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Operator: Good day, and welcome to Grupo Bimbo's Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Rafael Pamias, CEO. Please go ahead. Rafael Pamias Romero: Good afternoon, everyone. Thank you for joining us. Connected on the line today are our CFO, Diego Gaxiola; and Executive Vice President, Mark Bendix, along with several members of our finance team. During the third quarter, we delivered growth in both sales and EBITDA and saw improved sequential volume trends, driven primarily by disciplined pricing strategies, strong geographical diversification and material operational efficiencies. At the same time, we continue to demonstrate the resilience and breadth of our portfolio by gaining or maintaining market share in 5 out of our 6 categories. In North America, we posted very solid results with 3 quarters in a row with sequential margin improvements. In fact, we went back to double-digit EBITDA margin due to the excellent work of our associates throughout the transformation program. Overall, this performance underscores our ability to maintain profitability and agility, adapt and compete effectively and stay connected with consumers supported by a diversified global footprint that spans through 91 countries worldwide, including 39 where we operate directly, enabling us to navigate the challenging and fluctuating market dynamics. Despite a challenging environment in some markets, our diversified geographic footprint continues to pay off. In Mexico, while consumption was soft, the business has demonstrated notable resilience and reached the highest level of sales while continuing to report strong EBITDA margins at above 20%, even with a very tough basis of comparison. Meanwhile, we are observing encouraging signs of recovery in North America with improving price/mix dynamics and trends in core categories like buns and mainstream bread. EAA also reported extraordinary results hitting records in several metrics. Additionally, recent inorganic growth initiatives have proven highly accretive, reinforcing our strategic road map and strengthening our long-term value creation potential. I am proud to share that we held the 2025 Bimbo Global Race, our 10th. And thanks to more than 165,000 participants, more than 3 million slices of bread are being donated to food banks around the world. We were also recognized by MERCO as the company with the best corporate reputation in Mexico for the ninth consecutive year. Now looking into the results by region. In Mexico, despite a softer economic environment -- consumer environment, rather, and on top of the record results achieved in the third quarter of 2024, when we grew nearly 7%, we delivered sales growth of 0.3% -- this performance reflects our ability to sustain growth even under challenging market conditions, supported by a favorable mix and continued expansion across key categories such as bans and rolls, cakes and sweet baked goods. All channels contributed to this result with a particularly strong performance in convenience and traditional, demonstrating the resilience of our portfolio and the strength of our commercial execution. During the quarter, we faced higher commodity costs, mainly due to the FX hedge positions we had in place as well as the ongoing investments we are making to drive growth, enhance operational productivity and strengthened cost and control. And it is worth mentioning that even with a very tough basis of comparison of quarter 3 '24 when we reported the highest margin ever, where we were able to maintain our margins at above 20%. So this is still a very good quarter within the top 3 since 2022. After a difficult August, we regained positive momentum in September, driven by price pack architecture initiatives and innovation launches. We are also advancing the transformation of our go-to-market model to serve our customers and consumers more efficiently and to fully capture the benefits of digitalization across our operations. So we remain optimistic about the near- and long-term future of our operations in the country. In North America, excluding FX, sales declined by 3.5%, reflecting continued softness in U.S. consumption and a bifurcation of consumer behavior. With some consumers trading down to more value-oriented products, while others are increasingly choosing premium offerings. We are also cycling the impact of last year's strategic exits from certain non-branded customers, which occurred in October in the U.S. and during the second quarter of 2025 in Canada. Although volumes remain under pressure, trends are improving, and we -- and the business is showing clear signs of a stabilization. Private label performance has softened after a strong start to the year, while our branded bread portfolio led by Bimbo, Sara Lee and our premium artisanal breads continues to gain share. Sequentially, we saw lower sales declines, market share gains in core categories and a positive price/mix effect, supported by disciplined revenue management and more efficient trade spending. Turning now to our transformation project. We continue to advance as planned and are now seeing tangible results. The first phase focused on productivity is delivering record outcomes. In fact, productivity gains are running at twice the level achieved during last year's record performance. This led to an EBITDA margin expansion of 90 basis points and a sequential margin improvement from 7.4% in Q1 '25 and 9.0% in Q2 '25, going back to the double-digit margins. This transformation is enabling us to serve our customers better and more consistently. I would like to walk you through our process. And this project is centered on 3 key pillars. The first is about rightsizing our cost base via productivity, which is where we are now. Second, becoming a better version of ourselves through enhanced revenue growth management and performance governance. And finally, expanding beyond our current core through new growth channels, new distribution models and by addressing new markets. Looking ahead, our main challenge and opportunity lie in reigniting top line growth. We now have better visibility and stronger alignment to achieve this, supported by the progress of our transformation initiatives. We are focused on unlocking the full potential of our brands even amid external consumption headwinds by capitalizing on the significant opportunities we see in our portfolio. We are seeing specifically some growing interest in more elevated experiences and more health and wellness propositions. Moving on to Latin America. Excluding FX effect, we set a record for the third quarter for net sales, fueled by robust volume and sales momentum across every organization with sales outperformance in several countries, highlighting those within the Central America region as well as consistent growth in Colombia, Brazil, Chile, Ecuador and Argentina. Sales were also benefited to a lesser extent by the inorganic contribution from the acquisition of [indiscernible] in Uruguay completed in September of 2024. Adjusted EBITDA margin contracted 110 basis points, mainly due to the higher raw material costs in Brazil and Argentina, mainly related to the FX fluctuations as well as increased general expenses due to strategic investments for future growth including distribution improvements in Chile and Argentina. We remain fully focused on driving both growth and profitability, supported by the strength of our portfolio, the power of our brands, the agility of our route-to-market strategies and the outstanding execution of our associates at the point of sale, leveraging as well from disciplined revenue growth management strategies to further enhance our market competitiveness. I'm also very happy to share that this month, we have completed the acquisition of Wickbold in Brazil, adding Wickbold's trusted brands such as Wickbold and Second Boys as well as their manufacturing capabilities and distribution reach. that strength our portfolio and create a strong platform for sustainable growth, enabling us to deliver even greater value to our customers, consumers and shareholders. In Europe, Asia and Africa, excluding FX effect, sales increased more than 17%. This performance was primarily driven by the consistent strength of Romania, the U.K., India, Morocco and the Bimbo QSR business unit, coupled with the contribution from the acquisitions we completed in the last 12 months, including Karamolegos in Romania and Don Don in the Balkans. The adjusted EBITDA margin was benefited by the strong sales performance and lower administrative expenses, along with the accretive effect from past acquisitions and lower restructuring expenses related to last year's bakery closure in Spain. We continue to see challenging results in our branded business in China as well as the combined effect of minimum wage increases and the phaseout of wage subsidies in Romania. With this, I would now like to turn over the call to Diego, who will walk you through our financials. Please, Diego, go ahead. Diego Cuevas: Thank you, Rafael. Good afternoon, everyone, and thank you for joining us today. Overall, our third quarter results were resilient with clear signs of stabilization in key markets such as North America. Our geographic diversification once again proved to be a significant advantage, enabling us to maintain the record margin achieved in the same quarter of last year despite challenges in some markets. In addition, our recent acquisitions have been highly accretive to both sales and margins, further strengthening our portfolio and reinforcing our ability to deliver sustainable, profitable growth. Moving on to our balance sheet. Our total debt increased MXN 6 billion as compared to the end of 2024. This was driven primarily by the acquisitions completed during the year and our CapEx program, which reached $728 million as of the end of September. These effects were partially offset by the appreciation of the Mexican peso. Despite these strategic investments, our net debt to adjusted EBITDA ratio declined to 2.8x. Our disciplined financial management continues to guide us through a challenging macroeconomic environment. We remain focused on operational efficiency, cost control and strategic resource allocation to protect margins and drive long-term value creation. Backed by a solid balance sheet and a recently renewed and upsized $2.35 billion committed revolving credit facility, we are well positioned to navigate evolving market conditions while staying firmly focused on sustainable growth. As shared with you previously, we anticipated a better third quarter for North America. We went back to a double-digit margin with a 90 basis point expansion when compared to the same quarter of last year, driven by material productivity savings. Now regarding our guidance, we are adjusting our average FX assumption by $0.50, reflecting the recent appreciation of the Mexican peso. This stronger peso represents approximately a 200 basis impact on our top line growth. Despite this effect and thanks to strong results of the third quarter and our confidence for the rest of the year, we are not changing our guidance. We continue to expect mid-single-digit growth in top line and flat to a slight contraction in our EBITDA margin. What we are updating is our leverage outlook. With the stronger peso, we now expect to end the year below 3x, more specifically at 2.9x instead of our previous estimate of 3x. Despite the challenges we have faced this year and the ongoing uncertainty in key macroeconomic environment, we remain confident in our long-term strategy. As a highly diversified global company and industry leader, we are well positioned to navigate near-term headwinds. Thank you for your time, and now we're ready to go to the Q&A session. Operator: [Operator Instructions] The first question comes from Alejandro Fuchs with Itau. Alejandro Fuchs: Congratulations on the results. I have one quick one related to the gross margin in the U.S. Obviously, we saw a very strong expansion year-over-year, but this is quite different to the trends seen in other regions. So I wanted to see if you could elaborate a little bit more into what's driving this very strong gross margin expansion in the U.S. you commented better mix and the productivity savings. I wanted to see if maybe you can give us some color on how much is productivity, how much is the mix and if you see this maybe being sustainable going forward? Diego Cuevas: Alejandro, this is Diego. Yes. Let me tell you one of the big differences between the regions is the FX impact that we have. I mean, particularly in Mexico as well as in Brazil, Chile and other economies, a little bit very little in North America and Canada. What we're seeing today in the third quarter results is the hedges that we took approximately 6, 8 months ago as part of our continuous hedging strategy. But we're very disciplined, and we do not speculate and we provide the visibility and the certainty for the different operations in terms of the cost of the FX for the operation. What happened is that, as you remember, during the beginning of the year with all the uncertainty in regards of the tariffs that were going to change between North -- the U.S. and all the other countries, we started to see a very big depreciation of those currencies. So what -- what we're seeing today is the effect of this depreciation on our results. This will continue to have some additional pressure in the fourth quarter. As you heard, we are optimistic about the outlook for the fourth quarter, even with this additional pressure. Now that's the main reason for having a negative gross margin in Mexico, LatAm and Europe, Asia, Africa. In the U.S., we have no effect from the exchange rate, and we are seeing the full benefit of a much better cost of commodities. On top of the cost of commodities, we are seeing many benefits from the productivity initiatives that have been implemented as part of the transformation in the U.S. And finally, we have a positive mix effect in the U.S. that is also helping with the gross margin. Operator: The next question comes from Ricardo Alves with Morgan Stanley. Ricardo Alves: I have a follow-up question on North America margin. I think that certainly, that was the biggest positive surprise versus our numbers to see the margins back to the double digits. So congrats on that. As it pertains to the transformation, can you talk qualitatively about the main strides that you've achieved in North America. I think Diego just alluded to that. I think that in the release, you say record productivity benefits, if I'm not mistaken. So can you share with us some of the key metrics you're monitoring, the key metrics that maybe you've been able to already improve a lot versus, for example, last year, just so that we can grasp a little bit better where the efficiency gains are coming from and for us to have an idea of how much of that could continue going forward? My second question, if I may, is also related to profitability, and it's also related to what Diego just mentioned. But going to Mexico, when we look at the FX curve to the point that you just mentioned, Diego, we also see the possibility of a higher pressure on FX, but perhaps a better dynamic on a couple of raw materials that we see. So I just wanted to check if that is indeed what you see, the net-net impact in the very short term in Mexico being still pressured. And if that's the case, is there room for frontline pricing adjustment? And I ask that in the context of the flat revenues that you've achieved in Mexico. So if your COGS is inflating maybe because of the past FX issues is there room, given what we are seeing with the Mexican consumer today? Do you see the possibility of you adjusting prices, frontline pricing a little more aggressive going forward? Mark Bendix: Ricardo, this is Mark, and thanks for your question. First off, I want to acknowledge it definitely is a difficult consumption environment in the U.S. But I really need to point out, I'm truly proud of our North American team and how they've embraced and committed to our transformation initiative. We have democratized the transformation process to many initiative owners to unlock our full potential. And we know that many hands make light work. More specifically, we have delivered resilient performance through Q3 with gross profit and EBITDA margin expansion. And looking ahead to the fourth quarter, our focus is on stimulating category growth and continuing this momentum that you've seen throughout the year with sequential improvement in our results. And we're going to do that through disciplined commercial investments, improved frontline execution and innovation. We are also working on automation, standardization and digital tools to drive our efficiency down to the route level. Our process optimization to enhance our manufacturing, we're working on warehousing optimization and distribution. we're minimizing waste everywhere you can possibly find it and increasing our labor efficiencies. And we're, frankly, ruthlessly managing our G&A and discretionary expense spending. So you can see it's multifaceted. It's across our business, and we're also seeing a positive price mix with some of our price pack architecture as well. Those are the main drivers that you're seeing the benefits in Q3, and we see that continuing on through Q4 and into '26. Diego Cuevas: Thank you, Mark. Ricardo, regarding Mexico, let me first start by the last comment that you mentioned about the flat growth that we have during the third quarter. And I would like to reiterate and highlight that the main reason for having a flat performance is because of the comparison. We had a tremendous quarter in the third quarter of last year. It was our record history margin and also a very strong top line performance. And the same happened in the fourth quarter, okay? I would say when we zoom into Mexico, and you might probably remember that I was very explicit when we provided the guidance, that we felt very confident that for the second half of the year, we're going to see a margin expansion and that we were expecting a margin contraction for the first half of the year. And I think we're pretty much in line with our initial expectation, of course, with the changes on the exchange rate and the effect that it has in our top line growth. But I would say that in terms of margins, we feel confident it's going to be the case at Grupo Bimbo level. When we zoom in Mexico, it's probably a little bit the opposite because of the comparison. We are still seeing a very strong operating performance of the different businesses in Mexico. We're going to be for the second half in the -- above the 20% EBITDA margin mark, which is outstanding. If you look at the history of Mexico, 20%, it's a very strong level for our operation. So I just wanted to be clear that it's not that we're having a problem is that we have this tough comparison versus the second half of last year. In terms of the FX, I already mentioned, we will continue to see some pressure in the fourth quarter. To give you an idea, we have an average exchange rate of approximately MXN 20 per dollar for the second half of the year. When last year, we had an exchange rate below MXN 18. So we're having a big impact on the exchange rate. Fortunately, this is going to pass through. I mean this is going to go once we start to see the effect of the stronger peso that we're seeing in the spot market today that is going to be reflected in 2, 3 quarters in our P&L. And that, of course, will start to create a positive effect for 2026. In terms of the pricing strategy in Mexico that we're still operating as typically, we already apply selective pricing where possible, always in line with inflation. Everybody knows that we're not seeing a strong consumer environment. So we're being very cautious and very selective on which of the SKUs are having some price increases. So it's not all across the portfolio. Operator: The next question comes from Renata Cabral with Citibank. Renata Fonseca Cabral Sturani: I have 2 here. The first one is a follow-up about the transformational project. That was described as [indiscernible] transformation. And my question is in terms of top line contribution. It seems it's only the beginning of the contribution for the company. And in terms of time line, should we expect this FX impact in 2026 or that should be more towards 2027, if you can have some sort of color on this in terms of opportunities on this side on the top line? And my second question is still related to the transformational projects. So the company is making a huge transformation in effort. But my question is, if you also see opportunities for M&A to accelerate this front. Mark Bendix: Great. Renata, thanks for your question. I think how you should look at our transformation is this is not just 1 or 2 months. This is a multiyear journey in transformation and expect to see it over multiple years. We've begun this journey, and we're having very good success. But we need to get our growth algorithm going in the right direction. And we're really -- our strategic focus is on multi-brand channel and format strategy to capture younger new consumers, smaller households, so our products are relevant. And certainly, everybody talks about the health and wellness. So we're refreshing our portfolio with new flavors, products, pack sizes. Some of the examples that you would see would be our Butter Buns and Bimbo buns, Thomas Protein bagels and the expansion of Muffin tops and Thomas's Croissant Bread, those kinds of products. So don't look at this as a single year journey, but a multiple year journey. And I'll let Diego and Rafa talk about acquisitions as a strategy for fueling that growth. Rafael Pamias Romero: You were referring to M&A going forward in the U.S. or globally in Grupo Mexico -- in Grupo Bimbo? Renata Fonseca Cabral Sturani: In the U.S. specifically. Rafael Pamias Romero: Look, we proactively review the opportunities on the M&A horizon and analyze them thoroughly. As you know, we have acquired medium and small companies in the numbers of 24 during the last 6 years, following a very distinct pattern focusing on, as I said, complimentary acquisitions, on consolidating the presence in existing markets, entering interesting geographies and to learn processes or technology. In the case of the U.S., we are exploring always opportunities to complete our portfolio, knowing that our geographical distribution and presence is quite strong. So we're looking at these kind of opportunities, always. And if those make sense, why not? But they would be more on the top line area. Operator: Next question comes from Antonio Hernandez with Actinver. Antonio Hernandez: Just a quick one regarding competition in Mexico. I mean, you already mentioned, of course, the consumption environment and overall we've seen a similar speech across consumer companies. But anything more specifically maybe in terms of geographies or in terms of competition or the different categories? Anything -- any more color that you could provide, that would be great. Rafael Pamias Romero: Yes. What I would say, I mean -- as you know, volume is expected to remain soft in the near term, and this is for everybody, ourselves and competition. And if you're referring if competition is denting our market share significantly or that if we see that there are some segments or categories where we're suffering more than others, I would say -- or channels. I would say that, no, it is not happening. I would say that in category performance, most categories contributed to our growth, highlighting very especially buns and rolls, cakes and sweet baked goods. And all this driven by differentiated innovations that are resonating quite well with consumers. Notably, we have our co-branding initiatives with Hershey's featuring high-quality chocolate fillings, et cetera. So I would say that on the category performance, I wouldn't say that our soft consumption, our soft volume could come from that, neither on channel performance, all channels grew, showcasing the resilience of our business, brand recognition and competitive position. And we're being quite active in every single channel to offer propositions that cannot be [beat]. So I would say that competition is not part of the equation on the general softness of the volume. Operator: The next question comes from Lucas Ferreira with JPMorgan. Lucas Ferreira: My first one is on the U.S. and on the transformation project. I know it's a multiyear project. There are many layers to understand that. But I think maybe at this point, you can already advise you can share with us some expectations in terms of when you add efficiency, when you leave some categories, they're probably not super profitable when you enter new more promising categories and you put all those things together, should we expect that operation to be sort of a low teens like it used to be during the pandemic or with sort of the revamp of productivity, we could be talking more sort of a mid-teens type of margin. And also on the growth side, I understand there's also many factors impacting the growth there on the top line front. But if you can share at least on -- in terms of volumes, what's your expectations on when should we start to see expansion of volumes in North America again? And if I may, a quick one on Europe, actually. So if you can just give us some guidance on what is the sort of organic growth of that operation, so we understand a little bit how to model this in 2026, excluding the inorganic. So just to understand how much the region is growing on a sort of a more normalized basis. Mark Bendix: Lucas, again, this is Mark. Thanks for your question. I'll address your question about what you should expect from the U.S. as we go forward. So I think you should expect from us portfolio expansion, addressing underperforming and underpenetrated consumer opportunities, including the value-oriented products to meet evolving consumer needs. An example would be our entrance of Bimbo bread into the value-oriented consumer as well as Bimbo half loafs addressing smaller households, but also economically challenged consumers. The balance of the year for 2025 you should expect top line performance to gradually improve through the end of this year and then into next year, as our commercial initiatives gain more and more traction because you've seen a piece of it, but you haven't seen all of it yet. We had market share gains in mainstream bread that we're beginning to experience, buns and rolls and snacks. We remain committed to strengthening our share in the bread category. We're not walking away. This -- it's a large category. So we've got to innovate and capture it. Productivity is still a keen focus for us and we'll focus on expenses, and it will continue to help us drive margin expansion. As you've seen so far, our business has demonstrated resilience through various challenges, and we're strategically positioned now to drive the business into a sustainable, profitable growth in 2025 this year and then beyond. And we remain committed to delivering long-term value to our shareholders throughout the strategic investments and our operational excellence and our focus on consumer needs. Rafael Pamias Romero: And I will continue with the question with Europe. Obviously, inorganic has represented some weight in our good results, and by the way, all accretive growth. Having said that, our organic results are strong, too. And we have been enjoying top line and bottom line growth in India, in our operations in North Africa, Romania and U.K. So I would say that the results of Europe, Asia and Africa, excluding FX effect, increasing by more than 17%, they are due to mostly the organic. So we're happy with that. Operator: The next question comes from Ben Theurer with Barclays. Benjamin Theurer: I wanted to follow up actually on Lucas's question here on EAA. Clearly, not only sales but also profit continues to be very strong and with a very significant margin expansion. So I would like to understand a little bit more what's driving that? Is it from a cost perspective? Is it mix? And how should we think about going forward, as you've just said, this is a strong growth driver. Obviously, it gains momentum, it gains relevance from like a margin profile, is that going to be in line with what North America should be? Is it going to get better than that because there's an emerging market component? Just help us understand aside from sales growth also maybe the margin profile for the region. Rafael Pamias Romero: Yes, of course. On the sales side, what we're seeing is a quite remarkable expansion of our Bimbo QSR business unit. We are seeing more sales in the 4 big top customers that we serve. As you know, we have an extensive footprint in Europe, in Russia, Ukraine, France, Italy, and the likes. This is one piece. Also, we are seeing robust double-digit top line growth in India. And U.K. is also benefiting from portfolio expansion. So as you see -- and also, definitely, Romania is growing robustly. So I would say that we have been tailor making different strategies depending on the country. In India, it's all about category growth, and we are very well positioned with great brands. In U.K., it is about great additions to our portfolio. In Romania, it is about following our business plan, where we are pushing for consolidating a fragmented market and making the transition from unpacked and branded to packed and branded solutions. So I would say that it has been a different strategy per business unit sort of speaking. And on the bottom line, I remind you that all of our acquisitions in the region has been accretive from the EBITDA margin point of view, most especially the ones in Romania and with Don Don in the Balkans. So all in all, a pretty good picture in the past, and we hope the following quarters with EAA. Operator: The next question comes from Roberto [indiscernible] with GBM. Unknown Analyst: I wanted to ask you, we saw a significant reduction in CapEx deployment. Could you help us understand the difference? And what was the CapEx used for this quarter? Diego Cuevas: Rafael, you're okay, I can take this one. Rafael Pamias Romero: Yes. Yes, please. Diego Cuevas: So year-to-date, we have invested $728 million, which is 33% lower versus the same period of last year. As part of our full year guidance, we're expecting CapEx to be in the low part of the range that we mentioned to be between $1.3 billion to $1.4 billion. Our investments are mainly in maintenance, maintenance CapEx, productivity projects and also growth initiatives. So what we have been seeing since 3 years ago is a gradual decrease on the amount of CapEx that we have been investing coming from $2 billion, then $1.6 billion and now we're going to end probably at $1.3 billion because our project for growth are demanding less resources than the heavy lifting that we were doing 2, 3 years ago. On the maintenance CapEx, it's more or less the same than what we typically invest, which is in the range of $800 million per year. In productivity, we're investing a little bit more this year, particularly from the transformation project in the U.S. Operator: The next question comes from Álvaro García with BTG. Alvaro Garcia: A couple on my end. Mark, on the U.S. consumer, I was wondering if you could maybe perhaps seeing some weakness. We've heard from other consumer companies, some weakness out of the Hispanic consumer specifically where people naturally over-index to a degree. So maybe if you could speak to any weakness out of that cohort, that would be helpful. And then a second one on Wickbold in Brazil, congrats on closing the deal. I'm assuming that we'll see that in the fourth quarter. And I was wondering if your leverage guidance for the end of the year considers that transaction? Mark Bendix: Well, thanks for the question. In the U.S., I'll give you a sense of the overall trend that we're seeing. So we're seeing expectations for more health and wellness products and the consumer has definitely shifted pretty dramatically. And we're currently trying to appeal to a broader consumer demand for healthier options. There is increased demand for high protein foods. Consumers are prioritizing protein sources, including plant-based, as you're probably well aware of and with the onset of GLP-1 drugs, we're seeing that in the environment. In terms of the Hispanic consumer, there's no doubt, we don't have a detail that breaks that out to tell us that the Hispanic consumer is overly stressed. But I -- in the environment in the U.S., I would expect that to be true, but I don't have data that would support that, Álvaro. But we're positioned to capture this in many different consumers because we're offering a lot more value-oriented products. As I said earlier, we're working on Sara Lee half loafs, where we've introduced Bimbo bread across the United States and launched it nationally and it fills a spot above private label, but below the national brands. So hopefully, that's helpful. Diego Cuevas: This is Diego. As you know, Wickbold acquisition was completed during this month in October. So I mean, no effect either on the P&L or the balance sheet as of the end of the third quarter. We will start to see the effect on the P&L in the fourth quarter. And yes, the guidance that I mentioned for the leverage of 2.9x by the end of 2025 it's including the acquisition of Wickbold. Operator: The next question comes from Fernando Olvera with Bank of America. Fernando Olvera Espinosa de los Monteros: My questions are for you, Diego. I mean just a follow-up regarding Wickbold, maybe if you can give us some color what will be the contribution of Wickbold in sales and EBITDA? And my second question is regarding your leverage. Considering the net debt-to-EBITDA ratio is likely to end below 3x, how are you thinking about share buybacks for the remainder of the year and early next year? Diego Cuevas: Yes. Well, as you know, we do not disclose the specifics on acquisitions that are not transformational as the effect on our sales is no material at the Grupo Bimbo level is less than 1%. So as I said, it's going to be reported beginning in the fourth quarter, but we're not going to be disclosing any specifics on Wickbold. In terms of the net debt-to-EBITDA connected to the buyback program, I'd say that we're still in a financial position with a leverage that is above our comfort zone. We are planning to enter into a deleverage stage gradually. It's not going to happen very fast. But we do expect to see a gradual deleverage beginning in 2026 and going forward. But having said that, we still operate with the same methodology that considers, of course, the cash flow generation, the expectations that we have on the demand of resources, both in inorganic and organic needs and also, of course, the evaluation of the company. So we're there, we're going to be always analyzing if there's an opportunity and we can start to operate. So is not that we're on freeze. So anytime soon, we might probably start to operate the buyback program. Operator: The next question comes from Felipe Ucros with Scotiabank. Felipe Ucros Nunez: Just a couple on my side, most of the ones that I had been asked. But one that called my attention when I was going to the release was the mention about starting to see a positive price/mix performance in North America. So I was just wondering if you guys could talk a little bit about the sources of that improvement on the price/mix, whether it comes from the innovation things that you have rolled out or whether it comes from different consumption or channel behaviors or perhaps some actions on pricing on your behalf. Just any color you can give us on the turnaround on the price/mix in North America would be great. And then the second one, I was positively surprised to see a couple of countries in Latin America where things haven't been going as well. for most of the corporates that we've seen reporting this quarter. Argentina, for example, Ecuador, for example, you guys had good performances in those countries, but the macro seems to be pretty poor. So any color you can give us on how you're managing to achieve positive performance in those countries would be great. Mark Bendix: Felipe, this is Mark again. In terms of the U.S. As we mentioned at the outset, we are seeing a bifurcation of consumers, both on the value end, but also on the premium end. And a little bit of that price/mix that you're seeing or commenting on is the artisan products that we've introduced into the market have had a very nice effect on our P&L. So we are excited and looking at extending and expanding more artisan products, that's what you're seeing and commenting on. And in terms of the rest of the question, I'll turn it back over to Diego. Diego Cuevas: Actually, I'm going to answer on LatAm growth profile, right? I just want to remind you that we undertook a significant full potential and turnaround in key geographies 4, 5 years ago, definitely the step one in Brazil and Argentina mainly was to create a more competitive organization to get that out of the system, but also we create a very competitive one. So Brazil, our largest operation, has been consistently growing and improving profitability for several years. It is growing market share, has been able to increase full investment, and we have been able to source much needed in the past, capacity in bread, tortillas and snacks. So I would say that turning around Brazil and Argentina, we aided internally the source for tool and more capacity. So what we have been seeing is increasing our sales and extending our portfolios. Also, when it comes to Chile and Colombia, last year were not so good years for both economies, if you remember our previous quarters, but we just acted on both. We improved basically in Colombia, DSD performance, and we expanded significantly in hard discounters, which are a big thing in Colombia. And in Chile, we turn around the poor modern trade performance, I mean, a hiccup last year while doubling up our full portfolio in DSD. So net-net, I would say, that we have relied, and rightly so, with our excellent teams. And we have been very intentional on our full potential plans that sometimes we have shared with you guys. So I would say that we are outperforming the market in the top line. And if I may, last, but not least, of course, because of better prospects in LatAm, we have also been more, I would say, active on acquisitions in new categories, channels and technologies. For example, [indiscernible] in Costa Rica helped us focus on the artisanal original sweet baked goods and is opening up new channels such as in-store and frozen service. So all in all, I would say that despite the hiccups normal to the LatAm geography, we are coping with them with a stronger teams and portfolios. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Rafael Pamias for any closing remarks. Please go ahead. Rafael Pamias Romero: Yes. Thank you. Thank you all for your time today. Please do not hesitate to contact our Investor Relations team with any further comments or questions you might have. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Yuen May Lum: Hi. Good morning. Welcome to Mapletree Logistics Trust results presentation for the second quarter ended September 2025. We have the whole management team here with us, Jean, CEO; Charmaine, CFO; and James, Head of Asset Management. So to kick off the presentation, Charmaine, would you like to start? Sheh Min Lum: Good morning, everyone. I'll first take you through the 2Q key highlights. So gross revenue is 3.2% lower year-on-year at SGD 177 million. This is mainly due to depreciation of currencies against Sing dollar FX. Then, we have the absence of contribution from divested assets, but this is offset by revenue contribution from our AEI at 5A Joo Koon, now known as Mapletree Joo Koon Logistics Hub. So that has achieved a committed occupancy rate of about 82% as of now. And lastly, we saw stable same-store performance, while there were lower contribution from China, this is offset by better performance from the other markets. So this resulted in NPI being 3.3% lower year-on-year. DPU is 10.5% lower year-on-year at SGD 0.01815. Excluding the DPU of SGD 6.1 million, our DPU from operations is 4.8% lower year-on-year, but a positive 0.2% quarter-on-quarter. In terms of portfolio occupancy, that's 96.1%, an improvement from 95.7% last year. Portfolio rental reversion, positive 0.6% as we saw the negative rental reversion for China narrowing in 2Q. WALE stable at 2.7 years. Aggregate leverage, 41.1%, slightly lower than 41.2% last quarter, and our average debt maturity is 3.6 years. We continue to hedge our interest rates and about 84% of it is hedged into fixed rate, while 75% of our income has been hedged to the Sing dollar. Moving on to the results. Gross revenue is 3.2% lower year-on-year for the reasons highlighted earlier. So consequently, our NPI is 3.3% lower. On a constant currency basis, gross revenue and NPI would have declined by 0.9% and 1%, respectively. Borrowing costs decreased mainly because of lower base rate on our unhedged Sing dollar and Hong Kong dollar borrowings, where we benefited from declining SORA as well as low HIBOR during the quarter. We also had some interest savings from the powering down of loans with divestment proceeds, but this is partly offset by interest incurred on loan drawn down for the AEI as well as replacement hedges at higher cost and higher base rates for our KPI loans. So DEI is 9.6%, lower with a DPU of 10.5% lower, SGD 0.01815 versus SGD 0.02027 in 2Q last year, excluding the DPU of SGD 6.1 million, operating DPU is 4.8% lower, SGD 0.01815 versus SGD 0.01907 last year after taking into account a higher unit base. One half results, reasons for the variances are largely similar to that versus -- for the 2Q versus 3Q last year. Including DP -- our DPU would have been 11.4% lower, SGD 0.03627 versus SGD 0.04095, excluding DG of about SGD 11.8 million, DEI is lower by 5.1% and resulting DPU from operations, 6.1% lower at SGD 0.03627 versus SGD 0.03861. Sequentially, 2Q versus 1Q, I think we see -- we saw a better performance. Gross revenue marginally higher, mainly coming from the contribution from our 5A Joo Koon AEI. Property expenses higher, mainly because I think we will take some time to cover the property expenses incurred at 5A Joo Koon as we continue to ramp up the occupancy rate and start collecting more revenue for the AEI project. So accordingly, NPI is just marginally lower. Borrowing costs lower because of the lower Hong Kong dollar and SGD SORA rates. Resultingly, our DI, SGD 98.2 million versus SGD 97.6 million and available DPU, 0.2% higher, 0.0815 versus SGD 0.0812 after accounting for a high unit base. Moving on to the balance sheet. Our NAV stable SGD 1.26, leverage at 41.1% versus 41.2%. Interest costs came down marginally to 2.6%. We target to keep this at similar levels, about 2.7% to 2.8% for the next 2 quarters. We have a bit -- I mean, depending on where the SORA market goes, we may benefit a bit more, but we're still looking at about 2.7%. Our debt maturity profile remains well staggered, average debt duration of about 3.6 years. We have about SGD 819 million of available committed credit facilities to meet our refinancing needs in the next 12 months. And as mentioned earlier, we have hedged about 84% of our total debt into fixed rates, leaving the rest of the 16% in SGD and JPY floating rates, which will benefit from all the floating rate movements. And then in terms of FX, we have hedged about 75% of our FX for the next 12 months into Sing dollar or derived in Sing dollar. I'll pass over to James to bring you through the portfolio details. James Sung: Hi, everyone. So in terms of our portfolio update for 2Q, revenue [indiscernible] contribution for developed markets, which continue to be at 70%, which gives us the stability in revenue. In terms of trade sectors, 85% of our revenue are actually serving domestic consumption, which remains resilient. Only 15% of our revenues are for exports. But as we have shared earlier, to U.S., our exposure is less than 5%. So there's a limited risk to our portfolio, but we can't discount any indirect consequences or impact to the sentiments of the market. Next, occupancy. Overall, occupancy remains very resilient. It has improved from Q1. So now it's at 96.1%, compared to 95.7% in 1Q. So in most of the markets, we continue to have 100% occupancy like Australia, Vietnam, India and Hong Kong. We see 4 countries registering positive occupancy rates. Singapore is one of them. As shared by our CFO, this is due to the improved leasing up momentum at our 5A Joon Koon, now it's called Joon Koon Logistics Hub. So the 2Q occupancy is 60%. Our committed leases is at 82%. So we should see this improving as we move along in the next 2 quarters. China also saw improvement in occupancy rates, driven mainly by improvement in occupancies in the Tier 2 cities. Japan was down primarily due to a lease expiry in Kuwana. So we are in the process of backfilling the space in the next 1, 2 quarters. Korea saw an improvement in occupancy based on the new lease in Wonsam 1. Malaysia has also saw a slight improvement in occupancy because of a new lease in Tanjung Pelepas. So in terms of rent reversion, our overall rent reversion was 0.6%, excluding China, was 2.5%. In Singapore, it was 3.9%; Japan was 0, flat; Hong Kong, 0.7%; South Korea, 1.1%; Malaysia, 3.4%; China, minus 3.0%; Vietnam, 4.3%. And there were no lease expiries due in this quarter for 2 other countries, Vietnam and Australia -- Australia and India. So in terms of the lease expiry profile, we saw that in 2Q, our lease expiries for the balance of this year is down to 16.6% compared to last quarter, which we reported 25.3%. 20% of our total revenue is contributed by our top 10 tenants. So there's no single tenant that contributes more than 4% of our portfolio. So there's no concentration risk. Next. In terms of active portfolio rejuvenation, as you know, we have announced 3 completed divestments in 2Q, namely 31 Penjuru Lane in Singapore, Subang 2 in Malaysia; and Yeoju in South Korea. And we will be -- and we have completed one in 3Q, mid of October for the one in Gudang. Sheh Min Lum: Okay. I'll go through a couple of slides to update you on our green initiatives. So in support of the group's long-term target of net zero emissions by 2050, MLT has committed to achieve carbon neutrality for Scope 1 and 2 emissions by 2030. So on this front, we are pleased to update that our target set for FY '25, '26 for solar generating capacity as well as green buildings, year-to-date, we have reached exceeded set targets. So for solar, we have already expanded our capacity to currently 56.4 megawatt peak against the target of 55. So we are on track to hit 100 megawatt peak in 2030. And if we take in to include third-party funded capacity, actually, we are at 108-megawatt peak, which I believe should be the largest, if not one of the largest amongst Singapore REITs. Then for green buildings, we have already reached a 69% percentage for our portfolio by GFA, and we hope or aim to reach 80% by the year 2030. For green financing, we have secured another SGD 300 million of new green and sustainable financing this year, and that brings it to a total of SGD 1.5 billion or about 27% of our total borrowings, up from 24% as of March this year. For green lease, we also continue to make good progress, tracking at about 59% currently for all our leases. And we're also happy to note that our Benoi Logistics Hub, which was the first AEI in Singapore was recently recognized as the one of the -- rather the only industrial logistics building by -- under the BCA Green Mark 20th Anniversary Building Project. So now I'll pass over to Jean to wrap up. Jean Kam: Good morning, everyone. In terms of the outlook, right, I think as all of you are aware, the world economy has proven more resilient than expected with a lot of the front-loading of exports and AEI investments. And in terms of the trade tensions between the U.S. and China, it appears to be cooling down based on the latest development. However, I think this on and off tensions continue to create a lot of uncertainties and continue to clock the global economic outlook as well as keeping our business and consumer sentiments cautious. Operations-wise, you have heard from James, we have a slight uptick in our occupancy rate this quarter compared to last quarter, mainly coming up from Singapore with the progressive leasing out in 5A Joo Koon as well as China. And our negative reversions in China has been narrowing, and it's now at negative 3%. On the leasing outlook, from the occupancy and rent reversions, our China operations appears to be stabilizing. By region, in terms of the West and Central China, it seems to have bottomed. We are starting to see some higher signing rentals from some of the cities in the West, for example, in Guiyang and Kunming. On the Northern China rents, like I said earlier or before, we have already signed at very low rents. If the situation doesn't further deteriorate, we hope that wherever we have locked in continues to be stable. And on the South, there will be a lot of upcoming supply. But for MLT, we only have 2 assets. I think -- so that's not a very big concern to us. The region that we are watching very closely that is of concern is actually the East China Greater Shanghai region as the vacancy remains elevated and pretty high at around 26%. So I think in a nutshell, if you ask me when is the inflection point, really, it is very hard for us to put a forecast. And with the current weak domestic consumption, we think the asset supply will probably take at least another 1 to 2 years or more for it to be absorbed. Going to Hong Kong, the leasing market remains cautious with the ongoing slight uncertainty. However, to date, we have renewed or replaced about 90% of this FY lease expiry. And already, the team is already starting to engage our bigger tenants for the coming FY lease expiries. Based on the earlier conversation, we think they will likely continue to renew with us. But I think in terms of the rental reversions, it will likely to be flattish, taking into consideration the current vacancy levels. As for Korea, there is an elevated market vacancy of 16%. Although in terms of the supply pressure, it seems to be easing based on the current statistics. And the flight to quality continues with some of our older specifications facing some leasing challenges and higher incentives. Back to Singapore. As mentioned by CFO and James, we have already achieved a commitment rate of 82%, and we are looking to still target to achieve full occupancy for this AEI by this financial year-end. So Singapore remains a resilient market. But with more supply coming on stream these 2 years, we think the rent reversions will moderate to a low single-digit kind of growth trajectory. I have covered about 70% of AUM and the rest of the 30% from 5 countries like Australia, Japan, Malaysia, Vietnam, India remains resilient. On capital recycling, I mentioned before that we have identified a SGD 1 billion pipeline as potential assets for divestment as part of our portfolio rejuvenation strategy and half of it will come from Greater China. So last year, we executed about SGD 210 million. To date, we have executed about SGD 60 million post quarter closing. And for the divestment target this financial year, we are targeting about SGD 100 million to SGD 150 million this financial year. On the divestment options for China, we are in discussion, and we have received a few interest from some insurance companies and SOEs on a few of our assets in China. So we are still in continued dialogue. And as for the renminbi fund, it is something that we are exploring as a possible exit option. So on acquisitions, amidst the tapering of interest rates, there are more opportunities out there and use spread seems to have improved for some of the countries, but we remain highly selective and disciplined in our acquisition process. We will be keen to increase our presence in our emerging markets like India, Vietnam as it still offers a faster growth trend and our AUM is still very small in these 2 markets. And as well for Singapore, we are also still exploring AEI opportunities for the -- in our East location in Singapore. With this, I think I wrap up my presentation, and I'll leave it for Q&A. Thank you. Yuen May Lum: We'll now open for Q&A. Okay. Mervin you're first in line. Mervin Song: Thanks Lum Yuen. Jean, congrats on the fabulous performance in China considering the difficult market conditions there. I'm very glad to see some signs of stabilization. First on the China reversion, I think guidance previously was flattish for next financial year. Are you maintaining that guidance? Or is there some is any variation? And your occupancy, been able to hold it low 90s actually increased this quarter. Any guidance on occupancy going forward? Second question I have is in terms of cost of debt guidance thoughts for second half this year as well as FY '27? Sheh Min Lum: I'll get James to answer that. James Sung: Sure. On the first question on China rent reversion, yes, your observation on the listing of the negative rent reversion is coming up. So we see that the mix 2 quarters, we are still watching closely. It should improve and we should flatten hopefully in the next -- within the next 2 quarters. So that's the outlook for China. And the occupancy you're referring to China occupancy? Mervin Song: Yes, yes. I mean the market vacancy is still very high. So you've done an amazing job holding at low 90s. James Sung: Yes. So we still positive but our occupancy rates in China. As you can see, 2Q, we improved 1 percentage point. So we reckon that in the next few quarters, we should be hovering around this level, 94% or even better. Mervin Song: Sorry, just a follow-up on the reversions. You expect it to improve in the next 2 quarters at least. But is there a chance that the 0% level rather than next FY '27 could be like fourth quarter? Jean Kam: We are looking at perhaps in Q4, hopefully, we can have a neutral position by end of FY. We are still working very hard towards that. Mervin Song: Okay. That's fantastic news. And the interest cost guidance? Sheh Min Lum: Hi Mervin. So on the cost of debt, it's currently in. I mean it was 2.7% last quarter. This quarter, it declined slightly to 2.6%, mainly because we benefited from the lower SORA rates as well as the low HIBOR rates at the beginning of the quarter, which has now increased, right? So moving forward, I think for the second half, we are looking at about 2.7%, but also a lot depends on where the unhedged rates will be, but if it's current level is about 2.7%, and we will target to keep it stable for the next financial year. Yuen May Lum: Derek from DBS. You're next. Derek Tan: Hey, good morning can you hear me? Yuen May Lum: Yes. Yes. Derek Tan: Congrats on a stable results. Just 2 questions from me. The first one is on Joo Koon, right? I know you're getting fairly good committed occupancies and just wondering whether for the remaining leases, right, from [ 60 to 80 ], are you getting higher rents and at this moment in time, what is the income collected reflective in terms of occupancy level. So we would expect that income for these assets should start to continue to improve in the subsequent quarter, right? So that's the first question. And maybe my second question -- maybe my second question is on income hedges. I just want to get a sense about your hedging expiry for next year, which other currencies that we should be taking a lot of and whether there's going to be any potential mark-to-market. I'm watching especially your Japan and Hong Kong hedge yourself. So it's something that could be expanded network. So I just wanted to get this out of the way? James Sung: So 5A Joo Koon, the rentals because we have now hit about 80%, 82% committed, right? So the leases for the balance will definitely be higher than the present because this is quite typical when you first start, there will be selling more incentives to start with to get the levers in, then as we improve the occupancy rates, the rents will go up. So that's typically how we are marketing this project. Derek Tan: So last quarter, how much have you collected out the 60%? Jean Kam: It's about SGD 1 million -- It's about SGD 1 million before the fitting out and rent freeze. Sheh Min Lum: So Derek, I think in terms of the contribution from the new AEI, right, in 2Q itself, we collected revenue about SGD 1 million, but I think this is largely because a lot of the rent freeze and [indiscernible] were given in the front. And you are right, we will see this contribution increasing for the next 2 quarters and then [indiscernible] financial year. Derek Tan: That's good news. Sheh Min Lum: So I think in terms of the hedges, right? Okay. So for the next 12 months, for JPY, about -- we have locked in about 83% of our DEI from Japan at a rate of about less about 90, so that's a very good rate. We will enjoy it [indiscernible]. And for Hong Kong dollars, 72% has been locked in. The rates are at about [ 5%, almost 6% ]. Derek Tan: You mean everything expiry [indiscernible] only partly? Sheh Min Lum: So like for the next 12 months, yes, this all 83% -- like JPY all 83% will expire by 12 months time. Derek Tan: So we should be locking it? Yes. Sheh Min Lum: Yes. So a lot of it is mark-to-market. So for JPY, I think a bit more color. We have previously locked in for a longer period. So if you look at beyond the 12 months, we have locked in about 56%, so the mark-to-market rate for JPY will be lower, slower. But like for Hong Kong Dollar the rest of the currency, I think most of them will expire in the next 12 months. If you notice the swap costs, right, I mean, the hedging cost has gone up actually quite a fair bit in the last past half year. So the ways that we are able to enter into forward these days are not as attractive. Derek Tan: Okay. Got it. That's why I needed to know. Sheh Min Lum: Thank you. Yuen May Lum: Roy Chen from Macquarie. Roy Chen, you can ask your question. Please go ahead. Chengzhi Chen: Yes, congrats on China bottoming up factory guidance? Few questions from me. I think firstly, in terms of the interest cost, I think you are guiding that next year is going to be flat 2.7%, I'm just wondering how are your hedges right in terms of the interest rates versus the current rate, I think a lot of the REITs are really recording lower average cost of debt. So are there still more lower rates that in your books? That's one. And then my second question is on the China lease expiries that's coming up this year -- remaining of this year and next year. How much of those these expiries are coming up from the East China assets? And last one, in terms of your divestments. Are you seeing a pickup in interest in transactions. And now that the interest rates are actually lower. So in terms of that, we should expect a faster pace of the reset. Sheh Min Lum: Okay. I'll go on the interest cost first. I think the first thing is at an interest cost of 2.7%, I think that's one of the lowest in the market as of now. Color on the hedges that's falling through -- falling off next financial year. So for example, our Hong Kong dollar, the rate that's falling off is 1.7%. If I were to replace it with Hong Kong dollar IRS, that would be much higher. So what we have been doing in the past 1 to 2 years is when this really low rates in Hong Kong dollar and Aussie dollar comes up for replacement, we have actually replaced it with a cheaper currency, for example, CNH or SGD. So I think to keep our interest cost at 2.7% next financial year, we will potentially replace this Hong Kong dollar debt that's expiring at 1.7% with maybe a Sing dollar or a CNH loan, which would be similar levels at this expiring 1.7%. That's how we will try to keep our interest cost stable. Does that answer your question on how we can keep it -- how it's going to be at 2.7%. If you look at the universe of rates as of now, I think the lowest that we can find would be Sing dollar and CNH and of course, JPY too. With the new Prime Minister, I think maybe that would -- the rate of increase for JPY would be slower. But comparing against whatever is expiring, it would be similar levels. Chengzhi Chen: Got it. How about your Singapore loans debts? Will you still get some benefits from your Singapore loans? Sheh Min Lum: So the Singapore rates that are dropping off are like 2%, maybe marginally lower, but we don't have Sing dollar due for refinancing in the next 1, 2 years. I think I also mentioned earlier that in terms of the lower rate this quarter, we have benefited from the unhedged portion of the Sing dollar loans. So if SORA decreases or lowers further, yes, we will benefit, but conversely, if SORA increases, then our 2.7% will probably increase to 2.8%, 2.9%, depending on where SORA is. Chengzhi Chen: Thanks for the comments. Jean Kam: Yes. Roy Chen, regarding your questions on divestments, with the lowering of the interest rate environment, the divestment activities, yes, you're right, that is starting to pick up and seeing more interest -- but is particularly, I think for our Greater China portfolio that we are looking to divest, at least we are seeing some inquiries coming in. So now right now is about the discussion on the kind of pricing that the parties are looking at. So from that perspective, on the China divestment process, compared to last year, it is slightly better. We are seeing interest. And the other part that we have been trying to sell like the older specs like in Korea, Singapore, Malaysia, that one, I would say it would be a bit less sensitive to the interest rate environment, but more about whether the end user or the buyer finds our property relevant for their business requirements. Not that interest rate is not important, but I think more of whether the current specification suits their business needs. So -- but in a nutshell, I think that's what we are looking at now in terms of the current divestment pace. I hope that answers your question, Rachel. I will let James to answer on the lease expiry in China coming up from the East region. James Sung: Roy Chen, I'll get back to you before the end of this call, we're completing. Yuen May Lum: Shall we move on to the next person. Okay, Brandon. Brandon Lee: Can you hear me? Sheh Min Lum: Yes. Brandon Lee: I just want to go back to the asset divestments in China, right? So the funding you spoke about, is it -- are you talking about the private bid or are you looking for CREIT? Jean Kam: No, it's a private one. Yes [indiscernible] . Brandon Lee: Okay. And for the sort of timing wise, right, this SGD 0.5 billion that you're looking to sell in China, can you roughly guide on when we could see this being offloaded from your balance sheet? Jean Kam: It's quite hard for me to actually give a guidance. But I think immediate for at least this 1, 2 financial year, probably SGD 100 million. Brandon Lee: SGD 100 million in FY '26, so another SGD 400 million in FY '27? Jean Kam: Yes. But that one also includes the Hong Kong divestment that we are looking at. So we are looking at trying to divest our shorter title assets. And that's going to take some time because all the shorter assets, we will need to find a lot of individual owners, so that one will take a bit of time. Brandon Lee: So we see the SGD 0.5 billion? Jean Kam: Greater China, it's Hong Kong and China. Brandon Lee: Greater China. Okay. And in terms of the divestment premium discount. Can you give a guidance on that for both Hong Kong and China? Jean Kam: We are looking at valuation. Brandon Lee: Debt valuation? Jean Kam: Yes. Brandon Lee: Just looking at some of the leases that you signed this quarter in China, right, I saw that the -- some of these have been brought ahead to FY '27, '28. So does it mean that you are still signing pretty short leases in China? Jean Kam: Okay. I think generally, yes, the lease in China, it is still pretty short term in nature. In terms of signing beyond 2 to 3 years, we are still seeing, but it's really very few. So overall, most of the tenants in China is still taking a cautious position, so still pretty short term. But if you ask me to -- if I diagnose further -- if you look at renewals that we signed this year versus last year, in terms of the WALE, we are seeing some slight very small improvement, compared to -- that means what I'm saying is that last FY renewal versus the first half of this FY renewal in terms of the WALE is slightly longer. Yes. So I hope that answer your question, yes. Yuen May Lum: Xuan from Goldman. Xuan Tan: I have a question on acquisitions, right? And how are you thinking about funding? Is it coming purely from divestment? Or are you now open to equity and all that share price has increased? Jean Kam: For now, it will still very much be the divestment pace, depending on how much capital we can be cycled. But having said that, right, if there's a large portfolio that is very attractive. I think we do not rule out the option to capital market. Xuan Tan: Got it. And can you share more colors about the China divestment and valuation. I guess we've seen some of this in a steep discount. Why is logistics holding up better? Sheh Min Lum: I think in terms of why we are seeking the valuation, I think that's something -- that's why if you notice, it's been taking -- we are still trying to negotiate. We're still trying to negotiate. And then the other reason, I think if you look at -- yes, I forgot to add on that in terms of the renminbi fund that we are looking at, right, we are actually working with our sponsor on this. So that's something that we are negotiating with them. Yuen May Lum: Next line is Derek Chang. Jian Hua Chang: Just a quick follow-up, I guess, on the divestment of assets to the sponsor, right? That's the development fund right that they have. So will this be a potential you divest and then you do a joint development with the sponsor? Or how are you thinking about this? Jean Kam: No. No. It's more like we have some assets in the balance sheet that we are looking to divest to decent fund and then the sponsor will be more like LP and whereas they will also look to get some capital partners in it. So we will not be having a stick in the fund. And it's not yes. It's not a development fund. It's just -- we are just exiting our assets and put into the renminbi fund, which is an income fund. Jian Hua Chang: [indiscernible] exit. Understood. And then on acquisitions, right? I think you mentioned earlier, India and Vietnam, but these markets, I guess, the use spread isn't too attractive, especially if you're looking to deploy proceeds from divestments. Are there other markets that you are looking at where you spread more attractive? Jean Kam: In terms of the yield, these 2 markets continue to be the highest from the yield perspective. Of course, I think in the other markets where we are starting to see interest rate coming down, for example, maybe Korea, in terms of yield spreads, it is a bit better. So maybe that's something that we will continue to look at, but it will really be very opportunistic. As for Australia, I think the rate hasn't really come down much, but it's something that we still continue to monitor. Jian Hua Chang: What about Japan and Singapore. Jean Kam: Singapore, we are looking at more AI, asset enhancement. I mentioned that we will -- we are actually exploring in discussion to acquire a property that is adjacent to our current assets, and we are looking at amalgamation and doing a new redevelopment. For Singapore acquisitions, it will be more perhaps buying some old properties that is very near to our existing assets, and we are looking at redevelopment developingit. Japan, yes, no doubt, the cost of debt is the lower at low 2s. But if you look at the yield, it is actually very tight at 4% or below. So from that perspective, if there is any potential acquisition, it will have to be via recycled proceeds. Yuen May Lum: Next, we have Terence. Terence Lee: This is Terence from UBS. For the China portfolio, do you mind sharing how under/over rented the current in-place rents stack right now versus market? And if you don't mind splitting between Tier 1 and Tier -- non-Tier 1 type of classifications? James Sung: Yes, James here. So currently, we analyzed in terms of mark-to-market, I think that's what you are alluding to what percentage is not mark-to-market. So we scan through our leases in China, about 10% is yet mark-to-market. So meaning to say they would exist if the market remains at a certain -- at this current situation without going down further or without going up, right, we have 10% of this exposure. But this 10% is not going to expire all within 1 year. So it's spread over the next 3 years or so. Terence Lee: Got it. And I think just going back to the point on acquisitions, right? I think the earlier statement was focusing on India/Vietnam. But I'm just thinking why not just focus on Singapore, whereby you can avoid the FX issue, Borrowing cost is also almost like one of the lowest points in the history, whereas I guess the preference or EM has [indiscernible] proven to be quite challenging. Jean Kam: I think for Singapore, because it is a very regulated and tight supply market, right? Definitely, if there are opportunities, we will definitely also take a look and evaluate. So in fact, there were a few deals that we have seen, but I think it is a bit challenging at this point in time, taking into consideration some of the expectations as well as the tenure that is left. So that's something that we will continue to want to pursue. But realistically speaking, it will be more opportunistic from that sense. So that's why I think in terms of acquiring a small property, which is near to our existing in for us to do the rejuvenation. It is something, at least it is more attributable. But having said that, I think definitely, we will still continue to pursue -- it's just that I think in terms of modern grade A specifications that is available after the moratorium of the JTC requirement, typically, we are looking at a very short land these left. So it is something that I think we are cautious about, and we would perform for Singapore to rejuvenate within the existing portfolio that we have -- and so far, we have done 4 and 5A Joo Koon is our fifth successful AEI. Is our fifth or fourth? Oh fourth, sorry, fifth is including the [indiscernible], our fourth successful AEI project in Singapore with good track record in terms of the leasing performance as in terms of giving us good returns. Terence Lee: And my last question is maybe just it's more big picture thinking. We've seen REITs where through the period of high interest rates, surely the DPU had suffered. But even coming out of it, I think some of them are trying to shore up their capital buffers. So we've seen some examples of REITs, I guess, reducing fees in units. So I guess the parallel being that for MLT, FY '26 looks to have taken a hit. So when we formulate our thinking about FY '27, is that also part of management's thinking that it's time to, I guess, rebuild some of these buffers. Jean Kam: Yes, you're right. So I think I have mentioned before, I think once our operations start to stabilize, our DEI starts to improve. We are looking at slowly taking back some of the fees in units and convert into cash. It is something that remains in our mind. And we will do some conversion as and when our DPU is able to take it. Terence Lee: I guess suffice to say earlier that I think the idea of divestments is limited gains. And correct me if I'm wrong, over there. And I guess, by extension also, if there are any gains, we probably won't see them being paid out? Jean Kam: Yes. I think -- we have just turned off the distribution of the divestment gain just a few quarters ago. So if there is any future divestments with just very few million gains or very little gains. I think we will continue to actually keep that and strengthen our balance sheet, for flexible low financial agility for future acquisition. But having said that, if we are able to divest an asset that give us a very huge gain, I think it's something that we are open to explore to give a bit of a divestment gain in future. But based on a lot of the divestment pipeline that we are looking at, we do not foresee that there will be a very huge gain over the original costs based on our current visibility. James Sung: Roy Chen, James, back to your earlier question, you're asking in terms of the balance of this fiscal year or financial year or what expiries from East China is coming up. So portfolio, East China consists of Sichuan province, Guangzhou province and Shanghai. So we have 19 properties and all in China. And based on this expiry, we have 36% due from this East China coming off for the balance of the year. Of course, not all East China is -- not all the 36% going to expire just a bit. Some would be placed. Some majority will be renewed. Chengzhi Chen: Well, Yes, Yes. James Sung: Did you hear me? Chengzhi Chen: Yes, you're saying the financial year is 36%. James Sung: Yes, the balance of next 2 quarters. Chengzhi Chen: Okay. And these leases are up to market already at current rents, right? James Sung: No, there's still a small gap. Yes. Chengzhi Chen: How about next year? James Sung: Next year, we are looking at about -- for East China, about 25% to 30%. Chengzhi Chen: Okay. And also there's still some have mark to market? James Sung: Yes, yes single-digit percentage. Chengzhi Chen: Maybe can I just ask one last quick question. In terms of your renminbi fund. What's the fund size that you're expecting? Jean Kam: I think it's something that is still in discussion. In terms of what I've guided right I say [ SGD 0.5 million ] is coming out from China and Hong Kong. So from our perspective, I think in terms of the sales, the exit option for China, it's not a very large amount in that sense because I mentioned [indiscernible], right, a lot is also coming up from Hong Kong as well. Chengzhi Chen: So this renminbi fund is specifically for the China asset only? Jean Kam: Yes. Chengzhi Chen: That's what you're seeing, right? Jean Kam: Yes. Yes. Chengzhi Chen: And the Hong Kong assets are still expected to divest to third party? Jean Kam: Yes, yes. And that will probably take some time because those that we have identified are shorter tighter units. So meaning that all the small, small units will take some time to get the right buyer. And typically, the buyers' interest would likely be from the business owners rather than a kind of demand. Chengzhi Chen: Is there a timeline for the renminbi fund right, is it going to be this year or next year? Jean Kam: We are looking at, hopefully, quarter 4, but maybe most likely quarter 1, next financial year. Yuen May Lum: Next, we have Brandon. Brandon Lee: Jean, just a few follow-up questions, right? Just going back to China, right? So assuming that your China stabilizes, right, how big of improvement in the sort of earnings contribution you would see coming back from China? Because I think this quarter, you had 14% in the good old days, you were at 20%, 21%, any specific number you can give us? Jean Kam: Brandon, it's a very difficult question to answer. I don't have a crystal ball. Unfortunately, I can't give you the guidance. But what we are really trying to work on the ground is really, as you have seen for the first half, we are trying to really do that stabilization. And there's still a fair bit, I think some of the -- like this [indiscernible] has asked how much is coming up from East China. So we still have -- for the East China, there are still some leases coming up. So that's why I think it is very hard for me to give you a number at this juncture. Brandon Lee: And can you give a rough reversion guidance for FY '26 in Korea and Japan? Jean Kam: FY '26. Sheh Min Lum: You are referring to next financial year, Brandon? Or this year? Brandon Lee: Remaining second half, you can give '27 even better ? Sheh Min Lum: Yes, I was going to say, it is next year, then can we check in again another time, in the quarter. Brandon Lee: FY '26. Sheh Min Lum: Yes, FY '26 is second half, right? Okay, for which country again? Brandon Lee: Korea and Japan. Jean Kam: James, do you want to take that? James Sung: Yes. For Korea, we believe next year? Sheh Min Lum: No, second half of this year. James Sung: Second half of this year, second half of this year? Brandon Lee: Maybe full year is easier -- easier, then we can plan it ourselves. James Sung: I think second -- we just [indiscernible] the second half of this year for Korea, it's still going to be around 1%. Jean Kam: Yes, it'll be the low single digit around what we are seeing at the current second quarter. James Sung: In Japan should be quite similar as well -- not 0, but quite flattish. Jean Kam: Probably [ 0.5 ] the kind of range. Brandon Lee: Okay. Just one last one, right? So you mentioned that equity is considered if it's a portfolio. When you say portfolio, is it more external? Or is it a amalgamation of your sponsors asset in India, Vietnam, Malaysia, everything, Australia, even all combined? Jean Kam: It's anything that's up for review and any opportunities that is good. So I don't want to rule out whether it's third party or it's [indiscernible]. Yuen May Lum: Mervin, you have a follow up question. Mervin Song: Yes. Just a follow up for the Joo Koon Logistics Hub. When do we expect like full cash flow contribution for the initial 60% committed level than 82%? Jean Kam: Sorry, I didn't get your question, when do we expect full contribution from the 82% is it? Mervin Song: The initial 60% and then the 82%. James Sung: Yes. it should be in a part of 3Q onwards. Mervin Song: So 3Q will get the full 60%. James Sung: Yes. Mervin Song: Then the 82%. James Sung: Part of 3Q because 2Q some of the reasons came in since September. Right? So you give them quickly. Mervin Song: Then this maybe a 4Q '26, you get a lease for [indiscernible]. Jean Kam: 4Q, yes. Mervin Song: Then the 82% will be middle of next year, next financial year? Or be late? James Sung: 82% is likely to be part of 4Q. Mervin Song: Part of 4Q. Much better than my projections. James Sung: So this year, we're expecting a full contribution, basically the full year contribution we are expecting from April. Mervin Song: [indiscernible]. On the Hong Kong TV lease, I can't remember, was it renewed like a year ago? Or is it coming up again? And what's happening in the lease? James Sung: Hong Kong TV has expanded over the last few years. So the leases are renewed really, was renewed [indiscernible] for last year. Mervin Song: And when does this expire? James Sung: Typically, it's a 3-year 3 years. Mervin Song: Final question for me. In terms of Australian net effective rents, especially for Melbourne has been quite weak. Your thoughts on Australian market at this point in time and rental reversion guidance for Australia going forward? James Sung: Australia, you're right, Melbourne because of the supply, right, the rents are a bit soft, right, to a single-digit [indiscernible]. Similarly for Sydney, all right, it has normalized to single-digit rent growth, right? But for places like Brisbane is still -- is much stronger in terms of cost of the demand and supply dynamics. So Melbourne is because of the over -- I wouldn't say oversupply about new supply coming off on stream. That is causing the weakness in the rentals. Whereas Sydney, not so much new supply. So the rents are still quite healthy, right, but it's single digits rent growth, not so much of double digits rents growth [indiscernible] we experienced last year. Mervin Song: So in terms of your in-place rents for Sydney, Melbourne and Brisbane, how does it compare to spot market rents at this point in time? All under rented. Is it? James Sung: Yes. For the leases because the rents -- the lease profile for Melbourne and Sydney typically can be most of the leases are between 3 to 5 years. So we can expect still upside when it's mark-to-market when it's renewed. Mervin Song: How under-rented would there be? Is it still 10%, 15% below market? James Sung: I would say about 5% to 15%, depending on the lease. Mervin Song: So we should still see income growth ahead. And Brisbane under-rented, is it? James Sung: Brisbane is more or less in that market really, Brisbane. Mervin Song: But that's -- those parts still going up low single? Yuen May Lum: Next, we have Joy. Qianqiao Wang: Just a quick question from me. First of all, on lease tenure, I mean, other than China, are you also seeing other places that are shortening lease tenure because of all these trade uncertainties, for example, Vietnam? James Sung: Not really. There's still -- in fact, the sentiment on the ground is very positive, right? So the -- in fact, our -- when the -- what you call it, lease expires, we have actually quite a number of prospects lining up in our facilities. So that shows the market is still very robust. Jean Kam: In fact, I think the demand inquiries is very strong, and we do not have actually much space to actually fill up the vacancy. We don't have any vacancies in that sense, yes. We have more demand than the supply that we have, yes. Qianqiao Wang: And then just on that topic, from Chinese tenants moving outskirt to ASEAN, how much are you able to actually capture? Jean Kam: We have captured, I think, across our 4 locations. We have them in Singapore, Malaysia, Vietnam and Hong Kong, yes. Qianqiao Wang: But in terms of flow, I guess, reason where -- I think we are seeing a lot of flow into Vietnam. Outside of that, is there any other locations that you're seeing a sudden surge in demand? Jean Kam: You mean out of the Asia Pac? Qianqiao Wang: Out of -- yes, Asia Pac? Jean Kam: Oh, yes. actually, they are looking for space in Middle East as well as in Europe. Qianqiao Wang: No, sorry, not out of Asia Pac, I mean within Asia Pac. Jean Kam: Yes, within Asia Pac, it's the -- mostly the 4 countries that we have. Actually, Australia we had as well. Qianqiao Wang: And just I missed the early part of the discussion on the China fund. Can I just understand why there is no intention to do CREIT? Jean Kam: I think between the 2, the CREIT is -- the setup time line is going to be very much longer. And then I think for CREIT, one of the key conditions is that about 75% -- it's 85% of the recycled capital has to be in China, so I need to actually -- yes, I need to reinvest. So that's why I think in terms of that exit option, the renminbi fund will be a bit more attractive for ourselves. I think there was also -- there was also a question about how much is going to be of the China assets that have been earmarked and as well as the Hong Kong assets have been earmarked for divestment, how much is for the fund, right? So not all will be going to the fund. In terms of the -- so between the split between Hong Kong and China, it's about half-half. But of the half that's coming up from China, not all will go into the renminbi fund. There are some that we are separately in discussions with some other interested parties. Qianqiao Wang: You will also rule out the possibility of doing a private REIT on the Shanghai Stock Exchange. Yuen May Lum: I think that one probably at this point in time, not within our planning horizon, yes. But [indiscernible] one step at a time. I think that we have come to the end. Thank you so much, everyone, for dialing in. Any more follow-up questions, please feel free to reach me. Thank you. Have a good day.
