I think it's a positive signal is that the deal did get done fairly quickly. So I think they were targeting end of year, but that's now been closed. So they feel that that's moving. We've been told to expect to see some of the Mr. Cooper origination volume over the next quarter or 2. So we're not exactly sure when we're going to get that, Rob, but good news, there's definitely some volume there. Mr. Cooper, their big volume is in the servicing side of their business. And so again, we need to see some rate movement there for that to start unlocking, but they are one of the biggest, if not the biggest servicer in the U.S. now they've moved into Rocket. So there's definitely going to be a significant opportunity there. Again, that's tied a little bit more to rates. So if we look long term on our relationship with Rocket, we've got a fantastic relationship with them. We've got really strong market share, that over time, that will be a real asset for the business. Operator: Our next question comes from Martin Toner of ATB Capital Markets. Martin Toner: Can you address this question somewhat in Rob's first question, but I think it might be useful for you to talk a little bit about what the doubling of volumes implies for the potential for 2026. Secondary question, how much of appraisal is currently refi? And how much of that strength that we're seeing can be sort of crossover from there? Or is it just all share with customers? Brian Lang: Okay. So let me address the first question, which is around title growth and the impact of title growth in the business. So I think probably, why don't we do a quick look back, Rob. So if we look back at the start of 2025 and then we look at where we ended. We were running about $2 million of revenue per quarter on title. We're now closer to $3 million. So I think we ended, Rodrigo, $2.9 million. So you can see that as we increased over the year and got to our doubling of volume coming in, we were able to significantly increase our overall revenue. So our view is that with the pipeline that I talked about, I think we're looking at definitely doubling that volume again in the next few quarters. And so again, I think you see the same type of dynamics flow through our margins through to the bottom line. So I think we've had good historical, you've seen good growth. We expect that to continue in the upcoming quarters. And so I think you'll see in 2026, strong returns on our appraisal business. And as we mentioned, I mean, one of the big dynamic is because of this incremental capacity that we've got, that you should see a significant amount of that net revenue flow to the bottom line. So that's, I think, how we look at title. On appraisal, the question around proportionality. So right now, about 2/3 of our originations are from the purchase side, and 1/3 of originations is on refinance. So I mean, our view, I think, over time is -- we'll have to see, of course, what happens in the market. Purchase, as you know, has been a real challenge this year. So we're flat to down from a market standpoint. Good news refinance is up. So again, it depends on what happens as we go forward. Of course, refinance is a slightly bigger proportion of our book this year from last year because refinance grew. But depending on how refinance does this upcoming year, we could get -- that could be a higher proportion of the overall book. And just as a reminder, Martin, it doesn't matter for us whether we're getting a purchase or refinance transactions. It all has the same economics around it. So we'll just have to see, again, we're not going to call the market. But I assume that if refinance goes up and purchase sort of stays where it is or only goes up a little bit, then refinance will be a higher proportion of our book. Martin Toner: Awesome. Thank you, Brian. So purchase was -- is up like -- some of the headwinds in purchase like a well-known by everybody. But it's already down, market down over the last, say, 2 years. What's your view on that like that business from here? Can we -- like could we get a turn? Do you think it will be -- 2026 will be a tough year for purchase? Brian Lang: Well, I think the only thing I can really comment on, Martin, is there is a lot of focus on affordability in the U.S. right now. So you've heard all the potential solutions. So outside of the initial view that the rates need to come down and the Fed needs to do something. We've now got 50-year mortgages and portable mortgages. So there's lots of focus on affordability. All of that, by the way, would be beneficial for us. So we have no idea whether any of that can actually move forward. But that focus on trying to get more purchase activity, trying to get more new homeowners into homes. All of that is a potential positive tailwind for the business. I just don't know, I can't call marketing -- Martin, exactly what's going to happen in the market this upcoming year. But we are right now at historic lows in the purchase market. So our view is we should be moving in the right direction this upcoming year, but I can't tell you exactly how that's going to move. Operator: [Operator Instructions]. And our next question comes from Richard Tse of National Bank. Unknown Analyst: This is Amy Lee speaking on behalf of Richard at National. So you mentioned on the growth side, bringing on the second Tier 1 and you have quite a robust pipeline. Two, last quarter, you mentioned on the capacity side, you're running around 30%, seeing yourselves get to about 2x capacity in title instead of maybe 3 to 4x with the potential uptick in volume over the next year, how might we think about any investments you might need to take to handle all this? Robert Young: Sure. Amy, thanks for the question. So yes, the capacity in appraisal still stays at about the 30% that we mentioned before. In title, yes, we doubled our orders. So as we said before, we used -- we had 3 to 4x capacity in title. If you take that double of the orders, we should be -- we are close to 75% to 100% capacity still. So we are close to -- we can double another time the volumes in title, and we feel good about not increasing our costs substantially or at all. But just as a reminder, there's a portion of our cost that is variable that increases with volume as well, right? But yes, that's how we are looking at capacity at this point. Unknown Analyst: Great. And you mentioned briefly, so the current administration, there seems to be a lot happening, a lot of shifting in the regulatory environment, some like perhaps tailwinds with the 40-year fixed mortgages, but also maybe banking deregulations, has any of that flow into an impact into your market? Brian Lang: Unfortunately, not yet, Amy. So we're on standby. But as I say, I mean you actually mentioned some of the big lenders also reaching out and talking about easing regulatory constraints and some of the challenges around that with some very specific potential impacts on rates if they were able to do that. So you've got that whole lobby effort going on from the big lenders. And then to your point, they're now starting to throw out a whole bunch of ideas around affordability. And there's going to be, I assume, continued pressure in the next quarter or 2 around trying to bring down the interest rates, however they think they might be able to do that. So all that focus for us, frankly, is, as I say, it's all generally positive. I don't know, Amy, how much of this will come to fruition in the next quarter or two. But when I think long term about the business, I mean, all of that would be positive. It would drive more purchasing opportunities for the market, as well as if they can get at some of the rate challenges, it would definitely drive up the refinance market. Operator: This concludes the question-and-answer session and also today's conference. Thank you for participating, and you may now disconnect. Brian Lang: Thank you.
Andrew Jones: Great. Good morning, ladies and gentlemen, and welcome to LondonMetric's half year results presentation. It's very rare that we're in such salubrious accommodation as this. I hope it's rent-free. It's an office building, it must be. Sorry, cheap shot. Okay, that's the tick-tick, dirt went off. Right. Go down the list in a minute. Right. So normal lineup this morning. I'm going to give you a quick overview. I'm going to hog all the good numbers, pass over to Martin. He'll do a deep dive for you. And then I'll come back to talk about our activity and the makeup of the portfolio and our outlook for the periods ahead. And then we'll open it up to Q&A. And we have our team in the front row, which actually now includes Carl, which is good. So any really difficult questions are going his way. And then hopefully, we'll be all wrapped up by about 11. So -- okay. So we retain our position, in our opinion, as the U.K.'s triple or leading triple net income REIT. Our objective is to continue to own mission-critical assets across the winning sectors of real estate. I come on to talk about this a little bit later because it is a theme throughout the presentation. We want to be -- we want to make the right macro calls. Logistics is our strongest exposure, partly because it gives us the best rental growth. So that's back up at 54%. And then we have our hospitality and entertainment, which is dominated by our hotels and our theme parks at just under 18% and then our convenience retail assets at 14%. So those are our 3 key areas with health care making up the fourth. As a result, our objective must be to grow our income. That's what we are. We are a triple net income compounding business. And our net rental income, as you can see in front of you, is up 15%. Again, we'll come on to talk about that in a little bit more detail, and that has obviously allowed us to progress our dividend. We announced this morning a Q2 dividend of 3.05p, which gives us 6.1p for the period, which is up 7% on where it was last year. And obviously, we expect that to continue. We are well on track for our 11th year of dividend growth. We also operate the lowest cost platform in the sector with a sector-leading EPRA cost ratio, down from, I think, 7.8% at the full year to 7.7%. And despite Martin's objections, we obviously think that, that should fall lower in the coming periods. The portfolio is focused on reliable, repetitive and growing income. It's a strap line that we've now used for many, many years. It doesn't need to change. And that is supported by, again, 5.2% like-for-like annualized rental growth, and that's largely driven by 2 things. Uplift on rent review. You can see there, 18% is our average uplift. Open market was at 24%. Our open market logistics was 27%. And then our leasing and regears delivered another 24% above previous passing. So that's what -- you put all those together, that's how we deliver that 5.2% annualized income growth. In the period, this translated into GBP 10 million of additional rental income. And again, we'll come on and talk about -- we've got a good slide on this later on in the presentation. We have a further GBP 28 million that we expect to collect over the next 18 months from rent reviews and lease renewals. We expect that and hope that will be higher because it doesn't include asset management initiatives, and it doesn't include the leasing up of vacant space that we currently have in the portfolio. The total property return, you see it there at 3.3%. We come on to talk about that in a little bit more detail later on in my second stint. So turning then to the financial highlights. EPRA earnings were up at GBP 148.6 million. That's driven by a 15% increase in our net rental income. You see there on the right-hand side. That has driven an increase in our earnings per share at 6.7p, up slightly on where it was this time last year. But equally important, it's 28% higher than where it was in September '23. So we've seen a 28% increase over the last 2 years in our EPRA earnings. And that has allowed us, as I touched on, on the earlier slide, to increase our half year dividend to 6.1p. Again, that's up 7% in the year. It's actually up 27% over the 2 years. Total accounting return for the period, 4.1% if I exclude the huge banking fees that we paid for the -- in our various M&A transactions. If you strip those out, it's at 3.3%. Portfolio value is up 22% to GBP 7.4 billion. Relatively flat EPRA NTA, up on where it was a year ago, flat on where it was in March at 199.5p. And our LTV is up marginally at 35%, and that reflects the GBP 200 million cash component of the Urban Logistics acquisition that we completed on earlier in the summer. And we feel pretty comfortable with that. It may go up, it may go down. That will be dependent upon opportunities that we see in the -- by and large, in the investment market. And then just again, to steal one of Martin's slides, the dividend, I should say, is -- you can see there, 111% covered with a full cash cover as well. So on that note, I'll pass over to Martin, and then I'll come back to take you through the portfolio. Martin McGann: Okay. So good morning. So there's nothing here he hasn't covered. So I'm going to do it anyway. So look, following an intense period of M&A activity and asset recycling, we've delivered very significant earnings growth and dividend progression. Pleased to report net rental income is GBP 221.2 million, an increase of 14.6% over last year. The acquisitions of Highcroft and Urban Logistics, which contributed only for 4 and 3 months, respectively, and other acquisitions during the period have added GBP 27.6 million of additional rent. We've also added GBP 6.6 million of additional rent from our existing properties and developments. We lost GBP 12.2 million of rent from asset disposals during the period. Our rent collection remains exceptionally strong. We've collected 99.5% of rents due. Our gross to net income leakage remains very low at 1.5%. Our administrative overhead for the period is GBP 14.6 million. And our EPRA cost ratio continues to be sector-leading at 7.7%, I think, reflecting operational synergies and the culture of cost control. The increase in overheads in the period is almost exclusively headcount and remuneration costs. Our headcount is now 54, up from 48 at the year-end. That's a combination of former Urban Logistics employees, but also new recruits that we've made to ensure that we have the right level of resource and the right skills for the enlarged business. Our net finance costs have increased to GBP 59.7 million compared to GBP 45.4 million last year. That's an increase of 31.5%. This was due to the additional GBP 484 million of debt from our corporate acquisitions that came in at an average cost of 4.26%, which compared to LMP's cost of debt at that time of 4%. We've also run a higher drawn debt balance during the period. So despite the increase in financing costs, that tight cost control on top of revenue growth, income growth has driven our EPRA earnings to GBP 148.6 million or 6.7p per share, an increase of 9.7% over last year and supports the increase to the dividend, which I think Andrew only mentioned actually 3x for the period to 6.1p per share, providing very strong 100% dividend cover and importantly, full cash cover. So our trading performance has been strong with the portfolio valuations increasing by GBP 29.1 million, allowing us to report IFRS profits of GBP 130.3 million. This actually reflects a reduction on IFRS profits compared to last year, but it does include the full impact of M&A acquisition costs and goodwill impairment in the period. So there's been further significant change to the balance sheet this period as it reflects our most recent M&A. The acquisition of Highcroft added GBP 81 million of investment properties to the balance sheet and the acquisition of Urban Logistics a further GBP 1.14 billion to bring the total value of the portfolio to GBP 7.4 billion. In addition to our M&A activity, our active asset recycling has delivered GBP 125 million of other acquisition, development and capital expenditure, partly offsetting the divestment of GBP 155 million of noncore assets. This, together with our revaluation uplift of GBP 29.1 million, has contributed to the increased portfolio value. Gross debt, which I'll come on to in a moment, is GBP 2.8 billion, and the cash balance is GBP 206 million. The other net liability position at the period is GBP 116 million, rent paid in advance accounting for GBP 78 million worth of that amount. In summary, therefore, our EPRA net tangible assets at the year-end were GBP 4.67 billion or 199.5p per share, providing -- producing a 4.1% total accounting return after adjusting for those M&A costs and goodwill impairment. So as I've said, our gross debt balance is now GBP 2.8 billion. The increase is partly a result of our M&A activity through which we acquired GBP 484 million of new secured debt facilities and also other new facilities entered into during the period, which I'll come on to on the next slide. Our debt maturity now stands at 4.2 years compared with 4.7 years at the year-end. We expect to maintain that level of debt maturity by the year-end despite the passing of a further 6 months, as we launch into our public bond program. Our average cost of debt is 4.1% compared to 4% at the year-end, and we do not expect our finance cost to increase materially, as we manage debt maturities over the next 3 years. Our net debt-to-EBITDA stands at 6.9x, which is trending downwards as our earnings increase and is comfortably within our upper limit of 8.5x. Our policy continues to be to limit our exposure to interest rate volatility by entering into hedging and fixed rate arrangements. We acquired GBP 140 million of interest rate swaps through the Urban Logistics acquisition at an average cost of 3.2%. We continue to be well protected against adverse movements in interest rates. And at the period end, our drawn debt was 94% hedged. As a result of the GBP 205 million cash component to the acquisition of Urban Logistics, our LTV is now at 35.1% compared to 32.7% at the year-end. Looking further forward, we'll continue to manage our debt arrangements to ensure that refinancing risk is mitigated and that we are able to take advantage of our increased scale and credit rating to diversify our funding sources. We strengthened our financial position in the period by completing 2 new unsecured revolving credit facilities totaling GBP 350 million with new lenders at margins below our existing comparable facilities. We completed a new 3-year unsecured term loan of GBP 180 million at an even tighter margin. And we entered into a new GBP 150 million U.S. private placement, as a credit spread ahead of any other private placement by any European REIT in the last 3 years. That amount was drawn post period end. And since that period end, we've entered into a further facility for GBP 50 million with a new lender at a margin of 125 basis points. Crucially, I think this new well-priced liquidity has allowed us to repay on maturity facilities post period end with AIG, L&G and Canada Life, which bought fixed rate pricing materially more expensive than our new debt facilities and was therefore, earnings enhancing. Additionally, we repaid the most expensive tranche of the Urban Logistics debt of GBP 57.3 million, which was costing us 6.17%. As I said in the summer, our successful credit rating now allows us to plan for possible future debt capital markets activity in the form of a public bond issue to cover debt maturities in financial years 2027, 2028 and 2029. We are preparing for such an issue and expect to be active imminently. Our contracted rent roll at the period end now stands at GBP 421.1 million with the inclusion of rent on the Highcroft and Urban Logistics acquisitions. Additional rent of GBP 9.8 million in the period was generated from active asset management, rent reviews and regears. Looking further forward, reversion within the LMP portfolio and the newly acquired Urban Logistics portfolio is expected to add GBP 28 million of contracted rent. The rent roll will increase as a result to GBP 450 million. This is, I think, a conservative view of growth post period end, as it takes no account of that active asset management initiatives and initiatives not yet executed and the letting of vacant properties. This generation of significant earnings growth supports our confidence that we will continue to be able to grow our earnings and our well-covered dividend. With this in mind, we've increased our quarterly dividend payment, as Andrew said, for HY '26 to 3.05p per quarter, an increase of 7% on HY '25. And then finally, just that look back at the last 11 years now, during which we've been able to increase earnings per share more than threefold. We're in our 11th year of dividend progression with excellent dividend cover and significantly ahead of the growth in CPI. Our total property return is strong, an 11-year CAGR of 10%, a very material outperformance against the MSCI or Properties Index. Our total shareholder return driven both by share price appreciation and dividend progression equates to a compound annual growth rate of 10%. On that note, I'll hand back to Andrew. Andrew Jones: Okay. Thanks, Martin. Right. So this is a look at how the portfolio sits today, GBP 7.4 billion split really against those 4 key sectors that I touched on in my opening remarks. Logistics now up from 46% to 54%. Our largest investment, as you can see there, about GBP 4 billion, and that is driving and delivering the strongest rental growth, and we see that continuing over the next few years through rent reviews and lease renewals. Hotels and Leisure remain a key beneficiary of the shift in discretionary spending. And in the period, we've continued to add new Premier Inn investments through a sale and leaseback transaction with Whitbread and hopefully, we have more to come. Our convenience investments is very much around the grocery sector. It is -- we're Aldi, we're Lidl, we're M&S, we're Waitrose, we're Home Bargains, a bit of B&M sort of thing. We're not the big supermarkets. And that we see it delivers great, great solid income with around about 3% rental growth to come. In health care, we're working with Ramsay to -- on initiatives that will improve the profitability and the desirability of our private hospitals and -- both from their perspective and for ours, and we're hopeful that we'll be able to talk about that shortly. But overall, as you can see from the numbers there on the right-hand side, it remains reversionary and on track, as Martin showed you on his last but one slide to deliver further increases in rent over the coming years. That 3.3% number that you see there at the bottom of the column is the -- effectively is the CAGR of the 18% on the rent reviews and the lease renewals that I touched on in our opening slide. We actually see that accelerating a little bit over the next couple of years. And that will be as much around reversions as around how many reviews are coming through and where they sit. So investment activity, the macro environment remains uncertain. We still believe that interest rates are the yardstick by which all investments need to be assessed. Current swap rates, they move around. I mean -- I think they peaked this year at 412. And I think about this time last week, they were down at 357, which is very exciting. And then all of a sudden, we're up about 15. I think we're 373 today. I mean, just it creates uncertainty and without a doubt, impacts on liquidity, particularly on the larger lot sizes. I mean we put in here -- GBP 20 million is a number. I mean we could bring it down a little bit. We could move it up a bit. But GBP 20 million is what we think above that, we think that it gets more difficult because it does require some debt buyers. However, we are enjoying much, much more success, greater liquidity in the smaller lot sizes. We've sold year-to-date GBP 212 million of assets, average lot size of GBP 6 million. So that's an awful lot of transactions. I think it's 36 transactions in the period. And we are dealing with a completely different array of buyers. It is -- there's a lot of owner-occupiers, family offices, small property companies, local authority pension funds. And we are transacting in a wide range of assets. Pubs, hotels, garden centers, children's nurseries, food stores, DIY stores, warehouses, waste disposal facilities, I mean, we've got them all. We have got them all. So we are seeing an unbelievably wide church of buyers and probably as wide a type of buyer that I've witnessed in a long time. I mean I made a comment the other day at the Board meeting. I think we've done and transacted on more sales to owner occupiers in the last 3 years than I've done in my previous 30, okay? So it's a different market. And the small lot sizes that we have is a massive strength for us. On the acquisition side, obviously, that GBP 1.4 billion that we've done year-to-date has been in the winning sectors that are going to deliver us the best income growth. It's obviously been dominated, as Martin has touched on earlier with the 2 M&A transactions. And not surprisingly, it is about reinforcing our logistics, our hotel, our convenience retail and roadside, which are continuing to offer up, we think, superior rental growth prospects. And then the opportunities are coming from really 4 or 5. We cut this -- we changed how we cut this really. It is sale and leasebacks. I referenced the Whitbread transaction that we did earlier in the year. Development fundings, we enjoy development fundings. A lot of developers are short of money, and we're only too happy to help them, providing it's in our winning sectors, and it's predominantly been logistics and grocery food, as we continue to strengthen our partnership with some of our key operators like Marks & Spencer. And then the pension fund industry is going through a dramatic shift, moving from DB to DC. That is throwing up portfolios. A lot of corporate pension funds are coming out of direct real estate, and that is throwing up an awful lot. And it's not hardly a week goes by that you might read something in one of the papers or -- sorry, one of the sites [indiscernible] or whoever, suggesting that so and so selling their properties and either in whole or in part. I mean, Santander recently has been in the news. St. James's Place has been in the news. And we're seeing opportunities from that. I mean we announced on Tuesday the acquisition of 2 assets from a Columbia Threadneedle portfolio. That was probably sparked either through expiry or redemptions. And so we hunt there pretty aggressively. And obviously -- the fourth one, which obviously I can't talk about is opportunities that we see, obviously, in the -- other opportunities that we might see in the listed sector through additional M&A. So our M&A activity. So we've done 4 public takeovers over the last 2 years that has added GBP 4.4 billion worth of assets. But more importantly, it's added GBP 267 million worth of new rental income, and it's been a source. It's obviously given us great scale, but it's also given us a great improvement to our earnings. We have, as we regularly update the market on is, successfully exited a lot of the noncore and some of the weaker assets. I mean, over those 2 years, we've sold GBP 372 million worth of these assets. That's 8% of the assets that we've actually acquired by value, largely in line with our acquisition prices. Some are up, some are down, but I think we're virtually bang on at the moment. And I'd like to say that, that was an incredible skill. I suspect there's a bit of luck in there as well. As you can see, out of the 465 assets that we've acquired, we've actually sold the smaller ones, which is we sold out of 89 of those. I mean I'm not going to go through the individual companies that we've acquired and the progress we made because it's there for you to read just as well. But the fact of the matter is the core assets that attracted us to these businesses in the first place are delivering for us. Rental uplift is GBP 12 million since acquisition. And again, this goes into that GBP 28 million I talked about over the next 18 months. GBP 17 million of it is arguably coming -- is going to come through from some of the acquisitions that we've made over the last 2 years. So that's the rub of why we like these companies, okay? We see them being pregnant with rental growth and maybe the property market or indeed the equity market hasn't valued that potential growth maybe as accurately as maybe we think we might have done. So we run an occupier-led business model. It helps frame our buy, hold and sell decisions. But as well as buying -- choosing the right sectors and buying the best assets in those sectors, we also actively manage our income granularity. Over the last 6 months, we -- our top 10 occupiers are down from 38% to 33%. Our top 3 occupiers are down from 27% to 22%. We obviously want to own the right space, and we want to let on the right terms in the right location. But one of our key things under this occupier-led business model is occupier contentment, okay? We're very close to our customers. We want to do more deals with them. We want them to be happy. Our test is that we -- and particularly at the operational side of the businesses, so things like the theme parks, the hospitals and the hotels, we are targeting a rent EBITDA ratio of 2x, okay? And that's a magic number because that then ensures not only contentment, but it also gives us much better asset liquidity. And we see -- I should say, pub market, the pubs as well, by the way, would fall into that as well. And that gives us the comfort of income durability. So we look at something like -- so that 2x test, and we expect all of our investments to hit that. And if they don't hit that, we will look -- we will have looked or have executed or are looking at exits. So if I look at there -- if I take Merlin as an example, that's a business that will hit our targets in the U.K. It's a business that has strong sponsor support. It was a take private for those of you old enough to remember it for about GBP 6 billion by the Lego family or KIRKBI which is its name, the Kristiansen family, Blackstone, CPPIB of Canada and the Wellcome Trust. It's also a business that has significant freehold properties. I think 50% of the earnings that Merlin report worldwide comes from freehold assets. And so therefore, it has -- it is what we consider to be an asset-backed -- it's an asset-backed business model. They recently sold 29 of their Lego Discovery centers back to the Kristiansen family for GBP 200 million. So they have these various levers when they need to raise money. U.K. profitability is running ahead of -- in '25 is running ahead of '24, and we have the added comfort in this business that we have the top operating company. And let's remember, we are talking here about a worldwide business that is the second largest entertainment firm in the world after Disney. I think there might be other people who claim to be that, but we think they're the second. So asset management, I think, I probably touched on most of these key numbers, like-for-like income growth, high occupancy. 67% of the income enjoys contractual rental growth, which gives us great comfort and -- to support the numbers that Martin had in his slide, the GBP 28 million that we've already touched on. And then interesting, I think in some ways, if you said to me, you've got one slide to take away, this is my favorite slide because this is -- it's what it's all about. This is what proves whether or not we've made the right investments in the right sectors and bought the right buildings. Rent reviews over the period gave us an uplift of 18%. Our urban reviews are up 22%. Urban open market was up 27%, which is what I referred to before. And then lettings and regears, again, this is the ultimate test of the desirability of your buildings. In fact, you're able -- tenant occupy content and people don't regear buildings, if they don't want to be in them and if they're not happy. And on average, those regears have been struck at 24% above previous passing rent. We have some vacancy. We inherited a little bit of vacancy under the Urban Logistics acquisition, and we're working through that either through leasing or through disposals. But that obviously -- we're at 98.1%. Personally, I think that's a little bit low. We need to be targeting 99% plus. Ideally, I'd have 100%, quite frankly, or maybe just under. So the asset management team have certainly contributed and helped drive that annualized like-for-like income growth of over 5%. So when I think about the outlook, I'm not actually sure, but I'm pretty comfortable -- confident that this slide actually might have been exactly the same 6 months ago. So it just shows that the world I'm really moved on, as it really. So macro events will continue to dominate investor sentiment. I've talked about the gilt and the swap rates always influencing the property investment markets. I say always, it wasn't always the case, but it certainly feels like it's been the case for the last few years. However, we do think the consumer is in good shape. Savings ratios are good, employment is good, wage growth is good. And interest rate cuts and a decelerating rate of inflation that we got yesterday -- was it, I think maybe the day before, I can't remember. We'll continue to improve confidence. We'd just be nice if we got a little bit more confidence coming out of 11, Downing Street. And I think -- but we are in quite good shape. There are times when I probably stood up here and I've taken questions on credit card debt or unemployment rates or low wage growth. I don't think those apply here today. And by the way, I think we're in a very different situation to America. And I'll expand on that later, if anybody is interested. But in the real estate sector, I think there are structural cracks between the winners and losers. I think for us, we're looking for organic rental growth, contractual rental growth without CapEx, okay? There are lots of sectors that are talking about high headline rents, but those have been bought through improved building qualities and facilities, tenant incentives. I'm talking about organic rental growth here. That's what you get in a rent review. That's what's great about a rent review. Lots of people talk about ERVs, but ERV doesn't pay the dividend, okay? Cash does. Rental growth does. And we're seeing why we want to be in logistics because we're still collecting that in-built reversions, okay? It's coming through. It's like a helicopter chucking cash at you. I mean it's just a wonderful, wonderful feeling. And we think that our scale, as Martin and I have already touched on, continues to improve our efficiencies and supports our triple net income strategy. We expect to see further consolidation in listed markets with or without us. We think it will take place. Without a doubt, the structural shift in the institutional pension fund market is throwing up opportunities, and we would be disappointed if we weren't a beneficiary of that over the coming period. And that we expect -- as a result of all of that, we expect further income growth, we expect further earnings growth, and we expect further dividend progression. We are well on our way to our objective for dividend aristocracy, only another 14 years, okay? And I expect to be here for it. So on that note, thank you very much for the last 33 minutes of listening to us. And obviously, questions either in the room or -- oh gosh, that was quick, or on the phones would be very welcome. Ladies first, Vanessa. Vanessa Maria Guy Vazquez: Vanessa Guy from JPMorgan. I'm having a look at your Slide 13, where you show your 4 main core subsectors in real estate. It's been a moving target in terms of your buy, hold and sell strategy. And my question is, over the next 6 to 12 months, is there anything that there that stands out that you want to streamline probably and grow in another subsector, anything that you have as an internal target? And are there any other sectors that are not there that you're interested in and possibly trying to build up? Andrew Jones: Okay. So the first thing is I never give the guys and girls targets because they have a habit of hitting them, and they hit them quickly. So our logistics has moved up to over 50%. If it went to 60%, that because we found some great opportunities. If it went to 50%, it's because we found some opportunities to sell at amazing prices to people who coveted our assets more than us. Entertainment and Leisure at 18%, that's down from 21% at the beginning of the year. I could see us buying some more -- we like the budget hotel market. We've been selling out of some of the smaller Travelodges. It's a market we actually understand pretty well. We have brilliant relationships with both Travelodge and Whitbread. We'd like to maybe add a little bit more into the -- into that bucket. Convenience retail is great, but our ambitions there are only hampered by the lack of opportunities. Most of the investments we make there are fundings or our own developments. I mean, I think we're on site at the moment with 4 or 5 M&S Simply Foods across the portfolio. And obviously, that will nibble up that -- push that percentage up a little bit. And health care, Martin has repaid the debt -- the secured debt on the hospital assets. We're working through some asset management, work with Ramsay, let's say, we have a fantastic relationship with them. That might improve liquidity and desirability. We'll have to see. It seems to be a hot topic at the moment in that sector. But we don't have any targets. And just in terms of new sectors that you touched on there, Vanessa, what these -- we try to keep -- I'm color-blind, so we can't do very -- many more colors. But within these sectors, there are subsectors. So in logistics, there's mega, regional and urban. Entertainment and leisure, there's the theme parks and there are the hotels. In convenience, there is the discounters, the drive-through restaurants. I mean we own 77 drive-through restaurants. The chances are one of you is shopping or buying goods in one of our drive-throughs all the time, okay? But that's in convenience as well as our Aldi, Lidls, M&Ss and Waitrose. Health care is essentially the hospitals. So there are nuances. And actually, some of those subsectors move at slightly different paces. We're getting good rental growth, for example. We get better rental growth arguably out of DIY at the moment than we might be getting out of GM. We're getting better rental growth maybe in urban than we might be getting out of regional. So even within those colors, the subsectors move at different speeds. Ana? Ana Taborga: Ana Escalante from Morgan Stanley. So my question is regarding logistics market rental growth. It's true that we're coming from very strong years and that market rental growth has decelerated a bit. Do you think that, that's just the normal digestion of those previous super strong years? Or do you think we are starting to see some affordability issues here and there? Or another way to ask the question is, at what point we can start seeing rents being too high or resulting affordable for some? Or shall we expect that Urban Logistics rental growth to reaccelerate next year? Andrew Jones: Great question. Again, it goes back to the answer I gave before around different parts of that logistics market moving at different speeds. We certainly see urban the strongest, and that is simply a demand-supply issue, except in London. Come on to talk about that because I think that was your second part of one of your first question. So urban feels good. And that's -- for us, obviously, urban is defined by geography, but we also define it by size. So we'd be 100,000 square feet down. We feel okay. Regional, we define as 100 and a bit -- up to about 350-ish, give or take. That market definitely has supply that's being delivered on a spec basis. I mean there are people out there that do spec developments, which I don't understand, but anyway, they do. And also maybe a pullback on demand of capital commitments and whatever with an uncertain economic environment going forward. Mega is fine as well because mega tends to be pre-let and build-to-suit. So there's not a lot of -- I mean there are some people who I admire enormously, who go off and build 1 million square feet spec. I mean you've got -- I mean, that is ballsy. But good luck to them, and I hope they do well. So I think it's okay, but there is a bit in the middle where I think net absorption needs to increase. What I would say, and this applies not just to logistics but it also applies to, we're seeing it very, very directly in our convenience retailers as well. We can't get the developments to stack up. It's really difficult to get developments to stack up. And that suggests rents have to push up, but that might take a little -- that might take a year or 2 to fall through, whilst the net absorption. I mean, I think we had the biggest take-up, didn't we guys, in the last -- a big take-up in the last 6 months. London is tougher for us. Even in urban, it's tougher. I think there's more of an affordability issue in London than there is anywhere else, but it's had dramatic rental growth. So it's not surprising. If you -- I take the view that most things revert to the mean over a period of time, and that's what I suspect London is doing. London will still enjoy a great supply side dynamic, but maybe the demand side at the current rents is a bit soft. I mean -- I think our flagship sale probably still when it was about a year -- 9 months ago, 10 months ago. We sold a warehouse that we bought in Parsons Green, which for those of you who know Fulham's -- not a lot of warehouses in Parsons Green. And we ended up -- we were going to let it originally to a dark kitchen. I thought getting planning for the dark kitchen was going to be a bit tricky as little mopeds going up and down the street, was not going to be overly popular with the finite residents of Fulham. And we ended up letting it to a leisure operator, who put in a fantastic facility for both adults and children alike and did an incredible fit out. And we ended up selling it, I think, for just over GBP 1,000 a foot -- I think it's about GBP 1,060 a foot, which is probably about what this building is worth. But that rent was GBP 50. So that would be trickier, yes. Sorry. Max. Max, behind you. Maxwell Nimmo: It's Max Nimmo from Deutsche Numis. Just a higher-level question kind of related, speaking to Martin before about kind of economies of scale versus opportunities of scale. And just in terms of cost efficiencies on one side, as you said, about the 7.7% EPRA cost ratio, but also the ability to kind of move the needle at the other end. And I guess my question is around if you're still doing deals around that sort of GBP 6 million lot size... Andrew Jones: We're buying GBP 6 million. Maxwell Nimmo: Okay. But if the lot size still remain relatively small, are you not effectively working the team harder and everyone having to run faster to kind of keep going at the same pace? Andrew Jones: Definitely. We're not a charity. No, look, our average lot size on acquisitions would be significantly higher than that. In fact, you would actually argue today a very strong case that the arbitrage available in the direct market is to sell the smaller assets at GBP 6 million for very good pricing and reinvest them at GBP 50 million where the price -- where the air is a bit thinner and the competition is less, and therefore, you get a slightly better deal. But don't forget, what we're buying is not high operational assets. I mean, Will bought a portfolio of Premier Inns a few months back, let on 30-year leases. I mean he'll probably be the only one who's seen them. I have no intention of -- I don't have to worry about them. I mean they're going to compound beautifully over the next 5, 10, 15 years. It's going to be wonderful. But that doesn't need a huge amount of skill. I mean the rent comes in from our key tenants pretty easily. Maxwell Nimmo: That makes sense. And maybe just kind of a follow-up. You talked about the sort of 4 to 5 opportunities that you have. In fact, there are 4 that are on the screen there. Maybe if we park M&A to one side, given there aren't as many businesses left for that now, but I guess, just the opportunity set, how would you kind of rank them? It sounds like there's a lot that could come out of these sort of pension funds, but there's perhaps a bit of a learning situation needed for them in terms of what their NAVs are and how that kind of unlocks. So maybe just if you could kind of rank them in terms of your -- how you're thinking about them. Andrew Jones: Well, 1 and 2 are amazing. So sale and leasebacks and development fundings are amazing because those are the -- those opportunities effectively, you've got brand-new leases. And those are very often scenarios or situations where you can influence the lease, not just the rent, but the rent review clauses and the term. So those are fantastic. We like those, but we're obviously not in control of how many of those opportunities will present themselves. I mean we're working on a big sale leaseback at the moment. We're working on a development funding at the moment with one of our key customers. And we are absolutely -- we want -- in development funding, we want to be the occupier's partner of choice or even -- we want the occupier to say to the developer, can you fund this through another metric? I mean that's really what we want them to say. And we had an example of that in the period. Fund expiries and pension liquidations, Darren deals with this, they're coming. There is a value issue to your point, but -- and there's also a timing issue, when are they coming. Managers are not -- they seem to be more willing to drip things out and keep the feet train running for a bit longer than literally come up against a hard deadline. But look, you've got to be in it. We're buying tickets. We're doing a lot of talking on it. We've executed those assets that we announced on Tuesday from Well, and we've got a few others that we're working through. But it is coming. I mean you've seen -- I think Lone Star did the St. James's Place portfolio, didn't they last week. And then -- so -- and it's either the -- and then also the strategies that these managers employ is different. Sometimes it's being -- most often, it's being led by the investors putting in redemption notices so -- if you might have a reluctant manager. And then it's whether or not they do the whole lot or whether or not they chop it up into sectors to try and get maybe a slightly better price. Again, you're not in -- I mean, the whole thing about real estate is you're never in control. We don't sit there go press a screen. We want to -- I know what we want to buy. It just -- it's not on the screen. It's got to -- it doesn't appear on the screen like it might do in the equity markets. And so I think -- look, I would -- I mean, I do love 1 and 2. I mean, I do love 1 and 2 and 3 is going to be pricing dependent and 4, we won't talk about. Matt? Matthew Saperia: It's Matt Saperia from Peel Hunt. Martin, you're looking like you need a question so... Martin McGann: Maybe don't. Matthew Saperia: Are you sure? I think you talked about -- or you showed earlier on the debt maturity profile. You've obviously got a current cost of debt that's below the market rate. Yes, I think you also mentioned that you don't expect your financing costs to go up. So can you just talk us through how you get to that conclusion, given the maturity profile and the cost? Martin McGann: Yes, absolutely. So we have a series of refinancings coming at us. And when you look at our debt stack, it's too weighted in favor of our relationship banks, and there's not enough bond debt on it. We did -- we've done various private placements. We've never done a public bond. When we got our credit rating earlier in the year, that was the precursor to a public bond. We will do a series of those coming up. When you then look at what happens to our financing costs, you stop paying commitment fees on undrawn RCFs and you stop paying the fair value amortization on the debt we've acquired through M&A, and that is a lot. So if your interest rate may nudge up or your amortization of your cost of putting debt in place may nudge up, but the compensating fact that you don't have those other 2 components of your finance charge means it is almost exactly flat going forward over the next 3 or 4 years. So our cost of debt could go from 4.1% to 4.3%, but the number you see in the income statement for finance costs won't change. Andrew Jones: You're just saying that the lending banks have just been robbing us. Steve, you up? Martin McGann: You weren't going to get away with it. Suraj Goyal: It's Suraj Goyal from Green Street. Just a quick question on sort of e-commerce. So just wanted to understand what your sort of base case forecast is for 2030 and beyond and how that sort of reconciles for -- reconciles with the recent normalization that we've seen, also with sort of return policy changes for a lot of e-commerce players, et cetera. And then what that would look like in terms of long-term rental growth. Andrew Jones: I stand up here just in case my mic is not working. Look, we form -- our strategy and sector investments is based of evolving consumer behavior. U.K. penetration into online shopping is excellent. I mean we're world-class, but it doesn't stop. I mean it's a bit like when retailers say to me or retail owners, you say, we've rebased the rents. It's as if it stops. But there is an ongoing generation that they actually enjoy the delivery of online shopping rather than the destinations that maybe my parents might have enjoyed more so. So we still think it will continue. We think that it will -- that it needs to get more efficient, and we're seeing operators increasingly putting more money into automation in order to make that work because it has to -- no point having it, it has to be profitable. I'm not convinced that, that influences our investments in Urban Logistics as much as it might in mega. But we still think it's a trend that as we move through generations and my children become the key shopper, the idea for them of wanting to go to St. David's or wherever it might be, whichever shopping center it is, it just doesn't exist. They want to buy online. So I think it's an attractive tail. You might argue that the bigger jumps are behind us, but we still think we still expect it to grow. I think food is different. I think food is different. And that is probably -- I mean, it obviously jumped from about 7 to 15 during COVID, and then it's come back. I think it settled about 11, depending on which grocery you talk to. And that's different. But we are absolutely seeing those operators investing in their facilities, particularly cold. So we're building a cold facility for M&S down in Avonmouth in Bristol. So we think it will continue to grow. We think it's supportive. But also what we also expect is that the occupiers will want more efficient facilities. Their network needs to get more efficient, if they're going to be able to drive -- use that to drive profitability. It wasn't that long ago when I could have stood up here and people talk about online shopping, but nobody makes any money doing it. Actually I haven't had that question for a while because I used to just redirect them to the next report and accounts actually to see how profitable it actually was. Eleanor Frew: Eleanor Frew from Barclays. The exposure to your largest tenants has been coming down, partly as a result of your acquisition activity elsewhere. Are you happy with the current top 3 concentration? I see it's below 2019 levels. Or if not, are you looking to accelerate reduction or happy to carry on diluting over time? Andrew Jones: Thanks, Eleanor. Look, I was asked actually on a call -- a press call earlier about what are your tests on tenant exposure. So the hard deck was always 10, although we did take that up to about 11 and a bit a few years back when we -- when Primark was our largest customer. And then we ended up selling one of the big facilities and bringing it back down again. So 10 is a hard deck. I think we would like to improve -- I would like us to improve our granularity so that nobody is more than 5, and we will look to do that over the coming years. But this is what happens, isn't it? When you buy portfolios or you buy companies, sometimes it's not all perfect because if it was, somebody else probably would have taken them out before you. But again -- so therefore, there will be a sell-down, and we're already making progress on that. So it's a combination of that. Obviously, as we've improved, it increased the size of the business, that has brought some of the concentrations down a bit as well. But income granularity, as I said on this, is an important part of our business model, but understand an occupier contentment overrides all of this. So yes, I'd definitely expect it to stretch a bit. When we announced the -- about what is it -- about 20 months ago now that we announced the deal with LXI, we were going to be the proud owners of 146 Travelodges and that really bothered me. And I now think we have 63 Travelodges. So there are levers that we will pull. Thomas Musson: It's Tom Musson on Berenberg. And actually just following up on Max's earlier point on the opportunity set. If we think about Europe, you might argue that you can access a lower cost of capital in some European countries. And now with your scale and with the triple net lease business model, that could be value accretive for the right opportunity. I just wonder how outwardly looking you now are when it comes to what's next? Andrew Jones: Good question. I think that -- look, we would look at Europe as not a country. We would look at Europe as a combination. And so if we are to look at investing outside of the United Kingdom -- I mean, we have a facility at the moment. We have Heide Park in Germany. We would probably identify 2 or 3 countries that -- where we could predict and have a clear view of consumer behavior. Also, we would want -- obviously, it would be -- we feel more comfortable, if we were to go into another country with an existing customer. I'm not going to name any names. So it would -- there would be a few tests first, Tom, but I wouldn't say that we're actively looking. We get European opportunities put through to us. I mean the big opportunity in some ways from an equity perspective is that there isn't really a triple net champion in the European markets. So that's the equity opportunity for us, which we're quite aware of. And we do get a lot of incoming from some investors, as to why don't you do it because then it would give us that European triple net exposure. But the lease structures, the REIT regimes in these countries has to be friendly to us as well. Like I said, we're obviously learning a little bit more about Germany now than we would have done 5 years ago, but I wouldn't expect an announcement that we're just about to make a big acquisition in Germany. Martin McGann: If you go back your 20 months when we acquired LXI, we would undoubtedly have said that we will sell Heide, the German theme park. But the truth is Heide throws off great income. We put some euro debt against it, there's a natural hedge and it's cheap and in your view could evolve. It's a terrific asset and perhaps the market is not right to sell it into today. So we don't. Andrew Jones: I did use to say that Europe was for holidays. Stop saying that. Any other questions? Unknown Executive: Okay. So we've got a question from the webcast today from Andrew Saunders from Shore Capital. Now you've been able to get under the hood of the ULR asset. What are your thoughts? And what are your plans for the Melton Mowbray? Andrew Jones: Thank you, Andrew. Look, I think Urban was a well-run REIT, okay? Let's say that. It was a well-run company. We're very pleased with what we've inherited. There are undoubtedly assets that we wouldn't have bought, but I've no doubt if the situations have been reversed, they might have thought that there are assets that we bought that they wouldn't, but they don't particularly like. So that happens. It's what we call beauty is in the eye of the beholder. Otherwise, we'd all be wearing gray [indiscernible] and light blue shirts. Look, Melton Mowbray is a difficult one at lots of levels. We're on it. We fortunately allocated a price on the way in that would allow us to get out without losing our shirt and trousers. But yes, I mean, the acquisition price was elevated. The tenant, obviously, longevity was not what was probably originally anticipated. But we'll deal with it and we'll move on and the money we reinvested. I mean, at the moment, it's not in any of our forecasts. So if we do either let it or sell it, that will be money or income that comes in that isn't in our GBP 28 million that we're hoping to collect over the next 18 months. So that would be on top of that. But listen, all portfolios have some problem children like families. Unknown Executive: Thank you for that. And that's all the time we've got for questions. So I'll hand back to you, Andrew, for closing remarks. Andrew Jones: Thanks. Well, okay, that's great. We are literally just the right side of an hour. So thank you ever so much for your questions, your time and your comments. So thanks. Have a great day.
