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Operator: Thank you for standing by, and welcome to the Sandfire Resources September 2025 Quarterly Report. [Operator Instructions] I would now like to hand the conference over to Mr. Brendan Harris, Chief Executive Officer and Managing Director. Please go ahead. Brendan Harris: Good morning, everyone, and welcome to our September quarterly call, which we hope is a slightly quieter day for a number of you. Our executive team is here with me today, as usual, for the Q&A, which we'll get to very shortly. But before we start, I'd just like to acknowledge the traditional custodians of the lands on which we stand, the Whadjuk people of the Noongar Nation as well as the First Nation's peoples of the lands on which Sandfire conducts its business. We pay our respects to their elders and leaders, past, present and emerging. As we always do, let's start with safety. We finished the period with a group TRIF of 1.4 and no recordable injuries across the group. Obviously, a very welcome result. The safety of our people is paramount. And as our Asset President at MATSA, Rob Scargill likes to put it, it's all about achieving and sustaining safe production. And that's why we're working hard to raise awareness of the need to report and learn from high potential incidents and further strengthen our control environment. At our full year results in August, we noted copper equivalent production for FY '26 would be weighted towards the second half with a circa 48-52 skew anticipated. We also noted that copper equivalent production skew in the first half would be even more acute at a 45-55 split across the September and December quarters. Pleasingly, copper equivalent production for the group is tracking almost 5% ahead of that plan at 35,500 tonnes and remains on track to achieve the midpoint of annual guidance of 157,000 tonnes. At MATSA, we delivered copper equivalent production of 21,800 tonnes, which represents 23% of FY '26 guidance of 96,000 tonnes as our mine plan navigated grade variability, which is I might add typical of polymetallic ore bodies such as MATSA. As in the past, recoveries were also impacted as our poly lines processed a high proportion of ore with elevated pyrite from the Castillejito zone within Aguas Teñidas. As importantly, we have maintained discipline with MATSA's underlying operating unit cost of $85 per tonne coming in marginally lower than full year guidance. Motheo has also continued to run to plan, achieving 13,600 tonnes of copper equivalent production for 22% of annual guidance, noting FY '26 production for Motheo will also be weighted towards the second half of the year, as we said in August. And pleasingly, we're set up well as our team has made strong progress, dewatering the A4 pit such that mining recommenced in Stage 1 in recent days, and we're already mining low-grade ore in Stage 2. This is what underpins the planned surge in high-grade material from A4 in the second half and the building production profile across the year. Despite softer metal production in the quarter, we had 5 shipments depart the port of Walvis Bay in Namibia, which certainly bolstered operating cash flow, something Megan can talk to in the Q&A. From a broader perspective, Motheo's underlying operating costs came in 4% below full year guidance at $42 per tonne, but please don't get too excited. This is precisely what we anticipated as costs will rise across the year, consistent with full year guidance as we extract more ore from A4 and incur additional haulage and handling costs as this high-grade pit is, as you'd recall, around 8 kilometers from the processing plant, which sits adjacent to T3. From a strategic perspective, in Q1 FY '26, we invested $7 million in regional and $6 million in near mine and extension exploration programs in the Iberian Pyrite and Kalahari Copper Belt. And our investment in regional exploration in the Motheo hub will accelerate with the imminent recommencement of drilling activity. As you would expect, we took advantage of the recent pause in activity in Botswana to increase the coverage of our induced polarization data set in the Motheo hub and have further enhanced our targeting approach such that we have detailed plans for 20 kilometers of target drilling, which will be undertaken across the next 9 to 12 months. And while we're back at A1 testing down dip of no mineralization, we're still on track to release a maiden reserve in Q4 of this financial year. Turning back to MATSA. We were extremely pleased to receive the final regulatory approval for the new tailings storage facility and the team has already commenced early works such as land clearance and fencing to secure the site. Separately, we expect our closure plan for the existing TSF to be approved shortly, which will allow the team to complete the final incremental raise to establish a sustainable land form. The support we received from government in both Spain and Botswana is not taken for granted. It is greatly appreciated. And lastly, to Black Butte, we still expect an updated resource and reserve statement and new pre-feasibility study to be released by Sandfire America in Q2 FY '26, paving the way for the group to determine its longer-term strategic fit in the portfolio. So bringing this all together, our team's unrelenting focus on the basics continues to feed into our balance sheet, where net debt declined by a further $61 million to finish the period at $62 million for a cumulative $283 million reduction in net debt across the past 12 months. The combination of our modern mining complexes, preferred commodity exposure, talented people, the consistent and predictable performance they deliver and of course, our increasingly strong balance sheet ensures we are strategically well positioned for the future. So with that, let's go to questions. Thank you. Operator: [Operator Instructions] Your first question comes from Kaan Peker from RBC. Kaan Peker: Just two from me. Just on MATSA, the Magdalena volumes dipped about 10% this quarter, and that appears to have driven much of MATSA's lower copper output. Can you maybe give us an update on the sequencing through 2Q? And are you getting to the higher grade zones? Are they accessible now? And should we see a recovery in both throughput and copper recoveries? Brendan Harris: Okay. So maybe going to that one first. let me go back to 37,000 feet. As I mentioned in August, we talked to a 48-52 sort of ratio for group copper equivalent production. Look, the reality is there will always be a level of variability. Indeed, we mentioned we're tracking 5% ahead of plan. That is sort of the tolerance for error in trying to forecast production from these types of assets on a 3-monthly basis. We continue to expect that 48-52 skew across the first half and second half. So I think when you're working through your numbers, we'd really encourage you to sort of back solve towards that. With regards to Magdalena, the mining rate, of course, is dependent on a number of variables, which I'll get to in a moment. But I would just highlight to you that if you look back over a 2- to 3-year period, it's been quite common for Magdalena volumes to sit below 500,000 tonnes in a quarter, and it's even seen production lower than 450,000 tonnes. Really, what this is a function of, as always, is stope design, ground conditions and ore grade. And of course, we react and resequence. And so you see that the usual timing differences and the differentials that appear in the quarterly today. So from our perspective, we're not seeing anything that's atypical. What is important is the work we've done to invest in the underground continues to mean that we have a number of faces open, so we have significant degrees of freedom. I mentioned that depending on where we're drawing the ore from in the mine or the mine complex itself across the 3 operations, that will impact, obviously, in terms of recovery when we got higher levels of pyrite, and that's obviously more of a challenge to suppress in the flotation circuit. And so you see that feed through. So again, nothing that's overly unusual. And as I've mentioned, the full year guidance on track and the skew across the first half, second half should be broadly as we've said in the past. But maybe, Jason, if you can just pull that apart even a bit further. Jason Grace: Right. Thanks, Kaan. And really just drilling down on Brendan's comments there as well. So if we look at it in late July and early August, right, we were mining down in Masa 2 West and Magdalena in a very high-grade section of the ore body where we do longitudinal stoping. So the access to -- for that production is along the track of the ore body. So we did see some ground conditions very localized in there. But due to this material being extremely high grade, the team at MATSA made the conscious decision to actually slow down that mining rate to make sure that we could do it safely and also retain the integrity of not only the recovery of that ore in a localized way, but also retain the integrity of the sequence. So from my point of view, they've done a very good job to manage those conditions. We've got all of the ore out as planned, right? It's slightly later in some of those areas. But in terms of production rate, we have got that integrity of the sequence, and we'll continue to mine according to plan throughout the year. So from where I sit, this is certainly not unexpected. It's part of mining, and it's certainly part of mining at Magdalena, and we see no issues with the full year coming out in production rates at Magdalena. Kaan Peker: Sure. I appreciate the detail. And then the second one is on Motheo. As A4 ore sort of progressively replaces T3 feed through the second half, does the higher grade or higher mineralogy -- harder mineralogy limit the throughput? Brendan Harris: So look, I'll take that. Of course, remember that we run a blend, and we've set the plant up such that the planned rates of production that we have the capacity in the back end of the plant. Now of course, with the potential from period to period to see at times even a higher grade average blend grade. We don't want to be constrained, and that is why we are investing in some of that tank capacity at very modest capital across this year. And that's really just to, if you like, provide somewhat of insurance at the back end of the plant. So again, that will be alleviated in terms of a potential bottleneck. But Jason, anything I've missed there? Jason Grace: Yes, absolutely right. So we're spending USD 6 million in capital to make sure that this is not an issue for us for the future. That project is now well advanced, and we're doing most of the modifications that are required over the next 2 planned shutdowns. So I expect that we've got all of those upgrades and the debottlenecking works associated with that completed by the end of Q3 and ready to go when we're seeing high-grade A4 ore going through the plant. Operator: Your next question comes from Levi Spry from UBS. Levi Spry: Just a quick one on Black Butte. So what exactly can we expect? So reserves and resources a pre-feasibility study. When? And can you give us a bit of context around the update, I guess, given how strategic these kind of minerals are in that part of the world now? Brendan Harris: Yes. Look, I think from our perspective, not a lot has changed in terms of the direction of travel. I think you've seen some of these things firming up in recent weeks and months in Washington. But again, I think that's fairly consistent with the trend that's been in place now for some while, Levi. Look, again, being mindful that we're talking for Sandfire America, which is a separately listed entity on the Toronto Exchange. What we expect, of course, our team supports that work, our technical team. We anticipate that there will be an updated pre-feasibility study coming through just prior to Christmas. I think it could be in the days or week to weeks prior to Christmas. And we also expect an updated reserve and resource estimate. Now of course, the drilling of the Lower Copper zone very much increased its lateral extent. The work that we're going to be focused on, and we're yet to see the outcomes is when we obviously put the mine plan around that is what are the levels of dilution that one sees. What is the mineable grade and what does that mean for the economics. And so we're obviously as focused on that as you. I think from my perspective, I've said before, when the company bought into Black Butte, the market cap of the organization was less than $1 billion. Today, it's obviously at a point in time, much higher than that. We have no doubt that the Black Butte project is obviously very close to shovel-ready. It's one of the rare fully permitted options in that part of the world. The question is not whether Black Butte gets built in our mind. Of course, we're waiting on these updated economics to firm that up, but it's really more about how does it fit strategically in our portfolio. So no real change there, Levi. And obviously, all of these materials as they become public, provide us with a whole lot of different alternatives as an organization. So yes, we're as eager as anyone to see the outcome of this work. Operator: Your next question comes from Paul Young from Goldman Sachs. Paul Young: Brendan, a quick question on MATSA and around the low recoveries in the poly circuit. Was this just a really unique quarter where you had a lot of higher production from Aguas Teñidas, which just offset or just swamped, I should say, Magdalena and Sotiel? Or could we actually -- within the mine plan, is there -- going forward, is there another quarter which might look like this? Brendan Harris: Yes, Paul, thank you. I know you love your processing plants and obviously, the chemistry that goes with it. You'd be absolutely aware that if you go through a zone where you've got a far higher proportion of pyrite, it changes the chemistry and how you work to suppress that. And that's obviously challenging and more challenging than a number of other areas and Castillejito certainly provides us with a more, I guess, challenging and pyrite feed of ore typically. And that's really what we're seeing. Of course, across the rest of the year, as Jason has alluded to, we expect to see the production in MATSA to play out as we've, I guess, provided guidance for. And so as a result of that, you would expect to see grades and recoveries, particularly recoveries improve across the year, commensurate with the plan. Jason? Jason Grace: Yes. Just building on that again. And Paul, I think you've nailed it. So if we look at it, there's 2 key reasons there. So we've got the usual decrease in recovery, which is a result of lower head grades. So if we look at poly ore in particular, copper grades there were 1.5% for Q1, which is down from 1.9% in the prior quarter. And zinc grades were at 3.8%, down from 4.3% once again in Q4 FY '25. So Brendan is absolutely right, though. So when you put on top of that, the fact that we've been producing and processing a significant amount of Castillejito ore, which was planned to be processed throughout the year. It is very complex metallurgically. As Brendan touched on, it's very high in pyrite content. And we get lower recoveries, particularly associated with -- it ends up generating a lower pH in the pulp chemistries and in the flotation plant there as well, which we're working actively to keep that under control. So in particular, if I look at going forward, we still have ore remaining in this part of the ore body. But I think from memory, it's about 350,000 tonnes left of this material. So going forward, it's not a significant part of our mine plan, particularly for the remainder of this year and beyond that. Paul Young: Okay. That's good to know. And then, Brendan, maybe turning to the U.S. and Black Butte. Yes, studies coming, as you just outlined, et cetera. Just curious around the potential offtake on the concentrate there, considering that Bingham Canyon smelter is -- has a lot of spare capacity and the mine seems to be underperforming. Just curious around if you had any conversations with that smelter and offtake and how that might improve the economics considering I think that concentrate should be highly sought after. Brendan Harris: Yes. Thanks, Paul. Look, excellent question. I probably don't want to go into specifics of any discussions that may or may not be occurring on a confidential basis. But look, I think the reality is more broadly, in the United States, as is the case in most places you operate, if you can process your ore closer to the home, clearly, there are numerous benefits. So of course, that is something that the team is working on and obviously supporting Sandfire America with is obviously the potential to find a home for that concentrate that is certainly much closer than putting on a ship and sending it to Asia. But of course, that's the fallback position, and we'll see where that lands over the coming weeks. But that's an important value driver and also could be important strategically for the project. But nothing really more I can add at this stage other than noting your point about potentially the logic of sending this to a smelter such as Bingham. Operator: Your next question comes from Daniel Morgan from Barrenjoey. Daniel Morgan: You mentioned that you were 5% ahead of target during the quarter. And obviously, there's a variation around your budgets, which I think you said the tolerance is about 5% as well. I'm just wondering if you could outline what went better during the quarter? Does any benefits travel further than this quarter? Obviously, you haven't changed your guidance. Does it potentially mean we brought into this quarter some benefits to future quarters? Or is it just you've started well and not willing to uplift guidance here? Brendan Harris: Yes. I think the reality is we're 3 months into a year. We know the variability that we see in these operations. Of course, throughput at Motheo was particularly strong. MATSA is going well, albeit we absolutely recognize and hear some of the challenges around specific issues that we expect to obviously evolve through the course of this year. To give you a sense, MATSA Poly Line 3 is in-plan maintenance just at the moment, just a short shut. So there's all these sorts of things that flow through. And we would just really caution people against becoming any more optimistic at this early stage in the year. And as I said, we still think that you'll see that relative production skew play out. So look, not much more I can add, Dan. It's better than being behind at this time of year, but still a long way to go. Daniel Morgan: And then maybe somewhat related, the dewatering activities at A4, pleasing to see, but is that best view through the lens of production outcomes, business plans this year have been derisked by that? Is that the best way to think about it? Brendan Harris: Look, I think clearly, the year is, to some extent at Motheo contingent upon being able to accelerate production out of A4. Its high grade is clearly something that we cherish, and it's been somewhat frustrating to obviously be impacted by 1 in plus 200-year event as we were last year. But equally, it's proven that the team is match fit. They've done some excellent work in terms of how they've responded. The work and the capital we put in to build contingency, I think, has paid off and it leaves us now in a position where, as I said, I think we're very, very well set up. The irony is with the dewatering. It goes very well once you get below those initial sands and the Cow Creek layers. It's amazing how quickly the water levels start to drop. We've got enormous amounts of pumping capacity, sprinkler capacity now in place that really assist us with that. And Jason and I were remarking the other day, we'll inevitably, like most mines, probably go from a situation where we've got way too much water to worrying about where we're going to get our water. So that's something that's not unusual and something we're monitoring very, very closely. But -- and Jason did remind me that they had some heavy rains there earlier or late, I should say, late last week, which also means that we're starting to get back into the wet season in the Kalahari. So all of these things have potential to impact us in the very short term. But I think the way you put it is arguably the right way to think about it is the fact that we're now back in Stage 1, the fact that we know the water level has been drawn below the mining level and considerably below sets us up well and hopefully, to some extent, derisk the outlook for the rest of the year. But of course, there's a whole lot of other variables that we need to be mindful of. Operator: Your next question comes from Ben Lyons from Jarden. Ben Lyons: Maybe just staying with Botswana. I note the commentary in the release about the new Mining Act coming into law and the increased option for government or citizen ownership. Now obviously, T3 and A4 sit on granted MLs, which will be grandfathered. But I'm just interested in how extensive those MLs stretch. For example, does A1 fall within the envelope? Or does that one potentially require the issuance of a new mining lease? Brendan Harris: Yes. Good one, Ben. Thank you. As you know, prior to the recent election, the revisions to the act went through the parliament. And obviously, they've recently been gazetted, which was good to see. Good to see in the context that progress is being made, but also that there were no substantive changes in any respect that came through. You're absolutely right, T3 sits on a granted ML. What I would just remind people on the call is that A4 was not covered by that ML initially, but the government actually saw that there was logic to extend the ML to cover A4 and the associated haul road. And we don't know precisely what the plan will be and how we'll work through approvals for A1. First step, obviously, is to complete the current drilling program. We've got additional drilling underway, as I mentioned, targeting a deeper zone in the hinge of the fold, which is showing some interesting and encouraging results in terms of grade and thickness. So we'll see how that plays out. But we need to complete that. We need to understand the economics. It's obviously much more distal from the processing plant. And then we would work with government. I think what would be from our side, something that will be really important to work through with this is, well, firstly, logically, the same approach to A4 would make sense for a number of reasons. But I think the two that come most specifically to my mind is the value now once you build a processing facility arguably sits as much in the processing facility as it does in ore. So how you actually think about ownership and the value of the ore without a processing facility, particularly for an ore body that's of the size of A1 at the moment, circa -- if you look at the resource that was stated, it was just around about a year of processing capacity. We'll see how that plays through as we work to convert to reserve. And of course, the second thing is that the material would always be blended. You wouldn't want A1 to be supporting the whole of the feedstock given its distant location. And so when you think about those things, how you actually attribute value to A1 as a stand-alone asset would be really, really difficult. So again, I go back to the point that A4 was really a function of an ML that was extended, expanded, if you like, to cover that new development. And certainly, it would be our position to argue strongly that a similar approach is warranted. But again, it would be a healthy discussion with government. And I would just note that our engagement with government right from the Minister for Mines and Energy, the Honorable Bogolo Joy Kenewendo, very, very strong relationship and good direct discussions. And they're certainly very supportive of what we're doing. And obviously, for us, we need to continue to show the benefit of Motheo that goes well beyond the immediate direct employment into other areas. So that's something we're very, very mindful of. So look, good relationship, Ben. As I said, probably right at the start, the most important thing for us when the revisions were enacted, there were no changes from what went through, nothing of any substantive nature prior to the election. Operator: [Operator Instructions] The next question comes from Adam Baker from Macquarie. Adam Baker: Maybe just following up on Ben's question. And I did see the comment on the regulatory environment about the 10,000 kilometers cap on the area that can be held by companies in country. It appears to be something new. And obviously, you've got over 13,000 meters under licenses at the moment. Can you just walk us through how you're thinking about when it comes to reducing that landholding, what you're kind of thinking about? Is it getting rid of tenure, which is furthest away from your processing facilities? Or are you thinking about other things to reduce that? Brendan Harris: Yes. Look, thanks, Adam. And just to be clear, that's certainly not new to us. That's something that has been understood for some time. Certainly was part of the proposal that went through ultimately the parliament prior to the election and remains on foot. And we've had, as I think I mentioned on this call, very, very healthy dialogue with government and the various departments around a number of things. Firstly, we believe we have the most extensive geophysical database of the Kalahari Copper Belt. We believe that having opened up 2 open pits that we are the best placed player to make the next discovery. And of course, with our modern processing complex, we've got the best chance of ensuring it's economic and can win capital. And so of course, first and foremost, I think the key line of discussion that we have is that it's very important that we maintain that strategic stronghold in terms of our large tenure holding. And so that's a very healthy discussion. I think it's well understood. Equally, though, as I've mentioned before on this call, we've got a process as we work through and really refine our targeting approach that we continue to apply for renewals, but then also we've been working to reduce our position, and that's been something that's been ongoing, and you can expect will be ongoing for the foreseeable future, and we have every intention of moving back to meet that requirement, and it's important that we do. If you look at the areas that we have relinquished over recent years, it's typically been out to the West in the deeper areas where you've got very, very thick cover that it's fair may host meaningful opportunities. But for us, we believe it's going to be much higher cost and lower certainty of success. And so again, our focus has been very much around the Motheo hub and then in some of the southern areas that you should start to see more activity over the coming months. Jason, anything I've missed there? Jason Grace: No. I think really the only points I'd add to that are as we've been in constant communication, not just at a ministerial level, but also at a regulatory level, right? We've been engaging and our team over there have been engaging very proactively with the regulators that will be tasked with overseeing these new -- the changes to the Mining Act. Now all indications are that they will -- and they have to date been working very proactively with us to do whatever reduction that we do need to in a controlled and structured manner. So we've seen -- in recent history, all of our tenements that required renewals have all been approved, and we don't expect to see that to change. And we'll continue to engage with these regulators to make sure we're doing it in that controlled manner that I talked about before. And as Brendan said, it's about a technical basis for relinquishments as well. So we've been doing a lot of work, particularly on prospectivity in certain areas, and there's certain areas that are now low priority, and they'll be the first to go. Brendan Harris: Yes. I think reality is we want to spend our capital where we think we have the highest likelihood of success, where it's the most capital-efficient form of exploration. And so we're working hard on that. And maybe just to even further emphasize Jason's comment, the last major renewal that we went through was prior to last Christmas obviously, after the amendments have been obviously publicized and gone through parliament. And we actually managed to renew all of our critical tenure, particularly tenure that sits in and around the Motheo hub. So of course, it's important we follow through. We've got, hopefully, as you can hear, a very, very focused approach to that process of progressive relinquishment. But good question, Adam. Appreciate it. Operator: Your next question comes from Anthony Barich from Platts. Anthony Barich: Just regarding the Black Butte, I know that when the other analysts asked you about the strategic nature of it, you said that those kind of geopolitical talks around critical minerals have been ongoing for quite a while there. But just wondering whether you've had any talks with U.S. authorities about whether they've shown a lot of support for the project either on a funding or regulatory level or any of that? I'll come back for a second. Brendan Harris: Yes, Anthony, thanks for your question. I think the one difference to really flag perhaps for Black Butte is it's a fully permitted project. So I think if you look at some of the examples that you might be thinking of, there are projects that either haven't got their permits or they need support for other associated infrastructure to then enable the said mine to develop. Black Butte sits literally kilometers out of the lovely town called White Sulphur Springs. It sits on private land. It's fully permitted, and it's not in of itself, a large capital project. It's circa 1.2 million tonne per annum throughput rate, very, very concentrated site. And if you look at the tailings facility that's planned, it's effectively a cemented tailings. And the reason for that is to make sure you're managing any of your risk, particularly around water. Water is the big issue in Black Butte, given the sensitivity of that environment as it should be. So yes, look, very, very different. You'd expect we have ongoing discussion with a range of parties, but it's not like we're looking for a major enabling piece of infrastructure or some support through the permitting process. Anthony Barich: Just on a macro level, which sometime [indiscernible] support copper macro pricing that. What do you see, if anything, that Trump's critical minerals deal with Albanese, I know you're okay for funding and stuff. But just on a macro level, I mean, is that -- what do you think that deal -- do you think it will support copper pipelines, which have traditionally been -- we've seen a lack of discoveries and that kind of thing. But -- and I think there was some warning from Australian Minerals Council around the warning around the potential for increased costs, which probably wouldn't be just for Australia. I mean, are you seeing any potential benefits or impacts on a macro level or cost level or impact otherwise from that kind of deal being done just in the copper space broadly? Brendan Harris: Yes. Look, thank you. There's a lot in that. We probably need 2 or 3 calls to cover it. But look, what I would say was at LME Week with a number of people on this call, no doubt, just 2 weeks ago, the move there was probably as buoyant as I've seen it in a number of years, particularly for copper and obviously, some other commodities, precious metals and some of the other critical minerals. I think one of the benefits for copper is it's a very large market. I think in these smaller markets when governments are supporting projects, one's got to really focus and understand what that means for the supply-demand balance over not just the next year, but the next 5, 10, 15 years. The good thing about the copper market is that, as you've mentioned, there's been arguably a lack of exploration and/or exploration success over recent years. We're starting to see some of that come through now, but really a lack of activity and success. The major fleet and when I say the major fleet, I'm talking the larger mines in our industry. You've all heard this before. They're all over 20 years old. And I think personally that the market still overestimates the likelihood that they'll supply to plan. I think what we're seeing now is a function of age and the complexity that comes with age in mining and the likelihood, therefore, that supply will continue to fail to meet expectations and therefore, markets will be tighter and the prices will need to be on average firmer to support investment into the industry. And look, it has been pleasing that copper is now starting to, if you like, capture some of the headlines. I felt that sometimes we've been focusing on the tail of the tail of the dog. The reality is that copper is the commodity that is required for the world to electrify and decarbonize and much more needs to be done over time to ensure that we have adequate, obviously, mining capacity, but also processing capacity around the world. So it is pleasing from our perspective that I think other than the people on this call and probably keen industry observers, I think more of, if you like, the average person is starting to understand the role that copper is going to play and the importance of copper to our future. Operator: There are no further questions at this time. I'll now hand back to Mr. Harris for closing remarks. Brendan Harris: Thanks again. Look, it's good to catch up with everyone. We obviously only spoke reasonably recently on the back of our full year results. Our AGM is on Friday. I'd just remind people, 3 months certainly doesn't make a year, but we're very pleased to have started fairly much as we would have hoped and expected. We're slightly ahead, a lot of hard work to go. And you can be sure that as a team, we're continuing to very much focus on the basics. Safe, consistent and predictable production is our motto, and we're working very hard to make sure we continue to build that reputation. So thank you for your time today. Hopefully, a day where you've had a few less companies report. And I know Dave Wilson and Tom are very eager to, on a day when hopefully, you've got a bit more time, give you as much time as you need to work through the numbers. So thank you again, and we look forward to seeing you all again soon. Have a good day. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Sandfire Resources September 2025 Quarterly Report. [Operator Instructions] I would now like to hand the conference over to Mr. Brendan Harris, Chief Executive Officer and Managing Director. Please go ahead. Brendan Harris: Good morning, everyone, and welcome to our September quarterly call, which we hope is a slightly quieter day for a number of you. Our executive team is here with me today, as usual, for the Q&A, which we'll get to very shortly. But before we start, I'd just like to acknowledge the traditional custodians of the lands on which we stand, the Whadjuk people of the Noongar Nation as well as the First Nation's peoples of the lands on which Sandfire conducts its business. We pay our respects to their elders and leaders, past, present and emerging. As we always do, let's start with safety. We finished the period with a group TRIF of 1.4 and no recordable injuries across the group. Obviously, a very welcome result. The safety of our people is paramount. And as our Asset President at MATSA, Rob Scargill likes to put it, it's all about achieving and sustaining safe production. And that's why we're working hard to raise awareness of the need to report and learn from high potential incidents and further strengthen our control environment. At our full year results in August, we noted copper equivalent production for FY '26 would be weighted towards the second half with a circa 48-52 skew anticipated. We also noted that copper equivalent production skew in the first half would be even more acute at a 45-55 split across the September and December quarters. Pleasingly, copper equivalent production for the group is tracking almost 5% ahead of that plan at 35,500 tonnes and remains on track to achieve the midpoint of annual guidance of 157,000 tonnes. At MATSA, we delivered copper equivalent production of 21,800 tonnes, which represents 23% of FY '26 guidance of 96,000 tonnes as our mine plan navigated grade variability, which is I might add typical of polymetallic ore bodies such as MATSA. As in the past, recoveries were also impacted as our poly lines processed a high proportion of ore with elevated pyrite from the Castillejito zone within Aguas Teñidas. As importantly, we have maintained discipline with MATSA's underlying operating unit cost of $85 per tonne coming in marginally lower than full year guidance. Motheo has also continued to run to plan, achieving 13,600 tonnes of copper equivalent production for 22% of annual guidance, noting FY '26 production for Motheo will also be weighted towards the second half of the year, as we said in August. And pleasingly, we're set up well as our team has made strong progress, dewatering the A4 pit such that mining recommenced in Stage 1 in recent days, and we're already mining low-grade ore in Stage 2. This is what underpins the planned surge in high-grade material from A4 in the second half and the building production profile across the year. Despite softer metal production in the quarter, we had 5 shipments depart the port of Walvis Bay in Namibia, which certainly bolstered operating cash flow, something Megan can talk to in the Q&A. From a broader perspective, Motheo's underlying operating costs came in 4% below full year guidance at $42 per tonne, but please don't get too excited. This is precisely what we anticipated as costs will rise across the year, consistent with full year guidance as we extract more ore from A4 and incur additional haulage and handling costs as this high-grade pit is, as you'd recall, around 8 kilometers from the processing plant, which sits adjacent to T3. From a strategic perspective, in Q1 FY '26, we invested $7 million in regional and $6 million in near mine and extension exploration programs in the Iberian Pyrite and Kalahari Copper Belt. And our investment in regional exploration in the Motheo hub will accelerate with the imminent recommencement of drilling activity. As you would expect, we took advantage of the recent pause in activity in Botswana to increase the coverage of our induced polarization data set in the Motheo hub and have further enhanced our targeting approach such that we have detailed plans for 20 kilometers of target drilling, which will be undertaken across the next 9 to 12 months. And while we're back at A1 testing down dip of no mineralization, we're still on track to release a maiden reserve in Q4 of this financial year. Turning back to MATSA. We were extremely pleased to receive the final regulatory approval for the new tailings storage facility and the team has already commenced early works such as land clearance and fencing to secure the site. Separately, we expect our closure plan for the existing TSF to be approved shortly, which will allow the team to complete the final incremental raise to establish a sustainable land form. The support we received from government in both Spain and Botswana is not taken for granted. It is greatly appreciated. And lastly, to Black Butte, we still expect an updated resource and reserve statement and new pre-feasibility study to be released by Sandfire America in Q2 FY '26, paving the way for the group to determine its longer-term strategic fit in the portfolio. So bringing this all together, our team's unrelenting focus on the basics continues to feed into our balance sheet, where net debt declined by a further $61 million to finish the period at $62 million for a cumulative $283 million reduction in net debt across the past 12 months. The combination of our modern mining complexes, preferred commodity exposure, talented people, the consistent and predictable performance they deliver and of course, our increasingly strong balance sheet ensures we are strategically well positioned for the future. So with that, let's go to questions. Thank you. Operator: [Operator Instructions] Your first question comes from Kaan Peker from RBC. Kaan Peker: Just two from me. Just on MATSA, the Magdalena volumes dipped about 10% this quarter, and that appears to have driven much of MATSA's lower copper output. Can you maybe give us an update on the sequencing through 2Q? And are you getting to the higher grade zones? Are they accessible now? And should we see a recovery in both throughput and copper recoveries? Brendan Harris: Okay. So maybe going to that one first. let me go back to 37,000 feet. As I mentioned in August, we talked to a 48-52 sort of ratio for group copper equivalent production. Look, the reality is there will always be a level of variability. Indeed, we mentioned we're tracking 5% ahead of plan. That is sort of the tolerance for error in trying to forecast production from these types of assets on a 3-monthly basis. We continue to expect that 48-52 skew across the first half and second half. So I think when you're working through your numbers, we'd really encourage you to sort of back solve towards that. With regards to Magdalena, the mining rate, of course, is dependent on a number of variables, which I'll get to in a moment. But I would just highlight to you that if you look back over a 2- to 3-year period, it's been quite common for Magdalena volumes to sit below 500,000 tonnes in a quarter, and it's even seen production lower than 450,000 tonnes. Really, what this is a function of, as always, is stope design, ground conditions and ore grade. And of course, we react and resequence. And so you see that the usual timing differences and the differentials that appear in the quarterly today. So from our perspective, we're not seeing anything that's atypical. What is important is the work we've done to invest in the underground continues to mean that we have a number of faces open, so we have significant degrees of freedom. I mentioned that depending on where we're drawing the ore from in the mine or the mine complex itself across the 3 operations, that will impact, obviously, in terms of recovery when we got higher levels of pyrite, and that's obviously more of a challenge to suppress in the flotation circuit. And so you see that feed through. So again, nothing that's overly unusual. And as I've mentioned, the full year guidance on track and the skew across the first half, second half should be broadly as we've said in the past. But maybe, Jason, if you can just pull that apart even a bit further. Jason Grace: Right. Thanks, Kaan. And really just drilling down on Brendan's comments there as well. So if we look at it in late July and early August, right, we were mining down in Masa 2 West and Magdalena in a very high-grade section of the ore body where we do longitudinal stoping. So the access to -- for that production is along the track of the ore body. So we did see some ground conditions very localized in there. But due to this material being extremely high grade, the team at MATSA made the conscious decision to actually slow down that mining rate to make sure that we could do it safely and also retain the integrity of not only the recovery of that ore in a localized way, but also retain the integrity of the sequence. So from my point of view, they've done a very good job to manage those conditions. We've got all of the ore out as planned, right? It's slightly later in some of those areas. But in terms of production rate, we have got that integrity of the sequence, and we'll continue to mine according to plan throughout the year. So from where I sit, this is certainly not unexpected. It's part of mining, and it's certainly part of mining at Magdalena, and we see no issues with the full year coming out in production rates at Magdalena. Kaan Peker: Sure. I appreciate the detail. And then the second one is on Motheo. As A4 ore sort of progressively replaces T3 feed through the second half, does the higher grade or higher mineralogy -- harder mineralogy limit the throughput? Brendan Harris: So look, I'll take that. Of course, remember that we run a blend, and we've set the plant up such that the planned rates of production that we have the capacity in the back end of the plant. Now of course, with the potential from period to period to see at times even a higher grade average blend grade. We don't want to be constrained, and that is why we are investing in some of that tank capacity at very modest capital across this year. And that's really just to, if you like, provide somewhat of insurance at the back end of the plant. So again, that will be alleviated in terms of a potential bottleneck. But Jason, anything I've missed there? Jason Grace: Yes, absolutely right. So we're spending USD 6 million in capital to make sure that this is not an issue for us for the future. That project is now well advanced, and we're doing most of the modifications that are required over the next 2 planned shutdowns. So I expect that we've got all of those upgrades and the debottlenecking works associated with that completed by the end of Q3 and ready to go when we're seeing high-grade A4 ore going through the plant. Operator: Your next question comes from Levi Spry from UBS. Levi Spry: Just a quick one on Black Butte. So what exactly can we expect? So reserves and resources a pre-feasibility study. When? And can you give us a bit of context around the update, I guess, given how strategic these kind of minerals are in that part of the world now? Brendan Harris: Yes. Look, I think from our perspective, not a lot has changed in terms of the direction of travel. I think you've seen some of these things firming up in recent weeks and months in Washington. But again, I think that's fairly consistent with the trend that's been in place now for some while, Levi. Look, again, being mindful that we're talking for Sandfire America, which is a separately listed entity on the Toronto Exchange. What we expect, of course, our team supports that work, our technical team. We anticipate that there will be an updated pre-feasibility study coming through just prior to Christmas. I think it could be in the days or week to weeks prior to Christmas. And we also expect an updated reserve and resource estimate. Now of course, the drilling of the Lower Copper zone very much increased its lateral extent. The work that we're going to be focused on, and we're yet to see the outcomes is when we obviously put the mine plan around that is what are the levels of dilution that one sees. What is the mineable grade and what does that mean for the economics. And so we're obviously as focused on that as you. I think from my perspective, I've said before, when the company bought into Black Butte, the market cap of the organization was less than $1 billion. Today, it's obviously at a point in time, much higher than that. We have no doubt that the Black Butte project is obviously very close to shovel-ready. It's one of the rare fully permitted options in that part of the world. The question is not whether Black Butte gets built in our mind. Of course, we're waiting on these updated economics to firm that up, but it's really more about how does it fit strategically in our portfolio. So no real change there, Levi. And obviously, all of these materials as they become public, provide us with a whole lot of different alternatives as an organization. So yes, we're as eager as anyone to see the outcome of this work. Operator: Your next question comes from Paul Young from Goldman Sachs. Paul Young: Brendan, a quick question on MATSA and around the low recoveries in the poly circuit. Was this just a really unique quarter where you had a lot of higher production from Aguas Teñidas, which just offset or just swamped, I should say, Magdalena and Sotiel? Or could we actually -- within the mine plan, is there -- going forward, is there another quarter which might look like this? Brendan Harris: Yes, Paul, thank you. I know you love your processing plants and obviously, the chemistry that goes with it. You'd be absolutely aware that if you go through a zone where you've got a far higher proportion of pyrite, it changes the chemistry and how you work to suppress that. And that's obviously challenging and more challenging than a number of other areas and Castillejito certainly provides us with a more, I guess, challenging and pyrite feed of ore typically. And that's really what we're seeing. Of course, across the rest of the year, as Jason has alluded to, we expect to see the production in MATSA to play out as we've, I guess, provided guidance for. And so as a result of that, you would expect to see grades and recoveries, particularly recoveries improve across the year, commensurate with the plan. Jason? Jason Grace: Yes. Just building on that again. And Paul, I think you've nailed it. So if we look at it, there's 2 key reasons there. So we've got the usual decrease in recovery, which is a result of lower head grades. So if we look at poly ore in particular, copper grades there were 1.5% for Q1, which is down from 1.9% in the prior quarter. And zinc grades were at 3.8%, down from 4.3% once again in Q4 FY '25. So Brendan is absolutely right, though. So when you put on top of that, the fact that we've been producing and processing a significant amount of Castillejito ore, which was planned to be processed throughout the year. It is very complex metallurgically. As Brendan touched on, it's very high in pyrite content. And we get lower recoveries, particularly associated with -- it ends up generating a lower pH in the pulp chemistries and in the flotation plant there as well, which we're working actively to keep that under control. So in particular, if I look at going forward, we still have ore remaining in this part of the ore body. But I think from memory, it's about 350,000 tonnes left of this material. So going forward, it's not a significant part of our mine plan, particularly for the remainder of this year and beyond that. Paul Young: Okay. That's good to know. And then, Brendan, maybe turning to the U.S. and Black Butte. Yes, studies coming, as you just outlined, et cetera. Just curious around the potential offtake on the concentrate there, considering that Bingham Canyon smelter is -- has a lot of spare capacity and the mine seems to be underperforming. Just curious around if you had any conversations with that smelter and offtake and how that might improve the economics considering I think that concentrate should be highly sought after. Brendan Harris: Yes. Thanks, Paul. Look, excellent question. I probably don't want to go into specifics of any discussions that may or may not be occurring on a