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Ulf Ritsvall: Good morning, good afternoon, and good evening, wherever you are. Welcome to the quarterly 3 presentation from NEXT Biometrics. Please remember there is a Q&A in the chat where you can ask questions during the presentation and I will try to respond to them at the end of the presentation. You can go to the next slide, please. So with us today, I have Eirik Underthun, CFO of NEXT Biometrics and myself. I also have with me Roy Tselentis, he's a Board member in NEXT Biometrics for answering a few questions. You can take the next slide, please. So I would like to start with a background of where we are, where in the ecosystem we are and on the markets we're at. I want to continue with the highlights of the quarterly 3 and continue with that on quarterly 3 financials that Eirik will present. I will, as usual, continue with business market and product updates, and I will round off with -- go through an outlook what we see in the near-term future for the company. And as I said, we will end with a Q&A session. You can please go to the next slide. So I think we have ended up in a sort of perfect storm. As you know, the Aadhaar national ID program in India temporarily paused its enrollment of new devices as a security precaution. That was done late '24, and that actually ended towards spring '25 because of an incident -- security incident at a competitor's Aadhaar integration. This we have communicated previously in a few different steps. This happened at a time where our distributor had ordered full stock of production, India Aadhaar program was supposed to pick up the goods and anticipating sales. The end client had in its turn, also stuffed their channels with finished goods ready to deploy to the L1 market. The Aadhaar program is recognized for a quality stamp within biometrics. Markets like Africa, Southeast Asia and South America is also looking at India and saw this security incident that UIDAI saw. This, of course, impacted those markets very negatively as people were afraid, is biometric the way forward in these programs? Is it secure enough? UIDAI has since then implemented new liveness detection and anti-spoofing guidelines and testing procedures. The bar to enter the national ID program in India has risen. It's now tougher, even tougher. It was tough before. It's even tougher to actually qualify into the Aadhaar system. Before the stop, there were more than 10 different OEMs that were qualified into the L1. Today, we have 5 -- 7, sorry, 7 OEMs, and we are a part of 2 out of the 7. NEXT Biometrics sensors are part of 2 out of 7. And that was ACPL received its approval in March and Evolute Group in -- now in September. The whole incident in India impacted our sales 2025 dramatically as the Aadhaar programs for NEXT OEM finally opened in 2025. The OEMs first had to empty their stock in the channels with the finished goods as well as the distributor on the side. During Q3, we have seen a real pickup and the channels are normalizing. But this has, of course, not been reflected in our new sales as the product has been taken from the distributor channels. As a direct consequence, even when it was clearly stated in NEXT commercial agreements, NEXT has not received payments from certain of our distributors until the end customer actually paid them. So this part is very important. This has significantly contributed to the fact that we need to restate the revenues in 2024. However, as we are facing some near-term headwinds, the certified high-quality product and the increased market momentum we now see in India and in Africa and other places, combined with an expanded and well-received product makes us confident that this is gradually increasing our revenue during the coming quarters. The increasing market momentum gives a solid ground for optimism. And our main focus, of course, will be to convert the now inventory value at NOK 34 million, which actually corresponds to more than NOK 70 million in actual revenue. We are focusing on converting those into cash in the sales part. You can take the next slide, please. So from the perfect storm, in this significant cause of the restatement of the historic revenues to be ensure full compliance and accuracy according to the Norwegian rules, accounting rules. As you may remember, we had a potential fraud in the -- together with a Chinese partner. That's, of course, one part. We removed that in Q2. And this time, actually, the restatement is about the Aadhaar and channel were stuffed. This is now largely behind us. And of course, the highlight for Q3 going -- also going forward, we are now taking the accounts receivable to the inventory and moving forward to convert the goods into cash. Our Q3 revenue came in low. It was NOK 3 million, lower than expectations compared to the restated Q3, it was NOK 3.7 million. However, if we also include the shipped goods from the channel, it was NOK 5.1 million. Adjusted gross profit, 51% and improved from Q3. We added another 5 design wins. We are continuing as you well remember, we actually have a target to add one new design win every month. We added 5 this quarter. During the quarter, we also successfully made a private placement solving the liquidity needs. It was announced September 16. It was NOK 20 million at a NOK 4.25 price per share. We are also looking at, of course, working capital and cost-cutting evaluation in the coming quarter, as you can read in our financials. I now move over to Eirik and introduce the Q3 financials. You can swap the slides, please. Eirik Underthun: Next slide, please. Thank you, Ulf. I will now run you through the Q3 financial highlights. And as earlier alluded to, the revenues were NOK 3 million versus the restated NOK 3.7 million in quarter 3 2024. And the revenues were impacted by low sales to the India market as well as slowness in the China market. Adjusted gross margin was 51% compared to the restated negative gross margin in Q3 2024. On operating expenses, we ended up with adjusted operating expense of NOK 18.7 million compared to the NOK 17.3 million in quarter 3 2024. The adjusted EBITDA was negative NOK 17.8 million compared to negative NOK 20.3 million in quarter 3 2024, which was restated. On the cash and cash flow, NEXT ended up with a cash of NOK 7.4 million compared to NOK 22.1 million at end of quarter 2 2025. And we had a negative operational cash flow of NOK 13.5 million due to lower-than-expected revenues and also operating losses in this quarter. And we also completed the NOK 20 million share issue, the private placement at NOK 4.25 per share. This was completed in October. So it's not a part of the financial statements that have been issued, but they will be included in the quarter 4 2025 financial statements. With this, I will turn the call over to Roy, who will explain a little bit more about the restatements. Roy Tselentis: Thank you, Eirik. As we know in the second quarter report, we reported irregularities in China. And after the presentation, the company and the new Board of Directors initiated an investigation around these irregularities. We also did a comprehensive review of the historical reported revenues and around our internal controls, we saw the need for further adjusting our historical reported sales and that they did not meet the necessary attributes for revenue recognition. As a consequence of this, we had to restate our revenues and net profits for 2024 with NOK 52 million and NOK 30 million, respectively. And it's important to note that this includes the adjustments that we reported when we presented the 2Q figures, to explain how this is technically done the revenues has been reclassified as goods in consignment. This means that it's no longer accounts receivables and now are listed as inventory. And today, we have NOK 18 million in inventory value. And this approach is done based on advice from independent IFRS experts. And we feel confident now that this would be in compliance with IFRS. Another thing that's important to mention is that these adjustments doesn't affect the historical cash flow. The cash position is the same as reported. But these restatements give the users of the financial statements a better understanding of the business and its financial performance. And at the same time, the management doesn't consider that the restated accounts imply a reduced ability for the company to generate cash collections, but a more accurate presentation of the current status of the different sales. The management of the company, of course, acknowledge the negative impact on equity and the significant adverse consequences for the company. The company will continue to implement measures to ensure robust internal control over financial reporting as well as other key internal controls to safeguard the company and protect investors' interest in NEXT. And by this, I will turn it to you, Ulf. Ulf Ritsvall: Thank you, Roy. Again, there's a Q&A session in the end and you can use the chat function. We may now leave that behind us and look at the business and market and product updates. You can take the next slide, please. So in these different markets we are present in, the government ID and the digital ID market, certification is mandatory. And as I communicated and said, we now have 2 out of 7 approved OEMs in India. These are 2 of the main vendors in India, which will give us hope for the future in India. We have completed the MOSIP compliance, which is Asia and Africa. We have certifications in the U.S. to sell in the U.S., China, Nigeria, Pakistan and Malaysia. What's new since Q2 is that the Bangladesh, the banking part is approved. We can sell our sensors into the bank, and we're waiting for the governmental ID process to be completed. We have now 81 total design wins. And those includes high-volume potentials, high-volume contracts as ACPL, Evolute we announced this last quarter and Commlink in Bangladesh and additional point-of-sales customers. This pipeline will bring us to profitability. And how do we do that? Yes, we do it with the existing products we have at hand. So you have seen we -- during the years, we have developed variants of FAP 20. We have now also FAP 30 as well as we have the Oyster III that is a product that goes into a PC and IAM. We can take the next slide, please. For doing this display technology, we announced 9 months ago that we are targeting to go into a new market segment. That market segment is the most challenging, most demanding, highest reward market there is in technology. It's the mobile phone, smartphone industry. We have since then, of course, worked with our IP protection. We have multiple projects -- patents pending and nearly completion. We have, of course, started talking to industry players. We have NDAs with specifically the supply chain, which is very important. Without this display technology, there will be no smartphones. We have also indications and industry validations with larger OEMs. We sent out a message in April this year. Those discussions have continued and confirming the groundbreaking potential of this product. It's a clear potential to drive a transformative change across the biometric display market. Today, India is the largest biometric market outside cell phones, laptops. If they would be able to have this product, you can get your grains, you can get your SIM card, you can get your bank account by verifying yourself and your unique identity onto the display. This is just one user example that is available. But there's multiple innovations that can be done based on this type of implementation. We remain confident that bringing this innovation to the market. We will share further updates when it comes. We are seeing a massive upside as we have communicated. There's about 300 million smartphone -- high-end smartphone makers or smartphone devices sold every year. And we have the ambition to take a portion out of those 300 million, massive upside, and we have close to 0 R&D work as we are working efficiently with suppliers. You can take the next step, please -- next slide, please. So actually announced 20th of August, just before the Q2 reporting, we got the breakthrough order. We got a first large-scale production order for our FAP 30. It's ready in the production capabilities. We will deliver the first units out of this order during Q4. It's our Granite. It's a FAP 30 product. It serves different markets and use cases. It's spanning our portfolio since FAP 20 is smaller, limited to one certain market. But it's also important to understand that this is not a replacement unit. It's actually a complement in the portfolio. We see now that FAP 30 comes with an impressive result. We have very good biometric performance. And we have a large-sized image, of course, and a phenomenal quality on those. And we have already early samples in customers that are engaged with us, which is fantastic. You can take the next slide, please. Very happy to also announce that Evolute finally came in through the L1 Aadhaar certification, the second OEM in India that -- for using a biometric active thermal sensor. We are expecting high-volume purchase orders during Q4, so very soon. And except the Aadhaar program products, they are actually targeting MOSIP and the MENA markets, Africa and Middle East. It's based out of the standard FAP 20 sensor, and they have 5 different designs basically. They have reader only. They have a point-of-sales terminal and so on. And most important taken out of this is that we are 2 out of 7 certified products in the market. If you take the next slide, please. And also looking at different markets, we are entering also Sri Lanka. So we're adding one more geographical market. It's also a high potential market since they are looking at the Aadhaar system itself. They have already implemented the Aadhaar sort of program. And the biometric and hardware demand is rising in the governmental, banking and telecom sectors. C3 Labs, which is the one that are entering the market together with us. It's a multidisciplinary engineering company, and they make different innovations, including end-to-end solutions. And they also help other manufacturers to do construct the product manufacturer. You can find them online. It's interesting to see. We have secured the first mass production order from this new customer. And it's actually a self-service kiosk for secured transaction banking transactions. In the link, you can see actually a picture, image of the actual device. So delivered scheduled to start in Q4. If you can take the next slide, where it is my last slide going to the outlook. What I see in the near future. We have 3 revenue streams driving growth. We have the recurring quarterly revenues based out of the contractual that we have announced. It means ACPL, Evolute and so on, better predictability and scalable in going forward. We have 81 smaller to medium-sized design wins. They are less regular, but they are expanding. We are expanding our customer base, and we're therefore, seeing additional revenue in this stream. And then, of course, we have the larger tenders, the onetime revenue type of projects that is in the governmental ID sector. Hard to predict when the order is there. What we can do is to secure the hardware design, make sure that it's our sensor that is implemented. We do the implementation, integration and then we can wait for the supplier to get -- to win the tender. And then, of course, we will receive the order. Very hard to predict the timing of this, but the upside is a larger number in revenue. So as I have explained, we are ready. The products are there. The operational momentum is kicking off in early '26. And I think we are increasing -- we see increasing momentum and the 81 design wins creates a solid ground for my optimism. I've been in the biometric industry for 15 years. The first time ever something closed like this in India. But I know that sometimes things takes a long time. A design win can be anything from a design win until it's actually launched, can be -- as we have communicated previously, it could be anything from 9 months to 24 months. Most important is that the hardware is in the design, the tooling is ready, and we are available when the customer will place the order. We have now a valued inventory, valued at NOK 34 million, which actually corresponds to approximately NOK 70 million in revenue when sold to end customers. We see the solid gross margin at around 50% still in our market and continue guiding on the 50%. Due to the slowness of the revenue, we have initiated cost cutting and to preserve cash and liquidity as a measure. I need to come back to the more exact details on this at a later stage. We are now -- this was my last slide. Let's move over to Q&A, if there's any questions online. Eirik Underthun: Yes. Ulf, I have one question here. So how can you explain ending up in a situation where the 2024 financial statements have been significantly incorrect? Ulf Ritsvall: Thank you, Eirik. It's a very valid question, and it's a very understandable question. So we've had -- it's hard to me, myself to understand actually. Our key focus until now has been to make sure that we are able to prepare the adjusted financial reporting that presents the most correct financial situation to the company. I believe the reason for getting here consists of several factors. I explained for you the perfect storm. I would say that one of the items is the -- one of the costs relates to the irregularities discovered in China. But it's also -- in addition to this, it seems to be clear that our operational finance function not have been cooperating and shared information in an adequate manner. Of course, measures has been taken into this. And it's clear that our finance function and operational function needs additional competence to measure -- to address this and this has been taken. Thank you. Any more questions? Eirik Underthun: Yes, I have one more question here now. How have you ensured that the figures presented today reflects the current situation? So I guess that's a question for me. And I believe it's about the balance sheet that we have presented now at 30th September 2025. So what we have done is to go through the transactions and the customers that we have seen are affected by the irregularities, but also have had assistance from external IFRS experts. And we also conducted an external investigation and that the investigator visited and inspected the warehouses where we have distributors. And moreover, we have had a dialogue with our auditor, although it should be noted that the Q3 report has not been audited nor the 2024 restated financial accounts. So due to the effort and the time that we spent to investigate and reclassify the transactions, we believe that the presented figures gives you the best view of the NEXT financial situation as per 30th September 2025. Then there is some other question here. I think this one is for Roy. Roy, could you elaborate on the dispute between NEXT and the Chinese sales and marketing partner? Roy Tselentis: Yes, of course. Thank you, Eirik. As part of the external investigations, the irregularities has been substantiated, and we can see that they have occurred in our Chinese subsidiary. Our go-to-market partner or marketing and sales partner in China has claimed a total payment of around NOK 15.6 million. NEXT is very clear in our position that we have no obligation to compensate our partner and no provision has been recognized. Also in the litigation process which we had in Shanghai, we argue that this is not the right jurisdiction, over most of the claims raised by the sales and marketing partner and that these claims fall under arbitration in accordance with the Norwegian Arbitration Act with Oslo in Norway, a seat of the arbitration. The time line of this arbitration is uncertain, but we are working on it, and there are progress in that situation. We will, of course, continue to investigate the irregularities and we'll take any further relevant and necessary legal action against the relevant companies and individuals involved in these irregularities. Eirik Underthun: Yes. Thank you, Roy. I've got one final question here now. I think, Ulf, this is one for you. Can you disclose the status of the full-screen fingerprint technology? For example, the patent situation, technical progress and interest by display manufacturers. Ulf Ritsvall: Maybe I can elaborate a bit. It's -- some parts are, of course, under NDA, which we need to, of course, see. We are in active dialogues with different display manufacturers. There's a high interest from the display manufacturers. We also have got the information from the market. When I say early feedback from selected industry players, it's actually the selective players in the different smartphone OEMs. So that means the -- maybe the top 10 OEMs in the smartphone industry. I don't mention any names here since it's under, but we -- one of them, we actually have an NDA with. So there we share more frequent updates on the technical progress. IP protection is underway. We have a few patents actually to have our boundaries in the IP, of course. We will not start selling display technology or displays, as we have said, we will be a partner with a display manufacturers. Therefore, we need patent protection and IP protection. That work is continuing. And I will share further updates once the development of the patents when they are actually moving, I will share more updates with you. I hope I answered your question a bit more, even if it's sort of under NDA some of them. Thank you. Do we have any more questions? No more questions. I would like to thank you for participating in the call. My e-mail is always open. If you have any more questions, you can also call me, of course, on my cell phone. Wish you a good day, and thank you.
Simon Carter: [Audio Gap] results. You will have noticed quite a few changes on the Campus over the last year since we were last here. And if you do get a little bit of time after the presentation, do check out the Retail underneath for 1 Broadgate. It launched last week, and it's already 90% let and under offer, which is a pretty good place to be. So, in terms of today's agenda, I'll start with an overview. David will take you through the first half performance and also our earnings levers. And then Kelly will look at our strong leasing and accretive asset management over the period. But before I hand over to David, I'd like to take a step back and look at what's driving the future performance of the business. At the heart of this is the decision we took nearly 5 years ago to build a market-leading position in Campuses and Retail Parks. Together, these now represent 90% of our business. These are sectors with strong occupational fundamentals. Demand is healthy, supply is constrained, and rents are very affordable. The investment market is waking up to this. Investors are increasing their allocations to both Retail and Offices. And we are very well placed to capitalize on this. That's down to the quality of the assets, the experience of our team and our value-add mindset. The result, a very attractive total return profile, underpinned by sustainable earnings growth. So, let's unpack this. Starting with prime London offices, where a classic supply crunch is driving strong rental growth. The return to the office has exceeded expectations. Mid-week utilization across our Campuses is now above pre-pandemic levels. Businesses are short on space. Last year, they expanded by 3.3 million square feet, the highest since 2019. And active demand is now 50% above the long-term average. But supply remains tight. Initial concerns about working from home have been compounded by rising construction costs and higher interest rates. You can see on this slide, vacancy for new and refurbished space in the city is predicted to fall below 2% and stay there for the next 4 years. Historically, when this has happened, it has driven double-digit rental growth. We've positioned our portfolio to benefit from this supply squeeze. Office occupiers are focused on four key areas: quality, location, amenity and flexibility. Our Campuses tick all the boxes. We currently account for 7 out of the top 20 leasing deals that are under offer in London. So, we're capturing a disproportionate share of a very strong market. That's down to high-quality sustainable buildings, prime locations near transport hubs, excellent amenities and public realm and flexible offerings, ranging from story to fully fitted work-ready space to headquarter space. This flexibility is key for customers in the innovation sectors. This is a fast-growing market, especially in the Knowledge Quarter. The number of innovation customers in our portfolio has more than doubled since 2022. There's been strong growth from a new generation of AI and tech businesses with high levels of venture capital investment. This is a key source of new demand. We're tracking 1.5 million square feet of new requirements. Kelly will explain in a moment how we're benefiting from this at Regent's Place. Our on-site developments are achieving record rents, which is driving development yields above 7% and mid-teens IRRs. These record rents also provide valuable evidence for upcoming reviews across our Campuses. We're derisking our schemes with pre-lets and fixed price contracts and increasingly bringing in partners such as Modon to reduce capital outlay, accelerate delivery and earn valuable fees. Let's move on now to Retail Parks. These continue to be the preferred format for retailers. They're efficient and adaptable, offer easy access, free parking, and they're ideal for a range of retailers, including value, grocery and multichannel. Retailers like M&S, Lidl, Aldi and Home Bargains are expanding into this format. Yet there's been virtually no new supply in the past decade, and we don't see this situation changing. Development economics are unattractive and planning is restrictive. As you know, we're the largest owner and operator of multi-let Retail Parks in the U.K. We have a portfolio stretching from the Isle of Wight to Inverness. Half the U.K. population lives within a 30-minute drive of one of our assets. And we have deep reach with the retailers, given our scale, the experience of our team and our in-house property management. Of course, we use demographic and competition data, but nothing beats picking up the phone to a retailer to understand trading. Our focus on strong trading locations is reflected in our footfall. This has grown 13.5% above the U.K. Retail benchmark over the last 5 years. Despite a more competitive investment market, we're still acquiring assets that yields above 7%. And we're comfortable taking occupational risk, due to the market strength, our asset management expertise and those retailer relationships. In real estate, affordability is just as important as supply and demand. For Prime Offices and Retail Parks, the picture is very positive. London office rents relative to wages are lower than at the turn of the century and Retail occupancy cost ratios are very healthy. This leaves plenty of room for rental growth. That's why we're guiding to 3% to 5% growth in both sectors. Investors are taking note of the occupational strength I've just described, and they're increasing their allocation to both Offices and Retail. This, together with strong credit markets means we expect investment volumes to grow. London office transactions have been subdued in recent years, as we know, but they've really picked up this year with over GBP 6 billion year-to-date and GBP 3 billion under offer. So far, the number of deals over GBP 100 million this year is already double the whole of last year. Strong occupational fundamentals, improving investment markets and our high-quality platform provide for an attractive total return profile. The essential building blocks are set out here. Their earnings yield, valuation uplift and development upside. Earnings yield is currently 5% and growing. Assuming stable property yields, valuations will primarily be driven by ERV growth, where we're guiding to 3% to 5%. You need to adjust for a bit of depreciation, the impact of leverage and the fact that ERV growth doesn't feed through 1:1. But you can see how these first two building blocks get you to around 8% to 9%. Developments add further upside with mid-teens returns forecast on the committed schemes and the pipeline. So, we're confident in delivering total accounting returns of 8% to 10% through the cycle. The total return outlook is underpinned by attractive earnings growth. We're expecting at least 6% next year, and we have the levers to deliver 3% to 6% over the medium term. This is an ideal point to hand over to David, who will take you through these levers as well as our numbers. David, over to you. David Walker: Thanks, Simon. Good morning, everybody. Three things from me today. First, I'll cover our financial performance for the half year. Second, the balance sheet and our approach to capital allocation. And finally, I'll provide an update, as Simon said, on the five levers of earnings growth I outlined in May and then how we see them translating into medium-term growth of 3% to 6%, including our guidance for FY '26 and then into FY '27. As you know, we released many of the key metrics in October. That's something you should expect from us going forward. One benefit we see is that it allows us to spend more time today on strategy and outlook, but starting with the numbers. Underlying profit was up 8% to GBP 155 million, and underlying EPS was 15.4p, 1% ahead of last year. meaning the dividend is also up 1%, in line with our policy of paying out 80% of underlying EPS. Looking at the EPS bridge, you can clearly see the benefit of our progress against the earnings levers, in particular, driving like-for-like, which was 4% and contributed GBP 6 million or 0.6p with a positive performance across both Offices and Retail, higher rents from developments from completed schemes like 1 Broadgate and The Optic, partially offset by void costs and lowering admin costs. This has been a key focus for me since I became CFO this time last year. I spoke in May about the savings we had already identified, and I'm pleased to see the benefit come through in H1 with admin costs down GBP 5 million or 12% versus last year, adding 0.5p to EPS. One-off items had only a limited impact on earnings year-on-year as the positive effect of surrender premia offset bad debt provision releases last year. Taken together then, these positives more than offset the GBP 13 million increase in finance costs, which reduced EPS by 1.3p. This is in line with expectations, mainly reflecting the fact that we're no longer capitalizing interest on completed developments and a 10 basis point increase in our weighted average interest rate to 3.7%. Here's the summary P&L account. I've covered most things here already, but just to touch on two further metrics. First, our NRI margin. This was lower due to the increase in PropEx, mainly because of the movement in provisions I just touched on, which slightly flattered the margin last year and void costs as we lease up developments. Once this is done, I expect our margin to stabilize at around 90%. The other thing to draw out here is the EPRA cost ratio, which was 17.4% at September as this higher PropEx more than offset the reduction in admin costs. Though I do expect the ratio to come down to the mid-teens in future years as we lease up developments and further leverage the operating platform we have in place, adding income while controlling costs. Now turning to the balance sheet. NTA has again increased since March, reflecting a 1.2% rise in property values, which added 10p and underlying profit, which added a further 15p, although this was partially offset by the dividend paid in July and other movements, resulting in NTA per share of 579p, up 2%. This, combined with the dividend paid, equated to a total accounting return of 4% for the half, meaning we're on track to deliver our full year target of 8% to 10%. Credit markets remain very strong, and we've capitalized through a broad range of activity focused on maintaining our overall maturity and enhancing diversity in our sources of finance. We raised a GBP 450 million green loan secured against 1 Broadgate, extended GBP 930 million of RCFs and renewed GBP 500 million of term loans at improved pricing. Looking ahead, we have just over GBP 300 million of debt maturities at British Land over the next 12 months. So, we remain well financed with flexibility on when and how we raise new debt. And with good access to the bank debt and capital markets, we expect to remain active in a strong market. I was pleased to have our Fitch rating reaffirmed in July at A with a stable outlook, reflecting the fact that our balance sheet remains strong. We ended September with GBP 1.7 billion of undrawn facilities in cash. Net debt was GBP 3.8 billion. Our LTV was 39.1% with net debt-to-EBITDA on a group basis at 7.2x. This balance sheet stability underpins all of our capital allocation decisions. We focus on recycling capital from mature, lower-returning assets into higher returning opportunities. Currently, that means investing further into Retail Parks, where, as Simon has described, the investment case remains compelling, and we continue to see opportunities to buy at attractive pricing. Alongside that, we progress best-in-class office developments at our Campuses on a derisked capital-light basis, securing pre-lets, certainty over build costs and bringing in partners to accelerate returns and reduce risk, just as we did over at 2 Finsbury Avenue. Our London urban logistics portfolio has embedded development optionality, and we remain positive about the long-term supply-demand dynamics here. So, we can progress those schemes when the time is right, but the sector is weaker today. So, we prioritize better uses of capital in Retail Parks and Campus development. It's important to note that we always make capital allocation decisions in the context of shareholder distributions, including the relative returns and EPS accretion available from share buybacks, for example, when we have the proceeds to invest following significant disposals. And as ever, all of our capital allocation decisions are based on our assessment of relative returns at any point in time. In May, I set out the five levers we focus on to drive consistent cash-generative earnings growth. So 6 months on, let's update against each. First, like-for-like rental growth. We've made a strong start to the year. Portfolio like-for-like growth was 4%, bang in the middle of our guidance of 3% to 5%. Campuses were up 7% as we drove occupancy and secured rental uplifts on space which have been surrendered. Our Retail business also continued to grow, albeit at a lower rate, reflecting the fact that we're at near full occupancy. Going forward, though, ERV growth should more directly translate into like-for-like growth as we're largely rack rented now on our parks. And overall, for the full year, I expect 5% like-for-like growth across the portfolio. Kelly will give you more detail on our portfolio performance in a minute. Fee income is our second earnings growth lever. We continue to work with a broad range of JV partners, generating fee income for both asset and development management. Although fee income was flat in the first half at GBP 13 million, we do expect to achieve 10% growth for the full year as we continue to earn fees on development mandates, and we're actively pursuing opportunities to leverage our platform in order to drive incremental fees from new and existing partners. Third, cost control. I'm pleased with the progress we've made over the last 12 months, but this remains a focus. And so for the full year, I expect admin costs to be GBP 75 million to GBP 76 million, ahead of the guidance I gave in May and versus GBP 82 million for last year. Development leasing is our fourth earnings lever. As I mentioned earlier, we're now benefiting from schemes such as 1 Broadgate and The Optic, while leasing on previously delivered schemes, Norton Folgate and Aldgate Place is well on track. 1 Triton Square launched in October, and we're delighted to have our first deals under offer there. Finally, capital recycling. The fuel in this machine is our ability to dispose of lower returning assets, freeing up capital to rapidly redeploy into higher-returning opportunities. As Simon laid out, the office investment market has been quieter than in previous years, but we are seeing signs of improvement. And against that backdrop, we've remained active, executing deals where it makes sense, disposing of Retail Parks where pricing has moved in or development sites in London, which were not income-producing, then rapidly redeploying the proceeds. Given the improving investment market, we do, however, expect activity to increase over the next 12 to 18 months. Bringing this together, we expect to deliver sustainable EPS growth of between 3% and 6% over the medium term. This slide shows how each of these earnings levers contribute to that. Now this is purposefully illustrative. And of course, it will not be linear in any particular year. But to me, this is the best way to think about the earnings growth potential of our business. So, let's go through each of them. In terms of like-for-like, we're confident we can consistently deliver 3% to 5% on our standing portfolio given the strong occupational fundamentals of our core sectors. At the midpoint, this top line of 4% growth drops 3% to 5% annual EPS growth. 10% fee income growth adds another 1% per year. And on costs, I do expect further reductions over the next 12 to 18 months, which will, of course, continue to benefit earnings. Although over the medium term, there is likely to be continued inflationary pressures. So, modeling broadly flat costs is not unreasonable over, say, 5 years. Likewise, our weighted average interest rate will gradually increase over time, reflecting prevailing market rates. Based on today's rates, we anticipate a 10 to 20 basis point increase per year, which would reduce EPS by around 2% per annum. So overall, we see a clear route to core EPS growth of 4% per year, and that's before further capital activity, which really is the kicker on top of this core growth. There are two components to consider: development completions and asset recycling. And while the timing and phasing of capital activity is, of course, hard to predict and it's by its nature, lumpy, I've assumed around GBP 500 million per year with GBP 200 million for developments and GBP 300 million for asset recycling. Then to model the earnings impact for developments, we assume a spread of around 200 basis points between the yield on cost and our funding costs. And for asset recycling, 100 basis points between what we buy versus what we sell. Taken together then, this capital activity would contribute a further 2% to EPS growth per year, increasing the annual growth rate to 6%, the top end of the range I described in May. So, bringing this back to immediate outlook. Moving into the second half, we expect to deliver at least 28.5p of EPS for FY '26 and from there, at least 6% EPS growth for FY '27 as we benefit from the continued lease-up of our developments, capitalize on the compelling fundamentals of our core business and so move forward with confidence in delivering against our five earnings growth levers. With that, over to Kelly. Kelly Cleveland: Good morning, everyone. You've heard from Simon on the strength of our markets. So, I'll now take you through how that's translated into performance and outline how we're adding value across the portfolio. I'll start with valuations, which have increased by 1.2%. This is the third period I've been able to report positive valuation growth, and it's a good sign that the inflection point is behind us. Valuations have been driven by strong rental growth of 2.4%. On an annualized basis, this is again at the top end of our guided range of 3% to 5%, and we're confident this rental growth will continue. Turning to the operational performance, starting with Campuses. We have leased 486,000 square feet at 3% ahead of ERV. And at the end of the period, we were under offer on 629,000 square feet, 6% ahead of ERVs. And we have been particularly busy since 30 September with a further 308,000 square feet put under offer, and that's a very busy 6 weeks. It's worth pointing out, we're seeing particularly strong momentum in leasing up vacancy. Since March, we've let or put under offer 751,000 square feet on vacant or newly delivered space. Our EPRA occupancy now stands at 88%, up 5% this half, up 10% for the year. As we said in the trading update, Broadgate is practically full. There's just one completed floor to lease across the entire Campus, and it's an exceptional floor, the top floor of our newest scheme at 1 Broadgate. We're in negotiations on that floor, and we'll set record new rents for the Campus. This is good news for our on-site developments, which will deliver into a market with very limited supply. Broadgate Tower is the first to be delivered late next year. This is a 390,000 square foot building with 240 square foot development floors. Since 30 September, we've gone under offer on 59,000 square feet across five deals, taking the building to 49% let. This is a very strong position to be in at this stage. The next to deliver is 2 Finsbury Avenue in 2027, where Citadel are taking up to 50% of the space. Here, we are in negotiations with a number of larger occupiers, 2 years ahead of delivery, and this is a fantastic tower building delivering in a year with very little competition. We've also been proactively identifying where we can take back space and re-let it at higher rents to drive value when there's such little supply. For example, at Exchange House, we proactively took back some floors. We're reinvesting the surrender receipt into much needed on floor upgrades after 35 years of occupation and have already re-let to MSCI, driving rents on by GBP 35 per square foot. This added GBP 10 million to the valuation of the building and sets strong rental evidence for the wider Campus. This is accretive asset management, and we will look to do more of this. Norton Folgate is a slightly different proposition for us at British Land as the product is smaller floor plates, often fitted and therefore, more suited to let post PC. We've made good progress and are now 89% let, under offer or in negotiations. And we're on track to be fully let by the end of the financial year. Simon covered the growing demand coming from innovation occupiers, which is driving momentum across the portfolio. To capitalize on that, we launched 1 Triton Square last month. This is an incredible building. It's a Campus within a Campus and offers real flexibility to tenants. It includes a floor of storey space, a floor of fitted labs, three lab-enabled floors, which look like a traditional office floor, but can easily be converted to lab use as demand evolves and three traditional office floors. You may have picked this up in David's piece, but I'm pleased to confirm that just 6 weeks after PC-ing, we have put 56,000 square feet under offer to two globally recognized science and tech occupiers due to complete later this month. And we have another 211,000 square feet in negotiations. We are very excited about this and look forward to continuing to update you on our progress. Turning to Retail Parks. You'll know it's a very competitive occupational landscape and retailers are keen to secure space. Leasing volumes remain strong at 681,000 square feet, 6% ahead of ERVs and under offers are 554,000 square feet, also 6% ahead of ERVs. Deals this half have been in line with previous passing rent. And thanks to recent strong rental growth, our portfolio is now largely rack rented. And as a reminder, it was over 20% over-rented just 2.5 years ago. So, we're in a great position to generate strong like-for-like rental growth from the portfolio. Retail Parks provide strong cash yields and good opportunities to increase value through asset management. I'll cover just a few of the many examples of asset management on our acquisitions, where we've looked to improve the tenant mix and drive footfall, sales and ultimately, rents. I'll start with the first one we bought when we took the contrarian call to start buying Retail Parks. When we bought Biggleswade Retail Park in 2021, it had 6 high-risk retailers. These are the ones in red. We've re-let all of these to strong category leaders, which has helped drive a 12% IRR since acquisition. Rolling forward to one of last year's buys, Queen Drive Retail Park. When we purchased it, there were two vacant units, both are now let, including to an M&S anchor, which is a major win for the park. The park is full and leasing well ahead of ERV and has delivered a 14% IRR since acquisition. And our most recent buy is Turbary Retail Park in Bournemouth, which we purchased earlier this month for a prospective double-digit IRR and a day 1 yield of 7.4%, which with asset management, we've already increased to 7.7%. And we have a strong pipeline of similar deals. As Simon covered, we're unlikely to see many new Retail Parks built, but we're actively looking for opportunities across the portfolio where we can add space efficiently. Projects like these ones at Glasgow and Rugby are smaller in scale, shorter in duration and lower risk than traditional developments, but they generate meaningful returns with a yield on cost of at least 8%, often double digits. And on top of that, they provide strong wash over to the rest of the park by improving lineup and rental tone. So, I'll leave you with three things. Values continue to rise, driven by strong ERV growth at the top end of our guidance. Our standing Campus assets are virtually full following a strong 6 months of lettings, and we've made good progress on our newly delivered space. And finally, as the market leader in Retail Parks, our active asset management is pushing on rents and values, and we'll look to buy more in the space as we continue to recycle capital. Now, over to Simon to wrap up. Simon Carter: Thanks, Kelly. So to wrap up, let's circle back to where we began. We're a market leader in the right sectors, Campuses and Retail Parks, where demand is healthy, supply is constrained and rents are affordable. Investors are increasing their allocations to these sectors, and we're very well positioned to capitalize on this and to deliver attractive total returns going forward. Thanks for listening. Simon Carter: We're now going to take your questions. Kelly and David are going to join on stage. And I think we'll start with questions in the room. Who's going to be first? We've got a microphone over there. Any questions in the room? Rob? Robert Jones: Someone's going to start. It's Rob Jones, BNP Paribas. I think two. The first one, I don't know if we can go back to a slide on the screen, but if you wanted to, it's Slide 4, which, Simon, was the one where you had the stars looking at times in the past where we've had less than 2% vacancy. Yes, I'm sorry about that. One could read into this that, if we're forecasting less than 2% vacancy '26 onwards, and I guess the '27 to '29, I don't know if that's even right, maybe it's just, I'm not sure, but even if it was, it implies that one could assume a 10% ERV growth going forward. Now obviously, at the moment your levels that you need to achieve -- and David has helped us probably by break down the levers of earnings growth going forward. You don't need anywhere near that to hit your target. So, do you think that, that kind of level of ERV growth, if we have such low vacancy and acceptable levels of credit demand still coming through can actually be a 2%? I assume in '27 to '29 based on the forecast. Surely that must be wrong, because even when you look at your own Slide 36, you got [indiscernible] Bank, Appold Street, likely getting committed with a '28 delivery, I think, which is in that period. Either the brokers are assuming you own 100% net on completion or they're a bit too bullish in terms of that. Simon Carter: Yes. It's a great question. This is directional. It's what the brokers are forecasting. Inevitably, you'll have a little bit of vacancy. But what you're seeing at the moment, the amount of supply that's coming through. So, we think there's something like 5 million square foot of new -- so this is new and refurbished. This isn't the whole city. This is new and refurbished stock coming through. 5 million square feet over this period of time. A lot of that's pre-let. And if you have normal levels of demand of about 2 million square foot a year, you can see how you eat into that supply very, very quickly. And I do think that the schemes that are on site, not everyone, but the schemes that are on site, particularly the BL projects will be delivered with a very, very high level of pre-let. I mean you're already seeing that. Look, we've only just started 2 FA, and we've got 33% let, up to 50% of Citadel exercised their options. We'll probably move to 1 Appold in the future, but that will be on a pre-let derisked basis. So, the market is very, very tight at the moment. Of course, there will always be a bit of vacancy, but that is what is being forecast at the moment. I think by Knight Frank, I think Cushman's have the vacancy rate a little bit higher than that. But what we're saying is sub 2%, you get very strong rental growth. But that is on the new and refurbished space. So look, I think you will have that. And we've seen that on our own new and refurbished space. That is what the rental growth is doing at the moment. Sorry, you had a second question. I just thought answer that one first, and then we'll move on to the second. Robert Jones: I'll pass on to someone else. Simon Carter: Okay. Very generous. Next will be Max. Maxwell Nimmo: I'll try my best. Max Nimmo, at Deutsche Numis. Yes, I guess perhaps a slightly higher-level question just around office development. There's obviously quite a bit of debate about the buy-to-sell model or the develop to sell and the sort of develop to hold. You talked about kind of mid-teens IRRs, but also mentioned the fact that depreciation could be 1%, maybe it's higher, the ERV growth perhaps doesn't always flow through one for one. Just in terms of your thinking about how you get comfortable with that and is it the JV angle? Is it the kind of derisking it? Just kind of some of your thoughts on that, if that's okay. Simon Carter: Sure. It's a really good question. As you saw on the slide on the schemes that are on site and the pipeline, we're projecting yields on cost north of 7%, mid-teens IRRs, so compelling returns. And those are derisked returns by the point we commit, because we place a fixed price contract, normally with an element of pre-let. And then also, as you say, we've brought in partners. So that's very compelling returns. The MO of British Land as it has been for the last 5 years is create this great product, lease it up, deliver compelling returns. And then yes, in time, we look to recycle. I think David referred to it as the fuel in the machine. The investment market has been quieter as we know. That's now catching up because everyone can see the rental growth we've just been speaking about. And so, we think we'll see increasing activity that then allows that engine of growth to go for us. We're not necessarily the best long-term owner of a stabilized office asset, because there is depreciation, and that will be a lower return. And we've got other uses of our capital. Today, we have more opportunity than we have capital. So we would like to do more of that development, more of that buying of Retail Parks that we've spoken about. Thomas Musson: Tom Musson at Berenberg. Just a question on the fee income growth that you hope to grow 10% a year, which obviously becomes more material to earnings growth as that compounds. Just wonder how you balance the decision between growing an income stream that's based around development mandates with the fact that future income that is aligned to development work inherently comes with a higher cost of equity, at least in the eyes of the listed market. Simon Carter: Yes. Good question. I'll give you an initial thought and then hand over to David on this one. It's the kicker on top. So, we're getting those type of returns. And then, we bring in partners, we're using their capital. We're normally selling ahead of where we would have been before we derisked the scheme. So, we're locking in some profits. And then those fees -- the fees on development mandates are good. It's a relatively high margin business. So, I think, it's a nice add-on. I don't know, David, if you would add anything to that. David Walker: Yes, not really other than to say we clearly we wouldn't commit to a development simply to drive fee income. Often, it's a result of the fact that we've already derisked that scheme by bringing in a partner. There are two principal -- or three principal chunks to it. The first is development fees. That's where we earn the highest margin. There's asset management fees, which is also an increasingly important part of the business, and then there's property management fees on top of that. So, 10% a year on average. Some years, it will be higher, some years, it will be lower, subject principally to, as you described, the developments we commit to. Zachary Gauge: It's Zachary Gauge from UBS. A few questions around development. Just looking at the updated guidance on Page 47, you've dropped your NRI margin by a couple of percentage points from the end of last year. And the reason given is additional void costs reflecting timing of development completions and lease-up. And obviously, you would have known the timing of development completions at the end of last year. So, can I back out of that, that the lease-up is going slightly slower than you had anticipated at the end of last year. And then following on from that, on the individual assets and where we are on ERV, sounding quite encouraging on Triton Square, so potentially getting to 50% by the end of the year, but nothing at Canada Water and nothing at Southwark. So, if you could just touch on the prospect for those individual schemes by the end of FY '26, that would be great. And the other one is on the under offers at 1 Triton Square. I think it breaks out to GBP 115 per square foot. Could you just touch on where that sits in relation to underwrite on the floor space they are taking, whether it's labs, fitted labs or offices? Simon Carter: No, happy to go through all of those. On leasing activity, we were probably slower throughout the period in terms of where we thought we would be. But actually, we saw an acceleration at the end of the period. Kelly, I don't know if you want to talk to some of the activity we've had on the development leasing front. Kelly Cleveland: Yes, sure. I covered in the prepared notes, but we've having completed 1 Triton and being able to show people around the building, we've had really good progress there in the last 6 weeks. We've also had good traction at Broadgate Tower. And again, just in the matter of about 5 or 6 weeks, we've put a huge amount under offer there, another one just recently as well. So with those schemes, we're tracking well in line and ahead of where we would want to be at this stage. Simon Carter: I think it's one of the themes of these results that momentum has built as we've gone through the period and particularly strong post period end in the market, which I think is pretty encouraging. And then I think you had a question on Canada Water and Mandela Way, office lease-up. Kelly, do you want to take those ones? Kelly Cleveland: Yes. I mean -- so Canada Water, we're having some encouraging conversations there. We're also encouraged by the spillover effect that Simon spoke about at the last set of results, where the lack of supply in the core is meaning affordable locations are getting a bit more business. So we'll keep you updated on Canada Water. What I would say is that the Canada Water leasing is not included in our guidance. So, any leasing that we do in pre-FY '27 is upside. Simon Carter: And maybe on Mandela Way. Kelly Cleveland: Yes, Mandela Way. So Mandela Way, that's -- it's a great asset in a very, very central location, which we have, again, only recently PC-ed on as we have always said and as our underwrite set out, that is a product that will lease post PC, because it's multi-let, smaller floor plates and it needs to be seen. But it's a great product. We've been getting people around, and we're in negotiations, and we'll again continue to keep you updated on that one. Simon Carter: And then, I think there was a question, which was sort of unpicking the rental deals under offer. We're probably not going to comment on deals under offer and where the rents are, but we're really happy with where demand is for 1 Triton, I'll say as much as that. Zachary Gauge: Just clarify one of those points. If you're 0% Canada Water at the end of the year, you're still confident on the guidance outlined for GRI? Simon Carter: Yes. David Walker: The leasing risk on 28.5p from here is de minimis. Adam Shapton: Adam Shapton from Green Street. I had two. One on office, one on Retail Parks. We'll do both, one off the other. Yes. So, office back to the indicative broker forecast, and maybe this is one with your BPF hat as well, Simon. Is the city of London concerned about the effectiveness or the attractiveness of the city as a business district if there's no space available? I mean, we've had high-profile comments from Larry Fink and so on about that. So do you think the city of London is concerned that the sort of supply barriers balance is not quite in the right place? And then on Retail Parks, just interested in your commentary on sort of QSR and casual dining. There's some evidence that profitability is being squeezed in that sector. It's been a success story for a lot of Retail Parks. What are you seeing in your portfolio from the drive-throughs and the QSRs in that sector? Simon Carter: Sure. Interesting question around city and lack of space. Just to flag that new and substantially refurbished space there. I think what you will see and what we are seeing today is because there isn't enough of that, customers are making compromises and taking good secondhand space. We have definitely benefited at Broadgate and the standing investments, as you saw from Kelly's slide. I think that's the fullest we've been. This is a 4.5 million square foot estate. And we've got one floor at the top of 1 Broadgate, which we're obviously being a little bit demanding on given that supply picture out there. So there is space. But I think it will -- you'll continue to see this ripple effect. There's some parts of the city that are not -- haven't done as well as Broadgate. It's right above Liverpool Street. It's got the Elizabeth line. That will ripple out. So, there is space for people to take. But they might not get that brand-new headquarters space. Because if you look today, just to sort of cement this point, we think if you want 150,000 square feet of new space, you've only got three buildings to choose from and one of those is 2 FA, if you want new. So look, something to happen. The city supply comes on stream. We know it's a cyclical market. At some point, supply will come back on stream. But obviously, you can't deliver in the next 2, 3, 4 years unless you've got planning, you've -- you started on site. And then, I think, on QSR has been a softer market, and we have seen some insolvencies. You don't tend to have a huge amount on Retail Parks. We've done fairly well when we've seen those insolvencies at reletting those units. But Kelly, I don't know if you want to touch on what we're seeing. You had it on your slide on the drive-thrus. And that's been a fantastically strong market. Kelly Cleveland: Yes. I mean, exactly that. Drive-thrus is just increasing demand for them. And as Simon said, we have limited casual dining when there have been failures and I won't name names, but when that does happen, it's not been an issue for us. We've always been able to just get out and get new formats in there. Jonathan Kownator: Jonathan Kownator, Goldman Sachs. To follow up on 1 Triton, please. Obviously, you repositioned the building with labs, office. Where do you see the take-up in that space? Is it for regular office space? Or is it for the lab type space? And more broadly, perhaps on occupier demand, how wide is it? Because obviously, tech is driving a lot of that demand right now. Do you see any demand from other sectors, please? Simon Carter: Kelly, do you want to take that one? Kelly Cleveland: Yes, sure. I mean, the beauty of that building is that three of the floors that are lab-enabled, we're able to convert them to office use depending on where the strongest demand and where the best returns are. Exactly as you identify, we are seeing really strong demand from science and tech that is -- that's definitely not letting up. It seems to be getting more and more on a week-by-week basis. So, we expect that to continue. Jonathan Kownator: So just to clarify, we're talking about office space, not lab space. Kelly Cleveland: For office space. Correct. Simon Carter: But we have seen demand for the lab space as well at Regent's Place. The incubator space has done well. We did an incubator at Drummond Street, where there was some existing lab space we were able to use, and that filled up very, very quickly. And we're now seeing those businesses graduate into our Crick space at 20 Triton. So that's quite an interesting theme. But I think today, the AI tech demand is definitely stronger than the sort of Life Science demand in London. But both feel like they've got pretty good prospects at this point. That's probably questions in the room, unless anyone's got a last-minute burning question. So should we go to the calls and see if anyone's on the line? Unknown Executive: Yes, it's all on the webcast today. Simon Carter: It's all on the webcast. Okay. Unknown Executive: Exactly. So we have one question from Nikita May at HSBC Asset Management. She says, you mentioned that AI-driven businesses are driving new demand for office space. Is this at the expense of other sectors like financial services? Do you have a limit of how much AI tenant exposure you would want to have? Simon Carter: Great question from Nikita. We haven't got enough data points, I think, to determine whether that's at the expense of other parts of demand in the sector. Today, it feels very much like new demand. These are businesses that weren't there 2 years ago. They've grown very, very rapidly in the portfolio. I think, I spoke to a number of you this morning. We've seen people take space at Regent's Place, very well-known names in the AI market. They've taken 7,000 square feet, they've then 14,000, then 21,000, and then they want more space after that. That feels like it's not today cannibalizing demand elsewhere. But obviously, we'll have to keep an eye on it. If Fintech grows at the expense of traditional banking, you'd look at that. But I think that will take sort of many years to feed through. And then on covenant exposure, we don't tend to set limits, but what we do look is at the covenant strength of every occupier we sign a lease with. Sometimes if it's start-up space, we're more relaxed to look at weaker covenants. But generally, if it's HQ space like 1 Triton, these are strong covenants taking the space in our portfolio. And the bulk of that 1.5 million square feet of additional demand that we're seeing is strong covenants. Unknown Executive: Yes. I've got one more question here. I've got two more questions. One is from Eleanor Frew at Barclays. She's asked, do you have a possible timeframe for larger asset disposals, noting you're seeing the market pick up? Simon Carter: The market is picking up. I think you should think next 6 to 12 months, but it will be dependent on when that strong core money comes back to the market, and we're seeing it come back now, but we'd want to see it there in depth. And I think you'll get that given the conversations we've been having. Clearly, we've got a budget around the corner. People will keep an eye on what's happening on the budget. But I think with these occupational fundamentals, that investment demand will be there, and that will be the market we'll look to take advantage of. So 6 to 12 months on that. Unknown Executive: And I have -- finally, I've got three questions from Mike Prew at Jefferies. The first part, I'll give you all three at once, but you exclude recently completed developments in the last 12 months from your 95% occupancy number. Are Norton Folgate and Canada Water schemes backed out of this? The second part of the question is Retail warehouse price performance seems to have slowed markedly from 2025. Is the repricing maturing/mature? And the final part of the question is, was the Southern multi-let logistics scheme profitable? And what is the progress at Thurrock, please? Simon Carter: Okay. So on -- David, I might need you to help on this on the occupancy numbers. I think -- am I right in saying that Norton Folgate, Kelly, it looks like you've got the answer to this one. David Walker: Yes. Yes, you are. Simon Carter: So Norton Folgate isn't excluded. That is in our... David Walker: That's correct. So, one of the things that's driven that delta over the last 6 months, Mike, would be the move from Norton Folgate into that kind of standing portfolio mix, if you like, from an occupancy perspective. We exclude developments that completed in the last 12 months. Simon Carter: And Canada Water hasn't -- didn't complete 12 months ago, so it is excluded. Is that right? David Walker: Correct. Correct. Simon Carter: Okay. Retail warehouse market slowing performance. What you're seeing now is the key driver is ERV growth. I think we've said that for a while. But we are seeing more and more people want to buy Retail warehousing. That's tending to focus on the very core long-let Southeast product, some of the product we create. I think Kelly alluded to it in the presentation. We tend to buy schemes with a bit of vacancy. We then lease them up, get to a really nice yield on them and then institutional capital, I think, will increasingly come in and drive performance there. But at this point, we're not assuming yield shift. I think you will see further yield shift, but what will be good is the ERV growth, and that will drive performance there. So, that would be the view there. And then Kelly, I don't know if you wanted to pick up on Southwark and Thurrock. Kelly Cleveland: Yes. I mean, Mandela Way, it's probably a bit early to be asking that question, where we've just PC-ed. And we're looking to get that leased up. So we'll keep you updated on that one. And on Thurrock, we are at 90% EPRA occupancy. Simon Carter: And that's as a Retail Park. So we decided to keep that as a Retail Park given the depth of demand in that market. That was the best thing to do there. And I think actually on Southwark, there was a profit release in the period, because we've delivered the scheme, and so there was an element of profit that came through in the period. So any more questions? One more? Unknown Executive: Yes. There's one more question. It's from Marcus Phayre-Mudge, Columbia Threadneedle. Congratulations on the cost efficiency improvements. I presume this has been driven by headcount restructuring. Is there more streamlining of decision-making to help bring overheads down in the future? Simon Carter: David, one for you, I think. David Walker: Yes. Thank you. Obviously, really delighted with the progress that we've made over the last 12 months, costs down 12% year-on-year for the first half. It's been quite a holistic view of the cost base, Marcus. So some headcount cost is included in that. But more generally, I'd just point to a sharper mindset on what we're spending and how and making sure that all of our teams are as efficient and effective as possible at what they're doing. More to go, it will remain a focus, but really pleased with the progress so far. Simon Carter: Any more questions? Great. Well, thank you very much for coming over to Broadgate. It's great to see you here today, and we'll see a number of you on the road over the next couple of weeks. And thank you very much for your time.