Operator: Good morning or good afternoon all, and welcome to the Aston Martin Lagonda Q3 2025 Results. My name is Adam, and I'll be your operator today. I will now hand the floor to Adrian Hallmark to begin. Adrian, please go ahead when you're ready. Adrian Hallmark: Good morning, and thank you, Adam. First of all, a warm welcome to everybody, and thank you for joining the call for the Aston Martin Q3 2025 results. Before we take questions on the line, Doug and I would like to provide a summary of our operational and financial outlook during the last -- sorry, review for the last quarter and outlook for the rest of the year. Recognize that we already updated the market earlier this month, much of what we will share today, you'll be already aware of, but it is important that we focus now on what we're doing and building forward to highlight some of the actions that we've already taken in response to the challenges that we face. Let's start with operations, the heart of our business, and that's essentially our cards. As we said at the beginning of this year, we remain focused on refreshing our core models available to customers. Aston has a long-standing tradition of using the S suffix for the high-performance derivatives of core models, and we've continued that tradition this year by adding the Vantage S, DBX S and most recently, the DB12 S. We now also have the Valante or Roadster models available for all of our sports cars, and we recently celebrated the 60th anniversary of the iconic Valante name with the release of limited edition, Q by Aston Martin, DB 12 and Vanquish models. There will be much more to come in 2026 and each of these small product events providing an opportunity for communications, product relaunch and customer engagement on a global basis. Valhalla has been a monumental and groundbreaking product for Aston Martin. It's our first mid-engine PHEV in series production, and it's set to transform the business. I'm delighted to confirm that this week, we commenced initial deliveries of Valhalla to Europe. We've achieved homologation there and the first cars have been shipped and will be ready to be delivered to customers in the coming days and weeks. So that's just the start. We will continue that process through the end of this year, and we expect to deliver about 150 cars before we close out 2025. In parallel to this, there is an extensive customer driving program where some 600 customers, existing and new, are testing the vehicle around the world. This week, the team are in Miami and the feedback has already been incredible. I can only concur with the positive feedback that we've had, having driven the car myself, both on public roads around Warren Shire, but also at pace on the limit again, and the car is truly phenomenal, and that's the feedback we get from all participants in these events. As you're probably aware, already more than 50% of these cars are already deposited and sold for the full lifetime of the vehicle. That means that any new orders that we generate over the coming days, weeks and months will be delivered successively towards the end of 2026. This level of direct customer engagement is the platform that we will use going forward for the rest of the core range. We've seen fantastic response actually from these Valhalla supercar buyers when testing the advantage on the same tracks before they go in the high-performance car, we've actually sold core models as a result of them being tested before the main reason for those visits. A clear example, the getting behind of the wheel of the Aston makes a truly unique threading experience and surprises the unconverted. However, as we flagged earlier this month, our performance this year from a financial and operational point of view has been challenged by some significant macroeconomic headwinds, sustained impact of the U.S. tariffs and continued weak demand in China, compounded by a change in luxury taxation in the second and third quarter of this year. This trend has also been noted by other premium and luxury automotive peers, but obviously, we have to respond in our way to our specific situation. We've taken decisive and proactive steps to strengthen our position. First of all, we've passed through a second 3% price increase in the U.S. from the 1st of October to offset more of the impact that we've been absorbing due to the tariff increases announced earlier this year. As we said at the half year results, we provided support to dealers in China in order to accelerate sales, clear stocks and get us ready for a strong '26. Unfortunately, this new luxury tax slowed that process down, but we redoubled our efforts, and we're making strong strides to ensure that we recover the situation by the end of '25 as originally planned. What we're also doing is taking a long hard look at our OpEx and CapEx plans, both for '25 and in subsequent years. With that in mind, work is underway to review our future cycle plan with the dual aim of optimizing capital investment, while continuing to secure innovative products that meet customer demand in our plan and, of course, meet regulatory requirements. We will not mortgage the future. We will merely reprioritize, retime and refocus that CapEx to make it more efficient going forward. We'll give you more details on that as we get to the full-year results, but you can expect that the 5-year CapEx envelope instead of the previously indicated GBP 2 billion range will be more in the GBP 1.6 billion to GBP 1.7 billion range, a significant shift, but without damaging our future prospects. We'll continue to build on our current strengths of exquisitely designed high-performance cars, GTs and SUVs, together with V8 and V12 engines. This is at the heart of Aston Martin's strategy, and we need to embrace this and ensure that we have a business fit for today and the future. With that overview, I'd now like to hand over to Doug, who will take you through the key financials before we take questions from the invited guests. Thank you. Doug? Douglas Lafferty: Thanks, Adrian. Good morning, everybody. Overall, our Q3 performance reflects the position that we announced earlier in the month and really predicated on the lower-than-expected wholesale volumes. Our Q3 wholesale volumes of 1,430 were down 13% compared to the prior year period and below our previous guidance of expecting Q3 to be broadly in line with the Q3 of last year. This volume performance reflected the heightened challenges in the global macroeconomic environment, including the ongoing effects of tariffs, weak demand in China and the planned delivery of fewer specials versus last year. Year-to-date revenue and total ASP also reflected the lower specials volumes, when compared with the prior year period. As a result, revenue decreased by 26% and total ASP decreased by 22%. However, year-to-date core ASP increased by 4%, driven by improved mix, including both Vanquish and Vanquish Valante as well as continued strong options contribution stable at around 18% of core revenue. Core ASP was lower sequentially in Q3 compared to Q2 this year due to the additional dealer support, including in China that we mentioned earlier, foreign exchange and mix within the sports car portfolio. The fewer special deliveries and to a lesser extent, the lower core volumes also impacted year-to-date gross profit and gross margin. The margin also reflected the impact of the previously communicated warranty costs and other investments made in product quality earlier in the year as well as the elements impacting the core ASP I've just mentioned. We expect to deliver an improved gross margin performance in Q4, benefiting from additional core derivatives and the contribution from around 150 Valhallas. Year-to-date adjusted EBITDA decreased against the prior year period by GBP 105 million to GBP 8 million, reflecting the gross profit movement. This was partially offset by a 24% decrease in adjusted operating expenses, excluding D&A, as we continue to focus on optimizing our cost base and to drive operating leverage. Here, we've taken further action and now expect to reduce full-year 2025 adjusted operating expenses, excluding the D&A, to around GBP 275 million from GBP 313 million in 2024. Year-to-date adjusted EBIT decreased by 42% to minus GBP 172 million, with D&A decreasing by 23% to GBP 180 million, primarily reflecting the lower specials volumes ahead of Valhalla deliveries commencing in Q4. Capital expenditure of GBP 254 million was below the comparative period, and we've taken action to further reduce full-year 2025 CapEx to around GBP 350 million, down from the initial GBP 400 million guidance at the start of the year and the GBP 375 million referenced at the Q3 trading update. Free cash outflow in Q3 was GBP 94 million, and from a liquidity perspective, and as previously announced, we received the net proceeds of GBP 106 million for the sale of the shares in AMLGP, which resulted in total liquidity at the end of Q3 of GBP 248 million. Whilst we announced at the beginning of the month, our expectation that we'd no longer be free cash flow positive in H2 2025, we do expect to deliver an improved sequential Q4 performance for the reasons already outlined. As we move into next year, we expect to complement the current core portfolio with additional derivatives and to deliver around 500 Valhallas with our production and delivery cadence established at the end of 2025. This, in addition to driving further operating leverage and being disciplined in our approach to CapEx supports our outlook for materially improved financial performance in 2026. With that, I'll hand back to Adam, so we can start to take some questions in the time we have remaining. Operator: [Operator Instructions]. Our first question today comes from Henning Cosman from Barclays. Henning Cosman: I have 3, please, if I may. Really good to see the further action on CapEx and OpEx, but I have to ask, how do you manage to do that with no effect to cycle plans or so on? Obviously, you're telling us the cycle plan is under review, but do you have that leeway headroom to cut these costs? Perhaps, in other words, why wouldn't you have done that anyway? That's the first question. What are the effects? Second question, it's also great to see these new variants come through, S variants across the model range, but what levers do you really have to stimulate demand because I believe these variants, they tend to take up quite a large share of the overall model mix and don't really tend to be that incremental over and above the existing unit sales. Perhaps, you could remind us, what levers you're foreseeing to increase overall unit sales? Finally, third question on the liquidity. I don't know, Doug, if you can give us a feel for where you think you might be ending the full-year '25 in terms of liquidity? Perhaps, also a feel beyond 2025, perhaps not the time to talk about whether you're foreseeing free cash flow breakeven next year or not. If you could just give us a bit of color if you think you can stay well within that GBP 200 million to GBP 300 million liquidity range without any need for further debt or equity, that would be great. Adrian Hallmark: Adrian here. I'll kick off, and I'll pick up on the demand and variance and their influence, and then we'll come on to the financials. I think, first of all, the idea of the variance without giving a detailed forecast of next year's volume, even without incremental volume, the variances are a better average selling price and a different product proposition to the products that we've sold in 2025. The levers that we have are they're new models. They offer new performance, new features and a different price value relationship. They give us some reason to go back to existing customers, which is clearly a significant opportunity for resell and upgrading through their life cycle, but also an opportunity in a platform to recommunicate the nameplate because there's still people that don't know every model that we do in the world and get new business to. It's an ASP activation. It's an existing customer repurchase opportunity. Of course, it's comms up to get more awareness for each nameplate and keep the brand salient in between the big life cycle changes on new product launches, so that's the basis of those. Just in terms of the mix of them, to clarify that point, as we move through the year, we intend to essentially switch most production to these new models so that the existing core range is ordered on demand and is a much smaller percentage of our total mix. That also helps the residual values. Douglas Lafferty: Okay. I'll pick up on the questions 1 and 3, Henning, which I think was kind of linked to be honest with you. Obviously, from a cost and CapEx point of view, you can see that we're taking the action that we outlined that we would when we updated the market early in October, and indeed, on the cost front, so on SG&A, it's really a continuation of the action that we've been sort of taking all year. I think you can expect SG&A at the end of this year, as I said, around GBP 275 million. Hopefully, a little bit improved versus what we previously indicated. Then our job is to try and obviously offset the impact of any inflationary or other impacts on the SG&A cost base as we move into next year and try and make sure that we do deliver operating leverage. From a CapEx perspective, it's really about having a really good long hard look at the product cycle plan, making sure that we do it in the most efficient way that we possibly can, a little bit of rephasing with the benefit of electrification moving to the right, as we've already outlined earlier in the year. We're already running at the kind of rate that I would expect CapEx to be in the window of next year, so we're guiding to circa GBP 350 million this year. I think next year, it's probably likely to be somewhere between GBP 300 million and GBP 350 million. We're focused on ensuring that we don't impact any near-term revenue-generating products with the rephasing of the CapEx plan. That's how we'll go about doing that. Of course, those 2 things are then linked to your third question around liquidity. Of course, we're absolutely laser-focused on ensuring that the company has the liquidity it requires. That GBP 200 million to GBP 300 million window that I've talked about previously remains the sort of goal and the avenue that we're operating within. We were around GBP 250 million of liquidity at the end of Q3. Look, we're targeting to make sure that we stay in that window as we move through next year. Operator: The next question comes from Harry Martin at Bernstein. Harry Martin: I have 2 questions on the Valhalla to start with. The first one, with the activation going on right now and in the coming months, would you expect to be fully sold for the 2026 build slots by the year-end of this year? What is your updated expectation for the full 999? Then the second question on the Valhalla is just how many of the 150 deliveries in the guide for this year are earmarked for the U.S. if we do get an ongoing government shutdown there? Adrian Hallmark: Okay. Harry, so I'll start with the easy one first. The number of cars going to the states is around 40 in the final quarter of this year, 4-0. In respect to the government shutdown, the certification process that we have to run is complete. The documentation is all being submitted. Until about 10 days ago, we were still getting responses from them until they ran out of funding, so it is tight. We no longer have a significant risk on quotas. We're not belieful about this, but the unfortunate and critical situation that JLR found themselves in has probably taken significant pressure off the quota allocation risk for quarter 4. So yes, you're right, we now just still face the certification risk, but until a few days ago, we were still in active contact. The work has been done. The documents are submitted. We're cautiously optimistic that, that will flow, and we should know in the coming weeks how that looks. In terms of the sellout of Valhalla, I mean, it would be great if we could sell them all tomorrow. By the year-end, I think certainly, we will have sold the majority that will be available in 2026 because we've already sold most of them as we sit here today, if you add the total numbers up. Yes, and in terms of the 999, that's still a plan over the 2-year period or the bit year period while the car is in the marketplace. We are encouraged by the fact we've got more than 50% -- we had more than 50% of those sold before anybody saw the actual car or drove it, so we have a high number of people that are currently specing, negotiating and finalizing arrangements for the car. I won't predict exact numbers and exact dates, but it's looking positive as we open up the marketing channel. Harry Martin: Then I wondered Adrian, if I could just ask for an update on some of the strategic agenda. It's totally acceptable with a lot of the market issues hitting demand for the luxury manufacturers out there, but when you came in, you highlighted opportunities versus peers in terms of option availability and more personalization revenue and also on optimizing manufacturing and supplier processes. I wondered if you could share any data points that you have, maybe the personalization rates on those new S variants or any other data points that you have on some of those strategic goals that you had when you came in? Adrian Hallmark: Yes. I think if we start from the really good news, if you think of, I don't know, 6 or 9 months ago, the condition that we were in operationally as a company was pretty dire. The first-time or right first-time performance in manufacturing was nowhere near industry norms. I think we quoted 55%, 65% of vehicles being right first time out of the factory, massive shortages from suppliers, problems with production and launch of cars, etc., some of which is caused by external and some by internal factors. The good news is we fixed all of that. If you were to sit in the regular reviews that we have on a weekly basis, supply stability, manufacturing KPIs are normal, 96% to 98% right first time and 4 or 5 suppliers that we are monitoring or working with on a weekly basis to ensure that things move smoothly compared with 30, 40 critical ones going back a year. I call that business as usual. The quality process at the end of the line, the quality flow to dealers, we've seen massive reductions in demerits and in issues in that part of the process. From an industrial operational point of view, I would say, we have done the turnaround. We have a balanced production system and it works. We've also taken huge cost out of it. We mentioned the transformation program, which covers cost of quality, material costs, etc., all of the 39 fields of action that we've defined are well underway with huge amounts of energy and effective activities going on across the company. That's partly the reason why we've been able to cap the SG&A this year, and we're, again, quietly confident that we can sustain similar levels of SG&A next year despite the inflationary effects. The underlying efficiency and capability of the company, we have made a step change with. If I look at the external side and the added-value and incremental value per car, I have to be honest that the rate of development and launch of those incremental options to catch up with competition has been slower than we originally planned, and it's for 3 reasons. One, these derivatives that we've launched, bear in mind, we didn't have any of these assets, all of them take time and effort. They didn't have -- or sorry, they took a lot of the resource effort that we had in engineering and in the whole process chain last year, and we, I guess, underestimated the effort that would take. Together with the significant quality improvements that we've made during the period, it meant that there was more limited resource to be able to really boost those options. We have added circa 15, but we didn't add the circa 40 that we wanted. The derivatives have been done, body styles as well as these performance and character models. Options, that will continue, and it will ramp up during this year and watch this space for that. Operationally, strengthened market ASP and customer attractiveness, derivatives are very successful. About 1/3 of the incremental options that we wanted this year have been delivered, but we will play catch-up next year. Operator: The next question is from Michael Tyndall from HSBC. Michael Tyndall: Just the one for me. If I look at your guide for shipments, it feels like we are again expecting a very strong Q4. I guess the concern in my head, I can see that Valhalla is incremental, and that's part of why we're going to see that sequential lift, but it also feels like there's a big lift in the core volumes. What confidence do you have that we don't end up in the same situation we were this year where first half of next year, you are then trying to unwind that inventory? Adrian Hallmark: Okay, Michael, thanks for the question. The first thing I would say, if you look at the inventory development through the year this year, we've also been pretty effective at bringing that down significantly. As we get towards the year-end, you're right, we have a disproportional reliance on Q4 for various historic reasons, but the market is also stronger in Q4 than other quarters and particularly December. If I separate 2 elements, if I look at the retail rate for this year, we will see a step-up in retail rate in quarter 4. That's predicted, and we're again, quietly confident that, that will occur. As we stand today from the low point that we've seen in stocks, we do and can imagine that by the year-end, that total stock in the pipeline will go up again to somewhere between the low point and the start of the year, but not at the level of the beginning of the year. That's based around the combination of retails and the phasing of those wholesales. You're right that those late Valhallas in particular, we will be able to invoice them, but some of them will be so late that maybe some customers won't take delivery in this year, so the wholesale will happen, but the retail may be held off until the 1st of January for residual value reasons. Looking forward and part of our planning that we've done for the CapEx, OpEx and outlook, we have made sure that for next year, we have an even more balanced approach throughout the 4 quarters and that we continue this trend to bring the stock down in line with norms and market expectations. Final thought, we have been quite prudent, at least on the baseline planning for next year. on core models, and we have already preplanned production, sales and stocks accordingly. Operator: [Operator Instructions]. The next question comes from Akshat Kacker from JPMorgan. Akshat Kacker: Akshat from JPMorgan. Two quick ones, please. The first one, coming back to the core portfolio. Given the product cycle plan review, and as you mentioned, electrification is moving to the right, could you just give us some more insight on what that means for the core portfolio going forward? How are you thinking about powertrain derivatives or probably if there's a new generation of core cards that is within that CapEx plan of GBP 1.7 billion over 5 years? The second question is on the underlying demand trends. I see you have talked about an order book that is still at 5 months of sales. Could you just give us more insight on the regional demand that you're seeing, specifically in the U.S. as you have implemented a second price hike in the region? Also, if you could talk about some demand trends in Europe? Adrian Hallmark: Thanks for the questions. I think first, powertrains, it's pretty consistent with what we said in that we will be predominantly between now and in 2035, if you use that time window, we will be predominantly combustion engine and electrified combustion engine dominated. We will have BEVs in the first part of the 2030s, but it will be -- in total, it will be a low proportion of the volume over that 10-year run. We believe high-performance ICE and ever more efficient EU7 engines, both V8 and V12 should be our foundation stones for the future. Between now and the relaunch of the current core models, we will also be launching a number of specials based around the various technology stacks that we have available to us. Without going through those today, each of them sequentially and well timed will give us an ASP and a cash boost each year between '26 all the way through to 2030, 2031. That's as far as we planned the specials at this stage. In respect to the core programs, which is key, I can absolutely confirm that the period between late 20s and early 30s in the next 5 years, we will refresh all of our core nameplates with new models that are both exterior, interior and powertrain and e-architecture and technology renewed from the ground up. That is secured within the CapEx plan that we've indicated in this GBP 1.6 billion, GBP 1.7 billion range that we've now defined. As Doug mentioned, how we've done that is ruthless prioritization of the specials and efficient use of technologies across all programs, SUVs and sports cars and changing the way that we buy and create that platform in the next generation of cars. I think in terms of demand and the outlook, the U.S. is interesting. Overall, we definitely can see there's a little bit of holdback or more competition because of tariffs. It has created inflation and it's created a bit of macro uncertainty, which is making customers slower to make decisions. We still have good footfall. We still have great interest in the products and helped massively by the great press that we get on everything that we launch, including DBX S being ranked better than the Purosangue, which was fantastic. The general demand is strong, but the conversion rate is slower than we would normally expect and competitors are working a lot harder to keep their customers. China is very difficult and remains very difficult. U.K. is pretty strong. Europe is in line with our expectations. Between the 2, we're slightly above. Middle East remains an area that we want to develop in the future, but there's particular reasons why we can't fully activate the brand potential there, but that will be an area of focus for us in 2026. Finally, India, with a trade deal at least highlighted or outlined, we're working with government and within the team to look at what can we do to get ready for that opening up of India, which could be quite significant as a result of the drop in import tariffs on cars built in the U.K. is a significant opportunity. That's the outlook for the next 12 months. Operator: We have no further questions. I'll hand the call back to the team for any closing comments. Adrian Hallmark: Just thank you for your time and the clear questions and look forward to seeing you for the year-end call. Thank you, very much. Douglas Lafferty: Thanks, everyone. Have a good day. Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
Aapo Kilpinen: Ladies and gentlemen, dear Remedy investors, welcome to the webcast for Remedy's Third Quarter of 2025. My name is Aapo Kilpinen from Remedy's Investor Relations. Joining with me today, our Remedy's Interim CEO, Markus Maki; and Remedy's CFO, Santtu Kallionpaa. Markus will guide us through the Q3 business review and then Santtu will dive deeper into the financials. We'll then look at the outlook for the year and end with a Q&A session at the end of the webcast. If you have any questions already, feel free to send those over by leaving them to the box below the webcast. But without further ado, Markus, please, the stage is yours. Markus Maki: Thank you Aapo, for the movie style announcement and introductions. Welcome, everybody. I thought I would say a few words about myself to start with since this is my first review, I'm here with you, with the audience. So I'm one of the original founders of Remedy. I've been Chairman of the Board since 1997 until this point now. And I've been operationally involved also since founding of the company for the past 30 years. And I've done almost every role outside of the kind of artistic domains during my history with Remedy. And I've also been an interim CEO before about 10 years ago. So just before we got listed to the First North Marketplace. So it's not the first time I'm stepping into [ these ] shoes either. I wanted to bring a bit of a context kind of to the history. And Remedy's history has been built on games being successful, profitable in the past. This is an exceptional track record for any games company. It's also rare that a games company is even alive after 30 years, and this is the success that we've built this company. But now if you look at kind of the more recent history, we started for what was for Remedy a massive growth spurt, both in personnel and in the number of simultaneous projects in 2017. And for a company that had grown, let's say, much more slowly for the past previous 20 years, I think on hindsight, if you look at the recent results, the expansion, the growth was a bit too rapid, and it has caused us to miss some critical signals. But we've done some great stuff. We have a really talented, great team. We don't have a need for personnel or project count growth at the moment. What we need to do is to learn to move faster and act more decisively in the future. So the focus is on the games. And we have some really fantastic stuff coming up, and that's going to be my key focus as the interim CEO to ensure that we succeed with those. If you go to the topic of today's cast, it's, of course, Q3 highlights. And I won't go too deep into the numbers, Santtu will cover them more. And we also kind of disclosed this in our profit warning as the pre numbers a couple of weeks ago. I think the big thing that I would want to highlight here is the positive operating cash flow, which is something that is, let's say, really nice to have money in the bank at this point. Looking at kind of the quarter highlights, we had a great 30-year anniversary celebration in August. We pushed really hard to improve Firebreak with a major update in September. And as then the results of that were not sufficient, we did recognize a noncash impairment of the majority of the capitalized development costs for it, and it also caused us to update our outlook. And as a last highlight, we had the change of the CEO and also a change of Chairman of the Board. But let's spend a bit of time talking about Firebreak. Just a few observations from my side. So the game was launched in June, and we bought multiple smaller updates and then the major update in September. And all of the focus was to improve the game, work with the player feedback, make what players want to do. We also had the first discount campaigns, and we did see the player metrics and the feedback improve after the update. But unfortunately, our sales were not on a high enough level. And I think it's kind of easy to say now that changing the first impressions in players' mind is going to be really, really difficult. But this resulted in the write-down of the capitalized development costs and the profit warning. I guess there's quite a lot of questions about the future of Firebreak, and we do still plan on updating the game, and we have the next update planned for later this year as it's been on an advanced state of development. We have had a road map based on the success of the game. But going forward in '26 and onwards, we are going to evaluate the updates quite strictly based on the commercial viability of the game. So this is not me saying that we wouldn't update the game, we will, but we will be critical about the return on investment. And while it didn't really go how we wanted, I still wanted to say that we gained some valuable learnings from the investment. First of all, I think it's a big achievement that a first multiplayer game that Remedy has done since Death Rally '96 was technically successful, launching on all of the major platforms at the same time and working for the players technically. This is something that not even all experienced multiplayer studios succeed in. We have also been able to operate the game in a live service model and managed to update the game and learned a lot about that. I think the second part of the learning is gaining knowledge how to really work with the digital marketing channels for games, what works there, what doesn't work there, how do we drive audience to the, for example, the Steam page and just opening up our experience on all of those channels. And we've also gone through one round of full technical publishing steps, whether it's console certification, storefrom setups, stuff like that. And both of these things are things that have been in most parts done by our external publishing partners in the past. So these are, in my mind, valuable experiences in self-publishing journey we have undertaken and it really hopefully lowers the risk profile for our future launches. As a last thing about Firebreak, I wanted to kind of go back to a bit higher level and remind everybody that Firebreak was our smallest project, both budget and team-wise. And even though it didn't succeed commercially, I'm still proud of what we achieved as a company. If you look at kind of the larger market atmosphere and so on, especially Finnish stock-listed companies are often criticized that they don't invest in finding new businesses and finding new customers. That's what we tried to do here. And we knew that Firebreak was the risky venture in our portfolio, and I think it was done for all of the right reasons. So with that, let's move forward to kind of looking at the other games we have in the market. So Alan Wake 2, we had good sales. Royalties grew in Q3 compared to the previous quarters this year. We have the game now as the PlayStation Plus game of October, and that's great for the life cycle of the product as well. And we have seen, as with Control, that great games can sell for a long time in the digital marketplaces and new opportunities can come up over time. For example, we had some encouraging early results in bringing the game to Chinese markets with Epic. On Control, we've been focusing kind of on the marketing and sales since we've now been in full control, no pun intended of the publishing of the game. And we've been working with all of the sales channels there and had a great 30-year celebration activation to drive the sales. We have had good sales traction for what's now a 6-year-old title. I think we are all amazed how it's doing still, and we will continue doing systematic work on expanding the reach of the franchise and -- for example, looking at kind of the outside of our traditional strong markets, what opportunities we do have. Then as a reminder of our portfolio of the games we have in development, 4 projects. Control and Max Payne have the bigger teams. They are in full production and they're tracking towards their milestone calls. The new project, which we are not yet revealing anything, is in proof-of-concept phase with a smaller team. A quick look at the strategy and targets. Here, there's nothing really that's changing on the top level. This is what we have communicated earlier. These are still our strategic goals. All of the building blocks for achieving these are in place. It's just a matter of execution and getting there faster. And on strategy and targets, we do remain committed to what we communicated about a year ago in our CMD on these targets. So with that, I will be passing over to Santtu for the financials. Santtu Kallionpaa: All right. Thank you, Markus, and good afternoon, everyone. And now the financials. Let's start from the revenue. So in the third quarter of 2025, our revenue was EUR 12.2 million, declining by 32 percentage compared to the third quarter of the previous year. Decline was driven by development fees, which were EUR 6.1 million being lower than in the comparison period. This is explained by a onetime payment, which was recognized in Q3 2024 related to the development work done for Control 2 before the start of the strategic partnership with Annapurna. Now during Q3 2025, the sources of the development fees were the Max Payne 1 and 2 remake related fees from our partner, Rockstar, and Control 2 related fees from Annapurna. Remedy game sales and royalties increased significantly from the comparison period and were EUR 6.0 million. Growth was driven mainly by revenue from FBC: Firebreak subscription service agreements, royalties from Alan Wake 2 and game sales of Control. Our revenue was impacted negatively by weak USD rate. And as an additional information, FX neutral change for Q3 revenue was minus 29 percentage, whereas the reported change was minus 32 percentage. FX neutral change was calculated with 2024 average FX rates for USD, pound and Swedish crown. If you look back at our historical revenues, the total revenue year-to-date for 2025 is now EUR 42.5 million, which remains on a higher level compared to the previous year's Q1 to Q3 revenue, EUR 39 million. We can start to see the effects of the self-publishing strategy as the game sales and royalties have started to provide a larger share of our total revenue stream compared to the previous years. In 2025, game sales and royalties have generated 43 percentage of our total revenue so far. In comparison, during the first 3 quarters of 2024, royalty share was 9 percentage of the total revenue. In Q3 2025, development fees accounted for approximately half of the total revenue. If we exclude the onetime payment from Q3 2024, our total revenue would have been up plus 55 percentage in Q3 2025 from the comparison period. Operating profit of the third quarter 2025 was EUR 16.4 million negative. The operating profit was affected by a recognition of a noncash impairment of EUR 14.9 million related to FBC: Firebreak, capitalized development costs and allocated purchase publishing and distribution rights. The impairment covers majority of these capitalized costs. Without the impairment, the operating profit would have been EUR 1.5 million negative. Q3 EBITDA was EUR 0.7 million positive. The decline in EBITDA compared to the previous year is explained by the higher revenue level in the comparison period, which was driven by the recognized onetime payment for Control 2 development. In Q3 2025, the total operating expenses, excluding depreciations, remained on a same level as in the comparison period. Then let's look at the analysis of unnetted amounts of expenses and capitalization, which provides transparency in our costs. If you look at the external development of personnel expenses in the third quarter of 2025, our total cost level decreased by 9 percentage from EUR 11.4 million to EUR 10.4 million. External work expenses were EUR 3.1 million and on a 36.5 percentage lower level than in the comparison period when they were EUR 4.9 million. The change in external services cost level is part of normal game development process, and there is variation in the level of outsourcing following the needs of the game projects. Personnel expenses increased year-on-year by 11.7 percentage and were EUR 7.2 million in Q3 2025. Headcount grew by 7.7 percentage. Capitalized development expenses were on a higher level than in comparison period. Capitalized amount is in relation to the direct costs of the projects' development costs. In the third quarter of 2025, the depreciations related to game projects were on a high level due to the recognized noncash impairment of EUR 14.9 million related to FBC: Firebreak. This impairment represents a majority of the game's capitalized development costs and allocated purchase, publishing and distribution rights. Excluding the impairment, depreciation expenses in total were EUR 2.2 million, of which EUR 1.5 million were related to game projects. The other depreciations remained on a stable level year-on-year also in Q3 2025. In the comparison period, Q3 2024, we depreciated EUR 3.4 million expenses capitalized related to Control franchise products, which was connected to entering the deal with Annapurna. Going forward, following the impairment that we recognized on Q3 2025 depreciations related to FBC: Firebreak will be on a low level as the remaining activated costs related to the game is modest. In addition to FBC: Firebreak, depreciations will keep running also for Alan Wake 2. Then let's move to the cash flow. So during the third quarter of 2025, cash flow increased compared to the previous year as we received more inflowing sales-related payments. Paid operating expenses remained on a similar level to the comparison period Q3 2024. This year's Q3 includes also considerable nonrecurring element related to Firebreak subscription service contracts. Also, if you look at our net working capital at the end of Q3 2025, it was on a similar level compared to the net working capital at the end of 2024. It's anyway, good to keep in mind the timing of development fee payments as well as some royalty and game-related payments are agreement based and there are variations in the timing of revenue accruals and the actual cash flow impacts. End of the third quarter, our total cash level was EUR 36.5 million, increasing by EUR 8.9 million from the previous quarter. The main explanation for the increased cash reserve is the timing of incoming revenue cash flows. At the end of Q3 2025, we had EUR 17.7 million in cash management investments and EUR 18.8 million in cash. Then let's still look our results from the historical perspective from Q1 to Q3 2025. Our revenue was EUR 42.5 million with the share of game sales growing steadily during this year compared to the previous years. We can see that our EBITDA margin has been improving year-on-year since the end of year 2023 and is now year-to-date 17.6% percentage. Additionally, positive development of game sales and royalties as share of total sales is definitely one of the positives for this year. However, this year, our year-to-date operating profit margin is worse than previous year being 36.7% at negative following the impairment booking done for Q3. And now Markus will continue regarding the outlook. Markus Maki: This is going to be fairly short. Thank you, Santtu. So this is the updated outlook we did on 10th of October, together with the profit warning so that we expect our revenue to increase from previous year, but operating profit will be negative and below the previous year. That's kind of it from the presentation part. And I think now it's time for Q&A. Aapo Kilpinen: Correct. Thank you so much, Santtu. Thank you so much, Markus. We are moving forward to the Q&A session. Feel free to leave any questions by typing them to the field below the webcast. We already have a couple of good questions in the pipeline. So let's begin with those. The first question is, now that Remedy announced its CEO change, what will change in the company? Markus Maki: That's a good question. I think it's first best to say that I am the interim CEO. And my role is here to make sure that our path and key targets are getting hit, and we are moving as fast as possible towards the direction that will bring us profitability. But I think it's too early to speculate on larger scale changes. Aapo Kilpinen: Very good. Can you elaborate on what kind of a background emphasis or expertise is Remedy looking for in its next CEO? Markus Maki: I've seen kind of what we collected in the Board, what we expect. And often, these things kind of become some kind of a unicorn, you want everything and everything. I think the key thing is experience in leading a company of our type and size, but I don't want to go too much into the detail. I think it's going to be about the person that we find rather than exact set of past competencies or work history. Aapo Kilpinen: Very good. Another question. Can you elaborate on why the CEO change happened quickly? Markus Maki: Well, the CEO change is a Board decision. So I don't know what's quickly there. So that's -- I can't comment more on that. Aapo Kilpinen: Very good. Moving towards FBC: Firebreak, have you made or are you planning to make personnel reductions as a result of balancing the investments made in FBC: Firebreak? Markus Maki: We are moving people from Firebreak to help with some of the other teams, but we don't have any other plans at this point. Aapo Kilpinen: The next question is how large of a team is working on FBC: Firebreak at the moment? Markus Maki: At the moment, we haven't really disclosed the exact team sizes. I just said that it's the smallest team in our kind of portfolio of products that we work on, and it is now clearly smaller than it was at or before or immediately after launch already. Aapo Kilpinen: Very good. What have been the specific key learnings in self-publishing from FBC: Firebreak? What worked and what did not work and what will be done differently going forward? Markus Maki: That's something that warrants quite a lot more analysis also on our part and quite a long kind of an answer. I would say one thing maybe that kind of change -- as I said, changing people's opinion after the launch is going to be super difficult. And driving conversion in a game that has mixed team reviews is supremely hard. And that also kind of limits some of the, for example, marketing conversion and so on learnings that we can actually do with a title like Firebreak, but we've still learned a lot. Aapo Kilpinen: Very good. A bit looking into the future, to what degree are live service model and/or multiplayer modes, something you want to pursue in your games currently in the production pipeline? Markus Maki: This is something that we haven't announced anything on. And let's not -- let's take one step at a time as well. And we will -- when we have something more on this, we'll talk about it. But I want to repeat the fact that every company should invest into finding new audiences, new customers, new business models. And I hope that Remedy will continue to do that in some way or form in the future as well. Aapo Kilpinen: Very good. Markus, in hindsight, what do you think about the Vanguard, Kestrel and Firebreak projects from the perspective of a founder owner and former Chairman of the Board? Markus Maki: I think both for Vanguard and Firebreak, I think there was a solid reason to start them and do them. I think there is -- like I just said also that growth is very difficult, and we were growing too fast. I think having, for example, 2 projects that were kind of new business for remedy at the same time, at least partially at the same time. In hindsight, I think that was too much. And that was also on the board. And so lesson learned, at least for me. Aapo Kilpinen: Very good. Markus, you discussed the need of increasing speed and decisiveness inside the organization. Has there been advances in development speed in the past years? And currently, how do you plan to increase development speed and decisiveness? Markus Maki: I think it's -- speed is -- in an organization of our size, speed is dependent on the information that our people and our team have. And that's something that I'm trying to be very open with everybody that what are the goals, what are the targets, what are the key decision points that we have. And I think that will bring on more speed in -- I don't say in development necessarily that we need it. We need it in decisions. We need to make better quality decisions faster. I think that's across the organization. It's not just a CEO thing. And that requires transparency, openness, frank discussions and information. Aapo Kilpinen: Very good. Reflecting a bit, what have been the biggest lessons Remedy has learned from developing multiplayer games? And can these be utilized in future game projects? Markus Maki: Well, I think it depends on the future project, whether we can use them or not and how much. I certainly think that even in single-player games, having some sort of persistent online site might be very valuable for the gamers in the future. And we build competencies around that, for example. So yes, definite maybe, let's say it that way. Aapo Kilpinen: Very good. a question, you have moved development resources to other projects from FBC: Firebreak, but also during the last quarter, employee count increased. What headcount for Remedy would be sufficient at this stage? Markus Maki: I think we are currently at a fairly comfortable place with the headcount. We also have a lot of external development outsourcing. Some of our projects have been ramping down a bit on those. This will be also kind of, of course, visible in the financial data going forward. But I think we're in a good place with the personnel we have right now. We have the least amount of open positions that we've had in years. Aapo Kilpinen: Yes. Very good. A final question regarding FBC: Firebreak. Are you planning on shutting down the project at the moment? Markus Maki: I have absolutely no plans on shutting down the project because there is -- it's not a cost issue. We don't have an expensive -- super expensive infrastructure, for example, that we would need to run and so on. It's going to be available for the gamers going forward as well. Aapo Kilpinen: Very good. Moving forward to the games in the market, can you comment on the reception of Alan Wake 2 through PS Plus considering that the channel might attract players that are not traditional Remedy or survival, [ horror ] or genre fans? Markus Maki: I think we're going through the questions fairly quickly or what did you say. On PlayStation Plus, I think that it's a great place to kind of, at this point, 2 years after the launch to get a bit more visibility into the project, get a bit new audience into it. And I think it was Sam who said yesterday that, hey, it's great. I haven't heard about this game, but it's the best game ever. And yes, that's also, of course, positive for the game for the brand for our business in the future. Aapo Kilpinen: Very good. Regarding the new proof-of-concept project announced, is it too early to comment if Remedy has already committed on a specific publishing model et cetera, self-publishing or financing model for this specific game? Markus Maki: It's too early to comment, period. Aapo Kilpinen: Very good. Perhaps next question is towards Santtu. How will Remedy ensure that enough cash flow is produced in the future, 2, 3 years to fund the ongoing projects? Santtu Kallionpaa: Well, we can say that we have strong games in the pipeline. And currently, we have a very strong cash position. So we are confident with our financial position also going forward. Markus Maki: And I would add to that, that we do have a partner project with Max Payne right now. And we have had partner projects before that can be, let's say, a tool in the toolbox in the future as well. So, yes. But again, too early to go to specifics. Aapo Kilpinen: Yes. The next question kind of builds on that. The impairment had a EUR 15 million negative impact on the health of your balance sheet. What kind of an impact that will have on your target to move to self-publishing as it requires a solid balance sheet? Santtu Kallionpaa: Well, I would say that even after the impairment, our balance sheet is still very healthy. And we can say that now the financial risk that was related to balance sheet values of FBC: Firebreak that has been taken away. And as I said, we have EUR 36.5 million in our cash at the moment. So that is enough for our future needs. Aapo Kilpinen: Very good. A question regarding Alan Wake. How many copies has Alan Wake sold so far? And how does it compare to your own expectations? Markus Maki: We don't really comment on exact number of copies in these kind of forums. When we have something to release on those, we will then release it via other channels. We are happy with the sales. Aapo Kilpinen: And then can you open up the split between royalties and game sales during this quarter? Santtu Kallionpaa: Well, we are currently reporting royalties and game sales in the same bucket. So we are not sharing details regarding that. We can, of course, say that if you're talking about the game sales, the kind of FBC: Firebreak related B2B income, the revenue from the B2B deals, that is a major part of our game sales. Additionally, we have said that there are Alan Wake 2 related royalties and also game sales from other Remedy game catalog in the market. Aapo Kilpinen: Very good. And then a question regarding the development fees, Santtu. Can you elaborate on why the development fees were only EUR 6.1 million in Q3, the lowest since 2021? Santtu Kallionpaa: Yes. Development fees are based on the milestones that have been agreed in the contracts, and they are not necessarily split evenly in the calendar. It means basically that the kind of income from the development fees that varies depending on the stage of the project, and there may be variation also going forward. Development fees might be going higher level and lower -- or also lower level going forward. Aapo Kilpinen: Another question then what is included in the current intangible assets on the balance sheet and is Control 2 a large majority? Markus Maki: Yes. We can say that Control 2 is a major part of our intangible assets at the moment. Additionally, now when we have one project in the proof-of-concept stage, we have also started the activations related to it. Aapo Kilpinen: Very good. Are you still expecting Firebreak's B2B income to come in the coming quarters? Santtu Kallionpaa: Yes. We will continue accruing Firebreak-related B2B income until the end of the subscription service deals. Additionally, we can say that the majority from the cash flow related to those deals is now in our cash, but there will also be some following payments going forward. Aapo Kilpinen: Very good. A question, in general, what is the plan with the big cash pile? Is there a consideration for buybacks? Markus Maki: I think this is for me. Obviously, things like share buybacks are a tool that the Board has in their toolbox, but this is not for the management to comment at this point. Aapo Kilpinen: Very good. A couple of final comments on the pipeline. Can you shortly comment on the production developments of Max Payne on as you remake and Control 2? Markus Maki: Well, shortly, no, not more than I kind of said earlier that they are proceeding according to the milestone plan. This is something that we are actually changing the line a bit, and you saw that from the quarterly report that we are -- when there are some highlights in the projects, we will, of course, be forthcoming with them to everybody. But at the same time, these are multiyear projects and expecting key highlights for every project for every quarter, I think, is just going to send wrong signals and we are not going to be doing that in the future in the same way. Aapo Kilpinen: Very good. Okay. A couple more general questions then at the end. Regarding the long-term tail and ongoing sales for Alan Wake 2, are there plans to expand the global accessibility to added locations, et cetera, the Middle Eastern and North African markets? Markus Maki: That's a nice question. This is definitely something that -- obviously, we want our games to have the widest possible audience. With Alan Wake, we are working with our publishing partner, Epic, and do these decisions with them. So this is not, I would say, fully also not in our control. There's also kind of Alan Wake is a huge game and for example, a full voice over localization is not, let's say, pennies and requires quite a lot of effort. So we are looking at these opportunities optimistically, and we would want our game to be accessible to as wide audiences as possible. Aapo Kilpinen: Very good. Expanding on that question, looking at the success of Alan Wake 2, what have you learned about the distribution model as you think about maximizing the long-term tail and audience reach for the game? Markus Maki: On Alan Wake 2, I think the -- what we now, for example, did, we opened with HeyBox in China and saw some success. So yes, we are looking together with Epic on various ways to kind of boost the long tail of the sales of the game. And again, this is a discussion that we continuously have with Epic. Aapo Kilpinen: Very good. And then a question in regards to Northlight. Would you consider to release the Northlight engine, for example, sourcing it as a B2B or for a more wide public? Markus Maki: This is a question that's about as old as Remedy itself. I've gotten this at least 20 years. And I think the answer is kind of yes and no. But we've always trended on the no because Northlight strength is that it's a focused engine for our team, for our kind of games. And that means that it is a subset of platforms, features and so on compared to a general purpose engine like Unity or Unreal. And that is actually also its competitive advantage. And that is why we can do it with a smaller team than the hundreds and hundreds of developers working on those engines. We don't need to do external support, for example, that we would need to do. I think open sourcing is probably the more interesting path. I'm also always been kind of a proponent of modding and user-generated content. I would love to see more of that. But these are not, let's say, trivial things to kind of implement well in the current technologies. So yes and no. Aapo Kilpinen: Very good. And the final question, considering the suboptimal outcome of FBC: Firebreak, what specifically makes you confident in reaching the targets set for 2027? Markus Maki: Well, what makes me confident is that we have a strong portfolio of products coming up and how they are proceeding. That's the quick answer. Aapo Kilpinen: Simple as that. Markus Maki: Yes. Aapo Kilpinen: All right. Thank you, everybody so much. It's time to wrap up the Q&A session. If you have any additional questions, feel free to send those over at the e-mail address now visible on the screen. We will be back with the next earnings webcast, which is our financial statements release for the full year. But until then, bye-bye from us.
Operator: Welcome, everyone, to UMC's 2025 Third Quarter Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within 2 hours after the conference has finished. Please visit our website, www.umc.com, under the Investor Relations, Investors, Events section. Now, I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin. Michael Lin: Thank you, and welcome to UMC's conference call for the third quarter of 2025. I'm joined by Mr. Jason Wang, President of UMC; and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the third quarter financial results, followed by our President's key message to address UMC's focus and fourth quarter 2025 guidance. Once our President and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors, Financial section. During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company's control. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the ROC security authorities. During this conference, you may view our financial presentations material, which is being broadcast live through the Internet. Now, I would like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss UMC's third quarter 2025 financial results. Chi-Tung Liu: Thank you, Michael. I'd like to go through the third quarter 2025 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on Page 4, in third quarter of 2025, consolidated revenue was TWD 59.13 billion, with gross margin at 29.8%. Net income attributable to the stockholder of the parent was TWD 14.98 billion and the earnings per ordinary share were TWD 1.2. Capacity utilization rate climbed to 78% in that quarter with wafer shipment just marked 1 million 12-inch equivalent wafers. On Page 5, on the sequential comparison, third quarter revenue of TWD 59.12 billion increased slightly compared to the previous quarter, mainly due to higher wafer shipment, although the NT dollar exchange rate was an unfavorable factor of around 3%. Gross margin also climbed on back of the better capacity utilization rate to 29.8%. And net income reached nearly TWD 15 billion or an EPS of TWD 1.2 per share in NT dollar terms. On year-over-year comparison, on Page 6, for the first 3 quarters, revenue grew 2.2% year-over-year to TWD 175.7 billion. Gross margin was around 28.4% or nearly TWD 50 billion for the first 3 quarters of 2025. Overall, net income for the first 3 quarters is down to TWD 2.54 per share compared to TWD 3.12 in the previous 3 quarters of 2024. On Page 7, cash still above TWD 100 billion, and total equity of the company is now TWD 361 billion at the end of third quarter of 2025. ASP on Page 8 shows we remain firm for the past 2 quarters. On Page 9, for revenue breakdown, we see -- we can see that the North America represents about 25% of the total revenue in the third quarter, which is 5% higher compared to 20% in the previous quarter. On the contrary, Asia declined by nearly 4 percentage points to 63% in the third quarter of 2025. IDM versus fabless remain unchanged on Page 10 for the third quarter of 2025. On Page 11, we noticed the communication and computers edge up in terms of sales mix when consumers declined by nearly 4 percentage points to 29% in the third quarter. On Page 12, the segment sales breakdown by technology, 22 and 28 still remain our main technology node, when 22 continued to climb in terms of percentage. Total 22 and 28 revenue reached about 35%. For 40-nanometer and 65-nanometer revenue, somewhat unchanged, in about 17% and 18%, respectively. For our quarterly capacity for the third quarter, we see a minor increase coming out of our 12x Xiamen fab with now the monthly capacity is nearly 32,000 wafers per month, and total available capacity will remain flat for the coming quarters. On the last page of my presentation, our annual CapEx is heading to our budget number of $1.8 billion with 90% in 12-inch and 10% in 8-inch. The above is a summary of UMC results for third quarter of 2025. More details are available in the report, which has been posted on our website. I will now turn the call over to President of UMC, Mr. Jason Wang. Jason Wang: Thank you, Chi-Tung. Good evening, everyone. Here, I would like to share UMC's third quarter results. In the third quarter, we observed demand growth across most market segments, which drove a 3.4% increase in wafer shipments and improved utilization rate to 78%. In particular, we benefited from a pickup in sales of smartphones and notebooks, driving replenishment order from customers. Our 22-nanometer technology platform continues to provide us with the differentiation in the market, with 22-nanometer revenue now accounting for more than 10% of the total sales in 2025 alone, we are projecting over 50 product tape-outs, and we expect 22-nanometer contribution will continue to increase in 2026. Aligned with our strategy of providing customers with highly differentiated specialty technologies, we recently announced the readiness of our 55-nanometer BCD platform. In addition to mobile and consumer applications, the new platform is also complemented with the most rigorous automotive standards for automotive and industrial use. Looking ahead to the fourth quarter, we are anticipating wafer shipment to be comparable with third quarter's volumes, wrapping up 2025 with shipment growth in the low teens. UMC continues to deliver competitive process technologies that enable diverse applications, which position the company to benefit from a broad-based market recovery. With the 22-nanometer logic and specialty platform, in particular, we expect to drive growth. Now, let's move on to fourth quarter 2025 guidance. Our wafer shipment will remain flat. ASP in U.S. dollar will remain firm. Gross margin will be approximately in the high 20% range. Capacity utilization rate will be in the mid-70% range. Our 2025 cash-based CapEx budget will remain unchanged at USD 1.8 billion. That concludes my comments. Thank you all for your attention. Now, we are ready for questions. Operator: [Operator Instructions] First, we'll have [indiscernible], Bank of America for questions. Unknown Analyst: My first question is regarding the near-term outlook. Could you discuss more in detail on how you see the business by end market is trending into the current quarter in fourth quarter? It seems the guidance is above seasonal, so just wondering if there's anything driving that. And also just your initial view into first half next year, did you get any feedback from your customers on the potential restocking, or in general, they are still pretty conservative at this stage? Jason Wang: Sure. I mean, while we're going into Q4, we can -- as I said, we wrap up the 2025 shipments to a low teens. It's now that we project the 2025 shipment growth was supported by our differentiated 22-nanometer technology and other specialty offerings across both 12- and 8-inch amid a broad-based market demand recovery. On the 12-inch size, shipment growth was driven by a strong momentum from 22-nanometer logic for ISP, Wi-Fi connectivity as well as the high-end smartphone display driver IC. In addition to 22 and 28, overall 12-inch wafer shipment will outpace our addressable market due to our comprehensive value-added specialty portfolio of nonvolatile memory, RFSOI and BCD. On the 8-inch size, we expect a high single-digit growth in 2025, mainly led by the PMIC and LDDI. So in summary, the strength of 22-nanometer and the specialty process across both 12-inch and 8-inch platform underpin our confidence in achieving a low teens percentage shipment growth in 2025. So for 2025 Q4, we remain -- the shipment outlook remain flat. If we're looking into the early look of 2026, I think we're still going to experience some seasonality, but if I look at the entire year, despite the ongoing global economic geopolitical uncertainty, we believe our 2025 business growth momentum will continue into 2026, where we expect the wafer shipment will increase year-over-year. In addition to some TAM expansion, our 22 eHV -- 22-nanometer eHV platform, which is serving the high-end smartphone OLED display driver application, will be one of the key growth engines. We expect the overall 22- and 28-nanometer revenue to achieve double-digit year-over-year growth in 2026. However, there's still going to be some seasonality that we may have to go through. So Q1 may be one of the challenging quarter for the year. Supported by the strong customer adoption of our 22-nanometer technology, in addition, our technology readiness in RFSOI for smartphone RF front-end device will also fuel our growth in 2026. And besides the growth of the communications segment, we also foresee our enhanced version of PMIC solution, which will also continue to drive recovery in our 8-inch segment. In 2025, we foresee PMIC business will grow in the high single-digit range, and this growth momentum will extend into 2026. Our effort on the enhancing our technology competitiveness, particularly for the PMIC application, have started to yield some tangible results, and that will actually help us with the -- to strengthen our position in this market segment and for 2026 growth. If we look beyond 2026, we'll continue to develop new derivative technology to enhance our differentiated and our competitive -- enhance our competitive position. Furthermore, we are expanding our addressable market into 12-nanometer FinFET, as you know, and as well as some of the advanced packaging space. The UMC portfolio -- technology portfolio is well positioned to serve a growing demand of the power efficiency optimization, high-bandwidth data transfer as well as the improved connectivity. So I think in general, we are relatively confident in 2026, but it's still kind of early to go into the quarterly guidance. Unknown Analyst: Yes. That's pretty intensive. And I think just a quick follow-up to my first question is just when you mentioned the growth momentum could continue into 2026 compared with 2025, are you saying that the wafer shipment could actually still be growing by low teens next year at least? Because you mentioned a lot of growth drivers by applications just now, especially on 22-nanometer, 28-nanometer and also 8-inch. So just wondering whether you are implying that the wafer shipment could grow by another low teens at least for 2026? Jason Wang: I mean, we're not giving the blended -- the wafer shipment at this time. We're probably ready to provide you more clarity into Q1, but 22 and 28 particularly, yes, I think that when we go into 2026, we're still expecting a double-digit year-over-year growth. Unknown Analyst: And then my second question would be on your gross margin trend. I think for the fourth quarter, you guided flat shipment and also pricing. The FX seems to be -- foreign exchange seems to be more favorable at this stage. So why does the gross margin does not go higher than the third quarter? I'm just curious why that is the case. Or should we think about high 70% utilization is going to translate into like high 20 percentage gross margins going forward? Chi-Tung Liu: Gross margin in third quarter is actually, in fact, slightly higher than that of the previous quarter. The gross margin also primarily depends on utilization rate, ASP, product mix, depreciation and foreign exchange. As you know, even though the foreign exchange rate may be on a forecast basis, better than forecast, but still appreciate against U.S. dollars, our key receivable currency, so still in an unfavorable situation, as I mentioned earlier, that almost eat up about 3% of our total revenue. And we do expect the Q4 '25 gross margin still will remain in the bandwidth of high 20 percentage range. Despite the variables such as our depreciation, we will still see quarterly increase. And this year, we are facing 20% plus increase in annual depreciation expenses. So I hope that answers your questions. Unknown Analyst: Yes. And then just a relevant follow-up is in your cost structure. You have been able to manage the other manufacturing cost item quite nicely down in third quarter despite the fact that the labor cost is higher, electricity cost is higher and also the material or even the wafer shipment is slightly higher compared with second quarter. So could you just elaborate in more detail on how should we think about the other manufacturing costs, which I believe should be mostly variable cost? How should we think about that going to trend? Chi-Tung Liu: So part of our employee compensation is bonus, which is based upon profit sharing. So when we have a better quarter-over-quarter profit in the third quarter, we do have to factor in higher bonus, which increased the compensation expenses in the third quarter. Unknown Analyst: But it was still down compared with second quarter. So I was just wondering if there's any reason driving that decline and would that trend continue. Chi-Tung Liu: No, the trend will not continue. It will fluctuate along with our rolling profit recognition. Operator: Next one, Charlie Chan, Morgan Stanley. Charlie Chan: Congratulations for very strong results, especially on the gross margin side. So maybe starting with the so-called geopolitical uncertainty. So, Jason, can you elaborate a little bit what kind of macro uncertainty you see will continue in 2026? And I was asked by one of your customers about -- there seems to be some speculation about semi-tariff may come next January. So any kind of impact -- potential impact to your business or operation? And also another uncertainty, it was a couple of weeks ago, right, the rare earth kind of supply. Does your team run through some analysis about the potential impact if rare earth will be restricted again? Jason Wang: Sure. A couple of things, right? I mean, you mentioned about geopolitical dynamics on the tariffs. So maybe I'll start up on the tariff first. We do understand there are uncertainties and risks from the potential impact of tariffs, and we will remain cautious of those potential business impacts, and we'll be mindful in our business planning going into 2026. At this current point, we haven't seen anything yet, but we are cautious. The -- amidst the uncertainties, we'll also continue to focus on the fundamental of our business. That is the technology differentiation, manufacturing excellence and then customer trust to further strengthen our competitiveness -- competitive position. So I think we still have to go back to the fundamentals. For UMC, to address the geopolitical concerns, I do believe that UMC has a geo-diversified manufacturing site across the globe. And the global semiconductor landscape is evolving. Customer and governments are increasingly emphasizing the geographic diversification and supply chain resilience along with the tariff. But to address the structural changes and align with the customer needs, our strategic initiative, including the capacity buildup in Singapore and the U.S. and are designed to complement our Taiwan facility, will enable us to better support our customers across multiple regions. Over the long term, we are targeting a balanced capacity split between Taiwan and overseas locations, but we welcome any opportunity from our customer. Whether this is an impact or opportunity to us, we will probably have to position ourselves and ready for that dynamic changes. Yes. Charlie Chan: So specific on semi tariff, right, I think we also went through this discussion last quarter or 2 quarters ago. So do you also hear that next January could be a final implementation of this semi tariff? And secondly, would UMC can get exemption from the semi tariff? Jason Wang: Well, I mean, your guess will be as good as my guess. So I'm not going to guess here. Charlie Chan: I watch TV only. Jason Wang: Yes. So we're going to be cautious about this, and we're closely monitoring the progress and developments. And at the same time, given that we are investing into the U.S., so we're definitely going to present our case. But there's nothing else to update here. But if there's anything, we will definitely recall back. Charlie Chan: Okay. Got you. And second question is about the -- your gross margin sustainability. I know this quarter, next quarter, some puts and takes, right? But just overall, right, next year, it seems like some of your industry peer, may just call it TSMC, kind of hike their wafer price. And recently, we are seeing that the back-end foundry, though it's not like your industry peer, but it's kind of your downstream supply chain, right, also attempt to hike the back-end foundry service price. So what was the UMC's kind of sort of potential wafer price hike into next year? Jason Wang: Well, like Chi-Tung mentioned earlier, margin reflects the result of ASP loading certain variable factors. So let's take the ASP specifically. For the ASP outlook, our 2025 ASP performance has remained firm amid a dynamic business environment, and it has remained stable at a healthy level throughout the year. And so -- and we expect the ASP will remain firm in Q4 2025. And for the 2026 outlook on ASP, we will provide more detail in the upcoming January 2026 conference call, as we are going through some discussion with our customers aligning that. So we probably have more detail to report in the next conference call. Charlie Chan: Okay. And on the cost side, expense side, Jason, you said at some interview that your team want to drive some costs down. But I feel like most of the components whatsoever. Most of what I'm hearing this commodity cost may go up, right? So on the cost side, do you have any preliminary outlook for 2026? Jason Wang: Without getting into specific cost projection or outlook, I think we can probably update you of the view in cost, our view of cost -- about cost. Cost competitiveness is always a mutual goal for us and our suppliers together, so in order to be competitive. So we're closely working with our suppliers. We'll continue to drive towards cost savings in 2026, and that has been going on for many years, but we are continuing to doing that into 2026. But that includes the combination of both internal and external efforts. It's not only working with the supplier, it's also internal efforts. For example, we have already started leveraging some smart manufacturing and AI technologies internally to enhance our fab efficiency and enabling our long-term operational competitiveness. So that's also a major piece of driving our cost goal. So I think there's many of the initiatives that we're deploying, and we working with the supplier -- supply chain is just one of them. Charlie Chan: Okay. Okay. And last one, I will be back to the queue. So I know your company and your team have been running through a lot of strategic or marketing research, right? So recently, we picked up one data point I would like to share with you and also consult your view. Because of the T-glass shortage, right, we're starting to see tightness of BT substrate supply. From your perspective or UMC's perspective, would that kind of constrain your -- some of your customers' demand, for example, the consumer or smartphone SoC demand into 2026? Jason Wang: Well, we really haven't seen that, but we are closely monitoring the entire supply chain resilience. The current market is driven by this AI momentum. So there are various areas demonstrating potential supply concern. But so far, we have not seen any impact to us. But like you said, we all look out there and see if there's going to be any. But meanwhile, we are managing -- from our internal perspective, we are managing our supply resilience point of view. We want to ensure the supply assurance and as well as the -- both from supply and demand -- supply and demand as well as the quality standard and cost. So I think that's always been our initiative internally. So I would just have to say we haven't seen any impact on the recent market dynamic, but it's something always on our radar screen, and we continue monitoring it. Charlie Chan: Yes. How about smartphone or PC demand recovery, if you have a crystal ball? Do you think that 2 major segments of the end demand will significantly recovery next year? Jason Wang: Well, I mean, at least for the Q4 '25, we expect the wafer shipment will remain flat, and the markets reflect pretty healthy inventory level as well. We see slightly communication segment decline in our segment, but the computing, consumer, automotive are slightly increased. So I'm not sure that's affected by that particular supply issue, but it reflects probably more end demand associated. Operator: Next one, Laura Chen, Citi. Chia Yi Chen: My first question is also about the margin outlook. Chi-Tung, you mentioned that the depreciation cost for this year were up about 20% plus year-on-year. But we know that actually in the first half, the depreciation cost increased almost like 30%. So does that mean that depreciation cost year-on-year increase trend to slowing down into Q4? With overall your utilization rate and also ASP seems to be resilient and also higher exposure on 28-nanometer, should we be looking for some of the potential upside of the gross margin? Chi-Tung Liu: Well, other than depreciation, there are other factors. Like Jason mentioned, we will have a clear view on the ASP, which is an important component for the margin equation. But just on depreciation alone, yes, the increased magnitude, we're down to about low teens in the year of 2026 versus 20-something in the 2025. And in the previous quarter, we also mentioned either '26 or '27 should be the peak of the recent depreciation curve. So on that regard, it does provide a good floor for helping our EBITDA margin. Chia Yi Chen: Okay. Great. And also the second question is, I recall that we mentioned about the Interposer business before. We know that the AI demand is surging. So I just want to understand UMC, do you have any updated view on the Interposer strategy? And also, we know that UMC also have wafer-to-wafer technology. So just wondering what's the plan here. And also, do you want to further expand the capacities on Interposer? Jason Wang: Well, the latest development on the advanced packaging space, we will continue preparing our advanced packaging solution for this growing market associated with the energy consumption of cloud AI and the edge AI market. For UMC, we are developing the 2.5D Interposer with DTC, the deep trench capacitor, and discrete DTC to address the power efficiency requirement in all AI, HPC, PC, notebook and smartphone space. And second, UMC is leveraging the scalable 3D wafer-to-wafer packaging stacking and the TSV to enhance the -- enhance our specialty technology offering. We are in the mass production of extremely small form factor for the 5G and 6G RFIC right now by leveraging the wafer-to-wafer stacking technology. Based on the success of the 5G and 6G RFIC that works through the wafer-to-wafer stacking, we are also developing memory-to-memory stacking and memory-to-logic stacking service for the high-bandwidth computing requirements. So our technology really is associated with the center with the DTC capability and the wafer-to-wafer stacking capability. Right now, still within our current capacity size, there's no expansion planned, but there are a lot of customer interests and engagement being developed right now. Chia Yi Chen: Okay. Great. Can you also give us some like idea how is that kind of business opportunity growing into the next few years? Jason Wang: I mean, as we anticipated, the cloud AI and the edge AI market will probably taking out in the next 2 years or so. And so we think preparing those technology capability today will position us well to serve that market when the market comes. I think many customers are engaging in that discussion and exploring the product roadmap at this stage. But in terms of the actual volume and the ramp-up schedule, I would expect it's going to probably be in late 2026 or sometime in 2027. Operator: Next one, Sunny Lin, UBS. Sunny Lin: Congrats on the very good outlook. Very glad to see business stabilizing and improving. So my first question is on the pricing. I understand more specific guidance should be provided in January or in early 2026, but I want to get a bit more color on the latest progress on your engagement with the clients. So in 2024 and 2025, basically, you provided roughly mid-single-digit type of price reset for across the board. And so how should we expect like going to early 2026? Would it be fair to assume that now given the improving supply/demand, even if any price decline should be lower than the magnitude in early 2024 and early 2025? Jason Wang: Well, I mean, this is definitely -- I mean, that's our goal, right? I mean -- but while we are still in discussion and aligning with our customers, I can't really quote that. I have to really see the data before I can comment about it. But throughout the annual discussions and the patterns in January, we'll probably continue engaging in similar discussion. But in terms of the magnitude of it, I think it's kind of too early to guide at this point. Sunny Lin: Got it. Maybe a follow-up on blended ASP. There are still some concerns that there may be some overhang from LTAs expiring in the coming few quarters that could weigh on your blended ASP. And so Jason, could you maybe provide a bit more color on if any impact or that impact is already gone mostly? Jason Wang: I mean, LTA is one of the mechanisms that help us and our customers working other partners, not only based on the ASP, it's also we based on that, providing a mutual commitment for us to put in capacity to support the customer. At the same time, the customer demonstrate some commitment for the business engagement. So LTA will continue serving that purpose. Well, given the market dynamics, we're always working closely with our customers and to support them and gaining market shares without losing the market share and gaining the market shares and also with the market dynamics in terms of commercial needs, so -- but at the same time, we have to balance in terms of CapEx returns. So it is a complicated process and discussion, and we've been doing that for the past 2 years, and we'll continue supporting our customers to march into that direction, finding a win-win solution based on the LTA arrangement. But the future commitment of LTA remains intact, yes. Sunny Lin: Got it. So maybe one question on 2026, just to make sure that I got the right number. So for 2026, Jason earlier, did you mention the target would be to grow business by double digit? Jason Wang: I mentioned about the 22- and 28-nanometer that we expect the momentum will go into 2026, and we expect a double-digit growth year-over-year, yes. For the... Sunny Lin: Got it. And maybe a question on Singapore expansion. So if any like latest update that you could share with us in terms of how quickly the capacities will be ramped in 2026? Jason Wang: We -- I think the milestone has not changed. We project that the 12 IP3 production ramp will start in January 2026, and it will ramp up with a higher volume starting in second half of 2026. And that milestone schedule remains. Sunny Lin: Got it. Maybe last question. So in terms of dividend policy, given the improving cash flow outlook in the coming few years, would the company consider maybe revisiting the dividend policy to change to like absolute cash dividend? Would that be possible? Chi-Tung Liu: It's not impossible, but we always try to strike a good balance between the high percentage payout ratio and absolute dividends. So I think that strategy or that position will continue. Operator: Next one, Gokul Hariharan, JPMorgan. Gokul Hariharan: So just wanted to understand a little bit more on the pricing. I know that you're in pricing negotiations with customers. Could we talk a little bit about 22 and 28? How is the pricing trend there? Do you expect that there is any concession that you may need to make on 22 and 28 pricing or that is going to be reasonably firm? And maybe also the same question on the 8-inch portion of the capacity as well, given some of your competitors are also kind of putting down or kind of exiting some of the 8-inch capacity? Jason Wang: Well, our pricing strategy has been very consistent, and we will work closely with our customers and -- for protecting and gaining market shares. So that remains. That will not change. So in the particular number, the ASP guidance, I think it's better that we have all the picture together and to share with you. But in terms of pricing strategy and positioning, that has not changed. We do believe that the pricing is a combination of our value proposition from technology differentiation, our manufacturing capability, reliable capacity and the diversified manufacturing locations, so on. So we think there's a lot to offer. And along with the mutual commitment with many of the customers, we believe that we will strive to a right balance for the pricing discussion. However, again, from the specific guidance on ASP outlook, I will probably prefer to wait until we finish up. I don't want to mislead you at this point. So -- but -- and that goal is whether it's 22- or 28-nanometer and as well as the 8-inch because each technology node has a different market dynamics, and we will work within that dynamics. Meanwhile, you're talking about if we see anything on the 8-inch opportunity or due to any other, our peers. We don't typically comment about our competitors. We believe our market share increase in 2025 in 8-inch, but not just 8-inch, overall 8-inch and 12-inch legacy nodes. And we believe those nodes remain a sweet spot for a wide range of analog reach products. So we'll continue to strengthen our product portfolio, focus on those spaces. And hopefully, we can increase our market shares. We continue to optimize our existing platform and developing a new solution to better address that market need. This is the area that UMC has built some long-standing relationship and trusted relationship with our customers. So we believe this structural trend will reinforce our position as the preferred foundry partner for customers in this needs. And that will actually help us to sustain our maybe growth in both 8- and 12-inch legacy nodes over the long run. Gokul Hariharan: Got it. Yes, clear on the pricing that we can wait for January. But I think I just wanted to also ask on the semiconductor Section 232 tariffs. How are the discussions with your customers going? And let's say, there is a 15% to 20% tariffs on exports, which needs to be offset with any kind of U.S. investment or U.S. capacity that you have. How does UMC manage that situation? And which are the investments, or if any, that can qualify for that kind of an offset? I mean, for some of your peers, I think that is pretty clear. But I just wanted to understand how UMC is considering the situation. Jason Wang: Well, I kind of touched that earlier. Our -- we have been a very diversified manufacturing -- look, we have a very diversified manufacturing location in the past. And so we have very -- I think we're pretty much very complement to the current market dynamic. The current geographically discussion on diversification, supply chain resilience, I think our past initiatives serve that, and so we'll just continue. We may alter that, making some adjustment about that strategy, but not significantly. For instance, we're including building capacity in Singapore and U.S., and it's very much aligned to that direction. Of course, the tariff situation, whether it is X percentage, we don't know yet for Taiwan, but we know some areas already came out at 15% and which -- that's where we have our manufacturing sites. So customers are in discussion in interest of making sure that they have access to those facilities and to those locations. So we are definitely entertaining that conversation in a manner of growing our business engagement. So we hope that becomes more of an opportunity to us, not just a negative impact. Now, for some area that is not clear yet, and we have to navigate through that, it's our belief that we have very smart people in this industry. And despite how -- which direction it goes, we will navigate through this process and finding a win-win solution of mutual benefits. Gokul Hariharan: Yes, just following up on that, Jason, I think geographical diversification is one aspect, but also the second aspect is U.S. capacity, right? So is your understanding that your 12-nanometer collaboration with Intel kind of counts as U.S. investment and U.S. capacity, given I think the total investment is actually quite small, even though you are actually shouldering a lot of the technology-related task. Jason Wang: Well, I mean, I can't comment about the big or small, but the investment is investment, and we are putting capacity in the U.S. And the starting point of the 12-nanometer only lays a solid foundation for us to explore maybe even other collaboration opportunity as well. So that also -- if there's anything to update, we will update you, but that could also represent even more investment, right? So -- but it's just -- we're not ready to update you anything yet. But even I look at the 12-nanometer today, that is quite significant in terms of investment. Gokul Hariharan: Got it. Maybe one last question on the advanced packaging bit. I think you last time updated, I think, around 6K or so of wafer capacity for 2.5D IC packaging. Is that still where we are in terms of the capacity? And for your 2.5D packaging with deep trench capacitor, what is the application? Is it slightly different application that you're targeting compared to the mainstream market and that's why you're kind of waiting on the capacity expansion while the industry is still like really asking for a lot of capacity? Jason Wang: No, the 2.5D Interposer 6K today stays there. There is no expansion plan beyond that given the technology road map migrating to the DTC and we're developing the DTC capability. And for that, we're serving the AI, HPC, PC, notebook and smartphone space. And so our advanced packaging roadmap will center on the DTC going into, yes, 2026. Gokul Hariharan: And would you say that the 6K is now fully utilized or you still have a lot of slack in that 6K capacity right now? Jason Wang: I mean, as the product is migrating to DTC, that's why we're not expanding the capacity on the 2.5D right now. Gokul Hariharan: Okay. Okay. Fair enough. And this DTC capacity, how significant do you think it is going to become in terms of revenues? Let's say, I think you were expecting end of '26 ramp-up, so let's say, in 2027, is that a fairly significant part of your total portfolio? Or is it still going to be quite small, similar to the Interposer-related revenues that has been more like a single digit -- low single-digit kind of percentage of revenue? Jason Wang: I think it's kind of too early to predict that. A part of the market is associated with the edge AI market and which we have to wait until that has more clarity. And so I think at this point, it's too early to project that. But in terms of technology-wise, I think that's definitely the core of the next generation. So we need to make sure that we have prepared for it. Operator: Next one, Janco Venter, Arete. Janco Venter: I just wanted to follow up on the investment into the U.S. and just get an update on the state of the PDK. And then also, we just want to understand the business model around this engagement on 12-nanometer. Is it revenue share? Is it profit share? And then just secondly, on that, will it be cannibalistic to the 22, 28-nanometer customers as you start migrating to 12-nanometer? Any color that you can add to that to help us just understand this opportunity would be quite helpful. Jason Wang: Sure. From a project standpoint, the -- currently, the 12-nanometer cooperation with Intel is progressing well and remain on track according to the project milestone. And we expect the early PDK will be ready for the first wave of customers in January 2026. And both UMC and Intel are aligning with the customer device spec to facilitate the ramp-up. Overall, the collaboration is proceeding as scheduled, and customer product tape-out is expected at beginning of 2027. So that is the update on the 12-nanometers. The business model itself, we are working collaboratively together and engaging with the customer and the actual business model that we're probably not elaborate to share right now. But once -- I think that will be a -- the business revenue recognition, once it's ready, we'll update that. And the cooperation model is actually very structured and -- but just we'll probably have to report that after we're into production. I think that's the 2 questions you have, right? Did I miss any? Janco Venter: Yes. That makes sense. Yes, that's right. Maybe just one follow-up. And I think you touched on this earlier where you talked about potentially looking at further investments. Now, if we look at -- actually, we were trying to understand if there's scope perhaps to extend this agreement to single-digit nodes because if you look at Intel's business, they fully depreciated 7-nanometer. And it seems like an obvious area to extend the agreement. Is this something that you would potentially be looking at? And does that make strategic sense for UMC? Jason Wang: Well, I mean, the -- yes, the simple answer is yes, right? And -- but we have to starting from -- we have to start it from the 12-nanometer. So we had to make sure that executed well, so we can lay a solid foundation on that. For technology beyond 12-nanometer, we are open to explore the future opportunity through the partnership arrangement that are mutually beneficial. I would say the cooperation with Intel is strengthening UMC's strategic position in U.S. significantly and for the U.S. market and also broaden our addressable market while adhering our disciplined CapEx approach. So we are very committed to this partnership. And so far, the project is actually progressing well. Operator: Next one, Bruce Lu, Goldman Sachs. Zheng Lu: Can you hear me? Jason Wang: Yes. Zheng Lu: Yes. I just wanted to follow up the -- for the U.S. collaboration beyond 12-nanometer. What are the showstopper for us to move beyond 12-nanometer at the current stage? Or do we consider to go backwards to do like relative mature node capacity in U.S.? Jason Wang: I mean, that's an interesting question, right? I mean, the -- I think when we talk about this cooperation with Intel strengthened our positioning in the U.S. market, hopefully, we're not only limited at 12 nanometers and that if we can have a full potential of this position. And we -- so that's why we're actually very open to explore the future opportunities through this. So I don't think there's a -- I won't call any showstopper, but I think as long as it's mutually beneficial, I mean, we will definitely open to explore that. Now, is the exploration limited to the more advanced node or backward? I think we are also open to that. We're not limiting ourselves with that collaboration. Zheng Lu: No, Jason, the question is that it's clearly mutually beneficial, right? So who has the ball? I mean, who doesn't want to move on? Jason Wang: I think, in any of the engagement, not just this, you require the market validation, you need to make sure you're doing your due diligence. So I think I will probably comment that all conversations are open and the due diligence need to be in place before we move forward. So it's not truly a showstopper. It's not going which sport, it is we have to make sure we conduct the appropriate process. Zheng Lu: So in other ways, the prerequisite condition would be that you probably need to deliver 12 nanometers with like decent size of revenue, decent size of customer, then both sides might consider to move it on. Is that the right consideration? Jason Wang: Not -- I mean, I won't say that it is a prerequisite, but that is one of the important considerations. But more importantly is if this collaboration is economically beneficial to both sides. And so I think that the -- once we are more mature and ready, and we definitely will update you, but again, our position on this topic is we are open to that exploration. Zheng Lu: Okay. So when can we expect to see the meaningful revenue contribution from 12-nanometer? Jason Wang: Well, I mean, right now, for the early product tape-out, it is going to be in 2027. And so we're probably going to start seeing some contribution in 2027, but then ramping after that though. Operator: And in the interest of time, we're taking the last question. Last one, Charlie Chan, Morgan Stanley. Charlie Chan: So it's actually wafer-on-wafer related. So, Jason, can you share with us who could be kind of memory partners? I mean, it seems like it requires a lot of so-called customized design interface, et cetera. So are those more Taiwanese partners or you have some global top memory partners for wafer-on-wafer? And secondly, if you can, can you share some potential kind of end applications and the timing for wafer-on-wafer? Jason Wang: On the wafer-to-wafer stacking capabilities, we are in mass production for some of the extremely small form factor devices in the RFIC space. We're talking about that because we believe if you look at the market is going, and we believe this technology will serve more than just a small form factor. It provides the option for the memory to memory, the logic to logic, logic to memory stacking options. So by providing the option to the customer, they say they can explore many different product applications. So at this point, the advanced packaging technology is developing into 2 cornerstones. One is the DTC capability. Another is on the wafer-to-wafer stacking capability. And then we -- once the technology is ready, then we can explore to many different applications. Charlie Chan: On this wafer-on-wafer, do you see kind of advantage or differentiation to industry, for example, TSMC or China's -- I'm not sure, maybe XMC, yes, any sort of differentiation you may have? Jason Wang: Well, I mean, the developing differentiated technology is definitely on mandate. So we continue driving that technology differentiation. But at the same time, you have to make sure that you're part of the ecosystem, where the market is going. So we see this from a market standpoint. From a technology/product migration standpoint, we believe these are 2 very important capability and technology. So we're preparing ourselves to get that ready, and then, we can start exploring different business opportunities. Operator: And ladies and gentlemen, thank you all for your questions. That concludes today's Q&A session. I'll turn it over to UMC Head of IR for closing remarks. Michael Lin: Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact ir@umc.com. Have a good day. Operator: And ladies and gentlemen, that concludes our conference for third quarter 2025. We thank you for your participation in UMC's conference. There will be a webcast replay within 2 hours. Please visit www.umc.com under the Investors, Events section. You may now disconnect. Thank you again. Goodbye.