Operator: Good day, and thank you for standing by. Welcome to the Subsea 7 Q3 2025 Results Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Katherine Tonks. Please go ahead. Katherine Tonks: Welcome, everyone. Thank you for joining us. With me on the call today are John Evans, our CEO; Mark Foley, our CFO; and Stuart Fitzgerald, CEO of Seaway 7. The results press release is available to download on our website, along with the slides that we'll be using during today's call. Please note that some of the information discussed on the call today will include forward-looking statements that reflect our current views. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in our annual report or in today's quarterly press release. I'll now turn it over to John. John Evans: Thank you, Katherine, and good afternoon, everyone. I will start with a summary of the quarter before passing over to Mark for more details of the financial results. Turning to Slide 3. Subsea 7 delivered third quarter adjusted EBITDA of $407 million, representing 27% growth year-on-year, and a margin of 22%. The increase in our profitability reflects strong project execution as well as the continued high-grading of our backlog. As Mark will discuss, we now expect to exceed our prior guidance for 2025 and to deliver continued momentum into 2026. Order intake was high in the quarter, at $3.8 billion, resulting in a book-to-bill of 2.1x for the quarter and 1.4x for the first 9 months of the year. Our backlog reached a record high, close to $14 billion. Slide 4 shows the backlogs of both Subsea and Conventional and Renewables, which continue to increase in quality as we completed work won before 2022 and shift our focus to contracts with more favorable terms. We have a combined backlog for execution in 2026 of $6 billion, giving us over 80% visibility on next year's revenue. And now I'll pass over to Mark to run through the financial results. Mark Foley: Thank you, John, and good afternoon, everyone. I'll provide selective commentary on group, Subsea and Conventional and Renewables' financial performance in the third quarter before turning to the cash flow and financial guidance for 2025 and 2026. Slide 5 summarizes the group's revenue and adjusted EBITDA results for the third quarter, set in the context of recent quarterly performance. In the third quarter, revenue was $1.8 billion, in line with the high levels reported in the same quarter of the prior year. Adjusted EBITDA of $407 million, increased by 27% compared with the prior year period. And margin expanded by 460 basis points, to 22%. Net income was $109 million following depreciation and amortization of $175 million, net foreign exchange losses of $38 million, which were driven by noncash embedded derivatives. Net finance costs of $12 million. And taxation of $73 million. I'll cover the salient points concerning business unit performance in the next few slides. Slide 6 presents the key metrics for Subsea and Conventional. Revenue in the third quarter was $1.5 billion, representing growth of 6% year-on-year as high activity levels continued in Brazil, Türkiye and Norway. Adjusted EBITDA was $368 million, equating to a margin of 24%, an increase of 680 basis points from the same quarter last year. The margin improvement was underpinned by strong execution performance and high vessel utilization as well as the continued rebalancing of our portfolio towards projects with improved risk and reward characteristics. The results of Subsea and Conventional include an $11 million net income contribution from OneSubsea, in line with our expectations. Net operating income was $228 million, nearly 80% higher than the prior year period, equating to a net operating income margin of 15.1%. Selected Renewables performance metrics are shown on Slide 7. Revenue in the third quarter was $302 million, a reduction of 19% when compared with the high levels reported in the prior year period, which were driven by elevated activity in Taiwan, while in line with the second quarter of 2025. Activity progressed during the quarter at Dogger Bank C and East Anglia THREE in the U.K and at Revolution in the U.S. after a delayed start. Adjusted EBITDA was $52 million, equating to a margin of 17%, up 70 basis points from the same quarter last year. Net operating income was $21 million, representing a margin of 7%. Slide 8 shows the cash bridge for the third quarter. Net cash generated from operating activities was $283 million, which included an expected unfavorable movement in working capital of $82 million. Capital expenditure was $47 million, mainly associated with maintenance on vessels and equipment. Net cash used in financing activities was $123 million, which included lease payments of $79 million. At the end of the quarter, cash and cash equivalents increased by $132 million, to $546 million. Net debt was $505 million, including lease liabilities of $421 million, equating to a modest net debt to last 12 months adjusted EBITDA of 0.4x. The group had liquidity of $1.1 billion on the 30th of September. On the 6th of November, the company paid the second and last of its SEK 6.5 per share dividends to shareholders. Shareholders' returns this year represented solely by dividends amounted to approximately $376 million. To conclude the financials, we turn to Slide 7 -- sorry, Slide 9. We have refined certain guidance metrics for 2025. I will highlight the following favorable notable revisions. The upper and lower ends of revenue guidance have been narrowed by $100 million as we now expect revenue to be between $6.9 billion and $7.1 billion in the full year 2025. Given strong results in the first 9 months of the year, combined with high visibility and confidence in our execution performance, we have increased our guidance for adjusted EBITDA margin in 2025 to be between 20% and 21% from between 18% to 20%. We have also reduced our guidance for capital expenditure to a range from $300 million to $320 million. This reflects our continued focus on capital discipline as well as a rephasing of some cash capital expenditure from this year into 2026. Today, as is customary for Subsea 7 at the third quarter, we introduced initial guidance for next year. In 2026, we expect the group to continue to deliver growth in revenue and adjusted EBITDA. We anticipate revenue to be within a range from $7 billion to $7.4 billion with an adjusted EBITDA margin of approximately 22%. Capital expenditure is forecast to be between $350 million and $380 million, which includes rephasing of some capital expenditure from 2025, as mentioned some moments ago. Our confidence in this guidance is underpinned by the quality of our backlog which gives us over 80% visibility on revenue as well as the continued high tendering activity and the attractiveness of the prospects pipeline. I will now pass you back to John. John Evans: Thank you, Mark. On the next 2 slides, we have a couple of highlights from our portfolio of technology-led solutions. On Slide 10, we'll take a look at 4insights, developed by our 4Subsea business in Norway. 4insight is software that combines real-time data from vessels and weather feeds and uses advanced algorithms to automate operating decisions on board. The result is an extension of the windows of operability of our vessels and increased performance in project delivery through a reduction in the cost and schedule risks associated with waiting on weather. By automating the decision-making process, 4insight also enhances collaboration between marine and project crews and maximizes the efficiency of our operations. The software has been rolled out across part of our fleet and has received excellent feedback from our offshore and onshore teams. In 2025 to date, it has added 35 days of operation to Seven Vega, an uplift of over 10% compared to our standard planning assumptions. Our second highlight slide focuses on our unique bundle pipeline technology. Last quarter, we touched on this when we discussed our activity at Yggdrasil in Norway, which included the launch of a large bundle during the summer. By combining active heating, flow lines and the control systems into one towable bundle, we reduce the complexity of the Subsea architecture and offer a cost-effective alternative to traditional models. The solution requires the use of our proprietary lining as well as highly specialized welding from our team in Wick in Scotland. Subsea 7 is the only contractor with a proven track record of delivering production system bundles with over 90 installations to date. Repeat orders from clients, including Aker BP, BP, Chevron, Equinor and Shell, are a testament to the success of this unique solution and more broadly to the innovative solutions offered by Subsea 7's advanced engineering and fabrication capabilities. Now on to a review of our prospects on Slide 12 and 13. In Subsea, tendering activities remain high across our key regions with a combined prospect value of around $21 billion. Most of the projects on this map are long-cycle deepwater developments with favorable economics. Many carry strategic significance to both the operators and their host nations. They will be sanctioned based on a view of commodity prices beyond the next 5 years, sheltering them from the change in spot price of oil and gas. Overall, we are confident in the long-term outlook of our Subsea business with demand for our technology-led solutions expected to remain at high levels. On next slide, we have a summary of the fixed offshore wind projects that could bid in the U.K.'s Allocation Round 7, AR7. Whilst the maximum strike price of GBP 113 per megawatt hour was well received, the recently announced budget for AR7 was lower than hopeful by the industry. As I said last quarter, the U.K. is the largest single market in global offshore wind sector outside China. And with a number of other markets showing slower-than-anticipated growth, the ultimate outcome of the AR7 process will be a key driver for the medium-term momentum in the industry. Subsea 7 continues to support a number of key clients to optimize the AR7 developments whilst remaining selective in the contracts we pursue to safeguard our future profitability. To conclude, we'll turn to our final slide on Page 14. Subsea 7 finished the third quarter of 2025 with a record backlog of firm orders valued at nearly $14 billion. We've increased our guidance for 2025 and our guidance for continued growth in 2026 demonstrates our confidence in the outlook. Looking further ahead, we have a high conviction in the resilience of deepwater Subsea market and combined with a differentiated offering and a strong track record of delivery, this positions Subsea 7 for success. And with that, we'll be happy to take your questions. Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Sebastian Erskine from Rothschild & Co Redburn. Sebastian Erskine: Congratulations on the results today and great to see the backlog at a record level. I'd like to just follow up on the Renewables business. So I guess we can expect a seasonal uplift in Renewables margins in 4Q, which is consistent with the new guide. But how should we think about the original kind of 14% to 16% EBITDA margin guidance into '26? And I guess linked to this, I mean, you mentioned it in the prepared remarks, but could you provide an update on the time lines associated with Allocation Round 7 as there appears to be some stalling progress? So yes, it would be great to get your thinking on that. John Evans: I'll ask Stuart to answer both those questions, please. Stuart Fitzgerald: Yes. So I can answer on the guidance first. So we're maintaining that guidance going forward into 2026. Also, worthwhile to comment about backlog position in terms of visibility through '26 and into '27 is particularly strong. Then on to the Allocation Round 7. So submissions from the developers in terms of the different projects that they put into the allocation round has been happening over the last week. So that milestone is essentially complete as we understand it, and the results of that to be announced around mid-January. So the next key milestone in the time line here is a mid-January announcement of outcomes. But the submissions to the best of our knowledge, are now made. Sebastian Erskine: Appreciate that, Stuart. And just if I can put another question, and I appreciate -- difficult one on the merger. We've seen the admission of kind of several interested third parties into the Brazilian antitrust process. Can you give us an update on that process and when we might expect to hear some ruling from CADE, if you're able to shed any light on that? And any other updates on the kind of geographies that you're submitting to, that would be helpful. John Evans: Yes, I'll take those. As we've said many times on these calls, we won't be giving a sort of blow-by-blow account here, but let's stand back. When we announced the merger, initially with the signing of the MoU at the end of February, we targeted the second half of 2026, full completion. The CADE process is following the steps that we had expected it to follow. We make our submissions. Interested parties then identify themselves as interested parties. There is also a wider market consultation, including suppliers, our peers and our clients, and that process is underway. We will then have an opportunity to discuss with CADE our responses to the different topics that are raised. And then CADE will go into their review process next year. So we continue to believe that the time line for the merger and the critical path is through CADE and Brazil, should allow us to complete by the second half of 2026. Operator: We will take our next question. The next question comes from the line of Victoria McCulloch from RBC. Victoria McCulloch: Starting as well on Renewables. Can you just talk about the contribution for 2026? I appreciate you don't give it specifically, but on the basis of Stuart's commentary, should we then see the driver for the growth coming from the Subsea and Conventional business? And then, John, maybe a bit sort of larger sort of picture -- views. Can you give us a bit of color about how you've seen the tendering pipeline and engagement with your customers over the last 3 months? It remains a fairly unpredictable macro environment, but it would be interesting to hear the conversations you're having with the engagement you have with customers. John Evans: Yes. Just to take the Renewables, Stuart was clear that we are comfortable with a guidance range of 14% to 16% EBITDA in Renewables in 2026. And as he says, he has a high coverage of work already on the books. So again, I don't think we will give any further information on that, Victoria, but we're comfortable that we have a good position in Renewables in '26, and as Stuart alluded to, also going into 2027. So for us, it's more about what it is in '28 and '29, and AR7 will be part of understanding that in the first quarter of next year. Coming to client interactions, I was down in Brazil at Rio OTC about 3 weeks ago. We've had a number of client discussions, which, as you'd expect, continue. We're seeing very little change in our clients' views. They are clear that they've got a number of large Subsea projects out there for bid or to be bid. The dialogue is all around timing of their bids, timing of their projects, what early commitments do they need to make, vessels availability. It's the traditional questions that we get in a busy market, Victoria. In Brazil, discussions with Petrobras. We expect to see the Petrobras' 5-year plan, announced in the next week or so, continued focus on Subsea projects being the main engine and the main driver for Petrobras. So their conversations are clear. A lot of other clients are about some big opportunities that they see. We're bidding work in Namibia. We're bidding work in Mozambique. And these were countries that weren't on our radar screen a couple of years ago. And down in Türkiye, in the first week in December. And again, that's about our ships are going in to do Phase 2. As you're aware, we picked up Phase 3, but there are other phases of Sakarya to come as well. And we continue to work with Equinor as planned on the developments of Wisting and Bay du Nord. The 2 big developments, one in the north of Norway, one in Canada. And they're quietly going on exactly as we had planned with Equinor that we'd be working with them, looking at multiple different scenarios. So long story short, we're not seeing a real change. And the other thing that we touched on in the last quarter was the pleasant surprise to see a number of new projects coming into Norway. The project with ConocoPhillips, which we expect to get sanctioned here at the end of the year. So there are very creative projects out there with a number of clients, and we remain confident. The only geography where that is not the case is the U.K., but I think everybody is clear that unless something changes in next month's budget, probably the U.K. is a bit out of sorts with the rest of the world. Victoria McCulloch: And maybe just a follow-up on that is, it was interesting to hear, obviously, you've shown us a lots about the pipeline bundles that you've done for Yggdrasil, for Aker BP and how that's optimizing the CapEx and OpEx for your customer. I guess, how much, I guess, new ideas in AI are customers looking for and sort of new wins from that? Because I guess, AI is such a massive theme globally, but how much of that is part of conversations in terms of they're trying to get economics better because of AI? John Evans: Yes. Our clients are always interested. Yggdrasil is an interesting example that we're using every single technology Subsea 7 has got, that huge greenfield development. We've got bundles in there. We've got traditional relay in there. We've got heated pipelines. We've got cool pipelines in the system. We've got everything in there. So that's why the customers come to us, is that we have a full toolkit, a full technology capability. If we come on to 4insight. 4insight is a form of AI technology that uses real-time data, analyzes huge volumes of data to give our offshore crews clarity as to what's going to happen in the next 24 hours and how they should think about whether we continue into the good weather, or do we stop, do we start and such like. Historically, that's all been done in a very static mode. Before we go offshore, we plan different scenarios. We take the scenarios out there. We have a book which tells us what we can and can't do. And if we're inside the parameters, we can work if we're outside the parameters. What 4insight has been is, say, let's take the actual parameters we got here and the actual parameters forecast and what you've had in the last 24 hours and exactly which way the weather is hitting the ship directionally and such like and can we continue pipeline. And again, as I said in my prepared remarks, we are finding some significant improvements. So it's a combination of the portfolio of technologies we've got, a real productivity to also just challenge the norms. We're also doing quite a bit of work with some of the regulators and some of the certifying authorities on how we run our DP vessels. dynamic position, rules were written in the 1980s when fuel was free. Nobody worried about emissions. And therefore, today, we are now finding different ways to run these ships, but we need the codes to change to do that. That allows us to improve our fuel efficiency, which our clients pay for, also reduces our emissions, but we need the codes to change to reflect that what was good in the '80s doesn't necessarily have to follow in the 2025 that we're in. So there's a lot of great things happening, Victoria, a lot of great engagement with our clients and with it, with every client on those type of technologies. So it's a good place that the industry is in. And as we know, deepwater subsea is one of the lowest cost per barrels lifted of any form of oil or gas out there. So I think we're in the right place at the right time. Operator: We will take our next question, and the question comes from the line of Kevin Roger from Kepler Cheuvreux. Kevin Roger: The first one is maybe in 2 way because when I look at the backlog execution for 2026, you are telling us that roughly your visibility is up by 13%, but the top line guidance imply only 3% growth in '26 versus '25. So can you give us a bit of color on that why the backlog for execution is up 13%, but the top line guidance is up by 3%? Is it related to the fleet utilization rate that is at the end already fully booked? Just to understand the rationale around the top line. And the second one, John, you roughly mentioned it, big project from Equinor for 2026. There has been some noise notably this morning saying that Equinor is currently hitting the market for fabrication tools. So just to understand on your side, would it be a kind of full scope, or then it will be phase by phase, meaning that for '26, it will be more than $1 billion as you have identified the projects in the pipeline or a smaller phase because that's going to be done in different phases? John Evans: Yes. The backlog in 2026, I guess, which just reflects the fact that we're in a very busy market, and clients have committed to us earlier. We have a finite capacity, which is why the revenue doesn't grow as much. We would expect, of course, next year to have 100% backlog by the end of the year. So it's more of a timing question, Kevin. A lot of our clients have engaged with us early, and that's been going for a number of years now, making commitments to make sure that they have capacity available as they go into '26 and '27. So it's just a timing disconnect more than anything, not a fundamental issue. This quarter, we're running at 87% utilization. We're getting towards the highest end of what we can do, and we've discussed that a number of times on this call. The key to us is post-merger is to reduce the amount of transits between projects and such like. That's one of the real attractions for a number of our clients, is that there are more days available if you don't move these assets around. But at the moment, we've got the fleet that we've got. We know very well where they're going to be placed next year. So I don't see it as a disconnect. The revenue will be the revenue in the range that we've given. And the backlog is just higher than we would normally expect. But equally, in my memory, when the market gets busy, people secure their assets earlier. Taking your second question, Bay du Nord is a project that for us is done seasonally over multiple seasons, and we won't be offshore until later on this decade, and that's always been the case. And because of the weather conditions out there, we can do about 100 days per year. So it's a multiyear project. And next year, we'll continue to be in this work mode that we're in, which is working with Equinor on the field layouts and allowing them to go through their different decision gates, DG2 and DG3 that they need to go through. So for us, Bay du Nord has continued working with them in the mode that we've been in for a couple of years. And so they will make their key decisions, I suspect, in '27 when they have all their information about their fabrication, their local content as well as the SURF packages. What I would say, I think there's been good work between the SIA and Equinor over a couple of years, and there's been some very interesting thinking about how to phase the project and how it comes together. So coming back to your initial question, Kevin, it was always a phased project because the weather conditions out there and the remoteness of that part of the Atlantic offshore, Canada means that you have to do 100-day slots per year out there. And it's just how you sequence it and how you develop the wells and the reservoir that goes with it is the key to probably unlocking the economics in that field. Operator: Your next question comes from the line of Guilherme Levy from Morgan Stanley. Guilherme Levy: First one, thinking about your guidance, how much would you say the lower figure this year is driven by activity that might have been -- might have slipped into 2026? And if you can perhaps share with us what sort of activity that is? And then thinking about 2026, is this a reasonable level for us to think about your capital needs over the long term? Or is there any nonrecurring factor in the 2026 figures that we have? And then second one, thinking about Brazil. Earlier this year, there was a headline saying that Petrobras was keen to do a long-term lease of a vessel to do the installation of rigid pipes in the [ Pre-Salt ] itself. Do you feel like this is a live discussion? Are they actively looking to do that? Or do you feel like that was just a headline that didn't really evolve over the course of the year? John Evans: I guess the question -- the first question asking about the sort of guidance between this year and next year on revenue and such like. You're very familiar with our projects. They work on a percentage of completeness at the end of -- completion at the end of each year. It varies big projects, a couple of percentage have quite a large influence on dollars. There's nothing to be concerned about. It's just how the different sequences of our projects are coming into play. In terms of 2026, as I answered Kevin previously, we're reasonably clear on how it will fit together. We've given you a range of revenues that we are comfortable with giving the market here, a high level of visibility as to how that fits and even the work that isn't in the backlog yet, we're pretty clear in our minds how that will sort of come together. And of course, as we've done consistently, if things change, we will give the market an update on each quarter as we see changes. Lastly, Petrobras are talking to the market about potentially the long-term lease of a rigid pipelay ship. Interesting enough, we had a contract many years ago, in 2012 to 2017, to do exactly the same, which was called hybrid steel, which was a contract that Subsea 7 had with Petrobras. So I'm old enough to know what those looks like, and we've done it before. Again, when Petrobras comes to the market, we will respond, and we'd be interested in that. But you just need to remember that the time scale is probably 4 or 5 major projects that need a pipelay each. So again, if they go down this path -- and I do understand. We've been speaking to them. This is about the timing of the arrivals of the FPSO, and the challenges of how you run different projects with different time scales with different arrivals of FPSOs. So maybe the hangoffs of the riser with a vessel more akin to a PLSV, which is more of a day rate contract where they can control it that way. So I understand fully the logic. It makes a lot of sense, and we will certainly be interested in the opportunity set should that come to the market next year. Guilherme Levy: The first one, sorry, I was actually just referring to your new CapEx guidance. So yes, just thinking about your 2026 CapEx guidance, is there any reason why 2027 should be materially different from that? Mark Foley: It really is a function of the vessels that have to go through their obligatory dry docking. So as you know, depending on where they are in the cycle, our CapEx increases and decreases. The majority of our CapEx is directed towards vessels and equipment. So I think we provided updated guidance for this year, slightly lower, driven by really strict capital discipline within the organization as well as a late phasing, a displacement of certain cash, capital expenditure into 2026 and then an amount that we've guided to for next year. So again, it will vary year-on-year depending upon the requirements of the vessels as well as the opportunities that we see in terms of growth, capital expenditure around minor modifications, around supplementary additions to equipment, et cetera. So hopefully, that provides some additional color. Operator: Your next question comes from the line of Alejandra Magana from JPMorgan. Alejandra Magana: On your SURF and Conventional margin strength, can you give us a sense of how much of the uplift reflects execution outperformance versus the roll-off of older, lower-margin projects? And how much reflects structurally better commercial terms or pricing power on more recent awards? And as the 2026 backlog converts, how do these contracts differ commercially from the ones you've executed this year? John Evans: Okay. I won't go into the margin mix. As I said in my prepared remarks, it's a bit of everything. We are taking less projects, taken before 2022 into the portfolio this year, and there are none of those as we get into next year. As we discussed very openly on this market, each project is bid individually and therefore, then there is a mixture of margins in each of the different projects. Sometimes some projects suit us because the availability of equipment, timing and clients' decision-making, potential delays in other projects. So again, there's quite a complex mix in that. And lastly, as we've discussed, we've had very good execution throughout this year, and I'm very pleased with the execution that we've got. So when all these things come together, we get a very good margin in the business. But we won't discuss the segregation of those items. As we go into 2026, again, it's about the stack of projects that we've got in there. There is nothing pre-'22 in the mix. So it's the packages of work that we brought in over the last 3 years at the various stages that give us the margin that we expect to see next year. And so we have given you clarity through the guidance as to what revenue range, and we expect to be at around 22% next year EBITDA on the portfolio that we've got. And just to close out on that, we're reasonably confident in that because we've got over 80% of that margin already in the books. And as I touched on earlier, I'm reasonably sure I know how the remaining 20% will fit. The remaining 20% part of that is elements such as call-off agreements we have with a number of clients where we're already under contract. We know what the margin is, but we haven't received the call offers yet. So confidence level is pretty high here. And we'll just get into '26 and let it run and see how it goes from there. Alejandra Magana: Very clear. And then on the new Brazil PLSV contracts, can you give us a sense of how the new rates compare with prior agreements? Do you expect a step-up in PLSV earnings over the next few years? John Evans: Yes. So they were bid a year ago. That is information where if you go through the press releases that we've released and our competitors have released, it's all public information. You can -- you know that each contract is roughly 1,000 days. So they were better than we had for certain, and all 4 PLSVs are now on the new contracts. Just last week, the fourth of our PLSVs went on their new agreements. So next year, part of the uplift in our margin is around the fact that the mix of work that we've got next year, as we discussed earlier, is a better mix. So the PLSVs are public domain information. So if you go back and dig through those, you can work the figures out from where we were and where we are now. Operator: [Operator Instructions]. Your next question comes from the line of Erik Aspen Fossa from SB1 Markets. Erik Aspen Fossa: I have 2 questions at least. First for you, John. I think the understanding so far has been that we should expect a slight increase in activity from '25 to '26. And I'm just wondering how we should think about this into 2027 on a stand-alone basis for Subsea 7? Is there still room for further increases, for example, through fleet optimization and other such things? Or are we kind of plateauing now in terms of how much you can do with the fleet that you have? John Evans: Okay, Eric, I think what's interesting for us is that we have a very strong backlog for '27. If you just look at the data we got $3.8 billion of backlog for 2027, which is a very good place for us to be looking this far ahead. There are some changes that we're doing next year. It's also about how we upgrade the margins in our projects. There has been some work that we've been doing, for example, on some Jones Act work that we won't continue next year. So we'll return those chartered vessels to the owners because we can't get the margins that we expect. We've returned the Champion in the Middle East. And so for us, it's also about just being very, very selective about which assets we deploy, how we deploy them and the returns that we get, and the risks that we take to earn those returns. So there is room for improvement. There's always room. But now it's about taking the asset base that we've got, as Mark said, being pretty brutal about what it's doing, where it's working, what it's returning for us. So you will see some changes in the fleet next year, some -- actually reductions in the size of our fleet next year whilst we're increasing the revenue. That's our task at the moment, is to maximize what we have in the cycles that we work in, Eric. Erik Aspen Fossa: I think you also sort of started to answer my second question, and that was on the lease costs that decreased, slightly now this quarter. And I'm just wondering how we should view that into 2026, should it come down because of what you actually just explained now, John? Mark Foley: Yes, Eric. We will see a directional downward movement in lease liability cash impact in 2026 as a result of releasing some of the lease vessels that we have in the portfolio today. As you know, out of the 41 vessels, we have 11 leased vessels, and some of those will be going back at the end of the charter period to the owners. Erik Aspen Fossa: Was that just the Jones Act vessels, or are there any other vessels? Mark Foley: All the vessels fleet, Eric. John Evans: Yes. So I discussed the Champion, it was leased, and that was in the Middle East. That has already come back. There will be a couple of Jones Act vessels going back, and there will be at least one -- further one going back, but we're not ready to include that at the moment. But that's the direction of travel, as Mark is saying, that we're working our way through, making sure that if we bring additional tonnage in, first of all, is it adding value in the portfolio and can we -- what we're trying to do here is to grow the revenue, but also make sure we maintain the margin. So that's what this fine-tuning that we're doing is about. But that also brings our lease obligation line down, which again, I know has a lot of high focus in the market as well. Erik Aspen Fossa: Just lastly, could you give some sort of indication on kind of the level that we could think about next year on the lease payments? Mark Foley: It will be notably lower than we have incurred so far this year, Eric. I think we've spoken about it every quarter. We'll probably just be under $300 million cash out this year, principal plus interest, and we've given a flavor of the vessels that, all other things being equal, we'll leave the fleet. I'll allow you to apply your assumptions in terms of what that means around impact -- favorable impact to cash. Operator: This concludes today's question-and-answer session. I'll now hand back to John Evans for closing remarks. John Evans: Well, thank you very much for joining us. We have an interesting story to tell, and we appreciate your continued support and the questions that you ask and the papers that you publish about Subsea 7. We have a very good year ahead of us, I believe, in 2026. We tried to frame that for you and try to give you information to allow you to model it and look ahead. And we continue to be in some very positive discussions. Stuart has also been very open about the opportunity sets in Renewables in '28 and '29, which will become clearer in Q1 next year. So hopefully, when we meet with our Q4 results at the end of February, early March time, we will be able to give you more updates on how we see AR7 and what that means for Seaway 7. So as ever, thank you very much for your support and your questions, and we shall see you again soon. Thank you. Goodbye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Magnera Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference being recorded. I would now like to turn the conference over to your speaker today, Robert Weilminster. Please go ahead. Robert Weilminster: Thank you, operator, and thank you, everyone, for joining Magnera's Fourth Fiscal Quarter 2025 Earnings Call. Joining me I have Magnera's Chief Executive Officer, Curt Begle; and Chief Financial Officer, Jim Till. Following our prepared remarks, we will have a question-and-answer session. To allow everyone the opportunity to participate we ask that you limit yourself to one question with a brief follow-up, then fall back into the queue for any additional questions. A few things to note before handing over the call on our website at magnera.com, you can find today's press release and earnings call presentation under Investor Relations. You can also go directly to ir.magnera.com to review the investor presentations from our recent conference attendance. As referenced on Slide 2, during the call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measures in our earnings press release and in the appendix of the presentation available on our website. Additionally, a reminder that we will make certain forward-looking statements. These statements are made based upon management's expectations and beliefs concerning future events impacting the company therefore, are subject to risks and uncertainties. Actual results or outcomes may differ materially from those expressed or implied in our forward-looking statements. Some factors that could cause the results or outcomes to differ are in the company's latest SEC filings and our news releases. These statements speak only as of today, and we undertake no obligation to update them. I will now turn the call over to Magnera's CEO, Curt Bagle. Curtis Begle: Thank you, Robert. Good morning, and thank you for joining our call. I am pleased to present our fourth quarter results and discuss the significant progress achieved as we marked our first anniversary as Magnera. During this update, I would like to emphasize 3 key takeaways: First, our strategy to establish ourselves as a leader in advanced specialty materials is yielding positive results. Our global stature as an innovative organization with substantial scale and strategic geographic presence has enabled us to consistently succeed in the current bid cycle with top tier customers. We've been able to gain share in markets and product segments of our choosing. Second, the macroeconomic conditions across our operating regions remain challenging with a cautious outlook as we begin fiscal year 2026. Third, our focus remains on controllable factors. We have made measurable improvements in our synergy run rate performance and have already demonstrated substantial advancement with Project CORE introduced last quarter. The Magnera team delivered robust results to close the fiscal year, achieving $839 million in sales and adjusted EBITDA of $90 million for the quarter. For the full year, revenues reached $3.2 billion with an adjusted EBITDA standing at $362 million. We generated $126 million of free cash flow, representing a yield exceeding 30%. I wish to express my gratitude to our teams who have collaborated effectively, stabilized our organization, developed optimization plans and taken decisive actions positioning us for continued success. These financial outcomes were underpinned by several notable successes with our customers. In a subdued personal care market, we experienced ongoing product mix enhancements as consumers increasingly opted for premium softness and comfort. Our adult incontinence products experienced mid-single-digit growth through increased adoption rate and our customers increasingly seeking innovative features similar to those found in baby care items. Within consumer solutions, Increased demand for wipes and infrastructure contributed to our segment's portfolio increasing from 51% to 53% of our total revenue. Our consumer solutions portfolio utilization is tracking nicely with growth projects and targeted asset upgrades. Sales of infection prevention wipes rose 10% year-over-year, with balanced growth from both branded and private label customers. Demand for convenience surface cleaning and disinfecting remains strong across households and institutional use. Our strong positioning in cable wrap and specialty solutions has benefited from ongoing electrification and infrastructure growth worldwide. In response to growing sustainability requirements, we have provided advanced material solutions for wipes, tea and coffee filtration and compostable offerings for in-home and away from home usage. Looking forward to 2026, we anticipate an earnings improvement of approximately 9% and driven by synergy realization, project CORE initiatives and further advances in product mix and innovation. The company has successfully completed its stabilization phase following our formation and maintained uninterrupted delivery of premium products to our customers over the past year. Now entering the optimization phase of our transformation, we are cultivating an innovative culture aligned with our commitments to our customers. Our commercial teams have been integrated to ensure consistent service. Operational metrics and processes are being standardized and efficiency initiatives are underway throughout the organization. We continue to be action-oriented with our purpose, promise and beliefs providing our guiding compass. At this point, I will conclude opening remarks and invite Jim to provide a detailed overview of our financial performance. James Till: Thank you, Curt, and good morning, everyone. Before we dive into our results, I want to remind everyone that when we compare our performance to the prior quarter, all the prior period figures are adjusted on a constant currency basis to eliminate the impact of exchange rate fluctuations. Additionally, last year's results incorporate the full impact of the merger. For those interested in the details, the reconciliations between our adjusted and reported results are included in the appendix of today's presentation. Now turning to our financial results on Slide 9. We delivered performance that aligns with the expectations that we shared during the previous quarterly call. Volumes and earnings came in as anticipated, while cash flows exceeded our projections, reflecting the strong execution and discipline of our global teams. Our teams have done an exceptional job advancing synergy realization since the merger, implementing new robust cost reduction initiatives and optimizing our product mix capacity and allocations across the portfolio. During the quarter, these efforts helped offset softer baby demand in South America as well as general market softness in Europe. Despite the external challenges, adjusted EBITDA remained essentially flat for the quarter. Looking at the full year results, fiscal 2025 was a year of disciplined execution, strategic progress and solid cash generation. Our teams delivered strong operational performance, advanced merger synergies and maintained financial discipline. Free cash flow for the year exceeded the high end of our originally provided guidance range, reflecting an intense focus on CapEx and prudent working capital improvements. This strong cash generation is a testament to the dedication of our operational focus of our teams worldwide. Since the merger, we generated $126 million of free cash flow, representing a free cash flow yield of more than 30% relative to our year-end market capitalization. This performance has allowed us to strengthen our balance sheet and reduce our debt leverage to 3.8x at the end of the fourth quarter. We concluded the year with approximately $600 million of available liquidity, providing a solid financial foundation to support strategic investments, pursue growth opportunities and maintain flexibility in a dynamic market environment. Moving forward, we will continue to prioritize strengthening the balance sheet and maintaining operational agility. Moving on to my fourth quarter segment reviews, starting with Rest of World on Slide 10. Revenue declined 3% for the quarter as stronger performance in the select consumer solutions categories was offset by the pass-through of lower raw material costs and weaker consumption levels in Europe. Adjusted EBITDA for the segment increased $4 million, reflecting operational efficiencies, rigorous cost reduction programs and continued synergy benefits from the integration. These improvements underscore our resilience of our business model and effectiveness of our disciplined global operations. Turning to Americas on Slide 11. Revenues were down 9% for the quarter as a result of the pass-through of lower raw material costs and competitive pressures from imports in South America. For the full year, headwinds were partially offset by stronger demand in infrastructure and wipes end markets, which helped stabilize our overall annual results. Adjusted EBITDA in the Americas segment declined $5 million for the quarter, largely reflecting the volume and product mix challenges in South America. Despite the decline, we are confident that our ongoing improvement initiatives and synergy realization will support margin recovery in the coming quarters as operational excellence remains a central focus. Looking ahead to fiscal 2026. Our guidance assumptions are shown on Slide 12. At the $395 million midpoint, we are expecting EBITDA growth of approximately 9% year-over-year. This growth reflects continued synergy realization and ongoing benefits from Project CORE, including cost reductions and capacity rationalization. In terms of the free cash flow, we expect a range of $90 million to $110 million, including $80 million of capital investments which includes $10 million from the IT conversion related CapEx. This guidance reflects a prudent assessment of the near-term environment and a disciplined execution of our operational and financial strategies. This concludes my financial review, and I'll now turn it back over to Curt. Curtis Begle: Closing 2025, I'm pleased with the progress we made as a new company. We over-delivered on our free cash flow, delivered on our updated EBITDA guidance and CapEx commitments and strengthen our balance sheet. Looking forward to 2026, we are forecasting an increase in earnings as we continue to leverage our scale, unique value proposition and reliability to deliver for our stakeholders. We are confident in our ability to drive value creation through both EBITDA growth and robust free cash flow generation. Our priorities are clear: operational excellence; balance sheet strength; disciplined capital allocation and strategic investment in growth opportunities. These actions position us to continue building long-term shareholder value while maintaining flexibility in a dynamic global environment. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Richard Carlson with Wells Fargo. Richard Carlson: Congrats on the progress and happy anniversary. Curtis Begle: Thanks, Richard. Richard Carlson: So I actually have several questions, but I'll ask the first one, it's a big one and then I'll get back in the queue for the rest. But I just want to dig in a little bit more to EBITDA and some of the puts and takes. I think your range is plus 5% to plus 13%. So what are some of the moving parts there? What's maybe the underlying volume assumptions mix, price, things like that. And then it seems like -- and also a lot of this is from EBITDA margin expansion. So what's driving that, too? James Till: Thanks, Richard. Thanks for the questions. As we think about the guide for next year, the margin expansion is really -- the continued synergy realization that we've highlighted kind of throughout the year, it starts hitting more of a full run rate next year. So we've talked about kind of realizing 75% -- or 70% to 75% of the remaining outstanding unrealized synergies next year as well as Project CORE that we highlighted last quarter. So that will begin to ramp up here in the back half of Q1 and then we'll begin to get full realization in Q2, 3 and 4. So that's the lift on the EBITDA side in terms of margin expansion. In terms of the volumes, we're expecting sort of flattish for the overall business as we look at it today with some puts and takes between the regions. And that's really the driving factors. And so as you go to the bottom end of the range, the top end of the range, volume is going to be kind of the outstanding question for us and is the reason for the little bit wider range than you may expect. Curtis Begle: Yes. Richard, the other comment I would make is, we've highlighted in previous calls and commented again on this quarter, we'll be lapping some of the South America comes from prior year in the first 2 quarters. And so that's being offset by some of the positive signals of growth that we're seeing in the U.S. and a cautious outlook on Europe. Operator: Our next question comes from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Yes. Thank you, and good morning, everyone. Curt, in listening to your prepared remarks, it sounds like you're having some success here in bid season. Can you just elaborate on where you're targeting share gains and having success and maybe just put that into the context of what you see unfolding mix-wise within the portfolio in '26. And the volume trends that you foresee globally? Curtis Begle: Yes. Thanks, Kevin. Appreciate you joining. As we've talked about historically, we had -- going into this year, obviously, there were contracts that we needed to see through and then we needed to understand from a cost profile and a differentiation, where we stood from an organization as we realized synergies and make sure that we were getting the value for the products that we were selling, also maximizing throughput and output on our most contemporary line. So as we've gone through the season, and we're probably 70% to 75% through. Typically, some of this carries into Q1 or Q2 of our fiscal year. We feel very good about how we position not only our ability to service our customers. As you can imagine, when there's a large combination of this size. One of the risks that a customer may see is how will they be treated and we'll be able to deliver for them with the quality and service that they deserve and expect. And I'm very proud of what the group has been able to accomplish. So that that certainly provided us with the right discussions at the highest levels inside of those organizations. And I will say that all of our customers are living in a very competitive environment as well. So finding ways to help them optimize their cost structure, but more importantly, provide some differentiated features through products such as lamination and some of our soft applications within the nonwoven segment, is really giving a good mix lift, particularly in our personal care side. We're seeing healthcare recover a little bit as well, which is a positive signal. And in some cases, seeing some growth in geographies that we hadn't historically looked at, and that's been a good job by our sales forces across the globe. And we look at consumer solutions, we comment on the fact that the mix of our portfolio is shifting from 51% to 53% in consumer solutions. As you look at -- it's difficult sometimes to see the forest through the trees. And so we try to really bucket those into major segments. We've talked about wipes. We have a great franchise inside of our consumer solutions space, both our own branded products for dry wipes that goes into institutional services and distribution channels with Sontara and Chicopee. But also, as you look at our broad portfolio globally within differentiated substrates inside of our portfolio, our spinlace technology continues to be preferred by the consumer and a great product and delivery for our customers as well as we round out with airlaid and spunlace technologies, which I think you have a little bit of an idea now that you've had a chance to visit 1 of the sites. So we're able to kind of capture general surface cleaning, general personal care cleaning and then also the institutional dry wipes goods. So we're excited about that. I talked about electrification initiatives. Our cable wrap business continues to build momentum through projects, green energy projects and high-voltage cable needs. That product line, and we believe, is, again, another great niche application where we have some unique value propositions there. And then on the infrastructure side, while you may see some softness in different parts of the world, the broad part of our portfolio is not just the building construction wrap, but in some of the other products that we've highlighted is a nice complement to those kind of total systems solutions for contractors and various distributors alike. So we continue to lean in on that front. And I don't want to be remiss if I didn't talk about some of the filtration projects we have, particularly in -- when you think about the beverage space, the 1 thing that we've really grown to appreciate over the past year is how significant and how trusted the sites that we had acquired are in that space, very high-quality demand, as you can expect. But more importantly, our ability to service and deliver for those customers is something that we really pride ourselves on and look to continue to improve in certain areas. And then there's demands on being on the front end of the ever change needs in the markets on compostable opportunities and addressing the customers' requirements from their ESG metrics, but more importantly, the safety and security of the products that they're putting in the market. Make no mistake across the board, we are -- we have to maintain the highest quality levels, highest service levels, not only who we do business with, but the applications, the end-use applications that we supply to. We are touching skin. We are in the operating room. We are protecting babies, adults, et cetera, and that's something that we take very seriously, but also something that, again, is a differentiation for us in a space that, again, can be competitive at times, but we are the trusted and reliable player in the geographies that we serve. Kevin McCarthy: Curt, my second question relates to free cash flow. I thought you did a nice job generating cash and deleveraging in the quarter. Specifically, can you unpack the forward-looking free cash flow range of $90 million to $110 million in 2026. Just looking for your thoughts on things like cash cost for integration and Project CORE, what you're baking in for working capital, cash taxes and other items you may care to call out? James Till: Sure. Thanks, Kevin. Absolutely. So when -- obviously, you start at the top of the house with the EBITDA. and then we've highlighted the $80 million of capital expenditures, which is $10 million of IT-related integration costs. On the integration and tax question, there's roughly $20 million of CORE, and then we have in the range of $30 million to $35 million for cash taxes. We've sort of highlighted that 10% to 11% of EBITDA, but we have some projects we think can offset that next year to help lower that number a little bit. And then the remaining is just our normal integration is we're in year 2 of a sort of a 3-year path. And so that -- the overall total of that category is roughly $80 million. And we highlighted that on Slide 12 to help you with the walks. Kevin McCarthy: Okay. And is working capital, Jim, expected to be smallish number? Or how would you characterize that? James Till: I apologize, right. In working capital, we assume flat. We have some items that were -- came in at the end of the quarter this year. There were onetime benefits. Roughly $10 million of that benefit will offset in next year. But we do have some items as we go off of legacy GLT terms, the remaining portion that should offset that. So we would assume flat for next year. Operator: Our next question comes from Roger Spitz with Bank of America. Roger Spitz: Maybe I missed it, but for fiscal 2025 overall, on a pro forma basis, what was the volume growth? Curtis Begle: Yes. Thanks, Roger. I think we finished right about 3% negative, 3.5%, and that was -- for the Americas, the decline was really because of the South America challenges that we have faced from a competitive standpoint. And then Europe was roughly 4%. So in total tonnage sold, right about the 3.5%, 4% negative for the year. Roger Spitz: Got it. And then for thinking about fiscal 2026, you're up 9% year-over-year. How should we think about the quarterly tempo of outperforming the 2025 fiscal quarters? Curtis Begle: Yes. So we don't provide quarterly details, but what I will tell you is we've highlighted, we are on a good trajectory into the synergy realization on the procurement side. I'm really proud of what the group had and the team has been able to do from offsetting the stand-alone costs from the SG&A front. We continue to make good progress from our overall BECCS programs inside of the facilities to offset other inflation. But Project CORE as we have communicated, will continue to ramp up throughout the year. We're going to see most of that benefit come in Q3, Q4, but we'll see that phased-in in a little bit of an impact this quarter and in Q2. So that's in terms of what we see, not a tremendous hockey stick going into next year. But in general, South America, the big kind of initial lap that we have for Q1, Q2 just because of the business that we were doing last year, and we've highlighted that in previous quarters, and that was -- those are the negotiations that are taking place right now. We feel like we're very well positioned going into 2026, back half of 2026 in particular. Operator: Our next question. Our next question comes from Edward Brucker with Barclays. Edward Brucker: congrats on the quarter. The first one, would you be able to just dive into the demand environment? It sounds like you're being cautious, which is prudent given what we've seen from a bunch of other packaging companies. But is it something where it's cyclical, where the consumer is just weaker right now and buying less product? Or do you think there's something more structural going on? Curtis Begle: Thanks for the question. I mean if you look at the portfolio that we have, these are products that are needed every day, essential goods and products, both on the disposal and durable side. Yes, we listen very intently and closely to our customers and even through various negotiations of what we can do to help them, not only secure business on the shelf, but find ways to cost reduce. So that comes from a number of different areas, whether it's new materials that we can provide, a new platform that we can run it on, but also down-gauging as they look for high-performance materials at lighter weight. So that's been a major point of emphasis. But in general, I would say that the European market is -- certainly has more caution to it based on what you're hearing, what everybody is talking up in the space. As we communicated before, we sell to both branded and private label. So again, as consumers make choices on the shelf, we're there. The 1 comment that I would make on the personal care front, there's always the concern about baby and whether birth rates are going to negatively impact this business long term. Fortunately for us, we highlighted at our adult incontinence products continue to really expand in terms of the acceptance rate and the need as aging populations are going on across the world. And when you talk about form, fit and function. That's a really important part of our developments with our customers, both from a discretion standpoint, but ultimately a performance standpoint. I could go into a number of different chemistries. We just reviewed some pH levels and helping to avoid rashes, things like that. But in terms of overall demand, I would say, consumption rates in various product lines, maybe a little bit softer in certain geographies with a little bit more positive demand than others, and we see that really by region. Even in the South American markets, where we've had more challenging run from import price pressure, which we've highlighted. What our customers have, I think, grown to appreciate is our ability to service them and be able to respond in very short order. And so we're there to service and take care of customers when they need us, but at the same time, making sure that we're getting the value for the products that we're manufacturing and selling. So in general, Asia, albeit small for us, pretty stable. Europe, definitely some concerns and that's why we provided some of that range. And then the Americas we'll see that. North America being positive and offset initially by some of the South America comps, but [ evening out ] throughout the year. Edward Brucker: Got it. That's helpful. And then the debt paydown on the term loan was a pleasant surprise. Would you be able to explain the rationale behind paying down that debt? And do you expect to use excess cash flow next year to do the same? Curtis Begle: Yes. Look, that was part of the capital allocation priorities that we've laid out, that we review with the Board every quarter. So that was just doing what we said we were going to do. At this point, we'll continue down that path with a focus on deleveraging and making sure that we're appropriately managing our cash and liquidity. As you can appreciate, working with our vendors and negotiating the best terms that we possibly can, the best prices we possibly can, proving that we have a very sound and solid liquidity and robust balance sheet. And so we'll continue to evaluate with our Board of Directors. But we believe that at this point, we'll continue down the path of the focus on deleveraging and debt reduction. Operator: our next question comes from Richard Carlson with Wells Fargo. Richard Carlson: Thanks for the follow-up. And actually, just piggybacking on that last question with the delevering. Of course, this is something you've been telling us that you plan on doing, but just wondering based on where your stock price has been recently, did the thought of spending that cash on repurchases come up at all or the thought of buying your debt in the open market? Curtis Begle: Richard, thanks for the question. As I mentioned, this is something that we have -- we review every quarter with our Board of Directors. And certainly, it's part of the conversation. But again, for us, we continue to believe that sticking to our original plan of debt reduction. As we talked about before, this is an opportunity for us to do what we say we're going to do and focus on the deleveraging portion. In terms of buying back debt. Again, I would say, I'm not really in a position to answer that other than I can fall back on the fact that we continue to keep all of those discussions in front of our Board of Directors and have robust dialogue each quarter. Richard Carlson: Understood. And then a couple of modeling questions, Jim. I think D&A was down quite a bit in the fourth quarter. How should we think about that? Is this a new run rate going forward? Or is that just some catch-up in the year? And then I don't think there is a share count in your press release. So is it safe to assume it was flat quarter-over-quarter? James Till: Yes. Share count was flat, correct on that. And then for the D&A guide, if you look at the year-to-date, there was some just purchase accounting finalization that got caught up for the year, as you highlighted. So I'd look at our year-to-date number as a better representative of the go forward. Richard Carlson: Got it. And then just 1 more if I could squeeze it in. CapEx is running in line with what you guys have been telling us for a year now. But I guess we're still just a little wondering if that 2% to 3% of sales, how long does that last? And are you able to properly capitalize the business at that level? I think there was a mention of eventually stepping that up a little bit. But I guess, maybe just remind us maybe from what you told us a year ago as far as how you see your CapEx projecting over a multiyear period? Curtis Begle: Yes. Thanks. Very good question. We -- again, coming into the combination of the 2 organizations, we had the opportunity to review and do a number of site visits. There was I think some expectation that plants or sites or lines were undercapitalized, and that certainly wasn't the case. We felt very comfortable coming into the year that we both had well-capitalized facility, capitalized businesses. And so the one thing that we'd be able to put into our overall spending discipline is a capital committee that we have internally, that review projects, both on stand-alone from an ROIC standpoint, but also our maintenance and our safety CapEx which I will tell you with 100% certainty, we've not sacrificed in any of those areas. So the normal maintenance PM programs, site maintenance, but more importantly, the safety guarding, et cetera, is the top priority. As you look at growth projects inside of the businesses as well, we have a large fleet of contemporary assets and also niche assets. And so our ability to upgrade some of those lines falls within the CapEx spend where we're not having to go out and buy a new line for $50 million or $90 million. We can take with what we have and provide that. The other thing that has been a really, really good work by the teams, understanding where we had like vendors or things such as belts on our lines that we process through every year from an expense standpoint, but also from spare parts on the capital side. So lining up vendors on that front, coordinating that with our procurement team and making sure that, again, offsetting that inflation that normally takes place. In equipment supply, the team has done an excellent job there. So in terms of the foreseeable future, as we've highlighted before, there will be a time that will pivot to large growth investments, new lines as the market warrants it and as we pick our places to put that capacity. But it goes back to our initiatives with Project CORE and prioritizing where we're going to spend that CapEx and where we have the greatest -- what business has the greatest right to win, opportunity to win and take care of our sites and ultimately, the safety of our employees. Operator: Our next question comes from Kevin McCarthy with Vertical Research. Kevin McCarthy: Appreciate you taking the follow-up. I was wondering if you could review and elaborate on the integration process? Maybe provide a little bit more color on what you've accomplished to date and what still lies ahead for fiscal '26 with regard to procurement, G&A and on the operational side as well? Any additional color there would be helpful. Curtis Begle: No. Thanks, Kevin. As we talked about early on, culture s a big thing, right, and putting organizations together and identifying the Magnera culture and then implementing that is a day-to-day job and making sure that we're touching and getting our 9,000 employees walking lockstep with us. So that journey will continue on and employee engagement is going to continue to be a main focus for us going into 2026 and beyond. But get good momentum from that front. Great work from the HR team on benefits and things like that as we peeled off of the need for some of the transition services agreement with Berry. The procurement team is well ahead from where we had anticipated. We've staffed that organization well with very key talent, done a fantastic job of really taking on the reins and going out and making sure that we're getting our best cost analysis and coordinating that with our innovation team. So good progress made there. And as I think we highlighted in the script or in the call, we're already seeing a little bit of that. We've experienced some of that procurement savings in Q4, a little bit in Q3. And that run rate coming into this year as part of our overall walk and range. So we continue to build momentum, and we continue to increase that pipeline. We're going to be moving away from, hey, this is synergy realization to just the savings programs and productivity savings that we look for every year. The one thing that I would say that, we've made also good progress on. It's just understanding and really putting together the right key operating metrics that we've populated throughout the organization. Some facilities are further along than others. And so as we're ramping them up and they're looking at the metrics that make the most sense for our business, that's been encouraging to see, again, the engagement, not only from the shop floor itself, but the entire team, especially when you can see some of the benefits of the run rate. Project CORE is certainly something that has a lot of attention on it internally. We review that quite frequently. And it does, as a reminder, it does impact all regions, the exception of Asia. And the purpose of that, again, from the capacity optimization standpoint is, the work that was done throughout this year, and we talked about the ability to cross qualify not only other raw materials with competing vendors, but more importantly, building flexibility in our network to be able to shift product from 1 asset, 1 site to another to make sure that we're getting the appropriate load that's a benefit to the customer, but it provides us with the lowest cost scenario. And as we continue to progress on the separation with the TSA needs, transition services agreement with Amkor, Berry Amcor now. We're going to be doing that through the systems changes throughout this year. And I would say that we're well ahead of schedule in terms of what our expectations were coming into the combination, and encouraged by what we've seen in -- over the course of the last month. Operator: I'm not showing any further questions at this time. I'd like to turn the call over to -- turn the call back to Curt Begle for any further remarks. Curtis Begle: We appreciate everybody joining the call today and your interest in Magnera. We continue to be very excited about the business, the future. And despite all the noise that goes on throughout the world, we're in a great position from having the best products and best capabilities to service not only our customers but the end consumers as we continue to protect the world. I look forward to speaking to many of you through our investment calls and investor calls as well as some of the investor conferences coming up. So everybody have a great day, and we look forward to connecting on our next quarter earnings call. Operator: Thank you. Ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Ladies and gentlemen, good day, and welcome to ZKH Group Limited Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jin Li, Head of Investor Relations. Please go ahead. Jin Li: Good morning, and welcome to our third quarter earnings conference call. With me are Mr. Eric Chen, our Founder, Chairman and CEO; and Max Lai, our CFO. Today's discussion may include forward-looking statements. Related factors are described in our today's press release. And we will also discuss certain non-GAAP financial measures for comparison purpose only. Please refer to the earnings release for definitions of these measures and a reconciliation of GAAP to non-GAAP results. With that, I will turn the call over to Eric. Eric, please go ahead. Long Chen: [Interpreted] Hello, everyone. Thank you for joining the Third Quarter 2025 Earnings Conference Call for ZKH Group. In the third quarter, thanks to our team's concerted efforts, we are pleased to see signs of stabilization and recovery in our business following nearly four quarters of proactive business optimization and adjustment. In the third quarter, the number of transacting customers exceeded 70,000, reaching a new quarterly high and strengthening the foundation for future growth. Both GMV and the number of transacting customers among industry key accounts and regional SME customers continue to grow year-over-year. The company's gross margin continued its upward trend. As a result, our third quarter GMV, revenue and gross profit largely recovered to their prior year levels. From an order flow perspective, average weekday order value rose from approximately RMB 37 million in July to approximately RMB 52 million November to date, representing an improvement of over 40%. Compared to the previous year, this level has also grown to about -- grown by about 20%. We expect this positive momentum in average weekday order value to continue through the remainder of the year. Taken together, these advancements underscore that we are firmly back on a growth trajectory. In the third quarter, our total operating expenses were down by 14% year-over-year to approximately RMB 420 million. Overall, our profitability meaningfully improved during the quarter. Operating loss, net loss and adjusted net loss all narrowed significantly. Our adjusted net loss was down by approximately 78% year-over-year to just RMB 14 million. Our adjusted net loss margin also improved to 0.6%. Moreover, we once again achieved monthly breakeven in September, and we are on track to deliver quarterly profitability in the fourth quarter. In terms of cash flow, we generated net cash of approximately RMB 100 million from operating activities for the third quarter, primarily driven by the substantial narrowing of losses and continued optimization of working capital management, including accounts receivable and accounts payable. Our business development is underpinned by the ongoing advancement, refinement, and application of our product capabilities in AI technologies. In the third quarter, we continued to make strides in both areas, propelling business growth, while enhancing operational efficiency. As a professional one-stop MRO procurement service platform, the breadth and depth of our product offerings are fundamental to our growth. We strategically operate 32 product lines, each with a tailored approach. Some product lines are highly specialized with an emphasis on curation, while others prioritize expanding product variety and supplier base. In the third quarter, we added over 2.3 million sellable SKUs across categories such as chemical reagents, machining and transmission, bringing our total sellable SKUs to more than 19 million. We also onboarded over 1,200 new suppliers, primarily OEMs, further enriching our product offerings and solidifying our core advantage as a one-stop procurement platform. Our private label products are a key strategic initiative to provide our customers with high value-for-money offerings, enhancing our overall product competitiveness. In the third quarter, we launched over 600 new private label SKUs, spanning categories such as security-related products, personal protective equipment, tools, and material handling and storage products. The GMV of our private label products maintained double-digit growth, outpacing the company's overall growth rate. Looking ahead, we plan to steadily increase our private label products contribution to total GMV from around 8% today to approximately 30%. We will continue to focus on professional and industrial-grade MRO categories, that are -- that is spare parts, chemicals and manufacturing parts. These areas serve as key differentiators and value drivers that set us apart from our competitors. For product lines where we have distinct advantages, such as our chemical product line of industrial lubricants and adhesives, we have developed a robust and reliable supply chain comprised of 13 specialized chemical warehouses, three of which are dedicated to hazardous materials and an in-house fleet for distribution and delivery. We will continue to enhance our integrated capabilities from product selection to last-mile delivery and on-site service, further reinforcing our competitive moat. In the third quarter, our chemical product line achieved double-digit year-over-year GMV growth. In the AI realm, we are continuing to advance our AI infrastructure across both the data and application layers, focusing on intelligent business processes and data governance to systematically improve our sales and operational efficiency. We have already deeply integrated AI across various business scenarios including material cataloging and management, product recommendation, sales conversion, data standardization and workflow automation. AI has emerged as an increasingly important driver of cost reduction, efficiency improvement, business growth, R&D productivity and data asset enhancement. At the opening of the 8th China International Import Expo in November, we officially launched Expert Linglong, our proprietary AI large model and intelligent agent suite, specifically designed and developed for the MRO industry vertical. Expert Linglong marked a significant milestone for ZKH in empowering the entire MRO supply chain with AI. Our AI Smart Workbench, one of Expert Linglong's core applications enables automation across 45 business process scenarios, such as creating orders or issuing invoices with a single prompt. It has significantly reduced cross-system, manual operations and enhanced process efficiency, platform-wide synergy and workforce productivity. Measured by order volume processed per employee, in the third quarter, our customer service productivity increased by 42% year-over-year, while procurement productivity increased by 52%. Moreover, AI has become the key engine for capturing customer needs and improving supply-demand matching efficiency. Our ProductRecom Agent continues to improve product recommendation accuracy generating over RMB 100 million in new incremental sales revenue since its launch in the fourth quarter of 2024 through the end of the third quarter this year. Our AI tools also excel in complex business scenarios. For example, processing a 300-line customer inquiry traditionally takes 3 hours. By combining AI with expert experience, this task can now be completed in 30 seconds with 98% accuracy. Since the start of the year, we have utilized AI to optimize our product classification models and system rules boosting the platform's automated product classification rate from 11% to 31%. This not only reduces manual intervention, but also increases product onboarding efficiency and improves the accuracy of matching customer needs. Moving forward, we will continue to develop our self-service AI-driven procurement agent to speed up responses and further elevate customer experience. Our Expert Linglong large model is also empowering upgrades across our R&D system. Our R&D teams have widely adopted AI coding tools with over 15% of our code now being generated by AI, significantly improving development efficiency. Looking ahead, the Expert Linglong large model will remain at the core of our AI development, driving deeper technological empowerment across our product, supply chain and last-mile delivery capabilities. We believe that AI is more than the tool. It is a key force reshaping the MRO supply chain ecosystem. In summary, the third quarter was highly productive. We drove steady progress in all of our business segments, in line with our strategic road map, building stronger growth momentum across the board. Looking ahead, we remain committed to advancing our development goals of product excellence, AI-driven growth and profitability improvement, delivering long-term value to our customers and shareholders. Now I will turn the call over to our CFO, Max Lai, to present our financial results. Thank you, everyone. Chun Chiu Lai: Thank you, Eric, and thanks, everyone, for making time to join our earnings call today. I'm pleased to walk you through our robust financial performance, driven by revenue recovery, enhanced profitability metrics and possible operating cash flow. Let me begin with the top line. Both GMV and revenues returned to approximately last year's levels, with GMV down 2.3% year-over-year to RMB 2.62 billion and total revenues up 2.1% to RMB 2.33 billion. This performance indicates that the headwinds from our business optimization initiatives has largely cycled through, providing greater visibility for renewed top line growth in the quarters ahead. Notably, the number of transacting customers exceed 70,000 reaching a new quarterly high and private label GMV grew 16.7% year-over-year, outpacing the overall business and reaching 8.2% of total GMV. Turning to business quality. Our gross margin remained healthy at 16.8% compared with 17% a year ago. On a GMV basis, our gross margin continued to improve, expanding by 41.5 basis points year-over-year to 14.9%. Specifically, gross margin for our product sales 1P model increased by 11.2 basis points to 16.2 percentage on ZKH Platform and 223.8 basis points to 7.7% on the GBP Platform. Additionally, we take our take rate of Marketplace model rose by 47.5 basis points to 13.1% year-over-year. These gains were mainly driven by our optimized procurement costs and a high contribution from our private label products, which typically deliver high margins. On operational efficiency, our disciplined focus on streamlining the costs and enhancing productivity continue to yield tangible results. Total operating expenses decreased 14.4% year-over-year to RMB 493.8 million, representing 18.1% of net revenues, a significant improvement from 21.6% in the prior year period. Breaking this down, fulfillment expenses were RMB 90.4 million down 9.8% year-over-year, reflecting lower employee benefits and warehouse rental costs. Sales and marketing expenses declined 13.2% to RMB 145.9 million primarily driven by lower employee benefits and travel expenses. R&D expenses decreased 19% to RMB 40.3 million mainly attributable to lower employee benefits. And general and administration expenses were RMB 145.8 million, down 17% year-over-year, driven by lower employee benefits expenses and lower credit loss allowances. Efficiency gains underpinned margin improvements and a substantial reduction in losses. Operating loss narrowed 69.3% to RMB 32.3 million, with margin improving to negative 1.4% from negative 4.6%. Non-GAAP EBITDA improved to a loss of RMB 8.5 million from RMB 62.8 million, with margin improving to negative 0.4% from negative 2.8%. Adjusted net loss narrowed to RMB 14.1 million from RMB 66.2 million and margin improved to negative 0.6% from negative 2.9%. As of 30 September 2025, our cash position remained strong at RMB 1.9 billion. Net cash generated from operating activity was RMB 105.5 million compared with net cash used in operating activity of RMB 160.5 million in the same period of 2024. To conclude, our first quarter results demonstrate clear signs of stabilization and recovery, underpinned by a more balanced customer mix, a higher-margin product portfolio driven by private label growth and a structural efficiency gain from AI-enabled process optimization and strengthened supply chain capabilities. Looking ahead, we expect to capitalize on this momentum through disciplined investment in AI and data capabilities, continuous enhancement of our product and supply chain capabilities and focused execution while advancing our international expansion. We remain focused on top line growth, further margin expansion and loss reduction on our path towards sustainable profitability. Thank you. And I would like to now open the call for Q&A. Operator, please go ahead. Operator: [Operator Instructions] The first question comes from Xiaodan Zhang with CICC. Xiaodan Zhang: [Foreign Language] So, according to publicly available information, JD Industrial is preparing for an IPO in Hong Kong. So could management share your views on the competitive landscape of MRO market in China? Long Chen: [Interpreted] So I believe this JD MRO looking to get listed is a very good thing for ZKH and for the industry at large. Because it's very good in terms of spreading this idea of doing one stop purchasing on e-commerce platforms. And it's definitely an opportunity that our times have afforded us. China being the #1 manufacturer in the world is actually big enough for leading MRO companies to exist. And these MRO companies cannot only serve Chinese manufacturers, but also benefit global ones. And in the MRO space, we have seen different kinds of players, including those players traditionally engaged in supplying office supplies. As ZKH, we started out in serving and selling chemicals and industrial-grade MROs. So, we are really specialized -- we specialize in selling spare parts, chemicals and manufactured goods. And we have built an innovation center in Taichung. This goes to show how we are committed to be deeply involved and integrating our services. And so, in terms of R&D, testing, product selection and comparison, and we would like to use the specialty of ours to help our customers better. We have also built our own warehouses and last-mile delivery capabilities. So, this supply chain capability can not only serve the whole of China, but also the rest of the world. And in terms of the competitive landscape, I would say, over the years, things have really stabilized and as leaders in the space, our advantages are becoming increasingly marked. And the fact that we are able to have acquired lots and lots of SMEs goes to show that there has been a great improvement to our supply chain capabilities. So basically, at the end of the day, we are committed and focused on beefing up and enhancing our supply chain capabilities in the MRO space. That was my answer to your question. Thank you. Operator: Are you ready for your next question? The next question comes from Leo Chiang with Deutsche Bank. Leo Chiang: [Foreign Language] Let me translate myself. Management just mentioned in the prepared remarks that the company will commit to advancing development goals of profitability improvement. What are the reasons the company has not been profitable so far? And how does the company consider and balance between profitability and the mid- to long-term development investment? Long Chen: [Interpreted] So, we got lots of investment and funding along our journey. As a start-up -- start-ups have different phases, right? In early days, we were more focused on the health of our cash flow. So, more of the funds were used and spent on infrastructure build-out and the build-out of our core capabilities and the competencies. So, we were suffering losses primarily due to these investments that we made in order to beef up our core competencies. But I believe we are entering a new phase now. This is a phase marked by profitability, and we're going to use some of the profits and spend the profits to further build our core competencies. Now that we are profitable, one thing that is clear is we are having an increasingly strong operating leverage. Specifically, our expense ratio keeps dropping, while our fulfillment gross margin keeps rising. And our profitability is getting better. And this is very much in line with our original plan for our development. In terms of specific profit and losses, '21, we made a loss of RMB 910 million due to the loss and loss of investments that we made. 2022, we made a loss of RMB 630 million. '23 losses were RMB 290 million. '24, RMB 160 million. '25, we saw losses greatly narrowed and in Q4, we are very likely to turn a profit. So we are pretty certain that our GMV growth year-over-year could reach 15% to 20% per year going forward. In terms of how we're going to go about striking a balance between profitability and long-term growth, I think, it comes down a lot to control of expenses. So, we will continue to improve our efficiency and control our expenses as well as enhancing our capabilities of customer acquisition. We will also keep investing in our core competencies, while ensuring profitability. So these core competencies include R&D when it comes to AI, R&D when it comes to product capabilities and our overseas business expansion. So, we will not only make sure that our profitability is sustainable, but also we will enhance it while ensuring long-term growth. Operator: The next question comes from Ruchen Tang with CITIC. Ruchen Tang: [Foreign Language] So, let me quickly translate the question first. So, looking for -- looking out on your latest developments and the future plans for overseas expansion, could you talk us a little bit about how you think about developing your business in the States versus serving Chinese companies as they go abroad? Long Chen: [Interpreted] Overall, when it comes to going abroad, there's two parts. One is serving Chinese companies as they go abroad as there's lots and lots of Chinese companies that are currently taking their business globally. Also, we're going to develop business in the U.S. Mainland and Europe, we're actually already actively doing that. But after a period of testing things out, we have made some adjustments as well. So firstly, we still highly value Chinese companies going abroad. And because investments there on our part are pretty limited, and the certainty of this business is very high. So in Q3, for example, we have already finished the MRO purchasing and delivery for some of our customers for quite a few Chinese customers rather in Thailand, Malaysia, Indonesia and Mexico, for their local factories. And we have finished things like product certification, customers' clearance, et cetera. As for our business in the U.S., we believe that's going to be a mid- to long-term play. So because it's going to take longer time in terms of product prep getting to market, so we decided to control -- we have decided to control our investment pace and cadence in the U.S. And overall, we believe our overseas business will achieve breakeven in the whole of 2026. So that was actually all of my answer to this question. Operator: And that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments. Chun Chiu Lai: Thank you once again for joining us today. You can find the webcast of today's call on ir.zkh.com. If you have any further questions, please feel free to contact us. Our contact information can be found in today's press release. Thank you, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
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.
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.]
Andrew Coombs: Good morning, everybody, and welcome to today's presentation of Sirius Real Estate's Interim Results for the Period Ending September 2025. My name is Andrew Coombs. I'm the Chief Executive Officer of the Sirius Group, and I'm joined this morning by Chris Bowman, who is the Group Chief Financial Officer of Sirius Real Estate. Together, we will take you through this morning's presentation. As you all know, we are an on-balance sheet, best-in-class owner and operator of mixed-use light industrial business parks on the edge of key towns in Germany and the United Kingdom. Please remember that Sirius operates in both the German and the U.K. markets under the brand of Sirius in Germany and BizSpace in the U.K. The group currently operates over EUR 3 billion of property, 90% of which is wholly owned by the group. This consists of 160 sites in total, 77 in the U.K., 76 in Germany and 7 sites within the Titanium joint venture in Germany. Let's now turn to Page 4 and look at the highlights for the period. The Sirius Group is a rigorous, well-run and very importantly, growing organization. We have proved the resilience and the reliability of the business model during COVID, during the gas crisis in Germany and most recently, through a period of rising interest rates in Europe and the U.K., during which we have successfully protected valuations in spite of yield expansion. In that time, we have continuously, without exception, grown our revenues. We have continually, without exception, increased our dividend payments. And as I said, we have made sure that the value of our properties goes up, not down. In the period to September '25, we successfully grew like-for-like rent roll by more than 5%. And as a result of the acquisitions in the period, we have grown the total rent roll by more than 15%. We have done this by maintaining occupancy in Germany and increasing it by just over 1% in the U.K. And we've increased like-for-like pricing in both markets by more than 4%. As a result of this, we are announcing a dividend of EUR 0.0318, which at per share level is a year-on-year increase of 4%. So let me now ask you to turn to Page 5, and Chris will take us through the income statement. Chris Bowman: Thank you, Andrew. Good morning, everybody. As Andrew said, over the next 4 pages, I will run through some of the highlights of the P&L and also the balance sheet, just picking out some of the key items. So on Page 5, just starting at the top, very pleased that the -- that increasing like-for-like rent roll of 5.2% has underpinned growth in rental income of 7.7% for the first half versus the first half last year. So you can see there, we've achieved EUR 112.6 million of rental income. That has translated to a 4.9% increase in net operating income. As I've mentioned in the past, as we have acquired assets, we're in acquisition mode, very active acquisition mode. As we've acquired assets, some of those assets tend to have higher service charge leakage than in our existing core portfolio. So there is a small drag, which we turn around relatively quickly on service charge costs that you can see there. That is obviously upside for the future to come through. Looking down at EBITDA, you can see of that 7.7% top line, we've achieved 9.7% increase in EBITDA. So very pleased to achieve some operating leverage there. As we grow the asset base, and we grow the income base, we are keeping a very tight control of our costs and to then improve our margins. Specifically within that corporate costs and overheads dropping from 24.8% to 22.7%. We have been very careful from a headcount perspective and found efficiencies. We've also tightened up and had various initiatives internally to improve our cash collection that has allowed us to be tighter on provisioning and again, has provided upside there. Moving on. I'm going to be -- unfortunately, I'm going to continue to talk about headwinds of finance cost, unfortunately, for the next 2 or 3 years. We do have the finance cost headwind that we continue to outrun. So you can see there our net finance expense goes from EUR 6.3 million to EUR 9.4 million, and -- but still, we more than have outrun that with the growth in -- at the EBITDA level to achieve an FFO, up 6.6% of EUR 64.7 million. As I think those of you know us already, FFO is what we -- is our core target in the business. It's the cash flow, it's the profitability of the business that we really focus on. We are an operationally focused business. We are not trying to guess the property markets or play valuation yields. We're focused on providing profits -- growing profits to provide growing dividends. So very pleased to achieve that 6.6% increase in FFO. I've included the detail all the way down to profit after tax on this page because there are three items that I think need further explanation. One, headwind, and two, tailwinds. So within the foreign exchange, you can see there EUR 14.3 million, there is a EUR 14.2 million of that is what is classed as a realized FX loss, which relates to sterling cash balances, which we held at the beginning of the period in anticipation of that cash being placed into U.K. assets -- U.K. investments. So it was a very busy first half for acquisitions. We acquired over EUR 200 million worth of property in the U.K. We held the appropriate level of cash in sterling to do that. When that cash converted from the cash line into the investment properties line, it was mark-to-market at the FX at that moment. So it is -- unfortunately, it does all flow all the way through EPRA earnings. So you'll see it, but it is a one-off, and I'll happily take questions further on that. On the upside, we have EUR 14.4 million of valuation gain. So that is purely for the first half. I would expect to achieve better than that in the second half. But again, that's with virtually no yield contraction. We'll come on and talk about later. That's really valuing the increase in rent roll that we've achieved. And then further down the page, you can see the profit after tax is materially up 56.8% at EUR 87 million. And part of the fiscal stimulus that Germany is -- has enacted is the reduction in the corporation tax rate from 15% to 10%. That goes down by 1% a year from 2028. What that means is that our deferred tax liabilities on the gains in our property portfolio reduce. So you can see there's a EUR 29.8 million reduction in deferred tax liabilities that flows through the P&L and hence drives that profit after tax number up. Going over the page to Page 6, just reflecting that on a per share basis. We have the EUR 98 million of NOI converts to EUR 0.0652 per share. These numbers all still have the impact of the additional shares that came into the share count from July '24 equity raise. So prior year, there was a weighted average number of shares, now this is on the full number of shares that is outstanding. And the interest and current tax equates together to EUR 10.8 million. That's a EUR 0.72 cost line gets us to the EUR 0.043 of FFO. Below the FFO line, really the thing I would flag is that EUR 14.2 million foreign currency translation that then has an impact on the adjusted earnings and EPRA earnings, but as I say, is noncash. If you look at our cash flow statement, our operating cash flow broadly correlates with the FFO. We have paid out in dividend EUR 0.0318 or proposing to pay out EUR 0.0318, as Andrew said, up 4%. That equates to a 74% payout ratio for the first half. That will start to transition down going forward, and we will settle around 70% payout ratio in the next 3 to 4 years as we go through the financing windows. On to Page 7, just looking at the balance sheet. At the top line, you can see that our investment properties have increased by EUR 300 million. So within that, you have the EUR 295 million of acquisitions that we actually completed on in the period. You've got EUR 14.4 million of valuation gain across the group and then a disposal of some smaller sites in the U.K. is the balance. The cash balance has come down to EUR 424.9 million, of which EUR 389 million is ours, excluding the deposits of tenants. The EUR 179.9 million movement is net of the bond tax that we did in the period of EUR 105 million. And then on the bottom half of the balance sheet, really, the only thing to flag there is that the debt outstanding is at EUR 1.416 billion. Bear in mind that we have the repayment of the June '26 bond coming up for EUR 400 million, hence, why the cash balances are relatively inflated and also the debt balance is relatively inflated as well, but those two net each other off. Just a reminder, we also put in place EUR 150 million RCF during the period, which provides that liquidity to repay that debt. Looking down NAV, reported NAV is up 0.8%, benefiting from that valuation gain. Adjusted NAV is down 0.9%, roughly EUR 0.011. Again, there is a foreign exchange unrealized currency translation there of EUR 29 million, which in simple terms is just converting our U.K. assets into our reporting currency of euros. Bear in mind that if you then convert the entire NAV back to sterling, our sterling is up on a sterling base -- our NAV is up. On to Page 8, just quickly just running through the waterfall of NAV from EPRA at each end from March to September. I think EPRA NAV going from EUR 117.6, we target ourselves on adjusted NAV, EUR 118.89. As I say, the EUR 0.02 headwind is the unrealized FX of EUR 29 million. We achieved EUR 27.5 million recurring profit after tax in Germany. We had EUR 17.7 million upside in valuation in the German portfolio as well as then EUR 19 million of profit after tax in the U.K., which is EUR 1.27, a small valuation loss after CapEx of EUR 2.2 million in the U.K. Net of the dividend gets you back down to EUR 117.84. So really, the delta in there, the movement is the FX, which without the FX, we would have been up in NAV terms. I'll hand over to Andrew on Page 9. Andrew Coombs: So Page 9 deals with the organic growth in Germany. And just before I delve into the numbers, let me give you a little bit of the narrative because if I cast my mind back to the beginning of the period, the first quarter of this financial year, so April starting quarter, it's easy to forget that the German government had only just taken power in April of this year. And I think it's probably fair to say that the new government was still establishing itself and certainly hadn't gained any momentum at that point. And we certainly felt that in the trading. The first quarter of this year in Germany was a tough quarter. We made our numbers, but the effort and the workload that we had to put in to achieve that was certainly much greater than it normally is. We saw the momentum start to establish itself in the second quarter. And I'm pleased to tell you the 6 weeks following the end of the period, we very much feel that, that momentum is gathering pace. I would describe Germany, at the moment, is in a transitionary phase. And it's quite confusing because when you look at numbers like the numbers on German manufacturing, you don't see any substantial increase at this point in time. Lots of people, therefore, turn around and say, what's happening in Germany and are things good in Germany. What we see on the ground is we see reorganization. So we see factories stopping production. We see things being reorganized. And they're typically being reorganized towards defense. But the problem right now is that you have to stop producing what you produce in your factory in order to strip it out and prepare the production lines to produce defense-related items. And that's what I mean by a transitionary phase. And that's why the production numbers are going down. But what is happening is the preparation is being laid for -- in a couple of quarters' time, those production lines to be up and running and operating not just one shift as we often see here in the U.K., but typically a continental shift pattern of three shifts every 24 hours, at least six days a week. So what we believe is that Germany is preparing to substantially increase its output. We've seen this before in previous years. We've seen it where they've used in the past, furlough or kurzarbeit as they call it in Germany, where suddenly what happens is the economy appears to flip. Some have called it in the past, the German economic miracle. It's no miracle at all. It's Germans preparing before they flip the switch. That is exactly what we see happening in Germany at the moment. And in that period, what we were able to do is we were able to grow the like-for-like rent roll by EUR 7.2 million, so 5.3%. We were also able to increase the overall annualized rent roll by 12%. But the difference between that 5.3% and the 12% is, of course, acquisitions. We were able to increase pricing by 4.7%. Would you believe it? That's a little bit more than we wanted to do. We are in an occupancy-led strategy here. What that means is that we want to control our pricing to about 4% and get the rest of the effect out of increase in occupancy. When you've got a workforce who've been used to putting prices up, not only do you have to get your processes and your systems to do the right thing, you've got to get people to do what is the opposite of what we've been asking them to do for years, which is put prices up by less. And actually, in that regard, we slightly failed because our occupancy remained constant and price, we were aiming for 4%, price nearly hit 5%. You can see that in doing that, what we did is we had to lower our move-in rate, and what we achieved was a move-in rate that was just marginally higher than the move-out rate. So move-in at EUR 7.66 versus move-out at EUR 7.52. But all of that was successful in lifting the underlying like-for-like rate per square meter in the portfolio as a whole from EUR 7.38 per square meter per month to EUR 7.73 per square meter per month. So a delicate balance largely due to the first quarter, but successful in as much as we continue to push rate up in the portfolio. And in doing so, we've been able to make sure that we at least maintain our occupancies. We go across the page, and we look at that rent roll movement, you can see the EUR 7.2 million is reflected in the difference between EUR 135.3 million and EUR 142.5 million. What we faced was EUR 19.5 million of move-outs and the way in which we compensated for that was really the EUR 6.2 million of CapEx-assisted move-ins together with the EUR 14.1 million like-for-like move-ins. Those two gave us a total of EUR 20.3 million, so EUR 800,000 above the move-out effect. And then the uplifts, the pricing at 4.7% gave us 6.4%, and that 6.4% together with the 0.8% gets you to the 7.2%. But really, the exciting thing is those acquisitions in the right-hand column. And bear in mind, the last EUR 40 million of acquisitions in Germany that completed only last week, not included in these numbers. But what you've got is you've got over EUR 9 million of second half effect to come from those acquisitions. That EUR 9 million will build closer to EUR 10 million. So that's a EUR 20 million annualized effect that's going to bake through into next year's numbers. Now half of it will get eradicated by increased interest rate, and Chris will talk about that. But we've got sufficient acquisitive growth here to be able to deal with the increased interest and still have EUR 10 million of FFO growth. Put on top of that, the 5% organic growth. And I hope what you can see is rather than using interest rate increases as an excuse to go backwards, what we've been able to do through careful planning and careful execution over the last 18 months is put ourselves in a position where we can outgrow next year's problem. If I go across to the following page, we can talk about valuations. So the first thing that I would draw your attention to is on the right-hand side above the total assets black headline, net yield shift of 1 bp. That shift is the yield coming in, not going out. Why the valuers would have bought us in by 1 bp, I cannot imagine, but I would suggest it is a signal. And the signal is clearly that the direction of travel is that the yield is shifting in, in Germany, not out. Clearly, it's made very little, if any, difference because we started in March '25 with a valuation of EUR 1.890 billion, and we get to September '25 on EUR 1.921 billion, clearly, a EUR 31 million shift there. That EUR 31 million shift comes from EUR 2.3 million of additional rent roll valued at a gross yield of 7.4%. And what you can see in the bottom right-hand corner of this page is you can see after the acquisitions that we're talking about have been made, the yield at a gross level goes up slightly and the capital value per square meter goes down. That is because we are buying vacancy. That is because we are buying lesser quality rent roll because that is exactly our runway to put our machine across the top of it and improve it. So the reason that you are seeing that gross yield go out is because of the opportunity that we're buying and the belief that we can do something with that opportunity by putting it over our platform. If I go across to the inquiry stats, what we can see here is the number of sales, the number of customers we have acquired is 3% down. The sales volume that we've acquired compared to same period last year is 2.5% down. However, what we are pleased about is sales conversion is at 14.6%, up from 12.8% and close to our long chased target of 15% sales conversion. We are at last beginning to hit those numbers on a regular basis. What this shows is it shows the pain in quarter 1 of the first half, and it shows our ability to work the platform harder in the form of sales conversion in order to make what we've got count and drop more frequently to the bottom line. So this reflects the first quarter, but it also reflects the strength of the platform to deal with issues as and when they arise. If we go across to some of the acquisitions, I'm not going to go through every single one because they've been covered previously in lots of different announcements. But I draw your attention to Dresden. Dresden is, we think, one of Germany's best kept secrets. Silicon Saxony, where there is the most incredible amount of inward and foreign investment going in. Tim Lecky and I were in Dresden a few weeks ago. What did we count something like 17 cranes on the horizon and not 17 static cranes, 17 working cranes within the eye line in Silicon Saxony building things. Lubeck. Lubeck is in the area that benefits from the biggest infrastructure spend that is currently going on in Germany. And if we go across the page, we see Dresden again, no surprise. And we see Feldkirchen on the right, just outside Munich. This is an asset where 1/3 of the rent roll is a defense supplier, a defense supplier who specializes in the manufacture and development of optical devices, most notably night vision technologies for the military. If I go across to Page 15, let me hand across or hand over to Chris. Chris Bowman: Thanks, Andrew. And so just on Page 15, I just thought it would be good to update everyone on the current status of the portfolio and also on the next 2 pages on CapEx as well. Really, Page 15, I think, is the kind of secret sauce in Sirius for the growth of Sirius. That is how do we take the Sirius platform, put it to work on our property portfolio and take assets which have value creation opportunity and capitalize on that value. How do we create that value for shareholders? Now we break down our portfolio into the 2 buckets of value-add and mature. You can see there that the -- roughly speaking, it's 1/3 mature, 2/3 value add. And really, the value-add piece is the piece where we go to work on these assets to essentially try and mature them to try and put them into the mature bucket. And what -- why do we do that? We do that because of the opportunity to drive value. So you can see the average yield -- gross yield is 6.8% on our mature assets, 7.9% on our value add. Importantly, the gap between net and gross yield, the leakage on service charge is 90 bps on value add versus 30 bps on mature and also how the valuers then value that greater income and better performance. On average, we are at EUR 1,277 capital value per square meter in the mature versus EUR 868 in the value add. You can see what we have to achieve to get from one to the other in terms of occupancy, on average, 78.9% versus 94% and also the upside from rate. So by improving our assets that have this opportunity in them, we get many benefits, not only additional rent roll, but how -- but also then better net operating income because better management in terms of property expenses. We get valued better by the valuers. And obviously, we've achieved higher rate as we improve the quality of the site as well. It becomes an ever-improving cycle essentially on those assets as we improve them. Now we have overall 336,000 square meters of vacancy to power the growth in the business. On average, we typically look to improve roughly 100,000 square meters a year. That links into our CapEx plans each year. And so you have at least a 3-year runway of growth in the business. And obviously, as we're acquisitive at the moment, we are continually replenishing that opportunity. Over the page, just looking at where we are really putting capital to work to help on that journey from value-add to mature. In the first half, we have invested EUR 18.6 million in our CapEx programs, roughly split 2/3 Germany, 1/3 U.K. The value-add CapEx is that piece of the pie that really generates the high returns. We put a minimum 30% return on investment. So that's cash return on what we spend. So we're looking for a 3-year payback on incremental rental income from all of our value-add CapEx spend. You can see again, it's split roughly 2/3 Germany, 1/3 U.K. On the right-hand side, you can see some of the pictures of where we've actually put that capital to work. Bottom right, Vantage Point, when the range -- when we moved the range out of Vantage Point, essentially, there was three large halls left for us to tackle. We have already refurbished one of those halls. We put EUR 1.5 million of CapEx into that hall, and we have let it to Big Doug, which was an existing tenant on the site. I think for those of you who have been to Vantage Point, I remember we visited them before they were moving into the new space. Pleased to say they have now moved in. And the effect of that EUR 1.5 million spend allowed us to achieve double the rate on that space that it previously was achieving. New builds, we are in a cycle here where we have just finished the new builds at Gartenfeld. So on the top right there, you can see 1 of the 3 halls we built at Gartenfeld. So just EUR 800,000 went into just final completion of that hall. We've rented all three of those halls at Gartenfeld at far better rates than we expected. And then from a works perspective, just under EUR 10 million spend on works. So we keep a very, very tight lid on our -- that's essentially the maintenance CapEx. That's often the likes of renewing lifts, for instance, that type of spend. But within there, there is EUR 2 million of spend on ESG, which is principally PV solar in Germany as well as EUR 2 million in the U.K., which relates to EPCs and our continuing drive towards C and B. Over the page, Page 17, just to -- I've rolled this forward essentially. So I'm looking back over the last three years, what is our spend, and how are we performing. We have put 293,000 square meters of vacancy. We have put CapEx into value-add CapEx. That equates to EUR 31 million of spend, on average, EUR 106 per square meter. So this is not what I'd describe as kind of high-risk CapEx. We're not -- as a norm, we're not completely rebuilding or knocking down space. We are typically refurbishing space. The most complicated it tends to get is subdivision and the fire safety regulations that come with that. But it's very much low-risk and low-cost refurbishment. We've achieved EUR 12.7 million of rent improvement of that. So -- and at the moment, the occupancy is 74%. That continues to build as the CapEx we've spent in the most recent period, some of that space continues to be let up. And we're achieving rates of EUR 4.91, which gives us a return on investment of 41% cash return. Just conscious of time, move on to Slide 18. As I say, new builds, we have just come to the end of the A, B and C halls at Gartenfeld, and I would highlight that we've achieved a yield on cost there of 9% on a site which is valued at 5.5%. So obviously, as that income is valued at 5.5%, we've achieved 21% IRR on those developments, which is on surplus land at Gartenfeld. In the pipeline, there is an additional EUR 25 million of projects. That's spread across. There's a site in Dresden -- there's two sites in Dresden where we have opportunity for development. And there is also another space at Gartenfeld as well where there is further development. I'll hand back to Andrew to talk about U.K. Andrew Coombs: Okay. I've got switching to U.K. mode now and think about the U.K. picture, which is a different picture from the picture I described in Germany. So let's start firstly with the annualized rent roll. The annualized rent roll, which obviously benefited from acquisitions. Many of you have seen Hartlebury, was up 21%. 5.1% of that comes from the like-for-like rent roll. And as you can see, what happened here was we were more successful in convincing our sales force to be able to lower price and in doing so, raise occupancy by 1.2%. However, you've got a slightly different situation here with your move-ins and your move-outs. We actually dipped below the move-out rate on the move-ins, but we were still successful in that equation in terms of lifting the like-for-like underlying rate in the portfolio by 4.1%, namely from 14.38p (sic) [ GBP 14.38 ] per square foot to GBP 14.97. How did we do that? Well, we did that with our expansion initiatives. As you can see, what happened is we had 344,000 square foot move out, 302,000 move in. But what we were also able to do is to work the existing base of customers to get some of them to take more space and some of them to take more products. So we've had to work very hard here in the U.K. in order to be able to get that 1% of occupancy and also to be able to not just maintain, but increase price by at least 4%. That 4% is important because we know inflation in the U.K. isn't as much as 4% at the moment, but it could be soon. And we don't want to be caught out by that. We don't want to be trying to catch the inflation. We want to make sure that we are in a process in the U.K., where we're always ahead of inflation in terms of the way in which we manage that rent roll of customers. So rate per square foot is up by 4.1%. Move-outs are at GBP 18.44, which is 57p or 3% lower than the move-outs. That's had about a 1% overall effect because your new business affects about 1/3 of your total. It's your renewals that affect typically the other 2/3. And what we're seeing in the U.K. in contrast to Germany is we're seeing the U.K. get harder. Germany is getting easier. U.K. is getting harder. We are not panicking about that. We believe that the platform in the U.K. is now well enough developed and strong enough to be able to overcome that market effect, and that's exactly what you're seeing in the figures on this page in front of you now. If we look at the way it's built, you can see GBP 59.3 million rent roll moves in September '25 to GBP 60.4 million. You can see that the move-outs and move-ins that the move-outs are not quite covered by the move-ins. But look, that pricing uplift of GBP 3.8 million becomes so, so important because that's what gives you the final edge. And then if you look at acquisitions, GBP 14.4 million coming from acquisitions. As you know, in the last 6 months, the acquisitions have been slightly more weighted to the U.K. than Germany. That will change now going forward. We are going to be looking at a predominantly German-only effort, at least until May, June of next year. If we have a look at what that looks like in a valuation perspective, net yield shift of 4 bps. Well, that's going out, not coming in. So again, the 4 bps don't really make much difference, but the signal from the values is that -- in the U.K. yields continue to widen. If we look at the bottom right-hand corner and you see the assets being included not just on a like-for-like basis, but the acquisitions that have been made in the period, you see the opposite to what I described in Germany. You see a gross yield coming in to 12.3%. At March 25, it was 14.1%. And you see the net yield coming in from 9.5% to 8.8%. That is reflective of the quality of assets we've been buying in the U.K. When you think about Hartlebury, when you think about Vantage, when you think about Chalcroft, I could go on. We have consistently been buying higher quality assets than the assets we inherited when we bought the business. They typically have longer lease lengths. That's not long lease lengths. That's longer lease lengths. So what we're doing in the acquisition program that we've conducted thus far in the U.K. that we are going to be pausing on until at least June of next year. What we've done is actively gone out to increase the overall quality of the portfolio, and that's reflected by what you see in the bottom right-hand corner. If we go across the page, what we can see in the U.K. is we've been able to attract more inquiries. A little bit deceiving there because we're not passive. It's not like we just sit there and say, what does the market give us in inquiries. We have worked much, much harder to acquire more inquiries that we've -- then been able to convert into sales. Please don't look at these numbers and think U.K. market is going up, because this lead flow reflects what is happening when you just passively sit there and try and collect whatever the market gives you. These numbers are misleading if you read them like this. We have had to work a lot harder to increase that inquiry flow in the U.K. If we go across to the acquisitions, I've talked about Hartlebury in the middle here. Bedford on the left-hand side, interesting enough, 1/3 of the rent roll in Bedford is underpinned by a company that manufactures parts for ejector seats for the defense industry. In fact, they make parts for the ejector seats in the F-35, Typhoon Eurofighter. So when you see these orders being announced by U.K. defense industry, that factory is one of the beneficiary of those orders. Chalcroft, I'm delighted to tell you that we've had very strong interest from a major supermarket. So Chalcroft next door to it has got hundreds of new houses currently being built. And we're in advanced discussions with a major supermarket to develop on the front land of that site, one of the big four supermarkets to serve that residential area. So call that a stroke of luck, call it whatever you like, but that's going to be quite good for us. Let me hand over to Chris. Chris Bowman: So I don't intend to -- just on Page 24, I won't go through these line by line, but I think the highlights, obviously, on -- in aggregate, we have acquired an 8.1% gross yield. You've seen earlier that our existing portfolio is valued around 7.4, 7.5, and in aggregate, we have acquired EUR 338 million, of which EUR 295 million completed in the period. Feldkirchen just at the bottom there in November, completed last week. So that is also now on balance sheet. I think if you look at timing, then just to reiterate Andrew's point earlier, the majority of these acquisitions actually completed towards the end of the first half. So really, that annualized rental income of EUR 25.8 million has yet to actually flow through into the P&L, but there is significant growth to come through, which is in the tank for future periods. On the disposals, Pfungstadt, we have notarized the recycling of that asset, EUR 30 million in Germany, that completes at the end of this financial year, so at the end of March for EUR 30 million. Just to head off, I'm sure I got a question on Tyseley, why have we sold an asset in Tyseley at 16.6% gross yield. There was also significant maintenance cost there and getting straight to the point, it needed a new roof, which would have been an additional EUR 3 million spend. So from a business planning perspective, it made sense to realize that asset at this time. And it's also linked to the continued consolidation of the U.K. portfolio. We're just looking to exit some of the non-core smaller assets, and you'll continue to see us do that. Page 25. Andrew Coombs: Okay, folks. So just before I introduce Page 5 (sic) [ Page 25, ] let me remind you that we are currently within our stated mission to get to EUR 150 million. And according to consensus, we should get there at the end of the '28 year. We obviously want to do it earlier, but we should get there at the end of the '28 year. Now if you look at this page on the left-hand side, it picks stuff up at the end of the financial year last year, so March '25, when we did EUR 123 million of FFO. As you know, consensus is that we'll do north of EUR 133 million this year, and we are trading in line with those expectations. So when you come out of this year at EUR 133 million, looking at doing something beginning with EUR 140 million next year, you then need to start thinking beyond your EUR 150 million goal. There is no point in a long-term business like property or wait until you get there and then go, let's pause, congratulate ourselves, start again after we've had a holiday and a bit of a break because you lose the momentum. You've got to start thinking far enough ahead about what you do now that determines your result in 3 years' time. Think about it, we buy a property now. And in some cases, it becomes -- you really get into the value add next year. But in a lot of cases, it takes 2 or 3 years to get into that sweet spot of value creation. And therefore, unless you're thinking about it now, you're not going to be there in 3 years' time. So it should be no surprise that now that we are in the EUR 133 million a year, moving into the EUR 140 million-something a year, that what we do is we start to plan beyond the EUR 150 million. And this is not just for shareholders. This is internally in the company. We are having meetings with people, and we're saying, what's next? Are we properly resourced? Do we have the right sites? So what you're seeing for the first time on this page is you're seeing us publicly talk about the next leg of the journey. Now beyond the EUR 150 million, the ambition will be EUR 200 million. But the first leg of the journey from EUR 150 million to EUR 200 million will be the leg to EUR 175 million, and that's what you see laid out here. And one of the things that you should take great comfort from is if you look at that pillar that says EUR 40 million, well, half of that is already done. Half of that has been executed, closed off, in the bag, in our control. What we need to focus on is the other half of it. And this EUR 175 million, when we get to this EUR 175 million, this should be driving a dividend at roughly a 70% payout ratio, a dividend that's somewhere in the region of about EUR 0.075. So at the moment, we're heading towards EUR 0.064. This EUR 175 million takes you to EUR 0.075. Now it does matter the detail of how you get there. But at the moment, it kind of doesn't because at the moment, it's about the aspiration. It's about the mindset. It's about the shape of your thinking to be pushing towards that EUR 175 million, to be able to realize the value creation and the value benefits that come from that. And that's why we're laying it out in public because we've already started to talk about it internally and plan for it. But what you should take some comfort from is the mindset of this company is to grow. And in spite of the headwinds that Chris has spoken about, those headwinds are not a reason for us to stop. They are a reason for us to accelerate. They are a reason for us to expand our thinking because if we're going to achieve the growth trajectory that we're used to, we need to think beyond the problem of the finance headwinds, which I hope we've demonstrated thus far, we are capable of overcoming. Let me turn to the next page and let Chris take you through financing. Chris Bowman: So yes, just on Page 26, just on financing, just as a reminder, on the balance sheet, we have EUR 1.21 billion of unsecured borrowings. That is in 3 bonds. So June '26, EUR 400 million comes due. That is essentially refinanced. We have the cash plus RCF to be able to repay that, and we have that cash earmarked for that. So that is done. November '28, we have EUR 465 million outstanding at a 1.75%. That is our last refinancing of what I call legacy debt. It's been great. It's been fantastic, but we need to take that journey back up to market. So EUR 465 million comes due in November '28. I would guide you now to we will refinance that in autumn of '27. And that is factored into all of our forecasting, et cetera, to still outrun that, still grow FFO and get through that journey. January '32, we have EUR 350 million outstanding at 4%. That was a bond we issued in January this year for which we had around EUR 2 billion of demand. So we've got great support from the debt capital markets. And obviously, we also tapped the '28 bond in the summer for EUR 105 million. Again, great support for that issuance. We do remain below a benchmark issuer. So we're having investment-grade rating that was reaffirmed by Fitch. But in the bond markets, over EUR 500 million gets you to benchmark issuer size. The reason I flagged that is because at the point that we become a benchmark issuer, you should expect our marginal cost to start coming in a little bit as well as we essentially become an issuer that investors need to look at as we go into those indices. On the secured side, EUR 232 million with Berlin Hyp and Deutsche pbb that is secured out to 2030 on a portfolio of German assets at 4.25%. Net LTV is up at 38.3% at the period end, reflecting the acquisition activity during the period. Interest cover over 4.5x. Net debt- to-EBITDA 6.7x, well below 8x where we target. As I say, we also signed a EUR 150 million RCF in the period with BNP, HSBC and ABN AMRO. There is an accordion feature in there to be able to increase it by another EUR 100 million. I have verbal indications of wanting to do that from banks. So we are in a strong position liquidity-wise. And as well, as I said, we have a bond tap in the period. Page 27. I'll just summarize before handing over to Andrew to conclude. So I think what have we seen in this period, we've seen fantastic strong organic growth as well as acquisitive growth that is in the tank, which has partly come through in the period, but will really start to accelerate our performance in the second half and beyond. So 6.6% FFO growth, underpinned by that 5.2% like-for-like rent roll, but the 15.2% increase in total rent roll gives you the marker as to where we are heading. U.K. and Germany, both performing well as discussed. And acquisitions, we've touched on. We've increased the dividend by 4%. That is ahead of expectations. I think the market was only expecting between 1% and 2%. I think you should take that as a sign of confidence from Andrew and I and also our Board in the future performance of this company. We want to continue to focus on generating cash flow, which we reward shareholders with through dividends. So I'd guide you to that kind of level of increase going forward as well. We're in a strong position on the balance sheet side, EUR 389 million of unrestricted cash plus the RCF that's undrawn, 38% LTV, and we've touched on the bond and RCF earlier. I'll hand over to Andrew on 28. Andrew Coombs: Okay. So really, the sort of second and third point here are all about the 5% growth. I just want to sort of cover something that I think is quite important because the group continues to trade in line with management expectations for the full year, but the cynics around the table might possibly look at the 5.2% like-for-like growth and compare it to the same period last year at 5.5% and think actually, it's less than it was this time last year. And of course, factually, you'd be absolutely correct. I wouldn't draw a great deal from that at all because when we say that we're trading in line with expectations, we mean we're trading in line with expectations. And I would draw your attention to the half year in 2022, where in the first half of the year, we achieved 2.4% like-for-like growth. But what actually happened when we looked at the full year is we came out at nearly 6.5%. What we always do is try and make sure that our problems are stacked into the first half. If we have a lease that is a big move-out that's due to go on March 31st, we'll try and push it years before it happens into April. When we're signing something new, if we know that it's a high proportion of a site, we will tend to make sure that the lease can only terminate in the first half of the year. We deliberately try and stack our problems into the first half to get a better and accelerating run in the second half. And if you look historically at our performance in H2 versus H1, you will see time and time again that our momentum accelerates in the second half. We would plan to be somewhere in between that 6% to 7% like-for-like for the year, probably somewhere around the midrange of that. Please do not think that because we're 5.2% this year and 5.5% last year, that there is some kind of slowing effect here. That is not what we are seeing, particularly given the momentum that we're anticipating in Germany. We accept things are going to get more difficult in the U.K., but we believe that will be balanced out in Germany. And please let's not forget that what we have done here in this last 6 months is not just gone out and acquired EUR 340 million of property, but we have continued to operate the company and do so well with a decent set of numbers. So one has not distracted the other. We have demonstrated the ability of the portfolio to do both and to do both well. And what I'd like to finish on is the 10-year track record of performance and growth where this company is concerned, and particularly at the top, the dividend, where we are now paying our 24th consecutive increase in dividend. And as Andrew Jones would say, dividend aristocracy is, I think, 25 years of progressively increasing dividend. We are now reaching the halfway point on that journey. Thank you very much. Happy to answer any questions people may have. Timothy Leckie: Tim Leckie, Panmure Liberum. Just two questions. I think one for Andrew, one for Chris. Andrew, the 15% sales conversion from inquiries, what's behind that? Is 15% the number you -- is that a final point, or do we push on? What is your thinking there? And then after that, for Chris, you mentioned the margin improvement once you hit the EUR 500 million. Could you just perhaps remind us where you see your current spread, and what the improvement might be at that higher volume? Andrew Coombs: So when we consistently get to 15%, yes, we definitely will push higher. When I started this company, sales conversion was less than 3%. And when we started to target over 10%, there was almost rebellion because people said it's impossible. We're now touching 15%. And once we get above 15%, that target will increase. How have we done that? Well, we've done that by working out the component parts that make up sales conversion. And despite it not being broken, taking them apart, dismantling them and looking at every individual piece and working out how we can do it better. And specifically, the piece that we are doing better that is improving our sales conversion is self-storage. And what we have worked out, and I'm not suggesting that we worked out a better way of selling self-storage and self-storage specialists, not at all. But we have worked out a better way of doing it than we've been doing it in the past. And that is beginning to have a material difference on the overall sales conversion of everything we sell. Chris Bowman: Chris here, on the margin, if I just take 5 years -- 5-year money, for instance, in the bond market, we are -- because we are sub-benchmark and the margin has tended to move around a little bit in the range of 160 to 190, and it's been particularly volatile over the last week or 2, given macro. I think the opportunity for us once we're into benchmark is to be at least probably 10 basis points tighter, but also less volatile. So -- and we will, I would expect, start to come in towards the lower end of that margin range. So that's the margin over 5-year swaps. Thomas Musson: It's Tom Musson at Berenberg. Yes, just again, a question on conversion as it relates to the U.K. business, which I think is slightly under 9%. Have you got the same 15% conversion target for the U.K. as well? And is sort of achieving that a realistic prospect over time, or are there perhaps any sort of structural differences between the platforms, and how they operate in the two different geographies? And then the second question, now that the U.K. business is larger and so FX becomes more of a consideration, would you consider using hedging instruments going forward? Andrew Coombs: I take the first part if you take the second. So firstly, the U.K. business has a 10% target. We didn't get to 15% from 3% in Germany by saying the target is 15%. We got there in incremental steps, and we broke the journey down. And we're into the journey to 10% with the U.K. business. The U.K. market is a different market from the German market. The U.K. market is more intermediated. And from that perspective, getting control of initial inquiry is more competitive than it is in Germany. But interestingly enough, the U.K. inquiry market is changing, and it's changing faster than it's changing in Germany. And it's changing specifically and faster because of the use of AI. So what other operators may or may not realize is 25% of the property-based Google traffic of 12 months ago is now going through AI. And what that means is that a broker's life, particularly a web broker, is much, much harder. What that means is whereas web brokers used to spend time talking to customers, customers are spending much less time talking to brokers and more time talking to AI. And when I say talking, I mean talking. Instead of typing and tapping into a screen, people are talking to their phones and the AI mechanisms are bringing back the kind of conversation that normally would have happened in a call center broker-type environment. So that whole thing in the U.K. is shifting. The only piece that isn't shifting is pay-per-click, PPC, because AI is not touching PPC at the moment because it's not tried to monetize itself. And what you really need to be doing if you are a smart operator that wants to keep control of your inquiry flow is you need to start understanding this because this is now moving, and it's changing the passage of an inquiry, particularly inquiries for flexible space, an inquiry that instead of going through a web broker is going through, not in every case, but in 1 in 4 cases, going through AI. And you've got to work out how you deal with that because that is going to change the marketplace. So of course, we're concerned about getting to 10%, et cetera. But actually, in the U.K., what we're more concerned about is how we continue to capture inquiries because prospective inquiries of a certain size are now more interested in talking to an AI machine than they are talking to a broker or a call center. Still predominantly the broker and the call center has control, but that control is tipping out of the brokers' and the providers' interest and towards what I call mechanical AI systems. And we're going to need to know how to compete with that. So that will come to Germany, but it hasn't started to touch that market properly yet. You can see it much more clearly in the U.K. market. And that's why I say, don't be confused about the fact that our inquiry numbers are going up. Our inquiry numbers are going up, not because we're sitting there, our inquiry numbers are going up because we're going out and working other channels and doing things whereby we can take control earlier on rather than watch AI steal the bread from our table. Chris? Chris Bowman: Okay. I've spent a lot of time on investigating hedging and my conclusion is that it's brought with danger. So -- and it's a drug which once we -- if we got into, it will be very hard to come off. So I think to manufacture hedging, be it buy forward euros, let's, for instance, say, buy