Lawrence Hutchings: Good morning, and welcome. It's great to see so many familiar faces here in our events center in Salisbury House and a big welcome to those on our webcast this morning. I'm Lawrence Hutchings, Chief Executive, and I'm joined today by Dave Benson, our CFO. This week in -- Monday to be exact, marks my first anniversary at Workspace. Our agenda for this morning, we have a high-level overview of performance in the first half. I'll hand over to Dave to take us through the financials in detail. Then I'll take us through our first update on strategy since we launched back in June, which was 5 short months ago, and we'll then move to Q&A. It's been a very busy time for Workspace. The economic backdrop continues to be challenging, not least because of the uncertainty around the upcoming budget. So we are controlling the controllables and taking a series of actions to deliver the fix, accelerate and scale strategy that we laid out in June. We're starting with our focus on stabilizing then rebuilding occupancy. But before I go into that, I'll summarize the first half performance, including some early and encouraging success indicators. There should be no surprises on this slide. We are clear on our expectations. The performance in the first half has played out broadly as we expected. Back in June, I said things were going to get tougher before they got better. Let's start with the performance metrics. I'll highlight a few on the light blue line, like-for-like occupancy is down, as we said. And that's driven a fall in rental income and also in valuations. Importantly, we've taken cost out of the business. So our admin expenses are down 5.6%, roughly GBP 2 million annualized. We've held our dividend flat and it's well underpinned by our cash flow because we understand how hugely important dividend is to our shareholders. On the dark blue line, Dave will talk through this in detail. but our valuation movement has been driven by lower occupancy and contracted rent along with a fall in ARVs, and this reflects our pragmatic approach to pricing. Although importantly, yields have held broadly flat. I'd like to provide more detail on what's driving the operational business. These are the interesting lead indicators that I referred to, and they demonstrate our strategic actions are gaining traction. Conversion and retention are key and together, they drive occupancy. Inquiries are down in a softer market but our conversion is up 1% year-on-year to 16%. And importantly, in October alone, up another percent to 17%. Retention has also increased, and this is a key focus for us, and I'll go into some detail on that later. A new metric that we're showing this time is our NPS, Net Promoter Score. It's up 14 points to plus 47, which is a great achievement. Our rent per square foot is marginally up. However, that is mostly driven by these fixed 5% annual increases or first year increases that we have in our lease -- standard lease model. This is the strength of our business. And it means that we are never far away from some form of reversion opportunity. I'll hand over to Dave to take us through the financials. Thanks, Dave. David Benson: Thanks, Lawrence, and good morning, everyone. As Lawrence says, we are operating in a softer economy, and we are seeing some customers deferring decisions in the run-up to -- in the uncertainty area in the run up to the autumn budget. But against this backdrop, as the top left-hand chart on this slide shows, we had slightly fewer inquiries in the first half of the year compared to the same period last year. However, as Lawrence will cover later, we have been working hard and the inquiry to deal conversion ratio has continued to improve. It's well above historic averages with a significant pickup in quarter 2. As expected and highlighted in our quarterly trading updates, we have, however, seen a fall in like-for-like occupancy, down 2.5%, largely driven by large customers leaving the Centro Center in Camden. Excluding those vacations, like-for-like occupancy would have been down to 81.7%. Like-for-like average rent per square foot was broadly flat, reflecting our selected price reductions and promotions, which have helped to drive new deal conversion and customer retention. Turning to the income statement. Underlying rental income increased slightly, GBP 0.5 million to GBP 67.3 million. The total rental income was down 2.9% to GBP 58.7 million, following the disposals made over the last 12 months. This was partly offset by lower administrative expenses, where we streamlined our support functions to deliver annualized savings of GBP 2 million. Net finance costs increased by GBP 1 million, reflecting -- sorry, a decrease in capitalized interest following the completion of Leroy House in October 2024 and also an increase in the average interest rate following repayment of GBP 80 million or 3.3% private placement notes in August 2025. Overall, trading profit after interest was therefore down 6.4% to GBP 30.6 million, with adjusted underlying earnings per share down to 15.8p. There were one-off costs of GBP 4.5 million in the period, largely in respect of the restructuring of the support functions and the implementation of our new CRM system. And these, together with the decrease in the property valuation, resulted in a loss before tax of GBP 71.1 million. Taking into account the trading profit performance and confidence in the longer-term prospects for the company, we will be paying an interim dividend of 9.4p per share, in line with prior year. On the balance sheet, and notwithstanding the decrease in the property valuation, which I'll come back to in a moment, we've maintained our capital discipline with trading profit funding last year's final dividend, and the proceeds from property disposals largely funding capital expenditure, resulting in net debt slightly increasing to GBP 833 million with NTA per share of GBP 7.21. So coming on to the valuation. Overall, we saw an underlying decrease of 4%, reflecting largely lower occupancy. On this slide, we set out the valuation movements by property category. On the left-hand side, you can see the valuation at the 30th of September and on the right-hand side, you can see the movements in the period. In the first row is the like-for-like portfolio, which accounts for around 3/4 of the overall value. And as you can see, the like-for-like valuation was down 3%, driven by lower occupancy, with the yield improvements largely offsetting a 2.3% decrease in ERV per square foot. We did continue to see smaller spaces performing relatively more strongly with units less than 1,000 square feet seeing a decrease of 0.7% in ERV compared to an average decrease of 3.6% for larger units. We also saw a significantly better-than-average performance in our high conviction and pilot sites with the valuation of pilot sites down by just 0.4%, and our high conviction down by 1.6% on average. Valuation movements in the non-like-for-like categories were also impacted by decreases in ERV which, in some cases, were compounded by yield expansion, particularly in the Southeast offices. Turning to debt. We continue to maintain a wide range of facilities with a spread of maturities, largely fixed interest rates and significant headroom. Over the past 6 months, we have successfully refinanced GBP 200 million of bank facilities, extending the maturity until 2029 as well as extending the maturity of a further GBP 215 million of facilities by one year. The facilities have the option to extend the maturities by a further year as well as increasing facility amounts subject to lender consent. Overall, this gives us significant flexibility with no additional refinancing required until 2027. As I mentioned before, though, we have seen a small increase in our average cost of debt following the repayment of the GBP 80 million of private placement notes. Looking forward, the softer economy and ongoing macroeconomic uncertainty continues to create a tough operating environment. As previously announced, H2 earnings will be impacted by a number of factors, including the lower opening rent roll, although we do expect less pressure on occupancy from large customer vacations in the second half. We will see the increase in the average cost of debt, as mentioned already, but we will also see the full 6-month benefit of the cost efficiencies that we implemented in the first half of the year. We expect full year capital expenditure of around GBP 60 million as we complete our refurbishments at Atelier House and The Biscuit Factory, alongside tactical capital-light refurbishments to enhance our offering in our conviction and high conviction buildings. This capital expenditure will be offset by proceeds from property disposals. And I'll now hand back to Lawrence to talk through our strategic progress. Lawrence Hutchings: Thanks, Dave. There are 3 elements to our strategy: Fix, Accelerate and Scale. And they are all underpinned by our objective to achieve operational excellence in our platform. That is the point where we're able to deliver highly efficient, sustainable growth in underlying recurring income. I call this the new Workspace where Workspace is once again a clear market leader. We've been working hard to execute over the last 5 months. I will go into more detail on each element over the next few slides. As we execute, we're starting to see traction, and it gives me confidence that we have the right strategy to deliver recovery in income-led shareholder returns. I'll update you first on Fix. This is the most critical area of our strategy, and it speaks directly to occupancy, which then flows through to income, valuations and shareholder value. We are laser-focused on stabilizing and then rebuilding occupancy. There are two drivers to our occupancy, new customers and retaining our existing customers. Many people don't realize that in any given year, typically 90% of our revenue comes from our existing customers. So the more we can retain, the better position we will be in, particularly in a market where the cost of acquiring new customers has grown. Within the retention area is our expansion and contraction of existing customers. We have almost 4,000 customers on our platform, and they have a diverse set of needs and requirements. They're dynamic, and we support them in a variety of ways. Often, this is in the shape of supporting their upsizing when they win a new piece of business or at times when they need to contract before then expanding again. This is part of the appeal of being at Workspace. Interestingly, our customers stay on average 5.5 years on an initial 2-year lease. Our platform and nearly 40 years of experience supporting London's creative SMEs, places us in a very strong position. However, experience, legacy and platform in themselves are not enough. So how are we driving these improvements in retention? Our customers are the owners and the CEOs of these businesses. They are in our centers daily. Therefore, the function and presentation of our buildings is absolutely critical, as is the service they receive from our center teams and especially the people that are on site every day because they interface with them all the time. We've put in place a huge amount of initiatives to support our retention. Our customer teams are taking more responsibility and leveraging their contacts and relationships to deliver expansions, contractions and lease renewals, which were previously run by our head office teams. We've further empowered our center teams to resolve the issues that come up on the ground. Nothing frustrates our customers more than 40 facilities. So we have to be right on top of it. Our new CRM platform now makes it easier for customers to raise issues and access a range of services and support. We're also delivering more events and value-added services. All of this action is delivering tangible results. Firstly, as I mentioned, like-for-like retention is already up -- is already up 2% to 85%. In October, when our center teams took over responsibility for expansions, we saw a 12% increase versus the Q2 monthly average. Our customer satisfaction score is up 1.5% to 91.2% since March. Our cleaning and maintenance score is up 3.9% since March. And finally, our value-add offers and Skills Academy, has received a 9.8 out of 10 review from our customers. We're tactically investing in our buildings to create better environments, and our pilot projects are the test centers for these improvements and innovations in both our product and experience. We're investing modest sums in the areas that our research and feedback tell us matters most to our SME customers. At Vox, we've seen the most significant changes. This high conviction building has seen occupancy improve 400 basis points to 79% since we launched the project back in June. We spent GBP 700,000 on high-impact areas, including breakout areas, receptions, meeting rooms and formal seating areas, corridors and putting new phone booths in. Over the leather market, sorry, pleasingly, our NPS at Vox has improved to plus 78 from plus 41 just a year ago. And over The Leather Market, our NPS has increased to plus 37 from plus 16, a year ago. Occupancy at other market is 82% and being transparent marginally down. However, that is mostly driven by the impact of a fail customers business. Importantly, at Leather Market, we have 5,600 square feet of space over offer that translates -- under offer, that translates to about 4% in occupancy. However, let's not just listen to my views on the impact and changes that we're making to resourcing in our centers and presentation. Francesca, who is our General Manager at Vox Studio, has some fascinating insights of our own on the impacts. [Presentation] Lawrence Hutchings: Fantastic. Turning to new customers. In a competitive market, how do we improve our performance in attracting new customers to our platform. It's not simply about the number of inquiries rather the quality and relevance of those inquiries. I'm pleased to say, Will and the team are rising to the challenge. We are leveraging a huge amount of third-party data and market research more than at any time in our history to increase our market share of London's creators, makers, disruptors and innovators. This has led to a 20% increase in First Choice consideration in our brand tracking over the course of the last financial year-to-date. This remains significantly ahead of our largest flex peers. The broadcast video, on demand ad campaign that I know many of you have seen, has resulted -- has resulted in a 22% increase in booked viewings during the campaign period. Our new drive on targeted social and digital ads has delivered a 40% increase in click-through rate to our website from LinkedIn. Whilst our website accounts for circa 60% of all our leasing deals, brokers remain important, especially in our larger spaces. Our increased focus on engagement with these firms has seen viewings from brokers up 12% over the period. And our focus on local marketing has driven an increase in walk-in viewings, especially at our lower occupancy sites, including the Chocolate Factory, Westbourne Studios and Screenworks. Better leads are translating to better conversion. We're working across the board. We're training and coaching our sales team and building a more commercial mindset. We've reviewed their incentivization and we're taking a more pragmatic approach to commercial terms. We've freed the leasing team up from expansions, contractions and renewals to focus on new business solely. We're trialing new initiatives like furnishing units, inclusive deals and more flexible terms. And as you heard from Francesca, the center teams also have an important role to play. They're busy taking viewings, proactively improving units based on feedback from customers, viewings and from our sales and leasing teams, and they're undertaking common area upgrades and maintenance on a more regular basis. We're doubling down on technology, and I'm really excited about how we're using AI. Elodie, our sales agent is accelerating conversion, working 24 hours a day when our SME customers are online. Viewings on a Monday are up 25%, and there is more to come from Elodie. We're also using AI to generate floor plans and unit layouts along with this cool tool that enables our sales team to present the unit in several different design and layout options for our customers that struggle with spatial reasoning. You'll see the majority of our units on the website now have CGIs to help with space planning. We have more improvements coming with our customer site, including a new landing page, and improved navigation, and I'm pleased to say we've launched the new landing page today. So what are the next steps on Fix? As I've said, empowering our center teams, shifting accountability to the call face and incentivizing them to provide better customer experiences whilst driving revenue, and it's working. We're going to roll out this evolution of the structure across our portfolio. This creates a need for better data and revenue management tools, which we are continuing to enhance and roll out. And finally, this focus on driving revenue is being supported by our first Head of Revenue, James Graham, who joins us from IWG in early January. James will oversee the sales and retention initiatives across the platform. As you can see, we are 120% focused and moving at pace to address the occupancy challenge. Importantly, we're making progress, but we appreciate we have a lot of work to do. Turning now to Accelerate. This is about optimizing our GBP 2.3 billion of real estate portfolio and our platform. We're fond of saying we have two verticals in our business, a super fast-moving dynamic operating business, which delivers circa GBP 140 million of revenue a year. Sitting next to that, a real estate investment business that optimizes our real estate portfolio. And these two verticals are supported by a series of corporate functions. I just want to take a moment to remind everyone of our conviction-led approach following the extensive portfolio review we did earlier this year. We're on track to meet our 2-year target of GBP 200 million, which equates to circa 30 -- sorry, 20 assets. We sold GBP 52 million so far this year, which is broadly in line with book value. That's on top of the GBP 100 million of disposals we made last year. Most of these assets are outside London. They're smaller. They're not in our SME business format and they don't speak to our target customers. We have a further pipeline of disposals, and we're constantly reviewing our portfolio with a very critical eye. We will not shy away from recycling more, including the change of use opportunities where we believe the SME market has shifted in that location. Capital discipline is always important, especially given where we are in our recovery. As we stand here today, one of the best uses of our capital is rebuilding occupancy and letting up the space we already own. The swing from vacant to occupied is circa 130% of the rent when we include the empty business rates and service charge liabilities. Whether this is investing in pilot type projects that you've just seen or the subdivision of larger spaces into our smaller studio formats, the impacts on occupancy, income, income growth, adjusted profit and valuations is meaningful. This includes investing modest amounts on new sources of demand to accelerate our rebuilding of occupancy. Importantly, we don't have any further large projects, as Dave mentioned, beyond the completion in the coming months of the Biscuit Factory and Atelier House in Camden. Instead, we are focused 100% on leasing the floor space we already own, which means we have structurally lower CapEx commitments for the next phase of our recovery. We have guided to lower leverage, reducing our interest drag and improving our balance sheet metrics. And we have a proud history of dividends and dividend growth, which are fully covered by our trading profit. Our guiding focus is on ensuring we always have the most appropriate capital structure and on delivering shareholder returns. Accelerate also incorporates the next phase of our pilot project, which is now moving into business as usual following their success. We've selected China Works and Cargo Works in Southwark. These are beautiful characterful workspace buildings in amazing locations in what I call London's creative hinderlands out of Zone 1 through to Zone 3 and 4. These are locations where our extensive research tells us there is a high proportion of our target SME customers and their staff living, working and socializing. Growing occupancy through targeted investment in high-impact areas enables us to drive income growth. These projects are high impact. They're efficient use of capital with modest investment, delivering tangible near-term results on both conversion and retention. We said when we launched our strategy, all 3 elements started together immediately. We're confident in our ability to fix occupancy and deliver capital recycling to optimize our portfolio and our platform. We're going to be creative and entrepreneurial where we see growth opportunities within our capital constraints that deliver immediate impact on our occupancy. There are ways that we can capitalize on our unique real estate customer base, adding other complementary formats to our larger campuses that create new sources of demand and provide services to both existing and potential customers. Qube is an example. More on that in a moment. Micro storage is another example. There are others we are monitoring, targeting different high-growth sectors within London's dynamic and growing SME space. We believe we are uniquely positioned to access these opportunities as both owner and operator of our buildings. Turning now to Qube. This is a great example of our strategy at work. We're unlocking an exciting new source of demand for London's growing content creators. Many don't know, London is one of the world's leading locations for content. And there are well-established Flex platforms, including the Ministry and Elephant & Castle. Our deal with Qube at the Old Dairy is one of a pipeline of sites we've identified in London as we support Qube's growth with our real estate and modest amounts of capital. The combined investment is less than it would cost us to fit out the space, and we're excited by the halo opportunities we can create for like-minded businesses to locate near the Qube facility. We're also exploring ways of working together, including creating podcast studios in our assets that are operated or powered by Qube. And we're looking forward to learning from each other, operationally over the coming months, and we welcome Amin and Nick to the Workspace platform. Turning now to next steps. One of the most insightful things for me over the last 12 months and the most eye-opening things has been to get out into our buildings and visit our customers and just see how truly diverse and successful some of them are. We've started a podcast series. And I think some of you have seen the wild podcast I've done with Charlie, who was the founder there, which is a phenomenal success story within 5 short years. He's just sold that business for GBP 230 million to Unilever. And there are many others within our business. And one of our challenges is how do we get the workspace story and how diverse our customer base is and how our studio spaces are used by such a variety of different people in such a variety of different ways. And we kicked off a video at our strategy session, which we got really good feedback from. And every time we take sell-side or investors off to our buildings, they always come back surprised, pleasantly surprised about what they've seen. In fact, we had an investor tour a few weeks ago, one of our largest shareholders. And he said to me after walking around The Leather Market. He said, "This restores my faith in London". So we've got a video for you just to provide more insight into the types of customers we host on our platform and what they're doing with their businesses. [Presentation] Lawrence Hutchings: We remain laser-focused on our Fix, Accelerate and Scale strategy, starting with rebuilding occupancy, which will drive a recovery in earnings and deliver shareholder value. To put the occupancy challenge in perspective, if we converted every single inquiry we had in a single month, we wouldn't have an occupancy challenge. And I appreciate we're not going to do that, but it gives you some indication of the volume that we're dealing with in terms of inquiries and the deliverability of what we need to do. We're closer to our customers than we've ever been, and we're far more responsive. This is giving me confidence that we're seeing the early signs of progress as we presented today. However, I am aware it's early days, and we have a lot to do. We're clear what it is that we need to do and how we are going to execute and we are executing at pace. I'd like to move now to Q&A, and we'll start with questions on the floor, and then we'll move across to the webcast. Thank you. Lawrence Hutchings: Can I just ask that we introduce ourselves for those on the webcast, everyone knows who's asking the question. Thank you. Neil Green: Neil Green from JPMorgan. Two, please. First, on the occupancy side, given your lease break profile, you're able to flag the large unit vacations well ahead of time. So we saw that coming. Have you seen or are you watching any further potential large unit lease breaks, potentially back in the second half or first half of next year? And generally, any comments you may have around when and what level occupancy might trough at, please? And secondly, encouragingly leasing activity has continued post period end, and you've got some space under offer. But interesting to see if you can tell us any more around how those leases compare to ERV, given the ERV impact on the values in the first half, please? Lawrence Hutchings: So there's probably 3 questions there. Maybe I'll have a shot at the first one, Dave. The second one, Neil, just remind me again. Second question. Neil Green: Occupancy... Lawrence Hutchings: And trough. Neil Green: Yes. Lawrence Hutchings: Yes. And the third one is how the deals post the period close effectively, how they look against ERV. I think Dave is probably reasonably well positioned to answer that as well. But picking up the first one, we've been very transparent about one of the key drivers of occupancy during this last period, has been the vacation of a large occupier in Camden, which is where, obviously, our new offices, and there's a reason for that. There aren't too many 45,000 square foot occupiers within our portfolio. There's one other large occupier in West London that we're monitoring very, very closely. So I think after those 2 large occupiers, we stepped down a long way into the sort of 10,000 to 15,000, if that makes sense. There aren't many of those in our portfolio either. And then we stepped down again into the sort of 5,000 to 8,000 square foot mark. The sweet spot of our business remains 300 to 1,200 square foot units. But as you would appreciate, businesses come in and scale with us effectively. And there's many great examples. Some of them stay with us. [indiscernible] has elected to stay, we've moved out of our corporate space in Kennington to facilitate their expansion. But there are other cases where business is sold effectively. And that's what success looks like for our SME customers is some form of exit. And as you appreciate, there are times where part of that exit is that, that business gets taken up into the mothership as we call it effectively. And we get that space back and the process starts again with dividing the space back up into small units. We are being far more pragmatic. We've seen some improvement in large unit demand and where that's taking place, we've been comparing that to the alternative of subdividing units. Hopefully, that answers that question. Dave, I might hand over to you. We're being very careful about guiding to a trough in occupancy as you would appreciate. David Benson: Yes. I mean, I think it would be rash to guide to a trough against the macro that we've seen, particularly a week before budget. Having said that, we are very focused, as we've talked about on what we can control and the drivers and the early indications and they are early indications, are positive. The visibility, as Lawrence talked about, in terms of the large units, which have been a big driver of the movement in the first half are much less in the second half, which is positive. So I think we're controlling the things we can control and leaving those in the right direction, absolutely. I think the other thing I would say is that there is uncertainty, as I said, I think it has resulted in some customers and potential customers deferring decisions until after the budget, but when we speak to the customers, they are positive about the -- overwhelmingly, they are positive about their prospects for growth next year. So I think that augurs well for next year. In terms of ERVs and pricing where we're seeing, as we saw ERV's down in the first half, and that's really been driven by the deals we're doing. We are still doing deals at the -- I mean for us, as Lawrence says, the key focus at the moment is on driving occupancy. You have 130% return on driving it. And that is wholly our focus. So we are being creative about how we deliver that occupancy. Pricing is one of those factors. So we will continue to be pragmatic on pricing. Lawrence Hutchings: Just to add to that, we have fun to stay in the business, there's 2 levers effectively; occupancy and rate. And if occupancy comes up a little bit, we let rate off, rebuild occupancy, pull rate on effectively. So as you preset, supply/demand economics fundamentally within the building. So where we have tension we can drive better rental outcomes. There's no question. What we've also realized with the pilot projects is that where we're investing and improving the environment, those rent increases at the end of that 2-year lease are much easier for us to achieve. And we're getting feedback from our customers saying, I'm okay with paying a 5% or 6% increase because I've seen you're investing in the building. Denese down the front here, I think. Denese Newton: Denese Newton from Stifel. I had a question, obviously, you started to disclose retention rates, which is a new metric and will be a good guide for trends in occupancy. I just wondered with the current rate at sort of 85%, where should we benchmark that against sort of historic retention rates? And what do you think would be a realistic target for improvement in that? And how would that then impact occupancy? Lawrence Hutchings: Yes. I think if you -- in recent times, the last few years -- sorry, retention has slipped. There's no question. And I think going back just before I joined, we had several months where retention numbers were meaningfully lower than that 82%. And as I mentioned earlier, there are really 2 key drivers to occupancy. What we're putting in from the top new business and what we're losing effectively and as you'd appreciate in a competitive/uncertain market, the cost of customer acquisition goes up, as you would appreciate, retaining more existing customers is fundamental to us. We have seen periods where -- and obviously, we're providing averages over the reporting period, we have seen months where we're getting closer towards 90% but we're not guiding to a target at this juncture. We have gone through forensically and Will is here in the audience today is overseeing the sales function until James Graham arrives and doing a great job. We've been forensic in going through line by line, those customers. And as Francesca mentioned, we've moved from being reactive to a proactive. We're positively engaging with our customers to establish what their intentions are in advance of these lease events and seeing how we can go in and help. And sometimes help looks like contraction, sometimes help looks like expansion. Just to expand on that for a moment, the balance over the period of expansions versus contractions has been positive to expansions, about 60-40 effectively is the ratio we're running at the moment. So it's another metric which we think is important. So we'll continue to update and report against these retention numbers. I think it's early for us to be providing a guide. We're doing better than we have done in recent history effectively, but we think there's a lot more that we can be doing. And as I say, the pilot projects, retention has improved effectively. It's running above the averages. So that's what's giving us confidence, not just the physical changes, but the resource changes, taking the responsibility from the leasing team effectively across into that team. And if you think about it, Francesca knows these people personally. The CEOs are in our business, in our centers every day. She sees them, she knows them. So now she's empowered to have those discussions as well as part of the wider discussions, and we're seeing the same in Leather Market, and we've now handed that -- we've already handed that across to the other center managers, and we're seeing benefits. So it is a key area of focus for us. Adam Shapton: Adam Shapton at Green Street. Two questions. One -- the first one is technical one on valuation. And I might make a fool of myself with this question. But am I right in thinking that there's a structural occupancy assumption in the valuation that the valuers take and presumably you agree with them? David Benson: I mean they obviously form an independent view. I mean, in our view as directors is obviously, it has to be materially and we have to be comfortable with it. But different valuers take different approaches. We have -- this year, we have 2 valuers. So we have Knight Frank as well as CBRE valuing different parts of the portfolio. They both do Red Book, very similar approach, but slightly different assumptions. So there is -- within there, an assumption around void, yes, for different properties, units, et cetera. The key driver, though, really is the occupancy as we say, contracted rent at the moment. That's really what's driving the -- it's less about the endpoint. It's much more about the fact that the occupancy at the moment is lower. Adam Shapton: Yes. Okay. So my question was, has that assumption changed in the last 2 years? David Benson: No. Adam Shapton: In your statements, you very consistently pointed to where income would be at 90% occupancy, which you might say is leading people to think about that as a structural occupancy number. Is that still right? Is that what your value is assuming? Lawrence Hutchings: So long-term average is that, Dave, is 90%. David Benson: Yes. I don't think there's been a fundamental shift. It's more the fact that we have a new valuer who has a slightly different approach, that's all. Adam Shapton: Okay. That's clear. And then on retentions and renewals, it's great to see the number increasing. If you split out those renewals from your like-for-like numbers, is it -- are you able to say what your renewal rates would be versus previous passing? So I know within your like-for-likes, you've got step-ups, right, and fixed increases within terms. So -- and I know you mentioned there's people increasing and decreasing in GLA, but what's the renewal spread [indiscernible]? Lawrence Hutchings: Typically, we're better to be dealing with the existing customer from a commercial terms outcome than a new customer, typically. Adam Shapton: Sorry, let's say, I'm paying 50 square foot and I renewed, what's the renewal spread, is it -- versus previous passing? Lawrence Hutchings: So it's -- the renewal spread is different. I don't have the numbers at my fingertips. The renewal spreads look different with the smaller units compared to the large units. We're being a lot more pragmatic on large units at the moment, and there's more competition in that large unit space, if that makes sense. So we're being a lot more pragmatic there. I don't have the average with me. But what we know is that small sweet spot of our business, we've got more leverage there, if you appreciate. And we -- the renewal spreads will get the 5% kickers in the -- on the first anniversary, as you appreciate, standard lease model 2 years ,5% uplift year 1. And then effectively, we go to market at -- when I say market, it's not a true market review, but we're able to set a rent at the end of that period. So we -- as I say, we're typically renewing at passing or marginally above is my understanding on the small units, the large units is where we still have some pressure. David Benson: Yes, there's definitely a difference between small and large, absolutely. I mean you can see that in the ERV spreads that I talked about for the smaller units, it's a much smaller decrease. And in terms of -- I think your question around existing versus new deals, we are and always have been very transparent on pricing. Our pricing, you can see it on the website, our customers talk to each other fundamentally. So yes, we're doing some promotions and deals and so new customers may benefit from some of those, but there isn't as big a difference as you might perhaps imagine. James Carswell: It's James Carswell from Peel Hunt. Just on the occupancy, can we just make sure I'm thinking about this correctly. The expansion of Wild Cosmetics and then your own move to Canada, that's presumably in the 80% like-for-like number you bought today and likewise Qube, which I think was post period end. The benefit of that is still to come in the occupancy number. Is that correct? Lawrence Hutchings: Yes. David Benson: Yes. So actually, while the expansion actually is post the end of September, so that's not in the September occupancy number. And you're right, Qube, no, that is not in there either. But neither is -- so they will be taking space in the Old Dairy, but that space is currently occupied. So effectively, we'll be replacing occupied space. James Carswell: Okay. Perfect. And then I mean similar question to Denese, maybe on the conversion rates, I mean, it's obviously great to see it improving. How -- what's the kind of holy grail in terms of the conversion rate, do you think you can... Lawrence Hutchings: Converting 18% roughly, [indiscernible], we have deals that come into the system. We think there's capacity to improve that, get to 20%, get to 22% as I think it's in that sort of league, if that makes sense. The flex industry use a whole variety of different measures. Some are looking at conversion from viewing, some are looking at conversion from inquiry as you would appreciate. So us getting accurate benchmarks is a little challenging. But we think there is definitely further improvement to come from conversion. Well, I think that's fair. Yes. Will Abbott: And I think back to the point of our potential pricing as we start to see occupancy increasing, there will be more aggressive on pricing, which you expect to see coming down. Our priority at the moment is to bring in customers, build occupancy and the point's made already once we've got that customer in place, then we can start to work with that customer, expand that customer. James Carswell: Perfect. And then just final question on business rates. I think I'm around thinking there's some changes to operators and landlords that issue licenses rather than leases. I think you typically issue leases, so it doesn't impact yourselves. But I mean, does that give you a bit of a competitive advantage where some of your peers are going to have to potentially pass it on to customers? Or is that a very different space and not really a market? Lawrence Hutchings: The leases give us an advantage in terms of mitigation, but the -- I think all the pressure that you're seeing at the moment, and I suspect what you're referring to, James, the flexible space organization, effectively owners organization called [ Flexor. ] And in fact, one of our team members is Chair of [ Flexor ] this year. They are lobbying government very, very actively. There's councils approach these things differently as you'd appreciate. There's enough ambiguity in the business rating system to allow for that to happen. But it really has a big impact on those operators that run hot desks. And my understanding of it is that previously, the hot desk flex operators, of which we're not one, as you'd appreciate, have been run an argument successfully with councils that the business rate should only apply to the desks. So -- because that's the least area. So if you go to one of those operators' websites, they're leasing space by the desk perfectly. The fact that it sits in a wider environment with a whole lot of amenity, they've argued that it's really just the desk that should be rated. My understanding is it's either City of London or Camden has effectively argued with one of the other flex operators and imposed a rating charge on them that ignores that and says, no, no, we're charging on the entire floor plate effectively rates. So it's a significant impact, as you'd appreciate. Fortunately, we are not -- that's not how our business operates. We don't run a hot desk model effectively. So it doesn't have a direct bearing on us. As you would appreciate, we do a lot of work around business rates. We have a business rate team. We have people that help us with that. So yes, we're -- this current issue that's getting all the press, it does not have an impact on us. Thomas Musson: It's Tom Musson at Berenberg. Curious, I suppose, just on your sales agent, Elodie. How much does that cost to run? What's the sort of equivalent number of people you might think be required to drive your inquiry levels to the levels that they are? I wanted to just get a sense of the efficiency gain there. And is there a lot more that can be done here going forward with AI and other areas, not just generating inquiries, but in supporting retention as well? Lawrence Hutchings: So I'll get Will to answer some of the specifics around that. I'll give him a moment. But just to pick up the use of -- firstly, the use of AI in the business, which was the last point that I think you made. We are trialing other what we call AI verticals. So we showed you today that we can do in a unit overlay now effectively that helps our customers because you appreciate some of our creatives will look at a blank space and see that is hugely excited, as you appreciate, because they're running a sound studio or they've got a podcaster or whatever it is or they are an influencer and they're creating an infinity wall so that they can promote their product in there. There's so many different uses. So being able to provide a blank space option is, we believe, is important effectively. However, there is also a percentage of the market that doesn't have that special reasoning. They've got a more regular type layer. They want some desks in there effectively. So how do we help them envisage? They look at a blank space. I don't know how many guests I can fit in, I don't know how many people I can get in there, how can we help them at that point on the website, that is absolutely critical. And that's where that AI is helping us. We've also been using AI and space planning, which has been phenomenal. So we take a blank floor, and we say, right, we need to subdivide this into our standard small unit format. That used to take 3 weeks. We didn't exercise a few months ago. It was done in hours. And about 98% accuracy once we gave it the parameters. So that is another area. We think our business should lend itself very, very well to AI applications. We have a very high volume of small transactions that are very similar, as you would appreciate. We're pushing to 120, 130 leasing deals a month, as you would appreciate. I was looking at some numbers from one of our peers the other day, one of our listed peers. We do as many deals in a month as they did in the year. So it's not the same value of deals as you would appreciate, but the deal volume is enormous. So that also would suggest that AI applications will have the ability to make a very positive impact on our efficiency and speed effectively. Just before I hand over to Will on this specific question about the costs of Elodie and what the next evolution of that is, I just wanted to remind you and this is where our customer is so different. I mentioned earlier, we deal with the CEOs and owners of these businesses. They're in and out of our businesses constantly. Typically, they start as small businesses. So we're part of what they call business administration. It's not their core business effectively. They're trying to make money, promote their product, grow sales, deliver the next phase of innovation and what they're doing. So where the bit that gets in the way, effectively, that makes sense there's a bit of administration that we need like VAT returns that they need to deal with. So often we find that they're coming online to us at 9:00 at night or 10:00 at night. They've their dinner sitting at home, I need to deal with my space requirements. So of course, the difference between, we'll get back to you tomorrow and we can deal with it immediately or Elodie can deal with a lot of it immediately and there's further evolutions in Elodie, will make an enormous difference because getting someone booked in, in a competitive environment versus I'll call you back tomorrow, there's a huge -- that could be the difference between winning that piece of business and not winning that piece of business. But I'll hand over to Will. He's the expert in this area. Will? Will Abbott: So the -- on your question about cost, roughly the equivalent cost of one sort of inquiries agent or in fact, less annualized. But importantly, it's not about replacing people. It's about freeing up that team to do higher value work. So first implementation of Elodie was really over the weekend, which is why we saw the big impact on Monday mornings for viewings booked in. So triaging inquiries -- initial inquiries going back quickly, capturing them in that window of opportunity to then pass them on to the team to complete the conversion into the sales team. We have a version as well for meeting rooms. We also have a version for broker interactions, each one trained specifically against the requirements for those incoming inbound queries. We're also training on outbound, which will be something we'll be rolling out in time. And we are just in the final stages of testing our agent, Elodie agent to sit on the home page, to capture that first contact and help people through that initial sort of top of funnel, if you like, conversion. Beyond that, as Lawrence touched on, we are trialing AI in a range of different places, automating campaign creation. We talked about the image creation. So it's something that's absolutely integral to our plans going forward. Lawrence Hutchings: Any other questions from the floor? I'm not sure if we have any questions from the webcast? Clare is going to translate it.. Clare Marland: Just one question. Have -- from Richard Williams of QuotedData. Have we had any dialogue with Saba Capital, new shareholder? Lawrence Hutchings: We haven't, at this stage, met with Saba. We've had some e-mail communication with Saba. We anticipate meeting them at some stage during the road show. But at this point, we haven't any detailed conversations or dialogue with Saba. Clare Marland: That's it. Lawrence Hutchings: Any other questions? There's no other questions for the floor. I'd like to close today's presentation. I'd firstly like to acknowledge the enormous amount of work that's gone into delivering this first 5 months of strategy implementation by our team across the business. And we acknowledge change is a difficult thing. It takes a lot of energy. I think as human beings, we're wired to resist it. So we fully appreciate the enormous amount of change that we're making in the business and the response to the team has been phenomenal. And as you can see from these results, we're very pleased. We know there's a lot to do. We know there's a long way to go, but I think we've made a really strong start. So I just want to acknowledge the team firstly. Secondly, to acknowledge the team that's got us here today, there's been lots of late nights. We fully appreciate. And thirdly, to thank all of our shareholders and the stakeholders, the people in this room for your time today and your continued support. We greatly appreciate it. Thank you. We look forward to seeing you at the next update. Thank you very much. Operator: This presentation has now ended.
Stephen Hare: Good morning, and welcome to Sage's full year results. I'm pleased to be joined by Jonathan Howell, our CFO. I hope you enjoyed that preview of the Sage Finance Intelligence Agent. I'm going to start with an overview of our key messages. Firstly, Sage delivered another strong performance in FY '25. For the fourth consecutive year, we achieved a double-digit increase in underlying ARR, testament to the resilience of our model and our durable growth. Through cost discipline, together with operating leverage, we've delivered strong profit margin and EPS expansion. And we've converted this into robust cash flows, supporting organic and inorganic investment and enabling strong shareholder returns. Secondly, our performance is driven by our relentless focus on delivering customer value. From the launch of Sage Intacct Suites to our new cloud-native version of Sage X3, we are accelerating the pace of innovation at Sage. Through our AI-powered platform, customers are saving time and making smarter decisions. The future is exciting with AI set to revolutionize the way businesses operate. And with AI agents, we're delivering the next wave of intelligent solutions, transforming how SMBs manage their finance, HR and payroll processes. And finally, our progress is underpinned by consistent, focused execution. In recent years, we've transformed our portfolio to meet and exceed our customers' needs. And today, as a result, we have around GBP 1 billion of cloud-native ARR growing over 20%. We've enhanced go-to-market with new systems and processes to drive efficient growth, and we're investing with purpose in our technology, our people and our communities to ensure that Sage continues to deliver for the long term. I'll talk more about our progress later in the presentation, but for now, I'm going to hand over to Jonathan for the financial review. Jonathan A. Howell: Thanks, Steve, and good morning, everyone. I'm pleased to share with you today our full year results and the outlook for the year ahead. In summary, we delivered strong financial results, and we enter FY '26 well positioned for further success. Looking back, we have a good track record of strong and consistent financial performance, which highlights our continued strategic progress. As a result, since FY '22, we've grown revenue at an average of 10% per year and operating profit at 18%, converting to strong EPS growth of 21%. Moving on to the highlights for FY '25. We've achieved revenue growth of 10%, reflecting the strength of our subscription-based model. Our operating profit margin was 23.9%, an expansion of 150 basis points as we scale the business and deliver efficiencies. This has led to a strong increase in EPS of 18%. And finally, we delivered cash conversion of 110%, driven by growth in subscription revenue and good working capital management. Let's turn now to ARR growth. Renewal rate by value was 101%. This reflects strong retention rates and a good level of upsell to existing customers, together with targeted price rises. And we've seen good levels of growth from new customer acquisition. As a result, ARR increased by GBP 245 million to GBP 2.6 billion. That's up 11% compared to last year. Importantly, this growth continues to be well balanced between new and existing customers. So turning to the P&L. Total revenue growth of 10% was underpinned by recurring revenue, which also grew by 10%. Sage has a 97% recurring revenue business, demonstrating the high quality and resilient nature of the group. Operating profit grew by 17% to GBP 600 million, reflecting continued top line growth and strong margin expansion. Profit after tax increased by 14% to GBP 423 million, leading to strong growth in underlying EPS of 18% to 43.2p. And we've increased the final dividend to 14.4p, taking the full year dividend to 21.85p which is up 7%. Cloud products continue to be a significant driver of growth with Sage Business Cloud revenue increasing by 13%. This reflects good strategic progress as we continue to expand our global cloud solutions. Within this, cloud native revenue increased by 23% driven by strong growth from new and existing customers, particularly in Sage Intacct. Subscription penetration also continued to increase and now stands at 83%. Moving now to our regional performance. Starting with North America, which represents just under half of group revenue. Here, we delivered revenue growth of 12%, driven mainly by the medium segment. Sage Intacct continued to perform well with strength across key industry verticals, including not-for-profit and financial services. Sage 200, Sage 50 and Sage X3 also supported growth across the region. The UKIA region represents almost a third of group revenue and grew at 9%, with a good performance across the portfolio. The U.K. and Ireland increased by 10% as revenue from Sage Intacct continued to scale rapidly. Further growth was achieved in small business solutions, including Sage Accounting and Sage 50 and this was supported by a good performance in SAGE 200. In Africa and APAC, growth of 7% was driven by strength in Sage Accounting and Payroll together with Sage Intacct. And finally, in Europe, which represents over a quarter of group revenue, growth was 7%. This reflects a strong performance across our cloud solutions. In France, growth of 6% was driven by strength in Sage X3 and Sage 200. Iberia also increased revenue by 10%, with strong growth in Sage 200 and Sage 50, together with the acquisition of ForceManager in October last year. And in Central Europe, growth of 6% was driven mainly by Cloud HR and Payroll. As we've said previously, our focus is on efficiently scaling the group. As we grow the top line, operating leverage together with disciplined cost control means we can invest more and expand the margin. This, in turn, leads to sustainable growth. In FY '25, we achieved strong margin growth of 150 basis points to 23.9%. This was underpinned by efficiencies, especially in G&A, which is running at 8% of revenue. Importantly, we continue to drive investment with sales and marketing at 40% of total revenue. An investment in R&D at 15% remains a key priority for the group. Turning to earnings per share, which grew double digit for the third consecutive year. Underlying operating profit grew at 17% following good revenue growth and margin expansion. Net finance costs increased following new debt issuance, while the effective tax rate remain constant at 24%. Together with the benefit of recent share buybacks, this led to EPS growth of 18% to 43.2p. Moving on to cash generation, which remains a core strength of Sage. During the year, the group generated GBP 660 million of cash from underlying operations, resulting in cash conversion of 110%. This is now the seventh consecutive year of cash conversion above 100%. And free cash flow was GBP 517 million net of interest and tax. The group has a strong balance sheet with GBP 1 billion of cash and available liquidity. Our leverage ratio of 1.7 remains within our midterm target range of 1 to 2x. In line with our disciplined approach to capital, this morning, we announced a share buyback program of up to GBP 300 million. This reflects our strong cash generation and robust financial position, together with our confidence in Sage's future prospects. Importantly, we retain significant capacity to support growth. So what does that mean for the outlook? We have good momentum as we enter the new financial year. Therefore, we expect organic total revenue growth in FY '26 to be 9% or above, and we expect operating margins to continue trending upwards in FY '26 and beyond as we focus on efficiently scaling the group. Thank you, and now back over to Steve. Stephen Hare: Thanks, Jonathan. Our performance is anchored in our strategic framework for growth. It starts with our purpose, to knock down barriers so that everyone can thrive as we aim to create the world's most trusted and thriving network for SMBs powered by AI. We deliver on this through our three strategic focus areas: Connect, Grow and Deliver, which I'll say more about shortly. And through this framework, we serve the interests of our stakeholders in line with our values, starting with our customers, small and midsized businesses. SMBs make up 99% of all businesses in our end markets. They are the lifeblood of our economy, providing employment and creating wealth for millions. Our small business tracker analyzes data from 140,000 SMBs. And it shows that despite the external backdrop, SMBs have again proved resilient and increasingly profitable during 2025. But they continue to face barriers such as weak productivity and late payments with the challenge of remaining competitive and compliant. They want effective integrated solutions from a trusted vendor and Sage provides these solutions helping SMBs to knock down barriers, automating processes, speeding up cash flows and delivering business insights. LA Opera, shown here on the slide, told us that Sage Intacct has completely transformed their finance function with its AI capabilities, helping to save 10 to 15 hours a week. And as we roll out Sage CoPilot and AI features more widely, we're opening up new possibilities for SMBs and accelerating customer benefits. The way we're doing this is through the Sage Platform. This platform provides a secure, scalable foundation for all of our products. It connects customers to their suppliers, banks, tax authorities and partners, automating transactions and speeding up compliance and improving cash flow. At the heart of the platform is the Sage AI factory, the infrastructure that drives Sage CoPilot powered by our LLM backed proprietary intelligence engine, and it's supported by our data hub and core experience and network services that enhance security and automate workflows. The system is already operating at scale with over 40,000 models in production, generating 3.5 billion predictions annually. Designed to support rapid innovation, the platform has enabled us to bring Sage CoPilot from inception to market in less than a year and to scale it across the portfolio. And we're now focused on leading the way in Agentic AI, both by launching our own agents, and by integrated trusted third-party agents in a secure ecosystem governed by Sage. For customers, this means greater choice, more intelligence, and faster innovation within the Sage products that they already know and trust. We've been building AI into our products for years through successive technologies, first predictive then generative and now agentic AI. Through these waves of innovation, we've created a powerful and differentiated proposition, combining our experience, extensive data sets and connected ecosystem to deliver trusted, domain-specific AI at scale. Sage CoPilot is our intuitive assistant and the primary way through which customers experience our latest innovations. This is powered by Sage AI, our intelligence engine. Built on deep domain expertise, our models are trained on rich, proprietary data sets from years of experience and fine-tuned to ensure relevant and precise responses. This specialism makes them more accurate and efficient than off-the-shelf models while industry partnerships such as our collaboration with the American Institute of CPAs promise to further enhance their performance. Increasingly, AI agents handle specialist work, taking care of repetitive tasks that weigh businesses down, but always ensuring the human stays in control. And the Sage Platform provides the environment for our AI to operate, bringing applications, workflows and data together. Guiding all of this is our underlying philosophy, authentic intelligence, meaning our AI is built to be ethical, transparent and human first. These pillars underpin our progress towards our ambition to create the world's most trusted and thriving AI-powered network for SMBs. So let's now turn to a look at our progress in more detail through our three strategic focus areas. First, Connect, where we aim to grow our platform by connecting more products, enabling us to serve customers better by expanding the scale and scope of services we provide. This drives the network effect, where every connection and every transaction that flows across the platform makes the system smarter for everyone. During the year, we scaled services, such as accounts payable automation with monthly transaction value tripling over the past 12 months to GBP 2.3 billion, thanks to continued adoption by customers such as Greenidge in the U.S. shown here on the slide. They told us that Sage AP automation has enabled them to double the number of invoices they process without increasing headcount. We also grew our accounts receivable service, and we launched our e-invoicing portal in France, helping customers prepare for upcoming compliance requirements. And through the acquisitions of Fyle and Criterion, we expanded in expense management and HCM, enabling us to streamline and automate these critical processes for SMBs. We're also innovating to expand our reach by delivering a growing set of services embedded into other platforms, such as fintechs and banks, plugging into the apps that SMBs already use. We partner with Tide to deliver bookkeeping, Monzo for making tax digital, NatWest for Carbon Accounting and Capital One for expense management. Extending our ecosystem to win customers earlier in their life cycle and acting as a trusted partner to regulated service providers who are looking to innovate. Looking ahead, our aim in this focus area is to drive the adoption of more network services, bringing productivity to customers and data and insights to Sage. Our second focus area is to grow by winning new customers and delighting our existing ones. And the biggest contributor to growth is Sage Intacct, our flagship mid-market solution. In the U.S., Sage Intacct grew ARR by over 20% with Q4 a record quarter in volume terms. This was driven by strength in key verticals and supported by investment in go-to-market and the expansion of suites. And outside the U.S., ARR increased by around 50%, with standout momentum in the U.K. where Sage Intacct now serves over 1,600 customers. During the year, we replatformed Sage X3 to deliver a full cloud native experience where we saw acceleration driven by strong demand in manufacturing and distribution. Through Sage X3, we can serve customers better, like Grupo Intaf in Spain, shown here on the slide, who told us that Sage has improved their efficiency and helped drive collaboration. For small businesses and accountants, we've expanded through product and package improvements, including in Sage Accounting, Sage 50 and Sage Active. And we've reinforced our relationships with accountants by delivering tools that streamline their work and free up time to grow their business. Our future focus in this area is to drive momentum with new and existing customers and continue to make it easier for them to access products and services. Our third focus area is to deliver productivity and insights driven by AI. Over the year, we've significantly scaled Sage CoPilot in availability and usage. Initially focused on Sage Accounting, we quickly expanded it to Sage 50, growing availability to around 150,000 customers including Adam Williams of Tyne Chease shown here on the slide. I met with Adam earlier this year, and he told me that Sage CoPilot is saving them over 12 hours of admin per week and helping them to get paid up to 7 days earlier. Other customers have told us it's doubled productivity in accounts payable, while reducing manual data entry by up to 90%. We've also expanded Sage CoPilot to Sage for Accountants, Sage X3 and Sage Intacct, where it's rapidly becoming an important tool for customers. Over 26,000 Sage Intacct users worldwide have so far access features such as search help, which seamlessly guides them through key workflows. And the Sage Finance Intelligence Agent, which we showed in the video at the start of the presentation, handles natural language questions like a human finance assistant. These solutions drive real value for customers, not just streamlining processes, but transforming their operations and making them more productive. Now we expect that this, over time, will create monetizable opportunities for Sage through features, pricing and lifetime value. As well as driving productivity for customers, we're also leveraging AI for colleagues at Sage. In engineering, AI is accelerating cogeneration saving hundreds of thousands of hours. In customer support, it's driving a 70% resolution rate with high satisfaction levels. And in go-to-market, AI agents are helping to generate, qualify and convert sales leads. We're doubling down on internal adoption, encouraging and empowering colleagues across the group to use AI to simplify and amplify their work. And with hundreds of new use cases being assessed, the potential ahead is considerable. Our future focus in this area is to continue to scale Sage CoPilot, embedding it into the core user experience across our portfolio while further developing our agentic capabilities, accelerating benefits and unlocking ROI for customers and for Sage. Our success depends on our ability to deliver for our stakeholders. For customers, we're committed to excellence with Sage ranked by G2 as the #1 software company in the U.K. for 2025 and in the Top 25 globally based on user reviews. And we continue to champion policies that our customers care about from partnering with the U.K. government on AI skills to advocating SMB access to green finance across the EU. For partners, we've launched AI developer solutions, enabling ISVs to build and deploy AI agents on our platform. And our new partner portal streamlines partner onboarding, provisioning and support, making it easier for them to work with Sage. For colleagues, we foster a high-performance culture and an innovative mindset. And we're pleased that we've been recognized by Forbes as one of the world's best employers. Turning to society, where we aim to multiply our impact by helping SMBs to be more sustainable. In FY '25, we launched our entrepreneurship program to support purpose-driven start-ups around the world. And Sage Foundation celebrated a decade of impact during which time we've raised over $5 million and enabled 1.4 million volunteering hours. And for shareholders, our objective is to deliver sustainable growth in shareholder value. We do this by growing revenue and by doing so more efficiently over time. The key to this is rooted in our strategy, our competitive positioning and financial model. We have a clear strategic focus, which guides our decisions and ensures we align with the needs of our customers and the expectations of our shareholders. We're differentiated from competitors by our AI-powered platform, global products and geographic reach with deep domain expertise across financials, payroll and HR. And we're diversified through our broad customer base and ecosystem. And finally, our resilient financial model is built on high-quality recurring revenue, providing stability and visibility with growth driving both investment and margin. So in conclusion, Sage delivered a strong performance in FY '25, underpinned by continuing durable growth. Smart investments are driving an accelerated pace of innovation, particularly through AI. And with good progress in execution, we enter FY '26 with confidence and momentum. Now before we move to Q&A, I'd like to say a big thank you to Jonathan, who's been a fantastic support to me and the broader Sage team over the last 12 years. He hands over the financial reins to Jacqui Cartin in great shape and I'm looking forward to welcoming Jacqui to the CFO role from the first of January. So that concludes today's presentation. Thank you very much for watching. And Jonathan and I would now be very happy to take your questions. Operator: [Operator Instructions] We will now take the first question from the line of Adam Wood from Morgan Stanley. Adam Wood: First of all, congratulations on the results and also best wishes from me, Jonathan. I know you've got a few weeks left, but best wishes from my side when that time comes up. I've got two questions, please. Just first of all, we saw a nice tick up in the ARR growth in the fourth quarter. Could you just talk a little bit about what the drivers of that improvement in ARR were at the end of the year, please? And maybe just secondly, when in the commentary around North America, you talked about the introduction of multiyear customer contracts as a driver of growth. I guess from Intacct side, that's a pure SaaS business, so multiyear contracts wouldn't bring any revenue forward, but I'm just curious if you could maybe expand a bit on how that was a driver for North American revenue, please. Jonathan A. Howell: Adam, yes, thank you. Thank you for your questions, and thank you for your comments. First of all, if we just stand back and look at ARR for the full year, we exited with growth of around 11%, and that was in line with the first half ARR exit rate. Looking at sequential growth, Q1, Q2, Q3, we saw between 2% and 2.5%. And then to your question, in Q4, that picked up to around 4%. And that was a very strong result and particularly [Technical Difficulty]. Operator: One moment please, your conference will resume shortly. Jonathan A. Howell: Hello, sorry, we lost the line for a moment then. Just to recap to make sure everybody gets it. Q4, we saw a sequential growth of 4%. And that was a strong result and significantly above the 3.5% that we saw in Q4 of the prior year and that's been driven by North America and UKIA, particularly across the medium segment and primarily Intacct, where we saw a very strong performance in Q4 in both new customer acquisition and upsell and cross-sell. I think it's probably just worth noting that we are now beginning to see the benefit from the ongoing investment that we've made in products, people and go-to-market in those regions in the medium segment. And that underpins our guidance for FY '26 as we exit with -- this year with good momentum. Suites multiyear contracts, Adam, you mentioned that. They simplify our proposition for customers and improve the sales motion. We expect over those multiyear contracts to be able to increase customer lifetime value over that extended period. And that provided a bit of an impact in Q4, but really, the whole performance was underpinned by strong execution in new customer acquisition. Operator: We will now take the next question from the line of Frederic Boulan from Bank of America. Frederic Boulan: Two, if I may. Firstly, around AI. I mean you kind of discussed your pipeline and the kind of innovation you've been pushing. Can you spend a minute around the impact on the business from a revenue standpoint? What you've been doing from a pricing standpoint and any early insights on what you've seen in your U.K. portfolio in particular? And then secondly, it would be good to have an update on the competitive dynamics, especially versus Intuit in the U.S.? Are you seeing any of the QuickBooks graduate funnel starting to dry out? On the contrary, I mean, U.S. performance seems to remain very, very healthy. So any comment there would be great. Stephen Hare: Yes. Thanks, Frederic. And so to start with the AI. And we have, as we've said before, been deploying AI for many years. What we're doing now is, both with Sage CoPilot and now increasingly with AI agents, starting to create more stand-alone capability that takes advantage of generative AI. So with Sage CoPilot, we've now deployed that to around 150,000 customers. And in terms of how we're monetizing, we're doing it in a number of different ways. With CoPilot, we're tending to bundle it into the existing plans and then use that to increase the price. So in the U.K., for example, with Sage Accounting, we put Sage CoPilot into the plus tier, and then we increased the price of that tier by around 25%, 30% and made it available to all those customers. With some of the agents, so for example, with accountants, we've launched a VAT agent, which does what it kind of says on the tin, which is it helps to prepare VAT returns. For those sorts of agents, we may well charge for those because they are -- separately because they're doing a particular task but I think my kind of overriding message here would be that the commercial models have not really been completely written. So I think if you ask us or you ask anyone else, we're all looking for different ways to monetize what is considerable value for our customers. We are saving our customers a tremendous amount of time. We've had feedback from small customers that Sage CoPilot is saving them 10, 12 hours a week. So I think it's kind of it will build over time, and we will -- these sorts of calls will give you transparency in terms of how it's being monetized. But it may not be an entirely kind of linear journey. It will -- there'll be different ways that we do things for different parts. As far as the competitive situation is concerned, look, I mean, I think it's very similar to how it's been in the past. I think our differentiation is that whether it be in the U.S. or elsewhere, we're being very clear that what we're doing with AI is we are driving a platform strategy where we're using our proprietary data sets to train our models to ensure that we get the accuracy that's required in a finance payroll environment. So if we're automating workflows in the case of midsize businesses with Intacct, we're seeking to automate the close, save time by deploying AI in the close process. All of these things have to be accurate. And the way we make them accurate is because we have domains or