Raul Sinha: Good morning, and welcome to Santander's Third Quarter 2025 Results Presentation. For the call today, we will be joined by Hector Grisi, our Group CEO; and Jose Garcia-Cantera, our CFO. Hector, over to you. Hector Blas Grisi Checa: Thanks, Raul. Good morning and everyone, and thank you for joining Santander results presentation. We will follow the usual structure. First, I will go over our results with a special focus on the performance of our global businesses. Then Jose, our CFO, will then provide a detailed view of the financials, and then I will wrap up with some final remarks before we open for Q&A. Before we begin, a quick note that all figures in the presentation continue to include Poland until the disposal is completed. Q3 was another record quarter, reflecting the strength of our strategy and the resilience of our business model in a more demanding environment. Our quarterly profit hit a new record at EUR 3.5 billion, making 9 months '25 the best 9-month period ever, driven by strong revenue growth across the global businesses and our solid customer base, which increased by 7 million year-on-year to 178 million as we enhance customer experience by leveraging our global platforms. We achieved this while we continue to invest for the future through ONE Transformation, making excellent progress towards a simpler and more integrated model. This has enabled further efficiency gains and a 70 basis points increase to our RoTE to 16.1%. Our balance sheet remains also solid with a strong capital ratio, which ended the quarter with an all-time high of 13.1% and a robust credit quality. All of this drove a strong shareholder value creation with TNAV plus cash dividend per share growing 15% despite some currency headwinds. We are approaching the end of our '23-'25 strategic plan well on track to meet our targets. Thanks to our profitability and our disciplined capital allocation, which is further improving profitability. Remember that earlier this year, we raised our RoTE target to around 16.5% post-AT1, equivalent to above 17% pre-AT1 from our original Investor Day target range of 15% to 17%. At the same time, we're already operating with a CET1 ratio above 13%, clearly exceeding our original post-Basel III target of above 12% with 88% of RWAs generating returns above our cost of equity. Finally, after our latest inorganic transactions, we decided to accelerate the execution of our EUR 10 billion share buybacks and upgrade our target, so we announced that we expect to distribute at least EUR 10 billion to our shareholders through share buybacks for '25-'26, subject to regulatory approvals. Let's go now into our income statement. Our P&L remained very solid with profit growing double digits year-on-year, once again reflecting the strength and diversification of our model. We delivered strong top line growth with revenue up 4% in constant euros, supported by NII, which increased 2%, but especially by a new record quarter in fees, up 8%, supported by significant customer growth and the network benefits that we are capturing through our global businesses. At the same time, expenses grew below revenue, down 1% in euros, in line with our target, showing the positive effects from our transformation. This performance translated into solid growth in net operating income, again demonstrating the sustainability of our results. Our prudent approach to risk is also evident in our robust credit quality trends with a cost of risk that is consistently improving year-on-year. Overall, as we have shown over time, our results are sustainable and less volatile than peers even in a more challenging environment. We are ahead of our plan executing our transformation, boosting our operational leverage and structurally improving both revenue and cost. Simplification, automation and active spread management have already delivered 259 basis points of efficiencies. Our global businesses added 101 basis points and our in-house and global tech capabilities, another 88 basis points, exceeding the level expected by the end of '25. And there is still more to come. We see further upside as we stay focused on rolling out common platforms across Retail and Consumer while also capturing additional efficiencies from Wealth, CIB and Payments by leveraging our global network. And all this is something that is entirely under our control. All our global businesses delivered strong profit growth while we improved the group's profitability. Customer activity and diversification continue to drive revenue growth. In a less favorable interest rate environment, our CIB, Wealth and Payments businesses, which are more fee driven, are seeing increased revenue with fees up 7%, 19% and 16%, respectively. At the same time, some of our franchises and emerging markets performed better with lower rates. Our Consumer business is a great example with NII up 6% year-on-year. In addition, our customer focus and solid track record in active balance sheet management explained the resilient NII performance in Retail, which excluding Argentina, grew 1% year-on-year. At the same time, we're extracting the potential from our scale. Scale gives us efficiency and also the flexibility to allocate capital quickly, something very few others can replicate. Combined with our strict capital discipline and focus on profitability, this is driving higher RoTE which most of our businesses already above the targets we set for '25. It is this unique combination of customer focus, scale and diversification that enables us to deliver strong and recurring results, putting us in an excellent position to navigate the challenges ahead. In Retail, we are transforming the way we operate to become a digital bank with branches, combining cutting-edge technology with the expertise and proximity of our teams. We continue to digitalize and enhance customer journeys, driving double-digit growth in digital sales. A key milestone was the launch of the new app in Brazil that introduces conversational capabilities that we are now preparing its rollout across more countries. In cost, we are making the most of AI to speed up simplification and automation, which is reducing manual activities and allowing teams to focus more on customer interactions and value-added activities. As a result, dedication of teams to noncommercial activities has dropped by 17% during the last 12 months. We are progressing in the rollout of our global platform, Gravity. Our back-end technology is fully implemented in Spain and Chile, and we expect to deploy it in Mexico in Q4. Retail profit grew high single-digit year-on-year, driven by sound revenue performances across most countries. Costs declined in real terms and credit quality remained solid. In a more demanding environment, NII grew year-on-year, excluding Argentina, reflecting our focus on profitability and the disciplined margin management and fees rose 5%, supported by higher customer activity, our ongoing digitalization and improved customer journeys. We will keep scaling our transformation to boost efficiency and contribute to group's growth. By improving customer experience and simplifying operations, we expect to continue growing our customer base while reducing cost in euros. In Consumer, we continue to advance in our priority to become the preferred choice for our partners and customers by delivering the best solutions and strengthening our cost competitive advantage across our footprint. Deploying global platforms is key to scale our business and to reduce cost to serve. We recently announced the integration of Santander Consumer Finance and Openbank in Europe, a natural step that simplifies our business, reduce cost and improve our product offering. We keep enhancing our value proposition and Openbank is again a great example. In Germany, it now offers a new AI-powered investment broker. In the U.S. and Mexico, Openbank has attracted EUR 6.2 billion in deposits as part of our broader deposit gathering strategy. We continue to expand and consolidate partnerships, offering global best-in-class solutions with top OEMs. Zinia continued to grow, reaching record volumes during Amazon Prime Days and introducing installment payments for Amazon customers in Spain. Profit grew 6% year-on-year in a challenging context of weaker car registrations in Europe, driven by NII growth and solid cost of risk performance, especially in the U.S. We continue to prioritize profitability over volumes, lower funding costs and accelerating transformation while actively managing capital to maximize returns. We expect Consumer to be one of the drivers of the group's profit, supported by NII growth as the business benefits from lower rates and progresses in our strategy to lower funding cost, solid fee income performance as insurance penetration improves and further cost efficiencies as we accelerate our transformation. In CIB, we are building a world-class business to better serve our corporate and institutional clients across our footprint while maintaining our low-risk profile. Number one, we continue to deepen our client relationships and strengthen our position in our core markets, leveraging our centers of expertise and expanded coverage. This is translating into market share gains in the U.S. as we achieve greater relevance in the investment banking space. Number two, our enhanced capabilities are enabling us for significant opportunities across CIB, improving our cross-business value proposition and driving solid growth in our institutional franchise in Global Markets, where revenue rose 27% year-on-year. Even in a more challenging environment, CIB keeps on delivering solid results with profit up 10% year-on-year, supported by solid fee growth across business lines and exceptional performance of Global Markets early in the year. All of this, while we maintain one of the best efficiency ratios in the sector and a RoTE of around 20%, reflecting our strict focus on profitability and capital discipline. We will build on the capabilities developed in recent years to drive revenue growth in CIB across the group, driven by stronger connectivity across countries, products and businesses. In Wealth, we are building the best wealth and insurance manager in Europe and the Americas. Number one, in Private Banking, we remain focused on expanding our fee businesses and consolidating our global position through value-added solutions. We continue developing our new Global Family Office service, which after just 3 months of activity is bringing advisory services to our first clients in Spain who represent a total wealth of more than EUR 500 million. Number two, in asset management, we keep reinforcing distribution and investment capabilities in alternatives and streamlining our liquid product platform. Number three, in Insurance, we are focused in 2 new verticals: Life & Pensions with new products for senior customers in Brazil and annuities from Private Banking and affluent clients in Spain; and P&C, where we expanded our value offering to SMEs with new protection business products in collaborations with Getnet. Number four, collaboration with other businesses is a major growth driver for Wealth. Collaboration revenues have been a strong growth lever with PB and CIB working hand-in-hand from tailored capital market structures for ultra-high net worth individuals to new joint opportunities. In summary, all of this is supporting strong growth and high profitability levels. Profit rose 21% off the back of strong commercial activity and double-digit fee growth across the 3 businesses. Efficiency improved 1.3 percentage points year-on-year and RoTE is close to 70%, confirming wealth position as one of the most efficient and profitable businesses in the group. Finally, Payments, where we hold a unique positions on both sides of the value chain. In merchant acquiring, we're expanding our global platform with a single API to serve all our customers across our footprint and is now live across our 5 countries in Latin America, reinforcing Getnet's positioning in the region. PagoNxt Payments is leveraging the best proprietary technology to deliver account-to-account processing, FX, fraud detection and other value-added services. Volumes processed by our Payments Hub were more than 5x higher than last year. In Cards, where we are amongst the largest issuers globally with 107 million active cards, we continue to expand the business and deliver best-in-class products. As part of our debit to credit strategy to promote the benefits of using credit cards, this quarter, we launched Pay Smarter in 5 of our countries. We also kept strengthening the integration between Cards and Merchant Solutions, expanding our bundling proposition with Getnet in Brazil, which now joins Spain, Chile, Portugal and Argentina. Payments delivered a strong quarter, resulting in double-digit revenue increase year-on-year, both in Cards and PagoNxt with controlled cost, driving profit growth of more than 60% and improving PagoNxt EBITDA margin to 32%, already above our '25 Investor Day target with Getnet being one of the best among peers. Our strong operational and financial performance is driving higher profitability and double-digit value creation for the 10th consecutive quarter. Post-AT1 RoTE reached 16.1%, up nearly 1 percentage point year-on-year, reflecting our disciplined capital allocation strategy. Earnings per share rose 16%, supported by solid profit generation and fewer shares following buybacks. As a result, TNAV plus cash dividend per share increased 15%. We maintain our upgraded target to distribute at least EUR 10 billion to our own shareholders through share buybacks for '25 and '26, subject to regulatory approvals. Since '21 and including the program that is underway, we will have repurchased more than 15% of our outstanding shares, providing a return on investment of approximately 20% to our shareholders. I will leave you now with Jose, who will go into our financial performance in more detail. José Antonio García Cantera: Thank you, Hector, and good morning, everyone. I will go into more detail on the group's P&L and capital performance. Let me first remind you that as we always do, we are presenting growth rates in both current and constant euros. The difference was around 5 percentage points as of September, mainly due to the depreciation of the Brazilian real and the Mexican peso towards the end of last year. As the CEO explained, we are yet again reporting record results this quarter for the sixth consecutive quarter. Revenue grew 4% with a good cost performance in line with our objectives for 2025. Cost of risk improved in the quarter, supported by robust labor markets and our prudent risk management. There are several positives and negatives in the other results line, but the concepts that explain most of the significant drop in this line year-on-year are the write-downs in PagoNxt in the second quarter of last year and the temporary levy on revenue earned in Spain, which this year is being recorded under the tax line. For the last 2 years, we have reported a continuous upward trend in profit, which grew 3% this quarter in constant euros on the back of a resilient NII performance, cost under control and lower loan loss provisions. Total revenue increased 4% to EUR 46 billion, on track to meet our 2025 target, even with less favorable interest rates than initially anticipated. This growth was underpinned by customer activity and more than 7 million new customers. All global businesses contributed to revenue growth. Payments accelerated with revenue up 19% as both PagoNxt and Cards delivered double-digit growth in NII and fees, driven by higher activity. Wealth also maintained the positive trends from the first half with revenue rising 13%, supported by record assets under management and a strong commercial momentum. CIB grew 6% year-on-year, driven especially by Global Markets and our growth initiatives in the U.S. Consumer also had a strong performance, supported by strong net interest income growth across most of our footprint. And finally, in Retail, revenue rose even in a less favorable interest rate context, thanks to our active margin management and our increased focus on fees. The group's net interest income increased 3% year-on-year, excluding Argentina. Although the majority of group's NII comes from Retail and Consumer, this quarter, most of our businesses contributed to the overall growth year-on-year, which was supported by active asset and liability pricing management. This is most evident in Consumer, both in Europe and the U.S. with improving loan yields and a funding structure with a larger share of customer deposits. Also in Retail, especially in the U.K., Chile and Mexico. Strong activity in Cards, particularly in Brazil, higher volumes and lower funding costs related to market activities and CIB on our efforts to adapt the sensitivity of our balance sheet to protect NII on the new cycle of interest rates. A good example of this is Retail, where net interest income increased across most countries in a less favorable context of interest rates. In the quarter, net interest income was impacted by the Argentine peso. Excluding Argentina, NII was flat and net interest margin declined only 4 basis points for similar reasons I just mentioned. This performance is in line with our guidance of NII going slightly up in 2025 in constant euros, excluding Argentina and slightly down in current euros. We believe net interest income is approaching its trough as we move into a more balanced environment with rates in Brazil expected to ease and lower rates in Europe likely to support consumer volumes and funding costs. Net fee income achieved yet another record period as the number of active customers continue to increase and our transformation promotes connectivity across the group, deploys high value-added products and services and delivers the best customer experience. Fees grew high single-digits, above our target for the year and well above inflation and cost. This was supported by positive activity trends, customer growth and a product mix that is shifting towards more value-added products and services. This shift is evident across all global businesses. Retail fees rose 5%, increases across most of our footprint. CIB increased 7%, up from record levels last year, boosted by an excellent first quarter and year-on-year growth across all business lines, particularly in Global Banking in the U.S. Wealth maintained strong momentum across business lines, backed by record assets under management. Double-digit growth in Payments, both in PagoNxt and Cards, supported by higher activity levels. As discussed in previous quarters, this year, Consumer is affected by new insurance regulation in Germany. Nevertheless, we saw a recovery this quarter, supported by our strategic focus on Insurance with rising penetration expected to translate into higher fee generation as activity accelerates. As we advance our transformation, enhancing customer experience and connectivity and continue to attract more customers, we expect a strong and sustainable fee performance. ONE Transformation is key to understanding why we are improving profitability in most of our markets, leveraging the connectivity that our global businesses provide. The improvements are already very evident. Our costs dropped 1% year-on-year in current euros, which translates into better efficiency levels already amongst the best in the industry. In Retail and Consumer, which are the -- which are leading our transformation, costs are evolving very positively, down 1% in real terms, even with pressure on salaries in some countries and the upfront cost of rolling our global platforms. In CIB, Wealth and Payments, where we are investing, costs grew. However, they showed positive operating jaws with a double-digit fee increase, as I have just explained. This excellent performance resulted in a 5% rise in net operating income from already high levels last year, and our efficiency ratio improved to 41.3%, the best we have reported in more than 15 years. Going forward, we expect sustainable improvements in operational leverage as we further implement the structural changes to our model, especially in Retail and Consumer, which represent 70% of our cost base. The risk profile of our balance sheet remains low with robust credit quality across our footprint on the back of low unemployment and easing monetary policies in most countries. Loan loss provisions increased 5% year-on-year, reflecting the decision to reduce NPLs and also some deterioration in Brazil in the context of higher interest rates. Credit quality continued to improve year-on-year as reflected both in the NPL ratio and cost of risk. The NPL ratio was fairly stable at 2.92%. Remember that much of our NPL ratio -- NPL portfolio has collateral, guarantees and provisions that account for more than 80% of its total exposure. Cost of risk improved year-on-year and quarter-on-quarter to 1.13% despite the management actions I just explained. In Retail, cost of risk improved year-on-year across all our main countries and was steady in the quarter. In Consumer, cost of risk also improved both year-on-year and quarter-on-quarter as the excellent trends in the U.S. continued in the third quarter, even with the usual seasonality. U.S. auto has demonstrated to be highly profitable and resilient business through multiple macroeconomic cycles. It continues to perform better than expected even after some normalization of the delinquency rate in line with our expectations with over 90-day delinquency at historically low levels, backed by strong labor markets and resilient used car values. Finally, our lending exposure to private markets is less than 1% of group's lending exposure. We anticipate a stable cost of risk going forward, supported by stable labor markets. Moving on to capital. As you know, we have been working on improving our capital productivity and accelerating our capital generation for some time. Our CET1 ratio increased again to 13.1% and is now above the top end of our 12% to 13% operating range. This quarter, we generated 56 basis points of capital from attributable profit, which enabled us to accumulate capital after allocating some capital to profitable organic risk-weighted asset growth, mostly offset by asset rotation initiatives, compensating capital distribution charges for shareholder remuneration and AT1s and absorbing other charges, including some regulatory headwinds, which, as we discussed last quarter, this year will be lower than initially expected as some of them have been postponed to 2026 and some of the technical notes published by the EBA were more favorable than anticipated. We continue to deploy capital to the most profitable opportunities and leverage our global asset desks, mobilization capabilities to maximize capital productivity. Our disciplined capital allocation delivered a new book RoRWA of 2.8% in the quarter, equivalent to a return on tangible equity of 22%, well above that of our back book. Hector, back to you. Hector Blas Grisi Checa: Thanks, Jose. In conclusion, these are great results. Good business dynamics and our business model supported solid revenue growth with fees rising high single digits while we reduced cost in euros. Cost of risk improved and remains in line with our target of around 1.15% at the end of the year. We grew the CET1 ratio again to 13.1%, exceeding the upper end of our operating range on the back of our strong capital generation, while we profitably grow our business organically and continue to reward our shareholders. Our RoTE improved and is on track to reach our target of around 16.5% in '25 and TNAV plus cash dividend per share keeps growing double digits. In summary, very solid results even in a less favorable environment than we initially anticipated, which makes us confident that we will achieve all our '25 targets. We expect to maintain the good trends supported by our focus on profitable growth as we deepen in our transformation in a context of resilient labor markets. We are building a stronger and more connected Santander to track the full potential of our unique combination of customer focus, scale and diversification. This is exactly what makes us confident that we will keep on growing and creating long-term value across different economic cycles. And the best is yet to come. Now we will be happy to take your questions. Thank you. Raul Sinha: Thank you, Hector. Thank you, Jose. Could we go to the first question, please? Operator: [Operator Instructions] We already have the first question from the line of Ignacio Ulargui from BNP. Ignacio Ulargui: I have 2 questions. I mean, looking to your RoTE target for the year of 16.5% has to be an acceleration into the fourth quarter to get to that level. What would be the main drivers for that? I mean, don't you feel revenue and NII has probably troughed this quarter, we should see a more decisive increase in the quarters to come? Or would be fees what drives that performance? I mean, linked to that, how should we think into 2026 on those lines? I have -- the second question is a bit of a clarification looking to the credit quality in Brazil. There has been a small improvement in the quarter. Provisions have come down. How should we think about cost of risk? And I mean, there has been any kind of release of provisions that you took in 2Q for the extraordinary top-up that you did? Or it's just underlying improvement of credit quality and provisioning? Hector Blas Grisi Checa: Thank you, Ignacio. First of all, let me discuss a little bit about the RoTE of the 16.5% of CET1 target. First of all, I mean, as you have seen, in the first 9 months, we have delivered a record profit with a RoTE of 16.1%. But if you see just in Q3, the underlying RoTE is well above the 16.5%, okay? So it's very important that you see that. Second, we expect a really strong performance in Q4, basically driven by a number of factors. You can see, first of all, we also have seasonality higher fees. We have an increased momentum from the execution of ONE Transformation, and we're reiterating the guidance of around EUR 62 billion in revenue for '25. We see lower cost and the cost of risk around 1.15% that we have discussed and other results of around EUR 3 billion. So I do believe that our strategy, the business model, the diversification, the disciplined approach to capital allocation will deliver a compounding effect that will continue yielding the positive results we're aiming for. So I see that we're going to get around that circa 16.5%. The important thing also to take into account is the disciplined capital allocation that is driving a 15% growth in value creation and higher shareholder remuneration and with the CET1 that you have seen that is strong at levels of around 13.1%, okay? So it is very important for that. I mean, as you were also, I mean, the outlook for '26, as you have seen over the last 2 years, we have shown consistent execution of the strategy, and we have delivered RoTE every year from below the 15% that we were back in '22, okay? As you know and we have discussed, we will provide further details over the next -- for the next 3-year plan, our Investor Day that is going to be in February '26. So wait us for that. But it is important to understand that if you see every single unit of the bank basically showing improvement, first of all, every single business unit, global business is also improving. And as we already said, we're only scratching the surface of the potential with ONE Transformation. As we have discussed previously, and I said back in the Investor Day in the beginning of '23 is that our aim was to become the best bank in every single geography. And up to today, we are best-in-class in 5 of our geographies, but we still have 5 geographies to close the gap with the #1 in that market. So that basically gives you the view that we will continue improving. And then we have, as you know, '26 is also a transition year with the impact from Poland reducing net profit by EUR 700 million and the TSB contribution that is likely to be more material once we make progress on the integration. So also on the current cost base is elevated given the migration towards global platforms, which is resulting in some duplication of cost. But nonetheless, I do see that we have a very promising '26. In terms of -- sorry, Jose, go ahead. José Antonio García Cantera: No, no, cost of risk in Brazil. Hector Blas Grisi Checa: Yes. I also want to talk about cost of risk in Brazil. Look, in the quarter, loan loss provisions fell 9% quarter-on-quarter, okay? 12-month cost of risk remained stable at around 4.71%. Over the last 2 years, we have derisked the balance sheet as we have been explaining to you every single quarter. With a rapid contraction of unsecured and less profitable lines such as personal and payroll loans that remember that I explained to you that we were changing the mix, and that's basically helping us out. However, I mean, we have rates that are the highest in the developed world. I mean, 10% -- 10 points of real rates, which is also a challenging environment for companies, especially agribusiness, corporates. So it's a difficult environment. Hopefully, rates, and we basically believe we will be coming down a little bit during the first quarter. So I do believe that credit quality, volume growth and earnings will be supported by an improving macro, which we have seen. Even with these rates, remember that Brazil is going to grow around 2% the year. And as I said, hopefully, by the end of '27, we see rates falling down to 10.5%. Jose can basically give you more details. José Antonio García Cantera: Just to add, if you look at cost of risk on a quarterly basis, in 2024, cost of risk was 4.5% every quarter. In the first 2 quarters of this year, we had cost of risk of 4.9%. It's back to 4.5% in the third quarter. There's nothing extraordinary, no reversal of provisions or anything. So it's a more normalized asset quality level, the one that we've seen in the third quarter. And we would expect to finish the year within the range that we guided you for, which is somewhere between 4.7% to 4.8% or around 4.8% cost of risk. Operator: Next question from Cecilia Romero from Barclays. Cecilia Romero Reyes: The first one is on capital. You have guided for around 20 basis points of regulatory headwinds, if I'm not mistaken, for the rest of the year, which now obviously looks like it will come in Q4. Is that still the case? Considering Q4 is typically a more intensive risk-weighted asset quarter and that there could be an additional hit from U.K. motor provisions. How comfortable are you with the 13% CET1 target? And then my second one is on corporate actions. For the Santander Bank Polska sale and the TSB acquisition, is everything still on track to be closed by year-end and early 2026, respectively? And is there any changes to capital impacts or any of the financial impacts previously announced? Hector Blas Grisi Checa: Thank you, Cecilia. So in terms of -- I'm going to basically answer you #2. So in terms of Santander Bank Polska, I mean, I review every single week the advance on that one, and I believe that we're right on track to close on Q1. In terms of capital, I will ask Jose basically to give you his overview of what you have asked. José Antonio García Cantera: So the outlook for regulatory and supervisory charges is now better, as I said during the presentation because some charges that we expected this year have been postponed and probably will be lower than we had anticipated. They have been postponed to '26. And also some of the technical notes, model adjustments, et cetera, came in better than expected. So for the year as a whole, I would say that regulatory and supervisory charges will be in the region of 20 to 25 basis points. We have had 16 in the first 9 months of the year. In terms of targets, we believe that we will generate capital in the fourth quarter from the 13.1% that we reported in September. So the -- let's say, the view that we have today on capital is that the ratio will increase in the fourth quarter further. In terms of the capital charges, et cetera, related to the acquisitions, nothing has changed. We think Poland will generate around 90 basis points of capital. We don't know exactly because it depends on the deductions, but it will be around 90 basis points. The acquisition of TSB is around 50, 52 basis points capital charge. And remember that we announced once we closed Poland, a share buyback in the amount of EUR 3.2 billion, so -- which is around 50 basis points. So those are the capital charges from the transactions, and we haven't -- they haven't changed in the last couple of months. So we don't expect them to change materially from the numbers I gave you. Operator: Next question from Francisco Riquel from Alantra. Francisco Riquel: My first question is on NII in Spain, which is 1% up quarter-on-quarter. You were guiding for a decline. You already improved the full year guidance from minus 6%, minus 7% to minus 4%, minus 5%. So I wonder if you can update again on this guidance because I think I feel trends are better than expected and comment also on the margin dynamics. I see the customer spread is down, but NIM is stable. So what should we expect for NII loan growth in Spain in Q4 and in 2026? And then my second question is, I wonder if you can update on the rollout of the Gravity platform. You have recently completed in large markets like Spain and Chile. I wonder what type of efficiency and productivity gains are you capturing already? And what shall we expect on a full year basis? Hector Blas Grisi Checa: Thank you, Francisco. Yes, you have said, I mean, NII in Spain is much better. I think that the Spanish team has done a great job in terms of managing betas. And as Jose explained in his presentation, we have done a pretty good job in that sense. That's why you see NII basically up 1%. We expect, I mean, to continue fourth quarter up low single-digits from flat that we have expected. So -- and we expect to basically have that. For '26, I will basically tell you that, I mean, we have good dynamics. But nevertheless, we expect -- it is important that you wait for the beautiful picture that you have in front of you in terms of the Investor Day, we will give you a little pretty good idea of what we expect. In terms of the rollout with Gravity, I'm glad you asked the question. I think that, look, it's very important. As a matter of fact, we just migrated Mexico this weekend, okay? That's another large market that is being migrated. So to tell you exactly how it works is basically once we migrate a country to Gravity, we start basically shutting down the mainframes. Let me give you an example. Remember that Spain was migrated in April. We had -- used to have 5 mainframes in Spain. 2 already have been shut down. We're still waiting to shut down another 3 more that we will be closed down over the next 18 months. Once we shut down those, that basically decreased costs quite a lot because every time we do that, I mean, actually, we save a lot of money by all the charges that we get from the suppliers in terms of that. So to give you exact numbers, I mean, we can contact you later because I don't have the exact numbers that we will get from that. But I do believe by the end of '26, all the big countries will be migrated, and we will start the migration with the smaller countries. What I can tell you is the results are pretty good. The NPS with the customers is getting better. The response, I don't know what market is and if you're a customer of ours, but hopefully, you are, you're going to see that the speed has become a lot better. It's a lot easier because we don't go back and forward to the mainframe every single time you consult your balance on your current account or anything like that. It's pretty much faster. So I think that the results are there. Spain is getting less cost out of what we have done. Chile, the response has been really, really good. Mexico migration was a success, and we expect to be closing -- I mean, decreasing the amount of capacity. We're using the mainframe right away, and we'll see it over. But you see the results on '26. That's when exactly happens because we will be shutting down the mainframes on those markets. José Antonio García Cantera: Okay. If I may add some details on NII, you asked about the difference between customer margins and NII. I think we are -- as Hector said, we are doing a great job in managing cost of deposits, a lot better than we anticipated. We are growing volumes at a lower cost. So that's one component relative to the initial guidance we gave at the beginning of the year. The other one is obviously all the hedging decisions that we've taken. Right now, we have around EUR 50 billion of Spanish government bonds at an average yield of 3.4% and a duration of 5 years. That's expected to add quite a lot to the NII in the fourth quarter and next year. So on a sequential basis, I think, as I said, we are close to the trough. It's possible that we see a slight decrease quarter-on-quarter, maybe 1 or 2 quarters more, but from very, very close to basically flattish, but basically probably slightly down quarter-on-quarter. So if you look at the year as a whole, you're right. We guided for minus 6%, then minus 4%, and it's going to be flat or slightly down year-on-year. But the outlook for 2026 beyond these 1, 2 quarters where it might be marginally down is quite positive. Operator: Next question from Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: Here is Sofie from Goldman Sachs. So my first question would be around the kind of litigation provisions still to come. You took a provision in the Corporate Centre in the fourth quarter. How much -- or is there any additional details that you could give around this provision? And how much should we expect still to come from U.K. motor and also AXA provisions? Do you have any other litigation provisions that we should expect in any other countries over the next quarter or year? That would be my first question. Then my second question would be if you could maybe talk a little bit more about the net interest income outlook in Brazil. I know interest rates are expected to come down. But in the kind of short term -- short to medium term, what do you expect in terms of volume growth? Could you remind us of your rate sensitivity in Brazil? And how long does it take for lower rates to help the Brazilian net interest income? Hector Blas Grisi Checa: Thank you, Sofie. Okay. I mean, first of all, on this situation of the litigation provisions to come. First of all, on the U.K. AXA situation, we do not expect the net impact of the judgment to be material for the group, okay? In October 22, the court granted Santander permission to appeal and the case will now proceed to the Court of Appeal. Given this is an ongoing matter, we are not able to comment any further. I'm sorry about that. In terms of the U.K. motor finance, in '24, as you know, we took almost a GBP 300 million provision for the U.K. FCA motor finance review. We have noted that the FCA has recently published a consultation into a proposed reduce scheme and Santander U.K. is reviewing the consultation in detail basically to understand the potential implications. We also know that the FCA's proposed approach differs in an important respect from the Supreme Court's ruling and the legal basis for the redress scheme relevant period is not clear, and it remains at the consultation stage. So there is, therefore, a certainty regarding the final scope methodology and the timing of the redress scheme that may ultimately be implemented. So at this point, I think it's very complicated. And the important thing that I can tell you that is not expected to be material for the group and no more than a few points of CET1. So we will provide you further update on the Q4 results, and we reiterate that we're on track for the results and the guidance that we have given you for '25 on all the targets. In terms of NII outlook for Brazil, what I can tell you is interesting to say basically that we need to put Brazil in context. So it's very important to understand that. The loan book in Brazil is only 9% of the total group loans. Diversification is working. The impact of higher rates and inflation in Brazil has been positively offset by the stronger performance in Europe and in other businesses. But Brazil is also -- it's important to say, it is growing by 2% in '25. Labor markets have been resilient, okay, despite the challenging rate environment. And as I said before, interest rates are the highest, I mean, in terms of real rates, which is an important point to take. So what we have done is that we are changing the mix, and we are going to a higher quality business, which means lower margins, but more stable asset quality, which is very important. And I feel comfortable and confident that as monetary policy eases, the business will do even better than we did in the last easing cycle. Also, you got to remember, as you know very well, that we have negative sensitivity to high rates in Brazil. So we expect once the rates start coming down that, that basically will help us out and we will give better margins for us. If we've been that, I don't know, Jose, if you would like to complement. José Antonio García Cantera: Yes. Just some details on that. Interest rate sensitivity today to 100 basis point move in the curve is EUR 75 million upwards and downwards. You know that this is lower than it has been in the last few years. We've been decreasing the overall sensitivity, but more importantly, we've been moving the sensitivity towards -- we've made the sensitivity more sort of homogeneous along the curve. So we no longer depend as much on short-term rates, but we have a spread sensitivity from 0 to 3, 4 years, which we think is the right position to be in front of the lower rates. We expect next year. So we would expect NII to be stable in 2025 with basically stable revenue and with fees up. This basically on loans that are also going to be stable in 2025. So again, no further, I would say, the sensitivity we have when we look at 2025 -- sorry, 2026 and 2027 should contribute positively to NII evolution in Brazil in the next couple of years. Operator: Next question from Alvaro Serrano from Morgan Stanley. Alvaro de Tejada: I kind of have a follow-up on costs and another one on U.S. asset quality. On cost, cost income continues to improve sequentially quarter-on-quarter. My follow-up is, apologies, Hector, I heard you say that Mexico Gravity was implemented this weekend, but I don't -- I missed if you can give us the pipeline of the next few countries over the next few quarters. And as we think about next year's cost in medium term, I noted in the past, you've said you can achieve flat costs in retail in particular. Is this possible in places like Brazil and Mexico? Because in Mexico, sorry, your cost income is not as good as peers. So just wondering if there's an advantage there that we're not taking into account? And the second on costs -- sorry, on cost of risk in the U.S. Jose, I noted your comments saying that stable asset quality performance in the U.S. But if we look at ABS data at an aggregate level, there is a deterioration, it looks like in subprime auto, which you have some exposure to. Can you maybe talk us through why you think you're not seeing that deterioration? Is it because you haven't been growing that much in the segment over the last 2, 3 years? You're not exposed to undocumented where there has been some trouble. Maybe some more color on that stable asset quality performance in the U.S. that you've noted. Hector Blas Grisi Checa: Thank you, Alvaro. So first of all, let me give you a general view on cost on the group, and then we'll get into the details of Gravity and then flat cost in Mexico, Brazil, which, by the way, are pretty good questions. And then I'll address the U.S., which thank you very much. I knew you were coming with that one, so I was prepared, okay? So costs remain very well controlled in the first 9 months of '25, as you have seen, so minus 1% in current, all right? I must tell you that we will reiterate the guidance to deliver lower cost in current euros versus '25 versus '24, okay? Because we see that we're done in absolute terms and the cost growth remains below the revenue growth, which is very important in this group. Remember, always positive jaws, underpinning the confidence in delivering the positive operating leverage that we are creating through ONE Transformation. Remember, ONE Transformation is all about increasing revenues and decreasing cost, and that basically creates the operating leverage that we're working for. Short-term costs are higher as we continue to invest in the global platforms. As I explained to you, I mean, Mexico, even though we had the migration this weekend, I mean, the mainframe is still basically consuming MIPS because we want to keep this in parallel until we stabilize Gravity. Once Gravity is stabilized, we start basically decreasing the amount of MIPS that we consume on the mainframe. By the way, then we start decreasing the cost that we have. So -- and we have the same in many different platforms, Alvaro. So that's why I say that '26 is the most difficult year because that's where we are doing this transformation in which the global platforms are coming in, Gravity, Plard, Payments Hub, et cetera, and we start in parallel running those. By the way, just getting into Mexico, Mexico is the worst one by far because Mexico is the one that we needed to upgrade the most and it's the one that has most dual platforms working on. They have in dual Plard for credit cards, and they have Pampa working at the same time where we're doing the migration. We have Gravity and the mainframe at the same time because we're doing the migration. We have in Payments Hub and transfer working at the same time because we're going to decommission transfer towards the end of the year. So you'll see that Mexico will start basically getting more -- I mean, in the level of our peers. And by the way, our only peers that you are talking about is Banorte and BBVA because the rest are further ahead from us in cost. We're much better. I mean I would say that we are a little better in average but we need to get -- I couldn't agree more. We need to get to our peers, and that's exactly what we're working on. And the same thing is -- I will tell you is Brazil, okay? So Brazil is going to be the same, but I mean, we implement, for example, Brazil just got the new version 24 of the global app that is coming in. It's the first country to do so. We already have 1 million customers migrated, but we need to migrate 60 million customers at the end. So this takes time. But nevertheless, we are also at the same time, because we're doing the simplification and the automation, we've been able to maintain cost. And you were asking precisely about what's going in Retail and Commercial, which is a really good question. How are we basically doing to decrease cost in Retail and Commercial at the same time, we're doing this deployment. It's because in Retail and Commercial, we are doing interesting things in terms of basically concentrate on simplification. You take a look at the number of products that we had 3 years ago, it was over 10,000 products. Just to give you an example, 300 different credit cards in Brazil. We're down to 17 different credit cards in Brazil. Mortgages in Mexico, we have 17 different types of mortgages in Mexico. We're down to 3. So the amount of things are going. The important thing is basically change the legacy on the back of the bank. That's where the big job is being taken on in terms of simplifying all the legacy that we have, and that's a huge amount of cost. Sorry to extend myself, but it's very important that you understand what ONE Transformation is all about. It's not just about the platforms, it's a lot about simplification and automation of processes, which really change exactly what we're doing. So I'm confident that '26, even though it's a tough year in terms of everything that I'm explaining to you, we will be able to maintain costs flat or down in the group because that's exactly where we are concentrated, okay? So it's very important that you get that. I don't know if that basically answers all of your question. If not, please let me know, and I will gladly give you all the details on that. But the thing is, I mean, the amount of money that you save once you're decommissioning, and that's the most important part, the discipline on the commissioning, you really start to see the savings coming on and you have seen it because there was no other way that we could be giving you this number in cost if we were not really doing those commissions and being very disciplined about it. In terms of cost of risk in the U.S., first of all, it's important what I was telling you. We continue to be and to high exposure to prime and near prime. If I'm correct, 38% of our book is prime and near prime, okay? As you say correctly, the amount of origination has come down significantly. We were at the peak about 2 years ago at around EUR 35 billion in origination. We're down to EUR 22 billion, EUR 23 billion. And at the end of the year, it's going to be EUR 24 billion in origination. The origination that we do in subprime and this subprime is very well managed and it's not the same that the other player basically was doing. As you say, we never get into with undocumented customers. So it's a completely different model than the one we have. So what you see is what Jose explained in his presentation that we see that even 30 days and 60 days delinquency is normalizing, 90 days is still below what we expected. So we expect less provisions even in the fourth quarter from the U.S. auto business because of that. So I don't want to give you an exact figure because, I mean, you never know what happens towards the end, but we see nonetheless that labor market is still strong. Manheim is up 2% year-on-year, even though it has decreased a little bit in the past 3, 4 months, but nothing to concern us. And the customers, what's happening after 90 days is that they want to keep their autos because they know that it's going to be much more expensive to go out into the market. So that's why 90-day delinquencies, people are basically coming back to us and renegotiating because they want to keep their autos. So I don't know if that basically answers your question. Jose, I don't know if I left anything out. José Antonio García Cantera: Just again, in terms of cost of risk, the second half tends to be worse than the first half. But when you look -- when you compare quarter-on-quarter '26 against -- sorry, '25 against '24 the numbers are coming in better every single quarter than we had last year. So in the third quarter, last year, cost of risk was 1.85%. It is 1.69% in the third quarter of this year in the U.S. Remember, at the beginning of the year, we guided for cost of risk slightly above 2%. Today, we see cost of risk in the U.S. below 2% in 2025. So actually better than we expected. Again, knowing that there is some seasonality in the second half, but the numbers should be better. And just to give you a bit of more details on what Hector just said, when we look at loans past due over 60 days, and if we look at the last 10 years, this number for non-prime has moved between 4% to 8%. And we are within that range at the moment. So it's not -- by any means, it has been going up recently, but it's within the range that we've seen in the last 10 years. When we look at prime, for instance, over 60 days, it's below 3%. And again, this figure has been moving a bit higher, a bit lower than 2% for the last 10 years. So very much normalized. It's true that in the last couple of quarters, we're seeing some increase in this ratio, but this is not translated into losses because the recovery rates remain very robust. So when we look at actual losses, net loss in prime, it's basically below 3%, which is much better probably that we saw, for instance, during the period of 2010 to 2020 or 2019. And if we look at non-prime, losses are below 7%, which is the best we've seen, excluding the post-COVID period, these are the better numbers, the best numbers that we've seen in many, many years. So net-net, actually very normal behavior is what we see in the U.S. Operator: Next question from Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: First question would actually be regarding first brands in the U.S. So there was the press reports over previously this month regarding some engagement with Jefferies and the possibility of Santander being involved in the refinancing of first brands. I'm just trying to understand here whether there is any relevant exposure? Or do you see this as a risk for the group? The second question would actually be focused on the corporate tax rate. So how do you see -- what should we expect in terms of overall corporate tax rates in the full year or in the fourth quarter? If you prefer for the group as a whole, but focusing as well on Brazil, we had this quarter low tax rate given the interest payments on capital. Should we see a similar effect in the fourth quarter? Or should we see it reverting back to the previous levels now in the first? Hector Blas Grisi Checa: Thank you, Carlos. I must tell you in terms of first grants, as you know, we don't discuss customers. What I can tell you is that whatever we have is not material for the group at all. José Antonio García Cantera: Tax rate. Yes, the tax rate for the group in the first 9 months of the year was 26.6%, which basically it's -- in Spain, it was 37.5%. Excluding Spain, 24.1%. This is a little bit better, not significantly better than what we anticipated. There are 2 reasons for this. In the U.S., tax rate is 10%. Remember that we said that when the EV vehicles, the aid program finalizes and the tax rate would normalize gradually, and we thought that it would normalize faster than it is normalizing. So actually, the tax rate is lower in the U.S. than we thought, slightly lower in Brazil, nothing significant. So for year-end, we would expect the tax rate to be around the same level it is today, 27%. Operator: Next question from Britta Schmidt from Autonomous. Britta Schmidt: A couple of follow-ups on credit, please. In Mexico, I think there's some comments on model updates and higher SME provisions. Can you help us disentangle these 2? What was the impact of the model updates? And what are you seeing in terms of the SME pressure? And do you expect that to continue or get worse? In Brazil, there were also some selected issues in the corporate world. Can you maybe comment whether you've got any exposure here and whether you still feel happy with the provision that you built in the last quarter? And then lastly, Argentina came in quite high as well. Is this only lending or are there also impacts in potentially the bond portfolio? And maybe you can share with us a little bit as to what you expect for Argentina in the coming quarters with regards to results, hyperinflation and also FX developments? Hector Blas Grisi Checa: Thank you, Britta. I will address the questions on Brazil and Argentina and then Jose will tell you a little bit, I mean, what's going on. But let me tell you that in Mexico, I mean, the portfolios are performing really well. We have had some model updates, anything, but nothing that hits capital in that. And SMEs basically, actually, we're growing in the segment because we have really good roll. So I can tell you that we're going to be for that, but Jose will give you better details. In terms of Brazil corporates, I can tell you, we have taken a deeper look on the portfolio because with 10% real rates, corporates suffer in that environment. So we have reviewed the portfolio in detail. We have actually understood and located exactly what the problems are, and we're working on them. But I don't see any significant situations on the portfolio up to this point. All of them are under control and they were taken -- we're really taking care of them. So on the corporate side, -- and we don't have anything material that would be a material impact for the group, at least on the next few months, okay? But -- and I don't foresee it because even the situation, as I said, Brazil is growing 2%. So in that sense, the economy is still growing. Argentina is an interesting story. I actually was in Argentina. I was in Brazil a couple of months ago. And what I can tell you is the situation is complicated. In one sense, it's complicated because, as you know, inflation is at around the levels between 25% to 30%, and that's where the year is going to end. Rates because the government has really, I would say, basically, there is no pesos to lend in Argentina, okay? So the government is squeezing pesos out to really decrease inflation in a strong way. So that basically -- that has basically taken rates to -- real rates to levels that are tremendously high. So what you see in Argentina happening is that the cost of risk is growing tremendously hard. So we've been very cautious in Argentina because of that. I mean, cost of risk in Argentina went almost to the level of 7%. And that's why, I mean, with real rates at this level, it's really impossible to make money with 60 points of real rates. So what we've been doing is being very cautious. We're basically being -- the only lending that we're doing in Argentina is to exporters in dollars. That's the majority thing and energy -- I mean, and energy companies. So we're basically involved in situations in Vaca Muerta, where there is a lot of opportunities and the portfolio is basically going very well. But I must tell you to lend in pesos in Argentina in this market today is hard because of the real rates. So hopefully, let's see what the government does with this victory that they just had. They had a pretty good rally. The peso appreciated a little bit. So hopefully, let's see that they ease up a little bit on the economy, the rates -- real rates start to come down, and we see a much better next few months. But today, we're being very cautious in the way we manage credit in Argentina. Jose? José Antonio García Cantera: Mexico, yes, we've updated the models, the provisioning models and some capital models. The consequence is that without really seeing any significant deterioration in real asset quality, there has been a movement from Stage 2 to Stage 3. So it's around 10% of the Stage 2 loans moved into Stage 3, but it's the consequence of the model, not that the actual deterioration was taking place. In any case, cost of risk in the third quarter is still below 3%. In the third quarter alone, if we look at the last 12 months cost of risk at 2.6%, below 3%. And remember at the beginning of the year that we said cost of risk in Mexico would not go above 3%. It's actually quite well below 3% because the overall performance is pretty good. But in this quarter, in particular, again, it's this technical change from Stage 2 to Stage 3. Operator: Next question from Pablo de la Torre Cuevas from RBC. Pablo de la Torre Cuevas: I just want to get your thoughts on the deposit for the U.K. into the next year. One of your peers talked about muted deposit growth in 2026 and another has spoken of elevated competition in term deposits. So just interested in your thoughts there as deposit growth has been a big driver of top line growth over the last couple of years for U.K. banks. And then if we translate that into U.K. NIM directionally and excluding TSB, would you expect underlying U.K. NIM to grow as much in 2026 as it has been in 2025, driven by that structural hedge repricing? José Antonio García Cantera: So structural hedge right now is EUR 106 billion at 2.7% yield and 2.5 years of duration. So this should have positive contribution to NII next year. Second comment, we expect rates to go down from 4% to 3.5% by year-end next year. It could go down even -- there could be even 3 cuts, but we believe that we give today more probability to 2 cuts. Volumes should be up next year. So overall, we would expect NII to actually increase in the U.K. in 2026, excluding TSB, of course. And we are talking low to mid-single digits increase in NII. Raul Sinha: Thanks very much, Jose. Ben, hopefully, that answers your question, but we can take it offline if you've got any further details on deposits outstanding. Could we have the next question, please? Operator: Next question from Borja Ramirez from Citi. Borja Ramirez Segura: I have 2. Firstly, on capital, I believe it may have been mentioned that in Q4, it's generally more intensive in terms of the SRTs. So I would like to ask if you could provide any details on the capital benefit that we may see in Q4 linked to SRTs? And then my second question would be on other provisions. If I understood well, it was mentioned that other provisions would be around EUR 3 billion for 2025. Given that you have booked EUR 2.5 billion in the 9 months, this seems to imply EUR 0.5 billion for Q4. So I would like to ask if my numbers are correct, of course, if -- what are the assumptions on provisions? José Antonio García Cantera: Thank you, Borja. The first one, yes, the fourth quarter is the most active in risk-weighted asset mobilization initiatives. And as a consequence, we would expect net risk-weighted asset growth to be close to 0 in the fourth quarter. It was slightly positive in the third quarter. We have gross risk-weighted assets up EUR 11 billion and asset mobilization initiatives between EUR 7 billion to EUR 8 billion in the third quarter. So the fourth quarter the net gain from SRTs, which, by the way, is not the only way we are mobilizing capital. In the third quarter, we mobilized as much by asset sales as securitizations and also we had some hedges. So we are using different tools to optimize the capital and increase the capital productivity. So putting all this together against risk-weighted asset growth in the fourth quarter, it should be very, very close to 0. Your second question, when you speak about other provisions, I presume that you're talking about other results, so the line below provisions. And yes, this line should be substantially lower than last year because of the one-offs that we had last year and because the banking tax in Spain last year was accounted for in other results now is in the tax line. And yes, we would expect this line to be a bit higher than EUR 3 billion in the year. EUR 3 billion, EUR 3.2 billion is the reasonable number. In the absence of any substantial one-offs that at this point, we do not envision. But in the absence of substantial one-offs, the answer is yes. And the reason is, excluding these one-offs, what is in this line is the labor cost in Brazil, operational risk. It tends to be a bit higher in the fourth quarter, but not to deviate a lot from, let's say, EUR 3.2 billion for the year, again, excluding one-offs. Operator: Next question from Andrea Filtri from Mediobanca. Andrea Filtri: The first is a bit of a back of the envelope. Your 16.5% RoTE target discounts around EUR 13.6 billion profits in 2025, which would only imply EUR 3.3 billion left for Q4 '25, which would be a deceleration quarter-on-quarter, while your RoTE guidance implies a marked acceleration in Q4. So which of the 2 is right? And second question, more conceptual on insurance and the Danish Compromise. You have made statements prior on the intention to gain Danish Compromise like benefits at Santander. Could you elaborate a little bit how you intend to do that and what sort of benefit you could get? Hector Blas Grisi Checa: Okay, Andrea. First of all, and I know you're very bright, probably brighter than me, but you need to redo your numbers because for me, actually, the numbers shall be going up. So that will be my comment on that one. In terms of -- okay, in terms of Insurance and what we're doing with Danish Compromise, the only thing I could say is we have formally approved -- I mean, sorry, applied with the ECB for enhanced supervision, and that's the only thing that I could discuss at this point. And let's see what the ECB decides. And if they give us enhanced supervision, that will give us basically the trend to see the following path or the following step. Raul Sinha: Yes, Andrea, post-AT1, 16.5% would be slightly higher than the numbers, but we're very happy to give you a call after and take you through the details. We have the next question please? Operator: Next question from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: First one is if you can give some color on any excess capital above the 13% by the end of the year if that is going to be used for incremental capital return or there's going to be some uses of that capital, thinking of potentially restructuring costs, for example? And then the second one is on the payout mix between cash and buybacks, considering higher share prices and lower profitability of buying back stock, if you think it makes sense conceptually to be moving towards the cash dividend component basically of the payout mix in the future? Hector Blas Grisi Checa: As you know, we have a very strict capital hierarchy, okay? First of all, as we have said, we're going to prioritize organic profitable growth. Second, we're going to follow it by ordinary distribution. Then we do any bolt-on acquisitions that must be complementary and to generate attractive financial returns. And those need to surpass those of any organic investments or buybacks, okay? So I believe that at this point, we feel very comfortable with the capital levels that we have. And the capital allocation framework has been fundamental pillar of the strategy, as you have seen. And we will continue the disciplined and strict capital approach that we have had to capital, all right? So in that sense, then I will ask Jose basically to give you more details on the buyback. José Antonio García Cantera: So this is a very interesting intellectual and financial discussion because you have all types of technical papers written on this matter. But the way we see this, and obviously, this is for the Board to decide, and it will decide in the Board of Directors that will take place in December about the dividend policy for next year. But the way we see that or I see that is that when you are looking at improving profitability going forward and when you are looking at a cost of capital that is at worst stable, probably improving, and then you add growth, high single-digit growth buying back shares is still a very good value proposition. Obviously, the new business is being written at a return on tangible equity, as I said, of 22%. That is the first and most important use of our capital, but there's not an infinite amount of capital that we can put to work at 22%. So once we have covered that bucket, buying back shares, again, when you're looking at improving profitability, stable lower cost of capital and growth in profits is still a very good value proposition for shareholders. Raul Sinha: More details to come next year, not sure. I hope you understand. We've got 2 more questions left. Could we go to the next question, please. Operator: Next question from Fernando Gil de Santivanes from Intesa Sanpaolo. Fernando Gil de Santivañes d´Ornellas: Can you hear me okay? Raul Sinha: Go ahead. Fernando Gil de Santivañes d´Ornellas: Okay. First question, a follow-up in Spain regarding the repricing on rates, are we done in the repricing? And what is the bank risk appetite going forward regarding the actual pricing trends, especially in the loan yields? And the second question is on DCB Europe. I see the NII up 13% year-on-year, 5% Q-on-Q. What is driving these upgrades? And can you comment what is -- what should we expect going forward? Hector Blas Grisi Checa: Look, in terms of Spain, what I tell you, I mean, it's a very competitive market, as you know. We have rates in -- even with the Spanish bond at [ 330 ], we have mortgages down, and we have seen 190s, 175s. I think that the market is being rational in that point. So hopefully, there is some rationality in the months to come, and we see rates at much better levels. And we have been very disciplined and very focused on profitability, and we will continue to do so even if we lose a little bit of market share that you have seen that we have lost a little bit of market share because of that discipline. So we don't believe that mortgages today at 175 makes sense to do in the bank. So we won't do them and exactly when the price and when there is a lot of competition on the high-risk name in the corporate side, et cetera, we're going to maintain our level of risk reward that we believe is the right one. So we will continue, and we will put a lot of discipline in that sense. In terms of what we see in terms of DCB, give me 1 second. But look, I mean, in global DCB, first of all, it is important to say that we are improving the RoTE from 24% to 10.4% post-AT1s in '25. So it's important. Part of the improvement is explained by the lower conduct basically of the charges that we have remember on the Swiss francs, mainly in Poland, but the underlying attributable profit is growing at 6%. So that basically is positive. NII is growing 6% year-on-year. That's well above credit, which is up 2% and is benefiting for the focus on profitability, as we have said. The yields on loans have improved 25 basis points and the cost of deposits has come down by 39 basis points. As you know, in this business, we are sensitive to higher rates, negative sensitivity to higher rates. When rates start to come down, we have much better margins. And also, it's important to say that we have improving credit quality. The cost of risk is down for 2.01%. That's less than 10 basis points versus Q3 '24. And 12 months cost of risk is at 2.06%, down 3 basis points quarter-on-quarter. And we have excellent LPs performance as we have said. Our strategy is to expand the deposit gathering capabilities through Openbank. As you know, it has been a success. We are doing that in Germany. And also, as we have announced, we are merging Openbank and DCB Europe that basically will enable us to basically have much more control, better management and the deposits close to the origination of the assets. So that basically would be a help to have much better margins, much better operation and also much better cost. Raul Sinha: Could we have the last question, please? Operator: Last question from Miruna Chirea from Jefferies. Miruna Chirea: I just had a quick one, please, on Openbank. I was wondering how your progress in Openbank is going in Mexico and in the U.S. If you could give us maybe an update in terms of the balance of deposits that you've raised in those markets since you launched? And then secondly, to this point that you are making now on merging Openbank and Santander Consumer Finance in Europe, could you give us just a bit more color on what kind of synergies could you see there by merging the 2 lines of business and the overall rationale for this? Hector Blas Grisi Checa: Thank you, Miruna. Okay. So Openbank Mexico and the U.S., this is basically -- I'm giving it to you from the back of my mind. If I'm correct, it's EUR 6.5 billion in deposits on the 2 combined, if I remember correctly. And we're talking about 160,000 customers in the U.S. And in Mexico, I don't recall -- I'll give you the exact number. Sorry, basically, I don't have it in front of me. We're trying to find it out for you. Let me -- in the meantime, let me discuss a little bit what's the rationale behind the merger that we're doing with Openbank and DCB. As you know, I mean, we've been operating in parallel. It's one unit, and we have one boss basically managing both of those businesses. At this point, I mean, we had 2 of everything because there were 2 separate institutions. That basically will help us a lot in terms of cost because now we're going to have just one for both of them. So cost systems, et cetera. So a lot of that is going to be a lot of synergies in that sense. But the most important synergy is the amount of deposits that we have in the bank that will be basically used to eliminate or try to eliminate as much the negative sensitivity that we have when rates basically go up. When you have a sustainable deposit base that will basically help you out to match it to the assets and you have a much better planning if you have that. Openbank, as you know, is the largest deposit base of any digital bank in Europe. We believe there's a huge opportunity to continue like that and also will help us to upgrade our operations in Germany, which we have a really good deposit base there, and we would like to increase it and continue basically growing the business as we see fit. So all in all, I think it's going to be a pretty good combination. Yes, in the U.S., it is EUR 5.8 billion in deposits, and we're talking about 162,000 new customers in Openbank. Raul Sinha: Thank you, Miruna. I think that we are out of questions. Thank you, everybody, for your time this morning. This concludes our analyst presentation, and we look forward to speaking to you soon. Have a good day.
Operator: Hello, everyone, and thank you for joining the Alm. Brand Q3 2025 Call. My name is [ Sami ], and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to our host, Rasmus Nielsen, CEO, to begin. Please go ahead, Rasmus. Rasmus Nielsen: Thank you. Good morning, and thank you for joining us on our conference call. I'm Rasmus Nielsen. As usual, I have with me today, our CFO, Andreas Ruben Madsen; and the Head of our IR team, Mads Thinggaard. This morning, we published our interim report for the third quarter. And as usual, I will walk you through the operating highlights, and then Andreas will comment on the financials. Please turn to Slide 2. I'm quite pleased with the overall financial performance in Q3, which has strong organic growth and good cost control at the same time as the underlying loss ratio was improving, helped by synergies and price adjustments. We reached an insurance revenue growth of 10% in Personal Lines, which implies we are taking quite a bit of market share with our strong bank partnerships as a driver, while price adjustments are still kicking in as well. Synergies are materializing better than planned. In Q3, we have reached a run rate that exceeds the DKK 600 million synergies per year originally communicated. Adjusted for a lower discounting effect on claims, we reached an improvement in the underlying loss ratio of about 3 percentage points year-on-year. Lower costs and lower underlying losses were the main drivers behind an improvement in combined ratio to 82.2% from 85.7% in Q3 last year. And now I'll turn to Slide 3 with our financial highlights. Insurance revenue grew to above DKK 3 billion for the first time ever, while the insurance service result of DKK 535 million was our highest technical result to date in the quarter. As mentioned on the previous slide, the quarter was characterized by strong growth and cost control, combined with a healthy improvement in the undiscounted underlying claims of about 300 basis points. We therefore see a clear path towards reaching our strategic target of a technical result in '25 of DKK 1.85 billion. Investment income in Q3 was a satisfactory profit of DKK 66 million, which was primarily driven by a positive result in the fees portfolio. And now let's continue on Slide 5. The group made a technical result of DKK 535 million in the quarter, up from DKK 400 million in Q3 last year due to synergies, premium growth and profitability improvements. The insurance service result from Commercial Lines was DKK 265 million against DKK 197 million last year, primarily driven by lower underlying claims. In Personal Lines, we also had a sizable increase in the insurance service result to DKK 270 million from DKK 203 million last year, driven by higher premiums and lower underlying claims as well as strong cost control. Please turn to Slide 6. Insurance revenue grew strongly by 7.5% in the quarter, just a bit lower than 8.3% in last quarter. I would say overall premium growth is very satisfactory with a continuing strong momentum. In Personal Lines -- I would say overall premium growth is very satisfactory with a continuing strong momentum. In Personal Lines, we are clearly taking market shares on top of indexations and the price increases we have implemented. We do consider the 10% growth in Personal Lines as a very bright spot in our report. In Commercial Lines, we see a continuation of the rebound last quarter to a premium growth of around 5%. And moving on to Slide 7 and the claims ratio. The Q3 claims ratio was down 220 basis points year-on-year in a quarter with a bit higher weather and large claims, but also with help from gain in the risk adjustments related to the approval of our PIM model to cover the Codan business. Run-off gains were 1 percentage point lower than in Q3 last year. The underlying claims ratio was 260 basis points better year-on-year, especially driven by repricing in Personal and Commercial Lines. Moving to an undiscounted basis, we see a 320 basis point improvement in the underlying claims ratio year-on-year. Commercial Lines stands out with an improvement of about 400 basis points year-on-year, while Personal Lines improved by more than 200 basis points. And now please turn to Slide 8. Combined ratio in Personal Lines improved to 83% from 86% due to a 1.3 percentage point lower cost ratio and 200 basis points lower underlying claims ratio. We are seeing motor frequency starting to drop, but still a continued increase in the average motor repair costs. In total, we therefore see a bit of stabilization in the overall motor claims expenses, while executed repricing and synergies are helping the underlying claims ratio down. Please turn to Slide 9 and the Commercial Lines. In Commercial Lines, we see a significant decrease in the combined ratio to [ 81.3% ] from [ 85.5% ] last year. The massive drop is driven by lower underlying claims as well as lower cost ratio. The same picture as in Personal Lines just with a more massive drop in the underlying claims. And with these comments, I will now hand over the word to Andreas, who will give an update on expectations for weather and large claims. Andreas will also walk us through the synergies, investments and guidance. Andreas Madsen: Thank you, Rasmus. Now please turn to Slide 11. The slide illustrates the level of major claims in the last 11 quarters compared to our indication of a normal level. We've decided to reduce the normal level indicated to 6% from 7% before. This change assessment follows the recent approval of our PIM model, but it's also backed by quite low actual levels since Q1 '23 and ongoing portfolio changes. The 6.3% level of major claims in Q3 '25 is thus slightly above the new normal level for the group. And on Slide 12, we show Commercial Lines being relatively high with 11.3 percentage points of major claims compared to the new normal indicated of 10 percentage points. The normal level for major claims in Commercial Lines was 12 percentage points before the change. And now turn to Slide 13 regarding the weather-related claims, where we also introduced a new normal level as well as an indication for the seasonal pattern of claims. As you may have noted, weather claims have climbed a bit up in recent years and the average for the last 11 quarters of 3.3 percentage points is above our old expectation of 2 to 3. We have reassessed the structural level after the recent PIM approval, and we now see 3 to 4 percentage points as a better indication of the yearly normal level. We're also providing an indication of seasonality for the weather claims. We point to 35% for Q1, 10% for Q2, 25% for Q3 and finally, 30% for Q4 as a normal distribution over the year. Overall, our change assessment of structural large claims and weather claims do not change our structural expectations for the insurance service result going forward. Now I turn to Slide 15 for an update on synergies. With the DKK 158 million in synergies harvested in Q3 '25, we have actually passed the promised run rate of DKK 600 million per year back from the acquisition of Codan. And as flagged previously, we expect to end the year with a run rate of around DKK 650 million. This will be the ending of our synergy accounting. We had a nice jump up in harvested synergies in Q3 of DKK 40 million from [ DKK 118 ] million in Q3 '24. This implies an improvement in an underlying claims ratio of 0.5 percentage points and in our cost ratio of 0.7 percentage points year-on-year. And now move to Slide 16 and the investment results. The investment result was a satisfactory profit of DKK 66 million, primarily driven by a positive return from our free portfolio in combination with a small profit from our match portfolio. Returns on bond and equity were the key drivers for the strong result. I should also mention that we expect our Tier 2 cost to drop looking ahead as we have now bought back DKK 400 million of Tier 2 bonds out of the previous DKK 1.3 billion issued. The buyback of Tier 2 bonds was driven by our lower capacity for Tier 2 capital following the PIM model approval. And finally, now move to Slide 18 and the outlook. We upgraded our guidance for the insurance service result in '25 by DKK 100 million to DKK 1.75 billion to DKK 1.85 billion. This is due to realized run-off gains in Q3 as well as a strong underlying result. At the same time, we narrowed the guidance range to DKK 100 million due to being close to the year-end. The cost ratio guidance is unchanged at 17% for '25, while the combined ratio, excluding run-off results in Q4 is expected to be 84.5% to 85.5%. The combined ratio guidance range is narrowed as well. The guidance includes synergies of DKK 600 million and the effect of implemented pricing efforts in Commercial as well as Personal Lines. We upgraded the guidance for the investment result in '25 by a new DKK 50 million to a guidance of DKK 300 million, while the guidance for other income and expenses of minus DKK 125 million remains unchanged. Consequently, group profit, excluding special costs is expected to be DKK 1.93 billion to DKK 2.03 billion before tax, excluding run-off gains for Q4 '25. In addition, we guide for our restructuring costs of DKK 175 million, of which DKK 25 million relates to the separation of our Energy & Marine business, while we expect depreciation of intangible assets to affect the income statement by around DKK 335 million in 2025. Please recall that we are hosting a CMD here at our headquarters on November 18, and we hope to see as many of you as possible. And with this, I conclude our presentation and hand over the word to our moderator. Thank you. Operator: [Operator Instructions] Our first question comes from Mathias Nielsen from Nordea. Mathias Nielsen: My primary question on the first thing is if you could remind us a bit on like what we should think about the pricing tailwinds into the Q4 top line growth. If I remember right, I think it was around 1st of November last year, you started to implement the price hikes a bit more broader. So what should we think about the top line growth year-on-year when we look at Q4 numbers and into '26 as well? Andreas Madsen: Yes. Thank you, Mathias, Andreas here. Let me try to give some flavor to that. Well, you're right to remember that we did actually start the current repricing in Q4 of last year. So as such, we would expect to see the effects coming from the extraordinary price initiatives slow down a bit as we go into Q4 and further as we obviously migrate into next year. So it will be coming down a bit from what we've seen in this quarter. And maybe I could just give you those numbers also to help you out because if we look now, it's more or less what we also communicated the last time around. But looking at Personal Lines, where we have a 10 percentage points growth year-on-year, pricing would come to around 4% of that. And in Commercial Lines, we see of the total of 5 percentage points growth, we would approximate something like 2 percentage points coming from repricing on a net basis. Mathias Nielsen: That's very clear. If we then move into the next year and think about that, like what is the expectations on claims inflation when we look into '26? What should we think about that? This is above ranges when you ask some of the Nordic P&C insurers at the moment. So what are you looking into? Andreas Madsen: Yes. Well, I think our overall read is that we still -- our main focus or our main sort of -- the area where we are most affected by claims inflation remains motor. We still see some quite significant price hikes in motor coming, especially from higher spare parts. So what we're also communicating around what we're seeing this year is that motor claims in total is more or less where we expect it to be given that frequency has come down a bit. But on the other hand, we've seen this uptick in claims inflation. For now, I would expect that to more or less, let's say, flatten out at these levels. That would be our overall expectation. We don't have evidence yet that this has softened. In the longer run, at some point, we would expect market dynamics to help us to push down again to a more normal level for motor. But we're not -- for now, we are expecting more flat movements. And I don't see any very big themes for the rest of our book as it stands right now. Mathias Nielsen: So if we try to put some numbers on that on claims inflation, is that around 3% to 4% claims inflation next year? Is that what you're trying to allude to? Or how should we think about that? Andreas Madsen: That's not off. I would say something around the vicinity of 3 percentage points, also maybe roughly corresponding to what you would expect to see from wages on an overall basis. Mathias Nielsen: Sure. And then my last question on the capital side, like in terms of expectations of buybacks into next year. If my memory serves me right, like the ongoing buyback is ending in March, and that's why we should expect a new one if there's going to come a new big one, if that's correct. That was the first part of that question. And the second part of that, is there any -- do you see any limitations on how much you can buy back and then need to go to the foundation again? Or is that something that you think you would be able to handle in the market at the current situation? Andreas Madsen: Yes. As a general comment, I think I'll start by saying that before we dive into very specifics on the whole strategy around capital and buybacks, I think we like to leave some [ news ] effect also for the CMD. But -- so what I can do is I can restate that we -- you're right to assume that we are sort of at full capacity until sometime in the spring next year. We do have a surplus capital. And in an overall sense, we would like to prioritize also a share buyback in all likelihood when we handle most of that surplus capital. We don't see any news in terms of liquidity. We do -- the amount of buybacks, which we are able to do at this point within the year would be -- within the safe harbor regime would more or less stand also in the next year. Operator: [Operator Instructions] Our next question comes from Martin Birk from SEB. Martin Birk: Andreas, maybe if you could just continue along the lines of capital. You have a solvency ratio target of at least 170%. How is that impacted by this PIM model improvement? I assume that now -- well, I assume that it's also going to be -- we also need to address sort of the total absolute capital base, which will be strictly lower following the payout, which is due in March. Andreas Madsen: Yes. I mean -- thank you, Martin. Well, in overall terms, the 170% is our capital ratio. That's what we have been aiming for. We've had that for some time now. You're right that we also naturally have a lower surplus in absolute numbers. All else equal, the 170% stands. But I think as I also adhered to before, we'd like to give the full update and transparency both in terms of overall capital, how we strategize around the surplus and also how the different parts of the capital base, we see the targets for Tier 2, RT1 and so forth. We see that as natural to give an update for when we get back to our CMD on the 18th of November. Martin Birk: Okay. So a bit of a cliffhanger again, Andreas. But would you also provide an update on when you actually expect to reach the 170% or just above the 170%? Andreas Madsen: I think we would at least give you, I think, the guidance needed in the toolbox to sort of make the right assumptions about that. But the exact timing and others, I think, is a very specific sort of exercise that we could maybe do that. I don't see maybe that as a core part of the CMD presentation as such. But we hope to give guidance that will give you qualified -- sort of the qualified assumptions needed to get to the right timing. Operator: We currently have no further questions. So at this time, I'd like to hand back to Rasmus for some closing remarks. Rasmus Nielsen: Yes. Thank you for listening in again, and we look forward to see you -- hopefully, all of you on 18th of November at our headquarters [indiscernible]. Thank you. Operator: This concludes today's call. We thank everyone for joining. You may now disconnect your lines.