confidential basis. But look, I think the reality is more broadly, in the United States, as is the case in most places you operate, if you can process your ore closer to the home, clearly, there are numerous benefits. So of course, that is something that the team is working on and obviously supporting Sandfire America with is obviously the potential to find a home for that concentrate that is certainly much closer than putting on a ship and sending it to Asia. But of course, that's the fallback position, and we'll see where that lands over the coming weeks. But that's an important value driver and also could be important strategically for the project. But nothing really more I can add at this stage other than noting your point about potentially the logic of sending this to a smelter such as Bingham. Operator: Your next question comes from Daniel Morgan from Barrenjoey. Daniel Morgan: You mentioned that you were 5% ahead of target during the quarter. And obviously, there's a variation around your budgets, which I think you said the tolerance is about 5% as well. I'm just wondering if you could outline what went better during the quarter? Does any benefits travel further than this quarter? Obviously, you haven't changed your guidance. Does it potentially mean we brought into this quarter some benefits to future quarters? Or is it just you've started well and not willing to uplift guidance here? Brendan Harris: Yes. I think the reality is we're 3 months into a year. We know the variability that we see in these operations. Of course, throughput at Motheo was particularly strong. MATSA is going well, albeit we absolutely recognize and hear some of the challenges around specific issues that we expect to obviously evolve through the course of this year. To give you a sense, MATSA Poly Line 3 is in-plan maintenance just at the moment, just a short shut. So there's all these sorts of things that flow through. And we would just really caution people against becoming any more optimistic at this early stage in the year. And as I said, we still think that you'll see that relative production skew play out. So look, not much more I can add, Dan. It's better than being behind at this time of year, but still a long way to go. Daniel Morgan: And then maybe somewhat related, the dewatering activities at A4, pleasing to see, but is that best view through the lens of production outcomes, business plans this year have been derisked by that? Is that the best way to think about it? Brendan Harris: Look, I think clearly, the year is, to some extent at Motheo contingent upon being able to accelerate production out of A4. Its high grade is clearly something that we cherish, and it's been somewhat frustrating to obviously be impacted by 1 in plus 200-year event as we were last year. But equally, it's proven that the team is match fit. They've done some excellent work in terms of how they've responded. The work and the capital we put in to build contingency, I think, has paid off and it leaves us now in a position where, as I said, I think we're very, very well set up. The irony is with the dewatering. It goes very well once you get below those initial sands and the Cow Creek layers. It's amazing how quickly the water levels start to drop. We've got enormous amounts of pumping capacity, sprinkler capacity now in place that really assist us with that. And Jason and I were remarking the other day, we'll inevitably, like most mines, probably go from a situation where we've got way too much water to worrying about where we're going to get our water. So that's something that's not unusual and something we're monitoring very, very closely. But -- and Jason did remind me that they had some heavy rains there earlier or late, I should say, late last week, which also means that we're starting to get back into the wet season in the Kalahari. So all of these things have potential to impact us in the very short term. But I think the way you put it is arguably the right way to think about it is the fact that we're now back in Stage 1, the fact that we know the water level has been drawn below the mining level and considerably below sets us up well and hopefully, to some extent, derisk the outlook for the rest of the year. But of course, there's a whole lot of other variables that we need to be mindful of. Operator: Your next question comes from Ben Lyons from Jarden. Ben Lyons: Maybe just staying with Botswana. I note the commentary in the release about the new Mining Act coming into law and the increased option for government or citizen ownership. Now obviously, T3 and A4 sit on granted MLs, which will be grandfathered. But I'm just interested in how extensive those MLs stretch. For example, does A1 fall within the envelope? Or does that one potentially require the issuance of a new mining lease? Brendan Harris: Yes. Good one, Ben. Thank you. As you know, prior to the recent election, the revisions to the act went through the parliament. And obviously, they've recently been gazetted, which was good to see. Good to see in the context that progress is being made, but also that there were no substantive changes in any respect that came through. You're absolutely right, T3 sits on a granted ML. What I would just remind people on the call is that A4 was not covered by that ML initially, but the government actually saw that there was logic to extend the ML to cover A4 and the associated haul road. And we don't know precisely what the plan will be and how we'll work through approvals for A1. First step, obviously, is to complete the current drilling program. We've got additional drilling underway, as I mentioned, targeting a deeper zone in the hinge of the fold, which is showing some interesting and encouraging results in terms of grade and thickness. So we'll see how that plays out. But we need to complete that. We need to understand the economics. It's obviously much more distal from the processing plant. And then we would work with government. I think what would be from our side, something that will be really important to work through with this is, well, firstly, logically, the same approach to A4 would make sense for a number of reasons. But I think the two that come most specifically to my mind is the value now once you build a processing facility arguably sits as much in the processing facility as it does in ore. So how you actually think about ownership and the value of the ore without a processing facility, particularly for an ore body that's of the size of A1 at the moment, circa -- if you look at the resource that was stated, it was just around about a year of processing capacity. We'll see how that plays through as we work to convert to reserve. And of course, the second thing is that the material would always be blended. You wouldn't want A1 to be supporting the whole of the feedstock given its distant location. And so when you think about those things, how you actually attribute value to A1 as a stand-alone asset would be really, really difficult. So again, I go back to the point that A4 was really a function of an ML that was extended, expanded, if you like, to cover that new development. And certainly, it would be our position to argue strongly that a similar approach is warranted. But again, it would be a healthy discussion with government. And I would just note that our engagement with government right from the Minister for Mines and Energy, the Honorable Bogolo Joy Kenewendo, very, very strong relationship and good direct discussions. And they're certainly very supportive of what we're doing. And obviously, for us, we need to continue to show the benefit of Motheo that goes well beyond the immediate direct employment into other areas. So that's something we're very, very mindful of. So look, good relationship, Ben. As I said, probably right at the start, the most important thing for us when the revisions were enacted, there were no changes from what went through, nothing of any substantive nature prior to the election. Operator: [Operator Instructions] The next question comes from Adam Baker from Macquarie. Adam Baker: Maybe just following up on Ben's question. And I did see the comment on the regulatory environment about the 10,000 kilometers cap on the area that can be held by companies in country. It appears to be something new. And obviously, you've got over 13,000 meters under licenses at the moment. Can you just walk us through how you're thinking about when it comes to reducing that landholding, what you're kind of thinking about? Is it getting rid of tenure, which is furthest away from your processing facilities? Or are you thinking about other things to reduce that? Brendan Harris: Yes. Look, thanks, Adam. And just to be clear, that's certainly not new to us. That's something that has been understood for some time. Certainly was part of the proposal that went through ultimately the parliament prior to the election and remains on foot. And we've had, as I think I mentioned on this call, very, very healthy dialogue with government and the various departments around a number of things. Firstly, we believe we have the most extensive geophysical database of the Kalahari Copper Belt. We believe that having opened up 2 open pits that we are the best placed player to make the next discovery. And of course, with our modern processing complex, we've got the best chance of ensuring it's economic and can win capital. And so of course, first and foremost, I think the key line of discussion that we have is that it's very important that we maintain that strategic stronghold in terms of our large tenure holding. And so that's a very healthy discussion. I think it's well understood. Equally, though, as I've mentioned before on this call, we've got a process as we work through and really refine our targeting approach that we continue to apply for renewals, but then also we've been working to reduce our position, and that's been something that's been ongoing, and you can expect will be ongoing for the foreseeable future, and we have every intention of moving back to meet that requirement, and it's important that we do. If you look at the areas that we have relinquished over recent years, it's typically been out to the West in the deeper areas where you've got very, very thick cover that it's fair may host meaningful opportunities. But for us, we believe it's going to be much higher cost and lower certainty of success. And so again, our focus has been very much around the Motheo hub and then in some of the southern areas that you should start to see more activity over the coming months. Jason, anything I've missed there? Jason Grace: No. I think really the only points I'd add to that are as we've been in constant communication, not just at a ministerial level, but also at a regulatory level, right? We've been engaging and our team over there have been engaging very proactively with the regulators that will be tasked with overseeing these new -- the changes to the Mining Act. Now all indications are that they will -- and they have to date been working very proactively with us to do whatever reduction that we do need to in a controlled and structured manner. So we've seen -- in recent history, all of our tenements that required renewals have all been approved, and we don't expect to see that to change. And we'll continue to engage with these regulators to make sure we're doing it in that controlled manner that I talked about before. And as Brendan said, it's about a technical basis for relinquishments as well. So we've been doing a lot of work, particularly on prospectivity in certain areas, and there's certain areas that are now low priority, and they'll be the first to go. Brendan Harris: Yes. I think reality is we want to spend our capital where we think we have the highest likelihood of success, where it's the most capital-efficient form of exploration. And so we're working hard on that. And maybe just to even further emphasize Jason's comment, the last major renewal that we went through was prior to last Christmas obviously, after the amendments have been obviously publicized and gone through parliament. And we actually managed to renew all of our critical tenure, particularly tenure that sits in and around the Motheo hub. So of course, it's important we follow through. We've got, hopefully, as you can hear, a very, very focused approach to that process of progressive relinquishment. But good question, Adam. Appreciate it. Operator: Your next question comes from Anthony Barich from Platts. Anthony Barich: Just regarding the Black Butte, I know that when the other analysts asked you about the strategic nature of it, you said that those kind of geopolitical talks around critical minerals have been ongoing for quite a while there. But just wondering whether you've had any talks with U.S. authorities about whether they've shown a lot of support for the project either on a funding or regulatory level or any of that? I'll come back for a second. Brendan Harris: Yes, Anthony, thanks for your question. I think the one difference to really flag perhaps for Black Butte is it's a fully permitted project. So I think if you look at some of the examples that you might be thinking of, there are projects that either haven't got their permits or they need support for other associated infrastructure to then enable the said mine to develop. Black Butte sits literally kilometers out of the lovely town called White Sulphur Springs. It sits on private land. It's fully permitted, and it's not in of itself, a large capital project. It's circa 1.2 million tonne per annum throughput rate, very, very concentrated site. And if you look at the tailings facility that's planned, it's effectively a cemented tailings. And the reason for that is to make sure you're managing any of your risk, particularly around water. Water is the big issue in Black Butte, given the sensitivity of that environment as it should be. So yes, look, very, very different. You'd expect we have ongoing discussion with a range of parties, but it's not like we're looking for a major enabling piece of infrastructure or some support through the permitting process. Anthony Barich: Just on a macro level, which sometime [indiscernible] support copper macro pricing that. What do you see, if anything, that Trump's critical minerals deal with Albanese, I know you're okay for funding and stuff. But just on a macro level, I mean, is that -- what do you think that deal -- do you think it will support copper pipelines, which have traditionally been -- we've seen a lack of discoveries and that kind of thing. But -- and I think there was some warning from Australian Minerals Council around the warning around the potential for increased costs, which probably wouldn't be just for Australia. I mean, are you seeing any potential benefits or impacts on a macro level or cost level or impact otherwise from that kind of deal being done just in the copper space broadly? Brendan Harris: Yes. Look, thank you. There's a lot in that. We probably need 2 or 3 calls to cover it. But look, what I would say was at LME Week with a number of people on this call, no doubt, just 2 weeks ago, the move there was probably as buoyant as I've seen it in a number of years, particularly for copper and obviously, some other commodities, precious metals and some of the other critical minerals. I think one of the benefits for copper is it's a very large market. I think in these smaller markets when governments are supporting projects, one's got to really focus and understand what that means for the supply-demand balance over not just the next year, but the next 5, 10, 15 years. The good thing about the copper market is that, as you've mentioned, there's been arguably a lack of exploration and/or exploration success over recent years. We're starting to see some of that come through now, but really a lack of activity and success. The major fleet and when I say the major fleet, I'm talking the larger mines in our industry. You've all heard this before. They're all over 20 years old. And I think personally that the market still overestimates the likelihood that they'll supply to plan. I think what we're seeing now is a function of age and the complexity that comes with age in mining and the likelihood, therefore, that supply will continue to fail to meet expectations and therefore, markets will be tighter and the prices will need to be on average firmer to support investment into the industry. And look, it has been pleasing that copper is now starting to, if you like, capture some of the headlines. I felt that sometimes we've been focusing on the tail of the tail of the dog. The reality is that copper is the commodity that is required for the world to electrify and decarbonize and much more needs to be done over time to ensure that we have adequate, obviously, mining capacity, but also processing capacity around the world. So it is pleasing from our perspective that I think other than the people on this call and probably keen industry observers, I think more of, if you like, the average person is starting to understand the role that copper is going to play and the importance of copper to our future. Operator: There are no further questions at this time. I'll now hand back to Mr. Harris for closing remarks. Brendan Harris: Thanks again. Look, it's good to catch up with everyone. We obviously only spoke reasonably recently on the back of our full year results. Our AGM is on Friday. I'd just remind people, 3 months certainly doesn't make a year, but we're very pleased to have started fairly much as we would have hoped and expected. We're slightly ahead, a lot of hard work to go. And you can be sure that as a team, we're continuing to very much focus on the basics. Safe, consistent and predictable production is our motto, and we're working very hard to make sure we continue to build that reputation. So thank you for your time today. Hopefully, a day where you've had a few less companies report. And I know Dave Wilson and Tom are very eager to, on a day when hopefully, you've got a bit more time, give you as much time as you need to work through the numbers. So thank you again, and we look forward to seeing you all again soon. Have a good day. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Sean Summers: Okay. Good morning, and welcome, everybody, to our H1 FY '26 results presentation, a special warm welcome Mrs. Ackerman, Wendy, good morning. Welcome, Gareth, and all my colleagues from Pick n Pay. And everybody, both online and here, in the auditorium, it's great to have you with us this morning. As part of the introduction, I just want to quickly flip over and just to give a little bit of an overview of where we find ourselves now on our journey in Pick n Pay. It's been quite an interesting 24 months since I returned and it's been a bit of a compacted time period. In some dimension, it feels like I never ever left Pick n Pay, but the last 2 years have really, really flowed and gone by fast. And the great thing for us is that, if we have to sit and really be truly honest with ourselves, and we cast our minds back about 18 months ago, not even 18 months, maybe 15, 16 months. When we put forward the business plan in May of what we were going to do in terms of restoring the fortunes of Pick n Pay. I can say with all honesty that there is not much that we would have done differently. And for me, honestly, as you know, it's the only thing that you can deal with in life and we continually are asking ourselves a question, are there any other levers we can find or are there any other levers we can pull, and they certainly are not. So all of the levers that we have identified, all of the levers that we are busy pulling and pushing and juggling are absolutely on track at this stage. Would we like things to be faster? In fact, I was sharing with my colleagues when we were here yesterday, preparing for this. I would rather have been racing up the hill in Cape Town and the hill climb than being in the room over here because that's how I like life. I like things to be much faster. But certainly, one needs to be considered as well because otherwise, you don't get to the top of the hill. And that's our journey that we're on. So I think very importantly, let's jump straight into the numbers. So I'd like to call on Lerena. Please come up, Lerena. Thank you. Lerena Olivier: Thank you, Sean. Good morning, everybody, and thank you for joining us here in person and also online. Following the completion of the successful recapitalization program in our previous financial year, our focus is now squarely on operational execution. So I'm very happy in this result to focus on operational metrics. The group delivered a solid result for this half. We have successfully executed across various strategic priorities. The group's turnover grew 4.9%, 4.7% on a like-for-like basis. We delivered meaningful improvement on all of the key metrics. We've improved our headline loss by 45%. This improvement was driven by trading profit improvement of ZAR 227 million coming from both Boxer and Pick n Pay, and it was definitely supported by the positive swing in interest of ZAR 537 million. We ended on a balance sheet that is strong with ZAR 5.1 billion of cash. We've again increased our segmental disclosures in this result. We've expanded some lines on the P&L that we do per segment. And we've also added for your benefit into Appendix 1, EBITDA and trading profit after leases per segment. For the purpose of this result, Boxer has already presented their results 2 weeks ago. So I will briefly touch on Boxer, but the focus will be Pick n Pay. Both Sean and I will focus on the Pick n Pay result. This is our primary goal to turn the business successfully around. Our strategic priority remains growing our like-for-like sales growth across both our franchise and our own stores. For this half, our company-owned stores grew 4.8% on a like-for-like basis and our franchise business 1.7%. What is important is that we now have 3 consecutive periods of continuous growth improvement. We've delivered positive like-for-like growth of 2.2%, and our internal selling price was contained at 2.1%, well below CPI Food of 4.6%. I'm also happy to report that this momentum does carry through into the second half. Of specific importance for me is the improvement in our franchise issues, up 1.7% compared to the decline of 1.4% in the preceding half. Our franchise business is extremely important to us. They remain a critical growth driver for us, and the improvement in franchise issues reflects the improvements we are making in our franchise model. Our omnichannel grew 34%, 44% up in asap! and Mr D. Our clothing business continues to grow. They're up 12% in a very, very tough market. Hazel and her team opened 9 more stores in this half, bringing the total estate to 424 stores. The Pick n Pay segment itself delivered ZAR 36.3 billion worth of turnover. That is the same number than last year. This is notwithstanding the closing of 59 stores as part of our Store Estate Reset program. Sean will give more detail on this, but this is now largely completed with only a few more stores coming through in the second half. The actual turnover achieved reflects our relentless focus on operational and customer-facing initiatives. The Pick n Pay business is not smaller year-on-year. And as the store closures are now largely in the base, we will continue to grow into the future. As I've mentioned in my opening remarks, we have again segmented Pick n Pay and Boxer and we'll be presenting the results separately in this presentation. I will now take you through the results of each of them individually. The group now owns 65.6% of Boxer post the IPO in November 2024. Our Boxer business grew turnover by 13.9% and delivered a trading profit improvement as consolidated by the group of 16.2%. They maintained a trading margin at 4.1%, aligned with the business philosophy to reinvest any gains in their customer offer. Marek and David presented the results on the 13th of October, and I would really like to congratulate them on a job well done. They are now looking like seasoned results professionals. The full Boxer result is available on their website. There we go. The Pick n Pay key metrics reflects progress across all our strategic initiatives. All of these are needed to achieve our goal of getting the business back to profit and cash flow breakeven. There were 2 main drivers of the improvement in the Pick n Pay result. There is an interest benefit year-on-year as a result of the recapitalization program. The number in the Pick n Pay segment is ZAR 598 million. And we had an improvement in our trading loss of ZAR 97 million. I will unpack these 2 individually in the following slides. The ZAR 97 million improvement in a trading loss delivered a trading loss of ZAR 621 million. Our trading margin improved by 30 basis points. This was supported by a 40% improvement in our gross profit margin, and I will unpack that in the next slide. A slight increase in our trading expenses, up 20 basis points as a percentage of turnover and a pleasing increase in our other income, up 2.7%, supported by our increase in commissions and other income of 6.3%. This is very pleasing for us given the fact that the group's turnover was flat year-on-year. We have successfully executed our Store Reset program. There's only a number of stores that will still come in the future. We have avoided losses of close to a ZAR 100 million in this result. These were reinvested to support building the muscle we need to create retail excellence for our Pick n Pay turnaround plan. It is very important to note that to achieve this remarkable like-for-like improvement, we needed to make sure that we've got the right skills on a store and operational level. That is what we need to ultimately deliver on our turnaround plan. In this half, we've delivered on the like-for-like sales growth. We've delivered on our gross profit margin improvement. We have reinvested the savings we've made out of the successful Store Reset plan in key retail skills in our business. As a result, our like-for-like expenses grew 6.2% compared to our turnover of 4.4%. That is the reason why the progress on the strategic plan is not yet making a material improvement on the trading loss in the business. We have made great progress, but we have more to do, and it will take time. We are focused on building a sustainable business. We will not chase quick wins just to make the results stronger in the short term. We are building a long-term profitable business. As a result of this, the improvement in the trading expenses will come, but it will take time as we execute our Future Fit strategic initiatives. The gross profit margin increased by 40 basis points, as I've mentioned, up to 16.9%. This was supported by key improvements in category mix, specifically in general merchandise, clothing and our fresh range. We had a notable reduction in our waste, specifically in Fresh as in-store operations improved. We've also improved our buying and our logistic efficiencies. Notwithstanding these improvements, we also made investments. Pick n Pay is price competitive. We have achieved this while improving our customer offer. We now offer an increased range at better prices without compromising on our inventory control. We have also invested in our franchise model. We have reduced the sales margin to our franchisees to ensure that these very important partners improve their underlying profitability. The improvement of the 40 basis points on this line item is therefore a very strong achievement considering the investments that we made during the period. Our trading expenses are up only 0.9%. This reflects the impact of the Store Reset plan. On a like-for-like basis, the increase is up 6.2%. The increase in like-for-like expenses were driven by the building blocks of the Future Fit business. We continued selective hiring in key skills to drive turnover. We have increased store training in a focused and effective manner. We've increased brand investment, I'm sure most of you would have noticed. While we are focusing on spending in the right areas, the remaining expenses remains well controlled. As I've mentioned before, we are acutely aware of the need to ensure that our like-for-like expenses increases by a rate less than our like-for-like turnover growth, and this remains a key focus area for us. Pick n Pay's net finance costs reduced by 60% for the period. This as a result of the FY '25 debt paydown. This, alongside a reduction in our net lease interest of 2.2%, reflecting the successful Store Reset plan has really supported the year-on-year profitability of this result. The group's headline earnings per share showed significant improvement, up 56.2% This, as I've mentioned before, was supported by the interest swing on a group level of ZAR 537 million. Two additional items impacted year-on-year comparability. We've got a 25% increase in our weighted average number of shares as a result of the Rights Offer in August 2024. We also now have a controlling interest of Boxer of 34.4% post the IPO in November last year -- not last year, November 2024. Excluding these items, alongside the interest saving, our headline earnings per share increased 27.8%, reflecting the trading result improvement in both Boxer and Pick n Pay. Pick n Pay ended the half with ZAR 3.9 billion of cash on balance sheet. The cash utilized from operations of ZAR 0.8 billion is in line with what we've done last year. The improvements delivered through the Store Reset plan were reinvested and, therefore, it's reflective in the year-on-year EBITDA number being flat. To build retail excellence, we need to deliver this plan. We absolutely have to invest in these skills to drive top line across FY '27 and FY '28. Interest received for the year was just over ZAR 100 million, reflecting the improvement of ZAR 0.5 billion year-on-year. The working capital and CapEx movements, I will unpack in the next slides. The net result was a free cash flow utilization of ZAR 0.3 billion for the year, in line with our plans. I guided at the full year FY '25 result that we are aiming to half the cash burn for the Pick n Pay segment of last year of ZAR 2.6 billion. We are now forecasting that the cash burn for this year will be approximately ZAR 1.6 billion. The group released working capital of ZAR 1.7 billion for the half. This is across both Boxer and Pick n Pay. This is in line with our normal H1, H2 seasonality, and this benefit will be absorbed during the second half of the year. There is some cutoff as well, but both the cutoff and the seasonality will unwind in the second half of the year. What is important to note is Pick n Pay's continued working capital improvement. Our inventory declined by 3.5%, notwithstanding the fact that our turnover year-on-year were flat, and we reinvested in our ranges. There has been a continuous focus on optimizing inventory in the business. We've also seen a continued improvement in our franchise debt as the impact of the new franchise model is supporting our franchisees. I am very comfortable with the working capital levels of both Pick n Pay and Boxer. The group invested ZAR 0.9 billion during the first half of this year. Both Boxer and Clothing continues to invest to support their growth ambitions. Pick n Pay forecasted spend for the full year is just under -- apologies, Pick n Pay's forecasted spend for the full year is ZAR 0.9 billion. This is an increase from the ZAR 500 million of last year. The Pick n Pay spend remains measured. We are spending on key revamps where we know we can get the maximum ROI and critical repairs and maintenance. Our focus remains an investment in OpEx and the skills we need to drive our like-for-like turnover growth. The group ended with cash reserves of ZAR 5.1 billion, ZAR 3.9 billion in Pick n Pay and ZAR 1.1 billion in Boxer. Pick n Pay itself has got ZAR 3 billion worth of working capital facilities. These are unutilized, unsecured and not guaranteed by Boxer. Our balance sheet is strong. It will support Boxer's growth and Pick n Pay on its turnaround path. I now hand over to Sean to take you through the operational review. Sean Summers: Thanks, Lerena. So as we see, it's definitely work in progress. And as I've said, it's a case of just steadily putting one foot in front of the other as we continue on our journey. And there are just a couple of specific call-outs that I would like to make in this regard. So we said that in terms of strengthening our core customer offer that we would apply a lot of our energy and effort in terms of ranging in the store. And we can see that the ranges are dramatically improved and enhanced at store level. And it's one of the reasons why we are driving our like-for-like sales growth because when you look at our absolute numbers in the total stores that we've closed over the period of time in the last 2 years, 18 months that we've been going at this project. We have -- while we've been taking some sales out of the business in the closed stores, we've managed to reinject like-for-like sales growth back into the stores again with enhanced ranging. On a quality basis, we've applied a lot of our energy and attention as to what happens at store level operationally with skills and injecting knowledge back into the business again. We can see that on the value front from a marketing perspective that we have really, really put our strong foot forward in terms of marketing. Our relationship with FNB eBucks continues to be a fantastic relationship that we have. And all of the work that we've been doing with the Burger Fridays and the work that we do on Saturdays and Sundays and all of these promotions that we're doing has really been driving a good value proposition across the business. And then on the service front, we have been applying a lot of our energy and effort into training of our people again and actually getting and creating schools for blockman, bakers and regetting these skills back into the company again because these skills are not just freely available. It takes time to train these people up. A lot of focus, and if you go back, Pick n Pay was always known as the fresh food people. And to a large degree, we had lost that. And this is one of the major journeys that we're on at the moment, is reinvigorating our whole fresh offering in the company and getting back on to this virtuous circle, and we're starting to see the rewards coming out of this now in terms of the work that's been done under Peter and the Fresh food team. In terms of online and what we do with asap!, we relaunched the asap! app this year, and we have consolidated everything into the one app to make it far more user-friendly, and we're now up to a range of 35,000-odd products in asap!. asap! continues to be a very important part of the offer that we have in the company. And for those customers who want their goods delivered home, we will do it gladly with the greatest of pleasure. But our primary focus as a retailer still remains, number one, on having great stores with great product, great people and great shopping experience as the backbone of what we do. Franchise. I'm pleased to report that our franchise has moved positively into -- I think this one was about minus 1.4%, now up to 1.7% like-for-likes in franchise, and that's moved forward strongly. And we had a fantastic franchise conference 2 weeks ago in Johannesburg. And I'm pleased to say that our relationship with our franchisees today is as strong as it's ever been. The changes that we've made on the franchise model are working very, very well. And just in general, you just get a good feeling when you go around the company and you visit with the franchisees. And it's just extraordinary. We had 2 of our great franchisees this year that won the awards came from Stutterheim and [indiscernible]. And if you look at Stutterheim, I mean, our franchise family in the area of Stutterheim, they almost run that town in terms of the work that they do with council and community and everybody. It's just extraordinary to see how these families really, really operate in these marketplaces. It's just too beautiful. Our hypermarkets is another key area of focus for us where we are really putting the real essence of hypermarkets back into hypermarket again, and we're seeing great success in this regard. So some of our larger stores where we sort of got a 6,000 square meter -- where we're not GLA, we've got 6,000 square meter trading on the floor, 5,000 square meters on the floor that we're converting this over to hypermarkets. We're putting enhanced GMD ranges back in there again, and we're getting extraordinary success with this format. And I see Jarett sitting over there, well done. We're really getting good traction there. So if we look at where we are and we have a look at our acceleration in like-for-like sales, it really is extraordinary in a very, very constrained market. And I think one needs to be realistic in life about the marketplace that we do operate in. And it's interesting in this marketplace because at the moment, we have a retail space where we're still seeing a lot of doors being opened by our competitors. One of them alone is over 300 new doors in the last year. And you take that against us closing 50, 60-odd stores over 18 months. So if you just have a look at the dynamic of optionality for consumers to shop elsewhere, it really is extraordinary that we managed to grow the like-for-like sales to the degree that we have. And I'm always realistic about these things. If you ask me what is one of the real pleasant surprises that's really surprised me, it's actually been our ability to show this level of like-for-like sales growth. And again, I'm realistic about these things because you can never ever fool yourself and end up in a sort of a fool's paradise because people tell you what you want to hear. Sometimes when you sit with suppliers, vendors, landlords, they also tell you what they think you want to hear. So you need to keep your feet in the ground. But we have various ways that we can read markets. There are certain market surveys and stuff that are done out there. And I'm just really so astounded by the fact that our continual market share decline that we were in has, in fact, bottomed out, started to solidify and starting to move in the right direction again. And that's in the market, and that's total market. And that's moving into a market where we're just seeing so much other optionality that's available out there. So it's extraordinary in this regard. And hopefully, this trend will continue to move forward in this direction. We obviously have some challenges in this marketplace as well. We're now coming to annualize on the [ two-pot ] release that happened last year. So it's going to be interesting to see what effect that's going to have in the next weeks and months as that starts to annualize and move through. And then obviously, a very tough market that we're in. But in terms of establishing a future-fit business, as I said at the opening, if we went back with the benefit of hindsight and looked at what we've done in the company, what would we do differently, there would not be much that we would actually be doing differently. And so in all of these metrics that are over here, there are 2 that I'd like to specifically call out. And the first one is the Store Estate reset, which is nearing completion. Now it's always fascinated me how Pick n Pay closing stores has predominated in all of the media and everything you read is Pick n Pay is closing, Pick n Pay is closing, no. We got rid of stores that were no good. That's just the simple truth of it. And it is something that every single retailer does. We hadn't done enough for a long, long period of time. The journey is done. There will be a few more left that we're going to mop up at the end. The great thing here is if you have a look at 27 of the stores that were originally identified have actually either turned to profit or coming back, getting close to turning to profit again. And even at a breakeven level, at a store level, it still contributes to the center. So this thing is neither -- it's a very dynamic process, and it's not necessarily linear or binary. So this journey is done. And from here on in, as we review leases as they come up, we will continue to assess each lease on a store-by-store basis because in some places, demographics change, the center of what's happening, the taxi rank moves, stores now are rendered no longer in the right place, and that will just be part and parcel of what we do. So I'm pleased to say that this is basically done, which is fantastic. The other really great one is our strategic supplier partnership that we have here. And as we know, our Eastport distribution center, which is the most extraordinary facility. And as I've said to Marcel, I think Marcel, I saw you walking in earlier. There's Marcel sitting there. As I said to Marcel in the beginning, don't be defensive of this, Marcel, because in the brief that you were given, you achieved 11 out of 10. You built a magnificent facility there, unfortunately, for the wrong company. It was too big, way too big. So I'm pleased to say that we've signed our MOU with DP World and the Eastport facility has now moved off to DP World, and we will be getting those savings and start to get those savings almost with immediate effect. So it's an extraordinary job of work that has been done. And I'm pleased to say that Eastport is now currently almost fully utilized because they have the ability to put some of their existing clients that they have into the building. And some of those people are, in fact, Pick n Pay suppliers. So it's even more efficient because the stock is now actually in the building. So it's a win-win across all the pieces of work that we're doing there. So that's another fantastic huge piece of work that we've got done and ticked off. Our digital transformation. And the reason why I call this out is just simply that there is a lot of talk around what is going on in this marketplace in terms of digital transformation and retail media and all of this. We have been in this for ages. In fact, we started selling our data at the end of my days in my previous life at Pick n Pay already. So this is nothing new. It continues to evolve. It's a very, very important part of the business, and we will continue to grow this. But in all of these areas, retail media and data analytics for our suppliers, this we will continue to grow. As we do, Smart Shopper, very, very important to us. It's a key part of our business, as I said before. And then obviously, our value-added services. We've received quite a lot of rewards and awards and accolades for the advertising and marketing that we've done. I think you will see in the company that our marketing is a lot crisper. It's a lot clearer, and it's a lot more targeted and directed than it used to be. Clothing. Our Clothing continues to perform fantastically and just extraordinary, where Pick n Pay has really found a segment in the marketplace that Hazel, and her team, have clearly really been able to identify what it is that their customers are looking for in terms of value and in terms of fashion, and it continues to grow strongly. Boxer, Marek and his team has -- they've just done the most extraordinary, extraordinary job of work. As you say, Lerena, they are now experienced results and roadshow presenters. Marek phoned me this morning to wish me well because he had a week like I'm going to have 2 weeks ago. But Boxer truly is an absolute, absolute gem. I mean they're just in the right spot and their virtuous circle is incredible. So to Marek, to you and your entire team, all I can say is, well, well done, my friend. We're very, very proud of you, and very privileged to have you as a part of us. Supporting our communities, notwithstanding the fact that we are busy working our way back into the sunshine and busy working our way back into profit, we have doubled down on our efforts in terms of what has always made Pick n Pay what it is. When Raymond and Wendy started Pick n Pay, there was always the fundamental belief that this is a company for the people, by the people and that you invest in society, you invest in community, and it is something that we have doubled down. We have a CSI WhatsApp Group. And I'm just astounded every week, every weekend, during the week at the updates that just continually get flicked through where right across the length and breadth of this country, our people just do the most extraordinary acts of help, of reaching out to community and supporting people in need. It's really magnificent. This has been one of the really wonderful things for us and a great privilege for us to be a sponsor of the Springboks. And at the start, it was always a case of the Springboks being the one thing in this country that unites South Africa and pull South Africa together because if ever this country needed to start pulling together, it's now. And that's why for us, in the first instance of the Springboks, it was more than just about sponsoring the Springboks. It was a symbolism of actually taking what it is that unites this country and brings it together and also making a statement that Pick n Pay is here. Pick n Pay is going nowhere. And as we say, South Africa, we've got your back. And hopefully, South Africa has got ours, and is starting to show in the footfall in the stores. But more importantly, it's not just about sponsoring the Springboks. It's about the work that's been done at grassroots level in Rugby. We don't realize just how important Rugby is amongst the youth in this country today. And you can go across the length and breadth of South Africa and see how Rugby is really becoming a force for good and a force for getting the country together. So we're massively involved down at the grassroots level in Rugby as well. So that's fantastic. So just a couple of closing remarks here. And as I said in the beginning, our strategic priorities that we put in place, we're kind of working our way through them, and we've got most of it ticked away. When we look at leadership and people, there's still obviously the issue of succession. I'm still here for another 2.5 years, and it is something that is top of mind for us. And we're busy working at all of our succession programs in that regard. And then also about building leadership within the company from within the company again because that's what retail is. It's about growing your own people. Accelerating our like-for-like sales, as I said, we're still working hard at that, and we'll continue to work hard at that. We continue to strengthen our partnerships across the board and to work with our landlords very, very importantly and to make sure that, that moves in the right direction as well as our supplier base. We reset the Store Estate that's kind of done. And the Future Fit structure is still work that is underway. And that's having a look at what is our store OpEx structures, what are our support OpEx structures. And those are things that are just work in motion as we go forward day-to-day. So I really just want to thank all my colleagues in the company that I'm privileged to work with and to be a part of. I can feel -- I had to -- I had an interview with Alec Hogg, before I came here earlier this morning. And Alec asked me, what does it feel like, Sean, when you go into the company and when you go into the stores compared to when you came back 2 years ago? I think that I can say without any fear of doubt that this is a different company today. Are we where we want to be? Hell, no. But are we well on the way on this journey? Absolutely. And I've said before, this is like climbing Mount Everest. I said, our journey is at Mount Everest. So Alec asked me this morning, well, if you think of Table Mountain and not Mount Everest, where are you in Table Mountain? I said, Alec, we are solidly at the cable station at the bottom there. We bought our ticket, and the cable car is on the way. We know where we're going, but we've got a journey to get there. But we know what it looks like. We know how to get there. And I want to thank everybody for their support, not only the people inside this company, but very, very importantly, the investors in this company who stay the haul with us, stay the long haul with us, the family, Wendy, Gareth, the Ackerman family for the support that they've given to both myself and the company. And it's a great privilege to stand here as the CEO of this wonderful organization. So thank you very much. I don't know if there are any questions. Unknown Analyst: [indiscernible] I'll speak for now. Sean Summers: Yes. Unknown Analyst: Sean, Lerena, well done on the great work you've done so far [indiscernible]. Well, the first one, you mentioned a lot of -- you want to add new skills into the -- reintroduce the skills into the business. Can you elaborate on what skills you're looking for, what positions, and how far along that journey are you? Have you like got more people to hire? Sean Summers: Yes. So the whole issue of skill, retail is -- it's a beautiful business. But when you ask yourself the question, where do you find retailers? I mean, you can't go to a college, you can't go to a university and go and find retailers. So retail by its very nature is something that you learn on the job. We had for a protracted period of time, done away with all of our training modules and our training manager programs that we had in place and Thembi is over here. Thembi heads up People for the group. So we've reinstated all of these things back in. And one day, Wendy asked me the question, just put in sort of not simple terms, Wendy, but Wendy said, Sean, just try and give me an understanding of what's really happened in Pick n Pay? And I said, I'll give you an analogy that Raymond would understand because he was a keen golfer. In years by, if we went to our stores, our leadership teams and store levels were all good single handicap golfers. Today, you're going to stores and there are most probably 16, 18 handicaps, 20 handicap golfers. Now you can't blame the people. Because everybody starts, if you play golf, you start with a really lousy handicap and then you work on improving it. And it's exactly the same in retail. So it takes time to reinstill and reinstate these skills at store level. So it's an operational thing at store level. It's a case of ownership that managers truly understand. This is my store. I take total responsibility for it. But then you've got to find great bakers, great butchers, good blockman because these are the skills and the artisans that one needs to put back into the business again. Otherwise, what are you? You're not really doing a great job. So we have to reinstate and rebuild all of those skills back into the business. And we're making really good solid progress now of creating these bases where we've taken in every single region now, we have identified stores where we're doing butchery training, bakery training. And so you've