forward the entire U.K. portfolio to fix the value at the end of the financial year, for instance, and at that point, I would have to realize at the end of the financial year, a gain or loss on the portfolio on that forward, and I'd have to almost certainly roll that hedge, and there'll be a significant cost to putting that hedge in place. And ultimately, we are a business exposed to two markets. So I'd be trying to manufacture the exposure to the U.K. out of the balance sheet when in reality, we are exposed to two different markets. So going and putting in place some sort of derivatives to try and manage hedging, I've seen lots of CFOs get into all sorts of trouble trying to go down that road. And I don't want to be sitting here talking about the mark-to-market of derivative instruments every time I come and talk to you. So we have a shareholder base, which is spread across euro, sterling, rand, and I'm sure some are dollar-denominated as well. So investors who invest in us, I largely leave it to them to deal with hedging. Now the only structural piece of hedging that could, at some point, make sense is simply to put sterling debt into the balance sheet. So match the debt with the asset base. And I completely understand that challenge and that question. There's two points I'd say. Number one, in euro terms, we are still maturing on the balance sheet as an issuer in the debt capital market. So there is still upside in terms of the cost of our euro-denominated debt versus in sterling, we are certainly subscale to go into the debt capital markets for debt. So we will be forced down the secured lending route, which obviously creates much less flexibility from a balance sheet perspective. And obviously, the difference in cost between euro and sterling, I'm sure, has probably blown out even further in the last few days, but was 200 basis points. Let's say, it's between 200 and 250 basis points. There is a funding benefit to us through the FFO, and we are ultimately cash flow focused from an FFO perspective. And what I'd also say is then when you look at the portfolio, we're split, I think, 71%, 29% at the moment between Germany, U.K. With the acquisition activity that we expect going forward, which we expect to be more German focused, that balance will start to push more towards Germany again. So we will continue to be very much a minority exposed to the U.K. So I think my answer is no. I'm not going to get down the kind of manufacturing hedging. At some point in the future, it will make sense to put sterling leverage in, but we're on a journey at the moment. And I know it's difficult at the moment given the FX effects that you see on the balance sheet that -- to sort of have a knee-jerk reaction and say, "Oh, we must hedge." I think that's brought with danger. We're not going to go there. Matthew Saperia: It's Matt Saperia from Peel Hunt. I'm also going to ask one question to each of you, if I can. Andrew, I think on Slide 9, you talked about the 4.7% like-for-like rate growth as a failure and -- as much as it was above the 4% that you were targeting. Are you going to ask your colleagues to do things differently going forward, or are you still happy for them to push rate ahead of what you might be targeting when it comes to new demand? Andrew Coombs: Well, specifically, what we are saying more in the U.K. than in Germany is we need to increase our sales volume. And if we have to reduce price within certain parameters and corridors to do so, that's what we must do. And what we're seeing is we're seeing a lot of people sort of nod to that, but then kind of still favor price over occupancy. And therein lies our challenge because I think as things tighten in the U.K., what we're seeing is we're seeing tenants look for smaller spaces than they normally would. And what that means is we have to win more customers than we normally would to maintain and increase our occupancy. And to do that, you either have to get more inquiries and/or you have to improve your sales conversion. And one of, not the only thing, but one of the ways you improve sales conversion is loosen on price a little. Now all of that is in a very controlled environment, where we make sure that people can't lower the price so much that we start to bring the average rate per square meter or square foot in the U.K. of the portfolio down. But whereas we used to be in a very nice world where you just said, as long as you sell higher than they move out, it all works. Now you're having to operate in a corridor whereby you do sometimes have to sell at lower than the move-out rate, and you better make absolutely sure that you can make up for that in your renewals and expansions. Otherwise, you're going to start ticking the average rate per square meter of your portfolio down. So this is quite a delicate area. And in the U.K. rather than Germany, this is going to get kind of more detailed going forward. And some of that is because the average size that people in the U.K. are inquiring about is getting smaller. So what you have to do is work the platform harder to get more customers. So this is not a sort of -- you set it and leave it for 6 months, this is daily management. We have a professional sales force that's properly trained in specific methods with specific processes and systems that are managed on a daily basis, and we're continually pushing buttons and pulling levers where this is concerned. It's quite intense. Matthew Saperia: And Chris, on Slide 18, you talked about a EUR 25 million potential future new build program. Chris Bowman: Yes. Matthew Saperia: Two parts. One is sort of what time frame are you talking about? And the second part, I'm assuming that's not exhaustive across the whole portfolio. There must be... Chris Bowman: No, no, no. So that's specifically four opportunities, that is one at Gartenfeld, two at Klipphausen and one at Dresden site, MicroPolis. The Gartenfeld opportunity new build is likely to tangibly start in the new year. The Dresden MicroPolis site is probably going to depend on -- not necessarily a firm pre-let, but at least some very strong indication. And the Klipphausen site, I think we've talked about Klipphausen in the past, it's been a sort of poster child for us of success, and we have development land around the existing site, which we acquired at the time of original acquisition, and there is opportunity to build additional production holes there. Net-net, I think I'd guide you to the EUR 25 million of opportunities, you're probably looking at EUR 10 million per year actually coming through. So it is a separate bucket to our business as usual CapEx. It's capital that has to compete with acquisitions for use essentially. Sarim Chaudhry: Sarim Chaudhry from Jefferies. Just a quick one. I think this is for Chris. On the divi, you got mid-70s payout and then you doing medium-term guidance of 70%. I think previously when we've spoken, that was going to be in the mid-60s. So what's that change? Chris Bowman: So we absolutely still have the aim to be at 65% payout ratio of FFO. And the model being 65% payout ratio plus the CapEx broadly equates to FFO as a whole. So we are, therefore, self-sustaining as a business. Actually, we are getting tighter and tighter on CapEx. So actually, we do have a little bit of headroom from CapEx versus dividend there. But we also flexed the payout ratio between 65% and 75% off the back of the fund raise, the equity fund raise last year and prior year to reflect the short-term dilution to FFO per share as we put the capital to work. So at the moment, you're essentially at kind of max. You're about 74% payout ratio. You should see that come down even at the end of the year, and you should see it come down and settle around 70%. What I'd also then say is that I think we are so confident and the Board is so confident about the growth prospects of the business going forward that we're also mindful that we're having to go through the financing headwinds as well over the next 3 years. So we are flexing within that 65% to 75% and saying that we want to settle around 70%, and we'll get there over the next 18 months, and we're happy, comfortable staying there through out to FY '29. On that chart, you saw the waterfall to get from EUR 123 million to our new target of EUR 175 million. The additional interest expense of EUR 34 million is all of the additional interest expense. So that is the journey of refinancing done. And in fact, there is an additional small amount of additional debt in there as well. So that is -- there is no more kind of headwinds to come beyond that essentially. And then obviously, once that journey is done, the results will be free to really outperform. Andrew Coombs: So can I just pick up on that because there's nothing new in this. We have always, for over a decade, operated in that 65% to 75%. We've always made sure that when we are facing things like deployment of capital, other types of headwinds that we flex up to 75%, knowing that we can come back down to 65% again. We're doing exactly the same. The difference is what we are saying is that we recognize that we are unlikely to get back down to the 65% until such time as we've overcome that interest rate challenge. And that ultimately won't be until the year ending March '29 because in December '28, we have another low interest bond to overcome. So realistically, we're going to be in that 70% to 75% corridor until we overcome that second bond. But once we do, the growth profile of this business will no longer have the headwinds. So therefore, you will really see the top come off it, and we'll then be able to return back to 65% in a very -- whereas to try and do it in this period, we think that that's unnecessarily kind of ambitious in terms of getting back to that 65%. So we're operating in the same way as we've operated for a very, very long time. We're just trying to give guidance to say, in the past, we've got down to 65% like really quickly. Because of these successive headwinds, we are probably going to be in that 70% to 75% bracket until we get to '29 and then we can put it back down to 65%. Still a very well-covered dividend. Maxwell Nimmo: Just a quick follow-up question. I think you talked -- sorry, it's Max Nimmo at Deutsche Numis. You talked a bit about the U.K. previously and saying we kind of just need to wait until we get through the budget. But it sounds like from what you're saying now that it's actually a bit more of a longer-term structural issue that's harder -- and so investment in this market is unlikely to be until, I think you said, next summer and that... Andrew Coombs: Let me tell you why that's changed. That's changed as a result of Thursday of last week. It's changed because what we can all see now is the leadership of the current government is under threat. And I don't care if they all came out and said, we've made friends, and we're all going to live happily ever after and not stab each other in the back. I won't believe it until I see the results of the May elections next year. And that roughly coincides with the announcement of our end of year results. So I'm not saying that we might not make the odd exception for a very small amount of money if it was something to do with defense or self-storage in the U.K. But unless it's in like a really exciting vertical for an amazing price, as far as I'm concerned, we are paused in the U.K. now until we understand the political outcome until at least the middle of next year. Clear? Maxwell Nimmo: Very clear, year. Andrew Coombs: Folks, thank you very much indeed.
Operator: Good day, ladies and gentlemen. Welcome to the Natural Grocers Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, today's call is being recorded. I'd now like to turn the conference over to Ms. Jessica Thiessen, Vice President, Treasurer for Natural Grocers. Miss Thiessen, you may begin. Jessica Thiessen: Good afternoon, and thank you for joining us for the Natural Grocers by Vitamin Cottage Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. On the call with me today are Kemper Isely, Co-President, and Richard Helle, Chief Financial Officer. As a reminder, certain information provided during this conference call, including the company's outlook for fiscal 2026, contains forward-looking statements based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements due to a variety of factors, including the risks and uncertainties detailed in the company's most recently filed forms 10-Q and 10-Ks. The company undertakes no obligation to update forward-looking statements. Our remarks today include references to adjusted EBITDA, which is a non-GAAP measure. Please see our earnings release for a reconciliation of adjusted EBITDA to net income. Today's earnings release is available on the company's website and a recording of this call will be available on the website at investors.naturalgrocers.com. Now I will turn the call over to Kemper. Thank you, Jessica. Kemper Isely: And good afternoon, everyone. We are pleased with our fourth quarter performance with sales in line with guidance and diluted earnings per share above guidance. On today's call, I will highlight our financial results, including performance drivers, and provide an update on our key operational initiatives. Then Rich will discuss our fourth quarter results in greater detail and review our fiscal year 2026 outlook. Our fourth quarter sales were in line with guidance. Daily average comparable store sales increased 4.2% and on a two-year basis increased 11.3%. The moderation in fourth quarter sales comps compared to the third quarter was driven by several factors. We cycled 7% comps in each of the fourth quarters of the previous two fiscal years. As previously disclosed, UNFI's June 2025 cybersecurity incident constrained UNFI's ability to fulfill orders and distribute products to our stores and had a direct impact on our sales in June and July. Additionally, uncertainty in the economic environment has persisted and we saw consumer behavior shift toward more cautious retail spending in the fourth quarter. Over the past several years, we have focused on operational execution, including refining targeted promotions and store productivity initiatives. That ongoing effort combined with expense leverage from higher sales resulted in an operating margin improvement of 90 basis points for the fourth quarter, driving our fiscal year 2025 diluted earnings per share to a record $2 per share. We are proud that fiscal 2025 represented another year of record sales and earnings. Additionally, fiscal 2025 was our twenty-second consecutive year of positive comparable store sales growth. Consumers continued to be drawn to our differentiated offering of high-quality natural and organic products, reflecting their prioritization of health and wellness, including food and nutrition. We believe that consumers' prioritization of health and wellness will prove to be resilient. While we are seeing some macro pressures affecting the broader retail landscape, we believe that our commitment to always affordable prices provides compelling value for our customers, strengthening our competitive position during periods of economic uncertainty. Next, I will share an update on our key priorities that have fueled recent growth and are expected to drive our long-term success. We continue to enhance the personalization and interactivity of our nPower Rewards program offerings. During the fourth quarter, nPower net sales penetration held strong at 82%. The maturity and high penetration of our nPower Rewards program enables efficient and relevant customer engagement, including communicating our differentiation to new members, personalizing offers to tenured members, or presenting offers to customers who haven't engaged with us recently. Our Natural Grocers branded products continue to experience elevated growth. In the fourth quarter, our house branded products accounted for 8.8% of total sales, up from 8.4% a year ago. During fiscal 2025, we extended our natural brand offerings with the launch of 119 new items, all of which exhibit premium quality at compelling prices. Accelerating new store growth is another core element of our strategy. In fiscal 2025, we opened two new stores, relocated two stores, and remodeled one store. Today, we are reiterating our plan of opening six to eight new stores in fiscal 2026, underscoring the quality of our pipeline and execution capabilities. We are committed to 4% to 5% annual new store unit growth for the foreseeable future. We also remain committed to enhancing value for our stockholders by maintaining a balanced approach to capital allocation. In addition to investing in our business to drive faster unit growth, we are proud to announce that we are increasing the quarterly cash dividend by 25% to $0.15 per common share, reflecting our strong fiscal 2025 operating performance and financial position, as well as confidence in our ability to create long-term stockholder value. In closing, I would like to thank our Good4U crew. Their commitment to operational excellence and exceptional customer service was instrumental in driving our strong results. We are fortunate to have a crew who share an affinity for our founding principles and are dedicated to ensuring that our stores, operations, and supply chain reflect these values. Now I will turn our call over to Rich to discuss our financial results in greater detail and fiscal 2026 guidance. Richard Helle: Thank you, Kemper, and good afternoon. We are pleased with our fourth quarter results. Sales were in line with expectations, and diluted earnings per share exceeded our outlook. Net sales increased 4.2% from the prior year period to $336.1 million. Daily average comparable store sales increased 4.2% and on a two-year basis increased 11.3%. Comps were at the lower end of our guidance range, which we believe primarily reflects the shift in consumer retail spending. Our daily average comparable transaction count increased 2.4%, and our daily average comparable transaction size increased 1.8%, primarily due to annualized product inflation of approximately 2%. Items per basket were relatively flat year over year. In consideration of the broader macro environment, we continue to monitor consumer trends closely. We continued to see the greatest sales growth in our most differentiated offerings, including meat and dairy. These are often considered premium offerings because our product standards include humanely and sustainably sourced meat, pasture-raised and non-confinement dairy, and a minimum standard of free-range eggs. We saw a modest decline in the number of transactions using SNAP EBT in the fourth quarter. SNAP represents approximately 2% of net sales, and the reduction in SNAP transactions was immaterial to our overall sales comp for the quarter. Gross margin decreased 10 basis points to 29.5%, driven by lower product margin. Store expenses as a percentage of net sales decreased 90 basis points, primarily driven by lower long-lived asset impairment charges and expense leverage. These culminated in a net income increase of 31% to $11.8 million and diluted earnings per share of $0.51. Adjusted EBITDA increased 7.7% to $24.4 million. Briefly touching on the full year results, in fiscal 2025, total revenue increased 7.2% to $1.33 billion. Our daily average comparable store sales growth was 7.3%, and 14.3% on a two-year basis. Gross margin improved 50 basis points compared to the prior year, driven by higher product margin primarily attributed to effective promotions and store occupancy cost leverage. Store expenses as a percentage of sales were 50 basis points lower than the prior year, driven by expense leverage and lower long-lived asset impairment charges. For fiscal 2025, diluted earnings per share increased 36.1% to $2 compared to $1.47 in fiscal 2024, and adjusted EBITDA increased 17.5% to $97.9 million. Turning to the balance sheet and cash flow, we ended the fourth quarter in a strong liquidity position, including $17.1 million in cash and cash equivalents, no outstanding borrowings, and $70.1 million available for borrowing on our revolving credit facility. During fiscal 2025, we generated cash from operations of $55.3 million and invested $31 million in net capital expenditures, primarily for new and relocated stores, resulting in free cash flow of $24.3 million. Now I'd like to review the company's outlook, which reflects both the opportunities we see in our differentiated market position and appropriate caution given the current consumer environment. We believe our value proposition will continue to be compelling during periods of economic uncertainty. For fiscal year 2026, we expect to open six to eight new stores, relocate or remodel two to three existing stores, achieve daily average comparable store sales growth between 1.5% and 4%, and achieve diluted earnings per share between $2 and $2.15. We plan to direct $50 million to $55 million towards capital expenditures to support our growth initiatives. In addition, our outlook includes the benefits of our new store growth, targeted marketing focused on our value proposition and differentiation, and initiatives focused on driving higher productivity across our operations. The pace of new store openings will be weighted towards the back half of the fiscal year. Our current expectation is that sales comps will be at the low end of our outlook range in the first half of the year as we cycle relatively strong comps in the prior year, while increasing slightly in the second half of the year as we cycle lower comps. Additionally, the comp range reflects the uncertainty in the consumer environment. Kemper Isely: We expect modest inflation throughout the year in line with current trends. Richard Helle: Our outlook anticipates that year-over-year gross margin will be relatively flat, primarily depending on the level of promotional activity. We expect that year-over-year store expenses as a percentage of net sales will be relatively flat to slightly lower. Lastly, we are investing approximately $0.12 of diluted earnings per share in new store openings, primarily through higher preopening expenses and store expenses. Kemper Isely: We continue to believe that we have significant opportunity to achieve sustainable long-term growth due to our alignment with consumer trends, strong customer engagement through our nPower Rewards program, expansion of the Natural Grocers branded products, existing store productivity initiatives, and investment in new store unit growth. In closing, we had a solid quarter to conclude a record-setting fiscal year. We are confident in our ability to continue to drive profitable long-term growth and enhance value for all stakeholders. Now we'd like to open the line for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Chuck Cerankosky with Northcoast Research. Please go ahead. Chuck Cerankosky: Good afternoon, everyone. Nice quarter. Kemper Isely: Thanks, Chuck. Chuck Cerankosky: Given the increased price sensitivity right now in the consumer environment, and the company's 8.8% own brands penetration, is this a good time to get that number higher and to make customers more aware of the value in the Natural Grocers brands? Kemper Isely: Yeah. I think that would be true. I mean, we definitely are marketing our own brand extensively right now, and we have some really compelling prices on items that we are promoting aggressively, and we do not have to discount those prices because they're already substantially better priced than our competitors. Chuck Cerankosky: Do you have any particular goals for the penetration over the next couple of years, like maybe 10%? Kemper Isely: Our goal is to increase the penetration by one full percentage point per year, so we're at 8.8%. So two years from now, we should be at 10.8% or even 11%. Scott Mushkin: The next question is from Scott Mushkin with R5 Capital. Please go ahead. Scott Mushkin: Hey guys, thanks for taking my questions. So one of the things we hear from investors about is kind of generally the space of natural organic is that it's not the macro. That it's similar to what we saw last decade that's, you know, kind of traditional supermarkets and others in the marketplace kinda caught up given what they saw with how strong your sales and others have been. And are offering a lot of the same products at lower prices. What do you think about that thought process? Kemper Isely: I think that that's been going on since 1978. And we've done a really good job of differentiating from those from the other supermarkets. And having an authentic story and an authentic brand that resonates with consumers. And it's helped us to build our business to over a billion-dollar business. The conventional supermarkets and Costco and Walmart, they only sell the product because it sells. It isn't because of the story of the product. We sell the product because it is what we are. And so, it makes a huge difference to our customers and keeps our customers incredibly loyal. And it also helps us to keep on growing and expanding our customer base. And companies like Whole Foods are kind of losing track of that by becoming, as they said, the Amazon-ination, whatever it was, the Wall Street Journal article was the other day. And then the Forbes article that followed up on it. And so that's making our brand all the stronger. And then you have the wannabes like Sprouts who doesn't really, I mean, they sell stuff because they it sells, but they don't really have the standards that we do or the ethics that we do about the products that we sell. Scott Mushkin: Then, Kemper, what specifically or Richard, what specifically in the business do you see that would kinda make you gravitate towards, hey. It's things are become much more challenging in the economy. And that's the root of you know, some of the more cautious comments. Kemper Isely: Well, the people that are on the periphery of shopping in our stores that aren't our most loyal customers have definitely pulled back and gone I don't I don't know where they're shopping, but they've pulled back. And so that's that's that's made it so that we're just a little more cautious about our growth. But I think that some of our new marketing initiatives will start to gain traction in not this quarter, but next quarter, and we should see an uptick again in our growth. Scott Mushkin: I mean, because of that. Doubt, Scott, that the economy is playing a factor today. I mean, we have massive economic uncertainty. Consumer sentiment is at historic lows. We've seen announcement of significant job layoffs. Had the government shutdown, the loss of government benefits. Richard Helle: Tariffs, you know, and their impact to inflation. I mean, a majority of Americans are expecting that tariffs will result in higher prices. Scott Mushkin: You've had a pretty large. Richard Helle: Well, they are resulting in higher prices. And they are. But there's an expectation of future higher prices from tariffs. All of it is kind of, you know, is creating this uncertainty. There's definitely, as you've heard, you know, across all retail, a pullback by lower and middle-income consumers. Kemper Isely: You know, and a bifurcation in the consumer segment where higher households are continuing to spend. But, you know, as we even heard this morning from Walmart, everybody is looking for value. And so we are going to lean into our differentiation. Richard Helle: Everybody's looking for value, part of our founding principles always affordable prices. And we're gonna continue to lean hard into that. And as Kemper said, you know, we're also very highly differentiated in terms of the quality of our shopping experience. We provide access to nutrition education. Kemper Isely: And we have high product standards that you can trust. So we're gonna continue to lean into those things. Our core customer base is resilient. Our core customer base is growing at a healthy rate. Scott Mushkin: So we have a lot of confidence that, you know, there is a lot of economic concern. That is certainly a driver. Kemper Isely: The natural and organic segment, yes, is pulling back, but so is the entire, I think, segment overall. And we still believe in the health and wellness trends. I mean, you look at GLP-1 penetration rates, they've doubled over the last year. Richard Helle: Significant interest in continuing for many more Americans to try those drugs. We understand that those individuals are looking for more nutritious options post that. And so we you know, it's not linear. Right? I mean, as Kemper said, natural and organic has been going through multiple cycles over the last four, five decades, and we'll continue to do that. But we believe the trends, the long-term trends that they will continue to have, you know, 4% to 6% industry growth. It's just not going to be a straight line. Scott Mushkin: Thanks for that color. And then I actually had just one more, and I apologize because my model's not front of me. So I probably should know this answer off top of my head. But are you guys thinking free cash flow next year will be positive, flat, and what's your thought process around 2026 free cash flow? Richard Helle: Yeah. Free cash flow will be positive next year. Yeah. That's that's our expectation. Yes. We are investing more in CapEx. Right? We are talking about increasing store openings, continuing to do relocations and remodels. We are looking at we're guiding $50 to $55 million in CapEx to support those initiatives. We're excited about the real estate pipeline that we have. Kemper Isely: And about the growth prospects, you know. And we've we've really refined our site selection process and are excited about the communities that we're going in and the positive impact that those communities will have to the overall business. Richard Helle: And then also we're strategically buying some of our buildings. So just to add a little bit more color to the CapEx. Scott Mushkin: Yeah. Alright. Well, guys, I appreciate it. And for the record, I kind of I definitely agree with you guys on the economy. I think it's a little bit tough sliding out there right now. But thanks for thanks for all the color. Kemper Isely: Sure. Thanks, Scott. Operator: Again, if you have a question, please press 1. Operator: Showing no further questions. This concludes our question and answer session. I would like to turn the conference back over to Kemper Isely for any closing remarks. Kemper Isely: Thank you for joining us to discuss our fourth quarter results. We take great pride in our sales and profitability growth in fiscal year 2025 and in recent years. We are committed to maximizing value for our stockholders as we look forward to fiscal year 2026. We expect to build upon our momentum by executing to our founding principles, including highlighting our always affordable pricing strategy and differentiated product offering, emphasizing operational excellence, and delivering on our new store unit growth plans. Thank you. And have a great day. Bye now. Operator: The conference call has now concluded. Thank you for attending the Natural Grocers Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. You may now disconnect.
Andrzej Matyczynski: Thank you for joining Reading International's earnings call to discuss our 2025 third quarter results. My name is Andrzej Matyczynski, and I'm Reading's Executive Vice President of Global Operations. With me are Ellen Cotter, our President and Chief Executive Officer; and Gilbert Avanes, our Executive Vice President, Chief Financial Officer and Treasurer. Before we begin the substance of the call, I will run through the usual caveats. In accordance with the safe harbor provision of the Private Securities Litigation Reform Act of 1995, certain matters that will be addressed in this earnings call may constitute forward-looking statements. Such statements are subject to risks, uncertainties and other factors that may cause our actual performance to be materially different from the performance indicated or implied by such statements. Such risk factors are clearly set out in our SEC filings. We undertake no obligation to publicly update or revise any forward-looking statements. In addition, we will discuss non-GAAP financial measures on this call. Reconciliations and definitions of non-GAAP financial measures, which are segment operating income, EBITDA and adjusted EBITDA are included in our recently issued 2025 third quarter earnings release released on November 14 on our company's website. We have adjusted where applicable the EBITDA items we believe to be external to our business and not reflective of our cost of doing business or results of operations. Such costs could include legal expenses relating to extraordinary litigation and any other items that we consider to be nonrecurring in accordance with the 2-year SEC requirement for determining whether an item is nonrecurring, infrequent or unusual in nature. We believe that adjusted EBITDA is an important supplemental measure of our performance. In today's call, we also use an industry accepted financial measure called theater-level cash flow, TLCF, which is theater-level revenue less direct theater-level expenses. Average ticket price, ATP, which is calculated by dividing cinema box office revenue by the number of cinema admissions is also used as an accepted industry acronym. We also use a measure referred to as food and beverage spend per patron, F&B SPP, which is a key performance indicator for our cinemas. The F&B SPP is calculated by dividing the cinema's revenues generated by food and beverage sales by the number of admissions at that cinema. Please note that our comments are necessarily summary in nature, and anything we say is qualified by the more detailed exposure set forth in our Form 10-Q and other filings with the U.S. Securities and Exchange Commission. So with that behind us, I'll turn it over to Ellen, who will review our 2025 third quarter results and discuss our business strategy going forward, followed by Gilbert, who will provide a more detailed financial review. Ellen? Ellen Cotter: Thank you, Andrzej, and welcome, everyone, to the call today. As we expected and following global cinema industry trends, despite the strong performance of certain titles through the third quarter of '25, the overall box office was behind last year's third quarter. At $52.2 million, our global total revenue decreased 13% versus Q3 2024, which was driven by a slate of 2025 movies that just didn't match up to the stronger titles in the same period last year. Last year's lineup included record-setting releases like Deadpool & Wolverine, Despicable Me 4, Beetlejuice Beetlejuice and It Ends with Us. Despite this past quarter's revenue performance, the company continued making progress on several strategic initiatives, which is evident in some of our key income metrics for Q3 2025. With respect to our global operations, both cinema and real estate, despite the decrease in our cinema revenues, we continue to effectively manage our expenses. At a loss of $329,000, our global operating loss improved by 4%. At $3.6 million, our positive EBITDA increased 26% from Q3 2024's EBITDA. With this past quarter's results, we've delivered 5 straight quarters of positive EBITDA. At a loss of $4.2 million, our net loss improved by 41%, representing the best third quarter result since Q3 2019. Through the quarter and the year in 2025, our operating teams continue to improve the company's overall profitability. In the U.S., by closing a 14-screen cinema in San Diego in Q2 '25, we eliminated a cash loss that resulted in a 7.3% reduction in our U.S. screen count. We have limited control over the quantity and grossing potential of the movies we play. However, in operational areas where we have more control like F&B and alternative content programming, we delivered record results that I'll touch on in a minute. Across the global cinema circuit, we're working with our landlords to reduce our overall occupancy costs to reflect the fact that attendance has not returned to pre-pandemic levels and our operating expenses for the most part have all increased. Our U.S. Real Estate division delivered the best third quarter operating income since Q3 2014 due in part or in large part to our improved performance of our live theater assets in New York City. Despite the elimination of the cash flow generated by the real estate assets sold in early 2025, Cannon Park in Townsville, Australia and our Wellington assets in New Zealand, our global property teams are driving productive changes in our 58 third-party tenant portfolio, which I'll touch on shortly. Those 2025 strategic asset sales have led to a significant debt reduction. From December 31, '24, we've reduced our global debt balance from $202.7 million to $172.6 million or about 15% as of September 30, 2025. Our interest expense for the 9 months ended September 30, 2025, has been reduced by $2.6 million or 17% compared to the same period last year. This follows an overall debt reduction of $112.3 million since December of 2020. Historically, about 50% of our revenues have been generated in Australia and New Zealand, and the third quarter 2025 was no different, with 49% of our revenues being generated internationally. In Q3 2025, our quarterly revenue was negatively impacted as the Australian and New Zealand dollar devalued against the U.S. dollar by 2.3% and 3.1% compared to the Q3 in '24. As you'll note from the exchange rate table included in our 10-Q, the average exchange rates for these 2 currencies are at a 20-year low. As I'll touch on in greater detail in a minute, despite the weak third quarter, we continue to have enthusiasm and confidence about the cinema business. Today, we're reporting global presales for Wicked: For Good of almost $850,000, which is one of the strongest global presale numbers we've experienced in years. Wicked: For Good is followed by Zootopia 2, Five Nights at Freddy's, Avatar: Fire and Ash, SpongeBob SquarePants movie and Anaconda. In addition to these movies that appeal to the family audience, we believe that Marty Supreme, Song Sung Blue and The Housemaid will give the older audience some compelling choices during the holidays. The 2025 holiday season will be followed by what looks to be a very robust lineup for 2026. We're thrilled about the upcoming 2026 film slate, which includes major franchise releases like Spider-Man: Brand New Day, Toy Story 5, The Devil Wears Prada 2, Minions 3, Mega Minions, Shrek 5, Supergirl, The Super Mario Bros. Movie 2, Moana, Ice Age 6 and Jumanji 3. Many industry insiders and analysts think that 2026 could be one of the biggest years ever at the box office. With 5 straight quarters of positive EBITDA, the most improved net loss delivered for any third quarter since Q3 2019, a balance sheet which continues to be anchored by a strong real estate portfolio and cinemas, which we believe to be poised for an exciting and robust 2026 movie release schedule. We believe the company is well positioned to deliver a much stronger '26 and beyond, having weathered a very challenging last 5 years. People ask whether following our monetization of various assets over recent years, whether we're still committed to our 2-business, 3-country strategy. And the answer to that is yes. It's obviously true that we've monetized a number of our real estate assets. This has been done strategically to meet our liquidity needs in the face of a pandemic that physically shut down all of our cinemas, then an unprecedented combination of writers and actor strikes that completely disrupted the supply of movies to our cinemas during a time when customers are just getting reacquainted with outside the home entertainment. We chose those assets, which typically were either negative cash flow or which after debt service did not materially contribute to our cash flow and which, in our view, have reached the best value reasonably achievable without significant further capital investment. We monetized our California headquarter building to cut administrative costs and have been able to work remotely now for 2 years. We've reduced our cinema count in the U.S. by 6 theaters, all of which have been negative cash flow since at least the pandemic. We believe that we continue to have a good core of cinemas and real estate assets. We've navigated these treacherous waters without one penny of U.S. government assistance without resorting to debtor rights, legal remedies and without diluting our stockholders. So now let's look at our specific businesses. I'll take a look at our Q3 2025 global cinema business and compared to the same period in '24. At $48.6 million, our Q3 '25 global cinema revenues decreased 14%. At $1.8 million, our Q3 '25 global cinema operating income decreased by 21%. As I mentioned, the overall weaker Q3 ' 25 performance was anticipated and followed along industry trends. This year's lineup just couldn't match the slate from last year when Deadpool versus Wolverine (sic) [ Deadpool & Wolverine ], Starring Ryan Reynolds and Hugh Jackman performed exceptionally well in all of our 3 countries. We believe our particular results were also impacted by unfavorable FX movements, the 7.3% reduction in our U.S. screen count due to the closure of an underperforming cinema in San Diego and the partial closure of a 16-screen U.S. cinema under renovation that I'll touch on in a minute. When you look at the year-to-date through September 30, 2025, our global cinema revenues increased slightly and operating income grew by 142%, reflecting stronger performance due to a Q2 2025 and our focus on our various strategic initiatives. Let me highlight a few of those key strategic initiatives that we focused on throughout '25 and have supported our results through the year. First, our food and beverage program. It remains a key area of focus. At AUD 8.05, our Q3 2025 Australian F&B SPP was the highest third quarter ever. At NZD 6.75, our Q3 2025 New Zealand F&B SPP was also our highest third quarter ever in our history. At $8.74, our Q3 '25 U.S. food and beverage SPP was the highest third quarter ever and the second highest quarter ever when our U.S. circuit has been fully operational. That excludes pandemic closure periods. And the U.S. F&B SPP appears to exceed the results of other major publicly traded exhibitors that disclosed their F&B SPPs. These strong F&B results were supported by improvement in our online and app food and beverage sales, the continued embrace of our movie themed menus in all 3 countries. For instance, in the U.S., our Spicy-Saurus Flatbread was a strong seller this quarter. And in Australia, the Jurassic Combo was one of our most popular movie theme menus. Also, the ever-increasing merchandise spend, where especially in the U.S., we're complementing our guest's movie experience with the opportunity to buy movie-themed merch. In the U.S., this past quarter, we generated just over $350,000 in revenue from movie themed merchandise. For instance, our Superman Totem popcorn container was one of the best-selling merch items we had during the period. We're also driving guests to our theaters through existing loyalty programs and are in the process of developing new and improved rewards and membership programs, which are set to launch over the next few months. In Australia and New Zealand, we recently revamped and relaunched our free-to-join Reading Rewards program to provide better perks and savings. Today, we have over 363,000 members, which is an 8% increase over last quarter. With respect to our paid memberships in Australia and New Zealand for both our Reading and Angelika brands, since our late Q4 2024 launch, we signed up over 17,400 paid memberships, which is a 16% increase over last quarter. In December '25, we're launching a new free-to-join rewards and premium membership program in Hawaii and in select U.S.-based Reading cinemas. In the U.S., our free-to-join Angelika membership program has 171,000 members today for our 8 Angelika branded theaters, and we plan to launch our premium Angelika monthly membership early next year. Another primary initiative for our global executive team has been the collaboration with our cinema landlords to reset occupancy costs to become more in line with the economic realities of recent years. During our negotiations for occupancy expense relief, our position is that although attendance has not returned to pre-pandemic levels, nearly all of our operating costs have increased. We also highlight there's really a limit on how much we can increase our ticket and food and beverage prices. Let's take a closer look at the third quarter 2025 results for our U.S. cinemas. Our revenue decreased by 10% to $25.1 million compared to the Q3 in '24, while our operating loss improved by 92% to a loss of $100,000 from a loss of $1 million in Q3 2024. In addition to what I mentioned earlier, a couple of other milestones to mention. Our average ticket price or ATP of $13.13 marks our second highest third quarter ever for our U.S. cinema circuit. This is impressive in light of the strength of our discount Tuesdays, which is branded Mahalo Holidays in Hawaii and Half-Price Tuesdays in the U.S. Mainland. With respect to our U.S. cinema circuit, our gross box office for alternative content and signature series programming, which is our nontraditional programming, delivered the highest third quarter box office ever. One of the reasons we performed so well in this regard had to do with the 2-day KPop Demon Hunters Sing-Along event distributed by Netflix, which provided another pivotal cultural moment for cinemagoers, especially in our markets. We received questions about the strength of specialty titles in 2026. But first, let me report that the box office of the Angelika New York year-to-date through mid-November 2025 has beaten the same period in 2024. For this period, the top grossing films included Wes Anderson's Phoenician Scheme, the third quarter's Sorry, Baby and most recently, Frankenstein from Director Guillermo Del Toro, which was released by Netflix and presented in 35-millimeter. Following the positive 2025 trends, we expect 2026 will deliver a similar result in the world of art house and specialty film. The Japanese movie, Kokuho from Director Lee Sang-il, which has been a runaway critical and commercial success in Japan will release in '26 at the Angelika. Its Oscar qualifying run at the Angelika this week has already demonstrated impressive presales. Director Park Chan-wook No Other Choice from Neon opens late in 2025 and will carry over into 2026. And later in '26, we anticipate that specialty film growers will enjoy movies like Sony Classics, A Private Life starring Jodie Foster, The Drama starring Zendaya and Robert Pattinson from A24, Focus Features Sense And Sensibility starring Daisy Ecker-Jones and Werwulf from Director Robert Eggers, the Director of Nosferatu. We also received questions about the status of our CapEx spend in '26. With respect to our U.S. circuit, we're in the process right now of renovating our Reading Cinemas in Bakersfield, California, which renovation should be completed by the end of January '26. We've now added recliners to our IMAX screen, which will make the only IMAX with recliners within a 100-mile radius of Bakersfield. We're creating a premium screen, TITAN LUXE with Dolby Atmos sound system that also features heated recliners, which will open for Wicked: For Good. And we're adding another 8 screens of recliners, 3 of which are open right now with another 5 screens to open in January. We'll be working on plans to add a TITAN LUXE and recliners to our Angelika in Mosaic, Fairfax, Virginia, which should be done by the end of '26 and through '26, we're also looking to refurbish many of our existing recliner seats that were damaged through the pandemic. And that project should also be completed by the end of next year. I'll note that by the end of '26, 68% of our existing screens in the U.S. will feature recliners and 44% of the theaters will have premium screens. Turning now to our cinemas in Australia and New Zealand. Following Q3 2025 box office industry trends and comparing to Q3 '24, our Australian cinema revenue decreased 17% to $20.5 million, and our operating income decreased 38% to $1.8 million. Our New Zealand cinema revenue decreased 23% to $2.9 million, and the operating income decreased 96% to $10,000. In addition to the milestones I've already mentioned, during the third quarter of '25, our Australian team also achieved the following, which are all in functional currency. Our Q3 2025 Australian ATP of $15.44 was the highest third quarter ever for Australian cinemas. We also secured a major ancillary revenue sponsorship from a major telco who signed up for our turn your cell phone off naming rights. With the agreement running through March of '27, the team achieved an exceptional sponsorship deal. With respect to our New Zealand cinemas, our Q3 2025 New Zealand ATP of $13.65 was the highest third quarter ever. And now turning to our CapEx spend in 2026 in Australia and New Zealand. I'll start with New Zealand. In New Zealand, through 2026, we'll be redesigning our Reading Cinemas at Courtenay Central in Wellington. The renovation will be a full top to bottom upgrade where we'll add recliners to all theaters, at least 2 premium screen concepts such as TITAN LUXE or others and upgrade our F&B offer and that whole renovation will follow our new landlord's seismic upgrade. We anticipate that the renovation will be completed sometime in '27. And in Australia, we'll be adding a TITAN LUXE with Dolby Atmos and 1 premium screen with recliners to another key Reading cinema sometime in '26. I'll note that by the end of '26, 36% of our existing screens will feature recliners and 59% of our international theaters will have premium screens. Now let's turn to our global real estate business, which on a segment reporting basis includes not only our third-party rental income, but also our live theater business in New York City and our intercompany rents. Starting with the third quarter of '25 global results and compared again to the same period in '24. At $4.6 million, our global real estate total revenues decreased by 7% and at $1.4 million, our total income was flat. The results were primarily driven by the elimination of property level cash flow from the third-party rents that we had received at our property assets in Townsville, Australia and in Wellington, New Zealand. Both of those assets were sold earlier in '25 to create liquidity to pay down debt. Breaking it down by division for the third quarter of '25 and again, compared to the same quarter in '24 with respect to Australia, our real estate revenue decreased by 22% to $2.4 million, and our income of $1 million decreased by 35%. At $221,000, our New Zealand real estate revenue decreased by 41% and our New Zealand real estate operating income of $90,000 increased by 169% from an operating loss of $130,000 in the third quarter of '24. With respect to our Australian and New Zealand portfolio, as of September 30, 2025, due to our asset sales in Wellington, New Zealand and Townsville, Australia at Cannon Park, the number of third-party tenants in our combined Australia and New Zealand real estate portfolio reduced to 58 and is now primarily made up of tenants at Newmarket Village in Brisbane and the Belmont Common in Perth. The quality of the remaining tenants is strong, and today, we have an occupancy rate of 98%. For the third quarter, our combined third-party tenant sales from our Australian real estate were AUD 25.9 million. During the quarter, 5 lease transactions were completed with existing tenants. These included 1 new lease, 3 renewals and 1 lease variation, reflecting continued tenant retention and portfolio stability. Also, as we recently reported in our 10-Q, we signed an agreement to sell our Napier property in New Zealand for NZD 2.5 million with a leaseback of the Reading cinema on the property. The contract is conditioned on the completions of various conditions, including due diligence. And right now, we can't provide any assurance that the deal will, in fact, close or when. Now turning to our U.S. real estate business, which includes our 2 live theaters in New York City. On a quarter-to-date basis, it delivered a 35% increase in revenue and operating income of $253,000, which represents a 433% increase. Our live theater segment delivered a standout performance this quarter, fueled by critically acclaimed productions and audience favorites. At the Minetta Lane Theatre for the third quarter of '25, our attendance increased over 450% and theater-level cash flow increased by over 140%, which is largely attributed to the successful shows produced by Audible and the Amazon Company and our licensee at Minetta Lane. The acclaimed musical Mexodus just concluded its successful run in the third quarter at the Minetta Lane. I'll also note that Audible recently exercised its option to extend their license another year at the Minetta Lane and will be there now through March of '27. Since the departure of STOMP, the Orpheum theater continues to be in high demand with theater producers. During Q3 and part of Q4, Ginger Twinsies, a parody inspired by the iconic film, The Parent Trap, received strong praise and played at the Orpheum. And it was just announced that the viral TikTok dance duo Cost N' Mayor, who have about 7.4 million followers on TikTok will debut their new show 11 to Midnight at the Orpheum, which opens in January of '26. We also received questions about the leasing at 44 Union Square. As previously reported, we signed a non-exclusive LOI and have exchanged lease drafts with 1 potential tenant who is a non-office user for all the remaining space in the building. We're continuing to work with this tenant to see if a deal can be completed within the company's long-term goals before the end of the year. However, we continue to explore other leasing opportunities. Based on industry reports from area brokers, we know there's been material improvement in the leasing environment in the Midtown South market, which has been further reinforced by the 2025 Union Square commercial report, which highlights positive momentum not only in the Union Square leasing statistics, but also the increased foot traffic in the area. Our Newberry Yard property in Williamsport, Pennsylvania remains classified as held for sale. While we've reviewed offers from both rail and non-rail users, we believe the property's highest and best use is tied to the rail industry as the tracks and infrastructure remain valuable. We're now exploring different marketing strategies to reach a greater pool of candidates. We've also received various questions about our Reading Viaduct in Pennsylvania. As we reported in our most recently filed 10-Q, the City of Philadelphia has expressed an interest in condemning all or portions of our Reading Viaduct for use as a public park, and they passed an ordinance to permit such an action to proceed. Since railroad properties are subject to the jurisdiction of the Federal Surface Transportation Board, or STB, and cannot be condemned without the consent of the STB, the city brought a petition before the STB for a declaration that all railroad use of our Viaduct have been abandoned and that as a consequence, our Viaduct was no longer subject to the jurisdiction of the STB. And by implication, that the city could proceed with the condemnation action without seeking approval of the STB. We've recently appealed the STB's recent decision. The city has also filed litigation against us claiming a failure on our part to address certain claimed building violations and seeking injunctive relief as well as certain fines and penalties. We're in the process right now of defending against that lawsuit. Regarding the potential for a condemnation, however, I can note that under applicable Pennsylvania law, the city would be required to pay us the fair market value of our property. We've not received any proposal from the city of Philadelphia before or after the adoption of the ordinance in December of '23. Though we do understand that funding has been received for the planning and design work tied to the development of a rail park on our property. We're not aware of any funding being secured or set aside for an actual acquisition in whole or part of our Viaduct. The company believes that the Reading Viaduct is a valuable asset of the company, and it will continue to vigorously defend itself in these cases. If the city does pursue condemnation, we'll work vigorously to obtain the maximum fair market value for any property taken. That wraps up my report on recent developments. So in summary, despite facing significant challenges over the last 5 years and having an underwhelming third quarter, the company has remained focused on safeguarding our global theaters and sustaining stockholder equity through strategic theater closures, cost reductions and the sale of select real estate assets to meet liquidity needs created by the pandemic and the unprecedented 2023 Hollywood strikes and to significantly reduce our overall debt. At the same time, our cinema teams have implemented strategic initiatives to increase revenue and enhance cost efficiency, while our global real estate teams have secured a strong, stable and dynamic base of third-party tenants, providing us with optimism regarding the future of Reading and the cinema industry as a whole. In addition, our global interest expense has decreased due to multiple paydowns a result of asset sales and overall lower government interest rates in all 3 countries. This reduction in interest expense, coupled with a steady and strong lineup of Hollywood releases for the remainder of '25 and '26, we believe Reading is well positioned for stronger growth and a return to profitability in the fourth quarter in 2026 and beyond. Before I turn it over to Gilbert, Margaret and I want to express our continued heartfelt appreciation to the entire management team and our Board and all of our employees. Your dedication, professionalism and tireless efforts have been instrumental in keeping the company moving forward and staying true to its long-term vision. Thank you. Now let me turn it over to Gilbert. Gilbert Avanes: Thank you, Ellen. Consolidated revenue for the quarter ended September 30, 2025, decreased by $7.9 million to $52.2 million when compared to the third quarter of 2024. This decrease was due to decreased cinema revenue from lower attendance in all 3 countries as a result of weaker overall movie slate released from the Hollywood studios in the third quarter of 2025 compared to the same period 2024 and the reduction in screen count due to closure of one of our cinema complexes in San Diego, California. These decreases in revenues were compounded by the decline in real estate rent revenue in Australia and New Zealand due to the sale of Cannon Park and Courtenay Central and the weakening of Australia and New Zealand foreign exchange rate against the U.S. dollar, partially offset by the improved live theater rental and ancillary income. Consolidated revenue for the 9 months ended September 30, 2025, increased slightly by $0.8 million to $152.7 million when compared to the same period of 2024. This increase is due to improved box office from better movie slates as Lilo & Stitch and Minecraft movies released during the second quarter of 2025 improved U.S. food and beverage revenue and better live theater rental and ancillary income, which was partially offset by a decrease in real estate rental revenue and decrease in food and beverage revenue in Australia and New Zealand. Net loss attributable to Reading International Inc. for the quarter ended September 30, 2025, decreased by $2.9 million to a loss of $4.2 million compared to a loss of $7 million in Q3 2024. Q3 2025 basic loss per share improved by $0.13 to a basic loss per share of $0.18 compared to a basic loss per share of $0.31 for Q3 2024. These improved results were partially due to a $1.1 million reduction in interest expense, a $1.2 million increase in other income and a $0.7 million reduction in depreciation and amortization expense compared to the same period in prior year. Net loss attributable to Reading International Inc. for the 9 months ended September 30, 2025, decreased by $21.1 million from a loss of $33.1 million to a loss of $11.6 million when compared to the same period in the prior year. Basic loss per share improved by $0.90 to a loss of $0.51 compared to a loss of $1.48 for the first 9 months of 2024. These results were primarily due to strengthened segment results, a $2.6 million reduction in interest expense and the $9.7 million increase in gain on sale of assets as a result of gain on selling our Courtenay Central and Cannon Park properties in 2025 compared to a loss on selling our previously owned Culver City office in 2024. Our total company depreciation, amortization impairment and general and administrative expenses for the quarter ended September 30, 2025, decreased by $1 million to $7.9 million compared to Q3 2024. For the 9 months ended September 30, 2025, it decreased by $2.6 million to $25.2 million compared to the same period in the prior year. Income tax expense for the 3 months ended September 30, 2025, decreased by $0.4 million compared to the equivalent prior year period. The change between 2025 and 2024 is primarily related to a decrease in reserve for valuation allowance in 2025. Income tax expense for the 9 months ended September 30, 2025, increased by $0.8 million compared to the equivalent prior year period. The change between 2025 and 2024 is primarily related to a decrease in consolidated loss in 2025. For the third quarter of 2025, our adjusted EBITDA increased by $0.7 million to an income of $3.6 million from an income of $2.8 million compared to Q3 2024. This increase was primarily due to an increase in other income. For the 9 months ended September 30, 2025, our adjusted EBITDA increased by $17.4 million to an income of $12.8 million compared to the same prior year period. This increase was due to improved operational performance through more efficient management of operating expenses and gains from asset monetization as mentioned previously. Shifting to cash flow for the 9 months ended September 30, 2025, net cash used in operating activities decreased by $6 million to $5.9 million compared to the cash used in 9 months ended September 30, 2024, of $11.8 million. This was primarily driven by a decrease in net operating loss, partially offset by a decrease in net payables. Cash provided by investing activities during the 9 months ended September 30, 2025, increased by $32.3 million to $37.3 million compared to the cash provided in the 9 months ended September 30, 2024, of $5 million. This was due to proceeds from sale of our Cannon Park property assets in May 2025 and the Wellington property assets in January 2025 compared to the proceeds from the sale of our Culver City office in February 2024. Cash used in financing activities for the 9 months ended September 30, 2025, increased by $38.3 million to $36.2 million compared to the cash provided in 9 months ended September 30, 2024, of $2.1 million. This was primarily due to the paydown of our Westpac debt, Bank of America debt and NAV facility in 2025 as discussed previously, compared to the NAV bridge facility drawn in the same period of 2024. Turning now to our financial position. Our total assets on September 30, 2025, were $435.2 million compared to $471 million on December 31, 2024. This decrease was driven by a $4.3 million decrease in cash and cash equivalents from which we funded our ongoing business operations, a $31.9 million decrease in land and property held for sale due to the sale of our Cannon Park and Courtenay Central assets. As of September 30, 2025, our total outstanding borrowings were $172.6 million compared to $202.7 million on December 31, 2024. The debt reduction was primarily funded by the net proceeds from the sale of our 2 major property assets, Cannon Park in Australia and Courtenay Central in New Zealand. Our cash and cash equivalents as of September 30, 2025, were $8.1 million. Further to address liquidity pressure on our business, we continue to work with our lenders to amend certain debt facilities, and we continue to have our Newbury Yard, Williamsport, Pennsylvania property classified as held for sale. During the third quarter and the beginning of the fourth quarter of 2025, we made progress with our lenders on the following financing arrangements. On July 3, 2025, we extended the maturity date of our Bank of America loan to May 18, 2026, and modified the principal repayment schedule. On July 18, 2025, we extended the maturity date of our Santander loan, which is the loan on our live theater assets in New York City to June 1, 2026. We also paid down $100,000 on the loan at signing. On November 12, 2025, we extended the maturity of our National Australia Bank loan to July 31, 2030, and modified the principal repayment schedule. On November 13, 2025, we extended the maturity of our Valley National Bank loan to October 1, 2026. With that, I will now turn it over to Andrzej. Andrzej Matyczynski: Thank you, Gilb. First, I'd like to thank our stockholders for forwarding questions to our Investor Relations e-mail. As usual, in addition to addressing many of your questions in the prepared remarks from Ellen and Gilbert, we've selected a few additional questions to offer additional insights from management. The first such question, which Ellen will address, there was a mention in the 10-Q about the Noosa Australian cinema development project still planned for 2027 or has it been deferred indefinitely? What is the current budget and expected ROI for this project? Ellen? Ellen Cotter: Yes. We're still expecting the Reading Cinema, which is being an 8-screen cinema with the TITAN LUXE to be built out in Noosa in Queensland. Our landlord and developer of the Stockwell Development Group is still in the town planning stage of its major multi-use project. Today, we believe the completion of the theater construction and the opening won't happen until around 2028. And we don't announce the terms and conditions of specific cinema deals. However, as we've reported in the past for third-party cinema lease deals, we usually target at least a high-teen double-digit return. And the current deal for the Noosa Cinema is consistent with those targets. Andrzej Matyczynski: The next question, we've been asked several questions about our plans for the refinancing of our Bank of America, Emerald and Valley National loans. Can you please elaborate? Gilbert? Gilbert Avanes: We plan to refinance this debt in 2026 and are considering a variety of alternatives and structures. We are encouraged by what we see as the improving environment from real estate financing, including anticipated reduction in interest rates, improving commercial rental market in Manhattan and the current industry box office projections for 2026. Obviously, a significant factor in any refinancing of our Emerald debt would be the lease status of our 44 Union Square. While no assurance can be given, we anticipate resolution of our current nonexclusive LOI by the end of the year. Andrzej Matyczynski: The next question, given Reading has no present New Zealand debt and the excess proceeds from the Wellington Courtenay sale were upstream to pay down costly U.S. debt, can you share what your likely use of the Napier sale proceeds will be? Ellen? Ellen Cotter: The Napier transaction closes, we'll likely use the proceeds to support the renovation of our Reading Cinema Courtenay Central in Wellington, New Zealand or -- and/or we may use the proceeds for general corporate use in New Zealand. Andrzej Matyczynski: And finally, one last question, which I will deal with. We also received a number of questions about the Sutton Hill Associates acquisition that involves RDI assuming $13.65 million in third-party notes at 4.75% interest maturing September 30, 2035, who will be the holder of these third-party notes? What assets will secure the guarantee and guarantee these notes? Sutton Hill Associates 25%, Sutton Hill Properties interest and Village East ground lease and Reading USA or Reading International, respectively. I appreciate the low interest rate on the debt. Can you explain why so favorable, especially with a 10-year maturity? Well, a very complex question. We believe that this will be a good transaction for Reading. It will, in essence, wind up and close out of our master lease transaction we entered into with Sutton Hill Capital, LLC in the year 2000. The third-party notes are, as previously disclosed, payable to a third party and the reasons for that third party's willingness to do the deal described in our 10-Q would only be a matter of speculation on our part. As part of the transaction, the third-party notes would be guaranteed by Reading International, Inc., but would otherwise be unsecured. And that marks the conclusion of our third quarter conference call for 2025. This year continues to see a gradual resurgence of the breadth and depth of the cinematic experience despite the slight downturn in the third quarter numbers. And we aspire to translate this into future enhanced value for our stockholders as the end of 2025 comes and the full 2026 year unfolds. We appreciate you listening to the call today. We thank you for your attention and support and wish everyone and safety. And as always, we look forward to seeing you at our movie venues.