developing domain-specific LLMs. We've said in the press release, we have over 40,000 training models currently learning from our 40-plus years of experience in our proprietary data. And we think that is the way forward. Jonathan? Jonathan A. Howell: Yes, just to add a little bit more color on the pricing impact. As Steve said, we've seen price increases put through for Sage Accounting and Sage 50 in the U.K. only in relation to the introduction of CoPilot. And if you look back over the last 4 years, across our portfolio on a weighted average, our price increases have been between 4% and 5%. For this year in FY '25, that ticked up to 5.5%. And a significant component of that does come from this impact from pricing in response to the introduction of CoPilot. That's just the start. As Steve said, it's not going to be linear necessarily, but we are optimistic given that Sage CoPilot and other AI enablement will begin to be rolled out across other products and other territories outside of the U.K. Operator: We will now take the next question from the line of Toby Ogg from JPMorgan. Toby Ogg: Jonathan, best wishes from me as well. Just on the 9% or above growth guidance for '26, could you just help us with the framing around the sort of recurring revenue growth versus the other revenue? I think for 2025, you saw about a 30 basis point or so headwind between that organic recurring revenue growth and the total organic revenue growth. How should we think about that dynamic for 2026? And then also, you obviously mentioned 5.5% contribution from pricing in '25. How are you thinking about the pricing contribution embedded in the 2026 guide? Jonathan A. Howell: Yes. So in terms of the guidance for the year, if we just step back, for FY '26, we are using the same form of guidance that we've used for the last year, which is 9%, organic total revenue growth of 9% or above. We are confident in that guidance given the momentum that we take with us as we exit the year. We've invested in key products, particularly Sage Intacct and CoPilot. And we've also seen really in Q4 and continuing this year, good sales execution. We've got a solid sales pipeline and robust closure rates. So we see overall the guidance is realistic, but cautious. And needless to say, we will continue to update you as we move through FY '26. In terms of the various components of revenue, I think the most important thing to note is that other revenue, which we have seen as part of our strategy, a significant runoff over the last 5 years, as we exit the license business, that part is done. But we still have an element of maintenance and support and an element of professional services, which has now stabilized. And the professional services, in particular, is an important contributor because that provides us with flexibility for implementation and new customer acquisition in the direct channel. So in those two lines, that quite strong strategic runoff that we've seen in recent years has stabilized, and there will be some variability there going forward. Now it's important to note that the other revenue line is very small, that's only 3%, but it does have an impact. And the maintenance support is a larger line and has a little bit more of an impact in supporting those numbers. I think that's answered your question. Toby Ogg: Yes. Just on the pricing contribution for '26, anything you could say on that? Jonathan A. Howell: Sorry, Toby, yes. At this stage, no. We are always testing and seeking to optimize the fair value exchange that we have with our customers with existing products and new products. And therefore, we're constantly assessing the take up and adoption of these new products versus the additional pricing that we're asking for it. So at this stage, we have it baked into our plans, but we're not sort of giving forward guidance on what to expect. But clearly, you'll see the impact of any additional pricing as we get through Q1 and H1. Operator: We will now take the next question from the line of Charles Brennan from Jefferies. Charles Brennan: Just a couple from my side. Firstly, on Intacct, it sounds like that was the biggest driver of momentum at the end of the year. I'm under the understanding that where you provide some customer incentives to onboard new customers, that's typically in Intacct. And those discounts don't necessarily get reflected in ARR. Can you just talk about the volume of discounting at the end of the year relative to the previous year? And then when we think about the gap between ARR growth and recurring revenue growth, last year, I think, you exited ARR of 10.5%, and we saw just over a percentage point of dilution to get to recurring revenue growth. What do you think that delta looks like this year? And then just as a small follow-up. I didn't quite catch the point on the multiyear contracts. I know you said it was immaterial, but is there any pull forward of revenue recognition under a multiyear contract? Jonathan A. Howell: Yes. So first of all, in terms of your opening remark around Intacct, yes, that is the very significant driver that we've seen, obviously, over the last 2 to 3 years, but particularly in Q4. And just to deconstruct that a bit, we have seen total revenue growth for Intacct in the U.S., which is about a $650 million base now, of 23%. And in H2, that was 25%. And so that underpins the overall performance that we've seen. And ex-U.S., that total revenue base is about GBP 50 million, and that's growing up between 50% and 60%. Your reference on discounting, the level of discounting provided on a customer basis in Q4 of this year was not too dissimilar to what we were providing towards the back end of FY '24 and is part of the normal sort of sales cycle of both direct and partner channels, particularly in North America. Multiyear contracts, you sort of referenced that. What -- first of all, multiyear contracts are important because that enables us to acquire a new customer, onboard that customer with a good assessment of the capability and functionality that they need but then gives us a 3-year period in which to assess and upsell and cross-sell into their needs rather than necessarily the other way around, where there's a big sale upfront and then an assessment in subsequent years of whether all of that capability is needed. So that is the important thing about multiyear contract. It makes it both easier for the buyer of our products and for us for a provider of capabilities to our customers. In terms of revenue recognition, the impact is that any upfront discount is, therefore, spread over a 3-year period as opposed to a 1-year period. So there is an element of revenue improvement as a result of that. But I do stress, it's the performance of the underlying sales motion and our customer approval of our products, which is driving what we're seeing at the moment. And to give you an example, in North America, I think we have just had our highest volume month ever for Sage Intacct. So this is underpinned by real volume coming through. And then in terms of ARR to that sort of difference, we always expect them to be close, as you referenced in your question, but not necessarily the same. And this is consistent with other corporates and companies that use this measure. The reason is, as you know, an ARR is a point-in-time metric, while revenue is booked over an extended period. And any divergence that we see is mainly caused by the timing of revenue growth. That sort of compressed slightly in recent quarters. It will vary and fluctuate. We're not giving -- we're not giving forward-looking guidance on that gap because it depends upon the cadence of growth rate and when acceleration occurs. Stephen Hare: And Charlie, just to add, just to be helpful, I think with the dynamics around Sage Intacct, just to emphasize what Jonathan said, in Q4 and in September particularly, we did see very, very strong volume growth in U.S. with Intacct. And we saw that consistently both in the -- both direct and also through the channel. So it was a kind of -- it was a pretty consistent theme in terms of that volume growth. Operator: We have time for one final question from the line of Balajee Tirupati from Citi. Balajee Tirupati: Congratulations on your results and Jonathan, best wishes, and thank you from my side as well. Two questions from my side, if I may. Firstly, on the topic of AI, one of your key peers announced a deal with OpenAI yesterday. Do you see merit for Sage to also target similar integration of its portfolio with Frontier models to allow customers access to more customized services? And second question on margins, with puts and takes around AI, in particular, productivity gains internally and need for investment as well, do you see the view of 50 to 100 basis points per year margin expansion staying intact in 2026 and beyond? Stephen Hare: Thanks. So yes, on AI, I mean, I'll start with how do people access the capability. So I think people will increasingly want to access capability, do their kind of daily tasks, approving invoices, doing all the workflow type stuff in a number of different environments, right? So today, if you want to approve an invoice, for example, typically, you have to go into the application, log on to the application, do it in the application. And in the future, you might do that in Teams. You might do that in Outlook, you'll do that on an app on your phone, whatever it might be. And therefore, to sign up or to partner with some of the larger players like a ChatGPT, if the intention is to create that flexibility to access makes a lot of sense. The one warning I would give is we're very clear that the way that we produce accuracy is we have data on our platform, proprietary data on our platform which our learning models are using to create accurate automated workflows. We're also very protective of that data because that's customer data. So we would not, for example, want to share that data with others. Now I don't -- I can't comment on the detail of what other competitors are doing because there isn't enough information in the public domain to make an assessment. But what I can say is we're very clear that our AI is learning in a secure environment where we are -- it's effectively a private network with a gateway so that developers can come in and develop their own agents on our platform, but it has to be curated and controlled by Sage because that ensures the integrity of the data and the integrity of the outcome. I'll let Jonathan talk a little bit about margin, but let me just start by saying that I think in the same way that we're selling AI and productivity to our customers, we're obviously seeking to get productivity internally. And we've seen a number of areas which have already contributed to the expansion in margin this year, for example. So for example, in the area of -- areas like customer services, we are already deploying significant AI to get higher first-time resolution through AI rather than human-to-human conversations. And if you look at it at a very high level, we've grown Sage this year revenue 10% and our headcount is broadly the same as it was 12 months ago. So we're starting to see the benefits, the early benefits of some of that investment, but Jonathan, do you want to... Jonathan A. Howell: Yes. And I think the important point is that Steve just raised is that with the internal adoption of AI, there are significant savings that can be achieved. And we've seen those in customer support and also in R&D and engineering. So just to stand back to your question, this is now the third consecutive year of margin expansion. We've guided for FY '26 for margin to continue to be trending upward. So that will be the fourth consecutive year and this is driven by growth and established patterns of achieving operating efficiencies. So at this stage, we expect to be at the lower end of the usual 50 to 100 basis points range as we continue to invest in growth. And so as I always say on these earnings calls, we will, though, as we move through the year, continue to dynamically reallocate spend during the course of the year to maximize that trade-off between top line growth and margin expansion, depending upon the circumstances and the opportunities that present themselves to us as we move through the year. Thank you very much. And also thank you for your kind comments. Operator: I would now like to turn the conference back to Steve Hare for closing remarks. Stephen Hare: Thank you very much, and thank you, as always, everyone, for listening. And as I said in the presentation, but again, just to add my thanks to Jonathan for the huge contribution that he's made to Sage, and we look forward to welcoming Jacqui to the next call in January. But thank you very much, and have a good day, everyone. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to BingEx' 2025 Third Quarter Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Helen Wu from Piacente Financial Communications. Please go ahead. Helen Wu: Thank you, operator. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. The non-GAAP financial measures we provide are for comparison purpose only. The definition of these measures and our consolidation table are available in the news release we issued earlier today. As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on the BingEx company's IR website at ir.ishansong.com. Furthermore, throughout the call, we will consistently use the company's brand name FlashEx to refer to its publicly listed entity, BingEx Limited. Joining us today from FlashEx senior management are Mr. Adam Xue, Founder, Chairman of the Board and Chief Executive Officer; Mr. Hongjian Yu, Co-Founder, Director and Executive President and Mr. Luke Tang, Chief Financial Officer. I will now turn the call over to Mr. Adam Xue. Peng Xue: Thank you, Helen. Hello, everyone, and welcome to FlashEx Third Quarter 2025 Earnings Call. Amid ongoing external challenges in the third quarter, FlashEx continued to enhance our unique on-demand dedicated career model, further strengthening our core competitiveness to elevate service quality and user experience. We expanded service categories and scenarios, deepened user insights, broadened service touch points, tested new technologies and improved our dispatch algorithms. Meanwhile, we have steadily improved user engagement by focusing on high-value, time-sensitive sectors and leveraging refined operations to reinforce our brand reputation and boost user recognition. We also broadened our reach among both merchant and individual customers, building a strong foundation for long-term sustainable growth. For the first quarter of 2025, FlashEx recorded total revenue of RMB 1 billion with a gross margin of 11%. Adjusted net profit reached RMB 62.6 million, representing a 9% increase year-over-year. As of the end of the quarter, cash position stood at RMB 877.9 million, reflecting a healthy financial position. Let's move on to our operational initiatives for merchants and individual users. In the third quarter, we adopted a more refined tiered management approach for our merchant customers, optimizing response mechanisms and benefits within our existing service framework. For high-frequency merchant customers, we introduced a dedicated VIP support team offering direct one-on-one assistance to improve feedback efficiency and order fulfillment. We also launched a membership program that grants qualified merchants key benefits such as priority dispatching and peak hour surcharge favors, ensuring stable fulfillment rates and service quality even during holidays or peak demand periods. These core merchant customers generally have more mature operations, high-order frequency and steady demand with longer customer life cycles and stronger brand synergies that provide FlashEx with stable, predictable revenue, building a resilient income mode through long-term collaboration. In addition, we continue to focus on highly time and experience sensitive categories such as fresh flowers and cakes, expanding our merchant partnerships from simple delivery to collaborative operations. Building on previous initiatives like packaging design upgrades and delivery route optimization, we established specialized team to conduct customized fulfillment training each month, covering holidays, trends, consumer preference and more. These programs ensure that our riders are well trained in precession handling procedures for dedicated -- for delicate flowers and cakes, turning last-mile delivery into a seamless extension of our merchants brand experience. At the same time, we expanded our in-store service pilot program in key cities. Under this program, dedicated on-site representatives work directly with merchant customers to allocate delivery resources in real time based on peak hours and special events, improving delivery efficiency and fulfillment rates. For example, at a cake shop in Chongqing, FlashEx order volume grew fourfold from the previous quarter after in-store model was introduced in July. This success also encouraged nearby merchants to join the platform, unlocking additional order potential. By combining category expertise with in-store support, we help merchants enhance customer satisfaction, while reinforce FlashEx' unique advantages in premium delivery categories. This approach continue to strengthen recognition of our brand differentiated model and boost user loyalty. While deepening collaboration with high-frequency merchant customers, we also continue to expand our channels for acquiring new merchant leads. First, our business development team actively engaged with commercial districts and local communities to reach potential new customers. Meanwhile, we encourage and incentive our Flash riders to identify new stores during their daily deliveries. Compared with traditional shop-by-shop prospecting, rider-generated leads are less costly and better aligned with real business scenarios. This approach not only improved the efficiency of new merchant acquisition, but also creates a virtuous cycle that originally enhances our reach among small- and medium-sized business. For individual users, we remain focused on instant life cycle system positioning in the third quarter, actively expanded service scenarios to grow our user base. Since the second quarter, we have steadily introduced a range of new services for individual users in the FlashEx APP, including shopping assistance, parcel pickup, meal pickup, gift delivery and luggage delivery. Daily delivery volume across these 5 life cycle scenarios continue to grow in the third quarter, up by 15% from the previous quarter. We also explored new and emerging needs. For example, with rising demand in the electronic vehicle sector, we piloted an on-site battery charging support service that allows Flash riders to handle the manual process for car owners, saving them valuable time. Our offerings are designed to meet users' everyday needs, transforming FlashEx from a delivery brand into an essential part of their daily life. To further enhance the individual user engagement and experience, we added a new community section to the FlashEx APP, encouraging users to share their experiences, usage scenarios and personal needs. This interaction helps us gain deeper user insights and continuously improve our services. Meanwhile, they also naturally boost brand awareness, allowing us to more effectively promote new service features. As we continue to deepen our engagement with merchant customers and individual users during the quarter, we also focused our business development efforts on enterprise clients, a high-value user group and actively pursued outreach and partnership opportunities. Enterprise clients offer important benefits. They typically have long life cycles and high retention rates and require ongoing steady services. Their long-term value helps drive our steady and stable business growth. Based on these trends, we have created focused strategies for enterprise clients, targeting mutual growth through deepen collaboration. By tapping into enterprise clients' private traffic potential and having them improve service quality, we expand FlashEx user base, reach more industries and penetrate new service scenarios. This approach not only drives the business volume growth but also increases brand awareness, strengthening FlashEx' market recognition and reputation. As we grow our business base -- our user base, we prioritize improving technology and operational efficiency. In the third quarter, we teamed up with the Yuhang District government in Hangzhou and other partners to implement a citywide low-altitude logistics delivery solution, which has now reached the commercial testing stage. With more than 11 years of experience on nationwide network across 298 cities and over 100 million users, FlashEx provides precise order forecasting, set recommendation for drone takeoff and landing, route planning and smart dispatch support, positioning us as an early leader in urban drone delivery systems. As a key element of new productive forces, low altitude logistics not only fits well with FlashEx on-demand dedicated courier model, but also offers better solutions for long distance, time-critical and personalized orders. By combining drones with riders, we can better support deliveries in specific scenarios like heavy traffic, helping to fill service gaps and to improve delivery quality and user experience. FlashEx has always viewed our riders as our key strength. In the third quarter, we continued to enhance our incentive programs and create development opportunities for riders and offered educational support to families of eligible riders. These initiatives boost the rider sense of belonging as well as their career motivation, highlighting FlashEx' strong commitment to social responsibility. As we enter the fourth quarter of 2025, FlashEx will remain focused on steady growth in our core business, refining operations business-wide to drive comprehensive platform growth. We will deepen our efforts across key service areas, boosting our service capabilities and targeting the right user segments to grow our user base. We will also explore new service opportunities, strengthen partnerships and enhance the user experience, reinforce FlashEx unique position as a leading on-demand dedicated courier service provider and building a strong comprehensive edge -- competitive edge. Meanwhile, we will actively align with national policies and current trends, offering users a more diverse range of services to boost satisfaction. Through these efforts, we aim to achieve both commercial success and social impact, making positive contribution to society as a whole. This concludes my remarks. Now I will turn the call over to our CFO, Luke Tang. Thank you. Le Tang: Thank you, Adam. Hello, everyone. This is Luke. Let me walk you through our third quarter financial results. Before I begin, please note that all numbers are in renminbi and all percentage changes are on a year-over-year basis, unless otherwise noted. In the third quarter of 2025, we delivered a solid financial performance driven by disciplined, refined operations and the strengthening of our differentiated business positioning. Our on-demand dedicated courier model continued to demonstrate strong resilience. In the third quarter, gross margin held steady at 11%, while non-GAAP net margin expanded to 6.2% from 5% in the same period of last year. Our shareholders' equity grew to RMB 839.3 million as of third quarter end 2025, up from RMB 747.1 million at the end of 2024. Additionally, we have demonstrated our commitment to enhancing shareholder value by repurchasing approximately 1.6 million ADS in aggregate as of November 18, 2025. Our revenues for the third quarter reached RMB 1,005.4 million compared to RMB 1,154.8 million in the same period of 2024. The year-over-year decline primarily reflects lower order volumes, amid ongoing competitive pressures in the market throughout the quarter. Our cost of revenues for the quarter was RMB 893.6 million, representing a decrease of 12.8% for the same period of 2024. This was primarily in line with the decline in revenues and also reflects our continued efforts to enhance operational efficiency. Our gross profit was RMB 111.8 million for the third quarter compared with RMB 130.3 million in the same period of 2024. Gross profit margin for the third quarter was 11.1%. Turning to operating expenses. Our total operating expenses for the third quarter were RMB 97.7 million comprised of RMB 42.9 million in selling and marketing expenses, RMB 37 million in general and administrative expenses and RMB 17.7 million in research and development expenses. Excluding share-based compensation expenses, our non-GAAP income from operations was RMB 23.7 million for the third quarter compared with RMB 46.2 million in the same period of 2024. Other income was RMB 2.5 million for the third quarter compared with RMB 5.8 million in the same period of 2024. The year-over-year decrease was primarily due to a lower amount of government grants. Our non-GAAP net income for the third quarter reached RMB 62.6 million, representing an 8.6% increase compared with RMB 57.6 million in the same period of 2024. Our cash position remained healthy with cash and cash equivalents, restricted cash and short-term investments totaling RMB 877.9 million as of the third quarter's end. In summary, our third quarter results highlight the resilience of our business in a dynamic and competitive market. By leveraging our refined and differentiated operational strategy, loyal core merchant base and the continued expansion of our user scenarios, we are strategically positioned to capture emerging opportunities and drive sustainable long-term growth. That concludes our prepared remarks. We would now like to open the floor to your questions. Operator, please go ahead. Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Stephen Zhang from CICC. Yu Zhang: I'm Stephen from CICC. I've got 2 questions here today. My first question is, could you please share our third quarter order volume and ASP trends broken down by 2B and 2C segments? Given the subsidy rollbacks of food delivery and colder weather in the fourth quarter, have these factors had a measurable impact on order growth? Finally, what is our outlook for order volume trends next year? And what are the key drivers? And my second question is, what is the management's outlook on the trend and potential for future reduction in the company's expense ratio? Peng Xue: Okay. Thank you for your question. I will answer your first question, and then my CFO, Luke, will answer the second question. Well, for the first question, we believe that the scaling back of subsidies and the regulatory standardization in the food delivery industry are shifting the competitive focus from lower price to better service, fostering a more stable market environment. This regional environment allows FlashEx to fully leverage its differentiated value proposition of on-demand dedicated courier. Users are increasingly willing to pay for reliable timeliness, a sense of trust and security and perceivable quality of service. Accordingly, we remain committed to investing resources in expanding service scenarios and refining the user experience. On one hand, we continue to strengthen our positioning as an instant life cycle assistant, intensifying the penetration of the key everyday scenarios and uncovering users' latest needs. On the other hand, we are enhancing collaboration with our merchant clients, adopting a collaborative management approach to elevate their service quality and customer experience, thereby increasing order frequency. On the operational and delivery side, we continuously optimize operating efficiency, while strengthening the training and support team system for our Flash riders. In the third quarter, the average delivery time was 26 minutes. Improved user experience drives repeat orders, ensure stable rider income and attracts high-quality delivery resources, creating a positive cycle where better service experiences lead to more franking orders, which in turn drives higher income for riders. In the third quarter, the company's overall order volume demonstrated strong resilience despite external market fluctuation and ASP achieved a year-over-year increase. Looking ahead to the fourth quarter and 2026, we will continue to amplify our time efficiency advantage, deepen scenario penetration, expand the overall user base and increase order frequency from merchants through the collaborative management model, driving FlashEx long-term and sustainable growth. Le Tang: Thank you, Stephen and Adam. This is Luke. I will take your second question. In recent years, the company's overall expense ratio has remained on a stable and gradually declining trajectory, primarily driven by our sustained investment in refined operations and efficiency enhancements. At the same time, we have been expanding the channels of new user acquisition, effectively lowering client acquisition costs. On the merchant side, we further diversified our new merchant discovery approach. We encourage riders to identify new stores during their deliveries. Additionally, through deep collaboration with the core merchants, including on-site support and coordination, we have achieved nearby merchants to join the platform, achieving effective synergies in merchant acquisition. Furthermore, in this quarter, we focused on unlocking potential among enterprise clients by leveraging their private domain traffic, effectively increasing our brand reach to border end users. From a medium- to long-term perspective, we believe there remains room for further optimizing of our expense ratio with continued revenue growth and improved client structure and ongoing upgrades to operational strategies, we expect the expense ratio to trend downward in a healthy and controlled manner. While maintaining strategic investments, we will continue to optimize our cost structure, ensuring that the company can realize stronger operating leverage as market competition stabilized. Overall, with the continuous improvement in operational efficiency and solid foundation for the scale, the company's expense ratio retains potential for further reduction in the future. Thank you. Operator: And that concludes the question-and-answer session. I will now hand the call -- turn the call over to Helen Wu for closing remarks. Helen Wu: Thank you once again for joining BingEx 2025 Third Quarter Financial Results and Business Update Conference Call today. If you have any further questions, please contact the IR team at BingEx or Piacente Financial Communications. Thank you, and have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon, everyone. Welcome to the combined 9 months YTD 2025 results analyst briefing. I am Ian, and I will be your moderator for today. A few reminders before we begin. [Operator Instructions] Number four, please be reminded that this webinar is recorded. Allow me now to introduce our panelists for this afternoon. We are joined here today by Ms. Monica Ang-Mercado, San Miguel Food and Beverage Inc. CFO; Ms. Chesca Tenorio, VP and Head of Corporate Financial Planning and Investor Relations; Mr. Erich Pe Lim, Petron Corporation Investor Relations Head; Ms. Tina Garcia, SMFB Investor Relations Head. Also joining us on Zoom, we have Mr. Bryan Villanueva, SMC's Chief Finance Officer; Mr. Joseph N. Pineda, SMC's Treasurer; Mr. Paul Causon, San Miguel Global Power Holdings Corp. CFO; Mr. Ferdinand Constantino, Adviser to SMC; Ms. Tatish Palabyab, SMC Chief Sustainability Adviser; Mr. Erwin Hernandez, AVP and Head of Business Development, Project and Financial Planning of SMC Infrastructure. We'd also like to acknowledge the presence of other key executives of the group who will be joining us in this call. I now turn you over to Ms. Chesca Tenorio to discuss the SMC Group's financials and operational results. Chesca Tenorio: Good afternoon, and welcome to San Miguel Corporation's Combined 9 Months Year-to-Date 2025 Results Analyst Briefing. We're pleased to announce with pride that the San Miguel Corporation Group has demonstrated strong profitability and a resilient performance during the period. Before we begin further with the financial results of the company, we would like to first highlight a few key developments, which we will be discussing in detail throughout this presentation. As a macro backdrop, the Philippine economy in the third quarter of the year recorded a 4% GDP growth, slower than previous quarters. GDP decelerated amid governance concerns over infrastructure spending and slower domestic demand despite a cumulative 75 bps rate cuts by the BSP so far this year. While GDP growth slowed down, SMC exhibited resilience, recording strong year-on-year performance for the third quarter of the year compared even to the first 2 quarters of the year. The SMC Group maintained strong profitability despite recording lower revenues as the group worked towards margin expansion through cost disciplines, reduced material costs and operational efficiencies. These results underscore the group's ability to navigate market headwinds and other external pressures to deliver resilient performance. The Food, Hard Liquor, Power and Infrastructure businesses delivered the biggest improvements. During the period as well, SMC has earned recognition for its sustainability efforts. This is for both environmental stewardship and social impact. SMC has integrated ESG impact assessments into its capital expenditure review process and conducted physical climate risk evaluations of key facilities to ensure long-term business resilience. Alongside our sustainability initiatives, we continue to prioritize efficiency, financial discipline and key strategic actions, allowing us to maintain growth momentum amid external challenges. Equally important, beyond business performance and value creation, the group's long-term focus continues to center on nation-building, food and energy security and driving sustainable development. We remain committed to supporting the country's long-term growth by advancing critical infrastructure projects and expanding our energy portfolio to meet the increasing needs of our communities and industries. So that's basically our executive summary. So let's now turn to the group's respective earnings performance. On the slide, you'll see SMC's results. SMC delivered solid results for the 9 months ending September 2025. This is reflecting strong profitability and operational resilience amid persistent global headwinds and a looming local political concern. The company's strategic focus, cost discipline and efficiency initiatives supported earnings stability despite softer revenues and continued pressures in global commodities market. Consolidated revenues declined 7% to PHP 1.1 trillion, mainly due to, one, lower crude and commodity prices that has impacted the fuel and oil and power segments; two, reduced revenue contribution from the power business due to the deconsolidation of SPPC and EERI and lower average realization prices on lower coal and WESM prices. However, this was partially offset by solid contributions from the food, hard liquor and infrastructure businesses. Consolidated operating income increased 13% to PHP 137.4 billion, driven by lower raw material costs, pricing actions and improved operational efficiency, resulting in margin expansion from 10.3% to 12.6%. Profitability improvements were led by Food Group, Hard Liquor and Infrastructure, along with Power posting the largest improvement in margins. Net income rose significantly to PHP 78.6 billion during the period, supported by a gain from the fair valuation of investments and foreign exchange gains. Even excluding one-off and ForEx impacts, core net income improved by 54% to PHP 60.3 billion. Consolidated EBITDA finished at PHP 194.3 billion, and this is 16% higher than prior year. Now to walk us through the performance of San Miguel Food and Beverage, I'll turn the floor over to Tina. Kristina Lowella Garcia: Thank you, Chesca. For the 9 months ended September 2025, San Miguel Food and Beverage continued to deliver strong results with consolidated net sales reaching PHP 302.9 billion, up 4% from last year, supported by firm demand, efficient pricing and sustained brand initiatives across its Food, Beer and Spirits divisions. Operating income rose 12% to PHP 44.7 billion, while net income grew 11% from last year to PHP 33.7 billion, reflecting solid performance across all segments. EBITDA increased 13% to PHP 58.4 billion, driven by broad-based gains and improved margins across the businesses. Let me walk you through the Food businesses performance for 9 months period ended September 2025. San Miguel Foods maintained its solid performance with all key metrics exceeding last year's levels. Revenues grew 7% to PHP 143.5 billion, supported by strong volume growth across the segments. The Protein segment posted 11% revenue growth on higher volumes, backed by stable internal supply and continued favorable chicken prices. Animal Nutrition & Health revenue declined 1% year-to-date, a marked improvement from the first half shortfall of 5% as feeds volumes steadily recovered. Prepared and packaged food consisting of Purefoods, Magnolia dairy and coffee sustained strong momentum, delivering 9% revenue growth driven by higher sales volumes, favorable selling prices and an improved sales mix. Operating income increased 32% to PHP 13 billion, largely driven by Protein's sustained strong performance and continued favorable raw material prices. Net income rose 33% to PHP 8.9 billion, while EBITDA grew 27% to PHP 19.6 billion, reflecting broad-based margin improvements across the businesses. Moving on to the Beer business. San Miguel Brewery reported revenues of PHP 110.7 billion, almost matching last year's level. Operating income rose 2% to PHP 23.9 billion, reflecting effective cost management, supported by the September 2024 price increase, resulting in improved margins. EBITDA increased by 4% to PHP 30 billion with margins improving to 27%. Net income reached PHP 18.8 billion, up 1% from last year. Domestic revenues totaled PHP 98.3 billion, a slight 1% decline year-on-year. The performance reflected subdued discretionary spending, the impact from last year's pre-September price increase trade loading and the onslaught of successive typhoons affecting most regions. Operating income for the domestic business was flat at PHP 20.7 billion, while net income finished at PHP 18.5 billion. International operations registered modest growth with all key metrics showing improvement. Revenues reached $218 million, up 3% versus last year, driven by strong volume growth in exports, Thailand and South China as well as higher San Miguel brand sales in Vietnam. Operating income rose 15% to $56 million, supported by higher volumes, lower production costs and managed expenses. SMB continues to implement key initiatives to strengthen its brand presence. In the domestic operations, SMB reinforced equity building through the Oktoberfest kickoff event and the release of the new SMB Christmas campaign. Offtake boosting initiatives were also implemented such as thematic and digital campaigns, consumer and tactical promotions and product innovations, reinforcing flagship and premium brands. In the international operations, SMB boosted consumer engagement through channel-specific programs, modern trade expansion and sustained brand building through seasonal campaigns, merchandising drives, digital initiatives and product innovations. Amid a challenging market, SMB will continue implementing volume-boosting initiatives alongside prudent cost control, supply chain improvements and organizational capacity building. Turning now to our Spirits business. In the first 9 months of 2025, Ginebra San Miguel sustained its strong performance despite a challenging market with revenues reaching PHP 48.7 billion, a 7% year-on-year increase. Operating income rose 19% to PHP 7.5 billion, supported by higher selling prices, favorable molasses costs, improved distillery efficiencies and continued secondhand bottle usage. Notable volume growth was observed from the Vino Kulafu and Primera Light brands. Net income and EBITDA grew 17% and 19%, respectively, reaching PHP 6.3 billion and PHP 8.4 billion. That concludes the update for San Miguel Food and Beverage. I'd now like to invite Eric to present updates on Petron. Erich Pe Lim: Petron Corporation in the first 9 months of 2025 reported revenues PHP 594.9 billion, a 10% softening versus the same period last year. Revenues dropped mainly due to lower Dubai crude prices from an average of $81 per barrel in 2024 to $71 per barrel in 2025, a 13% drop. The decline in crude oil price was attributable to a significant buildup of crude supply by key producers compounded by geopolitical tensions and shifting policies. Despite the aforementioned external challenges, Petron was able to notably register double-digit growth in other key metrics with operating income finishing 20% higher at PHP 26.6 billion. This was driven by higher domestic sales, lower costs and improved plant efficiencies. Combined sales volumes from the Philippines and Malaysia reached 84.7 million barrels, up 3% versus the comparable period last year. Growth was fueled by strong domestic performance, particularly in the Philippines, where volumes in highly profitable retail segment continued to grow, registering a double-digit increase of 11%, allowing Petron to unceasingly corner the bigger share of the market. Finally, this led to a net income, which registered even higher gains, increasing 37% year-on-year to PHP 9.7 billion, underscoring the company's resilience in navigating persistent industry headwinds. Over to you, Chesca. Chesca Tenorio: Thank you, Erich. Let me now continue with the performance of the remaining businesses in the group, along with updates on our sustainability initiatives, overall business developments and outlook. San Miguel Yamamura Packaging Group maintained stable performance, posting September year-to-date revenues of PHP 28.4 billion. This is nearly unchanged from last year. Revenue was generated by serving key food and beverage customers of their plastics, beverage filling, flexibles, paper and glass packaging requirements. Operating income, though improved by 4% to PHP 2.2 billion, driven by the successful implementation of cost-saving programs and initiatives to improve productivity across all its operations. Meanwhile, EBITDA declined slightly to PHP 4.0 billion. Moving to the Power segment. San Miguel Global Power's revenues amounted to PHP 118.8 billion. That's 23% lower compared to previous years with offtake volumes dropping by 18% to 22,090 gigawatt hours. The decline, though, was primarily due to the divestment and resulting deconsolidation of the South Premiere Power Corp. or SPPC, owner of the 1,278 megawatts Ilijan Power Plant. This was made with the completion of the group's divestment of 67% interest in the underlying gas power generation assets last January 27, 2025. Moreover, the decline in the revenues reflected a downward adjustment in fuel tariffs to bilateral customers due to the continued softening of global coal prices. Excluding the impact of the SPPC deconsolidation, volumes were relatively stable, supported by the following: first, there's a full 9-month operation of 4 generation units of the 600-megawatt Mariveles greenfield power plant and 3 BESS or Battery Energy Storage Systems, facilities with a combined capacity of 110 megawatt hours, plus 5 additional BESS facilities with a total capacity of 140 megawatt hours, which began commercial operations in 2025. Second, strong offtake volumes from the Masinloc Plant contributing 6,571 gigawatt hours or 30% of the total volume. And third, there was higher generation volume from the San Roque hydroelectric power plant amounting to 929 gigawatt hours. That's up 125%. So overall, operating income for the power group rose to PHP 34.8 billion with operating margins expanding to 29% from only 22% last year. This improvement is a result of better margins from contracted capacities and significant contributions from BESS facilities. Such operating income does not include the share in the net earnings of SPPC and EERI, which owns the new Batangas combined cycle power plant units 1 and 2 with a net capacity of 425 megawatts each. This amounts to about PHP 5.9 billion to date, which the energy business continues to recognize from its remaining 33% interest in these gas power generation assets as part of its portfolio, even with the aforesaid deconsolidation. Meanwhile, EBITDA grew 22% to PHP 54.1 billion. Net income for the power group surged to PHP 42.4 billion, bolstered by the PHP 21.9 billion gain from the Chromite transaction and higher earnings from key operating power generation asset portfolio. Excluding the aforesaid gain from the Chromite transaction, core net income still improved significantly by 52%. Moving now to the Infrastructure segment. SMC Infrastructure sustained its growth trajectory with revenues rising by 7%, buoyed by the improved traffic volumes across all toll roads. Combined average daily traffic reached PHP 1.07 million, marking a 4% increase from the corresponding period last year. EBITDA grew by 8%, reaching PHP 23.8 billion with a sustained margin of 80%. Operating income rose by 12% to PHP 16.7 billion, supported by effective operational and management cost control. Moving to the Cement business. The Cement Group generated consolidated net sales of PHP 25.5 billion for the 9 months 2025. That's a 6% decrease from the comparable period last year. This is primarily due to the lower sales volume and weaker average selling price as a result of the continued influx of imported traded cement. Imports were estimated to account for 21% of industry volume as of the period. Despite the 3% decline in EBITDA to PHP 7.3 billion, margin though improved to 29% due to ongoing cost efficiency measures. Meanwhile, operating income fell by 4% to PHP 5.1 billion. A snapshot of our balance sheet, SMC's consolidated total assets as of September 30, 2025, stood at PHP 2.7 trillion, while total liabilities amounted to PHP 1.9 trillion. Stockholders' equity ended at PHP 733 billion. Consolidated cash balance stood at PHP 344 billion, while interest-bearing debt totaled to PHP 1.6 trillion. Next, we just want to highlight some 9 months 2025 sustainability performance for our group. The following are the highlights. SMC, along with the subsidiaries, Northern Cement and San Miguel Global Power Holdings were recognized for its sustainability initiatives. On September 23, 2025, SMC received recognition as one of the sustainability champions from Manila Times. On October 23, 2025, the Asian Water Awards recognized SMC for its water conservation initiatives of the year for Philippines, in particular, for Northern Cement Corporations reaping the rain and recycled water program. San Miguel Global Power also received recognition from the same award giving body for Outstanding Water Resources Contribution of the Year for the Philippines. This is for the Malita Power Plant's entry and integration of treated into non-potable domestic water supply systems. Also for Masinloc Power was awarded 3 Asian Power Awards. One is Environmental Upgrade of the Year Philippines, for its entry of clean chemistry, sustainable corrosion mitigation at Masinloc units; Operational Efficiency Initiative of the Year, for its entry of fuel flexibility in a cost-effective mill improvement project to promote industry innovation and customer satisfaction; and third, Circular Economy Leadership of the Year, for Philippines for its entry of cost-effective mill enhancement project, leveraging fuel flexibility to promote customer satisfaction and drive industry innovation. Overall, San Miguel Global Power was recognized then for Employee Engagement Initiative of the Year, Gold, for the company-wide sustainability month event. Other highlights of our sustainability performance. We continue to advance our environmental, social and governance commitments, focusing on embedding sustainability into our core business processes and decision-making. Under environmental stewardship for our 9 months '25, integration of sustainability and capital projects was done. We have formally embedded a sustainability questionnaire into our capital expenditure process. This ensures that environmental and social impacts are systematically assessed for all proposed projects, supporting responsible investment decisions. Second, climate risk assessment. This was completed in October 2025. So now our climate risk assessment has been completed. It's identifying potential physical and transition risks across our operations. Business units now are reviewing the final materials to develop targeted mitigation and adaptation strategies. Next, under capacity building and governance. For carbon markets readiness, this was completed in September 3, 2025. We conducted a carbon markets workshop for our management team to strengthen internal understanding and readiness. This initiative enhances our capacity to engage with emerging carbon pricing and trading mechanisms in the future. Lastly, as an energy update as of 9 months 2025, over the next decade, I'd like to reiterate that we will be shifting towards renewables by expanding hydroelectricity capacity, building solar plants and adding more battery storage systems. In June 2025, through GEA-3, San Miguel Global Power was awarded 4,200 megawatts of hydropower projects. And next in October 2025, under the GEA-4, we secured over 2,225 megawatts of new solar projects. This marks a major step in transforming our portfolio and supporting the country's clean energy transition. Lastly, we now move to the outlook and recent updates of the group. To reiterate, SMC is pressing ahead with its growth and expansion strategy backed by solid operating performance amid the country's current political situation and global economic challenges. For the new Manila International Airport, progress on the land development and ground improvement works are ongoing with areas ready for construction of key facilities. SMC continues to look for ways to optimize cost and overall project time lines. For the NAIA, completed improvements as of September 30, 2025 include the following: first, there are local road networks that have been upgraded with widened curbside areas to ease congestion and enhance traffic flow. A new automated parking system with expanded payment options has been installed to streamline entry and exit. Terminal 1 OFW lounge and multiphase prayer room, Terminal 3 dignitaries lounge and airside employee cafeterias in all terminals have been completed. Implemented new traffic management schemes and designated of outer lane as taxi-on lanes at Terminal 3 have also been completed. Upgraded and migrated to SAP for automation of business processes have been done. Heating, ventilation and air conditioning systems at Terminal 3 and lighting fixtures at Terminal 3 arrivals have also all been upgraded. Beyond the completed works, NAIA is also working on the following: in partnership with Collins Aerospace, ongoing rollout of modernized passenger processing and airport management systems, additional immigration e-gates, upgrading of key airport equipment such as elevators, walkalators, explosive detection systems, passenger boarding bridges, advanced visual docking guidance systems and lastly, terminal facilities such as expanded bus gates, lounges and retail and dining halls are all on works. For MRT-7, the railway components percentage completion is at 81.5%. For the depot site development and construction of other facilities are still ongoing. In addition, the submitted variation, which include the new location of Station 4 is approved by the San Jose Del Monte and DOTr. Consequent to the new approved location of Station 14, there is also an ongoing study on the realignment of the highway component. On the toll roads, we continue to advance our improvement projects for existing toll roads such as Skyway System, NLEX, SLEX and STAR. Upgrades include road widening, additional entry exits and interchange enhancements. Ongoing construction works on SLEX TR4 is progressing steadily well with the toll roads percentage accomplishment and right-of-way acquisitions at 49.4% and 85%, respectively. These projects would allow for greater development in Metro Manila and other fast-growing regions of Luzon by enhancing connectivity, easing congestion and improving traffic flow, supporting the country's overall social and economic development. Last, as of September 30, 2025, roughly 50% of the group's 1,000 megawatt hours of BESS projects are already in operation, delivering ancillary services to the National Grid Corporation of the Philippines under a 5-year Ancillary Service or ASPA or selling their spare capacities to the reserves through the independent electricity market operator to ensure grid stability. The remaining BESS projects in the pipeline are expected to commence commercial operations by 2026. SMGP is also expanding its renewable energy portfolio through hydropower and solar energy projects, as mentioned earlier. On updates on our sustainability front, SMC is finalizing a sustainable finance framework to align financing with ESG strategy of the group. The document is seen to establish the company's decarbonization road map and will enable us to access sustainability-linked financing options, supporting the transition toward a lower carbon and more resilient business model for the group. Other projects in the pipeline include an automated platform to track sustainability data across all business units and development of business level road maps for each of our 4 sustainability goals. And that brings us to the end of our presentation. Thank you for your time and attention, and we now open the floor and call for your questions. Operator: [Operator Instructions] We have a question from -- we have a raised hand from [ Tony Watson ]. Unknown Analyst: Okay. Can you hear me okay? Chesca Tenorio: Yes, we can hear you. Unknown Analyst: Great. Just one question on the Meralco claim. When I visited San Miguel Power a couple of months ago, they mentioned they're expecting a final ruling on the second claim sometime late fourth quarter, early first quarter. Any update on that? Paul Bernard Causon: May I take on that, Jessica? Chesca Tenorio: Yes, Paul. Thank you. Paul Bernard Causon: So thank you for your question. Let me update you first on the first claim. So the first claim is for PHP 5.1 billion. And pursuant to the ruling of the Supreme Court, which came out earlier this year, Meralco has paid already 2 out of the 6-month installments to date. Now with respect to the second claim, which is a little over PHP 29 billion, about PHP 15 billion of that is still unaccrued by the company. We we've had the hearing with the ERC yesterday basically to discuss the case. And the way that the way case went on, there were 2 things that were apparent from the meeting. Number one, we were able to get a confirmation from Meralco with respect to the amount. So there is no dispute at all with respect to the amount of the claim. The second one, the legal basis for the second claim is tightly linked with the first case, which has already been ruled upon by the Supreme Court. So those 2 critical elements of the case were put on record by the hearing officer from the ERC. And we expect that the results of such hearing will be elevated to the commission when it will be meeting -- and by early December. And I think with respect to the earlier assessment on the time lines, we will be a bit delayed with respect to the resolution, maybe not this year, but definitely early next year, most probably January. Operator: We have a raised hand from [ Ajay Sharma ]. Unknown Analyst: Can you talk about -- can you hear me? Chesca Tenorio: Yes, we can hear you. Unknown Analyst: Okay. So I want to know for both the Spirits and Beer business, the volume growth has been pretty modest. I guess, Spirits no volume growth, I guess, this year. So I'm just wondering, how much was the price increase for both of them this year and how much was the excise increase? And how do you see the fourth quarter shaping up? Chesca Tenorio: Well, Ajay, historically, for the fourth quarter, those are the months, the celebration months because Christmas is a big event for the Philippines. Normally for -- across our businesses, Food, Ginebra and Beer volumes tend to improve sizably. In terms of the excise taxes, it's around 6% annually, and most of that is usually passed on or declared in the beginning of the year. So by now, the volume performance of the Q3 or the first 9 months, I think really shows the challenged spirits and alcohol industry in the sense that the consumer habits have changed in terms of on-premise drinking and off-premise. We have more competitors as well as the earthquakes and the recent typhoons, they have had a very big effect as well as the economic effect on the consumption for nonessential goods, which is really our Spirits and Beer business. But for Food, you can see the volume is growing. Unknown Analyst: And are you gaining market share? How is the market share trend for both categories? Chesca Tenorio: We are still very dominant in Beer. As you know, we're 90-plus market share. I think to gain additional points is really difficult and challenging. However, we are trying to introduce more variants, more SKUs for -- to excite the market and to enter other more premium categories, and that's where we are trying to gain market share away from the foreign brands. Also for Ginebra or the Spirits business, we have been gaining market share steadily around close to 50-plus percent for the white. Of course, there's still plenty of room for us to try to grow. We're trying to really penetrate the brown spirits market. Operator: We have a question from [ Mark Anthony ]. [indiscernible] Congratulations on the results. Question for GSMI. After half a decade of volume growth for GSMI and considering the perpetual increase of excise taxes, do you see GSMI moving towards direction of growth in value due to higher prices and not necessarily in volume as we may already have seen in the 9 months of 2025? Or does the distribution network of GSMI still have a huge runway to drive volume growth? How does 4Q '25 volumes of GSMI look like? And is it reasonable to expect the cash dividends next year to grow by the same rate as income this year and maintain the payout ratio? Chesca Tenorio: Okay. For the first, well, we already explained some of that. Definitely, the past years, we have been surprised at the market's ability to absorb the higher prices. We've been passing on the increase in excise taxes to them and the volume has been growing. But yes, we do not rely on being able to pass on the prices. We still think that there is a lot of room for growth, not only for our flagship categories or brands such as the red or the low-cost gin, but we have many other SKU or category that we're trying to grow, especially in the Visayas and Mindanao or the Southern regions. In terms of the distribution network, we have many untapped areas yet. We have been increasing dealer routes and distributors or dealers to our network, not only for Ginebra, but also for Beer, because we feel that, that's really where we can improve, not only in increasing distributors, but also increasing wholesaler routes. We have also been increasing our CapEx for expansion related or production capacity-related projects. So we really do think there's still a lot of room to grow, especially for Spirits. For Q4, again, this is the best time for Ginebra, Beer and Food. Typically, the volume will really be very, very high average per day compared to the usual. And for the cash dividends, we don't really provide guidance or guarantee on what we will be announcing for the following year. But as you can see in the past years, our payout ratio has been steadily increasing. It really depends on the performance of the company. Operator: We have another question from [ Karissa Magpayo ]. On FB, can you share sales growth trends so far in 4Q '25? Are we seeing some improvements in demand across the 3 segments, namely Beer, Spirits and Food? Chesca Tenorio: Okay. This is almost the same question, but I'll maybe share more about the Food growth. As you know, we have commodities business, which is mostly poultry and feeds and those have been steadily growing very well. The thing is for poultry, prices of the poultry have gone down in the past few weeks. So that may be affecting our volume. But for our prepared and packaged food businesses, which are the branded or value-added, those are Purefoods canned goods and other timplados or ready-to-cook, ready-to-eat type of products. Magnolia, which are heavy into butter-margarine-cheese type or dairy type of businesses, those are heavily used by bakeries and the normal consumers or households because it is Christmas time. So they're having a lot of sweets or desserts. So that's what's going to be driving the Food business for Q4. Operator: We have a question from [ Sharmaine Co ]. Question for Petron. May I ask how much inventory holding gain losses were in the third quarter, both in 2025 and 2024? Erich Pe Lim: For inventory gains and losses, for year-to-date September 2025, inventory losses amounted for roughly around [ PHP 2 billion ]. So this is a little lower or flattish coming from the disclosed figure in the first half of 2025. This is particularly because crude prices, crude by crude, basically consolidated in the third quarter of 2025 at around $70 per barrel. So we didn't see that much volatility. Now if you compare it to the year-to-date September 2024, inventory losses during that period is a little more than PHP 4 billion. Operator: We have a question from an anonymous attendee. For Power, could you walk us through the expected baseload capacity additions coming online in 2026 to 2027? Paul Bernard Causon: Okay. That's sort of an industry question. And well, I will answer it from our perspective, nonetheless. So currently, the net reliable capacity in Luzon, which accounts for practically 70%, 80% of the country's supply and demand is around 14 to 15 gigawatts on a daily basis. And out of that number, roughly 62% is more than 20 years old in terms of operating life. So there's quite a bit of fragility on the supply side. But with the ensuing coal moratorium that's been imposed by the Department of Energy, there's been quite a bit of expansion on the baseload side. The Department of Energy has across committed projects of roughly 9 gigawatts in solar capacities for the next 3 years with expected plant factors ranging from 16% to 18%. From our end, what is for sure, would be we are putting up 700 megawatts in baseload capacity by next year from Masinloc Units 4 and 5. I would say that I have quite a bit of insight on other generators plans with respect to baseload capacities, but the total is relatively very small at 500 megawatts. Operator: We have a raised hand from [ Ashwaria Pai ]. Unknown Analyst: My question is, first, San Miguel Global Power. Now that the auctions are completed, is it possible to give a guideline on the solar and hydropower CapEx and the time line for it and the incremental EBITDA from those projects? And my second question is, what would be the funding source for the next maturities of dollar bond for San Miguel Global Power in 2026, which is close to USD 1 billion? Paul Bernard Causon: Okay. Several questions there. So on the first one, what's clear with respect to our hydropower projects that's qualified under GEA-3 would be a CapEx headline of around $12 billion to $13 billion. But that one, of course, is subject to cost optimization. So we have -- we're looking at various approaches on construction and also on how we will configure the EPC with respect to those projects that should significantly reduce the cost further. From our initial assessment, we're looking at somewhere between $5 billion to $6 billion. But the equity component or the amount that we expect to spend in the next 3 to 4 years should be way smaller, somewhere between $2 billion to $3 billion. Again, subject to ongoing detailed studies, technical studies on the sites and also depending on our ongoing negotiations with the OEM suppliers, particularly for the Francis turbines. With respect to our GEA-4 projects, which are the solar farms, that would entail a relatively smaller number in terms of CapEx. So it's more or less around $1.4 billion, which we expect to incur over the next 4 to 5 years for the awarded capacities of roughly 2,200 megawatts. But again, that amount is still subject to cost optimization depending on our ongoing negotiations on the panels. And considering that most of the civil works would be something that we can do already internally and also would entail relatively smaller costs as far as the sites that we've chosen are concerned. Because most of the solar projects are -- in terms of megawatts are located in the Angat water reservoir, which -- since it's floating solar, there's supposed to be minimal site development. And therefore, the time lines for its completion will be very -- a lot shorter than the other ones in terms of time lines. The COD for the solar projects would be -- with respect to the 2,200 megawatts should be completed within the next 3 years. And then our GEA-3 projects, the hydropower projects in 5 years' time. The first batch of the 4.2 gigawatts should be available, roughly 2 gigawatts by 2029, 2030. Second question on the refinancing. Well, the DCM markets definitely is something that we are closely looking at. Our preference, of course, is to have the expiring dollar perps refinanced in peso, DCM sources. Of course, we're looking at the dollar markets as well. But in any case, we have the existing liquidity to be able to backstop any refinancing activities that we will be doing next year. And we're fairly confident, at least for the perps that are expiring in January this year -- January 2026 and December 2026, that we should be able to easily have them refinanced. Operator: We have a question from an anonymous attendee. For Petron, what's your current outlook for crude oil market next year? Erich Pe Lim: To be perfectly honest, it's quite difficult to perceive into 2026, just given how fluid our business is and the confluence of factors that affect crude prices, right? But what I can share, I guess, how we see crude prices will be at least for until the end of 2025 and into the first quarter of 2026. So currently, Dubai crude prices at around $65 per barrel. So at least for -- until the end of the year until end of 2025, we see it range trading more or less plus/minus at $65 per barrel. So it's steady. And that's particularly because of 2 factors, right, which will keep prices supported and that particularly the persistent geopolitical risks and the sanctions that were imposed on Russia and Iran. However, in the first quarter of 2025, we could see it probably range between $60 to $65, maybe a little correction. And that's particularly because of the demand and supply dynamics which would pressure prices. On the demand side, as we all know, you can still see a lot of uncertainty in terms of tariffs, which, of course, has hampered economic activity. And on the supply side, you see OPEC+ continuously adding right into their production. This year alone incremental volumes brought upon by OPEC is already more than 2 million barrels. And based on their last announcement, in November and December, they would add incremental volumes of around 130,000 barrels per day each month. So these are basically the factors that might pressure prices. But nevertheless, we see it still more or less in a level around $65 to $60 per barrel. So it's not very volatile, relatively speaking. Operator: We have a question from [ Kiu Huang ]. How were the price increases in SMFB in Q3? Can you break down in each segment, including Food, Beer and Spirits? Any price increases planned in Q4? Chesca Tenorio: In Q2, so the price increases were very minimal. For Food, there was also -- there was around a small single-digit increase, Ginebra as well. For Beer, we did not do a price increase for Q3. Now for the Q4, I think the plan is to just maintain. If ever there will be some increases, it will be in a few months' time. Operator: We have another question for Power. What's San Miguel Global Power's plan for purchase equity shares at Meralco? Could you talk about the progress of securing and drawing down project debt at Project Chromite and Masinloc Units 4 and 5? And could you share a bit the outlook and funding requirement for San Miguel Global Power in 2026? What's construction and funding plan for solar projects at GEA-4? Paul Bernard Causon: Okay. So many questions. Let me go through them one by one. So on the Meralco shares, it remains to be a strategic investment of the group. We're quite happy, of course, with the dividend payout and the market value of these shares currently. But with respect to adding more to this remains to be opportunistic in nature and of course, depending on the circumstances presented to us. But at the moment, these shares remain to be a highly strategic investment of the group. With respect to the project debt for the Chromite entities, we are currently in the documentation phase with the lender banks. And we're very close to having the finalized and executed maybe later this year or early next year. The total debt that could be raised there is roughly PHP 145 billion in total. On the project level debt for Masinloc 4 and 5, it's progressing very well. We've been getting quite a bit of interest and commitments from local banks. We are more or less confident that we'll be able to raise at least PHP 50 billion to PHP 60 billion from this, and that should pretty much snap off any remaining debt on the EPC for Units 4 and 5. So as far as we are concerned, in as much as the EPC invoices are not yet due to date by virtue of the vendor financing arrangement that we have in place for these units. So this pretty much would have no significant impact to us in terms of cash flows at least in the next 2 years. Okay. Last question -- last 2 questions. Could you remind me again what was the -- what were the last 2 questions you asked? Chesca Tenorio: EBITDA outlook [indiscernible] the EBITDA outlook and funding requirement for 2026 and construction funding plan for solar projects? Paul Bernard Causon: Okay. On the EBITDA outlook for 2026, well, what we've seen this year is pretty much indicative of what we expect to see next year, except that we will have full year contributions from battery projects that we have coming -- that we've commissioned and put into commercial operation early this year, bringing the total to around 500 megawatts. By next year, we expect the rest of the 500-megawatt pipeline to become fully operational as well. It's an opportune time to get into renewable -- into ancillary services, especially since the DOE is integrating quite a bit of intermittent capacities into the grid. As I mentioned earlier, over the next 3 years, it expects to integrate around 9 gigawatts of intermittent solar capacities. And our batteries are strategically positioned to be able to provide power quality services to NGCP to be able to allow such integration. With respect to the -- and then therefore, our profit outlook for next year should be at least around PHP 70 billion in terms of EBITDA. With respect to our funding plan for next year, a lot of those actually are refinancing activities. So the biggest debt that are maturing next year will be our January 2026 perps. So we have that pretty much pinned down. So we're looking at 2 very concrete financing activities that we are very confident to be able to have that refinanced over -- at least a 5-year period. The December 2026 perps, as I mentioned earlier, we're looking at peso DCM deal for that. We have to have it redenominated and financed also over the long term. The rest of the financing activities strategy would either involve syndication, involving foreign banks and also local banks, again, to be able to refinance roughly PHP 30 billion, PHP 40 billion in expiring debt next year. How to finance the solar projects? So I did mention the CapEx earlier. It's $1.5 billion, but that is expected to be incurred over a 4-, 5-year period. The primary method or approach that we're looking at to do this will be through the vendors. So because of the magnitude of the capacities that San Miguel Global Power is going to foray into, a lot of contractors, OEM suppliers for panels are actually offering us a lot of options with respect to vendor initiated or vendor finance deals. And that will give us a lot of flexibility in terms of financing these projects, not only with respect to the equity component, but also on the debt component. And as you know, given the nature of the Green Energy Auction Award, it's basically a government-sponsored offtake contract or set of contracts. So we are very confident that at some point in the next 2 years, once we paid at least the equity component of the $1.4 billion that we'll be able to raise the requisite OpCo level debt. And again, given the vendor financing that we have put in place, we are under no pressure to actually have this done at least in the next 5 years. So I hope I've covered all your questions. Let me know if there's anything else. Thank you. Operator: With the interest of time, we have one last question from an anonymous attendee. For San Miguel Corp., what is the net debt at the parent level as of 9M '25? Chesca Tenorio: Thank you, Ian. For that question, parent net debt of San Miguel Corp. is PHP 701.4 billion as of 9 months 2025. Thank you. Operator: All right. That concludes our Q&A. Thank you to everyone for your questions and to our panelists for providing detailed and informative answers to our queries. For those who have further questions, you may address it to us via e-mail at smcinvestorrelations@sanmiguel.com.ph. Thank you, and good day. Kristina Lowella Garcia: Thank you. Chesca Tenorio: Thank you, everyone. See you next briefing. Thanks for joining.