got to train these people and then you've got to make sure that they stay. So you have to create an environment that makes sure that it's conducive for them not only to learn the schools, the skills, but that they don't get poached and leave. So you've got to create an environment where they want to stay as well. Somebody said to me once that you spend a lot of money on training. Is it like really sort of worth it? And I said, well, yes, I think so. They said, well, what happens if you train them and they leave? Well, I said, what happens if you don't train them and they stay. So it's an investment that one needs to make. And we're on that journey. Unknown Analyst: And just on the franchise. The franchise started to revamp. We heard there was a new agreement that came in about 1.5 years ago. Now there's another new agreement. What are the changes you've been making to reinforce that... Sean Summers: So the changes fundamentally for the franchise in that agreement really is just dealing with widening their margin. So it's giving them more of a margin or profit for the individual franchisees and operators. And when we have a look at our aging debt and stuff in franchise, we've got hold of that. It's in a much better way around than it has been for a long, long time. And that's all to do with the health of their income statement at franchise level. So that's where we've been applying a lot of attention. No further questions. Anything online? [ Tam, ] yes? Unknown Executive: A question from Paul Steegers. What is your outlook for Pick n Pay internal inflation for the remainder of the financial year? Sean Summers: So we're sitting at the moment at about 2.1%. Lerena, is that right? The figure? Lerena Olivier: Yes. Spot on. Sean Summers: So many numbers in my head at the moment. So we're sitting at about 2.1% at the moment. I think that one may see that there are certain commodities like rice and maize are, in fact, coming down, which means that poultry prices should also come down. I think that inflation may actually go down. I think it may get closer to 1%. I think in some of the basic categories, you may even see it getting closer to a bit of deflation. If you look at the GDP, what is the GDP? It's about 0.6%? You clever people in the room should know this. And I think that the forecast was to be circa 2%, 2.2% or 2.3%. So we can look just from that perspective as well as not only inflation down, which obviously creates another level of challenge for us, but the GDP is also down. So I come back to this really, really constrained market. This market is tough. And here again, when you sit and speak to the major manufacturers, and I spend a lot of time talking to the big suppliers, all suppliers. For them, they look at the total market. So I mean, if you speak to the 2 sugar suppliers, you basically got sugar done. And then when you have a look at the total market and the dynamics that are there, there are certain categories in this country where people are trading down dramatically. We can see it in Boxer, where we can have a look at the profiles of what protein is being bought there. And you can see the things like Russians, viennas, polonies. You can see how those are just soaring in terms of sales because people are just battling to afford normal protein, red meat and chicken. So these are dynamics. The market is really constrained. And inflation, I think, will actually go down, not up, would be my prediction. Unknown Executive: Another question from Paul Steegers. Please could you explain how you calculate your like-for-like growth for Pick? Do you strip out those stores that are ought to be closed or converted to Boxer? Sean Summers: Yes. Those come out. And like-for-like sales is purely like-for-like stores. So that gets stripped out. Sorry, Lerena, you can... Lerena Olivier: Correct, Sean. You passed the test. Sean Summers: Checking with the head -- just checking with the -- my Chief Sales Prevention Officer. This is... Unknown Executive: Question from [ Titanium Capital ]. The Pick n Pay gross margin is 16.9%. Can you please provide a separate gross margin percentage for corporate and franchise operations? Sean Summers: No. There's levels when we come to segmental disclosure, there's levels that one goes to. And I know that you'd like to have the P&L for every single service area and every single store and build it up from there, but that won't be happening anytime soon. Lerena Olivier: But noted. Unknown Executive: From Reuters. Could you please explain when the group expects to reach breakeven and how this will be done? Lerena Olivier: I mean our guidance is for us to get to those objectives by FY '28. And it will be done through the initiatives that actually is still projected on the slide. It effectively looks to growing the business through like-for-like sales as a first step. As I think both Sean and I have mentioned, the store closures is now largely in the base. So from now on, one would start to see positive sales growth momentum. And we have just improved our gross profit margin, and we do believe there is more to be had as we go on the journey. And then there is the initiatives across the entire expense base. I mean the MOA that we've just signed with DP World is a very, very important strategic pillar. We expect to see those efficiencies coming through over the next 24 months as they unfold. So it literally is driven by each of our Future Fit initiatives. Sean Summers: I think important, Lerena, to add to that, our margin has widened this year by the amount that it has. We've given more margin to our franchisees, and we're absolutely price competitive in the marketplace. So if you look at the independent pricing surveys that have been done, they all absolutely bear that out. So it's not us marking our own homework, which would show you that when 18-odd months ago, when I returned here 24 months ago, our buyers and merchants in the company were more focused on recovering money than actually trading. And I said this must come to an end. We must get back to trading and buying and selling and doing what buyers should be doing. So I think that this is most probably the greatest manifestation of the success that's been had in that regard. We're just back to being good basic retailers again when it comes to buying and selling. Unknown Executive: Question from David Fraser at Peregrine. From a strategic point of view, do you envisage holding on to the Boxer stake indefinitely? Or would you consider an unbundling down the line? Lerena Olivier: We are very, very happy with the Boxer performance, and we are very, very happy to own 65.6% of Boxer. As a matter of fact, we would have loved to have still 100%. So we are definitely very happy with the performance and what the team is delivering for PIK shareholders. Unknown Executive: Another question from Kabelo Moshesha. Post the completion of the hiring process, will the like-for-like employee cost growth revert closer to inflationary levels? Is there more investment required post this period? Lerena Olivier: I think the way you need to think about it is our objective to get our like-for-like expense growth below our like-for-like turnover growth. That is what our key initiatives will deliver, and that will include efficiencies in employee cost stores. Sean spoke to support office initiatives, looking at efficiencies in store, et cetera. So as this unfold over the period of the plan, you would see that like-for-like number coming down. Unknown Executive: Question from [indiscernible] from Verition Fund Management. Would you be willing to consider a Pick n Pay share buyback as the turnaround strategy continues delivering results? Lerena Olivier: I think where we are currently, we are focusing on our target to get the business to cash flow breakeven. And once we have achieved that, one will consider future options. Sean Summers: And I think one must also add to that, that as we get back into a stronger financial health and cash generative again that we need to continue investing inside the company and getting our state back to the condition that it needs to be in. Unknown Executive: Question from Cobus Cilliers from Value Capital Partners. I wanted to know something about the overlaps between Pick n Pay and Boxer. Given the procurement processes for the 2 companies are independent, are there any specific important overlaps between the 2 entities? Sean Summers: No. It's one of the things that we did is drew a real clear line between what Boxer does and what Pick n Pay does. Boxer's philosophy, how they buy, how they go to market is so far away from what Pick n Pay does. And we don't want to mix. We don't want to confuse that in any way, shape or form. So on a piece of paper, sometimes these things look like they make sense. But in reality, when you actually come to implement it, it doesn't work. Unknown Executive: Another question from Paul Steegers. Please talk to the additional investments you have to make that cause Pick segment loss to not improve in FY '26 versus FY '25? Lerena Olivier: I mean I think we have discussed them now in the Q&A. Largely, a lot of them will definitely be the key skills we need in an operational level to ensure that the in-store execution keeps on driving our like-for-like sales. Unknown Executive: Question from Ya'eesh Patel at SBG Securities. Please, can you speak to the CapEx cadence in the Pick n Pay stable? Is there not an element of underinvestment, which could bite over the medium term? How should we think about this? Lerena Olivier: We are very, very careful to ensure that we spend where we get returns. I mean the question is a very valid one, but we also need to make sure that our operational excellence on ground level is established to ensure that we get the returns. So we are measured still in our spending, but we have got the ZAR 3.9 billion on balance sheet and where we believe that it can unlock returns, we will definitely spend the money. Sean Summers: And I think another point to that, Lerena, is it's not just about spending money on stores. You can build the greatest brand-new swanky store, but if you don't have the right people in the store and the product is not there, you're still not going to do the business. So it's not that the whole of the Pick n Pay real estate is broken, not at all. I mean we have a lot of great stores in this company. Certainly, there are some key stores that need some work done to them. That is an absolute fact. But I mean, there's also a big chunk of our state that's great. So we mustn't have a look at Pick n Pay and think that the whole thing is broken. It ain't. Unknown Executive: Another question here. What is your view on the amount that is being spent on online gambling and its impact on disposable income? Sean Summers: This is a really, really current topic, and one can see that there's been commentary from virtually every financial institution. There's been so much talk about it. But I think context is always important. So if we have a look at the, I don't know, ZAR 1.6 trillion or ZAR 1.7 trillion that is turned over in the space of gambling in South Africa. There's somewhere north of about ZAR 70 billion that has been taken out of this market at the moment in terms of profits that have been taken in the gambling industry, the bulk of which is in the online gaming space, not in the casinos and horse racing and the likes, where employment is created. At least in casinos, you've got hotel rooms and [ crew peers] and cleaners and all of that. And in the horse racing industry, you've got a whole industry there. If one looks at online gambling, they don't create new jobs. These program writers are all sitting in other places offshore. ZAR 70 billion a year. I mean, if you think of ZAR 70 billion a year, that's basically Pick n Pay's total revenue, we're still a big company. It's the equivalent of everything that's sold by Pick n Pay is taken out by a few people in profit every year in a highly constrained market. It's over ZAR 1 billion a week has just been hoovered out of the economy. It's difficult. I mean a lot of the research work that's been done by some of the institutions, it would appear that north of 20% of SASSA bonds are going straight into gambling. It's horrendous. It's horrendous. Now how does one deal with it? Smoking was a cancer. And then one of the ways that they dealt with it was that they banned all marketing and promoting of cigarette products and tobacco products. I think we need to give serious consideration in this country to a similar move that all marketing and advertising should be banned forth with, the same as you did with smoking. It's not a crazy thought. You look in Europe, I mean, in Belgium, Holland, Italy, there's no marketing of gambling, it's illegal. Even if you look in the United Kingdom from next year, now will be not possible to put a gambling logo on the front of a soccer jersey. So even in countries like the U.K., it's starting to move. So I think this is an industry that is totally out of control. I think that the poor and the vulnerable and you know even kids, I mean, all you need is your mom and dad's ID number, sign up on the app, put in the ID number and you're off to the races. I mean, I speak to people that are teachers at schools and what have you, and they tell me about the stress that's happening amongst kids where kids are sitting in school gambling on the apps on the phone. It's a problem. It's a huge problem. So I think a serious consideration needs to be given to what is actually happening inside society in this regard. It's not just about the greed of chasing the profit. Unknown Executive: It's a question from Nick Webster at HSBC. There's no mention of liquor performance in the presentation. Could you give us some color here and if it's accretive to the Pick n Pay like-for-likes? Sean Summers: Yes, our Pick n Pay liquor like-for-like sales continue at a similar pace as the rest of our like-for-like sales and liquor continues to grow. It's also a fantastic category for us. We just want in this presentation not to get too granular in terms of calling out everything and just really get to the headline stuff that really people want to know about, and that is what's happening to the core underlying Pick n Pay at a top line level. Unknown Executive: Another question from Johannesburg. What is your opinion on Walmart entering the South African market? What do you believe will be the impact on SA Retail in the short term? Sean Summers: I think it came about 17 years ago. 16 years ago, didn't they? They arrived, yes, 16 or 17 years ago, so it's not like they've just arrived and cleared customs. I know it's quite slow to get through the airport, but they've been here for a while. It would appear at this stage and one is never sanguine about these things because they obviously are a mighty force clearly. From the stores that we've seen that have been identified, it's more a rebranding exercise than anything else. So it would appear that there's some of the real estate that they'll rebrand, and we'll keep an eye on them. But they've always been here, always been here. Unknown Executive: And then another question from Ya'eesh Patel at SBG. Please, can you speak to any dynamics over the past 6 months in the chicken category? Any shortages for Pick n Pay experienced? Sean Summers: Yes, we had the problem with the MDM issue and out of Brazil because a lot of product that comes into this country, MDM is the backbone of what happens for the lower-end proteins, Russians, viennas, polonies and all of that. So that has a profound effect on that. Obviously, chicken feeds as well is a massive piece of the market for Boxer and the like and even in some of our Pick n Pay stores. And then on poultry in general, we had the foot and mouth issue on red meat. So we had a spike in red meat prices, which obviously then put more pressure on poultry, then we had poultry shortages. So the poultry market has been under a lot of pressure as well. Unknown Executive: Question from Keenon at Investec. Are you seeing a highly promotional environment in Pick Clothing? Sean Summers: The clothing market is interesting because obviously, you've got our friends from SHEIN and the like that are sort of playing silently in this space, but growing enormous volumes in this country, absolutely enormous volumes. But if we have a look at our clothing offer within Pick n Pay, we're really not that promotional because I mean, we have -- when I say we're not that promotional, we have a value proposition, and we present fair value to the consumer. So our clothing is not massively price driven. But the textile market, as you know, you can see from the result of the other retailers has been under pressure in the last while. And it's going to be interesting to see, as I say, as we annualize through the two-pod system now because a lot of the two-pot spending that actually went back into the market didn't really go into food. A lot of it went more into sort of clothing and housewares. So let's see how that annualizes out. Unknown Executive: Question from Thishan Govender at Truffle Asset Management. Any guidance on when core Pick n Pay is expected to be free cash flow neutral? And what is the top line like-for-like gross profit margin and OpEx needed to get there? Lerena Olivier: Shall I just pull out my spreadsheet, Sean. Sean Summers: Yes. It's an addiction we are under in. Lerena Olivier: Our guidance remain on the full cash burn for the Pick n Pay segment towards FY '28. And ultimately, the way you need to think about it is that we need to get our trading profit after lease margin to 0. And to do that, about half, we believe, will come from our gross profit and the other half from our trading expenses. Unknown Executive: A question from Citi. Can you provide some color on clothing post-period trade? Sean Summers: Clothing post period trade. continues to show the similar trend pre. We haven't seen any marked drop off from before. So yes, we're really, really happy with the progress that Hazel is making, the new stores that are opening. We've -- from an excess merchandise markdown perspective, we've really done a great job of getting ourselves a lot more efficient and cleaner in that area. So we're very positive about where we are at the moment in our clothing business. And then obviously, the Springbok apparel and merchandise is another great thing for us in that area. We do an unbelievable amount of business in Springbok apparel and merchandise. Unknown Executive: I have 2 more questions. One from Daniel at Ashburton. Could you speak to the outlook for cost growth into H2, including Boxer? Lerena Olivier: Boxer will continue to grow as they're opening their store estate. So you will see similar levels of growth in the Boxer business. And I think the Pick n Pay shape will also reflect the first half. Unknown Executive: And a last question from Nick Webster at HSBC. Could you comment a bit more on your enhanced private label offering in terms of categories and current penetration to Pick n Pay? Sean Summers: Yes, certainly. We've done a lot of work in the last while of cleaning out a lot of house brand product that was in store. That was not particularly well conceived at the point in time when those ranges are put together. We've taken No Name brand again. And again, we've cleaned up the No Name brand range. We've got rid of a lot of items that should never have been in No Name brand. No Name brand was always understood to be in certain categories and in certain commodity groups and present a certain value profile to our customers. So we're busy refocusing that again at the moment. We've got new packaging that's going to be coming forward that will be taking us and really putting No Name brand back as the hero that it should be and a very, very well-known house brand in the country, one of the leading ones. And then on the Pick n Pay brand specifically and Live Well. There's work that's been done behind the scenes there as well. So as I say, we've been getting cleared of a lot of product that was just -- that was not really serving the purpose that it should serve. So I think within the next 12 to 18 to 24 months, you will see quite a radically revamped and repositioned house brand range in the market. But -- our front door always in this company has been branded goods you know at prices really low. That's always been the key hallmark of our success in the company, and that's our backbone. And then your house brand sits on the side of that and performs a very, very important function. And then obviously, on the other side of that is Fresh, which obviously a lot of that is house brand just by nature, but a massive amount of energy and effort going into Fresh. So a lot of stuff happening. Unknown Executive: From David Fraser at Peregrine. Is Pick n Pay core profitability during or at the end of 2028? Lerena Olivier: During. Sean Summers: Morning, David. Chris Logan: It's Chris Logan. Very well done on all the notable improvements. If we consider the tough competitive environment you're faced with, and your trading expenses as a percentage of sales at 22.2%. They're very high historically, and they're high in relation to your GPU of 16.9%. Are you not going to need to take more radical steps to get your trading expenses in line? Sean Summers: You see the critical thing, and thanks for that question because, I mean, that's the vital journey that we're on. So the 2 key metrics in this business, obviously, is your top line sales and then your margin. And then obviously, your trading expenses. But your trading expenses, okay, if you look at your trading expenses, a lot of them are not that variable. When you take cost of occupancy and rates and taxes and rents and all of those kind of things. So a lot of that outflow, the only real variable you got there is kind of sort of your wages and stuff that you can flex. So yes, it's absolutely the nub of where we are. And top line is everything because if you lose the momentum on the top line, there's no way that you can cut your expenses as a rate to offset loss of momentum at the top line level. And that's why one of the constraints currently in this marketplace is top line sales. Now I don't sit here -- we don't sit here in Kenilworth and have this set of circumstances, the macro economy looking at us and our colleagues down over the hill over there or nearer to that side of the mountain on the other side over there, they have a different set of dynamics. They're operating in the exact same market that we're operating in. So these things are common to all. So the pressures we feel, they feel as well. So you see our expenses, if we can get our top line growing at the rate that can continue to show these trends, your expenses -- your wage expense and your fixed cost expense all comes down as a proportion of it. So the work that we are doing currently to do the OpEx reset, to have a look at the store labor reset and all of that stuff that we're doing, this is all work that's happening quietly behind the scenes, and it's ongoing. It's ongoing. We just need your support in the store shopping with us, and then it will help us get there. Unknown Executive: Sorry, Sean, one more question. Is the group breakeven including Boxer for the full year? Lerena Olivier: It's specifically focused on Pick n Pay. Unknown Executive: Okay. And then the last question, can you clarify if the full year guidance for F '26 is on the trading profit pre-leases level? Lerena Olivier: It is on the trading profit pre-leases level. Unknown Executive: And that's it from... Sean Summers: Okay. Yes, sir. Unknown Attendee: One of the important slides you presented of the social welfare benefits you bring to the country, why isn't this more promoted? I mean, with all the problems you're resolving, don't you think we should be more aware of the benefits you're bringing to the society? Sean Summers: A good question from one of our faithful long-term shareholders, private shareholders. We appreciate it. And I appreciate that question. There's a famous saying in life that the hand of the receiver should never know the hand of the giver. And it's something that we also believe in, in the company. So I think just to continually quietly investing in community and doing what you do, creates far more long-term loyalty and sincerity with the communities that we deal with because I know that we're there for them. And it's always been a philosophy of ours and a belief of ours that we just quietly get on with it, and we just change lives in communities. In fact, we've got Suzanne sitting here, who's been at the forefront of a lot of this, and a lot of that instilling that culture into the company. And doing good is good business as our Chairman taught us, Chairman and Founder. Okay. Thank you very much, indeed. Wish you all of the best. Have a great week. Mine is going to be spectacular. Lerena Olivier: Thank you.
Nathan Ryan: Good morning and welcome to the Perseus Mining Investor Webinar and Conference Call. I'll now hand over to Perseus Mining Managing Director and Chief Executive, Craig Jones. Thank you, Craig. Craig Jones: Yes. Thanks, Nathan, and welcome to the Perseus Mining quarterly webinar to discuss our September quarter results. Firstly, it's an honor to assume the role of CEO of Perseus Mining following Jeff Quartermaine's retirement, and he's left a lasting legacy at Perseus. And I'm joined here on the call today by our CFO, Lee-Anne de Bruin. So thanks, Lee-Anne. And also, let me just start by acknowledging the exceptional efforts of our teams across the globe who worked tirelessly to deliver another strong quarter of performance for Perseus. So the September quarter marked another solid performance for Perseus in a year where all of our sites are transitioning into new mining areas. Amongst the change, we delivered strong operational results and continue to generate robust cash flows at the same time as marking meaningful progress on our growth initiatives. Firstly, our 12-month rolling average TRIFR is currently sitting at 0.6, which is a very credible performance. From a safety perspective, we're continuing to focus on our fatal risk management process and our Safely Home each day engagement program as the key pillars for our safety approach. Our gold production for the quarter was just under 100,000 ounces at an all-in site cost of $1,463 per ounce. So whilst our production is lower than the previous quarter, it's in line with our expectations and in line with our full year guidance. Combined gold sales from all 3 operations totaled 102,000 ounces sold at an average sales price of $3,075 per ounce, delivering a robust cash margin of $1,612 an ounce, capitalizing on strong market conditions. The notional cash flow for the quarter was $161 million, and we continue to build on our cash position with the quarter ending with a net cash and bullion of $837 million. The September quarter marked significant transitions for mining locations at Yaouré and Edikan. Yaouré transitioned from the CMA open pit to the lower grade Yaouré open pit, and Edikan's focus moved to the higher-grade Nkosuo pit following the completion of mining at the AG and Fetish pits. And I'll provide further details on this as we progress through each site's performance for the quarter. Starting with Yaouré. As mentioned, Yaouré gold mine operations have transitioned from the CMA open pit to the Yaouré open pit during the quarter. Yaouré open pit is geologically more complicated than CMA open pit, and there's been a strong focus on improving grade control practices to improve reconciliation to account for the shift in geology. We saw a significant improvement in reconciliation over the quarter with September's reconciliation being in line with normal tolerances. For the quarter, Yaouré produced just over 55,000 ounces of gold, which was 21% down on the previous quarter, but in line with our expectations. This reduction reflects the lower grade Yaouré ore consistent with the mine plan, and we can expect to see lower grades associated with the Yaouré pit for the remainder of the year. Production cost for the quarter was $829 an ounce with an all-in site cost of $1,110 per ounce. The all-in site cost decreased by 6% compared to the previous quarter, notably due to a decrease in sustaining capital associated with the timing of ongoing works on the tail storage facility, which was higher in the June '25 quarter -- FY '25 quarter. 57,000 ounces of gold was sold at a weighted average sale price of $2,959 per ounce, which delivered an average cash margin of $1,829 per ounce. Notional operating cash generated by Yaouré during the quarter was $102 million, so continuing to generate strong cash flows at Yaouré. Mill run time was steady at 94% with gold recovery remaining stable as per the previous quarter at 94%. Reconciliation between the block model and the mill for the last 3 months is 17% positive tonnes and 10% negative on grade for a 5% overall increase in contained ounces. A final goodbye cut was taken in the CMA open pit with the pit now being used as the access for the CMA underground development, which began during the quarter. The CMA underground will be the first mechanized underground mine in Côte d'Ivoire. And I'll speak further to the CMA progress later on in the presentation. At Edikan, during the quarter, Edikan produced 33,000 ounces of gold. Majority of the mining during the quarter was conducted at the Nkosuo pit following the completion of the AG and the Fetish pits. The land access of Nkosuo pit was mostly resolved during the quarter with mining of the footprint progressing. There were some challenging wet conditions from sustained rainfall that impacted the ore handling and dilution, resulting in processing of some of the lower-grade stockpiles during the quarter. Stripping was higher due to face positions and access sequencing of the pit as mining areas became available. Production cost for the quarter was $1,232 per ounce and an all-in site cost of $1,603 per ounce, which is $121 per ounce higher than the previous quarter, and the increase is mainly due to mining costs resulted from higher stripping waste stripping at Nkosuo. 31,000 ounces of gold was sold at a weighted average price of $3,337 an ounce, resulting in an average cash margin of $1,734 per ounce and a notional operating cash generation of $57 million. Mill run time and recovery were 94% and 87.7%, respectively, largely in line with the targeted key performance indicators. Reconciliation between the block model and the mill for the last 3 months is 11% negative on tonnes and 6% negative on grade for a 16% reduction in contained ounces. And this is mainly associated with the commencement of the Nkosuo pit and some of the challenging conditions that were experienced during the quarter. Plans are progressing to commence further cutbacks at the Fetish and Esuajah North pits in the next calendar year, consistent with the plans that we articulated in the 5-year outlook in June. During the quarter, Sissingué complex produced 12,000 ounces of gold and the Sissingué complex results were attributed to mining and processing operations at the Sissingué Gold mine and mining operations at the Fimbiasso pits located 65 kilometers from the Sissingué processing facilities. Production cost for the quarter was $2,458 per ounce and an all-in site cost of $2,745 per ounce. The increase in all-in site cost was a combination of increased royalties linked to gold price and higher production costs resulting from scheduled mill reline and surge bin apron feeder maintenance and an increase in waste stripping at Fimbiasso West, Sissingué Stage 4 and Airport West to access high-grade ore. 13,000 ounces of gold was sold at a weighted average sale price of $2,953 per ounce, resulting in an average cash margin of $208 per ounce and a notional operating cash flow of $2 million for the quarter. Mill run time was 91%, which was down from the previous quarter's 96% due to maintenance activities and gold recovery improved marginally to 90.9% from 88.3% in the previous quarter. Reconciliation between the block model and the mill for the last 3 months is 4% negative on tonnes and 14% negative on grade for an 18% reduction in contained ounces. The lower gold grade performance reflects the continuation of higher dilution than anticipated when mining the narrow variably mineralized structures of Sissingué Main, Fimbiasso West and Airport West pits. The 6- to 12-month trends demonstrate improving correlation with gold contained now tracking within 7% of the block model over an annual period and work is ongoing to -- on operational controls to minimize dilution. Ore grade is expected to increase with the mining of the Antoinette deposit at Bagoé, which is scheduled to commence in Q2 of FY '26. Construction of the site infrastructure is progressing well and remains on schedule. All major contracts have been awarded, and key contractor mobilization is proceeding as planned. So looking ahead for FY '26, our guidance remains unchanged. Gold production will be in the range of 400,000 to 440,000 ounces with production weighted to the second half of the year. Our all-in site costs will be between $1,460 and $1,620 per ounce. So our guidance includes Yaouré production reducing from this quarter, as we mentioned before, with all of the ore now coming out of the Yaouré pit. And Sissingué will increase production with access to the higher-grade material at Bagoé. Edikan also increasing production with the main source of the ore from the higher grade Nkosuo pit. So now I'll pass over to Lee-Anne, and she can talk about the financial aspects of the quarter. Lee-Anne de Bruin: Thanks, Craig, and hi, everyone, on the call again. As mentioned by Craig, we have ended this quarter strongly with $837 million of cash and bullion on the balance sheet, slightly up on the June '25 quarter. The balance is after operating margin generated by our sites of USD 170 million. We've also spent on continued investment in organic growth at the sites about $14 million. Capital expenditure was in the region of $67 million for the period, which included $48 million that's been spent on the progression of the Nyanzaga development project, and about $12 million on the CMA underground at Yaouré. There's been continued investments in our host countries through the payment of a USD 29 million dividend payment, which was made to our government partner in Ivory Coast in relation to Yaouré and their 10% shareholding and ongoing payment of taxes in the country. Included in this cash flow was also $11 million on the previous share buyback program, where we purchased back AUD 84 million in total of the AUD 100 million share buyback commenced in September '24. The share buyback was renewed in September '25 for another AUD 100 million. We remain debt-free with the USD 100 million facility undrawn in place. Looking at our hedge position. As previously advised, Perseus continues to evaluate its hedging strategy in the current gold price environment. Our hedging program focuses on maintaining downside protection whilst retaining as much upside opportunity as possible while still observing as we do, prudent cash management practices. Giving consideration to the rising gold price environment we're in, during the year and particularly during the quarter, we have continued to roll off existing forward contracts, reducing our committed hedge position. Since the end of March '25, we have reduced our committed hedge position from 24% to 14% of our 3-year forecast production. In addition, during the quarter, we spent USD 1.7 million purchasing uncommitted put options at about -- at a strike price of about $2,600 per ounce as part of our capital allocation strategy, which seeks to maintain balance sheet resilience under a range of trading conditions. With that, I'll hand back to Craig to now talk about our organic growth across the group. Craig Jones: Thanks, Lee-Anne. So moving on to the organic growth now, and there's been some fantastic development of our Nyanzaga project and CMA projects over the quarter, but we'll start off with Nyanzaga. So during the quarter, there were several important milestones achieved at our Nyanzaga project in Tanzania. We announced the signing of the critical elements of -- the critical agreements between the Tanzanian government and Perseus, mining subsidiary, Nyanzaga Mining Company Limited, locking in the key fiscal arrangements related to the project. We've been very active with our drilling program. And during the quarter, activities consisted of resource definition drilling on the Nyanzaga's Tusker and Kilimani deposits, along with sterilization and exploration drilling within the Nyanzaga mining license. Reconnaissance drilling on a cluster of exploration targets within the exploration tenements surrounding the Nyanzaga mining lease was also undertaken. This drilling continues with encouraging results that could support the potential for a resource and reserve update later this financial year. In terms of construction activities on the ground, you can see from the photos that we've been very busy. There's blinding, formwork and steel fixing commenced on the primary crushing, milling and CIL circuits and a second contract -- concrete contractor has been mobilized to site to provide additional capacity. Fabrication of the SAG and Ball mills are progressing well and are ahead of schedule. Both of which are on the project critical path. We've completed the bulk earthworks at both camp accommodation and treatment plant work areas and the roofing has been installed on the first accommodation blocks. The other buildings are progressing well as we work towards occupancy later this quarter or this coming quarter. Contracts have been awarded for the installation of the transmission line and transformers for the tie-in of the permanent power supply. We also continue to make great progress on the resettlement housing project with 163 of the total 262 houses have been delivered to project affected families. And as of the end of 19th of October, the number has risen to [ 181 ] homes. So overall, the Nyanzaga project remains on budget and on schedule with first gold anticipated in January 2027. As we announced during the quarter, a Presidential Decree Was granted authorizing the development of the -- and operation of the CMA underground at Yaouré. The first cuts of the Pauline decline were taken on Monday, the 29th of September, marking a significant milestone for the CMA underground project. You can see from the photos it's starting to look like a mine. And as of today, the Pauline decline has progressed to 69 meters. Phase support of the remaining 3 portals continued and mining of all 3 will commence early in quarter 2 of this current quarter. The administration building and fit out of the support buildings is complete. Other surface infrastructure, including camp facilities, electrical and maintenance areas to support the underground operations also continued during the quarter. With the commencement of mining of the decline, the next major milestone for the CMA underground project will be first ore production scheduled for Q3 of FY '26 with commercial production scheduled for Q3 of financial year '27. So great progress at CMA. So with sustainability. So alongside our financial and operating performance, Perseus continues to deliver tangible value to our host communities and governments, and this slide captures the breadth of our contributions. In the first quarter of FY '26, our total economic contribution reached $215 million across our host countries. This includes $141 million in local procurement, which directly supports national supply chains and local business development. We also contributed $58 million in taxes and royalties and $1.87 million in community contributions as we continue to support local development funds and key community initiatives. Our workforce overwhelmingly comes from the regions in which we operate with 95% of our employees from our host countries, and this is a reflection of our commitment to build local capability and building the skill base that we need for our future growth. Safety remains at the core of how we operated and achieving a TRIFR of 0.6 and an LTIFR of 0, making the full year without a lost time injury. That's a significant milestone and a testament to the safety culture that's embedded within our organization. We've also published our FY '25 Sustainable Development Report, which includes a refreshed sustainability strategy and a double materiality assessment. This ensures that our ESG priorities reflect both our business risks and the issues that matter most to our stakeholders, and I encourage you to read that on our website. Sustainability is at the core of our purpose and guides how we deliver results, creating value and building resilience. This is what makes Perseus a trusted partner in achieving its mission of creating material benefits for all stakeholders in fair and equitable proportions. So we continued -- so the September quarter capped off another successful quarter for Perseus. We continue to deliver solid operating performance, generate strong financial returns and progress our strategic growth projects, all while maintaining high safety and ESG standards. With a strong balance sheet, high-margin operations and clear growth path, we deliver -- we believe that we're well positioned to continue delivering long-term value for our shareholders. So thank you, and I'll now open the floor to questions. Nathan Ryan: [Operator Instructions] Your first question comes from Reg Spencer at Canaccord. Reg Spencer: Congrats on another good quarter. My first question is just in relation to Sissingué. Those -- that delay that you mentioned with respect to the mining conventions, is that got more -- does that delay more to do with the elections or the changes that were recently made to the mining code? Just trying to get a handle on the overall environment in Côte d'Ivoire. Craig Jones: I mean the elections were held on Saturday in Côte d'Ivoire. And while accounts seems to have progressed pretty well, we obviously keep watching that over the next couple of days. In terms of the mining convention, that's -- we're just working through the process of obtaining those. It takes a little bit of time. Lee-Anne de Bruin: Yes. I think, Reg, to your question, I think, no, it's unrelated to the mining code. But it's just -- as you know, during election time, it's hard to get people to put pen to paper. That said, we're quite progressed, and it's likely we'll get it sorted out. The mining convention, however, is not relevant to us commencing mining, however. It's just a matter of making sure we've signed up to all the fiscal arrangements that are agreed. Reg Spencer: Understood. And last one, feel free, Lee-Anne or Craig to answer this, but I'd be interested to get your views on hedging. Gold price clearly very high at the moment. You've got a relatively low percentage of hedging, and I suppose that's good for cash flow at this point in time. But the outlook, is there an argument to put more hedges in place to lock in gold prices? Lee-Anne de Bruin: Yes. I mean if I had a crystal ball and I knew where gold price was going, I'd be much richer than I am now, Reg. That said, as you know, we're always focused on disciplined cash management, and that's why we've shifted to the structure of paying some of our capital towards buying puts, which are relatively cheap at the moment. So although our committed hedging has come down, which is our forward book and our calls, the shift to puts allows us to protect the downside. So we still have -- we're still maintaining that downside protection through putting the puts in place. But those puts are not committed hedging. So we don't have to deliver them, but they are then allowing us to make sure that if gold price drops below $2,600 that we're relatively protected there. Nathan Ryan: Your next question comes from Richard Knights at Barrenjoey. Richard Knights: Just a quick one on Edikan. Obviously, production was down a little bit quarter-on-quarter. Just wondering about the access issues at Nkosuo. And I think you mentioned they're largely resolved. What is remaining? And is that going to have any impact over the rest of the year? And I suppose how should we think about the run rate at Edikan over the rest of the year? Craig Jones: I think the way to think about the run rate for Edikan at the end of the year is, as we've said, it will increase to -- continue to increase in production as we get deeper into the Nkosuo pit. We've -- when I say largely complete, we've got the majority of access to the entire footprint now and continuing to mine down, which we do get a little bit out of sequence with the access issues we were having. So hence, the stripping that we talked about being a little bit more. And so we're just getting back into sequence now in the pit and don't expect to see any constraints for us moving forward. Nathan Ryan: Your next question comes from Levi Spry at UBS. Levi Spry: Maybe just at Yaouré, can you just maybe talk us through the profile over the remainder of the year as the underground ramps up? Craig Jones: Yes. So obviously, we talked last quarter about the delays we were having in getting our Presidential Decree. So that's now resolved and behind us, and we're basically ramping up our mining progress for the CMA underground. And as I mentioned before, we're quite a way down the Pauline decline now, and we'll continue to get our rhythm and cycle times refined as we move forward. We're pretty confident that, that's going to progress well, and we should recover some of that time. But obviously, we need a little bit more time of mining before we can really go out and say that we are going to do that. So that's our primary focus at the moment is to get the mining operations efficient and turning over the heading so that we can recover that time. Lee-Anne de Bruin: And Levy, I mean, just high level, as you know, as we happily mentioned it is because we're entering the Yaouré pit, your production that will come off slightly for Yaouré over the next 2 or 3 quarters given that you're in the lower-grade Yaouré pit and ramping up the underground. Craig Jones: So we're essentially -- the majority of the gold for the year comes out of the CMA pit. There's only a small contribution from the underground. Lee-Anne de Bruin: Yes, from the Yaouré pit. Craig Jones: Sorry, the Yaouré pit. So that's our primary focus now is continuing, but the grades are lower. Levi Spry: Yes. Okay. And if I can just ask one about Nyanzaga. So I think you mentioned the reserve and resource update coming this year. How do we think about the materiality of that, I guess, given the stage it's at, potential upside and then even the pricing assumptions that were used in the last cut? Craig Jones: I think we'll have to wait and see for that work to be completed before we can give you any sort of indication on the materiality of that. But as we continue to do the drilling, we'll continue to update our models. We'll look at our assumptions around prices and so forth. And -- but everything seems to be going in the right direction at the moment. Levi Spry: Yes. Okay. Maybe just on that. So the updates we get on the grade reconciliation across the operations, is there anything that has caught your eye in the time you've been in the seat when it comes to that? Craig Jones: Look, I mean, that's obviously a core focus for us. I talked about Sissingué, trying to close the gap on that. There's been some good progress in terms of Yaouré, closing the gap on the reconciliation and tightening up our processes and mining practices, and we've seen some positive movements in that regard. So it's something that we'll be continuing to focus on. I mean there's a reason we put it in the report so that we can demonstrate that we are -- we have reliability in our ore bodies, and we have to mine them reliably as well. So very much a key focus for us. Nathan Ryan: Your next question comes from Andrew Bowler at Macquarie. Andrew Bowler: Just following on from the hedging questions. I'm not sure if you mentioned it earlier, Lee-Anne, but just the cost of those puts. I'm assuming that's caught up in the working capital and other line on the waterfall chart and just [indiscernible] that and how much you're willing to spend, I guess, every quarter from now? Lee-Anne de Bruin: Yes. I mean we spent about, as I said, USD 1.7 million in the quarter. We've got a mandate from the Board to spend -- to not overspend on it, and we're continually looking at the cost of it, but puts at the moment are relatively cheap. I think we're paying between $40 and $70 an ounce or something is what we've been paying. Andrew Bowler: No worries. And just another one, interesting comments on Sudan just talking about gradual improvement in security recently. I'm just wondering if that's going to affect the rate of spend for that project. Will we see an uptick for the remainder of the year? Or is the budget and it doesn't really matter if security improves, that's all we'll see -- excuse my voice, I should say? Craig Jones: Well, I mean, look, the reports coming out of Sudan are positive, which is a good thing. Obviously, there's a little way to go before we see how all that pans out. But we'll keep watching that. In terms of our current plans, our current plans are as per our budget. And if things change to the point where we think that, that would change, then we'll let the market know. But at this point in time, we're continuing to progress towards our budget. Lee-Anne de Bruin: Yes. And remember, Andrew, we've always said the security issues are quite minor for us given where we're located. The thing for us to make a decision there is to make sure the supply chain and logistics pieces are working because that's the most critical part probably to the project over and above security of our people. Nathan Ryan: Your next question comes from David Radclyffe at Global Mining Research. David Radclyffe: So it's early days for the question, maybe a little bit premature. But look, any thoughts on the opportunities you might have identified in the business so far? And then when you think to the overall strategy, are you sticking to this? Or have you thought of any way you might sort of think to tweak this in the future? Craig Jones: Yes. Thanks for the question, David. Look, the plan is still the plan. So there's a solid platform that Jeff and the team have built over the years, and the company has enormous optionality in it. I think for us moving forward, we'll be focusing on delivering the 5-year outlook that's been presented to the market. And that means we need to continue to deliver on our operating performance. We need to focus on the delivery of the Nyanzaga project and ramp that up in the March quarter of 2027. We need to build and operate the CMA project. So that's a shift, the first underground mine in Côte d'Ivoire. But we'll also be focusing on extending the life of our existing assets and doing more exploration in the exploration space. So a lot of focus on near-mine exploration. We're also doing some greenfield work as well. And then beyond that, if any other options come our way, then we'll assess them on their relative merits. But the plan is to continue to run safe and efficient operations to continue to generate strong cash flows, continue to return capital to shareholders and continue our growth options at the same time. And we think that we're in a position that we can do that. So that's how we're thinking -- well, I say that's how I'm thinking about it, and we're thinking about it at the moment. David Radclyffe: Great. That was very clear. Then maybe a follow-up on Edikan. So Nkosuo is ramping up a lot of volume of low-grade stocks processed this quarter. So is that going to be -- is that going to flow through to next quarter? And then when do the other cutbacks start to deliver ore? Craig Jones: Yes. So the -- let's start with Nkosuo. A lot of the reason for the low-grade stocks at Nkosuo was the wet season, obviously, in Côte d'Ivoire at the moment, and that finishes pretty much this month. So we're expecting conditions to improve substantially for the rest of the year, and that will just really get us into the rhythm in Nkosuo and starts to deliver the higher grade that we're expecting. So you should see that grade improve throughout the year. With the other 2 pits, we'll start that stripping activities in the next half. And there's a fair bit of stripping before we get into the ore there. So it's more focused on next year's grade than this current year. Nathan Ryan: Thank you. There are no further questions at this time. So I'll now hand back to Craig for closing remarks. Craig Jones: Thanks, everyone. We're very pleased with the quarter that we've delivered. We're pleased that we're continuing to deliver strong operating performance and create strong financial returns. And really thankful for the hard work of our people across the globe who do put a lot of effort in, and that's one thing I've noticed about this company is there's a huge amount of personal ownership and discretional effort that sits within the organization, and that's what helps create the kinds of results that Perseus is known for. So thanks very much for your time, and have a good day.