Norman Choong: Okay. Good evening, ladies and gentlemen. Thanks for joining this call today of PT Bumi Resources 9 months 2025 Earnings Call. My name is Norman Choong, I'll be your operator today. So we're very honored to have this call being hosted by Pak Andrew Beckham, Chief Operating Officer of Bumi; and also Pak Christopher Fong, the Chief Corporate Affairs Officer of Bumi. So as usual, we will run through the operational stats of 3Q '25, then followed by question-and-answer session. Pak Andrew, I'll pass the floor to you. Andrew Beckham: Thank you, Norman. Good evening, good afternoon, good morning to everyone here. Let me go through the slides. Next slide, please. Okay, okay. Production for the 9 months 2025 was at 54.9 million tonnes, down slightly from 2024 of 57.3 million tonnes, mainly due to the heavy rain, especially in the third quarter at KPC. Prices, realized coal prices for 9 months decreased $60 -- to $60 versus $73 in 9 months 2024, in line with the global coal market. Production costs, overall production costs came down mainly due to lower unit costs at KPC, and I'll go on to more details in that, driven by the oil price and stripping ratio. Next slide, please. Our guidance remains at this 73 million tonnes, 75 million tonnes of sales. We're limited by production, which is under the RKAB, so we can't get more coal produced out of KPC, but we will be well set up for the first quarter because of that. Prices are between $59 and $61. It's possible that we beat that if the fourth quarter continues to move up a little as it is doing at the moment. Cost-wise, we're running around the lower end of our guidance at $42, and we've reduced our strip ratio slightly and fuel costs, as we've mentioned. Next slide, please. Global markets, international coal prices have been pretty flat, down towards the summer. And as usual, towards the winter in the Northern Hemisphere, you're seeing prices tick up a bit. There's a bit more demand now from October, November in China, and prices are just coming up. I think you'll see that continue up until halfway through December. And then it will go pretty flat as the Christmas holiday is coming. But we see a little bit of improvement in the prices at the moment. Next slide, please. The forward curve is running long term, still at $120, $122 in calendar '27. The GC NEWC referring to here. This is still up at $108, $109. And there's a lot of -- I think if the markets, global markets continue to perform, you'll see this $113 to $116 in calendar '26 a big possibility. Next slide, please. With regards to the operations overall, in our sales for 9 months with 54.5 million tonnes compared to 55.8 million tonnes, there's a slight drop of 2%. This is because we -- our strip ratio has come down. You can see at KPC, we're at 8.6 year-to-date versus 9.2 last year. That's because we have opened up mines. We have improved the -- now the mines will be in there in a more stable position. So you'll see that strip ratio being slightly down. It will continue slightly down next year, if all goes to plan. Coal mined is slightly -- is below because of the wet weather in the third quarter that we've had, and rain continues at both KPC and Arutmin at the moment. Prices wise, the FOB prices are down 20% at KPC, and down 8% at Arutmin. Arutmin's price has fallen less because it sells more domestic coal. And so therefore, there's a fixed price there of $70 benchmark, which takes it from that increase from that sort of global market fall plus the fact that we have a lot more of the 4,200 to 5,000 CV coal, which is -- has maintained its price better than the very high-grade coal. Next slide, please. Here, you can see the rainfall and KPC at the top has pretty much 5, 6 months, over on the red is the actual against the long-term averages. And for 5, 6 months, it's been -- there's been 5 months that have actually been above the long term, and over the last August, September and coming into October, we've been at higher levels, continues at the moment. Rainfall itself, Kalimantan and Arutmin has been less than the global trends and has stayed pretty stable all the way through. Next slide, please. As I said, overburden has come down because of the unfavorable weather, but also because of our strip ratio at KPC. You can see Arutmin is slightly down from last year. Coal mined is slightly down by about 3%, 4%, but that's because of the weather and KPC now restricting its production based on RKAB requirements. Next slide, please. Coal sales, almost the same, not far off. We've used up the inventory. We have quite a bit of inventory. We will see inventory levels come very low towards the end of the year as we maximize as much sales as possible. And we'll probably into the first quarter have a tight stockpile there. Arutmin has been here and is slightly up on last year in terms of sales. As I mentioned, stripping ratios are down at both KPC and Arutmin, and that's part of the mine plan, our long-term mine plans that we see into 2024, the prices -- the mines was open, and now we're seeing the benefit come through. Next slide, please. Production costs, we reduced our costs. As I said, because of the strip ratio and because of fuel oil prices coming down, I'll talk more about that later. Arutmin maintained its costs slightly down on last year. And FOB price, as we all know, has dropped about 18% overall, especially at KPC, has been a big drop. Next slide, please. Average selling prices, as I mentioned, you can see the big drop from the international prices of $82.8 down to $67.4. That's been a major trouble for us. And the fact that the HPB has been following slowly behind doesn't help when we try to do our royalty payments and tax payments are now covering -- are based on that HPB if it's higher than the realized price we got. So it makes it harder for us. In a rising market, we don't have that problem. Average selling prices overall were from $73.7 to $60.4. Next slide, please. This is the fuel. You see we're running at about 1.12, 1.13 in the last quarter at the moment. Remember, we're now using B40 solution, which is biofuels 40% and that's more expensive than pure diesel. And so therefore, we're paying probably about $0.05 to $0.10 a tonne -- $0.05 to $0.10 a liter more than any other normal operations or normal industry in Indonesia. So it's another penalty that we have to take into consideration. And if they go to B50, that will have an effect on our fuel costs. Next slide, please. Bumi's reporting, we were running -- if you look at the revenue, we're up on our revenues because of BRMS improvement, our gross profit has improved. However, our net profit has come down. The main reasons for that, if we look at the other income and expense, it's been the KPC earnings because of the drop in coal price and write-offs in BRMS, our subsidiary of one of its assets. And in the income tax and profit sharing when you compare to 2024, in 2024, there was a deferred tax adjustment, which gave it a benefit of about $60 million, $70 million, which benefited. So you saw an improvement in the profit last year. However, operational wise, we're in a very good position, just we need the prices to recover. Assets, liabilities are running, are pretty strong. We're still at current ratio of 1 and also equities higher at $2.8 billion. Next slide, please. This just gives you the consolidated numbers, as we've done before, just to highlight the size of the revenues of $3.5 million against $4.2 million. These are in the back of the financial statements, I think Note 41-- 42 or 43, if you ever need quarterly numbers. Carry on, please. And this just gives you the comparison between the 2, just so you understand, we're not -- the numbers are set, the bottom line is still the same, but it does have an effect on all our numbers. Next slide, please. So overall, when you look at consolidated revenues are down 17%, but we've managed to reduce costs as well. Thanks to fuel, but also thanks to the mining, bringing our strip ratios down. Our gross profit is down overall when you include KPC and our operating income is slightly down by 22%. Operating margins remain pretty -- not significant change. But we hope with coal prices ticking up over the next couple of months, we should see a good fourth quarter. Next slide, please. Bumi's financial highlight, as I said, the equity is slightly down overall year-to-date from December. And the last 12 months consolidated adjusted EBITDA is running at $277 million at the moment, slightly down on last -- on 2024 because of coal prices. Next slide. And this is just in quarter-by-quarter, how the start up. And you can see the EBITDA each quarter from this year, like Q1 '25 has gradually increased as formatting prices slightly rise. If prices continue to rise in Q4, we should see that slightly better as well. Next slide, please. Cash still remains strong at $314 million in total. Below are the breakdown of KPC. Note that we have the restricted fund, the CDA. Restricted fund is for payment of contractors at the end of the month or it gets paid the following month, the 1 or 2 days after the year closed. The mine closure deposits, you have there of $45,000 and $55 million -- over $100 million is for mine closure assuming we get our extensions, we' have to keep these in bonds in with the government, even though we have probably another 15 years of mine life to go. So it is quite frustrating, but that's the rules with the government. Next slide, please. ESG, would you like to? Christopher Fong: Yes. We're on track year by year, so to the 9 months compared to 2024. We have -- our CSR programs were at $3.5 million. We're on track to spend what has been targeted. Our environmental spend overall is on track, and we will end up spending somewhere in the vicinity of $76 million, and that covers reclamation, planting trees and protecting our environment. Also safety issues, gas emissions, et cetera. What we don't have in this document, which we're doing a lot of work on, we've talked about it previously, is the ESG work we're undertaking now in terms of setting standards and emission targets and reporting on them. Also related to issues such as the weather issues at KPC, we have implemented research in terms of predictive ESG to using our data from all our weather stations to determine better usage of working days and to increase production and also maintenance days. So that's a program that will be -- is ongoing. It started the last few months, and we'll be reporting on results from that as we move forward into the new year. But it is certainly positive in the work we're doing, undertaking on an ESG platform. Moving on. Yes. Andrew Beckham: Norman, that's about it. We won't go into the detail, but KPC details and Arutmin details are attached so that people have the breakdown of the key assets, the coal assets. But we're happy to open it up to questions and -- questions now. Norman Choong: Thank you, Pak Andrew. Thank you, Pak Chris. [Operator Instructions] Okay. I think audience needs some time to warm up. Let me kick it off first. But I wanted to check with you, what's your view on your 2026 coal production numbers because I understand that a lot of mining companies are in the process to submit RKAB for next year. That's my first question. Andrew Beckham: Yes. Yes, we all submitted. I think all our player base are in waiting for the government. I think they're having a big review on the total level of coal production they want. I know it was -- used to be about 800 million to 900 million, it came down to 750 million this year, but I understand they are looking at further reductions. To be honest, I don't know what the results of that are going to be. but we're waiting to hear from the government on our RKAB. Norman Choong: I see. The amount that you've submitted is the same as 2025, is it? Andrew Beckham: Slightly up. It will be slightly up because Arutmin will be probably raising its production. Norman Choong: Got it. You also had an EGM yesterday. Can you like run us through what was the key result from the EGM? Christopher Fong: Yes, I'm happy to do that. The EGM, the basis of the EGM was firstly, to address the resignations of the CIC directors. And so it was a formality in having the EGM recognizing their resignation. Also, there was a change in one other person. The CFO has been -- has moved to a new position outside the group. So those were the 2 main areas of -- and purpose of having the EGM. And also there was one appointment, which was myself as a Director. Norman Choong: Congratulations, Pak Chris. Do we have any questions from the floor? Let's see. Okay, otherwise, I'll follow up with my question. But from the news, it seems like Bumi Group is quite active in M&A recently. So we have this Wolfram acquisition and Laman Mining, right? So just wanted to understand, does it seems to be -- does it mean that there's a change of direction where Bumi now have more flexible in terms of doing asset acquisition? And how is the -- maybe in terms of the financial muscle side of things looks like? Christopher Fong: Well, look, there's no secret that this year has been -- is a year of transformation at Bumi. We announced to the market fairly early this year that we are going through a diversification strategy. I think the market has been fairly surprised in the speed that we've taken this on. And that was the first announcement of the asset in Australia, which is a copper and gold asset, Wolfram Limited. We now have 100% of that asset. It's in Northern Queensland in Australia. We visited that site recently, the President and Director and myself and a few other directors. It wasn't the first visit from Bumi, but it was certainly the first visit for myself. It's a fantastic asset. It's in care and maintenance. So it's a brownfield asset. It will be up and running very quickly. We initially targeted for June next year, although we're keeping to that, but we expect that this will be sped up, and we will announce that when we are ready to. It's, as I said, it's a very good asset. It has a lot of data, it has a lot of resources and it has processing on site. So we expect to have some very positive news as we move forward into the new year on that particular asset. Also on our website, we have announced another asset in Australia called Jubilee Metals. And that, there will be more information next month on that, but it is also a gold play. So that's the second asset in Australia that we have acquired. So as I said, there'll be further news on that in December. And also what you just mentioned, bauxite. So we've had some agreements on bauxite. They're going through a legal process. And as the market well knows that the bauxite industry is well established in Indonesia and there are some issues over export. So we -- as the market expects, there will be further announcements, what we do with bauxite and when we do it in the near future. So we can certainly move forward in a transition plan that I think has taken the market by surprise because we talked about it, but we actually are doing it. Norman Choong: Thank you, Pak Chris. Maybe to follow up on this one, right? So these 2 acquisitions, are they funded by internal cash or debt? And further related to in terms of debt funding, could you remind us, what is the current covenant in terms of debt and fund raising? Andrew Beckham: We've done the raising. We create some of the money through the bond program that we have, the rupiah bond program that we have. Rates are around 8.5% to 9%, depending on the tenure. Those have been the ones funded. We have no specific covenants other than the normal bond regulations in Indonesia. But we don't -- we're very confident with gold prices and copper prices where they are. We expect payback within 1 to 2 years on these projects. Norman Choong: Okay. We have questions from the box already. The first one is from [ Benjamin Michael. ] How big is the bauxite resources of Laman Mining? And how big is alumina smelter? Andrew Beckham: Laman Mining has, I think reserves of about 30 million tonnes, but potentially, that could increase with a little bit more. There's a discussion over one area and an agreement. If that agreement is found, that would probably increase it to 50 million tonnes. And what was the second question, sorry? Norman Choong: The alumina smelter, how big is the capacity? Andrew Beckham: That, we haven't gone into detail. We can't go into detail at the moment. We'll announce when that -- we get to that point. Norman Choong: Okay, sure. I hope that answered your questions, Benjamin. Christopher Fong: What we can say is that part of our diversification strategy is not just going into minerals away from thermal coal, but also into downstream processing. So as I mentioned before, we cannot export bauxite, and bauxite can't be exported from Indonesia. So naturally, there will be a downstream processing component to that, but we will announce that in due course. Norman Choong: Sure. Second question is coming from [ Alden Lam ]. Is Pak Ashok Mitra still in KBC as CEO? That's his first question. Andrew Beckham: No. No. He's not already in the group. He's outside that now. Norman Choong: Okay. His second question is, can you share your thoughts on the impact of B50 to the Bumi mining cost? Andrew Beckham: I can't give you a number at the moment. I haven't done the numbers, but I should expect another $0.05 to $0.10 per liter, it may well cost if the subsidy that used to be there by the government is still not there. Norman Choong: Got it. Andrew, I have a client who just texted me. Question is with regards to the 2 directors from CIC that has just resigned from the EGM, does it mean that CIC will totally exit from the business? What do you think about it? Andrew Beckham: We understand the China government has a policy of not being invested in thermal coal. Yes. And that's what we believe is the reason. And if you see in the public markets, they're selling down their shares in Bumi at the moment. So we assume that, that's the plan, that's why they resigned and their plan is to exit. I think this is their last thermal coal asset that CIC has. Norman Choong: Got it. Okay. A question from [ Yoga ]. Can you share production outlook for Wolfram and Jubilee Mining including annual production target and cash costs? Christopher Fong: For Wolfram Mining, on an annualized basis, commencing in June 2026, we're expecting 50,000 ounces at this stage. Although we won't be surprised if we commenced production prior to that date. Andrew Beckham: Yes. And I think Jubilee would do about 25,000 once it's in full production. Cost wise, we'll come back to you once the budgets are closed and finished. Norman Choong: Okay. Can I follow up on these two? What are the rough mine life that we should expect with this kind of production? Andrew Beckham: Well, with gold, it's always a case of you drill as you go over and place the years. There's long mine life in both of them based on the potential resources and reserves available. And we'll update as we go, but we have more than enough mine life to get our money back and a good return. Norman Choong: Got it. Benjamin has more questions. He's asking, who is replacing Pak Ashok following the end of his tenure? And any other potential M&A going forward? Andrew Beckham: Well, at the moment, I'm acting CFO as well. There's a discussion, a big discussion going on internally and once it's been resolved, then we'll make an announcement. Christopher Fong: And to the second question, which I'm happy to answer. It's also no secret of our expansion plans in terms of the transition model. And we're expecting in the next -- within 5 years to be an EBITDA basis, 50% in par with our coal. So therefore, naturally, we will be announcing further acquisitions as we move forward. And we expect that in the next 6 to 12 months. Andrew Beckham: Norman, we can see what you're writing. I don't know if that was... Norman Choong: So sorry. So sorry. I mean I have to write it down, right? So yes, so sorry. I forgot to off my screen. Christopher Fong: So what I'm saying is, yes, it's very clear that we're undertaking a very aggressive transformation and we have a very big unit who are focusing on assets, not just in Australia but also in Indonesia. So that has been reflected in some of the announcements that we've talked about today, and there certainly will be more coming. But we also don't discount that -- look, we're still in thermal coal. We are very focused on streamlining, sorry, excuse me, that production. And that -- and you would have seen those results today that was significant savings and cost savings we're seeing at the mine. And that will continue. So we're very much focused on thermal coal. But as we expand in this transition, you'll see more metals and you'll see more downstream processing assets come on board. Norman Choong: Okay. Anyone have more questions? Yes. It seems there's no more questions. Maybe let's wait for a little bit more. Yes, I think there's no more questions from everyone. Okay. So that concludes the earnings call today. Thank you, Pak Andrew. Thank you, Pak Chris, for doing this for us. As usual, if you have questions, you know you can reach out to them directly or you can reach out to me. Christopher Fong: Sorry, Norman. Can I just add that, look, apart from this transformation, there has been a significant restructuring at Bumi. We have a much larger, more -- larger Investor Relations department. And we're very transparent so we're very happy for engagement from anybody who has questions about the business. Andrew Beckham: And if you're not getting the updates from the company, please contact us here. Norman Choong: Sure thing. Thank you so much. Thanks, everyone. Andrew Beckham: Thanks, Norman. Christopher Fong: Thank you. Norman Choong: Thank you.
Marc Ronchetti: Good morning, and welcome to our Half Year '26 Results Presentation. I'm pleased to be here to present a really strong set of results for the 6-month period, results which clearly demonstrate the enduring strength of our sustainable growth model and most importantly, the exceptional talent and commitment of our teams across the group. And I'd like to start by thanking everyone at Halma for their individual contributions that enable us to deliver consistent growth and positive impact. Carole will provide more insight into our financial performance shortly. But first, let me start with the highlights. As I said, it's great to report another set of record half year results, and I'm really pleased to see these results underpinned by strong organic growth. And fantastic to see the strong performance across all three sectors in addition to the premium growth of our Photonics business. We've also delivered a very strong margin performance and continued high returns on capital, and this supporting further substantial investment in the significant opportunities we see for future growth. And these results put us on track to deliver our 23rd consecutive year of record profit. Delivery of this financial performance demonstrates the power of our sustainable growth model, a model which has supported strong compounding growth and returns over decades, and a model which when combined with the opportunities we see in our markets, underpins my confidence in our continued long-term success. The strength of our model lies in the way that each of the elements are interlinked, aligned and complement each other. Together, they remain critical to the delivery of our performance, both in the short and long term, a topic which I'll come back to later in the presentation. But first, let me hand you over to Carole for more details on our financial performance. Carole Cran: Thank you, Marc. And a very warm welcome to everyone on the call. I'll be taking you through some of the detail behind this excellent set of results. First, let me give you the highlights. For me, these results are a great demonstration of what the Halma model can deliver. First, strong growth. We reported headline revenue growth of 15% and EBIT grew 27%. Excluding a one-off benefit in E&A that we've already flagged in our trading update, revenue grew 14% and EBIT 23%. And we delivered an exceptionally strong first half margin of 22.3%, up 160 basis points. I'll give you more detail of the drivers of this increase in the sector reviews. A fantastic performance, and as you will see, driven by organic growth broadly spread across our sectors. At the same time, we've continued to make substantial strategic investments to support our future growth. We've invested GBP 300 million in the first half, including nearly GBP 60 million in R&D, around GBP 130 million in acquisitions, and over GBP 100 million in CapEx and working capital to support growth in a number of our companies. While this investment resulted in cash conversion being below our KPI at 79%, we expect it to be more in line with our 90% KPI at the full year. All in all, a substantial level of investment, reflecting the significant growth opportunities our companies see in their markets and our confidence in continuing to deliver strong growth and returns. The strength of our financial model means that we've been able to make these investments while maintaining a strong balance sheet and delivering high returns. Net debt to EBITDA is essentially unchanged since the year-end at just over 1x, and returns have increased significantly, up 190 basis points to 16.2%, a very strong performance. All of this supporting a further increase in our dividend, putting us on track to deliver our 47th year of dividend increases of 5% or more. Now let's look at our revenue growth in more detail. This slide bridges the year-on-year revenue growth of 15.2%. Organic revenue growth was very strong at 16.7%. This reflected healthy growth broadly spread across all three sectors and a continued benefit from premium growth in Photonics, which accounted for around half of the organic growth. Most of the growth was volume driven with price increases averaging between 1% and 2%. There was a modest contribution from acquisitions of 1.6%, reflecting the number of deals completed in the last year. This acquisition contribution was partly offset by the disposal of AAI, which we sold in July. As a reminder, AAI's revenue last year was approximately GBP 42 million, so there will be a larger effect in the second half. There was also a translational currency headwind of 3.2%, primarily due to the weaker U.S. dollar. Based on latest currency rates, we expect a similar headwind for the year as a whole. Finally, the one-off benefit was equivalent to 0.9% growth. Excluding this, reported revenue growth was strong at 14.3%. Let's now move from revenue to profit and margins. EBIT was up 22.8%, excluding the one-off and a very healthy 22.7% on an organic basis. This was ahead of revenue growth and reflects margin expansion across all three sectors. Acquisitions contributed 3.1%, again, ahead of revenue, reflecting the quality of the businesses we have bought, while disposals were also accretive to margins. The currency headwind was similar to revenue at 3.4% and the one-off benefit of 3.9% completes the bridge. Moving on to the sector commentaries, starting with Safety. It was great to see further momentum in Safety following 2 years of double-digit growth. On an organic basis, revenue grew 6%, led by strength in the Public Safety and Worker Safety subsectors. This was partly offset by a mixed performance in the other two subsectors given some specific end market trends and customer project delays, notably in the U.S. Profit grew 16%, reflecting a 280 basis point margin increase to 27%. This is a historic high for the sector and was driven by four main factors: the sector's continued revenue growth; favorable portfolio and product mix; strong operational delivery and benefits from accretive acquisitions; and disposals. Our safety companies continue to invest at a good level to support their future growth, with R&D spend increasing by 11% to 6.1% of revenue. Turning next to Environmental & Analysis. This slide shows E&A's performance excluding the one-off. There's a slide in the appendix, which shows performance including it. The sector delivered an exceptionally strong organic revenue and profit growth of 36% and 38%, respectively. And it's really pleasing to see this driven by growth across all subsectors. Strength in Water Analysis & Treatment was driven by water infrastructure demand in both the U.S. and U.K. A strong performance in Environmental Monitoring reflected growth in U.S. gas detection and gas management in Asia Pacific. And in Optical Analysis, we saw continued premium growth in Photonics, reflecting increased demand from our long-standing hyperscaler customer. The profit increase of 38% on an organic basis included a 90 basis point increase in margin to 23.6%, driven by growth in all subsectors and continued cost discipline. At the same time, it was pleasing to see a good level of investment with R&D up 7%. Adjusting for Photonics, where development is part of the revenue we earn, R&D for the sector is at a healthy level at over 6% of revenue. And finally, it was good to see a strong 4.3% contribution from acquisitions, including Brownline and Minicam's bolt-on Hathorn. Now let's turn to Healthcare, which delivered a stronger performance compared to last year, reflecting good execution against a background of steady recovery in health care markets. This was supported by improving customer confidence and demand for solutions, which improve our customers' efficiency given increasing health burdens and rising patient backlogs. This resulted in good levels of organic growth in both Therapeutic Solutions and Healthcare Assessment, which together account for over 90% of the sector's revenue. Therapeutic Solutions saw strong performance in a number of surgical and respiratory device companies, although this was partly offset by continued softness in eye health therapeutics in Europe. Growth in Healthcare Assessment was broad-based with most companies in the subsector delivering solid organic growth. Sector profit was 10% higher and on a reported basis, up 8% organically. Margin increased 50 basis points to 21.3%, reflecting benefits from stronger revenue growth and improved pricing and mix. Our health care companies remain well invested with R&D at 5.4% of sales. Finally, there was a good contribution from acquisitions, reflecting the quality of businesses we recently acquired such as Lamidey Noury. I'll now talk about our cash flow and the balance sheet and how we've allocated capital during the first 6 months. The cash-generative nature of our companies means that we've been able to make a substantial investment to support our future growth while maintaining a strong financial position. Our first capital allocation priority is organic investment to support our long-term growth, represented here by investment through R&D and CapEx of GBP 93 million. Our financial strength means that we have also been able to support a number of our companies in making strategic investments in working capital. This resulted in a larger-than-usual outflow of GBP 75 million. Together with higher CapEx investment, this was the driver behind our lower cash conversion in the half, and we expect it to drive a stronger position at the full year. Our second priority is continued value-enhancing acquisitions, where we invested a net GBP 148 million. And our third is a progressive return to shareholders through the dividend, with GBP 53 million returned in this first half. In total, we've invested over GBP 300 million in the half to support future growth, both organically and through acquisitions. And our leverage has remained almost unchanged at just over 1x net debt to EBITDA. So before I look at our financial KPIs, let me briefly describe the M&A investments we've made this half year. First, Brownline, which is a fantastic purpose-aligned acquisition, which extends our strength in the trenchless technology market. Its location services deliver pinpoint accuracy underground for operators of horizontal directional drilling equipment. This is increasingly vital as utilities and data providers look to improve resilience and safety by burying their pipelines and cables. At the same time, they also want to reduce the surface disruption of digging trenches while safely navigating increasingly congested underground spaces. Brownline's best-in-class technology and deep technical know-how make a great addition to Halma. Next, Nu Perspectives, a small but strategic acquisition for our eye health assessment company, Keeler, enhancing its capability in cryogenic technology. This reflects a broader trend across Halma of our companies using bolt-ons to expand into adjacent markets and deepen their presence in existing nations. We also remain disciplined in managing our portfolio. The disposal of AAI reflects our commitment to continually assess our portfolio for strategic fit and to ensure each company contributes to our long-term ambitions for growth and returns. Looking forward, I'm confident we'll make further progress in 2026. We have a healthy pipeline of acquisitions and a good mix of deals by size and type, both bolt-ons and stand-alone acquisitions. Now let's turn to our performance against our financial KPIs. It's clear that this half year represents a strong performance by any measure, driven by broad-based growth and strong returns across all three sectors, combined with premium growth from our Photonics business. We are substantially ahead of our targets for organic revenue and profit growth, and delivered margins and returns well into the upper quartile of our target ranges. And while acquisition profit and cash conversion were below our KPIs, this principally reflects the dynamics in this specific half year. Over the longer term, our performance is ahead of our targets. So all in all, a very pleasing half year, but one that I'm aware comes from an unusual combination of broad positive momentum in both revenue and margins across all three sectors. Taking a longer-term perspective, this half year provides another proof point of what the Halma model can deliver. And these KPIs frame our ambition to deliver strong and compounding growth and returns over the longer term and further extend our strong track record against our targets. Moving on to my last slide on full year guidance. The strength of our first half performance across our portfolio, together with our current expectations for the remainder of the year means we have upgraded our full year guidance for the second time this year. While our companies continue to experience varied conditions in their end markets and the economic and geopolitical environment remains uncertain, we've made a good start to the second half of the year. For the year as a whole, we now expect to deliver mid-teens percentage organic constant currency revenue growth, including a continued benefit from premium growth in Photonics and an adjusted EBIT margin of around 22%. I'll now hand you back to Marc. Marc Ronchetti: Thanks, Carole. Fantastic to see the excellent performance against our financial KPIs and the further upgrade in our full year guidance. In this section, I wanted to take a step back from the results themselves and provide insight into the role of our sustainable growth model in driving our continued success. It's a model which has always been key to our past success, including in the first half of this year, and it underpins our ability to deliver compounding growth and high returns over the long term. You'll recognize the core elements of our sustainable growth model. In June at our full year results, I looked back over the last 50 years and shared how our model has been tested and proven to be resilient in a wide range of environments. And this enabling us to continue to scale through many different geopolitical events, economic cycles, technological advancements and changing market dynamics. And while our model continues to evolve, its fundamental elements remain at its core. Today, I want to highlight how our model enables one of Halma's most important characteristics, our ability to combine a long-term view with short-term agility. At Halma, we're guided by our clear and ambitious purpose and powered by long-term growth drivers that underpin our markets. And this enables us to think in decades and take a long-term view for determining the talent and capabilities we need or for the organizational model required to scale and when we're choosing the markets and opportunities in which to invest. If I take our markets as an example, we invest in markets with resilient, often regulatory-driven growth drivers that extend over decades. And our disciplined approach targets niches with high barriers to entry, strong societal benefit and sustainable demand, markets and niches where we enable our customers to tackle some of the biggest challenges we face today, better health care for everyone, clean air, clean water and how to keep us safe in our cities and in the places where we work. All of these fundamental challenges, which are intensifying, supporting our growth and returns for decades and giving us the confidence to invest ahead of the opportunity that's in front of us. And thinking in decades also enables us to continuously scan the horizon to identify long-term trends and reshape our portfolio to align with those evolving markets and technologies. And at the same time, our decentralized model and the quality of our leaders means that we're able to seize new opportunities. Agility is embedded in Halma's DNA. It enables us to respond quickly to fast-changing challenges and opportunities without losing sight of our long-term goals. Our model puts our companies close to their customers and their end market. And this gives our entrepreneurial leaders who are not dependent on other parts of the organization, the freedom to innovate and adapt rapidly to changing market conditions. This means that while maintaining their core long-term focus, they can also look for opportunities to apply their deep technical expertise to those faster-growing end markets for a period of time. Let me just bring that to life. Crowcon is applying its gas detection expertise into battery energy storage, detecting hazardous gases to protect these systems that provide critical backup power for sectors like health care. Sentric is applying its industrial interlock technology to keep assets and people safe in the fast-growing data center space. And Alicat's proven ability to apply its flow and pressure control expertise to many different fast-growing end markets. Just a few examples of how our companies are always looking to capture emerging additional growth opportunities. And this combination of long-term thinking and short-term agility is a powerful combination. Let's look a little bit closer at how we can maintain our agility as we continue to scale. And this is why we insist on talented entrepreneurial leaders with the ambition to act quickly and to innovate. Our structure enables fast decision-making. And by having our companies close to our customers, they can anticipate and adapt their changing needs. And this focus on the long term alongside the importance of agility means that we're constantly balancing seemingly contradictory requirements at the group sector and the company level. At Halma, we see these as complementary. It's not either/or, we call it yes/and. It's embedded in our DNA and our sustainable growth model. It's part of our culture and a source of our strength. Our leaders have the autonomy to grow their business in the way that's right for them, and they are held accountable for delivering that growth. Our leaders are focused on delivering this year's results, and they're focused on where the growth is going to come from 5 years from now. Our companies have the agility and speed of SMEs, and they get the benefits of being part of a global group. And it's this ability to combine the long-term and short-term agility that enables us to capture those fast-growing emerging opportunities with pace and invest ahead for future growth. And it's this same approach that we're adopting through this period of premium growth in Photonics, a great example of everything that I've just said. When we first acquired the company in 2011, our long-term view recognize Photonics as an enabler of technologies across many end markets. We could also see how the company was showing exceptional agility in capturing growth opportunities by accessing new faster-growing markets, a consequence of great leaders and deep technical expertise. And one of these opportunities has led to a period of over 10 years of working closely with their hyperscaler customer. They're using their substantial application knowledge to support their customer with the development of a relatively small but critical component of a wider solution in data centers. Our model allows us to maximize the opportunity with the customer while remaining focused on the continued delivery of our group strategy of sustainable compounding growth and returns. And this outstanding delivery in the short term through excellent local execution allows us also to reinvest for the long term to enable future organic and acquisition growth. Investments in innovative R&D at our companies in building out our teams for scalability, in our M&A capability and in the addition of great value-added acquisitions such as Brownline. As we heard from Carole, Brownline, another great example of a fantastic acquisition underpinned by long-term growth drivers. Urbanization, the need for resilient infrastructure, including water, electrification and the rollout of fiber and data networks. And this combination of a long-term view and short-term agility is critical in the continued delivery of our strategy. Being invested in niche markets underpinned by long-term growth drivers and having that org model and culture that gives us the ability to operate with agility is a fantastic start point. However, it's our talent that is the enabler and the multiplier. We structure for growth and agility, but it requires leaders and a culture that can realize it. It's our entrepreneurial and ambitious leaders that maximize our potential. And the criticality and therefore, the focus on talent isn't new. It's been there since the beginning, embedded into Halma by our founders, David Barber and Mike Arthur. In fact, it remains such a critical element of our model that we brought together all our MDs and presidents for our Accelerate event last month. And we spent 2 days solely focused on how we, as a leadership team, can all become even better at spotting and developing talent to help maximize Halma's potential. A truly inspiring event and a demonstration of how our great individual leaders benefit from the power of our network. But don't take it from me, let's hear from some of our leaders on why talent is so important to their businesses. [Presentation] Marc Ronchetti: Some fantastic comments from our leaders in the video, illustrating just how important talent is at every level of our business, both Alex and Alan capturing why talent is critical to seizing those faster-growing opportunities. Robert picking up on the importance of accountability driving that ownership mentality, and Natalya on why we've been able to attract and retain fantastic talent and the ability for them to make an outsized impact at Halma. As you heard from the video, we create a culture where leaders can thrive. This is what enables us to keep scaling and maintain our culture as we grow. And it's why we continue to invest in our people and our capabilities to support our future growth. For example, we've grown our M&A teams, and we've added two new Divisional Chief Executive roles over the last year. Our DCEs are critical to our growth. They're responsible for acquiring new companies and then they chair those companies once they join the group. So the strengthening of both of these teams gives us greater capabilities to find more companies and the ability to continue scaling. We also continue to invest in our development programs and our graduate scheme, the Catalyst Program, both critical in enabling us to grow and develop our own future leaders, ensuring that we maintain our culture as we continue to scale. And it's really pleasing to see those investments bearing fruit. For example, we heard from Alan in the video, who's one of three company MDs that have come through our Catalyst Program. Also the continued strength of our organic growth, a direct result of our continuous investment in R&D and the acquisition of Brownline, a result of the targeted investment in setting up a dedicated E&A sector M&A team when we transitioned to our three sector structure 4 years ago. So bringing it all together, Carole described the strength of our performance in the first half of 2026, another record result delivered in varied markets. You've heard how this continued success is enabled by our sustainable growth model, a model which enables us to take a long-term view, staying focused on and investing in capability needs and structural growth drivers, and a model which gives us that agility to capture emerging opportunities and mitigate risks. It's a model amplified by the exceptional talent at Halma, accountable to deliver long-term sustainable growth and empowered to act with agility to capture those short-term opportunities. A model that continues to deliver consistent, sustainable and compounding growth and returns. And a model that underpins my confidence in our ability to continue to deliver for decades to come. And that's the end of the presentation. And now we have time for some questions. Marc Ronchetti: As ever, there's two ways that you can ask your questions. You can either raise your hand using the tool at the bottom of your screen, and I'll invite you to ask your question verbally, or you can type the question which Carole and I will read out and then answer. So Bruno, let's come to you first. Unknown Analyst: The first question is just on the strong growth seen in E&A this half. And it relates to -- I guess, the growth in Photonics was good to see. But what was more surprising for us actually was the very strong implied growth in E&A outside of Photonics, which we calculate to be roughly around 17% to 18% on an estimated organic basis. Could you maybe just speak to the drivers of that a little bit more? So why was gas detection so strong in the U.S. and gas management solutions so strong in APAC and also the water infrastructure market? Marc Ronchetti: Yes. Great. Thanks, Bruno. As you say, really pleasing to see that broad spread growth, not only in the E&A sector, but across the whole group. I think that really is the story of these results in this 6-month period. Picking up on the specifics of your question, again, really pleased to see growth across all subsectors within Environmental & Analysis. As you say, Optical Analysis, very strong with that exceptional growth from Photonics. Beyond that, spectroscopy was mixed. We saw some recovery in certain end markets around semiconductors, personal electronics and other OEM customers, but slightly weaker in areas such as biopharma. But again, no real read across there. It's a really small part and pretty specialist in terms of what we're doing. Within Water Analysis & Treatment, yes, great to see the strength of the performance in Water Analysis. That was driven really by water infrastructure demand in the U.S. and the U.K. We also saw a recovery in water testing and disinfection. So again, there's still a bit of uncertainty certainly in the U.K. as we transition through the AMP cycles, but good to see the recovery come back and that underpin of the demand. And then finally, to your point in Environmental Monitoring, strong across both Environmental Monitoring and gas detection and analysis. We've seen that really, as you say, notably in the U.S.A. There is a little bit here just in terms of the specific companies have got a few more projects in them. So there's a bit of phasing in terms of the number of the projects, but growth across all regions in gas analysis. So net-net, a really strong performance. Always worth just remembering within that, it is a 6-month period and some of those are a little bit more project-based. But strong underlying growth and also actually pretty unique to have all of the subsectors moving forward in the same 6-month period. But net-net, really pleased with the wider performance. Unknown Analyst: That's very clear. And I guess just a follow-up on Photonics. And I know you're limited in terms of what -- but I was wondering if you could help us understand the driver of acceleration in the half a little bit more. So more specifically, are volumes for Photonics simply scaling up with CapEx or investment like your customer? Or is it more complex than that and you're perhaps taking share of CapEx wallet at the same time? And then finally, maybe a little bit on how you expect this relationship to evolve in the coming years. Is the base case that you just, again, simply scale with investment at your customer? Or is it more complex than that? Is there a replacement angle that we should factor in or again, share gains in terms of customer wallet? Just some thoughts around that would be super useful. Marc Ronchetti: Yes, I'll sort of pick up on the specifics. But I think before I do that, I mean, there's no doubt going to be a few questions on Photonics. As I said at the outset there, I think the big message from today is the wider performance of the group, really pleased in terms of what we've delivered. I guess for me, we're now here executing what we said we were going to do sort of 6, 9, 12 months ago, and that is we're maximizing the opportunity in front of us. So a phenomenal job by the team in the company in terms of execution and really scaling what is complex manufacturing. We're then continuing to deliver a strong performance in the rest of the portfolio and then using this period of premium growth to reinvest for future growth. So really good to see that coming through. To your point then more specifically, we're going to get some questions on Photonics. So it's probably worth me just giving a few reminders, setting a bit of background and then coming back to your specific questions. Firstly, as a reminder. As you say, we have got customer confidentiality to work through here. So I'll be a little bit guarded. I think we have been increasing our disclosures, but we've got to be careful and adherent to the confidentiality. Again, as a reminder, a business we acquired back in 2011, around GBP 4 million of revenue at that point. And as I said in the presentation, we've recognize that Photonics had many use cases. We've recognized the quality of the team and the technical expertise. And our org design means that they've had the autonomy to look for those opportunities. And then within the business, and we've talked about it before, the drivers of success and their core characteristics are largely the same as many other companies, if not all the companies in the group. So they've got that agile and entrepreneurial talent, still the founders, in fact, in this instance. They're very close to the customer. In fact, it's an embedded relationship. We work closely with all parts of the team with the customer, including the R&D team, and that's a relationship that's been embedded for over 10 years. And as I say, we've got significant technical skills. We're solving a really complex problem, and it's highly complex manufacturing of what is a small but critical component. So a bit of a reminder there in terms of the background. I've talked to how we're managing it in the group. I guess taking a view at the wider market, which will feed in a little bit to your point in terms of how do you scale is it linked to CapEx. There's no doubt there's lots of commentary and a wide range of views across a number of topics in and around AI, in particular, whether that's valuations, economics of investment, timing and scale of investment. And there's no doubt there's a lot of investment going in and around and a lot of interest in and around AI. I guess we look through the short term there. And if you think about the adoption of AI, in particular, whether that's in our daily lives at home or at work through productivity, automation, innovation, all of that continues to happen. I think it's been referred to as transformative technology in the last week or so. And there's no doubt that we're aligned to that point around compute demand accelerating. So if you've got an underlying demand for compute, then underneath that, that shift is going to require infrastructure and investment. And that's where data warehouses come through. So again, I'm sure lots of different views as there are out there around the absolute scale and timing of that build-out. But fundamentally, as I say, there needs to be a foundation in an infrastructure. And I guess if you take a more specific focus on data centers, there's that real focus at the minute on speed, on latency and more and more now on efficiency and energy consumption. So it's likely that Photonics can play a role in solving some of those problems. So net-net, and we can talk about kind of short-term forecast and all of those things, regardless of absolute scale, regardless of precise timing, we still see that medium-term demand in terms of the operations. All of that said, we mustn't forget that it is a very dynamic market. Whether that's the technology, whether that's the demand cycles. And specifically, again, as a reminder, for our business, we are operating on that 10-year relationship. It's PO-based. We've got sort of 6, 12 months of visibility, but fundamentally, not a contract in place because of that embedded nature, because of the strength of the relationship. So a lot of information there, but hopefully, it just means that everyone on the call is in the same place. Coming back then to your specific questions. As you know, we've been working with the customer for over 10 years. It's iterative in terms of the innovation. We continue to innovate with them. And we grow with them, to your point. So their CapEx investment, what they're investing, we're investing with the customer. In terms of the potential for replacement and upgrade, absolutely, that remains potential in fast-moving innovation, fast-moving technology. We haven't seen that as yet. But clearly, as you take a much longer-term view, there is that opportunity potentially. But again, I'd just come back to that thought around the dynamism in the market, the shifts in technology, et cetera. But certainly, as we sit here today, I think the team are doing a fantastic job locally of executing. And I think the rest of the group are doing an excellent job in terms of continuing to deliver that long-term growth and compounding returns. Unknown Analyst: Very much appreciate it. Maybe just a final one on Safety and the very strong margin that we saw in the first half. And I appreciate that a 6-month window is narrow when it comes to assessing profit margins. But I guess, could you just help us a little bit more with unpacking just why the margin was so strong? Were there any mix elements or anything else that we should be aware of? And just a little bit around how we should be thinking about the trajectory of the safety margin from here? Carole Cran: Bruno, Carole here. I hope you're well. Yes, I mean, as you say, I mean, first and foremost, across all three sectors, a brilliant job in the 6 months and