Stephen Heapy: Good morning, everyone, and welcome to our interim results presentation for the period ended 30th of September 2025. The format this morning will be, I'll go through the first half highlights. I will then pass over to Gary Brown, our Chief Financial Officer, who will give a financial update, and then, Gary will return the microphone to me. And I'll go through a strategy update. There will then be a period after that for any questions, which we would be pleased to answer. So first of all, record passenger numbers, revenue and profitability. Further growth in the first half across all our key metrics, we delivered record numbers. Passenger numbers were 6% higher, including encouraging first summer performance at our Bournemouth and Luton bases. Strong financial performance with group profit before FX revaluations at 1% and earnings per share 8% higher following our GBP 250 million share buyback program. We are also pleased today to announce a further share buyback program of GBP 100 million. We have a strong balance sheet and access to ample liquidity, which are vital in this fast-paced, capital investment -- intensive industry. GBP 3.4 billion of cash gives us financial resilience and supports investment in our growing fleets. We operated 23 Airbus A321neo aircraft in summer 2025, and that represented 17% of our total fleet. We're also delighted to announce the launch of operations at Gatwick Airport, a once-in-a-generation opportunity to accelerate our growth. Next slide. Our growth strategy is to be the U.K.'s leading and best leisure travel business. We've made strong progress against all of our strategic pillars, supported by our fantastic colleagues, who are dedicated to delivering exceptional customer service. Our brands continue to be recognized by a leading, independent, customer-focused organizations, including Which?, TripAdvisor, Trustpilot, Feefo, and of course, the U.K. Institute for Customer Service. Our customers love us, and they come back time after time. Through initiatives like myJet2, we now know them better than ever, and our key metrics in this area show exactly this. We continue to invest in our digital and operational infrastructure, the retail operations center, our revenue management system, and of course, our second maintenance hangar at Manchester Airport. Our fleet renewal program is delivering against our sustainability targets, and we expect to operate 31 Airbus A321neo aircraft in Summer '26, and that represents 22% of the total fleet, which is 5 points higher than Summer '25. Next slide. Gatwick truly is a once-in-a-generation opportunity to accelerate our growth. Gatwick is the busiest single-runway airport in the world. And a once-in-generation opportunity came our way through the release of additional slots at Gatwick Airport. We will have access to 50 million people within a 60-minute journey by road or rail of Gatwick Airport. We have flights and the holidays on sale from March 2026 to 29 destinations across the Mediterranean, the Canary Islands and European leisure cities. The program will consist of 6 aircraft, and we hope to be able to grow that organically as we become established. We expect the new base to be profitable in financial year '29, and it should deliver meaningful profit growth thereafter. In September '25, the DfT approved the Gatwick expansion program to operate a dual runway subject to a 6-week appeal process. The new Northern runway is anticipated to be operational by the early 2030s, enabling the capacity of the airport to rise from 45 million to 60 million passengers per annum. That will present us with a fantastic opportunity to grow significantly. So the next part of the presentation, I will pass you over to our Chief Financial Officer, Gary Brown, who will give you our financial review. Gary Brown: Thanks, Steve. Good morning, everyone. I'm Gary Brown. I'm group CFO here at Jet2, and I'm pleased to present our financial results for the 6 months ending 30th of September 2025, together with some thoughts on how we think about capital allocation here. So moving to Slide 7. We've included this slide, as it's often easy to lose sight of where the business was relatively recently and where we are now. We flew 19.8 million passengers in the financial year ended 31st of March 2025, which means we've been growing at just under 8% a year since 2019. Our revenue has gone up even faster, averaging about 16% since 2019, mainly because more of our customers have been choosing package holidays. In fact, in 2025, these made up 66.5% of our total passengers, up 17 percentage points as compared to 2019, with package holiday revenue making up over 80% of our total revenue. Back then, we had 9 U.K. bases and an aircraft fleet of 90, primarily mid-life Boeing aircraft, a composition that is rapidly changing, as you heard from Steve, underpinned by our firm Airbus delivery schedule. The A321neo is making up 17% of our fleet in Summer '25. Operating profit has more than doubled, up 118% to GBP 447 million in 2025 from GBP 204 million in 2019. And we're also making more operating profit per sector seat, which has risen from around GBP 15 to GBP 20, a 35% increase. Our basic earnings per share are up 132% compared to 2019, and our average return on capital employed over the 3 years since the pandemic is 17%, one of the best in the industry. As you will hear, the strong financial track record and the continuing evolution of our business, ongoing confidence in our future growth prospects. On to Slide 8. Our key stats illustrate how our flexible, fully integrated operating model is capable of adapting to changing consumer trends. They also demonstrate our clear focus on optimizing profitability through a combination of volume, pricing and product mix. First things first, more people are choosing Jet2, an extra 750,000 passengers or 6% up on last year. This summer, more people chose flight-only, which was up by 16% as customer booking trends continue to be late, and we saw more of those last-minute price-sensitive deals. We've consistently stressed that both our products are vital importance, and it's great to see customers recognizing the clear value that our flight-only offering brings, friendly flight times, an industry leader for not canceling flights and with the added benefits of our Red Team of customer helpers, providing their outstanding customer-first service. Package holidays are still a hit, growing 1% to a record 4.73 million customers. And as you know, they bring in a higher profit per customer. Prices for package holidays held up well, rising 3%, as we were able to pass on most of the cost increases from our suppliers. On the flights-only side of the business, the average ticket price dropped 7% to GBP 122 because we ran more promotional offers, which was supported by the targeted reallocation of marketing investment to optimize load factors in a pretty competitive market. Pleasingly, we also made 4% more per passenger from our non-ticket revenue streams, having more flight-only passengers meant we earned more hold baggage income, whilst our in-flight retail offers saw spend per head grow further 4% due to consistently strong onboard product availability, made possible by our in-house retail operations center plus the launch of a new onboard product range. Looking now at Slide 9. Revenue was up by 5%, primarily due to the growth in passenger numbers, but also helped by the increase in the package holidays price. What I would describe as our underlying operating cost base was well controlled and up by 4.8%. Some of the main influences on this growth were in terms of our hotel accommodation costs. They represent about 45% of our full-year cost base. They were up 7% with inflationary rate increases of 6%, plus an increased proportion of bookings to higher-star rated and all-inclusive hotels, as customers treated themselves being the main drivers. Excluding the impact of SAF premiums due to the SAF mandate increase, our fuel costs, which are just over 10% of our cost base, were down 3% on a like-for-like basis, as a 7% increase in flying activity was offset by a 5% reduction in the blended fuel price, a 3% efficiency improvement from the growing A321neo fleet plus some FX benefits. Landing, navigation and third-party handling costs, which are towards 9% of our cost base, rose 10%. The growth above flying activity linked to average rate increases across the U.K. and European airport bases with notable increases in EUROCONTROL charges and third-party handling costs in Turkey. We also saw efficiencies in marketing spend coming through as investments we've made in our digital marketing technology infrastructure helped improve underlying cost per acquisition. Beyond our underlying cost base, we incurred over GBP 30 million of additional costs, including the increase in employer NI and national minimum wage imposed by government of about GBP 11 million, an extra GBP 17 million in premiums for sustainable aviation fuel as the SAF mandate jumped to 2%. Finally, we invested to firmly establish ourselves at our 2 new bases at Bournemouth and Luton in the first summer of operation. In total, these additional costs added a further 0.7% of overall cost growth. That said, our EBIT or operating profit margins were still healthy at 13.4%, whilst our basic earnings per share were up by 8%, aided by our GBP 250 million share buyback program. Return on capital employed sat at 23.5% halfway through the year, though it will dip a bit by year-end due to second half losses, which are normal for our business. Turning the page to Slide 10. Our EBITDA was up by 2% compared to last year, with our net cash generated from operating activities still strong at approximately GBP 700 million, although down on last year due to the later customer booking curve. Our capital expenditure investments included payments for 6 owned Airbus A321neo aircraft, a spare LEAP-1A engine to support the growing Airbus fleet plus normal maintenance on our existing Boeing aircraft. In addition, our second maintenance hangar at Manchester Airport opened in August, which means we can now support 6 lines of aircraft maintenance across both of our hangars. First half free cash flow was GBP 370 million, meaning that since the pandemic we've generated approximately GBP 2.5 billion of free cash, which enables us to confidently support our strategic capital allocation. We also chose to pay off certain aircraft loans for 4 of our Boeing 737-800NG aircraft with 6 last year because they were more expensive than what we can now achieve in the JOLCO market. On top of that, we bought back and canceled GBP 231 million worth of our own shares as part of our GBP 250 million share buyback program, which completed just after the end of the reporting period. Moving to Slide 11. First thing to say is that we have one of the strongest balance sheets in the industry with access, as Steve has said, to ample liquidity, which we think is essential in what is a fast-paced, capital-intensive industry. We took delivery of 9 new A321neo planes, 6 from our long-term aircraft order; and 3, we've leased to fill short-term gaps in the delivery profile. We also used the JOLCO market to finance 4 of the 9 new aircraft raising GBP 191 million. Our total cash was down GBP 242 million compared to last year, mostly due to capital allocation decisions, which included the majority of the GBP 250 million share buyback and the repurchase of the convertible bond in the second half of last financial year. Customer cash was broadly flat year-on-year due to the late booking curve and higher mix of flight-only bookings. As you've seen in the past, when we quickly capitalized on the demise of Thomas Cook and also during COVID, when we were able to make the right decisions for our colleagues and customers, this strong financial foundation has, on this occasion, allowed us to confidently pursue our growth ambitions at London Gatwick in the full knowledge that meaningful start-up investment will be required to provide a solid operational platform, which over time will enable us to fully capitalize on the scale of that opportunity. Finally, in a further demonstration of the confidence in the group's sustainable cash-generative business model and the Board's conviction and the prospects for the business, we have today announced an on-market share buyback program of up to GBP 100 million. Shares will be canceled following purchase, providing a further positive enhancement to earnings per share. Turning to our capital allocation framework on Slide 12. Let me quickly walk you through how we think about capital allocation. It's really all about making sure we invest in our business to ensure it remains resilient and keeps evolving to the ever-changing consumer landscape. It's about keeping our balance sheet in good shape to service our debt obligations and keep the cost of debt down, and it's to make sure we're well protected if anything unexpected comes along. On the flip side, it also means we've got the flexibility to invest in exciting growth opportunities as and when, whilst providing good returns for our shareholders. As you've seen, we're continuing to deliver solid operating and free cash flow, which means we can invest in the business, recently launched in both Bournemouth and London Luton Airports. We've been encouraged by their performances and are looking forward to continuing to grow in these regions by building our brand awareness and understanding and steadily growing a loyal customer base. Looking ahead, we're now gearing up for Gatwick to get underway in March '26, which is a fantastic opportunity for us to further accelerate our growth. Bear in mind that, as Steve has said, the catchment area is over 15 million people within 60 minutes of it by road or rail. And we continue to invest in tech and infrastructure with our AI-led revenue management system pilot underway, our second maintenance hangar at Manchester operational and our groundbreaking retail operations center now fully automated. Our total and net cash position remains strong, allowing us to be flexible around our debt obligations to reduce the overall cost of debt, whilst giving the JOLCO market the confidence to continue to do plenty of business with us. And in terms of shareholder returns, we bought back GBP 250 million of shares or approximately 10% of the current market cap of the company, which helped push our EPS, earnings per share, up by 8% and by 132% since 2019. And we've also increased the interim dividend, whilst announcing another buyback of GBP 100 million today, which will take us cumulatively to over 13% of the current market cap return to shareholders. Finally, on Slide 13, how are we thinking about the medium term? We know there are many companies in this industry who have flown too close to the sun in the way they run their balance sheet and leverage position. From our perspective, we believe remaining at less than 2x net debt to EBITDA on an owned cash basis brings a pragmatic balance between protecting the business, but also manageable levels of leverage to maximize returns. As of today, we've got plenty of headroom against this target, but as we take more aircraft and finance, then this level will drift up. We've said previously that we learned a lot during COVID, where we went into that period with just over GBP 0.5 billion of our own cash and an undrawn RCF of GBP 100 million. This allowed us to treat customers with respect and returning their deposits quickly and gave us the breathing space to make the right decisions for our business, and in particular, our colleagues. As you've heard, our business has grown by over 100% since then, and we believe that an own cash balance of between GBP 600 million and GBP 700 million at our year-end, which is a low point in the cash cycle, plus an undrawn RCF of GBP 500 million, gives us the necessary breathing space should we ever encounter something similar. Just to stress, we don't expect to grow this own cash target as the business continues to get bigger, as we feel this is the right level. Average capital expenditure from FY '27 to '30 is in the region of GBP 950 million, given current visibility of our Airbus fleet pipeline, and we believe financing approximately 50% of these aircraft is very much in line with our historical business philosophy of wanting to own a good proportion of these valuable capital assets, which we intend to fly through to end of life. This would mean approximately 65% of our total aircraft fleet would be unencumbered by the end of 2030. Finally, and has been seen recently, subject to maintaining our capital allocation principles and assuming satisfactory financial performance, we would look to return excess capital to our shareholders. I'll now hand back to Steve, who will talk you through the other slides. Stephen Heapy: Thank you very much, Gary. I'm sure you'll all agree, a very impressive set of results and some very clear messages. So next slide, Jet2's investment case. Our investment case clearly demonstrates why Jet2 is an attractive prospect for investors, both today and for the future. We have a growing market. Although holidays are classed as a discretionary purchase, many, many people within the U.K. class them as an essential purchase and prioritize that above many other things, including lottery ticket sales, streaming services, nights out, social occasions, et cetera. Over the last couple of years, we've added more bases; Liverpool, Bournemouth, Luton, and laterly, our 14th U.K. base Gatwick, and this increases the reach from 58 million to 61 million people. That covers 90% of the U.K. population. Size and scope of the offer. We're the #1 tour operator in the U.K. We've got a great product range. It's over 75 destinations across the Mediterranean, Canary Islands and European leisure cities. We're adding more and more hotels every year in response to the demands of our customers. We speak to our customers. We listen to what they say, and we act on what they tell us. We've got a fully integrated operating model. We control our seat supply. We do self-handling at many bases. We have our own training facilities. And of course, we have the retail operations center, which is now fully automated. Our tour operator only uses one airline, jet2.com. Why? Because it's the best airline in the U.K. according to TripAdvisor, the best airline in Europe according to TripAdvisor and the fifth best airline in the world according to TripAdvisor. Why would we trust our customers on any other airline? We have a customer-led offering. Our Net Promoter Score is in the mid-60s. That's on a par with some of the best brands in the world. We have a 62% repeat booker rate for package holidays. On sustainability, we remain committed to our sustainability targets outlined in our strategy document, and our fleet renewal program is progressing in line with expectations. This will aid a reduction in our carbon intensity ratio. We have a clear path to growth. We've received 23 Airbus A321neo aircraft, the most fuel-efficient and quietest aircraft in its class. And we have over the next 10 years, another 132 Airbus aircraft that will provide us with the ability to replace retiring aircraft and also provide a guaranteed stream of aircraft to fuel our growth ambitions. You've heard from Gary, consistently strong financial delivery. We have a strong balance sheet with which to underpin our growth at Gatwick and other bases, and this will continue with the prudence that we have shown over the last few years. Our growth agenda. Our growth agenda consists of 2 pillars. The first one, defend and strengthen the core. We have a committed firm aircraft order. This will facilitate further growth at our recently opened bases and will position us to capitalize on potential expansion at Gatwick. This order was done during the pandemic period and provides us with a guaranteed delivery stream, and this will help us to provide very accurate plans as to our activity in the future. Our reach, we have an ATOL license for 7 million customers, and this represents a 20% share of ATOL licenses. We over-index in the over 50s and people with a higher disposable income, and this gives us protection in economically challenging times. 33% of our customers were defined as affluent achievers as compared to 22% of the U.K. population. We're leveraging technology. We have the pilot for our revenue management system underway, and this will cover 5% of our flights. As a reminder, our revenue management system uses artificial intelligence and many external data points in which to price our flights competitively within the market. The early results are encouraging, and assuming continued positive performance, we plan to progressively roll out across the majority of flights in the forthcoming financial year. The next pillar is to extend our reach and diversity. Personalization and customer diversification is key. myJet2 has helped increase share of bookings through the app to 31%. That's 5% up year-on-year. myJet2perks has recently been refreshed, giving members the chance to access new exclusive discounts as well as giveaways across a range of popular brands and retailers. Tomorrow's reach. Following the Gatwick launch, we will expand our market presence to 61 million people, attracting new customers, thanks to improved reach, but we also have strong retention rates, underlining our strong customer-first approach. Leveraging technology. The leading-edge automation equipment installed at the retail operations center, alongside data intelligence will in time support an improved onboard retail experience for all our customers. We will aim to have the right products at the right time every time, further optimizing our in-flight's revenue potential. We've also invested heavily in our marketing technology, and there'll be more details on this in a future slide. Next slide, fleet. We're committed to growing and replenishing our fleet to support our growth agenda. We will get additional ACMI aircraft for Summer '26 to enable the allocation of 6 aircraft at Gatwick. But the Airbus delivery program is unchanged and will support any further growth at Gatwick or any other bases. By Summer '32, you can see from the chart, we'll have a total fleet of 161 aircraft, of which 124 will be CFM-powered A321neo aircraft. In our opinion, this is the best narrow-body aircraft in the world today in terms of fuel efficiency and noise. The average seat gauge will increase from 197 in Summer 2025 to 223 in Summer 2032, as the proportion of 232-seat neo aircraft increases. We, therefore, expect total seat capacity to increase at a compound annual growth rate of 4.4% across the period. Investing in our fleet. Investing in our fleet is key to maintaining our competitive advantage. As we increase the mix of A321neo aircraft in our fleet, it's important to recognize the significant benefit this brings to the group. For example, a Boeing 737-800 aircraft seats 189 passengers. However, the A321neo seats 232 passengers. Quite simply, we'll be able to take more people on holiday with less emissions per passenger. The A321neo is a crucial part of our climate transition plan. Additionally, the average cost per seat saving of GBP 10 was realized over Summer '25, primarily driven by fuel and carbon savings. And these savings will increase over time with the increase in the numbers of aircraft. To summarize, 23% more seats on neo, 20% fuel and carbon usage reduction per seat, 50% less noise than our existing fleet, which makes it a very attractive aircraft for many airports and a GBP 10 average cost per seat saving. Next slide, size and scope of offer. We have a diversified flying program at Jet2, and we operate to 25 countries, over 800 resorts from 14 U.K. bases, that's 75 destinations and over 600 routes. We operate to the Mediterranean, the Canaries and European leisure cities. We've offered more destinations in Summer '25, Pula in Istria and Riviera, Agadir, Marrakech and Jerez in the South of Spain. For Summer '26, we'll be launching Samos in Greece, La Palma in the Canary Islands and Palermo in Sicily. This shows that we're continuing to diversify our offer, respond to our customers and give them the destinations they have asked for. You can expect more destinations to be announced in the coming months. Next slide, driving loyalty across our customer base. Quite simply, our goal is to guide customers from their first booking to becoming loyal advocates of the brand and move them up the loyalty ladder. First rung on the loyalty ladder, new customers. We welcome new bookers with a seamless experience and personalized follow-up. From the moment they contact us on the website or in the call center, we make our customers feel welcome. Our customer service starts there. We look after them pre-travel, on holiday and when they return from holiday through a robust and comprehensive communication program, making our customers feel special before, during and after travel. The next rung on the ladder is repeat. We nurture customer engagement through tailored messaging, relevant content and unrivaled product that encourages repeat booking. This, of course, is aided by our significant investment in marketing technology, which we'll talk about in a little while. This is a very important stage in our booking. Some people will try us once, maybe based on price, and we need to make sure that we get the customer, we nurture them, we keep them interested. We send them relevant content and make sure they don't look somewhere else. The final stage on the ladder is loyal. As customers move up, we strengthen the emotional connection with them by providing exclusive benefits and recognition, turning them into loyal bookers who choose us first and recommend them to others. The more people experience Jet2 and Jet2holidays, the more loyal they become. By successfully moving our customers from new bookings right through to loyal status, this increases their lifetime value, boost booking frequency and reduces acquisition costs. Loyal customers are more likely to engage with the brand when they get tailored offers and share their positive experiences, ultimately amplifying the brand's reputation and reach. Next slide, win new customers. First of all, reaching new audiences. We have shown at our recent base launches at Liverpool, Bournemouth, Luton and Gatwick that we are very adept in reaching new customer audiences. However, there's an opportunity to do more to grow our audience by targeting younger demographic customers, springboarding off our highly successful nothing beats meme to increase relevance with this demographic, which is key to deepening our engagement through aspirational social-first content that taps into their interests and passions. Adding Gatwick base allows us to grow our reach to over 90% of the U.K. population, that's 61 million people. The focus of the messaging will be on the breadth of offering, the value that is offered by our products, our credentials and VIP service to drive engagement. We continually strive to improve the size and scope of our offering. We are the #1 tour operator in the U.K. to destinations across the Mediterranean, the Canaries and European leisure cities. We have an unrivaled product choice in excess of 5,600 quality properties spanning over 800 fabulous resorts across more than 75 destinations. And this is increasing every month, as we add more in-demand product to our portfolio. We have a variety of brands. Our beach, cities, villas, indulgent escapes and vibe brands provide relevant experiences for different types of customers. Fantastic range of properties, from 2-star to 5-star, from self-catering to all-inclusive. We provide our customers with the choice they want. We don't try to squeeze our customers into the products we want them to book, we let them choose. We offer fully flexible durations. We allow people the ultimate choice. They can go on the day they want. They can stay for as long as they like. It's up to them. The customer is in charge. Remember, Jet2holidays is the company that pioneered flexible duration holidays. All in all, we've got an award-winning proposition. What we have is very highly rated by our customers. You've seen the awards we win, our TripAdvisor ratings, our awards from the Institute of Customer Service. This is highly valued by our customers, and we continue to strive to provide them with the best experience possible. A happy customer will tell other customers of the experience they've received with Jet2holidays. Word of mouth has proved to be very important. Building on the nothing beats meme, we had over 80 billion global video views across TikTok. The song was named TikTok's official Sound of the Summer 2025. We saw celebrity activity from Jeff Goldblum, Mariah Carey and Drake, who visited our hangar with a combined 173 million followers. An estimated 13 million earned media value through the summer. And a 12% year-on-year increase in spontaneous brand awareness amongst 18- to 34-year-olds. All in all, we are #1 for brand awareness, #1 for branding, #1 for ad recall, #1 for consideration and the Jet2 brand, Jet2holidays has an 86% awareness. We've taken a long-term, consistent approach to building brand equity with our strong visual and sonic branding. We're the only U.K. travel brand to use a triple platinum chart-topping single as our instantly recognized sonic identity. With our effective marketing strategies, we ensure we tap into cultural moments that can be top of mind amongst consumers. Next slide, retain customers through end-to-end service excellence. We at Jet2 and Jet2holidays are famed for our customer service, multi-award winning throughout the years, we aim to build on that further. We offer 4 easy ways to book. Our smooth airport experience is famous. Go to one of our airports and be welcomed by our Red Team who are there to help you through the journey. We offer a VIP service to everybody in the sky. When you get to resort, you meet our Red Team there who will welcome you, put you on your resort transfer and then look after you in resorts. They are there for you 24/7 along with our telephone line. We've spoken to our customers, and 92% of them are satisfied or very satisfied. And the customer service scores have increased. Our Net Promoter Score is 64 for jet2.com, 66 for Jet2holidays. Compare that with some of the best brands in the world, Jet2.com and Jet2holidays are firmly there building a loyal customer base. Our total marketable database stands at over 11 million customers. Over half of these customers are considered active and have previously booked or traveled with us in the last 25 months. Our database has grown at a compound average rate of 13% since financial year '22. And this enables a more targeted personalized marketing experience, along with the investments we have made. We provide holidays that are relevant to customers' needs, and this helps drive effective and efficient bookings. We have leveraged our extensive database and myJet2 loyalty scheme to deliver data-led marketing to grow bookings from our loyal customer base and new customers. This, with the aid of our technology investments, enables smarter targeting, increased retention and deeper brand affinity. Our myJet2 membership program now has over 8 million subscribers with more than 99% of mobile app bookers being members. The program complements our customer retention strategy and is designed to encourage more users to book through either web or app channels by providing tailored browsing, exclusive discounts and rewards, a streamlined booking process, enhanced pre-travel support and in-resort experiences. In the last 13 months, we can see that retention rates are 7.5% higher for myJet2 members, so we know this is working. On myJet2perks, this now includes more offers from brand partners across a range of categories as well as price draws, which will continue to be updated weekly. In addition, our twofold investment in the mobile app and myJet2 scheme should also reduce reliance on more expensive third-party marketing tools. Together, these form our strategic approach to driving bookings. On the subject of technology and personalization, adopting technology to leverage real-time personalization and automation across the customer journey is essential. We provide real-time triggered e-mails and app push notifications to a highly personalized web and app experience and targeted paid media. This is done by enabling an omnichannel customer experience using state-of-the-art Adobe products. This suite of products enables us to market to the right customer at the right time via the right channel with the right content, the right images with the right price. This will prove essential in providing a highly targeted and personalized marketing experience to all our customers. And finally, on to the outlook. For year ended 31st of March 2026, our winter capacity is up 8% to GBP 5.5 million. The latter booking profile continues with average pricing following the Summer 2025 trend, and we will have additional Gatwick short-term start-up investments. To summarize, operating profit is in line with market expectations, excluding the Gatwick investment. On to year ending 31st of March 2027, Summer 2026 seat capacity is up 8.9% to GBP 20.1 million. That includes the Gatwick capacity. Existing bases are up by 3.9%, and Gatwick is 900,000 seats, and we have a healthy proportion of cost certainty locked in. Near term, there will be operating profit margin dilution from the Gatwick investment, but of course, this is a significant long-term opportunity. Final summary, we have a clear path to deliver further profitable growth underpinned by our trusted brand, loyal customer base and proven business model, which gives us ongoing confidence in our growth prospects. That's the end of the presentation. Thank you very much for listening, and we will go on to questions and answers. Thank you. Operator: [Operator Instructions] We'll now take our first question from Damian Brewer of Canaccord Genuity. Damian Brewer: Two questions; one for Steve, one for Gary. Steve, Gatwick, undeniably, it's a huge market and except for Jet2 -- sorry, except for TUI who are still quite small there, and now seems to be covered mostly by seat-only airlines that seem to have very transactional relationships with hotels rather than deep, long-standing ones. Can you expand a little bit more about how your hotel operators and providers have reacted to Jet2 expanding into Gatwick? How they've reacted? What they're saying to you? And what the opportunity there is? And then the second question, I'll do more on go, Gary. I know the GBP 600 million to GBP 700 million minimum net liquidity within the in-year cycle and the net debt-to-EBITDA remaining below 2x for the capital allocation policy, what would cause you not to consider further share buybacks beyond the next GBP 100 million? Stephen Heapy: Good morning, Damian and everybody else. Thanks for the question. Our hotel partners have reacted extremely positively and very well. On the day of the announcement, I had several e-mails and text messages and some phone calls from hoteliers that were very pleased that we had announced the start of operations from the end of March. They already received customers from all our other 13 bases in the U.K., and they like our operation. They like that the fact that customers come on our airline, we cancel very, very few, hardly any flights, the lowest of all the airlines. We look after our customers in the airport, on the aircraft and when they get in resort with our Red Team of customer helpers, and the customers arrive at the hotels very happy. And a happy customer, of course, is someone that looks for less things to complain about. We've got our customer helpers in many of our hotels, and they help diffuse situations. So it's easier for the hotel. They don't have to deal with angry customers at the reception desk because they contact us and we sort out any issues that arrive before they get to the hotel. So it's a much easier and seamless experience for the hotel. And they are really looking forward to receiving guests that come from Gatwick Airport. I think Gatwick in the past, to your earlier point, has been quite heavily orientated to flight-only. But we are expecting to build our package holiday operation from Gatwick. And so far, the response from customers, and indeed the hotels, has been very, very positive. So I'm very encouraged and very excited, Damian, and I think, we will see our operation grow, and we'll be taking many people from the Gatwick catchment area in one of our holidays. Gary Brown: Damian, it's Gary. Thanks for your question. I think, as you know, and as you've seen over the last 12, 18 months, we're very much open to returning capital to shareholders. Why wouldn't we consider doing that in the future? I think first things first, we have talked about that return of capital to shareholders depends very much on trading. So assuming that continues in that positive vein, then we would definitely consider it. I think secondly, we've got to continue to invest in the business. It's an evolving consumer landscape out there. And inevitably, if you don't invest, you haven't got a resilient business in front of you, but strategic projects that gave us a better return than we could get in the market at the time and for a share buyback would definitely take precedence. Today, though, based on the valuation out there, we believe that returning capital to shareholders is a very good use of funds, the GBP 100 million. And just the third thing to say is that based on our best thinking at the moment, and with the CapEx profile coming down the road, it's about GBP 600 million in FY '27, over GBP 1 billion in '28-'29. We're fully expecting the own cash at the low point in the cycle to start to approach the numbers you mentioned before, GBP 600 million, GBP 700 million. So that all being said, I think there's a very good chance that in the future, there will be more buybacks. But I'm not going to pin the tail on the donkey on this call. Operator: And we'll now move on to our next question from Jarrod Castle of UBS. Jarrod Castle: Just sticking with the Gatwick theme, but broader than that. I mean, how do you see the existing competition with easyJet at Luton, Bournemouth? I mean, they are a different product, but just to get your views on that. They're also having a mini CMD next week, Friday, so I'm sure they will explain how they can compete with you. And then, Steve, you spoke a bit about AI. I just wanted to get your thoughts on AI agentic. We're seeing kind of these big deals being signed this week, I think it was Google with Booking and some of the hotels, like Marriott, IHG and others tying up with OpenAI. How do you see that developing and the ability of these providers to connect to hotels so that you can make the booking directly even if they're not the merchant of record? So just a little bit about that rather than AI in terms of revenue management and CRM. Stephen Heapy: Okay. Thank you. In terms of the first point, competition, we're very confident in our products. We have a well-established package holiday operator. Don't forget, we were the pioneers of variable duration holidays, completely flexible holidays. And we also consistently deliver best-in-class customer service, which has been demonstrated through our multi-award winning record over the last few years. So I think people will be attracted to our product. We've had many, many people within the Gatwick catchment area asking for our flights on holidays there for some time. We've finally been able to do it this year. And I think the response will be very good. As to your point, what will be the competitors' response? I don't know. We'll see. We keep our head on our own game, which is providing best-in-class customer service, looking after our customers, listening to our customers, giving them the ability to book through whichever channel they want to by looking after them on the ground, in the air and in resort. And I'm confident that will shine through and make the operation from Gatwick a success as it is in our other 13 bases. In terms of the AI question, there's been a few announcements over the last few days, as you said, as to what might happen. You have to bear in mind, these are largely trials, the things that have been released, and they're largely in the U.S. The U.S. doesn't really have a package holiday market. People tend to, what we call, self-package, that's booked individual elements separately. And the trials with some of the AI tools are relating to one of those components. I think there's a long way to go before we reach something that would provide a tool for people to book package holidays. That will come, but it will take time. I think there will be further developments in the industry. There may be consolidations. There will be new products, products that are in the market now that are relevant that become superseded and obsolete. So what we have to do is keep our eye on what's happening in the market and all the developments, keep up our regular conversations with tech companies, which we do. We spend a lot of our time talking to tech companies to see what's coming down the track. But as we saw in the early 2000s, it's very tempting to jump on whatever bandwagon is passing and put all your eggs into one basket, but we're being very careful and very considered on our choice in technology. We have signed deals with big, robust, financially sound, market-leading technology companies, and we are working our way through to see how the environment changes over the coming years. So I'm very confident that we're back to the right horses. And with our methodical approach, we will come up with the right solutions for customers. Operator: And we'll now take our next question from Alex Paterson of Peel Hunt. Alexander Paterson: You described the performance at the new bases as being encouraging. Can you just sort of give a bit more color on that, perhaps describe the load factors and package holiday mix relative to the group average and the profiles of other bases when they opened? And what sort of start-up losses you've incurred there? And secondly, as a West Sussex resident, I'm absolutely delighted that you're opening a base at Gatwick. Do you think Gatwick would make any more slots available to you before the second runway opens? Gary Brown: Alex, it's Gary. Just in terms of the new bases, yes, we -- as I say, we're very encouraged. And I'll take you back to even Liverpool, which is still a new base. We put a 5th aircraft in the -- this summer. And Liverpool had a load factor of about 85%, but a package holiday mix of 73%. So you can see that particular region is outperforming the average. And bearing in mind, you put in quite a significant increasing capacity, and a load factor of 85% is pretty good, to be honest with you. In terms of Bournemouth and Luton, remember, Luton went on sale a lot later than any of our other bases, and they've come in at about 80% load factor. But again, the package holiday mix is very encouraging, about 60% for those new bases. And what we find is that if we can get that package holiday mix into the 60s, then you get a better level of loyalty and recurring revenue and profitability. So we're more than hopeful that with a full season of selling that certainly Luton and Bournemouth will be closer to the average and the package holiday mix will continue to drift up. I think we were on record of saying that we expected Bournemouth to pretty much break even because it's a relatively small base with just 2 aircraft. We're on track to deliver that performance for the full year. And we expected Luton to be sort of late single-digits loss in its first year of operation, partly because, as I say, it's gone on sale a lot later. And again, we're on track to deliver exactly what we said there. So hopefully, that gives you a bit more transparency there. I'll pass to Steve in terms of the Gatwick slots, the extra slots. Stephen Heapy: Yes, as we said, the Gatwick slots, we got those as a result of extra capacity that was released within the airport, so we didn't pay for those slots. We've got a program on sale from the 26th of March 2026, for Summer '26, when we put in our winter program on and Summer '27 in the coming weeks. And we continue to work with the slot coordinators, and we'll see what additional capacity comes up. We very much hope to grow our operation in Gatwick over the coming years. Operator: And we'll now move on to our next question from Ruairi Cullinane of RBC Capital Markets. Ruairi Cullinane: Firstly, how should we think about the balance between flight-only and package holiday pricing this year? Why has it made sense to discount flight-only prices rather than package holiday prices more? And secondly, on the longer-term capacity growth, which Steve mentioned, should average around 4.4%, I think. Is that purely driven by the fleet plan and upgauging? Or will you aim to utilize A321neos more than older aircraft or operate more daily flights from new bases in the South of England? Gary Brown: Ruairi, just in first -- in terms of the first question, we've consistently stressed that this is a fully integrated operator model, and it's capable of adapting to consumer trends, but also our clear demonstration that we're focusing on optimizing profitability through volume, pricing and product mix. This particular summer, because it has been late in terms of the consumer booking behavior, on average, about 11% of the bookings have been in the month of departure and that's played a little bit more to flight-only. But what's been pleasing from our point of view is that we've always said that both products are extremely important. And it's great to see that customers are recognizing the clear value that our flight offering brings; friendly flight times, industry leader for not canceling flights, the added benefit of our Red Team of customer helpers providing outstanding customer service. So I think people do see that even with a more commoditized product, there's a clear difference in terms of what they expect from Jet2 and why they spend a little bit more money with Jet2. With the late booking curve and the fact that it was more price-sensitive market, yes, we did get more promotional than we have in the past. That said though, I don't see pricing and marketing as 2 separate parts. They are all one and the same, really, in terms of how you invest your money. And we were very strategic and targeted in terms of how we released money from marketing and put that into price to get to the best possible outcome for the business, which, as we said around at the outset, was a record performance again. Stephen Heapy: Thanks, Gary. And on to the second question in relation to capacity, we have given a figure for capacity growth over the coming years. And that's driven by our fleet plan at the moment, and that takes into account the new aircraft that are due to come into the fleet. We've received 23 Airbus A321neo aircraft. I'll just remind you, those are the most fuel-efficient, quietest aircraft in the class. And we've got, over the next 10 years, another 132 to come into the fleet. Those aircraft will fulfill 2 purposes: the first of all, to replace older retiring aircraft, and the second will be to fuel growth within the fleet. We do have flexibility. We've got upwards flexibility. We can retire aircraft perhaps at a slower rate or take ACMI aircraft if there are growth opportunities, and we can retire aircraft at a faster rate if the growth opportunities seem a little bit more limited. So the number we've given you can be flexed up or down in relation to market conditions. So the number we've given is our current view as to the rate of retirement of current aircraft and entry into service of the new aircraft. And there is also, as you said, an element of up-gauging. We will be replacing largely our 189-seat 737-800s with our 232-seat Airbus A321neo. So the growth is driven by, a, more aircraft into the fleet, but we've got flexibility as to what the net impact is. And secondly, upguaging of our aircraft. But I think the big message here is although we've given a number, there is a lot of flexibility about what that number can be over the coming years, both upwards and downwards. Operator: And our next question comes from Gerald Khoo of Panmure Liberum. Gerald Khoo: Two, if I can. Firstly, just thinking, I suppose maybe we do it on FY '27. But what proportion of seat capacity is going to be at relatively new bases, if you just say bases are open less than 3 years and where they're still working the way up the maturity scale? And secondly, also on bases, once you've done Gatwick, is that going to be largely in terms of new bases? Is there enough growth headroom in your existing bases? Are there any other opportunities or any other bases that are still looking interesting beyond Gatwick? Stephen Heapy: In terms of the capacity relating to new bases, well, if we class new bases as Gatwick, Luton, Bournemouth, and let's say, Liverpool, we don't have the exact figure to hand, but it's 11%, 12%% maybe of our total capacity in those bases. I wouldn't really count Liverpool as a new base now, that is maturing very quickly. In terms of, is that it? Well, Gatwick was the last big airport in the U.K. that we had aspirations to grow into. And when we've met many of you that are on the call, I think we've said that we would love to start operations into Gatwick, but the ability to do so was limited through the availability of slots. The airport managed to release some extra capacity through some work that have been done on the airport infrastructure. And we're able to grab that capacity. So I think the aspiration that we set out in our meetings with you has been achieved. Is that it? I don't know. I'd never say never. We're always looking at opportunities within the U.K., but Gatwick was certainly the best that we'd always intended to grow into. But you mustn't forget, Gerald, that there's enormous opportunity still in our 13 existing bases to grow. We've got all the bases that we think there's a very strong business case for increasing capacity. Over the last couple of years, we've prioritized our aircraft into starting a base at Liverpool, at Luton, Bournemouth, and laterly, Gatwick, but putting those aside, there are another 10 bases in the U.K. that we have a fantastic opportunity to grow in. And over the last 2 years, we have launched 4 new bases. That's quite a lot. And we can't take our eye off the ball on our existing bases. There's more work we want to do there. And I think we'll probably be entering a period of stability, where we'll be growing our new bases and maturing the ones that have been launched recently, whilst taking care and strengthening our older bases. Operator: And we'll now take our next question from Ava Costello of Davy. Ava Costello: Just 2 for me, please. And the first one is on the package and flight-only mix. So for Summer '26, where do you expect the mix to go versus Summer '25? Obviously, Luton and Bournemouth bases maturing, and hopefully, moving towards the network average, but what do you expect the impact from Gatwick to have on the mix? And then the second one is a little bit more long-term focus. So how much of the growth deliveries could you potentially go to Gatwick? And is that solely dependent on a new run rate? Or do you see more capacity coming online organically from these tech advancements? Gary Brown: Ruairi, it's Gary. In terms of the package holiday-flight-only mix, as I said before, it's one of the questions, it very much depends on the market you're in at the time. And I'll repeat that, we're constantly solving for the best bottom line outcome whether volume pricing or mix. In terms of how we're looking at it for next financial year, I think if we can be flat in terms of package holiday mix, I think we will be very pleased with that. And early indications, and I will stress, it is very early indications for Summer '26 of playing that sort of theme out at the moment. If -- and again, it remains to be seen what the capacity in the industry looks like for next year. Our initial reads are between 2.5% and 3% at the moment. If there is a rebalancing between supply and demand, which generally happens in this industry, what it means then is consumers don't leave it quite as late to book, which plays more into more of the planned holiday products more than the impulsive holiday products. So if we can achieve flat next year, I think we'll be pretty pleased. And that's still pretty much in line with what we've always said for a full year outcome between 60% and 65% on package holiday mix, and we've been pretty consistent over the years in restating that. Stephen Heapy: Thanks, Gary. And on your second question in relation to Gatwick. We have no intention of standing still with 6 aircraft operating in and out of Gatwick. It's true that we're able to launch the 6 aircraft as a subject of some infrastructure work that was done at the airport. But you must remember, there's movements of fleets in Gatwick all the time, some airlines increase their operations, some airlines decrease their operation, and there are slot opportunities that come up regularly. So I hope we will be able to take advantage of any opportunities that come our way over the next few years. What is likely is the second runway will be approved, and that should come into operation in about 2030. And whilst that sounds a long way away, we've got Summer '27 on sale already, and we started to think about Winter '27-'28. So Summer '30 will be on us before we know what the key is. First of all, to grow and mature our Gatwick operation. And we said in our release that, that will take time to mature that operation. And secondly, we keep up dialogue with the airports and the slot coordinators to see what opportunities come our way. And you've known us for quite a while, you know that we have a track record of grabbing opportunities as they come up, of which the recent announcement into Gatwick is a perfect illustration of, so we'll keep up dialogue and keep watching what's happening and make any announcements in due course if we have something to say. Operator: And we'll now take our next question from Andrew Lobbenberg of Barclays. Andrew Lobbenberg: I can't believe we've got this far in the call and no one has mentioned the B word. So how do you see consumers reacting about the looming budget? And do you see it as being a clearing event and driving more consumer confidence once we're through it? Or what are your thoughts around the budget? And then, staying on Gatwick, and got it, we still are all asking about that, if now, how do you think about the cost of operating at Gatwick? The wonderful Wizz have been saying that it's a really expensive airport and they need to get out of there. I don't know whether you would think about that. But I mean, how does it look to you for airport charges, and indeed, also for the local labor market, which I think is pretty hot? Stephen Heapy: Okay. In terms of the budget, I haven't really got anything to comment on because I don't have any detail. I look at the newspapers on a daily basis. And here, the latest scare story is to what's going to happen. I mean, if you add up all these scare stories, there's going to be an additional GBP 15 trillion raised in the budget. So I don't really take too much notice of the individual policy speculations that I discussed. What I do think, though, is that the government shouldn't be imposing any more tax on air travel and holidays. It already collects an enormous amount of tax from the airline and holiday industry. And I think, it's gone on long enough that this industry is used as a cash cow. So I would urge the government not to increase taxes any further on air travel because that will inevitably put up prices and could price some people out of the ability to take a holiday, and those people will be the lowest paid members of society, which strikes me as being patently unfair. What we do have, however, as a great defense is our customer service. In economic times like this, people tend to gravitate around the brands they know, the brands they trust and the brands they know will deliver great customer service consistently on every holiday. And that is what you tend to see that people gravitate to these brands. You've seen our commentary on our Net Promoter Scores on customer satisfaction, on our rebook rates, and we expect this to be a massive form of defense during any potential reverberations from the budget. So I'm pretty confident -- I'm very confident, in fact, that we should be able to navigate through whatever is thrown at us next year because we'll be shored up by our fantastic customer service. In terms of Gatwick costs, obviously, I can't comment on those, but again, if you offer a great customer service that enables you much more to sell the product, we've got the best reputation for customer service. I'm very encouraged by the sales so far at Gatwick. It's been less than a week, but I'm very encouraged by them. And I think people are recognizing that we are recognized as #1 for customer service and being drawn to our brand. Many companies operate just on the price level and tend to deprioritize customer service. We prioritize customer service. And we think we have an absolute duty to provide people that perhaps have worked for 50, 51 weeks of the year to go on a highly valued holiday, and we feel it's our duty to treat every one of our customers as a VIP, whether they flight-only on a 2-star holiday, a 5-star holiday, self-catering, all inclusive, it doesn't matter. We treat all our customers the same, and that's very much as a VIP. And that's been our philosophy over the last 20-odd years at Jet2, 15 years at Jet2holidays. And that will remain our philosophy and the core of our strategy. Operator: And we will now take our next question from Richard Stuber of Deutsche Bank. Richard Stuber: Two questions for me, please. And apologies, I've got cut off and may be repeating one. The first question is on Gatwick. Could you give us some guidance in terms of what the start-up cost will be for this year and the shape of the cost as you reach profitability to FY '29? And I know you're saying that after that, it will be meaningfully profitable. Is that -- do you assume that there will be more slots and more aircraft in that? Or do you think it will be meaningfully profitable even on the 6 aircraft that you have at the moment? And the second question, just really on the cost outlook for next summer, could you tell us please what you're seeing in terms of cost inflation for accommodation and fuel? And what you would expect then to be sort of the average selling prices of your packages looking forward to next summer? Gary Brown: Thanks, Richard. In terms of Gatwick, we believe that in terms of the booking costs that we'll incur in this financial year to generate the bookings for next summer, plus labor cost, plus promotional content, et cetera, between GBP 10 million and GBP 15 million we reckon in this financial year. And we want to be as resilient as possible going into Summer '26 to make sure that we can provide the best possible product and service to what essentially are all new customers. We need to show them exactly what Jet2 is about. And as Steve has just reinforced, it's all about making customers feel special. And if you want to do that, then you need to spend the right amount of money setting that base up. In terms of FY '27, if you take Luton, I guess, as a guide, we said sort of late single digits losses in its first year. That was with 2 aircraft. We've got 6 at Gatwick. We're also doing it in because it was an opportunity that was slightly ahead of our expectations. And we're also doing that with less efficient aircraft or part less efficient aircraft in the form of ACMIs. So inevitably, there's an incremental cost there. And a bit like Luton, Gatwick is going on sale even later than Luton. And, therefore, there will be some price investment. So I think you can do the math on that and come up with your own answer. But in the FY '28, those ACMI aircraft will fall away. We will be selling across the whole selling cycle, we will be better known, et cetera. And therefore, we expect whatever those losses are in your model to halve is what I would say, and then, move into profitability. In terms of cost inflation, it's still very early, to be honest with you. The accommodation market is moving around depending on what demand looks like, not just from the U.K., but from Europe as well in terms of the Nordics, the German market, et cetera. I would expect accommodation inflation to be in or around 5%, but I may be proven wrong ultimately. We've yet to even decide on what a wage increase looks like for our colleagues. And clearly, we've got one eye on CPI, et cetera. So I'm sorry, I can't help you any more than that. In terms of fuel, you asked about, we're about 70% hedged, I think, for Summer '26. At the moment, the fuel rate is about 10% better. But remember, fuel is only 10% of our overall cost base. But the other side of that equation on FX, a bit of a benefit on the dollar, but we do buy EUR 4 billion worth, and the pound has been weaker against the euro, pretty much through that whole buying cycle. So hopefully, that helps you in terms of some of your modeling. Operator: We'll now take our next question from Axel Stasse of Morgan Stanley. Axel Stasse: I have 2, if I may. And the first one is on the additional capacity for next summer, approximately 4%, excluding Gatwick. And if you include the Gatwick, it's approximately 9%, while I think your competitors are significantly lower than this. So how do you think about fares or even load factors going forward? Do you say your competitive edge is enough or at least sufficient enough to maintain the fares stable? Or -- yes, just to have your view on this. And then the second question is on the cost certainty locked in for fiscal year '27 that you mentioned in the slides. Can you maybe elaborate here where are you most comfortable with? What is already locked in, if I can put it like this? And how should we maybe even look at the airline cost, seat per seat or per capacity growth year-over-year in fiscal year '27? Stephen Heapy: On the first question in terms of the capacity growth, yes, we've said our capacity growth in existing base is 3.9% and including Gatwick about 9%. That's one of the lowest levels of growth we've announced for some years. We don't have an accurate read on what the rest of the market is doing yet, and we won't know that with total accuracy until the end of January when people make the final slot declarations. But you should bear in mind that some of that additional capacity is due to us putting A321neo in some of the bases, which, as we said earlier, is an upgauge and that's 232 seats as opposed to 189. But the cost associated, the seat cost with those 232 seats is much lower. So some of the capacity increase is offset by efficiencies on cost. But we're confident with the capacity we've got. We -- and if we need to make any more adjustments, we will do that as we did with Summer '25, and we have done with Winter '25-'26. We've got a very flexible model and a very flexible approach to capacity management. So that's the number today, 3.9% and 9%. But if we feel we need to make adjustments, we can do that. But at the moment, we're confident with those 2 numbers. Gary Brown: And the second question, I guess it's a similar answer to what I just gave to Richard really. We're about 70% hedged for U.S. dollar on fuel. Fuel, about 10% cheaper in terms of the rate at the moment. U.S. dollar is about 2% better, but 50% hedged for euro, we're probably 2% worse at the moment. So there's a lot of moving parts before we have a very clear view of how that translates into the cost base and cost per seat. Just in terms of cost per seat as well, we don't have sight yet of EUROCONTROL fees, which are obviously very important to us in terms of cost per seat. So normally, we have a better view as we get sort of into January, late January, early February. And we also have a better view of the market at that point in time as well because everyone's put their slots into the system, and we'll be able to give you a better view at that point in time. Obviously, we'll look to price anything in. But as Steve pointed out before, in terms of the budget coming up, we don't know what that looks like either. So there's a lot of moving parts is what I would say, and I'm not being evasive, but there are. Operator: And we will now take our next question from Harry Gowers of JPMorgan. Harry Gowers: First one, maybe you could just talk through the flight-only pricing, how that's behaved or changed over recent months? And do you think the kind of minus 7% level is potentially a trough or a bottom? Or should we be thinking the winter could still come in a little bit worse than that in terms of the outlook? And then, sorry if I missed this earlier, but just on Gatwick, like where could that package mix maybe come in over time? And are you expecting the Gatwick market or catchment area to be any different versus the rest of the network just in terms of attractiveness of the product, demand for package holidays, et cetera, et cetera? Gary Brown: Just in terms of the flight-only pricing, I think we guided to mid-single digits down. It's slightly worse than that. I wouldn't say it's materially worse, but it's slightly worse with the 7%. But at the end of the day, I'll repeat again, I'm sorry, we do constantly look at that volume-pricing mix dynamic to drive the best possible bottom line outcome. And I think we've done that in the first half. In addition, as I say, we look at price part, marketing part as one of the same thing. And what we've been able to do is be very targeted in terms of how we've reduced our marketing spend and where we've put that in terms of pricing across both products actually to drive the best possible outcome for the business. In terms of winter, it's similar at the moment. Holiday pricing is pretty resilient, and flight-only is in negative territory, not quite at the minus 7%. But what I would say is that there's still 50% of winter seat capacity to sell, which tends to be sold from January onwards. And depending on what the market looks like, we may need to invest a little bit more in price or we may not. So only time will tell, but we're balancing the component parts to get the right possible outcome, I think, is what is safe to say. Stephen Heapy: And in relation to the package mix, we did say when we announced the start of our operation that package mix would be lower, and we would build that over subsequent years. Just because people haven't had perhaps a great choice in the package holiday market at Gatwick previously it doesn't mean that they won't do in the future. They will be and are being attracted by, as I said earlier, our customer service ethos by our award-winning product. And they will be attracted to that. Sales have started very encouragingly. It's only a week. I would just caution that we're only a week into it, but I'm very encouraged by overall sales and package holiday sales. And I think we offer what people want, great customer service, but one price. Why would you want to book a flight, a hotel and a transfer separately, and I mean all that hassle of going on 3 websites and messing about waiting 3 lots of transactions? You can secure your holiday for GBP 60 deposit all in one transaction knowing, a, it's with a company that has by far the best customer service in the industry; and b, the company that has by far the lowest cancellation rates of flights. If there's air traffic control issues, we don't cancel flights carte blanche. We fight to get people on their holiday. So I think that's going to be a very attractive proposition. We know that because it's very attractive in all our other bases, but also people from the Gatwick area have been asking us consistently for a long period of time to start operations there. So there's a huge amount of demand pent-up for both package holidays and more specifically package holidays from Jet2holidays. Operator: There are no further questions in queue. I will now hand it back to Steve and Gary for any closing remarks. Stephen Heapy: Okay. First of all, thank you for your time this morning. It's been 1.5 hours and very much appreciated, and thank you for your questions. It's been actually a pleasure to get so many questions from you. I hope we've answered them satisfactorily. And I hope you're pleased with the results, we are. Just to reiterate, it's a record set of results. We're continuing to invest for growth. We've seen that with our aircraft order, our new hangar at Manchester, our base at Gatwick, our retail operations center. Thirdly, we're continuing to create value for shareholders through our increasing dividend and also the announcement of GBP 100 million share buyback starting on the 1st of December. And fourthly, our investment into our product and our brand, which is continuing to retain existing customers, but also attract new customers. And that's not only at Gatwick and Luton and Bournemouth and Liverpool, but we continue to attract new customers at our other 10 bases also. So that's it on the call, I think. Thank you very much. I hope you're as pleased with the results as we are, and I'm sure we'll speak to many of you over the coming days. Thank you.