Sean Summers: Okay. Good morning, and welcome, everybody, to our H1 FY '26 results presentation, a special warm welcome Mrs. Ackerman, Wendy, good morning. Welcome, Gareth, and all my colleagues from Pick n Pay. And everybody, both online and here, in the auditorium, it's great to have you with us this morning. As part of the introduction, I just want to quickly flip over and just to give a little bit of an overview of where we find ourselves now on our journey in Pick n Pay. It's been quite an interesting 24 months since I returned and it's been a bit of a compacted time period. In some dimension, it feels like I never ever left Pick n Pay, but the last 2 years have really, really flowed and gone by fast. And the great thing for us is that, if we have to sit and really be truly honest with ourselves, and we cast our minds back about 18 months ago, not even 18 months, maybe 15, 16 months. When we put forward the business plan in May of what we were going to do in terms of restoring the fortunes of Pick n Pay. I can say with all honesty that there is not much that we would have done differently. And for me, honestly, as you know, it's the only thing that you can deal with in life and we continually are asking ourselves a question, are there any other levers we can find or are there any other levers we can pull, and they certainly are not. So all of the levers that we have identified, all of the levers that we are busy pulling and pushing and juggling are absolutely on track at this stage. Would we like things to be faster? In fact, I was sharing with my colleagues when we were here yesterday, preparing for this. I would rather have been racing up the hill in Cape Town and the hill climb than being in the room over here because that's how I like life. I like things to be much faster. But certainly, one needs to be considered as well because otherwise, you don't get to the top of the hill. And that's our journey that we're on. So I think very importantly, let's jump straight into the numbers. So I'd like to call on Lerena. Please come up, Lerena. Thank you. Lerena Olivier: Thank you, Sean. Good morning, everybody, and thank you for joining us here in person and also online. Following the completion of the successful recapitalization program in our previous financial year, our focus is now squarely on operational execution. So I'm very happy in this result to focus on operational metrics. The group delivered a solid result for this half. We have successfully executed across various strategic priorities. The group's turnover grew 4.9%, 4.7% on a like-for-like basis. We delivered meaningful improvement on all of the key metrics. We've improved our headline loss by 45%. This improvement was driven by trading profit improvement of ZAR 227 million coming from both Boxer and Pick n Pay, and it was definitely supported by the positive swing in interest of ZAR 537 million. We ended on a balance sheet that is strong with ZAR 5.1 billion of cash. We've again increased our segmental disclosures in this result. We've expanded some lines on the P&L that we do per segment. And we've also added for your benefit into Appendix 1, EBITDA and trading profit after leases per segment. For the purpose of this result, Boxer has already presented their results 2 weeks ago. So I will briefly touch on Boxer, but the focus will be Pick n Pay. Both Sean and I will focus on the Pick n Pay result. This is our primary goal to turn the business successfully around. Our strategic priority remains growing our like-for-like sales growth across both our franchise and our own stores. For this half, our company-owned stores grew 4.8% on a like-for-like basis and our franchise business 1.7%. What is important is that we now have 3 consecutive periods of continuous growth improvement. We've delivered positive like-for-like growth of 2.2%, and our internal selling price was contained at 2.1%, well below CPI Food of 4.6%. I'm also happy to report that this momentum does carry through into the second half. Of specific importance for me is the improvement in our franchise issues, up 1.7% compared to the decline of 1.4% in the preceding half. Our franchise business is extremely important to us. They remain a critical growth driver for us, and the improvement in franchise issues reflects the improvements we are making in our franchise model. Our omnichannel grew 34%, 44% up in asap! and Mr D. Our clothing business continues to grow. They're up 12% in a very, very tough market. Hazel and her team opened 9 more stores in this half, bringing the total estate to 424 stores. The Pick n Pay segment itself delivered ZAR 36.3 billion worth of turnover. That is the same number than last year. This is notwithstanding the closing of 59 stores as part of our Store Estate Reset program. Sean will give more detail on this, but this is now largely completed with only a few more stores coming through in the second half. The actual turnover achieved reflects our relentless focus on operational and customer-facing initiatives. The Pick n Pay business is not smaller year-on-year. And as the store closures are now largely in the base, we will continue to grow into the future. As I've mentioned in my opening remarks, we have again segmented Pick n Pay and Boxer and we'll be presenting the results separately in this presentation. I will now take you through the results of each of them individually. The group now owns 65.6% of Boxer post the IPO in November 2024. Our Boxer business grew turnover by 13.9% and delivered a trading profit improvement as consolidated by the group of 16.2%. They maintained a trading margin at 4.1%, aligned with the business philosophy to reinvest any gains in their customer offer. Marek and David presented the results on the 13th of October, and I would really like to congratulate them on a job well done. They are now looking like seasoned results professionals. The full Boxer result is available on their website. There we go. The Pick n Pay key metrics reflects progress across all our strategic initiatives. All of these are needed to achieve our goal of getting the business back to profit and cash flow breakeven. There were 2 main drivers of the improvement in the Pick n Pay result. There is an interest benefit year-on-year as a result of the recapitalization program. The number in the Pick n Pay segment is ZAR 598 million. And we had an improvement in our trading loss of ZAR 97 million. I will unpack these 2 individually in the following slides. The ZAR 97 million improvement in a trading loss delivered a trading loss of ZAR 621 million. Our trading margin improved by 30 basis points. This was supported by a 40% improvement in our gross profit margin, and I will unpack that in the next slide. A slight increase in our trading expenses, up 20 basis points as a percentage of turnover and a pleasing increase in our other income, up 2.7%, supported by our increase in commissions and other income of 6.3%. This is very pleasing for us given the fact that the group's turnover was flat year-on-year. We have successfully executed our Store Reset program. There's only a number of stores that will still come in the future. We have avoided losses of close to a ZAR 100 million in this result. These were reinvested to support building the muscle we need to create retail excellence for our Pick n Pay turnaround plan. It is very important to note that to achieve this remarkable like-for-like improvement, we needed to make sure that we've got the right skills on a store and operational level. That is what we need to ultimately deliver on our turnaround plan. In this half, we've delivered on the like-for-like sales growth. We've delivered on our gross profit margin improvement. We have reinvested the savings we've made out of the successful Store Reset plan in key retail skills in our business. As a result, our like-for-like expenses grew 6.2% compared to our turnover of 4.4%. That is the reason why the progress on the strategic plan is not yet making a material improvement on the trading loss in the business. We have made great progress, but we have more to do, and it will take time. We are focused on building a sustainable business. We will not chase quick wins just to make the results stronger in the short term. We are building a long-term profitable business. As a result of this, the improvement in the trading expenses will come, but it will take time as we execute our Future Fit strategic initiatives. The gross profit margin increased by 40 basis points, as I've mentioned, up to 16.9%. This was supported by key improvements in category mix, specifically in general merchandise, clothing and our fresh range. We had a notable reduction in our waste, specifically in Fresh as in-store operations improved. We've also improved our buying and our logistic efficiencies. Notwithstanding these improvements, we also made investments. Pick n Pay is price competitive. We have achieved this while improving our customer offer. We now offer an increased range at better prices without compromising on our inventory control. We have also invested in our franchise model. We have reduced the sales margin to our franchisees to ensure that these very important partners improve their underlying profitability. The improvement of the 40 basis points on this line item is therefore a very strong achievement considering the investments that we made during the period. Our trading expenses are up only 0.9%. This reflects the impact of the Store Reset plan. On a like-for-like basis, the increase is up 6.2%. The increase in like-for-like expenses were driven by the building blocks of the Future Fit business. We continued selective hiring in key skills to drive turnover. We have increased store training in a focused and effective manner. We've increased brand investment, I'm sure most of you would have noticed. While we are focusing on spending in the right areas, the remaining expenses remains well controlled. As I've mentioned before, we are acutely aware of the need to ensure that our like-for-like expenses increases by a rate less than our like-for-like turnover growth, and this remains a key focus area for us. Pick n Pay's net finance costs reduced by 60% for the period. This as a result of the FY '25 debt paydown. This, alongside a reduction in our net lease interest of 2.2%, reflecting the successful Store Reset plan has really supported the year-on-year profitability of this result. The group's headline earnings per share showed significant improvement, up 56.2% This, as I've mentioned before, was supported by the interest swing on a group level of ZAR 537 million. Two additional items impacted year-on-year comparability. We've got a 25% increase in our weighted average number of shares as a result of the Rights Offer in August 2024. We also now have a controlling interest of Boxer of 34.4% post the IPO in November last year -- not last year, November 2024. Excluding these items, alongside the interest saving, our headline earnings per share increased 27.8%, reflecting the trading result improvement in both Boxer and Pick n Pay. Pick n Pay ended the half with ZAR 3.9 billion of cash on balance sheet. The cash utilized from operations of ZAR 0.8 billion is in line with what we've done last year. The improvements delivered through the Store Reset plan were reinvested and, therefore, it's reflective in the year-on-year EBITDA number being flat. To build retail excellence, we need to deliver this plan. We absolutely have to invest in these skills to drive top line across FY '27 and FY '28. Interest received for the year was just over ZAR 100 million, reflecting the improvement of ZAR 0.5 billion year-on-year. The working capital and CapEx movements, I will unpack in the next slides. The net result was a free cash flow utilization of ZAR 0.3 billion for the year, in line with our plans. I guided at the full year FY '25 result that we are aiming to half the cash burn for the Pick n Pay segment of last year of ZAR 2.6 billion. We are now forecasting that the cash burn for this year will be approximately ZAR 1.6 billion. The group released working capital of ZAR 1.7 billion for the half. This is across both Boxer and Pick n Pay. This is in line with our normal H1, H2 seasonality, and this benefit will be absorbed during the second half of the year. There is some cutoff as well, but both the cutoff and the seasonality will unwind in the second half of the year. What is important to note is Pick n Pay's continued working capital improvement. Our inventory declined by 3.5%, notwithstanding the fact that our turnover year-on-year were flat, and we reinvested in our ranges. There has been a continuous focus on optimizing inventory in the business. We've also seen a continued improvement in our franchise debt as the impact of the new franchise model is supporting our franchisees. I am very comfortable with the working capital levels of both Pick n Pay and Boxer. The group invested ZAR 0.9 billion during the first half of this year. Both Boxer and Clothing continues to invest to support their growth ambitions. Pick n Pay forecasted spend for the full year is just under -- apologies, Pick n Pay's forecasted spend for the full year is ZAR 0.9 billion. This is an increase from the ZAR 500 million of last year. The Pick n Pay spend remains measured. We are spending on key revamps where we know we can get the maximum ROI and critical repairs and maintenance. Our focus remains an investment in OpEx and the skills we need to drive our like-for-like turnover growth. The group ended with cash reserves of ZAR 5.1 billion, ZAR 3.9 billion in Pick n Pay and ZAR 1.1 billion in Boxer. Pick n Pay itself has got ZAR 3 billion worth of working capital facilities. These are unutilized, unsecured and not guaranteed by Boxer. Our balance sheet is strong. It will support Boxer's growth and Pick n Pay on its turnaround path. I now hand over to Sean to take you through the operational review. Sean Summers: Thanks, Lerena. So as we see, it's definitely work in progress. And as I've said, it's a case of just steadily putting one foot in front of the other as we continue on our journey. And there are just a couple of specific call-outs that I would like to make in this regard. So we said that in terms of strengthening our core customer offer that we would apply a lot of our energy and effort in terms of ranging in the store. And we can see that the ranges are dramatically improved and enhanced at store level. And it's one of the reasons why we are driving our like-for-like sales growth because when you look at our absolute numbers in the total stores that we've closed over the period of time in the last 2 years, 18 months that we've been going at this project. We have -- while we've been taking some sales out of the business in the closed stores, we've managed to reinject like-for-like sales growth back into the stores again with enhanced ranging. On a quality basis, we've applied a lot of our energy and attention as to what happens at store level operationally with skills and injecting knowledge back into the business again. We can see that on the value front from a marketing perspective that we have really, really put our strong foot forward in terms of marketing. Our relationship with FNB eBucks continues to be a fantastic relationship that we have. And all of the work that we've been doing with the Burger Fridays and the work that we do on Saturdays and Sundays and all of these promotions that we're doing has really been driving a good value proposition across the business. And then on the service front, we have been applying a lot of our energy and effort into training of our people again and actually getting and creating schools for blockman, bakers and regetting these skills back into the company again because these skills are not just freely available. It takes time to train these people up. A lot of focus, and if you go back, Pick n Pay was always known as the fresh food people. And to a large degree, we had lost that. And this is one of the major journeys that we're on at the moment, is reinvigorating our whole fresh offering in the company and getting back on to this virtuous circle, and we're starting to see the rewards coming out of this now in terms of the work that's been done under Peter and the Fresh food team. In terms of online and what we do with asap!, we relaunched the asap! app this year, and we have consolidated everything into the one app to make it far more user-friendly, and we're now up to a range of 35,000-odd products in asap!. asap! continues to be a very important part of the offer that we have in the company. And for those customers who want their goods delivered home, we will do it gladly with the greatest of pleasure. But our primary focus as a retailer still remains, number one, on having great stores with great product, great people and great shopping experience as the backbone of what we do. Franchise. I'm pleased to report that our franchise has moved positively into -- I think this one was about minus 1.4%, now up to 1.7% like-for-likes in franchise, and that's moved forward strongly. And we had a fantastic franchise conference 2 weeks ago in Johannesburg. And I'm pleased to say that our relationship with our franchisees today is as strong as it's ever been. The changes that we've made on the franchise model are working very, very well. And just in general, you just get a good feeling when you go around the company and you visit with the franchisees. And it's just extraordinary. We had 2 of our great franchisees this year that won the awards came from Stutterheim and [indiscernible]. And if you look at Stutterheim, I mean, our franchise family in the area of Stutterheim, they almost run that town in terms of the work that they do with council and community and everybody. It's just extraordinary to see how these families really, really operate in these marketplaces. It's just too beautiful. Our hypermarkets is another key area of focus for us where we are really putting the real essence of hypermarkets back into hypermarket again, and we're seeing great success in this regard. So some of our larger stores where we sort of got a 6,000 square meter -- where we're not GLA, we've got 6,000 square meter trading on the floor, 5,000 square meters on the floor that we're converting this over to hypermarkets. We're putting enhanced GMD ranges back in there again, and we're getting extraordinary success with this format. And I see Jarett sitting over there, well done. We're really getting good traction there. So if we look at where we are and we have a look at our acceleration in like-for-like sales, it really is extraordinary in a very, very constrained market. And I think one needs to be realistic in life about the marketplace that we do operate in. And it's interesting in this marketplace because at the moment, we have a retail space where we're still seeing a lot of doors being opened by our competitors. One of them alone is over 300 new doors in the last year. And you take that against us closing 50, 60-odd stores over 18 months. So if you just have a look at the dynamic of optionality for consumers to shop elsewhere, it really is extraordinary that we managed to grow the like-for-like sales to the degree that we have. And I'm always realistic about these things. If you ask me what is one of the real pleasant surprises that's really surprised me, it's actually been our ability to show this level of like-for-like sales growth. And again, I'm realistic about these things because you can never ever fool yourself and end up in a sort of a fool's paradise because people tell you what you want to hear. Sometimes when you sit with suppliers, vendors, landlords, they also tell you what they think you want to hear. So you need to keep your feet in the ground. But we have various ways that we can read markets. There are certain market surveys and stuff that are done out there. And I'm just really so astounded by the fact that our continual market share decline that we were in has, in fact, bottomed out, started to solidify and starting to move in the right direction again. And that's in the market, and that's total market. And that's moving into a market where we're just seeing so much other optionality that's available out there. So it's extraordinary in this regard. And hopefully, this trend will continue to move forward in this direction. We obviously have some challenges in this marketplace as well. We're now coming to annualize on the [ two-pot ] release that happened last year. So it's going to be interesting to see what effect that's going to have in the next weeks and months as that starts to annualize and move through. And then obviously, a very tough market that we're in. But in terms of establishing a future-fit business, as I said at the opening, if we went back with the benefit of hindsight and looked at what we've done in the company, what would we do differently, there would not be much that we would actually be doing differently. And so in all of these metrics that are over here, there are 2 that I'd like to specifically call out. And the first one is the Store Estate reset, which is nearing completion. Now it's always fascinated me how Pick n Pay closing stores has predominated in all of the media and everything you read is Pick n Pay is closing, Pick n Pay is closing, no. We got rid of stores that were no good. That's just the simple truth of it. And it is something that every single retailer does. We hadn't done enough for a long, long period of time. The journey is done. There will be a few more left that we're going to mop up at the end. The great thing here is if you have a look at 27 of the stores that were originally identified have actually either turned to profit or coming back, getting close to turning to profit again. And even at a breakeven level, at a store level, it still contributes to the center. So this thing is neither -- it's a very dynamic process, and it's not necessarily linear or binary. So this journey is done. And from here on in, as we review leases as they come up, we will continue to assess each lease on a store-by-store basis because in some places, demographics change, the center of what's happening, the taxi rank moves, stores now are rendered no longer in the right place, and that will just be part and parcel of what we do. So I'm pleased to say that this is basically done, which is fantastic. The other really great one is our strategic supplier partnership that we have here. And as we know, our Eastport distribution center, which is the most extraordinary facility. And as I've said to Marcel, I think Marcel, I saw you walking in earlier. There's Marcel sitting there. As I said to Marcel in the beginning, don't be defensive of this, Marcel, because in the brief that you were given, you achieved 11 out of 10. You built a magnificent facility there, unfortunately, for the wrong company. It was too big, way too big. So I'm pleased to say that we've signed our MOU with DP World and the Eastport facility has now moved off to DP World, and we will be getting those savings and start to get those savings almost with immediate effect. So it's an extraordinary job of work that has been done. And I'm pleased to say that Eastport is now currently almost fully utilized because they have the ability to put some of their existing clients that they have into the building. And some of those people are, in fact, Pick n Pay suppliers. So it's even more efficient because the stock is now actually in the building. So it's a win-win across all the pieces of work that we're doing there. So that's another fantastic huge piece of work that we've got done and ticked off. Our digital transformation. And the reason why I call this out is just simply that there is a lot of talk around what is going on in this marketplace in terms of digital transformation and retail media and all of this. We have been in this for ages. In fact, we started selling our data at the end of my days in my previous life at Pick n Pay already. So this is nothing new. It continues to evolve. It's a very, very important part of the business, and we will continue to grow this. But in all of these areas, retail media and data analytics for our suppliers, this we will continue to grow. As we do, Smart Shopper, very, very important to us. It's a key part of our business, as I said before. And then obviously, our value-added services. We've received quite a lot of rewards and awards and accolades for the advertising and marketing that we've done. I think you will see in the company that our marketing is a lot crisper. It's a lot clearer, and it's a lot more targeted and directed than it used to be. Clothing. Our Clothing continues to perform fantastically and just extraordinary, where Pick n Pay has really found a segment in the marketplace that Hazel, and her team, have clearly really been able to identify what it is that their customers are looking for in terms of value and in terms of fashion, and it continues to grow strongly. Boxer, Marek and his team has -- they've just done the most extraordinary, extraordinary job of work. As you say, Lerena, they are now experienced results and roadshow presenters. Marek phoned me this morning to wish me well because he had a week like I'm going to have 2 weeks ago. But Boxer truly is an absolute, absolute gem. I mean they're just in the right spot and their virtuous circle is incredible. So to Marek, to you and your entire team, all I can say is, well, well done, my friend. We're very, very proud of you, and very privileged to have you as a part of us. Supporting our communities, notwithstanding the fact that we are busy working our way back into the sunshine and busy working our way back into profit, we have doubled down on our efforts in terms of what has always made Pick n Pay what it is. When Raymond and Wendy started Pick n Pay, there was always the fundamental belief that this is a company for the people, by the people and that you invest in society, you invest in community, and it is something that we have doubled down. We have a CSI WhatsApp Group. And I'm just astounded every week, every weekend, during the week at the updates that just continually get flicked through where right across the length and breadth of this country, our people just do the most extraordinary acts of help, of reaching out to community and supporting people in need. It's really magnificent. This has been one of the really wonderful things for us and a great privilege for us to be a sponsor of the Springboks. And at the start, it was always a case of the Springboks being the one thing in this country that unites South Africa and pull South Africa together because if ever this country needed to start pulling together, it's now. And that's why for us, in the first instance of the Springboks, it was more than just about sponsoring the Springboks. It was a symbolism of actually taking what it is that unites this country and brings it together and also making a statement that Pick n Pay is here. Pick n Pay is going nowhere. And as we say, South Africa, we've got your back. And hopefully, South Africa has got ours, and is starting to show in the footfall in the stores. But more importantly, it's not just about sponsoring the Springboks. It's about the work that's been done at grassroots level in Rugby. We don't realize just how important Rugby is amongst the youth in this country today. And you can go across the length and breadth of South Africa and see how Rugby is really becoming a force for good and a force for getting the country together. So we're massively involved down at the grassroots level in Rugby as well. So that's fantastic. So just a couple of closing remarks here. And as I said in the beginning, our strategic priorities that we put in place, we're kind of working our way through them, and we've got most of it ticked away. When we look at leadership and people, there's still obviously the issue of succession. I'm still here for another 2.5 years, and it is something that is top of mind for us. And we're busy working at all of our succession programs in that regard. And then also about building leadership within the company from within the company again because that's what retail is. It's about growing your own people. Accelerating our like-for-like sales, as I said, we're still working hard at that, and we'll continue to work hard at that. We continue to strengthen our partnerships across the board and to work with our landlords very, very importantly and to make sure that, that moves in the right direction as well as our supplier base. We reset the Store Estate that's kind of done. And the Future Fit structure is still work that is underway. And that's having a look at what is our store OpEx structures, what are our support OpEx structures. And those are things that are just work in motion as we go forward day-to-day. So I really just want to thank all my colleagues in the company that I'm privileged to work with and to be a part of. I can feel -- I had to -- I had an interview with Alec Hogg, before I came here earlier this morning. And Alec asked me, what does it feel like, Sean, when you go into the company and when you go into the stores compared to when you came back 2 years ago? I think that I can say without any fear of doubt that this is a different company today. Are we where we want to be? Hell, no. But are we well on the way on this journey? Absolutely. And I've said before, this is like climbing Mount Everest. I said, our journey is at Mount Everest. So Alec asked me this morning, well, if you think of Table Mountain and not Mount Everest, where are you in Table Mountain? I said, Alec, we are solidly at the cable station at the bottom there. We bought our ticket, and the cable car is on the way. We know where we're going, but we've got a journey to get there. But we know what it looks like. We know how to get there. And I want to thank everybody for their support, not only the people inside this company, but very, very importantly, the investors in this company who stay the haul with us, stay the long haul with us, the family, Wendy, Gareth, the Ackerman family for the support that they've given to both myself and the company. And it's a great privilege to stand here as the CEO of this wonderful organization. So thank you very much. I don't know if there are any questions. Unknown Analyst: [indiscernible] I'll speak for now. Sean Summers: Yes. Unknown Analyst: Sean, Lerena, well done on the great work you've done so far [indiscernible]. Well, the first one, you mentioned a lot of -- you want to add new skills into the -- reintroduce the skills into the business. Can you elaborate on what skills you're looking for, what positions, and how far along that journey are you? Have you like got more people to hire? Sean Summers: Yes. So the whole issue of skill, retail is -- it's a beautiful business. But when you ask yourself the question, where do you find retailers? I mean, you can't go to a college, you can't go to a university and go and find retailers. So retail by its very nature is something that you learn on the job. We had for a protracted period of time, done away with all of our training modules and our training manager programs that we had in place and Thembi is over here. Thembi heads up People for the group. So we've reinstated all of these things back in. And one day, Wendy asked me the question, just put in sort of not simple terms, Wendy, but Wendy said, Sean, just try and give me an understanding of what's really happened in Pick n Pay? And I said, I'll give you an analogy that Raymond would understand because he was a keen golfer. In years by, if we went to our stores, our leadership teams and store levels were all good single handicap golfers. Today, you're going to stores and there are most probably 16, 18 handicaps, 20 handicap golfers. Now you can't blame the people. Because everybody starts, if you play golf, you start with a really lousy handicap and then you work on improving it. And it's exactly the same in retail. So it takes time to reinstill and reinstate these skills at store level. So it's an operational thing at store level. It's a case of ownership that managers truly understand. This is my store. I take total responsibility for it. But then you've got to find great bakers, great butchers, good blockman because these are the skills and the artisans that one needs to put back into the business again. Otherwise, what are you? You're not really doing a great job. So we have to reinstate and rebuild all of those skills back into the business. And we're making really good solid progress now of creating these bases where we've taken in every single region now, we have identified stores where we're doing butchery training, bakery training. And so you've got to train these people and then you've got to make sure that they stay. So you have to create an environment that makes sure that it's conducive for them not only to learn the schools, the skills, but that they don't get poached and leave. So you've got to create an environment where they want to stay as well. Somebody said to me once that you spend a lot of money on training. Is it like really sort of worth it? And I said, well, yes, I think so. They said, well, what happens if you train them and they leave? Well, I said, what happens if you don't train them and they stay. So it's an investment that one needs to make. And we're on that journey. Unknown Analyst: And just on the franchise. The franchise started to revamp. We heard there was a new agreement that came in about 1.5 years ago. Now there's another new agreement. What are the changes you've been making to reinforce that... Sean Summers: So the changes fundamentally for the franchise in that agreement really is just dealing with widening their margin. So it's giving them more of a margin or profit for the individual franchisees and operators. And when we have a look at our aging debt and stuff in franchise, we've got hold of that. It's in a much better way around than it has been for a long, long time. And that's all to do with the health of their income statement at franchise level. So that's where we've been applying a lot of attention. No further questions. Anything online? [ Tam, ] yes? Unknown Executive: A question from Paul Steegers. What is your outlook for Pick n Pay internal inflation for the remainder of the financial year? Sean Summers: So we're sitting at the moment at about 2.1%. Lerena, is that right? The figure? Lerena Olivier: Yes. Spot on. Sean Summers: So many numbers in my head at the moment. So we're sitting at about 2.1% at the moment. I think that one may see that there are certain commodities like rice and maize are, in fact, coming down, which means that poultry prices should also come down. I think that inflation may actually go down. I think it may get closer to 1%. I think in some of the basic categories, you may even see it getting closer to a bit of deflation. If you look at the GDP, what is the GDP? It's about 0.6%? You clever people in the room should know this. And I think that the forecast was to be circa 2%, 2.2% or 2.3%. So we can look just from that perspective as well as not only inflation down, which obviously creates another level of challenge for us, but the GDP is also down. So I come back to this really, really constrained market. This market is tough. And here again, when you sit and speak to the major manufacturers, and I spend a lot of time talking to the big suppliers, all suppliers. For them, they look at the total market. So I mean, if you speak to the 2 sugar suppliers, you basically got sugar done. And then when you have a look at the total market and the dynamics that are there, there are certain categories in this country where people are trading down dramatically. We can see it in Boxer, where we can have a look at the profiles of what protein is being bought there. And you can see the things like Russians, viennas, polonies. You can see how those are just soaring in terms of sales because people are just battling to afford normal protein, red meat and chicken. So these are dynamics. The market is really constrained. And inflation, I think, will actually go down, not up, would be my prediction. Unknown Executive: Another question from Paul Steegers. Please could you explain how you calculate your like-for-like growth for Pick? Do you strip out those stores that are ought to be closed or converted to Boxer? Sean Summers: Yes. Those come out. And like-for-like sales is purely like-for-like stores. So that gets stripped out. Sorry, Lerena, you can... Lerena Olivier: Correct, Sean. You passed the test. Sean Summers: Checking with the head -- just checking with the -- my Chief Sales Prevention Officer. This is... Unknown Executive: Question from [ Titanium Capital ]. The Pick n Pay gross margin is 16.9%. Can you please provide a separate gross margin percentage for corporate and franchise operations? Sean Summers: No. There's levels when we come to segmental disclosure, there's levels that one goes to. And I know that you'd like to have the P&L for every single service area and every single store and build it up from there, but that won't be happening anytime soon. Lerena Olivier: But noted. Unknown Executive: From Reuters. Could you please explain when the group expects to reach breakeven and how this will be done? Lerena Olivier: I mean our guidance is for us to get to those objectives by FY '28. And it will be done through the initiatives that actually is still projected on the slide. It effectively looks to growing the business through like-for-like sales as a first step. As I think both Sean and I have mentioned, the store closures is now largely in the base. So from now on, one would start to see positive sales growth momentum. And we have just improved our gross profit margin, and we do believe there is more to be had as we go on the journey. And then there is the initiatives across the entire expense base. I mean the MOA that we've just signed with DP World is a very, very important strategic pillar. We expect to see those efficiencies coming through over the next 24 months as they unfold. So it literally is driven by each of our Future Fit initiatives. Sean Summers: I think important, Lerena, to add to that, our margin has widened this year by the amount that it has. We've given more margin to our franchisees, and we're absolutely price competitive in the marketplace. So if you look at the independent pricing surveys that have been done, they all absolutely bear that out. So it's not us marking our own homework, which would show you that when 18-odd months ago, when I returned here 24 months ago, our buyers and merchants in the company were more focused on recovering money than actually trading. And I said this must come to an end. We must get back to trading and buying and selling and doing what buyers should be doing. So I think that this is most probably the greatest manifestation of the success that's been had in that regard. We're just back to being good basic retailers again when it comes to buying and selling. Unknown Executive: Question from David Fraser at Peregrine. From a strategic point of view, do you envisage holding on to the Boxer stake indefinitely? Or would you consider an unbundling down the line? Lerena Olivier: We are very, very happy with the Boxer performance, and we are very, very happy to own 65.6% of Boxer. As a matter of fact, we would have loved to have still 100%. So we are definitely very happy with the performance and what the team is delivering for PIK shareholders. Unknown Executive: Another question from Kabelo Moshesha. Post the completion of the hiring process, will the like-for-like employee cost growth revert closer to inflationary levels? Is there more investment required post this period? Lerena Olivier: I think the way you need to think about it is our objective to get our like-for-like expense growth below our like-for-like turnover growth. That is what our key initiatives will deliver, and that will include efficiencies in employee cost stores. Sean spoke to support office initiatives, looking at efficiencies in store, et cetera. So as this unfold over the period of the plan, you would see that like-for-like number coming down. Unknown Executive: Question from [indiscernible] from Verition Fund Management. Would you be willing to consider a Pick n Pay share buyback as the turnaround strategy continues delivering results? Lerena Olivier: I think where we are currently, we are focusing on our target to get the business to cash flow breakeven. And once we have achieved that, one will consider future options. Sean Summers: And I think one must also add to that, that as we get back into a stronger financial health and cash generative again that we need to continue investing inside the company and getting our state back to the condition that it needs to be in. Unknown Executive: Question from Cobus Cilliers from Value Capital Partners. I wanted to know something about the overlaps between Pick n Pay and Boxer. Given the procurement processes for the 2 companies are independent, are there any specific important overlaps between the 2 entities? Sean Summers: No. It's one of the things that we did is drew a real clear line between what Boxer does and what Pick n Pay does. Boxer's philosophy, how they buy, how they go to market is so far away from what Pick n Pay does. And we don't want to mix. We don't want to confuse that in any way, shape or form. So on a piece of paper, sometimes these things look like they make sense. But in reality, when you actually come to implement it, it doesn't work. Unknown Executive: Another question from Paul Steegers. Please talk to the additional investments you have to make that cause Pick segment loss to not improve in FY '26 versus FY '25? Lerena Olivier: I mean I think we have discussed them now in the Q&A. Largely, a lot of them will definitely be the key skills we need in an operational level to ensure that the in-store execution keeps on driving our like-for-like sales. Unknown Executive: Question from Ya'eesh Patel at SBG Securities. Please, can you speak to the CapEx cadence in the Pick n Pay stable? Is there not an element of underinvestment, which could bite over the medium term? How should we think about this? Lerena Olivier: We are very, very careful to ensure that we spend where we get returns. I mean the question is a very valid one, but we also need to make sure that our operational excellence on ground level is established to ensure that we get the returns. So we are measured still in our spending, but we have got the ZAR 3.9 billion on balance sheet and where we believe that it can unlock returns, we will definitely spend the money. Sean Summers: And I think another point to that, Lerena, is it's not just about spending money on stores. You can build the greatest brand-new swanky store, but if you don't have the right people in the store and the product is not there, you're still not going to do the business. So it's not that the whole of the Pick n Pay real estate is broken, not at all. I mean we have a lot of great stores in this company. Certainly, there are some key stores that need some work done to them. That is an absolute fact. But I mean, there's also a big chunk of our state that's great. So we mustn't have a look at Pick n Pay and think that the whole thing is broken. It ain't. Unknown Executive: Another question here. What is your view on the amount that is being spent on online gambling and its impact on disposable income? Sean Summers: This is a really, really current topic, and one can see that there's been commentary from virtually every financial institution. There's been so much talk about it. But I think context is always important. So if we have a look at the, I don't know, ZAR 1.6 trillion or ZAR 1.7 trillion that is turned over in the space of gambling in South Africa. There's somewhere north of about ZAR 70 billion that has been taken out of this market at the moment in terms of profits that have been taken in the gambling industry, the bulk of which is in the online gaming space, not in the casinos and horse racing and the likes, where employment is created. At least in casinos, you've got hotel rooms and [ crew peers] and cleaners and all of that. And in the horse racing industry, you've got a whole industry there. If one looks at online gambling, they don't create new jobs. These program writers are all sitting in other places offshore. ZAR 70 billion a year. I mean, if you think of ZAR 70 billion a year, that's basically Pick n Pay's total revenue, we're still a big company. It's the equivalent of everything that's sold by Pick n Pay is taken out by a few people in profit every year in a highly constrained market. It's over ZAR 1 billion a week has just been hoovered out of the economy. It's difficult. I mean a lot of the research work that's been done by some of the institutions, it would appear that north of 20% of SASSA bonds are going straight into gambling. It's horrendous. It's horrendous. Now how does one deal with it? Smoking was a cancer. And then one of the ways that they dealt with it was that they banned all marketing and promoting of cigarette products and tobacco products. I think we need to give serious consideration in this country to a similar move that all marketing and advertising should be banned forth with, the same as you did with smoking. It's not a crazy thought. You look in Europe, I mean, in Belgium, Holland, Italy, there's no marketing of gambling, it's illegal. Even if you look in the United Kingdom from next year, now will be not possible to put a gambling logo on the front of a soccer jersey. So even in countries like the U.K., it's starting to move. So I think this is an industry that is totally out of control. I think that the poor and the vulnerable and you know even kids, I mean, all you need is your mom and dad's ID number, sign up on the app, put in the ID number and you're off to the races. I mean, I speak to people that are teachers at schools and what have you, and they tell me about the stress that's happening amongst kids where kids are sitting in school gambling on the apps on the phone. It's a problem. It's a huge problem. So I think a serious consideration needs to be given to what is actually happening inside society in this regard. It's not just about the greed of chasing the profit. Unknown Executive: It's a question from Nick Webster at HSBC. There's no mention of liquor performance in the presentation. Could you give us some color here and if it's accretive to the Pick n Pay like-for-likes? Sean Summers: Yes, our Pick n Pay liquor like-for-like sales continue at a similar pace as the rest of our like-for-like sales and liquor continues to grow. It's also a fantastic category for us. We just want in this presentation not to get too granular in terms of calling out everything and just really get to the headline stuff that really people want to know about, and that is what's happening to the core underlying Pick n Pay at a top line level. Unknown Executive: Another question from Johannesburg. What is your opinion on Walmart entering the South African market? What do you believe will be the impact on SA Retail in the short term? Sean Summers: I think it came about 17 years ago. 16 years ago, didn't they? They arrived, yes, 16 or 17 years ago, so it's not like they've just arrived and cleared customs. I know it's quite slow to get through the airport, but they've been here for a while. It would appear at this stage and one is never sanguine about these things because they obviously are a mighty force clearly. From the stores that we've seen that have been identified, it's more a rebranding exercise than anything else. So it would appear that there's some of the real estate that they'll rebrand, and we'll keep an eye on them. But they've always been here, always been here. Unknown Executive: And then another question from Ya'eesh Patel at SBG. Please, can you speak to any dynamics over the past 6 months in the chicken category? Any shortages for Pick n Pay experienced? Sean Summers: Yes, we had the problem with the MDM issue and out of Brazil because a lot of product that comes into this country, MDM is the backbone of what happens for the lower-end proteins, Russians, viennas, polonies and all of that. So that has a profound effect on that. Obviously, chicken feeds as well is a massive piece of the market for Boxer and the like and even in some of our Pick n Pay stores. And then on poultry in general, we had the foot and mouth issue on red meat. So we had a spike in red meat prices, which obviously then put more pressure on poultry, then we had poultry