great execution across the piece. As you rightly point out, it is a 6-month period. And so we would never be suggesting that you take 6 months as sort of inferring longer-term trends. And I think it's worth saying as well, it is actually quite unique that we have all three sectors growing with margin progression in a 6-month period. To your specific point on Safety, I mean, as ever in these explanations, there's a number of factors and variables. I mean, as you know, Safety has come off the back of 2 years of double-digit growth. So there's continued momentum through the top line. There is a bit, as you alluded to around, product and portfolio mix in there. And I suppose as we look forward, taking those points. While Safety is well invested, the reality is that you don't grow at that rate without having to then step up your investment further to make sure that you can sustain that growth. So as we look forward into the second half and beyond that, that's our thought process. And as we've said many times before, we're not in the business of chasing the margins higher. It's more that combination of keeping the margin strong whilst keeping the top line moving, too. So a couple of small examples for Safety. You heard Marc talk about two new DCEs in the group. One of those is Safety. You've heard Marc reference investment in M&A. Again, that's the sort of thing that Funmi and the team are thinking about. So as you look forward, think about the need for that additional investment. And I think also worth saying and not something that we major on because it's not a big spend for us, but CapEx-wise, one of the bigger CapEx investments this year is in one of our biggest safety companies where because they've been growing strongly, they're needing to expand their facilities. So that same thought process and logic applies to some of our other safety companies, too. Marc Ronchetti: Thanks, Bruno. So just looking at the list. Jonathan, we'll come to you, Jonathan Hurn. Jonathan Hurn: First question is just coming back to Photonics, Marc and some of the comment or one of the comments you made there just in terms of the visibility. Obviously, you have visibility on the revenue, I think you alluded to through the second half of this year. Can you just talk about the revenue visibility into your next fiscal year? How much of it or how much visibility do you have on '27? And then also just maybe sort of following up on Photonics. Just in terms of the customer exposure, obviously, you've got one key hyperscaler customer. Have you made or are there any efforts within the Photonics business to widen that exposure, maybe get some more customers on board? Essentially, that's the first question. I know it's got certainly two parts. Marc Ronchetti: Carole, do you want to pick up on the first point, and then I'll do the strategy on customers? Carole Cran: Yes, absolutely. Jonathan, I mean you've heard us reference, if we just take half 2 '26 first in terms of the visibility on Photonics. So we've spoken about the premium in the first half being about 8 percentage points of the group growth, and we're expecting similar for the second half. I mean beyond that, you heard Marc obviously articulate and remind everyone the whole position with this customer and how dynamic the market is. And whilst we do get a forward view from the customer for the next 12 months, I think it's fair to say that we would -- we consider that to be directional. And so I suppose coming back to Marc's description clearly, we'll guide for the whole group next June. But the way that I would sort of encourage you to think about the Photonics opportunity at the moment is that we would envisage it being a tailwind going into FY '27. Marc Ronchetti: Thanks, Carole. And Jonathan, just picking up on that point around the customer. As you say, we've got that strong long-term relationship. At this moment in time, strategically, we think it's the right thing to continue with that relationship from a commercial viability perspective. As I say, it's more than just that transactional relationship, that embedded nature and insight from the R&D side, we believe, is a good place to be. That said, both within the individual company, but also the sector in the group, clearly, we're looking at other opportunities to diversify. The reality is with the team and the scaling up, I mean, that is just a phenomenal job in the amount of time that takes -- that's proving difficult locally, but they have set up separate teams, and they'll continue to look. And then as you've heard today, we're doing a great job at the E&A sector of wider areas to look out. We saw Brownline coming in, and then the wider group continuing to grow. So as I say, strategically, today, it's maintained, that customer relationship, but options are always open as we go forward, and we're looking for other opportunities. Jonathan Hurn: Great. Very clear. If I could just ask a second question, just on Healthcare, please. First part of it was just on Life Science. Obviously, a smaller part, probably sort of 10% of the division, but it's the one area that's struggling. Just your views there, when do you start to think that will recover? Do you think that's potentially going to come through in H2? And the second part was just on the margin really. Obviously, we're a long way from the peak in that. Can you just give us a feel for how you think that sort of margin develops for Healthcare going forward, please? Marc Ronchetti: Yes, I'll pick up the first point around Life Sciences. As you say, it is a relatively -- well, it is a small part of the group, relatively small part of the Healthcare portfolio. And particularly, what we're doing there is mainly around specialist pumps, valves and manifolds. We've seen a mixed performance. We've actually seen pretty strong growth in the U.K. and Mainland Europe and then offset by a decline in wider Asia Pacific. But again, it's difficult to read anything into that fundamentally. I wouldn't do a read across anywhere in terms of other businesses in this arena. The reality is, again, we're starting to see a recovery. We're starting to see a bit of confidence in customers. I think we're through the destocking, but we're not at the stage that I'd want to say we were back to normal levels of demand just yet. Carole, if you pick up on that? Carole Cran: Yes, sure. And then on the margin point, actually just picking up what Marc said there, Jonathan. So we're characterizing it as a continued recovery. And there's still some uncertainty clearly in some of the markets. So Steve Brown, our sector CEO and the team are doing a great job and in particular, in the more challenging period sort of last sort of couple of years or so have been quite measured in terms of investment, although not underinvesting. So I suppose in the mix of making sure that we're investing into the recovery and the growth, we would expect to see the margins continue to move forward back towards historic levels. But I think you should think of it as progressively getting towards that point. Marc Ronchetti: Thanks, Jonathan. Just looking at the list. So, if we now go to Christian. Christian Hinderaker: I want to start on Photonics, perhaps unsurprisingly. And apologies if this is a naive question, but you've mapped the macro. As we think about the actual product set, how do we think about useful life of what you sell? And is it a fair assumption to assume that effectively any of your sales are really greenfield data expansion rather than, say, upgrades in existing facilities? Marc Ronchetti: Yes. I've got to be a little bit careful here, Christian, in terms of the confidentiality. I'll just come back to the point that I made to -- I think it was Jonathan's question. At this moment in time, we believe that a lot of that demand is CapEx and build-out. But we do believe that haven't seen it yet, but just by natural instance of the pace of change and the increase in innovation, there may be a replacement cycle. But as I say, we're not seeing that yet, and this is a dynamic market. So I certainly wouldn't want to pin any future definite guidance on that at all. Christian Hinderaker: And maybe pivoting to the Safety business. I was interested in your regional growth commentary there, marginal growth in the U.S., which compared to good growth in the U.K. and it seems strongest growth in Mainland Europe. Curious what's driving that distinction. It seems to be a bit at odds with maybe broader macro trends. Carole Cran: Christian, Carole here. Yes, I mean, I think as you probably heard us say before, we don't particularly sort of focus on the explanations around the geographies. And you have heard us reference the particular strength in public sector and worker safety. So that's really what you're seeing coming through the geographies. So nothing that we would consider to be structural, I suppose. And yes, I mean, really sort of one of our bigger business, bigger safety businesses is doing particularly well, which is benefiting the European numbers. And then in the U.S., for example, we talk about the other two subsectors being a little bit softer in Infrastructure Safety and Fire Safety. Some of that is in the comps where there was a couple of bigger projects last year. So I suppose in the round and I guess the genesis of your question about whether there's something more structural by geography, then no, we're not seeing any discernible trends that would indicate that. Marc Ronchetti: Christian, I'd see you've got a written question. So maybe we just pick that one up as well. And if I just read that out to the Brownline acquisition sits among the top 3 deals by size over the last 20 years. Does this reflect an appetite to do more medium-sized acquisitions? Secondly, when we think about those M&A ambitions, does the increased concentration of sales from Photonics affect your preferences across the segments? So I guess if I just pick up the second part of that first, not necessarily. We're open for business across all of our sectors, all geographies. So it isn't that we're looking to avoid certain areas or double down in certain areas. We're looking for those opportunities much through the lens as we always do with that disciplined approach that we have to M&A. From a deal size perspective, I guess the reality is as we continue to grow, we do get a higher level of confidence in our ability to bring value to larger companies. So those businesses at the top end of our portfolio around sort of that GBP 30 million, GBP 40 million, GBP 50 million of EBIT, they're still growing at the same rate as the rest of the group. So we've got confidence that we can bring value to those businesses. All of that said, with our aspiration at 7.5% each year on M&A, take that on GBP 0.5 billion, we're looking to acquire GBP 40 million next year, double that in 5 years, double again. It's a long, long time before you have to do anything transformative. So I think we've got the opportunity, we've got the appetite. I think we've -- as we've seen before, we've got the opportunity to do even more bolt-ons as our companies get bigger by size and they use bolt-ons to deliver their own growth strategies. But at the same time, we've got that confidence to do bigger deals than maybe we have done historically. But I don't see it as a significant shift in strategy, it's much more aligned to us being clear on the value we bring and having confidence in those future cash flows. No worries. Thanks, Christian. So is there anyone else just on the call? Dylan, I can see you've got your hand up. Dylan, on mute maybe. Dylan Jones: Apologies for that. Can you hear me now? Marc Ronchetti: Yes, perfect. Dylan Jones: Just another follow-up on Photonics and obviously, being appreciative of the fact that you're limited somewhat to what you can say. But I'm just wondering if there -- along with product sales, there's also opportunities for service and maintenance sort of post sale, particularly with this hyperscaler sort of customer in the aftermarket that could potentially sort of help smooth the growth trajectory over time. Obviously, I understand that the market dynamics are incredibly favorable and they look favorable for the foreseeable future and perhaps getting a little bit or perhaps a little bit early to be thinking about this. But just sort of wondering what levers are within that Photonics business' control to sort of deliver a sort of steady return or normalized sort of growth rate in the longer time, sort of avoiding that sort of sharp drop off, if you will? Marc Ronchetti: Yes. I think, unfortunately, what we're talking about here, Dylan, is kind of hypothetical in what is a very dynamic market. I guess I would just come back to three points there to think through. One is just the embedded nature in the long-term relationship. Two is the real -- and I just cannot undercommunicate the real expertise that we have in our company in terms of the use of photonics and the application in solving the problems. And then finally, I think coming back to that point I made earlier, if you think about kind of the need for increased speed, the need for increased energy efficiency, there's quite a bit of commentary out there that Photonics potentially has a role to play. So you put those things together, and I think you come back with hypothetically, but I certainly wouldn't want to be sitting here today making a call for something 10, 15, 20 years out. Dylan Jones: No, I appreciate that. And one last question. I think you sort of guided for, obviously, the step-up in CapEx. You kind of alluded to there's a bit sort of going on in Safety, but also the sort of corporate cost line, I think you've guided to be just a little bit higher. Should we sort of think about that as the sort of recent investment in the M&A capabilities? Or is there some other investment going on in the sort of corporate cost line? Carole Cran: Dylan, I'll take those. Yes, and I'll pick up actually on your CapEx point as well, which is well made. Yes. So we've moved our CapEx guidance up by about GBP 5 million. So the majority of that actually relates to Brownline, which is obviously a good news story because it means that the prospects are good, and it's something that we envisaged in completing the deal. So that addresses the CapEx increase. And then on the central costs, they tend to run around 2% of revenue and the slight increase is a bit of a mixture of things actually, a little bit more into the central costs that support M&A. So for example, we support centrally the integration activity of new acquisitions and also more specialist areas around tax advice and those sorts of costs. And then the broader sort of theme of technology, also make sure that we're well invested in the center around areas like AI that Marc has obviously been talking about and what that can mean for us as a group, and also the ever-present investment that is required in things like cybersecurity. So hopefully, that gives you a flavor of what's driving those. Marc Ronchetti: Thanks, Carole. That nicely answered a written question from Rory as well. But Rory, put your hand up if it didn't cover it, but I think it did. So I think we've got time certainly for one more question. Bruno, is your hand up for a new question? Or is that a legacy of having the first question? You're on mute as well, I think. Unknown Analyst: Just a follow-up question really around reinvestment in the group. I was wondering how you think about reinvestment during a period of premium growth in one area and allocation across the portfolio of the group. So do areas outside of Photonics essentially disproportionately benefit during this period? And so does your confidence of strong growth in, say, Safety and Healthcare actually start to increase as you look towards the following years? Or is it that your investment plans remain largely unchanged regardless of where the premium growth is occurring? Marc Ronchetti: Yes. It's a good question. I think the philosophy, certainly from an R&D expenditure is it's largely unchanged. That's very much bottom up. We've never restricted capital to the individual business. It's our #1 capital allocation priority in terms of R&D spend. So that doesn't necessarily change. We're not saying no to businesses. There's an opportunity there to invest. I do think to the point that Carole just alluded to, there's a bit of investment that we can do in the M&A teams. There's a bit of investment that we can do in the sector teams. And of course, the other opportunity, as we've talked to many times, is the opportunity to accelerate M&A, which, again, you make those investments, we cannot lose the discipline. So I think net-net, absolutely, that's part of our strategy, how do we reinvest through this period of premium growth to give us that future compounding growth. But I don't think it is specifically to the point in R&D per se. It will be more around M&A and anything that we can do at the sector level because, as I say, the R&D is very much bottom up and open for everybody. Unknown Analyst: Got it. That's very clear. And just a small, I guess, clarification. When we speak around orders growing year-over-year and positive book-to-bill, does that hold for, I guess, Photonics and also outside of Photonics? Carole Cran: Yes, it does, Bruno. Marc Ronchetti: Excellent. Thanks, Bruno. And thank you all. I don't see any other written questions, and I don't see any hands up. So many thanks, and have a great morning, and we will speak to you soon.
Helen Gordon: So good morning, everyone, and welcome to Grainger's full-year results. Once again, we have delivered an excellent performance as we continue to deliver strong growth in our earnings, in our income and in our margin with high occupancy and a Grainger product, which continues to deliver for customers and shareholders. So the agenda this morning is that I will take you through the highlights, Rob will take you through the financial results, including our compelling growth to come and our conversion to REIT status. And then, I'll go through our investment case, the strength of our market and give you a quick insight into one of our new openings. And I will explain how we're well positioned for the changes to renting that are due to come in from next May and how we are driving shareholder value. We'll then have time for Q&A with members of the senior leadership team. So I'm pleased to tell you that Grainger is now the U.K.'s leading residential REIT. It feels quite good to say that. We are a build-to-rent investor operator with a sector-leading portfolio of high-quality homes in the best location. Our fully integrated operational platform, enhanced by technology, is capable of scaling. And this operational platform gives us a real competitive advantage in a sector with high customer interface and where operational excellence is a barrier to entry. Our investment case of a real estate asset class that delivers inflation linking returns is proven. As you can see here, consistently tracking wage growth and as is our proven strategy, we continue to deliver earnings growth to our shareholders and great homes to our customers. So looking at our earnings growth, we continue to target GBP 60 million of earnings in full year '26 and GBP 72 million by full year '29 and that's a 50% growth from full year '24. There are 2 simple reasons. We have sustainable rental growth outlook, and we have strong underlying fundamentals. And our strong earnings growth will be delivered after absorbing higher interest rates. We're expecting rental growth to continue at 3% to 3.5%. And we have a resilient customer base to support this. We have strong underlying market fundamentals with regulatory certainty and no rent controls and growing demand and constrained supply. We're reducing debt, which Rob will cover later, and we have topline growth, and we are improving margin. So turning now to the highlights of our results. We've delivered another outstanding performance. Our net rental income is up 12%. Our like-for-like rental growth is up 3.6%, and we've delivered 12% earnings growth and 10% dividend growth. And our NTA, our asset value, has remained resilient at 298p per share. We continue to deliver operational excellence. We've delivered high occupancy at 98.1%, and we've secured strong customer retention at 61%. And we have good customer affordability. On average, our customers are paying 28% of their income on rent, which is below the market average. And we are delivering a sector-leading gross to net at 25%. That's a 75% rental margin. So overall, an excellent set of financial and operational results. We continue to optimize our portfolio through sales of older or non-core assets and our investment in our new products. We have recycled GBP 1.9 billion of assets since the start of our strategy, and we've sold GBP 640 million since September '22. We've been selling in line with valuations and proving the accuracy of valuations. And importantly, we have over GBP 900 million in non-core assets to fund our future growth and our deleveraging. We are a highly cash-generative business with over GBP 200 million in operational cash flows each year. And as we recycle out of this low-yielding non-core assets, we secure attractive income accretion. We have a very clear capital allocation strategy. We are always focused on maximizing returns for shareholders. Our current priority is to fund our committed pipeline of GBP 343 million, and there's just GBP 130 million remaining to invest. And it is this committed pipeline, which will deliver our earnings growth to GBP 72 million by full year '29, a 35% increase from today. And as a reminder, a 50% increase from full year '24. Then, we are deleveraging in line with plan. Our debt is fixed at low rates to full year '29. So this deleveraging will support our earnings growth and ensure an optimal capital structure. And as we continue to recycle, we can look at stabilized acquisitions, and we have also our secured and highly attractive, forward-funded and direct development opportunities. So we have further opportunities in our planning and legals pipeline. We have all these opportunities for future growth. And of course, we will assess these against other opportunities to return capital to shareholders. We have a capital allocation strategy delivering for shareholders in the short, in the medium and in the long term. So turning to our portfolio and pipeline, GBP 3.5 billion, that's over 11,000 homes. And our portfolio of regulated tenancies is just over GBP 0.5 billion, and our future pipeline is GBP 1.3 billion. Our committed pipeline is immediate. Of the GBP 343 million, there was only GBP 130 million to invest. And indeed, last week, we completed on 374 homes in Bristol, one of our strongest cities and with more homes being delivered in our pipeline in London and Guildford. We have a highly attractive secured pipeline for further growth, including our strategic JVs, and we have a portfolio of sites going through the planning process. So we have optionality for the future. And we have clear visibility on our earnings growth and our EBITDA margin expansion. Our growth story is compelling. Yes, this is my favorite side. We've delivered extraordinary growth over the last 10 years. We've been consistent in our delivery, growing our net rental income on average 14% per annum. Our EPRA earnings have grown dramatically through the development of our platform and the efficiency it delivers. Our EBITDA margin has improved from 19% to 56%, with more to come. So this momentum is continuing with strong growth in our income, in our earnings and with further EBITDA margin expansion. So in summary, we've delivered a strong performance. Our operational highlights are our conversion to a REIT, 98.1% occupancy achieved, robust rental growth secured at 3.6%. And now, we have the Renters' Rights Bill passed. We have real clarity on our future regulatory environment and no rent controls. We've delivered a strong financial performance, a 12% growth in our net rental income, 12% earnings growth and a strong sales performance and a 10% dividend increase. We have a very clear focus on how to drive returns for our shareholders. We're focused on maintaining occupancy and rental growth. We're focused on delivering strong compounding earnings growth. We're focused on cost efficiency and reducing net debt, and of course, continuing to deliver high-quality homes and great customer service. And I'll now hand over to Rob to take you through the detail. Robert Hudson: Thank you, Helen, and good morning, everybody. Today, I'm going to run through the financial performance for the year and outline the very strong earnings growth that we have to come. FY '25 has been another period of excellent growth, demonstrating Grainger's resilience and our market-leading position. We've continued to deliver a strong operational performance with like-for-like rental growth of 3.6% and occupancy at 98%. Overall, total net rents continued their strong growth, up 12%. This resulted in strong earnings growth with EPRA earnings up 12%, and we're still targeting our GBP 60 million guidance for the coming year and a 35% increase to GBP 72 million by FY '29. Adjusted earnings were broadly flat at GBP 91 million, as the sales profits from our reducing regulated tenancy business are replaced with rental income from our pipeline. Our dividend per share increased by 10% to 8.3p, and EPRA NTA was resilient in the period at 298p. Now, looking at the income statements in more detail. Our overall like-for-like rental growth was strong at 3.6%. Stabilized gross to net was again flat at 25%, demonstrating our ongoing focus on cost efficiency. Overhead costs were up 4% in the year, in line with wage inflation. And looking forward, we're targeting GBP 2 million of cost savings with a GBP 1 million benefit in FY '26. So overall, this will mean that overheads will not grow for the next 2 years. Interest costs increased largely due to lower levels of capitalized interest and a slightly higher average interest rate during the year. EPRA earnings continued their strong growth trajectory, up 12%. And as a reminder, now, we're a REIT, this will be our key earnings metric going forward. As expected, sales profits were lower at GBP 37 million, in line with the reduction in the regulated portfolio size, and our sales are performing well and in line with book. Other adjustments include derivative valuation movements and a fire safety provision, which reflects a revision of cost estimates. Now, looking at the moving parts of our 12% increase in our net rent for the period. Strong occupancy and like-for-like rental growth of 3.6% contributed GBP 2 million. And this was driven by strong performances in both PRS at 3.4%, which is stabilizing back at long-run averages of 3% to 3.5% and our regulated portfolio of 6.6%. The strong lease-up performance of our recent pipeline deliveries has contributed an additional GBP 18 million of net rent. Our asset recycling program offset this growth by GBP 6 million. Looking forward, we'd expect rental growth to continue in line with the long-term average of 3% to 3.5% in FY '26. With the occupational markets back to normalized levels, we expect to see some seasonality in rental growth return with half 2 stronger than half 1 growth. This chart shows the key movements in NTA over the course of the year. Our EPRA NTA was maintained at 298p per share. Net rents and fees added 18p, with overheads and finance costs offsetting this by 11p. Overall, our portfolio valuation for the period was up 0.7%. And the PRS portfolio saw 1.1% valuation growth with ERV growth of 3.2% and a modest outward yield shift on some assets. Valuations on the regs portfolio were down 0.6%, demonstrating their resilience, and further details of the valuation can be seen on Page 45 in the appendices of this presentation. Now, turning to net debt. Net debt was broadly flat during the year at GBP 1.46 billion, in line with our plans. Operational cash flows remained strong with GBP 205 million generated and with disposals contributing GBP 169 million net of fees. The investments in our build-to-rent portfolio has now started to moderate, as we work our way through the committed pipeline, and there was GBP 133 million invested during the year, with a further GBP 130 million spent on the pipeline, and the majority of that being in FY '26. In line with our previously discussed capital allocation strategy, we'll continue to generate sales at current levels. These proceeds will be used to fund the committed pipeline and then go towards lowering leverage by GBP 300 million to GBP 350 million. Going forward, we, therefore, expect net debt to remain broadly flat for the coming year before starting to delever from FY '27. And our balance sheet remains in great shape. Both net debt at GBP 1.46 billion and LTV at 38% were broadly flat over the year, in line with our plans. We maintained strong liquidity and a robust hedging profile with rates fixed in the mid-3% range. As previously highlighted, we plan to reduce our net debt by GBP 300 million to GBP 350 million over the next 4 years, as we continue to sell through our lower-yielding non-core assets. We regard this as very deliverable given our continued strong performance on sales. This will see our net debt, it's around GBP 1.1 billion, and that will equate to around an 8x net debt-to-EBITDA and an LTV of 30%, which we see as the right capital structure in this current interest rate environment. As net debt is brought down over the medium term, this will help mitigate the impact of rising finance costs, as our low rate hedging rolls off, and that ensures continued strong earnings growth. REIT status has been a long-term ambition since the start of our strategy, and I'm pleased to say we successfully converted to a REIT back in September. The benefits to the business of being a REIT are substantial, as we no longer have to pay corporation tax on the profits of our build-to-rent business. And in the first year of FY '26 alone, this is expected to generate GBP 15 million of savings with this increasing as we deliver further growth. We see the resilient growth that our residential business delivers is arguably the perfect fit for the REIT structure with no impact on our business model or our strategy. And we're firmly committed to delivering a strong progressive dividend. Now, we're a REIT, our dividend policy will be to distribute at least 80% of EPRA earnings. In FY '26 and FY '27, we'll have a reg profits top up. Beyond that, we'd expect the dividend to be fully covered by our EPRA earnings. This will see a mid-single-digit growth over the next 4 years, as we absorb the full impact of interest rate increases. As a reminder, beyond the higher interest rate headwind, we're a business that will deliver strong organic earnings and dividend growth of around 5%, simply as a result of our 3% to 3.5% rental growth and operating leverage, and that's even without any further growth in scale. It's been a strong year of earnings growth in FY '25, but there is a lot more to come. The lease-up of our recent deliveries as well as the remaining committed pipeline will deliver an additional GBP 24 million of rent over the next 4 years. As a reminder, this pipeline only requires a further GBP 130 million of CapEx to deliver. This strong top line growth will ensure we continue to deliver very strong earnings growth, and we're targeting EPRA earnings guidance of GBP 60 million next year and a 50% increase in 5 years from FY '24 to GBP 72 million in FY '29. We see this growth as exceptionally strong, particularly as it's delivered through a period in which we'll absorb the full rebasing of our interest cost to market levels, which we currently assume to be 5.5%. The bridge on this slide breaks down the key drivers, including the benefits of like-for-like rental growth assumed at 3% to 3.5%. The yield pickup from recycling out of our lower-yielding reg's assets into our build-to-rent portfolio, scale efficiencies with EBITDA margins growing to over 60% and the mitigating impacts of reducing debt on higher interest rates. This growth is locked in with upside from delivery of further pipeline schemes or stabilized acquisitions. So to summarize, we've continued to deliver a very strong operational performance with rental income increasing by 12% and EPRA earnings also up by 12%. This growth is being delivered from a position of real financial strength. Our liquidity and our balance sheet are strong, giving us the flexibility through disposals to reduce our debt by GBP 300 million to GBP 350 million over the medium term, as we reinvest into our committed pipeline. We maintain our EPRA earnings guidance of GBP 60 million by FY '26 and GBP 72 million by FY '29 from the delivery of just our committed pipeline alone, whilst also fully absorbing the headwind of higher interest rates. This earnings growth is a major component of our medium-term total returns target of 8%, which we see as a low volatility return and which remains unchanged, assuming constant yields. And at the current share price, this would equate to a 12% return. With that, I'll now hand you back to Helen. Helen Gordon: Thank you, Rob. In this section, I'm going to go through the 5 fundamentals of our investment case, and then, look at the performance of one of our new openings and also the Renters' Rights Act and our shareholder value creation model. Our investment case is compelling. We invest in a low-risk, low-volatility asset class with resilient and proven growth. We're in a market with exceptional fundamentals of housing supply shortages and growing demand. Our customer base is strong with a positive outlook for rental growth. And we now have certainty around our regulation following Royal Assent of the Renters' Rights Act. We have a sector-leading operational platform supported by technology, and this gives us great data and insights, and I'll now look at each of these in a little more detail. So residential is a low-risk investment with sustainable growth. Yes, it's lower yielding than some asset classes, but that is because it's lower risk. It has consistent year-on-year rental growth, and it has delivered above inflation rental growth. And residential rents and capital values have outperformed commercial real estate. This is underpinned by a supply shortage of homes. Our market fundamentals are strong, a shortage of supply and a growing population. We have in this country an estimated shortage of 4.3 million homes. And of the 5.6 million private rental homes, still only 2.5% are owned by professional build-to-rent landlords. Private landlords continue to exit the market, reducing supply, and fewer homes are being built. Recent revisions of the household growth show a 10% increase in household in the 10 years to 2032 and rental demand is set to grow by 20% in the 10 years to 2031. The structural supply and demand imbalance that underpins our sector has never been more acute. Our customer base is strong. On average, a Grainger customer earns around GBP 38,000 per annum. And the average Grainger household income is GBP 62,000 per annum. Our core demographic is in the 20 to 48 range, which tends to see the fastest earnings growth. Our customer base is very diverse. And as a reminder, we cap our student numbers. This diverse customer base and healthy affordability gives us confidence on future rental growth and occupancy. Now, last month, the Renters' Rights Bill achieved Royal Assent. This means we now have certainty on the regulatory outlook, and importantly, it rules out rent control. We contributed our insights to government throughout the process. The act is designed to raise standards, and we at Grainger are already delivering high standards. The proposed standards are consistent with our business model and our operational platform. And our customer-centric approach is embedded in Grainger's business. So the 5 key changes here are the abolition of no fault evictions, annual market rent reviews, pet-friendly policies, open-ended tenancies and decent home standards. And these align with our business model or current practices. The changes in our processes to comply with the act are already well advanced. We know the main measures will be introduced from the 1st of May 2026, and we're ready. So importantly, we now have certainty that rent controls do not form part of this important act. The final piece of our compelling investment case is our operational platform and how we deliver operational excellence. We've grown our offer supported by technology, and this gives us great insights into what our customers want. In our operational excellence, we have moved from instinct to insight. We use AI-driven sentiment analysis to inform our operations. And the data tells us what's important to our customers and what they want from a home. Now, this strengthens both our leasing and our customer retention. Our intuitive customer app as well as our friendly on-site residence team drive our excellent engagement and performance scores, and we sit ahead of many big brands in customer satisfaction and Net Promoter Scores. Building trust is no small feat for a landlord. Now turning to a recent case study, our latest opening in London is Seraphina at Fortunes Dock and it's opposite Canning Town transport interchange. Now, our commitment to this scheme was some time ago. However, even with outward yield movement, rental growth has more than compensated. It's a high-quality scheme, and it was delivered into our best letting season, which is late summer. And we allowed 12 months to lease up in our underwriting. But the lease up here in the first couple of months takes it to 88% let. Rental growth is ahead of underwriting, and the scheme forms part of 3 buildings: Argo, which was launched in 2017; Nautilus, which was launched in 2023; and Seraphina. And whilst there is a slight rental difference, our cluster strategy delivers consistent service. What I'm so proud of is that the rent differential between Argo and Seraphina is only GBP 60 a month. And that is evidence of the low depreciation and resilience of our product. Unlike other real estate asset classes, residential has lower depreciation and greater resilience. As a reminder, Argo is 8 years old, all refresh costs have gone through the gross to net, showing its resilience and lack of depreciation. Residential investment run well offers a true net yield. Grainger's shareholder value creation model is simple and clear. We're investing in high-quality rental homes in great locations with strong demand, and this investment is low risk. We have inflation linking rental growth and the efficiency of a sector-leading operational platform. We are expanding our EBITDA margin, and we have strong growth opportunities secured for now and the future. Our growth is funded. We have demonstrated our track record of disposals. We have a strong balance sheet, and we are lowering leverage. So what this means is that this proven model is built to deliver shareholders' excellent risk-adjusted returns. Thank you. I now invite you to ask questions, and I'll be joined by Rob Hudson, our Chief Financial Officer; Mike Keaveney, our Director of Land and Development; and Eliza Pattinson, our Director of Operations and Asset Management; and other senior leaders in the room. So anyone listening in, you can submit questions through the webcast, but we're going to take questions in the room first. Helen Gordon: Chris, I've got my notepad because I know it will be a 3-parter. Christopher Millington: I've learned the lesson there. Chris Millington at Deutsche. First one I'd like to ask is about this deleveraging and kind of how the strategy is working. So if we don't -- let's say, we don't get such a ramp-up in finance costs going forward, would you still look to delever to that extent? Or should we think it more you're managing the finance cost within the mix of earnings? I'll stop there and go again in a minute. Robert Hudson: Yes, I think we'd always retain some level of flexibility, Chris. So if indeed, the outlook improves and interest rates start to fall a bit, we've modeled on current forward curves of 5.5%, then we'd obviously always aim to have a little bit of flexibility because we are thinking principally around preserving strong earnings growth in the business. Christopher Millington: Very clear. Assuming your assumptions on the 5.5% are correct in the GBP 300 million, can you just talk about what capacity you've got to invest? What -- how should we think about the secured pipeline coming through and beyond and maybe stabilized acquisitions which you mentioned? Helen Gordon: Yes. So you saw the slide, Chris, which actually had over GBP 900 million of capacity. And obviously, that sort of will grow over time. The main components of that are our regulated tenancy portfolio that we're working through strategic land portfolio and other older, non-core assets. So even with deleveraging, completing the pipeline because of our strong operational cash flow, we've got capacity to do our secured pipeline. Christopher Millington: And when do you think we should start seeing that get committed to? Helen Gordon: I think, as I mentioned, we'd look at that commitment in relation to all other options within the portfolios that deleveraging and also the investments in our existing pipeline. But obviously, as the Seraphina example shows, we make a commitment a couple of years out. Christopher Millington: And then I just wanted to explore the valuation backdrop. Perhaps just a little bit of detail as to kind of what assets, regions drove the slight outward yield shift? And just what you're hearing from the value as in what you feel about the outlook for yields? Helen Gordon: Yes. I mean, the interesting thing is how strong the investment market has been maintained for residential assets. We've seen some significant transactions. It was a few outward yield movements on some of our more regional portfolio, but it was literally 10 basis points outward yield movement there. And there were a couple of asset-specific movements. But overall, yields have been stable for the last couple of years, if you look at the valuers' charts. Eleanor Frew: Eleanor Frew from Barclays. So occupancy levels are high, rental growth slowing a little. Can you talk about how you're thinking about balancing the 2 moving forwards? You're likely to prioritize keeping occupancy. And then maybe any comment on incentives used over the year and any planned? Helen Gordon: Yes. Great question. I would -- that occupancy figure is exceptional at 98.1%. We model our business on a lower occupancy. What I always say is important is getting real estate income producing. It's probably one of the most important things you can do. That's sort of rather than keeping occupancy to drive topline rental growth. The new lets' figure that you saw in the numbers reflected the fact that in order -- because we got some late deliveries, if you like, into the year, we wanted to make sure that we went into the winter season with a really high level of occupancy. And so we did offer some incentives. So that blended rental growth just recognizes some small incentives that we made there, but occupancy and rental growth is something that the senior leadership team look at every single Monday morning in a lot of detail. So it's a really careful balance, and I think that anyone that's not looking at both might miss the picture. Eleanor Frew: Great. Then, we understand the market participants that students are increasingly turning to BTR instead of PBSA. Is that something you've seen? And have you seen any pressure on your cap? Helen Gordon: Students have obviously liked build-to-rent for a very long time. Our business model is to build long-term communities, which are most resilient, and therefore, have higher retention rate since students obviously churn more readily. So we've kept our buildings to make sure that students are only a small proportion and that means that we don't get that big summer churn when they finish their courses. But there's another reason for it as well, which is just that mix of young professionals and students doesn't always mix too many parties, I think. But we have -- there are certain cities where obviously, we've come under pressure to let more to students, and it's just really keeping very, very disciplined in order to ensure that we keep that balance of the community and prevent a high level of churn. Thomas Musson: It's Tom Musson at Berenberg. You just mentioned on rent growth for the year ahead, I think to expect some sort of normal seasonality and growth higher in the second half. Can you just remind me what sort of dispersion is in terms of rent growth first half versus the second half? Helen Gordon: I'm going to ask Rob to answer this in more detail in a moment. But one of the things I would say is that we've had quite an unusual market for the last few years. So -- this company is over 100 years old, and we always know that our best leasing season is the sort of late summer into the autumn. What happened during the pandemic and post pandemic is that, that changed with the way that the market went into fluctuation. And now, we're actually seeing it return to normal. But Rob, why don't you give some more detail on that? Robert Hudson: Yes, absolutely. So the first point is we continue to guide for our long run rate of 3% to 3.5% for the year ahead. And that's because we're sitting with very healthy levels of affordability at 28%, which has been constant at that level for quite some time. And, of course, the fundamentals of demand and supply with supply shrinking and demand remaining strong. So, as Helen said, the market obviously has been quite exceptional for the past few years coming out of COVID. But we could expect something in the order of anything up to 100 basis points spread between the first and the second half, but still very much guiding towards the long run rate for the year ahead. Thomas Musson: I just had a second one. You mentioned Bristol launched last week. Can you say -- I don't know if you have any early insight into how that's going? Any early demand there? Any chance that can be a successful lease-up as Seraphina? Helen Gordon: We haven't actually launched it yet, but we -- there's a good buildup, and it sits within a really good cluster. And so we've got good insight into it being a very, very strong rental city and good sort of indication of demand. Eliza, do you want to say anything on that? Eliza Pattinson: Yes. I guess, just going back to seasonality, we've done extremely well in all of our lease-ups in Bristol, but we are launching this building into the low seasonality of lettings. So we'll be doing prelaunches, pre-lets, and we have got good interest at the moment. Helen Gordon: Neil? Neil Green: Neil Green from JPMorgan. Just one, please. There were some initiatives announced in London, I think, last month around speeding up housebuilding activity, focus on the affordable element, but interested to get your take on whether you think this is the catalyst and also whether there's changed anything for Grainger when it comes to the future pipeline, please? Helen Gordon: Yes. I'm going to turn to Mike to talk about this because he's pulled all over the guidance on it. But -- I mean, I think it's a really strong signal of how difficult people are finding it to actually build in London. And just to give you an idea, I think the stat that was out was -- new homes delivered in May was 19. That's total new homes. So you can imagine they do need to stimulate housebuilding in London, but Mike, why don't you talk about the detail? Michael Keaveney: Sure. Thanks, Helen. So what was announced really were emergency measures around the fast track process for getting consents. And obviously, they dropped the amount of affordable housing that they expect from sites and also within that announced grant levels for the affordable housing. But it's really a signal that the GLA are listening to the fact that the housebuilding sector in London is under pressure from a viability perspective. And it's still going to be consulted through in the next 6 weeks or so. But I think it's a really welcome step that they realize, and it's not just build-to-rent, obviously, it's the house builders generally, that their viability models are struggling. And the right lever is affordable housing and grant. And so we welcome that. Helen Gordon: Alastair? Alastair Stewart: Alastair Stewart from Progressive. A couple of questions related to that. Recently, have you -- I know you -- your performance with the building safety regulator has been better than most. But what's your reading of the overall [Audio Gap]. Michael Keaveney: Definitely made a difference, and the big difference is engagement. So now developers in that process have someone they can speak to and talk about the process they're going through. And that's made a massive difference, I'd say. We recently achieved Gateway 2 approval with our partner in Guildford, and that was delivered in 22 weeks, which is much closer to the 12 weeks they originally started with. So we do see -- again, they are listening. They are trying to solve the problem and solve the problem without compromising safety. So yes, the direction of travel is good for that. In terms of the second question, the principle behind that is that there will be a dearth -- there's a backlog of residential development that needs to be -- that will get released through Gateway 2, and suddenly, it will all arrive at once. I think the emergency measures tell you something about that likelihood. The reality is you have Gateway 2 as a barrier, which is now being traversed. But after that, you have a viability issue on certain schemes around London, mainly with the house builders. So I -- and you'll see that the RPs are pulling back from development. So we don't see a massive increase in house building driving inflation. We see a steady progression of house building. Helen Gordon: James? James Carswell: James Carswell from Peel Hunt. Maybe a slight follow on from Chris's question. But just in terms of credit spreads and margins, it feels like they've probably come in looking at what some of the other REITs have done recently. I mean, where do you think -- if you were refinancing today, I appreciate you're not, where do you think your kind of marginal credit spread would be? Robert Hudson: Yes. So based on our internal forecast and current rates, the all-in rate would be around 5.5%. So I think it's obviously true to say as obviously gilt yields have moved, then we've seen a country movement on credit spreads, but the all-in remains around 5.5%. James Carswell: And then maybe just in terms of bigger picture, I mean, funding the kind of the next, I guess, phase of Grainger in terms of opportunities you're seeing, acquisitions, yes, how should we think about funding those? Because the non-core assets are kind of being used for the current pipeline and deleveraging. And is now a good time to maybe think about third-party capital? Is that under consideration? Helen Gordon: We do look at third party, and the Board discuss it, the pros and cons of doing that. But James, we've got a lot of capacity and a big pipeline to go at that we can actually fund ourselves. And so it's obviously -- but we talk to partners all the time. And if there is a right opportunity. And, of course, we do have a joint venture with TfL on our strategic joint venture. So we are known as being good partners. So I wouldn't rule it out. But -- I mean, the great thing is we have clear visibility on how we can fund that secured pipeline. Any other questions? Kurt, you are going to fire some from the webcast. Kurt Mueller: There are a few that have come in online. The first is from John Vuong, Van Lanschot Kempen. The #2 key positive drivers for NPS is the quality of the property. But at the same time, you mentioned that your assets have low depreciation and require minimal CapEx. How can you reconcile these 2 statements? Helen Gordon: It's because we're constantly on top of them, and meaning, that we're refreshing all the time, and we're doing that through the 25% gross to net. So it's very different from, say, our European counterparts that do put their refresh costs -- capitalize their refresh costs. And just as a reminder to John, the majority of our portfolio has been built since 2017. So it is actually a very, very new portfolio. And when we designed it in our specification, we looked very, very carefully at the long-term use of finishes, which is why we invest in high-quality finishes to make sure it doesn't deteriorate as quickly. Kurt Mueller: Next question is from Andres Toome of Green Street. What is the impact to yield on cost for schemes benefiting from lower affordability housing quota and the community infrastructure levy in London? We partly answered that, I think, before. And do you see any opportunities emerging from these changes? Helen Gordon: Yes. So -- I mean, most of our schemes have been through the planning process. But, Mike, why don't you answer this? Michael Keaveney: Yes. I think what lies behind the question is whether lower affordable housing and say, increased grant and that kind of combination would lead to greater returns, which is not quite the point of what the emergency measures are trying to do. The emergency measures are trying to bring back viability to housebuilders so that they make their returns. If you created a scenario where super normal returns were delivered through that, they would pull back. And so really, the benefit is that the housebuilders, the general housebuilders should be able to hit their viability returns, not make supernormal profits. Kurt Mueller: One final question from online. Dr. Francis Jardine, I believe, a private shareholder. "I have investments in over 20 REITs, who pay quarterly dividends, does the Board of Grainger intend to consider paying quarterly dividends going forward? Doing so is only a question of managing cash flow". Helen Gordon: We pay -- obviously, we pay half yearly dividends, as a reminder. I will make sure that the Board discussed it at the next meeting. Kurt Mueller: That's it from online. Helen Gordon: Any other questions in the room? Chris, another one? Christopher Millington: It's as I was getting through to the appendix on the presentation. But I notice now we've got London and Southeast net initial yields, quite tight versus the rest of the country, actually, a little bit below where you're holding in the Southwest. I think it's 4.3%, place 4.1%. What do you think of the relative attractiveness of London now you've seen that sort of convergence? Helen Gordon: Yes. I think it comes from the fundamentals of our sector, which is you've got a shortage of supply across the whole country. So you've got occupancy, and therefore, sort of they have converged the biggest -- I haven't put it in this year, but it is in the appendices. It is my chart where I show where is the best rental city. And the best rental city for obvious reasons is London. So I would argue -- I have to be careful, I think, we've got the values in the room, but I would argue that the London yields are too cautious. For most of my career, London yields have been significantly lower than where they sit today. No more questions. Thank you very much for getting up early and coming and joining us this morning. Any other questions, we will be around for a little while before I think another property company comes in here. So thank you.
Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 ESCO Technologies Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. On the call today, we have Bryan Sayler, President and CEO, and Christopher L. Tucker, Senior Vice President and CFO. And now I'd like to turn the conference over to our first speaker today, Kate Lowrey, Vice President of Investor Relations. Kate, you now have the floor. Kate Lowrey: Thank you. Statements made during this call, which are not strictly historical, are forward-looking statements within the meaning of the Safe Harbor provisions of the federal securities laws. These statements are based on current expectations and assumptions, and results may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the company's operations and business environment, including but not limited to, the risk factors referenced in the company's press release issued today. This will be included as an exhibit to the company's Form 8-Ks to be filed. We undertake no duty to update or revise these forward-looking statements, except as may be required by applicable laws or regulations. In addition, during this call, the company may discuss some non-GAAP financial measures in describing the company's operating results. A reconciliation of these measures to their most comparable GAAP measures can be found in the press release issued today and found on the company's website at www.escotechnologies.com under the link Investor Relations. Now I'll turn the call over to Bryan. Bryan Sayler: Thanks, Kate, and thanks, everyone, for joining today's call. We are pleased to meet with you this afternoon to discuss our fourth quarter results. By any measurement, we finished the year strong and closed out another great year at ESCO Technologies Inc. Q4 was the first full quarter to include the maritime business, which had impressive performance leading to a significant impact on our top and bottom line results. In addition to Maritime's contribution, we delivered 8% organic sales growth in the quarter. This top-line sales growth combined with a 100 basis points of adjusted EBIT margin expansion at the bottom line to drive a 30% year-over-year increase in adjusted earnings per share from continuing operations to a record $2.32 per share. 2025 was a truly transformative year for ESCO Technologies Inc. The successful acquisition of Maritime and the divestiture of VACCO were both pivotal steps in the evolution of our portfolio. We now have an expanded presence in the navy market, offering a broader suite of products across both US and UK platforms. With our exit from the space market, our A&D segment now has a sharper focus on serving the aerospace and navy end markets, both of which present durable long-term growth opportunities. Our exceptional financial results this year are a testament to the dedication and expertise of our global team. I want to extend my sincere thanks to everyone at ESCO Technologies Inc. for their hard work and dedication throughout the year. Their commitment enabled us to deliver outstanding operating performance during a period of significant change. Chris will take us through all of the financial details of the quarter. But before we do that, I want to give you a few comments on each of our segments. Let's start with aerospace and defense. We remain positive regarding the long-term outlook for both the aircraft and navy market. We see fundamental drivers across both of these markets and expect increasing production rates to drive growth going forward. We continue to see positive momentum on the navy side as in addition to contribution from Maritime, organic sales were up 53% in the quarter and 24% year-over-year. Our US and UK customer bases are highly focused on increasing build rates for submarines, and we see the benefits from this in our sales and our order rates. We continue to be very pleased with the Maritime acquisition, which has started off 2026 very well, already booking over $200 million in orders in the first month of the new fiscal year. We've been anticipating these orders, and it's been a really nice way to start off the new year. In aerospace, revenue was up over 10% in the quarter and 14% year-over-year. It's been good to see Boeing successfully ramp up production and to get approval to take 737 build rates up to 42 per month. As we all know, the end market demand is there, and their customers really need more planes. We remain positive on the long-term outlook for the aircraft end markets. Switching over to the utility solutions group, which had a solid quarter highlighted by record orders of over $100 million and a 29% adjusted EBIT margin. Sales growth was a little lower this quarter due to policy headwinds in the renewables market, but Doble's revenue was up over 7% over the prior year. As we have discussed previously, there are many factors driving the increase in electricity demand, and utilities need to both maintain and expand the grid. On the Doble side, revenue will vary from quarter to quarter, but the long-term growth drivers remain firmly in place. The renewables market is recalibrating right now, as developers focus on completing current projects as tax credits sunset under the new legislation. This has slowed growth domestically in the near term, but we continue to believe that longer-term renewables are a cost-competitive source of generation, and we think that long-term, utilities will favor a mix of generation sources and that renewables will continue to have a vital role to play as utilities work to meet increasing demand for electric power. Finally, I'll touch on the test business, which had a really nice fourth quarter with 10% revenue growth and a high teens EBIT margin. For the year, it was great to see a rebound in orders, which were up 25% over the prior year. One of the strengths of our test business is the diversity of the end markets that it serves. And with the exception of wireless, we are now back to seeing strong activity across all of our test and measurement and shielding industrial markets. The key takeaway here is that the test business has stabilized, and we feel good about their trajectory as we move into 2026. In summary, we're excited about the future as we continue to see robust growth drivers across our core aerospace, navy, and electric power markets. Supported by record backlog, a strong balance sheet, and entrenched positions in our served markets, we are well-positioned to deliver continued value for our shareholders. With that, I'll turn it over to Chris, who will run you through all of the financial details for the quarter. Christopher L. Tucker: Thanks, Bryan. Everyone can follow along on the chart presentation. We will start on page three, which shows the financial highlights for the quarter. The bar chart on page three illustrates that this was a strong quarter for ESCO Technologies Inc. You'll see as we go through the results a recurring theme of the 30% on a reported basis, and delivered organic growth of 13%. Sales for the quarter were $353 million, which represented 29% growth, and organic growth came in at 8%. So for orders and sales, you can see it was a great quarter. Moving to profitability, adjusted EBIT improved by 100 basis points to 23.9%, and adjusted earnings per share increased by 30% to $2.32. Next, we will go through the segment highlights, starting with Aerospace and Defense on Chart four. Orders were quite good with growth of 60% on a reported basis and organic growth of 12%. In total, we delivered $142 million of orders, which led to ending backlog of just over $800 million, a good indicator of future growth for the business. Sales for A&D in the quarter came in at just over $170 million, or growth of 72% on a reported basis, and organic growth was 13%. Organic growth was driven by growth in the commercial aerospace and navy end markets. Adjusted EBIT dollars grew by nearly 63% in the quarter, margins came in at 28.6%. Margins were down slightly from last year's record level in Q4, as we saw slight dilution from the Maritime acquisition and core margins down 80 basis points compared to last year's fourth quarter. Moving to the next chart, we have the utility solutions group, which once again saw good order activity and delivered 17% growth compared to last year's fourth quarter. The order growth was driven by Doble, which saw strength across the business. Backlogs for the utility group ended at just over $143 million, which represents growth of 20% compared to prior year end. Sales growth was more muted with 2% growth in the quarter. Once again, the growth came from Doble, which was up 7% while NRG was down 20%. Bryan mentioned this in his comments, but we've continued to see the renewables market scuffle a bit throughout 2025. Margins were very good for the utility business in the quarter with adjusted EBIT dollars increasing 12% and adjusted EBIT margins expanding by 270 basis points to 29.1%. This is a great performance as price increases, favorable mix, and good cost containment all contributed to the margin result. Moving to chart six, we have the test business. Order activity here was solid with growth of 6%. This business ended the year with a $187 million backlog, so it's been a nice year of recovery here and great to see the backlog up nearly 20% compared to September. Sales growth was strong in the quarter with a 10% increase to $72 million. Adjusted EBIT margins came in at 17.5%, a reduction compared to last year's record quarter as unfavorable mix and inflation were more than offset by leverage on the sales growth. Next is chart seven, where we show full year results for continuing operations. The data here is impressive with strong double-digit performance on key metrics, demonstrating the strength of our core portfolio and the clear benefits of the Maritime acquisition. You can see the note at the bottom highlighting that we have achieved record performance in 2025 on all key metrics. Orders finished in excess of $1.5 billion, growth of over 56%. Organic order growth was 11% with double-digit organic order growth from the utility and test businesses. Reported sales increased 19% to nearly $1.1 billion, with A&D and Test both delivering double-digit organic sales growth. On the profitability side, adjusted EBIT margin improvement was significant with 20.3%, representing an increase of 180 basis points. All three businesses delivered increased adjusted EBIT margins in 2025. This led to adjusted earnings per share of $6.30, representing growth of 26%. Next is chart eight with our cash flow highlights. Let's go ahead and break out year-end operating cash flow. Delivering just over $200 million from continuing operations, which compares to nearly $122 million in the prior year. Earnings growth and good working capital performance drove the 2025 increase. The teams across ESCO Technologies Inc. have focused sharply on working capital improvement, and we are starting to see nice benefits from that activity in our operating cash flow results. Capital spending increased to just over $36 million in 2025, as we saw modest increases from all three segments. We finished the year with an EBITDA to net debt ratio of 0.56 times as we saw strong cash generation and also proceeds from the VACCO divestiture facilitate a large debt pay down during the fourth quarter. Our last chart is number nine, which contains our fiscal 2026 guidance. We're expecting to show another strong year financially, with reported sales growth in a range of 16% to 20%. This is comprised of 6% to 8% organic growth from our A&D businesses and Maritime revenue in the range of $230 million to $245 million. For the Utility Group, we expect growth of 4% to 6%, which includes Doble growing in a range of 6% to 8%, partially offset by NRG. For Test, we expect top-line growth to be in the range of 3% to 5%. Additionally, we expect nice improvements from adjusted EBIT and adjusted EBITDA margins to drive overall adjusted earnings per share to a range of $7.50 to $7.80, which would represent growth of 24% to 29%. Bryan Sayler: The bar charts at the bottom here show a real nice trend for ESCO Technologies Inc. on sales and adjusted earnings per share growth. The four-year compound annual sales growth through 2025 is 16%, and the adjusted earnings per share CAGR is 27.5%. The company has delivered very well, and we feel strongly that 2026 will continue these great trends. That completes the financial summary. And now I'll turn it back over to Bryan. Bryan Sayler: Thanks, Chris. So as you've heard from our commentary, FY 2025 was a great year. And ESCO Technologies Inc.'s future remains bright. As we continue to see a path for value creation enhancement as we move forward. With that, we are finished with our prepared remarks. And we'll turn it over to Q&A. Operator: Thank you. Then wait for your name to be announced. To withdraw your question, please press star moment again. Our first question comes from the line of Tommy Moll with Stephens. Your line is open. Zach: Good afternoon. This is Zach on for Tommy, and thank you for taking my questions. Bryan Sayler: Hi, Zach. Zach: Could you please give context on how we should think about growth rates and margin trends at the segment level going forward? Christopher L. Tucker: Yeah. So, you know, if you look at the guide we had in there, I mean, we've got the A&D business on a core basis growing in that 6% to 8% range, and then we've got the maritime addition on top of there. Then we've got what do we have for Doble or six to eight. Six to eight for Doble and then three to five for test. We would expect margin improvement, you know, from all three of the segments next year. So, you know, I would say generally, we see 2026 as kind of on trend with how we've communicated, you know, where the business has been kind of running for the last couple of years. And kind of where we are in the cycle. Zach: Awesome. Thank you. And then can you please give an update on the integration of SMNP? Obviously, there was a delay getting the deal closed. But since the close, are you tracking ahead or behind what you had planned? Bryan Sayler: Yeah. I'd say that, you know, in terms of the cultural integration and financial integration, operations, and all that stuff, I think we're on plan. Maybe it's a little bit ahead of plan. I would say things are going very, very well on that front. In terms of financial results, I would say that the maritime business is ahead of what we originally communicated when the deal was announced. You know, we had some I would say we were prudent and, you know, gave the advertised plan a little bit of a haircut and yeah, as we've gotten through the regulatory approval and into the business, what we found is that they're actually performing at or above their originally advertised plan. It's that's been a very welcome result. Since then, we've had some real positive new order activity in the fourth quarter. And then just, you know, here in the early innings of the '26. So, yeah, we would say that everything's going great here and, probably better than, you know, we had expected. Zach: Good to hear. That's all I had, I'll turn it back. Operator: Thank you. Thanks, Zach. Our next question comes from the line of Jonathan E. Tanwanteng with CJS. Your line is open. CJS your line is open. Jonathan E. Tanwanteng: Hi. Good afternoon. Thank you for taking my questions, and really nice quarter and outlook. Really good job there. Wondering if you could expand on the previous comment. Just, you said something about $200 million in ESCO maritime orders. What programs were those associated with? Number one, how are you number two, thinking about growth going forward for that business that you've acquired? Bryan Sayler: Yeah. So the $200 million, it was more than $200 million, but it came in in the first quarter. So, Jonathan, it's in the UK. And so we're operating under a little bit of a different security scheme there, so we're not gonna be able to give precise details on programs and contacts and things like that. But suffice it to say that these were UK submarine-related programs. Jonathan E. Tanwanteng: Okay. Great. Can you disclose what time frame those are supposed to, revenue over? Christopher L. Tucker: Yeah. Those will run out for over two years, Jonathan. So we'll start to book a little bit of revenue in, let's say, second, third quarter, and then we kind of start to ramp it a little bit in the fourth. And then it would run out through '27 and beyond. So it's, you know, those are long-term, you know, programs. Jonathan E. Tanwanteng: Got it. Thank you very much. And then just on the aerospace side, are you expecting any headwinds from just the canceled flights you've been seeing with the shutdowns and the TSA? And exceeded ATCs? Or is that not really significant for you, number one? And number two, as you look into the room, into '26 that six to 8% growth rate, can you just us maybe what the underlying assumptions are? Especially with the build rates at DOEMs going up as much as I think they they're forecasting. Bryan Sayler: Sure. Sure. So on the shutdown, we really didn't see any impact from the shutdown and certainly not in the aircraft, you know, manufacturing or MRO space. So we are, you know, we are thinking that, we are thinking that, that's gonna move forward without any delay. Overall, I think you asked us about the six to 8% at Doble. And what we're seeing there is that we're seeing continued strong spending from the utilities that are really focused on grid infrastructure. It's less about the AI piece and it's way more about the, you know, reliability and maintaining their existing aging assets. And so that spending is really up. You know, we had a record fourth quarter of orders. And, yeah, here in the early part of the first quarter, it looks like that, you know, that trend is continuing. So we feel pretty good about the Doble business. I think the challenge here is the renewable side of the business is definitely seeing a little bit of a challenge as we move forward. Jonathan E. Tanwanteng: Got it. I think I might have misspoke. I was referring to the six to 8%, in For aircraft? For aircraft. Yes. Bryan Sayler: Yeah. So that wasn't what's happening there is we're seeing really good up growth in the build rates for the various platforms that we're on. And I would say from our perspective, you know, in particular, we're seeing growth on 787, we're seeing growth on 737. Yeah. And then we are seeing, you know, broad-based growth, seeing some military, you know, content that's coming through to our benefit. You know, there's more F-15s. You know, some of the newer sixth-generation platforms. All of that stuff is really working to our benefit in the aircraft business. Jonathan E. Tanwanteng: Okay. Great. Thank you. Operator: Thank you. Ladies and gentlemen, as a reminder to ask a question, we have a follow-up question from the line of Jonathan E. Tanwanteng with CJS. Your line is open. Jonathan E. Tanwanteng: Hi. I was just wondering if you could expand on the energy business a little bit. Just do you see an inflection point at some point, or might there be further downside as, you know, companies digest what the new policy is being made? Yeah. Wait it out a little bit. Yeah. Bryan Sayler: Well, I think it's, yes. So our assessment is as follows. I don't think it's a big secret that the, you know, the Inflation Reduction Act in 2022 really kind of turbocharged that entire industry. And so we were seeing, you know, 25-30% growth rates, you know, in 2023, 2024, you know, with the new administration coming in, they've kind of certainly got a different perspective. And then with the one big beautiful bill, the tax credits that were driving a lot of that activity are set to expire, I think, mid-next year. What we're seeing from the developers there is really kind of a focus right now on trying to get everything that they currently have under construction qualified for those tax credits. So, you know, the fundamentals of renewable energy, you know, relative to other forms of energy are still pretty positive from a cost and availability perspective. But right now, the focus is really on those existing programs. So what we think is gonna happen is there's gonna be a downstroke for the industry broadly this year. And that beginning, you know, let's say, call it this time next year, I think we would begin to see a little bit of a turn back to what I would call normal growth. So that'd be high single-digit growth. It's really driven by, you know, the fact that, you know, we just need a lot more generation than people are gonna be able to get built out of natural gas given all the constraints of that industry. And the solar in particular, pretty affordable. I think domestically, terrestrial wind is very challenged in the current environment. But internationally, it's still a pretty thriving business. You know? And, Jonathan, remember, we did not have any exposure in our business to any of the offshore wind stuff or any of the rooftop solar. And that, yeah, that's a lot of carnage in those spaces today. So listen. We think our business right now is very well managed. We've been able to maintain margins. And we believe, even though our top line is down a little bit, we think we're taking market share in a down market. And so we're gonna be well-positioned to kind of take advantage of that normalized growth when it returns in '27. Jonathan E. Tanwanteng: Got it. Thank you. And then last one for me. Just any thoughts on capital allocation from here? Looks like you're generating really solid cash flow. It looks like you'll have the debt from Maritime paid off in about a year. You know, what are your priorities at this point? Bryan Sayler: Yeah. We're, yeah. So listen. We've been successful with the acquisition of divestiture and put ourselves right back in a position where we've got a tremendous balance sheet and, you know, a lot of firepower. So we are very active in the M&A space. I don't have anything to announce, but I would say that the M&A market has significantly improved in the last half of the year. There's definitely a lot of very attractive assets that either are coming to market or are rumored to be coming to market here in the early next year. So we're looking at those things carefully. Now I want to be clear that we're gonna continue to be pretty disciplined about this stuff. We really are most interested in businesses that would fit squarely into our aerospace, our navy, or our utility end markets. And the reason for that is because we assess that those markets have, first of all, we understand them, but second of all, you know, we assess that those markets have very durable, long-term secular growth characteristics that provide us a really good opportunity to really grow a business like that added to our portfolio. So that's kind of our focus. We, you know, we've got the balance sheet to go do it, and we're starting to build that pipeline up again. Jonathan E. Tanwanteng: Okay. Great. Thank you again. Operator: Thank you, Jonathan. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Bryan for closing remarks. Bryan Sayler: Well, thanks, everyone. Yeah. Again, a really tremendous year. Transformational. Yeah. One more shout out to all the employees of ESCO Technologies Inc. who really have made this possible. It's been a lot of work. But, you know, our team is good at their jobs. And we've been very, very successful. And will continue to be in the years to come. So thanks a lot. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Please stand by. Good day, everyone, and welcome to the Copart, Inc. First Quarter Fiscal 2026 Earnings Call. Just a reminder, today's conference is being recorded. Before turning the call over to management, I will share Copart's safe harbor statement. The company's comments today include forward-looking statements within the meaning of the federal securities laws, including management's current views with respect to trends, opportunities, and uncertainties in the company's industry. These forward-looking statements involve substantial uncertainties. For more detail on the risks associated with the company's business, we refer you to the section titled Risk Factors in the company's annual report on Form 10 for the year ended 07/31/2025, and each of the company's subsequent quarterly reports on Form 10-Q. Any forward-looking statements are made as of today, and the company has no obligation to update or revise any forward-looking statements. I will now turn the call over to the company's CEO, Jeff Liaw. Welcome, and thank you for joining us. Jeff Liaw: For our first quarter fiscal year 2026 earnings call. I'll begin with some brief remarks on trends in our insurance business, our progress in growing our non-insurance vehicle business, and then a short discussion of the key drivers behind our auction returns before passing the call to Leah to review our first quarter financial results. We'll then take a few questions. First, on our insurance business. Our global insurance units for 2026 declined 8.4% or a 5.6% decline, excluding catastrophic volumes from a year ago. Our U.S. insurance units declined 9.5% for the same period and 7.3% excluding catastrophic activity as well. The underlying drivers of these trends are consistent with what we have discussed in prior quarters. It's a combination of market share evolution among insurance carriers themselves, soft claims counts as a result of consumer retrenchment in their auto insurance purchasing behavior offset by rising total loss frequency. On that last point, total loss frequency has continued its long-term upward trend consistent with nearly the entirety of the history of our company and our industry. In the U.S. for the calendar year 2025 through September, total loss frequency was 22.6%, an increase of 80 basis points or so year over year according to CCC. We continue to sustain and expand what we believe to be our advantage in generating best-in-class auction returns for our insurance clients. Even including the highly inflationary 2021, 2022 COVID era, when semiconductor shortages further increased vehicle prices, we are achieving all-time high average selling prices for our U.S. insurance carriers. In fact, for the quarter, our global insurance ASPs increased 6.8%, our U.S. insurance ASP increased 8.4%. We know from public data and disclosures that our ASPs grew at a rate that eclipsed that of the Manheim Used Vehicle Value Index and grew at a rate more than threefold that of service providers similar to us. I'll talk in greater detail in my comments shortly on the underlying drivers of this performance. On the question of claims frequency, on our last call, we talked about this subject and its near-term effects on our business. According to ISS Fast Track, paid claims frequency for collision coverage for the second calendar quarter 2025 compared to the same period last year was down 7.5%. And in fact, earned car years for that same period were down 4.1%. At the same time, vehicles in operation for the second calendar quarter 2025 actually increased 1.4%. And we see further data in the underlying activity that shows miles driven continue to remain robust and growing. We understand from many of our insurance partners in the industry that consumers are responding to late-cycle insurance rate increases by reducing the scope of their coverage or foregoing it altogether. As a result of that consumer retrenchment, more vehicles that historically would have entered the insurance company-mediated total loss process now do not. Over the long term, however, the penetration rate of auto insurance coverage and collision coverage specifically appear to be cyclical. I'll now turn our attention to Copart's non-insurance wholesale business. As we've talked about on prior calls, it's really rising total loss frequency in our insurance vehicles, which enable our ongoing progress in this arena as well. Rising total loss frequency means that an increasing portion of the cars that we sell on behalf of the insurance industry are actually cars that will be repaired and drivable again, both in the U.S. and overseas. As we draw buyers of those types of vehicles to our platform, they are increasingly the right fit as well for sellers such as rental car companies, financial institutions, corporate fleets, and the like. We've also contributed to this flywheel effect by building purpose-built enhancements for commercial sellers as well. With guidance from our Blue Car Advisory Board, a host of industry leaders from the aforementioned industries, we have built specialized systems for receiving and inspection, condition reporting, and arbitration. All designed to meet the unique expectations and unique needs of those types of partners. The single most important lever we have in achieving commercial outcomes, excellent commercial outcomes for our sellers, is our fundamental auction liquidity. In comparison to many other pathways disposition for these sellers, we offer an always-on digital global marketplace that is committed to finding the highest and best use for that vehicle, anywhere it might be. That brings us to our last topic, which is the question of auction returns at Copart and why we believe the underlying indicators show that this advantage is not just a durable one, but in fact, is expanding. We proposed five core indicators for the auction liquidity that has long distinguished us in the insurance industry. We believe that auction liquidity and returns have been a pronounced advantage for us since we became the first online-only salvage auction marketplace in 2003. But I'll focus in particular on the post-COVID post-semiconductor period since 2022. The first indicator of the health of a marketplace is the portion of its sales that are achieved via pure sale auction. Even in 2022, a strong majority of our insurance units were sold on a pure sale basis, but the mix has increased today to comprise a strong super majority of insurance units sold. Our consignors know that with an always-on global digital marketplace, they will trust the platform to find the highest and best value for a vehicle based on the attendance of any given auction or Copart. And in fact, for the typical institutional carriers, they hold only unique exotic vehicles on occasion to be managed with reserve prices and such. The second indicator for a strong marketplace like ours is international participation in our auction. Global demand leads to more bidders, more competition, and higher price and better price. And again, since 2022, against the backdrop of global economic uncertainty, tariffs, and so forth, the share of our U.S. vehicles and auction value that have been purchased by international buyers has continued to grow. In 2026, international buyers have purchased vehicles that are 38% higher in value than comparable U.S. buyers by comparison. We believe that these are long-term durable trends as population growth and mobility demand growth outside the United States, outside the UK, Canada, and so forth continues to outpace what we were experiencing firsthand in our origin markets. The third indicator we would propose would be the unique bidders per auction. We sometimes face the question as to whether a marketplace like ours can ever experience saturation. That is, the unit volume can grow so much that it eclipses the buyer base's ability to absorb it. I would argue that most historical marketplace analyses in other industries would say quite the opposite. Liquidity begets liquidity. And in fact, since 2022, our unique bidders per auction instance have grown steadily to today's all-time highs. As well. The fourth indicator we look at is to assess preliminary bid activity. Our live auction technology is distinctive, and its ability to dynamically draw full and fair prices, preliminary bids are also one indicator of auction health. I.e., the quantity of proxy bids submitted before the auction even begins. And in fact, preliminary bids as a portion preliminary bids per lot auction instance have increased steadily since 2022 as well. And finally, the one measure that much of the insurance industry uses is gross returns. I.e., selling price for a salvage vehicle divided by its ACV pre-accident value. This is a single simple metric that the industry commonly uses. And since 2022, again, our U.S. insurance returns have increased substantially. And are, in fact, at an all-time high watermark during my own personal ten-year journey here at Copart. Taken together, we believe that higher pure sale rates, expanding international demand, greater bidder participation, stronger pre-auction engagement, and rising gross returns collectively attest to our principal competitive advantage with our consignors. And that is delivering full and fair prices according to the global marketplace. They, in turn, are the hard-won results of our aggressive investments in storage capacity, technology, and people for years and decades. They're also the best long-term indicators of the strength of our business. And with that, I'll turn it over to our CFO, Leah Stearns, and then we'll take your questions thereafter. Leah Stearns: Thank you, Jeff, and good afternoon to everyone on the call. I'll begin by walking through our financial results for the quarter, beginning with our consolidated performance, followed by a review of our U.S. and International segment performance. For the first quarter, total global units sold decreased 6.7% with fee units decreasing 6.3%. During the prior year period, Copart responded to several catastrophic events around the world from Hurricanes Helene and Milton to catastrophic flooding in the Middle East, Germany, and Brazil. These events, which did not recur this year, impacted our reported year-over-year unit growth. Normalizing for the impact of these cat events, our global units sold decreased 4.6%. Global insurance units declined 8.1%, or 5.6% adjusted for cat. Global non-insurance units declined 1.5%. For the first quarter, consolidated revenue grew just under 1% year over year, or 2.9%, excluding cat, to $1.16 billion, with service revenue increasing just under 1% and purchased vehicle sales increasing nearly 2%. Our fee revenue per unit increased over 7% during the quarter, which was primarily driven by growth in our average selling prices, which have increased 8.5% from the prior year period. Global gross profit increased 4.9% or 3.7% excluding CAT, to $537 million. Gross profit per fee unit increased 12.3% and purchase unit gross profit decreased 3% to $22 million from the prior year period. Gross margin improved 184 basis points to 46.5%, reflecting the nonrecurrence of one-time expenses related to our cat response. Operating income rose 6%, 4.5% excluding cat, to $431 million while net income was $404 million, up 11.5% versus last year. Earnings per diluted share increased 10.8% to $0.41. This was driven by revenue growth, margin expansion, and the continued growth in interest income we've earned due to our growing cash balance. Turning to our U.S. Segment. In the first quarter, total units sold declined 7.9%, or 5.2% excluding cat and direct buy units. U.S. insurance volumes declined 9.5% or 7.3% excluding cat. Our insurance unit volume trends are consistent with the industry themes Jeff described a few moments ago. Our U.S. non-insurance business continues to perform well, led by dealer unit sales, which increased 5.3%. Commercial consignment units, which are marketed through our blue car channel, down just over 1%, which was primarily a result of timing related to the sale of rental units as our fleet and bank and finance seller volumes continue to grow. We continue to focus on driving higher value units through our marketplace, and have developed a more profitable channel for Copart to manage lower value units through, which we have branded direct buy. These are units which Copart would have previously purchased through its Copart Direct, cash for cars business unit and instead now is earning a referral fee to connect a junk buyer to the individual seller. As a result, the units are not part of Copart's inventory, and we do not incur costs associated with the processing handling of the unit. Normalizing for this shift, U.S. purchase units increased 6.2% from the prior year period, compared to a decline of 19.2% on a reported basis. U.S. purchased vehicle sales, which is primarily comprised of our Copart direct units, increased 10.9%, which reflects the lower unit volume being offset by substantially higher average sale prices, which increased over 50% from the prior year period. From an operational perspective, we continue to drive forward initiatives with are reducing our overall cycle time. This includes managing title procurement on behalf of our insurance customers, which has grown at a double-digit rate over the past year, simultaneously reducing aged inventory at our facilities. In addition, as non-insurance units are contributing a greater percentage of our overall unit volumes, we naturally have a greater proportion of units which have substantially shorter cycle times being processed through our facility. During the quarter, in the U.S., our cycle times have decreased by 9% from the prior year period. And these improvements, while these improvements in cycle time are decreasing inventory levels, they are increasing the overall processing capacity of our existing facilities. As of the end of the quarter, these trends were the main driver of our U.S. inventory decline of just over 17% from the year-ago period. While U.S. assignments declined 9.5%, or low single-digit comp excluding CAT. We also continue to invest in Purple Wave, our online equipment auction platform. Purple Wave's GTV growth of over 10% over the last twelve months continues to outperform the broader industry and reflects strong buyer engagement in our expansion markets, growth in our enterprise accounts, and sustained demand in the heavy equipment category. The market continues to experience the impact of broad uncertainty, is causing customers to delay decisions around equipment purchases and sales as they contemplate the impact of the broader macro and geopolitical environment. From a U.S. segment perspective, total revenue increased 0.5% to 2.3% excluding cat, which reflects the decline in unit volume offset by an increase in revenue per unit. On a per unit basis, U.S. fee revenue increased 7.5%, reflecting the positive impact of higher average selling prices, including our U.S. insurance ASPs, which have increased 8.4% from the year-ago period. U.S. gross profit increased 3.7%, to $464 million, and U.S. gross profit per fee unit increased 13.2%, supporting an increase in our U.S. segment gross margin to 48.7%. As a result, U.S. segment operating income was $375 million, up 5.6% year over year, reflecting strong execution and continued cost control, even against a backdrop of lower insurance volumes in the prior year cat. U.S. segment operating margin was 39.4%, reflecting a nearly 200 basis point increase from the prior year period. In our International segment, total units sold declined by less than 1%, or grew 4.5%, excluding the cat units in the prior year. International insurance units increased less than 1% or 8.3% excluding CATs. And international non-insurance units declined 2.2%. We continue to see strong insurance growth across our diversified international footprint, including in the U.K. and Canada. International revenue increased 1.6% or 5.7% excluding CAT year over year, an increase to $2 million. International service revenues increased 7.9% or 13.9%, excluding CABP, which primarily reflects higher international fee revenue per unit, which increased 8.1%. Our average selling price for international insurance units declined 2.4% from a year-ago period. Purchased vehicle revenue declined 9.4%, which reflects the impact of a few of our insurance customers who have migrated from a purchase contract to a consignment contract structure. Gross profit for the International segment grew 13%, and operating income was $56 million, a 27.5% operating margin, which continues to expand even as we invest in yard capacity, technology, and logistics infrastructure to support our long-term international growth. Turning to our balance sheet, Copart remains in an exceptionally strong position. We ended the quarter with liquidity of approximately $6.5 billion, including cash and cash equivalents of $5.2 billion and no debt. We continue to generate robust free cash flow supported by disciplined capital allocation into assets, which position us to efficiently support our growth to serve both insurance and non-insurance clients, also delivering strong operational efficiency. With that, we thank you, and we'll open up the call for your questions. Operator: And the first question comes from the line of Bob Labick with CJS Securities. Please proceed. Bob Labick: Thank you for taking our questions. So, hey, so I you don't talk about specific clients accounts and things that, but I'm having a little trouble reconciling the, I guess, larger than expected decline in unit volumes. And I if there's any way you could talk about because the trend changed both versus expectations and versus what we've been seeing. And at the same time, the explanations are similar to previous trends, the U.S. insurance less collision coverage and then share shifts between the carriers, those trends have been happening for a little while now. So maybe help us understand what the kind of inflection in the changes. Is there any like actual market share shift between carriers as opposed to from you to a competitor or your competitor etcetera? Or any we can think about this, the change in the speed of unit change? If that makes sense? I don't think so, Bob, that would be Jeff Liaw: I think it is the factors you just described, which is principally that insurance coverage itself has changed, right. I think notably to see earned car years down 4% and change while literally vehicles and operation and miles driven are up I think speaks to the underlying activity. So our unit trends, I don't think is substantially different If you can envision literally 4% of policies no longer having coverage of any kind, And then some other portion migrating down the value chain, so to speak from collision coverage to liability only or what have you? I don't think it's far-fetched to extrapolate from that to the kinds of unit trends that we're seeing in our business. Bob Labick: Okay, great. And then slightly different question, just trying to think forward. Total loss frequency, I know it was up 80 basis points year over year, but it's been like modestly flattish for the last four quarters or so. And I know one year through Copart's Lens is like a minute for the rest of us, meaning it's too short to register a matter. But that said, what do you think has caused the kind of the pause and the expansion over the last four quarters of total loss frequency? What are you seeing beneath the hood, so to speak, for decisions at carriers Can it be as simple as one carrier's gaining share and they generally have it lower total loss frequency rate and that's impacting it? Or what could be driving this? And what do you think it takes to get that to grow again? Jeff Liaw: Yes. I think your first observation is the very correct one. Which is that measured in the kinds of investment cycles through which we have to manage our business, because the nature of our business is such that investments in anything, tech, land, people, etcetera, requires years of conviction. And we have that conviction space, meaning over a good horizon. You know this story, I think, maybe most of the folks listening to the call already do as well. The total loss frequency in recently as 1990 was 5%, 1980 was 4% and today's 22% and change. So it's up 80 basis points versus a year ago. Think Bob already that even the data in any given quarter often gets corrected. The same way that the Bureau of Labor Statistics will later revise unemployment looking backwards. Because you now know more cars were actually totaled that were in the repair chain or cars intended be totaled were actually owner retained. So I think reading a whole lot into 80 basis points versus 130 or versus plus 30, I think is more noise than it is signal. Think anything is fundamentally changed in the commercial logic that the industry will use going forward. I think we believe as much as we ever have total loss frequency as a matter of time different analysts will draw different conclusions on that front. But we'll reach 25% and we'll reach 30%. Because it's actually not I think the intuition people struggle with is that they think what it means is you're abandoning a car. Right? You're not fixing it, you're giving up on it. And that's fundamentally not true. For the marginal car, you're not choosing not to repair it, you're choosing to let somebody else manage it who has a different cost base, a different regulatory regime, and different economic calculus than you do as a U.S. Massachusetts insurance carrier. So, the last comment I'd make Bob is, there's also probably unprecedented volatility in some of these input variables, right, in the form of tariffs parts prices, shop utilization, I think has been quite bit more volatile over the course of the past three years than it has been probably at any point in your career or mine? So there have been shocks to the system of that sort and how those exactly unfold in any given month or quarter or year is harder to speak to, but our long-term conviction remains the same. Bob Labick: Okay, super. I'll get back in queue and others ask questions. Thank you. Operator: The next question comes from the line of Craig Kennison with Baird. Please proceed. Craig Kennison: Hey, good afternoon. Thanks for taking my questions. A follow-up sort of a similar line of questions, but Jeff, are you confident that this broader trend in accident claims, which are down, is more of a cyclical phenomenon tied to this increase in uninsured motorists? Or is there any evidence that ADAS technology is finally starting to move the needle? Jeff Liaw: Yes, it's a good question, Craig. And would tell you that safety technologies very much have moved the needle. And have done so for forty years. So if you go over decades of history and divide police-reported crashes or fatalities, which are often published a little bit further in arrears. And divide that by vehicle miles traveled. You'll find that it declined forever. Right, very steadily very slightly, but very constantly with one historical blip in the 2013, twenty fourteen, fifteen timeframe, I may have my years off by one year or the other. When smartphone adoption and the more addictive apps really began achieving adoption levels that previously not been seen. So that caused a blip and upward increase in accident with the same numerators and denominators. Otherwise over the course of long-run history, it has declined. Been more than offset by total loss frequency. That's the importance of Bob's question from a moment ago. It's always been dwarfed by that, right? Accident frequency has increased has decreased but not nearly enough to offset the fivefold, 5.5 fold increase. Total loss frequency over that same forty-five-year horizon. I think the algebra is such that it's it's even if there were excellent technologies that were being released now that would altogether arrest vehicles from colliding. The algebra is such with annual shipments into the existing fleet that it still takes decades to turn the fleet over. So I don't think you could see something in a year's time that would reflect a fundamental change in vehicle mix and ADAS penetration. Craig Kennison: Thanks. And then just following up on something you said earlier, Jeff, but what happens to those cars that are involved in a severe accident, are not covered by insurance, and are those vehicles you're able to capture on your platform somehow? Jeff Liaw: Greg, the answer to that is yes. I think somewhat less efficiently, right? So we have a consumer business and cash cars that sources vehicles directly from consumers. While you and others on this call certainly recognize the Copart brand name, we are not yet a household consumer name. So we have a different business that purchases those cars from consumers. So they don't sell on a consignment basis to us. They sell the cars to us directly. And those are often the types of cars that our Cash For Cars platform will acquire, because those are vehicles that are much less easily traded into dealers to buy the next car. So, are a natural outlet for those cars. But as you might imagine, it's a far less efficient pathway for that kind of sourcing of vehicles than is a long-standing institutional relationship with a major insurance carrier. Craig Kennison: Makes sense. Thank you, Jeff. Jeff Liaw: Yes. Thanks, Rick. Operator: The next question comes from the line of Chris Bottiglieri with BNP Paribas. Please proceed. Chris Bottiglieri: Hey guys, thanks for taking the question. I have two for me. What does it delve into the 38% disparity between international U.S. bidders? Are you saying that international bidders that on average 38% more than domestic vehicles in the same vehicle, If that's the case, would think with your international mix versus your peer that 38% price differential in a $5,000 vehicle would be pretty insurmountable. Given the average fee is only $1,000. Just curious how you think about that. Advantage you have on international mix, why it's not leading to it almost seems irrational not to use you at that point since parity is up there. Just curious how you think about the backdrop a little bit? Leah Stearns: So the sorry, Chris. The impact that Jeff is alluding to is that the on average, international buyers the ASP of the vehicles that they purchase 38% higher than the average ASP of buyers from the U.S. And so their inclination is to pursue lighter damage, higher value vehicles and that trend has persisted over that timeframe. So we continue to see them be more focused on those borderline total losses and repairable vehicles. Chris Bottiglieri: Got you. And do you have stats on the question I asked? You have a sense for how much more international bidders bid on the same vehicle than domestic? Have you ever parsed anything that way? Jeff Liaw: That becomes I mean, of course, that's a function of literally a microeconomic question per auction instance. Right, almost by definition, if the institutional buyer wins the vehicle, and that speaks for approximately half of our U.S. auction value is going to an international buyer. Or they are the push bidder they're the second high bidder, which helps to dictate the which dictates the ultimate sale price of the vehicle. That is a strong majority of the vehicles that we sell today. So they are there. They do drive value upwards and very meaningfully so. To your question from a moment ago, make sure you understood the algebra precisely, it is literally that the average car bought by international buyer 38% more valuable than the average car bought by domestic buyer. That is largely because, yes, they favor the higher end You can imagine that if you are incurring the freight costs to move a car from here to Poland, it has to be worth your while, right? You're not moving a $400 vehicle that's mostly just its metal right? That will never be worthwhile to move halfway across the world. And so by definition, you're buying cars that are valuable enough, you can add and capture enough value downstream. Chris Bottiglieri: Gotcha. Okay. And then, unrelated big picture question. If I kind of zoom out, you're gross PP in land is up 155% since 2019. Your volumes are up about 30, let's call it, since then. So just curious how you think about capacity investment, not only for 2026 and beyond, like obviously, that is a ton of capacity no matter how you cut the data. The last six years. How do you, like, you know, what do do from here given how much you've already grown capacity? Leah Stearns: Sure, Chris. I mean, I think some of the assets that we've acquired over the last several years have been for events, particularly around hurricanes in the U.S. And those may operate at a lower average utilization than the average Copart facility. So taking those out of the mix, think we continue to have certain areas of the country where we continue to have capacity needs or projected capacity needs over the next five to ten years. I would say the population or the size of that list is much smaller today than what it was. Clearly five years ago. And so we'll continue to a disciplined manner, allocate capital into assets that fit that classification in terms of our capacity needs. And we do also continuously look for ways to bring down our logistics costs to the extent that we can another node to the overall network that can materially bring down the distance that we need to tow units into our facilities. That's another consideration for us to make. But I would say certainly the list of areas of the country where we do have needs over the next five to ten years is shorter than it was five years ago. Chris Bottiglieri: That's good. Thank you. Operator: The next question comes from the line of Bret Jordan with Jefferies. Please proceed. Bret Jordan: Hey guys. Sort of going back to one of the early questions, I guess around share and obviously the optics given Progressive having gained share within the insurance business, you either need your partners to gain share from Progressive or you need to gain Progressive volume. Is there any outlook for that either? Are you any indication that you see that some of the insurers that you do business with are becoming relatively more competitive with Progressive or is there an outlook for picking up some of that volume given your higher ASPs? Jeff Liaw: Yes. Those are totally reasonable questions. As you know, we don't comment on individual accounts. I would say that the insurance industry itself has proven over the long haul very dynamic. With different players gaining and losing share episodically over many years, right. So, we have observed that trend. There certainly have been some long-term secular gainers as well, progressive being one of them. But it generally generally over the very long haul, we do see a very dynamic picture in that regard. Right, both quote for and against us in that sense. Assuming a static set of accounts. But as for the prospects of winning or losing any individual accounts, as you've heard at great length today, overwhelming focus is on delivering excellent gross and net returns and we trust that the rest of it will take care of itself over the long haul. Bret Jordan: Do the optics of the share improve as you lap Did Progressive pick up share that if the market stabilizes at least the year over year compares become more favorable? Or is there share continuing to trend up? Jeff Liaw: Yes, probably a better question or analysis of their data than of ours. But I would point you in their direction. Probably not positioned to comment in great detail on their relative market share growth in comparison to the industry overall. Obviously, they have outgrown the market over the course of the past few years and in general over many, many years. But as for what happens from here on out, we have some visibility, frankly not better than what you and a good analyst would figure out in a hurry. Bret Jordan: Okay. A quick housekeeping for Lee. The non-insurance CDS versus Blue Card, if you give us sort of a of size rough estimate sort of versus each other CDS large than Blue Car or Blue Car larger than CDS just we can get a feeling for measuring these growth rates. Leah Stearns: Sure. No. So CDS is is larger continues to be larger. It's been growing while blue car has been growing at a very healthy clip, it still remains a larger unit business unit for us. In the first quarter. And potential Jeff Liaw: breadth of both is huge in terms of the total volume mediated by dealers and by institutions of the sort that we described earlier today. Bret Jordan: Yes, the TAM is larger than salvage, it? Right. Yes. Yes. Operator: Thank you. The next question comes from the line of Jeff Licht with Stephens. Please proceed. Jeff Licht: Good evening, Jeff and Leah. Thanks for taking the question. Apologize for the background noise. I'm stuck in the airport. Jeff, I was wondering if you could just maybe opine a little bit if you look at the factors that would kind of drive the business going forward, we have vehicle depreciation now picking up. That's probably picks up a little more with lease returns. So the cost of replacing could go down, whereas on the flip side, you've got parts inflation that's up 4%, 5%. CCC did talk about the cost of repair not growing quite that much. And then obviously, you've got insurance rates appear to be coming down in certain instances and obviously they get the combined ratio at all time, you know, all-time lows, you know, those all kind of point towards total loss frequency picking up and and then the issue with the uninsured and less insured? Do you kind of view that? You know, I obviously should view that as a a tailwind maybe picking up in your business? Jeff Liaw: Got it. Let me try to address them one by one. I think when you say vehicle depreciation, just mean softness in general in the used car market. Possibly on the horizon. All else equal, that is a supportive factor for volume for our business. A soft market means that the economics of total loss all else equal are less costly to the insurance carriers than it otherwise would be. Right? They're writing a check for $16,000 instead of $17,000 to total the vehicle, it would on a margin drive more volume to us. It probably also means though The U.S. Market can be divorced somewhat from the international market, do overlap in some regards. But it could also be to somewhat softer selling prices for us. Which of course has the opposite effect. So you can imagine more unit volume, lesser unit economics if it were to happen to a meaningful degree. Your second question about the parts prices and repair costs and others tracking that. That's been the million-dollar question of this era in light of the various tariff regimes proposed implemented unwound and otherwise. Is what is the total landed cost of a given repair. We do think there's still fundamentally inflation there, not just because the like for like part has inflated relative to where it was before, but also because of vehicle complexity, also because there are more sensors on the perimeter a car that are increasingly difficult to repair. That drives more cars certainly to total us as well. And for another day, we can talk about how so many of those complex parts and modules actually aren't necessarily fundamental to the operation of the card itself, which makes that card acutely valuable to South America, Eastern Europe, Africa and the like. And then the last question you asked was about the potential softening in insurance rates as well that would be supportive of our business as well. That would cause the cyclical phenomenon described earlier about under insurance or foregoing insurance presumably to reverse, increases or enhances the affordability of insurance policies and the more cars that are effectively covered by one of our clients or one of the folks in the industry, the more cars that are processed in an accident through their funnels, so to speak. Jeff Licht: Just a quick follow-up. I'm wondering with respect to the whole car business and the non-damaged whole car business and dealer to dealer have you have any more kind of evolved or thoughts in terms of how you guys may address that market vis a vis organic versus acquisition? Jeff Liaw: Yes. It's a fair question. Think you're aware probably from having followed us for a while. Our default approach is always organic, right. We prefer to build on the backs of the liquidity we have, the technology, the facilities, the people, the capabilities we've built over decades that is often the best most harmonious way to build a business within Copart. That said, from time to time, we have made strategic moves as well. We acquired National Power Sports Auctions some years ago a big investment in Purple Wave to step into the yellow or heavy equipment space as well. Those arrows are both in the quiver. To date, we've been satisfied with the levers available to us to build organically. Piggybacking largely off of the liquidity we've talked about at great length on this call. But could there be an acquisition that is compelling enough to pursue, we would always look at it as we always have. Jeff Licht: Great. Well, thanks for taking my question and best of luck on the next Thanks, Jeff. Operator: And the next question comes from the line of John Healy with Northcoast Research. Please proceed. John Healy: Thanks for taking my question. Jeff, I'd love to get your thoughts just on where you think we are in the continuum of premium to the consumer from the insurance industry? Do you view 'twenty six as a year where the consumer might still feel some headwinds there? Or as you look at insurance industry profitability and what goes on to the prices that are offered in terms of the different ratios. Think that they're kind of mandated to abide by. Mean, how do you see that kind of playing out in terms of the repairable claim equation for 2026? Jeff Liaw: Yes. And John, that is both a great question and probably the wrong one. For us, meaning if you just imagine the tapestry of variables that will dictate that outcome, it's some combination of the general consumer sentiments in turn a function of unemployment, wage growth, etcetera. Inflation in a whole wide variety of different baskets goods and services and then inflationary and then insurance rates themselves, right. So it is there are so many moving parts there that offering my own prognostications is probably just reckless conjecture at this point. Point. It does seem like there are insurance carriers committed to growing and growing again. Some of them have talked more publicly about that as well that they've been whipsawed in their defense. It's not that not that long ago in 2020, insurance carriers were issuing policy credits, because so many people weren't driving accident frequencies way down They feared the churn that would come from folks who are sitting at home and not driving again. So they issued credits They literally were giving money back to consumers. They woke up a year later, ACV spiked, parts prices spiked, labor wage rates went crazy, the repair costs spiked, they suddenly found themselves underwater. They retrenched, they pursued rate relief, they they made all the operational decisions you might in that environment. Now some are, of course, asking the question, have we overcorrected? Are we now foregoing growth of too much so in pursuit of combined ratios and so forth? That is such a dynamic puzzle that you're better off pursuing those avenues rather than asking us. We have a view but it's indirect enough that I think it's better to ask them. John Healy: Understood. So maybe switching gears to something unique to you guys. The cash on the balance sheet at record levels, the multiple on the shares right now are very close to the multiples that you last time bought stock back. Just given all of the noise in the ecosystem, what are the reasons for maybe not being active on the buyback front maybe over the next six to twelve months? Would there be gating factors? Or do you just view the economic outlook is too uncertain? Or kind of what are your thoughts there? Thanks. Leah Stearns: So John on that, I would just say, I think generally, you can expect that Copart will continue to focus on deploying capital when we see areas that we believe will create meaningful long-term value. For the business and for our shareholders. And we will continue to do that. That's our responsibility from a management perspective and our Board. So today, we think about opportunities to reinvest back into the business, our first priority remains being to drive as much expansion as possible for the business. Through investments, whether it's in CapEx or M and A. We'll continue to evaluate opportunities to do that and drive long-term growth of the business. And then to your point, to the extent that we have a view that long-term a valuation perspective, there's an opportunity to create meaningful value. We'll we've historically used the share repurchase program through a couple of different means, open market purchase purchases, tenders, etcetera. That that would be our lever to return capital to shareholders. And nothing has changed on that front. Jeff Liaw: Hey, John, a slightly finer point to it. I think the fear it wasn't that long ago, I suppose a decade and change ago that I was investor myself. And one of the fears for a given company and accumulating too much cash or too strong a balance sheet is that they would in turn become reckless with their capital. And that I think the evidence is there that there's very little risk of that at Copart. We still treat each dollar as though it's as precious as the last and our P and L should reflect that. And our capital spending and our M and A activities should reflect that as well, meaning the standards for what we will invest capital in have not changed in the ten years I've been here. I don't think they changed in the twenty years before I got here either. So we will treat that cash as though it is dear to us as it is anyone, right. We understand how important it is to our shareholders. So we'll do the right thing with it. And as we articulated, we know it ultimately belongs to shareholders and we have bought shares back in the past. That's always been the mechanism by which we return cash to shareholders. There for sure will come a day if we do that again. And exactly as to how, when and where think we always defer, we always suggest that that's a conversation for another day. John Healy: Understood. Thank you, guys. Operator: Thank you. This concludes the question and answer session. I'd like to turn the call back over to Jeff Liaw for closing remarks. Jeff Liaw: Thanks everybody. We'll talk to you in a quarter. Have a good holiday. Operator: This concludes today's conference. You may disconnect your lines at this time. And enjoy the rest of your day.