Operator: Good afternoon, everyone. Welcome to the combined 9 months YTD 2025 results analyst briefing. I am Ian, and I will be your moderator for today. A few reminders before we begin. [Operator Instructions] Number four, please be reminded that this webinar is recorded. Allow me now to introduce our panelists for this afternoon. We are joined here today by Ms. Monica Ang-Mercado, San Miguel Food and Beverage Inc. CFO; Ms. Chesca Tenorio, VP and Head of Corporate Financial Planning and Investor Relations; Mr. Erich Pe Lim, Petron Corporation Investor Relations Head; Ms. Tina Garcia, SMFB Investor Relations Head. Also joining us on Zoom, we have Mr. Bryan Villanueva, SMC's Chief Finance Officer; Mr. Joseph N. Pineda, SMC's Treasurer; Mr. Paul Causon, San Miguel Global Power Holdings Corp. CFO; Mr. Ferdinand Constantino, Adviser to SMC; Ms. Tatish Palabyab, SMC Chief Sustainability Adviser; Mr. Erwin Hernandez, AVP and Head of Business Development, Project and Financial Planning of SMC Infrastructure. We'd also like to acknowledge the presence of other key executives of the group who will be joining us in this call. I now turn you over to Ms. Chesca Tenorio to discuss the SMC Group's financials and operational results. Chesca Tenorio: Good afternoon, and welcome to San Miguel Corporation's Combined 9 Months Year-to-Date 2025 Results Analyst Briefing. We're pleased to announce with pride that the San Miguel Corporation Group has demonstrated strong profitability and a resilient performance during the period. Before we begin further with the financial results of the company, we would like to first highlight a few key developments, which we will be discussing in detail throughout this presentation. As a macro backdrop, the Philippine economy in the third quarter of the year recorded a 4% GDP growth, slower than previous quarters. GDP decelerated amid governance concerns over infrastructure spending and slower domestic demand despite a cumulative 75 bps rate cuts by the BSP so far this year. While GDP growth slowed down, SMC exhibited resilience, recording strong year-on-year performance for the third quarter of the year compared even to the first 2 quarters of the year. The SMC Group maintained strong profitability despite recording lower revenues as the group worked towards margin expansion through cost disciplines, reduced material costs and operational efficiencies. These results underscore the group's ability to navigate market headwinds and other external pressures to deliver resilient performance. The Food, Hard Liquor, Power and Infrastructure businesses delivered the biggest improvements. During the period as well, SMC has earned recognition for its sustainability efforts. This is for both environmental stewardship and social impact. SMC has integrated ESG impact assessments into its capital expenditure review process and conducted physical climate risk evaluations of key facilities to ensure long-term business resilience. Alongside our sustainability initiatives, we continue to prioritize efficiency, financial discipline and key strategic actions, allowing us to maintain growth momentum amid external challenges. Equally important, beyond business performance and value creation, the group's long-term focus continues to center on nation-building, food and energy security and driving sustainable development. We remain committed to supporting the country's long-term growth by advancing critical infrastructure projects and expanding our energy portfolio to meet the increasing needs of our communities and industries. So that's basically our executive summary. So let's now turn to the group's respective earnings performance. On the slide, you'll see SMC's results. SMC delivered solid results for the 9 months ending September 2025. This is reflecting strong profitability and operational resilience amid persistent global headwinds and a looming local political concern. The company's strategic focus, cost discipline and efficiency initiatives supported earnings stability despite softer revenues and continued pressures in global commodities market. Consolidated revenues declined 7% to PHP 1.1 trillion, mainly due to, one, lower crude and commodity prices that has impacted the fuel and oil and power segments; two, reduced revenue contribution from the power business due to the deconsolidation of SPPC and EERI and lower average realization prices on lower coal and WESM prices. However, this was partially offset by solid contributions from the food, hard liquor and infrastructure businesses. Consolidated operating income increased 13% to PHP 137.4 billion, driven by lower raw material costs, pricing actions and improved operational efficiency, resulting in margin expansion from 10.3% to 12.6%. Profitability improvements were led by Food Group, Hard Liquor and Infrastructure, along with Power posting the largest improvement in margins. Net income rose significantly to PHP 78.6 billion during the period, supported by a gain from the fair valuation of investments and foreign exchange gains. Even excluding one-off and ForEx impacts, core net income improved by 54% to PHP 60.3 billion. Consolidated EBITDA finished at PHP 194.3 billion, and this is 16% higher than prior year. Now to walk us through the performance of San Miguel Food and Beverage, I'll turn the floor over to Tina. Kristina Lowella Garcia: Thank you, Chesca. For the 9 months ended September 2025, San Miguel Food and Beverage continued to deliver strong results with consolidated net sales reaching PHP 302.9 billion, up 4% from last year, supported by firm demand, efficient pricing and sustained brand initiatives across its Food, Beer and Spirits divisions. Operating income rose 12% to PHP 44.7 billion, while net income grew 11% from last year to PHP 33.7 billion, reflecting solid performance across all segments. EBITDA increased 13% to PHP 58.4 billion, driven by broad-based gains and improved margins across the businesses. Let me walk you through the Food businesses performance for 9 months period ended September 2025. San Miguel Foods maintained its solid performance with all key metrics exceeding last year's levels. Revenues grew 7% to PHP 143.5 billion, supported by strong volume growth across the segments. The Protein segment posted 11% revenue growth on higher volumes, backed by stable internal supply and continued favorable chicken prices. Animal Nutrition & Health revenue declined 1% year-to-date, a marked improvement from the first half shortfall of 5% as feeds volumes steadily recovered. Prepared and packaged food consisting of Purefoods, Magnolia dairy and coffee sustained strong momentum, delivering 9% revenue growth driven by higher sales volumes, favorable selling prices and an improved sales mix. Operating income increased 32% to PHP 13 billion, largely driven by Protein's sustained strong performance and continued favorable raw material prices. Net income rose 33% to PHP 8.9 billion, while EBITDA grew 27% to PHP 19.6 billion, reflecting broad-based margin improvements across the businesses. Moving on to the Beer business. San Miguel Brewery reported revenues of PHP 110.7 billion, almost matching last year's level. Operating income rose 2% to PHP 23.9 billion, reflecting effective cost management, supported by the September 2024 price increase, resulting in improved margins. EBITDA increased by 4% to PHP 30 billion with margins improving to 27%. Net income reached PHP 18.8 billion, up 1% from last year. Domestic revenues totaled PHP 98.3 billion, a slight 1% decline year-on-year. The performance reflected subdued discretionary spending, the impact from last year's pre-September price increase trade loading and the onslaught of successive typhoons affecting most regions. Operating income for the domestic business was flat at PHP 20.7 billion, while net income finished at PHP 18.5 billion. International operations registered modest growth with all key metrics showing improvement. Revenues reached $218 million, up 3% versus last year, driven by strong volume growth in exports, Thailand and South China as well as higher San Miguel brand sales in Vietnam. Operating income rose 15% to $56 million, supported by higher volumes, lower production costs and managed expenses. SMB continues to implement key initiatives to strengthen its brand presence. In the domestic operations, SMB reinforced equity building through the Oktoberfest kickoff event and the release of the new SMB Christmas campaign. Offtake boosting initiatives were also implemented such as thematic and digital campaigns, consumer and tactical promotions and product innovations, reinforcing flagship and premium brands. In the international operations, SMB boosted consumer engagement through channel-specific programs, modern trade expansion and sustained brand building through seasonal campaigns, merchandising drives, digital initiatives and product innovations. Amid a challenging market, SMB will continue implementing volume-boosting initiatives alongside prudent cost control, supply chain improvements and organizational capacity building. Turning now to our Spirits business. In the first 9 months of 2025, Ginebra San Miguel sustained its strong performance despite a challenging market with revenues reaching PHP 48.7 billion, a 7% year-on-year increase. Operating income rose 19% to PHP 7.5 billion, supported by higher selling prices, favorable molasses costs, improved distillery efficiencies and continued secondhand bottle usage. Notable volume growth was observed from the Vino Kulafu and Primera Light brands. Net income and EBITDA grew 17% and 19%, respectively, reaching PHP 6.3 billion and PHP 8.4 billion. That concludes the update for San Miguel Food and Beverage. I'd now like to invite Eric to present updates on Petron. Erich Pe Lim: Petron Corporation in the first 9 months of 2025 reported revenues PHP 594.9 billion, a 10% softening versus the same period last year. Revenues dropped mainly due to lower Dubai crude prices from an average of $81 per barrel in 2024 to $71 per barrel in 2025, a 13% drop. The decline in crude oil price was attributable to a significant buildup of crude supply by key producers compounded by geopolitical tensions and shifting policies. Despite the aforementioned external challenges, Petron was able to notably register double-digit growth in other key metrics with operating income finishing 20% higher at PHP 26.6 billion. This was driven by higher domestic sales, lower costs and improved plant efficiencies. Combined sales volumes from the Philippines and Malaysia reached 84.7 million barrels, up 3% versus the comparable period last year. Growth was fueled by strong domestic performance, particularly in the Philippines, where volumes in highly profitable retail segment continued to grow, registering a double-digit increase of 11%, allowing Petron to unceasingly corner the bigger share of the market. Finally, this led to a net income, which registered even higher gains, increasing 37% year-on-year to PHP 9.7 billion, underscoring the company's resilience in navigating persistent industry headwinds. Over to you, Chesca. Chesca Tenorio: Thank you, Erich. Let me now continue with the performance of the remaining businesses in the group, along with updates on our sustainability initiatives, overall business developments and outlook. San Miguel Yamamura Packaging Group maintained stable performance, posting September year-to-date revenues of PHP 28.4 billion. This is nearly unchanged from last year. Revenue was generated by serving key food and beverage customers of their plastics, beverage filling, flexibles, paper and glass packaging requirements. Operating income, though improved by 4% to PHP 2.2 billion, driven by the successful implementation of cost-saving programs and initiatives to improve productivity across all its operations. Meanwhile, EBITDA declined slightly to PHP 4.0 billion. Moving to the Power segment. San Miguel Global Power's revenues amounted to PHP 118.8 billion. That's 23% lower compared to previous years with offtake volumes dropping by 18% to 22,090 gigawatt hours. The decline, though, was primarily due to the divestment and resulting deconsolidation of the South Premiere Power Corp. or SPPC, owner of the 1,278 megawatts Ilijan Power Plant. This was made with the completion of the group's divestment of 67% interest in the underlying gas power generation assets last January 27, 2025. Moreover, the decline in the revenues reflected a downward adjustment in fuel tariffs to bilateral customers due to the continued softening of global coal prices. Excluding the impact of the SPPC deconsolidation, volumes were relatively stable, supported by the following: first, there's a full 9-month operation of 4 generation units of the 600-megawatt Mariveles greenfield power plant and 3 BESS or Battery Energy Storage Systems, facilities with a combined capacity of 110 megawatt hours, plus 5 additional BESS facilities with a total capacity of 140 megawatt hours, which began commercial operations in 2025. Second, strong offtake volumes from the Masinloc Plant contributing 6,571 gigawatt hours or 30% of the total volume. And third, there was higher generation volume from the San Roque hydroelectric power plant amounting to 929 gigawatt hours. That's up 125%. So overall, operating income for the power group rose to PHP 34.8 billion with operating margins expanding to 29% from only 22% last year. This improvement is a result of better margins from contracted capacities and significant contributions from BESS facilities. Such operating income does not include the share in the net earnings of SPPC and EERI, which owns the new Batangas combined cycle power plant units 1 and 2 with a net capacity of 425 megawatts each. This amounts to about PHP 5.9 billion to date, which the energy business continues to recognize from its remaining 33% interest in these gas power generation assets as part of its portfolio, even with the aforesaid deconsolidation. Meanwhile, EBITDA grew 22% to PHP 54.1 billion. Net income for the power group surged to PHP 42.4 billion, bolstered by the PHP 21.9 billion gain from the Chromite transaction and higher earnings from key operating power generation asset portfolio. Excluding the aforesaid gain from the Chromite transaction, core net income still improved significantly by 52%. Moving now to the Infrastructure segment. SMC Infrastructure sustained its growth trajectory with revenues rising by 7%, buoyed by the improved traffic volumes across all toll roads. Combined average daily traffic reached PHP 1.07 million, marking a 4% increase from the corresponding period last year. EBITDA grew by 8%, reaching PHP 23.8 billion with a sustained margin of 80%. Operating income rose by 12% to PHP 16.7 billion, supported by effective operational and management cost control. Moving to the Cement business. The Cement Group generated consolidated net sales of PHP 25.5 billion for the 9 months 2025. That's a 6% decrease from the comparable period last year. This is primarily due to the lower sales volume and weaker average selling price as a result of the continued influx of imported traded cement. Imports were estimated to account for 21% of industry volume as of the period. Despite the 3% decline in EBITDA to PHP 7.3 billion, margin though improved to 29% due to ongoing cost efficiency measures. Meanwhile, operating income fell by 4% to PHP 5.1 billion. A snapshot of our balance sheet, SMC's consolidated total assets as of September 30, 2025, stood at PHP 2.7 trillion, while total liabilities amounted to PHP 1.9 trillion. Stockholders' equity ended at PHP 733 billion. Consolidated cash balance stood at PHP 344 billion, while interest-bearing debt totaled to PHP 1.6 trillion. Next, we just want to highlight some 9 months 2025 sustainability performance for our group. The following are the highlights. SMC, along with the subsidiaries, Northern Cement and San Miguel Global Power Holdings were recognized for its sustainability initiatives. On September 23, 2025, SMC received recognition as one of the sustainability champions from Manila Times. On October 23, 2025, the Asian Water Awards recognized SMC for its water conservation initiatives of the year for Philippines, in particular, for Northern Cement Corporations reaping the rain and recycled water program. San Miguel Global Power also received recognition from the same award giving body for Outstanding Water Resources Contribution of the Year for the Philippines. This is for the Malita Power Plant's entry and integration of treated into non-potable domestic water supply systems. Also for Masinloc Power was awarded 3 Asian Power Awards. One is Environmental Upgrade of the Year Philippines, for its entry of clean chemistry, sustainable corrosion mitigation at Masinloc units; Operational Efficiency Initiative of the Year, for its entry of fuel flexibility in a cost-effective mill improvement project to promote industry innovation and customer satisfaction; and third, Circular Economy Leadership of the Year, for Philippines for its entry of cost-effective mill enhancement project, leveraging fuel flexibility to promote customer satisfaction and drive industry innovation. Overall, San Miguel Global Power was recognized then for Employee Engagement Initiative of the Year, Gold, for the company-wide sustainability month event. Other highlights of our sustainability performance. We continue to advance our environmental, social and governance commitments, focusing on embedding sustainability into our core business processes and decision-making. Under environmental stewardship for our 9 months '25, integration of sustainability and capital projects was done. We have formally embedded a sustainability questionnaire into our capital expenditure process. This ensures that environmental and social impacts are systematically assessed for all proposed projects, supporting responsible investment decisions. Second, climate risk assessment. This was completed in October 2025. So now our climate risk assessment has been completed. It's identifying potential physical and transition risks across our operations. Business units now are reviewing the final materials to develop targeted mitigation and adaptation strategies. Next, under capacity building and governance. For carbon markets readiness, this was completed in September 3, 2025. We conducted a carbon markets workshop for our management team to strengthen internal understanding and readiness. This initiative enhances our capacity to engage with emerging carbon pricing and trading mechanisms in the future. Lastly, as an energy update as of 9 months 2025, over the next decade, I'd like to reiterate that we will be shifting towards renewables by expanding hydroelectricity capacity, building solar plants and adding more battery storage systems. In June 2025, through GEA-3, San Miguel Global Power was awarded 4,200 megawatts of hydropower projects. And next in October 2025, under the GEA-4, we secured over 2,225 megawatts of new solar projects. This marks a major step in transforming our portfolio and supporting the country's clean energy transition. Lastly, we now move to the outlook and recent updates of the group. To reiterate, SMC is pressing ahead with its growth and expansion strategy backed by solid operating performance amid the country's current political situation and global economic challenges. For the new Manila International Airport, progress on the land development and ground improvement works are ongoing with areas ready for construction of key facilities. SMC continues to look for ways to optimize cost and overall project time lines. For the NAIA, completed improvements as of September 30, 2025 include the following: first, there are local road networks that have been upgraded with widened curbside areas to ease congestion and enhance traffic flow. A new automated parking system with expanded payment options has been installed to streamline entry and exit. Terminal 1 OFW lounge and multiphase prayer room, Terminal 3 dignitaries lounge and airside employee cafeterias in all terminals have been completed. Implemented new traffic management schemes and designated of outer lane as taxi-on lanes at Terminal 3 have also been completed. Upgraded and migrated to SAP for automation of business processes have been done. Heating, ventilation and air conditioning systems at Terminal 3 and lighting fixtures at Terminal 3 arrivals have also all been upgraded. Beyond the completed works, NAIA is also working on the following: in partnership with Collins Aerospace, ongoing rollout of modernized passenger processing and airport management systems, additional immigration e-gates, upgrading of key airport equipment such as elevators, walkalators, explosive detection systems, passenger boarding bridges, advanced visual docking guidance systems and lastly, terminal facilities such as expanded bus gates, lounges and retail and dining halls are all on works. For MRT-7, the railway components percentage completion is at 81.5%. For the depot site development and construction of other facilities are still ongoing. In addition, the submitted variation, which include the new location of Station 4 is approved by the San Jose Del Monte and DOTr. Consequent to the new approved location of Station 14, there is also an ongoing study on the realignment of the highway component. On the toll roads, we continue to advance our improvement projects for existing toll roads such as Skyway System, NLEX, SLEX and STAR. Upgrades include road widening, additional entry exits and interchange enhancements. Ongoing construction works on SLEX TR4 is progressing steadily well with the toll roads percentage accomplishment and right-of-way acquisitions at 49.4% and 85%, respectively. These projects would allow for greater development in Metro Manila and other fast-growing regions of Luzon by enhancing connectivity, easing congestion and improving traffic flow, supporting the country's overall social and economic development. Last, as of September 30, 2025, roughly 50% of the group's 1,000 megawatt hours of BESS projects are already in operation, delivering ancillary services to the National Grid Corporation of the Philippines under a 5-year Ancillary Service or ASPA or selling their spare capacities to the reserves through the independent electricity market operator to ensure grid stability. The remaining BESS projects in the pipeline are expected to commence commercial operations by 2026. SMGP is also expanding its renewable energy portfolio through hydropower and solar energy projects, as mentioned earlier. On updates on our sustainability front, SMC is finalizing a sustainable finance framework to align financing with ESG strategy of the group. The document is seen to establish the company's decarbonization road map and will enable us to access sustainability-linked financing options, supporting the transition toward a lower carbon and more resilient business model for the group. Other projects in the pipeline include an automated platform to track sustainability data across all business units and development of business level road maps for each of our 4 sustainability goals. And that brings us to the end of our presentation. Thank you for your time and attention, and we now open the floor and call for your questions. Operator: [Operator Instructions] We have a question from -- we have a raised hand from [ Tony Watson ]. Unknown Analyst: Okay. Can you hear me okay? Chesca Tenorio: Yes, we can hear you. Unknown Analyst: Great. Just one question on the Meralco claim. When I visited San Miguel Power a couple of months ago, they mentioned they're expecting a final ruling on the second claim sometime late fourth quarter, early first quarter. Any update on that? Paul Bernard Causon: May I take on that, Jessica? Chesca Tenorio: Yes, Paul. Thank you. Paul Bernard Causon: So thank you for your question. Let me update you first on the first claim. So the first claim is for PHP 5.1 billion. And pursuant to the ruling of the Supreme Court, which came out earlier this year, Meralco has paid already 2 out of the 6-month installments to date. Now with respect to the second claim, which is a little over PHP 29 billion, about PHP 15 billion of that is still unaccrued by the company. We we've had the hearing with the ERC yesterday basically to discuss the case. And the way that the way case went on, there were 2 things that were apparent from the meeting. Number one, we were able to get a confirmation from Meralco with respect to the amount. So there is no dispute at all with respect to the amount of the claim. The second one, the legal basis for the second claim is tightly linked with the first case, which has already been ruled upon by the Supreme Court. So those 2 critical elements of the case were put on record by the hearing officer from the ERC. And we expect that the results of such hearing will be elevated to the commission when it will be meeting -- and by early December. And I think with respect to the earlier assessment on the time lines, we will be a bit delayed with respect to the resolution, maybe not this year, but definitely early next year, most probably January. Operator: We have a raised hand from [ Ajay Sharma ]. Unknown Analyst: Can you talk about -- can you hear me? Chesca Tenorio: Yes, we can hear you. Unknown Analyst: Okay. So I want to know for both the Spirits and Beer business, the volume growth has been pretty modest. I guess, Spirits no volume growth, I guess, this year. So I'm just wondering, how much was the price increase for both of them this year and how much was the excise increase? And how do you see the fourth quarter shaping up? Chesca Tenorio: Well, Ajay, historically, for the fourth quarter, those are the months, the celebration months because Christmas is a big event for the Philippines. Normally for -- across our businesses, Food, Ginebra and Beer volumes tend to improve sizably. In terms of the excise taxes, it's around 6% annually, and most of that is usually passed on or declared in the beginning of the year. So by now, the volume performance of the Q3 or the first 9 months, I think really shows the challenged spirits and alcohol industry in the sense that the consumer habits have changed in terms of on-premise drinking and off-premise. We have more competitors as well as the earthquakes and the recent typhoons, they have had a very big effect as well as the economic effect on the consumption for nonessential goods, which is really our Spirits and Beer business. But for Food, you can see the volume is growing. Unknown Analyst: And are you gaining market share? How is the market share trend for both categories? Chesca Tenorio: We are still very dominant in Beer. As you know, we're 90-plus market share. I think to gain additional points is really difficult and challenging. However, we are trying to introduce more variants, more SKUs for -- to excite the market and to enter other more premium categories, and that's where we are trying to gain market share away from the foreign brands. Also for Ginebra or the Spirits business, we have been gaining market share steadily around close to 50-plus percent for the white. Of course, there's still plenty of room for us to try to grow. We're trying to really penetrate the brown spirits market. Operator: We have a question from [ Mark Anthony ] [indiscernible]. Congratulations on the results. Question for GSMI. After half a decade of volume growth for GSMI and considering the perpetual increase of excise taxes, do you see GSMI moving towards direction of growth in value due to higher prices and not necessarily in volume as we may already have seen in the 9 months of 2025? Or does the distribution network of GSMI still have a huge runway to drive volume growth? How does 4Q '25 volumes of GSMI look like? And is it reasonable to expect the cash dividends next year to grow by the same rate as income this year and maintain the payout ratio? Chesca Tenorio: Okay. For the first, well, we already explained some of that. Definitely, the past years, we have been surprised at the market's ability to absorb the higher prices. We've been passing on the increase in excise taxes to them and the volume has been growing. But yes, we do not rely on being able to pass on the prices. We still think that there is a lot of room for growth, not only for our flagship categories or brands such as the red or the low-cost gin, but we have many other SKU or category that we're trying to grow, especially in the Visayas and Mindanao or the Southern regions. In terms of the distribution network, we have many untapped areas yet. We have been increasing dealer routes and distributors or dealers to our network, not only for Ginebra, but also for Beer, because we feel that, that's really where we can improve, not only in increasing distributors, but also increasing wholesaler routes. We have also been increasing our CapEx for expansion related or production capacity-related projects. So we really do think there's still a lot of room to grow, especially for Spirits. For Q4, again, this is the best time for Ginebra, Beer and Food. Typically, the volume will really be very, very high average per day compared to the usual. And for the cash dividends, we don't really provide guidance or guarantee on what we will be announcing for the following year. But as you can see in the past years, our payout ratio has been steadily increasing. It really depends on the performance of the company. Operator: We have another question from Karissa Magpayo. On FB, can you share sales growth trends so far in 4Q '25? Are we seeing some improvements in demand across the 3 segments, namely Beer, Spirits and Food? Chesca Tenorio: Okay. This is almost the same question, but I'll maybe share more about the Food growth. As you know, we have commodities business, which is mostly poultry and feeds and those have been steadily growing very well. The thing is for poultry, prices of the poultry have gone down in the past few weeks. So that may be affecting our volume. But for our prepared and packaged food businesses, which are the branded or value-added, those are Purefoods canned goods and other timplados or ready-to-cook, ready-to-eat type of products. Magnolia, which are heavy into butter-margarine-cheese type or dairy type of businesses, those are heavily used by bakeries and the normal consumers or households because it is Christmas time. So they're having a lot of sweets or desserts. So that's what's going to be driving the Food business for Q4. Operator: We have a question from [ Sharmaine Co ]. Question for Petron. May I ask how much inventory holding gain losses were in the third quarter, both in 2025 and 2024? Erich Pe Lim: For inventory gains and losses, for year-to-date September 2025, inventory losses amounted for roughly around [ PHP 2 billion ]. So this is a little lower or flattish coming from the disclosed figure in the first half of 2025. This is particularly because crude prices, crude by crude, basically consolidated in the third quarter of 2025 at around $70 per barrel. So we didn't see that much volatility. Now if you compare it to the year-to-date September 2024, inventory losses during that period is a little more than PHP 4 billion. Operator: We have a question from an anonymous attendee. For Power, could you walk us through the expected baseload capacity additions coming online in 2026 to 2027? Paul Bernard Causon: Okay. That's sort of an industry question. And well, I will answer it from our perspective, nonetheless. So currently, the net reliable capacity in Luzon, which accounts for practically 70%, 80% of the country's supply and demand is around 14 to 15 gigawatts on a daily basis. And out of that number, roughly 62% is more than 20 years old in terms of operating life. So there's quite a bit of fragility on the supply side. But with the ensuing coal moratorium that's been imposed by the Department of Energy, there's been quite a bit of expansion on the baseload side. The Department of Energy has across committed projects of roughly 9 gigawatts in solar capacities for the next 3 years with expected plant factors ranging from 16% to 18%. From our end, what is for sure, would be we are putting up 700 megawatts in baseload capacity by next year from Masinloc Units 4 and 5. I would say that I have quite a bit of insight on other generators plans with respect to baseload capacities, but the total is relatively very small at 500 megawatts. Operator: We have a raised hand from [ Ashwaria Pai ]. Unknown Analyst: My question is, first, San Miguel Global Power. Now that the auctions are completed, is it possible to give a guideline on the solar and hydropower CapEx and the time line for it and the incremental EBITDA from those projects? And my second question is, what would be the funding source for the next maturities of dollar bond for San Miguel Global Power in 2026, which is close to USD 1 billion? Paul Bernard Causon: Okay. Several questions there. So on the first one, what's clear with respect to our hydropower projects that's qualified under GEA-3 would be a CapEx headline of around $12 billion to $13 billion. But that one, of course, is subject to cost optimization. So we have -- we're looking at various approaches on construction and also on how we will configure the EPC with respect to those projects that should significantly reduce the cost further. From our initial assessment, we're looking at somewhere between $5 billion to $6 billion. But the equity component or the amount that we expect to spend in the next 3 to 4 years should be way smaller, somewhere between $2 billion to $3 billion. Again, subject to ongoing detailed studies, technical studies on the sites and also depending on our ongoing negotiations with the OEM suppliers, particularly for the Francis turbines. With respect to our GEA-4 projects, which are the solar farms, that would entail a relatively smaller number in terms of CapEx. So it's more or less around $1.4 billion, which we expect to incur over the next 4 to 5 years for the awarded capacities of roughly 2,200 megawatts. But again, that amount is still subject to cost optimization depending on our ongoing negotiations on the panels. And considering that most of the civil works would be something that we can do already internally and also would entail relatively smaller costs as far as the sites that we've chosen are concerned. Because most of the solar projects are -- in terms of megawatts are located in the Angat water reservoir, which -- since it's floating solar, there's supposed to be minimal site development. And therefore, the time lines for its completion will be very -- a lot shorter than the other ones in terms of time lines. The COD for the solar projects would be -- with respect to the 2,200 megawatts should be completed within the next 3 years. And then our GEA-3 projects, the hydropower projects in 5 years' time. The first batch of the 4.2 gigawatts should be available, roughly 2 gigawatts by 2029, 2030. Second question on the refinancing. Well, the DCM markets definitely is something that we are closely looking at. Our preference, of course, is to have the expiring dollar perps refinanced in peso, DCM sources. Of course, we're looking at the dollar markets as well. But in any case, we have the existing liquidity to be able to backstop any refinancing activities that we will be doing next year. And we're fairly confident, at least for the perps that are expiring in January this year -- January 2026 and December 2026, that we should be able to easily have them refinanced. Operator: We have a question from an anonymous attendee. For Petron, what's your current outlook for crude oil market next year? Erich Pe Lim: To be perfectly honest, it's quite difficult to perceive into 2026, just given how fluid our business is and the confluence of factors that affect crude prices, right? But what I can share, I guess, how we see crude prices will be at least for until the end of 2025 and into the first quarter of 2026. So currently, Dubai crude prices at around $65 per barrel. So at least for -- until the end of the year until end of 2025, we see it range trading more or less plus/minus at $65 per barrel. So it's steady. And that's particularly because of 2 factors, right, which will keep prices supported and that particularly the persistent geopolitical risks and the sanctions that were imposed on Russia and Iran. However, in the first quarter of 2025, we could see it probably range between $60 to $65, maybe a little correction. And that's particularly because of the demand and supply dynamics which would pressure prices. On the demand side, as we all know, you can still see a lot of uncertainty in terms of tariffs, which, of course, has hampered economic activity. And on the supply side, you see OPEC+ continuously adding right into their production. This year alone incremental volumes brought upon by OPEC is already more than 2 million barrels. And based on their last announcement, in November and December, they would add incremental volumes of around 130,000 barrels per day each month. So these are basically the factors that might pressure prices. But nevertheless, we see it still more or less in a level around $65 to $60 per barrel. So it's not very volatile, relatively speaking. Operator: We have a question from [ Kiu Huang ]. How were the price increases in SMFB in Q3? Can you break down in each segment, including Food, Beer and Spirits? Any price increases planned in Q4? Chesca Tenorio: In Q2, so the price increases were very minimal. For Food, there was also -- there was around a small single-digit increase, Ginebra as well. For Beer, we did not do a price increase for Q3. Now for the Q4, I think the plan is to just maintain. If ever there will be some increases, it will be in a few months' time. Operator: We have another question for Power. What's San Miguel Global Power's plan for purchase equity shares at Meralco? Could you talk about the progress of securing and drawing down project debt at Project Chromite and Masinloc Units 4 and 5? And could you share a bit the outlook and funding requirement for San Miguel Global Power in 2026? What's construction and funding plan for solar projects at GEA-4? Paul Bernard Causon: Okay. So many questions. Let me go through them one by one. So on the Meralco shares, it remains to be a strategic investment of the group. We're quite happy, of course, with the dividend payout and the market value of these shares currently. But with respect to adding more to this remains to be opportunistic in nature and of course, depending on the circumstances presented to us. But at the moment, these shares remain to be a highly strategic investment of the group. With respect to the project debt for the Chromite entities, we are currently in the documentation phase with the lender banks. And we're very close to having the finalized and executed maybe later this year or early next year. The total debt that could be raised there is roughly PHP 145 billion in total. On the project level debt for Masinloc 4 and 5, it's progressing very well. We've been getting quite a bit of interest and commitments from local banks. We are more or less confident that we'll be able to raise at least PHP 50 billion to PHP 60 billion from this, and that should pretty much snap off any remaining debt on the EPC for Units 4 and 5. So as far as we are concerned, in as much as the EPC invoices are not yet due to date by virtue of the vendor financing arrangement that we have in place for these units. So this pretty much would have no significant impact to us in terms of cash flows at least in the next 2 years. Okay. Last question -- last 2 questions. Could you remind me again what was the -- what were the last 2 questions you asked? Chesca Tenorio: EBITDA outlook -- Paul, it's the EBITDA outlook and funding requirement for 2026 and construction funding plan for solar projects. Paul Bernard Causon: Okay. On the EBITDA outlook for 2026, well, what we've seen this year is pretty much indicative of what we expect to see next year, except that we will have full year contributions from battery projects that we have coming -- that we've commissioned and put into commercial operation early this year, bringing the total to around 500 megawatts. By next year, we expect the rest of the 500-megawatt pipeline to become fully operational as well. It's an opportune time to get into renewable -- into ancillary services, especially since the DOE is integrating quite a bit of intermittent capacities into the grid. As I mentioned earlier, over the next 3 years, it expects to integrate around 9 gigawatts of intermittent solar capacities. And our batteries are strategically positioned to be able to provide power quality services to NGCP to be able to allow such integration. With respect to the -- and then therefore, our profit outlook for next year should be at least around PHP 70 billion in terms of EBITDA. With respect to our funding plan for next year, a lot of those actually are refinancing activities. So the biggest debt that are maturing next year will be our January 2026 perps. So we have that pretty much pinned down. So we're looking at 2 very concrete financing activities that we are very confident to be able to have that refinanced over -- at least a 5-year period. The December 2026 perps, as I mentioned earlier, we're looking at peso DCM deal for that. We have to have it redenominated and financed also over the long term. The rest of the financing activities strategy would either involve syndication, involving foreign banks and also local banks, again, to be able to refinance roughly PHP 30 billion, PHP 40 billion in expiring debt next year. How to finance the solar projects? So I did mention the CapEx earlier. It's $1.5 billion, but that is expected to be incurred over a 4-, 5-year period. The primary method or approach that we're looking at to do this will be through the vendors. So because of the magnitude of the capacities that San Miguel Global Power is going to foray into, a lot of contractors, OEM suppliers for panels are actually offering us a lot of options with respect to vendor-initiated or vendor- financed deals. And that will give us a lot of flexibility in terms of financing these projects, not only with respect to the equity component, but also on the debt component. And as you know, given the nature of the Green Energy Auction Award, it's basically a government-sponsored offtake contract or set of contracts. So we are very confident that at some point in the next 2 years, once we paid at least the equity component of the $1.4 billion that we'll be able to raise the requisite OpCo level debt. And again, given the vendor financing that we have put in place, we are under no pressure to actually have this done at least in the next 5 years. So I hope I've covered all your questions. Let me know if there's anything else. Thank you. Operator: With the interest of time, we have one last question from an anonymous attendee. For San Miguel Corp., what is the net debt at the parent level as of 9M '25? Chesca Tenorio: Thank you, Ian. For that question, parent net debt of San Miguel Corp. is PHP 701.4 billion as of 9 months 2025. Thank you. Operator: All right. That concludes our Q&A. Thank you to everyone for your questions and to our panelists for providing detailed and informative answers to our queries. For those who have further questions, you may address it to us via e-mail at smcinvestorrelations@sanmiguel.com.ph. Thank you, and good day. Kristina Lowella Garcia: Thank you. Chesca Tenorio: Thank you, everyone. See you next briefing. Thanks for joining.
Roland Jones: Well, good morning, ladies and gentlemen, and welcome to the Schroder Oriental Income Fund plc Annual Results Webinar coming to you today from the Schroders' headquarters in the heart of the city of London. I'm Roland Jones. I'm responsible for the investment trust sales here at Schroders. And I'm pleased to be your host over the next 35 minutes or so. I'm also very pleased to be joined by your portfolio manager, Richard Sennitt. Good morning, Richard. Richard Sennitt: Good morning, Roland. Good morning, everyone. Roland Jones: Richard has got over 35 years' experience and has recently returned from... Richard Sennitt: Not quite Roland. Roland Jones: Okay. Richard Sennitt: Over 30. Roland Jones: Just returned from a trip to Australia. And over the next 35 minutes or so, we're going to talk about the performance of the trust over the results period, the positioning a little bit of outlook and our views for the region, but also very importantly, the importance of generating a dividend from a portfolio of Asian equity stocks. So we're going to spend a little bit of time over on that topic over the next 35 minutes. Now you will have plenty of time to ask questions. I have my iPad. Please fill them in, send them to me. You've also got the opportunity to download the annual results and today's presentation. So it's all there. There's also a survey at the end. We'll be very grateful if you could fill that in because that's really useful for us, so we can make sure that these presentations are sort of meeting your requirements in the future. So that's the agenda for today. Roland Jones: Richard, tell us a little bit about the team that we have in Asia because that's very important, isn't it? Let's cover that. Richard Sennitt: Yes. No, you're absolutely right. It is a key part of our investment process. And I think it's probably worth just touching on how we do manage the portfolio and the way that we approach investment in Asia because I think it is a really important part of the ability to deliver success over the long term. First of all, we think that markets are inefficient in Asia, which won't surprise you. And the best way to extract those inefficiencies is very much through a bottom-up fundamental process. And to that end, as Roland mentioned, we have a very extensive team based out in the region. Although I'm based here in London, you can see that we have a team based through 6 offices in Asia and 47 analysts. And they're going out visiting companies, writing reports, making recommendations, and I'm drawing on their best ideas from an income perspective to create a portfolio of roughly about sort of 60 names. I think it's probably what's worth highlighting is that what we don't do is screen the universe for the highest-yielding stocks and backfill the portfolio with those names. What we're looking to do is to buy into companies where there is most certainly an income rationale to go in the portfolio, but there is also hopefully upside to fair value as well. And that does mean that there are some areas of the market where we're probably going to have a little bit less exposure or not get exposure to. One of the most obvious areas that we are quite underweight in would be, for instance, the Chinese Internet platform companies would be an example of that. This does mean that, I guess, stylistically for the fund, there is -- given the characteristics of income and so on, it doesn't tend to mean that overall, we have a sort of a bit of a value bias to the portfolio. So that's really on the sort of the team and high-level process. And perhaps if I sort of give a bit of a recap about what's been going on in the markets because I guess this year has been a year when actually Asia has been a pretty good performer versus world markets. It's up over 20% year-to-date. And I suppose if you rewind 12 months ago, that may have been a bit of a surprise to people because if you think about it, we just were in that period when we're having Trump coming into being elected in the U.S., and he obviously had very clear views around tariffs, which obviously, it was going to have a big impact on Asia. And also, there was concern around the outlook for the Chinese economy. So looking at whether there was risk around a hard landing there. And I guess what we've seen since then has been that markets have got a bit more comfort around those things. So around enough is being done to sort of stabilize the Chinese economy. And I think also that some of the sort of initial talk around tariffs, I think people got more comfortable with some of the deals that are starting to come through on there, and that's allowed markets to do a bit better. The other thing, of course, which has been a real driver for markets globally has been around what's been going on with AI and obviously, Asia is very much an enabler for AI with its extensive sort of semiconductor companies and world-class names like TSMC, Samsung Electronics, these sorts of names. And they're obviously a part of that whole ecosystem, and that has been helpful for the markets. And then I'd say the final piece, which has sort of driven markets a bit higher has been a weaker U.S. dollar, which tends to be helpful for liquidity in the region and good for stock markets, at least historically. And with that, just looking at the chart that we've got here, you can just see that what each of the individual markets have done. And the reason that I put this chart up here is just to sort of show that actually most of the rise in markets is being driven by -- or has been driven by a re-rating rather than earnings growth necessarily being revised up or coming through. So this just breaks down the returns for each market and it says what proportion came from a re-rating, what came from earnings and the earnings being the green, the dark blue being the sort of re-rating. And you can see in most markets, it's been about a re-rating. And that's because the markets have been quite liquidity driven. They've been quite narrow. They've been quite thematic. And as we go through time, I'd expect to see a bit more of a broadening out from the sort of re-rating phase more to sort of earnings growth coming through. And this just sort of paints that picture a bit in a slightly different way. The chart on the left is just looking at the sort of the weight of the largest 5 stocks in the benchmark. And you can see that on the left-hand side, it's now over 25% of the market. So it's been quite a concentrated market rally, and that's been sort of a bit similar to what we've obviously seen in markets like the U.S. And the number of stocks that have been outperforming has come right down, which is the right-hand chart. So it's been quite narrow, and that's around that sort of thematic piece, which I was sort of talking to. And that's generally been not a great backdrop for income, I'd say, because it has been quite a bit more of a growth-focused rally and with growth outperforming value. So if we look at the sort of the performance of the trust over the sort of financial year, you can see that here, we've got -- so I think the first thing to point out is obviously that absolute returns have been pretty good over the year. And actually, if you look back through time, they've been relatively consistent. You can see they're generating roughly 10% per annum over the longer term. Against the index, the strategy has lagged the benchmark. And that has really been around a couple of things. Firstly, about the point about value has been a bit of a headwind in the market because growth has done better in what's been quite a liquidity-driven market. And some of the names which have done very well have been some of those Chinese Internet platform companies, so the likes of Tencent, which is hard to sort of own from a sort of -- with an income -- justify from an income rationale perspective. So that's been one of the sort of headwinds. That's partly offset by an overweight in the stock selection in sort of Hong Kong. And I'd say then from a sector perspective, sort of financials have been good for us, being overweight and stock selection within them and -- which has been partly offset by stock selection within IT. The other thing I should point out here is obviously that subsequent to that year-end, we have announced the full year dividend, and it's shown another increase there, and I'll talk a bit more about that in a second. If I bring it sort of a bit more up to date to the end of October, you can see that the markets have sort of continued to rally. And that has been driven again by very much a continuation of sort of strength in some of those AI names. And since the month end, there's been a bit of a sort of question mark around that, about the sort of the sustainability of the rally, but maybe we can talk about that a bit later. But generally, the market environment has obviously been positive for equities. And I think it's probably worth pointing out how if you're looking at this trust, how you should think about how the trust performs in different types of markets. So here, we just got the annual returns going back over the last 10 years and looking at -- and what I would tend to say is that when markets are sort of quite liquidity-driven or growth focused, that tends to be a bit of a headwind for relative performance, but you tend to do relatively well from an absolute sense. But when markets are falling or gently rising, there's a reasonable, hopefully, an opportunity to outperform versus the benchmark. And I think that's what you see over the sort of 10 calendar years that we've got here. The strategy has sort of underperformed in 3 of those years is 2017, 2019 and 2020. And they were years which were good from an absolute perspective. So you made good absolute returns but lagged the benchmark, and that's partly because they were focused on growth. Those markets, they tend to be quite growth-driven, quite liquidity driven. But in most other markets, you can see there, which are generally rising or falling, the trust has managed to outperform its benchmark. So that's sort of the way that you should sort of, I guess, think about that relative performance piece. And just talking a bit more, I suppose, just putting that piece, I mentioned that sort of higher-yielding stocks have basically had a bit of a challenge from a relative performance perspective. So this just looks at the relative performance by quartile of yield. And you can see -- so if you look at the right-hand side, any -- the bars above the line are stocks outperforming the benchmark. And you can see that the lowest yield quintiles, so Quintile 4 and Quintile 3 have performed well, whereas the highest-yielding quartile has been the sort of the weakest performing quartile. And that's coming back to what I was sort of describing earlier as to how you should expect. So high-yielding stocks have lagged the benchmark essentially. And then if we look at the sort of performance of the individual markets, and this is to the end of October, and it looks at the 12-month returns. I think it can almost be summed up in sort of in a relatively -- I mean, it's a bit of a generalization, but the areas that have done best over the last 12 months or so have been in those areas of sort of North Asia and around us sort of more of an AI focus. So if you look at sector returns, the best-performing sectors, information technology, I guess, not too much of a shock to many people. And then on the left, if you look at the country returns, the North Asian markets, in particular, Korea, Taiwan, China, all outperformed. And obviously, particularly Korea and Taiwan have that large semiconductor industry and that enabler of AI theme there. And then on the flip side, you've got the sort of, if you like, from a market perspective, those markets which have got relatively less in some of those more direct technology AI areas. So -- and perhaps a bit more impacted by what's been going on from a tariff perspective in some ways. So you're looking down at the sort of the -- some of the Southeast Asian markets, so like Thailand, Philippines, Indonesia, but also Australia, which, again, is another market where it hasn't got so much of that sort of IT exposure. And from a sector perspective, it's been the sectors that have lagged have been those which are sort of a bit more defensive, so utilities, consumer staples and health care and so on. So if you look at the sort of performance of the trust over the longer term, that -- and here, we've got the sort of light blue line, which is the sort of FTSE, the green line, which is the regional benchmark and the dark blue line, which is the trust, you can see over the long term, both the region and the trust have outperformed the U.K. market. So it has sort of, if you like, fulfilled a sort of diversification away from the U.K., if you like. So for someone who's got a lot of U.K. income, this is sort of potentially you could diversify through this and over the longer term, there are periods obviously when it doesn't outperform the U.K., but long term, it has outperformed. And I think the other thing just to sort of highlight is that the trust has outperformed the benchmark over the longer term. And I think that's a sort of -- is an argument, particularly when you're investing in Asia for sort of active fund management. And I think those sort of inefficiencies within the market that you can hopefully, over the long term, exploit to an extent. So if we look at the sort of the dividend per share over time, as I mentioned that's another increase this year in the dividend, and that's the latest in the line of increases, which have been going on now consistently every year since launch. And I think it's probably worth saying that in a sense, the trust is a bit plain vanilla in the way that it generates its income. It's not obviously paying out of capital. It's paying out of the income that's come through from the companies that we've owned through time. And it's also not trying to generate income through writing options or additional strategies. So in that sense, it's quite sort of, I guess, simple in its approach to the underlying income. And that does mean that you get that sort of value tilt to the portfolio. Roland Jones: So Richard, does that mean that every stock that you own in the portfolio is a yielding stock? And are you drawn towards those high yielders? Richard Sennitt: There has to be an income rationale for the stock to go into the portfolio, but it doesn't necessarily have to have a high yield today or it could indeed even not be paying a dividend today. But I have to see a clear progression to a decent dividend being paid out in the sort of forecastable future, if you like, rather than necessarily say, 10, 20 years down the line. So there is definitely an income rationale, but there is the ability to buy into companies where I think there's going to be an increase in dividend, which is material coming through over the forecastable future. So yes, it's -- so that you don't have to have a dividend, but in general, the very large majority do. Roland Jones: And are you naturally wary of those stocks paying a high dividend because that may not be sustainable? I presume the sustainability of dividend is an important factor as well. Richard Sennitt: Yes, sustainability is important, and we obviously consider that when we're looking at individual stocks. And I think it goes back to that point I made at the beginning where we don't just screen for the highest-yielding stocks because often some of those stocks can be ones where you do see dividend cuts because perhaps they're paying out more than they should. And we also want to buy into companies where there is potentially hopefully some sort of growth in the medium to long term and that potentially is a bit of upside to capital. So yes, we do focus on that point. It doesn't mean that we can always avoid dividend cuts, but it's obviously a consideration when we put stocks into the portfolio. Roland Jones: That's good. Thank you for clarifying that. Richard Sennitt: And I suppose this -- just to give a bit of context around where yields in the region are today. If you look at the left-hand chart, this just shows the dividend yield for the different regions. And then you can see the yield of Asia and the yield of the trust. And I guess if you look at the region, the yield is -- it's higher than the U.S. It's a bit higher than Japan, not as much as in the U.K. But if you look on the right-hand side there, you see that the trust does yield a premium, obviously, to the region, as you'd expect. And at the moment, it is a little bit above that, the yield of the U.K. market. And then the chart on the right, I guess, is instructive of sort of where relative yields are versus history versus the sort of different regions. So this just looks at the, if you like, the dividend yield premium of Asia versus the rest of the world, and you see it's relatively high at the moment versus its long-term history. So in that sense, relative to other markets, it doesn't look particularly extended at the moment. And then I guess, just to finish off with you on some of the drivers of income at the moment. On the left is just sort of consensus numbers for dividend growth at the moment, which coming through -- sorry, a lot of sort of small bars there, probably not very clear. But I guess the bottom line is that we're sort of -- we are getting dividend growth forecast to come through this year, sort of that mid-single-digit range of growth. It does vary between sectors. And then on the right, the other sort of influence of dividends, obviously around currency. So particularly the strength of sterling versus the regional markets. And obviously, if sterling is strong, that tends to act as a bit of a headwind for the translation of dividends back into sterling and vice versa. And over the last few years, actually, it's been a bit of a headwind at work. Very recently, it sort of just started to come off a little bit from currency. So if we see that continue, that would be favorable, but it has been a headwind, broadly speaking, over the last couple of years. And then to your point about sort of resilience of dividends. And I think one of the reasons that sort of Asia is sort of interesting or is, in my view, relatively reliable source of income is that it's not particularly extended from a sort of payout perspective. So the proportion of company's earnings that are being paid out is not that high. So if you look at the left-hand chart, you can see that green line, which is the payout ratio for the region, and that's sort of 30 -- it sort of goes in that sort of 30% to 40% range. So quite a big cushion if sort of earnings could come under pressure. And then on the right, gearing also for the region, and this just looks at the listed sector gearing versus other regions. And you can see that the Asian region, which is that light blue line is relatively low versus the other regions. So again, another sort of reason why you might get some sort of resilience there if things did slow down. So if I talk a bit more now about sort of, I guess, outlook and positioning and where we sort of have exposure within the fund and the outlook. I guess, first of all, here, what do we like in the region? I guess this slide is a reminder of some of the key themes as stocks that investors in the trust can get exposure to. We've got obviously some of the global leaders in tech, so things that we mentioned sort of TSMC and Samsung Electronics, but also -- and they're obviously benefiting from that structural AI growth theme. But we've also got some of the world's best manufacturers in Asia unsurprisingly. So you've got things like Shenzhou, which is focused largely around sort of sports apparel, that sort of thing. Hon Hai, which obviously does a lot of the manufacturing of -- increasingly of high-end servers for AI, but also people probably know it for a lot of the Apple product that it does. And then a good exposure elsewhere to some of the sort of domestic growth trends as well. And we look through sort of financials, so banks, insurance companies and some of the other names there. And if you look at the trust sort of positioning that we stand at the moment, I think the thing -- we haven't made any big shifts over the recent period. But I suppose the thing that stands out and continues to stand out would be that we remain very underweight China. That's partly offset by the overweight to Hong Kong that we have. And that -- part of that is around this point around some of the Internet platform companies that don't really pay much in the way of dividends. But -- and I'll talk a bit more about China and the outlook in a second. But we continue to like Singapore, although that size of that overweight, we have sort of brought down a little bit. And the other area, I'd say we have taken money out of over the course of the last 12 months or so or whatever has been in Korea, where we're now underweight. And that's partly a reflection of the market has done really well. It's re-rated up. And part of that re-rating up has been on the sort of value-up program, which you probably heard people talking about, which is sort of trying to focus a bit more on shareholder returns and improving sort of -- generally sort of improving corporate governance in different areas. So... Roland Jones: Are we seeing evidence of that's of working? Richard Sennitt: We're starting to see some of that coming through. But yes, I wouldn't say it's by any means universal at the moment. So -- and that's hence why one of the areas I've been taking a bit of money out of because stocks have moved up in anticipation of this happening. And yes, we have seen some things, particularly in some of the sort of -- actually in some of the financial sector, we've seen improvement in dividend payouts and such like. So that has been coming through. But we're now in a phase where a bit more of the sort of things that need to happen are a bit more tied into sort of changes in legislation and so on that need to come through, which take time. And hopefully, over the longer term, we will do, but there is some expectation that they will in prices at the moment in my view. And then I guess on sectors, again, we remain, I guess, overweight in sort of real estate and financials and IT but I would say that we have taken down the weight over the course of the last 12 months in financials and IT. IT has obviously done pretty well as an area, as we've described. So there, it's been a bit about relative value and taking money out for that reason. Financials, again, it's been a good performing area of the market. And we still like financials, but just some of the things which have done well, we've sort of taken money out of. And then I suppose on the underweight, consumer discretionary remains a big underweight, partly again, that's partly around sort of Chinese e-commerce companies and so on. And I guess we've been adding to some of the sort of sectors such as utilities and some of the sectors that have lagged a bit into staples. Roland Jones: So that's where the proceeds from some of the gains we made on the IT, financials and real estate are going into those particular sectors. Richard Sennitt: Yes, being recycled. Roland Jones: Yes. Right. Richard Sennitt: And actually, we did put some money into consumer discretionary. So we were more underweight there, but there have been some opportunities in places like China to increase our exposure. Roland Jones: That's a bit of active management. Richard Sennitt: Yes. And then just the top 10 holdings, and I guess I'm not going to go through these names, but just in the sense of reasonably diversified both by country and by sector. And I think it is worth just sort of from an overall standpoint, just commenting on how the sector or the region is quite heterogeneous. It's not just about China or exports or whatever. Within the trust, you do get exposure to a broad set of drivers. And so obviously, we get the exposure that I sort of described in North Asia to some of these exporters and tech companies, that's Korea, Taiwan, and that makes up just over 1/3 of the portfolio. That's, I guess, driven more by what's going on globally in the export cycle as well as obviously structurally in AI. And then obviously, we've got sort of about 30% of the portfolio in China and Hong Kong, where we'd say that still has some of the challenges, which we know about around demographics, overinvestment and so on. And so we as we sort of mentioned earlier, we are quite underweight versus the reference benchmark. But as an active manager, we can still find things that we want to buy in there. And then I guess the other 2 chunks are sort of ASEAN, which has got a large portion of which, I guess, or the bigger overweight comes from our position in Singapore, which has increasingly benefited from its increased importance as a financial center within the region and also acting as a sort of increasingly into the region outside of its hinterland, et cetera. So some of the smaller ASEAN markets, Indonesia, Philippines, Thailand, Vietnam, all those markets which are, to an extent, benefiting in a sense from the sort of supply chain diversification, which we've seen coming out of from corporates that have been very focused on producing in China, and they want to have alternative sources of production. So that's sort of whole China Plus One theme. And then Australia, which again, is -- you don't think of necessarily as the highest growth market, but is a market where shareholder returns have generally been pretty reasonable through time and again, acts as a good sort of diversifier there. Roland Jones: And you've just come up from Australia, haven't you? Any particular insights that's worth sharing at this point? Or will you come to those? Richard Sennitt: Well, I come to those. I mean, yes, because I guess Australia is a market, as I was sort of saying, it's not -- you don't think of it as a sort of a high-growth Asian market in the sort of traditional sense. So you sort of perhaps think how does that fit within sort of an Asia portfolio or whatever. But it obviously benefits from growth that is going on across Asia as a whole from an economic standpoint. So what's going on, obviously, with its large commodity sector and so on. And also, the other point is that actually, you think of the sort of demographics, you don't necessarily think of a sort of Australia as being at the forefront of that, but actually because they're growing their population pretty rapidly, the demographic profile is also pretty good for Australia as well. Roland Jones: Which is not the same for other. Richard Sennitt: Yes, for some of the other Asian countries, it's working the opposite way where the populations are obviously getting older and the sort of fertility rate has dropped a bit. So in some of those North Asian markets. Roland Jones: Interesting. Okay. Richard Sennitt: I guess quickly on time because I realize I've been talking quite a long time, but I'll swiftly move through these last slides. I mean, on China, our sort of general position in the sense of the way that we're viewing the market hasn't really shifted that much. And this is a slide I would have used last year, obviously updated. But I think it does tell you what's generally been going on, which you look at consumer confidence at the moment in China, it still remains pretty low, hasn't improved much. So the domestic economy in China, despite the sort of stimulus measures that have come through have not actually seen the economy pick up particularly strongly from a domestic standpoint. Exports has been pretty good. That's helped the economy overall. And instead, people instead of choosing to sort of invest in property, which has obviously been a pretty weak area, they've been saving and increasing their savings, which is that middle chart. And that has seen sort of -- that's a plus and a negative, I guess, in the sense that, obviously, if they're saving more, they're not spending. But I guess if they can sort of get things right and people spending, there's obviously an opportunity for consumers to draw down on those savings to spend more when confidence improves. And on the right-hand chart, it just shows how interest rates haven't actually started to see a pickup in household borrowing. So that mechanism hasn't yet sort of flown through into the economy. And then the other -- so we remain underweight in China, but the other area, of course, where is sort of an area of debate... Roland Jones: Very topical. Richard Sennitt: Yes, is obviously within IT and AI in particular. And I think we're all sort of familiar with the chart on the left, which is sort of U.S. hyperscaler CapEx. It's obviously been exceptionally strong. And as a proportion of sales, it's sort of up there now at sort of around 20%. So that's grown very rapidly, and that's sort of been driving, obviously, related names in semiconductors and so on, both in Asia and elsewhere, which is the right-hand part of the chart. And near-term growth continues to look very good. The question mark is more about are we nearing that peak now. And the real question mark is all this investment is how much return are we going to generate on that investment. And that's where the sort of the big question still remains. So we are less overweight in IT than we would have been sort of 12 months ago. So we've been gradually bringing our exposure down just really to reflect that sort of how well these things have done over the course of the last 12 months. And the other area, which I mentioned, which we continue to like is sort of financials. We're a bit less overweight than we were. Again, it's sort of not just banks, it's also insurance companies, exchange companies. Penetration of insurance products, which is on the left, is still very low versus sort of developed markets. And so there's an opportunity longer term for that to grow through time. So we quite like that. And then on the right-hand side, you just look at sort of some of the returns coming out of banks. The ROEs are reasonably good in these markets. and the yields are good as well. And although rates have come down or come down a bit, and that will have an impact on margins, as rates come down, it has a flow-through on obviously, credit cost, but also on just demand for loans as well. So you hopefully get some offset coming through from there. And then I mentioned the point about the U.S. dollar earlier, and that's the central chart here or this chart here. And you can just see the green line, which is the U.S. dollar index. So as it goes up, the U.S. dollar is strengthening, as it comes down, it's weakening. And you can see that it moves sort of inversely to the index, which is the -- which is a dark blue line, and you can see that particularly clearly in the sort of '90s and early 2000s. But -- and more recently, you can see, obviously, the market has gone up and the U.S. dollar has weakened. So there is a correlation there. If we continue to see U.S. dollar weakness, that could act as a bit of a tailwind if history is a guide. Roland Jones: And Richard, actually, we've had a question on the dollar weakness. And obviously, you've very well -- you've sort of explained the relationship between the dollar and Asian equities. But the question actually relates to does a weaker dollar -- is there any evidence to suggest that either an income strategy or a more value-orientated strategy benefits more from a weaker dollar? Is there any evidence to that to support that fact? Richard Sennitt: Yes, I'm not sure that there's necessarily evidence to support that direct link. I guess the way that the sort of transmission mechanism works, I think if you look at it as the U.S. dollar weakens, it tends to ease liquidity in the region itself, and that allows interest rates in Asia, the central banks can start to sort of ease rates, and that helps from a sort of economic standpoint to generate growth. So you could argue, I guess, that it should be better for the domestic economy in a relative sense perhaps vis-a-vis some of the more export-orientated areas just because rate cuts should benefit domestic growth to an extent. And obviously, some of the sectors which have got good yield are attractive at the moment, things like financials, which I mentioned, obviously are driven by the strength of the domestic sector. So there's a sort of a bit of a link there. And then just the final piece is just on -- quickly on valuations. And I should say, given the rallies that we've seen in the market and what I was saying about it's been more about re-rating up than sort of earnings necessarily coming through strongly at this stage. The chart on the left just shows the sort of PE of the region versus its history, and you can see that it's now above the long-term average. So not particularly cheap markets versus the longer-term averages, but versus developed markets, which is on the right, which just shows the sort of ratio of PE for the region versus developed markets, you can still see that on that basis, Asia still looks relatively attractive versus history. And then when you sort of dive down and get a bit more granular looking at the different markets, you can see that here, which is the sort of just looks the little blue diamond -- light blue diamond is the valuation -- current valuation of the market against its range. And you can see that for most markets, they're sort of above their longer-term averages. And you can also see that there's a big spread across markets. So again, I think one of the key things to take away is that, again, from a sort of an active strategy, you can take advantage of those relative differences in valuation, which are there from a market level. But also when you look and drill down at the individual stocks in those markets, there's -- they're not all at the same price. So you can find -- again, you can find good opportunities. And to that point, the sort of -- again, the left-hand chart is just that repeat of that sort of stocks outperforming, the index come down. So it's been a narrow rally. That means outside of that, there's stocks that potentially you can find. And if you look at income stocks, which is the right-hand chart here, so this just looks at the top 2 quintiles of yield, so the top 40% of stocks by dividend yield and how they're valued relative to the market. And you can see that, that discount that's there, so it's around about sort of a 25% discount at the moment, roughly speaking, from the chart is not extended versus history. So from a sort of, again, dividend names don't look particularly extended versus the market in my view. And that is the sort of -- I won't take you through all the slides there, but that's the conclusion of the presentation. Roland Jones: Well, that's great because actually very comprehensive. We've got a little bit of time left for a few of the questions that come through. We have some really good questions actually. We -- interesting, one of our listeners has asked about, is it now time to consider inviting Japan back into the fold into an Asian -- a pan-Asian trust, particularly one where one is generating a dividend and the valuations for, say, the Japanese market are looking a little bit more palatable compared to where they were 20 years ago. Any thoughts on that? Richard Sennitt: Yes. And I think that certainly has merit. I mean we have historically invested in Japan to a lesser or a greater degree for the trust. I mean it's never been a significant weighting, but... Roland Jones: The trust is allowed to get Japanese exposure... Richard Sennitt: Yes. So we have one name at the moment in Japan. It's certainly a small exposure. But -- so there is opportunities over time. And -- but yes, at the moment, it's relatively small. Roland Jones: That's good, okay. And we've had another -- quite a few questions about valuations, particularly related to the AI bubble in Asia. And I think we've sort of covered quite a bit of that. But I'm just interested to hear, how has the trust performed in the very short term? I know we don't focus on the short term. It's the medium, long term and it's important. But has there been a degree of resilience with the trust given some of the profit taking you took out of the technology stocks recently? Richard Sennitt: Yes. I mean... Roland Jones: Great timing, by the way. Yes. Richard Sennitt: Well, yes. No, I mean, obviously, there have been those market -- those stocks have done well. And there has been definitely over the last few weeks, there's definitely been an increase in volatility around those names as I guess people have become a bit more nervous about valuations and I think the whole idea of what is the return of all this investment going to be, where are we going to get those use cases. And that has seen a bit more volatility. And from a relative perspective, I think since the end -- I mean, in the very short term since the end of the month, I think the trust is up in a relative sense against the benchmark about 2% or so. And so it's broadly flat against the market, which is sort of a little bit down a couple of percent or so. Roland Jones: And we've always positioned the trust and not only been able to generate a very decent income from Asian portfolios, but also quite a good way of getting a lower risk, slightly more conservative way to approach the Asian market. Richard Sennitt: Yes. I mean the set of stocks generally tends to have -- if you took those stocks and looked at them individually against the market as a whole, they tend to be lower volatility in aggregate. And that through time is a bit why you get the sort of when the market is rallying hard, they tends to lag a bit. So it's a bit low beta and vice versa. Roland Jones: Understood. Okay. We just have time for perhaps one more question. We've got a question about -- relating to the comments you made on the ASEAN region and talking about the very diverse nature of the Asian market, but specifically about the Philippines, where we've got a little bit of an overweight. What's the rationale there? What do you particularly like about the Philippines? I presume it's a stock more than a sector -- sorry, a stock more than a country related, but please tell us. Richard Sennitt: Yes. I mean there, it's a holding which we've had for a while, which is has done reasonably well, which is -- it's actually ICTSI, which is a port operator. And it's not just a sort of a domestic Filipino story, although that's actually an important segment of its earnings. It's also sort of an emerging growth proxy in the sense of it has a lot of exposure to emerging market ports globally. And so as trade flows within that emerging market piece grow over time, hopefully, the company should benefit from that. The Philippines is an interesting market because at the moment, it's one of the markets that's really sort of, I guess, lagged to put it nicely, I suppose, lagged the region. And the region is one of the markets which is trading at a significant at a discount to its sort of historic longer-term range. So it's definitely becoming more interesting. I guess interest rates clearly an easing of interest rates clearly globally help the Philippines perhaps more than some of the other markets given the external finances and so on. But I should say that as that potentially becomes a bit more attractive, it's also not the most liquid market in the world, and it's quite volatile. So it's never going to be a really huge portion of the portfolio from that perspective. Roland Jones: Okay. Well, thank you. Useful. Well, ladies and gentlemen, we're sort of fast approaching quarter to 10:00. Thank you all very much for listening in today and for all of your questions. Richard, very comprehensive overview of the region, which -- looking at your summary slides, I mean, despite having some concerns about China and some of the technology stocks, there is a lot more to Asia than just those 2 sectors, a very diverse area. We talked about the interesting opportunities in Australia, in ASEAN, in Korea. The trust after 20 years still remains a great way of generating a growing dividend from a basket of Asian portfolios. And we're on track to, I hope, attain the dividend hero status showing a 20-year unbroken rise of dividend over the next -- over the last 20 years. So one more year to go. But ladies and gentlemen, thanks once again for all your questions. Please do the survey. The feedback form is really important for us. It just helps us tailor these types of presentations for the future to make sure that we continue to hit the mark. Please send that into us. Have a great rest of the day. Thanks very much. Good morning.