Operator: Welcome, everyone, to UMC's 2025 Third Quarter Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within 2 hours after the conference has finished. Please visit our website, www.umc.com, under the Investor Relations, Investors, Events section. Now, I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin. Michael Lin: Thank you, and welcome to UMC's conference call for the third quarter of 2025. I'm joined by Mr. Jason Wang, President of UMC; and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the third quarter financial results, followed by our President's key message to address UMC's focus and fourth quarter 2025 guidance. Once our President and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors, Financial section. During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company's control. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the ROC security authorities. During this conference, you may view our financial presentations material, which is being broadcast live through the Internet. Now, I would like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss UMC's third quarter 2025 financial results. Chi-Tung Liu: Thank you, Michael. I'd like to go through the third quarter 2025 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on Page 4, in third quarter of 2025, consolidated revenue was TWD 59.13 billion, with gross margin at 29.8%. Net income attributable to the stockholder of the parent was TWD 14.98 billion and the earnings per ordinary share were TWD 1.2. Capacity utilization rate climbed to 78% in that quarter with wafer shipment just marked 1 million 12-inch equivalent wafers. On Page 5, on the sequential comparison, third quarter revenue of TWD 59.12 billion increased slightly compared to the previous quarter, mainly due to higher wafer shipment, although the NT dollar exchange rate was an unfavorable factor of around 3%. Gross margin also climbed on back of the better capacity utilization rate to 29.8%. And net income reached nearly TWD 15 billion or an EPS of TWD 1.2 per share in NT dollar terms. On year-over-year comparison, on Page 6, for the first 3 quarters, revenue grew 2.2% year-over-year to TWD 175.7 billion. Gross margin was around 28.4% or nearly TWD 50 billion for the first 3 quarters of 2025. Overall, net income for the first 3 quarters is down to TWD 2.54 per share compared to TWD 3.12 in the previous 3 quarters of 2024. On Page 7, cash still above TWD 100 billion, and total equity of the company is now TWD 361 billion at the end of third quarter of 2025. ASP on Page 8 shows we remain firm for the past 2 quarters. On Page 9, for revenue breakdown, we see -- we can see that the North America represents about 25% of the total revenue in the third quarter, which is 5% higher compared to 20% in the previous quarter. On the contrary, Asia declined by nearly 4 percentage points to 63% in the third quarter of 2025. IDM versus fabless remain unchanged on Page 10 for the third quarter of 2025. On Page 11, we noticed the communication and computers edge up in terms of sales mix when consumers declined by nearly 4 percentage points to 29% in the third quarter. On Page 12, the segment sales breakdown by technology, 22 and 28 still remain our main technology node, when 22 continued to climb in terms of percentage. Total 22 and 28 revenue reached about 35%. For 40-nanometer and 65-nanometer revenue, somewhat unchanged, in about 17% and 18%, respectively. For our quarterly capacity for the third quarter, we see a minor increase coming out of our 12x Xiamen fab with now the monthly capacity is nearly 32,000 wafers per month, and total available capacity will remain flat for the coming quarters. On the last page of my presentation, our annual CapEx is heading to our budget number of $1.8 billion with 90% in 12-inch and 10% in 8-inch. The above is a summary of UMC results for third quarter of 2025. More details are available in the report, which has been posted on our website. I will now turn the call over to President of UMC, Mr. Jason Wang. Jason Wang: Thank you, Chi-Tung. Good evening, everyone. Here, I would like to share UMC's third quarter results. In the third quarter, we observed demand growth across most market segments, which drove a 3.4% increase in wafer shipments and improved utilization rate to 78%. In particular, we benefited from a pickup in sales of smartphones and notebooks, driving replenishment order from customers. Our 22-nanometer technology platform continues to provide us with the differentiation in the market, with 22-nanometer revenue now accounting for more than 10% of the total sales in 2025 alone, we are projecting over 50 product tape-outs, and we expect 22-nanometer contribution will continue to increase in 2026. Aligned with our strategy of providing customers with highly differentiated specialty technologies, we recently announced the readiness of our 55-nanometer BCD platform. In addition to mobile and consumer applications, the new platform is also complemented with the most rigorous automotive standards for automotive and industrial use. Looking ahead to the fourth quarter, we are anticipating wafer shipment to be comparable with third quarter's volumes, wrapping up 2025 with shipment growth in the low teens. UMC continues to deliver competitive process technologies that enable diverse applications, which position the company to benefit from a broad-based market recovery. With the 22-nanometer logic and specialty platform, in particular, we expect to drive growth. Now, let's move on to fourth quarter 2025 guidance. Our wafer shipment will remain flat. ASP in U.S. dollar will remain firm. Gross margin will be approximately in the high 20% range. Capacity utilization rate will be in the mid-70% range. Our 2025 cash-based CapEx budget will remain unchanged at USD 1.8 billion. That concludes my comments. Thank you all for your attention. Now, we are ready for questions. Operator: [Operator Instructions] First, we'll have [indiscernible], Bank of America for questions. Unknown Analyst: My first question is regarding the near-term outlook. Could you discuss more in detail on how you see the business by end market is trending into the current quarter in fourth quarter? It seems the guidance is above seasonal, so just wondering if there's anything driving that. And also just your initial view into first half next year, did you get any feedback from your customers on the potential restocking, or in general, they are still pretty conservative at this stage? Jason Wang: Sure. I mean, while we're going into Q4, we can -- as I said, we wrap up the 2025 shipments to a low teens. It's now that we project the 2025 shipment growth was supported by our differentiated 22-nanometer technology and other specialty offerings across both 12- and 8-inch amid a broad-based market demand recovery. On the 12-inch size, shipment growth was driven by a strong momentum from 22-nanometer logic for ISP, Wi-Fi connectivity as well as the high-end smartphone display driver IC. In addition to 22 and 28, overall 12-inch wafer shipment will outpace our addressable market due to our comprehensive value-added specialty portfolio of nonvolatile memory, RFSOI and BCD. On the 8-inch size, we expect a high single-digit growth in 2025, mainly led by the PMIC and LDDI. So in summary, the strength of 22-nanometer and the specialty process across both 12-inch and 8-inch platform underpin our confidence in achieving a low teens percentage shipment growth in 2025. So for 2025 Q4, we remain -- the shipment outlook remain flat. If we're looking into the early look of 2026, I think we're still going to experience some seasonality, but if I look at the entire year, despite the ongoing global economic geopolitical uncertainty, we believe our 2025 business growth momentum will continue into 2026, where we expect the wafer shipment will increase year-over-year. In addition to some TAM expansion, our 22 eHV -- 22-nanometer eHV platform, which is serving the high-end smartphone OLED display driver application, will be one of the key growth engines. We expect the overall 22- and 28-nanometer revenue to achieve double-digit year-over-year growth in 2026. However, there's still going to be some seasonality that we may have to go through. So Q1 may be one of the challenging quarter for the year. Supported by the strong customer adoption of our 22-nanometer technology, in addition, our technology readiness in RFSOI for smartphone RF front-end device will also fuel our growth in 2026. And besides the growth of the communications segment, we also foresee our enhanced version of PMIC solution, which will also continue to drive recovery in our 8-inch segment. In 2025, we foresee PMIC business will grow in the high single-digit range, and this growth momentum will extend into 2026. Our effort on the enhancing our technology competitiveness, particularly for the PMIC application, have started to yield some tangible results, and that will actually help us with the -- to strengthen our position in this market segment and for 2026 growth. If we look beyond 2026, we'll continue to develop new derivative technology to enhance our differentiated and our competitive -- enhance our competitive position. Furthermore, we are expanding our addressable market into 12-nanometer FinFET, as you know, and as well as some of the advanced packaging space. The UMC portfolio -- technology portfolio is well positioned to serve a growing demand of the power efficiency optimization, high-bandwidth data transfer as well as the improved connectivity. So I think in general, we are relatively confident in 2026, but it's still kind of early to go into the quarterly guidance. Unknown Analyst: Yes. That's pretty intensive. And I think just a quick follow-up to my first question is just when you mentioned the growth momentum could continue into 2026 compared with 2025, are you saying that the wafer shipment could actually still be growing by low teens next year at least? Because you mentioned a lot of growth drivers by applications just now, especially on 22-nanometer, 28-nanometer and also 8-inch. So just wondering whether you are implying that the wafer shipment could grow by another low teens at least for 2026? Jason Wang: I mean, we're not giving the blended -- the wafer shipment at this time. We're probably ready to provide you more clarity into Q1, but 22 and 28 particularly, yes, I think that when we go into 2026, we're still expecting a double-digit year-over-year growth. Unknown Analyst: And then my second question would be on your gross margin trend. I think for the fourth quarter, you guided flat shipment and also pricing. The FX seems to be -- foreign exchange seems to be more favorable at this stage. So why does the gross margin does not go higher than the third quarter? I'm just curious why that is the case. Or should we think about high 70% utilization is going to translate into like high 20 percentage gross margins going forward? Chi-Tung Liu: Gross margin in third quarter is actually, in fact, slightly higher than that of the previous quarter. The gross margin also primarily depends on utilization rate, ASP, product mix, depreciation and foreign exchange. As you know, even though the foreign exchange rate may be on a forecast basis, better than forecast, but still appreciate against U.S. dollars, our key receivable currency, so still in an unfavorable situation, as I mentioned earlier, that almost eat up about 3% of our total revenue. And we do expect the Q4 '25 gross margin still will remain in the bandwidth of high 20 percentage range. Despite the variables such as our depreciation, we will still see quarterly increase. And this year, we are facing 20% plus increase in annual depreciation expenses. So I hope that answers your questions. Unknown Analyst: Yes. And then just a relevant follow-up is in your cost structure. You have been able to manage the other manufacturing cost item quite nicely down in third quarter despite the fact that the labor cost is higher, electricity cost is higher and also the material or even the wafer shipment is slightly higher compared with second quarter. So could you just elaborate in more detail on how should we think about the other manufacturing costs, which I believe should be mostly variable cost? How should we think about that going to trend? Chi-Tung Liu: So part of our employee compensation is bonus, which is based upon profit sharing. So when we have a better quarter-over-quarter profit in the third quarter, we do have to factor in higher bonus, which increased the compensation expenses in the third quarter. Unknown Analyst: But it was still down compared with second quarter. So I was just wondering if there's any reason driving that decline and would that trend continue. Chi-Tung Liu: No, the trend will not continue. It will fluctuate along with our rolling profit recognition. Operator: Next one, Charlie Chan, Morgan Stanley. Charlie Chan: Congratulations for very strong results, especially on the gross margin side. So maybe starting with the so-called geopolitical uncertainty. So, Jason, can you elaborate a little bit what kind of macro uncertainty you see will continue in 2026? And I was asked by one of your customers about -- there seems to be some speculation about semi-tariff may come next January. So any kind of impact -- potential impact to your business or operation? And also another uncertainty, it was a couple of weeks ago, right, the rare earth kind of supply. Does your team run through some analysis about the potential impact if rare earth will be restricted again? Jason Wang: Sure. A couple of things, right? I mean, you mentioned about geopolitical dynamics on the tariffs. So maybe I'll start up on the tariff first. We do understand there are uncertainties and risks from the potential impact of tariffs, and we will remain cautious of those potential business impacts, and we'll be mindful in our business planning going into 2026. At this current point, we haven't seen anything yet, but we are cautious. The -- amidst the uncertainties, we'll also continue to focus on the fundamental of our business. That is the technology differentiation, manufacturing excellence and then customer trust to further strengthen our competitiveness -- competitive position. So I think we still have to go back to the fundamentals. For UMC, to address the geopolitical concerns, I do believe that UMC has a geo-diversified manufacturing site across the globe. And the global semiconductor landscape is evolving. Customer and governments are increasingly emphasizing the geographic diversification and supply chain resilience along with the tariff. But to address the structural changes and align with the customer needs, our strategic initiative, including the capacity buildup in Singapore and the U.S. and are designed to complement our Taiwan facility, will enable us to better support our customers across multiple regions. Over the long term, we are targeting a balanced capacity split between Taiwan and overseas locations, but we welcome any opportunity from our customer. Whether this is an impact or opportunity to us, we will probably have to position ourselves and ready for that dynamic changes. Yes. Charlie Chan: So specific on semi tariff, right, I think we also went through this discussion last quarter or 2 quarters ago. So do you also hear that next January could be a final implementation of this semi tariff? And secondly, would UMC can get exemption from the semi tariff? Jason Wang: Well, I mean, your guess will be as good as my guess. So I'm not going to guess here. Charlie Chan: I watch TV only. Jason Wang: Yes. So we're going to be cautious about this, and we're closely monitoring the progress and developments. And at the same time, given that we are investing into the U.S., so we're definitely going to present our case. But there's nothing else to update here. But if there's anything, we will definitely recall back. Charlie Chan: Okay. Got you. And second question is about the -- your gross margin sustainability. I know this quarter, next quarter, some puts and takes, right? But just overall, right, next year, it seems like some of your industry peer, may just call it TSMC, kind of hike their wafer price. And recently, we are seeing that the back-end foundry, though it's not like your industry peer, but it's kind of your downstream supply chain, right, also attempt to hike the back-end foundry service price. So what was the UMC's kind of sort of potential wafer price hike into next year? Jason Wang: Well, like Chi-Tung mentioned earlier, margin reflects the result of ASP loading certain variable factors. So let's take the ASP specifically. For the ASP outlook, our 2025 ASP performance has remained firm amid a dynamic business environment, and it has remained stable at a healthy level throughout the year. And so -- and we expect the ASP will remain firm in Q4 2025. And for the 2026 outlook on ASP, we will provide more detail in the upcoming January 2026 conference call, as we are going through some discussion with our customers aligning that. So we probably have more detail to report in the next conference call. Charlie Chan: Okay. And on the cost side, expense side, Jason, you said at some interview that your team want to drive some costs down. But I feel like most of the components whatsoever. Most of what I'm hearing this commodity cost may go up, right? So on the cost side, do you have any preliminary outlook for 2026? Jason Wang: Without getting into specific cost projection or outlook, I think we can probably update you of the view in cost, our view of cost -- about cost. Cost competitiveness is always a mutual goal for us and our suppliers together, so in order to be competitive. So we're closely working with our suppliers. We'll continue to drive towards cost savings in 2026, and that has been going on for many years, but we are continuing to doing that into 2026. But that includes the combination of both internal and external efforts. It's not only working with the supplier, it's also internal efforts. For example, we have already started leveraging some smart manufacturing and AI technologies internally to enhance our fab efficiency and enabling our long-term operational competitiveness. So that's also a major piece of driving our cost goal. So I think there's many of the initiatives that we're deploying, and we working with the supplier -- supply chain is just one of them. Charlie Chan: Okay. Okay. And last one, I will be back to the queue. So I know your company and your team have been running through a lot of strategic or marketing research, right? So recently, we picked up one data point I would like to share with you and also consult your view. Because of the T-glass shortage, right, we're starting to see tightness of BT substrate supply. From your perspective or UMC's perspective, would that kind of constrain your -- some of your customers' demand, for example, the consumer or smartphone SoC demand into 2026? Jason Wang: Well, we really haven't seen that, but we are closely monitoring the entire supply chain resilience. The current market is driven by this AI momentum. So there are various areas demonstrating potential supply concern. But so far, we have not seen any impact to us. But like you said, we all look out there and see if there's going to be any. But meanwhile, we are managing -- from our internal perspective, we are managing our supply resilience point of view. We want to ensure the supply assurance and as well as the -- both from supply and demand -- supply and demand as well as the quality standard and cost. So I think that's always been our initiative internally. So I would just have to say we haven't seen any impact on the recent market dynamic, but it's something always on our radar screen, and we continue monitoring it. Charlie Chan: Yes. How about smartphone or PC demand recovery, if you have a crystal ball? Do you think that 2 major segments of the end demand will significantly recovery next year? Jason Wang: Well, I mean, at least for the Q4 '25, we expect the wafer shipment will remain flat, and the markets reflect pretty healthy inventory level as well. We see slightly communication segment decline in our segment, but the computing, consumer, automotive are slightly increased. So I'm not sure that's affected by that particular supply issue, but it reflects probably more end demand associated. Operator: Next one, Laura Chen, Citi. Chia Yi Chen: My first question is also about the margin outlook. Chi-Tung, you mentioned that the depreciation cost for this year were up about 20% plus year-on-year. But we know that actually in the first half, the depreciation cost increased almost like 30%. So does that mean that depreciation cost year-on-year increase trend to slowing down into Q4? With overall your utilization rate and also ASP seems to be resilient and also higher exposure on 28-nanometer, should we be looking for some of the potential upside of the gross margin? Chi-Tung Liu: Well, other than depreciation, there are other factors. Like Jason mentioned, we will have a clear view on the ASP, which is an important component for the margin equation. But just on depreciation alone, yes, the increased magnitude, we're down to about low teens in the year of 2026 versus 20-something in the 2025. And in the previous quarter, we also mentioned either '26 or '27 should be the peak of the recent depreciation curve. So on that regard, it does provide a good floor for helping our EBITDA margin. Chia Yi Chen: Okay. Great. And also the second question is, I recall that we mentioned about the Interposer business before. We know that the AI demand is surging. So I just want to understand UMC, do you have any updated view on the Interposer strategy? And also, we know that UMC also have wafer-to-wafer technology. So just wondering what's the plan here. And also, do you want to further expand the capacities on Interposer? Jason Wang: Well, the latest development on the advanced packaging space, we will continue preparing our advanced packaging solution for this growing market associated with the energy consumption of cloud AI and the edge AI market. For UMC, we are developing the 2.5D Interposer with DTC, the deep trench capacitor, and discrete DTC to address the power efficiency requirement in all AI, HPC, PC, notebook and smartphone space. And second, UMC is leveraging the scalable 3D wafer-to-wafer packaging stacking and the TSV to enhance the -- enhance our specialty technology offering. We are in the mass production of extremely small form factor for the 5G and 6G RFIC right now by leveraging the wafer-to-wafer stacking technology. Based on the success of the 5G and 6G RFIC that works through the wafer-to-wafer stacking, we are also developing memory-to-memory stacking and memory-to-logic stacking service for the high-bandwidth computing requirements. So our technology really is associated with the center with the DTC capability and the wafer-to-wafer stacking capability. Right now, still within our current capacity size, there's no expansion planned, but there are a lot of customer interests and engagement being developed right now. Chia Yi Chen: Okay. Great. Can you also give us some like idea how is that kind of business opportunity growing into the next few years? Jason Wang: I mean, as we anticipated, the cloud AI and the edge AI market will probably taking out in the next 2 years or so. And so we think preparing those technology capability today will position us well to serve that market when the market comes. I think many customers are engaging in that discussion and exploring the product roadmap at this stage. But in terms of the actual volume and the ramp-up schedule, I would expect it's going to probably be in late 2026 or sometime in 2027. Operator: Next one, Sunny Lin, UBS. Sunny Lin: Congrats on the very good outlook. Very glad to see business stabilizing and improving. So my first question is on the pricing. I understand more specific guidance should be provided in January or in early 2026, but I want to get a bit more color on the latest progress on your engagement with the clients. So in 2024 and 2025, basically, you provided roughly mid-single-digit type of price reset for across the board. And so how should we expect like going to early 2026? Would it be fair to assume that now given the improving supply/demand, even if any price decline should be lower than the magnitude in early 2024 and early 2025? Jason Wang: Well, I mean, this is definitely -- I mean, that's our goal, right? I mean -- but while we are still in discussion and aligning with our customers, I can't really quote that. I have to really see the data before I can comment about it. But throughout the annual discussions and the patterns in January, we'll probably continue engaging in similar discussion. But in terms of the magnitude of it, I think it's kind of too early to guide at this point. Sunny Lin: Got it. Maybe a follow-up on blended ASP. There are still some concerns that there may be some overhang from LTAs expiring in the coming few quarters that could weigh on your blended ASP. And so Jason, could you maybe provide a bit more color on if any impact or that impact is already gone mostly? Jason Wang: I mean, LTA is one of the mechanisms that help us and our customers working other partners, not only based on the ASP, it's also we based on that, providing a mutual commitment for us to put in capacity to support the customer. At the same time, the customer demonstrate some commitment for the business engagement. So LTA will continue serving that purpose. Well, given the market dynamics, we're always working closely with our customers and to support them and gaining market shares without losing the market share and gaining the market shares and also with the market dynamics in terms of commercial needs, so -- but at the same time, we have to balance in terms of CapEx returns. So it is a complicated process and discussion, and we've been doing that for the past 2 years, and we'll continue supporting our customers to march into that direction, finding a win-win solution based on the LTA arrangement. But the future commitment of LTA remains intact, yes. Sunny Lin: Got it. So maybe one question on 2026, just to make sure that I got the right number. So for 2026, Jason earlier, did you mention the target would be to grow business by double digit? Jason Wang: I mentioned about the 22- and 28-nanometer that we expect the momentum will go into 2026, and we expect a double-digit growth year-over-year, yes. For the... Sunny Lin: Got it. And maybe a question on Singapore expansion. So if any like latest update that you could share with us in terms of how quickly the capacities will be ramped in 2026? Jason Wang: We -- I think the milestone has not changed. We project that the 12 IP3 production ramp will start in January 2026, and it will ramp up with a higher volume starting in second half of 2026. And that milestone schedule remains. Sunny Lin: Got it. Maybe last question. So in terms of dividend policy, given the improving cash flow outlook in the coming few years, would the company consider maybe revisiting the dividend policy to change to like absolute cash dividend? Would that be possible? Chi-Tung Liu: It's not impossible, but we always try to strike a good balance between the high percentage payout ratio and absolute dividends. So I think that strategy or that position will continue. Operator: Next one, Gokul Hariharan, JPMorgan. Gokul Hariharan: So just wanted to understand a little bit more on the pricing. I know that you're in pricing negotiations with customers. Could we talk a little bit about 22 and 28? How is the pricing trend there? Do you expect that there is any concession that you may need to make on 22 and 28 pricing or that is going to be reasonably firm? And maybe also the same question on the 8-inch portion of the capacity as well, given some of your competitors are also kind of putting down or kind of exiting some of the 8-inch capacity? Jason Wang: Well, our pricing strategy has been very consistent, and we will work closely with our customers and -- for protecting and gaining market shares. So that remains. That will not change. So in the particular number, the ASP guidance, I think it's better that we have all the picture together and to share with you. But in terms of pricing strategy and positioning, that has not changed. We do believe that the pricing is a combination of our value proposition from technology differentiation, our manufacturing capability, reliable capacity and the diversified manufacturing locations, so on. So we think there's a lot to offer. And along with the mutual commitment with many of the customers, we believe that we will strive to a right balance for the pricing discussion. However, again, from the specific guidance on ASP outlook, I will probably prefer to wait until we finish up. I don't want to mislead you at this point. So -- but -- and that goal is whether it's 22- or 28-nanometer and as well as the 8-inch because each technology node has a different market dynamics, and we will work within that dynamics. Meanwhile, you're talking about if we see anything on the 8-inch opportunity or due to any other, our peers. We don't typically comment about our competitors. We believe our market share increase in 2025 in 8-inch, but not just 8-inch, overall 8-inch and 12-inch legacy nodes. And we believe those nodes remain a sweet spot for a wide range of analog reach products. So we'll continue to strengthen our product portfolio, focus on those spaces. And hopefully, we can increase our market shares. We continue to optimize our existing platform and developing a new solution to better address that market need. This is the area that UMC has built some long-standing relationship and trusted relationship with our customers. So we believe this structural trend will reinforce our position as the preferred foundry partner for customers in this needs. And that will actually help us to sustain our maybe growth in both 8- and 12-inch legacy nodes over the long run. Gokul Hariharan: Got it. Yes, clear on the pricing that we can wait for January. But I think I just wanted to also ask on the semiconductor Section 232 tariffs. How are the discussions with your customers going? And let's say, there is a 15% to 20% tariffs on exports, which needs to be offset with any kind of U.S. investment or U.S. capacity that you have. How does UMC manage that situation? And which are the investments, or if any, that can qualify for that kind of an offset? I mean, for some of your peers, I think that is pretty clear. But I just wanted to understand how UMC is considering the situation. Jason Wang: Well, I kind of touched that earlier. Our -- we have been a very diversified manufacturing -- look, we have a very diversified manufacturing location in the past. And so we have very -- I think we're pretty much very complement to the current market dynamic. The current geographically discussion on diversification, supply chain resilience, I think our past initiatives serve that, and so we'll just continue. We may alter that, making some adjustment about that strategy, but not significantly. For instance, we're including building capacity in Singapore and U.S., and it's very much aligned to that direction. Of course, the tariff situation, whether it is X percentage, we don't know yet for Taiwan, but we know some areas already came out at 15% and which -- that's where we have our manufacturing sites. So customers are in discussion in interest of making sure that they have access to those facilities and to those locations. So we are definitely entertaining that conversation in a manner of growing our business engagement. So we hope that becomes more of an opportunity to us, not just a negative impact. Now, for some area that is not clear yet, and we have to navigate through that, it's our belief that we have very smart people in this industry. And despite how -- which direction it goes, we will navigate through this process and finding a win-win solution of mutual benefits. Gokul Hariharan: Yes, just following up on that, Jason, I think geographical diversification is one aspect, but also the second aspect is U.S. capacity, right? So is your understanding that your 12-nanometer collaboration with Intel kind of counts as U.S. investment and U.S. capacity, given I think the total investment is actually quite small, even though you are actually shouldering a lot of the technology-related task. Jason Wang: Well, I mean, I can't comment about the big or small, but the investment is investment, and we are putting capacity in the U.S. And the starting point of the 12-nanometer only lays a solid foundation for us to explore maybe even other collaboration opportunity as well. So that also -- if there's anything to update, we will update you, but that could also represent even more investment, right? So -- but it's just -- we're not ready to update you anything yet. But even I look at the 12-nanometer today, that is quite significant in terms of investment. Gokul Hariharan: Got it. Maybe one last question on the advanced packaging bit. I think you last time updated, I think, around 6K or so of wafer capacity for 2.5D IC packaging. Is that still where we are in terms of the capacity? And for your 2.5D packaging with deep trench capacitor, what is the application? Is it slightly different application that you're targeting compared to the mainstream market and that's why you're kind of waiting on the capacity expansion while the industry is still like really asking for a lot of capacity? Jason Wang: No, the 2.5D Interposer 6K today stays there. There is no expansion plan beyond that given the technology road map migrating to the DTC and we're developing the DTC capability. And for that, we're serving the AI, HPC, PC, notebook and smartphone space. And so our advanced packaging roadmap will center on the DTC going into, yes, 2026. Gokul Hariharan: And would you say that the 6K is now fully utilized or you still have a lot of slack in that 6K capacity right now? Jason Wang: I mean, as the product is migrating to DTC, that's why we're not expanding the capacity on the 2.5D right now. Gokul Hariharan: Okay. Okay. Fair enough. And this DTC capacity, how significant do you think it is going to become in terms of revenues? Let's say, I think you were expecting end of '26 ramp-up, so let's say, in 2027, is that a fairly significant part of your total portfolio? Or is it still going to be quite small, similar to the Interposer-related revenues that has been more like a single digit -- low single-digit kind of percentage of revenue? Jason Wang: I think it's kind of too early to predict that. A part of the market is associated with the edge AI market and which we have to wait until that has more clarity. And so I think at this point, it's too early to project that. But in terms of technology-wise, I think that's definitely the core of the next generation. So we need to make sure that we have prepared for it. Operator: Next one, Janco Venter, Arete. Janco Venter: I just wanted to follow up on the investment into the U.S. and just get an update on the state of the PDK. And then also, we just want to understand the business model around this engagement on 12-nanometer. Is it revenue share? Is it profit share? And then just secondly, on that, will it be cannibalistic to the 22, 28-nanometer customers as you start migrating to 12-nanometer? Any color that you can add to that to help us just understand this opportunity would be quite helpful. Jason Wang: Sure. From a project standpoint, the -- currently, the 12-nanometer cooperation with Intel is progressing well and remain on track according to the project milestone. And we expect the early PDK will be ready for the first wave of customers in January 2026. And both UMC and Intel are aligning with the customer device spec to facilitate the ramp-up. Overall, the collaboration is proceeding as scheduled, and customer product tape-out is expected at beginning of 2027. So that is the update on the 12-nanometers. The business model itself, we are working collaboratively together and engaging with the customer and the actual business model that we're probably not elaborate to share right now. But once -- I think that will be a -- the business revenue recognition, once it's ready, we'll update that. And the cooperation model is actually very structured and -- but just we'll probably have to report that after we're into production. I think that's the 2 questions you have, right? Did I miss any? Janco Venter: Yes. That makes sense. Yes, that's right. Maybe just one follow-up. And I think you touched on this earlier where you talked about potentially looking at further investments. Now, if we look at -- actually, we were trying to understand if there's scope perhaps to extend this agreement to single-digit nodes because if you look at Intel's business, they fully depreciated 7-nanometer. And it seems like an obvious area to extend the agreement. Is this something that you would potentially be looking at? And does that make strategic sense for UMC? Jason Wang: Well, I mean, the -- yes, the simple answer is yes, right? And -- but we have to starting from -- we have to start it from the 12-nanometer. So we had to make sure that executed well, so we can lay a solid foundation on that. For technology beyond 12-nanometer, we are open to explore the future opportunity through the partnership arrangement that are mutually beneficial. I would say the cooperation with Intel is strengthening UMC's strategic position in U.S. significantly and for the U.S. market and also broaden our addressable market while adhering our disciplined CapEx approach. So we are very committed to this partnership. And so far, the project is actually progressing well. Operator: Next one, Bruce Lu, Goldman Sachs. Zheng Lu: Can you hear me? Jason Wang: Yes. Zheng Lu: Yes. I just wanted to follow up the -- for the U.S. collaboration beyond 12-nanometer. What are the showstopper for us to move beyond 12-nanometer at the current stage? Or do we consider to go backwards to do like relative mature node capacity in U.S.? Jason Wang: I mean, that's an interesting question, right? I mean, the -- I think when we talk about this cooperation with Intel strengthened our positioning in the U.S. market, hopefully, we're not only limited at 12 nanometers and that if we can have a full potential of this position. And we -- so that's why we're actually very open to explore the future opportunities through this. So I don't think there's a -- I won't call any showstopper, but I think as long as it's mutually beneficial, I mean, we will definitely open to explore that. Now, is the exploration limited to the more advanced node or backward? I think we are also open to that. We're not limiting ourselves with that collaboration. Zheng Lu: No, Jason, the question is that it's clearly mutually beneficial, right? So who has the ball? I mean, who doesn't want to move on? Jason Wang: I think, in any of the engagement, not just this, you require the market validation, you need to make sure you're doing your due diligence. So I think I will probably comment that all conversations are open and the due diligence need to be in place before we move forward. So it's not truly a showstopper. It's not going which sport, it is we have to make sure we conduct the appropriate process. Zheng Lu: So in other ways, the prerequisite condition would be that you probably need to deliver 12 nanometers with like decent size of revenue, decent size of customer, then both sides might consider to move it on. Is that the right consideration? Jason Wang: Not -- I mean, I won't say that it is a prerequisite, but that is one of the important considerations. But more importantly is if this collaboration is economically beneficial to both sides. And so I think that the -- once we are more mature and ready, and we definitely will update you, but again, our position on this topic is we are open to that exploration. Zheng Lu: Okay. So when can we expect to see the meaningful revenue contribution from 12-nanometer? Jason Wang: Well, I mean, right now, for the early product tape-out, it is going to be in 2027. And so we're probably going to start seeing some contribution in 2027, but then ramping after that though. Operator: And in the interest of time, we're taking the last question. Last one, Charlie Chan, Morgan Stanley. Charlie Chan: So it's actually wafer-on-wafer related. So, Jason, can you share with us who could be kind of memory partners? I mean, it seems like it requires a lot of so-called customized design interface, et cetera. So are those more Taiwanese partners or you have some global top memory partners for wafer-on-wafer? And secondly, if you can, can you share some potential kind of end applications and the timing for wafer-on-wafer? Jason Wang: On the wafer-to-wafer stacking capabilities, we are in mass production for some of the extremely small form factor devices in the RFIC space. We're talking about that because we believe if you look at the market is going, and we believe this technology will serve more than just a small form factor. It provides the option for the memory to memory, the logic to logic, logic to memory stacking options. So by providing the option to the customer, they say they can explore many different product applications. So at this point, the advanced packaging technology is developing into 2 cornerstones. One is the DTC capability. Another is on the wafer-to-wafer stacking capability. And then we -- once the technology is ready, then we can explore to many different applications. Charlie Chan: On this wafer-on-wafer, do you see kind of advantage or differentiation to industry, for example, TSMC or China's -- I'm not sure, maybe XMC, yes, any sort of differentiation you may have? Jason Wang: Well, I mean, the developing differentiated technology is definitely on mandate. So we continue driving that technology differentiation. But at the same time, you have to make sure that you're part of the ecosystem, where the market is going. So we see this from a market standpoint. From a technology/product migration standpoint, we believe these are 2 very important capability and technology. So we're preparing ourselves to get that ready, and then, we can start exploring different business opportunities. Operator: And ladies and gentlemen, thank you all for your questions. That concludes today's Q&A session. I'll turn it over to UMC Head of IR for closing remarks. Michael Lin: Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact ir@umc.com. Have a good day. Operator: And ladies and gentlemen, that concludes our conference for third quarter 2025. We thank you for your participation in UMC's conference. There will be a webcast replay within 2 hours. Please visit www.umc.com under the Investors, Events section. You may now disconnect. Thank you again. Goodbye.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to Equinor Analyst Call Q3. [Operator Instructions] After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Bård Glad Pedersen, Senior Vice President and Head of Investor Relations. Please go ahead. Bård Pedersen: Thank you very much, operator, and welcome to everybody who has called in for the analyst call for Equinor's third quarter results. Torgrim Reitan, our CFO, is here with me, and he will take you through the results before we open for the Q&A. As usual, we will close this session within 1 hour. So with that, Torgrim, I hand you to take us through the results. Torgrim Reitan: Okay. So thank you, Bård and good morning, and thank you for joining us. Before we get to our results, I have a look at the photo Bacalhau, which came on stream in October. It is the first presold project in Brazil, developed by an international operator. We reserved more than 1 billion barrels and production capacity of 220,000 barrels per day. This will contribute significantly to our international growth. The results and cash flow we report today are driven by strong operational performance. Production is up 7% from third quarter last year. Johan Sverdrup delivered close to 100% regularity and Johan Castberg is producing a plateau with a premium to Brent of around $5. The adjusted operating income was $6.2 billion before tax and net income was negative $0.2 billion, impacted by net impairments, mainly due to lower long-term oil price outlook. Year-to-date, our cash flow from operations after tax has been strong at $14.7 billion. Our adjusted earnings per share was $0.37, impacted by negative results from financial items and a one-off effect related to decommissioning of Titan. Energy markets continue to be volatile. Geopolitical unrest, tariffs and trade tensions continue to impact pricing and trading conditions. We are prepared for this. We have a solid balance sheet, strong production and a robust portfolio. In addition, we take forceful action to manage costs. These efforts are visible in our results. Costs are now stable year-to-date compared to last year, and this is in line with what we had at the Capital Markets update in February. Operating costs for our Renewables business have decreased by around 50% compared to the third quarter last year, and we expect it to be down by 30% on an annual basis. And this is driven by less business development and reduced early phase work. On the NCS, we have stopped 2 early phase electrification projects that were not sufficiently profitable and this reduces costs now and CapEx going forward. By this, we are demonstrating that we can beat inflation and we can keep costs flat even if we are delivering strong production growth. At Bacalhau, we started production from the first producer and ramp-up will continue through 2026. On the NCS, we had 7 commercial discoveries. And I want to highlight Aker BP's important discovery in the Yggdrasil area, where we have a material ownership position. And then let me also mention Smørbukk Midt . It was discovered and put in production during the third quarter, and we expect payback within 6 months. As you know, we participated in Ørsted's rights issue. It was executed at a significant discount and overview of the underlying value in Ørsted supported our participation. The cash flow impact of around $900 million will be in the fourth quarter, impacting our net debt ratio by around 2 percentage points. Following this decision, we will now seek a more active role by nominating a candidate for the Board. We believe a closer industrial and strategic collaboration between Ørsted and Equinor can create value for shareholders in both companies. Then to capital distribution. For the quarter, the Board approved an ordinary cash dividend of $0.37 per share and a fourth and final tranche of the share buyback program for 2025, of up to $1.266 billion, including the state's share. With this, total capital distribution for the year will be around $9 billion. Safety remains our top priority. This quarter, we continue to have strong safety results. However, we had a tragic fatality at Mongstad and you know that safety work needs to continue with full force. Learnings from the accident will be implemented. In the quarter, we produced 2,130,000 barrels per day. This is 7% up from last year, and we are on track to deliver on our guiding 4% production growth for the year. On the NCS, production was even stronger with 9% growth. Johan Castberg, a new field on stream of developments in Brent and strong performance at Johan Sverdrup are important contributors. NCS gas production was impacted by planned maintenance and the prolonged shutdown of Hammerfest LNG. U.S. onshore gas production was up 40%, capturing higher prices and U.S. offshore was up 9% from last year. Internationally, outside the U.S., production was down due to the temporary stop at Peregrino and the divestment in Azerbaijan and Nigeria. We produced around 1.4 terawatt hours of power this quarter, mainly driven by the start-up of new turbines at Dogger Bank A and contributions from onshore renewable assets. As Empire Wind in New York, all 54 monopiles are now installed and the project execution is progressing well. In October, Maersk informed us of an issue concerning its contract for the wind turbine installation vessel that is planned to be used at the Empire Wind in 2026. We are working to solve this quickly. Now over to our financial results. Liquids prices were lower than the same quarter last year, while average gas prices were higher, particularly in the U.S. Adjusted operating income from E&P Norway totaled $5.6 billion before tax and $1.3 billion after tax. These results were impacted by production roles, but also increased depreciations due to new fields coming on stream. Our E&P International results reflect lower production but also lower depreciation. Peregrino and our assets tied to Adura IJV are classified as held for sale. As such, we no longer depreciate that. Our E&P U.S. results are driven by increased production, but these results were impacted by a one-off effect related to decommissioning of the U.S. offshore Titan field of $268 million. It has very limited cash flow effect in the quarter, but we are now booking expected future operating costs related to this. For M&P, we are changing our guiding and expect to deliver average adjusted operating income of around $400 million per quarter. The upside potential is larger than the downside risk to this guiding. The updated guiding is mainly due to changed market conditions. In addition, it reflects that we have previously divested some gas infrastructure. Our renewables results reflect high project activities, but also significantly lower business development and early phase costs. In our reported financial -- yes, in the reported financial results, we have net impairments of $754 million. The main driver for these impairments is lower long-term oil price assumptions. Our E&P International business booked an impairment of $650 million tied to our assets being transferred to the Adura IJV due to lower price assumptions. More than half of the impairment is due to no depreciation on the assets held for sale. In the U.S. offshore assets, we had impairments of $385 million, mainly due to lower price assumptions. In M&P, we have a reversal at Mongstad of $300 million due to higher expected refinery margins. This quarter, cash flow from operations was $9.1 billion, repaid to NCS tax installments totaling $3.9 billion. Next quarter, we will have 3 installments of around NOK 20 billion each. We distributed $5.6 billion to our shareholders, including the state's share of buybacks from last year of $4.3 billion. Organic CapEx was $3.4 billion, and our net cash flow was negative $3.6 billion. We have a solid financial position with more than $22 billion in cash and cash equivalents. Our net debt to capital employed ratio decreased to 12.2% this quarter. At current forward prices, we expect the net debt ratio at the end of the year to be in the lower end of the guided range, 15% to 30%, the same as we have said at earlier quarters. Finally, we maintain our guiding from CMU in February, both in terms of production and CapEx as well as capital distribution. So thank you. And then over to you Bård for the Q&A session. Bård Pedersen: Thank you, Torgrim. [Operator Instructions] We have good list already. So let's get going. And first one on the list is Irene Himona from Bernstein. Irene Himona: So my first question is on the unit depreciation charge in Norway. It's up about 13% from Q2. Can we assume that is the new normal level going forward? And then my second question is on Ørsted. You obviously decided to participate in the rights issue and to turn from a passive to an active shareholder with a Board seat. Can you elaborate a little bit on what it is that you think Ørsted is perhaps not doing very well where your active participation may help them improve. And then what type of industrial cooperation do you envisage that would benefit both sides? Torgrim Reitan: Thank you, Irene. So first of all, the unit depreciation charge on [ E&PN ] is up. So that is driven by new assets onstream this quarter and in particular, Johan Castberg and also smaller developments coming onstream as well. So these will sort of depreciate over time. So you should expect a gradual reduction going forward on that basis. So that's the first one. The second one is related to Ørsted. Yes. So let me give you a little bit of further context around that. We participated in the rights issue. And clearly, that's sort of a recommitment to our shareholding, and we would like to use the opportunity to clarify more around how we think around the ownership position. And we do want to take a more active role as a shareholder with also Board seats in due time. Then important for me to say that the offshore wind industry is leading through its first real downturn. So with a lot of challenges. And we have seen that with Ørsted and we have seen that in the share price development in Ørsted. So in times like that, consolidation is typically what happens. And we also do think that this industry needs consolidation. We do think that a closer collaboration industrially and strategically between Ørsted and ourselves will create shareholder value for our shareholders, I mean Equinor shareholders but also Ørsted's shareholders in a way. And we do believe that's sort of the competence base that we have very well complement Ørsted and being part of the Board with a long-term industrial perspective in a company like this will benefit both parties. Then I do appreciate that there are uncertainties related to what this means. And let me be very clear that in the current environment, we are going to limit sort of capital commitments into Offshore Wind. It is an industry that is challenged. So the assets that we have in our own portfolio, we will continue to develop in Empire Wind, Dogger Bank and Baltic projects. Beyond that, we will be very, very careful with further commitments into Offshore Wind. And the same goes to our holding in Ørsted. So the threshold to commit new significant capital is high for the time being. So I just want to leave that with you because I do appreciate that there are sort of questions to what might happen here. Bård Pedersen: The next question is from Biraj Borkhataria from RBC. Biraj Borkhataria: Just the first one on the MMP guidance. I wonder if you could just dive into a bit more detail around the change in factors there. And also, you've gone from a range of $400 million to $800 million to a single figure. And I was wondering if there's a sort of signal factor in there that either you see fewer opportunistic -- opportunities to trade or if you are just taking less risk given the environment is changing? And then just a follow up on the question before Ørsted, just trying to understand why you didn't consider a Board seat in the first place? Because I recall it just wasn't really part of the discussion at the time around the CMU. So just trying to get the understanding of -- obviously, the environment has changed, policy has changed, but has your investment thesis on that business investment changed? Torgrim Reitan: All right. So thanks, Biraj. So first, on MMP guiding, yes. So we are changing the guiding to around $400 million on a quarterly basis. We're sort of -- we see that the risk is asymmetrical here. So more upside than risk to the downside. It is a change. We used to have $400 million to $800 million, as you might know. I think it's important to remind you what we had before the war in Ukraine, then the guiding was $250 million to $500 million as such. So what we see now is that the market has changed rather a lot. On the gas side, in Europe, the situation has normalized with -- both on the absolute price levels and volatility and also then the volatility globally and sort of the market globally is driven to a large extent by political decisions that actually structures in the market, making it quite harder to trade around and position ourselves around. So the sort of market dynamics that drives this. In addition, sort of we had earlier divested gas transportation assets, that we are sort of -- we don't have anymore. So we take the opportunity to take that out as well. So -- and then why not a range? Because I mean you have seen that even if we had a broad range from $400 million to $800 million earlier, we tended to overshoot quite a bit, actually, even with the range. It just explains that opportunity might be very good, and it might sort of -- we don't want to limit it to -- have it limited by a range. What we want to do is that on the invite to consensus that we send out a few weeks ahead of quarter, we will give an update related to MMP results and specialties to give you a little bit more guiding into it, but for -- on a regular basis on the longer term, I mean, around $400 million is a prudent number. Last point on this that this is not Equinor specific. This is what sort of all of us are currently experiencing. So if you listen to our peers and if you listen to the trading houses, we all see that you need to work much harder for every dollar you can make in the trading environment for the time being. So yes, so that is that one. The second question was related to Ørsted. We do believe that we have something to offer in the Board in Ørsted and it is particularly related to having a long-term industrial owner to -- that the company can rely on through cycles and then through developments. And as a company, we have extensive experience in managing cycles and thinking long term. In addition, we have clearly a lot of competencies related to project developments and the risk management as such. So we do you see that as something that can benefit both parties. Bård Pedersen: Next one on my list Teodor Sveen-Nilsen from Sparebank 1 Markets. Teodor Nilsen: First one, just want to follow up on the Ørsted question recently asked here. I just want to know what has actually changed in what you can offer from the first time you acquired shares until now the recent share issue. So that is the first question. And second question that is on Bacalhau, congrats on first oil there. How should we think around the ramp-up pace to plateau? Torgrim Reitan: Yes. So thanks Teodor, on your first question. Well, in the current situation, it was also important to signal that we were a supportive shareholder in what has sort of happened over the last few months. And then as part of that, being -- taking a Board seat is important. On Bacalhau, yes. So it's Bacalhau started on 15th of October. And it is probably the most complex development that we have done. It is at more than 2,000 meters of water depth and it is massive. So I'm very proud of reporting that it is started. On your question on the ramp-up. I mean, there are 2 drillships on location currently. There will be 19 wells being drilled on Phase 1, 11 producers, but also injectors, both water injectors and gas injectors as such. So this will sort of gradually happen. This is not going to be a ramp-up like you have seen on Johan Castberg. So this is sort of continuous drilling and completion to 2025 and it will continue in 2026 as such. So this -- it's too early to say, give an exact date when it will be on plateau, but things are progressing well. Yes. Bård Pedersen: Next one is Jason Gabelman from TD Cowen. Jason Gabelman: I am going to start also on Ørsted. And it's, I guess, a bit tangentially related to what's going on. But as we think about potential outcomes one of the thoughts in the market is a formation of a joint venture between the 2 parties. And with that, there's a lot of speculation on cash, that would need to be contributed into the joint venture from Equinor standpoint. So the question is really, as you look at your 3 offshore wind projects. How much equity capital have you spent in those projects thus far? And how much is left to be spent on those 3 projects? And then my follow-up is on the global gas market. There's been maybe a surprising amount of LNG projects sanctioned year-to-date. You've seen China demand slowing down, some thoughts on Power of Siberia 2 coming online at some point next decade. Can you just talk about your outlook for the global gas market? And if it's shifted at all just given the developments that we've seen year-to-date in that market. Torgrim Reitan: Thanks, Jason. On Ørsted, the potential outcome here is I don't want to speculate on that, and it's not natural to say much more on that now. But clearly, there are various alternatives. I can give a little bit insight in sort of what is it that the sort of -- we will be looking for in this. We will be looking for in sort of improving the free cash flow for Equinor, that is one driver. The other one is are there ways where we can visualize or make clearer the underlying valuation within the offshore activity that we currently have, are there ways to do that? And the third one is that clearly, we we'll be very careful in -- with significant further capital commitments within Offshore Wind in the current environment. So those are the things which are sort of driving us. When it comes to the 3 projects and remaining equity injections, I can give you a little bit of insight into it. Dogger Bank is well underway and sort of production is gradually being started up. So there are sort of -- there is some more equity that will be injected. But clearly, project financing and the leverage of those projects is in sort of in the [ 70s ] as such. Within Empire Wind, what you will see there is that we have a significant equity injection in 2026, which is close to $2 billion. The year after, we expect to receive investment tax credit for approximately the same amount. So Empire Wind over the next 2 years is pretty cash flow neutral before it is finalized. And then we have the Baltic 2 and 3 projects in Poland with a very high leverage, good projects. So it's fairly limited equity that is needed to fund those. So I just want to leave with you that sort of clearly, there are 3 mega projects underway with limited remaining capital needs associated with them. Okay. Let's see here. That was a long answer, but it was an important question. Then on sort of the global gas market. So first of all, I would like to say that in the short term, this winter, the market seems tighter than many actually things. We are on a storage level around 83%, which is 12 percentage points below last year. So if we see a cold winter, it can really have a significant impact on the market. I would say if you see a normal winter, we might see prices where last year as such. So I would say in the short term, price is very much driven by weather and temperature as such. If you look a little bit further, and that's sort of where you have your question related to more LNG. And yes, there are more LNG coming. This is not new information. This is not a surprise. This is what the whole world has been sort of planning for, for quite a while. And the question is, of course, how fast will this come on stream? And will there be delays? So clearly something to watch. We see still actually a quite healthy demand from Asia, Asia in totality around 3% growth per year, and that sort of will take up a significant part here. What else is to watch is actually U.S. gas prices. And U.S. gas prices has become recently much more a political topic internally, domestically in the U.S. because everyone sees that with all data center and AI will have a significant impact on power prices and power has to come from somewhere and natural gas clearly important so. So utility bills in the households is more and more becoming an election topic as such, and that might put limitations on exports of natural gas. So this is clearly an area we follow very closely. But there's no doubt there is significant amount of LNG coming. And our gas $2 per MBTU, cost and transportation selling into an $11 market, we are very, very robust. And as one maybe last point to mention here that is sort of the sanctioning on Russian LNG -- potential 17 Bcm. That will lead the European markets as well. Thanks, Jason. Bård Pedersen: Next question is from Chris Kuplent from Bank of America. Christopher Kuplent: Just some I guess, rather boring questions, Torgrim about detail. I wonder whether you can help us review what's happened in the 9 months on your net working capital, great results, I guess. And whether you can combine that review with an outlook where you think we're heading? And if I could ask you to do the same, particularly for your Norwegian business, I understand there's a lot of moving parts in terms of assets for sale outside of Norway, but Norway has seen a significant decline in the discount to Brent that you've been able to achieve in Q3. Again, I would love to have your review of that and outlook, if possible. Torgrim Reitan: All right. Thanks, Chris. Yes. So working capital is clearly a very important part of what we manage and manage diligently. So this quarter, working capital is down by $1 billion, 3 points -- the total working capital now is $3.7 billion. So that's that is the reduction during the year, actually done by some $3 billion. So the question you had is what is sort of normal level and what have you. I mean, the reduction we have seen is very much linked to commodity prices and MNP-related reductions. So I won't sort of give any outlook on this, but I would say that given the structures in the markets, the volatility in the markets and the absolute price levels, it is sort of a fair level. I mean, you remember during the energy crisis, we had a massive amount of working capital, and of course, earned a lot of money. But volatility and price levels are not there anymore. So -- but I would say it's a fair level, it's a fair level. Then the second question was sort of a discount to Brent. Yes, I mean, Johan Castberg came on stream during the summer. And Johan Castberg is able to achieve $5 premium to Brent as such, and that clearly has an impact to the discounted Brent overall on the shelf. Bård Pedersen: The next question is from Henri Patricot from UBS. Henri Patricot: Two, please. The first one, I was wondering if you can give us an update on latest thinking on timing of the Peregrino disposal? And then secondly, on Johan Sverdrup, you mentioned here the field continues to produce at a very high level? Or are you thinking about the evolution of that going into 2026? And to what extent do we start to see a decline next year? Torgrim Reitan: All right. Okay. First Peregrino. So Peregrino was shut in during the autumn. It came back on stream on October 17th as such and is currently producing more than 100,000 barrels per day. So we have transacted and we will divest out of our 60% ownership position in the assets, and that will be divested to Prio in Brazil. So there are 2 legs of this transaction. 40% of the 60%, we expect to close during the fourth quarter and the remaining 20% in the first quarter next year. So the headline transaction value was $3.5 billion with an effective date of 1st of January '24, which is quite a while. So there will be a pro et contra settlement since then. So what you should expect is that on that consideration we will receive is a little bit below $3 billion, and that will be split into sort of 2/3 of that in the fourth quarter and 1/3 in the first quarter. Just want to leave with you that this is -- in Brazil is still very important to us. The reason why we did it was twofold. It was attractive opportunity. And also, we are redeploying resources to Bacalhau and Ria in Brazil, sort of high grading the portfolio in Brazil. So the long-term commitment to Brazil is very much intact. Then Johan Sverdrup. Yes. So Johan Sverdrup keeps delivering very well in the quarter, close to 100% regularity, which is a very good achievement in itself. We have worked the asset very, very hard to optimize production and recovery rates. Now we are looking at a recovery rate of 75%, in that asset. It was 65% when we sanctioned it and 65% is still a very, very high number. So what we are currently working on is multilateral wells, a retrofit existing well into multilateral wells, so we have successfully done that. And then water management is very, very important because water management will continue to increase as we produce these wells. And that has also been done in a very good way. And then we sanctioned Phase 3 this summer with the common stream by end of 2027. So in 2025, we were able to maintain the production more or less on the same level as '23 and '24. But we have fast forwarded a lot of production. So this asset will start to decline. So next year, you should expect lower production from Johan Sverdrup than in 2025. But you know what we're doing, this is at core of our competence base. So we will clearly work very hard on maintaining as high production as possible from that asset. Bård Pedersen: [Operator Instructions] And the next question is Michele Della Vigna from Goldman Sachs. Michele Della Vigna: I wanted to come back to your comment about effectively restricting or being very capital efficient on Offshore Wind, given the acceleration in power demand we're seeing globally. I was just wondering, are there some other areas in the power markets where instead you see opportunities and you could look at redeploying some of the capital you're taking away from Offshore Wind at this time of low returns for those developments. Torgrim Reitan: Okay. So, we do believe that there is value to be had within sort of the Power segment. And we have recently established a new business area called exactly Power as such. So what we clearly will be looking for are sort of opportunities that sort of builds on the portfolio we have and clearly -- and the customer base that we have. And we have a big presence related to our gas positions in Europe and in the U.S. So that's sort of the totality, the way we think about it. I have to be very clear that sort of we have no intentions to significantly step up investments into this area. We are facing periods with lower prices. And for us, it will be very important to remain very capital disciplined in anything that we do. And everything we do need to have a significant profitability and returns before we commit any capital to it. Bård Pedersen: Next one, please one question from you to Peter Low from Rothschild & Redburn. Peter Low: Perhaps a question on the cash tax paid in the quarter, which I think was maybe a bit lower than expected. So it looks like you paid 2 NCS installments of $3.9 billion, but the total cash tax paid in the cash flow statement was $3.8 billion. Were you getting refunds in other regions? Or can you perhaps explain that number a little bit? Torgrim Reitan: Yes. Thanks, Peter. So a couple of things. So 2 tax installments in the second quarter, there will be 3 next quarter in Norway. So just be aware of that. It is a timing effect related to falling prices. So we are still paying taxes based on a higher price environment. So you just be aware of that. And also internationally, the reported tax is much higher than paid tax that goes particularly across the U.K. with the EPL and then sort of Rosebank investments being offset against tax and in the U.S. as well. So yes. Bård Pedersen: The next one is as Naisheng Cui from Barclays. Naisheng Cui: Just one follow-up on MMP guidance, please. I think you mentioned in your report that part of the reason you cut MMP guidance is because divestment of gas infrastructure assets. I wonder if you could isolate the impact on that place rather than the market condition change. Torgrim Reitan: Okay, thanks. I can do that's $40 million per year. We did that sort of 1.5 years ago or something like that or 2 years ago. At that point in time, we delivered sort of guiding repeated in the quarter. So we didn't see the need to sort of strip that out. But when we now changed the guiding, we thought it was useful to mention it. Bård Pedersen: Just to be clear, Nash, the $40 million effect is on a quarterly basis. I think you might have said for year, but it's per quarter. Torgrim Reitan: Yes, that's per quarter. Yes. Thanks, Bård. Bård Pedersen: Next one is Paul Redman from BNP Paribas. Paul Redman: And I might be a little bit early, but I just wanted to ask about how you're thinking about the distribution program for next year. We're going into 2026 with quite volatile view on oil prices. difficult view into gas prices, your debt came down this quarter, and I think you're guiding to a reversion of some of that into 4Q. So I just wanted to ask about how we should maybe think about a distribution program for 2026. And then just a confirmation on whether you're going to guide to that the 4Q results or at the Capital Markets Day later in the year? Torgrim Reitan: Okay. Thanks. Thanks, Paul. Yes. All right. So first of all, there's lot of good reasons to be prepared for lower prices and we all know that. Last year, we took down investments by $8 billion for a few years and also cost down. We will continue to push on this to improve free cash flow in the current environment. So this is an ongoing thing. I just want you to be aware of that. So that is so. Secondly, capital distribution will have a priority in our capital allocation model. Cash dividend -- the cash dividend, you should consider that as a bankable. I mean, that will come. On top of that, we will use share buyback and share buyback will be used on a regular basis. It is a natural part of our capital distribution framework as such. So -- and we clearly aim to be competitive when it comes to the overall capital distribution. And to be precise on competitive, I leave with you a couple of things. We know that our peers are using a formulas related to cash flow. You should think about that type of sort of levels as sort of being competitive when it comes to ourselves. I think it's worth mentioning that sort of we have specialties around the Norwegian tax, so percentage points. We always should be a little bit lower for consistency as such. Then your question on sort of what will happen next year as such. We will announce this on the fourth quarter results in February. There are a couple of specialties I would like to draw your attention to. And that is next year, we have a significant investments related to Empire Wind equity, that is around $2 billion. The year after, we will get it back through the investment tax credit. So when we consider capital distribution for 2026, we will look through that. We will take a 2-year perspective when we do consider our capital distribution for the year. So -- and this is why it doesn't make sense to have -- that's why we are not sort of running with the formula because there might be years where we would like to lean on the balance sheet and there are other years where we clearly would like to build a balance sheet as well. But I think that is very important for me to say that those type of effects we will see through and we will see through that we are competitive when it comes to capital distribution. You also mentioned the net debt, and I just want to use the opportunity to say a few words there. We are currently at 12%. We expect to be in the low end of the range by year-end. There are a couple of things I would like to bring with you -- to you. Point one, there are 3 tax installments there will be payment of the rights issue, $900 million in the quarter and there will also be part of the Peregrino transaction funds coming back. But my point is we maintain the guiding for net debt to year-end, even if we have participated in the Ørsted right issue with $900 million, it is driven by strong underlying operations and cash flow and also improvement in net working capital as we talked about earlier. So a long answer, Paul, but an important question. Bård Pedersen: Next one on the list is Martijn Rats from Morgan Stanley. Martijn Rats: Well, only one for me. I wanted to ask about the impairment charge, because it's more of a question of just sort of trying to make sure I interpret this correctly. So the long-term oil price assumption has come down, but it's still $75 a barrel. But that has triggered $750 million of impairments, which sort of suggests that there were projects in your portfolio that had breakevens well above $75 a barrel. And I was wondering if that is the correct interpretation. If your projects have breakevens below $75, but you lower the long-term assumption, it wouldn't trigger an impairment, right? Am I interpreting this correctly? Torgrim Reitan: Martijn, thank you for your question. Well, there are qualifications that needs to be made. So first of all, we have the assets on the U.K. side, which are impaired with $650 million. First of all, I would like to say, this has absolutely nothing to do with a transaction with Shell. This is an isolated effect, and it is driven by lower oil price assumption, as you said. A very important driver for this is that these assets are held for sale in the book. So they haven't been depreciated for -- since the beginning of the year. If they had been depreciated on a normal basis, the impairment would have been significantly lower. The second point on the U.K. portfolio is that part of that asset base is linked to the acquisition we did with Suncor and the Buzzard field, which sits in the balance sheet at sort of acquisition cost as such and that has also had an impact for that asset. There are 2 assets in the Gulf of Mexico also impaired. Those are also mainly driven by price. Those are assets run by -- operated by significant U.S. operators. As such, one of the assets has been a challenging asset operational wise for several years as such. So I mean, it's -- yes, I mean, it is one asset in the U.S. Gulf of Mexico that has been a challenge. The remainder of the asset portfolio is very robust for impairments. So thanks, Martijn. Bård Pedersen: Next one is JPMorgan, Matt Lofting. Matthew Lofting: I just wanted to come back Empire Wind, Torgrim, I think you mentioned in your opening remarks that there was an availability issue that's emerged on in the installation vessel with Maersk. Could you just expand on what's happening there and sort of any risk that, that poses to the future development progress of Empire Wind into next year? Torgrim Reitan: Thanks, Matt. So first of all, I think it's fair to say that Empire Wind has had a demanding year with a stop work order that has been reversed. And I just want to use the opportunity to say that the lost time has been catched up and we are back on track. And I must say that I'm very proud of what our organization has been able to do in a critical year like this. We are 55% complete. All monopiles are in the seabed. So on this issue, this is a dispute within Maersk and Seatrium, which is the yard in Singapore. The vessel is more or less completed and finished and Maersk has sort of canceled the contract as such. So we are close to the situation. We are working to either see to that this solution is resolved or looking for other opportunities. Important for me to say that this is a well-functioning market and there are other opportunities available in the market. So we will manage this -- we'll manage this, not risk-free naturally, but we will give you an update as this progress. Bård Pedersen: We move on to James Carmichael from Berenberg. James Carmichael: Just quickly on the U.K. and Rosebank. I was just wondering what the latest is on that approval process. And then I guess maybe just sort of general thoughts on the U.K. as we maybe get a bit closer to some clarity on the fiscal outlook here. Torgrim Reitan: Okay. All right. Thanks, James. So on Rosebank, as you might may be aware of sort of the permit was sort of taken away due to that Scope 3 emission should have been taken care of in the award. So we have submitted our response recently to the regulator, and they turn around and put it into public constellation right away. That has started, and we expect the consultation to end at the 20th of November. There is no set date for the decision, but clearly, we work very closely with the ministries to get this moving as quickly as possible as such. The second part of your question, what was that, James, about fiscal outlook in the U.K? James Carmichael: Yes. I guess just general thoughts on the U.K., obviously, some uncertainty on the fiscal outlook, we've got some clarity there soon. Yes, just some context around that. Torgrim Reitan: I think it's fair to say that there has been repeatedly tax changes on the U.K. side over years. This is nothing that we appreciate and clearly would advocate for strong and stable fiscal framework to create a basis for investing as such. Yes. Bård Pedersen: Kim Fustier from HSBC is next on my list. Kim Fustier: I noticed that one of your Norwegian competitors has recently expressed some concerns that there may not be enough projects on the NCS within a year or 2 to sustain a healthy domestic supply chain. Obviously, you're also moving away from big greenfield projects to smaller brownfields. So it's kind of an industry-wide issue. Just interested in hearing your views on sort of the outlook for the NCS supply chain and cost inflation. Torgrim Reitan: All right. Thanks Kim. We are currently having a period with very high activity. A bit of that is driven by the tax incentive program put in place during COVID as such and many of these projects are soon coming into production. So it is natural that there will be a lower activity past that asset. So I think our job as a company is to adapt to that and adjust. I think it's -- I just want to use the opportunity to talk about a project that we have established called NCS 2035. And this links very much to what we said at the Capital Markets Day in the winter, maintaining production level on the NCS all the way to 2035. That future will contain more but smaller discoveries. It will take quicker developments, and we have to operate at lower costs. So for instance, we will drill 30 exploration wells per year and that is more than we do currently. And we will put forward 6 to 8 subsea developments per year, which is also more than what we have done currently. So by what we are doing, clearly, we will be a significant contributor to maintaining a high activity level on the Norwegian Continental Shelf and also the industry in Norway. So very optimistic about what we can achieve through different way of working and different way of working with suppliers. Bård Pedersen: We are fast approaching the hour, but let's take one final question, and that is you Steffen Evjen from DNB. Steffen Evjen: So a quick one. Just remind me on the tax credit in the U.S. What's the milestone you have to get that credit paid? Is that first power or COD on the project? Torgrim Reitan: Yes. Yes, it is production start, that is sort of the criteria, and it is first power. That is sort of the ultimate. So that is what we plan for in 2027. Bård Pedersen: Thank you very much. We are now at the hour. I would like to thank you all for calling in and for your questions. As always, the Investor Relations team remain available. So if there's any outstanding questions, please give us a call, and we will do our best to help you. Thank you very much, and have a good rest of the day. Operator: Ladies and gentlemen, that concludes today's call. You may now disconnect. Thank you, and have a great day.
Operator: [Foreign Language] Good morning, and welcome to the conference call organized by Vidrala to present its 2025 third quarter results. Vidrala will be represented in this meeting by Raul Gomez, CEO; Inigo Mendieta, Corporate Finance Director; and Unai Alvarez, Investor Relations. The presentation will be held in English. [Operator Instructions] In the company website, www.vidrala.com, you will find a presentation that will be used as a supporting material to cover this call as well as a link to access the webcast. Mr. Alvarez, you now have the floor. Unai Garaizabal: Good morning, everyone, and thank you for joining us today. Earlier this morning, Vidrala published its results for the third quarter of 2025. Alongside these results, have made available a presentation that will serve as a reference throughout this call. We will begin by walking through the main figures released today and then we will move on to the Q&A session, where we will address your questions. With that, I will now hand over to Inigo, who will take you through the key financial highlights. Iñigo de la Rica: Thank you, Unai. Let's start with a brief overview of the key financial figures. During the first 9 months of 2025, we recorded revenues of EUR 1,124 million, an EBITDA of almost EUR 329 million and a net income equivalent to earnings per share of EUR 4.93. As of September, net debt amounted to EUR 150 million, representing a leverage ratio of 0.3x over the last 12 months EBITDA. Please remember that the sale of the Italian business in 2024 affects year-on-year comparisons. Moving on to the top line performance. Total sales for the period amounted to EUR 1,124 million. On a like-for-like basis and at constant exchange rates, this represents a year-on-year decrease of 5.1%. This variation primarily reflects the price adjustments, which remain within the expected range of minus 3% to minus 5% alongside continued soft demand dynamics. In addition, the scope effect resulting from the exclusion of the Italian business had a negative impact of 1.4%. Moving on to the next slide. EBITDA for the first 9 months of 2025 reached EUR 328.9 million, reflecting an organic growth of 0.5%. This performance demonstrates the resilience of our diversified business model and the steps we are taking to navigate the current market environment. We're intensifying our investments while implementing measures to reinforce our cost base. This operational performance delivered a strong EBITDA margin of 29.3%, up 150 basis points year-on-year, underscoring our ability to stay competitive without [ comprising ] our profitability. Let us now review revenue and EBITDA by region, reflecting the current scope that is with Italy fully removed from last year's numbers. Overall, the business is performing in line with expectations with price adjustments being implemented across all markets. And in the third quarter, volumes were stronger in Iberia, weighted down in Brazil basically by adverse weather conditions and showed an improved trend in the U.K. and Ireland. Across all regions, margins continue to hold up well, supported, as we said before, by our ongoing footprint optimization and disciplined cost management. Free cash flow conversion lies at the heart of how we create and preserve value. This chart illustrates how effectively we have converted cash over the first 9 months of the year. Starting from an EBITDA margin of 29.3%, we have reinvested almost 12% of our sales in CapEx and allocated a further 3.5% to working capital, financials and taxes. As a result, we generated robust free cash flow generation equivalent to almost 14% of sales. Consequently, by the end of September, net debt stood at EUR 150.3 million, maintaining a low leverage ratio of 0.3x EBITDA. This illustrates the capability of our model in turning strong operational results into cash and supporting key investments. With a strong balance sheet, we are well positioned to consider potential growth opportunities, continuously optimize our operations and deliver value to our shareholders. And now before we open the floor for questions, Raul will share additional perspectives on our performance and outlook. Rául Merino: Thank you, Unai, and thank you, Inigo, and thank you all for attending this call today. We really appreciate your time. Well, things have been quite challenging out there in the consumer marketplace, particularly for some of our customers. But despite demand is significantly softer than initially expected, despite competition is very intense across the packaging industry, our results keep on consistently performing as expected. And this is a very good proof of the quality of our business. We accepted the challenge. We are becoming a different company. We are taking actions. We are selectively realigning our industrial footprint. We are investing more and smarter than ever. We are getting closer to our clients and the consumer and we are doing so with our customers in mind with the aim of making our products and serving our markets in the most competitive, profitable and sustainable way. As a result of all of this and despite the many macro and also some micro difficulties we are facing, we are today reiterating our guidance for the year. And behind this small message, far beyond the next quarter lies a big reflection for us. We are making this company adapt and evolve in the direction of the future we, our people, our shareholders and our customers deserve. And we will keep on moving forward. There is a bright future ahead for glass, the ultimate, most sustainable, healthiest packaging material of choice and for the packaging industry as a whole, if we do the right things today in the industry. As a final remark from my side before moving to your questions, please keep in mind, whatever we do, however we react and adapt to the different difficulties wherever we go, whoever represent this company, please be sure that we will remain firmly committed to our three pillars, customer, cost and capital. Vidrala will invest keeping a strict financial discipline in every scenario, maintaining our business under solid financial conditions to further improve our competitiveness, drive our future, attract customers and preserve the strong value of our products. Thank you. Unai Garaizabal: Okay. That brings us to the end of our prepared remarks, and we will now begin the Q&A session. Operator: [Foreign Language] [Operator Instructions] Our first question comes from Francisco Ruiz from BNP Paribas. Francisco Ruiz: [Foreign Language] So I have 3 questions. First one is on the Brazilian situation. We have seen a very weak Q3, mainly due to the adverse weather, as you commented. But also, we have seen that 2 of your competitors has put new capacity in the market. So what are the expectations on Brazil? And what are your future development on the country? The second one is on the current situation of leverage. I mean, you have said out loud that you're looking for M&A. I'm not sure if there are something big enough to jeopardize your financial position or the good financial position for that point. I wonder if the Board of Directors are thinking on a better shareholder remuneration policy. And if this is the case, I mean, I don't know if you have think on doing through buybacks or dividend. And last but not least, I mean, once reiterated your guidance on Q4, I mean, this imply a significant growth in EBITDA versus what you have reported at 9 months. I mean, what is driving this? I mean, do you expect a better recovery in volumes in some geographies or some cost advantages also at the end of the year? Rául Merino: Well, let me take the first part of the question regarding Brazil. Our business in Brazil Vidroporto is wonderful business, strategic core, but particular, we are very well invested in Brazil. We are supplying a small number of big, very demanding customers, global customers, particularly in the beer space. This is a very good proof of quality for our business, not only in Brazil that creates a lot of synergies and collateral results. But Brazil is a particular country, it is a continental country full of opportunities in all the sense, a country of future for us, but also volatile in some circumstances. And our third quarter results have basically reflected what has happened in the country in terms of consumption, particularly consumption for beer, affected by climate, macroeconomic circumstances and many other factors that under our view temporarily affect consumption. Things are today much more stable. We will end in Brazil this year basically flattish in sales volumes and this is more or less safe. Regarding your -- just to finalize this point, regarding your comments around other actions to increase capacity the only thing I can comment is that we do have little reason to add capacity, but we will invest to improve cost competitiveness. Iñigo de la Rica: Regarding the second question, Paco, on leverage, we are very conscious of our current low leverage, which we understand is today a bigger competitive advantage than in the past probably. As you perfectly identified, we are not seeing -- we are actively and we have a proactive attitude towards M&A, but probably there is nothing big enough to change this strong financial position right now. So when we look into our Board of Directors of December, we'll probably shoulder our shareholder remuneration proposal. And as you said, buybacks is an option, okay. And finally, regarding guidance, we are reiterating today the guidance. We are also stating that the guidance is not immune basically to FX fluctuations. Indeed, we should consider that we should already have despite significant changes in FX from today until the end of the year, we should already have a negative impact from FX, exclusively from FX already in the range of EUR 4 million, EUR 5 million. So this means that you should also consider this context, okay? Rául Merino: Yes. Let me add on this, Inigo. Please keep in mind that you know the last quarter of the year is naturally the less relevant quarter in each year. So our eyes, as you will understand, our eyes are now good and our management priorities are not put on the year ahead, on 2026. Operator: Our next question comes from Enrique Yaguez from Bestinver Securities. Enrique Yáguez Avilés: I have several questions. The first one is regarding the demand outlook for Q4 and next year. And I would like also to know what -- how do you think about pricing and the risk of price aggressiveness in the sector if demand does not show a significant improvement? And second, in terms of margins by business regions, I don't know if you foresee the need to implement further efficiency measures in the U.K. and Ireland, which are performing a little bit better than expected. And on the positive side, how far can margins improve in Iberia, which are showing a very strong evolution? Iñigo de la Rica: So regarding demand outlook for the most immediate fourth quarter, as we have been saying for the previous quarters, we are not expecting a significant recovery of demand. But even under this scenario, we should see some volume growth overall at the group level in the fourth quarter. So we are still expecting volumes for the full year to be in the range of flattish for the group or slightly down, okay? But probably slightly better than the 9-month figure. Rául Merino: And basically, if we try to look ahead at 2026, Enrique, it looks like demand is apparently more stable than it has been for the last few years in all our regions of activity, including Brazil with all dimensions that we have done. So now moving to your second part regarding prices. Well, it's very evident that there is a lot of competition out there. We compete against other glass makers and against the cost of aluminum and plastic and against the plastic that is inside aluminum cans. And that means that -- well, the reality is that pricing and margin dynamics that we are seeing in the packaging industry have never been so different. And we have no option but to accept the challenge and adapt our prices. But we still see a lot of positive inflation across cost for industrial manufacturing. And we have different reason to our prices significantly immediately only in some exceptional cases if we are forced to respond. And my final conclusion on this, please keep in mind that more than half of our sales volumes are dictated by price adjustment formulas and the mathematical result of a typical formula looking at 2026 is not significantly negative. And this is a good reference for our strategy. And the last question is regarding our business in the U.K. and Ireland. Again, Encirc is great, incredibly well-invested business. Our 3 facilities there are facilities we feel very proud of. But we know and competition is getting harder, we know that we need to improve our cost competitiveness and we are taking actions to improve our cost competitiveness. And thanks to these actions, we expect to attract some customers back to us to recover some market share and more to stop imports into the U.K. market that could affect the historically very profitable British glass industry. So I won't mention targets or references in terms of relative margins or sales. I will try to direct you to put the focus more on EBITDA or profits in value. And we do feel optimistic about our future in the U.K. and Ireland even under the current intense competition. Operator: [Operator Instructions] Our next question comes from Fraser Donlon from Berenberg. Fraser Donlon: It's Fraser here from Berenberg. I had a couple of questions. So just on the U.K., what exactly do you envisage doing to kind of improve the competitiveness? Because I know there was a kind of small restructuring in Encirc a few months ago, which you discussed on the last call. So are you referencing that? Or do you have kind of bigger plans, let's say? And have those plans changed given now Ciner, I think, has announced that they won't be adding this site in the U.K. And then my second question was just on Europe. Could you maybe color a little bit like the import/export trend you see in different European markets and maybe where you see more or less pricing pressure or difficulty in the market? Not necessarily just in Iberia and the U.K., but also like the markets that you sell into would be interesting to hear what you have to say. And then the final question, I think following on from a prior question. I know -- I think Ambev had launched this furnace in Brazil recently. Given that's now been launched, could it change anything for you with respect to that customer or that customer's, let's say, willingness to keep operating those sites independently? Iñigo de la Rica: Well, first, regarding the U.K. -- our business in the U.K. and certain -- the actions we are taking, we need to improve significantly our cost competitiveness because this is our purpose to protect our business there, to protect our people and to attract back some of our customers. I won't give you an exact number because these things are moving significantly. Let me ask for the time we need before providing you a little bit more clarity on the specific targets on this. But let me use the help of the numbers that we are publishing today to let you understand that we are doing the things that are needed to do in the U.K. in all the sense. Your second point is, okay, regarding how intense is the battle against imports, exports, particularly in Europe and the U.K. I will say that the competition is quite intense in every place, particularly in Europe and the U.K. due to imports. But Vidrala is under our view, an example of a low-cost glass manufacturer. So it's our aim to stop this and we are doing this without affecting significantly our margins. That means that we are doing the right thing in our cost base. And that -- let me explain like this simplistically that also should give you a reference that we are to be and remain as cost-competitive as some importers into the U.K. and Europe. This is our aim, to remain competitive to stop this. And third, you mentioned a specific case of relevant customer in Brazil. Let me avoid mentioning the specific names in this conference call, okay? My only message is that we were aware of this. We have been preparing ourselves for this and all the message that I shared with you answering a previous question regarding Brazil, our business there and our actions to further improve our competitiveness and attract customers and differentiate our commercial positioning are very well aligned with this specific case. That won't be an excuse for us next year. Operator: Our next question comes from Inigo from Kepler Cheuvreux. Íñigo Egusquiza: Most of them have been already answered, but I have 3 questions, if I may. The first one is Brazil. Just to come back to Brazil again. If you can explain or elaborate a bit how margins be at more than 41% in Q3 with the top line falling double digit and with this important or [indiscernible] fall in volumes in Q3 that you mentioned before. So this is the first question. The second one is on Iberia volumes in Q3. If we do the numbers, we have seen, I would say, a nice recovery with volumes growing in Iberia in Q3 more than mid-single digit. If you can elaborate a bit what is behind that nice recovery. And the third question is on the guidance outlook for 2026. I guess we have to wait for the next AGM in April 2026. But with what you mentioned in terms of pricing and volumes for 2026, how -- Raul, how do you see the EBITDA margins evolution versus 2025? Rául Merino: Let me start by the final question regarding outlook, okay? The more you ask the question today, you won't give a response for us. It's too soon. We will give you the exact guidance in April this year, but I will try to give you a little bit more color, okay? Demand is -- what we are saying today is that demand is more stable than it has been over the last 2 difficult years. There remains still an excess of capacity in the glass industry in all our regions of activity. Our prices should be more or less under control, our prices despite intense competition. That means that we don't see a negative spread between our sales prices and our manufacturing cost in 2026. So margins are -- and profits in 2026 are looking like safe so far. Okay. Moving back to your first question regarding Brazil. Okay, your question, Inigo, helps me further support previous questions. The reality in these 3 quarters is that we have been affected by a significant deterioration, temporary deterioration in our sales volumes, the top line, but our margins performed as expected. And this is a very good proof of the quality of our business in Vidroporto in Brazil and the competitiveness of this business, okay? If you compare our margins with other's margins, if you analyze these margins under this tough period, tough quarter in terms of sales volumes, you can imagine how clear is our vision in our capacity to recover sales and keep safe our margins and keep on investing in Brazil to further improve our competitiveness. Let me just end this message with a final point that our sales in Brazil in October are much more stable than it has been in the third quarter. And the last question is regarding Iberia. We are improving a little bit better than expected in sales in this region. Probably the reasons are some of them macro, south -- consumption in the south of Europe have been performing slightly better than in Brazil and the U.K. And a lot of reasons are also due to internal factors. We are doing our best to keep on recovering some of the market share that we lost in the last 3 years. And you can see in our margins again, as we have said in the case of Brazil that we are quite cost competitive and we will try to keep on recovering progressively markets there. Íñigo Egusquiza: Okay. Just a final question, if I may. On the free cash flow, which has been quite strong in -- up to September with EUR 155 million and you reiterate the EUR 200 million goal for 2025. What can we expect for 2026 in terms of CapEx? I mean, 2025 has been quite intense in terms of CapEx, I think it's 12% over sales. We should expect these numbers to be stable? Or can we expect a reduction on that CapEx for 2026? Iñigo de la Rica: When we look into 2026, excluding potential inorganic opportunities, if they do not happen, CapEx should be slightly below the numbers that we are seeing for 2025. So 2025 should be considered as an extraordinary year in terms of CapEx, as you can perfectly imagine considering that we are investing 12% of sales into the business. Rául Merino: And let me insist on this because we like the message, we will invest more than ever, smarter, more than others, to further improve our cost competitiveness and with our customer in mind. The only reason for our CapEx to look like slightly -- only slightly more relaxed in 2026 is just a matter of calendar, okay? But we will keep on investing. And let me arise again the message that our cash profile, the cash generation that we are obtaining is being obtained after a significant effort on our investment activities to try to drive our future. Operator: There are no further questions by telephone. I will now hand it back to the Vidrala team who will address questions submitted via webcast. Iñigo de la Rica: So there is only one question left, if I am right, through the webcast because there are several ones that should have been -- we should have already answered them. So there is one question that states that beer and wine consumption continue to decline and both products account for a relevant percentage of our sales. So which are our plans to compensate for this? Rául Merino: Well, then let's be clear, to improve our cost competitiveness to attract customers back, to try to recover market shares or fight against an specific level of competition when needed, we will obviously try to diversify our sales by regions and by segments. But even in weakened segment of sales due to softer consumption than expected as the ones you mentioned, beer and wine, there are a lot of opportunities for cost competitive different glass makers as Vidrala aim to be. Unai Garaizabal: So we have answered all the questions sent through the webcast. If you have more questions or need more details, please feel free to contact us any time. That's all for today. Thank you very much for joining and listening.