shortages. So the poultry market has been under a lot of pressure as well. Unknown Executive: Question from Keenon at Investec. Are you seeing a highly promotional environment in Pick Clothing? Sean Summers: The clothing market is interesting because obviously, you've got our friends from SHEIN and the like that are sort of playing silently in this space, but growing enormous volumes in this country, absolutely enormous volumes. But if we have a look at our clothing offer within Pick n Pay, we're really not that promotional because I mean, we have -- when I say we're not that promotional, we have a value proposition, and we present fair value to the consumer. So our clothing is not massively price driven. But the textile market, as you know, you can see from the result of the other retailers has been under pressure in the last while. And it's going to be interesting to see, as I say, as we annualize through the two-pod system now because a lot of the two-pot spending that actually went back into the market didn't really go into food. A lot of it went more into sort of clothing and housewares. So let's see how that annualizes out. Unknown Executive: Question from Thishan Govender at Truffle Asset Management. Any guidance on when core Pick n Pay is expected to be free cash flow neutral? And what is the top line like-for-like gross profit margin and OpEx needed to get there? Lerena Olivier: Shall I just pull out my spreadsheet, Sean. Sean Summers: Yes. It's an addiction we are under in. Lerena Olivier: Our guidance remain on the full cash burn for the Pick n Pay segment towards FY '28. And ultimately, the way you need to think about it is that we need to get our trading profit after lease margin to 0. And to do that, about half, we believe, will come from our gross profit and the other half from our trading expenses. Unknown Executive: A question from Citi. Can you provide some color on clothing post-period trade? Sean Summers: Clothing post period trade. continues to show the similar trend pre. We haven't seen any marked drop off from before. So yes, we're really, really happy with the progress that Hazel is making, the new stores that are opening. We've -- from an excess merchandise markdown perspective, we've really done a great job of getting ourselves a lot more efficient and cleaner in that area. So we're very positive about where we are at the moment in our clothing business. And then obviously, the Springbok apparel and merchandise is another great thing for us in that area. We do an unbelievable amount of business in Springbok apparel and merchandise. Unknown Executive: I have 2 more questions. One from Daniel at Ashburton. Could you speak to the outlook for cost growth into H2, including Boxer? Lerena Olivier: Boxer will continue to grow as they're opening their store estate. So you will see similar levels of growth in the Boxer business. And I think the Pick n Pay shape will also reflect the first half. Unknown Executive: And a last question from Nick Webster at HSBC. Could you comment a bit more on your enhanced private label offering in terms of categories and current penetration to Pick n Pay? Sean Summers: Yes, certainly. We've done a lot of work in the last while of cleaning out a lot of house brand product that was in store. That was not particularly well conceived at the point in time when those ranges are put together. We've taken No Name brand again. And again, we've cleaned up the No Name brand range. We've got rid of a lot of items that should never have been in No Name brand. No Name brand was always understood to be in certain categories and in certain commodity groups and present a certain value profile to our customers. So we're busy refocusing that again at the moment. We've got new packaging that's going to be coming forward that will be taking us and really putting No Name brand back as the hero that it should be and a very, very well-known house brand in the country, one of the leading ones. And then on the Pick n Pay brand specifically and Live Well. There's work that's been done behind the scenes there as well. So as I say, we've been getting cleared of a lot of product that was just -- that was not really serving the purpose that it should serve. So I think within the next 12 to 18 to 24 months, you will see quite a radically revamped and repositioned house brand range in the market. But -- our front door always in this company has been branded goods you know at prices really low. That's always been the key hallmark of our success in the company, and that's our backbone. And then your house brand sits on the side of that and performs a very, very important function. And then obviously, on the other side of that is Fresh, which obviously a lot of that is house brand just by nature, but a massive amount of energy and effort going into Fresh. So a lot of stuff happening. Unknown Executive: From David Fraser at Peregrine. Is Pick n Pay core profitability during or at the end of 2028? Lerena Olivier: During. Sean Summers: Morning, David. Chris Logan: It's Chris Logan. Very well done on all the notable improvements. If we consider the tough competitive environment you're faced with, and your trading expenses as a percentage of sales at 22.2%. They're very high historically, and they're high in relation to your GPU of 16.9%. Are you not going to need to take more radical steps to get your trading expenses in line? Sean Summers: You see the critical thing, and thanks for that question because, I mean, that's the vital journey that we're on. So the 2 key metrics in this business, obviously, is your top line sales and then your margin. And then obviously, your trading expenses. But your trading expenses, okay, if you look at your trading expenses, a lot of them are not that variable. When you take cost of occupancy and rates and taxes and rents and all of those kind of things. So a lot of that outflow, the only real variable you got there is kind of sort of your wages and stuff that you can flex. So yes, it's absolutely the nub of where we are. And top line is everything because if you lose the momentum on the top line, there's no way that you can cut your expenses as a rate to offset loss of momentum at the top line level. And that's why one of the constraints currently in this marketplace is top line sales. Now I don't sit here -- we don't sit here in Kenilworth and have this set of circumstances, the macro economy looking at us and our colleagues down over the hill over there or nearer to that side of the mountain on the other side over there, they have a different set of dynamics. They're operating in the exact same market that we're operating in. So these things are common to all. So the pressures we feel, they feel as well. So you see our expenses, if we can get our top line growing at the rate that can continue to show these trends, your expenses -- your wage expense and your fixed cost expense all comes down as a proportion of it. So the work that we are doing currently to do the OpEx reset, to have a look at the store labor reset and all of that stuff that we're doing, this is all work that's happening quietly behind the scenes, and it's ongoing. It's ongoing. We just need your support in the store shopping with us, and then it will help us get there. Unknown Executive: Sorry, Sean, one more question. Is the group breakeven including Boxer for the full year? Lerena Olivier: It's specifically focused on Pick n Pay. Unknown Executive: Okay. And then the last question, can you clarify if the full year guidance for F '26 is on the trading profit pre-leases level? Lerena Olivier: It is on the trading profit pre-leases level. Unknown Executive: And that's it from... Sean Summers: Okay. Yes, sir. Unknown Attendee: One of the important slides you presented of the social welfare benefits you bring to the country, why isn't this more promoted? I mean, with all the problems you're resolving, don't you think we should be more aware of the benefits you're bringing to the society? Sean Summers: A good question from one of our faithful long-term shareholders, private shareholders. We appreciate it. And I appreciate that question. There's a famous saying in life that the hand of the receiver should never know the hand of the giver. And it's something that we also believe in, in the company. So I think just to continually quietly investing in community and doing what you do, creates far more long-term loyalty and sincerity with the communities that we deal with because I know that we're there for them. And it's always been a philosophy of ours and a belief of ours that we just quietly get on with it, and we just change lives in communities. In fact, we've got Suzanne sitting here, who's been at the forefront of a lot of this, and a lot of that instilling that culture into the company. And doing good is good business as our Chairman taught us, Chairman and Founder. Okay. Thank you very much, indeed. Wish you all of the best. Have a great week. Mine is going to be spectacular. Lerena Olivier: Thank you.
Nathan Ryan: Good morning and welcome to the Perseus Mining Investor Webinar and Conference Call. I'll now hand over to Perseus Mining Managing Director and Chief Executive, Craig Jones. Thank you, Craig. Craig Jones: Yes. Thanks, Nathan, and welcome to the Perseus Mining quarterly webinar to discuss our September quarter results. Firstly, it's an honor to assume the role of CEO of Perseus Mining following Jeff Quartermaine's retirement, and he's left a lasting legacy at Perseus. And I'm joined here on the call today by our CFO, Lee-Anne de Bruin. So thanks, Lee-Anne. And also, let me just start by acknowledging the exceptional efforts of our teams across the globe who worked tirelessly to deliver another strong quarter of performance for Perseus. So the September quarter marked another solid performance for Perseus in a year where all of our sites are transitioning into new mining areas. Amongst the change, we delivered strong operational results and continue to generate robust cash flows at the same time as marking meaningful progress on our growth initiatives. Firstly, our 12-month rolling average TRIFR is currently sitting at 0.6, which is a very credible performance. From a safety perspective, we're continuing to focus on our fatal risk management process and our Safely Home each day engagement program as the key pillars for our safety approach. Our gold production for the quarter was just under 100,000 ounces at an all-in site cost of $1,463 per ounce. So whilst our production is lower than the previous quarter, it's in line with our expectations and in line with our full year guidance. Combined gold sales from all 3 operations totaled 102,000 ounces sold at an average sales price of $3,075 per ounce, delivering a robust cash margin of $1,612 an ounce, capitalizing on strong market conditions. The notional cash flow for the quarter was $161 million, and we continue to build on our cash position with the quarter ending with a net cash and bullion of $837 million. The September quarter marked significant transitions for mining locations at Yaouré and Edikan. Yaouré transitioned from the CMA open pit to the lower grade Yaouré open pit, and Edikan's focus moved to the higher-grade Nkosuo pit following the completion of mining at the AG and Fetish pits. And I'll provide further details on this as we progress through each site's performance for the quarter. Starting with Yaouré. As mentioned, Yaouré gold mine operations have transitioned from the CMA open pit to the Yaouré open pit during the quarter. Yaouré open pit is geologically more complicated than CMA open pit, and there's been a strong focus on improving grade control practices to improve reconciliation to account for the shift in geology. We saw a significant improvement in reconciliation over the quarter with September's reconciliation being in line with normal tolerances. For the quarter, Yaouré produced just over 55,000 ounces of gold, which was 21% down on the previous quarter, but in line with our expectations. This reduction reflects the lower grade Yaouré ore consistent with the mine plan, and we can expect to see lower grades associated with the Yaouré pit for the remainder of the year. Production cost for the quarter was $829 an ounce with an all-in site cost of $1,110 per ounce. The all-in site cost decreased by 6% compared to the previous quarter, notably due to a decrease in sustaining capital associated with the timing of ongoing works on the tail storage facility, which was higher in the June '25 quarter -- FY '25 quarter. 57,000 ounces of gold was sold at a weighted average sale price of $2,959 per ounce, which delivered an average cash margin of $1,829 per ounce. Notional operating cash generated by Yaouré during the quarter was $102 million, so continuing to generate strong cash flows at Yaouré. Mill run time was steady at 94% with gold recovery remaining stable as per the previous quarter at 94%. Reconciliation between the block model and the mill for the last 3 months is 17% positive tonnes and 10% negative on grade for a 5% overall increase in contained ounces. A final goodbye cut was taken in the CMA open pit with the pit now being used as the access for the CMA underground development, which began during the quarter. The CMA underground will be the first mechanized underground mine in Côte d'Ivoire. And I'll speak further to the CMA progress later on in the presentation. At Edikan, during the quarter, Edikan produced 33,000 ounces of gold. Majority of the mining during the quarter was conducted at the Nkosuo pit following the completion of the AG and the Fetish pits. The land access of Nkosuo pit was mostly resolved during the quarter with mining of the footprint progressing. There were some challenging wet conditions from sustained rainfall that impacted the ore handling and dilution, resulting in processing of some of the lower-grade stockpiles during the quarter. Stripping was higher due to face positions and access sequencing of the pit as mining areas became available. Production cost for the quarter was $1,232 per ounce and an all-in site cost of $1,603 per ounce, which is $121 per ounce higher than the previous quarter, and the increase is mainly due to mining costs resulted from higher stripping waste stripping at Nkosuo. 31,000 ounces of gold was sold at a weighted average price of $3,337 an ounce, resulting in an average cash margin of $1,734 per ounce and a notional operating cash generation of $57 million. Mill run time and recovery were 94% and 87.7%, respectively, largely in line with the targeted key performance indicators. Reconciliation between the block model and the mill for the last 3 months is 11% negative on tonnes and 6% negative on grade for a 16% reduction in contained ounces. And this is mainly associated with the commencement of the Nkosuo pit and some of the challenging conditions that were experienced during the quarter. Plans are progressing to commence further cutbacks at the Fetish and Esuajah North pits in the next calendar year, consistent with the plans that we articulated in the 5-year outlook in June. During the quarter, Sissingué complex produced 12,000 ounces of gold and the Sissingué complex results were attributed to mining and processing operations at the Sissingué Gold mine and mining operations at the Fimbiasso pits located 65 kilometers from the Sissingué processing facilities. Production cost for the quarter was $2,458 per ounce and an all-in site cost of $2,745 per ounce. The increase in all-in site cost was a combination of increased royalties linked to gold price and higher production costs resulting from scheduled mill reline and surge bin apron feeder maintenance and an increase in waste stripping at Fimbiasso West, Sissingué Stage 4 and Airport West to access high-grade ore. 13,000 ounces of gold was sold at a weighted average sale price of $2,953 per ounce, resulting in an average cash margin of $208 per ounce and a notional operating cash flow of $2 million for the quarter. Mill run time was 91%, which was down from the previous quarter's 96% due to maintenance activities and gold recovery improved marginally to 90.9% from 88.3% in the previous quarter. Reconciliation between the block model and the mill for the last 3 months is 4% negative on tonnes and 14% negative on grade for an 18% reduction in contained ounces. The lower gold grade performance reflects the continuation of higher dilution than anticipated when mining the narrow variably mineralized structures of Sissingué Main, Fimbiasso West and Airport West pits. The 6- to 12-month trends demonstrate improving correlation with gold contained now tracking within 7% of the block model over an annual period and work is ongoing to -- on operational controls to minimize dilution. Ore grade is expected to increase with the mining of the Antoinette deposit at Bagoé, which is scheduled to commence in Q2 of FY '26. Construction of the site infrastructure is progressing well and remains on schedule. All major contracts have been awarded, and key contractor mobilization is proceeding as planned. So looking ahead for FY '26, our guidance remains unchanged. Gold production will be in the range of 400,000 to 440,000 ounces with production weighted to the second half of the year. Our all-in site costs will be between $1,460 and $1,620 per ounce. So our guidance includes Yaouré production reducing from this quarter, as we mentioned before, with all of the ore now coming out of the Yaouré pit. And Sissingué will increase production with access to the higher-grade material at Bagoé. Edikan also increasing production with the main source of the ore from the higher grade Nkosuo pit. So now I'll pass over to Lee-Anne, and she can talk about the financial aspects of the quarter. Lee-Anne de Bruin: Thanks, Craig, and hi, everyone, on the call again. As mentioned by Craig, we have ended this quarter strongly with $837 million of cash and bullion on the balance sheet, slightly up on the June '25 quarter. The balance is after operating margin generated by our sites of USD 170 million. We've also spent on continued investment in organic growth at the sites about $14 million. Capital expenditure was in the region of $67 million for the period, which included $48 million that's been spent on the progression of the Nyanzaga development project, and about $12 million on the CMA underground at Yaouré. There's been continued investments in our host countries through the payment of a USD 29 million dividend payment, which was made to our government partner in Ivory Coast in relation to Yaouré and their 10% shareholding and ongoing payment of taxes in the country. Included in this cash flow was also $11 million on the previous share buyback program, where we purchased back AUD 84 million in total of the AUD 100 million share buyback commenced in September '24. The share buyback was renewed in September '25 for another AUD 100 million. We remain debt-free with the USD 100 million facility undrawn in place. Looking at our hedge position. As previously advised, Perseus continues to evaluate its hedging strategy in the current gold price environment. Our hedging program focuses on maintaining downside protection whilst retaining as much upside opportunity as possible while still observing as we do, prudent cash management practices. Giving consideration to the rising gold price environment we're in, during the year and particularly during the quarter, we have continued to roll off existing forward contracts, reducing our committed hedge position. Since the end of March '25, we have reduced our committed hedge position from 24% to 14% of our 3-year forecast production. In addition, during the quarter, we spent USD 1.7 million purchasing uncommitted put options at about -- at a strike price of about $2,600 per ounce as part of our capital allocation strategy, which seeks to maintain balance sheet resilience under a range of trading conditions. With that, I'll hand back to Craig to now talk about our organic growth across the group. Craig Jones: Thanks, Lee-Anne. So moving on to the organic growth now, and there's been some fantastic development of our Nyanzaga project and CMA projects over the quarter, but we'll start off with Nyanzaga. So during the quarter, there were several important milestones achieved at our Nyanzaga project in Tanzania. We announced the signing of the critical elements of -- the critical agreements between the Tanzanian government and Perseus, mining subsidiary, Nyanzaga Mining Company Limited, locking in the key fiscal arrangements related to the project. We've been very active with our drilling program. And during the quarter, activities consisted of resource definition drilling on the Nyanzaga's Tusker and Kilimani deposits, along with sterilization and exploration drilling within the Nyanzaga mining license. Reconnaissance drilling on a cluster of exploration targets within the exploration tenements surrounding the Nyanzaga mining lease was also undertaken. This drilling continues with encouraging results that could support the potential for a resource and reserve update later this financial year. In terms of construction activities on the ground, you can see from the photos that we've been very busy. There's blinding, formwork and steel fixing commenced on the primary crushing, milling and CIL circuits and a second contract -- concrete contractor has been mobilized to site to provide additional capacity. Fabrication of the SAG and Ball mills are progressing well and are ahead of schedule. Both of which are on the project critical path. We've completed the bulk earthworks at both camp accommodation and treatment plant work areas and the roofing has been installed on the first accommodation blocks. The other buildings are progressing well as we work towards occupancy later this quarter or this coming quarter. Contracts have been awarded for the installation of the transmission line and transformers for the tie-in of the permanent power supply. We also continue to make great progress on the resettlement housing project with 163 of the total 262 houses have been delivered to project affected families. And as of the end of 19th of October, the number has risen to [ 181 ] homes. So overall, the Nyanzaga project remains on budget and on schedule with first gold anticipated in January 2027. As we announced during the quarter, a Presidential Decree Was granted authorizing the development of the -- and operation of the CMA underground at Yaouré. The first cuts of the Pauline decline were taken on Monday, the 29th of September, marking a significant milestone for the CMA underground project. You can see from the photos it's starting to look like a mine. And as of today, the Pauline decline has progressed to 69 meters. Phase support of the remaining 3 portals continued and mining of all 3 will commence early in quarter 2 of this current quarter. The administration building and fit out of the support buildings is complete. Other surface infrastructure, including camp facilities, electrical and maintenance areas to support the underground operations also continued during the quarter. With the commencement of mining of the decline, the next major milestone for the CMA underground project will be first ore production scheduled for Q3 of FY '26 with commercial production scheduled for Q3 of financial year '27. So great progress at CMA. So with sustainability. So alongside our financial and operating performance, Perseus continues to deliver tangible value to our host communities and governments, and this slide captures the breadth of our contributions. In the first quarter of FY '26, our total economic contribution reached $215 million across our host countries. This includes $141 million in local procurement, which directly supports national supply chains and local business development. We also contributed $58 million in taxes and royalties and $1.87 million in community contributions as we continue to support local development funds and key community initiatives. Our workforce overwhelmingly comes from the regions in which we operate with 95% of our employees from our host countries, and this is a reflection of our commitment to build local capability and building the skill base that we need for our future growth. Safety remains at the core of how we operated and achieving a TRIFR of 0.6 and an LTIFR of 0, making the full year without a lost time injury. That's a significant milestone and a testament to the safety culture that's embedded within our organization. We've also published our FY '25 Sustainable Development Report, which includes a refreshed sustainability strategy and a double materiality assessment. This ensures that our ESG priorities reflect both our business risks and the issues that matter most to our stakeholders, and I encourage you to read that on our website. Sustainability is at the core of our purpose and guides how we deliver results, creating value and building resilience. This is what makes Perseus a trusted partner in achieving its mission of creating material benefits for all stakeholders in fair and equitable proportions. So we continued -- so the September quarter capped off another successful quarter for Perseus. We continue to deliver solid operating performance, generate strong financial returns and progress our strategic growth projects, all while maintaining high safety and ESG standards. With a strong balance sheet, high-margin operations and clear growth path, we deliver -- we believe that we're well positioned to continue delivering long-term value for our shareholders. So thank you, and I'll now open the floor to questions. Nathan Ryan: [Operator Instructions] Your first question comes from Reg Spencer at Canaccord. Reg Spencer: Congrats on another good quarter. My first question is just in relation to Sissingué. Those -- that delay that you mentioned with respect to the mining conventions, is that got more -- does that delay more to do with the elections or the changes that were recently made to the mining code? Just trying to get a handle on the overall environment in Côte d'Ivoire. Craig Jones: I mean the elections were held on Saturday in Côte d'Ivoire. And while accounts seems to have progressed pretty well, we obviously keep watching that over the next couple of days. In terms of the mining convention, that's -- we're just working through the process of obtaining those. It takes a little bit of time. Lee-Anne de Bruin: Yes. I think, Reg, to your question, I think, no, it's unrelated to the mining code. But it's just -- as you know, during election time, it's hard to get people to put pen to paper. That said, we're quite progressed, and it's likely we'll get it sorted out. The mining convention, however, is not relevant to us commencing mining, however. It's just a matter of making sure we've signed up to all the fiscal arrangements that are agreed. Reg Spencer: Understood. And last one, feel free, Lee-Anne or Craig to answer this, but I'd be interested to get your views on hedging. Gold price clearly very high at the moment. You've got a relatively low percentage of hedging, and I suppose that's good for cash flow at this point in time. But the outlook, is there an argument to put more hedges in place to lock in gold prices? Lee-Anne de Bruin: Yes. I mean if I had a crystal ball and I knew where gold price was going, I'd be much richer than I am now, Reg. That said, as you know, we're always focused on disciplined cash management, and that's why we've shifted to the structure of paying some of our capital towards buying puts, which are relatively cheap at the moment. So although our committed hedging has come down, which is our forward book and our calls, the shift to puts allows us to protect the downside. So we still have -- we're still maintaining that downside protection through putting the puts in place. But those puts are not committed hedging. So we don't have to deliver them, but they are then allowing us to make sure that if gold price drops below $2,600 that we're relatively protected there. Nathan Ryan: Your next question comes from Richard Knights at Barrenjoey. Richard Knights: Just a quick one on Edikan. Obviously, production was down a little bit quarter-on-quarter. Just wondering about the access issues at Nkosuo. And I think you mentioned they're largely resolved. What is remaining? And is that going to have any impact over the rest of the year? And I suppose how should we think about the run rate at Edikan over the rest of the year? Craig Jones: I think the way to think about the run rate for Edikan at the end of the year is, as we've said, it will increase to -- continue to increase in production as we get deeper into the Nkosuo pit. We've -- when I say largely complete, we've got the majority of access to the entire footprint now and continuing to mine down, which we do get a little bit out of sequence with the access issues we were having. So hence, the stripping that we talked about being a little bit more. And so we're just getting back into sequence now in the pit and don't expect to see any constraints for us moving forward. Nathan Ryan: Your next question comes from Levi Spry at UBS. Levi Spry: Maybe just at Yaouré, can you just maybe talk us through the profile over the remainder of the year as the underground ramps up? Craig Jones: Yes. So obviously, we talked last quarter about the delays we were having in getting our Presidential Decree. So that's now resolved and behind us, and we're basically ramping up our mining progress for the CMA underground. And as I mentioned before, we're quite a way down the Pauline decline now, and we'll continue to get our rhythm and cycle times refined as we move forward. We're pretty confident that, that's going to progress well, and we should recover some of that time. But obviously, we need a little bit more time of mining before we can really go out and say that we are going to do that. So that's our primary focus at the moment is to get the mining operations efficient and turning over the heading so that we can recover that time. Lee-Anne de Bruin: And Levy, I mean, just high level, as you know, as we happily mentioned it is because we're entering the Yaouré pit, your production that will come off slightly for Yaouré over the next 2 or 3 quarters given that you're in the lower-grade Yaouré pit and ramping up the underground. Craig Jones: So we're essentially -- the majority of the gold for the year comes out of the CMA pit. There's only a small contribution from the underground. Lee-Anne de Bruin: Yes, from the Yaouré pit. Craig Jones: Sorry, the Yaouré pit. So that's our primary focus now is continuing, but the grades are lower. Levi Spry: Yes. Okay. And if I can just ask one about Nyanzaga. So I think you mentioned the reserve and resource update coming this year. How do we think about the materiality of that, I guess, given the stage it's at, potential upside and then even the pricing assumptions that were used in the last cut? Craig Jones: I think we'll have to wait and see for that work to be completed before we can give you any sort of indication on the materiality of that. But as we continue to do the drilling, we'll continue to update our models. We'll look at our assumptions around prices and so forth. And -- but everything seems to be going in the right direction at the moment. Levi Spry: Yes. Okay. Maybe just on that. So the updates we get on the grade reconciliation across the operations, is there anything that has caught your eye in the time you've been in the seat when it comes to that? Craig Jones: Look, I mean, that's obviously a core focus for us. I talked about Sissingué, trying to close the gap on that. There's been some good progress in terms of Yaouré, closing the gap on the reconciliation and tightening up our processes and mining practices, and we've seen some positive movements in that regard. So it's something that we'll be continuing to focus on. I mean there's a reason we put it in the report so that we can demonstrate that we are -- we have reliability in our ore bodies, and we have to mine them reliably as well. So very much a key focus for us. Nathan Ryan: Your next question comes from Andrew Bowler at Macquarie. Andrew Bowler: Just following on from the hedging questions. I'm not sure if you mentioned it earlier, Lee-Anne, but just the cost of those puts. I'm assuming that's caught up in the working capital and other line on the waterfall chart and just [indiscernible] that and how much you're willing to spend, I guess, every quarter from now? Lee-Anne de Bruin: Yes. I mean we spent about, as I said, USD 1.7 million in the quarter. We've got a mandate from the Board to spend -- to not overspend on it, and we're continually looking at the cost of it, but puts at the moment are relatively cheap. I think we're paying between $40 and $70 an ounce or something is what we've been paying. Andrew Bowler: No worries. And just another one, interesting comments on Sudan just talking about gradual improvement in security recently. I'm just wondering if that's going to affect the rate of spend for that project. Will we see an uptick for the remainder of the year? Or is the budget and it doesn't really matter if security improves, that's all we'll see -- excuse my voice, I should say? Craig Jones: Well, I mean, look, the reports coming out of Sudan are positive, which is a good thing. Obviously, there's a little way to go before we see how all that pans out. But we'll keep watching that. In terms of our current plans, our current plans are as per our budget. And if things change to the point where we think that, that would change, then we'll let the market know. But at this point in time, we're continuing to progress towards our budget. Lee-Anne de Bruin: Yes. And remember, Andrew, we've always said the security issues are quite minor for us given where we're located. The thing for us to make a decision there is to make sure the supply chain and logistics pieces are working because that's the most critical part probably to the project over and above security of our people. Nathan Ryan: Your next question comes from David Radclyffe at Global Mining Research. David Radclyffe: So it's early days for the question, maybe a little bit premature. But look, any thoughts on the opportunities you might have identified in the business so far? And then when you think to the overall strategy, are you sticking to this? Or have you thought of any way you might sort of think to tweak this in the future? Craig Jones: Yes. Thanks for the question, David. Look, the plan is still the plan. So there's a solid platform that Jeff and the team have built over the years, and the company has enormous optionality in it. I think for us moving forward, we'll be focusing on delivering the 5-year outlook that's been presented to the market. And that means we need to continue to deliver on our operating performance. We need to focus on the delivery of the Nyanzaga project and ramp that up in the March quarter of 2027. We need to build and operate the CMA project. So that's a shift, the first underground mine in Côte d'Ivoire. But we'll also be focusing on extending the life of our existing assets and doing more exploration in the exploration space. So a lot of focus on near-mine exploration. We're also doing some greenfield work as well. And then beyond that, if any other options come our way, then we'll assess them on their relative merits. But the plan is to continue to run safe and efficient operations to continue to generate strong cash flows, continue to return capital to shareholders and continue our growth options at the same time. And we think that we're in a position that we can do that. So that's how we're thinking -- well, I say that's how I'm thinking about it, and we're thinking about it at the moment. David Radclyffe: Great. That was very clear. Then maybe a follow-up on Edikan. So Nkosuo is ramping up a lot of volume of low-grade stocks processed this quarter. So is that going to be -- is that going to flow through to next quarter? And then when do the other cutbacks start to deliver ore? Craig Jones: Yes. So the -- let's start with Nkosuo. A lot of the reason for the low-grade stocks at Nkosuo was the wet season, obviously, in Côte d'Ivoire at the moment, and that finishes pretty much this month. So we're expecting conditions to improve substantially for the rest of the year, and that will just really get us into the rhythm in Nkosuo and starts to deliver the higher grade that we're expecting. So you should see that grade improve throughout the year. With the other 2 pits, we'll start that stripping activities in the next half. And there's a fair bit of stripping before we get into the ore there. So it's more focused on next year's grade than this current year. Nathan Ryan: Thank you. There are no further questions at this time. So I'll now hand back to Craig for closing remarks. Craig Jones: Thanks, everyone. We're very pleased with the quarter that we've delivered. We're pleased that we're continuing to deliver strong operating performance and create strong financial returns. And really thankful for the hard work of our people across the globe who do put a lot of effort in, and that's one thing I've noticed about this company is there's a huge amount of personal ownership and discretional effort that sits within the organization, and that's what helps create the kinds of results that Perseus is known for. So thanks very much for your time, and have a good day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Q3 2025 Revvity Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. I will now hand the conference over to Stephen Barr Willoughby, SVP, Investor Relations. Steve, please go ahead. Stephen Barr Willoughby: Thank you, operator. Good morning, everyone, and welcome to Revvity's third quarter 2025 earnings conference call. On the call with me today are Prahlad R. Singh, our President and Chief Executive Officer, and Maxwell Krakowiak, our Senior Vice President and Chief Financial Officer. I'd like to remind you of the Safe Harbor statements in our press release issued earlier this morning and those in our SEC filings. Statements or comments made on this call may be forward-looking statements, which may include, but may not be limited to, financial projections or other statements of the company's plans, objectives, expectations, or intentions. The company's actual results may differ significantly from those projected or suggested due to a variety of factors which are discussed in detail in our SEC filings. Any forward-looking statements made today represent our views as of today. We disclaim any obligation to update these forward-looking statements in the future, even if our estimates change. So you should not rely on any of today's statements as representing our views as of any date after today. During this call, we'll be referring to certain non-GAAP financial measures. A reconciliation of the measures we plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release. I'll now turn it over to our President and Chief Executive Officer, Prahlad R. Singh. Prahlad? Prahlad R. Singh: Thank you, Steve, and good morning, everyone. I'm glad you are able to join us this morning to discuss our third quarter results and our updated outlook for the rest of the year. We continued to perform well during the third quarter and achieved our objectives during what continued to be a dynamic end market environment. We are consistently executing at a high level on those items, which are more fully within our control, such as our margins, cash flow generation, opportunistic capital deployment, and a strong and consistent pipeline of bringing meaningful new innovations to market, which I will touch on more in a bit. While the current demand environment continues to remain stable, I'm increasingly optimistic that some of the larger industry overhangs we and others have been impacted by so far this year appear to be starting to gain clarity, which should continue to improve customer confidence levels and lead to more robust levels of investment into science. Our third quarter results overall were in line with our expectations with 1% organic growth being slightly offset by less favorable FX tailwinds due to the changes in currency throughout the quarter. Our signals software business continued to perform extremely well, growing 20% organically in the quarter, which again included even stronger SaaS performance and conversion. Our reproductive health business also continued to perform exceptionally well and grew in the mid-single digits year over year with newborn screening again growing in the high single digits in the quarter. We anticipate continued strong performance in this business as we bring additional novel products and workflows to the market. A recent example of this is our new neo LSD seven plex kit, which recently received IVDR approval in Europe and is awaiting FDA clearance expected early next year. This expanded assay will complement our existing capabilities to now also include screening for MPS II, otherwise known as Hunter's syndrome. We also remain diligent with our expenses in the quarter and generated 26.1% adjusted operating margins, which were modestly above our expectations. With some additional favorability below the line, we generated adjusted earnings per share of 1.18 which was $0.5 above the midpoint of our guidance. Additionally, we continue to have a strong focus on cash flow generation and our capital deployment priorities. In the third quarter, we generated free cash flow of $120 million and also received the final $38 million brand payment related to a large divestiture from two years ago. This free cash flow continued to represent approximately 90% of our adjusted net income, solidly above our longer-term expectations. Given our strong balance sheet position and disciplined M&A criteria, we again actively redeployed this cash by repurchasing our shares. In the third quarter, we spent $205 million repurchasing approximately 2.3 million shares. This brings our total buyback activity since we've completed the divestiture two and a half years ago to 12.5 million shares or 10% of the total shares we had outstanding at the end of 2023. Given our commitment to disciplined capital deployment, we recently received a new $1 billion share repurchase authorization from our board, which will replace what was left on our existing program. This new share repurchase program will provide us plenty of capacity to continue to meaningfully deploy capital in this area over the next two years. As we look ahead to the fourth quarter and into next year, although end markets have continued to remain relatively stable, I'm increasingly optimistic on our future performance given recent signs that the impact from certain larger industry overhangs are becoming more transparent. However, for the time being, we want to remain prudent in our assumptions until we see sustained improvements in broader industry demand trends. While Max will provide more color on our updated guidance in a moment, at a high level, we are reiterating our 2% to 4% organic growth expectation for this year, while raising our adjusted earnings per share guidance to a new range of $4.9 to $5 to account for our outperformance in the third quarter. As we view our markets today, our best and most prudent assumption for next year is that organic growth continues to remain similar to what it has been over the last several years in the 2% to 3% range. But we see opportunity for improvements once customers consistently return to more historically normal levels of spending. While we have started to see some promising signs with customer activity levels in October, we want to see how the remainder of the year plays out before factoring in potentially more robust levels of growth for next year. Within the 2% to 3% growth scenario, we also remain confident with our 28% adjusted operating margin baseline expectation for next year, given the restructuring activities that are already well underway. I'd now like to take a moment to share some perspective on how we've been executing at a high level, both scientifically and commercially, as a number of the key initiatives we've highlighted publicly over the last year are now beginning to come to fruition. While the following are all great achievements on their own, I'd note our near-term pipeline is even more exciting and potentially impactful for the company overall. First, let me start with AI. While much has been said about how AI is being used or sometimes not used in the corporate world, at Revvity, we are bringing real-world AI-based solutions to market for our customers at a rapid pace. This is not just automated note-taking or digital image creation, but rather true productivity improvements for our customers in addition to new solutions which are changing and advancing how science is being done. In the past year alone, we have commercially launched new AI-focused software offerings such as SignalsOne in our signals business, Transcribe AI in reproductive health, and phenologic AI in a high content screening franchise. We have also entered into a new collaboration with ProFluent Bio to offer novel AI-engineered enzymes with our pinpoint-based editing system. And only a month ago, we announced the introduction of our new living image synergy AI software platform for use with our in vivo imaging instruments. This new offering helps reduce the time needed for scientists to manually review and highlight images of potential interest for further evaluation from several hours to a few minutes, freeing up significant capacity for these scientists to focus more of their time on uncovering even higher-level insights. While these are all great examples of how we are rapidly embedding AI's capabilities into new offerings for our customers, our development pipeline for additional new AI-based products is even more robust. We believe some of the novel solutions we are currently working on, which are not all that far away from coming to market, have the potential to truly change scientific paradigms and how preclinical discovery is done. I know that is a bold statement, but I could not be more excited about how our teams are embracing the power and potential of AI internally. But even more so what we are working on externally for our customers and the advancement of science. I look forward to sharing more on this with you in the coming months. In addition to delivering on our own innovation commitments, we are also making strong progress in bringing our strategic partnerships to fruition. Many of these collaborations have been years in the making and were first highlighted externally at our Investor Day last November. One recent example includes our sequencing partnership with Genomics England and its large generation study announced earlier this year with work beginning in the third quarter. When I visited our new lab in Manchester earlier this month, I learned about a powerful real-life example that's already come out of the study, which was recently featured by the BBC. Baby Freddie was among the first infants screened through the program. Within his first month of life, clinicians were able to identify a genetic condition linked to a rare form of eye cancer because of his participation in the study. Although he showed no symptoms and had no family history, follow-up testing confirmed he had a tumor on his eye. Thanks to the early detection, Freddie received laser and chemotherapy treatment, greatly improving his chances of normal vision as he grows up. While Freddie's story reflects the broader impact of the study, it highlights why our collaboration with Genomics England matters so deeply, enabling transformative discoveries that can change and even save lives before families know there's a problem. A second key partnership was just announced earlier this month in collaboration with Sanofi. In this new relationship, we are developing and seeking global regulatory approvals for a new four plex assay for the early screening of type one diabetes, while at the same time working to expand availability of our existing audio assay within our global clinical lab network. With Sanofi's disease-modifying therapy for delaying the onset of type one diabetes, TZEALD, now approved in many jurisdictions around the world, including The US, and with recent regulatory advancements such as Italy's new requirement to screen all children in the country for the disease. We believe this new assay has the potential to be a meaningful contributor to our diagnostics franchise once it receives regulatory approvals. While these are two recent examples of our strategic partnership efforts coming to fruition, our pipeline of additional projects continue to remain very active, and I expect you will hear more from us on these opportunities quite soon. I also wanted to take a moment to highlight the recent publication of our annual impact report, which showcases how our work is not only advancing science and health care, but is doing so in a sustainable way that keeps the best interests of our employees and communities we serve front and center. Highlights from this year's report include the company having a 6% reduction in our scope one and two emissions in 2024 and how we were able to divert 47% of our waste from landfills last year ahead of our multiyear goal. We achieved a 77% employee satisfaction rate in our recent all employee survey, which was above our target, and were able to expand our STEM scholarship initiatives to two additional universities in China and The UK. These efforts are being recognized as we recently received a triple a rating from the well known ESG rating agency MSCI, which is its highest possible rating and is above most of our peers. I couldn't be more proud of our efforts in this area. Overall, we are making tangible progress on some of our key strategic partnerships and new product launch initiatives with even more significant announcements hopefully coming very soon. We have done a good job navigating the dynamic market environment so far this year and are managing the business appropriately to continue to deliver on our earnings expectations for the year, while setting us up for even stronger financial performance in the future. I am increasingly optimistic that several key market uncertainties are beginning to ease, positioning us to benefit as demand eventually returns to more normalized levels. We are performing well, and the future is extremely bright for Revvity as we help shape how drug discovery and development is done in new ways in the years to come while also driving advancements in specialty clinical diagnostics, which are having a meaningful impact on human health. With that, I will now turn the call over to Max. Maxwell Krakowiak: Thanks, Prahlad, and good morning, everyone. As Prahlad highlighted, our teams performed well in the quarter as was evident in our operating margins coming in slightly above our expectations, delivering another strong quarter of cash flow