Operator: Good day, and thank you for standing by. Welcome to Wix.com Ltd.'s Third Quarter 2025 Earnings Conference 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 when your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Emily Liu, Head of Investor Relations. Please go ahead. Emily Liu: Thanks, and good morning, everyone. Welcome to Wix.com Ltd.'s Third Quarter 2025 Earnings Call. Joining me today to discuss our results are Avishai Abrahami, CEO and Co-Founder, Nir Zohar, President and Co-Founder, and Lior Shemesh, our CFO. During this call, we may make forward-looking statements, and these statements are based on current expectations and assumptions. Please consider the risk factors included in our press release and most recent Form 20-F that could cause our actual results to differ materially from these forward-looking statements. We do not undertake any obligation to update these forward-looking statements. In addition, we will comment on non-GAAP financial results and key operating metrics. You can find all reconciliations between our GAAP and non-GAAP results in the earnings materials and in our interactive analyst center on the Investor Relations section of our website, investors.wix.com. With that, I'll turn the call over to Avishai. Avishai Abrahami: Thanks, Emily. With Vibe Coding and our decades of proven expertise in democratizing emerging technologies for everyone to enjoy, we will be able to deliver products that unlock entirely new value for small businesses and people. Let me start by setting the stage. When I think about Vibe Coding, I try to simplify things by breaking the world apart into two categories. One is the developer sphere. This is Claude code, cursor, Windsurf, and all these tools which are great for engineers. These tools integrate directly on the source code of a project, enabling complex technical programming which requires significant user expertise. The second sphere is where everyone else lives. The majority of humanity who do not code or even think they can code. Suddenly, with Vibe Coding, they can create pieces of software that improve their personal lives or help to build their businesses, all by simply using natural language. For example, a school teacher can create a custom app to track attendance and post grades. A neighborhood restaurant can build an application to handle their staff schedule, another to manage vendors, another to sort inventory, and so on and so forth. These people can now build any type of application they need or want with zero coding knowledge. Bottom line, Vibe Coding is unlocking access for regular people to build software intuitively without any technical barriers. This story sounds exactly like Wix.com Ltd.'s story back in 2006. We did not invent websites back then. They were already widely available, but only to big companies with engineering budgets. There was an absolute barrier for the average person. We knew there was a way to enable an online presence for everyone. This was and still is the mission of Wix.com Ltd. We intend to do for software what we did for websites, enabling everybody to build applications without any need for a developer. What's different today is that the software application market is many, many times bigger than the website creation market. Think about it. That same neighborhood restaurant needs only one website, which they likely built on Wix.com Ltd., but they may need many applications to successfully run their business. Up until now, creating the application a business owner may want has been too expensive or completely inaccessible. Without this new tech, it probably would never have been built. We are already seeing this huge opportunity materialize as the AI-powered app building space has grown exponentially over the past year, and we are taking a bigger and bigger piece of this pie. Base 44's share of audience traffic increased from almost nothing to more than 10% in October. Among local tools, Base 44 is quickly proving to be a leader and the best solution on the market today, with enormous white space still ahead. Base 44 is also getting better fast. We recently launched our new builder, transitioning Base 44 from a predominantly user-reliant tool to an expert developer partner for everyone. The new builder represents a fundamental architectural advancement moving to an agent decoding environment with multi-agent layers. Base 44 can now validate, debug, refactor for performance, and fix its own work, making app creation faster, smarter, and more powerful than before. Please do not mistake my obvious enthusiasm for Base 44 and the AI-powered app building opportunity as lack of excitement about Wix.com Ltd. It is no secret that we intended to release a new flagship product as early as this summer, and as CEO, I am clearly unhappy that I still cannot share it with you today. However, seeing it in our labs gives me more and more confidence that the wait will be worthwhile. I expect it early 2026 and truly believe that it will deliver great value to our users. I want to impart one last thought about the massive importance of building products that allow humans and AI to work in tandem. People building big tech projects, creating websites, or developing applications, whether engineers or not, need to be able to control the outcome of their creation. This is why we continue to put a huge emphasis, both at Wix.com Ltd. and at Base 44, on curating the right combination of visual editing capabilities for humans and powerful AI Vibe Coding. This combination will allow for high-quality outcomes with less iteration, while giving humans the right level of control and calibration. The future of creation will be interactive, intelligent, accelerating, and we're just at the cusp of this transformation. With that, I'll turn it over to Nir. Nir Zohar: Thanks, Avishai. We are pleased to see the new user cohort behavior in our core business from the first half of the year continue through Q3 and into October. These robust cohorts have been a key driver of our top-line growth, fueling the momentum we've seen throughout the year. They also provide a solid foundation for continued growth as we move into Q4 and 2026. Organic traffic continued to improve as more users actively searched for Wix.com Ltd. online, underscoring Wix.com Ltd.'s continuously improving brand awareness and top position platform for web creation. Solid traffic from paid channels also drove higher traffic as we cap robust demand while operating within our TROI guardrails. New users purchased more advanced website subscriptions, adopted more business applications, and purchased longer-duration subscriptions at an accelerating clip, demonstrating the growing trust our users place in Wix.com Ltd. With new cohort bookings following a similar shape to the second quarter cohort, cohort growth continued to trend strongly through the third quarter. We also welcomed our first full quarter of new Base 44 cohorts under the Wix.com Ltd. banner in Q3, which performed better than anticipated. As the Vibe Coding market has exploded this year, Base 44 has meaningfully outgrown most peers. We now estimate our share of audience traffic to AI-powered application builders to be more than 10%, up from low single digits in June. This growth in a matter of just months is a result of a fantastic product with organic reach supercharged by our expertise and investments, as well as the application of Wix.com Ltd.'s proven strategic playbook to Base 44. In addition to establishing a dedicated customer care team and expanding Base 44's R&D capabilities, we focused on building up a comprehensive full-scale brand and marketing function. Remember, Base 44 did not have any marketing motion when we acquired it in June. On day one after the deal closed, we started to apply a marketing plan that has been fine-tuned and tested over the past two decades. A key competitive differentiator for Wix.com Ltd. to Base 44. This included refining the company identity, messaging, and visual system to better reflect our market ambition. We also launched campaigns in key channels and core geographies. Compelling branding and effective marketing are crucial to growing Base 44's reach beyond just early adopters and capturing the huge white space Avishai spoke about. Returns on our initial marketing investments meaningfully exceeded expectations as demand ramped through the quarter. As a result, we were able to confidently scale marketing efforts above our initial August plan. Today, Base 44 serves over 2,000,000 users around the world. This is more than seven times more users than we had in June. Impressively, this translates into more than a thousand new paying subscribers joining daily. We now anticipate Base 44 to achieve at least $50,000,000 of ARR by year-end, an increase from our previous expectations. We also continue to see positive trends in our main geographic markets as we improved monetization of the growing population of users and conversion improved sequentially. Better monetization was also a result of healthier commerce activity in the third quarter. Transaction revenue accelerated, increasing by 20% year over year, driven by 13% growth in GPV and an elevated take rate. Merchants are continuing to opt for Wix.com Ltd. payments. The opportunity remains large as we continue to strive towards capturing and addressing the full spectrum of merchant needs per our long-term commerce strategy. To wrap it up, our solid Q3 results illustrate the durability of our core business, which remains healthy against a dynamic operating environment. It also speaks to our ability to enter new markets efficiently and effectively, highlighting Wix.com Ltd.'s innovation-first mindset and the proven first-mover advantage. I remain confident in our ability to drive long-term growth by delivering essential tools that help users, both new and old, adapt, operate, and succeed in any environment. With that, I'll hand it over to Lior. Lior Shemesh: Thanks, Nir. We accelerated growth entering the second half of the year with third-quarter results exceeding expectations. This performance was driven by strong fundamentals in our core business and an exceptional first full quarter of Base 44 under the Wix.com Ltd. banner you just heard about from Nir. The team is executing well as we build the critical foundation for sustained momentum in 2026 and beyond. There were a few highlights in the third quarter, but I'd like to start with our financial results. Total bookings grew to $515,000,000 in Q3, up 14% year over year. The strong performance was driven by robust new user cohorts joining, the existing users finding success and adopting more business applications, as well as better-than-expected results from Base 44. Total revenue grew to $505,000,000, also up 14% year over year and above the high end of our guidance range. Partners' revenue grew 24% year over year to $192,000,000, driven by continued traction among professional designers and solid studio adoption. Domains, marketing applications, and Google Workspace saw particular strength within the partners' business in the most recent quarter. Transaction revenue was $65,000,000, up a strong 20% year over year, driven by slightly improved GPV growth coupled with a sustained elevated take rate as merchants continue to attach Wix.com Ltd. payments. GPV grew 13% year over year to $3,700,000,000. Partners remained the primary driver of GPV growth, contributing approximately 55% of total GPV. Turning to the cost side, we recognized our first full quarter of costs associated with Base 44. Before getting into the details, I'd like to start by explaining the business dynamics of Base 44, which differs from core Wix.com Ltd. As Nir discussed, we are seeing top-line growth for Base 44 trend above our initial expectations. A very large majority of these users are on monthly subscription plans, a stark contrast to the more than 80% of Wix.com Ltd.'s mix attributed to annual or longer-duration plans. This translates into a linear bookings dollar trajectory for Base 44 compared to Wix.com Ltd.'s front-loaded bookings behavior. As a result, most of Base 44's bookings are expected to come in future quarters as these monthly cohorts build and renew. However, the cost associated with these Base 44 users is impacting our financials today. This misalignment between bookings and operating expenses is resulting in a short-term headwind to our free cash flow. We also anticipate a short-term headwind on operating profit as we incur startup costs and initial growth investments for Base 44 while revenue ramps but remains insignificant to our top line today. The two areas we see the most impact are cost of revenue and sales and marketing. On the cost of revenue side, we are incurring AI processing and compute costs to support ramping Base 44 demand. These costs tend to be front-end heavy as new users consume more AI tokens during their initial build phase. These expenses offset continued AI-driven product productivity efficiencies across the customer care organization and improve business solutions' gross margin. As a result, total non-GAAP gross margin in Q3 was 69%, down slightly from 70% in Q2 as expected. On the sales and marketing side, third-quarter non-GAAP sales and marketing expenses increased 23% sequentially as we built and deployed a marketing strategy for Base 44. This is a result of accelerated branding and acquisition marketing investments above our initial August plan to capture stronger-than-expected demand, particularly in the back half of the quarter. I'm very encouraged by Base 44's TROI, especially so early on, a signal of sustained user strength that isn't fully reflected in the P&L due to the monthly mix dynamic. We also saw a slight increase in non-GAAP R&D expenses, which were up 7% compared to the second quarter as a result of higher overhead, AI, and other expenses as planned. As a result, non-GAAP operating income was $90,000,000, 18% of revenue in the third quarter. This excludes $35,000,000 of acquisition-related expenses, primarily earn-out payments for the Base 44 team. We expect earn-out payments to continue to trend upwards as Base 44 AI ARR approaches the high end of its lofty previously set performance target. Q3 free cash flow was $159,000,000 or 32% of revenue. This is an increase from a free cash flow margin of 30% last quarter as we generated strong bookings and realized working capital benefits associated with the higher costs I just discussed. I expect operating and free cash flow margins to improve over time as we optimize multiple areas of our business model. Today, we're already beginning to see AI costs decrease as LLMs improve and competition continues to ramp. I expect this to continue, if not accelerate. Additionally, I expect sales and marketing expense leverage as branding investments normalize once we move past initial branding investment costs. TROI targets should tick lower as Base 44 scales too. We also expect Base 44's user and subscription mix to optimize over time. In the long term, I expect Base 44 to have similar operating free cash flow margins to Wix.com Ltd. We continue to strategically manage our balance sheet. In September, we issued $1,150,000,000 in 0% convertible senior notes due 2030. These notes follow the maturation and payback of our previous tranche of 2025 convertible notes. We expect to deploy this cash for business purposes, potential M&A opportunities, and continued share repurchases. We repurchased approximately 1,300,000 Wix.com Ltd. ordinary shares for approximately $175,000,000, underscoring our continued commitment to returning value to shareholders. This leaves approximately $225,000,000 remaining on our current authorized program. Let's now talk about how we expect to finish out the year. As healthy in our core offering, along with ramping Base 44 contribution, is setting the foundation for a strong fourth quarter. We are raising our full-year bookings outlook to $2,062,000,000 to $2,078,000,000 or 13% to 14% year-over-year growth, up from the 11% to 13% year-over-year growth previously expected. This increased expectation is driven by meaningful outperformance of Base 44, which we expect to continue as we accelerate marketing investments to capture the stronger-than-anticipated demand we're seeing today. As a result, we expect Base 44 to achieve at least $50,000,000 of ARR by year-end, an increase from our previous plan. Our guidance also assumes a stable macro, continued strength in our top of funnel, and current FX rates. For revenue, we are updating our previous full-year outlook to $1,990,000,000 to $2,000,000,000, up 13% to 14% year over year. This is a shift towards the high end of our plan, up from the 12% to 14% growth previously expected. The dynamics differ between bookings and revenue as Base 44 outperformance is offset by a continued shift in our core business mix towards longer-duration subscription packages. On the cost side, we now expect non-GAAP gross margin to be 68% to 69% of revenue and non-GAAP operating expenses to be approximately 50% of revenue for the full year. These updated expectations reflect the front-end heavy AI and sales and marketing costs against linear revenue and bookings behavior. Due to higher anticipated bookings and working capital benefits partially offsetting these increased cost expectations, we expect free cash flow of approximately $600,000,000 in 2025 or 30% of revenue for the full year. I'm looking forward to a strong finish to 2025 as we enter 2026 on solid footing. Operator, we are now ready for questions. Operator: Thank you. And wait for your name to be announced. To withdraw your question, simply press 11 again. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Ygal Arounian with Citi. Your line is now open. Ygal Arounian: Hey, guys. Good morning. Good afternoon. So a couple on Base 44. Could we just dive into the dynamics of monthly subs versus the sort of more traditional annual subs that you got for core Wix.com Ltd. and what are you seeing there in terms of churn and those subscription dynamics? And as people sign up monthly, can you get them to sign up annually more often over time? Is that the expectation? How does that change your kind of visibility into investment as some of the margins come down here? And then I have a follow-up on the cost side. Avishai Abrahami: Well, I'm just gonna have a shy. I think that as regards to the percentage, of course, at this stage, lean a lot more towards a monthly subscription than an annual subscription. And then we've also seen it in Wix.com Ltd. in the beginning. It takes time for people to trust the platform. And then they will actually feel more comfortable to pay an annual subscription. And I think we are heading in that. Vibe Coding is still so new that we are heading toward that direction. But if in Wix.com Ltd., the vast majority are annual subscriptions, then on Base 44, most of our users are still on their monthly subscription. When it comes to churn, it's very early to say, it's changing very quickly. So it's very hard to say. Obviously, churn is higher than the standard Wix.com Ltd., which almost doesn't exist. Right? There's almost no churn. But if you look on a cohort basis, Base 44 is better than we expected. And we know there's so much more we can do. So we're very optimistic, and we think that churn will probably not be our problem going forward. Right, if everything continues to advance in the same way it is now. Ygal Arounian: Okay. You talked about, Avishai, in the past that these platforms are good for prototyping. But, eventually, when you have a finished product, that sort of has to live somewhere else, right, because a lot of the back-end stuff isn't developed. Is that part of the factor for churn? Then on the cost side, just on the gross margins and the AI compute, is there anything that you can do within your control outside of LLM costs coming down to keep costs down, for example, your own internal data to help build versus relying on third-party LLMs as much? Thanks. Avishai Abrahami: Well, I'm not gonna go into all the details here, but yes, there's a lot we can do in cost. Okay? It's not a priority at this stage, right? It's something that we're also investigating. I think the priority now is to build a better product and capture more market share. But I think that long term, and long is not multiple years, we can dramatically improve the cost of AI for Base 44. There is so much we can do from training our own models to do part of it, from partnerships with the different vendors, from the fact that simple reality that cost is always declining. And so I think there's gonna be a tremendous amount of opportunities for us to reduce the cost of the AI for Base 44. And sorry? And so the first part, so I'm sorry I missed that. So we do see, you're right, when you say, a lot of it is just used for prototyping. Right? And that's great. For people to actually build an application that is just for demo, for a few people, and then the prototype is the application. Right? It doesn't need scale. It's okay if it kind of like it has tiny bugs or but we are getting to a place that today with Base 44, you can really build more full applications. There's still quite a way to go on what we can do there, and how to make it even better. But we are getting to a place, and of course, we have some users that already built really large applications that have been deployed and we can see that. So if a year ago, you couldn't do Vibe Coding for anything real, and a few months ago, you could do Vibe Coding for multi prototypes. For applications, I think today we are starting to see more applications that are real and have been used on the commercial level. For websites, it's still different. I think for websites, there's still a gap that needs to be closed with Vibe Coding to build real websites that are Google-friendly, that are LLM-friendly, that are of all the privacy rules that are required by law. And a bunch of other things. And there's still quite a distance to go. But we hope to close that early next year. Lior Shemesh: You guys, this is Lior. Just a couple of small points about the cost. I think that what is interesting here is that new users coming to Base 44, they are obviously consuming more AI tokens. Right? More bandwidth as they build their apps. But what we see is a big difference between, obviously, the cost of newcomers to the one that actually continues, because they might modify, do some changes, but it's really not the same. But it means that, for example, if you take this year compared to next year, next year you're going to have much more of the recurring revenue. It means that the profit obviously will be totally different. So it's not just about the fact that, as Avishai mentioned, that we already started to see the cost of AI goes down, but it's also about the model itself that is so different between newcomers to the one that actually already built their app and just maintaining it. Ygal Arounian: Okay, guys. Very helpful. Thank you. Operator: Thank you. Our next question coming from the line of Deepak Mathivanan with Cantor Fitzgerald. Your line is now open. Deepak Mathivanan: Great. Thanks for taking the questions. Avishai, I just wanted to ask a big picture question for you. Wix.com Ltd. is pretty well positioned to kind of reengineer the web for the AI era by making a lot of small business websites kind of agent-ready. Right? Like so they can be discovered by Gemini, IGBT, and others more effectively versus the current web architecture, which includes a lot of total consumption for them. Can you talk about the vision you have for Wix.com Ltd. for this era and how you're planning to capitalize on this big secular theme for the next three to four years? What are you doing, perhaps the new product or from others in the future, to make the websites of both your current and future customers kind of agent-friendly so they can get the traffic, transactions, everything from agents? Avishai Abrahami: So, yes, you are right. I think that you're touching a very important point. We're gonna see in the next couple of years. We're already starting to see that, but it's probably going to accelerate a transition and change in many ways that you consume content website, or discover website with the content. And or just discover the content without even the website. Right? So there's a lot of things that are changing now. The first thing that we're doing in Wix.com Ltd. in order to support and enable all our customers to enjoy that new mode is that every Wix.com Ltd. website is now indexable by LLMs. Right? So we make the data available to any LLM, and there's a few formats for that. And so we ensure that CHARGEPT can actually read your content and discover your website. That's the first part. The second part is that we continuously add new standards for how to do e-commerce, the one that OpenAPI OpenAI released a few months ago, MCP, and a bunch of others in order to enable all the functionality to be available within LLMs or be discovered by LLMs. And then run on your website. In addition to that, there's a few more things that we think that how the user interface will change next couple of weeks. I'm not gonna go into details, but I think that that's another super interesting opportunity for our customers. And we intend, of course, to provide fantastic solutions for that. So if you look at it, long term, I mean, the fact that, and not just Wix.com Ltd., right? There are other platforms out there. But if you are an owner of a business and you try to build a website in the old way, you're gonna find that you're not supporting all these new standards that are coming every few months. Right? There's a new standard that you need to support to be part of the new world of AI. Then I think the platform we have to work for you really pretty hard in order to make sure that all those standards that will ensure your business visibility in this new world are part of what we supply. Deepak Mathivanan: Got it. Then maybe one quick one for Nir. Can you talk about the cohort retention trends of Base 44 and how it compares versus Wix.com Ltd. on monthly customer plans, perhaps on month one retention or monthly retention given that you have had Base 44 now for a few months? Nir Zohar: Hey. Sure, Deepak. So, you know, naturally, it's still very early. Just as you said, it's just a few months. When we look at it, we're seeing kind of similar behavior to what we know from the monthlies on Wix.com Ltd. And I would actually dare to say that it seems it's better than what you used to see at Wix.com Ltd. in the early days. So I think, you know, we are, Avishai referred to this in the beginning when he was talking about the monthlies' behavior. Our belief is that we're gonna work on a few different things in tandem that we are gonna eventually improve the dynamics. One, as we garner more brand visibility and brand recognition, it would be easier for people to transition to the annual plans and then obviously will give us more visibility and better TROI. Faster TROI, so to speak. And secondly, there's a lot more improvements we can do in creating more motivation for people to retain and strengthen their connection with the platform. And our belief is that we should see better results as time progresses. Again, it's very, very early. Deepak Mathivanan: No. Makes sense. Thank you so much. Operator: Thank you. Next question coming from the line of Andrew Boone with Citizens Bank. Your line is now open. Andrew Boone: Thanks so much for taking the questions. I'd like to touch on WixVibe and just the learnings of Vibe Coding as it relates to website creation. Do we get self-creator to that double-digit kind of target that we've talked about in the past? And then going back to Base 44, you guys just help us understand the pathway to getting margins up to core Wix.com Ltd. levels? What does that have to look like? And kind of what are the assumptions that need to take place around retention? Thanks so much. Nir Zohar: Andrew, I'll take the first one about WixVibe. So, you know, WixVibe is, you know, it's a beta of something we're trying out. And it's part of our general strategy in terms of product and understanding. Avishai spoke about this today and in the past about the higher complexity there is between Vibe Coding and building websites. All that, you know, Google-friendly as you put it, Google-friendly, LLM-friendly, matching means security, etcetera, etcetera, etcetera. And obviously, we think there needs to be a better solution there, and we're working towards this. Lior Shemesh: Andrew, with regard to the second question, I think that we need to relate to the two different components in terms of the investments that we are making. And the first one, we spoke about it before, is about the AI. And I think that, you know, I would like to take the opportunity and spend a couple of minutes in order to explain it better. By the way, for both cases, also for the sales and marketing and also for the cost of goods sold. We have a really proven track record, you know, how we can actually, over time, we can drive growth and be in a place where we believe that we can drive even more profitability. And I will try to explain. So with regard to the AI cost, you know, I kind of spoke about it before. We see a very strong user demand. Very important to mention that both of the investments, also sales and marketing, and also the AI cost, which is a part of the cost of goods sold, are both driven because of a very, very strong demand. As we know, you know, from an accounting point of view, we first recognize the cost, only later recognize the revenue. So by definition, when you have such a hyper-growth business, you recognize more cost at the very beginning and then you recognize the revenue over time. So by definition, we are going to see a higher profitability in a later stage. But at least at the very beginning, you know, this is the situation. Also, in terms of the AI cost, I, you know, kind of spoke about it before. New users consuming more AI tokens. So it means that the more that we have more customers, and that are maintaining their application and stay with us in terms of the application, so obviously, we are going to see that their margin profile is much better than the new one. But right now, all of the customers, most of the customers, because it's such a new platform, are new. So we all understand this situation. The other thing is about the cost of AI. We've already started to see, we're going to see more players in this market, which eventually is going to lower the cost. So I believe that we are going to see that dramatic change in terms of the overall cost, which obviously is going to have a positive impact. Very much that you saw, we saw at the very beginning when we started the business at Wix.com Ltd. The hosting was totally different in terms of its cost. Right? And today is much, much, much more profitable than it used to be in the past. With regard to the marketing, it is really the same methodology as we use at Wix.com Ltd., meaning that we invest in marketing based on TROI. So it means that when you have such a hyper-growth business, you invest more right now in order to capture the demand under the TROI methodology. Meaning that we are not investing money in marketing and we don't see short-term returns. And this is something that is really important to mention because when you have such a growth, you invest right now more, you're recognizing the cost immediately and only after you recognize the revenue. In order to summarize everything, I think that already next year, we are going to see improving margin as a result of that. But yes, I mean, we are going to see some pressure on margin in the short term. Definitely because of all the reasons that I mentioned before. We are going to see that the TROI targets are optimized, we are going to see that AI cost decrease, we are going to see Base 44 mix of customer change. All of that is going to drive the profitability to be very similar to the one that we see in Wix.com Ltd., and we strongly believe because we've been there. Andrew Boone: Thank you. Operator: Thank you. Our next question coming from the line of Josh Beck with Raymond James. Your line is now open. Josh Beck: Yes. Thank you so much for taking the question. Maybe, you know, following up on Lior's comments there. You know, when we look at kind of the Q4 gross margin guidance implied, I think it's something on the order of 66% or so. And, you know, assuming that, you know, creative core subscriptions are kind of in the mid-eighties, it would indicate, you know, a pretty big difference for Base 44, which, as you mentioned, I think it has to do with this hypergrowth dynamics. You have effectively these new cohorts being the vast, you know, majority. So should we kind of assume that as long as this is in a hypergrowth phase going from $50,000,000 to $100,000,000, yeah, there should be kind of this drag and not until we get beyond that phase, it goes away just kind of any other guidepost to kind of help us think about the duration of this drag would be great. Lior Shemesh: It's a great question. You know, it's I think that it's kind of interesting because this kind of drag is a drag that we really like. Right? Because it's coming from very high growth, and I believe that also profitable growth in the future. I think that it's too early for me to say because, yes, you're right. The more that we have very high growth, it means that we have more new customers that are building the application, and it's more expensive, as I mentioned before, from recurring customers. But we also see quite a big decrease in the AI cost. But also in terms of our ability, for example, to do changes in our model in order to take the margins up. So it's really hard for me to answer the question. It really depends on what is stronger, meaning the growth effect or the ability to actually reduce the cost. But I do believe for sure, looking at the trends right now, that I believe that the margins will continue to improve as we already started to see that from Q3 to Q4. Josh Beck: Okay. Very helpful. And then maybe just a follow-up. On the pricing construct. Obviously, we can all see the Base 44 pricing and, you know, the freemium and some permutation of good, better, best. You know, is that at a point where you're still experimenting? Or, you know, do you feel like if you were to take one of these plans and kind of run out that customer's life cycle that it already does have, you know, quite attractive profitability built in, or are you still tweaking the pricing? How are you thinking about that? Nir Zohar: Hey, Josh, it's me. Again, I think, you know, it's very, very early. So naturally, you know, we're just gonna be testing different things and different ideas. And see what lands the most balanced and smart optimization between the margins and the financial results. And our top priority, which is grabbing market share. Josh Beck: Very helpful. Thank you. Operator: Thank you. Our next question coming from the line of Ken Wong with Oppenheimer. Fantastic. Thanks for taking my question. Maybe first, just as we think about that bookings guide, last quarter, you guys had mentioned that the majority of the raise was coming from the core. Any color on how we should be thinking about the contributing factors to the 4Q bookings? And then second, just on the profitability. I think we get it. You're a lot of upfront costs. You guys had already started messaging that perhaps less margins going forward. As we try to rattle through the higher OpEx and the gross margins, I mean, is it fair to assume that we might still see some margin expansion? Any early thoughts there, Lior? Lior Shemesh: Sure. So I will start with the guidance. I think that it's fair to say that most of the increase in guidance is coming from the strength that we see with the Base 44 business. I think that it's very much kind of different from what we've seen only last earnings. I remember it has been like five months from the minute that we've bought this business. The first earning that we had like a few months ago, we've seen the demand, but in the last few months, it's even much, much bigger than what we anticipated at the very beginning. This is why we've decided to invest more. And I do believe that Base 44 will turn out to be a significant growth driver for Wix.com Ltd. With regard to the margin headwind, yes, I believe that it will continue and let me even say differently, I hope that it will continue because it means that we are going to see a much higher demand. I think that in this case, it's really the same as what we've seen, you know, in the past from Wix.com Ltd. You know, every time that we've launched a new product, it was actually the case the very beginning with the ADI, even when we started the partners business. We saw such a huge demand and obviously we are investing in to capture it. So, yes, I mean, in the short term, we are going to see some more pressure on margin. I'm not sure where the margin expansion will start again. It is going to be 2026 or late 2026. It really depends on the demands that we are going to see for this business. Ken Wong: Fantastic. Thank you. Operator: Thank you. And our next question coming from the line of Trevor Young with Barclays. Your line is now open. Trevor Young: Great. Thanks for the questions. First one, Avishai. On the new Self Creator tool that was expected first this summer and then pushed to the fall, now getting pushed out again to sometime in '26. Can you expand on what the delays are there? Is there some sort of reimagination going on with the tool? Just trying to figure out what's going on in terms of, you know, the product launch and timing. Avishai Abrahami: Actually, most of the reason for the delay is about just fine-tuning technology. So, you know, it's solving a lot of technical challenges and bugs and making it really stable and working faster. And, yeah. So I suppose the most project was doing software, which you know, anyways, tend to be delayed, but this one to be fair to the team, right, is using a lot of new technologies that didn't exist before. And so a lot of AI stuff that never existed before. So it was a bit harder to estimate some of the effort that will go into finalizing them. I think we are beyond this point. In fact, it's kind of entering already the first stage of a closed beta within here inside of Wix.com Ltd. So I feel very confident we're gonna see it very early in 2026. And we're actually gonna have, I think, a much better product. Trevor Young: Great. Thanks for that. And as a follow-up question, on the 3Q cohort commentary trending similar to 1H, if I recall correctly, 1Q cohort collections grew 12%, 2Q was 14%. So should we assume 3Q is kind of low teens growth territory? So did something change in August and September to cause a step down relative to the 20% growth that you had flagged back in the July timeframe? Nir Zohar: Hey, Trevor. It's Nir. Not so much, actually. No. I think we've, you know, we've seen some expected seasonality. And generally, we've seen the cohorts behave as we expected. We're seeing ongoing strength going into, you know, the rest of Q3 and into Q4. Trevor Young: Great. Thanks, guys. Operator: Thank you. And that's the end of our Q&A session. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. And you may now disconnect. Nir Zohar: Thank you, everyone.
Operator: Good day, and thank you for standing by. Welcome to Kingsoft Cloud Third Quarter 2025 Earnings Conference 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 Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nicole Shan, IR Director of Kingsoft Cloud. Please go ahead. Nicole Shan: Thank you, operator. Hello, everyone. And thank you for joining us today. Kingsoft Cloud third quarter 2025 earnings release was distributed earlier today and is available on our IR website at ir.ksyulin.com as well as on the PR Newswire services. On the call today from Kingsoft Cloud, we have our Vice Chairman, CEO, Mr. Zhou Tao, and the CFO, Ms. Li Yi. Mr. Zhou will review our business strategies, operations, and other company highlights followed by Ms. Li, who will discuss the financial performance. They will be available to answer your questions during the Q&A session that follows. There will be conductive integration. Our are for your convenience and the reference purpose only. In case of any discrepancy, management statement in original language will prevail. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in The U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions. And relate to events that involve known or unknown risks, uncertainties, and other factors. All of which are difficult to predict and many of which are beyond the company's control. Which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties, or factors are included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements. As a result of new information, future events, or otherwise. Except as required under applicable law. Finally, please note that unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB. It's now my pleasure to introduce our Vice Chairman and CEO, Mr. Zhou. Please go ahead, Zhou. Zhou Tao: Hello, everyone. Thank you, and welcome to Kingsoft Cloud third quarter 2025 earnings call. I am Zhou Tao, CEO of Kingsoft Cloud. In the era that artificial intelligence is implemented across various industry verticals, and reshaping the technological landscape, Kingsoft Cloud firmly established its strategic positioning and defined its development orientation. On the premise of steadily meeting the demands of model training, we have made adequate technical and resource reserves for the explosive growth of inference. In the face of the dual trends of rapid model iteration and increasing adoption of artificial intelligence, we have provided our clients with stable and efficient integrated training and inference intelligent cloud computing services. And have laid out model API business to turn inference scenarios into new growth engines. The substantial high growth in revenue and the stable profit margin level validates the steady execution of our strategic measures achieving high quality and sustainable development. First, our revenue in the third quarter reached RMB 2,480,000,000.00, with year-over-year growth rate accelerating from 24% in the previous quarter to 34 to 31% this quarter. Both public cloud and enterprise cloud achieved year-over-year and sequential growth. Among which public cloud revenue increased significantly by 49% year-over-year, reaching RMB 1,750,000,000.00. Second, intelligent computing cloud business remains on a fast development track. This quarter, gross billings of intelligent computing reached RMB 782,000,000, with a year-over-year growth around 122%. It accounted for 45% of the public cloud revenue, realizing a significant increase from 31% in the same period last year. Generative artificial intelligence and cloud are symbiotically integrated in many aspects, including technology, products, and customer cross-sales. The demand for artificial intelligence not only drives the rapid development of intelligent cloud, but also leads to the growth and technological innovation of basic public cloud and accelerates the iterative process of cloud computing technologies. From training clusters to native technologies, our computing power services, model API services, storage services, and data services have all been upgraded. Third, the Xiaomi and Kingsoft continued to offer a solid foundation. This quarter, revenue from the Xiaomi and Kingsoft ecosystem reached RMB 691,000,000, increasing by 84% year-over-year. And its proportion in the total revenue further rose to 28%. From January to September 2025, total revenue from the Xiaomi and Kingsoft ecosystem reached RMB 1,820,000,000.00. We anticipate adequately fulfilling the business cooperation under the continuing connected transactions annual quarter this year and are optimistic in the further increase of the quarter next year. Finally, our adjusted gross profit for this quarter reached RMB 393 million, representing a year-over-year increase of 28%. The adjusted operating profit turned from loss to profit reaching RMB 15,360,000.00. And the adjusted operating profit margin was 0.6%. The adjusted net profit recorded a historical positive profit of RMB 28.73 million for the first time. The company is aiming at both revenue growth and profitability improvements. As the economies of scale are becoming increasingly prominent, while accelerating the construction of intelligent computing infrastructure and technological capabilities, we are also strengthening the control of costs and expenses. Now I would like to walk you through the key business highlights for 2025. In terms of public cloud services, revenue reached RMB 1,750,000,000.00 in this quarter, making a year-over-year increase of 49%. Intelligent computing cloud business has maintained strong growth. We have successfully supported the large-scale training and inference demands of various top Internet customers providing high-quality, high-performance, high-stability, highly efficient cloud computing services. Especially for many artificial intelligence and Internet enterprises, facing the simultaneous demands for model training and inference, we have provided customers with stable and integrated intelligent computing services for different scenarios. Meanwhile, we actively expanded customer coverage and the cross-selling of intelligent computing cloud and basic cloud. In terms of ecosystem customers, we continued to provide high-quality services to Xiaomi and Kingsoft, continue to prepare underlying resources for ecosystem customers to enhance the rapid expansion capability of intelligent computing demands. In terms of enterprise cloud services, revenue in the quarter was RMB 730,000,000. We firmly believe that in today's rapidly evolving generative artificial intelligence landscape, intelligence will evolve from model capabilities to industry solutions empowering and reshaping diverse sectors of the economy. As the indispensable carrier for intelligent computing, cloud services enjoy tremendous potential for such digitalization and intelligentization. In this trillion-dollar sustainably expanding market, we have deeply explored our inherent DNA of two d enterprise services, targeted advantageous selected verticals, and geographical regions, and built core competitiveness for the future. As a result, it has received widespread recognition from our customers and the broader markets. For example, in the public services sector, we aim to become the preferred cloud partner for intelligent computing in the public services agencies and enterprises for their inference demands. Taking Qingyang City in Gansu Province as an example, as one of the eight major nodes of the national project is data web computing and a central area for intelligent computing business. We will be responsible for building the public services cloud platform in Qingyang fully empower local public services affairs with intelligence and digitalization. In the field of health care, we have achieved a milestone breakthrough in a project integrating artificial intelligence with traditional Chinese medicine clinical scenarios. Whereby not only have we achieved a deep integration of traditional Chinese medicine theory in artificial intelligence, seizing the commanding position in chronic disease management technology, but we have also verified the practical value of artificial intelligence in improving patients' quality of life and disease control rate at the clinical level. In the enterprise services sector, following the successful implementation of a landmark project for intelligent generation of bank credit reports, we continued to advance the intelligentization transformation across the entire credit approval process. This evolution extends from the single function of credit report initiation to a comprehensive intelligence system including customer onboarding, credit report generation, loan disbursement, monitoring and early warning, and post-loan reporting. We firmly believe that these proven accumulated successful experiences, market reputation, and replicable core solutions will enable us to seize a pioneering position in the emerging industry wave, build a solid core competitiveness, and achieve high-quality and sustainable shareholder returns. In terms of product and technology, in the public cloud space, we continued to enhance the technology of Intelligent Computing Cloud this quarter, strengthening the capability of the Starflow platform and made significant progress in the following three aspects. First, we have launched our model API service delivering highly available and easily integrable capabilities for model invocation and management, laying a solid foundation for the subsequent provision of diverse model service paradigms. Second, we upgraded our online model services integrating multiple open-source foundation models equipped with automatic scaling capabilities, offering a highly available inference platform. Third, we launched our data annotation and dataset marketplace, aiming to provide customers with end-to-end support for data flow and help them efficiently advance the model training process. In the enterprise cloud space, in order to meet the demand for private deployment scenarios, we have built a computing power scheduling platform, a lightweight math platform, a generative artificial intelligence knowledge base. And we have closely collaborated with WPS AI to build a trusted intelligent product architecture for public services use cases. Meanwhile, through the organizational development of the dual R&D centers in Beijing and Wuhan, we attract talents from various regions, build a talent pipeline, and maintain sustained investment intensity in the intelligent computing field. As of the end of Q3, the number of employees in Wuhan is 2.8 times the headcount back in 2022 when we first launched our Wuhan strategy. Overall, we will firmly seize the historic opportunities presented by the Xiaomi and Kingsoft ecosystem. Continue to invest in infrastructure, focus on refining core products and solutions, and to create long-term value for our customers, shareholders, employees, and other stakeholders. I will now pass the call over to Ms. Li Yi, our CFO, to go over our financials for the third quarter of 2025. Thank you. Li Yi: And thank you all for joining the call today. Before we go through the details of financial results for the third quarter, I would like to highlight the following aspects. First, revenue has consistently achieved year-over-year growth for six quarters, reaching RMB 2,478 million this quarter. This represents an accelerated year-over-year growth rate of 31% up from 24% in the previous quarter. Revenue from public cloud service stood at RMB 1,752,300,000.0, a significant increase of 49% from RMB 1,165,500,000.0 in the same quarter last year. Meanwhile, robust demand from our intelligent cloud, which is also called AI cloud business, drove around 120% year-over-year billing growth, which totaled RMB 782,400,000.0. Second, profitability has seen substantial improvement. Our adjusted gross margin rose to 16% up from 15% in the previous quarter. And adjusted EBITDA margin improved to 33% compared with 17% last quarter. Notably, we turned quarterly adjusted operational and adjusted net loss into profit simultaneously for the first time. These gains validate our strong execution in pursuing high-quality, sustainable development as well as our ability to monetize opportunities in the intelligent cloud space. Third, I would like to express our gratitude to shareholders for their support during our risk to equity financing in September. We successfully raised HKD 2,800,000,000.0. And 8% of the fund will be allocated to further investment in AI infrastructure and transfer them to general operational needs. This funding will fully underpin the growth of our intelligent cloud business and enable us to create long-term value for all stakeholders. Now I will walk you through our financial results for 2025. And use RMB as currency. Total revenues were RMB 2,478 million. Of these, revenues from public cloud services were RMB 1,752,300,000.0, up 49% from RMB 1,175,500,000.0 in the same quarter last year. Revenues from enterprise cloud services reached RMB 725,700,000.0, compared with RMB 110,000,000 in the same quarter last year. Total cost of revenues was RMB 2,097,100,000.0, up 33% year-over-year, which was mainly due to our investment into infrastructure to support intelligent cloud business growth. Addition cost increased by 15% year-over-year, from RMB 673,800,000.0 to RMB 775,700,000.0 this quarter. The increase was mainly due to the purchase of racks which is their expanding intelligent cloud business, as well as the basic computing and storage cloud demand both by AI development. Depreciation and amortization costs increased from RMB 297,500,000.0 in the same quarter of 2024 to RMB 649,700,000.0 this quarter. The increase was mainly due to the depreciation of newly acquired and leased servers and later work equipment, which were mainly allocated to intelligent cloud business. Solution development and services cost increased by 90% year-over-year from RMB 499,000,000 in the same quarter of 2024 to RMB 595,900,000.0 this quarter. The increase was mainly due to the solutions that no expansion. Fulfillment cost, other cost were RMB 5,200,000.0 and RMB 70,600,000.0 this quarter. Our adjusted gross margin for the quarter was RMB 392,600,000.0, increased by 28% year-over-year and 12% quarter-over-quarter. It was mainly due to the expansions of our revenue scale, the energy contribution from intelligent cloud, and the cost control of IBC racks and servers. Adjusted gross margin increased from 15% last quarter to 16% in this quarter. On the expense side, excluding traffic concession cost, our total adjusted operating expenses were RMB 420,900,000.0, decreased by 70% year-over-year and 25% quarter-over-quarter. Of which our adjusted R&D expenses were RMB 10,888,400,000.0, decreased by 90% from the same quarter last year. The decrease was mainly due to the decrease of personal cost resulting from our strategic adjustment for the research team, as well as the expense serving from Beijing Wuhan dual research center strategy. Adjusted selling and marketing expenses were RMB 127,600,000.0, increased by 15% year-over-year. Adjusted general and administrative expenses were RMB 104,900,000.0, decreased by 29% year-over-year due to the reverse of credit loss. The impairment of long-lived assets was near this quarter, compared with RMB 190,700,000.0 in the same quarter last year. Our adjusted operating profit was RMB 15,400,000.0, total profit from adjusted operating loss of RMB 140,200,000.0 in the same period last year. The improvement was mainly due to the of revenue scale and gross profit, the expense control, as well as the reverse of credit loss. Adjusted operating profit margin increased from minus 7% in the same period last year to 0.6% this quarter, representing an increase of eight percentage points. Our non-GAAP EBITDA profit was RMB 826,600,000.0, increased by 3.5 times of RMB 185,400,000.0 in the same quarter last year. Our non-GAAP EBITDA margin achieved 33% compared with the 10% in the same quarter last year. It was mainly due to our strong commitment to intelligent cloud development, strategic adjustment of business structure, strict control of costs and expenses, as well as the long recovery impact of subsidy in other income. As of 09/30/2025, our cash and cash equivalent totaled RMB 33,954,500,000.0, decreased from RMB 5,464,100,000.0 as of 06/30/2025. The decrease was mainly due to our infrastructure investment for intelligent cloud. This quarter, our capital expenditures, including those financed by third parties, and the right of use assets obtained in 24 finance lease liabilities was RMB 2,787,800,000.0. Looking forward, AI technology drives the revolution of cloud computing. We can more than just fulfill the computing demands of model training and inference. We also empower enterprises to invoke an API and apply AI capabilities to their business. Stepping into the phase of rapid development in AI applications and explosive growth in demand, we will further invest into infrastructure, strengthen technology, enhance service stability, and provide customers with high value-added cloud service. That's all for the introduction of our operational and financial results. Thank you all. Thank you, operator. We are now going to start the Q&A session. Please ask your question in both Mandarin Chinese and English if possible. Operator, please go ahead. Operator: Thank you. As a reminder, to ask a question, you will need to press 1 and one on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Xiaodan Zhang from CICC. Please go ahead. Your line is open. Xiaodan Zhang: So thanks management for taking my questions. And, first of all, has there been any structural change in the demand of your ecosystem and external clients for the past quarter? And secondly, how does management see the margin trend in the coming quarters? And what's the expected mix of different computing resources acquisition models? Thank you. Zhou Tao: So basically, the core of the reason behind the AI revenue growth in Q3 is that we have some clusters that, you know, partially delivered in the previous quarters, for example, like the 2025, and these clusters and these services have only been partially accounted for revenues from a full quarter basis. But now in Q3, they are starting to be recognized as full quarter revenues. And, also, there's the factor of partially delayed revenue as well. Some of the revenue which we had in Q2 but was not accounted for, and then this revenue is delayed into the third quarter. Yeah. So regarding the second part of your first question, which is about the structure of internal and external customers, I think I used to say that from a large trend general trend perspective, currently in the phase of transitioning from large and top customers' training demand to general and wider spread customers' inference demand. Most of at the current stage, we still see, you know, majority of our demand coming from the larger customers in their training demand. However, especially in the latest quarter, we are increasingly seeing the trend of our customers adopting artificial intelligence models into their diverse industries. So in face of this general trend, we have also, as we mentioned in the prepared remarks, we have launched our StaffLoad platform to meet the demands of such general trend. And this also goes back to the margin that you also asked about. We generally think that in the future, the inference demand will tend to exhibit a higher margin profile than the current stage of training. And therefore, we think that when that wave of demand comes, we expect to have higher margins. Li Yi: Thank you, Xiaodan. I think because level as a proportion of the AI business continues to rise and its cost structure is mainly dominated by depreciation, we expect this EBITDA margin will still remain above 20%. But I have to mention that the significant quarter-on-quarter improvement in this quarter was mainly driven by a one-time other income, which will return to the normal level next quarter. Thank you, Xiaodan. Operator, next question, please. Operator: Thank you. Our next question comes from the line of Wenting Yu from CLSA. Please go ahead. Your line is open. Wenting Yu: The first question is, could management share the outlook and guidance on the revenue outlook for next year? And beyond the Internet companies' post-model training and in-body intelligence scenarios that are already underway this year, which other industry and application scenarios are expected to have strong computing power demand that could drive the revenue growth next year? And the second question is with multiple providers in both China and the US increasing the proportion of server leasing in their computing resource mix, how does management view the current market dynamics for procurement versus leasing? And from a cost-effectiveness and profit margin perspective, how would the company allocate the resources between these two approaches? Li Yi: Wenting, thank you for your question. The company's budget process is currently underway and expected to be completed around the beginning of the next year. We will share the specific details with you once it is finalized. However, regarding the demand for our AI business, we are fully confident in the subsequent demand growth. And for your second question about the procurement method, we primarily align our capital channels with actual customer needs, including cluster scale, delivery time, and supply inventory level. There's no rigid total allocation target from the cost-effectiveness perspective. Both approaches have their own pros and cons. The leasing model is to find our supply chain channels and provide a certain degree of flexibility in resource allocation, with the flexibility also offered through short-term and long-term contracts. Self-procurement, on the other hand, gives us great autonomy in control delivery time rates and managing plus. It also reduces the profit sharing with suppliers, thereby, elevating our pressure on profit margin. Zhou Tao: Yeah. You know, as you mentioned that the robotics companies in China are a growth environment partly. So, you know, as you this year, we have covered most of the robot companies in China, and we can see the revenue is increasing very rapidly. In the next year, we believe the increase of the robotic companies will also be fast. Meanwhile, you know, as more and more Internet companies in China using talking token services, which is the API services, we are seeing the increase of the business is very quickly. So we believe in the next year, this will be a very important factor to driving the revenue to increase. Thank you. Li Yi: So this is the CEO. He added that yes, that is your question. Your second question is really about the choice between the leasing model and the CapEx model. So we've talked about that before. So, generally, there's a general rule of thumb. When you're looking at the larger customers, especially the customers that have solid profiles, have solid fundamentals, and are trustworthy. Premium customers, for example, like Xiaomi. We would tend to choose the CapEx model. While in other growth stage companies, medium and small-sized companies, we generally tend to adopt the leasing model. Which is also a way a meaningful way to reduce our own risk. So as we rightly mentioned, there's no kind of a top-down target for the split between these two different methods. And we also talked about in the last quarter as well that the impact of these two different methods have different impacts on our gross margins. However, we have seen the financial results for the past three quarters. Which we have adopted various combinations of these two different models. You know, especially when you compare the gross margin for the third quarter versus the second quarter, it actually also improved sequentially. So I would say that at the current stage, we do not expect material changes to the current status. But generally speaking, in the future, we do expect the margin to improve. Thanks, Anthony. Next question, please. Operator: Thank you. Our next question comes from the line of Timothy Zhao from Goldman Sachs. Please go ahead. Your line is open. Timothy Zhao: Thank you, management, for taking my question. My question is regarding the differences between AI training versus inferences. Could management share what is the pricing methodology between these two kinds of demand and what has been the part pricing trend over the past few months or year to date? And, in terms of the utilization rate of the chips of GPUs, pricing, and profitability, can you share more color on the gap between training and inferences? Thank you. Zhou Tao: Okay. Let me answer these questions. You know, we're not talking about the price strategy for inference and training. You know, there's not too much difference between two things. So the price is based on the qualities. How many resources to use, which is the most important factor. And also comparing, you know, the margin rate, you know, there are two kinds of inference services, which one is, you know, customer by resource and use our platform to influence. So that margin ratio is very similar to the training margin ratios, but another one is, you know, customers do directly by our API talking services. That we think that will have a better margin ratio. But, you know, this business is just in the beginning, so we have we need time to see what is the big difference between the two things. Thank you. Operator: Sounds good. Thank you. Due to time constraints, this concludes our question and answer session. So I'll hand the call back to Nicole for closing remarks. Nicole Shan: Thank you. Thank you all once again for joining us today. If you have any questions, feel free to contact us. Look forward to speaking with you again next quarter. Have a nice day. Bye-bye.