Aapo Kilpinen: Ladies and gentlemen, dear Remedy investors, welcome to the webcast for Remedy's Third Quarter of 2025. My name is Aapo Kilpinen from Remedy's Investor Relations. Joining with me today, our Remedy's Interim CEO, Markus Maki; and Remedy's CFO, Santtu Kallionpaa. Markus will guide us through the Q3 business review and then Santtu will dive deeper into the financials. We'll then look at the outlook for the year and end with a Q&A session at the end of the webcast. If you have any questions already, feel free to send those over by leaving them to the box below the webcast. But without further ado, Markus, please, the stage is yours. Markus Maki: Thank you Aapo, for the movie style announcement and introductions. Welcome, everybody. I thought I would say a few words about myself to start with since this is my first review, I'm here with you, with the audience. So I'm one of the original founders of Remedy. I've been Chairman of the Board since 1997 until this point now. And I've been operationally involved also since founding of the company for the past 30 years. And I've done almost every role outside of the kind of artistic domains during my history with Remedy. And I've also been an interim CEO before about 10 years ago. So just before we got listed to the First North Marketplace. So it's not the first time I'm stepping into [ these ] shoes either. I wanted to bring a bit of a context kind of to the history. And Remedy's history has been built on games being successful, profitable in the past. This is an exceptional track record for any games company. It's also rare that a games company is even alive after 30 years, and this is the success that we've built this company. But now if you look at kind of the more recent history, we started for what was for Remedy a massive growth spurt, both in personnel and in the number of simultaneous projects in 2017. And for a company that had grown, let's say, much more slowly for the past previous 20 years, I think on hindsight, if you look at the recent results, the expansion, the growth was a bit too rapid, and it has caused us to miss some critical signals. But we've done some great stuff. We have a really talented, great team. We don't have a need for personnel or project count growth at the moment. What we need to do is to learn to move faster and act more decisively in the future. So the focus is on the games. And we have some really fantastic stuff coming up, and that's going to be my key focus as the interim CEO to ensure that we succeed with those. If you go to the topic of today's cast, it's, of course, Q3 highlights. And I won't go too deep into the numbers, Santtu will cover them more. And we also kind of disclosed this in our profit warning as the pre numbers a couple of weeks ago. I think the big thing that I would want to highlight here is the positive operating cash flow, which is something that is, let's say, really nice to have money in the bank at this point. Looking at kind of the quarter highlights, we had a great 30-year anniversary celebration in August. We pushed really hard to improve Firebreak with a major update in September. And as then the results of that were not sufficient, we did recognize a noncash impairment of the majority of the capitalized development costs for it, and it also caused us to update our outlook. And as a last highlight, we had the change of the CEO and also a change of Chairman of the Board. But let's spend a bit of time talking about Firebreak. Just a few observations from my side. So the game was launched in June, and we bought multiple smaller updates and then the major update in September. And all of the focus was to improve the game, work with the player feedback, make what players want to do. We also had the first discount campaigns, and we did see the player metrics and the feedback improve after the update. But unfortunately, our sales were not on a high enough level. And I think it's kind of easy to say now that changing the first impressions in players' mind is going to be really, really difficult. But this resulted in the write-down of the capitalized development costs and the profit warning. I guess there's quite a lot of questions about the future of Firebreak, and we do still plan on updating the game, and we have the next update planned for later this year as it's been on an advanced state of development. We have had a road map based on the success of the game. But going forward in '26 and onwards, we are going to evaluate the updates quite strictly based on the commercial viability of the game. So this is not me saying that we wouldn't update the game, we will, but we will be critical about the return on investment. And while it didn't really go how we wanted, I still wanted to say that we gained some valuable learnings from the investment. First of all, I think it's a big achievement that a first multiplayer game that Remedy has done since Death Rally '96 was technically successful, launching on all of the major platforms at the same time and working for the players technically. This is something that not even all experienced multiplayer studios succeed in. We have also been able to operate the game in a live service model and managed to update the game and learned a lot about that. I think the second part of the learning is gaining knowledge how to really work with the digital marketing channels for games, what works there, what doesn't work there, how do we drive audience to the, for example, the Steam page and just opening up our experience on all of those channels. And we've also gone through one round of full technical publishing steps, whether it's console certification, storefrom setups, stuff like that. And both of these things are things that have been in most parts done by our external publishing partners in the past. So these are, in my mind, valuable experiences in self-publishing journey we have undertaken and it really hopefully lowers the risk profile for our future launches. As a last thing about Firebreak, I wanted to kind of go back to a bit higher level and remind everybody that Firebreak was our smallest project, both budget and team-wise. And even though it didn't succeed commercially, I'm still proud of what we achieved as a company. If you look at kind of the larger market atmosphere and so on, especially Finnish stock-listed companies are often criticized that they don't invest in finding new businesses and finding new customers. That's what we tried to do here. And we knew that Firebreak was the risky venture in our portfolio, and I think it was done for all of the right reasons. So with that, let's move forward to kind of looking at the other games we have in the market. So Alan Wake 2, we had good sales. Royalties grew in Q3 compared to the previous quarters this year. We have the game now as the PlayStation Plus game of October, and that's great for the life cycle of the product as well. And we have seen, as with Control, that great games can sell for a long time in the digital marketplaces and new opportunities can come up over time. For example, we had some encouraging early results in bringing the game to Chinese markets with Epic. On Control, we've been focusing kind of on the marketing and sales since we've now been in full control, no pun intended of the publishing of the game. And we've been working with all of the sales channels there and had a great 30-year celebration activation to drive the sales. We have had good sales traction for what's now a 6-year-old title. I think we are all amazed how it's doing still, and we will continue doing systematic work on expanding the reach of the franchise and -- for example, looking at kind of the outside of our traditional strong markets, what opportunities we do have. Then as a reminder of our portfolio of the games we have in development, 4 projects. Control and Max Payne have the bigger teams. They are in full production and they're tracking towards their milestone calls. The new project, which we are not yet revealing anything, is in proof-of-concept phase with a smaller team. A quick look at the strategy and targets. Here, there's nothing really that's changing on the top level. This is what we have communicated earlier. These are still our strategic goals. All of the building blocks for achieving these are in place. It's just a matter of execution and getting there faster. And on strategy and targets, we do remain committed to what we communicated about a year ago in our CMD on these targets. So with that, I will be passing over to Santtu for the financials. Santtu Kallionpaa: All right. Thank you, Markus, and good afternoon, everyone. And now the financials. Let's start from the revenue. So in the third quarter of 2025, our revenue was EUR 12.2 million, declining by 32 percentage compared to the third quarter of the previous year. Decline was driven by development fees, which were EUR 6.1 million being lower than in the comparison period. This is explained by a onetime payment, which was recognized in Q3 2024 related to the development work done for Control 2 before the start of the strategic partnership with Annapurna. Now during Q3 2025, the sources of the development fees were the Max Payne 1 and 2 remake related fees from our partner, Rockstar, and Control 2 related fees from Annapurna. Remedy game sales and royalties increased significantly from the comparison period and were EUR 6.0 million. Growth was driven mainly by revenue from FBC: Firebreak subscription service agreements, royalties from Alan Wake 2 and game sales of Control. Our revenue was impacted negatively by weak USD rate. And as an additional information, FX neutral change for Q3 revenue was minus 29 percentage, whereas the reported change was minus 32 percentage. FX neutral change was calculated with 2024 average FX rates for USD, pound and Swedish crown. If you look back at our historical revenues, the total revenue year-to-date for 2025 is now EUR 42.5 million, which remains on a higher level compared to the previous year's Q1 to Q3 revenue, EUR 39 million. We can start to see the effects of the self-publishing strategy as the game sales and royalties have started to provide a larger share of our total revenue stream compared to the previous years. In 2025, game sales and royalties have generated 43 percentage of our total revenue so far. In comparison, during the first 3 quarters of 2024, royalty share was 9 percentage of the total revenue. In Q3 2025, development fees accounted for approximately half of the total revenue. If we exclude the onetime payment from Q3 2024, our total revenue would have been up plus 55 percentage in Q3 2025 from the comparison period. Operating profit of the third quarter 2025 was EUR 16.4 million negative. The operating profit was affected by a recognition of a noncash impairment of EUR 14.9 million related to FBC: Firebreak, capitalized development costs and allocated purchase publishing and distribution rights. The impairment covers majority of these capitalized costs. Without the impairment, the operating profit would have been EUR 1.5 million negative. Q3 EBITDA was EUR 0.7 million positive. The decline in EBITDA compared to the previous year is explained by the higher revenue level in the comparison period, which was driven by the recognized onetime payment for Control 2 development. In Q3 2025, the total operating expenses, excluding depreciations, remained on a same level as in the comparison period. Then let's look at the analysis of unnetted amounts of expenses and capitalization, which provides transparency in our costs. If you look at the external development of personnel expenses in the third quarter of 2025, our total cost level decreased by 9 percentage from EUR 11.4 million to EUR 10.4 million. External work expenses were EUR 3.1 million and on a 36.5 percentage lower level than in the comparison period when they were EUR 4.9 million. The change in external services cost level is part of normal game development process, and there is variation in the level of outsourcing following the needs of the game projects. Personnel expenses increased year-on-year by 11.7 percentage and were EUR 7.2 million in Q3 2025. Headcount grew by 7.7 percentage. Capitalized development expenses were on a higher level than in comparison period. Capitalized amount is in relation to the direct costs of the projects' development costs. In the third quarter of 2025, the depreciations related to game projects were on a high level due to the recognized noncash impairment of EUR 14.9 million related to FBC: Firebreak. This impairment represents a majority of the game's capitalized development costs and allocated purchase, publishing and distribution rights. Excluding the impairment, depreciation expenses in total were EUR 2.2 million, of which EUR 1.5 million were related to game projects. The other depreciations remained on a stable level year-on-year also in Q3 2025. In the comparison period, Q3 2024, we depreciated EUR 3.4 million expenses capitalized related to Control franchise products, which was connected to entering the deal with Annapurna. Going forward, following the impairment that we recognized on Q3 2025 depreciations related to FBC: Firebreak will be on a low level as the remaining activated costs related to the game is modest. In addition to FBC: Firebreak, depreciations will keep running also for Alan Wake 2. Then let's move to the cash flow. So during the third quarter of 2025, cash flow increased compared to the previous year as we received more inflowing sales-related payments. Paid operating expenses remained on a similar level to the comparison period Q3 2024. This year's Q3 includes also considerable nonrecurring element related to Firebreak subscription service contracts. Also, if you look at our net working capital at the end of Q3 2025, it was on a similar level compared to the net working capital at the end of 2024. It's anyway, good to keep in mind the timing of development fee payments as well as some royalty and game-related payments are agreement based and there are variations in the timing of revenue accruals and the actual cash flow impacts. End of the third quarter, our total cash level was EUR 36.5 million, increasing by EUR 8.9 million from the previous quarter. The main explanation for the increased cash reserve is the timing of incoming revenue cash flows. At the end of Q3 2025, we had EUR 17.7 million in cash management investments and EUR 18.8 million in cash. Then let's still look our results from the historical perspective from Q1 to Q3 2025. Our revenue was EUR 42.5 million with the share of game sales growing steadily during this year compared to the previous years. We can see that our EBITDA margin has been improving year-on-year since the end of year 2023 and is now year-to-date 17.6% percentage. Additionally, positive development of game sales and royalties as share of total sales is definitely one of the positives for this year. However, this year, our year-to-date operating profit margin is worse than previous year being 36.7% at negative following the impairment booking done for Q3. And now Markus will continue regarding the outlook. Markus Maki: This is going to be fairly short. Thank you, Santtu. So this is the updated outlook we did on 10th of October, together with the profit warning so that we expect our revenue to increase from previous year, but operating profit will be negative and below the previous year. That's kind of it from the presentation part. And I think now it's time for Q&A. Aapo Kilpinen: Correct. Thank you so much, Santtu. Thank you so much, Markus. We are moving forward to the Q&A session. Feel free to leave any questions by typing them to the field below the webcast. We already have a couple of good questions in the pipeline. So let's begin with those. The first question is, now that Remedy announced its CEO change, what will change in the company? Markus Maki: That's a good question. I think it's first best to say that I am the interim CEO. And my role is here to make sure that our path and key targets are getting hit, and we are moving as fast as possible towards the direction that will bring us profitability. But I think it's too early to speculate on larger scale changes. Aapo Kilpinen: Very good. Can you elaborate on what kind of a background emphasis or expertise is Remedy looking for in its next CEO? Markus Maki: I've seen kind of what we collected in the Board, what we expect. And often, these things kind of become some kind of a unicorn, you want everything and everything. I think the key thing is experience in leading a company of our type and size, but I don't want to go too much into the detail. I think it's going to be about the person that we find rather than exact set of past competencies or work history. Aapo Kilpinen: Very good. Another question. Can you elaborate on why the CEO change happened quickly? Markus Maki: Well, the CEO change is a Board decision. So I don't know what's quickly there. So that's -- I can't comment more on that. Aapo Kilpinen: Very good. Moving towards FBC: Firebreak, have you made or are you planning to make personnel reductions as a result of balancing the investments made in FBC: Firebreak? Markus Maki: We are moving people from Firebreak to help with some of the other teams, but we don't have any other plans at this point. Aapo Kilpinen: The next question is how large of a team is working on FBC: Firebreak at the moment? Markus Maki: At the moment, we haven't really disclosed the exact team sizes. I just said that it's the smallest team in our kind of portfolio of products that we work on, and it is now clearly smaller than it was at or before or immediately after launch already. Aapo Kilpinen: Very good. What have been the specific key learnings in self-publishing from FBC: Firebreak? What worked and what did not work and what will be done differently going forward? Markus Maki: That's something that warrants quite a lot more analysis also on our part and quite a long kind of an answer. I would say one thing maybe that kind of change -- as I said, changing people's opinion after the launch is going to be super difficult. And driving conversion in a game that has mixed team reviews is supremely hard. And that also kind of limits some of the, for example, marketing conversion and so on learnings that we can actually do with a title like Firebreak, but we've still learned a lot. Aapo Kilpinen: Very good. A bit looking into the future, to what degree are live service model and/or multiplayer modes, something you want to pursue in your games currently in the production pipeline? Markus Maki: This is something that we haven't announced anything on. And let's not -- let's take one step at a time as well. And we will -- when we have something more on this, we'll talk about it. But I want to repeat the fact that every company should invest into finding new audiences, new customers, new business models. And I hope that Remedy will continue to do that in some way or form in the future as well. Aapo Kilpinen: Very good. Markus, in hindsight, what do you think about the Vanguard, Kestrel and Firebreak projects from the perspective of a founder owner and former Chairman of the Board? Markus Maki: I think both for Vanguard and Firebreak, I think there was a solid reason to start them and do them. I think there is -- like I just said also that growth is very difficult, and we were growing too fast. I think having, for example, 2 projects that were kind of new business for remedy at the same time, at least partially at the same time. In hindsight, I think that was too much. And that was also on the board. And so lesson learned, at least for me. Aapo Kilpinen: Very good. Markus, you discussed the need of increasing speed and decisiveness inside the organization. Has there been advances in development speed in the past years? And currently, how do you plan to increase development speed and decisiveness? Markus Maki: I think it's -- speed is -- in an organization of our size, speed is dependent on the information that our people and our team have. And that's something that I'm trying to be very open with everybody that what are the goals, what are the targets, what are the key decision points that we have. And I think that will bring on more speed in -- I don't say in development necessarily that we need it. We need it in decisions. We need to make better quality decisions faster. I think that's across the organization. It's not just a CEO thing. And that requires transparency, openness, frank discussions and information. Aapo Kilpinen: Very good. Reflecting a bit, what have been the biggest lessons Remedy has learned from developing multiplayer games? And can these be utilized in future game projects? Markus Maki: Well, I think it depends on the future project, whether we can use them or not and how much. I certainly think that even in single-player games, having some sort of persistent online site might be very valuable for the gamers in the future. And we build competencies around that, for example. So yes, definite maybe, let's say it that way. Aapo Kilpinen: Very good. a question, you have moved development resources to other projects from FBC: Firebreak, but also during the last quarter, employee count increased. What headcount for Remedy would be sufficient at this stage? Markus Maki: I think we are currently at a fairly comfortable place with the headcount. We also have a lot of external development outsourcing. Some of our projects have been ramping down a bit on those. This will be also kind of, of course, visible in the financial data going forward. But I think we're in a good place with the personnel we have right now. We have the least amount of open positions that we've had in years. Aapo Kilpinen: Yes. Very good. A final question regarding FBC: Firebreak. Are you planning on shutting down the project at the moment? Markus Maki: I have absolutely no plans on shutting down the project because there is -- it's not a cost issue. We don't have an expensive -- super expensive infrastructure, for example, that we would need to run and so on. It's going to be available for the gamers going forward as well. Aapo Kilpinen: Very good. Moving forward to the games in the market, can you comment on the reception of Alan Wake 2 through PS Plus considering that the channel might attract players that are not traditional Remedy or survival, [ horror ] or genre fans? Markus Maki: I think we're going through the questions fairly quickly or what did you say. On PlayStation Plus, I think that it's a great place to kind of, at this point, 2 years after the launch to get a bit more visibility into the project, get a bit new audience into it. And I think it was Sam who said yesterday that, hey, it's great. I haven't heard about this game, but it's the best game ever. And yes, that's also, of course, positive for the game for the brand for our business in the future. Aapo Kilpinen: Very good. Regarding the new proof-of-concept project announced, is it too early to comment if Remedy has already committed on a specific publishing model et cetera, self-publishing or financing model for this specific game? Markus Maki: It's too early to comment, period. Aapo Kilpinen: Very good. Perhaps next question is towards Santtu. How will Remedy ensure that enough cash flow is produced in the future, 2, 3 years to fund the ongoing projects? Santtu Kallionpaa: Well, we can say that we have strong games in the pipeline. And currently, we have a very strong cash position. So we are confident with our financial position also going forward. Markus Maki: And I would add to that, that we do have a partner project with Max Payne right now. And we have had partner projects before that can be, let's say, a tool in the toolbox in the future as well. So, yes. But again, too early to go to specifics. Aapo Kilpinen: Yes. The next question kind of builds on that. The impairment had a EUR 15 million negative impact on the health of your balance sheet. What kind of an impact that will have on your target to move to self-publishing as it requires a solid balance sheet? Santtu Kallionpaa: Well, I would say that even after the impairment, our balance sheet is still very healthy. And we can say that now the financial risk that was related to balance sheet values of FBC: Firebreak that has been taken away. And as I said, we have EUR 36.5 million in our cash at the moment. So that is enough for our future needs. Aapo Kilpinen: Very good. A question regarding Alan Wake. How many copies has Alan Wake sold so far? And how does it compare to your own expectations? Markus Maki: We don't really comment on exact number of copies in these kind of forums. When we have something to release on those, we will then release it via other channels. We are happy with the sales. Aapo Kilpinen: And then can you open up the split between royalties and game sales during this quarter? Santtu Kallionpaa: Well, we are currently reporting royalties and game sales in the same bucket. So we are not sharing details regarding that. We can, of course, say that if you're talking about the game sales, the kind of FBC: Firebreak related B2B income, the revenue from the B2B deals, that is a major part of our game sales. Additionally, we have said that there are Alan Wake 2 related royalties and also game sales from other Remedy game catalog in the market. Aapo Kilpinen: Very good. And then a question regarding the development fees, Santtu. Can you elaborate on why the development fees were only EUR 6.1 million in Q3, the lowest since 2021? Santtu Kallionpaa: Yes. Development fees are based on the milestones that have been agreed in the contracts, and they are not necessarily split evenly in the calendar. It means basically that the kind of income from the development fees that varies depending on the stage of the project, and there may be variation also going forward. Development fees might be going higher level and lower -- or also lower level going forward. Aapo Kilpinen: Another question then what is included in the current intangible assets on the balance sheet and is Control 2 a large majority? Markus Maki: Yes. We can say that Control 2 is a major part of our intangible assets at the moment. Additionally, now when we have one project in the proof-of-concept stage, we have also started the activations related to it. Aapo Kilpinen: Very good. Are you still expecting Firebreak's B2B income to come in the coming quarters? Santtu Kallionpaa: Yes. We will continue accruing Firebreak-related B2B income until the end of the subscription service deals. Additionally, we can say that the majority from the cash flow related to those deals is now in our cash, but there will also be some following payments going forward. Aapo Kilpinen: Very good. A question, in general, what is the plan with the big cash pile? Is there a consideration for buybacks? Markus Maki: I think this is for me. Obviously, things like share buybacks are a tool that the Board has in their toolbox, but this is not for the management to comment at this point. Aapo Kilpinen: Very good. A couple of final comments on the pipeline. Can you shortly comment on the production developments of Max Payne on as you remake and Control 2? Markus Maki: Well, shortly, no, not more than I kind of said earlier that they are proceeding according to the milestone plan. This is something that we are actually changing the line a bit, and you saw that from the quarterly report that we are -- when there are some highlights in the projects, we will, of course, be forthcoming with them to everybody. But at the same time, these are multiyear projects and expecting key highlights for every project for every quarter, I think, is just going to send wrong signals and we are not going to be doing that in the future in the same way. Aapo Kilpinen: Very good. Okay. A couple more general questions then at the end. Regarding the long-term tail and ongoing sales for Alan Wake 2, are there plans to expand the global accessibility to added locations, et cetera, the Middle Eastern and North African markets? Markus Maki: That's a nice question. This is definitely something that -- obviously, we want our games to have the widest possible audience. With Alan Wake, we are working with our publishing partner, Epic, and do these decisions with them. So this is not, I would say, fully also not in our control. There's also kind of Alan Wake is a huge game and for example, a full voice over localization is not, let's say, pennies and requires quite a lot of effort. So we are looking at these opportunities optimistically, and we would want our game to be accessible to as wide audiences as possible. Aapo Kilpinen: Very good. Expanding on that question, looking at the success of Alan Wake 2, what have you learned about the distribution model as you think about maximizing the long-term tail and audience reach for the game? Markus Maki: On Alan Wake 2, I think the -- what we now, for example, did, we opened with HeyBox in China and saw some success. So yes, we are looking together with Epic on various ways to kind of boost the long tail of the sales of the game. And again, this is a discussion that we continuously have with Epic. Aapo Kilpinen: Very good. And then a question in regards to Northlight. Would you consider to release the Northlight engine, for example, sourcing it as a B2B or for a more wide public? Markus Maki: This is a question that's about as old as Remedy itself. I've gotten this at least 20 years. And I think the answer is kind of yes and no. But we've always trended on the no because Northlight strength is that it's a focused engine for our team, for our kind of games. And that means that it is a subset of platforms, features and so on compared to a general purpose engine like Unity or Unreal. And that is actually also its competitive advantage. And that is why we can do it with a smaller team than the hundreds and hundreds of developers working on those engines. We don't need to do external support, for example, that we would need to do. I think open sourcing is probably the more interesting path. I'm also always been kind of a proponent of modding and user-generated content. I would love to see more of that. But these are not, let's say, trivial things to kind of implement well in the current technologies. So yes and no. Aapo Kilpinen: Very good. And the final question, considering the suboptimal outcome of FBC: Firebreak, what specifically makes you confident in reaching the targets set for 2027? Markus Maki: Well, what makes me confident is that we have a strong portfolio of products coming up and how they are proceeding. That's the quick answer. Aapo Kilpinen: Simple as that. Markus Maki: Yes. Aapo Kilpinen: All right. Thank you, everybody so much. It's time to wrap up the Q&A session. If you have any additional questions, feel free to send those over at the e-mail address now visible on the screen. We will be back with the next earnings webcast, which is our financial statements release for the full year. But until then, bye-bye from us.
Raul Sinha: Good morning, and welcome to Santander's Third Quarter 2025 Results Presentation. For the call today, we will be joined by Hector Grisi, our Group CEO; and Jose Garcia-Cantera, our CFO. Hector, over to you. Hector Blas Grisi Checa: Thanks, Raul. Good morning and everyone, and thank you for joining Santander results presentation. We will follow the usual structure. First, I will go over our results with a special focus on the performance of our global businesses. Then Jose, our CFO, will then provide a detailed view of the financials, and then I will wrap up with some final remarks before we open for Q&A. Before we begin, a quick note that all figures in the presentation continue to include Poland until the disposal is completed. Q3 was another record quarter, reflecting the strength of our strategy and the resilience of our business model in a more demanding environment. Our quarterly profit hit a new record at EUR 3.5 billion, making 9 months '25 the best 9-month period ever, driven by strong revenue growth across the global businesses and our solid customer base, which increased by 7 million year-on-year to 178 million as we enhance customer experience by leveraging our global platforms. We achieved this while we continue to invest for the future through ONE Transformation, making excellent progress towards a simpler and more integrated model. This has enabled further efficiency gains and a 70 basis points increase to our RoTE to 16.1%. Our balance sheet remains also solid with a strong capital ratio, which ended the quarter with an all-time high of 13.1% and a robust credit quality. All of this drove a strong shareholder value creation with TNAV plus cash dividend per share growing 15% despite some currency headwinds. We are approaching the end of our '23-'25 strategic plan well on track to meet our targets. Thanks to our profitability and our disciplined capital allocation, which is further improving profitability. Remember that earlier this year, we raised our RoTE target to around 16.5% post-AT1, equivalent to above 17% pre-AT1 from our original Investor Day target range of 15% to 17%. At the same time, we're already operating with a CET1 ratio above 13%, clearly exceeding our original post-Basel III target of above 12% with 88% of RWAs generating returns above our cost of equity. Finally, after our latest inorganic transactions, we decided to accelerate the execution of our EUR 10 billion share buybacks and upgrade our target, so we announced that we expect to distribute at least EUR 10 billion to our shareholders through share buybacks for '25-'26, subject to regulatory approvals. Let's go now into our income statement. Our P&L remained very solid with profit growing double digits year-on-year, once again reflecting the strength and diversification of our model. We delivered strong top line growth with revenue up 4% in constant euros, supported by NII, which increased 2%, but especially by a new record quarter in fees, up 8%, supported by significant customer growth and the network benefits that we are capturing through our global businesses. At the same time, expenses grew below revenue, down 1% in euros, in line with our target, showing the positive effects from our transformation. This performance translated into solid growth in net operating income, again demonstrating the sustainability of our results. Our prudent approach to risk is also evident in our robust credit quality trends with a cost of risk that is consistently improving year-on-year. Overall, as we have shown over time, our results are sustainable and less volatile than peers even in a more challenging environment. We are ahead of our plan executing our transformation, boosting our operational leverage and structurally improving both revenue and cost. Simplification, automation and active spread management have already delivered 259 basis points of efficiencies. Our global businesses added 101 basis points and our in-house and global tech capabilities, another 88 basis points, exceeding the level expected by the end of '25. And there is still more to come. We see further upside as we stay focused on rolling out common platforms across Retail and Consumer while also capturing additional efficiencies from Wealth, CIB and Payments by leveraging our global network. And all this is something that is entirely under our control. All our global businesses delivered strong profit growth while we improved the group's profitability. Customer activity and diversification continue to drive revenue growth. In a less favorable interest rate environment, our CIB, Wealth and Payments businesses, which are more fee driven, are seeing increased revenue with fees up 7%, 19% and 16%, respectively. At the same time, some of our franchises and emerging markets performed better with lower rates. Our Consumer business is a great example with NII up 6% year-on-year. In addition, our customer focus and solid track record in active balance sheet management explained the resilient NII performance in Retail, which excluding Argentina, grew 1% year-on-year. At the same time, we're extracting the potential from our scale. Scale gives us efficiency and also the flexibility to allocate capital quickly, something very few others can replicate. Combined with our strict capital discipline and focus on profitability, this is driving higher RoTE which most of our businesses already above the targets we set for '25. It is this unique combination of customer focus, scale and diversification that enables us to deliver strong and recurring results, putting us in an excellent position to navigate the challenges ahead. In Retail, we are transforming the way we operate to become a digital bank with branches, combining cutting-edge technology with the expertise and proximity of our teams. We continue to digitalize and enhance customer journeys, driving double-digit growth in digital sales. A key milestone was the launch of the new app in Brazil that introduces conversational capabilities that we are now preparing its rollout across more countries. In cost, we are making the most of AI to speed up simplification and automation, which is reducing manual activities and allowing teams to focus more on customer interactions and value-added activities. As a result, dedication of teams to noncommercial activities has dropped by 17% during the last 12 months. We are progressing in the rollout of our global platform, Gravity. Our back-end technology is fully implemented in Spain and Chile, and we expect to deploy it in Mexico in Q4. Retail profit grew high single-digit year-on-year, driven by sound revenue performances across most countries. Costs declined in real terms and credit quality remained solid. In a more demanding environment, NII grew year-on-year, excluding Argentina, reflecting our focus on profitability and the disciplined margin management and fees rose 5%, supported by higher customer activity, our ongoing digitalization and improved customer journeys. We will keep scaling our transformation to boost efficiency and contribute to group's growth. By improving customer experience and simplifying operations, we expect to continue growing our customer base while reducing cost in euros. In Consumer, we continue to advance in our priority to become the preferred choice for our partners and customers by delivering the best solutions and strengthening our cost competitive advantage across our footprint. Deploying global platforms is key to scale our business and to reduce cost to serve. We recently announced the integration of Santander Consumer Finance and Openbank in Europe, a natural step that simplifies our business, reduce cost and improve our product offering. We keep enhancing our value proposition and Openbank is again a great example. In Germany, it now offers a new AI-powered investment broker. In the U.S. and Mexico, Openbank has attracted EUR 6.2 billion in deposits as part of our broader deposit gathering strategy. We continue to expand and consolidate partnerships, offering global best-in-class solutions with top OEMs. Zinia continued to grow, reaching record volumes during Amazon Prime Days and introducing installment payments for Amazon customers in Spain. Profit grew 6% year-on-year in a challenging context of weaker car registrations in Europe, driven by NII growth and solid cost of risk performance, especially in the U.S. We continue to prioritize profitability over volumes, lower funding costs and accelerating transformation while actively managing capital to maximize returns. We expect Consumer to be one of the drivers of the group's profit, supported by NII growth as the business benefits from lower rates and progresses in our strategy to lower funding cost, solid fee income performance as insurance penetration improves and further cost efficiencies as we accelerate our transformation. In CIB, we are building a world-class business to better serve our corporate and institutional clients across our footprint while maintaining our low-risk profile. Number one, we continue to deepen our client relationships and strengthen our position in our core markets, leveraging our centers of expertise and expanded coverage. This is translating into market share gains in the U.S. as we achieve greater relevance in the investment banking space. Number two, our enhanced capabilities are enabling us for significant opportunities across CIB, improving our cross-business value proposition and driving solid growth in our institutional franchise in Global Markets, where revenue rose 27% year-on-year. Even in a more challenging environment, CIB keeps on delivering solid results with profit up 10% year-on-year, supported by solid fee growth across business lines and exceptional performance of Global Markets early in the year. All of this, while we maintain one of the best efficiency ratios in the sector and a RoTE of around 20%, reflecting our strict focus on profitability and capital discipline. We will build on the capabilities developed in recent years to drive revenue growth in CIB across the group, driven by stronger connectivity across countries, products and businesses. In Wealth, we are building the best wealth and insurance manager in Europe and the Americas. Number one, in Private Banking, we remain focused on expanding our fee businesses and consolidating our global position through value-added solutions. We continue developing our new Global Family Office service, which after just 3 months of activity is bringing advisory services to our first clients in Spain who represent a total wealth of more than EUR 500 million. Number two, in asset management, we keep reinforcing distribution and investment capabilities in alternatives and streamlining our liquid product platform. Number three, in Insurance, we are focused in 2 new verticals: Life & Pensions with new products for senior customers in Brazil and annuities from Private Banking and affluent clients in Spain; and P&C, where we expanded our value offering to SMEs with new protection business products in collaborations with Getnet. Number four, collaboration with other businesses is a major growth driver for Wealth. Collaboration revenues have been a strong growth lever with PB and CIB working hand-in-hand from tailored capital market structures for ultra-high net worth individuals to new joint opportunities. In summary, all of this is supporting strong growth and high profitability levels. Profit rose 21% off the back of strong commercial activity and double-digit fee growth across the 3 businesses. Efficiency improved 1.3 percentage points year-on-year and RoTE is close to 70%, confirming wealth position as one of the most efficient and profitable businesses in the group. Finally, Payments, where we hold a unique positions on both sides of the value chain. In merchant acquiring, we're expanding our global platform with a single API to serve all our customers across our footprint and is now live across our 5 countries in Latin America, reinforcing Getnet's positioning in the region. PagoNxt Payments is leveraging the best proprietary technology to deliver account-to-account processing, FX, fraud detection and other value-added services. Volumes processed by our Payments Hub were more than 5x higher than last year. In Cards, where we are amongst the largest issuers globally with 107 million active cards, we continue to expand the business and deliver best-in-class products. As part of our debit to credit strategy to promote the benefits of using credit cards, this quarter, we launched Pay Smarter in 5 of our countries. We also kept strengthening the integration between Cards and Merchant Solutions, expanding our bundling proposition with Getnet in Brazil, which now joins Spain, Chile, Portugal and Argentina. Payments delivered a strong quarter, resulting in double-digit revenue increase year-on-year, both in Cards and PagoNxt with controlled cost, driving profit growth of more than 60% and improving PagoNxt EBITDA margin to 32%, already above our '25 Investor Day target with Getnet being one of the best among peers. Our strong operational and financial performance is driving higher profitability and double-digit value creation for the 10th consecutive quarter. Post-AT1 RoTE reached 16.1%, up nearly 1 percentage point year-on-year, reflecting our disciplined capital allocation strategy. Earnings per share rose 16%, supported by solid profit generation and fewer shares following buybacks. As a result, TNAV plus cash dividend per share increased 15%. We maintain our upgraded target to distribute at least EUR 10 billion to our own shareholders through share buybacks for '25 and '26, subject to regulatory approvals. Since '21 and including the program that is underway, we will have repurchased more than 15% of our outstanding shares, providing a return on investment of approximately 20% to our shareholders. I will leave you now with Jose, who will go into our financial performance in more detail. José Antonio García Cantera: Thank you, Hector, and good morning, everyone. I will go into more detail on the group's P&L and capital performance. Let me first remind you that as we always do, we are presenting growth rates in both current and constant euros. The difference was around 5 percentage points as of September, mainly due to the depreciation of the Brazilian real and the Mexican peso towards the end of last year. As the CEO explained, we are yet again reporting record results this quarter for the sixth consecutive quarter. Revenue grew 4% with a good cost performance in line with our objectives for 2025. Cost of risk improved in the quarter, supported by robust labor markets and our prudent risk management. There are several positives and negatives in the other results line, but the concepts that explain most of the significant drop in this line year-on-year are the write-downs in PagoNxt in the second quarter of last year and the temporary levy on revenue earned in Spain, which this year is being recorded under the tax line. For the last 2 years, we have reported a continuous upward trend in profit, which grew 3% this quarter in constant euros on the back of a resilient NII performance, cost under control and lower loan loss provisions. Total revenue increased 4% to EUR 46 billion, on track to meet our 2025 target, even with less favorable interest rates than initially anticipated. This growth was underpinned by customer activity and more than 7 million new customers. All global businesses contributed to revenue growth. Payments accelerated with revenue up 19% as both PagoNxt and Cards delivered double-digit growth in NII and fees, driven by higher activity. Wealth also maintained the positive trends from the first half with revenue rising 13%, supported by record assets under management and a strong commercial momentum. CIB grew 6% year-on-year, driven especially by Global Markets and our growth initiatives in the U.S. Consumer also had a strong performance, supported by strong net interest income growth across most of our footprint. And finally, in Retail, revenue rose even in a less favorable interest rate context, thanks to our active margin management and our increased focus on fees. The group's net interest income increased 3% year-on-year, excluding Argentina. Although the majority of group's NII comes from Retail and Consumer, this quarter, most of our businesses contributed to the overall growth year-on-year, which was supported by active asset and liability pricing management. This is most evident in Consumer, both in Europe and the U.S. with improving loan yields and a funding structure with a larger share of customer deposits. Also in Retail, especially in the U.K., Chile and Mexico. Strong activity in Cards, particularly in Brazil, higher volumes and lower funding costs related to market activities and CIB on our efforts to adapt the sensitivity of our balance sheet to protect NII on the new cycle of interest rates. A good example of this is Retail, where net interest income increased across most countries in a less favorable context of interest rates. In the quarter, net interest income was impacted by the Argentine peso. Excluding Argentina, NII was flat and net interest margin declined only 4 basis points for similar reasons I just mentioned. This performance is in line with our guidance of NII going slightly up in 2025 in constant euros, excluding Argentina and slightly down in current euros. We believe net interest income is approaching its trough as we move into a more balanced environment with rates in Brazil expected to ease and lower rates in Europe likely to support consumer volumes and funding costs. Net fee income achieved yet another record period as the number of active customers continue to increase and our transformation promotes connectivity across the group, deploys high value-added products and services and delivers the best customer experience. Fees grew high single-digits, above our target for the year and well above inflation and cost. This was supported by positive activity trends, customer growth and a product mix that is shifting towards more value-added products and services. This shift is evident across all global businesses. Retail fees rose 5%, increases across most of our footprint. CIB increased 7%, up from record levels last year, boosted by an excellent first quarter and year-on-year growth across all business lines, particularly in Global Banking in the U.S. Wealth maintained strong momentum across business lines, backed by record assets under management. Double-digit growth in Payments, both in PagoNxt and Cards, supported by higher activity levels. As discussed in previous quarters, this year, Consumer is affected by new insurance regulation in Germany. Nevertheless, we saw a recovery this quarter, supported by our strategic focus on Insurance with rising penetration expected to translate into higher fee generation as activity accelerates. As we advance our transformation, enhancing customer experience and connectivity and continue to attract more customers, we expect a strong and sustainable fee performance. ONE Transformation is key to understanding why we are improving profitability in most of our markets, leveraging the connectivity that our global businesses provide. The improvements are already very evident. Our costs dropped 1% year-on-year in current euros, which translates into better efficiency levels already amongst the best in the industry. In Retail and Consumer, which are the -- which are leading our transformation, costs are evolving very positively, down 1% in real terms, even with pressure on salaries in some countries and the upfront cost of rolling our global platforms. In CIB, Wealth and Payments, where we are investing, costs grew. However, they showed positive operating jaws with a double-digit fee increase, as I have just explained. This excellent performance resulted in a 5% rise in net operating income from already high levels last year, and our efficiency ratio improved to 41.3%, the best we have reported in more than 15 years. Going forward, we expect sustainable improvements in operational leverage as we further implement the structural changes to our model, especially in Retail and Consumer, which represent 70% of our cost base. The risk profile of our balance sheet remains low with robust credit quality across our footprint on the back of low unemployment and easing monetary policies in most countries. Loan loss provisions increased 5% year-on-year, reflecting the decision to reduce NPLs and also some deterioration in Brazil in the context of higher interest rates. Credit quality continued to improve year-on-year as reflected both in the NPL ratio and cost of risk. The NPL ratio was fairly stable at 2.92%. Remember that much of our NPL ratio -- NPL portfolio has collateral, guarantees and provisions that account for more than 80% of its total exposure. Cost of risk improved year-on-year and quarter-on-quarter to 1.13% despite the management actions I just explained. In Retail, cost of risk improved year-on-year across all our main countries and was steady in the quarter. In Consumer, cost of risk also improved both year-on-year and quarter-on-quarter as the excellent trends in the U.S. continued in the third quarter, even with the usual seasonality. U.S. auto has demonstrated to be highly profitable and resilient business through multiple macroeconomic cycles. It continues to perform better than expected even after some normalization of the delinquency rate in line with our expectations with over 90-day delinquency at historically low levels, backed by strong labor markets and resilient used car values. Finally, our lending exposure to private markets is less than 1% of group's lending exposure. We anticipate a stable cost of risk going forward, supported by stable labor markets. Moving on to capital. As you know, we have been working on improving our capital productivity and accelerating our capital generation for some time. Our CET1 ratio increased again to 13.1% and is now above the top end of our 12% to 13% operating range. This quarter, we generated 56 basis points of capital from attributable profit, which enabled us to accumulate capital after allocating some capital to profitable organic risk-weighted asset growth, mostly offset by asset rotation initiatives, compensating capital distribution charges for shareholder remuneration and AT1s and absorbing other charges, including some regulatory headwinds, which, as we discussed last quarter, this year will be lower than initially expected as some of them have been postponed to 2026 and some of the technical notes published by the EBA were more favorable than anticipated. We continue to deploy capital to the most profitable opportunities and leverage our global asset desks, mobilization capabilities to maximize capital productivity. Our disciplined capital allocation delivered a new book RoRWA of 2.8% in the quarter, equivalent to a return on tangible equity of 22%, well above that of our back book. Hector, back to you. Hector Blas Grisi Checa: Thanks, Jose. In conclusion, these are great results. Good business dynamics and our business model supported solid revenue growth with fees rising high single digits while we reduced cost in euros. Cost of risk improved and remains in line with our target of around 1.15% at the end of the year. We grew the CET1 ratio again to 13.1%, exceeding the upper end of our operating range on the back of our strong capital generation, while we profitably grow our business organically and continue to reward our shareholders. Our RoTE improved and is on track to reach our target of around 16.5% in '25 and TNAV plus cash dividend per share keeps growing double digits. In summary, very solid results even in a less favorable environment than we initially anticipated, which makes us confident that we will achieve all our '25 targets. We expect to maintain the good trends supported by our focus on profitable growth as we deepen in our transformation in a context of resilient labor markets. We are building a stronger and more connected Santander to track the full potential of our unique combination of customer focus, scale and diversification. This is exactly what makes us confident that we will keep on growing and creating long-term value across different economic cycles. And the best is yet to come. Now we will be happy to take your questions. Thank you. Raul Sinha: Thank you, Hector. Thank you, Jose. Could we go to the first question, please? Operator: [Operator Instructions] We already have the first question from the line of Ignacio Ulargui from BNP. Ignacio Ulargui: I have 2 questions. I mean, looking to your RoTE target for the year of 16.5% has to be an acceleration into the fourth quarter to get to that level. What would be the main drivers for that? I mean, don't you feel revenue and NII has probably troughed this quarter, we should see a more decisive increase in the quarters to come? Or would be fees what drives that performance? I mean, linked to that, how should we think into 2026 on those lines? I have -- the second question is a bit of a clarification looking to the credit quality in Brazil. There has been a small improvement in the quarter. Provisions have come down. How should we think about cost of risk? And I mean, there has been any kind of release of provisions that you took in 2Q for the extraordinary top-up that you did? Or it's just underlying improvement of credit quality and provisioning? Hector Blas Grisi Checa: Thank you, Ignacio. First of all, let me discuss a little bit about the RoTE of the 16.5% of CET1 target. First of all, I mean, as you have seen, in the first 9 months, we have delivered a record profit with a RoTE of 16.1%. But if you see just in Q3, the underlying RoTE is well above the 16.5%, okay? So it's very important that you see that. Second, we expect a really strong performance in Q4, basically driven by a number of factors. You can see, first of all, we also have seasonality higher fees. We have an increased momentum from the execution of ONE Transformation, and we're reiterating the guidance of around EUR 62 billion in revenue for '25. We see lower cost and the cost of risk around 1.15% that we have discussed and other results of around EUR 3 billion. So I do believe that our strategy, the business model, the diversification, the disciplined approach to capital allocation will deliver a compounding effect that will continue yielding the positive results we're aiming for. So I see that we're going to get around that circa 16.5%. The important thing also to take into account is the disciplined capital allocation that is driving a 15% growth in value creation and higher shareholder remuneration and with the CET1 that you have seen that is strong at levels of around 13.1%, okay? So it is very important for that. I mean, as you were also, I mean, the outlook for '26, as you have seen over the last 2 years, we have shown consistent execution of the strategy, and we have delivered RoTE every year from below the 15% that we were back in '22, okay? As you know and we have discussed, we will provide further details over the next -- for the next 3-year plan, our Investor Day that is going to be in February '26. So wait us for that. But it is important to understand that if you see every single unit of the bank basically showing improvement, first of all, every single business unit, global business is also improving. And as we already said, we're only scratching the surface of the potential with ONE Transformation. As we have discussed previously, and I said back in the Investor Day in the beginning of '23 is that our aim was to become the best bank in every single geography. And up to today, we are best-in-class in 5 of our geographies, but we still have 5 geographies to close the gap with the #1 in that market. So that basically gives you the view that we will continue improving. And then we have, as you know, '26 is also a transition year with the impact from Poland reducing net profit by EUR 700 million and the TSB contribution that is likely to be more material once we make progress on the integration. So also on the current cost base is elevated given the migration towards global platforms, which is resulting in some duplication of cost. But nonetheless, I do see that we have a very promising '26. In terms of -- sorry, Jose, go ahead. José Antonio García Cantera: No, no, cost of risk in Brazil. Hector Blas Grisi Checa: Yes. I also want to talk about cost of risk in Brazil. Look, in the quarter, loan loss provisions fell 9% quarter-on-quarter, okay? 12-month cost of risk remained stable at around 4.71%. Over the last 2 years, we have derisked the balance sheet as we have been explaining to you every single quarter. With a rapid contraction of unsecured and less profitable lines such as personal and payroll loans that remember that I explained to you that we were changing the mix, and that's basically helping us out. However, I mean, we have rates that are the highest in the developed world. I mean, 10% -- 10 points of real rates, which is also a challenging environment for companies, especially agribusiness, corporates. So it's a difficult environment. Hopefully, rates, and we basically believe we will be coming down a little bit during the first quarter. So I do believe that credit quality, volume growth and earnings will be supported by an improving macro, which we have seen. Even with these rates, remember that Brazil is going to grow around 2% the year. And as I said, hopefully, by the end of '27, we see rates falling down to 10.5%. Jose can basically give you more details. José Antonio García Cantera: Just to add, if you look at cost of risk on a quarterly basis, in 2024, cost of risk was 4.5% every quarter. In the first 2 quarters of this year, we had cost of risk of 4.9%. It's back to 4.5% in the third quarter. There's nothing extraordinary, no reversal of provisions or anything. So it's a more normalized asset quality level, the one that we've seen in the third quarter. And we would expect to finish the year within the range that we guided you for, which is somewhere between 4.7% to 4.8% or around 4.8% cost of risk. Operator: Next question from Cecilia Romero from Barclays. Cecilia Romero Reyes: The first one is on capital. You have guided for around 20 basis points of regulatory headwinds, if I'm not mistaken, for the rest of the year, which now obviously looks like it will come in Q4. Is that still the case? Considering Q4 is typically a more intensive risk-weighted asset quarter and that there could be an additional hit from U.K. motor provisions. How comfortable are you with the 13% CET1 target? And then my second one is on corporate actions. For the Santander Bank Polska sale and the TSB acquisition, is everything still on track to be closed by year-end and early 2026, respectively? And is there any changes to capital impacts or any of the financial impacts previously announced? Hector Blas Grisi Checa: Thank you, Cecilia. So in terms of -- I'm going to basically answer you #2. So in terms of Santander Bank Polska, I mean, I review every single week the advance on that one, and I believe that we're right on track to close on Q1. In terms of capital, I will ask Jose basically to give you his overview of what you have asked. José Antonio García Cantera: So the outlook for regulatory and supervisory charges is now better, as I said during the presentation because some charges that we expected this year have been postponed and probably will be lower than we had anticipated. They have been postponed to '26. And also some of the technical notes, model adjustments, et cetera, came in better than expected. So for the year as a whole, I would say that regulatory and supervisory charges will be in the region of 20 to 25 basis points. We have had 16 in the first 9 months of the year. In terms of targets, we believe that we will generate capital in the fourth quarter from the 13.1% that we reported in September. So the -- let's say, the view that we have today on capital is that the ratio will increase in the fourth quarter further. In terms of the capital charges, et cetera, related to the acquisitions, nothing has changed. We think Poland will generate around 90 basis points of capital. We don't know exactly because it depends on the deductions, but it will be around 90 basis points. The acquisition of TSB is around 50, 52 basis points capital charge. And remember that we announced once we closed Poland, a share buyback in the amount of EUR 3.2 billion, so -- which is around 50 basis points. So those are the capital charges from the transactions, and we haven't -- they haven't changed in the last couple of months. So we don't expect them to change materially from the numbers I gave you. Operator: Next question from Francisco Riquel from Alantra. Francisco Riquel: My first question is on NII in Spain, which is 1% up quarter-on-quarter. You were guiding for a decline. You already improved the full year guidance from minus 6%, minus 7% to minus 4%, minus 5%. So I wonder if you can update again on this guidance because I think I feel trends are better than expected and comment also on the margin dynamics. I see the customer spread is down, but NIM is stable. So what should we expect for NII loan growth in Spain in Q4 and in 2026? And then my second question is, I wonder if you can update on the rollout of the Gravity platform. You have recently completed in large markets like Spain and Chile. I wonder what type of efficiency and productivity gains are you capturing already? And what shall we expect on a full year basis? Hector Blas Grisi Checa: Thank you, Francisco. Yes, you have said, I mean, NII in Spain is much better. I think that the Spanish team has done a great job in terms of managing betas. And as Jose explained in his presentation, we have done a pretty good job in that sense. That's why you see NII basically up 1%. We expect, I mean, to continue fourth quarter up low single-digits from flat that we have expected. So -- and we expect to basically have that. For '26, I will basically tell you that, I mean, we have good dynamics. But nevertheless, we expect -- it is important that you wait for the beautiful picture that you have in front of you in terms of the Investor Day, we will give you a little pretty good idea of what we expect. In terms of the rollout with Gravity, I'm glad you asked the question. I think that, look, it's very important. As a matter of fact, we just migrated Mexico this weekend, okay? That's another large market that is being migrated. So to tell you exactly how it works is basically once we migrate a country to Gravity, we start basically shutting down the mainframes. Let me give you an example. Remember that Spain was migrated in April. We had -- used to have 5 mainframes in Spain. 2 already have been shut down. We're still waiting to shut down another 3 more that we will be closed down over the next 18 months. Once we shut down those, that basically decreased costs quite a lot because every time we do that, I mean, actually, we save a lot of money by all the charges that we get from the suppliers in terms of that. So to give you exact numbers, I mean, we can contact you later because I don't have the exact numbers that we will get from that. But I do believe by the end of '26, all the big countries will be migrated, and we will start the migration with the smaller countries. What I can tell you is the results are pretty good. The NPS with the customers is getting better. The response, I don't know what market is and if you're a customer of ours, but hopefully, you are, you're going to see that the speed has become a lot better. It's a lot easier because we don't go back and forward to the mainframe every single time you consult your balance on your current account or anything like that. It's pretty much faster. So I think that the results are there. Spain is getting less cost out of what we have done. Chile, the response has been really, really good. Mexico migration was a success, and we expect to be closing -- I mean, decreasing the amount of capacity. We're using the mainframe right away, and we'll see it over. But you see the results on '26. That's when exactly happens because we will be shutting down the mainframes on those markets. José Antonio García Cantera: Okay. If I may add some details on NII, you asked about the difference between customer margins and NII. I think we are -- as Hector said, we are doing a great job in managing cost of deposits, a lot better than we anticipated. We are growing volumes at a lower cost. So that's one component relative to the initial guidance we gave at the beginning of the year. The other one is obviously all the hedging decisions that we've taken. Right now, we have around EUR 50 billion of Spanish government bonds at an average yield of 3.4% and a duration of 5 years. That's expected to add quite a lot to the NII in the fourth quarter and next year. So on a sequential basis, I think, as I said, we are close to the trough. It's possible that we see a slight decrease quarter-on-quarter, maybe 1 or 2 quarters more, but from very, very close to basically flattish, but basically probably slightly down quarter-on-quarter. So if you look at the year as a whole, you're right. We guided for minus 6%, then minus 4%, and it's going to be flat or slightly down year-on-year. But the outlook for 2026 beyond these 1, 2 quarters where it might be marginally down is quite positive. Operator: Next question from Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: Here is Sofie from Goldman Sachs. So my first question would be around the kind of litigation provisions still to come. You took a provision in the Corporate Centre in the fourth quarter. How much -- or is there any additional details that you could give around this provision? And how much should we expect still to come from U.K. motor and also AXA provisions? Do you have any other litigation provisions that we should expect in any other countries over the next quarter or year? That would be my first question. Then my second question would be if you could maybe talk a little bit more about the net interest income outlook in Brazil. I know interest rates are expected to come down. But in the kind of short term -- short to medium term, what do you expect in terms of volume growth? Could you remind us of your rate sensitivity in Brazil? And how long does it take for lower rates to help the Brazilian net interest income? Hector Blas Grisi Checa: Thank you, Sofie. Okay. I mean, first of all, on this situation of the litigation provisions to come. First of all, on the U.K. AXA situation, we do not expect the net impact of the judgment to be material for the group, okay? In October 22, the court granted Santander permission to appeal and the case will now proceed to the Court of Appeal. Given this is an ongoing matter, we are not able to comment any further. I'm sorry about that. In terms of the U.K. motor finance, in '24, as you know, we took almost a GBP 300 million provision for the U.K. FCA motor finance review. We have noted that the FCA has recently published a consultation into a proposed reduce scheme and Santander U.K. is reviewing the consultation in detail basically to understand the potential implications. We also know that the FCA's proposed approach differs in an important respect from the Supreme Court's ruling and the legal basis for the redress scheme relevant period is not clear, and it remains at the consultation stage. So there is, therefore, a certainty regarding the final scope methodology and the timing of the redress scheme that may ultimately be implemented. So at this point, I think it's very complicated. And the important thing that I can tell you that is not expected to be material for the group and no more than a few points of CET1. So we will provide you further update on the Q4 results, and we reiterate that we're on track for the results and the guidance that we have given you for '25 on all the targets. In terms of NII outlook for Brazil, what I can tell you is interesting to say basically that we need to put Brazil in context. So it's very important to understand that. The loan book in Brazil is only 9% of the total group loans. Diversification is working. The impact of higher rates and inflation in Brazil has been positively offset by the stronger performance in Europe and in other businesses. But Brazil is also -- it's important to say, it is growing by 2% in '25. Labor markets have been resilient, okay, despite the challenging rate environment. And as I said before, interest rates are the highest, I mean, in terms of real rates, which is an important point to take. So what we have done is that we are changing the mix, and we are going to a higher quality business, which means lower margins, but more stable asset quality, which is very important. And I feel comfortable and confident that as monetary policy eases, the business will do even better than we did in the last easing cycle. Also, you got to remember, as you know very well, that we have negative sensitivity to high rates in Brazil. So we expect once the rates start coming down that, that basically will help us out and we will give better margins for us. If we've been that, I don't know, Jose, if you would like to complement. José Antonio García Cantera: Yes. Just some details on that. Interest rate sensitivity today to 100 basis point move in the curve is EUR 75 million upwards and downwards. You know that this is lower than it has been in the last few years. We've been decreasing the overall sensitivity, but more importantly, we've been moving the sensitivity towards -- we've made the sensitivity more sort of homogeneous along the curve. So we no longer depend as much on short-term rates, but we have a spread sensitivity from 0 to 3, 4 years, which we think is the right position to be in front of the lower rates. We expect next year. So we would expect NII to be stable in 2025 with basically stable revenue and with fees up. This basically on loans that are also going to be stable in 2025. So again, no further, I would say, the sensitivity we have when we look at 2025 -- sorry, 2026 and 2027 should contribute positively to NII evolution in Brazil in the next couple of years. Operator: Next question from Alvaro Serrano from Morgan Stanley. Alvaro de Tejada: I kind of have a follow-up on costs and another one on U.S. asset quality. On cost, cost income continues to improve sequentially quarter-on-quarter. My follow-up is, apologies, Hector, I heard you say that Mexico Gravity was implemented this weekend, but I don't -- I missed if you can give us the pipeline of the next few countries over the next few quarters. And as we think about next year's cost in medium term, I noted in the past, you've said you can achieve flat costs in retail in particular. Is this possible in places like Brazil and Mexico? Because in Mexico, sorry, your cost income is not as good as peers. So just wondering if there's an advantage there that we're not taking into account? And the second on costs -- sorry, on cost of risk in the U.S. Jose, I noted your comments saying that stable asset quality performance in the U.S. But if we look at ABS data at an aggregate level, there is a deterioration, it looks like in subprime auto, which you have some exposure to. Can you maybe talk us through why you think you're not seeing that deterioration? Is it because you haven't been growing that much in the segment over the last 2, 3 years? You're not exposed to undocumented where there has been some trouble. Maybe some more color on that stable asset quality performance in the U.S. that you've noted. Hector Blas Grisi Checa: Thank you, Alvaro. So first of all, let me give you a general view on cost on the group, and then we'll get into the details of Gravity and then flat cost in Mexico, Brazil, which, by the way, are pretty good questions. And then I'll address the U.S., which thank you very much. I knew you were coming with that one, so I was prepared, okay? So costs remain very well controlled in the first 9 months of '25, as you have seen, so minus 1% in current, all right? I must tell you that we will reiterate the guidance to deliver lower cost in current euros versus '25 versus '24, okay? Because we see that we're done in absolute terms and the cost growth remains below the revenue growth, which is very important in this group. Remember, always positive jaws, underpinning the confidence in delivering the positive operating leverage that we are creating through ONE Transformation. Remember, ONE Transformation is all about increasing revenues and decreasing cost, and that basically creates the operating leverage that we're working for. Short-term costs are higher as we continue to invest in the global platforms. As I explained to you, I mean, Mexico, even though we had the migration this weekend, I mean, the mainframe is still basically consuming MIPS because we want to keep this in parallel until we stabilize Gravity. Once Gravity is stabilized, we start basically decreasing the amount of MIPS that we consume on the mainframe. By the way, then we start decreasing the cost that we have. So -- and we have the same in many different platforms, Alvaro. So that's why I say that '26 is the most difficult year because that's where we are doing this transformation in which the global platforms are coming in, Gravity, Plard, Payments Hub, et cetera, and we start in parallel running those. By the way, just getting into Mexico, Mexico is the worst one by far because Mexico is the one that we needed to upgrade the most and it's the one that has most dual platforms working on. They have in dual Plard for credit cards, and they have Pampa working at the same time where we're doing the migration. We have Gravity and the mainframe at the same time because we're doing the migration. We have in Payments Hub and transfer working at the same time because we're going to decommission transfer towards the end of the year. So you'll see that Mexico will start basically getting more -- I mean, in the level of our peers. And by the way, our only peers that you are talking about is Banorte and BBVA because the rest are further ahead from us in cost. We're much better. I mean I would say that we are a little better in average but we need to get -- I couldn't agree more. We need to get to our peers, and that's exactly what we're working on. And the same thing is -- I will tell you is Brazil, okay? So Brazil is going to be the same, but I mean, we implement, for example, Brazil just got the new version 24 of the global app that is coming in. It's the first country to do so. We already have 1 million customers migrated, but we need to migrate 60 million customers at the end. So this takes time. But nevertheless, we are also at the same time, because we're doing the simplification and the automation, we've been able to maintain cost. And you were asking precisely about what's going in Retail and Commercial, which is a really good question. How are we basically doing to decrease cost in Retail and Commercial at the same time, we're doing this deployment. It's because in Retail and Commercial, we are doing interesting things in terms of basically concentrate on simplification. You take a look at the number of products that we had 3 years ago, it was over 10,000 products. Just to give you an example, 300 different credit cards in Brazil. We're down to 17 different credit cards in Brazil. Mortgages in Mexico, we have 17 different types of mortgages in Mexico. We're down to 3. So the amount of things are going. The important thing is basically change the legacy on the back of the bank. That's where the big job is being taken on in terms of simplifying all the legacy that we have, and that's a huge amount of cost. Sorry to extend myself, but it's very important that you understand what ONE Transformation is all about. It's not just about the platforms, it's a lot about simplification and automation of processes, which really change exactly what we're doing. So I'm confident that '26, even though it's a tough year in terms of everything that I'm explaining to you, we will be able to maintain costs flat or down in the group because that's exactly where we are concentrated, okay? So it's very important that you get that. I don't know if that basically answers all of your question. If not, please let me know, and I will gladly give you all the details on that. But the thing is, I mean, the amount of money that you save once you're decommissioning, and that's the most important part, the discipline on the commissioning, you really start to see the savings coming on and you have seen it because there was no other way that we could be giving you this number in cost if we were not really doing those commissions and being very disciplined about it. In terms of cost of risk in the U.S., first of all, it's important what I was telling you. We continue to be and to high exposure to prime and near prime. If I'm correct, 38% of our book is prime and near prime, okay? As you say correctly, the amount of origination has come down significantly. We were at the peak about 2 years ago at around EUR 35 billion in origination. We're down to EUR 22 billion, EUR 23 billion. And at the end of the year, it's going to be EUR 24 billion in origination. The origination that we do in subprime and this subprime is very well managed and it's not the same that the other player basically was doing. As you say, we never get into with undocumented customers. So it's a completely different model than the one we have. So what you see is what Jose explained in his presentation that we see that even 30 days and 60 days delinquency is normalizing, 90 days is still below what we expected. So we expect less provisions even in the fourth quarter from the U.S. auto business because of that. So I don't want to give you an exact figure because, I mean, you never know what happens towards the end, but we see nonetheless that labor market is still strong. Manheim is up 2% year-on-year, even though it has decreased a little bit in the past 3, 4 months, but nothing to concern us. And the customers, what's happening after 90 days is that they want to keep their autos because they know that it's going to be much more expensive to go out into the market. So that's why 90-day delinquencies, people are basically coming back to us and renegotiating because they want to keep their autos. So I don't know if that basically answers your question. Jose, I don't know if I left anything out. José Antonio García Cantera: Just again, in terms of cost of risk, the second half tends to be worse than the first half. But when you look -- when you compare quarter-on-quarter '26 against -- sorry, '25 against '24 the numbers are coming in better every single quarter than we had last year. So in the third quarter, last year, cost of risk was 1.85%. It is 1.69% in the third quarter of this year in the U.S. Remember, at the beginning of the year, we guided for cost of risk slightly above 2%. Today, we see cost of risk in the U.S. below 2% in 2025. So actually better than we expected. Again, knowing that there is some seasonality in the second half, but the numbers should be better. And just to give you a bit of more details on what Hector just said, when we look at loans past due over 60 days, and if we look at the last 10 years, this number for non-prime has moved between 4% to 8%. And we are within that range at the moment. So it's not -- by any means, it has been going up recently, but it's within the range that we've seen in the last 10 years. When we look at prime, for instance, over 60 days, it's below 3%. And again, this figure has been moving a bit higher, a bit lower than 2% for the last 10 years. So very much normalized. It's true that in the last couple of quarters, we're seeing some increase in this ratio, but this is not translated into losses because the recovery rates remain very robust. So when we look at actual losses, net loss in prime, it's basically below 3%, which is much better probably that we saw, for instance, during the period of 2010 to 2020 or 2019. And if we look at non-prime, losses are below 7%, which is the best we've seen, excluding the post-COVID period, these are the better numbers, the best numbers that we've seen in many, many years. So net-net, actually very normal behavior is what we see in the U.S. Operator: Next question from Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: First question would actually be regarding first brands in the U.S. So there was the press reports over previously this month regarding some engagement with Jefferies and the possibility of Santander being involved in the refinancing of first brands. I'm just trying to understand here whether there is any relevant exposure? Or do you see this as a risk for the group? The second question would actually be focused on the corporate tax rate. So how do you see -- what should we expect in terms of overall corporate tax rates in the full year or in the fourth quarter? If you prefer for the group as a whole, but focusing as well on Brazil, we had this quarter low tax rate given the interest payments on capital. Should we see a similar effect in the fourth quarter? Or should we see it reverting back to the previous levels now in the first? Hector Blas Grisi Checa: Thank you, Carlos. I must tell you in terms of first grants, as you know, we don't discuss customers. What I can tell you is that whatever we have is not material for the group at all. José Antonio García Cantera: Tax rate. Yes, the tax rate for the group in the first 9 months of the year was 26.6%, which basically it's -- in Spain, it was 37.5%. Excluding Spain, 24.1%. This is a little bit better, not significantly better than what we anticipated. There are 2 reasons for this. In the U.S., tax rate is 10%. Remember that we said that when the EV vehicles, the aid program finalizes and the tax rate would normalize gradually, and we thought that it would normalize faster than it is normalizing. So actually, the tax rate is lower in the U.S. than we thought, slightly lower in Brazil, nothing significant. So for year-end, we would expect the tax rate to be around the same level it is today, 27%. Operator: Next question from Britta Schmidt from Autonomous. Britta Schmidt: A couple of follow-ups on credit, please. In Mexico, I think there's some comments on model updates and higher SME provisions. Can you help us disentangle these 2? What was the impact of the model updates? And what are you seeing in terms of the SME pressure? And do you expect that to continue or get worse? In Brazil, there were also some selected issues in the corporate world. Can you maybe comment whether you've got any exposure here and whether you still feel happy with the provision that you built in the last quarter? And then lastly, Argentina came in quite high as well. Is this only lending or are there also impacts in potentially the bond portfolio? And maybe you can share with us a little bit as to what you expect for Argentina in the coming quarters with regards to results, hyperinflation and also FX developments? Hector Blas Grisi Checa: Thank you, Britta. I will address the questions on Brazil and Argentina and then Jose will tell you a little bit, I mean, what's going on. But let me tell you that in Mexico, I mean, the portfolios are performing really well. We have had some model updates, anything, but nothing that hits capital in that. And SMEs basically, actually, we're growing in the segment because we have really good roll. So I can tell you that we're going to be for that, but Jose will give you better details. In terms of Brazil corporates, I can tell you, we have taken a deeper look on the portfolio because with 10% real rates, corporates suffer in that environment. So we have reviewed the portfolio in detail. We have actually understood and located exactly what the problems are, and we're working on them. But I don't see any significant situations on the portfolio up to this point. All of them are under control and they were taken -- we're really taking care of them. So on the corporate side, -- and we don't have anything material that would be a material impact for the group, at least on the next few months, okay? But -- and I don't foresee it because even the situation, as I said, Brazil is growing 2%. So in that sense, the economy is still growing. Argentina is an interesting story. I actually was in Argentina. I was in Brazil a couple of months ago. And what I can tell you is the situation is complicated. In one sense, it's complicated because, as you know, inflation is at around the levels between 25% to 30%, and that's where the year is going to end. Rates because the government has really, I would say, basically, there is no pesos to lend in Argentina, okay? So the government is squeezing pesos out to really decrease inflation in a strong way. So that basically -- that has basically taken rates to -- real rates to levels that are tremendously high. So what you see in Argentina happening is that the cost of risk is growing tremendously hard. So we've been very cautious in Argentina because of that. I mean, cost of risk in Argentina went almost to the level of 7%. And that's why, I mean, with real rates at this level, it's really impossible to make money with 60 points of real rates. So what we've been doing is being very cautious. We're basically being -- the only lending that we're doing in Argentina is to exporters in dollars. That's the majority thing and energy -- I mean, and energy companies. So we're basically involved in situations in Vaca Muerta, where there is a lot of opportunities and the portfolio is basically going very well. But I must tell you to lend in pesos in Argentina in this market today is hard because of the real rates. So hopefully, let's see what the government does with this victory that they just had. They had a pretty good rally. The peso appreciated a little bit. So hopefully, let's see that they ease up a little bit on the economy, the rates -- real rates start to come down, and we see a much better next few months. But today, we're being very cautious in the way we manage credit in Argentina. Jose? José Antonio García Cantera: Mexico, yes, we've updated the models, the provisioning models and some capital models. The consequence is that without really seeing any significant deterioration in real asset quality, there has been a movement from Stage 2 to Stage 3. So it's around 10% of the Stage 2 loans moved into Stage 3, but it's the consequence of the model, not that the actual deterioration was taking place. In any case, cost of risk in the third quarter is still below 3%. In the third quarter alone, if we look at the last 12 months cost of risk at 2.6%, below 3%. And remember at the beginning of the year that we said cost of risk in Mexico would not go above 3%. It's actually quite well below 3% because the overall performance is pretty good. But in this quarter, in particular, again, it's this technical change from Stage 2 to Stage 3. Operator: Next question from Pablo de la Torre Cuevas from RBC. Pablo de la Torre Cuevas: I just want to get your thoughts on the deposit for the U.K. into the next year. One of your peers talked about muted deposit growth in 2026 and another has spoken of elevated competition in term deposits. So just interested in your thoughts there as deposit growth has been a big driver of top line growth over the last couple of years for U.K. banks. And then if we translate that into U.K. NIM directionally and excluding TSB, would you expect underlying U.K. NIM to grow as much in 2026 as it has been in 2025, driven by that structural hedge repricing? José Antonio García Cantera: So structural hedge right now is EUR 106 billion at 2.7% yield and 2.5 years of duration. So this should have positive contribution to NII next year. Second comment, we expect rates to go down from 4% to 3.5% by year-end next year. It could go down even -- there could be even 3 cuts, but we believe that we give today more probability to 2 cuts. Volumes should be up next year. So overall, we would expect NII to actually increase in the U.K. in 2026, excluding TSB, of course. And we are talking low to mid-single digits increase in NII. Raul Sinha: Thanks very much, Jose. Ben, hopefully, that answers your question, but we can take it offline if you've got any further details on deposits outstanding. Could we have the next question, please? Operator: Next question from Borja Ramirez from Citi. Borja Ramirez Segura: I have 2. Firstly, on capital, I believe it may have been mentioned that in Q4, it's generally more intensive in terms of the SRTs. So I would like to ask if you could provide any details on the capital benefit that we may see in Q4 linked to SRTs? And then my second question would be on other provisions. If I understood well, it was mentioned that other provisions would be around EUR 3 billion for 2025. Given that you have booked EUR 2.5 billion in the 9 months, this seems to imply EUR 0.5 billion for Q4. So I would like to ask if my numbers are correct, of course, if -- what are the assumptions on provisions? José Antonio García Cantera: Thank you, Borja. The first one, yes, the fourth quarter is the most active in risk-weighted asset mobilization initiatives. And as a consequence, we would expect net risk-weighted asset growth to be close to 0 in the fourth quarter. It was slightly positive in the third quarter. We have gross risk-weighted assets up EUR 11 billion and asset mobilization initiatives between EUR 7 billion to EUR 8 billion in the third quarter. So the fourth quarter the net gain from SRTs, which, by the way, is not the only way we are mobilizing capital. In the third quarter, we mobilized as much by asset sales as securitizations and also we had some hedges. So we are using different tools to optimize the capital and increase the capital productivity. So putting all this together against risk-weighted asset growth in the fourth quarter, it should be very, very close to 0. Your second question, when you speak about other provisions, I presume that you're talking about other results, so the line below provisions. And yes, this line should be substantially lower than last year because of the one-offs that we had last year and because the banking tax in Spain last year was accounted for in other results now is in the tax line. And yes, we would expect this line to be a bit higher than EUR 3 billion in the year. EUR 3 billion, EUR 3.2 billion is the reasonable number. In the absence of any substantial one-offs that at this point, we do not envision. But in the absence of substantial one-offs, the answer is yes. And the reason is, excluding these one-offs, what is in this line is the labor cost in Brazil, operational risk. It tends to be a bit higher in the fourth quarter, but not to deviate a lot from, let's say, EUR 3.2 billion for the year, again, excluding one-offs. Operator: Next question from Andrea Filtri from Mediobanca. Andrea Filtri: The first is a bit of a back of the envelope. Your 16.5% RoTE target discounts around EUR 13.6 billion profits in 2025, which would only imply EUR 3.3 billion left for Q4 '25, which would be a deceleration quarter-on-quarter, while your RoTE guidance implies a marked acceleration in Q4. So which of the 2 is right? And second question, more conceptual on insurance and the Danish Compromise. You have made statements prior on the intention to gain Danish Compromise like benefits at Santander. Could you elaborate a little bit how you intend to do that and what sort of benefit you could get? Hector Blas Grisi Checa: Okay, Andrea. First of all, and I know you're very bright, probably brighter than me, but you need to redo your numbers because for me, actually, the numbers shall be going up. So that will be my comment on that one. In terms of -- okay, in terms of Insurance and what we're doing with Danish Compromise, the only thing I could say is we have formally approved -- I mean, sorry, applied with the ECB for enhanced supervision, and that's the only thing that I could discuss at this point. And let's see what the ECB decides. And if they give us enhanced supervision, that will give us basically the trend to see the following path or the following step. Raul Sinha: Yes, Andrea, post-AT1, 16.5% would be slightly higher than the numbers, but we're very happy to give you a call after and take you through the details. We have the next question please? Operator: Next question from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: First one is if you can give some color on any excess capital above the 13% by the end of the year if that is going to be used for incremental capital return or there's going to be some uses of that capital, thinking of potentially restructuring costs, for example? And then the second one is on the payout mix between cash and buybacks, considering higher share prices and lower profitability of buying back stock, if you think it makes sense conceptually to be moving towards the cash dividend component basically of the payout mix in the future? Hector Blas Grisi Checa: As you know, we have a very strict capital hierarchy, okay? First of all, as we have said, we're going to prioritize organic profitable growth. Second, we're going to follow it by ordinary distribution. Then we do any bolt-on acquisitions that must be complementary and to generate attractive financial returns. And those need to surpass those of any organic investments or buybacks, okay? So I believe that at this point, we feel very comfortable with the capital levels that we have. And the capital allocation framework has been fundamental pillar of the strategy, as you have seen. And we will continue the disciplined and strict capital approach that we have had to capital, all right? So in that sense, then I will ask Jose basically to give you more details on the buyback. José Antonio García Cantera: So this is a very interesting intellectual and financial discussion because you have all types of technical papers written on this matter. But the way we see this, and obviously, this is for the Board to decide, and it will decide in the Board of Directors that will take place in December about the dividend policy for next year. But the way we see that or I see that is that when you are looking at improving profitability going forward and when you are looking at a cost of capital that is at worst stable, probably improving, and then you add growth, high single-digit growth buying back shares is still a very good value proposition. Obviously, the new business is being written at a return on tangible equity, as I said, of 22%. That is the first and most important use of our capital, but there's not an infinite amount of capital that we can put to work at 22%. So once we have covered that bucket, buying back shares, again, when you're looking at improving profitability, stable lower cost of capital and growth in profits is still a very good value proposition for shareholders. Raul Sinha: More details to come next year, not sure. I hope you understand. We've got 2 more questions left. Could we go to the next question, please. Operator: Next question from Fernando Gil de Santivanes from Intesa Sanpaolo. Fernando Gil de Santivañes d´Ornellas: Can you hear me okay? Raul Sinha: Go ahead. Fernando Gil de Santivañes d´Ornellas: Okay. First question, a follow-up in Spain regarding the repricing on rates, are we done in the repricing? And what is the bank risk appetite going forward regarding the actual pricing trends, especially in the loan yields? And the second question is on DCB Europe. I see the NII up 13% year-on-year, 5% Q-on-Q. What is driving these upgrades? And can you comment what is -- what should we expect going forward? Hector Blas Grisi Checa: Look, in terms of Spain, what I tell you, I mean, it's a very competitive market, as you know. We have rates in -- even with the Spanish bond at [ 330 ], we have mortgages down, and we have seen 190s, 175s. I think that the market is being rational in that point. So hopefully, there is some rationality in the months to come, and we see rates at much better levels. And we have been very disciplined and very focused on profitability, and we will continue to do so even if we lose a little bit of market share that you have seen that we have lost a little bit of market share because of that discipline. So we don't believe that mortgages today at 175 makes sense to do in the bank. So we won't do them and exactly when the price and when there is a lot of competition on the high-risk name in the corporate side, et cetera, we're going to maintain our level of risk reward that we believe is the right one. So we will continue, and we will put a lot of discipline in that sense. In terms of what we see in terms of DCB, give me 1 second. But look, I mean, in global DCB, first of all, it is important to say that we are improving the RoTE from 24% to 10.4% post-AT1s in '25. So it's important. Part of the improvement is explained by the lower conduct basically of the charges that we have remember on the Swiss francs, mainly in Poland, but the underlying attributable profit is growing at 6%. So that basically is positive. NII is growing 6% year-on-year. That's well above credit, which is up 2% and is benefiting for the focus on profitability, as we have said. The yields on loans have improved 25 basis points and the cost of deposits has come down by 39 basis points. As you know, in this business, we are sensitive to higher rates, negative sensitivity to higher rates. When rates start to come down, we have much better margins. And also, it's important to say that we have improving credit quality. The cost of risk is down for 2.01%. That's less than 10 basis points versus Q3 '24. And 12 months cost of risk is at 2.06%, down 3 basis points quarter-on-quarter. And we have excellent LPs performance as we have said. Our strategy is to expand the deposit gathering capabilities through Openbank. As you know, it has been a success. We are doing that in Germany. And also, as we have announced, we are merging Openbank and DCB Europe that basically will enable us to basically have much more control, better management and the deposits close to the origination of the assets. So that basically would be a help to have much better margins, much better operation and also much better cost. Raul Sinha: Could we have the last question, please? Operator: Last question from Miruna Chirea from Jefferies. Miruna Chirea: I just had a quick one, please, on Openbank. I was wondering how your progress in Openbank is going in Mexico and in the U.S. If you could give us maybe an update in terms of the balance of deposits that you've raised in those markets since you launched? And then secondly, to this point that you are making now on merging Openbank and Santander Consumer Finance in Europe, could you give us just a bit more color on what kind of synergies could you see there by merging the 2 lines of business and the overall rationale for this? Hector Blas Grisi Checa: Thank you, Miruna. Okay. So Openbank Mexico and the U.S., this is basically -- I'm giving it to you from the back of my mind. If I'm correct, it's EUR 6.5 billion in deposits on the 2 combined, if I remember correctly. And we're talking about 160,000 customers in the U.S. And in Mexico, I don't recall -- I'll give you the exact number. Sorry, basically, I don't have it in front of me. We're trying to find it out for you. Let me -- in the meantime, let me discuss a little bit what's the rationale behind the merger that we're doing with Openbank and DCB. As you know, I mean, we've been operating in parallel. It's one unit, and we have one boss basically managing both of those businesses. At this point, I mean, we had 2 of everything because there were 2 separate institutions. That basically will help us a lot in terms of cost because now we're going to have just one for both of them. So cost systems, et cetera. So a lot of that is going to be a lot of synergies in that sense. But the most important synergy is the amount of deposits that we have in the bank that will be basically used to eliminate or try to eliminate as much the negative sensitivity that we have when rates basically go up. When you have a sustainable deposit base that will basically help you out to match it to the assets and you have a much better planning if you have that. Openbank, as you know, is the largest deposit base of any digital bank in Europe. We believe there's a huge opportunity to continue like that and also will help us to upgrade our operations in Germany, which we have a really good deposit base there, and we would like to increase it and continue basically growing the business as we see fit. So all in all, I think it's going to be a pretty good combination. Yes, in the U.S., it is EUR 5.8 billion in deposits, and we're talking about 162,000 new customers in Openbank. Raul Sinha: Thank you, Miruna. I think that we are out of questions. Thank you, everybody, for your time this morning. This concludes our analyst presentation, and we look forward to speaking to you soon. Have a good day.