generation and opportunistic capital deployment. Given this performance, potentially improving signs of customer activity and solid progress on our productivity initiatives, it positions us well to have a strong finish to the year with positive momentum as we head into 2026. While Prahlad highlighted how we are delivering new AI-driven solutions for our customers commercially, I wanted to provide you some perspective on how we are currently leveraging AI capabilities internally. Our use of AI in our operations is already delivering significant value for both our employees and our customers, but also our financial performance. First, earlier this year, we deployed Revvity AI for all of our 11,000 employees. This custom-built, fully secure environment leverages leading large language models to drive both efficiencies and increase commercial opportunities across our business. For example, we have now deployed over 30 custom AI agents, which are being used in areas such as commercial sales, customer care, technical service and repair, software development, HR, and financial operations, and we expect to have over 50 agents in place by the end of the year. By leveraging our platform, our sales reps are now seeing a three to four times improvement in their lead generation conversion rates. In our software businesses, we are already seeing a 5% to 10% reduction in overall development timelines by leveraging our AI capabilities, allowing us to bring new offerings to market even faster than what was previously possible. Within finance, our new custom-built AI agents are having a fairly immediate and material impact on our collections, directly improving our cash flow generation. While these are just a few specific examples of how we are already harnessing the potential of AI in our day-to-day operations, they represent just a small sample of how AI is transforming our business, and I believe we are just scratching the surface on its ultimate impact. As Prahlad mentioned, AI at Revvity is not just a theory or a long-range goal, but has become part of our operating model that we are actively leveraging both internally with our employees and externally in our products on a daily basis. Now turning to the specifics of our third quarter performance. Overall, the company generated revenue of $699 million in the quarter, resulting in 1% organic growth. FX was an approximate 1% tailwind to growth, a modest headwind compared to our assumptions ninety days ago, and we again had no incremental contribution from acquisitions. As it relates to our P&L, we generated 26.1% adjusted operating margins in the quarter, which were down 220 basis points year over year, but modestly above our expectations. Margins were pressured on a year-over-year basis from tariffs, FX, and lower volume leverage, particularly as it pertained to the weakness from our Diagnostics business in China. This was partially offset by a modestly better than expected impact from recently implemented cost containment initiatives. Looking below the line, our adjusted net interest and other expenses were $22 million in the quarter, which was modestly impacted by the increased share repurchase activity year to date, resulting in lower interest earnings on our cash balances. Our adjusted tax rate was 15% in the quarter, and we continue to remain active with our share repurchase program as we average 115.5 million diluted shares in the quarter, which was down over 2 million shares sequentially and was down nearly 8 million shares year over year. This all resulted in our adjusted EPS in the third quarter being $1.18 which was $0.05 above the midpoint of our expectations. Moving beyond the P&L, we generated free cash flow of $120 million in the quarter, resulting in 88% conversion of our adjusted net income. On a year-to-date basis, our $354 million of free cash flow equates to a solid 89% conversion of our adjusted net income. Regarding capital deployment, we continue to remain active with our buyback program as we repurchased another $205 million worth of shares in the third quarter. This brings our repurchase activity through September to nearly $650 million which allowed us to buy back 7 million shares so far this year overall. As it relates to our balance sheet, we finished the quarter with a net debt to adjusted EBITDA leverage ratio of 2.7 times, with 100% of our debt being fixed rate with a weighted average interest rate of 2.6% and weighted average maturity out another six years. As we evaluate capital deployment, we will continue to remain both flexible and disciplined in order to capitalize on the highest return opportunities while ensuring we maintain our investment-grade credit rating. I will now provide some commentary on our third quarter business trends, which are also highlighted in the quarterly slide presentation on our Investor Relations website. The 1% growth in organic revenue in the quarter was comprised of flat performance in our Life Sciences segment and 2% growth in Diagnostics. Geographically, we grew in the low single digits in The Americas, grew in the mid-single digits in Europe, while Asia declined in the mid-single digits with China declining in the low teens. From a segment perspective, our life sciences business generated revenue of $343 million in the quarter. This was up 1% on a reported basis and roughly flat on an organic basis. From a customer perspective, sales to pharma and biotech customers were up low single digits, whereas sales into academic and government customers declined in the low single digits in the quarter. Our life science solutions business declined in the low single digits in the quarter overall, which was in line with our expectations. Our Signal Software business was up 20% year over year organically in the quarter, and as Prahlad mentioned, continues to be a bright spot of the Revvity portfolio. The business also continued to perform exceptionally well with an ARR of over 40%, an APV of 12% and net retention rate of more than 110%, with all metrics solidly above levels from last year. In our Diagnostics segment, we generated $356 million of revenue in the quarter, which was up 3% on a reported basis and 2% on an organic basis. From a business perspective, our immunodiagnostics business declined in the low single digits organically during the quarter, which was in line with our expectations. China immunodiagnostics declined in the mid-20s with the impact from DRG playing out as we had expected. Excluding China, the other 80% of our immunodiagnostics business continued to perform very well and grew in the high single digits with mid-teens growth in The Americas. Our reproductive health business grew mid-single digits organically in the quarter. Newborn screening continued to perform well and grew high single digits globally, which was again driven by fantastic operational and commercial execution and the initial contribution from our work with Genomics England. As it pertains to China specifically overall, we incurred a low teens organic decline in the third quarter driven by our diagnostics business being down over 20% as it continues to face the impact of the DRG related declines in volume. This was partially offset by low single digit growth in our life sciences business in China, where we continue to see solid year over year growth in reagents. Now moving on to guidance. As Prahlad mentioned, we are reiterating our organic revenue growth outlook of 2% to 4% for the full year, with the fourth quarter expected to play out largely as we had previously expected. We continue to expect both our Life Sciences and Diagnostic segments to each grow in the low single digits for the full year, and we now see the tailwind from FX being slightly less than a 1% benefit to our full year revenue. We expect this to result in our full year total revenue to be in the range of $2.83 billion to $2.88 billion overall. Moving down the P&L, we continue to expect our adjusted operating margins to be in the range of 27.1% to 27.3%, unchanged from our prior outlook and assumes the tariff environment as of today. Below the operating line, we now expect our net interest expense in other to be approximately $83 million up slightly from our prior outlook due to lower expected interest income due to recent rate cuts and the impact from our continued share repurchase activity. We now expect a full year adjusted tax rate of approximately 17%, down 100 basis points from our previous assumption and an average diluted share count of a little under 117 million for the full year. This all results in our adjusted earnings per share for the year to now be expected in a range of $4.9 to $5 up $0.05 from our prior outlook. Overall, our third quarter organic growth results were in line with our expectations, and our outlook for the full year remains largely unchanged. As Prahlad highlighted, we are making great progress with a number of our key new product launches and strategic partnership initiatives while taking appropriate cost actions to achieve our goals for next year. We will continue to have a strong focus on our operational and commercial execution as we navigate the dynamic end market while remaining opportunistically disciplined with our capital deployment. This all positions us extremely well heading into next year and in the years to come. With that, operator, we would now like to open up the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed into today's call, your first question comes from the line of Patrick Bernard Donnelly with Citi. Your line is open. Please go ahead. Patrick Bernard Donnelly: Hey, guys. Thank you for taking the questions. Prahlad, maybe to start on the 2026 commentary. Appreciate the preliminary thoughts there. Sounds like maybe 2% to 3%. Can you just talk about the moving pieces? Obviously, you have the China diagnostics piece. I think a lot of focus is on that. You know, I think Max hit on that being down, you know, somewhere in the teens there this quarter or maybe even 20%. I guess, how do you think about that piece into '26? Obviously, software has been a big growth driver for you, up 20% in the quarter. You're gonna come up against those comps. Do you mind just, you know, high level talk about those moving pieces into '26? Max, just the confidence on a low single digit 2% to 3% type growth rate to be able to hold that 28% margin and the key levers there. Thank you. Prahlad R. Singh: Sure. Good morning, Patrick. Let's just start with 2026. You know, when our assumption around the 2% to 3% is being prudent, we've started seeing signs of activity, especially around the instrument side. And then if that customer behavior continues to normalize, you know, that is only going to get better, you know, especially around the China piece that you pointed out. Now if you look at the trend starting with 3Q, you know, while China was down mid-twenties, ex-China, you know, it continues to be up in the high single digits. So overall, the diagnostics business is performing very well, whether it's in reproductive health or immunodiagnostics ex-China. On the life sciences side, you pointed out to the software piece. And in instrument side, as Max said in his prepared remarks, we are starting to see signs of increasing activity with customers, especially in September and October. And we expect that to start, you know, starting to result in actual demand coming into 2026. So I feel really good and confident about what we have put out there and only see signs of that going, you know, getting better as customer behavior continues to be more normalized. Max, you wanna talk on the 28%? Yeah. Maxwell Krakowiak: Hey, Patrick. So, look, I think as we think about the margins for next year, you know, as we previously commented, a 28% operating margin baseline for 2026. We're feeling very good about that target. We've got actions already underway that are going to help us achieve that 28% baseline. I think there's even been some of them out there in the publications. You look at some of the Northeast consolidation actions we've already taken. And so again, I think we're feeling very confident as a company in our ability to hit the 28%. I think your subsequent question on, you know, how do you think about organic growth and the impact to the 28%. I would say the 28% baseline is tied to the 2% to 3% organic growth. Should there be, you know, additional tailwinds to that organic growth, we would expect to be able to then start generating, you know, additional operating margin expansion off of that baseline. But that, obviously, that, is dependent on exactly how much further up the organic growth chart we were, we would achieve. Patrick Bernard Donnelly: Okay. Got it. That's helpful. And then maybe just inside the life science business this quarter, can you just talk about the reagents versus instruments piece? What did reagents do in the quarter in particular? And then expectations for that moving forward, what do you hear from the customers there? It would be helpful. Thank you guys so much. Maxwell Krakowiak: Yep. Look. I think as you look at the third quarter results, you know, our life sciences solutions business, you know, was mostly in line with our expectations. I would say there was a little bit of geography between the instrumentation and reagents. Reagents were modestly lower than what we had previously anticipated as the summer months were just a little bit lighter from a run rate perspective. But I would say the overall lab activity, we continue to see sort of continued progress as we had in the first half of the year. I think as you look at the fourth quarter, just out of prudence, I think we are assuming a similar market environment to what we experienced in the third quarter, and we have also baked in some modest impact from the government shutdown, and we'll obviously have to see how that plays out over the quarter here. Vijay Muniyappa Kumar: Hey, guys. Thank you for taking my question. Prahlad, my first question is on your comments around October customer activity levels picking up. You're seeing some signs. Can you elaborate that on is that, like, pharma? Is that academic and government customer base? Is that showing up in reagents or instruments? Any color on the improvement that you're seeing? And was this I'm curious. Was this tied to the Pfizer announcement, or was that just more anecdotal? Prahlad R. Singh: Hey, Vijay. Good morning. You know, when I mentioned the increasing signs of activities with customers, you know, as we are seeing it, it is more on the pharma pharma biotech side and not obviously on the academia and government side, and it's particularly in the pockets of instruments. You know, we I I would say that it's not like broad change in a lot of actual demand coming through, but there is definitely increasing pockets of activity that is happening on the instrument side. And then that's a clear trend that we have started seeing in the pharma biotech. Vijay Muniyappa Kumar: Understood. And then maybe, Max, one for you on your fiscal 2026 comments were helpful. But should that 2% to 3% organic with 28% op margins translate to high singles EPS for '26? And then I know share reports helped you guys, but how are you thinking about FX or below the line, etcetera, for next year? Maxwell Krakowiak: Vijay, yes, to answer your question, it would imply sort of a high single digit EPS growth year over year at the 2% to 3% and the 28% operating margin baseline. I think in terms of below the line, if you think about some of the assumptions, interest and others should be relatively flat year over year. From a tax rate perspective, we have mentioned that our tax planning has sort of created a new sort of 18% baseline from a company, which is significantly improved from where we previously were around 20%. And so I'd probably point you to that sort of starting point for 2026, and we'll see what happens with, you know, any discrete items, for next year. And And then I think from a share count perspective, obviously, we've done a lot of progress this year and returned a lot of capital to the shareholders through our buyback programs. And so I think when you factor in a lower share count for next year, all those below that should point you to a high single digit EPS growth for for 2026 based off those assumptions. Prahlad R. Singh: Yeah. And just to add to that, Vijay, that high single digit EPS growth is, you know, as you before assuming any additional capital deployment. Vijay Muniyappa Kumar: That's helpful, Prahlad. Thank you, guys. Michael Leonidovich Ryskin: Hey, can you hear me now? Yep. Okay. That works better. Thanks, guys. I want to drill into the 4Q quarter ramp specifically. I know you said 3Q kind of came in generally in line with expectations. But if you look at the both organic 3Q to 4Q and on the margins, it's still a pretty steep ramp, probably even steeper than it was before. So I know you talked about genomic signaling coming online in the fourth quarter. There are some other moving pieces. There's some dynamics with the comps. Could you just give us the bridge again and sort of walk us through what gives you confidence in that, especially given, like you said, you've got DRG still going on, reagents came in a little bit softer in 3Q. So just give us confidence in that 3Q to 4Q ramp this year. Maxwell Krakowiak: Yes, sure. So two pieces of that one. You asked about the ramp on organic growth and then the ramp on margins. I'd say first from a margin standpoint, there's been no change to our previous assumption. It's still 30% operating margins. The fourth quarter is always the biggest margin quarter for us as company. It's our highest volume quarter of the year. And so I'd say there was no real changes there, Mike. I mean, if you think about holding, you know, cost relatively flat and the higher volumes, you're gonna get to the, to the 30% margins. I think when you look at it from an organic growth standpoint and the ramp between the third and the fourth quarter, you know, I'd say there's really a couple key pieces of that ramp. One is on the IDX comps as we've talked about assuming the same sort of multiyear stack performance as we've seen through the first March of the year. So that's one dynamic. The second is software, will have a ramp between the third and the fourth quarter. Although we expect to step down in organic growth, we do expect a higher nominal dollar amount for software in the fourth quarter. And the third piece is you do see a little bit of seasonality just in terms of our instrument volumes between the third and the fourth quarter. I'd say those are probably the three biggest pieces, Mike. Michael Leonidovich Ryskin: Okay. And then, following up on the China DRG comments. I mean, if you look at China DX, China Immuno DX, I think, was down mid-teens or low teens in 2Q. It's down 20% or more in the third quarter. So by the time we exit this year, could you give us sort of a snapshot of what's left in the portfolio for China ImmunoDx and what the incremental risk in risk or downside in 2026 is? Just sort of frame, you know, how much further headwind there'll be next year for that. Thanks. Maxwell Krakowiak: Yeah. Mike, look. So I I think, look, the DRG situation has been playing out as we had anticipated. We had, you know, sort of foreshadowed that IDX China would be down sort of mid-twenties here in the third quarter. That's what played out in the third quarter. I think as you look for, the impact into 2026 and even the fourth quarter here, we don't expect much change in DRG. We do expect that once we lap sort of the anniversary in the 2026, We do expect that business to return to more sort of muted levels of growth in the back half of the year. And so I think, again, no real change from our previous communication on the DRG situation in China. Dan Leonard: I I was hoping you could talk a little bit about what type of growth outlook for your software business is embedded into your 2026 framework given, you know, the offsetting factors of difficult comps, but I think you also have a big new product launch coming before year end. Maxwell Krakowiak: Yeah. Absolutely. So look, as as you look at software, to your point, you know, '26 will be coming off, you know, a challenging comp here in in 2025 from an organic standpoint. In 2025, we expect the business to finish in the high teens, 20% growth. So it will be a significant comp. Two things I'd say of that. One, in '26, we probably expect organic growth to be more in the mid-single digits. I would say we expect some contribution from the MPIs, but as you know, software MPIs take a little bit longer to ramp, as they get released and customers really start, you know, learning about the new tools and adopting them, etcetera. So there's some impact in there, but I wouldn't say it's a it's a huge impact for '26. And if things pick up faster, that would be, you know, I would say upside to the to the mid-single digit, organic growth. The second thing I'd say is, you know, organic growth is always not maybe the best metric to look at when you're evaluating a software business. And I think as you look at the performance around ARR, you know, your APV, which again just normalizes for revenue recognition, and then also our net retention rate, you know, those metrics continue to perform, extremely well for us as a business, and we are incredibly excited about the software business in 2026 and beyond. Prahlad R. Singh: Yeah. And just to add to that, Dan, just, you know, as we saw previously last year, we launched signals synergy and signals clinical. And, you know, and it took some time for it to get traction, and now it started really contributing. You know, similarly, as we bring in lab design and, biodesign and logistics NPIs, it takes a few quarters for it to start ramping up, and we start seeing contributions from that, those new NPIs. Dan Leonard: Understood. Thank you. And, Prahlad, can you talk a little bit about your M&A thoughts in light of how big you're going with the share repo? Prahlad R. Singh: Yeah. I mean, again, we continue to be disciplined in our approach around an M&A deployment. You know, we've we've have an active pipeline, Dan, and, you know, and we continue to look for opportunity. We will be in this environment pretty prudent in how we deploy. And, honestly, the best opportunity right now from a return on capital investment is our share buyback. You know, we think that's the most attractive opportunity in front of us, and and we are fully, taking, you know, advantage of that opportunity while keeping a very fertile pipeline and looking for opportunity, for, doing acquisitions. Tycho Peterson: Hey, guys. Thanks. I wanted to probe a little more on reagents. I know you said modestly below expectations. Did the reagents actually decline? I mean, if software was up 20, instruments down mid-single, it would imply reagents were down low single. So is that the right, interpretation? And then how do we think of kind of go forward incremental margins on the reagents business? I know you've previously talked about 70%. You know, I guess, given the pricing backdrop and inflation, just talk a little bit about the margin profile for reagents going forward too. Maxwell Krakowiak: Yes. Absolutely, Tycho. So look, I think as you look at the reagents performance in the third quarter, they were down very slightly year over year. You know, I would say that, again, as I mentioned in the call, the summer months were a little bit lighter. We've taken a prudent approach to our fourth quarter guidance, but we still see, I would say, you know, stronger levels of underlying lab activity when you look at things year over year. So again, I don't think we're saying that there's been, you know, some huge shift here really in in in lab activity. The second thing I'll answer is on the on the margin side of the incrementals. I would also say there's no change in in the power of our incremental margins in our reagents business. Yes. It is a little bit of a tighter pricing environment, but we are still holding in there, from a pricing perspective. And I think, you know, as the lab activity continues to ramp here, are gonna see the the margin benefit as we get upside from those incrementals. Tycho Peterson: Okay. And that's helpful. And then maybe just I know you've had a number of questions on instruments. I'm just curious, you know, budget flush in the year end from pharma, is is that baked in or not? How how are you thinking about that, you know, on the back of these announcements? I know you talked about activity picking up, but how do you think about near term kind of budget flush here? Is that a call option on the fourth quarter? Maxwell Krakowiak: Yeah. Think, look, as you as you look at the budget flush and what sort of assumed in guidance here, you know, you do always have a a modest seasonal step up for instruments between Q3 and Q4. I wouldn't say it was back to all the way of historical levels of budget flush, but you do definitely see, an increase between the third and the fourth quarter. And as Prahlad mentioned, there is we have definitely seen an uptick in the activity level in our instrumentation pipeline. It was a little bit better here in the third quarter, and we do believe that there's some opportunity here for us in the fourth quarter as well. Tycho Peterson: Okay. And then just lastly on the tax rate, 18% baseline for 2026. Is there an opportunity for more and more leverage there? And how sustainable? I mean, I think you're going to be at 15% here in the back half of this year. I know you saw a step down in the back half of last year. So how do we think about maybe additional tax leverage beyond that 18% baseline? Maxwell Krakowiak: Yeah. Look. I'll tell you, look. Our tax team has done a tremendous job, I think, in resetting what we even consider baseline from where we were a couple years ago. Again, it was, you know, 20%, and now we're at sort of an 18% baseline here. Know, I think just from a in terms of a forecasting and guidance approach, you know, we don't really roll in any expected sort of onetime benefits. We kinda take our, you know, baseline and and see how the year progresses, and and that's how I would encourage you to think about '26 as well. Doug Schenkel: Okay. Good morning, everybody, and thank you for taking my questions. Two topics I wanted to ask about. The first is China Diagnostics. So I guess three parts to this one. One, I believe China Diagnostics is down to about 5% of total sales exiting Q3. I want to make sure that's right. Two, it sounds like we should model that down 20% to 25% due to the changes in multiplex reimbursement. So down 20% to 25% year over year, and I think we should do that through Q2. And then third, can we confidently model that returning to growth thereafter? Or is is there any reason to be more cautious than that? Yeah. There have been a few head fakes there in China as we know, and you got folks like Abbott and Danaher who are telling folks to model incremental headwinds in 2026. How how do you see it from there? Maxwell Krakowiak: Yeah. Hey, Doug. Yeah. So couple different questions in there. So I think, look, as you look at the, China as a percent of revenue, you had mentioned 5%. I think it's closer to 6%, which is probably what I would use as as you think about exiting this year. You know, I think, again, we've we've already kinda talked about the fact and and what our expectations are for GRG is to continue to see the headwinds here from, you know, the what we saw in the third quarter continuing until we anniversary in the second quarter. I think we've also talked about how we, you know, have in our LRP the assumption of, you know, closer to low single digit growth for IDX business in China. And so I would continue to have that sort of same thought process as you sort of think about the 2026. You know, I'd also say again on the immunodiagnostics side, you know, the business outside of China continues to perform incredibly well. And I know there's the focus on China right now with DRG, but IDX ex China continue to grow high single digits. The Americas was up mid-teens, And so that business continues to perform incredibly well and one where we're excited to keep performing well in '26 and beyond. Doug Schenkel: Okay. Sounds good. I'll leave it at that. Thank you, guys. Puneet Souda: Yeah. Hi, guys. Thanks for taking my question. So first one on just wanted to clarify on the instrumentation side. Or the improvement that you're seeing in this quarter, is it more of the, you know, China tariffs impacted situation from the last quarter? Or, actually, our customers telling you that, you know, we we're purchasing more this quarter and into the next quarter. Maybe just help us understand sort of what you're hearing versus a sequential improvement because of, tariffs and other concerns between US and China, that happened in February. Prahlad R. Singh: Yeah. Hey. Good morning, Puneet. No. The answer is your the latter part of your comment. You know, what we are seeing is more of a broader activity, and it was not it is not specific to any China tariff related opportunity, and then it is specifically from pharma biotech customers. So what we are really seeing is a broader level of activity and discussions on pharma biotech on the life sciences instrument side. Puneet Souda: Got it. Okay. And then, just on the academic and government side, I know the reagent exposure is there. So just trying to understand if the grants are fewer next year just with the given given the funding five year funding in some of the grants and the early funding that's happening. Maybe just help us understand, you know, how are you thinking about the overall reagent growth into '26? And then just one more question, if I may. Could you remind us how much of your manufacturing for China sales is in China? Localization is emerging as an important theme beyond the VBP and DRG. So if you could elaborate on that. Thank you. Prahlad R. Singh: Yeah. Sure. On the manufacturing side, all of our reproductive health and newborn screening in is in China for China. Over the past decade, we have moved more, all of that. And on the IDX side, Puneet, more than half of it now is local in China for China. And the rest that we are, you know, shipping from Germany are specific and very unique assays where we have a minimal local competition. Maxwell Krakowiak: Yeah. And I think, look, the other thing I'll add to that too is we have the capacity and the availability to move that additional product into China if we need to from a competitive or or local requirement perspective. So I think we remain confident in our ability to to handle anything there from a localization standpoint. I think as you look at the, your your other question, Puneet, on the on the Puneet Souda: Multi year. Maxwell Krakowiak: Yeah. And the reagents and and sort of how we think about, 2026. Look. I I I think from a reagents perspective, again, as we've mentioned, 2% to 3%, we're really anticipating, I would say, you know, a similar ish environment to what we are currently seeing. Obviously, we'll have to see what happens from an NIH and budget perspective. But our 2% to 3% organic growth guidance for next year is not expecting some huge ramp up or change in the underlying market activity. If that were to change to the positive and we continue to see increasing momentum build, that's not necessarily something we factor in the 2% to 3%. Puneet Souda: Got it. Okay. Thank you. Dan Arias: Hey, good morning, guys. Thank you. Max, on the GEL contributions, which I think you've kind of pointed to as being heavily weighted in in 4Q for $10 million or so, how should we model that sequentially in the quarters after that? Is there is there a drop down or do you think there's some level of stability into the front half of 2026? Maxwell Krakowiak: Yes. Hey, Dan. So the $10 million for Gel was actually the initial sort of second half contribution, full second half. So we did start to see the a little bit there in the third quarter as the contract and the lab came online. We do expect a little bit of sequential pickup here in the fourth quarter. I think as you look at sort of 2026, I wouldn't anticipate too much further ramp from what we currently have assumed in there in the fourth quarter, and that'll sort of be a consistent quarterly number as we think about it for 2026. Dan Arias: Okay. And then maybe Prahlad, on your pharma and biotech comments, can you elaborate a little bit on the biotech element and just how much of the incremental enthusiasm that you might be pointing to is due to some of the larger biotech companies versus some of the smaller and emerging players that might be getting a little bit more enthusiastic about what they might do? Thanks. Prahlad R. Singh: Yeah. I think that's a key differentiation. I mean, most of the louder activity we are seeing is on the typical large and mid-sized biotech. While the conversations are ongoing with the smaller ones, then it's not at the same level as you would see with the more mid and large-sized biotechs. Biotechs. Dan Arias: Okay. Thank you. Prahlad R. Singh: Who tend to be more of our traditional customers anyway. Catherine Schulte: Maybe first, just for the 2% to 4% organic for the full year, it creates a pretty wide range for the fourth quarter. So should we be anchoring more towards the lower end of that range? And how should we think about performance by segment for the fourth quarter? Maxwell Krakowiak: Yeah. Hey, Catherine. Thanks for the question. Look. I think as you look at the full year range, the 2% to 4%, I don't think it's an uncommon practice to have sort of that range for the fourth quarter. I think as you kind of look at the midpoint though of what we have for the fourth quarter in terms of our full year guidance, that would sort of point you to a 2% to 3% organic growth for the fourth quarter in order to reach that midpoint for the full year. Catherine Schulte: Okay. Great. And then maybe how did U. S. Academic and government perform in the quarter? And you mentioned baking in a government shutdown impact in guidance. Any way to size kind of how you're thinking about that? Maxwell Krakowiak: Yeah. So first, in in terms of the academic and government performance in The Americas for the for the third quarter, it was down mid-single digits in the third quarter. Again, as we've talked about, most of the instrument activity pickup we're mostly seeing is on the pharma biotech side versus academic and government. So that was a bit of a headwind for us in the period. I I think as you then look at the government shutdown, you know, I was I I think the bigger impact there, right now that we're seeing is more so on the reagent side, which we have baked in some some modest assumptions there for the fourth quarter. I would say, again, it's modest. It's not something that is a huge number to embed into the guidance. Sabu Nambi: Hey, guys. Thank you for taking my question. In your prepared remarks, you talked about how AI is improving your operating efficiency. As your customers implement AI, do you view this as a threat or as an opportunity? Meaning, AI improves their efficiency and reduces their risk, are you seeing any signs that this leads to more or less demand for Revvity products? Prahlad R. Singh: Again, it's a great question, Subbu. I think, you know, if you were to look in the short to midterm, and by that I define over the next three to five years, I think it will result in increased demand on the reagent and instrument side. Because I think, you know, not just traditional pharma biotech companies, but also AI focused companies on life sciences will want to correct and create more and more data in order to sort of, you know, look at what modeling capabilities that you need to have, what AI models that you need to build. But I think over the second half of the decade, I would venture to say that the signals business is very well positioned, on the AI side of drug discovery. You know, we are in every lab, every researcher in pharma big pharma biotech has signals at their fingertips. And if we are able to provide the capability and ability for pharma biotech customers to use the signals infrastructure and incorporate AI capability into that, it becomes a natural tool in the hands of researchers who don't need to be computer specialists to do drug discovery. And that's where we have the opportunity both in the short to midterm with our reagents and instruments portfolio and in mid to long term with our signals business. Sabu Nambi: Thank you for that, Prahlad. And, just as a follow-up, you described some signs of instrument recovery in your prepared remarks. If that continues to take hold, what instruments would you expect to be the first to participate in that recovery? Would you consider providing book to bill data on instruments heading into 2026, as we get to year end? Prahlad R. Singh: Yeah. I I think the the benefit or the, advantage that we have, Subbu, is most of the life sciences instruments that we provide are noncommoditized products. And the initial uptick that we start seeing is especially on the, cellular imaging capabilities that we provide to our customers, you know, looking at, cellular imaging, our high content screening platforms specifically. You know, we've never provided book to bill ratio and, you know, and generally, that's not something that we look at either. Sabu Nambi: Thank you so much, guys. Operator: There are no further questions at this time. I will now turn the call back to Steve for closing remarks. Stephen Barr Willoughby: Thank you, Nicole, and thank you for everybody joining us this morning. We look forward to catching up with more of you over the coming weeks.
Operator: Hello, and welcome to the Daqo New Energy Q3 2025 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing *0 on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press *1 on your telephone keypad. To withdraw your question, please press *2. Please note this event is being recorded. I would now like to turn the conference over to Jessie Zhao, Investor Relations Director. Please go ahead. Jessie Zhao: Hello, everyone. I'm Jessie Zhao, the Investor Relations Director of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the third quarter of 2025, which can be found on our website at www.dqsolar.com. Today, attending the conference call, we have our Deputy CEO, Ms. Anita Zhu, our CFO, Ms. Ming Yang, and myself. Our Chairman and CEO, Mr. Xiang Xu, is on a business trip now, so Ms. Anita Zhu will deliver our management remarks on behalf of Mr. Xu. Today's call will begin with an update from Mr. Xu on market conditions and company operations, and then Mr. Yang will discuss the company's financial performance for the quarter. After that, we will open the floor to Q&A from the audience. Operator: Before we begin with the formal remarks, I want to remind you that certain statements on today's call, including expected future operational and financial performance and industrial growth, are forward-looking statements that are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. Operator: All information provided in today's call is as of today, and we undertake no duty to update such information except as required under applicable law. Also, during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into U.S. dollars solely for the convenience of the audience. Now, I will turn the call to our Deputy CEO, Ms. Anita Zhu. Ms. Zhu, please go ahead. Anita Zhu: Hello, everyone. This is Anita. I'll now deliver our management remarks on behalf of our CEO, Mr. Zhu. With the recovery of market prices across the solar PV value chain in the third quarter of 2025, we believe the industry is gradually recovering from its cyclical downturn. In particular, the polysilicon sector reached an inflection point during the quarter, with prices rebounding significantly. As a result, we're pleased to report that for the third quarter, Daqo New Energy recorded positive EBITDA of $45.8 million, as well as adjusted net income of $3.7 million. Moreover, our strong balance sheet is further reinforced. As of September 30, 2025, the company had a cash balance of $552 million, short-term investments of $431 million, bank notes receivables balance of $157 million, and total fixed-term bank deposit balance of $1.1 billion. In total, our bank deposit and financial investment assets readily convertible into cash if needed stood at $2.21 billion, representing an increase of $148 million compared to the end of the second quarter. Our solid financial foundation provides us with confidence and strategic flexibility to navigate the ongoing market recovery and capture long-term opportunities. Operationally, the company implemented proactive measures to counteract the continued market oversupply. Maintaining a nameplate capacity utilization rate of 40%, total polysilicon production for the quarter was 30,650 metric tons, slightly above our guidance range of 27,000 to 30,000 metric tons. We also capitalized on favorable pricing conditions to sell not only our current quarter's output but also a significant portion of our existing inventory, leading to a sharp rise of sales volume to 42,406 metric tons from 18,126 metric tons in the previous quarter. The strong increase in sales volume reflects both our customers' confidence in Daqo's product quality and their continued preference for our product in the new pricing environment. As a result, our sales volume far exceeded production, bringing our inventory down to a healthy level. On another positive note, production costs declined significantly during the third quarter, extending our ongoing cost reduction trend. Total production costs declined by 12% to $6.38 per kilogram in Q3 2025, from $7.26 per kilogram in the second quarter of 2025. Total idle facility-related costs, primarily non-cash depreciation expenses, also fell to $1.18 in Q3 from $1.38 in Q2, driven by higher production levels. In particular, our cash costs decreased by 11% from $5.212 per kilogram in Q2 to $4.54 per kilogram in Q3, the lowest in the company's history. Cash costs include approximately $0.16 per kilogram of idle facility maintenance-related costs. In light of the current market conditions, we expect our total polysilicon production volume in the first quarter of 2025 to be approximately 39,500 metric tons to 42,500 metric tons. As a result, we anticipate our full-year 2025 production volume to be in the range of 121,000 to 124,000 metric tons. At the industry level, according to industry statistics, monthly supply of polysilicon in Q3 remained in the range of approximately 100,000 to 130,000 metric tons. On September 24, President Xi Jinping announced China's new 2035 environmental targets at the UN Climate Summit. These targets include increasing the share of non-fossil fuels in total energy consumption to over 30% and expanding the installed capacity of wind and solar power to over six times the 2020 level, aiming to reach an accumulative capacity to 3,600 gigawatts by 2035. The official announcement reinformed China's ambitious strategy to transition toward a new low-carbon energy structure, with solar PV playing a pivotal role in the process. Entering the third quarter, China's anti-involution initiative to restrict low-price competition in the polysilicon sector continued to impact the industry. Market expectations of consolidation and tighter supply have improved overall industry fundamentals. In particular, on August 19, the Ministry of Industry and Information Technology, the Central Ministry of Social Work, the NDRC, the State Council's State-Owned Assets Administration Commission, the General Administration of Market Supervision, and the National Energy Administration jointly held a symposium on the photovoltaic industry. The meeting emphasized the need to strengthen industrial regulation, curb disorderly low-price competition, standardize product quality, and promote industry self-discipline. On September 16, the Standardization Administration of China released a draft of a new mandatory national standard setting energy consumption limits per unit of polysilicon production. Once implemented, polysilicon manufacturers with unit energy consumption higher than 6.4 kilograms must implement corrective improvements within a specified period. Those failing to comply or meet the entry threshold after rectification will be ordered to cease operations. According to China's Silicon Industry Association, China's effective capacity in polysilicon production is expected to climb to 2.4 million metric tons per year, a decrease of 16.4% from the end of 2024 and of 31.4% from total installed production capacity. We expect that implementation of this new energy consumption standard will substantially ease the issue of energy overcapacity. As a result of these more forceful measures, polysilicon prices rose sharply to RMB 45 to RMB 49 per kilogram in July, from RMB 32 to RMB 35 per kilogram in June, and a further climb to RMB 49 to RMB 55 per kilogram at the end of the quarter. The solar PV industry continues to demonstrate strong long-term growth prospects. In the medium term, we believe that the combination of industry self-discipline and government anti-involution regulations will help foster a healthier and more sustainable industry. In the long run, as one of the most cost-effective and sustainable energy sources globally, solar power is expected to remain a key driver of the global energy transition and sustainable development. Looking ahead, Daqo New Energy is well-positioned to capture the long-term growth in the global solar PV market and further strengthen its competitive edge by enhancing its higher efficiency N-type technology and optimizing its cost structure through this digital transformation and AI adoption. As one of the world's lowest-cost producers of the highest-quality N-type product and with a strong balance sheet and no bank loan, we're confident in our ability to capitalize on the market recovery and emerge as an industry leader, well-positioned to seize future growth opportunities. I'll turn the call to our CFO, Mr. Ming Yang, who will discuss the company's financial performance for the quarter. Ming, please go ahead. Ming Yang: Thank you, Anita, and hello, everyone. This is Ming Yang, CFO of Daqo New Energy. We appreciate you joining our earnings conference call today. I will now go over the company's third quarter of 2025 financial performance. Revenues were $244.6 million compared to $75.2 million in the second quarter of 2025 and $198.5 million in the third quarter of 2024. The increase in revenue compared to the second quarter of 2025 was primarily due to an increase in both sales volume and average selling price. Gross profit was $9.7 million compared to gross loss of $81 million in the second quarter of 2025 and gross loss of $60.6 million in the third quarter of 2024. Gross margin was 3.9% compared to negative 108% in the second quarter of 2025 and negative 30% in the third quarter of 2024. The increase in gross margin compared to the second quarter of 2025 was primarily due to the increase in the average selling prices of polysilicon, a decrease in our production costs, as well as write-off of provision for inventory impairment. Selling, general and administrative expenses were $32.3 million compared to $32.1 million in the second quarter of 2025 and $37.7 million in the third quarter of 2024. SG&A expenses during the third quarter included $18.6 million in non-cash share-based compensation costs related to the company's share incentive plan, compared to $18.6 million in the second quarter of 2025. R&D expenses were $0.6 million compared to $0.8 million in the second quarter of 2025 and $0.8 million in the third quarter of 2024. R&D expenses vary from period to period and reflect R&D activities that take place during the quarter. As a result of the foregoing, loss from operations was $20.3 million compared to $115 million in the second quarter of 2025 and $98 million in the third quarter of 2024. Operating margin was negative 8% compared to negative 153% in the second quarter of 2025 and negative 49% in the third quarter of 2024. Net loss attributable to Daqo New Energy shareholders was $14.9 million compared to $76.5 million in the second quarter of 2025 and $60.7 million in the third quarter of 2024. Loss per basic ADS was $0.22 compared to $1.14 in the second quarter of 2025 and $0.92 in the third quarter of 2024. Adjusted net income attributable to Daqo New Energy shareholders, excluding non-cash share-based compensation costs, was $3.7 million compared to adjusted net loss attributable to Daqo New Energy shareholders of $57.9 million in the second quarter of 2025 and $39.4 million in the third quarter of 2024. Adjusted earnings per basic ADS was $0.05 per share compared to adjusted loss per basic ADS of $0.86 in the second quarter of 2025 and $0.59 in the third quarter of 2024. EBITDA was $45.8 million compared to negative $48 million in the second quarter of 2025 and negative $34 million in the third quarter of 2024. EBITDA margin was 18.7% compared to negative 64% in the second quarter of 2025 and negative 17% in the third quarter of 2024. Now, on the company's financial condition. As of September 30, 2025, the company had $551.6 million in cash, cash equivalents, and restricted cash compared to $598.6 million as of June 30, 2025, and $853 million as of September 30, 2024. As of September 30, 2025, short-term investment was $431 million compared to $418.8 million as of June 30, 2025, and $245 million as of September 30, 2024. As of September 30, 2025, bank note receivable balance was $157 million compared to $49 million as of June 30, 2025, and $83 million as of September 30, 2024. No receivable balance to present bank notes with maturity within six months. As of September 30, 2025, the balance of fixed-term deposits within one year was $1.03 billion compared to $960.7 million as of June 30, 2025, and $1.2 billion as of September 30, 2024. Now, on the company's cash flows. For the nine months ended September 30, 2025, net cash used in operating activity was $50 million compared to $376 million in the same period of 2024. For the nine months ended September 30, 2025, net cash used in investing activity was $448.9 million compared to $1.7 billion in the same period of 2024. The net cash used in investing activities in 2025 includes $120.3 million for the purchase of PP&E and $328.6 million in net purchase of short-term investments and fixed-term deposits. For the nine months ended September 2025, net cash used in financing activities was $32,000 compared to $48.5 million in the same period of last year. That concludes our prepared remarks. We will now open the call to Q&A from the audience. Operator, please begin. Operator: We will now begin the question and answer session. To ask a question, you may press *1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press *2. At this time, we will pause momentarily to assemble our roster. The first question comes