Operator: Hello, and welcome everyone to the Valvoline Inc.'s 4Q Earnings Conference Call and Webcast. My name is Becky, and I'll be your operator today. All lines will be muted throughout the presentation portion of the call with a chance for Q&A at the end. I will now hand over to your host, Elizabeth Clevinger with Investor Relations to begin. Please go ahead. Elizabeth Clevinger: Thank you. Good morning, and welcome to Valvoline Inc.'s fourth quarter fiscal 2025 Conference Call and Webcast. This morning, Valvoline Inc. released results for the fourth quarter, and fiscal year ended September 30, 2025. This presentation should be viewed in conjunction with that earnings release, a copy of which is available on our Investor Relations website at investors.valvoline.com. Please note that these results are preliminary until we file our Form 10-K with the Securities and Exchange Commission. On this morning's call is Lori A. Flees, our President and CEO, and John Kevin Willis, our CFO. As shown on slide two, any of our remarks today that are not statements of historical facts are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause actual results to differ materially from such statements. Valvoline Inc. assumes no obligation to update any forward-looking statements unless required by law. In this presentation and in our remarks, we will be discussing our results on an adjusted non-GAAP basis unless otherwise noted. Non-GAAP results are adjusted for key items, which are unusual, non-operational, or restructuring in nature. We believe this approach enhances the understanding of our ongoing business. A reconciliation of our GAAP to adjusted non-GAAP results and a discussion of management's use of non-GAAP and key business measures is included in the presentation appendix. The information provided is used by our management and may not be comparable to similar measures used by other companies. With that, I will turn it over to Lori. Lori A. Flees: Thank you, Elizabeth. And thank you for joining us today. Let's start with a look at some key highlights for fiscal year 2025 on slide three. System-wide store sales again saw a double-digit increase, to $3.5 billion, and we delivered our nineteenth consecutive year of system-wide same-store sales growth. This nearly two-decade-long streak accounts for almost half of our retail business's history and puts us in a special category of retailers. The network continues to grow with the addition of 170 system-wide stores this year, bringing the total to 2,180 across the US and Canada. We also saw double-digit growth in adjusted EBITDA, taking into account the impacts of refranchising and including the investments in technology we made this year. This would not be possible without our team and our strong franchise partners, and I'd like to thank both groups for all of their work that went into driving these results. Slide four shows our performance over time on key metrics. Our historical performance shows our track record of steady new store growth, strong same-store sales comps, and compelling net sales and profit growth. This performance is a function of the attractive market we operate in and the capabilities we built over time, which allow us to deliver best-in-class customer, employee, and franchisee experiences. Turning to slide five, we'll take a look at our fiscal year 2025 performance compared to our updated guidance from August. Net revenues and system-wide same-store sales growth came in at the midpoint of the guidance range, while adjusted EBITDA landed above the midpoint. System-wide store additions of 170 demonstrate meaningful progress in new franchise store growth. They added 71 net new stores and 104 total stores this year, including transfers. Adjusted EPS came in at the low end of the range at $1.59 per share, and our capital expenditures were above the range driven by the timing and mix of new store additions at the end of the year. Overall, we're pleased with our fiscal year 2025 results and the continued growth of our business. Now I'd like to provide an update on the progress we've made against our strategic priorities this year. Our strategic priorities remain the same. First, drive the full potential of our core business. We are the retail leader in automotive preventative maintenance services, and we'll continue to drive transaction and ticket growth with increased store-level efficiency. Second, deliver sustainable network growth. We'll continue to extend our reach to more customers across North America, and we'll do that in a way that maximizes return on invested capital. And last, we will continue to innovate to meet the evolving needs of our customers and the car park. We made very good progress in fiscal 2025 to drive the full potential of our core business, and we continue to believe we have a lot more opportunity in front of us. This past year, we saw strong same-store sales growth with a healthy balance from transaction and ticket. Transaction growth continued across the network, including in our mature store base. We also saw ticket growth across the network with contributions from premiumization, net pricing, and increased NOCR penetration. Our efficiency initiatives within company-operated stores in fiscal 2025 included a continued focus on labor productivity. Workday implementation combined with scheduling process improvements already underway drove meaningful efficiencies in our largest cost category. As of Q4, all US company-owned stores have migrated to use Workday's forecasting and automated scheduling tools that enable our field leadership to more easily monitor and optimize schedules to match both team member availability and experience with expected customer demand. We recently spent time with both our operations leadership team and our franchise partners across the US and Canada. We spent time celebrating our accomplishments in 2025 and getting focused on 2026. Our core business remains focused on four key things. One, consistent process execution. Our technology-enabled SuperPro process earns a 4.7-star rating from customers, and this builds loyalty. Two, increase store efficiency by leveraging fully the work started in FY 2025 in both labor and store-level expense management. Three, enhance return on marketing spend as we gain benefits from our network scale and reach. And four, continued team member retention to help improve store throughput and NOCR penetration. As it relates to network growth, we closed fiscal 2025 with a strong Q4, delivering 56 net new system-wide stores in the quarter and bringing our total to 170 additions for the year. Over 60% of this year's new stores across the system were ground-up builds, a testament to our real estate analytics capabilities and our proven playbook for successfully opening new construction sites. Franchise ground-ups drove much of the increase year over year, as they had 41 greenfield additions this year. At the end of 2024 and 2025, we refranchised three markets: Denver, Las Vegas, and West Texas. Our franchise partners for these markets committed to significant development agreements to grow the markets by two to three times in size. Since the closing of the refranchising transactions, we have seen the new store additions in these markets grow by more than 150% over the prior year, and these franchise partners' pipelines continue to grow. Our new store growth will continue to ramp in FY 2026, with continued momentum across our franchise partners. Fiscal 2026 will also include the expected closing of the Breeze Auto Care acquisition. As we shared previously, bringing a year's worth of store growth in one step will allow us to leverage many of the investments we've already put in place across a larger store base, including retail-specific technology investments and fleet sales expansion. At the end of last week, we received regulatory clearance from the FTC and plan to close the transaction on December 1. As part of the agreement with the FTC, we will divest 45 stores, bringing the net additions to 162. Although we had to reduce the number of store additions in order to gain FTC approval, we believe this is still a good use of capital and will create long-term shareholder value. Turning to the third priority, fleet growth continues to outpace the growth in our consumer business. Our fleet customers tell us that they value the speed and convenience of our service to maximize the productivity of their assets. This year, we've increased our work with our franchise partners to grow our fleet business across their geographies. Early days, but significant opportunity for growth. Before I turn it over to Kevin to discuss our financial results in more detail, I want to invite you to a planned investor update on December 11. We'll introduce you to more of our management team, provide a deeper look at our strategic priorities, and long-term growth targets, and the initiatives driving our business forward. Now I'll turn it over to Kevin. John Kevin Willis: Thanks, Lori. Let's turn to Slide eight and start with a more detailed look at our financial results. For the fourth quarter, net sales grew to $454 million, increasing 4% on a reported basis and 10% when adjusted for the impacts of refranchising. System-wide same-store sales increased 6% with about one-third coming from transaction growth. We do continue to see transaction growth across the portfolio. For the fiscal year, net sales grew 12% when adjusted for the impacts of refranchising to $1.7 billion. System-wide same-store sales grew 6.1% over 13% on a two-year stack. For the year, transaction growth accounted for just over one-third of the comp also across the portfolio. On the ticket side, we saw contributions from all three levers: premiumization, net price, and NOCR service penetration. Slide nine looks at the other drivers of the financial results for the quarter. The gross margin rate of 39.1% was flat year over year driven by leverage at the labor line of about 120 basis points offset by increased product costs. We continue to drive operating leverage generating a 60 basis point year over year improvement excluding increased depreciation expense. SG&A as a percentage of sales increased 40 basis points year over year to 18.2%. Sequentially, SG&A as a percentage of sales decreased 30 basis points as we continue to see SG&A growth moderate. Overall, adjusted EBITDA margin increased 20 basis points to 28.7%. Turning to the next slide, we'll take a look at the financial drivers for the full fiscal year. We'll start with gross margin. We are very pleased with the benefit coming from labor leverage for the year which drove 90 basis points of margin expansion. Operating leverage improved 70 basis points year over year excluding increased depreciation expense. SG&A as a percentage of net sales increased 80 basis points from the investments in both teams and technology, to support growth and provide a better operational foundation for the future. As we look forward to fiscal 2026, we will continue to invest in growth, but do continue to expect SG&A growth to moderate. Adjusted EBITDA margin was flat with SG&A investments offsetting gross margin expansion. On slide 11, we'll take a look at our overall profitability for the year adjusted for refranchising. In fiscal 2025, adjusted EBITDA increased 11%, adjusted net income increased 6%, impacted by increased new store depreciation on a recast basis adjusted EPS increased 8%. Turning to slide 12, we'll take a look at the details of our balance sheet and cash flow and cover the Breeze acquisition. We ended fiscal 2025 with a leverage ratio of 3.4 times on a rating agency adjusted basis. Our capital allocation priorities have not changed. First, fund growth with a focus on strong returns on invested capital second, to stay within our target leverage ratio and third, to use share repurchase as a way to return value to shareholders. Turning to cash. Our CapEx for the year was $259 million. About 70% of the spend was for new store additions. Now let's take a look at some details of the Breeze acquisition. As Lori mentioned, we plan to close on December 1. We will acquire 162 stores following the divestitures required by the FTC for a net purchase price of $593 million subject to adjustments for acquisitions and sale leaseback transactions completed by Breeze, since signing and customary closing adjustments. We'll fund the purchase price entirely with a newly issued $740 million Term Loan B. The excess proceeds will initially be used to pay down the revolving credit facility. The additional debt will increase our leverage ratio to approximately 4.2 times. We expect it to take approximately eighteen to twenty-four months to return to the target leverage ratio through a combination of EBITDA growth, and debt reduction. Now let's take a look at our outlook for fiscal year 2026 on the next slide. These amounts include the Breeze acquisition, makes some of the ranges broader than they might normally be. We expect system-wide same-store sales growth of 4% to 6% and overall network growth of 330 to 360 new stores. The low end of this range reflects a need to carefully consider our overall capacity in light of the Breeze acquisition. At the midpoint, we expect sales to grow by about 20% with EBITDA growth of approximately 15%. Including Breeze and our planned company store growth, we expect fiscal 2026 CapEx of $250 million to $280 million. We expect adjusted EPS of $1.60 to $1.70 per share. At the midpoint, this represents a 4% growth over the prior year including an impact of approximately $0.20 per share related to interest expense for the acquisition. Similar to prior years, we anticipate approximately 40% to 45% of adjusted EBITDA dollars to come in the front half of the year. As we move into fiscal 2026, we are excited by the opportunities in front of us, and are confident in our ability to execute. We look forward to sharing more details about our long-term outlook at our planned investor update on December 11. I'll now turn it back over to Lori to wrap up. Lori A. Flees: Thanks, Kevin. As we wrap up this fiscal year, I want to again thank our team and our franchise partners. Dedication to delivering a quick, easy, and trusted experience to our guests remains a key driver of our long-term growth. In fiscal year 2025, we delivered compelling growth and financial results, while making investments to support our future. The fiscal year 2026 guidance Kevin laid out underscores our commitment to drive continued financial performance. Our resilient and durable business model positions us for ongoing growth in fiscal year 2026 and beyond. We look forward to sharing more with you at our planned investor update. With that, I'll turn it over to Elizabeth to begin Q&A. Elizabeth Clevinger: Thanks, Lori. Before we start the Q&A, I'd like to remind everyone to limit your question to one and a follow-up so that we can get to everyone on the line. With that, can the operator please open the line? Operator: Thank you. Our first question comes from Justin Kleber from Baird. Your line is now open. Please go ahead. Justin Kleber: Hey, good morning, everyone. Thank you for taking the questions. Just a few on the outlook. I was hoping you could maybe frame the revenue and EBITDA contribution from Breeze just so we can understand how the core Valvoline Inc. business is expected to perform. And then a follow-up related to guidance, just what's driving the decline in EBITDA margins in fiscal 2026? It looks like about 100 basis points. How much of that is kind of core Valvoline Inc. versus simply including the Breeze business in your consolidated results? I'll that one. John Kevin Willis: First, we do expect the core business to continue to perform well in fiscal 2026, really no change in that. In terms of how we considered what to include for the Breeze transaction, it's still early days. We haven't closed on the deal yet. We have received recent financial updates on how the business is doing. And as part of the conclusion of the FTC second request process, we're getting reengaged with the team. And we tried to take all of that into account and be measured in our approach in terms of what we in the outlook for Breeze. And that's partly why some of the ranges are admittedly a little bit broader than we normally make them without the inclusion of an acquisition like this. So we're not prepared at this point to really talk specifically about Breeze in terms of what exactly is included in there. But rest assured, did take a measured approach and consider that very carefully. As we included Breeze into the end of the numbers for the ten months we expect to own that business in fiscal 2026. Justin Kleber: Okay. Thanks for that, Kevin. And then just, as it relates to the acquisition, I'm not sure how much you can share you know, given you haven't closed the deal yet, but it looks like the divest locations, right, if we compare the net purchase price relative to what was discussed back in February, it seems like you're divesting those locations for less than a million dollars a box. And you're acquiring, the remaining stores that you know, close to $4 million a box. So can you just help us you know, reconcile those two numbers? And maybe why the divested locations look like, you know, you're selling them at such a lower price relative to what you're buying the remaining outlets for? Thank you. Lori A. Flees: Yeah. You know, the FTC when they do their review, they really were looking at maintaining a level of competition across all the markets that oil changers is located. And they defined competition significantly more narrowly than what we do and what we see when we open stores or when we operate stores in the market. However, we had the process requires us to go out and divest the 45 stores that have been agreed to with the FTC. And so we conducted that process. It was a competitive process. And that's where the outcome is and where the numbers that Kevin shared, where the net acquisition price is $593 million, which reflects the sale price of the locations that we have to divest. I will just underscore what I said in my prepared remarks is that we know where the stores are that we will be integrating them into our portfolio. We've assessed them with our real estate analytics capability. And when you take that analysis with our proven playbook around integrating acquisitions, which we have been doing pretty much since we started the business. We have confidence we're gonna deliver long-term shareholder returns. You know, at the outset, as Kevin mentioned, we do have the latest information through August of the performance of the business that we will be integrating. But we have not been able to spend time in detail with their leadership team because of the FTC review. So as Kevin mentioned, we've tried to incorporate what we know and what we believe we can accomplish in this fiscal year with the new assets that we'll be adding to our portfolio. But we have been appropriately measured in how we incorporated them in the ranges we're providing. Justin Kleber: Okay. Thanks for all that color, and I look forward to seeing everyone next month. Lori A. Flees: Yes. Thanks. Justin Kleber: Thank you. Operator: Our next question comes from Simeon Gutman from Morgan Stanley. Your line is now open. Please go ahead. Simeon Gutman: Hi, Lori. My question is we have, I guess, a slightly lower outlook or algo than what we're used to. And frankly, I think the market has been hoping to have something that's like a little bit more conservative. So we are getting together, it sounds like, in a few weeks. So can you talk about expectations for the core business? It sounds like nothing's changing, I want to confirm. But how do you think about the core business? Is the algo change reflective of anything structural or tactical? Or it is just being prudent and setting up a reasonable range for the business to grow off of? Thanks. Lori A. Flees: Yes. Thanks, Simeon. The same-store sales guide has really been the material difference in our longer-term algorithm in our current year algorithm. And as we look at FY '26, we're very confident in the four to 6% range. We will be sharing more of the longer-term algorithm probably more medium-term. But the fundamentals of our business remain incredibly strong. And when you compare it to where we were in 2022, the material difference is twofold. One, is the percentage of new stores within our network. Obviously, new store ramping contributes a higher same-store sales for those stores than our mature stores. And so as we continue to scale our business and the new stores become a smaller part of the overall same-store sales, you would expect that to naturally come down. The second is the interest and the inflation environment. When we were coming off of the COVID era, there was significant inflation that was running through our same-store sales comp, and we're back down to a more moderate normal level. Now, obviously, you know, that could change. We don't expect it to change. But we expect if that changes, it will only go up. So I think we feel very good about the four to six guide. Think we'll be able to share our longer-term outlook in December, and we'll be able to break down why we have confidence in that longer perspective. Simeon Gutman: And then a follow-up can we talk about the, I guess, the number of stores in market and expansion by you and others? It looks like capacity or number of oil changers is increasing steadily. Curious how you look at that how your own cannibalization rates look and if there are any markets that you are not going to enter or you have thinking twice because a competitor is already well positioned there. Lori A. Flees: Yeah. You know, Simeon, we look at every new unit both in terms of the demographics of that geographic area, the travel patterns, the household growth, the income, and what's been happening with the income levels. We look at broad competition, not just quick lube competition, but others that are competing for customers' preventative maintenance business. And we look at where our stores are in proximity with any location. We know that customers will seek out quick easy trusted service in the most convenient location. So we know when we add a store or pretty high precision around knowing what transfers will happen from our existing stores. And we also know what the impact of potential competitive entry are. Sometimes, you know, sometimes we have a pretty long lead time with that construction timing and sometimes a little less so if it's an acquisition. But what's been happening in the market is not changing. So the competitive environment that we operate has been relatively consistent. The competitive it's very fragmented. There's still a significant number of customers that are not going to the most convenient stay in your car, you know, quick, easy, trusted service. So whenever we add a site, you know, 70% or more of the customers are coming from outside our specific category, our specific channel. But we see normal behaviors from our competitors as it relates to adding sites. And we know what the impact is in the short term. They typically have high promotions, and we may have customers that go and try it in order to take advantage of a new store opening promotion, but then they return. They return back to their trusted service provider. So there's really not any changes that we're seeing, and there are no markets we stay away from because of the competitive environment. Again, the QuickLube channel has such a small percentage of the preventative maintenance market that there is a lot of share to be captured by the category. And we have been capturing that share right along with it. Or more so. Simeon Gutman: Okay. Thank you. Good luck. Operator: Thank you. Our next question comes from Steven Zaccone from Citi. Your line is now open. Please go ahead. Steven Zaccone: Great, good morning. Thanks very much for taking my question. Can you help us think through the margin outlook for '26 with the new four to six same-store sales guidance? There were some prior commentary that you were hopeful to see SG&A leverage at some point in 2026. So how does that stack up with the new guidance? John Kevin Willis: I'll take that one. And we were really pleased with how we continue to see SG&A growth in improvement or SG&A growth moderate in Q4. Continue to moderate versus what we saw in Q3. And that's that we think that's a very good sign. We're going to continue to invest in the growth of the business. But as we said before, we do expect to return to leverage and fiscal 2026. I think a comment though worth making is that with the inclusion of the Breeze acquisition, in the numbers, that's going to be more difficult to tease out and we'll continue to provide color around that. As we've said before, we would expect to lap the technology that we've made sometime in Q1, again, while continuing to invest in growth of the overall business. So see we do see some opportunities there. I think from a gross margin perspective, we continue to see opportunities. Good progress, great progress really has been made from a labor perspective. But we continue to see room to improve in the overall store operating profit as well. And we're focused on that. We're going to continue to work that fiscal 2026 and beyond as we operate the business and find new ways to improve the profitability. Lori A. Flees: The key thing, Steve, just to add on to what Kevin Sorry. Sorry. Key thing to add on to what Kevin's saying is Laurie. Whenever we do acquisitions or start new stores, it typically has a lower margin four-wall EBITDA in any new store we acquire or we build. And that ramps over time. In this case, we are adding 162 stores that have a lower margin profile than our existing base. And so as those stores as we can apply our playbook you should fully expect that margin improvement to happen. We're just taking on a significant increase in new stores in the overall mix. But from an SG&A standpoint, you know, we will be we will be levering relative to the business without you know, without the Breeze addition, and we'll work through continuing to leverage SG&A as we integrate. Steven Zaccone: Okay. That's helpful. That's helpful. Thank you. The follow-up I had is just, on the same-store sales guidance. You know, the last year you faced a difficult compare in the first quarter. So if we think about the quarterly cadence of comps, is there anything to be mindful of you know, below or above that guidance range as we go each quarter? John Kevin Willis: As we look at it based upon our current view of the fiscal year, we would expect the same-store sales growth to be pretty consistent across all four quarters. We don't really see any reason for there to be much variance around that throughout the course of the year. Obviously, weather can be an impact if it happens, but typically that just changes timing. It doesn't necessarily change what our guests actually do. As look at where we are, obviously, it's still relatively early in Q1. We're seeing that play out. So far, the core business is operating as we would expect it to. In Q1. So does help support the commentary, think. Steven Zaccone: Very much. Best of luck. Lori A. Flees: Thanks. Thank you. Operator: Our next question comes from Mark Jordan from Goldman Sachs. Your line is now open. Please go ahead. Mark Jordan: Thank you very much for taking my questions and looking forward to the investor update. For the same-store sales guidance, you've gone to a little bit but how do you build to that 4% to 6%? What's the mix like between traffic and ticket? Is it more ticket heavy? How should we think about the mix of franchise versus company operated? John Kevin Willis: To give you a little bit of color on that. As we look at both Q4 and the year, we a nice balance between transactions and ticket across the system. Q4, it was about one-third. The same-store sales growth was about one-third transaction and two-thirds ticket. And again, that's consistent with both company and franchise. As you look at the full year, very similar. Again, the core business is operating and performing as we'd expect it to. And so as we look at fiscal 2026 on an overall basis, I wouldn't really expect that to change materially over the course of the year for the business as we're operating it today. Mark Jordan: Okay, perfect. And then just just one quick follow-up, guess, kind of on your current trends, health of the consumer you're seeing. We've heard a little bit about concerns around deferral and non-oil change services or just an extension oil change intervals. Is there anything you're seeing there in your current business? Lori A. Flees: Yeah. Thanks, Mark. You know, automotive maintenance is a non-discretionary spend for consumers, and the demand for our services has been very resilient. Over this more uncertain macro environment. We continue to see the same dynamics. So we are not seeing customers trade down or defer. Premiumization is up across all customer types, which is a reflection of the car park. And we saw growth in customers across all levels of household income. Think the interesting thing when we look at the past five years intervals between service have been largely stable. Although in FY 2025, we saw slightly less days and miles between oil changes for our customers. Again, we've been talking about car maintenance in in almost like a peace of mind becomes a seasonal or time of year sort of consideration, less than an exact number of miles. And so what we've seen in FY 2025 is slightly less days and miles between oil changes. Now we are not expecting that to hold or continue to go down. We would expect for the days and miles to be more consistent. But in 2025, it was interesting that we did see a shortening of the cycle. Mark Jordan: Perfect. Thank you very much. Operator: Thank you. Our next question comes from Chris O'Cull from Stifel. Your line is now open. Please go ahead. Patrick: Great. Thanks, guys. This is Patrick on for Chris. I had a quick follow-up on the comp guidance. Laurie, the company guided to 4% to 6% this year. And I'm just curious what factors you're seeing in the business that could get you to the lower end of that range given kind of where you exited 4Q? Lori A. Flees: Yeah. I think, what we've talked about is, at the low end, we would fairly more even balance between transaction and ticket on the high end, it might be a little bit more weighted to ticket. So some of the things that would factor in is the NOCR improvement year over year. We've got a few things that our teams are executing against, but that would sort of depending on how that plays out, that would get us to the higher end of the range. Just specifically on NOCR. And then there's some are always doing pricing tests. So, again, assuming that our pricing test show both from a competitive positioning as well as the last of demand that we would move forward with some of the pricing that we have planned and that our franchisees would do the same. So those are the two things that I think pull you up to the high end of the range. But the other fundamentals are consistent across the low and bottom end. Patrick: Got it. That's helpful. Thank you. And then can you provide an update on the company's efforts to improve new unit build costs and just help us understand how much savings you think you can achieve relative to current levels? And is there any other opportunity you see in terms of improving the new unit economics outside of improving the build costs? Lori A. Flees: Yeah. Great question. And this is something that I know we'll spend more time on in December. Because it has been an area of focus for us for the past two years. When you look at our new unit cost, relative to two years ago, we've actually reduced those costs by about 10%. In this year. And we're fairly early in our journey, some of the things that we've done, like, we've got a I talked about it in the last quarter. We had a new prototype design, which would reduce the cost of the building. We had bids out the last time we spoke, and we just opened our first new prototype design in June, which does deliver a nice savings relative to the old building design. And so that was the first one in June. So when you look at where we will be in this year, those factor into our CapEx numbers. And we're in the early days. There's still additional work that we're doing. And so we look forward to sharing more of those plans and the impact that that will have on CapEx. I will just state though that when we look at returns, we've always talked about 30% cash on cash returns and or mid to high teens IRR on a new unit. Even through the period of our of our CapEx or new unit capital cost going up, our returns have stayed high and improved in many cases. And this is because the fundamentals of the core business have gotten stronger. So each box is returning a higher four-wall EBITDA margin again, over a slightly elevated CapEx, it still delivered a really fantastic return for both us and franchisees. Now that will continue to improve as that denominator starts to get more optimized. So really excited to share more information on that, in December. John Kevin Willis: The only thing I would add to that is there's also the aspect of converting acquired stores. There's been a lot of focus also on really sharpening the pencil around what we spend when we buy a store, which we typically do buy 30 to 40 stores in a normal year, obviously we'll be taking that into consideration as we think through the Breeze stores as well once that deal is closed. Patrick: Great. That's helpful. Thanks, guys. Elizabeth Clevinger: Mhmm. Thank you. Operator: Our next question comes from Peter Keith from Piper Sandler. Your line is now open. Please go ahead. Peter Keith: Thanks. Good morning and congratulations on getting the Breeze acquisition done. Just on a separate topic, wanted to dig into a little bit on the higher product cost impact. It looked pretty impactful at around 120 basis point drag for the quarter. Could you give a little more detail on what this was and if we're going to see this headwind continue or if there's any potential offsets as we step into the new fiscal year? John Kevin Willis: Yes. As we look at product cost, there are several components to that. As we all know, crude oil pricing continues to be down versus prior year. And typically, we would expect to see base oil pricing come down as well. That typically takes some time, three or four months is not uncommon for that curve to catch up. And unfortunately, we really haven't seen much there yet. And in the case of supply chain costs, we continue to see inflation there, which does create a drag on the product cost side. When base oil pricing does decline, and we would expect it to at some point, we would see some benefit from that as well as our franchise partners. And since our franchise partners will benefit from this as well as we pass those savings along to them. Another component to this that has also been a drag and is, I would say, marginally gotten worse would be used oil pricing. It's also a component of product cost. Historically, it's been more of offset as we sell the used oil. Used oil prices do tend to move with crude oil pricing and that has been the case even more so than the case, I would say to the extreme. We've seen used oil pricing come down considerably to the point that some providers out there are starting to charge customers to pick up used oil versus actually buying that. It's just a function of the market dynamics. As crude has gone down and stayed down there's just less demand on the used oil side. And so it becomes more of a drag. But we've seen an outsized impact to that as well. We are not currently paying providers to pick up our oil, but we're also not realizing very much in terms of the sale of our used oil either. And we expect to see that trend continue for the time being. And would expect to see that in 2026. And we've included that in the consideration around our outlook as well. Peter Keith: Okay. All right. That's helpful. And then, I guess a simplistic question on optics. So the comp was quite good for the quarter, the EBITDA at the high end and then the EPS the low end. So I guess optics do matter. You did miss the EPS consensus estimates a bit. To me, it looks like you had $0.02 headwind from higher interest expense. Maybe you can comment if the why did interest expense jump up so much and if there's anything in your model that maybe caused the drag on the EPS? John Kevin Willis: Yeah. There a couple of things in there. Depreciation in the quarter was a little higher than we expected because of the timing and mix of new store additions in the quarter. So that's part of it. The effective tax rate is also just a bit higher than what we expected as well. And I would say probably from an interest perspective, would say net interest is probably a little bit higher, meaning interest income that we would have expected to see was a bit lower as well. So it's really pieces of all of that that I would say contributed to us landing at the bottom end of the range for the full year. Peter Keith: Okay. That's helpful. Thank you. Good luck with the new fiscal year. John Kevin Willis: Thank you. Elizabeth Clevinger: Thank you. Operator: This marks the end of our Q&A session for today. So I'll hand back to Laurie for closing remarks. Lori A. Flees: Well, thank you everyone for joining and for the questions. You know, as we step back and look at FY '25, we feel really good about what we delivered from compelling growth and financial results. And as we look at FY '26, we know there's more to come as we continue to drive the core business and moderate the G&A growth and spend in our existing business. Now with Breeze, while we're adding 162 stores to our network, this is not something that is new to us. We have been doing bolt-on acquisitions for a long time. This is obviously larger scale, but we have the playbook and the team ready we will you know, following the close on December 1, we'll start our integration process. And I feel really good about the Breeze team and again, the strategic rationale for that acquisition. Remains the same. When we close the transaction, Valvoline Inc. will be the category leader in store count, revenue, and transactions both on an absolute and an average per store basis. We'll have over 2,300 well over 2,300 stores, which we can leverage our investments against. So using our playbook, we'll bring these stores into the portfolio and we do see significant growth opportunities ahead. Our resilient business model remains unchanged, and it will continue to position us for momentum in FY 'twenty six and beyond. So I wanna thank you all again for joining us today, and I look forward to seeing you either virtually or in person at our investor update in December. Thanks all. Operator: This concludes today's call. Thank you for joining us. You may now disconnect your lines.
Operator: Hello, everybody. And welcome to Nayax Ltd.'s Third Quarter 2025 Earnings Conference Call. All participants are in a listen-only mode. Presentation instructions will be given for the question and answer session. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Aaron Greenberg. Please go ahead, Aaron. Aaron Greenberg: Thank you, operator, and everyone for joining us today on this conference call. With me on the call today are Yair Nechmad, Nayax Ltd.'s Co-Founder and Chief Executive Officer, and Sagit Manor, Chief Financial Officer. Following management's prepared remarks, we will open the call for the question and answer session. Our press release and supplementary investor presentation are available on our Relations website at ir.nayax.com. As a reminder, during this call, we will be making forward-looking statements. All forward-looking statements on our call today are based on assumptions and therefore subject to risks and uncertainties that may cause results to differ materially from those projected. We have no obligation to update these statements except as required by law. You can read about these risks and uncertainties in our supplementary investor presentation released earlier today and our regulatory filings. In addition, today's call will include a discussion of non-IFRS measures. Management believes non-IFRS results are useful in order to enhance our understanding of our ongoing performance. However, these measures should be considered as a supplement to and not as a substitute for IFRS financial measures. A reconciliation between Nayax Ltd.'s non-IFRS to IFRS measures can be found in our earnings press release issued earlier today. All key performance indicators are intended to evaluate our business and properly measure in a macroeconomic environment to guide and support our decision-making. These key performance indicators may be circulated in a manner different from our industry standards. And finally, please note that all figures in today's call will be reported in US dollars unless stated otherwise. Yair will start the call with key financial and operational highlights. Following that, Sagit will go through the details of financial results and discuss the outlook. And with that, I would like to turn the call over to Nayax Ltd.'s CEO, Yair Nechmad. Yair? Yair Nechmad: Thank you, Aaron, and thank you, everyone, for joining us this morning to discuss our results for the third quarter and the progress we are making across the business. It was another strong quarter for Nayax Ltd., reflecting the continued execution of our strategy and our focus on profitable growth. We delivered strong operational and financial results highlighted by expanding margin disciplined growth across our segments, and consistent progress towards our long-term objectives. We continue to gain market share across our core automated self-service business with strong demand for our solution. We are adding new customers at scale while deepening relationships with existing ones. Our one-stop-shop solution hardware management suite and payment all from one trusted provider is a true differentiator for our customers in the automated self-service space and one that few others can offer. Our platform continues to demonstrate its value and stickiness with very low customer churn. Customers are expanding their engagement with Nayax Ltd. by adding more devices, processing more transactions, and adopting more of our services over time. As a result, we are seeing a steady increase in our ARPU driven by processing revenue growth per connected device. This reflects our growing share in high transaction value such as EV charging, amusement, and car wash, which are segments that drive significantly more revenue per customer. Recurring revenue as a percentage of total revenue continued to grow quarter over quarter. This sustained mix shift reflects our focus on building a more productive higher margin revenue model that scales efficiently as our customer base grows. Our growth in managing connected devices is a key driver of growth. As we continue to expand our product portfolio with our diverse payment hardware including lower-cost embedded products. I will now provide an update on three main focus areas: technology, customer and partnership, and M&A. On the technology front, we made great progress during the third quarter on several key technology initiatives. In Australia, we began rolling out the Bipos Media making the first commercial deployment of our next-generation Android payment platform. This is a meaningful step for us. The new device is our first truly Android-based PIN-enabled device family. And it opens the door to a wider set of vertical and higher value use cases in regions requiring PIN. The product combines our payment infrastructure with new engagement capabilities, including a touch screen interface and support loyalty, advertising, and permission promotional tools. We started our initial launch of the Vipose media in the UK and selective countries in Europe over the past months and plan more announcements about the product soon. In addition to announcements, two large partnerships with Autel and LinQual, we continue to build momentum with the UNO Mini, our embedded payment product. In China, six OEM partners completed their Ono Mini SDK certification which now allows them to support contactless payment across EV charging stations and power bank machines. We have a strong pipeline of OEMs that are going through the certification process and expect sales in embedded products to scale over the coming quarters. Finally, with respect to technology initiatives, Retail Pro has successfully integrated with One Bit AI-powered inventory optimization engine. This integration lends retail calls operational tools with predictive AI analytics from One Bit, helping merchants utilize the retail post software to cut overstock and stay ahead of evolving customer demand patterns. Turning to customers and partnerships. A key customer highlight this quarter is our success with ChartSmart. A US chart point operator managing thousands of ports and growing rapidly, in the DC fast charging space. Which has committed to using Nayax Ltd. as its preferred payment solution. ChartSmart is one of the fastest-growing EV charging networks in the United States, underscoring how our payment technology continues to power growth in the electric vehicle charging vertical. Our platform enables large operators like ChartSmart to simplify daily operations from payout and reconciliation payment acceptance, allowing them to focus on growing their network. Our collaboration with Adient continues to evolve as we jointly develop solutions in e-commerce embedded banking. For example, we began a pilot of our new e-commerce offering for EV charging, in October and already have a backlog ahead of the broader rollout. In parallel, we are preparing to launch our embedded banking product in the US in early 2026, including bank accounts and debit cards for our customers. This initiative brings us closer to our vision of being an end-to-end provider for our customers' business needs. We expect this initiative to drive higher recurring revenue per customer over time. On the M&A front, we remain active with a disciplined approach. We continue to pursue acquisitions that align with our key objectives of geographic expansion, technology enhancement, and strategic consolidation of distribution channels. Recently, we signed a letter of intent with exclusivity to acquire Integral Vending, our exclusive distribution partner in Mexico since 2015. Degel Vending has built a high-performing network across Mexico, developed a proprietary vending management system tailored for the Latin American market. This acquisition will deepen our presence in the region. Expand our software capabilities, and strengthen our ability to deliver a full suite of payment and management solutions across Latin America. It follows our recent two acquisitions in Brazil and represents the next step of our multiyear strategy to establish Nayax Ltd. as the leading platform across the region. While we do not expect a material financial contribution in 2025, we believe this deal will create long-term strategic value in 2026 and beyond as we expand our operation and distribution in Spanish and Portuguese-speaking markets. In November, we also completed the purchase of the remaining shares of Tigapo. Bringing us to full ownership of our arcade gaming business. Tigapo continued to deliver impressive growth and represent a highly scalable opportunity globally. Within the broader Nayax Ltd. ecosystem, Tigapo will benefit from our customers' network and international footprint. As an update, to the Nayax Ltd. capital purchase in Q2, we have successfully integrated it fully within our broader embedded payment initiative under the consolidation team. In July, we launched our rental business in Australia and we are rapidly growing our installed base of both rental units and finance hardware. Nayax Ltd. Capital allows us to provide a fully automated process of ordering the hardware, financing it, onboarding to NARTSCO, and invoicing, including the ability to automatically secure the financing against the gross processing receipt. This strategy produces a higher gross margin in the long term than selling the hardware outright. The low-touch sales cycle will create substantial operational leverage in the coming years. Turning now to guidance. For the full year. Which Sagit will also discuss in greater detail. At the beginning of the year, we set a target of revenue growth of 30% to 35% for 2025 including inorganic growth from acquisition. While multiple planned transactions have been delayed, we have maintained strategic discipline and refrained from pursuing deals at any cost. Our M&A pipeline remains active, focused on opportunities that enhance our technology, customer base, and long-term profitability. We are reiterating our organic revenue growth guidance of at least 25%. Which will be driven by enterprise hardware sales in the fourth quarter and maintain our strong recurring revenue growth. Enterprise sales accelerated in the third quarter. And we expect further momentum in the fourth quarter. Our hardware sales pipeline remains robust, and we are well-positioned to capture larger enterprise opportunities that align with our solutions and scale. Looking ahead, we remain confident in our strategy and the fundamentals of our business. Our growing base of connected devices, recurring revenue, strong customer retention, and disciplined focus on profitability position us well for sustained growth. Our addressable market continues to expand as the world moves further towards digital payment and connected commerce. While M&A continues to play an important role, organic growth remains the primary driver and the foundation of our business. We have entered the fourth quarter with strong momentum and even greater conviction in the long-term opportunities ahead. Our expanding pipeline, diversified revenue base, and strong financial discipline, we are well-positioned to continue outperforming the broader payment industry and deliver lasting value to our customers, partners, and shareholders. With that, I'll turn it over to our CFO, Sagit Manor, who will review our financial results in greater detail and walk through our outlook. Sagit? Sagit Manor: Thank you, Yair, and good morning, good evening, everyone. I'll start by reviewing our KPIs, and financial performance for the third quarter and then I'll discuss our updated outlook for the full year 2025. Looking at the three key performance indicators for the quarter that we consider primary measures of growth, First, total transaction value increased by 35% over Q3 2024, reaching $1.8 billion and driving strong corresponding processing revenue growth of 33% for the quarter. At the same time, average transaction value increased from $2.15 to $2.40 while maintaining a similar take rate. Displaying our strong positioning into emerging verticals such as EV charging, amusement, and car wash. Second, our customer base expanded by 21% compared to Q3 2024, with nearly 110,000 customers at the end of Q3. And third, our installed base of managed and connected devices grew 17%, compared to Q3 2024 to more than 1.4 million devices at the end of the quarter. These KPIs reflect the momentum in our business and the underlying strength of our platform as we continue to capture market share in automated self-service, driven by our technology platform and our growth in new verticals and geographies. Looking at our financial performance, Revenue for the third quarter was $104.3 million which is an increase of 26% over Q3 2024. We continue to take market share. Adding nearly 5,000 new customers this quarter and more than 56,000 managed and connected devices. Organic revenue growth for the third quarter was 25%, showing sequential acceleration compared to both the first and the second quarters. We expect organic revenue growth to continue to accelerate in the fourth quarter which I will discuss in our outlook. In the third quarter, recurring revenue which includes payment processing fees and SaaS subscription revenues, increased by 29% compared to last year's third quarter reaching $77 million and represented 74% of our total revenue in Q3. More specifically, processing revenue grew by 33% to $48 million in Q3, driven by a 17% increase in our installed base of managed and connected devices, and a 35% increase in dollar transaction value. Our take rate for the quarter was 2.71%. Hardware revenue in the quarter grew 18% to $27 million compared to $23 million in last year's same quarter, with continued strong demand for our products, solutions, and technology. In the quarter, our installed base grew by 17% compared to last year's third quarter, reaching more than 1.4 million devices as we added more than 56,000 devices to our installed base this quarter. Moving now to profitability and margins, for the quarter. We continue to drive significant margin expansion through initiatives to improve efficiency, in payment processing and optimize our hardware cost structure. Gross margin increased to 49.3% compared to 45.7% in the last year's third quarter driven by both higher recurring and hardware margins. Our recurring margin increased to 53.6% from 50.1% in the prior year quarter, mainly driven by an additional improvement in processing margin to 39.6% from 33% as a result of consolidating a majority of the payment volumes under five main payment acquirers. Driving improved operational efficiency, We also continue to benefit from recent favorable renegotiations of key contracts with several bank acquirers and improved smart routing capabilities. On the other side, our margin increased to 37% compared to 34.4% in Q3 2024. Driven by customer sales mix the continuing optimization of our supply chain infrastructure, and better component sourcing. For the full year, we expect other margins to be at the higher end of the range between 30% to 35%. In terms of gross profit, we generated more than $51 million an increase of 35% over last year's third quarter. Adjusted OpEx of $34 million was 32.2% of revenue and continues to improve as a percentage of revenue a testament to our disciplined cost management. Adjusted EBITDA increased to $18.2 million representing 17.5% of revenue an improvement of more than $7.2 million compared to last year's third quarter and demonstrating the continued scaling of operating leverage in the business. Operating profit was $7.8 million an improvement of $6.4 million from last year's third quarter. This significant operating profit increase is mainly driven by improved gross margin. Net income for the quarter was $3.5 million compared to $700,000 in the prior year period. Turning to our balance sheet. On September 30, 2025, cash and cash equivalents and short-term deposits totaled $173 million while short and long-term debt was $156 million. Both driven by notes and warrants of completed March 2025, of approximately 486 million shekels net maintaining a solid balance sheet and net cash position. Looking at cash flow, we generated $10.5 million from operating activities. Free cash flow for the quarter was $3.9 million mainly due to the timing of cash settlement from processing activities. Turning now to our outlook and referring to our forward-looking information disclosure in our press release. For the full year 2025, Nayax Ltd. is reiterating organic revenue growth guidance of at least 25%, driven by enterprise hardware sales in the fourth quarter and maintaining our strong recurring revenue growth. With some delays in strategic M&A transactions, we are updating our financial outlook to a revenue range of $400 million to $405 million on a constant currency basis. This represents revenue growth of 27% to 29%. We still anticipate an adjusted EBITDA margin of at least 15% and the updated guidance for the full year reflects the lower expected inorganic contribution due to delayed M&A activity and is now between $60 million to $65 million with at least 50% free cash flow conversion from adjusted EBITDA. As for our 2028 target, we continue to project an annual revenue growth of approximately 35% driven by a combination of organic growth and strategic M&A. We also continue to target a gross margin of 50% and an adjusted EBITDA margin of 30%, as we continue to drive high-margin revenues and operational efficiency. In closing, we are well-positioned for our future growth as we continue to grow our installed base globally and capture market share. We also continue to focus on scaling our recurring revenue streams in particular, our payment processing capabilities which benefit from the conversion trend of cash to cashless transactions. I'll now turn the call over to the operator for our Q&A session. Operator: Thank you. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset. Before pressing the star keys. Our first question is from Josh Nichols with B. Riley Securities. Please proceed. Josh Nichols: Yes. Thanks for taking my question, and great to see the company. Posted some record EBITDA margin here in the third quarter. I just want to touch on a little bit. You mentioned during the call there's a large number of these fast-growing EV partnerships and if you could give us a little bit of update on the timing some of those shipments. I know Autel alone was looking to ramp to maybe, like, 100,000 devices by the end of next year. Is that still on target? And what's the expectation for the EV ramp? Aaron Greenberg: Hi, Josh. This is Aaron. Yeah. So the EV charging has been accelerating as you mentioned. We've been announcing several partnerships. We also have been accelerating the OEM integrations on the embedded readers, which is a big growth driver for us, in the future with regards to EV charging. And we're getting a lot of momentum, especially in the North American market, and I expect also over the coming quarters with the launch of the VPost Media, which we talked about a little bit in the script as well. You know, over the coming quarters in Europe and UK with a pin on glass given that with DC charging, with the high average transaction value. You need to have a pen on glass device in order to be able to do those higher value transactions. And we all you know, so we see that, with the launch of that, that we'll be able to do more, in that market for the EV charging as opposed to in, you know, past years where we've been more focused on the North American market for EV charging. As we look forward, we already started to see some hardware revenues related to EV charging customers in Q3. We expect to see a significant acceleration of that in Q4. And as we start looking into, into next year, the partnership with Autel and with the other OEMs are progressing as expected. And we're seeing, you know, the first, Uno Minis were, you know, our embedded readers, were delivered at the '2 actually, and we're starting to see some acceleration of those volumes as well. Josh Nichols: That's good to hear for the EV ramp. I know there's been a couple other things you mentioned, like car washes, amusement, Looking at some of the recent, like, industry conference, I know smart coolers has been a big focus for the space. Any update you could provide us on what you guys have in terms of offerings on the smart cooler market and what you're seeing in terms of demand and potential growth activity that could be driving some acceleration there for next year? Aaron Greenberg: Yes. This is Aaron again. We signed some partnerships in the US market. We signed some partnerships in the US market with regards to the smart coolers for distribution with our Vipostouch. And we've been actively working in other markets as well. We signed a partnership with a large enterprise customer in Europe over the past several months, to start delivering smart coolers in the European markets. Which we hope to talk about over the coming months. And we see this as a big growth driver in the future. Smart coolers, as opposed to micro markets, which is also a fast-growing space. It's been best suited for us, with all the integration technology that we've developed over the last twenty years. You know, being able to utilize our Vipostouch and now the Vipost Media and other markets as well, for the smart cooler market, you know, see some acceleration. I think that car washes, as you mentioned, is a big growth area for us. We're also seeing a lot of growth in things like arcade gaming, after we finish the purchase of Tigapo over the last year. We saw significant growth in Tigapo's arcade gaming solution over the last twelve months, and we expect that to continue to be, even though it's a smaller number at the moment, to continue to be a large growth driver as well. Maybe just to add to the appreciate One thing to add to it, yeah, there is a great opportunity that Nayax Ltd. is exercising with all the OEM. In the cooler by itself, we are partnering with the cooler manufacturers and we are embedding ourselves with the Deepos Media already right now with the provider OEM. And by that, we can expose ourselves to a greater market share in the cooler industry. Appreciate the update. I'll hop back in the queue. Josh Nichols: Thanks. Operator: Our next question is from Cristopher David Kennedy with William Blair. Please proceed. Cristopher David Kennedy: Yes. Thanks for taking the question, and thanks for all the information. Just wanted to talk a little bit more about the embedded banking and the e-commerce opportunity that you mentioned in your opening comments? And just think about kind of the position for the business as we think out into 2026. Yair Nechmad: Yes. It's a great question. Thank you, Cristopher David Kennedy, for the question. The embedded is alive and kicking in terms of internally almost done from Nayax Ltd.'s perspective in the ready to launch. It will be launched during Q1, mostly in the US market. Everything in terms of setting up the agreement the way that we're operating. Will take live in Q1. And then following this, in Q2, this Q3, rolling out production, we have set targets for this. The impact of this in terms of how we're operating, I strongly pushing that, we'll look very much to bring value out to our customer. Mostly with the weight, MCA, with the working potential solution that we have. And then we'll help our customers to work it seamlessly with their working capital issues or challenges. With us helping them with our other part of the division, which is Nayax Ltd. Capital, that we close the loop for this. Cristopher David Kennedy: Great. Thank you for that. And then any update on the e-commerce opportunity as well? Thank you. Yair Nechmad: The same thing will happen also in the next year with the e-com. The e-com is mostly for the EV for the first start. The EV market. And then it will roll out to more and more segments in the All of this is gonna happen in 2026. Aaron Greenberg: Right. Cristopher David Kennedy: Thank you. And then I'll if I could just add there, we did start pilot test testing in the US market for the e-commerce solution. The beginning of this month. And as Yair said, production, full production, with external customers will start beginning of the year. Cristopher David Kennedy: Okay. Thanks for that. And then just as a follow-up, Sagit, you mentioned the higher average ticket. Can you just talk a little bit about average tickets across different verticals and kind of you know, the range between traditional vending versus EV or amusement or car washes? Thanks for taking the questions. Of course. I'll start and maybe Aaron can help as well. Thank you for the question. Sagit Manor: So we do see that, on a quarterly basis, the number of the value of the transaction is growing faster than the number of transactions. So and it comes from the higher, the verticals that provide higher ticketing. Like power, like laundromat, like, the easy, of course, and other areas where other verticals that we are growing. And we expect that to continue. And with that, I'll let Aaron to add some more information. Aaron Greenberg: Yeah. So know, there's high you know, some of the higher growth verticals like like EV charging. You know, for example, on a, you know, on a DC charger, you can see you know, average transaction value. Right now, we're seeing it somewhere around $18 on a transaction. You know, even with AC chargers, we see about 4 to $5 per transaction. On average. At the moment, and those have been, steadily rising as well. With EV adoption over the last couple of years. And, also, some of the other verticals as well are, starting to see some significant growth, car wash and others that are, you know, rising that, ATV. And then you know, it's important to mention also that on the retail, division, as you continue to grow the retail side of the business as well, the ATV will continue to go up as well. So I think we you know, it's important to, you know, stress that the ATV will likely continue to go up over time. You know, it's continue to expand these new verticals. The gross take rate is not what the focus has been on as opposed to really the net take rate and making sure that as we continue to increase the ATV, that the net take rate that we've been taking continues to maintain steady or growing. And as we've shown over the last several we've been able to get the processing gross margin up from the high twenties up to the high thirties. Which is a huge testament to the, you know, to the financial negotiating power that we now have, you know, doing, you know, several billion transactions a year now, and growing that processing growth as much as we are, gives us a lot of leverage to be able to go in do the negotiations with the acquiring bank. But, also, we have great smart routing capabilities that we've continued to add. Over the last several, quarters, that's allowing us be able to, you know, shave off even, you know, fractions of a penny off of each transaction and you know, even in, you know, in a one $2 transaction, a fraction of a penny is a huge difference, so with regards to the processing margin. Great. Make sure all the information because then a little bit of numbers. Right? And the dollar transaction value grew to $1.8 billion and grew 35% compared to the last quarter versus the number of transactions that grew 21%, and we see that growth coming from new customers, but mostly from existing ones. So it's, again, it's the cash to cashless conversion. More transact more cashless transactions going into and add to that geo so verticals, geography, and what and and extra item there that create, that growth of ATV. So we're very proud of that. We're very proud on the high margin, as Aaron on the processing. If you remember us talking about it a few years ago, that if we reached a 100 basis point, we'll be happy. And today, we are way over that, and we're continuing to grow. As we, am focusing on on the main acquirer of consolidation and really make the most of it. Cristopher David Kennedy: Great. Thanks for all Maybe one last thing to add to add to this. Yair Nechmad: Chris, one last thing to add to this. We also boost the platform remotely to change pricing. It's helped existing customers to fit their pricing according to inflation. And it's also increasing their capabilities to control price. Cristopher David Kennedy: Right. Thanks. Everyone. Appreciate it. Operator: Our next question is from Hannes Leitner with Jefferies. Please proceed. Hannes Leitner: Yes. Thanks for letting me on. I got also a couple of questions. The first one is maybe on your comments around acquirer optimization, given the processing had been growing nicely and gross profits been driven here on the recurring side. That would be interesting. To understand. Then the second one is on M&A opportunity. Appreciate the prudence of rather quality over quantity. Which led to the guidance cuts. Maybe you just can give us an update on your appetite. Has there anything been changed in terms of size? Are you looking for bigger things which didn't come through this year? Or should we expect that next year will be a catch-up in M&A? And then maybe just the last one, in terms of giving us a broader update on the market dynamics in the US. We know that two of your competitors are essentially merging. Has there been any change with the delay in that process? Has there been any opportunities? Thank you. Yair Nechmad: Maybe I'll start. Regarding how we are routing transactions, we are doing this more and more and better and better. And it's helped us to go currently now semi-automatic regarding how we are we're doing this with the acquirers, but we'll move further and further to almost automatic regarding each and every beam call will be routed according to the best price and the