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.
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, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Company Second Fiscal Quarter ended September 30, 2025 Results Conference Call. Today's call is being recorded. [Operator Instructions] It is now my pleasure to turn the floor over to Alaael-Deen Shilleh, Associate General Counsel. Sir, you may begin. Alaael-Deen Shilleh: Thank you. Before we begin, I'd like to remind everyone that this conference call may include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical in nature and involve risks and uncertainties detailed in our registration statement on Form N-2. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. The company undertakes no obligation to update these forward-looking statements. Joining me today are Larry Penn, Chief Executive Officer of Ellington Credit Company; Greg Borenstein, Portfolio Manager; and Chris Smernoff, Chief Financial Officer. Our earnings call -- our earnings conference call presentation is available on our website, ellingtoncredit.com. Today's call will track that presentation and all statements and references to figures are qualified by the important notice and end notes at the back of the presentation. With that, I'll turn it over to Larry. Laurence Penn: Thanks, Alaael-Deen, and good morning, everyone. We appreciate your time and interest in Ellington Credit Company, which we often refer to by its New York Stock Exchange ticker E-A-R-N or EARN for short. Please turn to Slide 3. The credit markets generally rallied during the third calendar quarter, supported by a dovish shift from the Federal Reserve, which delivered its first interest rate cut for the year in September. Most corporate credit and CLO spreads tightened overall, as shown here on Slide 3, and that was even despite some notable pockets of weak credit performance in the high-yield corporate bond and leveraged loan markets. Major equity index is also advanced on expectations of further monetary easing. Turning now to Slide 4. Ellington Credit delivered another strong quarter against this backdrop. Our CLO portfolio ramp-up continued at a steady pace, and our net investment income rose accordingly. Our results also benefited from several CLO note redemptions at par on discounted purchases as well as our robust trading activity with more than 90 distinct CLO trades executed during the quarter. Finally, I'm very pleased to announce that Ellington Credit Company achieved full dividend coverage from net investment income in September, underscoring the earnings power of our portfolio as we get closer to being fully invested. Active trading remains at the core of our investment approach. And we believe it enables us to capitalize on mispricing to manage risk more effectively and to continually reposition the portfolio for optimal relative value. This past quarter, we saw yield compression between the CLO debt tranche markets and the leveraged loan markets, and that led us to reposition our portfolio in 2 important ways: First, this yield compression led us to increase our portfolio allocation to mezzanine debt, gaining more attractive yields on a relative value basis, especially with the downside protection they offer. Second, the yield compression led us to reduce our exposure to new issue equity. Instead, we gained similar exposures, but at better pricing in secondary market acquisitions of longer duration equity. Another advantage of frequent trading is that it provides more accurate and more actionable information on real-time market conditions and it improves our valuation process, as Greg will discuss later. Our predisposition towards active trading also highlights an advantage of EARN's relatively modest size with $225 million of equity to invest rather than say, $1 billion or more, we can remain nimble, rotate the portfolio decisively and be highly selective in our investments without feeling compelled to own the market. Our portfolio maneuvers this past quarter echoed many of our moves from the prior quarter. Looking back over the last 2 quarters, so dating back to our April 1 conversion to a closed-end fund, approximately 70% of our net CLO purchases have been of mezzanine debt tranches, reflecting our deliberate move up in credit quality. We believe that mezzanine debt tranches currently offer a compelling combination of yield and downside protection, complementing the equity positions we hold. We've also leaned more heavily into the secondary market where relative value opportunities are often more compelling than a new issue. As I mentioned, we've been especially favoring secondary market acquisitions in the case of CLO equity. As shown on Slide 7, as of September 30, our $380 million CLO portfolio was almost evenly split between mezzanine debt and equity tranches with about 14% of total investments in Europe. With that, I'll hand it over to Chris to review our financial results in more detail. Chris? Christopher Smernoff: Thanks, Larry, and good morning, everyone. Please turn back to Slide 4. For calendar Q3, we reported GAAP net income of $0.11 per share and net investment income of $0.23 per share. The weighted average GAAP yield for the quarter on our CLO portfolio was 15.5%. On Slide 6, you can see a breakout of our portfolio net income by CLO subsector, $0.13 from U.S. CLO debt, $0.03 from European CLO debt $0.08 from U.S. CLO equity and a slight net loss from European CLO equity. Strong net investment income across subsectors was complemented by net realized and unrealized gains on CLO debt and partially offset by net realized and unrealized losses on CLO equity and credit hedges. In the U.S. leveraged loan market, overall index prices were broadly unchanged, but performance diverged sharply by credit quality. Lower triple -- sorry, lower quality, CCC-rated loans felt several points amid isolated default concerns, while B-rated loans advanced on sustained CLO demand, further highlighting the theme of credit dispersion. Callable higher-quality loans continue to be repriced at lower rates with price premiums on those loans giving way to new issuance at par with tighter spreads. In Europe, leveraged loan prices lagged the U.S., largely due to more extensive repricing activity. Despite the mixed loan backdrop, U.S. and European CLO debt spreads generally tightened, supported by steady capital inflows and limited new CLO issuance. Seasoned mezzanine debt outperformed as loan prepayment and repricing activity remained elevated. CLO equity also benefited from tightening debt spreads, enabling equity investors to refinance or reset liabilities and lower coupons, though this was partially offset in both the U.S. and Europe by continued loan repricing and isolated default concerns. Slide 7 provides detail on our CLO portfolio, highlighting the continued sequential growth. In total, the CLO portfolio increased by 20% to $380 million. During the quarter, we made new purchases totaling $160 million, 62% of that in CLO debt and 38% in CLO equity and sold $29 million of CLOs, consistent with our active trading approach. At September 30, CLO equity represented 51% of total CLO holdings, down from 53% coming into the quarter, while European CLO investments accounted for 14%, roughly unchanged quarter-over-quarter. Slide 8 provides an overview of the corporate loans underlying our CLO investments. The collateral remains predominantly first lien floating rate leverage loans, representing roughly 95% of the underlying assets. Industry exposure is well diversified, led by tech, financial services and health care with no single sector exceeding 11%. Maturities are spread over several years with the largest concentrations in 2028 and 2031 and limited near-term maturities, producing a weighted average loan maturity of 4.2 years. Facility sizes skewed towards lower borrowers with 42% in facilities over $1.5 billion with a weighted average size of $1.6 billion supporting liquidity. Slide 9 provides further detail on our underlying loan collateral. Slide 10 presents a snapshot of our credit hedges as of September 30. During the quarter, we increased our corporate credit hedges alongside the growth of our loan portfolio. At quarter end, we also maintained a foreign currency hedge portfolio to manage exposure associated with our European CLO investments. Turning to Slide 11. At September 30, our NAV was $5.99 per share and cash and cash equivalents totaled $20.1 million. Our NAV-based total return for the quarter was 9.6% annualized. With that, I'll pass it over to Greg to discuss how the portfolio market has performed, how we positioned our CLO portfolio and our market outlook. Gregory Borenstein: Thanks, Chris. It's a pleasure to speak with everyone today. Calendar Q3 played out almost as a mirror image of Q2. We began with robust performance in July, but momentum faded as the quarter went on. Growing concerns about idiosyncratic credit issues, coupled with continued loan coupon spread compression weighed on CLO equity and even pressured some of the more credit-sensitive mezzanine tranches. Even against this backdrop, both our mezzanine and equity positions contributed positively to performance. As we've mentioned before, we have been concerned throughout the year about the widening gap between strong and weak credits in both the CLO and broader corporate credit markets. Whether it is the prolonged impact of elevated interest rates on floating rate borrowers or the volatility around winners and losers created by AI, tariffs and changing trade dynamics, we've been deliberate and cautious about owning first loss credit risk. CLO equity has continued to experience muted return, not only due to default and distressed exchanges and some weaker credits, but also due to prepayments and stronger credits, reducing returns at both ends of the underlying loan portfolios. For CLO equity, the combination of these 2 factors has more than offset the positive impact of tightening liability costs and deals. On the margin, we generally continue to favor CLO mezzanine tranches as a more attractive balance of risk and return in the portfolio. The subordination and structural protections they offer help insulate us from the dispersion and idiosyncratic concerns mentioned earlier. That said, almost any investment becomes attractive at the right price, and we are continuing to see opportunities in both parts of the capital structure when they're offered at the right level. We are continuing to find the secondary markets far more compelling than primary markets, as has been the case for most of the year. We only participated in on new issues equity transaction in calendar Q3. Meanwhile, we saw an uptick in CLO trades for EARN from 79 in Q2 to 92 in Q3, emphasizing our trading-focused flexible approach. In our view, this is something that very much differentiates us from our competitors and should be a source of comfort for investors. Credit issues such as First Brands have roiled the credit markets, and that has led to selling pressure on the stock of CLO closed ends funds including EARN. Similar to what we've seen with BDC stock prices, I believe this is often due to investor uncertainty about the true condition of the underlying portfolio, including the portfolio marks. By trading our portfolio so actively, we possess a great deal of confidence in our underlying portfolio marks. Not only do we have a strong sense of where the market transacts, but it has been relatively straightforward to value our positions because many of them trade frequently, which makes us highly confident in the accuracy of our reported NAV. While we continue to favor mezzanine tranches, EARN has been able to take advantage of some interesting opportunities in the CLO equity market. We expect to continue to see compelling special situations, especially in the secondary market, where we find that our strong relationships and reputation as an active trading counterparty often give us early and differentiated access. While some CLO managers and dealers are willing to offer incentives to entice investors to commit to funding new issue CLO equity investments. We think it's critical to evaluate those incentives in the context of the manager's quality, the deal structure and the underlying collateral and only commit capital when the overall opportunity clears our risk/reward bar. Now back to Larry. Laurence Penn: Thanks, Greg. I'm very pleased with EARN's results this quarter. The steady growth of our net investment income enabled us to achieve full dividend coverage in September, which is an important milestone that reflects the earnings power of our portfolio. While our net investment income can fluctuate month-to-month, as deals are called, distributions are reinvested or profits are taken through trading, we feel confident about our ability to maintain dividend coverage over the long term. Taking a step back, volatility and credit dispersion have remained defining features of the corporate credit markets in general this year and the CLO market, in particular. Uneven impacts from AI and tariffs have definitely factored greatly into the volatility and credit dispersion, but the recent Tricolor and First Brands bankruptcies first brands being a widely held CLO credit, by the way, underscores that the corporate credit markets are also vulnerable to idiosyncratic volatility and credit dispersion. Given that corporate credit spreads overall remained relatively tight during the quarter, we continued to expand our credit hedging portfolio as we ramped our investment portfolio. As shown on Slide 10, we increased our credit hedge portfolio to roughly $90 million of high-yield CDX bond equivalents by the end of the quarter. To put that in perspective, that $90 million equates to about 40% of our NAV as of September 30. So it's a very significant position. And following quarter end, we've continued to increase our credit hedges. This synthetic short position reached more than $150 million in high-yield equivalent as of October 31, as detailed in our October tear sheet that we released last night. While these hedges, like most hedge, can be expensive to maintain, the downside protection they provide is well worth the cost in our view, especially given where overall corporate credit spreads currently stand. If credit spreads widen, these corporate credit hedges should generate substantial gains to help offset any declines in our long CLO portfolio. Finally, I'll note that while high-profile defaults like First Brands tend to grab a lot of headlines, they also give you a real-world look at how CLO structures are designed to work and how our approach is meant to protect investors. In EARN, the impact from First Brands on our portfolio was quite modest. Our mezzanine debt tranches were largely protected by their equity buffers. And while some of our equity positions were affected, the overall fundamental effects for us was quite limited and was felt more in shorter-dated deals as opposed to the longer reinvestment period CLOs, where most of our equity exposure sits. And that's really the point of the diversification that the CLO market offers investors. You avoid taking outsized exposure to any one borrower. That principle, combined with our recent focus on CLO debt tranches served us well through the third calendar quarter. As we move forward, if corporate defaults were to become more widespread, our credit hedges will become even more important as another layer of downside protection. Looking ahead, with a balanced mix of mezzanine debt and equity tranches and robust credit hedging, I believe we're well positioned for both upside and resilience as market conditions evolve. We expect elevated repricing activity and ongoing credit dispersion to continue to create opportunities for outperformance through active portfolio management, further reinforcing our confidence in delivering strong total returns for shareholders. And since we're now close to being fully invested, our likely next step is to raise long-term unsecured notes, which we hope to complete in the coming weeks, market conditions permitting. We expect this additional capital to be accretive to both net investment income and GAAP earnings. Now let's open the floor to Q&A. Operator, please proceed. Operator: [Operator Instructions] We'll take our first question from Crispin Love with Piper Sandler. Crispin Love: My question is on the hedges and the recent moves. As you said, you had a pretty meaningful move in credit hedges from the end of September to end of October. Can you just discuss what you're seeing? What drove the increase versus the end of September? You think spreads are too tight today? And then, of course, we've been hearing some of the -- all the macro noise in credit, private credit. So just curious on your thoughts there and what you're seeing in your portfolio and just more broadly? Laurence Penn: Sure. I'll take the first crack at that. Greg, if you don't mind. Just the increase in the size of the credit hedges was mostly a function of just the increase in the portfolio size and the increase in the leverage in terms of just on an absolute dollar basis in terms of how much debt we have through repo. So a major component of how we size our credit hedges is to make sure that in a severe market downturn, we'll have enough liquidity through the profits on our credit hedges to manage any liquidity issues arising from our repo. So that's really where most of it comes from. But -- and then in terms of timing the market, I'll pass that to Greg. We obviously do have the ability and we like to also adjust size of the credit hedge portfolio in terms of how tight credit spreads are on a historical basis. Greg? Gregory Borenstein: Sure. To echo Larry's point, I think it's important to remember these hedges are here to really sort of protect against a drawdown. It's not a short position, we're necessarily taking. And so early on when we weren't financing our positions as much or if we were more heavy in CLO equity, which we're not necessarily financing the way we'll finance CLO mezzanine positions, they aren't as necessary as we've increased financing on CLO mezzanine position since we've tended to favor those, we've needed to add more protection in these drawdown scenarios from a liquidity point of view. Now that said, we're constantly trading these hedges around as positions come up and down. If we are selling out of something, we may adjust them down to be careful not to be running shorter than we would like either. But you're right, I think that as we see some of these sales have grown in areas of the corporate credit market, we still think that tail risk is attractively priced. And so entering into some of those hedges at these levels versus where we could enter into long investments with some financing, that equation, we think, works out well for EARN generally. Laurence Penn: And I'll just add, we'll be filing our NCSR, shortly, which gives a detailed look at our entire portfolio, including our hedges. And you'll see, if you take a look at those when they come out that they're really mostly what we would call tail hedges, right, to protect against tail scenarios. Crispin Love: Okay. That all make sense. But Larry, I get your point on increasing the hedges with the size of the portfolio in the calendar third quarter. But just looking at October, definitely saw a big increase in hedges, but a decrease in the CLO portfolio, if I'm looking at that right. Was that a more cautious view on credit? Laurence Penn: Greg, do you have a view on that? I actually -- I would have to take a closer look at that to answer that. Gregory Borenstein: I would need to take a look. We've not looked to necessarily represent a shorter, more cautious view. I think, in general, you may have seen some rotation. And as I said, the hedges are really there when we're financing mezz physicians, just as we're adding leverage, the drawdown with the financing can be something that we pay more attention to. The other thing too is earlier on, our hedging options were more limited than they are today in terms of setting up agreements with banks in terms of what we're able to trade. We use a lot of different -- we enter into a lot of different types of markets for different types of tail hedges. And so it's possible from a notional standpoint, you may see some things that are just a lower beta or delta that maybe have a higher notional to that point. And so we'd have to look through in terms of notional sizing. But overall, it's not necessarily an uptick in what we think is the actual risk or equivalent risk of the hedges. It might just notionally look different as we've moved from one product to another. Crispin Love: Okay. And then just last question. Just any color -- I'm just looking at the tear sheet for October. Any color on the CLO portfolio decreased a bit to $371 million from $380 million as you're kind of getting to full deployment? Any reason for the decrease there? Gregory Borenstein: Over the course of October? Crispin Love: Yes. Gregory Borenstein: Well, October is a quarterly payment date, too. So the equity portfolio will have distributions and generally a bit of a markdown in prices. And so while that came out and was distributed, I think there was some of that. Also CLO equity did sell off a little bit in October. I think that's what we saw in the market. And so you saw the NAV move to adjust that a little bit. Laurence Penn: Crispin, I'll just add that the debt portfolio increased net month-over-month and the equity portfolio decreased mainly driven by what Greg mentioned, the distribution. Operator: We'll go now to Doug Harter with UBS. Douglas Harter: You mentioned potentially being in the market for unsecured debt. Can you talk about your appetite for leverage and how you think about where leverage would be kind of for the context of this conversation, we'll hold the asset composition the same just to take that piece of it out of the equation? Laurence Penn: Sure. So as I said, we're really close to fully invested right now. I think at 300 -- between $370 million and $380 million, let's call it, we would have room definitely to go up to around $400 million, maybe a little bigger. We are constrained by all of the restrictions of the '40 Act. We're a fully compliant derivative user and that gives -- that does give us a little more flexibility. So a little less than 2:1 leverage. Again, that's also given our current 2:1 asset to equity leverage. That's given our current portfolio composition as well, right? So the more mezzanine debt that we have, the more we can leverage the more equity we have, the less generally. And if we were to do an unsecured deal, I think you could see, right? So let's just say for argument's sake that it was a $50 million deal, right? So that additional capital, I think just a good rule of thumb again would be something a little less than 2:1 assets to that additional debt capital. Operator: We'll hear next from Eric Hagen with BTIG. Eric Hagen: Do you have any perspectives or predictions on the amount of CLO supply we might see next year? And just how sensitive the market could be at higher levels of issuance and maybe just some of the conditions that you feel like will drive the spread environment next year? Gregory Borenstein: Sure. To be honest, I don't have a lot of conviction there. I think some of it will depend on what we see with new issue loan supply. I think if you speak to a lot of market participants, everyone sort of admits that it's been a challenged ARB with loans being so tight. I think similar to this year, you'll see a lot of reset and refinancing activities of existing deals as opposed to proper new issue, just where the market is today. But that said, it's hard to tell what may happen on both the asset and liability side. Depending what happens with rates, that can force technicals within the loan market, potentially with on the liability side as well. And if you get a situation where some of the loans tend to sell off and maybe widen on spread while AAAs and maybe some of the up the stack tranches hold in better, this may present a good window for new issue -- true new issue to pick back up. But right now, it feels like we will continue in this environment where things are now, where people are getting creative with existing deals, trying to give them new life and extend them out versus newer -- cleaner new issue deals. That's where we see the demand at least today. Eric Hagen: Okay. That's interesting. Do you have any general perspectives on the presence of AI-related credits, which show up in the CLO market, especially the middle market CLO zone? And if you think there's like a lot of indirect sensitivity with respect to like the AI narrative just more generally in the connectivity that it has to the flow of credit? Gregory Borenstein: Sure. So addressing the first part of the question, it definitely will have an impact on the loan market. I think that as AI filters through a lot of different -- it isn't even necessarily all about tech. There's going to be a lot of companies where AI can benefit companies in terms of reducing costs. AI could potentially make some companies uncompetitive though. And so I think that when we speak to CLO managers and we take a look at our own on some of these credits, you will find that a portion of the market will be affected, sometimes good, sometimes bad, by what AI may ultimately end up bringing. This is another point on our concern around dispersion. If it strongly creates winners and losers, this isn't necessarily the best thing for CLO equity. If the winners prepay out at tighter levels and the losers have fundamental problems, that's not necessarily good for the overall weighted average spread of the portfolio or good for the default rate of the portfolio. And so this dispersion is one of the things we're concerned about. As far as it relates to the middle market space, I'm not sure I would specifically comment differently. There's been some information and articles recently about some of those areas maybe of sort of the private credit middle market space that have started to reveal some problems in some of the names. There may be some similarities with the same way AI can affect the broadly syndicated loan market. It will affect these areas of the credit markets as well. It may just take a second to come through as marks don't move as quickly as the underlying loans there are not as actively traded. And that's something that as much as we will go into those markets, we remain much smaller because given our very trading-focused background, it's not as easy for us to assess the day-to-day risk as things move when underlying portfolio -- or some of those portfolios are not reacting to up-to-date information. And so it does lead us to be cautious in some of those areas, to your point, around how quickly if AI leads to an adverse issue in those portfolios that we'll be able to see that information. Operator: Ladies and gentlemen, that was our final question for today. We thank you for participating in the Ellington Credit Company's Second Fiscal Quarter ended September 30, 2025 Results Conference Call. You may disconnect at this time, and have a wonderful rest of your day.
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: Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources Fiscal 2025 Fourth Quarter and Year-End Financial Results Conference Call. [Operator Instructions]. Thank you. And I would now like to turn the conference over to Adam Prior, Director of Investor Relations. You may begin. Adam Prior: Thank you. Welcome to New Jersey Resources Fiscal 2025 Fourth Quarter and Year-End Conference Call and Webcast. I'm joined here today by Steve Westhoven, our President and CEO; Roberto Bel, our Senior Vice President and Chief Financial Officer; as well as other members of our senior management team. Certain statements in today's call contain estimates and other forward-looking statements within the meaning of the securities laws. We wish to caution listeners of this call that the current expectations, assumptions and beliefs forming the basis of our forward-looking statements include many factors that are beyond our ability to control or estimate precisely. This could cause results to materially differ from our expectations as found on Slide 2. These items can also be found in the forward-looking statements section of yesterday's earnings release. Furnished on Form 8-K and in our most recent Forms 10-K and 10-Q as filed with the SEC. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. We'll also be referring to certain non-GAAP financial measures such as net financial earnings or NFE. We believe that NFE net financial loss utility gross margin, financial margin, adjusted funds from operations and adjusted debt provide a more complete understanding of our financial performance. However, these non-GAAP measures are not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in Item 7 of our 10-K. The plan for today's presentation are available on our website and were furnished on our Form 8-K filed yesterday. Steve will start with this year's highlights and a business unit overview beginning on Slide 5. Roberto will then review our financial results. Then we will open it up for your questions. With that said, I will turn the call over to our President and CEO, Steve Westhoven. Please go ahead, Steve. Stephen D. Westhoven: Thanks, Adam, and good morning, everyone. I hope you all had a chance to review our earnings materials, which include detailed disclosures on our growth prospects. I wanted to start by discussing a few highlights. We delivered excellent results in fiscal 2025, driven by strong execution and performance. For the fifth year in a row, we exceeded initial earnings guidance and long-term growth targets. After a successful 2025, there are a few key themes as we look ahead for fiscal 2026 and beyond. First, consistency and execution. We're guiding to NFEPS of $3.03 to $3.18 per share in fiscal 2026. The range is consistent with our long-term 7% to 9% growth rate, while leaving additional room for upside. Second, targeted capital deployment. We expect to invest roughly $5 billion over the next 5 years across the whole company with roughly 60% allocated to our utility New Jersey Natural Gas. To put the $5 billion in the context, this represents a 40% increase compared to the CapEx spend over the last 5 years. Third, a healthy balance sheet anchored and disciplined financial management. We expect credit metrics to remain strong with healthy cash flows, ample liquidity and a balanced debt maturity profile that supports long-term stability. Importantly, NJR requires no block equity issuance to execute on its capital plan. On the next slide, we highlight a few of the key drivers of our business segments. To begin, New Jersey Natural Gas is positioned for high single-digit rate base growth through 2030. S&T is expected to more than double net financial earnings by 2027, driven by favorable recontracting of both Adelphia and Leaf River. Looking ahead, we recently filed with FERC, a plan to increase working gas capacity by over 70% at Leaf River. And in Clean Energy Ventures, we expect to expand capacity by more than 50% over the next 2 years with a robust pipeline of safe harbor projects. In short, through a disciplined capital investment strategy, we have visibility to deliver sustainable growth well into the future, supported by a solid balance sheet. And we are able to achieve all this with minimal dilution to shareholders. Let me turn to a brief discussion of each business units, starting with the New Jersey Natural Gas on Slide 7. Our planned investments at New Jersey Natural Gas are expected to drive high single-digit rate base growth through 2030. The New Jersey Natural Gas operates within a constructive utility framework and continues to make responsible investments in safety and reliability while prioritizing affordability for our customers. Natural gas is by far the cheapest option for customers to eat their home. Energy efficiency programs such as SAVEGREEN further reduce usage and costs while aligning with environmental goals. For example, residential customers who fully participate in say agreeing a whole home offerings see a reduction of up to 30% in their energy usage, saving hundreds of dollars in utility costs every year. Moving to the next slide. Storage & Transportation is emerging as a key earnings growth driver for NJR. Over the next 2 years, we expect NFE to more than double at S&T, and this is largely driven by strong recontracting in both the Adelphia and Leaf River. These are fixed-price contracts with quality and creditworthy counterparties. When we recently reached a settlement in our FERC rate case Philadelphia, this constructive outcome enables recovery of the substantial investments and operational improvements made in recent years. While near-term earnings are set to double, we are actively pursuing organic growth opportunities for additional upside of Leaf River, which we outlined on the next slide. When we acquired Leaf River in 2019, we positioned NJR as a leading service provider in the Gulf Coast, one of the highest growing energy demand centers in the United States. In addition to the prime location, the long-term value of the asset was enhanced by expansion options beyond the three existing operating taverns. Since our purchase of the asset, market demand has strengthened. Throughout fiscal 2025, we conducted a number of nonbinding open seasons, which confirmed the high level of commercial interest and capacity expansion. Following this favorable response we filed a FERC application at the end of October that included several complementary investments to increase Leaf River's working gas capacity by over 70%. They include the expansion of our existing caverns to working gas capacity of 43 Bcf by 2028, and the development of an additional for cabin that will bring total capacity to 55 Bcf. Each phase of the investment is expected to be backed by long-term fee-based contracts, building on our already strong entity growth. This phased approach has an inherent speed to market advantage that positions NJR ahead of greenfield development options. To conclude, we see considerable upside in both the near and long term as S&T becomes a greater contributor to NJR's earnings profile. Moving to Clean Energy Ventures on Slide 10, we expect to grow in service capacity by more than 50% over the next 2 years. Looking ahead, we have a strong project pipeline designed to maintain investment tax credits through strategic safe harboring. This position CEV to deliver continued growth in high single-digit unlevered returns. So with that, I'll turn the call over to Roberto for a financial review. Roberto? Roberto Bel: Thanks, Steve. Fiscal 2025 was an excellent year with strong even growth, a solid balance sheet and continued investment across our businesses. Slide 12 highlights a few fiscal 2025 accomplishments. New Jersey Natural Gas achieved a constructive outcome in its recent rate case and deliver record investments for Leaf Green. Clean Energy Ventures added record new capacity. In fiscal 2025, CV placed 93 megawatts of new commercial solar capacity into service, expanding our portfolio to 479 megawatts. In addition, CD secured investment options for years to come through effective safe harboring. In Storage & Transportation, Adelphia received approval settlement on its third rate case we levering our advanced expansion initiatives. Energy Services achieved strong cash flow generation and our Home Services business was named a road top 20 ProPartner for the ninth consecutive year. We also marked an important milestone, 30 consecutive years of dividend increases and reporting confidence in our long-term plan. On the next slide, we finished the year at the top end of our guidance range, which was raised earlier this year. We deliver financial results ahead of expectations, roughly 2/3 of total EPS came from the utility. And when you exclude the net impact of the sale of our residential solar assets, that figure raises over 70% underscoring the stability of our earnings. Drivers of our performance include the completion of our rate case and a record year of saving investment. Additional drivers include approximately $0.30 per share from the sale of our initial solar portfolio, improved performance from our storage and transportation business and a solid winter results from Energy Services. Moving to a discussion of CapEx on Slide 14. We deployed $850 million across our businesses, which I'll highlight in the next few slides. On Slide 15, New Jersey Natural Gas represented approximately 64% of total CapEx with investments directed towards strengthening core infrastructure, enhancing system safety and reliability and supporting customer growth. Almost half of these investments are recovered with minimal lag. As shown on Slide 16, fiscal 2025 CapEx for CV came in well above expectations, reflecting accelerated progress. Importantly, our capital deployment target is fully safe harbor securing tax benefit for future capital expenditures. Building on this from 2025, I wanted to shift our CapEx outlook on Slide 17. We're sharing a 5-year CapEx outlook of $4.8 billion to $5.2 billion through fiscal 2030. This represents a 40% increase over the previous 5 years of capital spending across our businesses. We expect that more than 60% of our total projected CapEx will be dedicated to the utility with CV and S&P representing the balance. Together, these investments support our 7% to 9% long-term NFEPS growth target while maintaining a solid balance sheet as discussed in the next slide. Strong cash generation across our businesses translate into an adjusted FFO to adjusted debt ratio that is projected to remain at around 20% for the next 5 years with no block equity needed. Additionally, ample liquidity and a well laser debt maturity profile minimize near-term refinancing risk and preserve financial flexibility. And finally, we're initiating fiscal 2026 and EPS guidance with a range of $3.03 to $3.18 per share. The range is consistent with our long-term 7% to 9% growth rate, while leaving additional room for upside. The utility is expected to contribute approximately 70% of fiscal 2026 in the CPS complemented by earnings growth from CB and S&P and a baseline outlook for Energy Services. With that, I'll turn it back to Steve for concluding remarks on Slide 21. Stephen D. Westhoven: Thanks, Roberto. Over the last 25 years, we've delivered industry-leading returns, reflecting both the quality of our utility investments and disciplined contributions from our nonutility businesses. While our infrastructure investments have been the foundation of this performance energy services that complement that strength, enhancing consolidated returns and providing flexibility to reinvest in our infrastructure businesses. To recap fiscal 2025 was another year of solid execution, marking 5 consecutive years of exceeding initial earnings expectations. Our long-term growth remains anchored by our regulated utility with clear visibility into capital spending at New Jersey Natural Gas. Storage and Transportation is set for accelerated growth with earnings expected to more than double in the near term before we even begin to factor in those capacity expansions we highlighted earlier. Over the next 2 years, Clean Energy Ventures expects a 50% increase in installed capacity, and our project pipeline is secured into the future through proactive safe harboring. As they are today stands as a balanced diversified energy infrastructure company built for long-term stability and value creation. The outlook for fiscal 2026 and beyond is clear, well-funded and utility anchored. As we all know, New Jersey recently had a gubernatorial election electricity prices and affordability issues were front and center. We understand the challenges this data is facing today, and we look forward to working with you coming governor to meet your call for swift deployment of clean energy solutions and to continue providing affordable natural gas service to families and businesses. And finally, a sincere thank you to all NJR employees for your dedication and hard work throughout the past year. Your commitment is the foundation for our continued success. So with that, let's open the line for questions. Operator: [Operator Instructions]. And our first question comes from the line of Gabe Moreen with Mizuho. Gabriel Moreen: Good morning, everyone. Just a question maybe to start off on S&T here and Leaf River. It seems like a lot of positive developments. One, can you just talk about contract renegotiations and the extent to which, at this point, maybe all the original contracts have rolled over on a remarketed or resigned at market rates at this point? Or is there still more to go on that front in the years ahead? And then secondly, around the FID of some of the bigger expansions that you may be looking at, can you just talk about potential timing for FID-ing those projects given the customer interest that you've seen in some of the nonbinding open seasons? Stephen D. Westhoven: Yes, sure. So talking about the contracts the contract tenure at Leaf River, they've got various terms. So we've always got contracts that are coming on and off. I would say there's probably a bias towards the longer-term contracts currently. And certainly, the way the market is moving, any contract that you're signed enough for in the future is higher than ones in the past. Remember, when we purchased that deal, the average contract rate was probably about $0.09 a dekatherm per month. We're now up to almost $0.20 dekatherm per month on average. So big contract upgrade there. And that's really driving the doubling of the net from S&T over the next few years. And then moving forward, further constructive story, the open season provided for about 3x the amount of capacity that we had available. And if you look at the first filing we've got a few stages or phases of investment and expansion at that facility. I would say that before we make any investment, we've got contracts to back it. That's something we've talked about for a long time and we're not going to deviate from that. So we've got signed contracts in certain really quite a bit of clarity on where the revenues are coming to support those investments. So you can make that assumption moving forward. So as we make these investments, first two, we've got a expansion of the compressor station. We've got the enlargement of some of the existing facilities those -- we're starting to spend money and put this in motion. You can see this in our capital plan moving forward. Those are going to lead really nicely into a fourth cavern expansion in the out years, we'll make that idea as we get closer to that. But like we said, the open season certainly supports it, and it's very instructive for that business moving forward. Gabriel Moreen: And maybe if I can turn to CV, and I think a little bit more confidence in terms of the growth outlook there. Can you just talk about has anything shifted on the ground in terms of your ability to start construction, how much of the 50% increase here has actually started construction or waiting on interconnects and why you think you may be past some of the delays, I think that you may have seen in the past at this segment? Stephen D. Westhoven: Yes, we certainly have spent quite a bit of money. As you can imagine, the construction cycles are a little bit longer and they go across fiscal years. So we're spending money now for products that are going to be coming into service in the next fiscal year and then the fiscal year afterwards. When we talked about in the last call, we've safe harbor a little bit of projects, a large amount of megawatts. So we've got great options moving forward. I think the other thing to consider as well is that the capacity electric capacity shortfall, the State of New Jersey and PJM the quickest way to bring capacity to the market? Are those projects that are shovel-ready and we have a number of those. So we feel well positioned going forward. That combined with the fact that we've got mature positions within the PJM as well. So everything is moving forward. We've got a good position, a great number of options. And you can see by our capital plan and the extension of that capital plan out 5 years, the confidence that we have in our investments moving forward. Operator: And our next question comes from the line of Jamieson Ward with Jefferies. Jamieson Ward: Congrats on another strong result, and thanks for the extra visibility with the 5-year look on CapEx and on CEV, which I'll maybe build on Gabe's question here. With the favorable treasury guidelines and then, of course, all the planned investment in safe harbor, what's the realistic deployment time line. It's probably the most common inbound question we get. But as we think about that pipeline, how should we model the earnings cadence? Stephen D. Westhoven: So for the investments, we've got the capital plan that we put out there. Certainly, I just talked about it with Gabe from a policy perspective, we believe that there's going to be a lot of pressure to add as much capacity as great as possible, and that's favorable for our business. If you look at the amount of safe harbor projects we have especially over the next 2 years, we've got projects that are safe harbor that are far in excess of what we need in our capital plan. So you've got some ability to accelerate that. But the capital plan that we have is the most accurate picture of what we're going to be able to achieve. And I think looking at that, you can take your guidance from there. Jamieson Ward: That's terrific. I'll skip S&P because it was a very thorough answer before. I'll just ask one more quick one on CEV and then on the overall plan. So as we think about SREs, TREs, et cetera, what's the weighted average contract life? How should we be thinking about the time frame. That's the second most common question we get and it's CEV related. I think you're going to find a lot less questions after this deck. So thanks for all the information. But I'll just ask that one. Stephen D. Westhoven: So you say from a time-related perspective, the amount of time allotted into kind of TREs and SREs and how long they live? What's the -- I'm trying to get to the specifics of what you're asking. Jamieson Ward: Yes. So just at a high level, so we modeled like roll off over the next few years. And the question that we get is just how confident are you in basically the numbers that you've got there. So just looking for a very high level, just a weighted average life remaining, right? Because, of course, the strike sort of trimmed down or tailored down over the last few years, and you're going to have SMT, which you were speaking to earlier. Obviously doubling and picking up a lot of that lag there. So just a quick question on that and then one on the overall 2030 CapEx plan. Stephen D. Westhoven: So I'll talk about solar just from a kind of a broader perspective. We just talked about it was the quickest way to bring capacity to the market, and you can see the capital that we're able to deploy over the next 2 years being significant and potentially maybe be able to accelerate with certain policy adjustments. The process that we have, we've got the schedule for TRECs, SRECs, everybody knows the longevity of those I would also add that as infrastructure becomes harder to build in each of these facilities you've got the ability to repower or put in battery. You've already got an interconnect that's there as well. You've got kind of increases in Class 1 RECs that have been having over time. So speaking to just the long-term value of these facilities. As we need more capacity, it's not going to be constructive to retire capacity. So there's going to be some expectation that you continue to operate these facilities and moving forward? And then how do you make improvements in them as well. So we really view this as a long-term business, one that's supportive of the growing energy need that is certainly in the east, but over the entire U.S. as well. And you're going to see us looking to enhance whatever we can do with these facilities move forward, just like you'd expect, organic growth is important to us and how do we organically improve and grow those facilities as well. So hopefully, that answers your kind of long-term view of how we're how we're thinking about these assets. Jamieson Ward: Actually, that's terrific. I think actually, I'm good on the 4.8% to 5.2% through 2030 as well as I go through here. I was going to ask one on affordability, but saw your slides towards the end of the deck in the appendix there. You want to throw it down because that's the other -- as a final question. It's the other one we get, of course, just given everything in New Jersey, you spoke to it in the prepared remarks, you've got some great slides here, but anything else you'd want to add as we think about the next rate case. Of course, we just got new rates November of '24. But as we look ahead, how should we think about your affordability efforts in New Jersey specifically. And that's it for me. Stephen D. Westhoven: Thanks, Jamieson. So natural gas is the cheapest way that you can keep your home in business. So we like our position when the affordability conversation comes up. And like I said in the presentation, we've got energy efficiency programs and SAVEGREEN, we're able to save customers' money as well. And we look forward to working with the new administration and seeing ways that we can keep the affordability story going from our company and helping our customers reduce costs as much as possible. Operator: And our next question comes from the line of Eli Jossen with JPMorgan. Elias Jossen: Just wanted to start on the EPS growth outlook. Seeing some kind of drivers within the Leaf River storage capacity and overall S&T earnings upside. Are there any kind of headwinds elsewhere in the business to keep the growth rate largely the same possible decline in CEV contributions? Or can you just kind of frame tailwinds and headwinds for the overall range? Stephen D. Westhoven: Yes. I'd say that we're an energy infrastructure energy services company, and this country needs more energy. So we're going to make investments in order to grow that. And you can see that reflected in our capital. So it's all positive at this point. And we're at this point, just looking to execute on that plan in order to increase our earnings going forward. So confident in all those things. Elias Jossen: Got it. Maybe just to frame it differently. Is there sort of material upside from this S&T business within the growth range should you execute on some of the projects that you outlined? Stephen D. Westhoven: I mean there's always upside in our business. We're the same business that we were last year and the year before, and we've always been able to grab some upside in these markets. We certainly kind of normalize our expectations on basis, there's an ability to accelerate any of these infrastructure projects given the right policy initiatives. So there's always an ability to upside, but we put together a plan that we believe is executable. And we hope for the best. So hopefully, some of those things will come through, and we'll be able to execute maybe more quickly. Operator: [Operator Instructions]. The next question comes from the line of Travis Miller with Morningstar. Travis Miller: Kind of a combined question here on Slides 8 and 9. How much of that increase from fiscal 2025 to '27 on 8? Is the Adelphia rate case versus the recontracting and leaf River and then going to Slide 9, is that capacity expansion trajectory also earnings trajectory I guess the crux in both of those is the recontracting element. So first, that split between Adelphia rate case and the recontracting. And then is the recontracting and extra above that capacity addition. That makes sense? Stephen D. Westhoven: But there's probably more coming on Leaf River recontracting at sectors numbers. But the bottom line is that for existing assets and no capital investment we've been able to double the earnings coming from those assets, and that's really driven by better contracts, higher contracts coming from the customers. So great story. As far as looking at your forward growth opportunities, you're stating the beginning of expansion at Leaf River. We didn't talk about it, but you still got the ability to expand a little bit at Adelphia Gateway and add more customers in that pipeline as well. So depending on how far this market goes, and I believe it is going to go forward is going to need more and more energy and expansion of organic infrastructure. It's hard to determine where it will stop, right. But certainly, because we've got existing assets, we're able to expand that, and we're also able to make the investments that you see, at least in the short term. And then I would guess it is going to continue in the longer term as well. Travis Miller: Okay. Is that recontracting assumption based on today's rate at $0.27 -- at $0.20 dekatherm that you mentioned? Or is there another assumption you're making on the recontract? Stephen D. Westhoven: Yes. It's not assumption, Travis. These are contracts that we have in hand. So these aren't estimates of what forward value are. These are contracts that we've got signed in our hands and are driving our earnings over the next 2 years in that business unit. Travis Miller: The one high-level question. With all the CapEx you have and obviously the Leaf River, et cetera, how much capacity might you have to do more M&A in organic growth, either logistical, operational or financial. Stephen D. Westhoven: Yes. I mean we're always looking to kind of bolt-on acquisitions and things in happen or assets that are available. we're building these businesses. So if something comes along and it happens to fit and fits organically, we would take a look at it. So we've got the capacity on our balance sheet, and we like these businesses, the infrastructure business. So we'll continue to pursue it like we have in the past. Operator: And ladies and gentlemen, that concludes our question-and-answer session. I will now turn the conference back over to Adam Prior for closing remarks. Adam Prior: Thanks, Abby, and I'd like to thank all of you for joining us. As always, we appreciate your interest and investment in NJR and we look forward to talking to all of you at Utility Week in a couple of weeks, and thanks so much. Have a good rest of your day Operator: And this concludes today's call, and we thank you for your participation. You may now disconnect.