from Phil Shen with ROTH Capital Partners. Please go ahead. Phil Shen: Hi, everyone. Thank you for taking my questions. First one is on the gross margins. It looks like you guys had positive gross margins for the first time in a while, maybe supported by the impairment. I wanted to get a feel for what kind of, could we see positive gross margins in Q3 and/or Q4, and how would you expect that to trend in 2026? Thanks. Ming Yang: Hello, Phil. This is Ming Yang, the CFO. Thanks for your question. We're very pleased to report that we were able to record positive gross margins for the third quarter. A lot of it is driven by the increase in selling prices. It's the quite significant increase that we saw in Q3, as well as a significant reduction in our per unit cost, and also helped by some of the benefits from an earlier write-down of inventory. We do expect that our Q4 gross margin, as of today, should be positive as well. Should be positive, I think, based on our current expectation for trends for both ASP as well as for our costs, continued cost reduction as well. Phil Shen: Great. Thanks, Ming. Maybe Q3 remains negative, Q4 flips positive, and then, through 2026, do you see potential for the year to be positive as well? Ming Yang: As of today, yes. Phil Shen: Okay. Great. Shifting over to some bigger picture questions. Last week, we hosted a couple of webinars, one with Clean Energy Associates and the other one with the CREW Group, the Commodities Research Unit, that acquired ExaWatt, based out of London. In any case, they were talking about a lot of the overhaul efforts and the anti-involution initiatives in China for polysilicon and downstream. They were saying that even after the overhaul in the polysilicon segment, there could still be, instead of maybe 3X overcapacity for poly, now just 2X. It's still substantial overcapacity. How do you guys continue to work to better match capacity with the lower levels of demand? What other actions can you and the industry take? How much capacity might you and the industry acquire over time and then shut down? Thanks. Phil Shen: Thank you, Phil. Regarding the overall capacity, first of all, I think it's correct that even with the exit of some capacity, there would still be a relative oversupply compared to demand. However, I think how it's going to work is that although you still have more supply in terms of the nameplate capacity, they'll try to balance it with demand in terms of the production volume, meaning none of the companies will be operating at full utilization rate until demand climbs up again. I think that's what's going to happen, at least in the short term to the mid term. Phil Shen: Okay. Got it. Thank you. Do you or you guys expect any additional actions from the government or from the industry that maybe we're not all aware of that could also serve as a positive catalyst, in addition to the lower utilization rate? What else can you and the industry and the government do? Thanks. Phil Shen: I think the overall conversation on the consolidation in terms of the SPVI effect, all the investors have seen a lot of news around that. I would say the anti-involution initiatives are still ongoing and conversations. All the companies are taking the initiative to participate and are actively engaging in these conversations so that we would see a healthier and more sustainable industry going forward. I think that's the key focus right now, at least in the near term. I would say aside from the anti-involution in terms of the consolidation, the other one that might be worthy to mention is the draft on the new mandatory national standard rate. I think that would work as another positive catalyst. Phil Shen: While the consolidation conversation is still ongoing, the government is also pushing out the national standard on energy consumption, and that would serve as a hard cutoff point for some of the companies and industries. Phil Shen: Okay. Great. Thank you for the color. Anita, I'll pass it on. Operator: The next question comes from Alan Hon with Jefferies. Please go ahead. Alan Hon: Thanks a lot for taking my question and attending. First question, I would like to follow up on Phil's question on the self-discipline in the industry. I would like to know when do you expect the whole consolidation agreement among the remaining players will be signed? What exactly, in terms of mechanisms, to make sure the players obey the quota or the volumes that are agreed upon by the parties? Is there any performance bond or some kind of mechanisms like that? Alan Hon: Thank you, Alan. Like I just mentioned, the conversation is still ongoing, so we're waiting for more details before we can unveil it to the investors. I would say we're pushing toward meeting an end, or having a consensus in terms of the consolidation. It's difficult for us to say exactly when that's going to turn out or when we can see an agreement signed. From our perspective, the sooner the better, right? We've seen a price recovery in the third quarter already. Suppose we can get a consolidation done soon, we might see further uptick in the prices. There are many parties involved in working out the consolidation, including the government entities and the companies in the industry, so it's taking some time. We are working very diligently and working very hard toward having a consensus. Alan Hon: Thank you. My second question is to follow up on the company-specific matter. I have noticed that actually the ASP achieved by the company is quite high relative to peers. I would like to know what's your expectation on the prices, especially if the consolidation initiative is implemented. Secondly, also look at it from the cost perspective, both the production cost and the cash cost went down. How do you see the trend in 4Q or in the sector as well? Ming Yang: Okay. I'll address the cost transfers, and then Anita will talk about the ASP, especially what our expectation is after the consolidation initiative. We did see a significant reduction in cost for this quarter, and it's actually, I would say, better than what we had originally anticipated. Costs went down about 12% quarter-over-quarter, overall cost, and then especially, cash cost declined by more than 11% quarter-over-quarter. A significant portion of that is actually the reduction in energy usage, particularly around efficiency. We did a lot of efforts in terms of improving our process and for further optimization. I would say that a lot of those efforts actually began to materialize, especially in the third quarter, as well as the usage of silicon powder in terms of per unit reduction. Also, this quarter, we benefited additionally from a decline in silicon metal pricing, and also because of the increase in production. This quarter, production is more than 10% higher than the previous quarter. There's also a per unit reduction in terms of relatively fixed costs, for example, labor and benefits. The combination of these helped us to reduce our costs. We actually expect, currently expect, Q4 costs to continue to decline compared to Q3, I think in the low single-digit range. We should continue to see a low single-digit percentage range. We should continue to see benefit from our cost reduction efforts. In terms of the ASPs, for the fourth quarter, as we're still undergoing the conversations to make the consolidation happen, we think the price change will remain relatively stable at the current level because prices have already picked up in the third quarter. Near the end of the quarter, it's already in the range of RMB 49 to RMB 55 per kilogram, so we think that's going to sustain in the third, fourth quarter. However, after the consolidation is completed, the consolidation will be done in phases. It's more likely going to be capacities exiting in different phases. We should expect prices to tick up after the consolidation happens to rise around RMB 60 per kilogram first and perhaps ticking up further as we see more nameplate capacities exiting the industry, so perhaps in the range of RMB 60 to RMB 80 as we foresee it. Alan Hon: Thank you. That's very clear. I think my last question is on the buyback because the company has announced the share buyback program a couple of months back. We'd like to know the progress of buyback since then and also, combining the consideration of potential CapEx or acquisition spending, we'd like to know what is the pace of buyback, and emphasized by the company. Thanks. Alan Hon: Thank you, Alan. In terms of the share repurchase, after we announced the program, share prices actually increased to the highest, to $31, which was about 35% higher than what was near the end of August. Because we wanted to purchase more shares, we were waiting and monitoring the market closely. Another thing is that we were waiting to see what would be the initial investment for the consolidation. Suppose the initial investment is around RMB 30 billion versus like RMB 10 billion, it means a huge difference to what we have to put in the consolidation. Hence, we're still waiting to see how that's going to unfold before we can confidently start the share repurchase again. Alan Hon: Okay. Assume the consolidation asset will materialize in 4Q, then probably there will be more clarity on the amount that Daqo New Energy has to spend in that platform. Then probably the company will start buyback, probably in 4Q or in 1st Q next year, right? Is it a fair expectation? Alan Hon: Sorry, what's the question? Alan Hon: Assuming the timing, if the consolidation type effort is going to be in 4Q or 1st Q, then PQ will start buyback right after that, which is a couple of months from now. Alan Hon: In terms of the timing of the share repurchase? Alan Hon: Yes. Alan Hon: I think that after we have a more clear picture of what the consolidation looks like, we can start the share repurchase. Alan Hon: Thank you. That's very clear. I'll pass on. Thanks a lot. Alan Hon: Thank you. Thank you, Alan. Operator: The next question comes from Ming Wang with Goldman Sachs. Please go ahead. Ming Wang: Yes. Thanks for taking my question, Anita and Yang. My first question is regarding the production costs. Ming, you just mentioned the lower cash cost is mainly due to our capacity upgrade, therefore, less energy usage now. I was wondering, what's our unit electricity consumption per kilogram of the poly right now? Ming Yang: Okay. It's actually different for our two facilities, but generally, it's in the range of, call it 52 to 55 kilowatt-hour per kilogram currently. Ming Wang: That's clear. My second question is regarding the production. We raised our production plan by 30% plus in 4Q from 3Q's level. The direction is really going against our peers. I was wondering how we fit our production left to current industry-wide production quota narratives, and also what drives our more positive demand outlook into 4Q. I think that's supposed to be a traditional weak demand season. Ming Yang: Thank you, Ming. I would say that we were among the first to start lowering our utilization rate to around 30% initially, right? I would say we have been very aggressive in doing that. However, as prices have recovered in the third quarter, and we do foresee a more optimistic outlook going forward with the consolidation and also the proposal on energy consumption, we do see a direction to curb the vicious competition in the industry, right? We are more confident in the future outlook, and we have weighed our own current plan as well as in terms of the cost. If we increase our production volume now, we can further reduce our production costs. I think that's the logic behind raising our production plan in the fourth quarter. Ming Wang: Can we use the over 50% utilization as the guidance in the production plan in 2026 and going forward? Ming Yang: Yeah, I think that would be a reasonable assumption for 2026. Ming Wang: Sure. That's very clear. That's all my question. I will pass the question to the next investors. Thanks. Alan Hon: Okay. Thank you, Ming. Alan Hon: Thank you. Operator: The next question comes from Gordon Johnson with GLJ Research. Please go ahead. Gordon Johnson: Hey, guys. Thanks for taking the question. Just to, I guess, number one, focusing on your current production cost, $638. I'm looking at what PV Insights is reporting for polysilicon prices in Q4 so far, $653. That would suggest a margin of 2%. When I look at the Guangzhou Futures Exchange, it has polysilicon prices right now, futures at, you know, around $840. When we look at your Q4 gross margin, are we looking at a margin similar to what you reported, in the 2% range or something higher? I have a follow-up. Thanks. Ming Yang: I think for the poly futures market, you have to subtract by a 13% VAT. I think once you subtract that, you get maybe a ballpark, five, five, a high mid to high single-digit kind of gross margin, something like that. Let me just say just kind of a range of gross margins, maybe low to mid single-digit kind of gross margin, I think, based on the current market environment. Gordon Johnson: Okay, that's helpful. You guys mentioned that you sold a lot out of inventory. Is that done, or will you continue that? My last question is, given the new five-year plan that's coming through in China, what is your expectation for solar installations writ large in China in 2026 versus 2025? Thanks again for the questions. Ming Yang: Okay. I think in terms of sales, it is still a little bit early, right? We're at the end of October. There are two more months to go by. I think based on our latest customer orders and order trends, we, at least at this point, do anticipate that the overall sales volume for the quarter should be similar to our expected production volume. I think that's the baseline for our sales. We do also look for opportunities to sell down additional inventory. That's what the current market condition looks like. Gordon Johnson: Okay. On total installs in China for next year versus this year, thanks. Gordon Johnson: For installation, we think it will be relatively stable or low single-digit compared to this year because this year, the forecast is in the range of around, I would say, 220 to 250 gigawatts for additional installations in China. I think for next year, it would be more likely in that range, and perhaps for growth to around, I would say, 270 to 280 gigawatts. Gordon Johnson: Thank you. Ming Yang: Great. Thanks, Gordon. Operator: This concludes our Q&A session. I would like to turn the conference back over to Jessie Zhao for any closing remarks. Jessie Zhao: Thank you, everyone, again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you and have an awesome day. Goodbye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the Carter's Third Quarter Fiscal 2025 Earnings Conference Call. On the call are Douglas Palladini, Chief Executive Officer and President, Richard Westenberger, Chief Financial Officer and Chief Operating Officer, and Sean McHugh, Treasurer. Please note that today's call is being recorded. I'll now turn the call over to Mr. McHugh. Sean McHugh: Thank you, and good morning, everyone. We issued our third quarter 2025 earnings release earlier today. The release and presentation materials for today's call are available on our Investor Relations website at ir.carters.com. Note that statements on today's call about items such as the company's expectations and plans are forward-looking statements. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please see our most recent SEC filings and the earnings release and presentation materials posted on our website. In these materials, you will also find reconciliations of various non-GAAP financial measurements referenced during this call. After today's prepared remarks, we will take questions as time allows. I will now turn the call over to Doug. Douglas Palladini: Thank you, Sean, and good morning, everyone. Now almost seven months into my role as Carter's CEO, our business transformation has accelerated as core tenets of new strategies take hold. Consumer response to new products and stories is strong and engagement levels are rising as a result, most notably among young Gen Z families with whom we must win. That said, our current results do not represent my ambition for Carter's nor where I believe we can be. There remains meaningful work to be done to eliminate costs, enhance productivity, excise non-value-add complexity, and exhibit consistent growth in revenue and profitability. I'll share some of what we're doing against these objectives shortly. But first, let's get an update on Q3 results from Richard. Richard Westenberger: Thank you, Doug. Good morning, everyone. I'll cover our third quarter performance and then a bit later I'll provide some thoughts on our outlook for the business over the balance of this year and into 2026. My comments this morning will track along with the presentation materials posted to the Investor Relations portion of our website. Beginning on Page two, we have our GAAP basis P&L for the third quarter. On third quarter net sales of $758 million, our reported operating income was $29 million and reported earnings per share were $0.32 compared to reported EPS of $1.62 last year. On Page three, we have our GAAP basis P&L for the first nine months of the year. On year-to-date sales of nearly $2 billion, our reported operating income was $59 million which represented a 3% operating margin. And year-to-date earnings per share were $0.75. Our third quarter and year-to-date results included a number of significant one-time charges, which we've summarized on Page four. These charges have been treated as adjustments to our reported results. In the third quarter, we completed the termination of our legacy Oshkosh B'gosh pension plan and recorded a non-cash after-tax charge of approximately $7 million. This final charge is in line with the amount we previously disclosed on our second quarter earnings call. We also terminated our deferred compensation plan in the third quarter and as a result recorded a one-time incremental tax charge of approximately $800,000. Finally, our third quarter reported results included a charge related to organizational restructuring of approximately $6 million for severance and other employee separation benefits. We expect to record an additional charge of up to $5 million in the fourth quarter related to this organizational restructuring. These charges largely represent cash severance, which we expect to pay to affected employees throughout 2026. We will talk more about our organizational restructuring later in today's call. On a year-to-date basis, we've incurred approximately $13 million in costs, including just under $4 million in the third quarter, relating largely to third-party professional fees in support of improving our product and brand development processes. These costs are a continuation of previously announced initiatives to improve our operating model capabilities. We have been transitioning the work related to these initiatives from external consultants to internal resources and estimate we'll incur additional related charges of less than $2 million in the fourth quarter. Our year-to-date results also included approximately $8 million related to our leadership transition earlier in the year, including approximately $500,000 in the third quarter. With all that said, my comments this morning will speak to our results on an adjusted basis, which excludes these meaningful charges. On Page five, we have our third quarter adjusted P&L. Third quarter net sales were $758 million, comparable to a year ago. Third quarter is historically our second largest of the year, surpassed only by the fourth quarter. I'll cover more detail of our business segment performance in a moment. But at a high level, relative to last year's third quarter, we had net sales growth in our U.S. Retail and International segments and lower sales in U.S. Wholesale. On the nearly $760 million in net sales, our gross margin was 45.1%, a decrease of 180 basis points versus last year. This lower gross margin rate was largely due to higher product costs, including higher tariffs and additional investments in product make to improve the competitiveness and relevancy of our product assortments. The gross impact of tariffs on gross margin was $20 million in the third quarter. On a consolidated basis, we made good progress in raising prices, which were up in the low single digits, but this higher pricing did not fully offset the higher product costs in the quarter. Our U.S. Retail business made particular progress in raising prices. Third quarter AURs in U.S. Retail increased in the mid-single-digit range over last year. Third quarter adjusted SG&A was $308 million, up 8% over last year. The drivers in the quarter were similar to what they've been throughout 2025, namely higher store-based expenses across our North American store portfolio, higher marketing, and higher provisions for variable compensation. The growth rate in spending in the third quarter was less than in the second quarter and we're planning for a lower growth rate in total spending in the fourth quarter and into 2026. Adjusted operating income in Q3 was $39 million compared to $77 million a year ago. Below the line, net interest costs were comparable to last year and our effective tax rate was 21.8%, up 430 basis points versus last year. We planned our full-year effective tax rate at approximately 24% versus 19.6% in 2024 due mostly to the implementation of a global minimum tax in Hong Kong and stock option expirations earlier this year. With all of that on the bottom line, third quarter adjusted earnings per share were $0.74 compared to $1.64 last year. On page six, we have a summary of our third quarter performance by business segment. As mentioned earlier, consolidated net sales were comparable to a year ago. The roughly $15 million in growth between U.S. Retail and international was offset by a similar decline in sales in U.S. Wholesale versus last year. Adjusted operating income declined just under $40 million with U.S. Retail and U.S. Wholesale contributing roughly equally to the decline. Profitability in our international business declined slightly versus a year ago. Now turning to some additional details of our third quarter performance in U.S. Retail on page seven. Our net sales in Retail grew by 3% in the third quarter with a positive 2% total Retail comp, building on the similarly positive comp which we posted in the second quarter. Our objective is to return to consistent growth in comparable sales, so we were pleased with this result. We had comparable sales growth in both channels in the quarter, stores and e-commerce, and anniversaried last year's successful Labor Day period with good performance in this year during this key promotional period. As I noted earlier, consumers accepted higher prices in the quarter. Our mid-single-digit increase in AURs resulted in a low single-digit increase in average transaction values. From a product point of view, Baby continues to be a key driver. It's our largest product category and we posted sales growth here for the fifth consecutive quarter. We also saw good growth in toddler, which represented our strongest performance in this age segment so far this year. Relative to last year, we grew share in both the baby and toddler categories. U.S. Retail also benefited from an improved inventory position versus the first half. We entered the third quarter with less carryover of prior season goods, helping new seasonal product to perform well. In general, consumers continue to respond well to newness and the better part of our assortments. Our inventory investment in the bigger kids size segment also helped us to post sequential trend improvement in this part of our business, and we had a strong back-to-school selling season. We did invest in an incremental marketing in the third quarter. We're seeing good indications that our relevance with consumers is increasing with unaided awareness of the Carter's brand up significantly year over year and a continuation of progress in acquiring new customers driven by the strength of our baby business. Retail profitability was lower in the quarter for many of the reasons already cited: higher product costs, partially offset by improved realized pricing, the investment in marketing, and expense deleverage despite the positive comp in the quarter. Now turning to some additional detail on our third quarter performance in U.S. Wholesale and in our International segment on page eight. In U.S. Wholesale, sales were down versus last year, driven by lower sales in the Simple Joys component of our exclusive brands business. Demand for our Simple Joys brand on Amazon has been down this year. Simple Joys was a successful brand launch back in 2017 and this business grew rapidly as Amazon treated Simple Joys as effectively its private label brand in the young children's apparel space. In recent years, Amazon has changed its approach to how it manages brands. As a result, we've seen more pressure in this part of our business. We're in the process of executing a new strategy in collaboration with Amazon. We envision that our core Carter's, OshKosh, and other brands such as Little Planet and Otter Avenue will grow in prominence in this important channel of distribution and Simple Joys will reduce in significance over time. We will look forward to sharing more about our growth plans with this important customer. Elsewhere in the customer portfolio, sales with department store customers for the flagship Carter's brand were lower than a year ago, continuing the trend we have seen over an extended period. Our department store customers booked us down for fall, so this result was not a surprise to us. Department stores are projected to represent less than 20% of our overall wholesale channel sales for the full year. Profitability in the wholesale segment was impacted by the factors listed here, including higher net product costs, including higher tariffs and expense deleverage. We had a good third quarter in International. Total sales were up 5%. We had lower comps in Canada which we attribute to strong first half sales performance that likely pulled some volume forward into Q2 when the business posted a positive 7.6% comp as well as a lower level of clearance inventory in the third quarter. We continue to see strong performance in Mexico, which achieved a plus 16% comp with strong total sales performance given the contribution of new stores in this market. We saw strong growth in our international partners business in the third quarter. Sales to these customers, which operate in a large number of international markets around the world, were up 10%. And we continue to see particular strength in demand from our partner in Brazil, Rio Shuelo. Overall, international segment profitability was down in the quarter, but achieved a high single-digit operating margin of 8% in the third quarter. On Page nine, we have some balance sheet and cash flow highlights. We ended the quarter with continued good liquidity. Cash on hand was $184 million and we had virtually all of the borrowing capacity under our credit facility available to us. Net inventories at the end of the third quarter were $656 million, up 8% versus last year with units flat year over year. The impact of higher tariffs on ending inventory was meaningful, approximately $34 million. Excluding the impact of higher tariffs, net income increased by 2% versus last year. The quality of our inventory heading into the fourth quarter was high with excess inventory down meaningfully versus a year ago. The decline in cash flow was due to a combination of lower reported earnings and higher inventories, again in part due to the impact of tariffs on our quarter-end inventory balance. We historically generate the majority of our annual cash flow in the fourth quarter and we're planning for strong operating cash flow for the fourth quarter, which is expected to yield positive operating cash flow for the full year. We've paid $47 million in dividends year to date. We had no share repurchases this year compared to about $50 million year to date last year. Maintaining a strong balance sheet has always been an important priority for us, and it's more important than ever given this highly uncertain environment. Our current credit facility matures in spring 2027. We've begun the process to put in place a new credit facility. We are pursuing an asset-based loan or ABL type facility given its favorable pricing and flexibility relative to our current cash flow structure. To date, we have received commitments from our bank group members for a new five-year $750 million credit facility. We're planning to have this new facility in place in the coming weeks. Additionally, we're evaluating opportunities to refinance our existing $500 million in senior notes, which also mature in spring 2027. Conditions in the high yield debt market are favorable right now. Carter's is an experienced issuer in this market and will share more details on our path forward here when appropriate. On Pages ten and eleven, we have our year-to-date adjusted P&L and year-to-date business segment summary, and this information is included for your reference. I'll turn it now back to Doug for some additional thoughts. Douglas Palladini: Thank you, Richard. I'm encouraged by several aspects of our third quarter performance. As we continue to fuel progress and momentum across our brands, I see more reasons than ever to believe we are returning to long-term sustainable and profitable growth. While we are studying our business in 2025, there's still meaningful work to do for Carter's to unlock its full potential in terms of exceeding both consumer and shareholder expectations. We are actively managing Carter's in a highly uncertain world and marketplace, particularly as it relates to tariffs. We look forward to sharing more of our long-range plan in 2026, but closer in, we're focused on what we think is possible over the near term based on what we can control. To manage tariff impact, we've taken two primary actions. First, we're mitigating what we can through our supplier base, where Carter's world-class supply chain team has realized meaningful duty reductions of more than $40 million. Second, we have raised prices where necessary, while striving to maintain Carter's exceptional value proposition. To date, D2C consumers are accepting higher prices while we have continued to grow our business. As Richard mentioned, Q3 is our second straight quarter of positive retail comp growth and AURs are up mid-single digits with average order values up low single digits. Taking price will continue to be a critical component of tariff mitigation moving forward. As we continue down the road of our ongoing transformation, it's imperative that Carter's deliver near-term profitability, which we can achieve most impactfully by reducing our cost base as growth initiatives build returns over time. We are rightsizing our company as well as preparing for our next phase of growth by optimizing our organization, infrastructure, processes, and tools. In doing so, we're taking several difficult but necessary decisions and have identified $45 million in gross savings for 2026. We will also continue to identify additional sources of productivity going forward, and we expect our assortment rationalization initiatives to have a sales and margin benefit over time. It's crucial that Carter's enhance our performance-driven culture in which fewer people have greater ownership and accountability. To accomplish this, we plan to reduce office-based roles by approximately 15% between now and year-end 2025, saving roughly $35 million of the gross $45 million per year beginning in 2026. We believe these actions will streamline processes and decision-making at Carter's. The remaining $10 million in 2026 cost reductions will come through lower SG&A across multiple spending categories. These savings are expected to fuel near-term profitability while focusing Carter's on what really matters. Now moving on to Carter's stores. As we've discussed previously, our physical store fleet must be honed. We are now targeting 150 North America door closures, most of leases expire, up to 100 of which we expect to exit by 2026. Closing these stores does result in short-term revenue loss, but historical perspective suggests there will be offsetting sales transfer benefits by leveraging Carter's digital platforms, existing stores, and nearby wholesale partners. These closures will also allow us to free up SG&A associated with the fleet, one of our largest fixed assets. While we are pausing any further expansion of the current U.S. store model, the roughly 4,000 to 5,000 square foot co-branded format we have been opening for several years now, we are investing in new store type testing, in-store experiences, and real estate strategy development as we see greater fleet productivity as well as differentiated consumer experiences as distinct specialty destinations staffed by experts. A core tenet of our transformation is to put the Carter's consumer at the center of all we do. So we are removing internal complexity to bring our brands closer to market and deliver more of what our fans want. We are eliminating 20% to 30% of product choices in creating a more unified global product assortment across all our brands. We are leveraging a faster, more responsive design and development process that has excised a full three months from our product development calendar. Regular price sell-throughs have improved, demonstrating a sharper point of view in product design that truly resonates with consumers. Underpinning each action is the broader organizational objective of ensuring that our makeup from personnel to infrastructure to systems and processes reflects the agility necessary to both confront challenges and seize opportunities in a dynamic marketplace. A portion of these savings will be reinvested in our brands where we believe Carter's can generate the greatest return on invested capital. In 2026 and beyond, we plan to spend more on demand creation, driving traffic and consumer loyalty beyond promotion and price. We are already investing here. In Q4 'twenty-five, our media spend is up 11% from last year. The results year to date show a strong correlation between marketing investment and increased sales. In 2026, our plan is to increase demand creation spend almost 20% or $16 million. Of course, we will manage this spend carefully to ensure maximum returns. Ongoing investment also applies to Carter's U.S. e-commerce, where the business is back to growing with our Q3 comps up as well as AURs. As we moderate promotional messaging in favor of brand and product storytelling, our brands are resonating more deeply with consumers online, especially young Gen Z families with whom we have seen 17% growth in consumer counts year to date. IT investments fostering growth and productivity, such as digitization of product design and development, leveraging AI models, and cloud migration are being prioritized. We will also focus on foundational simplification by consolidating systems and platforms. And with those comments, I'll turn it back to Richard to talk about our expectations for the balance of this year and into 2026. Richard Westenberger: Thanks, Doug. Returning to our presentation materials on Page 19. We continue to monitor the situation with tariffs and the considerable impact they have begun to have on our business. As we all know now, over the past number of months, significantly higher tariffs have been implemented affecting imports from most every country, including those from which we source the majority of our products. These full reciprocal rates are much higher than those which have been in place historically and higher than what we have modeled and discussed with you all previously. The tariff rates now in effect bring our effective duty rate into the high 30% range versus about 13% historically. On a gross pre-mitigation basis, we've updated our estimate of the annualized incremental impact of the higher tariffs and now estimate that to be in the range of $200 million to $250 million. For 2025, we've estimated the net impact of additional tariffs on operating income to be in the range of $25 million to $35 million. As Doug mentioned, we've been pursuing tariff mitigation strategies across multiple fronts, the most material of which are the planned pricing increases across our assortments. We're also closely watching recent news reporting regarding current trade negotiations involving countries where Carter's production has been most affected by the higher tariffs. The situation remains very fluid and we're tracking the updates in real time. And if there is relief ultimately provided by the Supreme Court on the overall issue itself of higher tariffs, we will obviously seek to recover the significant amounts already paid and additional tariffs to date. Turning to Page 20. As noted in today's press release, we have not reinstated sales and earnings guidance given the ongoing and significant uncertainty regarding tariffs. We're still in the early days of gauging consumers' response to higher prices and seeing how our peers and the competition will deal with the challenge of tariffs. I'll try to be helpful in providing some perspective on how we're thinking about the fourth quarter. Historically, the holiday season has been a strong period in our business as our products are a natural fit for this time of year as families with young children gather and celebrate together. Our teams, particularly in U.S. Retail, are focused on continuing the momentum we've experienced over the last couple of quarters and delivering a strong finish to the year. And we think our product and marketing initiatives supported by a meaningfully improved inventory position versus last year provide good support for a strong finish to the year. In our U.S. Retail business, the combined November and December period has historically represented about 75% of our fourth quarter retail sales volume, so the lion's share of our quarter is still ahead of us. We're planning a low single-digit comp in U.S. Retail in the fourth quarter, which compares to a down 3% comp last year. We're planning continued progress in increasing AURs, although at a rate less than what we achieved in the third quarter, in part due to the more promotional nature of the fourth quarter generally. In last year's fourth quarter, we had particularly strong performance in late October over the Black Friday promotional period and during Christmas week. Our teams have put together a good promotional plan to comp our good performance in the holiday selling period last year, supported by this meaningfully improved year-over-year position in inventory and our increase in paid media. Comparable sales so far in Q4 are off to a good start. Our quarter-to-date U.S. Retail comps are up about 7%. We're planning wholesale sales down in the low single digits in the fourth quarter, largely driven by an expectation for continued lower demand with Simple Joys. We plan sales in the balance of our U.S. Wholesale segment up in the fourth quarter. And we're expecting sales growth in the International segment driven by Canada and Mexico to cap off what has been a good year in this part of our business. We're expecting gross margin rate will be down year over year in the fourth quarter more so than what we had posted in the third quarter in the neighborhood of 43 due to a larger gross impact of tariffs, investment in product make and somewhat less of an offsetting benefit from pricing. As I said previously, our current estimate for the net impact of higher tariffs on fourth quarter earnings is in the range of $25 million to $35 million. Spending is expected to increase at a mid-single-digit rate in the fourth quarter. This would be less than the rate of growth in SG&A in the third quarter. Below the line, we're planning for higher net interest costs and a higher effective tax rate than a year ago. As it relates to 2026, we're still developing our plans for next year. But on a preliminary basis, we're planning growth in both sales and earnings. Sales growth will be planned higher than in a typical year given the price increases we're putting in place in response to tariffs. Gross margin rate will likely be lower due to the net unfavorable impact of tariffs and changes in the mix of customers within the U.S. Wholesale channel. We're expecting a substantial benefit in 2026 from our productivity initiatives, but the entire estimated $45 million in savings will not simply drop to the bottom line. These savings will help offset the significant impact of the higher tariffs, other inflationary pressures across the business and will help fund investments we're planning including marketing as discussed. We'll have more to say about our expectations for the New Year on our next call, which will incorporate the perspectives from the holiday season and our latest read on the outlook for the consumer and broader marketplace. We're tracking a number of risks, including the persistence of inflation throughout the economy and its possible impact on consumer demand across a wide range of purchase categories. We're also watching the overall level of consumer confidence and employment data with both metrics showing some deterioration in recent months. With those remarks, I'll turn it back to Doug. Douglas Palladini: Thank you, Richard. This next step in our journey comes at a pivotal moment for Carter's. While our transformation is still underway, we are seeing clear proof that our strategies are working and gaining momentum and we must feed that inertia where we can yield the highest returns. I am sincerely grateful to all Carter's employees for their ongoing dedication to our business in creating this acceleration. We are also making deliberate tough choices to strengthen our business and our profitability. There is much more to come and we look forward to providing additional detail as we progress into 2026. Now, I'll turn the call back to the operator for Q&A. Operator: Certainly. Our first question will be coming from Paul Lejuez of Citi. Your line is open. Kelly Crago: Hi, guys. This is Kelly on for Paul. Thanks for taking our question. First one on I have two questions, one in the wholesale channel, one on the retail side. First on you with wholesale, I guess could you speak to a little bit more about what's happening with the Simple Joys brand exactly like kind of what's the go forward? I think you mentioned you're going to maybe reduce that brand, so what's going to put come in its place exactly? And then if you could just elaborate on the pricing that you're seeing in the wholesale channel? I think you mentioned pricing AUR is up mid-single digits in 3Q in retail. Just curious where that is on the wholesale side and how that's looking for the spring? And then just one follow-up on retail. Thanks. Richard Westenberger: Sure. Kelly, I'll start out on wholesale. And I know Doug wants to add some comments as well. So Simple Joys is the newest component of the exclusive brands portfolio. It's also the smallest part of that business. So that brand launched back in 2017. It really was kind of a different time period. We had considered for a number of years offering the flagship, the core brands, Carter's, Oshkosh, B'gosh on Amazon had for a number of reasons chosen not to do that back in that era. And so Simple Choice really was a terrific choice for that particular moment in time. We were treated extremely well by Amazon, and really treated as their private label, which led to really rapid growth in the brand. I think we've just entered kind of a new phase with everything that they've had going on as a company and some choices that they've made around how they manage brands. We think probably the better path forward is now to revisit that decision around the core flagship brand. So that's I think that's going to be the path going forward is taking the Carter's brand, the Oshkoshka brand and other brands that we may have in the portfolio. And Amazon continues to be certainly a super important channel of distribution for us. Douglas Palladini: Yes. We're already building the framework necessary to lean into the Amazon model with all of our brands. So I am confident that we will be able to build a much more meaningful lasting business beyond Simple Joys with all the Carter's brands. To touch just briefly on the rest of the wholesale business, what I would share is that we have gone deep with our key accounts to really understand what unlocking future growth is. The back and forth on the right products to make, the right assortments to offer has led to meaningful change in how we operate with our key accounts. And the results that we are seeing through H1 sell in. So we don't have any sell through on higher prices in wholesale yet. That won't impact us until January. But on sell in, we are seeing very positive results that lead us to believe that these higher prices will be accepted I think it's also really important to keep in mind that the value proposition that we offer remains widely intact even with higher prices, right. So the style, the quality, the price that we offer our product at will continue to be a distinct competitive advantage for Carter's moving forward even with the impact of higher pricing due tariff mitigation. Richard Westenberger: Kelly, your question on wholesale pricing in the third quarter roughly comparable, which is kind of in line. We have more degrees of freedom in our own retail channel and that's where the improvement in realized pricing occurred in Q3. Kelly Crago: Got it. Thanks. And then I just wanted to ask about the store closings and I think that you said that you would expect once the 150 stores are closed for that to be accretive to profitability and there's a sales transfer assumption there. Guess could you elaborate on what you're kind of assuming for the sales transfer to there and just any other color you could provide on how you've seen this play out? Thanks. Richard Westenberger: Sure, sure. So as the release indicates it's about 150 stores that's across North America. So it includes some stores in Canada and Mexico. To Doug's comment, the plan is to close majority of those stores at lease expiration. There are a handful that we think may be subject to the kick out clauses and would close before their natural lease expiration, but I think that would be in the minority. On a last twelve months basis, those stores did about $110 million in revenue. I would say they were kind of marginally profitable. And our history over time shows that there's about a 20% transfer rate to nearby stores and to our e-commerce channel. So leveraging the fixed cost and the asset base that's already in place, those tend to be pretty high margin flow through. So we would expect this at the end of the day to be accretive to operating income relative to the small margin that those stores are generating today. Kelly Crago: Thank you. Best of luck. Richard Westenberger: Thank you, Kelly. Operator: And our next question will be coming from Jay Sole of UBS. Your line is open, Jay. Jay Sole: Great. Thank you so much. I'd love to ask about your preliminary 2026 view on sales growth being higher than a typical year given that like you just said you're closing 150 stores. The wholesale business has been on a declining trend. I think Richard you mentioned some of the indicators, macro indicators are looking a little bit weaker over last couple of months. Just tell us what do you exactly do you mean by sales growth higher than the typical year? Can you give us like a general number or a range? And then just the algorithm to get there, how do you expect to do that? Thank you. Richard Westenberger: Yes, I don't know if I'm going be much more specific on it. It's unusual for us to be commenting on the New Year on this call. So that's more typically the February year-end earnings call. So I think I'll stick to that discipline. I will say though the reason I commented on it was that we're expecting more of a benefit from pricing because AURs are going to go up and they're going up meaningfully across the assortment. That's what we need to do with a tariff challenge that represents that gross number of plus $200 million. So more will be driven by pricing in 2026 and less by units. We do still have some unit growth plan. I think an important macro assumption is that this is an industry issue that we think everyone in the industry is going be raising their prices. So we don't believe we're going to be an outlier. I think our teams have done a good job maintaining our competitiveness with the market. We have some really good rigor organizationally and process wise here internally that looks at that common basket of goods to make sure that we're not out of bounds with our primary competitors where she's shopping most typically. So we don't want to have that spread widen out. That tends to be when our business has dropped off a bit. So we're assuming that we're swimming in the same pool with everyone else, but everyone else is raising their prices. But more of the revenue gains next year will be driven by price than units. Jay Sole: Okay. I understand. Richard, that's helpful. Maybe Doug, I can ask you just one question. On the rightsizing organization initiatives, you've talking about meaningful reduction in of course, in office-based roles, a disciplined spending management across the organization. The company historically has always been pretty tight on controlling SG&A. How do you get comfortable that you can drive these savings and be able to offset the cost of tariffs, but not necessarily lose something important in terms of company's operational ability and just the ability to execute and serve the consumer the way that the brand the way you want to and the way the brand wants to? Douglas Palladini: Yes. Thanks, Jay. There's really two things happening there. The first one is the one you called out. We're trying to take cost out of the business and have a meaningful impact on our near-term profitability. That's happening. The part you didn't mention that is equally important to me is to take complexity out of our system. We simply need fewer people having greater ownership and accountability for us to get where we need to be. Clear ownership in the most important processes across the most important growth vectors for our business and then accountability on the results of those opportunities is really how we are going to show up going forward. So yes, cost savings important part, but removing complexity and fewer people with greater ownership and accountability are equally important here. Jay Sole: Got it. Understood. Very helpful. Thank you. Operator: Thank you. And our next question will be coming from Ike Boruchow of Wells Fargo. Your line is open. Ike Boruchow: Hey, everyone. Thanks for the question. A couple for me. First quick clarification. On the Q4, the wholesale down low single, is that with you guys do have