best data that we have. Since we have more than 3 billion transactions, we know exactly which acquirers is doing in terms of acceptance rate, is the most important part. And then they're the rate that we're getting. And we'll have the ability to increase the acceptance in one hand and to reduce the cost from the other end. This will go more and more into holding our margin in a very, very tight way that we can control the margins. And we know that we can negotiate against the vendors regarding the acquirers, we have big volume, and we can also have leverage against our customers. Most of the customers, 36% of them, are small customers that cannot really have leverage in terms of negotiating. So all of this is keeping us, I think, on the good track that the margin will be according to what we expect to achieve, and we are in control. Maybe before passing this to Aaron to talk about the M&A, we're looking at the 2028 and we see the market according to what we expected to reach our targets. That's a part of what we believe is the ability of the Nayax Ltd. team to bring to life this growth. And with the M&A, sometimes it will be potentially a delay, and maybe we should be more clear regarding the organic and just that's what be the main topic that will guide the market and not really relating to an organic. Aaron Greenberg: Thanks, Yair. This is Aaron. Thanks, Hannes, for the questions. On the M&A front, on the two points that you asked about, With regards to M&A appetite, we are continuing to be prudent with regards to the acquisitions that we're doing. Most of the acquisitions that we've looked at have tended to be on the smaller side, as you've seen, in quarters past. However, we do have the appetite to do a larger acquisition, not transformational, but a larger acquisition, if it makes sense strategically for us. As if we look into the 2028, mark, we expect to see somewhere around probably $200 million of inorganic out of the billion with regards to, as we've looked from 2022 to 2028, when we first came out with the 2028 targets. And, we still expect that to be relatively the same. So that would mean, obviously, if we're continuing to do a few a year, there's going to be a couple of larger acquisitions between now and 2028. And I would expect that probably as we go into 2026, one of the, you know, few acquisitions will likely be larger, you know, call it more than $100 million of enterprise value but still not a transformational acquisition. It's very important to us that we keep the culture and the infrastructure of Nayax Ltd. at the core. And that and having the core management team and, you know, and not having an acquisition, you know, us in the wrong direction. So anything that we end up doing, you know, really needs to fit within our culture, but also, needs to be something that we can, you know, easily digest as a company. And that's been very important to all of us as we look at this. You know, with you know? And I'll just mention as well that you know, we raised the bond at the beginning of this year to have the cash on hand to do acquisitions as needed. But, obviously, if needed, we can you know, there are other levers, to be able to go and, to purchase these companies as we go forward. With regards to the US, competition and M&A, obviously, you know, we've been tracking, you know, the merger of and three sixty five. They went into second three you as publicly announced. We've been watching as has everyone else. We don't have any other comment with to the M&A as it, currently stands. However, I will say, that we haven't been, afraid from a global perspective of, you know, this merger or any other mergers that are happening. You know, there's consolidation that's been happening in our industry for several years. We expect the consolidation will continue to happen. And we are winning right now in market share, taking, you know, of our technology, because of our great customer service. Because when a small customer and an enterprise customer comes to us, they know that they're gonna get great end-to-end support. And this is something that, you know, has been a big differentiator for us over the years. We're not the cheapest system out there in the world. We're not the cheapest you know, monthly service fee, you know, depending on which region that you're in. But we're, in our opinion, the highest quality. And able to touch all of these different verticals with one product, you know, which makes us very resilient in the long run. So, you know, in terms of the US market, we always look at the US market with regards to acquisitions. However, we've been seeing better opportunities outside of the US you know, in Europe, in Latin America, in Asia. Versus the US markets just because of the market dynamics over the last couple of years. But it doesn't exclude us from looking at the US market as well. And we obviously do look at acquisition targets in the US. Hannes Leitner: Great. Thank you so much. Operator: Our next question is from Sanjay Sakhrani with KBW. Please proceed. Sanjay Sakhrani: Thank you. Good morning. Want to talk a little bit about hardware. Obviously, it's a big contributor to the fourth quarter. You mentioned sort of accelerating enterprise. Could you just talk a little bit about the visibility there as well as the margins? It seems like the margins have been a bright spot there, continued improvement. What's the ceiling on those margins? Yair Nechmad: The ceiling is margin 100%, if you can. But in terms of what we want to achieve is to be better than the market. We invest around I think, the last two years a lot regarding putting the hardware in the half of ourselves in terms of how we produce and how we are reaching out to the best source of the component and design of the product. And now we're launching the also the Repos Media, which is a fully Android, which should support. Should have been what you call increasing our hardware cost, but actually, it is not. We succeed to get what we call a very, very good way to operate our hardware manufacturing and the way that we are sourcing it. And I believe that we can keep on running on the rails of the 30%, 35% as we said on the hardware side. We have the flexibility to meet all the requirements of the market. On top of the risk of the target, which is coming on and off into the US market, but the US market is only 39% of our business. So basically, in terms of all the blending of the global, we can see that we can control the margin of the hardware. Sanjay Sakhrani: Got it. And just the visibility for that fourth-quarter ramp. Yair Nechmad: So we're seeing high demand. Q4 is always a big enterprise. And we have a very, very good visibility to end this quarter with the expectations that we set to the market. And visibility is in our Salesforce. So it's a good visibility. Sanjay Sakhrani: Okay. And just one follow-up. In terms of the delay in the M&A, like, how much of that contributed to the third quarter versus it contributing to the fourth quarter? And then just a follow-up on Yair, you mentioned sort of it might be better just to give the organic growth expectations because inorganic is sort of hard to sort of estimate timing. There's always lumpiness there. As we think about that 2028 guidance, like, how much of it is organic versus inorganic to get to that 35? Thank you. Sagit Manor: So maybe I'll start and Yair and Aaron will continue. So the job in Q3, you know, we are not giving a quarterly guidance. However, versus the consensus, absolutely, the gap between our organic financial results. And the consensus comes from the lack of significant M&A that we were expecting to see, and that impacted the Q3 and, obviously, Q4. That's the reason why we are updating our guidance with respect mainly to the inorganic growth of the business. And as for 2028, I'll let Aaron speak about that and what's the M&A portion of it. Aaron Greenberg: Yeah. Thank you, Sagit and Sanjay. So with regards to this year, you know, I'll just say that, you know, there were multiple M&A's, that were delayed later in processes. You know, as I mentioned to Hannes and to others, you know, we're very prudent with regards to M&A. We want to make sure that we're doing the right acquisitions. You know, we have a very, you know, detailed due diligence process with regards to these acquisitions. You know, we're not just buying them on the fly. We have a dedicated team to work on this. And we want to make sure that the ones that we're buying are not just contributing, you know, in the short term to revenue, but you know, contribute to the long-term strategy of the business. Specifically with regards to this year, we expected that the Integral Vending acquisition would have happened earlier in this year. It's one that we've been talking about for a while with our with Integral there in Mexico, and it's one strategically that we really wanted to do for a while. And we finally were able to, know, to get to terms on the LOI, back. In the last, you know, month and a half or so, which is, which is a big plus for us, and, we're very excited about that. And, we believe that we'll be able to get that done by the end of the year. We're actively in the negotiations and due diligence process right now to get it closed. And there was another acquisition at the time of the Q2 earnings that we were deep in the process of we decided to drop out of in the due diligence process. You know, again, because of the prudent, you know, measures that we take during the process, we expected that we were gonna complete that, which would have contributed for this year, but we've decided to move on to other acquisitions as well. Or instead, sorry, that will contribute more into '26 as opposed to 2025. As we look at the 2028 targets, think, you know, Yair mentioned this, you know, it's very difficult to predict the exact timing of M&A. You know, the organic growth is the most important part to us in the long term. And we don't see that slowing down. We have a lot of potential catalysts as we go forward as well, not just from the cash to cash list, but also the embedded banking services, e-commerce, and other solutions. That we believe will continue to increase the ARPU over the coming years. But as we look into 2028, we do expect meaningful contribution from the M&A. Mentioned to Hannes, we expect about $200 million of inorganic revenues from the 2022, 2028 So I would still say another probably, you know, 150 plus million, basic is gonna come, from contribution of inorganic over the next you know, three and a half years. You know, So there'll still be some meaningful M&A that happens. Most of them will be smaller acquisitions, you know, call it, you know, plus or minus you know, 10 million of revenue per acquisition, something like that, but but there'll be know, as we've seen in the past quarters. But, there will be larger ones as well. Sanjay Sakhrani: Thank you. Operator: With no further questions, I would like to turn the conference back over to Yair for closing remarks. Yair Nechmad: Thank you for joining us today and for your interest in Nayax Ltd. This quarter again showed the strengths of our business and our strategy, as we help merchants move to cashless payment in many geographies and verticals. As we look ahead, we will stay focused on our plan profitable, and profitability growth growing in key markets and working closely with our partners. I want to thank our employees, for their hard work, and our customers, partners, and shareholders for their trust. Thank you. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the SQM Third Quarter 2025 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, Megan Suitor, Investor Relations team. Please go ahead. Megan Suitor: Good day, and thank you for joining SQM's earnings conference call for the third quarter of 2025. This call is being recorded and webcast live. Our earnings press release and accompanying results presentation are available on our website, along with a link to the webcast. Today's participants include Mr. Ricardo Ramos, Chief Executive Officer; Mr. Gerardo Illanes, Chief Financial Officer; Mr. Carlos Diaz, CEO of the Lithium Chile division; Mr. Pablo Altimiras, CEO of the Iodine and Plant Nutrition division; and Mr. Mark Fones, CEO of the International Lithium Division. Also joining us today are members of our commercial and business intelligence teams. Mr. Felipe Smith, Commercial Vice President of the Lithium Chile division; Mr. Pablo Hernandez, Vice President of Strategy and Development of the Lithium Chile division; Mr. Juan Pablo Bellolio, Commercial Vice President, Plant Nutrition and Specialty Products; and Mr. Andres Fontannaz, Commercial Vice President of International Lithium Division. Before we begin, please note that statements made during this call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses and other financial items, along with expected cost synergies and product and service line growth are considered forward-looking statements under U.S. federal securities laws. These statements are not historical facts and are subject to risks and uncertainties that could cause actual results to differ materially. We assume no obligation to update these statements, except as required by law. For a full discussion of forward-looking statements, please refer to our earnings press release and presentation. With that, I will now turn the call over to our Chief Executive Officer, Mr. Ricardo Ramos. Ricardo Ramos: Thank you. Good morning, everyone, and thank you for joining us today. During the third quarter, we experienced a more favorable pricing environment for lithium compared with the previous period. Although the market remains highly volatile, we are cautiously optimistic. Our realized average prices increased. And while we expect this positive trend to continue in the fourth quarter, we remain focused on high-quality production, being a reliable supplier, increasing volumes and continuing to advance our cost reduction initiatives. Demand fundamentals remain strong, not only for electric vehicles, but also from energy storage systems, which already account for more than 20% of global lithium demand. Operationally, the quarter was very strong. We delivered the highest lithium sales volumes in SQM history, supported by low cost and strong efficiencies at our Atacama operations. Our Australian operation also continued to progress as planned. Spodumene sales increased significantly. We initiated lithium hydroxide production, and we reached record sales volumes of spodumene concentrate, an important milestone from this project. We expect commercial activity to remain robust in the fourth quarter. Outside the Lithium segment, performance was also solid. In Iodine and Plant Nutrition, results remained strong. Iodine prices continue at high levels with a balanced supply-demand environment. Construction of our seawater pipeline is now more than 80% complete, giving us the ability to bring additional iodine to the market earlier than expected, if required. We are also expanding our iodine production capacity through the development of a third operation in Maria Elena, which will add 1,500 tons of iodine capacity. This further strength our long-term supply position and reinforces our reputation as a reliable supplier. In fertilizer, we continue to see healthy demand and stable price across most key markets. Our Specialty Plant Nutrition business delivered discrete but sustainable growth compared with last year, both in volumes and revenues. The shift toward tailor-made solutions and higher value blends continues to improve our product mix and supports our strategy of allocating products to the most attractive markets. In iodine, revenues increased 5% year-on-year with prices averaging close to $73 per kilogram. The x-ray contrast media segment, the largest end-use application continues to grow steadily and remains a key driver of long-term demand. We also complete a detailed review of our CapEx program for the period 2025, 2027. Total CapEx is now estimated at $2.7 billion over the 3-year period. Our plan maintains a focus on increasing production capacity, preserving low cost, ensuring high product quality and upholding strong sustainability standards. While some investment decisions have been delayed, this does not affect our ability to meet the production and sales objectives set for each of our divisions. Finally, as announced last week by SQM and Codelco, we received approval from China's antitrust authority. We look forward to advancing this joint venture before the end of the year. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Joel Jackson from BMO Capital Markets. Joel Jackson: I'll ask my questions one by one. Can you talk about what you're seeing right now in lithium demand? Particularly, I wanted to maybe investigate, it seems like inside China, the demand forecast for lithium are a lot higher, like for forecast, they're coming from Chinese forecasters as opposed people outside China in the Western world seem to have lower demand forecast. Do you see this disconnect? Is it around energy storage in China? Can you talk about that? Pablo Hernandez: Joe, Pablo Hernandez here. So regarding 2025 demand expectations, we have recently improved since our last earnings call, so driven by stronger-than-expected EV sales, particularly in Europe and the sharp increase that you mentioned in BSS shipments. So we expect demand to reach over 1.5 million metric tons this year, representing an over 25% growth. In terms of China, it continues to maintain a significant lead in the EV market. We expected 30% year-on-year growth, representing more than 60% of the global EV sales. And regarding the other significant EV markets, Europe this year had a very strong first 3 quarters with more than 30% year-over-year growth. On the U.S., they still had a slower growth of 10% year-over-year, while the rest of the world, of course, had strong numbers reaching 40% year-over-year growth. Joel Jackson: Okay. You, on your last quarter talked about Chilean production for lithium to be up about 10% for you, and then you have about -- excuse me, 20,000 tons for your share at Mt. Holland. Are you still maintaining that 10% year-over-year our at Atacama? And then should we now expect something closer to 24,000, 25,000 tons for the year out of Mt. Holland in spodumene. Gerardo Illanes: Joe, this is Gerardo. Just to be clear, are you asking about production or sales? Joel Jackson: Well, you gave guidance last quarter that Atacama production or sales at the [indiscernible] would be up 10% this year, and then you'd have 20,000 tons out of Mt. Holland. In this particular quarter release, you said Q4 volumes would be similar to Q3 at Mt. Holland, which would imply more than 20,000 tons out of Mt. Holland. So I mean, maybe what do you expect out of Atacama? Like what production do you expect in Chile this year? What production do you expect in Australia this year? Let's do like that. Carlos Diaz Ortiz: Joe, this is Carlos Diaz. Well, our production in Chile is going according to what is schedule. We expect to produce this year close to 230,000 that is lithium coming from the Salar de Atacama. 180,000 of those processed in Chile and 50,000 is going to be processed in China, starting for our lithium sulfate production that we have been very successful with that. We'll continue working with expansion for next year, and we expect to grow next year. We still don't have the final figure, but we continue working to increase the production. That is regarding to the lithium production in Chile. Mark Fones: Joe, this is Mark Fones. To answer the second part of your question, yes, we maintain our production estimation or forecast for this year, which you may recall it was between 150,000 to 170,000 tons of spodumene concentrate at 5.5%. So that still holds. And regarding the sales projection, which you were referring to of 20,000 tons LCE for this year, that you're also right, we are increasing that to a range between 23,000 and 24,000 tons. Joel Jackson: Okay. That's perfect. And then my last question would be, when we look at the different average selling price for lithium that you get between Chile and international, it's about a $3,000 to $4,000 a ton discount. Should we think of that as that's the conversion costs that are basically embedded because you have to pay a toller to produce spodumene on an LCE basis? And then would we expect that international price discount versus the Chilean price realized to decrease across 2026 as you ramp up the Kwinana hydroxide conversion plant? Andres Fontannaz: Joel, this is Andres Fontannaz. Regarding prices for the SQM International Lithium division, please keep in mind that most of our sales are concentrated on spodumene. So more than 90% of our third quarter sales were explained by spodumene. And right now, we are reporting all of our sales as lithium carbonate equivalent. So in order to compare those prices with the prices that we are getting in the Chilean operation, you need to take into consideration the conversion factors and also the refining cost. So that would make a more fair comparison. Joel Jackson: Right. So my question is then across 2026, as Kwinana ramps up, shouldn't your -- shouldn't the international price rise -- realized price on an LCE basis rise closer to the Chilean price as Kwinana ramps up next year? Gerardo Illanes: Joel, this is Gerardo. Don't worry, next year or starting from next quarter, we're going to report the numbers from Australia as the product is sold. So if it's spodumene or lithium hydroxide, you will see the breakdown. So you will not have this confusion of prices without the conversion cost or not. Operator: Our next question comes from the line of Lucas Ferreira from JPMorgan. Lucas Ferreira: Hope you can hear me well. My first question is just to make sure I understand the part of China production. So are you already running 50,000 tons there? Because I remember the capacity was something around 30,000 tons with potential tolling of another 20,000. So I was wondering if there is more capacity to be used in China next year if the market remains good as it is right now in terms of prices. Is China ready full capacity? And the other question I have is also a follow-up on the JV with Codelco. If, imagine the signing, like Ricardo mentioned now by the end of the year, if there is any sort of a retroactive payment that SQM has to do for the year 2025, given that it took long to sign the contract. So in other words, when you look at the free cash flow of the company, even though you consolidate -- most likely consolidate the full thing, is there any sort of adjustment effect or cash transfers that we should be aware of when the contract is fully signed? Ricardo Ramos: Lucas, Ricardo speaking here. First, you're right in terms that we have to pay a dividend to Codelco during next year. This dividend will be in relation of the tonnage volume that belongs to Codelco according to the joint venture agreement. And we will put in our accounting this value as soon as we finish the agreement. That -- it has been stated very clearly in our financial statements that we have to do it as soon as we have the agreement with Codelco. And it is reflected, and you can calculate the number because it's quite clear in the agreement with SQM and Codelco that is public agreement. Carlos Diaz Ortiz: Lucas, Carlos Diaz again. With respect to your first question, our production in China, let me tell you that first that we expect to produce this year like 100,000 metric tons of lithium sulfate. So when you compare to lithium carbonate and hydroxide, you have to divide by 2. So it's equivalent to 50,000 around that. And 20,000 of those is going to be produced in our [indiscernible] plant in China and 30,000 is going to be produced with third parties. So we -- for the next -- for the coming year, we expect to keep increasing the production in lithium sulfate, and we're studying and evaluating to expand our capacity in China in our own plant. That is our plan. Operator: Our next question comes from the line of Ben Isaacson from Scotiabank. Lucy Zhou: This is Lucy on for Ben. And I have 3 questions. With the CapEx plan lower and lithium prices start to rise, how should we think about the need to raise capital in 2026? Is it fair to say that the base case scenario is no capital raise? Gerardo Illanes: Lucy, this is Gerardo. Well, you can see our balance sheet. We have a very strong balance sheet, and we have had always a strong balance sheet. And on these days, even at the current pricing environment, some of our main KPIs are improving. We are deeply committed to maintaining a strong investment grade. And there are several levers we believe can be pulled before pulling the last one, which is raising capital. So we're working on several initiatives. And as long as we keep on having a strong balance sheet, it may not be needed. Lucy Zhou: And for my second question, earlier this year -- earlier this week, Ganfeng suggested 30% to 40% lithium demand growth next year. Do you have any preliminary thoughts on demand growth next year? And in particular, how do you see demand for ESS developing next year? Pablo Hernandez: Lucy, Pablo Hernandez here. So regarding Ganfeng, of course, we will need to look into their assumptions. But of course, this looks like a good and optimistic projection for next year. In our case, regarding 2026, we're still assessing demand growth expectations, and we remain relatively conservative with the expectation to reach more than 1.7 million metric tons. And the main driver will continue to be the EVs and of course, as you mentioned, the very strong demand that we've seen on the BSS side. Lucy Zhou: Perfect. And finally, how much R&M production growth do you expect to see in 2026 that is not from SQM? And is it all Chile based? Pablo Altimiras: Pablo Altimiras speaking. Well, regarding to the third-party production, I mean, with the public information that we have, we believe that most of that will come from Chile, from caliche ore. And we don't have the exact figure, but our expectation is that, that amount will not surpass the growth of the total demand. Operator: Our next question comes from the line of Andres Castanos-Mollor from Berenberg. Andres Castanos-Mollor: Can you please update us on the progress to closing the deal with Codelco and remind us what the milestones are pending? What happens if it doesn't close by 2025? Is there a long stop close there? What will happen? Ricardo Ramos: Sorry, Ricardo speaking. First is we are -- as we announced, we closed with an agreement with the antitrust authority in China that was the last remaining external authorization we needed. And now everything is under the review, especially the agreements between CORFO and Codelco under the review of Contraloria in Chile. Contraloria is like an internal auditing body of the government that needs to review this kind of contracts. We expect that this review will be positive and will be before the end of the year. There's no second one. We will close this year. That's for sure. Andres Castanos-Mollor: That's great. Another question, if I may. This would be asking on 2026 expected mix out of Australia. What mix of spodumene and hydroxide do you expect to get out of Australia in 2026? If you could indicate something about this. Mark Fones: Andres, this is Mark Fones. We have not yet closed our budget for next year on production for Mt. Holland. What I can tell you is that the mine and concentrator at Mt. Holland, we expect to be producing at capacity. So of course, we will be expecting half of Mt. Holland's capacity in terms of spodumene concentrate. What happens with the ramp-up on the refinery on the other hand, is that we've announced the first product this year, as you well know, and we will be ramping up production until almost reaching nameplate capacity by the end of 2026. What's the exact amount of that lithium hydroxide considering all the good work that has been performing covalent with Wesfarmers and SQM at the refinery in addition to all the challenges as any ramp-up in a capital project will happen next year, still remains to be seen, and we will let the market inform in due time. Operator: Our next question comes from the line of Corinne Blanchard from Deutsche Bank. Corinne Blanchard: The first question, I would like to get more color on the CapEx reduction. You reduced it by about 22% versus what we had last year. But I think in the press release, you stated that there will not be -- you will not have an impact on any capacity or projects. So I'm not sure how to think about it. So maybe if you can help us understand the reduction of CapEx and for which business or segment division you come to and maybe any projects that have been pushed out of the 2027 range, that would be helpful. Gerardo Illanes: Corinne, this is Gerardo. Let me give you a breakdown of what we announced. Well, yesterday, we announced that our CapEx program for the years '25, '27 will be somewhere around $2.7 billion. The breakdown, it's going to be somewhere around $1.3 billion for the Lithium Chilean division that basically has -- the main projects that they have is to finish the expansion of lithium hydroxide to reach 100,000 metric tons that should be ready at the beginning of next year. Then the expansion to reach 260,000 metric tons of lithium carbonate capacity in Chile, while we keep on working on initiatives to keep on producing lithium sulfate that is quite relevant, as Carlos was mentioning before. Then for the International Lithium division, the total CapEx that is included within this $2.7 billion is approximately $700 million, which includes approximately $400 million between the expansion of Mt. Holland and the first steps of Azure. Of course, both projects are subject to approval with our partners, but that's what is included in this time frame. And finally, in the Iodine and Plant Nutrition business line, the total CapEx is approximately $800 million. That includes the seawater pipeline that should be ready next year that is going to be critical to give us flexibility to produce more iodine and also the Maria Elena iodine production site that should let us bring additional production or capacity of iodine as of this moment. Corinne Blanchard: Maybe the second question, coming back to the Codelco agreement. Are you still waiting for the local group to be concerted? And if so, like can you provide an update of where you stand with them? Ricardo Ramos: No, no, no. Sorry. Regarding the communities, we had the agreement with the communities that was, I think, a couple of months ago. It was publicly released that we had the final agreement in order to move forward. And the only one that has already explained to you is the internal auditing body of the government that is reviewing the agreements between CORFO and Codelco. And after they finish their review and their approval, we will continue with the joint venture start-up. Operator: Thank you. Our next question comes from the line of Marcio Farid from Goldman Sachs. Marcio Farid Filho: A quick follow-up from my side, please. You mentioned the demand expectations. I think you mentioned 25% growth to 1.5 million tons. I wasn't sure if that was related to 2025 or 2026 because in the presentation, you mentioned 20% expectations for demand growth for '25. And if you can also detail how you're seeing demand for 2026? And also maybe provide some more details around ESS demand, which has been calling the market potential for the last few weeks would be great. And then I'll have a few follow-ups as well. Gerardo Illanes: Marcio, this is Gerardo. Give me one second before answering your question. And just to clarify something over the previous answer I gave. I mentioned 260,000 metric tons of lithium production -- lithium carbonate production capacity in Chile, but it refers to 600 -- sorry, 260,000 metric tons of lithium production overall coming from Chile from lithium chlorine or toll in China from lithium sulfate. Pablo Hernandez: Marcio, this is Pablo Hernandez. So on your question, the information that I previously provided on the 1.5 million metric tons -- over 1.5 million metric tons on the 25% year-over-year growth, that was related to 2025. And as I also mentioned, our expectations for 2026 is that this number is going to be reaching over 1.7 million metric tons. Specifically to BSS, as you well mentioned, and has been mentioned during the call, there's been a strong growth in demand from BSS, which we estimate over -- between 40% and 50% year-over-year growth this year, and we expect those numbers to remain stable for next year as well. Marcio Farid Filho: That's great. And maybe another follow-up on the Codelco deal. Can you provide us what are the expectations in terms of -- you probably need a revision of your offer license if you go ahead with the plan to produce nearly 260,000 tons overall with Chilean assets. Obviously, in theory, it would be ideal that you defer as much CapEx as possible for when the JV becomes effective in 2030. So I'm just thinking if there is any CapEx related to Salar Futuro that we can expect to be spent before 2030? Or can you defer that to beyond 2030 when the JV becomes effective? That would be great. Ricardo Ramos: Okay. First, the agreement will go into effect the same day we signed the agreement that is going to happen in the next few weeks. I hope so. And after we signed the agreement, we signed with Codelco, the agreement is starting. We don't need to wait until 2030. But you are right in terms that Salar Futuro is a great, great project, and we are working very hard on it. We expect to submit the environmental study to the authorities and communities during next year. And it's going to be a complex project and probably we will reach the final agreement during 2029, 2030, means that the initial investment in Salar Futuro that is a big project and a very interesting one, will be 2030 or 2031 starting investment. It means that it will not affect the CapEx in the next 3 or 4 years. It will not affect 2026, '27, '28, and we will continue with our today plan of projects in the Salar de Atacama as usual. That's why this project will have a significant impact, yes, and a very positive one starting, I hope, 2030, if not 2031. Marcio Farid Filho: That's great. And maybe one last one on iodine. Obviously, market has been strong for a couple of years now. I think you're going to be adding about 5,000 tons of capacity once the new pipeline and Maria Elena is ready. So can you talk a little bit about overall supply and demand conditions on iodine, if you expect these prices above $70 per ton or $70 per kilo to remain sustainable? Where are the other areas of supply growth that could put some pressure on prices, if at all, in the next couple of years? Pablo Altimiras: Pablo Altimiras is speaking. Well, as we have been said before, supply and demand for this year is tight because we -- this year, we are not seeing additional supply. Actually, the demand of this year is not growing because of the lack of supply. We believe that demand for the next year will grow in the range of 3%. And why the demand will grow? Because we see more capacity arriving to the market next year. As I said before, it's coming from caliche ore mainly. So we believe that we'll have more supply next year. Operator: Our next question comes from the line of Mazahir Mammadli from Rothschild & Company, Redburn. Mazahir Mammadli: So my first question is, if we assume that lithium hydroxide and spodumene prices stay kind of at the same level as they are today for 2026, would you expect the stand-alone profitability of Kwinana conversion to be positive? Mark Fones: Mazahir, this is Mark Fones. Yes, as we've said before, we continue to see the long-term profitability of Kwinana and the Mt. Holland project to be positive. And we still see ourselves committed with our partners, and we will continue to develop this project. And that's the reason also we announced that we expect a final investment decision on the expansion for the mining concentrator for somewhere next year. Mazahir Mammadli: Okay. And maybe a follow-up on the Codelco deal. So the 201 kilotons of lithium that's attributable to Codelco, do I understand that correctly that will be paid as sort of revenue that's attributable to that amount of lithium? Or is it gross profit? Or is it some other metric? Gerardo Illanes: This is Gerardo. Yes, the amount that is to be paid to Codelco is paid as a function of a certain amount of tonnage per year, which is 33.5 and is paid as a dividend. Mazahir Mammadli: Yes. I just want to clarify, is it going to be the revenue that's derived from 33.5 kilotons or gross profit that's derived from that amount of lithium? Gerardo Illanes: It's the profitability that we get from this tonnage, but the exact calculation and the exact way of how you can get to the number, it's describing the contracts that are publicly available on our website. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Gunnar Pedersen: Good morning, everyone, and welcome to this third quarter presentation for Vow. For technical issues with the network in the auditorium, we had to do our last minute move into this conference room. So it's a bit packed in here, but we certainly hope everything is working out to your satisfaction and that everyone is receiving this webcast. So today, I have Cecilie Hekneby, with me, our CFO, to do the presentation of the financials. My name is Gunnar Pedersen. I'm the CEO of Vow. So I'm going to share with you some highlights first. Cecilie will take you through the financials. I'll come back with the market and business update before we go into summary and outlook and finally, open up for questions. So starting off with Q3. So Q3 was a very busy quarter across the whole company, especially in Maritime Solutions, where we had record high revenues. We also continued our structured assessment of the company. And in Q3, specifically, we did some deep dive into the big industrial projects. What we found was that there was 2 big projects that had underestimated cost to completion, which has impacted the margins and also leading to a reversal of revenue. Cecilie will take you through the details of that. And also it's been published in a notice earlier in October. So in the Maritime Solutions segment, we've had record high revenue and also a very positive development on the margins, perhaps a bit on the very high side compared to what you normally should expect. This is due to a reduced share of legacy contracts, but also the project mix. So a lot of equipment deliveries, different types of equipment have different margins, and this quarter has been very fortunate in -- or favorable in terms of the mix. The Aftersales segment continues its positive development, improving margins, whereas the volumes is about the same as the third quarter last year. Year-to-date, however, is a good growth on Aftersales. Our Industrial segment has been facing challenges in terms of underestimated cost of completion, as mentioned. On a high note, what we've formally talked about as the large reactor from Evensen that was finally delivered to follow last week. So very pleased with that. Some questions have come across on this. It doesn't have a big impact on the revenue, but it does have a very positive effect on the cash flow, as it triggers some payment milestones. Liquidity has improved significantly with very good inflows. And also, we've been able to settle outstanding payments to our vendors. And also it's worth noticing that the covenants were waived for Q3. Our total order backlog stands at NOK 1,449 million with another NOK 134 million in options. So this provides us with a very good visibility into the future. Order intake as of end third quarter is NOK 1,082 million. I should perhaps mention that the delivery of the reactor was subsequent to the quarter. And by that, I think I can leave you with Cecilie to do the financials, and I'll come back for the market update. Cecilie? Cecilie Margrethe Braend Hekneby: Good morning. I will give you an update on the financial numbers. This is just an executive summary that actually summarize what Gunnar just said. So before I start with the walk through of the financial numbers, I would like to address the notification published in October, and there are specific events that led to the announcement. As explained in the stock market announcement, a review of the 2 major circular solution projects reveal that total cost to completion next year had been underestimated. The reduced project margins and technical reporting of progress on costs led to a reversal of revenue in the quarter. The 2 projects constitute a major part of -- in the Industrial Solutions segment and the preliminary consolidated numbers for the group, indicated a lower-than-expected EBITDA for the quarter. This was still at an early stage in our preparation for the third quarter reporting, but we consider this as inside information that could not be delayed and issued a trading update. Phase 1 of Follum and Rhode Island represent significant milestones for our pyrolysis technology, and an SVP Program Director was appointed at the end of September to strengthen coordination, execution and financial control for the projects, reporting directly to Gunnar. He and his team then performed a total review of the remaining scope, risks and handover requirements and found that total cost of completion was underestimated. And as a result of this reassessment, a onetime cost increase was recognized in the Q3. So how does this impact revenue? Revenue from projects is recognized based on estimated total gross margin for the project according to technical reporting of progress. The contracts for these 2 projects are predominantly fixed price with limited flexibility for price adjustments. The updated cost estimates, therefore, led to a reduction in total gross margin and hence a reversal of previously recognized revenues but with no cash effect. Circular Solutions is a key area within the Industrial Solutions segment, delivering to the industrial scale pyrolysis market, which is still maturing. With these 2 projects now entering the final stage, we expect increased cost visibility and tighter cost management going forward. We aim to be transparent in our reporting, but I understand that it may be challenging to follow the financial development for the last quarters. Vow has been in a challenging financial position. And since I started in May, my team and I have worked diligently to secure consistent and precise reporting to get control and provide insight. So this slide sums up what I just have explained, and I will now go through the numbers for the quarter, starting with the key financial for the group. The reporting currency is in Norwegian kroner. So reported revenue for the quarter was NOK 214 million compared to NOK 267 million 1 year earlier. And on the graph on the left-hand side, you can see minus NOK 6 million in revenue for the Industrial Solutions segment, following the reversal of revenue and softer performance in the remainder of the segment, with higher revenues in the Maritime Solutions segment and steady numbers in Aftersales. Moving on to the graph in the middle, we have adjusted EBITDA of negative NOK 29 million, heavily impacted by the financial performance in the Industrial Solutions segment. The order backlog of NOK 1.4 billion remains strong and gives good visibility. Total revenue was NOK 214 million, down NOK 53 million from Q3 '24 heavily impacted by the Industrial Solutions segment. But revenue in the Maritime Solutions segment of NOK 166 million is all-time high following progress on large newbuilding contracts and up NOK 73 million from last year. The year-to-date numbers for Maritime Solutions are impacted by the catch-up effect in Q2. Aftersales make a solid contribution with NOK 54 million in the quarter. This is up 3% from third quarter last year, but up 11% year-to-date. Revenue in the Industrial Solutions segment is down NOK 128 million from Q3 last year and NOK 136 million from year-to-date following the cost of kits and reduced margins for the 2 projects, in addition to the soft performance in the remainder of the segment. Moving over to the operational key figures for the quarter. Revenue is, as explained, heavily impacted by the updated cost of completion estimates that overshadowed the strong performance in the Maritime Solutions and Aftersales segments. I would like to highlight the development of gross profit and employee expenses. Being a project organization, employee hours linked to specific projects are attributed to the cost of goods sold. The group has during the year improved its time tracking and hourly rate position. With a more accurate attribution of employee hours to specific projects, a larger share of personnel cost is now currently classified under COGS as recovery hours. This, in turn, improves the alignment between project costs and actual resource usage, which provide better insight and basis for pricing of projects. Reported employee expenses, hence vary with project activity and hours allocated to projects and are down NOK 17 million from Q3 last year. Gross employee expenses, including the recovery hours amounted to NOK 58 million in the quarter compared to NOK 64 million last year. Employee expenses are also impacted by a change in the allocation of holiday payment compared to last year, with a higher cost in the second quarter this year and lower this quarter following when employee actually were on holiday, impacting production. NOK 2.5 million of nonrecurring items in the quarter are related to employee expenses. Other operating expenses amounted to NOK 21 million, up NOK 3 million from last year. EBITDA for the group was negative NOK 31 million, which is slightly higher than the preliminary EBITDA from the trading update in October. EBITDA adjusted for nonrecurring expenses were minus NOK 29 million. Let's look into the development of the segments. Vow has 3 business segments, Maritime Solutions, Aftersales and Industrial Solutions, in addition to Administrative, which consist of expenses not allocated to the business segments. There were no nonrecurring items in the business segments. The nonrecurring expense of NOK 2.8 million in the quarter is related to the Admin segment. Adjusted EBITDA for the Maritime Solutions segment was NOK 29 million in Q3, up from NOK 7 million 1 year earlier, following strong revenue development stemming from high delivery volumes in addition to increasing margins as the share of legacy contracts are decreasing and replaced with new contracts with revised terms and conditions. The backlog of NOK 1.2 billion is firm and provide long visibility. Gunnar will share some details on this in his part. Aftersales continue to grow with an increasing number of vessels in operation equipped with Vow systems. Adjusted EBITDA amounted to NOK 10 million in the quarter, up from NOK 7 million last year, indicating an adjusted EBITDA margin of 17%, up from 13% 1 year earlier. The Industrial Solutions segment was impacted by the cost updates and reduced margins in addition to soft performance in the quarter in the remaining parts of the segment, leading to a negative EBITDA of NOK 65 million in the quarter. Focus forward in this segment is on selected opportunities with reduced risk and exposure profiling. Moving over to the financial performance in the quarter. We see that financial costs have been reduced. Financial items in the quarter of negative NOK 13 million or NOK 1 million lower than last year. Interest costs amounted to NOK 12 million, which is down NOK 5 million from Q3 last year. There was a net foreign exchange loss of NOK 1 million in the quarter, while there was a gain of NOK 3 million last year. Vow reports in Norwegian kroner, but most of the contracts are in euro. About 60% of the project costs are in the contract currency and is a natural hedge. Fluctuation in foreign currency exchange rates may, however, have an impact on key financial figures, and we have started to look into alternatives to mitigate the risk. Depreciation in the quarter of NOK 12 million is down NOK 2 million from third quarter last year. And I also would like to highlight that following the sale of Vow's shares in Vow Green Metals in June, the share of net loss of NOK 3 million and a gain NOK 1 million is recognized in the year-to-date numbers. Looking at the balance sheet. I would like to highlight the development of trade receivables and trade creditors. Since I started in May, managing working capital with improved processes for collection of debt and payment to vendors has been a key priority. Trade receivable bills have been reduced by NOK 75 million year-to-date, the cash collected has been used for settlement of overdue supply debt and other liabilities. And trade creditors are reduced by NOK 102 million year-to-date. Prepayments to vendors are also significantly reduced. Having managed now to settle overdue debt, our working capital is steadily improving and net working capital has been reduced by NOK 32 million year-to-date. Interest-bearing debt of NOK 557 million including leasing has increased by NOK 87 million year-to-date due to the increased utilization of the credit facilities, partly offset by reduction in borrowings. The DnB term loan amounted to NOK 195 million at the end of September, down from NOK 262 million at year-end '24. The group obtained a waiver for the 12 months rolling EBITDA ratio covenant, and we are in close and constructive dialogue with DnB. Looking at the cash flow development, we started 2025 with NOK 46 million in cash and at NOK 34 million in cash at the end of June. At end of September, cash amounted to NOK 23 million, with an additional NOK 26 million in available liquidity. There has been high activity in the quarter, and the illustration highlights the main development in the quarter. During the quarter, there has been an inflow from trade receivables of NOK 80 million. In addition to milestone payments, we have succeeded in collecting overdue receivables. The cash has been used to repay overdue trade payables and other current debt in line with management's focus in addition to repayment of loans and interest. Having resolved the overdue payables, the overall financial position has improved. Liquidity is significantly improving in the fourth quarter, following a large milestone payments, both from the maritime side and industrial side, and I am satisfied to see that measures taking are starting to show results. At the Q2 presentation in August, we informed that we had initiated a profit improvement program. The target of the program is to strengthen cost control, improve profitability and increase operational efficiency. And we have identified concrete measures and defined several hypothesis. Example of this are related to cost down, operational efficiency, service cost and indirect spending. The program is under implementation and is part of the budget process for next year. It is implemented based on feasibility and expected effect and several actions are already taken. This was a rather detailed walk-through of the financial developments in the quarter, and now Gunnar will give you a market and business update. Gunnar Pedersen: Thank you, Cecilie. So we're going to start this market and business update with Maritime Solutions. And as you can see on the bottom left-hand graphics, Maritime makes up about 53% of the revenue so far this year with NOK 365 million. The main contract entered into in this period is EUR 11.5 million for advanced environmental systems. Additionally, there's several smaller contracts amounting to a total of EUR 2.9 million for various other deliveries. Order backlog stands at a very strong NOK 1.2 billion, which is 49%, up from the third quarter last year. And also margins, as I mentioned, in the quarter at 17.7%, EBITDA are very positive. And as I said, it's due to very high delivery volumes of equipment also with a favorable mix of the deliveries. So looking into the Maritime contract development and a little bit more about the backlog. We have been talking about legacy projects in earlier presentations, and we have received questions about these legacy contracts. So how much of the revenue is made from legacy contracts, and at what time are you going to be completed with those deliveries. And on the lower right-hand graph, you can see how this plays out. The top dark blue one from the left, is from new contracts, whereas the lower part is from legacy contracts. So looking at Q3, there is 35% of the revenue coming from new contracts whereas the remaining 65% is coming from legacy contracts. And you can also see, and this is based on estimates of when deliveries are taking place and so on, we have made an estimate how this is going to play out through 2026 and into 2027. So you can see that, for example, in fourth quarter, new contracts will be about 43% and so on. It can vary a bit up and down. That depends on the contracts and the delivery time of these contracts. That's why you see a bit fluctuation on the split between new and legacy contracts. It is also a fact that we may even enter into new contracts that are legacy contracts, so that would be options, options that are binding to us in terms of price, but options that are valid from quite some years back. Currently, there is one remaining option that we will classify as a legacy contract. Yes, I think that's about as good explanation as I can give here now on the legacy contracts and that part. So looking at the backlog and the pipeline, this graph on the right-hand side shows when the vessels are scheduled for delivery from the yard to the cruise line. And typically, we deliver equipment 18, 24 months before, sometimes it can be as little as a year or even less than that, depending on the type of project. But this is typical. So this year, there's 10 vessels, next year in '26, another 10. '27, there are 7 vessels to be delivered that are under contract, there's 2 that we're bidding for. And you can see going out in time how this grows. So '28, bidding for 7, another 3 -- no, 7 under contract and another 3 that we are bidding for. And '29, 1 under contract, 1 option and 13 that we are bidding for. So currently, the backlog is 37 confirmed orders for cruise ships and 1 option. The tendering activity, currently activity tenders, 59 new builds and 4 retrofits. So it is a very active market, and it has a very good visibility. So we hold a leading position, and we are maintaining our market shares. Looking at where we have delivered equipment this year, in total, we are going to deliver to 18 vessels, 13 have been delivered, another 5 systems remain to be delivered in Q4. So Q4 is also going to be very active for us. And on the lower left-hand side, you can see what cruise lines we have delivered to you or are delivering to this year. So it's all the major ones basically. So on your right-hand side, you can see Norwegian Aqua. It's commissioned in February this year. So handed over to the customer in February this year. It can hold about 5,200 people, passengers and crew all in all. It was built at Fincantieri at the Marghera yard, and we have delivered a full scope of traditional systems, both for advanced wastewater processing but also for waste disposal on this vessel. This is number 3 in a series of 6 vessels that they build for NCL. So this year, we have commissioned 9 vessels. There is 1 more to go for the fourth quarter. And you can also see here on the bottom, which cruise lines, they are being commissioned for or delivered to them. So all the major ones on this as well. And of course, that's another 10 vessels entering into aftersales. I've had the opportunity to meet with the several of the big cruise lines in the third quarter. And it's been, of course, very interesting meetings and conversations. It is very obvious that well-functioning systems is critical to their operation. In some cases, if these systems don't work, they cannot operate the vessels. Actually, that's in quite many of the cases. Our customers generally express that they are very satisfied with our systems as well as with our aftersales support. But as always, there is room for improvement, and thus, we see this as opportunities, and we are working on these opportunities to make sure that our customers are even more satisfied in the future. As you can see, bottom left-hand side, aftersales accounted for 25% of our revenue so far in 2025. We see a strong development over time on the right-hand side, Q3 54 versus 53 in Q3 last year. That's not a big jump. But if you see the year so far, it's quite good growth on that as well. It varies a bit over time when they order spare parts, when they order services and also in terms of chemicals for the systems. So strong development over time. Also in the graph, the metrics, you can see very healthy margins now, and we're very satisfied with that. Part of it comes from high volume over the year, giving an effect. So -- but this is a healthy level, I believe. So for the Industrial Solutions. The Industrial Solutions segment again, as you can see on the bottom left, it accounts for about 22% of our revenue as per third quarter, so NOK 150 million. It consists of the main subsegments Circular Solutions and Thermal Heat Treatment. With 2 major projects within Circular Solutions that make up the majority of the revenues. We already touched on the deep dive and the effects on the margins on that. It is, of course, very unfortunate when we find such issues in the projects. And of course, we have taken a few steps to ensure that we learn from these. These are first of a kind projects both of them. So this is really important that we spend our time wisely and learn as much as possible from them. The effects I think we have talked about earlier in the presentation. Just to touch on thermal heat treatment, still see a soft market in Q3 not so much due to energy prices anymore, but other uncertainties. But we do see positive indications related to both defense industry and aluminum, and we'll probably get back to that on the next slide. So industrial contract development, again, circular and thermal heat treatment, order backlog stands at NOK 212 million, of which, NOK 152 million is circular and NOK 60 million shared among the other subsegments. So we've been asked sometimes about some of these projects that have been talked about in earlier presentations such as end-of-life tires. I chose that example just to give you an update on that specifically. So we have completed FEED studies, and we are waiting for final investment decisions from one of the major customers. And they are in turn now waiting for the final piece of the puzzle, which is the permitting. And the permitting for that is expected to be due by the end of the quarter. What we see in thermal heat treatment, we see an improving pipeline with opportunities and some of these opportunities have resulted in RFQs and some of the RFQs have also resulted now in active bids in thermal heat treatment. So the volume of active bids is actually quite high, and we are pleased to see that development. VGM, Vow Green Metals have been mentioned earlier today. And I must say they are gaining momentum now, commissioning is ongoing at Follum for Phase 1. Engineering activities are ongoing with ourselves and VGM and others for Phase 2. The large reactor, which is actually part of Phase 2 was delivered last Thursday. That's what you see on the picture. The big is white plastic that is wrapped in. So it's 60 tonne of equipment being lifted into the production facility. So it is looking good. It is also worth mentioning, I think, that VGM was awarded EUR 26.2 million from EU Innovation Fund to build a new large-scale biocarbon production facility in Norway. So of course, this is very interesting for us. It is strengthening the positive development for the metallurgic market segment for biocarbon. And I think we are well positioned to continue playing in that development. We also mentioned that we're revisiting our strategies in the second half of the year, even though they are not concluded yet. I think I can share a few glimpses of where we're headed with you here today. It will come as no surprise that within the Maritime segment, we really want to strengthen our competitiveness. We also continue to introduce new technology, new and sustainable technology also into the waste disposal part of that market. We will continue developing our aftersales services. Within industry, then supported by a more defined strategic direction, I would say. We will exercise a more selective approach with regards to the type of prospects we go after and also the contract formats within the industry segment. And then with a solid operational foundation, I think we are prepared for moving from analysis and into execution, delivering improvements, capturing opportunities and also then creating long-term values. Also, we believe that it is important for us as well as for our investors that we can also deliver on an improved overview and predictability for the development and for the values that we are creating. It is very helpful internally. I can tell you to understand the cost of the deliveries, allocating the cost to the right place and so on. So that work will continue. And I certainly hope that you will see the results of that as well as we move along. The strategy work is scheduled to be concluded by the end of Q4. So we'll get back with more info on that. So finally, summary and outlook. Our customers confirmed a very strong market development in cruise and yards are actually still expecting to conclude on several contracts that we are actively bidding for during the fourth quarter. We have maintained our strong market position. And also, we see a positive development of the margins. And we will see that continue as the share of legacy contracts is going down as we saw on the earlier slide. We have healthy margins in aftersales and a growing active fleet will continue to bring growth to that segment. The revisit of our strategy will be concluded in the fourth quarter. And I think with a much better oversight and control of the financial situation, I'm confident we will also see a very positive development continue on our liquidity. And of course, we do this in a very close collaboration with our bank. So that concludes the presentation, and now we open up for questions. Unknown Attendee: Thank you. There are quite a few questions already from the online audience. I just remind you that if you are watching this online, you can add your or send in your questions by typing it on your screen. But first, let me see, are there any questions from the audience here in Oslo. Seems not. While you're thinking about that, let's turn to the online audience. First question is regarding the backlog and pipeline in Maritime Solutions. One observant viewers says, he has compared the Q2 presentation with the current presentation, it seems that some of the bidding, some of the contracts that you're bidding for '26 and '27 has been removed from the chart this time. Is that correct? Gunnar Pedersen: I'm actually not sure about the details, but if I understand the question correctly, if we -- for contracts that we do not win, I expect they will disappear from the charts, not ending up as contracts. External analysts tell us that within advanced wastewater processing, we have had indications anything from 60% to 80% market share. So there are contracts we do not win. And within waste disposal, it's slightly lower. Unknown Attendee: Then there's a question about liquidity. You -- so you have NOK 22.7 million in cash at the end of the quarter. Will you need to raise more money? Cecilie Margrethe Braend Hekneby: We see an improving situation regarding liquidity and -- and we -- I am very satisfied with the development in the quarter that we have now settled overdue payments to vendors and that we have managed to collect receivables. That also was overdue. And now with significant milestone payments coming in in the fourth quarter, we see a very positive development on liquidity. Unknown Attendee: And will there be more surprises in industrials? Or do you now have a better understanding on the underlying problems? Gunnar Pedersen: It would be quite stupid on me to guarantee anything. These are first-of-a-kind projects. But what we've done with a thorough deep dive on them, I'm quite confident that we know what the remaining work is and we know the cost of the remaining work. So not what we have seen here. And then I think everyone who deals with new technologies and new markets understand that there may be smaller hiccups along the way. We're well prepared for that. We're actually planning for some of these and to find them as early as possible. And in most cases, I think I can say we have also alternative solutions to that ready. So I don't expect any big ones. Unknown Attendee: You also talked about a large customer in industrials waiting for permitting. Do you have any signals that they will move forward with you if that permit is given? Gunnar Pedersen: Yes. Unknown Attendee: Then there are -- you have mentioned in the past quite a few studies going 4 or 5 years back studies with names like Unipetrol, Repsol, what can you say about these studies and early projects? What is the status? Gunnar Pedersen: Yes. They are very interesting. All these studies because it's studies based on different types of feedstock and how you process and what you want to come out of the process. And I think certainly, our customers learn from those. In some cases, we actually do test runs for them, and we take tests of whatever comes out to certify quality, to look at types of emissions and so on, and that is used as part of the permitting process. So I would say that we've learned a lot about different types of applications of the technology. And it is also very clear to me that our customers are learning along the way, learning what is going to be a business case for them or not. And I think if you look across the industry and different studies that are made, it's kind of coming together what everyone think is going to be a very profitable one, at least to begin with and what could potentially become very profitable later on. Unknown Attendee: There are 2 more questions from the online audience. So we're, I guess, nearing the end of the Q&A session, but let's take the next one. What is the installed base of Maritime Solutions in terms of number of vessels as well as number of systems? Gunnar Pedersen: I've heard a number, but I cannot remember it, but it is quite a significant number of systems. So in the hundreds. Unknown Attendee: And there is a follow-up on the cash and liquidity situation. Can you be more specific in terms of what you expect in terms of cash inflow in Q4? Cecilie Margrethe Braend Hekneby: We do not guide on the cash position at year-end. But as I already presented, we are -- I'm satisfied with the development. It has been quite challenging for the company over time. But we see a significant improvement. So I'm looking forward to report the fourth quarter. Unknown Attendee: Then there is actually one more. You have previously talked about return to 15% EBITDA. Now you report 17% to 18% for both cruise projects and aftersales. What do you expect in terms of margin expansion going forward? Gunnar Pedersen: I don't think we guide on that either, but we are seeing healthy margins in some areas. And we are definitely working to continuously improve. I think it is also important to say that when we are able to, for example, reduce cost on producing and delivering equipment, some of those improvements, we need to use those to improve our competitiveness to ensure that we are still competitive. We have high market shares, there is only one thing you can be really sure of, and it's that your competitors are hungry, and they will do everything they can. So you need to be forward leaning and work on the cost and you need to be prepared to share some of your improvements. Unknown Attendee: And there is one more. With covenants based on 12 months rolling net interest-bearing debt over EBITDA, you're likely to be in breach several quarters ahead. How will you address this problem? Cecilie Margrethe Braend Hekneby: Well, we are in close and constructive dialogue with the DnB. We are working on -- we see an improved liquidity. We are working on the -- to build a more profitable company. And I'm sure that we together find a good path. Unknown Attendee: Thank you. There are no further questions. Back to you. Cecilie Margrethe Braend Hekneby: Thank you . Gunnar Pedersen: Okay. Thank you, everyone, for watching.