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to Equinor Analyst Call Q3. [Operator Instructions] After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Bård Glad Pedersen, Senior Vice President and Head of Investor Relations. Please go ahead. Bård Pedersen: Thank you very much, operator, and welcome to everybody who has called in for the analyst call for Equinor's third quarter results. Torgrim Reitan, our CFO, is here with me, and he will take you through the results before we open for the Q&A. As usual, we will close this session within 1 hour. So with that, Torgrim, I hand you to take us through the results. Torgrim Reitan: Okay. So thank you, Bård and good morning, and thank you for joining us. Before we get to our results, I have a look at the photo Bacalhau, which came on stream in October. It is the first presold project in Brazil, developed by an international operator. We reserved more than 1 billion barrels and production capacity of 220,000 barrels per day. This will contribute significantly to our international growth. The results and cash flow we report today are driven by strong operational performance. Production is up 7% from third quarter last year. Johan Sverdrup delivered close to 100% regularity and Johan Castberg is producing a plateau with a premium to Brent of around $5. The adjusted operating income was $6.2 billion before tax and net income was negative $0.2 billion, impacted by net impairments, mainly due to lower long-term oil price outlook. Year-to-date, our cash flow from operations after tax has been strong at $14.7 billion. Our adjusted earnings per share was $0.37, impacted by negative results from financial items and a one-off effect related to decommissioning of Titan. Energy markets continue to be volatile. Geopolitical unrest, tariffs and trade tensions continue to impact pricing and trading conditions. We are prepared for this. We have a solid balance sheet, strong production and a robust portfolio. In addition, we take forceful action to manage costs. These efforts are visible in our results. Costs are now stable year-to-date compared to last year, and this is in line with what we had at the Capital Markets update in February. Operating costs for our Renewables business have decreased by around 50% compared to the third quarter last year, and we expect it to be down by 30% on an annual basis. And this is driven by less business development and reduced early phase work. On the NCS, we have stopped 2 early phase electrification projects that were not sufficiently profitable and this reduces costs now and CapEx going forward. By this, we are demonstrating that we can beat inflation and we can keep costs flat even if we are delivering strong production growth. At Bacalhau, we started production from the first producer and ramp-up will continue through 2026. On the NCS, we had 7 commercial discoveries. And I want to highlight Aker BP's important discovery in the Yggdrasil area, where we have a material ownership position. And then let me also mention Smørbukk Midt . It was discovered and put in production during the third quarter, and we expect payback within 6 months. As you know, we participated in Ørsted's rights issue. It was executed at a significant discount and overview of the underlying value in Ørsted supported our participation. The cash flow impact of around $900 million will be in the fourth quarter, impacting our net debt ratio by around 2 percentage points. Following this decision, we will now seek a more active role by nominating a candidate for the Board. We believe a closer industrial and strategic collaboration between Ørsted and Equinor can create value for shareholders in both companies. Then to capital distribution. For the quarter, the Board approved an ordinary cash dividend of $0.37 per share and a fourth and final tranche of the share buyback program for 2025, of up to $1.266 billion, including the state's share. With this, total capital distribution for the year will be around $9 billion. Safety remains our top priority. This quarter, we continue to have strong safety results. However, we had a tragic fatality at Mongstad and you know that safety work needs to continue with full force. Learnings from the accident will be implemented. In the quarter, we produced 2,130,000 barrels per day. This is 7% up from last year, and we are on track to deliver on our guiding 4% production growth for the year. On the NCS, production was even stronger with 9% growth. Johan Castberg, a new field on stream of developments in Brent and strong performance at Johan Sverdrup are important contributors. NCS gas production was impacted by planned maintenance and the prolonged shutdown of Hammerfest LNG. U.S. onshore gas production was up 40%, capturing higher prices and U.S. offshore was up 9% from last year. Internationally, outside the U.S., production was down due to the temporary stop at Peregrino and the divestment in Azerbaijan and Nigeria. We produced around 1.4 terawatt hours of power this quarter, mainly driven by the start-up of new turbines at Dogger Bank A and contributions from onshore renewable assets. As Empire Wind in New York, all 54 monopiles are now installed and the project execution is progressing well. In October, Maersk informed us of an issue concerning its contract for the wind turbine installation vessel that is planned to be used at the Empire Wind in 2026. We are working to solve this quickly. Now over to our financial results. Liquids prices were lower than the same quarter last year, while average gas prices were higher, particularly in the U.S. Adjusted operating income from E&P Norway totaled $5.6 billion before tax and $1.3 billion after tax. These results were impacted by production roles, but also increased depreciations due to new fields coming on stream. Our E&P International results reflect lower production but also lower depreciation. Peregrino and our assets tied to Adura IJV are classified as held for sale. As such, we no longer depreciate that. Our E&P U.S. results are driven by increased production, but these results were impacted by a one-off effect related to decommissioning of the U.S. offshore Titan field of $268 million. It has very limited cash flow effect in the quarter, but we are now booking expected future operating costs related to this. For M&P, we are changing our guiding and expect to deliver average adjusted operating income of around $400 million per quarter. The upside potential is larger than the downside risk to this guiding. The updated guiding is mainly due to changed market conditions. In addition, it reflects that we have previously divested some gas infrastructure. Our renewables results reflect high project activities, but also significantly lower business development and early phase costs. In our reported financial -- yes, in the reported financial results, we have net impairments of $754 million. The main driver for these impairments is lower long-term oil price assumptions. Our E&P International business booked an impairment of $650 million tied to our assets being transferred to the Adura IJV due to lower price assumptions. More than half of the impairment is due to no depreciation on the assets held for sale. In the U.S. offshore assets, we had impairments of $385 million, mainly due to lower price assumptions. In M&P, we have a reversal at Mongstad of $300 million due to higher expected refinery margins. This quarter, cash flow from operations was $9.1 billion, repaid to NCS tax installments totaling $3.9 billion. Next quarter, we will have 3 installments of around NOK 20 billion each. We distributed $5.6 billion to our shareholders, including the state's share of buybacks from last year of $4.3 billion. Organic CapEx was $3.4 billion, and our net cash flow was negative $3.6 billion. We have a solid financial position with more than $22 billion in cash and cash equivalents. Our net debt to capital employed ratio decreased to 12.2% this quarter. At current forward prices, we expect the net debt ratio at the end of the year to be in the lower end of the guided range, 15% to 30%, the same as we have said at earlier quarters. Finally, we maintain our guiding from CMU in February, both in terms of production and CapEx as well as capital distribution. So thank you. And then over to you Bård for the Q&A session. Bård Pedersen: Thank you, Torgrim. [Operator Instructions] We have good list already. So let's get going. And first one on the list is Irene Himona from Bernstein. Irene Himona: So my first question is on the unit depreciation charge in Norway. It's up about 13% from Q2. Can we assume that is the new normal level going forward? And then my second question is on Ørsted. You obviously decided to participate in the rights issue and to turn from a passive to an active shareholder with a Board seat. Can you elaborate a little bit on what it is that you think Ørsted is perhaps not doing very well where your active participation may help them improve. And then what type of industrial cooperation do you envisage that would benefit both sides? Torgrim Reitan: Thank you, Irene. So first of all, the unit depreciation charge on [ E&PN ] is up. So that is driven by new assets onstream this quarter and in particular, Johan Castberg and also smaller developments coming onstream as well. So these will sort of depreciate over time. So you should expect a gradual reduction going forward on that basis. So that's the first one. The second one is related to Ørsted. Yes. So let me give you a little bit of further context around that. We participated in the rights issue. And clearly, that's sort of a recommitment to our shareholding, and we would like to use the opportunity to clarify more around how we think around the ownership position. And we do want to take a more active role as a shareholder with also Board seats in due time. Then important for me to say that the offshore wind industry is leading through its first real downturn. So with a lot of challenges. And we have seen that with Ørsted and we have seen that in the share price development in Ørsted. So in times like that, consolidation is typically what happens. And we also do think that this industry needs consolidation. We do think that a closer collaboration industrially and strategically between Ørsted and ourselves will create shareholder value for our shareholders, I mean Equinor shareholders but also Ørsted's shareholders in a way. And we do believe that's sort of the competence base that we have very well complement Ørsted and being part of the Board with a long-term industrial perspective in a company like this will benefit both parties. Then I do appreciate that there are uncertainties related to what this means. And let me be very clear that in the current environment, we are going to limit sort of capital commitments into Offshore Wind. It is an industry that is challenged. So the assets that we have in our own portfolio, we will continue to develop in Empire Wind, Dogger Bank and Baltic projects. Beyond that, we will be very, very careful with further commitments into Offshore Wind. And the same goes to our holding in Ørsted. So the threshold to commit new significant capital is high for the time being. So I just want to leave that with you because I do appreciate that there are sort of questions to what might happen here. Bård Pedersen: The next question is from Biraj Borkhataria from RBC. Biraj Borkhataria: Just the first one on the MMP guidance. I wonder if you could just dive into a bit more detail around the change in factors there. And also, you've gone from a range of $400 million to $800 million to a single figure. And I was wondering if there's a sort of signal factor in there that either you see fewer opportunistic -- opportunities to trade or if you are just taking less risk given the environment is changing? And then just a follow up on the question before Ørsted, just trying to understand why you didn't consider a Board seat in the first place? Because I recall it just wasn't really part of the discussion at the time around the CMU. So just trying to get the understanding of -- obviously, the environment has changed, policy has changed, but has your investment thesis on that business investment changed? Torgrim Reitan: All right. So thanks, Biraj. So first, on MMP guiding, yes. So we are changing the guiding to around $400 million on a quarterly basis. We're sort of -- we see that the risk is asymmetrical here. So more upside than risk to the downside. It is a change. We used to have $400 million to $800 million, as you might know. I think it's important to remind you what we had before the war in Ukraine, then the guiding was $250 million to $500 million as such. So what we see now is that the market has changed rather a lot. On the gas side, in Europe, the situation has normalized with -- both on the absolute price levels and volatility and also then the volatility globally and sort of the market globally is driven to a large extent by political decisions that actually structures in the market, making it quite harder to trade around and position ourselves around. So the sort of market dynamics that drives this. In addition, sort of we had earlier divested gas transportation assets, that we are sort of -- we don't have anymore. So we take the opportunity to take that out as well. So -- and then why not a range? Because I mean you have seen that even if we had a broad range from $400 million to $800 million earlier, we tended to overshoot quite a bit, actually, even with the range. It just explains that opportunity might be very good, and it might sort of -- we don't want to limit it to -- have it limited by a range. What we want to do is that on the invite to consensus that we send out a few weeks ahead of quarter, we will give an update related to MMP results and specialties to give you a little bit more guiding into it, but for -- on a regular basis on the longer term, I mean, around $400 million is a prudent number. Last point on this that this is not Equinor specific. This is what sort of all of us are currently experiencing. So if you listen to our peers and if you listen to the trading houses, we all see that you need to work much harder for every dollar you can make in the trading environment for the time being. So yes, so that is that one. The second question was related to Ørsted. We do believe that we have something to offer in the Board in Ørsted and it is particularly related to having a long-term industrial owner to -- that the company can rely on through cycles and then through developments. And as a company, we have extensive experience in managing cycles and thinking long term. In addition, we have clearly a lot of competencies related to project developments and the risk management as such. So we do you see that as something that can benefit both parties. Bård Pedersen: Next one on my list Teodor Sveen-Nilsen from Sparebank 1 Markets. Teodor Nilsen: First one, just want to follow up on the Ørsted question recently asked here. I just want to know what has actually changed in what you can offer from the first time you acquired shares until now the recent share issue. So that is the first question. And second question that is on Bacalhau, congrats on first oil there. How should we think around the ramp-up pace to plateau? Torgrim Reitan: Yes. So thanks Teodor, on your first question. Well, in the current situation, it was also important to signal that we were a supportive shareholder in what has sort of happened over the last few months. And then as part of that, being -- taking a Board seat is important. On Bacalhau, yes. So it's Bacalhau started on 15th of October. And it is probably the most complex development that we have done. It is at more than 2,000 meters of water depth and it is massive. So I'm very proud of reporting that it is started. On your question on the ramp-up. I mean, there are 2 drillships on location currently. There will be 19 wells being drilled on Phase 1, 11 producers, but also injectors, both water injectors and gas injectors as such. So this will sort of gradually happen. This is not going to be a ramp-up like you have seen on Johan Castberg. So this is sort of continuous drilling and completion to 2025 and it will continue in 2026 as such. So this -- it's too early to say, give an exact date when it will be on plateau, but things are progressing well. Yes. Bård Pedersen: Next one is Jason Gabelman from TD Cowen. Jason Gabelman: I am going to start also on Ørsted. And it's, I guess, a bit tangentially related to what's going on. But as we think about potential outcomes one of the thoughts in the market is a formation of a joint venture between the 2 parties. And with that, there's a lot of speculation on cash, that would need to be contributed into the joint venture from Equinor standpoint. So the question is really, as you look at your 3 offshore wind projects. How much equity capital have you spent in those projects thus far? And how much is left to be spent on those 3 projects? And then my follow-up is on the global gas market. There's been maybe a surprising amount of LNG projects sanctioned year-to-date. You've seen China demand slowing down, some thoughts on Power of Siberia 2 coming online at some point next decade. Can you just talk about your outlook for the global gas market? And if it's shifted at all just given the developments that we've seen year-to-date in that market. Torgrim Reitan: Thanks, Jason. On Ørsted, the potential outcome here is I don't want to speculate on that, and it's not natural to say much more on that now. But clearly, there are various alternatives. I can give a little bit insight in sort of what is it that the sort of -- we will be looking for in this. We will be looking for in sort of improving the free cash flow for Equinor, that is one driver. The other one is are there ways where we can visualize or make clearer the underlying valuation within the offshore activity that we currently have, are there ways to do that? And the third one is that clearly, we we'll be very careful in -- with significant further capital commitments within Offshore Wind in the current environment. So those are the things which are sort of driving us. When it comes to the 3 projects and remaining equity injections, I can give you a little bit of insight into it. Dogger Bank is well underway and sort of production is gradually being started up. So there are sort of -- there is some more equity that will be injected. But clearly, project financing and the leverage of those projects is in sort of in the [ 70s ] as such. Within Empire Wind, what you will see there is that we have a significant equity injection in 2026, which is close to $2 billion. The year after, we expect to receive investment tax credit for approximately the same amount. So Empire Wind over the next 2 years is pretty cash flow neutral before it is finalized. And then we have the Baltic 2 and 3 projects in Poland with a very high leverage, good projects. So it's fairly limited equity that is needed to fund those. So I just want to leave with you that sort of clearly, there are 3 mega projects underway with limited remaining capital needs associated with them. Okay. Let's see here. That was a long answer, but it was an important question. Then on sort of the global gas market. So first of all, I would like to say that in the short term, this winter, the market seems tighter than many actually things. We are on a storage level around 83%, which is 12 percentage points below last year. So if we see a cold winter, it can really have a significant impact on the market. I would say if you see a normal winter, we might see prices where last year as such. So I would say in the short term, price is very much driven by weather and temperature as such. If you look a little bit further, and that's sort of where you have your question related to more LNG. And yes, there are more LNG coming. This is not new information. This is not a surprise. This is what the whole world has been sort of planning for, for quite a while. And the question is, of course, how fast will this come on stream? And will there be delays? So clearly something to watch. We see still actually a quite healthy demand from Asia, Asia in totality around 3% growth per year, and that sort of will take up a significant part here. What else is to watch is actually U.S. gas prices. And U.S. gas prices has become recently much more a political topic internally, domestically in the U.S. because everyone sees that with all data center and AI will have a significant impact on power prices and power has to come from somewhere and natural gas clearly important so. So utility bills in the households is more and more becoming an election topic as such, and that might put limitations on exports of natural gas. So this is clearly an area we follow very closely. But there's no doubt there is significant amount of LNG coming. And our gas $2 per MBTU, cost and transportation selling into an $11 market, we are very, very robust. And as one maybe last point to mention here that is sort of the sanctioning on Russian LNG -- potential 17 Bcm. That will lead the European markets as well. Thanks, Jason. Bård Pedersen: Next question is from Chris Kuplent from Bank of America. Christopher Kuplent: Just some I guess, rather boring questions, Torgrim about detail. I wonder whether you can help us review what's happened in the 9 months on your net working capital, great results, I guess. And whether you can combine that review with an outlook where you think we're heading? And if I could ask you to do the same, particularly for your Norwegian business, I understand there's a lot of moving parts in terms of assets for sale outside of Norway, but Norway has seen a significant decline in the discount to Brent that you've been able to achieve in Q3. Again, I would love to have your review of that and outlook, if possible. Torgrim Reitan: All right. Thanks, Chris. Yes. So working capital is clearly a very important part of what we manage and manage diligently. So this quarter, working capital is down by $1 billion, 3 points -- the total working capital now is $3.7 billion. So that's that is the reduction during the year, actually done by some $3 billion. So the question you had is what is sort of normal level and what have you. I mean, the reduction we have seen is very much linked to commodity prices and MNP-related reductions. So I won't sort of give any outlook on this, but I would say that given the structures in the markets, the volatility in the markets and the absolute price levels, it is sort of a fair level. I mean, you remember during the energy crisis, we had a massive amount of working capital, and of course, earned a lot of money. But volatility and price levels are not there anymore. So -- but I would say it's a fair level, it's a fair level. Then the second question was sort of a discount to Brent. Yes, I mean, Johan Castberg came on stream during the summer. And Johan Castberg is able to achieve $5 premium to Brent as such, and that clearly has an impact to the discounted Brent overall on the shelf. Bård Pedersen: The next question is from Henri Patricot from UBS. Henri Patricot: Two, please. The first one, I was wondering if you can give us an update on latest thinking on timing of the Peregrino disposal? And then secondly, on Johan Sverdrup, you mentioned here the field continues to produce at a very high level? Or are you thinking about the evolution of that going into 2026? And to what extent do we start to see a decline next year? Torgrim Reitan: All right. Okay. First Peregrino. So Peregrino was shut in during the autumn. It came back on stream on October 17th as such and is currently producing more than 100,000 barrels per day. So we have transacted and we will divest out of our 60% ownership position in the assets, and that will be divested to Prio in Brazil. So there are 2 legs of this transaction. 40% of the 60%, we expect to close during the fourth quarter and the remaining 20% in the first quarter next year. So the headline transaction value was $3.5 billion with an effective date of 1st of January '24, which is quite a while. So there will be a pro et contra settlement since then. So what you should expect is that on that consideration we will receive is a little bit below $3 billion, and that will be split into sort of 2/3 of that in the fourth quarter and 1/3 in the first quarter. Just want to leave with you that this is -- in Brazil is still very important to us. The reason why we did it was twofold. It was attractive opportunity. And also, we are redeploying resources to Bacalhau and Ria in Brazil, sort of high grading the portfolio in Brazil. So the long-term commitment to Brazil is very much intact. Then Johan Sverdrup. Yes. So Johan Sverdrup keeps delivering very well in the quarter, close to 100% regularity, which is a very good achievement in itself. We have worked the asset very, very hard to optimize production and recovery rates. Now we are looking at a recovery rate of 75%, in that asset. It was 65% when we sanctioned it and 65% is still a very, very high number. So what we are currently working on is multilateral wells, a retrofit existing well into multilateral wells, so we have successfully done that. And then water management is very, very important because water management will continue to increase as we produce these wells. And that has also been done in a very good way. And then we sanctioned Phase 3 this summer with the common stream by end of 2027. So in 2025, we were able to maintain the production more or less on the same level as '23 and '24. But we have fast forwarded a lot of production. So this asset will start to decline. So next year, you should expect lower production from Johan Sverdrup than in 2025. But you know what we're doing, this is at core of our competence base. So we will clearly work very hard on maintaining as high production as possible from that asset. Bård Pedersen: [Operator Instructions] And the next question is Michele Della Vigna from Goldman Sachs. Michele Della Vigna: I wanted to come back to your comment about effectively restricting or being very capital efficient on Offshore Wind, given the acceleration in power demand we're seeing globally. I was just wondering, are there some other areas in the power markets where instead you see opportunities and you could look at redeploying some of the capital you're taking away from Offshore Wind at this time of low returns for those developments. Torgrim Reitan: Okay. So, we do believe that there is value to be had within sort of the Power segment. And we have recently established a new business area called exactly Power as such. So what we clearly will be looking for are sort of opportunities that sort of builds on the portfolio we have and clearly -- and the customer base that we have. And we have a big presence related to our gas positions in Europe and in the U.S. So that's sort of the totality, the way we think about it. I have to be very clear that sort of we have no intentions to significantly step up investments into this area. We are facing periods with lower prices. And for us, it will be very important to remain very capital disciplined in anything that we do. And everything we do need to have a significant profitability and returns before we commit any capital to it. Bård Pedersen: Next one, please one question from you to Peter Low from Rothschild & Redburn. Peter Low: Perhaps a question on the cash tax paid in the quarter, which I think was maybe a bit lower than expected. So it looks like you paid 2 NCS installments of $3.9 billion, but the total cash tax paid in the cash flow statement was $3.8 billion. Were you getting refunds in other regions? Or can you perhaps explain that number a little bit? Torgrim Reitan: Yes. Thanks, Peter. So a couple of things. So 2 tax installments in the second quarter, there will be 3 next quarter in Norway. So just be aware of that. It is a timing effect related to falling prices. So we are still paying taxes based on a higher price environment. So you just be aware of that. And also internationally, the reported tax is much higher than paid tax that goes particularly across the U.K. with the EPL and then sort of Rosebank investments being offset against tax and in the U.S. as well. So yes. Bård Pedersen: The next one is as Naisheng Cui from Barclays. Naisheng Cui: Just one follow-up on MMP guidance, please. I think you mentioned in your report that part of the reason you cut MMP guidance is because divestment of gas infrastructure assets. I wonder if you could isolate the impact on that place rather than the market condition change. Torgrim Reitan: Okay, thanks. I can do that's $40 million per year. We did that sort of 1.5 years ago or something like that or 2 years ago. At that point in time, we delivered sort of guiding repeated in the quarter. So we didn't see the need to sort of strip that out. But when we now changed the guiding, we thought it was useful to mention it. Bård Pedersen: Just to be clear, Nash, the $40 million effect is on a quarterly basis. I think you might have said for year, but it's per quarter. Torgrim Reitan: Yes, that's per quarter. Yes. Thanks, Bård. Bård Pedersen: Next one is Paul Redman from BNP Paribas. Paul Redman: And I might be a little bit early, but I just wanted to ask about how you're thinking about the distribution program for next year. We're going into 2026 with quite volatile view on oil prices. difficult view into gas prices, your debt came down this quarter, and I think you're guiding to a reversion of some of that into 4Q. So I just wanted to ask about how we should maybe think about a distribution program for 2026. And then just a confirmation on whether you're going to guide to that the 4Q results or at the Capital Markets Day later in the year? Torgrim Reitan: Okay. Thanks. Thanks, Paul. Yes. All right. So first of all, there's lot of good reasons to be prepared for lower prices and we all know that. Last year, we took down investments by $8 billion for a few years and also cost down. We will continue to push on this to improve free cash flow in the current environment. So this is an ongoing thing. I just want you to be aware of that. So that is so. Secondly, capital distribution will have a priority in our capital allocation model. Cash dividend -- the cash dividend, you should consider that as a bankable. I mean, that will come. On top of that, we will use share buyback and share buyback will be used on a regular basis. It is a natural part of our capital distribution framework as such. So -- and we clearly aim to be competitive when it comes to the overall capital distribution. And to be precise on competitive, I leave with you a couple of things. We know that our peers are using a formulas related to cash flow. You should think about that type of sort of levels as sort of being competitive when it comes to ourselves. I think it's worth mentioning that sort of we have specialties around the Norwegian tax, so percentage points. We always should be a little bit lower for consistency as such. Then your question on sort of what will happen next year as such. We will announce this on the fourth quarter results in February. There are a couple of specialties I would like to draw your attention to. And that is next year, we have a significant investments related to Empire Wind equity, that is around $2 billion. The year after, we will get it back through the investment tax credit. So when we consider capital distribution for 2026, we will look through that. We will take a 2-year perspective when we do consider our capital distribution for the year. So -- and this is why it doesn't make sense to have -- that's why we are not sort of running with the formula because there might be years where we would like to lean on the balance sheet and there are other years where we clearly would like to build a balance sheet as well. But I think that is very important for me to say that those type of effects we will see through and we will see through that we are competitive when it comes to capital distribution. You also mentioned the net debt, and I just want to use the opportunity to say a few words there. We are currently at 12%. We expect to be in the low end of the range by year-end. There are a couple of things I would like to bring with you -- to you. Point one, there are 3 tax installments there will be payment of the rights issue, $900 million in the quarter and there will also be part of the Peregrino transaction funds coming back. But my point is we maintain the guiding for net debt to year-end, even if we have participated in the Ørsted right issue with $900 million, it is driven by strong underlying operations and cash flow and also improvement in net working capital as we talked about earlier. So a long answer, Paul, but an important question. Bård Pedersen: Next one on the list is Martijn Rats from Morgan Stanley. Martijn Rats: Well, only one for me. I wanted to ask about the impairment charge, because it's more of a question of just sort of trying to make sure I interpret this correctly. So the long-term oil price assumption has come down, but it's still $75 a barrel. But that has triggered $750 million of impairments, which sort of suggests that there were projects in your portfolio that had breakevens well above $75 a barrel. And I was wondering if that is the correct interpretation. If your projects have breakevens below $75, but you lower the long-term assumption, it wouldn't trigger an impairment, right? Am I interpreting this correctly? Torgrim Reitan: Martijn, thank you for your question. Well, there are qualifications that needs to be made. So first of all, we have the assets on the U.K. side, which are impaired with $650 million. First of all, I would like to say, this has absolutely nothing to do with a transaction with Shell. This is an isolated effect, and it is driven by lower oil price assumption, as you said. A very important driver for this is that these assets are held for sale in the book. So they haven't been depreciated for -- since the beginning of the year. If they had been depreciated on a normal basis, the impairment would have been significantly lower. The second point on the U.K. portfolio is that part of that asset base is linked to the acquisition we did with Suncor and the Buzzard field, which sits in the balance sheet at sort of acquisition cost as such and that has also had an impact for that asset. There are 2 assets in the Gulf of Mexico also impaired. Those are also mainly driven by price. Those are assets run by -- operated by significant U.S. operators. As such, one of the assets has been a challenging asset operational wise for several years as such. So I mean, it's -- yes, I mean, it is one asset in the U.S. Gulf of Mexico that has been a challenge. The remainder of the asset portfolio is very robust for impairments. So thanks, Martijn. Bård Pedersen: Next one is JPMorgan, Matt Lofting. Matthew Lofting: I just wanted to come back Empire Wind, Torgrim, I think you mentioned in your opening remarks that there was an availability issue that's emerged on in the installation vessel with Maersk. Could you just expand on what's happening there and sort of any risk that, that poses to the future development progress of Empire Wind into next year? Torgrim Reitan: Thanks, Matt. So first of all, I think it's fair to say that Empire Wind has had a demanding year with a stop work order that has been reversed. And I just want to use the opportunity to say that the lost time has been catched up and we are back on track. And I must say that I'm very proud of what our organization has been able to do in a critical year like this. We are 55% complete. All monopiles are in the seabed. So on this issue, this is a dispute within Maersk and Seatrium, which is the yard in Singapore. The vessel is more or less completed and finished and Maersk has sort of canceled the contract as such. So we are close to the situation. We are working to either see to that this solution is resolved or looking for other opportunities. Important for me to say that this is a well-functioning market and there are other opportunities available in the market. So we will manage this -- we'll manage this, not risk-free naturally, but we will give you an update as this progress. Bård Pedersen: We move on to James Carmichael from Berenberg. James Carmichael: Just quickly on the U.K. and Rosebank. I was just wondering what the latest is on that approval process. And then I guess maybe just sort of general thoughts on the U.K. as we maybe get a bit closer to some clarity on the fiscal outlook here. Torgrim Reitan: Okay. All right. Thanks, James. So on Rosebank, as you might may be aware of sort of the permit was sort of taken away due to that Scope 3 emission should have been taken care of in the award. So we have submitted our response recently to the regulator, and they turn around and put it into public constellation right away. That has started, and we expect the consultation to end at the 20th of November. There is no set date for the decision, but clearly, we work very closely with the ministries to get this moving as quickly as possible as such. The second part of your question, what was that, James, about fiscal outlook in the U.K? James Carmichael: Yes. I guess just general thoughts on the U.K., obviously, some uncertainty on the fiscal outlook, we've got some clarity there soon. Yes, just some context around that. Torgrim Reitan: I think it's fair to say that there has been repeatedly tax changes on the U.K. side over years. This is nothing that we appreciate and clearly would advocate for strong and stable fiscal framework to create a basis for investing as such. Yes. Bård Pedersen: Kim Fustier from HSBC is next on my list. Kim Fustier: I noticed that one of your Norwegian competitors has recently expressed some concerns that there may not be enough projects on the NCS within a year or 2 to sustain a healthy domestic supply chain. Obviously, you're also moving away from big greenfield projects to smaller brownfields. So it's kind of an industry-wide issue. Just interested in hearing your views on sort of the outlook for the NCS supply chain and cost inflation. Torgrim Reitan: All right. Thanks Kim. We are currently having a period with very high activity. A bit of that is driven by the tax incentive program put in place during COVID as such and many of these projects are soon coming into production. So it is natural that there will be a lower activity past that asset. So I think our job as a company is to adapt to that and adjust. I think it's -- I just want to use the opportunity to talk about a project that we have established called NCS 2035. And this links very much to what we said at the Capital Markets Day in the winter, maintaining production level on the NCS all the way to 2035. That future will contain more but smaller discoveries. It will take quicker developments, and we have to operate at lower costs. So for instance, we will drill 30 exploration wells per year and that is more than we do currently. And we will put forward 6 to 8 subsea developments per year, which is also more than what we have done currently. So by what we are doing, clearly, we will be a significant contributor to maintaining a high activity level on the Norwegian Continental Shelf and also the industry in Norway. So very optimistic about what we can achieve through different way of working and different way of working with suppliers. Bård Pedersen: We are fast approaching the hour, but let's take one final question, and that is you Steffen Evjen from DNB. Steffen Evjen: So a quick one. Just remind me on the tax credit in the U.S. What's the milestone you have to get that credit paid? Is that first power or COD on the project? Torgrim Reitan: Yes. Yes, it is production start, that is sort of the criteria, and it is first power. That is sort of the ultimate. So that is what we plan for in 2027. Bård Pedersen: Thank you very much. We are now at the hour. I would like to thank you all for calling in and for your questions. As always, the Investor Relations team remain available. So if there's any outstanding questions, please give us a call, and we will do our best to help you. Thank you very much, and have a good rest of the day. Operator: Ladies and gentlemen, that concludes today's call. You may now disconnect. Thank you, and have a great day.
Operator: Hello, everyone, and thank you for joining the Alm. Brand Q3 2025 Call. My name is [ Sami ], and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to our host, Rasmus Nielsen, CEO, to begin. Please go ahead, Rasmus. Rasmus Nielsen: Thank you. Good morning, and thank you for joining us on our conference call. I'm Rasmus Nielsen. As usual, I have with me today, our CFO, Andreas Ruben Madsen; and the Head of our IR team, Mads Thinggaard. This morning, we published our interim report for the third quarter. And as usual, I will walk you through the operating highlights, and then Andreas will comment on the financials. Please turn to Slide 2. I'm quite pleased with the overall financial performance in Q3, which has strong organic growth and good cost control at the same time as the underlying loss ratio was improving, helped by synergies and price adjustments. We reached an insurance revenue growth of 10% in Personal Lines, which implies we are taking quite a bit of market share with our strong bank partnerships as a driver, while price adjustments are still kicking in as well. Synergies are materializing better than planned. In Q3, we have reached a run rate that exceeds the DKK 600 million synergies per year originally communicated. Adjusted for a lower discounting effect on claims, we reached an improvement in the underlying loss ratio of about 3 percentage points year-on-year. Lower costs and lower underlying losses were the main drivers behind an improvement in combined ratio to 82.2% from 85.7% in Q3 last year. And now I'll turn to Slide 3 with our financial highlights. Insurance revenue grew to above DKK 3 billion for the first time ever, while the insurance service result of DKK 535 million was our highest technical result to date in the quarter. As mentioned on the previous slide, the quarter was characterized by strong growth and cost control, combined with a healthy improvement in the undiscounted underlying claims of about 300 basis points. We therefore see a clear path towards reaching our strategic target of a technical result in '25 of DKK 1.85 billion. Investment income in Q3 was a satisfactory profit of DKK 66 million, which was primarily driven by a positive result in the fees portfolio. And now let's continue on Slide 5. The group made a technical result of DKK 535 million in the quarter, up from DKK 400 million in Q3 last year due to synergies, premium growth and profitability improvements. The insurance service result from Commercial Lines was DKK 265 million against DKK 197 million last year, primarily driven by lower underlying claims. In Personal Lines, we also had a sizable increase in the insurance service result to DKK 270 million from DKK 203 million last year, driven by higher premiums and lower underlying claims as well as strong cost control. Please turn to Slide 6. Insurance revenue grew strongly by 7.5% in the quarter, just a bit lower than 8.3% in last quarter. I would say overall premium growth is very satisfactory with a continuing strong momentum. In Personal Lines -- I would say overall premium growth is very satisfactory with a continuing strong momentum. In Personal Lines, we are clearly taking market shares on top of indexations and the price increases we have implemented. We do consider the 10% growth in Personal Lines as a very bright spot in our report. In Commercial Lines, we see a continuation of the rebound last quarter to a premium growth of around 5%. And moving on to Slide 7 and the claims ratio. The Q3 claims ratio was down 220 basis points year-on-year in a quarter with a bit higher weather and large claims, but also with help from gain in the risk adjustments related to the approval of our PIM model to cover the Codan business. Run-off gains were 1 percentage point lower than in Q3 last year. The underlying claims ratio was 260 basis points better year-on-year, especially driven by repricing in Personal and Commercial Lines. Moving to an undiscounted basis, we see a 320 basis point improvement in the underlying claims ratio year-on-year. Commercial Lines stands out with an improvement of about 400 basis points year-on-year, while Personal Lines improved by more than 200 basis points. And now please turn to Slide 8. Combined ratio in Personal Lines improved to 83% from 86% due to a 1.3 percentage point lower cost ratio and 200 basis points lower underlying claims ratio. We are seeing motor frequency starting to drop, but still a continued increase in the average motor repair costs. In total, we therefore see a bit of stabilization in the overall motor claims expenses, while executed repricing and synergies are helping the underlying claims ratio down. Please turn to Slide 9 and the Commercial Lines. In Commercial Lines, we see a significant decrease in the combined ratio to [ 81.3% ] from [ 85.5% ] last year. The massive drop is driven by lower underlying claims as well as lower cost ratio. The same picture as in Personal Lines just with a more massive drop in the underlying claims. And with these comments, I will now hand over the word to Andreas, who will give an update on expectations for weather and large claims. Andreas will also walk us through the synergies, investments and guidance. Andreas Madsen: Thank you, Rasmus. Now please turn to Slide 11. The slide illustrates the level of major claims in the last 11 quarters compared to our indication of a normal level. We've decided to reduce the normal level indicated to 6% from 7% before. This change assessment follows the recent approval of our PIM model, but it's also backed by quite low actual levels since Q1 '23 and ongoing portfolio changes. The 6.3% level of major claims in Q3 '25 is thus slightly above the new normal level for the group. And on Slide 12, we show Commercial Lines being relatively high with 11.3 percentage points of major claims compared to the new normal indicated of 10 percentage points. The normal level for major claims in Commercial Lines was 12 percentage points before the change. And now turn to Slide 13 regarding the weather-related claims, where we also introduced a new normal level as well as an indication for the seasonal pattern of claims. As you may have noted, weather claims have climbed a bit up in recent years and the average for the last 11 quarters of 3.3 percentage points is above our old expectation of 2 to 3. We have reassessed the structural level after the recent PIM approval, and we now see 3 to 4 percentage points as a better indication of the yearly normal level. We're also providing an indication of seasonality for the weather claims. We point to 35% for Q1, 10% for Q2, 25% for Q3 and finally, 30% for Q4 as a normal distribution over the year. Overall, our change assessment of structural large claims and weather claims do not change our structural expectations for the insurance service result going forward. Now I turn to Slide 15 for an update on synergies. With the DKK 158 million in synergies harvested in Q3 '25, we have actually passed the promised run rate of DKK 600 million per year back from the acquisition of Codan. And as flagged previously, we expect to end the year with a run rate of around DKK 650 million. This will be the ending of our synergy accounting. We had a nice jump up in harvested synergies in Q3 of DKK 40 million from [ DKK 118 ] million in Q3 '24. This implies an improvement in an underlying claims ratio of 0.5 percentage points and in our cost ratio of 0.7 percentage points year-on-year. And now move to Slide 16 and the investment results. The investment result was a satisfactory profit of DKK 66 million, primarily driven by a positive return from our free portfolio in combination with a small profit from our match portfolio. Returns on bond and equity were the key drivers for the strong result. I should also mention that we expect our Tier 2 cost to drop looking ahead as we have now bought back DKK 400 million of Tier 2 bonds out of the previous DKK 1.3 billion issued. The buyback of Tier 2 bonds was driven by our lower capacity for Tier 2 capital following the PIM model approval. And finally, now move to Slide 18 and the outlook. We upgraded our guidance for the insurance service result in '25 by DKK 100 million to DKK 1.75 billion to DKK 1.85 billion. This is due to realized run-off gains in Q3 as well as a strong underlying result. At the same time, we narrowed the guidance range to DKK 100 million due to being close to the year-end. The cost ratio guidance is unchanged at 17% for '25, while the combined ratio, excluding run-off results in Q4 is expected to be 84.5% to 85.5%. The combined ratio guidance range is narrowed as well. The guidance includes synergies of DKK 600 million and the effect of implemented pricing efforts in Commercial as well as Personal Lines. We upgraded the guidance for the investment result in '25 by a new DKK 50 million to a guidance of DKK 300 million, while the guidance for other income and expenses of minus DKK 125 million remains unchanged. Consequently, group profit, excluding special costs is expected to be DKK 1.93 billion to DKK 2.03 billion before tax, excluding run-off gains for Q4 '25. In addition, we guide for our restructuring costs of DKK 175 million, of which DKK 25 million relates to the separation of our Energy & Marine business, while we expect depreciation of intangible assets to affect the income statement by around DKK 335 million in 2025. Please recall that we are hosting a CMD here at our headquarters on November 18, and we hope to see as many of you as possible. And with this, I conclude our presentation and hand over the word to our moderator. Thank you. Operator: [Operator Instructions] Our first question comes from Mathias Nielsen from Nordea. Mathias Nielsen: My primary question on the first thing is if you could remind us a bit on like what we should think about the pricing tailwinds into the Q4 top line growth. If I remember right, I think it was around 1st of November last year, you started to implement the price hikes a bit more broader. So what should we think about the top line growth year-on-year when we look at Q4 numbers and into '26 as well? Andreas Madsen: Yes. Thank you, Mathias, Andreas here. Let me try to give some flavor to that. Well, you're right to remember that we did actually start the current repricing in Q4 of last year. So as such, we would expect to see the effects coming from the extraordinary price initiatives slow down a bit as we go into Q4 and further as we obviously migrate into next year. So it will be coming down a bit from what we've seen in this quarter. And maybe I could just give you those numbers also to help you out because if we look now, it's more or less what we also communicated the last time around. But looking at Personal Lines, where we have a 10 percentage points growth year-on-year, pricing would come to around 4% of that. And in Commercial Lines, we see of the total of 5 percentage points growth, we would approximate something like 2 percentage points coming from repricing on a net basis. Mathias Nielsen: That's very clear. If we then move into the next year and think about that, like what is the expectations on claims inflation when we look into '26? What should we think about that? This is above ranges when you ask some of the Nordic P&C insurers at the moment. So what are you looking into? Andreas Madsen: Yes. Well, I think our overall read is that we still -- our main focus or our main sort of -- the area where we are most affected by claims inflation remains motor. We still see some quite significant price hikes in motor coming, especially from higher spare parts. So what we're also communicating around what we're seeing this year is that motor claims in total is more or less where we expect it to be given that frequency has come down a bit. But on the other hand, we've seen this uptick in claims inflation. For now, I would expect that to more or less, let's say, flatten out at these levels. That would be our overall expectation. We don't have evidence yet that this has softened. In the longer run, at some point, we would expect market dynamics to help us to push down again to a more normal level for motor. But we're not -- for now, we are expecting more flat movements. And I don't see any very big themes for the rest of our book as it stands right now. Mathias Nielsen: So if we try to put some numbers on that on claims inflation, is that around 3% to 4% claims inflation next year? Is that what you're trying to allude to? Or how should we think about that? Andreas Madsen: That's not off. I would say something around the vicinity of 3 percentage points, also maybe roughly corresponding to what you would expect to see from wages on an overall basis. Mathias Nielsen: Sure. And then my last question on the capital side, like in terms of expectations of buybacks into next year. If my memory serves me right, like the ongoing buyback is ending in March, and that's why we should expect a new one if there's going to come a new big one, if that's correct. That was the first part of that question. And the second part of that, is there any -- do you see any limitations on how much you can buy back and then need to go to the foundation again? Or is that something that you think you would be able to handle in the market at the current situation? Andreas Madsen: Yes. As a general comment, I think I'll start by saying that before we dive into very specifics on the whole strategy around capital and buybacks, I think we like to leave some [ news ] effect also for the CMD. But -- so what I can do is I can restate that we -- you're right to assume that we are sort of at full capacity until sometime in the spring next year. We do have a surplus capital. And in an overall sense, we would like to prioritize also a share buyback in all likelihood when we handle most of that surplus capital. We don't see any news in terms of liquidity. We do -- the amount of buybacks, which we are able to do at this point within the year would be -- within the safe harbor regime would more or less stand also in the next year. Operator: [Operator Instructions] Our next question comes from Martin Birk from SEB. Martin Birk: Andreas, maybe if you could just continue along the lines of capital. You have a solvency ratio target of at least 170%. How is that impacted by this PIM model improvement? I assume that now -- well, I assume that it's also going to be -- we also need to address sort of the total absolute capital base, which will be strictly lower following the payout, which is due in March. Andreas Madsen: Yes. I mean -- thank you, Martin. Well, in overall terms, the 170% is our capital ratio. That's what we have been aiming for. We've had that for some time now. You're right that we also naturally have a lower surplus in absolute numbers. All else equal, the 170% stands. But I think as I also adhered to before, we'd like to give the full update and transparency both in terms of overall capital, how we strategize around the surplus and also how the different parts of the capital base, we see the targets for Tier 2, RT1 and so forth. We see that as natural to give an update for when we get back to our CMD on the 18th of November. Martin Birk: Okay. So a bit of a cliffhanger again, Andreas. But would you also provide an update on when you actually expect to reach the 170% or just above the 170%? Andreas Madsen: I think we would at least give you, I think, the guidance needed in the toolbox to sort of make the right assumptions about that. But the exact timing and others, I think, is a very specific sort of exercise that we could maybe do that. I don't see maybe that as a core part of the CMD presentation as such. But we hope to give guidance that will give you qualified -- sort of the qualified assumptions needed to get to the right timing. Operator: We currently have no further questions. So at this time, I'd like to hand back to Rasmus for some closing remarks. Rasmus Nielsen: Yes. Thank you for listening in again, and we look forward to see you -- hopefully, all of you on 18th of November at our headquarters [indiscernible]. Thank you. Operator: This concludes today's call. We thank everyone for joining. You may now disconnect your lines.
Operator: [Foreign Language] Good morning, and welcome to the conference call organized by Vidrala to present its 2025 third quarter results. Vidrala will be represented in this meeting by Raul Gomez, CEO; Inigo Mendieta, Corporate Finance Director; and Unai Alvarez, Investor Relations. The presentation will be held in English. [Operator Instructions] In the company website, www.vidrala.com, you will find a presentation that will be used as a supporting material to cover this call as well as a link to access the webcast. Mr. Alvarez, you now have the floor. Unai Garaizabal: Good morning, everyone, and thank you for joining us today. Earlier this morning, Vidrala published its results for the third quarter of 2025. Alongside these results, have made available a presentation that will serve as a reference throughout this call. We will begin by walking through the main figures released today and then we will move on to the Q&A session, where we will address your questions. With that, I will now hand over to Inigo, who will take you through the key financial highlights. Iñigo de la Rica: Thank you, Unai. Let's start with a brief overview of the key financial figures. During the first 9 months of 2025, we recorded revenues of EUR 1,124 million, an EBITDA of almost EUR 329 million and a net income equivalent to earnings per share of EUR 4.93. As of September, net debt amounted to EUR 150 million, representing a leverage ratio of 0.3x over the last 12 months EBITDA. Please remember that the sale of the Italian business in 2024 affects year-on-year comparisons. Moving on to the top line performance. Total sales for the period amounted to EUR 1,124 million. On a like-for-like basis and at constant exchange rates, this represents a year-on-year decrease of 5.1%. This variation primarily reflects the price adjustments, which remain within the expected range of minus 3% to minus 5% alongside continued soft demand dynamics. In addition, the scope effect resulting from the exclusion of the Italian business had a negative impact of 1.4%. Moving on to the next slide. EBITDA for the first 9 months of 2025 reached EUR 328.9 million, reflecting an organic growth of 0.5%. This performance demonstrates the resilience of our diversified business model and the steps we are taking to navigate the current market environment. We're intensifying our investments while implementing measures to reinforce our cost base. This operational performance delivered a strong EBITDA margin of 29.3%, up 150 basis points year-on-year, underscoring our ability to stay competitive without [ comprising ] our profitability. Let us now review revenue and EBITDA by region, reflecting the current scope that is with Italy fully removed from last year's numbers. Overall, the business is performing in line with expectations with price adjustments being implemented across all markets. And in the third quarter, volumes were stronger in Iberia, weighted down in Brazil basically by adverse weather conditions and showed an improved trend in the U.K. and Ireland. Across all regions, margins continue to hold up well, supported, as we said before, by our ongoing footprint optimization and disciplined cost management. Free cash flow conversion lies at the heart of how we create and preserve value. This chart illustrates how effectively we have converted cash over the first 9 months of the year. Starting from an EBITDA margin of 29.3%, we have reinvested almost 12% of our sales in CapEx and allocated a further 3.5% to working capital, financials and taxes. As a result, we generated robust free cash flow generation equivalent to almost 14% of sales. Consequently, by the end of September, net debt stood at EUR 150.3 million, maintaining a low leverage ratio of 0.3x EBITDA. This illustrates the capability of our model in turning strong operational results into cash and supporting key investments. With a strong balance sheet, we are well positioned to consider potential growth opportunities, continuously optimize our operations and deliver value to our shareholders. And now before we open the floor for questions, Raul will share additional perspectives on our performance and outlook. Rául Merino: Thank you, Unai, and thank you, Inigo, and thank you all for attending this call today. We really appreciate your time. Well, things have been quite challenging out there in the consumer marketplace, particularly for some of our customers. But despite demand is significantly softer than initially expected, despite competition is very intense across the packaging industry, our results keep on consistently performing as expected. And this is a very good proof of the quality of our business. We accepted the challenge. We are becoming a different company. We are taking actions. We are selectively realigning our industrial footprint. We are investing more and smarter than ever. We are getting closer to our clients and the consumer and we are doing so with our customers in mind with the aim of making our products and serving our markets in the most competitive, profitable and sustainable way. As a result of all of this and despite the many macro and also some micro difficulties we are facing, we are today reiterating our guidance for the year. And behind this small message, far beyond the next quarter lies a big reflection for us. We are making this company adapt and evolve in the direction of the future we, our people, our shareholders and our customers deserve. And we will keep on moving forward. There is a bright future ahead for glass, the ultimate, most sustainable, healthiest packaging material of choice and for the packaging industry as a whole, if we do the right things today in the industry. As a final remark from my side before moving to your questions, please keep in mind, whatever we do, however we react and adapt to the different difficulties wherever we go, whoever represent this company, please be sure that we will remain firmly committed to our three pillars, customer, cost and capital. Vidrala will invest keeping a strict financial discipline in every scenario, maintaining our business under solid financial conditions to further improve our competitiveness, drive our future, attract customers and preserve the strong value of our products. Thank you. Unai Garaizabal: Okay. That brings us to the end of our prepared remarks, and we will now begin the Q&A session. Operator: [Foreign Language] [Operator Instructions] Our first question comes from Francisco Ruiz from BNP Paribas. Francisco Ruiz: [Foreign Language] So I have 3 questions. First one is on the Brazilian situation. We have seen a very weak Q3, mainly due to the adverse weather, as you commented. But also, we have seen that 2 of your competitors has put new capacity in the market. So what are the expectations on Brazil? And what are your future development on the country? The second one is on the current situation of leverage. I mean, you have said out loud that you're looking for M&A. I'm not sure if there are something big enough to jeopardize your financial position or the good financial position for that point. I wonder if the Board of Directors are thinking on a better shareholder remuneration policy. And if this is the case, I mean, I don't know if you have think on doing through buybacks or dividend. And last but not least, I mean, once reiterated your guidance on Q4, I mean, this imply a significant growth in EBITDA versus what you have reported at 9 months. I mean, what is driving this? I mean, do you expect a better recovery in volumes in some geographies or some cost advantages also at the end of the year? Rául Merino: Well, let me take the first part of the question regarding Brazil. Our business in Brazil Vidroporto is wonderful business, strategic core, but particular, we are very well invested in Brazil. We are supplying a small number of big, very demanding customers, global customers, particularly in the beer space. This is a very good proof of quality for our business, not only in Brazil that creates a lot of synergies and collateral results. But Brazil is a particular country, it is a continental country full of opportunities in all the sense, a country of future for us, but also volatile in some circumstances. And our third quarter results have basically reflected what has happened in the country in terms of consumption, particularly consumption for beer, affected by climate, macroeconomic circumstances and many other factors that under our view temporarily affect consumption. Things are today much more stable. We will end in Brazil this year basically flattish in sales volumes and this is more or less safe. Regarding your -- just to finalize this point, regarding your comments around other actions to increase capacity the only thing I can comment is that we do have little reason to add capacity, but we will invest to improve cost competitiveness. Iñigo de la Rica: Regarding the second question, Paco, on leverage, we are very conscious of our current low leverage, which we understand is today a bigger competitive advantage than in the past probably. As you perfectly identified, we are not seeing -- we are actively and we have a proactive attitude towards M&A, but probably there is nothing big enough to change this strong financial position right now. So when we look into our Board of Directors of December, we'll probably shoulder our shareholder remuneration proposal. And as you said, buybacks is an option, okay. And finally, regarding guidance, we are reiterating today the guidance. We are also stating that the guidance is not immune basically to FX fluctuations. Indeed, we should consider that we should already have despite significant changes in FX from today until the end of the year, we should already have a negative impact from FX, exclusively from FX already in the range of EUR 4 million, EUR 5 million. So this means that you should also consider this context, okay? Rául Merino: Yes. Let me add on this, Inigo. Please keep in mind that you know the last quarter of the year is naturally the less relevant quarter in each year. So our eyes, as you will understand, our eyes are now good and our management priorities are not put on the year ahead, on 2026. Operator: Our next question comes from Enrique Yaguez from Bestinver Securities. Enrique Yáguez Avilés: I have several questions. The first one is regarding the demand outlook for Q4 and next year. And I would like also to know what -- how do you think about pricing and the risk of price aggressiveness in the sector if demand does not show a significant improvement? And second, in terms of margins by business regions, I don't know if you foresee the need to implement further efficiency measures in the U.K. and Ireland, which are performing a little bit better than expected. And on the positive side, how far can margins improve in Iberia, which are showing a very strong evolution? Iñigo de la Rica: So regarding demand outlook for the most immediate fourth quarter, as we have been saying for the previous quarters, we are not expecting a significant recovery of demand. But even under this scenario, we should see some volume growth overall at the group level in the fourth quarter. So we are still expecting volumes for the full year to be in the range of flattish for the group or slightly down, okay? But probably slightly better than the 9-month figure. Rául Merino: And basically, if we try to look ahead at 2026, Enrique, it looks like demand is apparently more stable than it has been for the last few years in all our regions of activity, including Brazil with all dimensions that we have done. So now moving to your second part regarding prices. Well, it's very evident that there is a lot of competition out there. We compete against other glass makers and against the cost of aluminum and plastic and against the plastic that is inside aluminum cans. And that means that -- well, the reality is that pricing and margin dynamics that we are seeing in the packaging industry have never been so different. And we have no option but to accept the challenge and adapt our prices. But we still see a lot of positive inflation across cost for industrial manufacturing. And we have different reason to our prices significantly immediately only in some exceptional cases if we are forced to respond. And my final conclusion on this, please keep in mind that more than half of our sales volumes are dictated by price adjustment formulas and the mathematical result of a typical formula looking at 2026 is not significantly negative. And this is a good reference for our strategy. And the last question is regarding our business in the U.K. and Ireland. Again, Encirc is great, incredibly well-invested business. Our 3 facilities there are facilities we feel very proud of. But we know and competition is getting harder, we know that we need to improve our cost competitiveness and we are taking actions to improve our cost competitiveness. And thanks to these actions, we expect to attract some customers back to us to recover some market share and more to stop imports into the U.K. market that could affect the historically very profitable British glass industry. So I won't mention targets or references in terms of relative margins or sales. I will try to direct you to put the focus more on EBITDA or profits in value. And we do feel optimistic about our future in the U.K. and Ireland even under the current intense competition. Operator: [Operator Instructions] Our next question comes from Fraser Donlon from Berenberg. Fraser Donlon: It's Fraser here from Berenberg. I had a couple of questions. So just on the U.K., what exactly do you envisage doing to kind of improve the competitiveness? Because I know there was a kind of small restructuring in Encirc a few months ago, which you discussed on the last call. So are you referencing that? Or do you have kind of bigger plans, let's say? And have those plans changed given now Ciner, I think, has announced that they won't be adding this site in the U.K. And then my second question was just on Europe. Could you maybe color a little bit like the import/export trend you see in different European markets and maybe where you see more or less pricing pressure or difficulty in the market? Not necessarily just in Iberia and the U.K., but also like the markets that you sell into would be interesting to hear what you have to say. And then the final question, I think following on from a prior question. I know -- I think Ambev had launched this furnace in Brazil recently. Given that's now been launched, could it change anything for you with respect to that customer or that customer's, let's say, willingness to keep operating those sites independently? Iñigo de la Rica: Well, first, regarding the U.K. -- our business in the U.K. and certain -- the actions we are taking, we need to improve significantly our cost competitiveness because this is our purpose to protect our business there, to protect our people and to attract back some of our customers. I won't give you an exact number because these things are moving significantly. Let me ask for the time we need before providing you a little bit more clarity on the specific targets on this. But let me use the help of the numbers that we are publishing today to let you understand that we are doing the things that are needed to do in the U.K. in all the sense. Your second point is, okay, regarding how intense is the battle against imports, exports, particularly in Europe and the U.K. I will say that the competition is quite intense in every place, particularly in Europe and the U.K. due to imports. But Vidrala is under our view, an example of a low-cost glass manufacturer. So it's our aim to stop this and we are doing this without affecting significantly our margins. That means that we are doing the right thing in our cost base. And that -- let me explain like this simplistically that also should give you a reference that we are to be and remain as cost-competitive as some importers into the U.K. and Europe. This is our aim, to remain competitive to stop this. And third, you mentioned a specific case of relevant customer in Brazil. Let me avoid mentioning the specific names in this conference call, okay? My only message is that we were aware of this. We have been preparing ourselves for this and all the message that I shared with you answering a previous question regarding Brazil, our business there and our actions to further improve our competitiveness and attract customers and differentiate our commercial positioning are very well aligned with this specific case. That won't be an excuse for us next year. Operator: Our next question comes from Inigo from Kepler Cheuvreux. Íñigo Egusquiza: Most of them have been already answered, but I have 3 questions, if I may. The first one is Brazil. Just to come back to Brazil again. If you can explain or elaborate a bit how margins be at more than 41% in Q3 with the top line falling double digit and with this important or [indiscernible] fall in volumes in Q3 that you mentioned before. So this is the first question. The second one is on Iberia volumes in Q3. If we do the numbers, we have seen, I would say, a nice recovery with volumes growing in Iberia in Q3 more than mid-single digit. If you can elaborate a bit what is behind that nice recovery. And the third question is on the guidance outlook for 2026. I guess we have to wait for the next AGM in April 2026. But with what you mentioned in terms of pricing and volumes for 2026, how -- Raul, how do you see the EBITDA margins evolution versus 2025? Rául Merino: Let me start by the final question regarding outlook, okay? The more you ask the question today, you won't give a response for us. It's too soon. We will give you the exact guidance in April this year, but I will try to give you a little bit more color, okay? Demand is -- what we are saying today is that demand is more stable than it has been over the last 2 difficult years. There remains still an excess of capacity in the glass industry in all our regions of activity. Our prices should be more or less under control, our prices despite intense competition. That means that we don't see a negative spread between our sales prices and our manufacturing cost in 2026. So margins are -- and profits in 2026 are looking like safe so far. Okay. Moving back to your first question regarding Brazil. Okay, your question, Inigo, helps me further support previous questions. The reality in these 3 quarters is that we have been affected by a significant deterioration, temporary deterioration in our sales volumes, the top line, but our margins performed as expected. And this is a very good proof of the quality of our business in Vidroporto in Brazil and the competitiveness of this business, okay? If you compare our margins with other's margins, if you analyze these margins under this tough period, tough quarter in terms of sales volumes, you can imagine how clear is our vision in our capacity to recover sales and keep safe our margins and keep on investing in Brazil to further improve our competitiveness. Let me just end this message with a final point that our sales in Brazil in October are much more stable than it has been in the third quarter. And the last question is regarding Iberia. We are improving a little bit better than expected in sales in this region. Probably the reasons are some of them macro, south -- consumption in the south of Europe have been performing slightly better than in Brazil and the U.K. And a lot of reasons are also due to internal factors. We are doing our best to keep on recovering some of the market share that we lost in the last 3 years. And you can see in our margins again, as we have said in the case of Brazil that we are quite cost competitive and we will try to keep on recovering progressively markets there. Íñigo Egusquiza: Okay. Just a final question, if I may. On the free cash flow, which has been quite strong in -- up to September with EUR 155 million and you reiterate the EUR 200 million goal for 2025. What can we expect for 2026 in terms of CapEx? I mean, 2025 has been quite intense in terms of CapEx, I think it's 12% over sales. We should expect these numbers to be stable? Or can we expect a reduction on that CapEx for 2026? Iñigo de la Rica: When we look into 2026, excluding potential inorganic opportunities, if they do not happen, CapEx should be slightly below the numbers that we are seeing for 2025. So 2025 should be considered as an extraordinary year in terms of CapEx, as you can perfectly imagine considering that we are investing 12% of sales into the business. Rául Merino: And let me insist on this because we like the message, we will invest more than ever, smarter, more than others, to further improve our cost competitiveness and with our customer in mind. The only reason for our CapEx to look like slightly -- only slightly more relaxed in 2026 is just a matter of calendar, okay? But we will keep on investing. And let me arise again the message that our cash profile, the cash generation that we are obtaining is being obtained after a significant effort on our investment activities to try to drive our future. Operator: There are no further questions by telephone. I will now hand it back to the Vidrala team who will address questions submitted via webcast. Iñigo de la Rica: So there is only one question left, if I am right, through the webcast because there are several ones that should have been -- we should have already answered them. So there is one question that states that beer and wine consumption continue to decline and both products account for a relevant percentage of our sales. So which are our plans to compensate for this? Rául Merino: Well, then let's be clear, to improve our cost competitiveness to attract customers back, to try to recover market shares or fight against an specific level of competition when needed, we will obviously try to diversify our sales by regions and by segments. But even in weakened segment of sales due to softer consumption than expected as the ones you mentioned, beer and wine, there are a lot of opportunities for cost competitive different glass makers as Vidrala aim to be. Unai Garaizabal: So we have answered all the questions sent through the webcast. If you have more questions or need more details, please feel free to contact us any time. That's all for today. Thank you very much for joining and listening.
Massimo Reynaudo: Hello, everyone. Welcome to UPM Quarter 3 2025 Results Webcast. I'm Massimo Reynaudo. I'm the CEO of UPM. And here with me today is Tapio Korpeinen, the CFO. The third quarter brought some temporary clarity to the terms of the international trade, but significant uncertainty remained, and the consumer demand stayed subdued. Our businesses in Advanced Materials and in the Decarbonization Solutions segment improved their third quarter performance compared to the previous year. On the other hand, the Renewable Fibres, and Communication Paper businesses were impacted by the unusual volatility in their operating environment. In quarter 3, comparable EBIT was EUR 153 million, up 21% compared to the previous quarter, but down 47% compared to the last year's corresponding period. The EBIT margin was 6.7%. During the quarter, we continued to take decisive actions to further strengthen our competitiveness. Our focus has been and is on improving performance, cash flow generation and the strength of our balance sheet. I will come back and tell you more about these actions during the presentation. But first, let's look at the macroeconomic environment we operated in quarter 3. And let's look at Renewable Fibres to start with. As you may remember, the pulp market prices decreased during the peak of the trade uncertainty in quarter 2 and starting from China. In quarter 3, pulp sales prices remained low, impacting our quarter 3 earnings. As a positive sign though, during the quarter, the pulp demand normalized in China and hardwood pulp prices increased somewhat from the bottom. In Finland, wood costs reached their highest level in quarter 3 when then wood market prices started eventually to show the first signs of decline. Communication Paper markets remained weak in Europe and in North America. The demand in Europe in quarter 3 was 7% lower compared to 1 year before. In the U.S., the new import tariff levels were finally set during the quarter, bringing some clarity and allowing the customers to properly plan their needs again and for us, restoring the possibility to properly plan and optimize production and shipments. Having said that, the general uncertainty continued to weigh on the business sentiment and ultimately, on the level of the demand. Turning the page. In the advanced materials segment, the demand of labeling materials remained relatively resilient. In the adhesive materials, specifically, the demand was seasonally low, lower than quarter 2. But when we look at the full year base, the market continued to grow, even though some signs of a slowdown were visible in the U.S. The demand for plywood was stable, and I will tell you some more about this business shortly. In Decarbonization Solutions, the market situation in general improved. When it comes to the energy business, in fact, the electricity consumption in Finland continued to be robust, and the electricity prices increased from the comparison quarters. In the same way, the prices of renewable fuels continue to recover, supported also by an improving demand. At this point, I will hand it over to Tapio for some more analysis on our results. Tapio Korpeinen: Thank you, Massimo. So let's start here with our results by the business area. Fibres and Communication Papers were the business areas that reported a lower EBIT compared to last year, whereas Adhesive Materials, Specialty Papers, Plywood, Energy and Biofuels, all improved their EBIT year-on-year. First, on Fibres. As Massimo said, pulp prices were very low in the third quarter, decreasing 11% sequentially from the second quarter or 23% from last year's third quarter. Price development resulted in a significantly lower EBIT than last year, and slightly lower EBIT compared to the second quarter. At the cycle low prices, Fibres South, the competitive pulp platform of ours in Uruguay, reported an EBIT of EUR 80 million, which is equal to an EBIT margin of 22%. Fibres North, that is the pulp and timber operations in Finland, reported an EBIT loss of EUR 37 million in the third quarter, during which the Kaukas pulp mill was down for maintenance and for extended production curtailment and the impact of this was approximately EUR 30 million on the quarter. This means that at cycle low pulp prices and peak level of wood costs, UPM Fibres North was slightly negative in EBIT and positive in EBITDA, excluding the Kaukas shutdown. Communication Papers deliveries were stable from the second quarter, but 13% lower than last year in the third quarter. The average paper price in euros decreased by 1% compared to the second quarter and 6% year-on-year. Fixed costs decreased in Communication Papers. EBIT decreased from last year, but improved slightly from the second quarter sequentially. Adhesive Materials and Specialty Papers achieved increased deliveries and lower costs compared to last year. Both increased their EBIT year-on-year and showed resilient performance from the previous quarter. Plywood reported solid results with normal production now and increased deliveries. Energy had a good quarter, benefiting from increased electricity market prices and from successful production optimization in the volatile electricity market. Our average sales price for electricity increased 17% from last year or 12% from the second quarter. And on this page, then you see our EBIT development by earnings driver. And as you can see here, the main headwind in the third quarter were the sales prices. On the left-hand side, lower sales prices impacted the third quarter results by about EUR 190 million compared with last year. Sales prices decreased most notably in Fibres and Communication Papers. Lower variable costs had a significantly smaller positive impact. Changes in delivery volumes were neutral on group level, while deliveries increased for Pulp, Adhesive Materials, Specialty Papers, Plywood and Biofuels, there was a decrease in deliveries in Communication Papers. Fixed costs increased mainly due to the maintenance shutdown at the Kaukas mill. On the right-hand side, sales prices had a negative impact also compared with the second quarter, mainly due to the low pulp prices. Variable costs decreased for most categories compared to the second quarter, but wood costs still increased, however, following the earlier wood market price development with the usual lag. Fixed costs decreased from the second quarter due to lower maintenance activity and also due to seasonal factors. Then our operating cash flow was EUR 218 million in the third quarter, and our net debt decreased by EUR 92 million from the second quarter and was EUR 3.218 billion in total at the end of the quarter. Net debt-to-EBITDA ratio was 2.36x. While we see our financial standing as solid, this is somewhat above our policy limit of 2x net debt to EBITDA. And therefore, obviously, we aim to bring the net debt-to-EBITDA back to below 2x level in a timely manner. Massimo will shortly discuss the various actions we are taking to improve our profitability. In addition, we are pursuing working capital release and improving our cash conversion, working capital efficiencies to support our cash flow. Our outlook is unchanged from the previous quarter. We expect our second half 2025 comparable EBIT to land in the range of EUR 425 million to EUR 650 million. Our fourth quarter performance is supported by the timing of the annual Energy refunds. In Communication Papers, the amount of refunds is likely to be similar or slightly smaller than last year. It is also likely that there would be a forest fair value increase in the fourth quarter, which could be of a similar magnitude or smaller than what we had last year. Fibres performance in the short term continues to be impacted by pulp prices. In the fourth quarter, we have actually already completed in the month of October, the planned maintenance shutdown at our Fray Bentos mill in Uruguay, which will have an impact on the quarter result of similar magnitude or scale as was the case in Kaukas, about EUR 30 million. In Advanced Materials businesses and Energy, we expect resilient performance to continue. And now I'll hand back over to Massimo for some comments on our actions and direction from here. Massimo Reynaudo: Good. Thank you, Tapio. Well, we continue to take decisive actions to improve our competitiveness and performance, as I said earlier. Most of our businesses have a significant organic growth potential that can be captured with targeted limited and CapEx-efficient investments. That's what we will be looking into. But finally, or in parallel, we continue to develop a portfolio of world-class businesses. Let me illustrate now the most characterizing initiatives we are implementing segment by segment, and let's start with Communication Paper. In this business, efficient capacity utilization is critical. And in a weaker market, we plan to close down paper production at the Kaukas mill in Finland and at the Ettringen mill in Germany by the end of the year. Together, these two closures will reduce our paper capacity by 570,000 tonnes or 13% of our current capacity. This initiative will lead to a combined reduction in annual fixed cost of EUR 70 million. With these measures, we will maintain our competitiveness and the future performance. In October, we also sold the earlier closed down Plattling paper mill site in Germany, and this will contribute to Communication Paper cash flow in quarter 4. Let's move to UPM Fibres now. Tapio has anticipated it, but given the significance of the UPM Fibres business and the distinct characteristic of the business in Finland and in Uruguay, we have decided to provide some additional transparency here. So we introduce today the notion of Fibres South to refer to our Fibres platform in South America, and Fibres North, to refer to the Fibres platform in the Nordics. As a first step, today, we indicated the EBIT level for the two parts. Next, we will start providing additional financial information for the two parts on a regular basis starting in quarter 1 next year. But meanwhile, when it comes to Fibres South, 2025 is the first full year of production at nominal capacity for the Paso de los Toros pulp mill, and also the first full year of operating at full capacity for the supporting logistics network. The pulp prices are very low, as Tapio mentioned earlier. But despite that, Fibres South reported an EBIT of EUR 80 million during the quarter and a margin of 22%, which is indicative of the competitiveness of this platform despite the weak market conditions. For years on, improvements will continue. By 2027, the expanded plantation areas we have in Uruguay will increasingly reach harvesting maturity, enabling us to optimize the wood sourcing and the inbound logistics. Further, self-sufficiency will increase, and inbound transportation distance will decrease, therefore, reducing cost. To give it a scale, in the beginning of this year, 2025, we envisioned a cost reduction of some $25 to $30 per tonne compared to 2024 in Uruguay. We are well on track to achieve this this year. But we believe that, thanks to this further and ongoing optimization, we will be able to provide roughly a similar improvement by 2027, of course, all the rest remaining equal. Besides that, we will continue to pursue growth in a CapEx-efficient way through further debottlenecking. When it comes to the other platform and in Finland, Fibres North was in a slightly negative EBIT territory in quarter 3, excluding the Kaukas shutdown. Wood costs reached their highest level in the summer before starting to decrease. Pulpwood market prices on average decreased some 5% in quarter 3 compared to quarter 2. In this situation, we took measures to adjust the Finnish pulp operations to the market situation. We took 2 months of downtime at the Kaukas mill during quarter 3. And we will take 2 weeks of downtime at the Pietarsaari mill in quarter 4. These measures will allow us to optimize our wood sourcing and avoid the most expensive wood. The benefits of these actions will be fully visible in the P&L when the purchased wood volumes will be consumed, which means during quarter 4 or the early part of next year. Another significant action we implemented in this space is the long-term strategic partnership we agreed with Versowood, and that we've announced in September. Versowood is the largest private producer and processor of sawn timber in Finland. The deal is beneficial for both parties. For us, it will strengthen the supply of pulpwood and chips, and improve the cost efficiency of our wood sourcing. Moving to another segment. In Advanced Materials, as we have characterized it before, our performance has been resilient. During 2025, Adhesive Materials has reduced fixed cost and streamlined its product portfolio significantly. Earlier, we announced the closure of the Kaltenkirchen factory in Germany and the relocation of the production to lower-cost locations. In quarter 3, we announced plans to discontinue the production in Nancy, in France, in order to increase further production efficiencies and competitiveness. At the same time, and in line with the strategy communicated earlier on, we -- the business continues to seek focused growth in higher margin and higher growth areas. In this direction, go the investments announced in the U.S., in Malaysia and in Vietnam. In parallel, the business continues to build its positions on the graphic space following the recent acquisitions. When it comes to Specialty Papers, there two efficiency measures have been implemented, aimed to reducing costs in China, and protecting the competitiveness in that area. From a commercial standpoint, the business continued to develop solutions being paper-based and alternative to plastics for the growing segment of flexible packaging end users. And in Plywood, we initiated a strategic review to assess options for maximizing the long-term potential of the business. The review includes a range of alternative outcomes -- possible outcomes, including potential separation from UPM through a divestment, a partial demerger or an initial public offering. The aim is to determine the best path forward for the business and for the value creation for UPM shareholders. But let me spend a couple of minutes to tell you a bit more about this business. First of all, Plywood is a very good business. It has a strong market position in the mid- to high-end market segments where it operates in Europe. And in the liquid natural gas segment, it holds a market-leading position globally. The business success is built on a number of specific strengths: A competitive premium offering generated through or from 4 spruce mills and 3 birch mills, the top-tier quality of the products manufactured there; a strong and reliable customer base; a strong brand, WISA, extensively recognized in the industry; and unmatched service capabilities, thanks to 6 warehouse hubs and some more. Thanks to that, the Plywood business has successfully provided good profitability and cash flow in all the different economic cycles of the past. On the other hand -- and despite all of this and despite the fact the UPM Plywood business is the scale of a midsized company in Finland, it is the smallest of the UPM businesses. And as such, it competes for focus and resources with much larger businesses. For these reasons, we want to assess whether on a different setup, acting on a stand-alone base or being part of another entity, will enable even better results. Therefore, this is the rationale for the strategic review, and this review is expected to be conducted or concluded by the end of 2026. Finally, we come to the Decarbonization Solutions. And here, we have unique solutions, all offering our customers ways to decarbonize their businesses. In Energy, we have 12 terawatt hours of CO2-free electricity, which make us the second biggest producer in Finland, consisting of reliable baseload of nuclear power and flexible supply of hydropower. This mix allow us to maximize the value on a highly volatile weather-dependent electricity market. On the other dimension of growth there, we have the capability to supply CO2-free electricity to a market where the demand is growing due to the electrification of the industrial production, heating moving away from biomass use and numerous data center-related projects and road transportation. In Biofuels, our short-term focus has been on improving performance and getting it back to profit after a challenging 2024. Here, we have made good progresses this year. In terms of growth, we are planning CapEx-efficient debottlenecking at the Lappeenranta refinery. Simultaneously, we are proceeding with the qualification of process -- sorry, with the qualification of sustainable aviation fuels. Last but not least, the start-up of our groundbreaking biochemical refinery in Leuna, in Germany, is proceeding. It's -- in the first of its three core processes, we have successfully achieved stability after having started production during the summer, and the production levels are now on an industrial scale. The sale of the first commercial products, which are industrial sugars and lignin-based products are expected to start during quarter 4, followed by glycol sales in the first half of 2026. In line with earlier indications, full production and positive EBIT is expected during 2027. So -- and to sum up, the market environment during the third quarter has proved to be challenging. But in this environment, our differentiated business portfolio has ensured resilient performance. Our Advanced Materials and Decarbonization Solutions improved their performance compared to 1 year before. Fibres and Communication Papers were impacted by the unusual volatility in their business environment. Most of the businesses have a growth profile and significant growth potential that can be captured with targeted investment and limited extra CapEx needs. This includes but does not limit to the entry in the new promising biochemicals business. So while we work to capture this potential, we continue to work on actions to improve profitability, cash flow and the strength of our balance sheet. This ends the prepared part of the presentation, and we are ready for your questions. Operator: [Operator Instructions] The next question comes from Ioannis Masvoulas from Morgan Stanley. Ioannis Masvoulas: Two questions from my side. The first on UPM Fibres. You talked about the Nordic mills being EBIT negative in the quarter, even if we adjust for the Kaukas maintenance. Given this weak profitability and market backdrop, would you consider more drastic measures that could perhaps include permanent curtailments? Or are you looking to wait for a recovery in the cycle especially now that pulpwood costs have started to come down? And then the second question related to the above. Can you give us an indication on the tailwind you expect from the lower pulpwood prices in Q4 this year and Q1 next year? And if you can also remind us on earnings sensitivities around wood price changes, that would be much appreciated. Massimo Reynaudo: Okay. Well, I'll pick the first part of your question, Ioannis, and leave the other part to Tapio. But let's say, as it was commented during the earlier part of this call, we had a negative EBIT in the quarter 3 in Finland. But there are a few elements to be considered there or three main elements. One is the impact of the maintenance shut, and then the additional shut we had on top of that. The other element is that wood prices were at their peak, and pulp prices were very low. Time will tell if it's a bottom, but they were surely very low. So there was a very specific coincidence of elements, all impacting the profitability. As we have commented a number of occasions before, our Finnish operations have always been profit positive so far. And well, time will tell in the future, but we run very efficient assets. And the actions we have taken during the quarter, namely prolonging the stop of the -- in Kaukas to, let's say, avoid to buy more expensive wood, but also to improve wood availability into the next quarter, is definitely going to be benefiting the performance going forward. The same way the agreement reached with Versowood will aim to improve on another of the critical elements about wood in Finland, which is availability. So as part of the deal, we will be providing Versowood logs and sawing capacity that is what they are interested to. We're going to be receiving more pulpwood and chips, which is what we are in demand of. So on the base of this, we are working to maintain and improve the profitability of the current platform. And the current platform has always been delivering, let's say, performance across the cycle. So on such base, any stop or discontinuation of capacity will just have a negative impact on results. So that's why that's the plan we have been working upon. Of course, then in the future -- situation will depend by the circumstances in the future, but we are working hard on the circumstances we control through what I said. Tapio Korpeinen: Maybe if I'll comment on your sort of second question. So as Massimo already pointed out, we saw pulpwood prices peaking during the summer and notable drop in the market price taking place. Having said that, it's good to note that there is a certain sort of seasonality in the sort of market prices typically for wood in Finland. So it's perhaps early to directly sort of extrapolate too much from this sort of shorter-term movement here. But then again, I would say that against the backdrop of what is happening in the Nordic markets in general, it is perhaps an indication in a sense that we have seen the kind of a peak in the trend, so to speak. There is a lag given the sort of cycle in our sourcing of wood -- the mix of wood, including pulpwood that we need for our operations in Finland. So therefore, would not expect any material impact yet of these kinds of movements in the fourth quarter, nor really yet in the first quarter of any big way yet. Typically, there is about 6 months' time period before the sort of market price changes start to materialize in the cost of wood consumed in the pulp mills in a bigger way. Ioannis Masvoulas: That's very clear. And sorry, just to follow up, anything you could provide on sensitivities for EBIT or EBITDA on, let's say, 10% change in wood prices? Tapio Korpeinen: That sensitivity, we don't have. Operator: The next question comes from Lewis Merrick from BNP Paribas. Lewis Merrick: With the Leuna project concluding, do you expect CapEx to be lower in 2026? And can you give a rough indication of what you expect at this stage? I've just got one more follow-up. Massimo Reynaudo: Yes, definitely, CapEx will be lower in 2026, maybe in 2027 as well. We have commented also in the past that after a big investment cycle, now it is the time to focus on extracting the value from these investments, whether it is Paso de los Toros or Leuna. So at this point in time, we do not have any other significant project that will require CapEx on a large scale for the next couple of years. Then when it comes to the CapEx needs for next year, we have not defined them yet. But just to give you a broad indication, our, let's say, maintenance CapEx level in normal condition is in the EUR 250 million per annum level. And then you can put a few tens of millions for potentially, let's say, efficiency improvement, margin enhancement initiatives on top of that. That would be broadly speaking, the scale going forward. But for more accurate indications, you need to wait, the beginning of next year. Lewis Merrick: No, that's crystal clear. And just on bridging items into Q4 to sort of reach or surpass your H2 guidance. You mentioned the forestry rebounds similar to prior. Can you just put some numbers to that? And then similarly on the Energy refunds and any other sort of moving parts from Q3 into Q4? Tapio Korpeinen: Well, if I take that, so as mentioned, basically, this forest value change for assets here in Finland, primarily then last year, we had a bit more than EUR 100 million. And as I said, we obviously then we'll see the exact figure as we sort of run the numbers during the remaining months of the year, remaining quarter. But anyway, at the scale or below what we had last year would be likely outcome from that. And well, Energy refunds, again, a bit similar, let's say, comparison there that we have had this Energy refunds in the fourth quarter of the Communication Papers as we did last year as well and this year, likely to land slightly below of the level of last year. Lewis Merrick: And just any other items to call out? Tapio Korpeinen: Nothing else other than I pointed out that we have the maintenance shutdown that was planned and actually has been completed as planned in our Fray Bentos mill in Uruguay, and that was done in the month of October now. Operator: The next question comes from Linus Larsson from SEB. Linus Larsson: Maybe a follow-up on the previous question on the Q4. Q3 bridge on Fibres specifically, what's the aggregate impact of maintenance and market-related downtime in the fourth compared to the third quarter? Is that pretty much the same? Is it easing? Or is it worsening in your opinion? Tapio Korpeinen: Well, as I said, similar in a sense that the Fray Bentos shutdown is about, let's say, same scale, EUR 30 million as what we had from the Kaukas shutdown in the third quarter. Linus Larsson: Sure. But if you add to that, the market-related downtime at Kaukas and [ Bentos ], respectively, is it pretty much the same, Q4 as in Q3 altogether? Tapio Korpeinen: Nothing to add. Linus Larsson: Okay. And then moving on to Biofuels. I didn't see you disclosing the split of other operations. Maybe you did, and I missed it. But could you maybe help us pinpointing Biofuels EBIT in the third quarter? And maybe if you have any guidance on the fourth quarter as to where Biofuels may end up? Tapio Korpeinen: Well, let's say, what we did point out when commenting on the second quarter result was that we had a breakeven result. As far as Biofuels is concerned during the quarter, from our own kind of actions from the cost and efficiency volumes side and, let's say, modest support from the market, and we continued at the same level of profitability now in the third quarter, breakeven. And let's say, again, working on our own efficiencies and, let's say, as you perhaps have seen market prices recovering in the biofuels market and, let's say, short-term sort of market situation tightening. So we would expect some support from there. Obviously, then not happy at that level as such. So look to improve further into next year. And again, one factor that will impact demand, especially for the kind of advanced biofuels that we are producing is the country-level implementation of the RED III directive. Linus Larsson: Excellent. That's very helpful. And then maybe one final question, and we touched upon it already in the call. But when it comes to Fibres operations in Finland, you made a loss of EUR 37 million. To what extent did you have support, help included in that negative EUR 37 million from positive revaluations? Tapio Korpeinen: There are no revaluations in the Fibres North because as perhaps you remember, the Finnish forests are included in our other segment in terms of our reporting segments. Operator: The next question comes from Robin Santavirta from DNB Carnegie. Robin Santavirta: Two a bit more technical questions from me. First of all, in terms of the revaluation of the Finnish forest assets, which you booked in the other operations, it looks like they will be quite sizable again this year. I guess the gross impact will be more than EUR 150 million on an annual basis in 2025. And I understand there's three components here: there's interest rates, there's net growth and then the price of wood raw material. And the key point now probably is the higher wood raw material prices that is supporting materially the adjusted EBIT and the forest revaluation '25 as it did in '24. And going into '26, a bit color would be appreciated to understand how you look at the forest revaluation of the Finnish because now we have the pricing coming down quite clearly. So could the -- should we expect the revaluation gain to be much smaller? A bit smaller? Same level? Any color on that would be appreciated. Tapio Korpeinen: Yes. Well, of course, let's say, time will tell. And of course, also you have to kind of remember in a sense that on one hand, the result and the value of our forest has been supported by the price increase here in Finland. But obviously, it has been a headwind for our pulp mills and sawmills here in Finland. Now if that kind of tide turns, it will work the other way around. So perhaps then the result, obviously, because everything is done in a market price basis for the forest operation, then will be impacted if market price is lower for wood, but then it's for the benefit of the sawmills and the pulp mills here in Finland. So obviously, that's how it works in our business model. On the price impact, of course, again, it is correct to consider in a sense what is happening in the wood market in the short term when setting the price expectations in the valuation model. But then, of course, what we have in there, to begin with, is a sort of management view on kind of the longer-term trend since we are running the valuation model for multiple decades here. So in that sense, there is a kind of level change as such, but the assumption in terms of what is the direction of sort of wood price in our model then otherwise, is kind of assessed separately, meaning that if wood price goes up, it doesn't mean that we assume that it goes up from here to eternity and vice versa. So there will be some change, obviously, then if this trend sort of starts to go to the other direction, but perhaps not as dramatic as one might think. Then as you said, the sort of other factors, the growth in the forest vis-a-vis harvest levels, interest rates will sort of play a role as well and early to sort of anticipate anything there. Robin Santavirta: Yes, the reason -- I obviously understand that what you lose there on price of wood, you gain in the industrial operations that I appreciate. It's just that it's quite sizable, more than EUR 150 million positive. And then if it would only be, say, EUR 50 million positive or EUR 25 million positive in 2026, it's a quite big delta. So -- but perhaps we get a bit more color as well when you guide then for next year. And the other question I have is related to Leuna. And again, a technical question. So I'm just -- I keep pushing on the depreciation estimate because it's still EUR 1 billion investment, so quite sizable depreciation. I can only see in the other segments, low depreciations, even lower than last year. So is this something that we should expect now as of Q4? Or is it as of next year? And any color on the size of those? Tapio Korpeinen: Well, basically, when we start -- I mean, whether it's this plant or pulp or otherwise, when we have finished an investment project, we start commissioning and eventually, when we start to have deliveries to customers, then the depreciation starts. So not meaningful this year yet, but we will then start in the beginning of next year when -- now the customer deliveries are starting to take place. Robin Santavirta: Tapio, can I just try? Is it EUR 40 million a year or something in lines of that -- the line depreciation? Tapio Korpeinen: In that scale, yes. Operator: The next question comes from Andreas Castanos Möller from Berenberg. Andreas Möller: My first question is on the strategic partnership with Versowood. It sounds very promising because you're putting together the largest pulpwood consumer with one of the largest solo consumers. So financially, what do you expect to get in terms of synergies? What do you think is a reasonable assumption here? And then also operationally, can you help me visualize how and why the synergies are generated? Massimo Reynaudo: Well, I risk here to repeat myself a little bit. But when it comes to the financials, we don't disclose them. But when it comes to how the benefits will materialize, is in this exchange of things which, one is in excess, and the other is in need of. It's what I was saying before, thanks to this deal, which, by the way, is subject to merger control authorities and still needs approval just to line things properly down. But should that happen, we will be having access to more wood chips and pulpwood. And to remember the importance of that, we have quoted it a number of times, the situation in Finland to be made challenging for pulp making. Because of wood prices, but also prices don't solve the problem of insufficient wood available. So through this deal, we will have more access to something which is key and critical for our operations. So that is the value that comes from this deal. Yes. So beyond the numbers, I don't know if I have answered your question. Andreas Möller: It is helpful. Can I ask a couple of more clarifications, please? Did you say that the time for the end of the review -- strategic review for plywood was '26, end of '26. Did I get that right? And also... Massimo Reynaudo: Yes. Andreas Möller: Okay, clear. And then the other one is for Leuna, right? You mentioned industrial sugars. And I was wondering if industrial sugars is a product that you would aim to sell in the future? Or this is something that you're just selling temporarily as you are not finalized the whole process to generate [ alcohols ]? Massimo Reynaudo: Yes. It's a very good question, and it's a very good observation as well. This is most of an intermediate product that we are getting, which has some market value. But the full value capture, imagine in the business case, will come when the plant will be in full operation, and these intermediate products will be turned into [ Finnish ] products being either functional fillers or glycols or products in this family. So there is some value in this, but the full value capture -- and we'll start to capture it, to be clear, by the end of this year, but the full value capture will start with the plant in full operation. Operator: The next question comes from Cole Hathorn from Jefferies. Cole Hathorn: I'd just like to start with Communication Paper and Specialty Paper. I'd just like to understand the key deltas into 2026. If you were to talk about what could be the positives into 2026, could you talk me through the moving parts of how you see it? If I think about Communication Papers, it's the EUR 70 million fixed cost savings from capacity closures. In Specialty Paper, I'm just wondering how you see that market considering Asia fine paper is quite challenging. And the release liner and labels businesses, there seems to be some smaller players out there are challenging. So I'm just wondering what are the moving parts into 2026 that you see? Massimo Reynaudo: Okay. Well, let me try to answer the question, but let me separate it in two because the two businesses are pretty different profiles. So if we start with Communication Paper first. Well, one element is represented by the market. And we don't know what will be the level of the market demand next year. Nobody knows it. But in this market demand has declined for the last 20 years. So we can expect the decline continuing next year. That, as a negative, if you want. At the same time, the market this year or in the first part of this year has been heavily disrupted by the uncertainty that came as a consequence of the trade war. Let's not forget, there's been significant uncertainty, for example, in the U.S. around whether there were tariffs, who was hit by the tariffs, the amount of the tariffs, when they would apply and so on. That has made extremely difficult for the players there to proper plan ahead and that had impact across the entire value chain. And last but not least, again, in quarter 2, the demand of certain type of grades in the U.S. dropped down significantly during the period of the strongest sanctions between U.S. and China because imports from China were basically stopped and catalogs were not printed and so on and so forth. So what I'm just trying to say is that if we want to compare 2026 to 2025, which I believe is what you are kind of trying to get some color about, it's probably fair to assume a demand decline, but it's also probably fair to assume, at least if things stay as they are right now, some stabilization of the flow of the products, which will allow the industry to operate in a better way because operational efficiency here is important. This is about talking about the market. When we talk about ourselves, yes, you pointed it up. The actions we are taking and reducing capacity significantly, 13% of our capacity will deliver direct fixed cost, saving improvement, but also indirect benefit from improved operating rate. So -- so yes, those are some elements to consider for Com Paper. When it comes to Specialty Paper, yes, the situation in China is -- I wouldn't know how to characterize it, but surely, the demand for those products not being as strong leads to some pressure. As for how this will play into next year, it is way too soon to try to extrapolate. A lot will depend by the downstream of businesses and ultimately, how consumer demand will evolve. It has been pretty muted during quarter 3, as we have indicated. But let's see and maybe let's also see in quarter 4, which is typically a seasonality quarter for that business that will give us a better sense and feel about the trend we will enter into next year with. Cole Hathorn: And then just on the Specialty, kind of the release liners and the label side, there have been some smaller players that have been under pressure. I'm just wondering how your business is positioned into 2026 as a larger producer. Massimo Reynaudo: Well, I think I commented on the fact of the muted demand during quarter 3, and that clearly create a pressure, then the rest depends on your competitiveness. We run large assets, well maintained. And I would say that also through the results that you can see, we have been performing pretty well in a challenging market. So then 2026, we will see later on. But in the current situation, I think we are holding up pretty well with the pressure. Cole Hathorn: And then just one final clarification. You mentioned some reduction in the Uruguay platform on the cost as you continue to ramp up the efficiencies. I think you gave a number. I just misheard that earlier. I wonder if you could just repeat that. Massimo Reynaudo: Sure, sure. I'll give you the precise number, but basically, the scale I gave for the savings is still to be captured. Let's say, directionally in the next couple of years, is probably USD 25 million to USD 30 million -- sorry, sorry, USD 25 to USD 30 per tonne. Okay. USD 25 to USD 30 per tonne, which is the same scale of the savings we are capturing this year, 2025 versus 2024. Operator: The next question comes from Joni Sandvall from Nordea. Joni Sandvall: A couple of quick questions. Tapio, you mentioned the working capital release, or you are aiming to release working capital. So what should we expect in Q4? And does Leuna ramp-up has any impact here? Tapio Korpeinen: Well, yes, of course, the ramp-up of new production does have some impact or has had some impact, I would say, already during the year as we have been preparing. But still, let's say, typically, we do release cash from working capital at the end of the year. Don't have a number to give guidance on that, but I would expect that we will see that this year kind of seasonally as well. And on top of that, we are obviously looking to improve our efficiencies otherwise. Joni Sandvall: Okay. And second question relates to Biofuels. It has been some while when you put the SAF application in. So can you give any update on that when you are expecting to receive the approval for the SAF? Massimo Reynaudo: Well, actually, it's a long process, and it's not under our control. That is what makes difficult to make a prediction about that. But we filed it last year. So let's see what happens next year. I wouldn't go any further than that because of what I said, it's outside our control. Joni Sandvall: Okay. Okay. But your product has been tested, so any early indications of those? Massimo Reynaudo: Absolutely, absolutely. It has been tested, has been even utilized in a pilot case, not blended, but pure. So we have all the confidence that the product will go through the process. But then there are a number of, I don't know what to call them, administrative steps that need to go through before that the process is concluded. But we -- you can imagine this is a priority for us. This will open up beside the biofuel or fuel for ground transportation will open up the sustainable aviation market, which is not only getting bigger in the future, but will give further opportunity to diversify and maximize profitability. So it's surely something which we treat with the highest priority. Okay. Very good. We have also used the time planned for this call. So I take the opportunity again to thank everybody for your participation and in the case for your questions. And see you sometime during the next quarterly call, if not before. Cheers, have a nice day.
Operator: Greetings, and welcome to the Oshkosh Corporation Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pat Davidson, Senior Vice President, Investor Relations for Oshkosh. Please proceed. Patrick Davidson: Good morning, and thanks for joining us. Earlier today, we published our third quarter 2025 results. A copy of that release is available on our website at oshkoshcorp.com. Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of GAAP to non-GAAP financial measures that we will use during this call and is also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months. Please refer now to Slide 2 of that presentation. Our remarks that follow, including answers to your questions, contain statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our Form 8-K filed with the SEC this morning and other filings we make with the SEC as well as matters noted at our Investor Day in June 2025. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. Our presenters today include John Pfeifer, President and Chief Executive Officer; and Matt Field, Executive Vice President and Chief Financial Officer. Please turn to Slide 3, and I'll turn it over to you, John. John Pfeifer: Thanks, Pat, and good morning, everyone. We continue to successfully navigate a dynamic external environment with resilience and a strong sense of purpose to serve our everyday heroes with high-quality products that are safe, intuitive and productive. We do this with a strong mission of service for our everyday heroes like firefighters in our communities. We proudly sponsored the 13th annual 9/11 Memorial Stair Climb in Green Bay where more than 2,000 people raised over $120,000 for the National Fallen Firefighters Foundation and honored the brave firefighters that lost their lives on 9/11. We also demonstrated our commitment to our communities as over 1,200 volunteers came together for OshKosh's eighth annual Feed the Body, Feed the Soul event. These volunteers packs 224,000 pounds of rice in just 12 hours to support individuals and families facing food insecurity across Eastern Wisconsin. Turning to our financial results on Slide 4. We delivered an adjusted operating margin of 10.2% on revenue of $2.7 billion in our third quarter. This led to adjusted earnings per share of $3.20, an increase of 9.2% over the prior year. These results reflect solid performance across each of our segments. Despite lower revenue, we maintained a double-digit adjusted operating income margin year-over-year, reflecting continued strong performance in our vocational segment, improved returns in our Transport segment and a resilient double-digit margin in our Access segment. Our adjusted EPS grew compared with last year, reflecting our operating performance and taxes. While I am pleased with the resilience demonstrated in our third quarter results, we are updating our outlook for the full year to reflect the demand environment we have been seeing starting mostly in the third quarter. We are revising our 2025 adjusted EPS guidance to a range of $10.50 to $11, which reflects slightly lower revenue expectations for both Access and Transport segments. I want to emphasize that end market activity in our Access segment is healthy, but we are seeing customers be more cautious in the near term regarding new equipment purchases as a result of tariffs in the current economic environment. Matt will provide additional details on segment performance and our outlook later in the call. Please turn to Slide 6 for Q3 highlights. In September, we continued to demonstrate how Oshkosh is shaping the future of airports by showcasing our advanced technologies at the International Airport Ground Service Equipment Expo. And in Washington, D.C. at the AUSA Defense Conference just two weeks ago, we introduced our Family of Multi-mission Autonomous Vehicles, FMAV. Autonomy was a key focus at both events. At the GSE Expo, we displayed our full range of ground support equipment and showcase the flexible autonomous robot that can serve multiple roles on the tarmac. We also launched the new Tempest-si Deicer designed to easily navigate congested ramps while providing improved visibility and more intuitive controls for operators. At AUSA, OshKosh featured three production-ready variants from the autonomous vehicle portfolio, that's FMAV, highlighting our ability to deliver autonomous payload agnostic platforms. Please turn to Slide 7. As I mentioned earlier, access equipment end market activity remains healthy as we see in equipment utilization percentages. That said, customers are being cautious with CapEx spending. I'm proud of our team's execution, delivering double-digit adjusted operating margins despite this environment. While overall demand in the current environment is lower than in 2024, construction activity for data centers and infrastructure has continued to drive demand. We believe that additional long-term tailwinds related to lower interest rates, project deferrals, aged equipment and manufacturing reshoring will support a broader pickup in construction activity. In the near term, the team remains resilient and is working to mitigate the impacts of tariffs across our business. As we have discussed previously, we are aggressively pursuing cost levers to offset the impact of tariffs. We are also having initial discussions with customers regarding the impact of tariffs on pricing with the expectation that we will raise prices in 2026 to keep pace with input costs. Our success is driven by designing and building world-class products to meet the needs of our customers. This quarter, we introduced our new AG619 mid-sized ag telehandler aimed at the heart of the market, which we revealed at the World Dairy Expo last month. And in Europe, we launched the innovative LiftPod, providing low-level access for commercial customers needing a safe, portable and stowable solution to support a wide range of projects at height. Turning to Slide 8. In the Vocational segment, we continue to advance initiatives that support increased production of fire trucks. This is a multiyear process as we seek to improve production efficiency by addressing bottlenecks associated with building highly customized, complex trucks. At the same time, we continue to support firefighters with our stock pumpers and Build My Pierce product offerings, which improved lead times by simplifying configurations. In recent quarters, we've seen an increase in the mix of orders for Build My Pierce pumpers, which should further support our efforts to streamline production and reduce lead times. We finished the quarter with strong orders for vocational as the segment recorded $1.1 billion in the quarter, led by orders for Pierce fire trucks and our AeroTech products. Of course, we remain focused on increasing throughput, and we expect to bring the backlog down over the next few years as we discussed at our Investor Day in June. Finally, for the segment, I want to recognize the team that supports our McNeilus Volterra ZSL refuse collection vehicle, which won the coolest thing made in Tennessee 2025. This product is a game changer for the refuse collection industry as the first fully integrated electric vehicle designed with the operator in mind to deliver world-class ergonomics, purpose-built performance and a zero emission quiet driving experience in neighborhoods. Please turn to Slide 9. As I previously mentioned, we showcased autonomy at the AUSA Defense Conference. Earlier this month, we announced an order from the United States Army valued at $89 million for the modernized PLS A2 autonomy-ready heavy tactical truck designed for load handling, another example of innovation that is already available in our products today, not years in the future. We continue to advance core programs to support U.S. and international customers, including building FHTVs under our previously announced contract extension. We have also monetized JLTV related technology through a onetime license of select operational software IP to the Department of Defense that occurred during the quarter. This further demonstrates our commitment to our government customers by providing cutting-edge technologies to support mission-critical requirements and fleet sustainment. Lastly, we continue to ramp production of the NGDV this quarter and are targeting line rates that support our annual production goals. As with any new product launch in a new assembly plant, challenges are to be expected, and we've seen this across the vehicle industry worldwide and the team continues to work with urgency to ramp production while maintaining quality. We now have over 4 million miles driven by postal workers, and we remain excited about the rollout of this much-needed productivity-enhancing vehicle. With that, I'll hand it over to Matt to walk through our detailed financial results. Matthew Field: Thanks, John. Please turn to Slide 10. Consolidated sales for the third quarter were nearly $2.7 billion, a decrease of $53 million or 2% from the same quarter last year, primarily due to lower sales volume in the access segment partially offset by higher vocational and transport sales volume and improved pricing. Adjusted operating income was $274 million, down slightly from the prior year, primarily reflecting lower volume. Adjusted operating income margin of 10.2% was roughly in line with last year on slightly lower sales. Adjusted earnings per share was $3.20 in the third quarter, $0.27 higher than last year. Adjusted EPS was favorably impacted by about $0.30 due to lower tax expense resulting from the resolution of a multiyear U.S. federal income tax audit. During the quarter, we again stepped up share repurchases, repurchasing approximately 666,000 shares of our stock for $91 million, bringing year-to-date share repurchases to $159 million. Share repurchases during the previous 12 months benefited adjusted EPS by $0.05 compared to the third quarter of 2024. Free cash flow for the quarter was strong at $464 million compared to $272 million in the third quarter of 2024, primarily reflecting working capital changes, including customer advances and inventory. Turning to our segment results on Slide 11. The Access segment delivered resilient adjusted operating income margins of 11% on sales of $1.1 billion. Sales were $254 million or nearly 19% lower than last year, which reflected weaker market conditions in North America and higher discounts. Our Vocational segment continue to deliver strong sales growth through higher volumes and improved pricing as we deliver our backlog, achieving an adjusted operating income margin of 15.6% on $968 million in sales. Sales grew $154 million or nearly 19% from last year, led by improved throughput from municipal fire apparatus and robust growth in airport products. Revenue in Airport Products was up 17% compared to the last year, demonstrating our strong Jet Bridge and RF businesses. The nearly 200 basis point increase in adjusted operating income margin for the segment primarily reflected improved price cost dynamics. Transport segment sales increased $48 million to $588 million. Delivery vehicle revenue grew by $114 million to $146 million and now represents approximately 1/4 of transport segment revenue. Delivery revenue grew 37% sequentially compared to the second quarter of 2025. As expected, defense vehicle revenue was lower compared with last year due to the wind down of the domestic JLTV program. This was partially offset by higher international sales of tactical wheeled vehicles and onetime revenue from the license of JLTV related intellectual property to the U.S. government for $25 million. The transport segment delivered an improved operating income margin of 6.2% compared to 2.1% last year, reflecting the software IP license, improved pricing on new contracts and favorable mix offset by higher warranty costs. The onetime licensing agreement, which was contemplated in our guidance last quarter, represented a roughly 400 basis point improvement in operating income margin. Please turn to Slide 12. Turning to our outlook for the remainder of 2025. The macro backdrop and end market activity have remained broadly resilient. Access customer orders, however, reflect a more judicious approach to spending, as you heard from John. Our team continues to execute well amidst a dynamic government policy and international trade environment. As John mentioned, we are updating our 2025 full year adjusted EPS guidance to be in the range of $10.50 to $11 on revenues of approximately $10.3 billion to $10.4 billion. As you can see on this slide, we have further moderated our expected adjusted operating income margin in the Access segment to reflect our sales outlook and in the Transport segment for our present expectations for NGDV production. Our cash flow outlook of $450 million to $550 million, up $50 million from our previous outlook, reflects lower capital expenditures as we maintain rigorous spending controls. We also plan to continue with share repurchases through the balance of the year at a modestly higher pace than we did in the third quarter. With that, I'll turn it back to John for some closing comments. John Pfeifer: Thanks, Matt. It's clear that 2025 has proven to be a dynamic year, including the tariff landscape and sustained higher interest rates. Our updated outlook reflects the impact of these conditions on our customers and in turn, on the demand for our products, notably in the Access segment. Even so, our team has shown strong focus and agility by managing through these conditions while delivering solid results. This performance reinforces our confidence in managing the near-term while supporting our long-term growth objectives. Earlier this year at our Investor Day, we shared our vision to roughly double adjusted EPS to a range of $18 to $22 per share by 2028. Each quarter represents a step toward that goal and we're encouraged by the steps our teams are making today to lay the groundwork for nearly doubling EPS by then. We appreciate your continued confidence in Oshkosh and look forward to updating you as we advance our strategy and create long-term value for shareholders, customers and team members. I'll turn it back to you now, Pat, for the Q&A. Patrick Davidson: Thanks, John. I'd like to remind everyone to please limit your questions to one plus a follow-up. Please stay disciplined on your follow-up question. And after that, we'll ask that you rejoin the queue if you have additional questions. Operator, please begin the Q&A session. Operator: Our first question comes from Mig Dobre with Baird. Mircea Dobre: Maybe we can start with Access a little bit. And I'm sort of curious your perspective here as you're talking to your customers, obviously, not only for business covering Q4 but into 2026, you hinted at the fact that prices are going to go up which makes sense given tariffs and whatnot. What is your sense for where demand seems to be shaken out because we have seen some that are increasing CapEx at least optically, it looks like there is some signs of stabilization in that industry. I'm curious if that sort of gels with what you're hearing or your salespeople are hearing is they're contemplating in 2026. And maybe more broadly, what should investors be thinking, just as a general framework for the segment next year? It look to me like production is likely to be down in the first half of '26, but perhaps you think about it differently. John Pfeifer: Well, I'll answer that, Mig, it's John. So thanks for your question. We're not guiding today, but I can give you some context on what we see ahead for sure. We'll guide -- we're in discussions with all of our customers about what 2026 looks like. So we'll have a lot better clarity for you when we get through the fourth quarter, but I'll give you context. First of all, we don't know if at this point in time, if production is going to be down in the first half of 2026. I honestly don't know that. What I will tell you is that we feel -- when we look at the market going forward, we all customers are not the same. This is a vast customer base. We've got thousands of independent rental customers, and we've got a group of big national rental customers and you've heard some positive things from the big national rental customers of ours. There is still a bit of hesitancy in the very near term. When I talk about the very near term, I'm talking about Q3, Q4 in terms of with the current environment, how much equipment do I want to take in the here and now. But when we look forward to '26, and we see what's going on in the market, we talk about long-term demand drivers a lot. You hear about mega projects. Constantly, those are real and they are ongoing and they do drive a lot of equipment. But we're starting to also see some free up in terms of the commercial construction activity. So there's been -- [ nonres ] has had a lot of commercial construction kind of on hold or pause. Some of -- a lot of those projects are starting to get cleared through the -- into the planning phase. That's a very positive sign for the market going forward. So we'll get through this year, which has been one of the most dynamic years that anybody in business has ever experienced. We'll manage it really well. We'll continue to deliver strong margins even through this dynamic period of 2025. And as we get into 2026, we'll give you some guidance in January. And we think that the market long term looks very, very healthy as we've been saying for a while. Mircea Dobre: Understood. My follow-up, maybe to put a finer point on the tariffs, give us a sense here for how the tariff picture has changed for you, maybe quantify the cost. And then as you think about next year, and again, I'm not asking for guidance, I'm just asking for your strategy, how do you think you'll be able to mitigate these tariffs, if any at all? Matthew Field: So tariffs for this year, it's kind of $30 million to $40 million is what we see for the full year. Most of that being in the fourth quarter. So we would estimate that to be about $20 million to $30 million in the fourth quarter. Obviously, as you look into 2026, you'd project a full year impact as that -- as those are implemented and feathered in. What you don't see in the fourth quarter is the pricing John talked about and you highlighted in your questions. So there be some pricing that would occur in 2026 against that. So that's how I think about tariffs for next year and how are they kind of feathered in this year. Operator: The next question comes from Stephen Volkmann with Jefferies. Stephen Volkmann: So the follow-on, just to Mig's question, actually, is it reasonable to think that you can offset this tariff headwind during 2026? Is that sort of the plan? Or will it take longer? Matthew Field: Steve, so as we've talked about on prior calls, our approach to tariffs is really multifaceted. First, it's negotiating the supply chain. Second, it's what we call tariff engineering, and that can come in many forms, and that could be sourcing, it could be how we import. It could be the classification as we run into and other classifications. We look strongly at each part we bring in and make sure it's classified in the right way so that we get the right tariff treatment. And then only then do we start talking about pricing. So it would be preliminary for me to speculate on how much would be offset next year. But certainly, the goal is we mitigate as much as we can on the cost side and then we look at what pricing we need to discuss with our customers. John, is there anything you want to add? John Pfeifer: I just want to make a point to say that we do, do a lot. We've got a lot of really great work happening with our teams, supply chain first and foremost. There's engineering manufacturing teams. We do a lot of work to offset the impact of tariffs, and we've had a lot of success doing that. Our MO when we look at tariffs is we want to absolutely minimize the impact of tariffs on our customers. That's our first goal, minimize the impact to the customer. And we'll -- we've been pretty good at doing that. Now you can't mitigate everything. So that's why I said in my prepared remarks that there'll be some price increase in 2026. We believe that the landscape will be calmed down enough to be able to assess what any price increase needs to be. But our MO is to get through this without impacting customers very much. Stephen Volkmann: Got it. And then if my math is right, I think you're sort of implied to incremental margins for vocational in the fourth quarter, like 40%, which is obviously impressive, especially with tariffs. How should we think about that going forward? Is that a reasonable assumption for a while? Or is that something special? Matthew Field: So yes. So fourth quarter, the math would imply exactly as you said, about a 40% incremental. For the year, our guidance is about 33% actually. So it's really impacted this year as higher production throughput, higher volume. We've had a good mix with strong sales in airport products. Again, it'd be preliminary for me to speculate what the incrementals are. Our 2028 guidance, which we provided in June will be a little lighter than that on an annualized basis, but certainly strong results out of vocational. Thanks for highlighting. Operator: The next question comes from Jamie Cook with Truist Securities. Jamie Cook: I guess just two questions. One, John, as you think about the competitive landscape within access equipment, in some of the market share movement you've seen between you and your peers. Do you feel like with Section 232 and tariffs, like are you in a position to gain share just based on your manufacturing footprint relative to some of your peers? And then my second question, if you could just quantify or talk through more some of the discounting that you noticed in the access market, quantify it and to what degree, given the tariff situation, does this ease, I guess? John Pfeifer: Yes. Sure. So I'll -- thanks, Jamie, for the question. In the Access equipment world, what we're doing is we're executing what we call a local-for-local strategy. Now we've always been predominantly a footprint of U.S. manufacturing for U.S. sales in the U.S. in our Access business. So that's good. We started with a strong position. We're continuing to execute that and do more and more of that in the U.S. but also in Europe. It's that overarching strategy allows us to manage the tariff landscape as best we can and minimize the cost that we incur. So yes, we think that, that helps us a lot versus the competitive environment, particularly against competitors that are outside the United States for sure. But JLG is the leading brand in the industry. We've got fantastic innovations that continue to come to market. our intent is to continue to focus on our customers, how can we drive improvement for them. And that ultimately is what drives long-term share. And that's what we're intently focused on. So that's what I can tell you about that. Matthew Field: So -- and Jamie, just adding to your second question and your follow on. So the team practices very disciplined pricing. You've seen that in prior cycles, you've seen it in prior quarters. That's also supported by a strong service network. And that, in the end results in a very strong residual on our JLG equipment, and that's important for rental customers. And so what you saw in the third quarter is about a 3%, 4% all-in discount level, which we think is very reasonable given the external environment we have. Obviously, we've not gotten into pricing for tariffs in the third quarter with the limited impact, and that will really be a factor in 2026 versus 2025. Operator: The next question comes from Tami Zakaria with JPMorgan. Tami Zakaria: Good morning. Thank you so much. question from me on the warranty costs, which seems to be an item headwind in the quarter. Are you able to elaborate on that? What's driving it? And how to think about it for the rest of the year? Matthew Field: Tami, so that's really a onetime item we had in the third quarter as we're working through the units that we've built, specifically in the defense sector for vehicles in the kind of supply chain shortages, '21 '22, where we identified issues that we need to repair as we built with kind of interim parts and so forth. So we took that charge in the third quarter. We think that's behind us. John Pfeifer: Yes, Tami, I want to just emphasize, that's a core defense product. It's not the postal vehicle. It's core defense. We are a quality-focused company. We're known in the Department of Defense for quality. When we see that we have an issue, we wrap it up and we address it as quickly as we can with the customer. Again, as Matt said, this is not an ongoing issue to expect going forward. Tami Zakaria: Understood. That's very helpful. And one question on Access. I remember, I think earlier in the year, you talked about taking some pricing -- doing some price investments. Did that -- is that still the case? Do you expect that to continue through the rest of the year? Or anything changed there? John Pfeifer: Can you clarify that, Tami, I'm not sure if I got exactly what you were referring to. Tami Zakaria: So my question is on Access pricing, aerials pricing for the year. The way it's playing out, do you expect positive pricing this year as some of these tariffs have come in? Or are you going back to your customers and giving some discount? Any comments on pricing and how that's trending in the Access segment would be helpful. John Pfeifer: Okay. I'm sorry, I got it. Go ahead, Matt. Matthew Field: Yes. Thanks for the clarification. So as I just mentioned, this year, really, given the weakness we see in external demand, we've seen a negative pricing environment in access. Obviously, with tariffs hitting in the latter part of this year and mostly next year, we would talk about a different pricing environment into 2026. Operator: The next question comes from Mike Shlisky with D.A. Davidson. Michael Shlisky: In Access, it seems like a lot of the client taking -- just digging a little bit deeper into the numbers, a lot of the clients in third quarter came from telehandlers, it was down like, I think, a little over 40% on the sales line. And you're actually expending capacity there. Could you maybe just take the Access discussion one step deeper and just tell us a little bit about how that's going, what's happening there compared to the core aerials? John Pfeifer: Yes. The difference is Cat. We've talked about it for a few quarters that we've had a long-term agreement with Cat. That agreement is no longer in place, and that's the primary reason you see the change in telehandlers. JLG telehandlers including the Skytrack models, they're doing great, they're not losing share there. And then you look at the aerials, we're in a situation where the market is down because of nonresidential private construction being down, but this is -- it's a temporary phenomenon. And long term, we see very strong health in the market, and we're really pleased with how we're able to perform with resilience during -- you see in Q3, for example, our revenue and access equipment is down nearly 19%, and we're at healthy double-digit margins. That's exactly the way we expect to operate, and that's what we're doing. And we'll continue through this and the market will grow as we go forward. Michael Shlisky: Great. And then just talking about peers real quick. Have you seen any impact over the last few weeks at peers from the federal government shutdown, especially any local effects on fire fighter assistance grants or other state owned government systems that the federal government provides to fire departments? Matthew Field: Mike, it's Matt. So in terms of federal government shutdown in the near term, we've not really seen a material impact. If it extends much longer or significantly longer, I guess, we may have some contracts affected as we do sell directly to the government in some cases, think about our products and so forth. So there would be some knock-on effects if this extends for an extended period of time. Not huge numbers, but certainly something that I would watch for. Operator: The next question comes from Kyle Menges with Citigroup. Kyle Menges: I think NGDV sales of $146 million in the quarter was a little bit below your expectation. And it sounds like fourth quarter is going to be a little lower than initially expected. So just curious what's driving that? What have been some of the challenges in increasing capacity? And then I don't want to put words in your mouth, but I got the sense from the prepared remarks, perhaps a walk back of the earlier guidance to get to annualized full run rate production of, I think, 16,000 to 20,000 units by year-end. Like is that still feasible in your mind? Yes, I would just love to hear an update on that. John Pfeifer: Yes, I'll start with the 16,000 to 20,000 units as an annualized number. And so let me start from the top. I'm going to start with talking about the product, the NGDV or the new postal vehicles, an amazing product, the feedback that we continue to receive with now over 4 million miles driven in delivery operations by postal carriers is really positive. As I said on the call in my prepared remarks, this is a brand-new plant with a brand-new product and highly automated processes, it's a fantastic plant. We have made progress, you can see the revenue growing there, but not to date at the pace that we want it to be at. So we're working really hard. We've got great people in place that are working on continuing to drive production increases until we get to full rate production. We expect to grow revenue sequentially and believe we will exit 2025 in a good position to support our plans for the United States Postal Service and a really strong 2026. So that's kind of the state of the program but -- for you. Kyle Menges: Got it. And just curious, I guess, when you would expect maybe now to hit that full annualized run rate production? And then my follow-up was just going to be on the lower CapEx guide, it looks like you brought it down $50 million. So curious what drove that. John Pfeifer: Yes. So I'll start by the full rate production. We continue to target full rate production by the end of this year. I want to say that's not without challenges, of course, as I just mentioned previously, we have constant communication with the United States Postal Service to the highest levels. We're doing everything we can, but our plans are to get to full rate production by the end of the year. Matt, do you want to talk about the $0.50? Matthew Field: Yes. The reduction in CapEx reflects twofold. One, stricter spending controls in this environment, but then two, just timing of spending. Operator: Our next question comes from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Just wanted to go back to some of the discussion around Access. Could you just clarify, I guess, is the greater cautiousness that you talked about from your customers reflecting itself purely in just kind of the low ordering or the low book-to-bill this quarter? Or are you seeing any kind of order cancellations or delivery push out here? And just if you could add a little bit more color as part of that, kind of how the behavior maybe differs between the nationals and independents? John Pfeifer: Yes. So first, Angel, thanks for the question. We had a 0.6 book-to-bill. That's a normal book-to-bill for a third quarter, if you look historically. That said, the market has been a little bit softer compared to last year, as I already mentioned. I want to emphasize that end market demand in this -- here is healthy. The equipment utilization is healthy in the market. Used market is healthy. That's all really good signs. What we're seeing in the dynamic market with continuously shifting tariffs, prolonged higher interest rates, that's caused a lot of customers to say, hey, the market is healthy, but I just -- in the very near term, I'm just going to kind of hold back on my CapEx until I get a little bit more clarity as to how this is going to evolve, see the Fed continue to drop rates, things like that. That's really what we feel is happening in the market. Angel Castillo Malpica: That's helpful. And maybe just related to that, I know it's still early for fiscal year '26 and a lot of moving pieces here, but given just your ongoing kind of discussions with customers, whether on kind of the near-term environment for next year, can you just talk about the magnitude of the price increases that are currently being discussed for next year? And whether that kicks in kind of January 1? And just kind of overall discussion of that -- those negotiations because I guess, if I'm not mistaken, on the discounting part, it seems like discounting may have stepped up from 2% to 3% to 3% to 4%. So if you could just kind of help us understand perhaps the trajectory of that versus the kind of increases expected in Jan 1? John Pfeifer: Yes, I'd be preliminary to talk about pricing for 2026. On a quarterly basis, it's really what you see there is some seasonality in how we go to market. Operator: The next question comes from Tim Thein with Raymond James. Timothy Thein: Great. Just a lot of dialogue here on Access, but maybe I'll ask another one. Just with respect to your expectations, John, for order activity here in the fourth quarter and specifically maybe the composition, I would imagine more of your NRCs are the ones that take up the order slots in the fourth quarter that are booking orders rather. But maybe just any kind of guardrails as to how you're thinking and maybe how the initial discussions have shaped up just with respect to how we should be thinking about order activity. Obviously, that will be important as to how we think about '26. So maybe I'll start with that one. And then part B of the question is just on the vocational segment. And just on fire & emergency, obviously, that's a big part of the nice margin improvement that you have lined up into that 2028 target as you talked earlier about more stock units in the Build My Pierce. Does that have any implications that we should think about from a product mix standpoint? So that's two long questions. John Pfeifer: Yes. So one on access, one on the fire industry and our fire truck business, Pierce. To start on access. I mean you kind of hit the nail on the head, Tim. The reason that we went from an $11 guide to a -- $10.50 to $11 guide is primarily orders in the fourth quarter for Access. And when I say orders in the fourth quarter for Access, I'm talking about orders in the fourth quarter for delivery in the fourth quarter. And right now, it's in terms of how much equipment our customers, I'm talking from the thousands of independents to the big guys are going to take in the fourth quarter, but that's why there's a bit of a range there from $10.50 to $11. If it's as we expect, we'll be around $11. If it's -- they're not going to take quite as much equipment in the fourth quarter, then it could come down a little bit. With regard -- hey, I want to continue to emphasize how well our people at Access Equipment and JLG are performing in this very dynamic market. We're performing extremely well. We'll continue to do that in this environment. But again, we see nice growth on the horizon ahead of us as we've talked about through the year. On our Pierce business, the fire truck business, we're continuing to get improved output. We'll continue to get improved output as we go forward the next few years. That will continue to draw the backlog down. The Build my Pierce and more of the off-the-shelf fire trucks are great products. We don't see a specific margin differential between whether or not we're shipping Build My Pierce units or we're building our fully customized units. Operator: The next question comes from Steve Barger with KeyBanc. Christian Zyla: This is actually Christian Zyla on for Steve Barger. Just as a follow-up, maybe to Tim's first question on Access. I heard your comments about the near-term uncertainty your customers are facing. Just historically, 4Q was a big sequential order quarter for Access as your customers plan for next year. So do you still see a normal step-up in 4Q? Or is that more of a 1Q event now? And then is your access backlog split evenly? Or does this skew one way between bigger nationals or the smaller independents? Matthew Field: Christian, it's Matt. So the way to think about Q4 is you're right. Traditionally, the book-to-bill will be higher. Honestly, I think it would be presumptive of me to assume that, that's the same as you end up with price negotiations. Some of that might set to January versus December. But honestly, it's too early to make a call like that. So traditionally, I would say it's higher, how it's going to shape up this year is unclear. Christian Zyla: Got it. Okay. And then just switching gears to your defense related business. It seems like the industry is wanting more transport type vehicles. Is that what you're seeing as well? It may be a pitch for the CTT program. What differentiates your portfolio capabilities versus the other bidders in that program? John Pfeifer: Yes. Thanks for the question. Sure. I mean what's really differentiating us in this market today is our technological capability as well as our quality. We've got a really strong quality and service reputation, so they know what they get when we supply them with tactical-wheeled vehicles. But going forward, as I talked in my prepared remarks, it's a lot about things like autonomous functionality or full autonomy and that's why you see a lot of our products moving that way with the technology that we have. And that's kind of what we see as the future of this. And it's why we stand out in that industry is that reliability and the technological performance and capabilities of our vehicles that get better and better as we go forward. Operator: Our next question comes from David Raso with Evercore. David Raso: Of the defense revenue cut by $200 million, how much of that was the postal truck? Matthew Field: It was all on the delivery side, David. John Pfeifer: All of it, yes. David Raso: And when it comes to that, is that the ramp-up of the BEV truck that's giving you a little bit of struggle to ramp up? Or is it the ICE truck as well? John Pfeifer: It's unrelated to ICE and BEV, David. The vehicles are produced on the same line. It's just continuing to dial in all of the autonomous functionality of this manufacturing plant and its normal ramp-up challenges that we're addressing and we will get to full rate production. But it's not related to ICE and BEV. David Raso: I mean just so I know how much of this you feel is under your control because 35% to 40% of the EBIT cut actually came from defense. And that program is hugely significant next year for driving defense profits to say, take a little pressure off of Access, so it's not immaterial. I think most people feel Vocational, that backlog should carry you, but that interplay between transport, defense and Access is not immaterial. So can you be a little clearer on when do you feel you'll have the ability to ramp that -- I was looking for revenues getting close to $300 million a quarter at some point not too far in the future. So I apologize to push a little bit, but just a little more clarity. It's very important for '26. Matthew Field: That's fine, David. So just on the OI, remember the warranty charge we took in the third quarter, which is about $13 million, that's flowing into OI for the full year. We did fully expect the licensing, which was in our guidance, the warranty however, it would flow through to OI. So you shouldn't look at the top line change in revenue as the full impact on to OI. David Raso: Okay. The licensing was in the guide. Matthew Field: Yes. We were expecting that, that was under negotiation when we set up our guidance for the year previously. John Pfeifer: And David, I will just say your expectation for quarterly revenue on the delivery side is in line with ours. Operator: Thank you. At this time, I would like to turn the call back over to Mr. Pat Davidson for closing comments. Patrick Davidson: Thank you, and thanks for joining us today. We will be meeting with investors at several conferences during the fourth quarter in Chicago, Florida and New York. We'd be happy to connect in an early January, we'll be showcasing our technology at the annual CES show in Las Vegas. We encourage you to stop by our booth and learn about technology that supports airports, job sites and neighborhoods of the future. Take care, everyone, and have a great rest of the day. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Good day, and welcome to AerCap's Q3 2025 Financial Results. Today's conference is being recorded, and a transcript will be available following the call on the company's website. At this time, I would like to turn the conference over to Joseph McGinley, Head of Investor Relations. Please go ahead, sir. Joseph McGinley: Thank you, operator, and hello, everyone. Welcome to our third quarter 2025 conference call. With me today is our Chief Executive Officer, Aengus Kelly; and our Chief Financial Officer, Peter Juhas. Before we begin today's call, I would like to remind you that some statements made during this conference call, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. AerCap undertakes no obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call. Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated October 29, 2025. A copy of the earnings release and conference call presentation are available on our website at aercap.com. This call is open to the public and is being webcast simultaneously at aercap.com and will be archived for replay. We will shortly run through our earnings presentation and we'll allow time at the end for Q&A. As a reminder, I would ask that must limit themselves to one question and one follow-up. I will now turn the call over to Aengus Kelly. Aengus Kelly: Thank you for joining us for our third quarter 2025 earnings call. We are pleased to report another exceptional quarter for AerCap's shareholders. In Q3, we generated GAAP net income of $1.2 billion and earnings per share of $6.98, driven by strong gains on sale and further insurance recoveries. Our core business continues to perform extremely well, with adjusted net income of $865 million and a record adjusted EPS of $4.97. Given these solid results, and our positive outlook for the remainder of the year, we have increased our 2025 full year EPS guidance to $13.70. On the aircraft side, we continue to see strong demand from our customers around the world, and the environment remains supportive for both margins and returns. Once again, utilization rates topped 99%. And on that note, I am delighted that we delivered our first converted 777-300ER Freighter in September, which should help to sustain the historically high utilization rates we are seeing as those aircraft deliver to customers. We also had yet another healthy extension rate in the quarter with approximately 85% of our 33 used aircraft transactions extending on very attractive terms. Encouragingly, the extension rate for widebodies was 100%, and including 9 787s, 3 777-300ERs and 2 A330s in the period. One thing that seems to be overlooked in the focus on MAX production rates and narrow-body engine issues is how far the OEMs are behind in the widebody production side as well. As an example, both OEMs produced more wide-body aircraft in 2008 than they did last year and I do not expect them to surpass the peak of 2016 this decade. As a result, wide-body aircraft will remain in high demand for the foreseeable future. The picture is similarly robust on the narrow-body side with strong demand across the board. This is particularly helpful at the moment given we're taking back 27 aircraft from Spirit Airlines. We will, of course, have downtime and engine shop business costs associated with this process. The majority of the engine shop visit costs will be incurred in the fourth quarter. These engine costs are included in our increased guidance for the year. We will also benefit from the acquisition of Spirit's 52 Airbus A320neo family order book. as well as a further 45 options that we negotiated with Airbus. We believe that the timing and pricing of these units is far superior to what we could have negotiated with Airbus directly. In fact, the order and options mean we have now agreed to purchase over 200 aircraft in bilateral deals since 2021 without placing a direct OEM order. Turning to the engine business. We continue to focus on deepening our relationships with our OEM, airline and MRO partners. This was evidenced most recently with our latest announcement with GE Aerospace where we signed a 7-year agreement to provide lease pool management services for the GE9X. This agreement also extended AerCap's ongoing lease pool support for GEnx, GE90, CF6 and CF34 engines and follows on from our separate partnership with Air France KLM, which we announced at the Paris Air Show. The provision of spare engine support has become a key part of AerCap's overall customer proposition, particularly at the moment, given the global engine shortages. Our portfolio of 1,200 spare engines, 90% of which are the latest technology is another key differentiator between AerCap and any of our competitors. Since closing the GECAS transaction, we have committed approximately $10 billion to engines to our 2 engine divisions, AerCap engines and SES. Turning to Milestone Aviation Group, our helicopter leasing business. Fleet utilization also remains high. During the quarter, we extended a large percentage of helicopter leases with existing customers across a broad array of mission profiles and operators. From a fleet perspective, we adopt a balanced portfolio management strategy in our helicopter business. Similar to our barbell approach on the commercial aircraft side. We continue to invest in new technology, medium and super medium helicopters at accretive returns, while divesting out of midlife are out of production types. During the quarter, we delivered new technology equipment to customers operating across a full spectrum of mission-critical segments, including offshore oil and gas, emergency medical services and search and rescue, including an AW139 to Bristow configured for use in the U.K. search and rescue operations. Now on capital allocation. We continue to see the durable demand for our assets reflected in very strong sales volumes and margins. As you will recall, last quarter, we increased our sales volume guidance for the year by 25% to $2.5 billion. Despite the lower number of sales closing, we had good line of sight to what was ahead of us and it has been great to see this materialize. In fact, both the sales volumes of $1.5 billion and the gain of $332 million were records in themselves. The timing of closing each deal is always variable, but there is no doubt we are seeing a positive environment overall. Further, while we will not be selling $1.5 billion every quarter, you can see the gain on sale has been an important, repeatable and profitable aspect of our earnings over a very long period of time. We have generated gains on sale in every quarter for the last 40-plus quarters are more than 10 years in a row. Our average unlevered margin is over 15% are more than 1.5x booked equity value over the course of the last 40-plus quarters. This is despite various challenges the industry has faced and includes all of the quarters during COVID. Those returns have been further enhanced by highly disciplined capital deployment into accretive opportunities in M&A, asset acquisitions and share repurchases. Recently, we have been asked whether the long-established arbitrage between where our assets price in the private markets and the level of those assets trade in the public markets still exist, given the improvement in valuation of the stock above 1x book equity value. The truth, as you will see from the chart on the left-hand side is that it is not the absolute level of either sales or repurchases that matters more, but the delta between the two. So while AerCap shares are trading at a higher price to book multiple, the increases in sales margins have actually been greater. This is why we continue to find share repurchases to be extremely attractive. As you can see from the chart on the right-hand side, in the third quarter alone, we bought 5% of the market cap for $1 billion, a quarterly record for open market purchases for AerCap. We simply cannot demonstrate our conviction any clearer than that. So in summary, this was another great quarter for AerCap with earnings and cash flows remaining strong throughout the business and the addition of up to 97 A320 Family aircraft to our order book. The favorable market environment continues, and this is reflected in the results across the group as a whole. We continue to deploy capital effectively with the purchase of approximately $1 billion of stock and $1.4 billion of new equipment in the quarter. This shows the remarkable cash generation and optionality we have for capital deployment at AerCap, a theme we expect to continue for the long term. With that, I'll now hand the call over to Pete to review the financials and the outlook for the remainder of 2025. Thank you. Peter Juhas: Thanks, Gus. Good morning, everyone. Our GAAP net income for the third quarter was $1.216 billion or $6.98 per share. The impact of purchase accounting adjustments was $62 million for the quarter or $0.36 a share. We had net recoveries related to the Ukraine conflict of $475 million or $2.73 a share. That includes cash insurance settlements of $238 million as well as an award of $234 million of interest on the favorable decision by the London Commercial Court in June, along with some other smaller settlements. That brings our total recoveries to approximately $2.9 billion since 2023. The net tax effect of the purchase accounting adjustments and the Ukraine recoveries taken together was $62 million or $0.36 a share. As a result, our adjusted net income for the third quarter was $865 million or $4.97 per share. We had a record quarter in terms of both the volume of assets sold as well as gains on sale. We sold 32 of our owned assets for total sales revenue of $1.5 billion. That resulted in gain on sale of $332 million and an unlevered gain on sale margin of 28%, which is twice our book value. The large sales volume was driven by the continued strong sales environment as well as closing sales that had been signed up earlier in the year. As of September 30, we had $562 million worth of assets held for sale at this point, I'd expect our sales for the full year to be over $3 billion. Besides the gains on sale and Ukraine conflict recoveries, there were 2 other main items that affected our results for the third quarter. First, we had a strong net maintenance contribution, that is maintenance revenue, less leasing expenses on an adjusted basis of $148 million. That was driven by the release of maintenance reserves upon lease terminations, settlements we received from airlines and a provision release as the Azul restructuring agreement became effective. We're expecting higher leasing expenses in the fourth quarter related to the Spirit Airlines restructuring, and that's reflected in our updated guidance. The other major driver this quarter was a significant increase in the lease trends, which in turn, resulted in a higher lease yield and a net spread of 8%, which is the highest we've had in 5 years. The increase this quarter was driven in part by some large transactions involving a number of older aircraft. We've also started to deliver our 777-300ERs which were converted from passenger aircraft to freighters and are now earning revenue. Turning to liquidity. Our liquidity position continues to be very strong. As of September 30, our total sources of liquidity were approximately $22 billion. That includes $1.8 billion of cash and over $12 million of revolvers and other committed facilities. Our sources to usage coverage ratio at the end of the quarter was 2.1x, which amounts to excess cash coverage of around $12 billion. Given our higher net income this quarter, including the net recoveries related to the Ukraine conflict, we generated significant excess capital, resulting in a leverage ratio of 2.1:1 at the end of September. Our operating cash flow was slightly higher than normal this quarter at approximately $1.5 billion. We deployed a significant amount of excess capital this quarter and returned $981 million to shareholders through the repurchase of 8.2 million shares at an average price of just under $120. Including the share repurchases we've completed so far in the fourth quarter, that takes us to over $2 billion of buybacks so far this year. Turning now to guidance. On our last earnings call, given the strong performance for the first half of the year, we raised our full year 2025 EPS guidance to approximately $11.60. As Gus mentioned, today, we are again raising our full year 2025 adjusted EPS guidance to $13.70. That includes approximately $2.70 of gains on sale for the first 3 quarters, but it does not include any gains on sale for the fourth quarter. As I mentioned last quarter, our outperformance relative to guidance has been driven primarily by higher lease revenue, other income and gains on sale. We've also incorporated the expected impact of the Spirit Airlines Chapter 11 bankruptcy into this updated guidance. In closing, we're coming off another record quarter for AerCap. As you can see, the environment for aircraft leasing and aircraft sales continues to be strong. We've continued to make progress in our Ukraine recoveries and we continue to be in a position of strength with a strong balance sheet, low leverage, strong liquidity and disciplined capital deployment. We remain confident about the outlook for the business as you can see from the increase in our full year guidance and our repurchases of over $2 billion of stock so far this year. And with that, operator, we'll open up the call for Q&A. Operator: [Operator Instructions]. We will take our first question from Moshe Orenbuch with TD Cowen. Moshe Orenbuch: Great. I was hoping that, Gus, you could talk a little bit about how you're thinking about the industry in the U.S. kind of over the next couple of years. Is this something where you're likely to see more significant consolidation or maybe broaden it out a little bit? And what -- are there areas in the world where you would kind of see the opportunities given the substantial amount of capital that you've got to deploy? Aengus Kelly: Thanks, Moshe. I'll start with the U.S. market. There's been a very significant amount of consolidation in the U.S. market over the last decade, as you know. I think there is room for some more limited consolidation plays in the U.S., but I'd say it's reasonably limited. There are not that many platforms left in the United States. So to get your hands on one to be a rare enough asset. From our perspective, as we look forward, though we continue to see very strong demand coming out of the U.S. market that can be driven by longer-term demand for new technology aircraft as the older aircraft have to be retired at some point in the coming 5 or 6 years. And in the shorter term, of course, we see very strong demand for used aircraft to remain at airlines. That's a trend that we see around the globe as well. And we don't see any sign of that letting up. The desire of airlines to transition as quickly as they can into the new tech asset simplify their fleet, create operating leverage in their business model. However, that's just not feasible because of the lack of supply of new aircraft, the amount of time these assets are spending in the repair shop and that is continuing to drive the demand for serviceable used assets, be they 20 years old or 15 years old or 22 years old. So as we look out, we see a pretty strong demand picture globally for some time to come. Moshe Orenbuch: Great. Pete, maybe just to kind of dig in a little bit on the margin discussion. You talked about kind of yield improving, your cost of funds improved. I would assume that some of that will actually be even better in Q4. There might be some impacts that offset some of that from some of the maintenance benefits you have this quarter. But could you kind of just generally kind of talk about how we should be thinking about that progression of the elements of your spread as you go forward over the next couple of quarters? Peter Juhas: Sure, Moshe. So as you mentioned, net spread went up significantly in the third quarter by about 50 basis points to 8%. So that's the highest we've seen since 2019, and that was very positive. As we look out going forward, I think we will see some positive impact from the 777 freighters continuing to deliver COVID leases rolling off, although that takes a while, but that will be a positive. But in the coming quarters, the offsetting effect we'll see will be from Spirit because we will have downtime on those aircraft that we've taken back because they have to get shopped -- the engines have to get shopped. And so I think that as we look out over the next several quarters, we should see that spread about where it is today. Operator: We will take our next question from Jamie Baker with JPMorgan. Jamie Baker: So Gus, Mark Streeter and I have obviously port over the air lease proxy, and it's pretty clear that AerCap is referenced as strategic bidder with a $55 all-stock offer. And we're curious for your thoughts on that bid and what you were thinking at the time. And now that this info is public, perhaps you would want to comment on the deal that ultimately was struck and any implications of industry consolidation for AerCap. Aengus Kelly: Well, let me start with the second bit first. Consolidation is a very -- is a significant positive for the industry, and we would encourage to continue and that is all positive for AerCap and our shareholders. As it relates to our participation in the process, what I assume my shareholders want is for AerCap to be present in any significant M&A discussion that's ongoing around the world at any time. And you can rest assured that we are, that was evidenced in this case because it's a public company, so it's clear that we were there. That being said, what you also want to see is discipline being exercised by AerCap. We are fully aware of the return on equity that we generate and we will continue to generate and we're aware of the return on equity that Air Lease generated and is likely to continue to generate. And there is only so much we would be willing to pay for that business. We could not enter into a situation nor have we ever in any of these other M&A discussions we have, where we pursue a transaction at a price that will dilute our existing shareholders. So when it became apparent that our bid was not going to be enough to win, of course, we pivoted then to where I believe the best value aircraft in the world are because I am selling AerCap aircraft in the private markets at 200% of book equity, and I'm able to buy them back on the New York Stock Exchange at 110% of book equity. Jamie Baker: Excellent. I appreciate that color. And then you're also on record as believing that the favorable aircraft supply demand imbalance is going to last through the end of the decade. But with Boeing and Airbus starting to get their act together, increasing production rates and then, of course, some of the bankruptcy driven returns, Azul, Spirit and so forth. Is your outlook still bullish through the end of the decade? Or do you think that, I don't know, some sort of equilibrium might happen a little bit earlier? Aengus Kelly: Well, short answer is I am, but let me explain that because you're right, of course, Boeing are slowly increasing the ramp in their production. But let me give you one example that I referenced in my prepared comments. On the wide-body markers, more wide-body aircraft were produced by both OEMs in 2008 than were in 2024. Just think about that. The aircraft that were probably manufactured in around 2005, 2006, 2007 that are being retired today. Their replacement aircraft isn't even being manufactured by the OEMs at the moment. So the wide-body market is extraordinarily acute and you saw that in our commentary around our extension rate, which is at 100% for widebodies. As it pertains to narrow bodies, even though we are slowly, and it is a very modest increase, bear in mind, Boeing is hoping to get to 42 deliveries a month, which is miles below where they want to be. Even when those aircraft come into service, they are not lasting as long in service as was envisaged. That's because different components of the aircraft, be it engine or landing gears are not lasting as long a wing and are going into the shop for repair. That's chewing up the available parts that are available to make new aircraft, new engines or overhaul engines. Therefore, based on that, I know that narrow-body production rates are not going to hit the levels that the OEMs want. And even if they did to be candid, the amount of time that these assets are spending in the shop mean that, for example, if you had 10 NGs or 10 A320s flying a particular route as an airline, I suspect you're going to need 11 today of the new type. Now so when I look out, wide narrow, I see a very constrained situation. Of course, you're right. There'll be the odd bankruptcy here and there that will put a bit of capacity in the sector for a few months or maybe a quarter or 2. But that will always get eaten up. And then furthermore, as it pertains to AerCap in that environment that I just spoke about with the engine shortage. We are the biggest owner of spare engines in the world. We have unique relationships with airline and OEM that enhance our position it adds to the power of the AerCap platform and enables us to get assets in the air faster than anyone else. Operator: We will take our next question from Hillary Cacanando with Deutsche Bank. Hillary Cacanando: Great. You said Spirit exposure is included in your fourth quarter guidance? Do you think there could be any further exposure in 2026 as well? And does your fourth quarter guidance reflect any potential idleness of the rejected aircraft? And if you could kind of just detail the exposure, whether they're -- are they all due to maintenance or are there any like unpaid rental fees that are included? If you could kind of detail that. Peter Juhas: Sure, Hillary. So the impact of Spirit really is in 2 parts. First, you have the downtime on the aircraft, and that's likely -- we'll see that in the fourth quarter. We'll see that pretty much throughout next year, we would expect and then in addition to that, you've got -- and that's really because the engines need to be shopped. There's plenty of demand for those aircraft, but the engines need to be overhauled. That's the driver. The second impact is the cost of overhauling those engines, so those engine expenses and we have factored in. So I expect that we will take the majority of those in the fourth quarter of this year. We're still negotiating that. That's still under commercial discussions. So I can't comment more on that. But I would expect the majority to be in the fourth quarter, and that's what we factored in. But it's possible some of that could slip into next year out of fourth quarter and into next year. So that's what we based our guidance on. Aengus Kelly: The one thing you also have to -- sorry, Hillary, the one thing to mention there, of course, as Pete referenced, we will incur those engine shop visit costs, which is in our guidance, the anticipated ones. We'll have downtime. But against that, we were able to negotiate up to 97 aircraft, A320, A321 aircraft in timing and pricing that would not be available from the manufacturers. That once again speaks to the unique capability and power of the AerCap platform. Hillary Cacanando: Yes. No, that's great. And I saw that you're getting 45 options for 45 aircraft. And in the bankruptcy filing, it had originally said 10. So it looks like you negotiated to get more option aircraft at this rate. So that was great to see. I do have another question. I know 12 of those aircraft were already grounded so we've heard that those 12 aircraft to come back sooner than expected because they were already grounded? If you could -- could you just provide a little more color? Do you expect those 12 aircraft to come back soon? Or are they going to be grounded for a while? Aengus Kelly: What's happening here Hillary, as was set out in the court case is that we're taking back 27 aircraft. They're on the way back to us now in various stages. And then 10 aircraft remain with the airline and they paid the arrears, rents on those and they continue to pay current trends. Operator: We will take our next question from Catherine O'Brien with Goldman Sachs. Catherine O'Brien: So last quarter, you talked about seeing more opportunistic sale leasebacks coming to market. In the quarter, you obviously executed on those acquiring the 52 firm orders and 10 options from Spirit in addition to the other 32 options, which I'd be interested in hearing how those came about Airbus as well. Just as a quick follow-up to Hillary's question. But I guess, bigger picture, are these the kind of transactions you're referring to? Or do you think size of transaction you are able to do means that you're likely to see growth opportunities with airlines outside of distressed situations as well. Just any thoughts on like what the size of these opportunities could be over the next couple of years? Aengus Kelly: Mean you never know. But of course, it generally, when I say something, I'm looking at something. And we had -- it's various sale-leaseback opportunities we're pursuing. We're hoping to close one of them we did in this instance. But again, the way that came together, is in a manner that no other leasing company in the world could have executed or could have even contemplated to be quite candid. And when those opportunities present themselves, once again, my shareholders would expect me to be present and in those negotiations, and that's our objective here as well. We won't close all of them, of course, because as you saw in the -- as we discussed earlier on, we're not going to close transactions that are going to dilute our own returns. But as we look forward, there are definitely opportunities out there, but that's where discipline comes in. We're here to make money for the shareholders we're not here to grow the business for the sake of growth. But it should be noted that since 2021, we have negotiated 200 aircraft acquisitions, including those options on bilateral deals. So we're getting them sooner and a better pricing than would be available and going to the OEMs. Furthermore, I might add, in the last 2 years or 9 months, we've returned $6.4 billion to our shareholders, which is equivalent to buying over $18 billion of assets at well below market rates. Catherine O'Brien: No, all very impressive. Maybe just one last one and relatedly, despite a very active quarter, you just mentioned on the buybacks and the incremental acquisitions, your leverage ended the quarter at 2.1x. Can you just help us think about the guardrails between 27 target leaving dry powder to be opportunistic perhaps on some of the other deals that are out there that you were dispreference and where you ended the third quarter. Just how do we think about the moving pieces over the next quarter or 2? Peter Juhas: Sure, Catie. So one of the things that has driven the leverage down over the last couple of quarters has been the significant insurance proceeds that we received. So about $1 billion in the second quarter of $475 million in the third quarter. So that has really contributed to that lower leverage, taking it down. I'd say, look, obviously, having room relative to our target gives us a lot of optionality in terms of the opportunities that we can pursue. But we are deploying that capital pretty rapidly as well. And so you look at $1 billion of buybacks in the third quarter alone. That's the most we've ever done in the open market. And I expect we will continue to deploy capital like that. And so -- so over time, I would think that our leverage ratio starts to get more normal and get closer to the target level, maybe not up to the target level, but somewhat closer to it than today. Operator: We will take our next question from Ron Epstein with Bank of America. Ronald Epstein: Gus can you talk a little bit about -- we've covered a lot of ground so far, but can you talk a little bit about the market for the A220? What do you see there? And what's going on there? Aengus Kelly: The A220 is one of a more kind of niche aircraft. Of course, we have some of them. And I think there's a -- every passenger that gets on that aircraft loves us, great past experience, spacious cabin, I'd encourage anyone to fly on us. That being said, the challenge around the aircraft has been around the engine time on wing. And we would hope that in the coming year or 2, because it is a bigger aircraft relative to the E2-195 where the aircraft is a bit smaller, but the engine is the same. So the engine, we believe doesn't come under as much strain on the E2 as it comes under on the 220. So we would hope that as Pratt improves the time on wing and the durability of the parts in that engine that we'll see that aircraft become more durable in service. And if that can happen then, I think there's a solid future for us. Ronald Epstein: Got it. Got it. And then in your engine business, is there an opportunity to do more with Pratt? I mean, you're one of the larger CFM lessors, if not the largest, was there anything to do with Pratt? Aengus Kelly: I think, look, we, of course, we talk to pros, et cetera, what have you. So we wouldn't rule anything out. But of course, we are in partnership with both GE and CFM and providing their spares network around the world and managing the logistics of all those engines, the records the shop visits of their spares fleet, which is a very significant task and requires a lot of unique intellectual property that I think we'd be reluctant to share. Ronald Epstein: Got it. Got it. Got it. And then maybe just one last one. This one's a little bit out there, but maybe not. We're starting to see the emergence of more players and electric aircraft and hybrid aircraft. How would you expect that those aircraft could get financed? Would you guys have any interest in financing sort of this next generation of smaller stuff, some of the ED tall stuff and urban air mobility stuff? Or would you kind of leave that to somebody else? Aengus Kelly: I have to wait and see. We did look at that several years ago when it was at its inception, and we felt it was better to be an intelligent follower than the initial innovator in that space. I think that still holds true. Operator: We will take our next question from Terry Ma with Barclays. Terry Ma: I just wanted to touch on capital allocation. It's nice to see the buyback accelerate this quarter and also the Spirit deal. But last quarter, you also highlighted additional kind of sale-leaseback opportunities in engine deals. Maybe just update us on those and maybe rank order to relative attractiveness of each of those options. Aengus Kelly: Sure. Well, as you saw, we did execute there with the Spirit transaction. And Terry, as I noted, we've done now 200 aircraft and 10 billion of engine buys on bilateral basis since the last 4 years. So I mean those opportunities are out there. But again, they must be ones that are accretive to our earnings. And there are plenty of opportunities to grow the business, but it must grow profitably. And that's where when we come to capital allocation, our job here is to make a return for the shareholders. That's our only job. It's not to make a return for the shareholders of Airbus. It's not to make a return for the shareholders of Boeing. It's not to make a return for the shareholders of airlines. It's for our shareholders. It's why we're here. They pay our wages. And so when we see transactions that are accretive, of course, we will execute on those. Clearly, at the moment, we are selling assets in the private markets in the last quarter at 200% of the book equity value. We're buying the very same assets every day down on the NYSE at about 110% of book value. So if I can sell something for 200% and someone will keep selling me that at 110% when you do it the next day, that's a good use of shareholders' money. Terry Ma: Got it. That's helpful. I guess outside the Spirit deal, how does the opportunity for sale leaseback kind of look from a kind of returns basis? Aengus Kelly: I mean well, we haven't executed any in the last quarter than that. Of course, we're pursuing them. There are other ones you pass on, much like on the M&A stuff, there's ones we've passed on, of course, over the last 3 or 4 years. So we're we will look at all of these transactions, but they do have to hit the hurdles that we want or else we won't do it. Terry Ma: Got it. Helpful. Maybe one last one for me and for Pete. Like you guys delivered the first freighter in September. What's the cadence for kind of additional kind of deliveries going forward? Peter Juhas: Well, we delivered the first few in September and then we've delivered some more this quarter, and those will just roll out over the course of the next year or 2. Aengus Kelly: Yes. 5 are delivered now at this point, and they probably deliver another couple before Christmas and then the 5 or 6 next year. But they're approximate because, as you have seen, deliveries are moving targets. Operator: We will take our next question from Chris Stathoulopoulos with Susquehanna International Group. Christopher Stathoulopoulos: Aengus, on the extension rates. Curious on your thoughts on '26 next year, I realize it's still early, but there's still degree of uncertainty out there geopolitical economy tariffs. Just your thoughts on that, whether you see any sort of, I guess, change from what you've been able to achieve thus far year-to-date? Aengus Kelly: We don't. And I don't think that's going to change. You've got to remember, of course, that when airlines are looking at their fleet, they're not looking at the next quarter the next half year, the next year. They're looking on older aircraft, the minimum duration is 3 years, but more around 5 to 7, on new aircraft are looking at 20-plus years. So their fleet plans are not going to be significantly altered by short-term issues geopolitically. That's what we're seeing. And as we look out in the new year, I'd expect to see more of the same because I don't see, as I referenced earlier on, the levels of production, the time on wing that these assets are achieving. I don't see those factors changing. Christopher Stathoulopoulos: Okay. And as the second -- I realized you've spoken at length on the gains on sales, strong secondary market. But if you could perhaps give a bit more color on the type of transactions, aircraft types, curious how that has evolved and whether you -- you see that changing going into '26? Aengus Kelly: We never -- and as I noticed, since we were -- we became a public company in 2006, every year, we've sold assets, we sold them at a gain. Indeed, for the last -- since -- as you look at the chart on Page 5, since the beginning of 2023, the assets we've sold have traditionally been old mid-life assets out of production, but we still managed to generate a gain of book equity of 190%. The reason we sold those assets is not for the game. The reason we sold those assets is that we know at some point in the future, airlines will have to leave the older assets. It's a few years away. I think it will be the end of the decade. That being said, I want to position our fleet for the future always. So that's how we think about asset sales, the one exception to that really is we have sold a handful of newer technology assets as part of our ongoing reduction in our Chinese exposure, which continues and -- because China is mainly a new aircraft market, that's been the case there. But the reason we sell assets is to improve the quality of the portfolio. The power and capability of the platform has meant that for the last 2-odd years and particularly in the last several years as the capabilities of the GECAS platform that we purchased, particularly as it pertains to engine cost shop visit management and the ability to manage the ongoing life of engines has enabled us to accelerate those gains. And that's a structural capability that we have that no one else has in our business. Operator: There are no further questions at this time. I will turn the conference back to Aengus Kelly for any additional or closing remarks. Aengus Kelly: Thank you, operator, and thank you very much for joining us for today's call and we look forward to speaking to you again with the full year results. Thank you. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Hong Sung Han: Good afternoon. I am Han Hong Sung, Head of IR at Woori Financial Group. Let me first begin by thanking everyone for taking time to participate in this earnings call for Woori Financial Group. On today's call, we have the group CFO, Lee Sung-Wook; Group CDO, Oak Il-Jin; and the group's Risk Management division, Senior General Manager, Park Jang-Geun on the call. On today's call, the group CFO, Lee Sung-Wook, will give a presentation on the earnings performance. After which, we will have a Q&A session. Please note that the earnings call is being conducted with simultaneous interpretation for our overseas investors. Now let us start our presentation on Woori Financial Group's Earnings for the Third Quarter of 2025. Sung-Wook Lee: Good afternoon. This is Lee Sung-Wook, the CFO of Woori Financial Group. Let me go over the third quarter performance for 2025. I do have a cold, so please understand if my voice is a bit rough, and please turn to Page 3 of the presentation material that has been disclosed on our website. First, let me discuss net income. Woori Financial Group's year-to-date net income as of the third quarter end was up by 5.1% to KRW 2,796.4 billion, which was a Y-o-Y increase, as mentioned before, of 5.1%. Net income in the third quarter alone was KRW 1,244.4 billion, representing a significant increase of KRW 300 billion quarter-on-quarter. Amid uncertain internal and external conditions, including the exchange rate and outcome of tariff negotiations, this net income was the result of balanced growth between our interest and noninterest income and the contribution from the insurance acquisition. In particular, due to continuous efforts to rebalance assets and optimize funding and investments, our NIM improved for the third consecutive quarter. Stronger marketing capabilities from key subsidiaries, such as the credit card and capital business, led to fee income for the quarter to reach an all-time high. And in addition, the newly acquired insurance business contributed, which further have diversified the group's profit structure. In the third quarter, we completed the revaluation of the fair value of Tongyang and ABL's assets and liabilities and included this in the group's performance. So the bargain purchase price and adjustments from consideration together is around KRW 550 billion, while the decline in the CET ratio was only approximately 5 basis points, which enabled us to reconfirm that from a financial standpoint, it was an optimal M&A with almost no negative impact to our capital ratio. Moreover, in addition to the continuous asset rebalancing and active capital ratio management efforts that we have been making, we are now focusing on strengthening the stability of our financial structure by preemptively provisioning reserves for the vulnerable portions of our nonbank business. Based on these stable fundamentals, the group is planning to expand productive financing to support future sustainable growth. Next, let me discuss the group's capital ratios. As of September 2025, the group's preliminary CET ratio is 12.92% showing a 12% basis point increase Q-o-Q and [ 80 point ] increase from the end of last year, far surpassing the 2025 year-end target of 12.5%. In addition to the insurance acquisition, the weaker won against the U.S. dollar led to a 7 basis point decline in the CET1 ratio, but the capital ratio actually increased, proving the sound capital management capabilities of the group. This is the result of concerted efforts to manage risk-weighted assets across all business areas of the group, such as being selective in asset growth and continuously decreasing exchange rate sensitive assets. Going forward, the group will continue this capital management stance and swiftly execute value of plans based on its CET1 ratio. For Woori Financial Group, we relaunched our securities arm last year and also completed the insurance acquisition this year, completing the creation of a comprehensive financial services group, thus focusing on the 3 main pillars of the bank, brokerage and insurance business, we are planning to maximize group synergies. For example, between the bank and securities business, after acquiring the securities license, the group was able to do a KRW 3.9 trillion deal through CIB joint underwriting. And in Wealth Management in just 3 months of acquiring the insurance business, Tongyang Life and ABL's percentage of sales from the Bancassurance channel has grown from 9.8% to 22.5%. Moving forward by balancing growth between bank and nonbank business lines and ranking up synergies across group companies, Woori Financial Group will further strengthen its competitiveness as a comprehensive financial services group and create a business for sustainable growth. Next, let me dive into more details about earnings by business area, and please turn to Page 4. First, let me go over the net operating revenue and NIM. The group's third quarter year-to-date net operating revenue totaled KRW 8,173.4 billion, up by 2.3% Y-o-Y. And in the third quarter alone, it was KRW 2,773.3 billion, which is similar to the previous quarter. As financial market volatility and other internal and external uncertainties continue, margin improvements and selective growth led to solid interest income. In addition, the contributions from the insurance business led to better noninterest income, which has further solidified the group's revenue base. In addition, if we look at Woori Bank's third quarter NIM, it was 1.48%, which is 3 basis points higher Q-o-Q and 8 basis points more than the end of last year. It is the third consecutive quarterly improvement this year. This is the result of active funding cost savings and asset rebalancing efforts where -- which consistently improved our profitability. In the fourth quarter, even if the base cut is -- base rate is cut further, the bank is planning to expand its core deposit base and systematically manage ALM to continue stable NIM trends and maintain a level of 1.5% for the year. Next, let me go over the loan book. As of the third quarter end, the bank's loans totaled KRW 331 trillion, slightly increasing versus the end of June. On the corporate loan side, growth strategy is focused on new growth areas and high-quality corporates, which led to the loan book to remain flat quarter-over-quarter at KRW 178 trillion. On the retail loan side, in light of the government's policy to control total loan growth, the bank was more selective in loan origination, which resulted in loans growing 150% (sic) [ 1.5% ] quarter-over-quarter to KRW 1.5 trillion (sic) [ KRW 150 trillion ]. Looking ahead, Woori Financial, in line with the government's policy direction, will manage total household loan growth within the target level, while also utilizing its corporate finance competitiveness via the Future Co-Growth Project, increasing the flow of capital to more productive areas within the economy. In particular, we will join in efforts by the financial authorities to make capital regulation more reasonable and continue efforts by the group to rebalance assets to secure more capacity on capital ratios. In addition, risk management across all processes, from underwriting to loan management will be strengthened to ensure future growth can continue with any impact on capital ratios and asset quality. Next is on the group's noninterest income. As of the third quarter, the group's cumulative noninterest income amounted to KRW 1,441.5 billion, up 4.6% year-on-year. And on a quarterly basis, it rose 5.3% from the previous quarter to KRW 555.2 billion. Despite a decline in foreign exchange-related gains due to the rise in exchange rates, the group continued to post solid growth in noninterest income, supported by robust fee income and the inclusion of the insurance subsidiaries performance starting this quarter. In particular, core fee income, driven by improvements across all business lines of both the banking and nonbanking segments, including the wealth management business, credit card and lease, was up 7.9% versus previous quarter to KRW 563.7 billion, reaching a record quarterly high. Going forward, Woori Financial Group, through expanding the retail customer base centered on the insurance business and strengthening collaboration between the bank and securities IB segments, will actively pursue new business opportunities to enhance the group's proportion of noninterest income and to achieve balanced growth between banking and nonbanking operations. Next, I will elaborate on expense. Please refer to Page 5. Turning to the group's SG&A expense. As of the third quarter of 2025, the group's cumulative SG&A expense amounted to KRW 3,690.3 billion while third quarter SG&A expense stood at KRW 1,211.2 billion, a slight increase of 3.2% from the previous quarter. Accordingly, the group's cost-to-income ratio was 43.1%. Looking ahead, while we will continue to invest in the group's AX initiatives, enhancing digital competitiveness and strengthening brand value, we will also maintain disciplined cost management at the group level through reducing recurring operating expenses, optimizing channels and workforce and leveraging AI to improve operational efficiency. Next, I will discuss the group's credit cost and asset quality. As of the third quarter of 2025, the group's cumulative credit cost amounted to KRW 1,517.6 billion. Third quarter credit costs totaled KRW 574.3 billion, an increase of 13.1% from the previous quarter. This amount, including KRW 98 billion in provisions associated with completion-guarantee projects booked as part of the group's proactive risk management efforts from the previous quarter, incorporates approximately KRW 150 billion in one-off items. With this, most of the provisioning issues related to completion-guarantee projects appear to have been largely resolved. Excluding these one-off factors, credit costs remain at a similar level to the previous quarter, and the group's credit cost ratio is well managed within the target range at 0.42%. Amid continued uncertainties, such as exchange rate volatility, trade negotiations and concerns over a slowdown in the real economy, the group, through active NPL sales and write-offs and proactive risk management in the nonbanking sector, is conducting more thorough risk management than ever before, maintaining the proportion of prime corporate loans at around 84%, and managing the ratio of loan loss reserves and regulatory reserves to total credit at 1.6%, thereby securing a stable loss absorption capacity. This year, Woori Financial Group will conduct a comprehensive review of the group's risk factors. And after securing sufficient risk management capabilities, will pursue sustainable growth grounded in solid asset quality. I will now move on to capital adequacy and shareholder return policy. Please refer to Page 6. As mentioned earlier, as of the end of September 2025, the group's common equity Tier 1 ratio is expected to be 12.92% on a preliminary basis. Despite factors, such as the insurance subsidiary acquisition and the impact of a stronger exchange rate, the group CET1 ratio improved significantly by approximately 80 basis points versus last year-end, demonstrating the group's strong capital management capability. Woori Financial Group will not remain complacent with this achievement, and aims not only to stably exceed a CET1 ratio of 12.5% by the end of 2025, but despite ongoing uncertainties home and abroad, such as exchange rate volatility and potential regulatory fines, we'll also pursue swift and proactive capital management with the goal of achieving a 13% CET1 ratio ahead of schedule in 2026. Meanwhile, the Board of Directors of Woori Financial Group at its meeting held on October 24, approved a quarterly cash dividend of KRW 200 per share with a record date set for November 10, as previously announced. In this quarter, Woori Financial Group successfully completed the acquisition of an insurance subsidiary, a process that has been underway for over a year. Through this acquisition, we have faithfully upheld our commitment to the market to minimize any negative impact on our capital ratio and to avoid overpaying for the transaction. Now with a diversified business portfolio and enhanced group synergy, we'll begin in earnest, our transition towards becoming a comprehensive financial services group. Furthermore, in connection with the Future Co-Growth Project announced last September, we intend to leverage our corporate finance expertise to support the real economy, focusing on new growth and advanced strategic industries. And through this, we will not only fulfill the essential role of finance, but also establish a sustainable foundation for the group's long-term growth. Since the announcement of the corporate value of initiative, Woori Financial Group has faithfully implemented most of the plans presented to the market. Discussions and deliberations led by the Board of Directors on how to enhance corporate value are ongoing and will continue in the future. Through these efforts, we will focus the group's capabilities on enhancing long-term shareholder value. This concludes Woori Financial Group's Third Quarter of 2025 earnings presentation. Thank you. Unknown Executive: Yes. Thank you for the presentation. And now we will -- before starting the Q&A session, for this year, because there were some factors related to the presentation, including the insurance acquisition, there will be some additional comments related to the performance by the CFO. Sung-Wook Lee: Yes. So if we look at the third quarter this year, if you look at our performance, as you can see, there has been a lot of volatility. So overall, there were some one-off factors. And maybe I did believe that maybe touching upon these first would be appropriate. So of course, there was the inclusion of the insurance business, but also with regards to the preemptive provisioning, there were also some one-off factors there. So in the third quarter in total, if we look at the insurance business, of course, the profit increase is there. But in terms of risk management, there were a lot of efforts that we have made. So please take that into consideration and listen to what I have to say. So first on the insurance acquisition side, because of the bargain acquisition gains after we included the insurance business from July 1, we did the PPA. And as a result of that, there was a KRW 580 billion gain that we had recognized. And of course, for the past -- for the next 1 year, because of the accounting for that, there could be some adjustments to this. However, with regards to the adjustments for consolidation, there was a negative KRW 25 billion that was recognized. So at the end of the day, the bargain gain, in total, was around KRW 556 billion. So in addition to that, on the -- there was also a KRW 33 billion negative impact that was also reflect. And in the third quarter, for the completion-guarantee trust, there was also KRW 98 billion that we have recognized in terms of provisioning. So as a result of that, in total for this year, there was around KRW 200 billion that we have recognized. On the bank side, there are some areas in which there were collateral value decreases. And in light of that, there was some preemptive provisioning that we had did that was around KRW 54 billion. And recently -- there was some press reports about the situation. But with regards to KIKO there was a litigation in 2028, and the final results have came out, and there were some areas in which we lost. So there was a KRW 32 billion additional provision that we have set aside for that purpose. In addition, on the nonoperating side, related to the completion-guarantee trust, there was a significant provision that we have set aside. So therefore, for the goodwill, there were some impairment losses that we have also recognized of around KRW 39 billion. So in total, if you look at the overall impact of this, if you look at the bargain gains that we have enjoyed, and everything above that was on the operating business and others was on a nonoperating basis. So if we look at the net income basis, at the end of the day, there was one-off factors of around KRW 360 billion in total. So with regards to the completion-guarantee trust impact, there may be some small changes going forward, but we don't believe that there will be any significant provisioning that will be required. So I do believe that this is probably a question that you were very curious about. So I thought that it would be good to talk about this first before we went to the Q&A. Operator: [Operator Instructions] So for the first question will be from NH Securities. It will be Jung Jun-Sup. Jun-Sup Jung: There are 2 questions that I would like to ask you. So first would be that in the third quarter, because you did the insurance acquisition was completed, and I would like to know what the next phase is. So in terms of more efficient capital management, rather than being 2 separate entities, we believe that having it together and then also making sure that it would be a full subsidiary of the group as a whole. So with regards to the information that you can share with us, any more details that you could share would be appreciated. Second is that after the acquisition, if you look at the capital ratios, it still looks like their capital ratios are very sound. So even if it's not in the immediate future, but going forward, are there any M&A opportunities that you would be looking at in terms of interest areas? So maybe not in the immediate future, but even down the road, are there any areas that you would be interested in, in terms of M&A opportunities? Sung-Wook Lee: So thank you for your questions and maybe we can answer your questions. Yes. This is the CFO, Lee Sung-Wook. So first, in terms of the insurance, in terms of the merger and also the follow-up after the acquisition, I do think that this is an area that a lot of the investors are interested in. And also in terms of the Tongyang Life shareholders, they're also very interested in that also. So as of now, we did the -- and completed the acquisition as of July 1 for Tongyang and ABL Life. And since then, for the mid- to long-term direction, this is something that we're doing a diagnosis about in terms of the overall business operations. So for Tongyang Life, making it a 100% subsidiary or merging the 2 entities, this is something that we are still reviewing, but we have not made any decisions yet. And in addition, we do believe that it will require a bit more time for us to come to a conclusion. And in addition to that, whether we should make a 100% subsidiary or whether we will merge the 2, if there's any major decisions that are made, of course, we will make sure to disclose to and share to you. And in addition to that, we will look at the laws and regulations to make sure that everything is done according to the due process. Secondly, about your question about the M&A side. I think that this is something that we continue to talk about. But after the brokerage company, insurance company being added on, in terms of our business portfolio, we think that it has been completed. So over the mid to long term, I think that if you look in terms of focusing on strengthening the competitiveness of the companies that we have and also maybe expanding our presence, M&A could be an option. But right now, on the security side and insurance side, because we have been newly added, and we do believe that our overall business portfolio is complete. Right now, if there are any M&As that require capital, I think that being interested in -- rather than being interested in that, I think that we're more interested in strengthening our market competitiveness in the areas in which we're doing business already, particularly on the noninterest income side. So with regards to the nonbank businesses of securities and insurance companies, we want to strengthen that further. So that would be one of the main focus. And in addition to that, we will also continue to conduct our value program and also manage our risk-weighted asset and also conduct and successfully complete our Future Co-Growth Projects. So in the middle, I did talk about this during the presentation, but achieving the CET1 ratio of 13%, this was -- the target year was 2027, but we have accelerated that to 2026. So this is something that we are discussing with our directors. So by doing this and doing -- putting against our best efforts, we think that we can efficiently manage our capital and still also achieve the best outcome for the business. Thank you. Operator: The next question is by Baek Doosan from Korea Investment & Securities. Doosan Baek: Yes. I am Baek Doosan from Korea Investment & Securities. I also have 2 questions. The very first question has to do with the completion-guarantee project. I can see that it has been largely resolved. But in addition to that, I can see that there were still quite hefty preemptive provisioning. So taking that into consideration, I'd like to understand if there's any guidance in terms of the improvement going forward in terms of credit cost? And second, the Future Co-Growth Project that was launched and with regard to the funding, the plans that you have for key industries, this project in itself is a massive project. And therefore, in terms of capital ratio or noninterest income or corporate loans, I think that it will have an impact on all of these numbers. So we'd like to understand what are the plans? What's the forecast you have going forward? Unknown Executive: Yes. Thank you very much for the question. So please bear with us for just a moment as we get ready to answer your question. Jang-Geun Park: I am Park Jang-Geun, Senior General Manager from the Risk Management division. First, let me talk about credit cost. The third quarter credit cost increased by 3 bps to 52 bps. And that was already mentioned. In second quarter, KRW 86 billion for the trust and this quarter, KRW 98 billion, that was the provisioning in terms of managing our assets. And due to the sluggish economy in the sluggish construction sector, with regard to collateral loans at the banking sector, that was a total of KRW 54 billion of provisioning and one-off items amounted to KRW 152 billion. And therefore, the coverage rate also increased to 130%. So if we exclude these one-off items, the credit cost ratio is 42 bp. However, considering that there has been a delay in the rates -- the rate cuts, we believe that the cost -- the normalized credit cost will still be quite high. But we -- as mentioned, the completion-guarantee projects has been mostly resolved. So therefore, there wouldn't be any significant provisioning to follow going forward. And with regard to prime assets, especially in the banks, if we look at the corporate loans, we've been seeing a downturn in terms of new defaults in terms of corporate loans. Ever since 2024, we believe that there will be -- the impact of rate cuts is something that we are continuously monitoring at the Risk Management division. And in the future, with the economic boost, stimulus package with the government and with regards to the rate policy going forward, we believe that in the fourth quarter, credit costs will stabilize. So that is all for me. Sung-Wook Lee: Yes, this is the CFO, Lee Sung-Wook. And so with regards to the Future Co-Growth Projects, this is a very big project. I do think that with regards to capital and also in terms of the capital ratios, there may be some concern about such a situation. But with regards to this, maybe just elaborating a bit will help you out. So from us, we do want to transfer into providing more productive financing. So as of the end of September, we announced our future core growth project, and across the group for the next 5 years, there will be around KRW 80 trillion that we will be supplying and supporting. And so according to this project right now, in terms of the asset growth and the impact of this, this was all taken into consideration before we made the announcement to the market. So for the KRW 80 trillion across the 5 years, if you look at the impact on our risk-weighted assets, it will be around half. And on this, of course, how we can offset it against the capital ratio is probably an issue that you will be focusing on. And this year, if you look at the overall asset rebalancing efforts that we have made for the next 5 years, due to that, this is an effort that we will continue for the next 5 years. And in addition to that, because regulations are being eased at the financial authority side. And in addition to that, we also have a CET1 ratio target of 13%. So the trends that we see in our capital ratio was all taken into consideration before we formulated this plan. In addition to that, on the corporate loan side, we -- during the financial crisis, we have accumulated a loss. There's a very strong underwriting standards and price. So as a result of that, we do think that we can manage our capital ratio properly and still continue growth in this area. So within the year, I think that if you look at the capital ratio trends that we have seen, there has been an 80 basis point increase versus the end of last year. And this is even after the acquisition of the insurance arm. So we do think that we do have a credible trend that we are creating, and this is something that we have fully discussed with the BOD, and we will come up with our business plan accordingly. In addition, going forward, we will continue to also manage our loan balance through asset rebalancing and also manage the retail balancing side. So we're also planning to make other efforts. So for the shareholder value programs, this is something that we will continue to implement without issue and continue to provide total -- better total shareholder return. Operator: The next question is -- will be by Kim Do Ha from Hanwha Investment & Securities. Do Ha Kim: I have a question with regard to the acquisition. So when we had the acquisition ahead of us, you talked about the purchase -- market purchase gains is going to be utilized for a total shareholder return. And I believe that within a limit of 10% -- if it's within that, I've heard that the gains would be utilized for shareholder returns. So right now, we have around KRW 580 billion or so of gains and I would like to understand, would this be included in the shareholder return plan of this year? And I understand that the TSR will be maintained as such because rather than providing a dividend at year-end, after November, it could be in the treasury stock related plans that you may have? Or would it be something that would be utilizing next year? So if you can give us some more information on that, that would be great. And the second question is, around the world, these days, we've been witnessing security issues, hacking issues. So with regard to that, are there any investments being made right now to prevent or any cybersecurity-related prevention methods or plans that you have in place. Unknown Executive: Yes. Thank you very much for those questions. Please wait before we answer your questions. Unknown Executive: Yes. With regard to the bargain purchase gains, it's a total of KRW 580 billion and it's included in the net income. So in the first half, IR last year, based on our corporate value plan, in terms of our TSR, we've mentioned that we're putting our best efforts to have that included. And with regard to the insurance acquisition, the impact it has on the capital ratio, it was quite limited and minimized. But with regard to TSR, year-end, we have -- we want to see the CET1 and the overall financial volatility, and the TSR will be decided as such. And in the market, there are expectations, and we will try to cater to the expectations as much as possible, and we'll do our best to make sure that we can cater to those expectations. Thank you. Il-Jin Oak: I am Oak Il-Jin, CDO. So recently, there were major security-related issues at telcos and financial firms. And that's why there was a company to review across all subsidiaries, and there were no issues identified. Recently, there was, let's say, multi-authentication and security patches, terminal-related security issues. These were the shortcomings and we were able to understand that we were following all of the internal policy when it comes to security. And in addition to that, with regard to personal information and IT security, let's say, accidents. To prevent all this, what we've done was, in August until year-end, with security firm and the company, we will make sure to understand whether there are any loopholes. And for the recent 3 years, the government's investment into security is 11% when it comes to total IT investments. And it's 8.8% for financial funds and insurance firms. In the case of the U.S., it's 10.5% and it's higher than that at 11%. So with regard to information security investments, we will continue on to increase that portion in our investments. Operator: Yes, the next question is from HSBC, Won Jaewoong. Jaewoong Won: Amid a challenging environment, thank you for your strong performance. And there are 2 questions that I would like to ask you. The first question is with regards to an early retirement. So if we look at last year, we actually reflected into the first quarter of this year. So for this year's early retirement, would it be fourth quarter or would it be first quarter of next year? So if there any plans, if you could share that with us, that would be appreciated. So in terms of the CET1 assumptions or in terms of the overall profitability, it would be easier to assume or make the estimates. So if you could share the plans on this, that would be appreciated. And second, with regards to portfolio diversification, you have successfully acquired 2 insurance companies. And I do believe that you will properly manage this business going forward. But as far as I understand, the 2 insurance companies, after being acquired, next year in terms of the profit contribution, it will be 1% of the ROE. So that means that the overall contribution would be about KRW 300 billion. But up into the third quarter, if you look at the net income, right now, it has been around KRW 150 billion. So for ABL, I don't know what the third quarter numbers is. So I'm not 100% accurate, but I do think that it would be around this level. So do you think that it could be larger next year? And in terms of the bargain gains this year, it was around KRW 550 billion. So for next year, in terms of these gains, how much contribution do you think will actually be made on the net income line? So your thoughts on this topic would be appreciated. Unknown Executive: Yes, thank you for your questions. So maybe if you give us a few minutes, we'll answer your question. First, in terms of early retirement, in the case of last year, we actually did it in the first quarter of this year. And the reason why we did it that way is because it's based upon the agreement with the labor union. So therefore, there could be some difference of opinions. And as a result of that, that is why it was -- it took place in the first quarter. So right now, if you look at the discussions with the labor union that are ongoing right now, I think that it is something that we will have to see in terms of how it happens going forward. So it could be in December, it could be in January. But I think that because it needs an agreement, we will have to wait and see how it actually plays out. And with regards to insurance acquisition, as you have just mentioned, in 2025, if you look at most of the companies, their profits were very large. And then this year, also, there are some that are showing strong performance. But in terms of the K-ICS ratio or other product structures, I do think that with regards to the assumptions, there are some changes that are taking place. So this year, as we have continuously talked and mentioned, after the acquisition of the insurance business, the first thing that we have actually done is that we are doing a business investigation to look at how we can fundamentally change the competitiveness of the business in itself and it changes accordingly. So in 2026, we do think that, of course, there will be some profit contribution from the insurance side. But in terms of the K-ICS ratio, but on the capital side, we think that up and strengthening that up will be our top priority to make sure that the burden on the group from that would be minimal as small as possible. And also, we want to stabilize the organization. So in 2024, if you look at right now, there was around KRW 400 billion. And in terms of the percentage, it would be around KRW 300 billion in contribution that we would have seen. But for next year, we think that it would be difficult to reach that level in the net income side. So right now, in terms of priority, it will [ B2B ] the fixed ratio and the other sides. And then thereafter, I think that we could actually look at how we can expand our business going forward. So that have been said, so the ROE, 1%, is something that was based upon 2024. So though we will not go to that ratio, we do think that there will be a contribution that we will be able to see in full fledged manner from next year. Thank you. Operator: Next question will be by Jeong Tae Joon of Mirae Investment Securities. Tae Joon Jeong: Yes. I'm Jeong Tae Joon from Mirae Asset. I also have a question with regard to the insurance arm. So with regard to the profitability and as well as the interest cost and the securities, I can see that this has been reflected all separately in separate items. But in terms of net income and profitability, I'd like to understand what was the contribution in total this quarter? And it's similar to the previous question, where the bargain purchase gain was quite significant, more than expected. So then based on consolidation, it means that it's not as high based on consolidation. And that in terms of the contribution, it may be a bit difficult to book in it's significant absolute terms. But of course, I do know that the management diagnosis is still underway. But I think that if you can please give us a ballpark figure, it would help us better our understanding. Unknown Executive: Yes. Thank you for the question. Please wait. We will soon answer your question. Yes. So with regard to the income from the insurance arm, so we have investment income and insurance income. So all in all, if we combine the 2 companies, it is around KRW 70 billion to KRW 80 billion. And in terms of net income, it's around KRW 50 billion in terms of the contribution from these 2 firms. And in the future, with regard to adjustments from consolidation, that's how it would be booked. So in terms of insurance accounting, as was already mentioned, after the acquisition, within the insurance, there's an accounting that would follow, and there's also an accounting for the holding company because we went through the PPA process. So based on PPA, it will be a dual accounting, a dual booking. So in the future, we're going to run a simulation. And based on that, of course, it will all differ by year, but we believe that it will be around KRW 30 billion to KRW 40 billion annually, a positive, a plus KRW 30 billion to KRW 40 billion. So there could be some volatility or variances throughout the years. But based on our long-term simulation, we believe that there will be a plus KRW 30 billion to KRW 40 billion of contribution that can be booked. Operator: Yes, next question. In terms of the next question will be from Daishin Securities, Park Hye-jin. Hye-jin Park: Yes. And the question that I would like to ask you is that with regards to the [ bargain ] gains, I do think that there cannot help be a lot of questions. So with regards to the preliminary announcement of the PPA, and you said that for the next 1 year, there could be adjustments. So related to that, in terms of the adjustments that could take place, what would that actually be? So if there is an adjustment to that, I would like to understand what it would be in more detail. And the second would be with regards to the margin. So because of the asset rebalancing, I do think that the margins are being well defended. But with regards to the joint growth, you did say that you would continue such a situation. So for next year, in terms of margin, what is the outlook? And also lastly, for the securities side, also, I do think that there is probably some capital gains that you would have to actually conduct. So for those capital increases, what would be the outlook of that? Unknown Executive: Yes. Thank you very much. There are 3 questions that you have provided, and maybe we can answer your questions. Yes. With regards to the bargain gains, I do think that this is an accounting issue. So during the next 1 year, there is the room for adjustments to take place. So right now, for the first 3 years, there will be some refining. And then after that, that will be done. So if there -- we don't think that there will be a lot of fluctuation. But if there is any, then the main area is probably going to be and what we estimate, it would be with regards to some of the fines. So for example, that could be one of the items. But this accounting to the accounting standards, there is some that we have already reflected because we have made some assumptions there. So if that realizes, then we do think that, that would lead to some changes. But we don't think that there will be any big changes in itself. And secondly, with regards to the securities, this year, after being included into the group on August 1 and what we had actually invested into was manpower and also IT. And as a result of that, the SG&A had actually increased by KRW 50 billion. So in actuality, if you look at the net income as a result of that on a Y-o-Y basis, there was a slight increase, but not very significant. So this year, we do think that when we talk about productive financing, of course, we do think that securities arm will have a big role to play. And from next year in terms of the net income contribution also, we think that it will significantly contribute at a much higher level. So right now setting our targets, but we do think that on a Y-o-Y basis, it will be at a much higher level than what is contributing this year. So from next year, we do think that the overall growth level that we will be enjoying will be much larger. And then on the NIM, I think that for this year, there was a 3 basis point increase this year. And the biggest influence there was the asset rebalancing that we have done, some of the asset growth was more prudent. And in addition to that, the CET1 ratio was another area that we put a lot of attention to. So as a result of that, on the funding side, I think that we have a more favorable funding structure, and the funding cost also has gone down, which has led to the improvement in our net interest margin. So going forward, if you look at the NIM outlook, I think that, of course, we do believe that the benchmark rate will fall going forward. But for the NIM, if you look at the long-term rates, it's already something that is already priced into the market. So in the fourth quarter or whatever happens thereafter, even if rates are further cut, we don't think that, that will further decline the long-term rates. But this year was 1.45%. And then 2026, even if there are further rate cuts, we don't believe that the impact will be very large. And in general, we do believe that around 1.4% is something that we can maintain for NIM for the time being. Unknown Executive: Yes. Thank you. I believe that there are no more questions. So let us now respond to the questions that were posted on the website this quarter. From the 13th to the 24th of October, we received questions via our website. And in addition to our performance, AI, TSR, there are many questions across a number of domains. And we will exclude the redundant questions, but -- and 2 questions that were not addressed as of yet. One has to do with the total return on the dividend-related policy and also with regard to AI services. So with regard to the nontaxable dividend, the CFO will respond, and the CDO will respond to the second question. Sung-Wook Lee: Yes. So first, with regard to the nontaxable dividends and during the AGR in March, we've talked about the KRW 3 trillion that has been written back. So from the '25 dividend or retained earnings, that's when we will start to provide the dividend. So based on our corporate value of plan, we will engage in buybacks, cancellations and actively engage in shareholder return. So within -- in 2025, improving the CET1 by 80 bps to improve the TSR was the planned action taken. So we have continued on to engage in buyback and cancellation of treasury stock, and we have put in our best efforts to enhance shareholder return. And going forward, we will continue on to improve the CET1 and engage in our corporate value of plan and putting our best efforts to maximize shareholder return. Thank you. Il-Jin Oak: I'm Oak Il-Jin, CDO. So with regard to the AI services, Woori Financial Group, for our customer and for our employees, for the first time we've launched many services. And already, we -- based on Gen AI, we've actually launched our deposit-related products. And right now, we do have mortgage loans. And also, we have -- we will be expanding our AI advisory when it comes to real estate-related plans and loans. And at last year-end, we launched Woori TPT. And we actually see an accuracy rate of 90% plus for even complex jobs and work. And starting from the second half of this year, our focus, particularly would be on AI agent. So we want to enhance the productivity of our employees by utilizing the AI agent. Internally, when it comes to corporate loans and RM support, especially 5 domains that we have pinpointed in order to introduce the AI agent. It has been already been laid out. And starting from early next year and in the first half of next year, we are going to particularly engage in Phase 1 for work that can apply this immediately. And then moving forward, we're going to engage in a number of innovative product launches when it comes to Gen AI, especially for productive finance, especially for corporate loans, especially auto underwriting and in terms of reducing default amongst, let's say, high default rate borrowers, we are going to make sure that we can provide accurate and timely due diligence and underwriting utilizing AI. So basically, it's about utilizing AI agents to enhance productivity, and we're going to reengineer our work process so that we can make full use of this technology. Thank you. Sung-Wook Lee: Yes, I am the CFO. And with regard to the overall earnings, I would like to share with you the prospects, especially for 2026. But before that, in 2025, what we've done in terms of our business portfolio is the workforce IP system for the securities arm, acquisition of the insurance arm to complete our portfolio. So in terms of overall completeness of our business, we do have the nonbanking, including asset trust where it was about focusing on preemptive provisioning, completing all that. And then also, we have been able to significantly improve CET1 in 2025. So with regard to future growth and to enhance corporate value, I believe that this was a pivotal year in terms of making sure of putting in place the foundation. And we'll make sure to manage our asset quality in the remainder of the year. In terms of 2026 in the case of the nonbanking sector, as was already mentioned, the insurance acquisition impact will kick in, in earnest. In terms of the security side, we'll be seeing increased sales from that side. In the case of the existing nonbanking, it would be about preemptive risk management, which will lead to better performance and earnings. So in terms of the nonbanking operations, we will -- and we expect significant improvement in performance. And in terms of banking sector, this year, we've been getting an aggressive asset rebalancing, and a preemptive risk management foundation has been in place, which will enable a stable revenue. And in terms of the productive finance, we'll be expanding upon that to actively grow upon that. But when it comes to capital ratio as well as asset quality ratio, we're going to make sure that we maintain this stably, so that we achieve the ratio numbers. And with regard to our value of plan and our shareholder return plan, we'll do our best to make sure that we implement the plans that have been laid out. Thank you very much. Operator: Yes. Thank you. And this brings us to the end of Woori Financial Group's Third Quarter of 2025 Earnings Presentation. If you do have any further questions, please call the IR department, and we'll make sure to entertain your questions. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, greetings, and welcome to the Horizon Technology Finance Corporation Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Megan Bacon. Please go ahead. Megan Bacon: Thank you, and welcome to Horizon Technology Finance Corporation's Third Quarter 2025 Conference Call. Representing the company today are Mike Balkin, Chief Executive Officer; Paul Seitz, Chief Investment Officer; and Dan Trolio, Chief Financial Officer. I would like to point out that the Q3 earnings press release and Form 10-Q are available on the company's website at horizontechfinance.com. Before we begin our formal remarks, I need to remind everyone that during this conference call, the company will make certain forward-looking statements, including statements with regard to the future performance of the company. Words such as believes, expects, anticipates, intends or similar expressions are used to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ on a material basis from those projected in these forward-looking statements. And some of these factors are detailed in the risk factor discussion in the company's filings with the Securities and Exchange Commission, including the company's Form 10-K for the year ended December 31, 2024. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. At this time, I would like to turn the call over to Mike Balkin. Michael Balkin: Thanks, Megan, and welcome, everyone, and thank you for your interest in Horizon. Today, we will update you on our quarterly performance in the current operating environment. Paul Seitz will take us through recent business and portfolio developments as well as the current status of the venture lending market, and Dan Trolio will detail our operating performance and financial condition. We will then take questions. Well, it has been a very active several months since I assumed the CEO role in June. I spent countless hours with our team together thinking about the next chapter of Horizon and how best to expand the Horizon platform moving forward. The first part of that strategy came to fruition when we announced in August, that MRCC and HRZN will be merging in a NAV-for-NAV share exchange, subject to shareholder approval and customary closing conditions. The merger is progressing. But due to the federal government shutdown, we now expect to complete it in early 2026. Upon closing, Horizon will significantly increase their assets under management, while MRCC shareholders will have the opportunity to participate in what we expect to be a rapidly growing BDC that will be able to take advantage of greater economies of scale in the combined vehicle. Importantly, Monroe Capital, which is the parent company of Horizon Technology Finance Management, will provide additional and ongoing support to the post-merger company. As a result, you will see a much more coordinated and synergistic effort in 2026 as we expect to take significant advantage of having such a premier asset manager and expert private credit lender providing us with stalwart backing. To that end, we added several new originators in the third quarter, who are hitting the ground running. With our reinforced team combined with Monroe's support, we expect to compete to originate larger venture loans to top early stage of late-stage cutting-edge companies and return to the growth trajectory that we've historically experienced. I could not be more excited for Horizon's future. And while there is still plenty of work to be done, we have the right team in place to bring the Horizon platform to the next level. Turning to our specific results for the quarter, we generated net investment income of $0.32 per share. As we look to grow our portfolio in future quarters, it remains our goal to deliver NII at or above our declared distributions over time. Thanks in part to our accretive acquisition of venture debt portfolio of a former co-lender as well as achieving favorable outcomes with two of our challenged portfolio companies, our NAV per share grew 5% to $7.12. Based on our outlook and our undistributed spillover income, our Board declared regular monthly distributions of $0.11 per share through March 2026. Once again, we achieved a portfolio yield on debt investments at or near the top of the BDC industry. We also further strengthened our balance sheet in the quarter by accretively raising equity from our at-the-market program and successfully raised $40 million through the issuance of our 5.5% unsecured convertible notes due 2030. And through our more active relationship with Monroe Capital, our pipeline of larger potential venture debt transactions is growing, while we maintain a solid base of additional opportunities to grow our portfolio over time. Before handing the call over to Paul, we are very excited for the new Horizon's long-term future and believe we have the right building blocks in place to execute, namely our portfolio yield remains among the industry's highest, which we expect will lead to increased NII over time. Our liquidity and balance sheet continue to remain strong and will further strengthen the post-merger. We maintain a strong committed backlog, a robust pipeline, and we believe that the vacuum Monroe Capital that we are in a great position to compete for even larger, higher-quality opportunities to invest in new companies. We are already seeing the aperture widening as more private and public companies express interest in our venture lending solutions. And finally, the demand for venture debt capital remains high. We look forward to being a key supplier of such capital. Again, we appreciate your continued interest and support in the Horizon Technology Finance platform. I will now turn the call over to our Chief Investment Officer, Paul Seitz, to give you the details of our third quarter results and progress. Paul? Paul Seitz: Thanks, Mike, and good morning to everyone. I'm happy to join today's call and look forward to speaking to you all in the quarters to come. It's an exciting time here at Horizon. While we continue to work closely with all of our current portfolio companies to optimize returns and create further opportunities for additional value creation, we are very enthusiastic about our future. As Mike mentioned, we believe the combined company will provide us with the size and scale needed to originate larger venture loans to growing public and private small companies. At the end of the quarter, our current portfolio stood at $603 million as the loans we originated and acquired during the quarter were offset by prepayments and amortization in our existing portfolio. In the third quarter, we funded 3 debt investments totaling $15 million. Positively, we are making strong progress on building up our pipeline with larger venture loan opportunities in our target sectors, and we are positioning ourselves well to return to growing our portfolio. Looking ahead to Q4, we expect to grow our portfolio in the quarter driven by our pipeline. Thus far in October, we have already funded a $10 million venture loan transaction and have been awarded 3 new venture loan transactions representing $50 million in total commitments, with much of that total to potentially fund in Q4. That said, we will always be disciplined in our approach to originating loans. During the third quarter, we experienced 6 loan prepayments totaling $50 million in prepaid principal and also collected over $3 million in equity and warrant proceeds. We currently expect more limited prepayment activity in Q4. Our onboarding debt investment yield of 12.2% during the third quarter remained consistent with our historic levels. We expect to continue to generate strong onboarding yields with our current pipeline of opportunities, which we believe will generate strong net investment income over time. Our debt portfolio yield of 18.6% for the quarter was, once again, one of the highest yielding debt portfolios in the BDC industry. Our ability to generate these industry-leading yields continues to be a testament to our venture lending strategy and our execution of such strategy across various market cycles and interest rate environments. As of September 30, we held more equity positions in 95 portfolio companies with a fair value of $40 million. Structuring investments with warrants and equity rights is a key component of our venture debt strategy and a potential generator of shareholder value. We ended the third quarter with a committed and approved backlog of $119 million compared to $149 million at the end of the second quarter. We believe our pipeline, combined with our committed backlog, with most of our funding commitments subject to companies achieving certain key milestones; provides a solid base to prudently grow our portfolio over time. As of quarter end, 87% of the fair value of our debt portfolio consisted of 3 and 4 rated debt investments, while 13% of the fair value of our portfolio was rated 2 or 1. While we continue to collaborate with all of our portfolio companies to optimize returns, we are pleased in the quarter to achieve two strong outcomes on stress investments, namely Soli and Hound Labs. These had a positive impact on both NII and NAV. This is a demonstration of our proven ability to utilize a variety of strategies to seek to optimize returns and create opportunities for potential future value. Turning to the venture capital environment, according to PitchBook, the market is warming up with approximately $81 billion invested in VC-backed companies in the third quarter, driven in significant part by continued large investments in AI. On the positive side, we saw exit markets further open in the third quarter with approximately $75 billion of exit value, driven primarily by tech IPOs. Along with acquisitions by VC-backed companies, the IPO market is once again opened and investors clearly are eager to put their money to work. In life sciences, while there is optimism, there remain valuation disconnects and compression, which is keeping a relative lid on potential IPOs in that sector. Meanwhile, on the tech side, there is considerable optimism and we are being very thoughtful about taking a deeper dive into the various subsectors, particularly in AI and defense technology, to determine the best path for future investments. Looking ahead, venture debt remains a significant option for companies to access capital as they continue to grow and prepare for exits. This provides opportunity for Horizon to seek high-quality, well-sponsored tech and life science companies to add to its portfolio. To sum up, as we close out 2025, we are increasingly excited for our long-term future as we prepare to merge with MRCC. Our alignment with Monroe is increasing, and we are truly beginning to tap into Monroe as an incredible resource, which should significantly benefit us as we target larger venture loan opportunities for both public and private companies. Additionally, we will continue to work diligently on optimizing outcomes with respect to our current portfolio. We are confident that we are taking the right steps to continue to be a leader in the venture lending space. These steps will enable us to originate larger venture loans to high-quality, fast-growing public and private companies and expand our portfolio over the longer term. This should lead to increased NII over time and ultimately, additional value for shareholders. With that, I will now turn the call over to our Chief Financial Officer, Dan Trolio. Daniel Trolio: Thanks, Paul, and good morning, everyone, Along with the hard work being accomplished to get the merger across the finish line as well as build up our originations pipeline, we further strengthened our balance sheet during the quarter. As Mike mentioned, we successfully raised $40 million through the issuance of our 5.5% convertible notes due 2030 and used the proceeds to retire our Horizon funding trust, asset-backed notes, which had an interest rate of just over 7.5%. Additionally, we continue to utilize our ATM program to successfully and accretively sell over 1.5 million shares in the quarter, raising an additional $10 million of equity. These actions demonstrate our continued ability to opportunistically access the debt and equity markets. In addition, we continue to diligently work with all of our portfolio companies to optimize outcomes for our investments and improve our credit quality. As such, we believe we remain well positioned to grow our portfolio in the coming quarters and create additional value for our shareholders moving forward. As of September 30, we had $151 million in available liquidity, consisting of $130 million in cash and $21 million in funds available to be drawn under our existing credit facilities. We currently have no borrowings outstanding under our $150 million KeyBanc credit facility, $181 million outstanding on our $250 million New York Life credit facility and $90 million outstanding on our $200 million Nuveen credit facility, leaving us with ample capacity to grow our portfolio of debt investments. Our net equity ratio stood at 1.36:1 as of September 30. And and netting out cash on our balance sheet, our net leverage was 0.94:1, below our target leverage. Based on our cash position and our borrowing capacity on our credit facilities, our potential new investment capacity as of September 30 was $460 million. Turning to our operating results. For the third quarter, we earned investment income of $26 million compared to $25 million in the prior-year period, primarily due to higher interest income and fee income on our debt investment portfolio. Our net investment portfolio on a net cost basis stood at $585 million as of September 30 compared to $636 million as of June 30, 2025. For the third quarter of 2025, we achieved onboarding yields of 12.2% compared to 12% achieved in the second quarter of 2025. Our loan portfolio yield was 18.6% for the third quarter compared to 15.9% for last year's third quarter. Total expenses for the quarter were $12 million, compared to $12.4 million in the third quarter of '24. Our interest expense of $7.9 million was comparable to last year's third quarter, while our base management fee was $2.7 million, $0.2 million lower than our prior-year period due to a smaller portfolio. We received no performance-based incentive fees in the third quarter as we continue to experience the deferral of incentive fees otherwise earned by our adviser under our incentive fee cap and deferral mechanism. While we expect that the adviser will return to earning incentive fees, as we previously mentioned, the adviser has agreed to waive a portion of any incentive fee in a quarter where we do not earn our distributions in 2025. Net investment income for the third quarter of '25 was $0.32 per share compared to $0.28 per share in the second quarter of '25 and $0.32 per share for the third quarter of 24%. The company's undistributed spillover income as of September 30 was $0.93 per share. Based upon our outlook and undistributed spillover income, our Board declared monthly distributions of $0.11 per share for January, February and March 2026. To summarize our portfolio activities for the quarter, new originations totaled $15 million, and we also purchased for $23 million additional investments via the acquisition of the venture debt portfolio of a former co-lender. These were offset by $14 million in scheduled principal payments and $61 million in principal prepayments and partial paydowns. We ended the quarter with a total investment portfolio of $603 million. As of September 30, the portfolio consisted of debt investments and 39 companies with a negative fair value of $560 million in a portfolio of warrant, equity and other investments in 102 companies with an aggregate fair value of $43 million. Our NAV as of September 30 was $7.12 per share compared to $6.75 as of June 30, 2025 and $9.06 as of September 30, 2024. The $0.37 increase in NAV on a quarterly basis was primarily due to net investment income and positive adjustments to fair value, partially offset by our paid distributions. As we've consistently noted, nearly 100% of our outstanding principal amount of our debt investments bear interest at floating rates. Of those investments, almost 60% are already at their interest rate floors, which should mitigate the impact of decreasing interest rates. This concludes our opening remarks. We'll be happy to take questions you may have at this time. Operator: [Operator Instructions] The first question comes from Douglas Harter with UBS. Cory Johnson: This is Cory Johnson on for Doug Harter. So it sounds like the VC market is heating up and there are more exits out there in the market. And early payoffs have been strong for the last 2 quarters, but I believe you mentioned that for 4Q, that those payoffs might be a little bit more limited. I guess, what do you expect that trend to be going forward maybe into 2026? And is it related to the government shutdown where we think that perhaps the 4Q payouts might be a little bit more limited? Paul Seitz: Yes, this is Paul Seitz. I don't think that the government shutdown necessarily is going to impact any payoffs or prepayments or anything like that. I would say that it was a little bit higher this quarter, but we expect probably our payoffs and early prepayments to revert to any sort of historical standard. The exit markets are heating up, which is a good thing. But I think it's, right now, in just sort of a little bit of a wait-and-see period. Cory Johnson: Got it. And during the quarter, the net leverage -- your net leverage came down. Curious, are you seeing -- I know you mentioned that you think your portfolio will grow next quarter, and you're starting to see more deals come across your table. But I was just sort of curious in terms of like now that you are seeing more deals, what is sort of the credit quality behind them? Are there names that you like? Or are you just more name that you seem to be -- you're looking to pass on? And then obviously, it's a little bit difficult to exactly figure out the trajectory of your -- where the leverage will go. But how long do you think it might be before you perhaps reach your target leverage again? Daniel Trolio: Yes. So as we say every quarter, our target leverage is around 1.2 to 1.3x net of cash. This quarter, it did come down a bit, where we're at 0.94:1. So as we talked where -- in our prepared remarks that the pipeline is growing in originations, we expect originations to exceed prepayments going forward. And so I think when we look at the leverage, we should be getting back to that 1.2, 1.3x over the next quarter or 2. Operator: [Operator Instructions] Our next question comes from Paul Johnson with KBW. Paul Johnson: Just on the portfolio yield or just the portfolio yield in general, it sounds like you're pretty confident about the onboarding yields coming in. But obviously, the income has been running higher, some onetime items just running higher with prepayments. I mean the 18.9% yield, I mean, how should we be thinking about that? Is that sustainable going forward? Or what's kind of like the longer-term sort of target, I guess, based on the same pipeline? Daniel Trolio: Yes. So I would point you to our historical portfolio yield, which we've averaged around 14.5% to 15%. That's a more normalized yield. And then I'll just point out, that is a portfolio yield after prepayments and onetime events. And as we mentioned, the onboarding yield has been about 12%, 12.5% for the past few quarters and probably most likely be around that going forward. Paul Johnson: Got it. Okay. That's helpful. And then maybe you could just take us through the debt portfolio that you acquired during the quarter, kind of what transpired there? It looks like you were able to buy at a potentially a discount to where, I guess, had previously been marked. But anything -- any color on that would be helpful to hear. Daniel Trolio: Yes, correct. We were able to acquire a venture debt portfolio from one of our co-lenders that we had created a [ sidecar ] fund, SMA back in 2021 with a $300 million total commitment. We were able to invest that completely. And so it was in runoff. And then over the past year or so when there are fewer names remaining, we were working with that co-lender, names that, obviously, we've already invested in and negotiated a price. They were co-lender in venture debt, was their only venture debt portfolio and they were looking just to exit the market. And obviously, we're the natural buyer. Paul Johnson: Got it. Okay. Interesting. And then maybe just it would be helpful here kind of what is -- as we get into next year and get beyond the fee waivers, like what is kind of the idea with spillover? It still looks like there's a decent amount of $0.93. But I mean, would you like to just continue to work that down potentially further before evaluating the distribution? Or is that something you'd like to kind of maintain? Daniel Trolio: Yes. So I'll just remind you, every quarter, we discussed the distribution and take into account the current income level and the future level of the Horizon platform and look at the spillover, and we'll determine the amount of distribution on a quarterly basis. Operator: Our next question comes from Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Assuming the deal with MRCC closes, is the focus going to be on larger credits going forward? And what does that do to the yield? Daniel Trolio: That will be one of the benefits with a larger balance sheet. You can hold larger position and stay diversified as we focus on our top 1, top 5, top 10 diversification. But there will still be venture debt deals in the market that we have played in, we'll just be able to hold larger pieces of it. And so we don't expect the yields to change dramatically. Christopher Nolan: Great. Given the stock price is trading below book now, what's the plan on using the common stock ATM going forward? Daniel Trolio: Same plan as usual. We look at our originations pipeline, we look at our liquidity and our capacity and look to pull as many levers as possible to originate and grow the portfolio where we can. Obviously, we're trading below book. We won't be able to utilize the ATM. Christopher Nolan: Okay. And then given -- assuming the Monroe deal closes, you are going to have a much larger balance sheet, any consideration in terms of revisiting the base management fee? I know it is 2% for the first $250 million in assets. And then there's a breakpoint to 160 bps above $250 million. And even at 160 bps, you're sort of at the high end of the range for BDCs in general stay. Any comment on that? Daniel Trolio: Yes. So we have our normal 15-C process that we do on an annual basis, and we review all of our competitors. And when everybody calculates it different, has different hurdles and different percentages on a blended effective cost percentage; we are within the average of our peers. We look at it every year through that 15-C process, and we'll continue to do that going forward and make sure we're within market. Christopher Nolan: Great. And then any target ROE for the new assets coming on from Monroe? Daniel Trolio: We don't have any targeted new assets right now that are coming on. The Monroe platform will help us get access to larger assets and potentially some additional assets, but nothing specific today. Christopher Nolan: Yes. No, actually, I phrased it poorly. For the new capital coming in from the Monroe deal, what is the target ROE or return hurdle that you're looking for to get from that new capital? Daniel Trolio: It's basically stick to what we do, the venture debt model that has a high-yielding portfolio, and that will drive the ROE. We don't have a specific targeted ROE on that capital. Operator: Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Mike Balkin for the closing comments. Michael Balkin: Thank you all for joining us this morning. We appreciate your continued interest and support in Horizon, and we look forward to speaking with you again soon. This will conclude our call. Operator: Thank you. Ladies and gentlemen, the conference of Horizon Technology Finance Corporation has now concluded. Thank you for your participation. You may now disconnect your lines.