an extra week, just to clarify that. So is that with the extra week? And if so, what's the organic number? Richard Westenberger: That's correct. The fifty-third week is worth about $30 million in total. Ike Boruchow: Okay. Is that split pretty evenly between wholesale and retail? Richard Westenberger: Well, we'll take that up for you. I don't know off the top of my head, but we certainly will take that up for you. Ike Boruchow: Okay. The store closure plan, I mean, just for round numbers, are you effectively saying that you expect to end next year in The U.S. With roughly 700 stores and then roughly six fifty stores in the out year? I just know you've been opening a few and you're talking about maybe a few more openings. I'm just trying to make sure I know what the number is going to be going to. Richard Westenberger: Yes. I think that's directionally correct. Ike Boruchow: Okay. Okay. The Simple Joys, I think Kelly had asked about it. Is there any way you could kind of just give us a little bit more detail there? What's the size of it today? It sounds like you're kind of saying you expect to replace it with your core branded business. Is there any more detail you can give us on the sizing? And is that a headwind? I mean, you called it out as a headwind in 3Q and 4Q. Is a that headwind we should be expecting to kind of continue into next year? Just any more detail there? Richard Westenberger: Yes. I don't want to comment too much. It's unusual for us to comment on individual wholesale customer relationships. So and we certainly go to some lengths not to size those. As I said, it is the smallest part of the exclusive brands, which in total represent about half of our wholesale segment sales. So it's it is a bit of drag on revenue. That's we called it out because it was material enough to the segment results and to the company results to do so. It will be a bit of a drag I would think into next year, but I think we're excited about the opportunity of what the core brands could mean on the Amazon platform over time. It's a bigger opportunity. Our own brands are a bigger opportunity than what we're winding down with Simple Joys is how I had answered the question. Ike Boruchow: Got it. Understood. And then just the last one for me. I know Jay tried to talk about the top line and I appreciate Richard, you want to go there. But if we just leave top line aside, could you just help me understand a little bit better? You've laid out the productivity initiatives, which makes sense in our materials, so roughly $45 million. But the tariff headwind on the wraparound is decently more than that. You're also saying you want to invest in demand creation and then you also lose a week and there's some other little things in there. But I guess just where is the confidence coming from that you guys have to call out earnings growth in the next year? Just because it seems like you've got the right strategies in place. It just seems like you still have more pressure coming next year to kind of deal with. So I don't know if there's anything else you could share to help us understand where the confidence comes from? Richard Westenberger: Yes. I would say a couple of things in response, Mike. One, we are seeing some progress and some acceptance from the consumer in raising prices. That needs to be a key element. There needs to be more of that that happens in 2026 to cover the bigger gross tariff exposure. So we are assuming that we have success in raising prices and the consumer broadly accepts that without tremendous pushback. I would say also we are expecting the benefit of the productivity initiatives and we're also assuming good return from the marketing investments as well, the demand creation investments. We've seen some of those proof points start to come through our business. Some of the work we've done over the last number of months have indicated we clearly under indexed the peers relative to the peer set relative to what we spend on marketing. So we've been stepping into that I think with some good returns. And so we're expecting to see more of that. So we think that marketing investment actually is accretive to the top line and bottom line next year. So you put all that together with the productivity savings with the ability to cover most, not all, but a good portion of those gross tariff exposures that leads to positive growth in operating income. And just to follow-up on your question on the fifty-third week, it's worth about $5 million at wholesale. Ike Boruchow: Okay, great. Thank you so much. Richard Westenberger: You're welcome. Operator: And our next question will be coming from Chris Nardone of Bank of America. Your line is open, Chris. Christopher Nardone: Thank you, guys. Good morning. So just a couple of follow-up questions. So going back to the sales growth expectation for next year, is there anything different in your business today versus the prior period of price inflation that's giving you more confidence that you can grow sales both maybe AUR and units? And then can you just give us an update what you're seeing from your competition so far? Are they increasing pricing at a similar level? And how are you planning for the promotional environment into the holidays? Douglas Palladini: Yes. I'll just talk about a few reasons to believe in our current business that gives us faith going forward into 2026, Chris. The first thing I would say is that we are seeing growth in our better and best categories of business. That by nature is higher AUR business for us. The second thing is that our brands are bringing in more new consumers. So our consumer base is growing as our market share returns. And we are seeing a lot of the newness in consumers coming from those younger Gen Z families. And so there's a lot of opportunity there and reasons to believe our business is getting better there as well. I think it's across our brands too. It's not just Carter's. We're seeing growth in Oshkosh. We're seeing growth in Little Planet. We're seeing the launch of our toddler-specific Otter Avenue brand growing as well. And so there are meaningful growth factors across our brands, across ages, across product categories and in those that are best buckets, bringing in new consumers on top of that, we believe that bodes well for what's coming down the road in 2026. Richard? Richard Westenberger: And Chris, on pricing just in general, I would say we are the market leader. So we intend to exhibit market leadership here. And in the past when we've needed to raise prices because there's been some sort of an external shock to the system years ago when cotton doubled in price in a fairly short order, had to raise prices meaningfully, we were able to do so. So I would say the offset could be some loss of unit velocity. That's something that we're continuing to work through. I think our operational inventory teams have been really thoughtful where we think we may lose some unit intensity. We're reflecting that in our inventory commitments. On balance in our retail business where we control more of our destiny, think we've made a bit more of an investment in units to be able to do the business. There's probably a bit more at wholesale that you would expect to perhaps that you lose a bit of unit velocity there. But I think we're being really thoughtful about it. And I think again, is an industry issue. We're in a lot of the same factories as our wholesale customers. We see their product when we go to visit those vendors. So this is not a situation where our cost structure or our supply chain is somehow disadvantaged versus the industry. If anything, I think we have better cost than a lot of our peers in the industry. This is something that everyone is going to have to face. And so our intent is to do so thoughtfully and continue to watch our competitiveness as I mentioned earlier, but those are our plans to raise prices across the assortment. Christopher Nardone: Understood. Thank you. That was very helpful. And just a quick follow-up on margins. So appreciate the intro color for 2026. But as we think about the tariff impact, maybe into the first half of next year relative to the $25 million to $35 million rate for 4Q. Should that actually improve as you kind of ratchet up the mitigation? Or could that actually be more of a pressure point as you really are baking in the new rates into your inventory for first half? And then sorry to also throw this in, but is there anything else on the gross margin we should be thinking about into next year even directionally as it relates to labor, cotton costs, freight costs, anything worth calling out directionally? Richard Westenberger: Well, I would say cotton has been a bit of wind in our sails. It's been remarkably stable and actually down year over year. So we're not particularly concerned about cotton inflation. So I guess I don't want to be too specific on what we think the net impact will be. I think our teams have done a good job mitigating to date here in the second half of the year. It was never our intention to fully cover the cost of tariffs here in the 2025. It was too fluid of a situation. As we approach next year, we've had more time to absorb this. We've had more time to think about reticketing goods, which really hasn't been practical here in the second half twenty-five. It's been more of a response in ratcheting back promotional intensity in the business. So we have more of a pure kind of ticketing and pricing opportunity next year. It is our intent to cover the vast majority of this incremental tariff impact. Now it's a bigger gross impact than we had estimated before. So that is certainly a challenge. So pricing is a more significant element of it. And as Doug said, are other things beyond pricing that we're doing with our supply chain team in terms of working with our vendors, moving production. All of those are benefits in terms of reducing that gross tariff impact as well. So we're not entirely reliant on pricing to be the only weapon that we have here. It is the most significant, it is the most material, but it's certainly by no means the only thing that we're doing to mitigate the impact here. Christopher Nardone: Thank you. Good luck. Richard Westenberger: Thank you, Chris. Operator: And our next question will be coming from Jim Chartier of Monness, Crisp, and Hardt. Your line is open. James Andrew Chartier: Hi. Thanks for taking my questions. Could you just let us know what is the gross impact from tariffs in fourth quarter? Richard Westenberger: Estimated to be about $40 million, Jim. James Andrew Chartier: Okay. And then in terms of October to date, what have you seen with pricing in AUR so far? Richard Westenberger: Pricing continues to be up so far. We've just closed the month of October. It's up kind of in the high single-digit range from memory. James Andrew Chartier: Okay. So the expectation is just that holiday gets more promotional and the AUR gains is about half of what you did in third quarter. Is that right? Richard Westenberger: Yes. I don't know if I'll say half as much. Just the holiday season is more promotional in general. So I expect we'd get some of that AUR gain as we get to the more promotional part of the quarter. James Andrew Chartier: Okay. And then the tax rate, is 24% a good number beyond 2025 as well? Richard Westenberger: Yes. I think that's probably a decent planning assumption. James Andrew Chartier: Okay. Thank you. Best of luck. Richard Westenberger: Thank you, Jim. Operator: And our next question will be coming from Paul Kearney of Barclays. Your line is open, Paul. Paul David Kearney: Hey, thanks for taking my question. I'm just curious on the top line, if you're able to speak to the level of incremental price increases you're expecting for the retail channel for the first half? And I have a follow-up. Richard Westenberger: For the first half of next year, no. I think probably too soon to comment on that, Paul. Paul David Kearney: Okay. My next question is on the SG&A reductions and the cost savings and the reinvestment. I'm curious if there's anything we need to consider in terms of timing of some of these of when the savings flow through, when the reinvestment is expected? And then also, you spoke to improving returns on kind of the media spend. I'm curious if we can just drill down on that. What are you seeing in terms of the media spend thus far? And how is it being spent differently into next year? Thanks. Richard Westenberger: Yes. So on the SG&A savings, would expect that it's January 1 when we're starting to realize the benefit of the run rate savings that we've articulated. So the reduction in force will be largely complete by the end of this year. So we'll start to get the organizational savings as we move into next year. The offset would be some of the demand creation investments that we articulated. That's about a $16 million. That's a full-year number for next year. And Doug will offer some comments as well and just in terms of the proof points we're seeing around marketing and the returns there. But we're going to step our way into it. We're going to continue to measure it rigorously. We're not going to write a check for that full amount the first day. We're going to just make sure it continues to generate the kind of returns that we anticipate. Douglas Palladini: Yes. So in terms of what's going to be different from a demand creation investment perspective, the first thing I would say is that there are two things that we are focusing on, driving traffic to our owned platforms where we see outstanding results for every point we gain in traffic across our fleet on our website there is meaningful top and bottom line results. Second, consumer loyalty and that has a lot to do with the experiences that we have on our sites and in our stores, on our apps with our loyalty program as well as the stories we tell about our brands and our products. Traditionally, over the past many years, Carter's messaging has been very focused on price and promotion. What you are already seeing is a lot more storytelling around product newness, product innovation and what each of our brands has to offer, which drives much more affinity and loyalty with consumers as well. So we will be tracking very closely against increasing traffic and increasing our resins with consumers through loyalty. Paul David Kearney: Thank you. Best of luck. Operator: And our next question will be coming from Janet Kloppenburg of JJK Research Associates. Your line is open. Operator: Thank you very much. And thank you for the detailed repositioning program. I wanted to ask if I got this right, Richard. Your comps are up and that's being driven by price. And is that against high promotional levels last year, which are not happening this year? Richard Westenberger: In general, yes, Janet. So it was the second half of last year that if you recall we made a pretty considerable investment in increasing the promotional intensity of the business, also adding some marketing, but it was a significant reset in pricing a year ago. So we're up against that period this year, which is why we're encouraged by the gains in AUR and the positive comps. Operator: And you spoke about Amazon. What about your other exclusive brand partners? Are they accepting the price increases as you implement them? Richard Westenberger: Yes. Again, I don't know if I'm going to comment specifically on those two customers. I would say we've had very constructive conversations with our wholesale customers and they certainly are facing the same, tariff and cost pressures that we are. So those have been good discussions. It's never easy to raise price in the wholesale channel, but I would say we've got a great level of partnership with all of our wholesale customers. Operator: And can you discuss, how much your clearance where your clearance inventories are year over year? Richard Westenberger: I would say, on balance in an improved position year over year exiting the third quarter. That was an issue a year ago as well with some of the price that we were taking at retail was to clear through some of the in particular spring season goods that had carried over into this early fall time period. We did not have that issue this year. And I would say, inventory balance is much more oriented around current and future seasons than it is past season. So I think inventory quality is very good at the moment. Operator: And for Doug, you just touched on this a minute ago, but do you think some of this response on a high single-digit price increase, healthy response from the consumer is coming from merchandising initiatives and perhaps you could discuss those for us? Douglas Palladini: Yes, I do. As I talked about, we're seeing our better and best categories perform better as a part of the total mix than they have in the past. And much of that is also being fueled by new consumers coming into the store. So we're gaining market share back that has been lost previously and that is coming through these higher AUR products. As Richard talked about, one of the investments we have made is putting make back in our product. That means our design intent is stronger than it has been in many years and we believe that trend will continue well into 2026 and beyond. Operator: Okay. And you're not contemplating any slowdown in the moderate to lower consumer target market that you address? I'm not suggesting you should. I just wondered how you thought about that. Douglas Palladini: We're not we're definitely cognizant of the macro and what's happening in the world. Inflation is real. As Richard mentioned, there are forces that are beyond our control. I can answer for what is within our control and that's what I just told you. Operator: Okay. Thank you and good luck with everything. Richard Westenberger: Thank you. Thank you, Janet. Operator: And I would now like to turn the call back to Doug for closing remarks. Douglas Palladini: Yes. Thank you everybody for joining us today. As you can tell, we are making progress against our core initiatives. We are seeing reasons to believe in our business. There remains a tremendous amount of work for us to do and we look forward to sharing more of that as we move forward. Thank you for being with us today. Operator: And this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to Easterly Government Properties Third Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session between the company's research analyst and Easterly's management team. To ask a question during the session, analysts will need to press 11 on their telephone. They will then hear an automated message advising their hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Allison Marino, Executive Vice President and Chief Financial Officer. Please go ahead. Allison E. Marino: Good morning. Before the call begins, please note that certain statements made during this conference call may include statements that are not historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes that its expectations as reflected in any forward-looking statements are reasonable, it can give no assurance that these expectations will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond the company's control, including without limitation those contained in the company's most recent Form 10-Ks filed with the SEC and in its other SEC filings. The company assumes no obligation to update publicly any forward-looking statements. Additionally, on this conference call, the company may refer to certain non-GAAP financial measures such as funds from operations, core funds from operations, and cash available for distribution. You can find a tabular reconciliation of these non-GAAP financial measures to the most comparable current GAAP numbers in the company's earnings release and separate supplemental information package on the Investor Relations page of the company's website at ir.easterlyreit.com. I would now like to turn the conference call over to Darrell Crate, President and CEO of Easterly Government Properties. Darrell William Crate: Thanks, Allison, and good morning, everyone. As we report our third quarter results, it comes at a time when the federal government remains partially closed. For most companies, that kind of disruption would be concerning. For Easterly, history offers important perspective. It is important to understand that a shutdown is part of the Kabuki Theater related to budget negotiations. Our investors should be comfortable that the government will not default on our leases because that would be tantamount to defaulting on a US treasury obligation. We are highly confident they will find a way to avoid that as they did with each of the previous 21 shutdowns. As we enter the final stretch of 2025, I am pleased to share that Easterly continues to execute against the growth strategy our leadership team embarked upon last year. A disciplined plan centered on three long-term priorities. One, is growing core FFO by 2% to 3% annually. The second is increasing same-store performance through thoughtful diversification into state and local and high-credit government adjacent tenancy. And third, continued execution on value-creating development opportunities where we can create portfolio-enhancing improvements to weighted average lease terms and building age. This strategy is designed to balance growth and durability and to build a portfolio that performs consistently regardless of the economic or policy backdrop. The third quarter is another example of that approach in action. At the core of our business is a portfolio of essential facilities where government work truly happens. Immigration facilities, courthouses, public health laboratories, law enforcement offices, and secure administrative buildings. These are not speculative assets. They are long-leased, purpose-built, and vital to the functioning of our nation. Our tenants' missions endure across administrations and cycles. That endurance is the foundation of Easterly's ability to deliver consistent compounding growth over time. As demand for secure, modernized government facilities continues to expand with population growth at federal, state, and municipal levels, we remain uniquely positioned to serve that need. Now turning to the specifics of the quarter, we delivered strong operating performance, maintained high portfolio occupancy, strengthened relationships across agencies, and refined our balance sheet with a prudent and disciplined approach to capital deployment. We are pleased to deliver 3% core FFO growth from 2024 to the midpoint of our guidance range for 2025. That was driven by growth from acquisitions, strong renewal execution, and prudent portfolio management. Our portfolio occupancy remains near historical highs at 97% and a weighted average lease term of approximately ten years, underscoring the durability of our tenancy and the strength of our mission-critical focus. Our most recent acquisition of the York Space Systems headquarters in Colorado positions us nicely towards our stated goal of 15% government adjacent exposure and reflects the demand for specialized facilities supporting the US defense and space partners. Our development pipeline remains very active, with major projects progressing nicely. We continue to identify accretive opportunities that meet our standards for credit quality, mission alignment, and durable returns. The acquisition team has built one of the most robust pipelines in our company's history, allowing us to be highly selective with an eye to deploying capital in excess of 100 basis points to our weighted average cost. The team's leadership in sourcing, underwriting, and executing accretive opportunities has been exceptional. The work they are doing today will support growth well into the next decade. We are gently focused on improving our cost of capital. While we believe we will unlock further opportunities in our acquisition and development pipeline, one of the ways we seek to improve our cost of capital, both debt and equity, is leverage optimization. While Easterly's portfolio of long-term high-credit leases is capable of sustaining higher leverage levels than other REIT peers, we recognize that comparability with that broader REIT universe matters. To that effect, we are targeting a medium-term cash leverage goal of six times. This is a decline to our historical cash leverage results, which have been seven to eight times. This shift to a more conventional leverage target enhances investor comparability, and together with improved funding access, sets Easterly on a clear path towards structurally lower capital costs. We believe we can deliver this expectation while also meeting our attractive growth objectives. As Allison will detail, we have already made progress on this front this quarter. As we close the third quarter, I want to recognize the collective effort of everyone at Easterly. We are thankful for the trust and partnership of our tenants, our employees, and our shareholders, and we are confident in our strategy. Encouraged by the progress we have made, and energized by the opportunities ahead. As we enter 2025, our priorities remain very clear. Continue executing on our development and acquisition pipeline, advance our cost of capital and leverage initiatives, and deepen our relationships across the federal, state, and local agencies we serve. Easterly's mission remains simple: to deliver essential real estate that keeps government moving and our nation secure. And with that, I will turn our call over to Allison Marino, our Chief Financial Officer. Allison E. Marino: Thanks, Daryl, and good morning again, everyone. I am pleased to report the financial results for the third quarter. Both on a fully diluted basis, net income per share was $0.03 and core FFO per share grew $0.76, slightly above expectations. Our cash available for distribution was $29.3 million, reflecting steady operational performance. During the quarter, we successfully extended the lease at USCIS Lincoln and executed a long-term renewal at VA Golden. We continue to make progress in the remainder of our 2025 and 2026 renewals. And more broadly, we continue to find the to be an especially constructive partner, and the concerns relating to Doge and our mission-critical portfolio, overblown. Our development pipeline is making exciting progress. In August, we broke ground on the previously announced State Crime Lab in Fort Myers, Florida. And we are on track for our fourth quarter 2026 delivery. As a reminder, our growth in commission-critical state leases not only diversifies our portfolio but also increases our weighted average lease term. While U.S. Government leases are limited to twenty years, state governments can lease for as long as forty years, attractively increasing our WALT to strong credit tenancy. Our largest development project in the company's history, FDA Atlanta, is nearing the finish line, and we expect the government to the premises and the lease to commence in December. Notably, at FDA Atlanta, we received a third progress payment on the lump sum reimbursement during the quarter. The receipt of $102 million meaningfully reduced cash leverage from 7.9 times to 7.6 for the quarter. We expect that cash leverage will further improve upon the project's completion to below 7.5 times. Echoing Daryl's comments, this is an important step in reducing cash leverage and furtherance of our medium-term leverage goals. On the debt capital front, Easterly continues to be a creditworthy borrower. Reflected in our successful recast and upsize of our 2018 senior unsecured term loan from $174.5 million to $200 million, as well as the new accordion feature added to that loan. Further, in October, KBRA reaffirmed our investment-grade rating with a stable outlook. We also continue to work towards receiving additional investment-grade ratings, which we believe will position us to healthily tap the public bond markets. Securing access to debt capital at attractive levels allows us to unlock pipeline value in the medium term. Turning to guidance. We are narrowing our full-year core FFO per share guidance range for 2025 to $2.98 to $3.2 on a fully diluted basis. This range is consistent with our stated goal of 2% to 3% annual core FFO growth, and at its midpoint, reflects strong 3% growth over 2024. For 2026, we are issuing full-year core FFO per share guidance in a range of $3.05 to $3.12. This guidance range implies a growth rate in our stated 2% to 3% range. Supported by the delivery of FDA Atlanta, successes of 2025 renewal execution sustained operational efficiencies, and continued expansion of the portfolio through acquisitions. At the midpoint, this guidance assumes that we will have $50 million to $100 million of gross development-related investment during the year and $50 million in wholly owned acquisitions. We can see ourselves achieving the upper end of this range and executing on $400 million of acquisitions, given our $1.5 billion pipeline and the spread we can create to our cost of capital. We remain focused and disciplined in capital management, tenant retention, and execution across our development pipeline. These fundamentals underpin Easterly's ability to generate stable, growing cash flows, and long-term shareholder value. Thank you for your time this morning. Appreciate your partnership. And look forward to updating you on our progress. With that, I will now turn the call back to Shannon. Operator: Thank you. As a reminder to the analyst, to ask a question, you will need to press 11 on your telephone. Please standby while we compile the Q and A roster. Our first question is from Seth Bergey with Citi. Please proceed with your question. Seth Eugene Bergey: Hey. Thanks for taking my question. I just wanted to ask about the FLACSAF warehouse completion. It looks like the date got pushed out two quarters. Just can you talk a little bit about what's happening there? Allison E. Marino: Yep. So the government continues to work through the design of that courthouse. They are balancing three or four agencies in the building that collaborate on the space design. And we are expecting that they will finalize the lump sum and the TI project in total, in 2026, which would then naturally push the ultimate delivery. But that is not unexpected, and we think the new date is certainly achievable. Seth Eugene Bergey: Great. Thanks. And then just a second one. You know, I think on you know, you kinda target 100 to 150 basis points of spread. On development over your cost of capital But issue we equity kind of below consent at least consensus NAV. You just talk about your overall thoughts on capital allocation, and, you know, have you considered other sources of funding for development? Darrell William Crate: Yeah. I mean, I think broadly, we there's two ways we sort of think about cost of equity. I mean, broadly, there's think about it as FFO cost of equity. Essentially, estimate next year divided by the share price. And and we look at our debt cost in a sort of 5% to 6% range. All of that gets you to a cost of a weighted average cost of capital while we delever and do all those good things. Of, you know, in the high nines. When we also just think about our cost of equity relative to peers, and, you know, real estate risk. You look at you know, our dividend plus growth, or there's a, you know, whole set of other ways you know, to to think about it. But those vector into a cost of equity that's somewhere between 8% and 8.5%. So we believe that we can be developing at a 100 basis points you know, to the upper end to that FFO range. And we're able to do that just because we've learned how to do this very well, specifically with the agencies, you know, that that that we're close to. But we also it it's not lost on us that that we believe that that's adding considerable real value you know, to the to to the overall enterprise and the long-term value of the portfolio. That further said, you know, we have, some strong relationships with, you know, large sovereign wealth fund and, and some other partners. They value this long walled in a significant way. And, add values that are sort of well below all the you know, NAV kinds of conversation. So there, you know, that's also that could end up being a a more attractive way to go, you know, while we're in this interim period. Where the stock price, you know, starts to, you know, become more comparable to office and at least peers. Which would materially reduce our cost of capital and get us you know, sort of, again, get us closer to on an FFO basis. Or FFO cost of equity quite similar to the cost of equity, you know, that we that we look at with the sort of more simple metrics, you know, of of dividend plus growth. Seth Eugene Bergey: Great. Thanks. Operator: Thank you. Our next question comes from the line of Michael Lewis with Truist Securities. Please proceed with your question. Michael Lewis: Great. Thank you. My first question, wanted to ask about the $50 million acquisition guidance for 2026. I think that's a little lower than you've typically done in the past. I'm guessing that's not a reflection of the the opportunity set, the investment opportunity set. Is it more constrained by the cost of capital on what you were just talking about? Or, you know, maybe give us some background on that. Darrell William Crate: Yeah. Mike no. That's great. Great point. I mean, the I I think given our cost of capital and, you know, what we we've heard you know, is, hey, there's, there's might be some challenges with your cost of capital. How are you ever gonna get acquisitions done? You know, we are, we are hoping for some mean reversion. As we continue to deliver consistently on this, you know, 2% to 3%, you know, I said this last year, we're delivering 3% growth. We're gonna you know, we're looking to next year. And again, we're gonna be squarely in that two to 3% range possibly with some upside. So as folks tune into that message and we get away from the dividend cut and the reverse split and those other things that where people wonder if Doge or the headline risk is gonna get in our way. You know, we imagine we're gonna get that kind of mean reversion. That all said, as we as we move forward, the range that we have for next year really only requires us to get $50 million done. So we're trying to send a message which is we are right on track for the growth that people want. While doing something that's well below what we've done before. I mean, even with our cost of capital this year, which we did a very nice job, finding some terrific buildings like York and and others, we were able to deliver know, what's been almost $200 million of acquisitions with a cost of capital that stinks, quite frankly. And, and we, and we can continue to deliver growth So I think we've set a pretty low expectation. We don't want folks think that we're not gonna make the two to 3% growth because cost of capital could get in our way. And and I would say, you know, with $50 million of acquisitions in the strength of the pipeline that is $1.5 billion, if our acquisition team hasn't already identified that $50 million that gets us to the right place, I would be very, very, very, very surprised. So, so it's meant to be a low bar. It's meant, for people to accept the, the guidance that we're putting forward and we're very excited to continue to deliver on that in 2026. Michael Lewis: K. Great. And then, it looks like you sold the property in the third quarter. Is it possible that dispositions could become you know, part of this getting down to your your leverage target? And also related to the leverage target, what does that mean for development starts? You know, obviously, you put money out Now, it impacts your leverage. You don't get the the cash flow until later. So you know, your thoughts on those two pieces, dispositions, and and also what what that means for development? Darrell William Crate: Sure. I I think we probably need a little kick from interest rates in order for dispositions to lead to any leverage reduction. I I think when we when we look forward to, you know, the sort of medium-term six times, Again, we step back and we looked at net lease peers. We look at office. Our job is to run a a portfolio of mission-critical assets, and we're doing that well. But it's also our job as we try to manage that portfolio in this public vehicle that we should be delivering people what they want and looking what they're paying for other other organizations. And and so as we think about as we, you know, as we as we think about what we're executing, we find ourselves in a place where we would like to get our leverage in line with those peers. And in that case, our stock should be, materially higher than it is right now. That said, we think we can continue to bring in acquisitions, move towards that move towards that lower leverage state. And and I think that as we think about development moving forward, we will try to work towards that that lower leverage. We could use some external partners and JVs in order to make that more possible. But it's we really just need to be working with with shareholders or who are supportive of the company. And be delivering on the metrics that they need to feel good about what we're doing. And using our pipeline and all the work that we've done with agencies, to deliver value for shareholders. Michael Lewis: Okay. And then one last one for me. Just to put a bow on your comments about the government shutdown, does that lead to delays with you know, delays in leasing and and just slow things down? And is there any threat to any agencies, you think, from this process? Darrell William Crate: In the first part, it absolutely slows things down a bit. I mean, in that in that that that folks are working less. I don't see that's any diminution value of the portfolio and there will be a click quick catch up. And I'd also say, you know, post this sort of newer environment of working with the government where they are thinking about efficiency, they are working more closely with us and other private partners order to make things work. So while the government shut, we're still doing our good work for the government and moving things along, and we're excited for them to, you know, come back online. I I don't think the shutdown threatens any any particular agency. Maybe some things get recrafted over time in the spirit of efficiency. But the big dials, as you know, are making sure entitlement programs are getting organized. Health care, you're gonna see a lot of movement on that as we as we as we you know, get into this next year. None of which has really very much to do with us. And and as we, you know, focus on mission critical, that means law enforcement. That is that is drugs, that is all the all the things that keep Americans safe. So we find our agencies today more than ever to be enthusiastic about what they're doing moving forward. And for the agencies that we work within the main, you know, they are they are showing up at work, doing their job, and feeling the support of the government and their mission. Michael Lewis: Great. Thank you. Operator: Thank you. Our next question is from Michael Carroll of RBC Capital Markets. Please proceed with your question. Michael Carroll: Yes. Thanks. Daryl, can you provide some some bigger picture trends, I guess, to achieve this 6x cash flow, leverage. I know you kinda mentioned a little bit throughout this call, but is that gonna be through a more, like, joint venture sales to kinda achieve that? Or can you kind of what are some of the levers you can pull to to get to that number? Darrell William Crate: Sure. I think I think working with joint venture partners is probably the least important, but it's it's absolutely an avenue. You know, that that that we can pursue. I think first and foremost, these development projects that we're putting in place are very attractive. We've, you know, the as we see, you know, the, the FDA Atlanta is going to be coming online at the end of the year, and that's certainly gonna to start adding to our EBITDA, and we're going get another lump sum payment. So that's gonna, you know, take us down you know, closer, you know, between seven and seven and a half times. And as we look forward to these other development projects that we're moving we will basically, you know, financially structure them so that we get to a cost to capital that is about a 100 basis points above you know, what we believe the cost of capital to be, by looking into the market and all the that we've articulated. And, and then we will, lever them less when we have return that's in excess you know, of that amount. And we believe and we do have a a very robust pipeline and our team continues to do a terrific job moving those things forward. And I think that, as as we find it, if we set our goal at a 100 basis points above above cost of capital for our projects, or we're gonna find ourselves nicely delevering over the next you know, twenty four to thirty six months. Michael Carroll: Okay. Is that the the time frame of the medium-term goal of of to three years? I think so. Yeah. Yeah. And and again, I I don't I don't view the six as as our our number one priority is to grow two to 3% a year consistently and be known as a grower. You know, that's a that that's in that space. That said, our target is going to be six times. We're not gonna take a a direct line there, but we wanna investors to understand that that's what we're marching towards. It's a very important priority for us. And, and I I know when we sit here in you know, three to four years, we're gonna be a lot closer to six than we are today. And I think that that's gonna be comparable to you know, you're gonna look at net lease peers, and you're gonna look at office peers, and we're gonna compare very favorably, especially when you think about the strength of our tenancy credits and the wall you know, that's that's in the portfolio. And, you know, we're we certainly get that feedback from large possible, joint venture partners today. And we are hopeful that the public markets, especially as large REIT funds and others, you know, as money sort of comes back to real estate rather than being in outflows. We're we're a very we're a terrific anchor for for folks portfolios with with our sort of new you know, mission of making sure the company is growing at those levels. Michael Carroll: And is that trend kinda reflected in your 2026 guidance kind of over equitizing some acquisitions and development expenditures? Darrell William Crate: Yep. I mean, my expectation would be that leverage is gonna be will be lower at the '26 than it is the beginning. I think we, you know, we should have a six handle with something on the end of it. And we're gonna continue to report on our leverage in this way. As I said, it's not gonna be a straight line, but we're gonna absolutely be, you know, driving towards growing the business. You know, hitting that kind of 3% target which is at the upper end of the range. And, making sure we're getting the leverage down so that folks don't consider it a concern for the company. I mean, we've always been of the mindset especially in the private markets that these assets, you know, given the term of the lease and and given the strength of the tendency that they can handle a lot more leverage. But it's, it's also just clear to us in the public markets when you know, when we when the leadership team got together twenty four months ago and we laid out a strategy, it became clear to us that growing 3% a year is a very good target. If we're delivering two, we are right in the ZIP code of where we need to be. We think that growing same store sales and getting that to be better, you know, over the sort of the medium term is also important. So that's why we moved into a place where we have, you know, great skill, which is, you know, state, local, and government adjacency. Those are all those mission critical facilities are just like the facilities that we manage today, and we know how to do that very well. But the great news is once we finally get 30% of our portfolio to have those types of leases with bumps, we start the year with 60 basis points of growth. As opposed to zero, you know, in a flat lease environment waiting for renewals. So you know, I think with with lease renewals plus same store sales, you know, we sort of get ourselves a 100 basis points of growth, you know, as we you know, look forward over the next ten years. And then if we're rewarded and supported by shareholders, know, adding another, you know, two to 3% of growth on top of that eventually. With leverage levels that are attractive seems to be the model in this space that investors are willing to reward. And and we think we can get there and achieve it. You know, we talked to investors for a long time about covering our dividend and you know, the capital markets didn't support it. And we held on to our dividend for a little while. Knowing that our portfolio could grow into it, but our portfolio doesn't reprice fast as, you know, certainly storage or or many other areas of real estate. And we looked at ourselves and said, we're gonna gut it out for a couple years here, and we're gonna cover our dividend, and that's all gonna be good. But that's not what the capital markets want. So it's important for us to do what we do well, which is supporting these mission critical agencies. But, likewise, making sure that the metrics when somebody comes to learn about Easterly Government Properties and what we're doing, that they don't have any allergy to the stats that they're starting with. And I think the more that they take the time to then do the work and the portfolio of the business and what we're trying to do and our years of expertise expertise doing this, that they'll, they'll be pretty pleased for it to be part of their portfolio over the longer term. Michael Carroll: K. Great. I appreciate it, Daryl. Darrell William Crate: Yeah. No. I appreciate the question. Operator: Thank you. Our next question is from Merrill Raw with Camp Compass Point Research and Trading. Please proceed with your question. Merrill Raw: Morning. I wanted to ask a few questions about your and then I had a separate question about mix. Remind us what the total investment was for York, but the cap rate is going in, and and maybe a little bit about York's history of government contracts and renewals, just to get a sense of the, ongoing nature of their their contracts with the federal government. And you know, how this property is essential to their mission as know, as you often described your federal portfolio being. Allison E. Marino: Sure. So the acquisition price on that asset was $29 million, and the cap rate was in the low elevens. That definitely reflects the fundamentals of the overall Denver market and a motivated seller. So that's what I would share in terms of cap rate compared to some of our others. In terms of the building itself, so this functions as their company headquarters. It's kind of a fascinating building. They have a clean room in the First Floor where they construct satellites and other items for their government contracts. So it's it's unique. Right? When you think about the work that goes into fulfilling a government contract, this is very practical, but also very strategic for them. Their partnership with the US government goes back years. They are a very trusted partner in terms of their overall contract base. The work that they do in the aeronautics and defense industry is is very integral to their overall business success, and I think they have been quite successful. Over the years. Darrell William Crate: And, you know, we we try to spend yeah. And, Mara, we spend a bunch of time with you know, management and other folks. The talent base that supports their business in and around, you know, the Colorado area is is profound, deep, and enduring. So the the ability for them to move is difficult. They love the building, and I think we're we're excited about the lease that we have in place. And I think we're even more excited for renewal. When that time comes. Far in the future. Merrill Raw: I would just observe that in your supplement you know, you say that 88% of your lease income is from the federal government, and then then then they're not getting the rest is 12%. And I'm just curious how in trying to meet your 3% goal and your leverage goal, of what you see that mix moving toward. You know, maybe in a longer term than the next six months. But, you know, where are you going with that? Allison E. Marino: Sure. So we have a a goal of 70% GSA or federal exposure 15% state and local, and another 15% in non-adjacent space. So we're definitely on the lookout for sourcing opportunities where we can continue to grow the state and local and adjacent exposure in the portfolio while still being able to acquire high credit mission critical US government properties as well. So I think this year was very demonstrative. Of how we're going to achieve that. So you saw us acquire DC Plaza, and an adjacent building with the Shorks Bay Systems, but you've also we've also acquired DHS Burlington, which is the government asset as well. So it's a good example of how we'll continue to do all of it. But the state and local and adjacent space is certainly an area where we can create more growth because of these escalators that that Daryl's talking about. Merrill Raw: Right. Thank you. Do you see as a result, Dodge, the GSA considering other forms of leases other than their standard contract? Allison E. Marino: I think the GSA is is willing to entertain discussions around a more modern lease structure, ask is a very good example of that. So in our most recent short-term renewal at USFS in Albuquerque, We were successful in embedding lease escalators into that renewal. So for us, I think that's a really good example of where we the GSA is evolving expands, that is an area that we believe that they'll become more competitive. Merrill Raw: That's it for me. Thank you. Allison E. Marino: Thanks, Darrell. Operator: Our next question is from John Kim of BMO Capital Markets. Please proceed with your question. John Kim: Thank you. Daryl, in early last year, you provided a new strategy at your analyst day. You talked about delivering 4% growth in earnings consistently. And with that came some higher leverage, which I think made sense given the high credit nature of of your tenancy. Today, it seems like you're focusing going back to the two three two to 3% growth with lower leverage. What's changed in the last few months and and why the change in strategy? Darrell William Crate: Yeah. So so I think we've never set 4% as the as the the the promise and target, but we're certainly that's our stretch goal. I mean, you know, our job, you know, is to set some expectations and obviously, you know, work on exceeding them. So, you know, that you know, we're we've always stated sort of two to 3% is the right is is a a growth rate, that should give us a cost of capital that's attractive. We hit three this year. You know, as Allison is mentioning, our guidance for next year actually has 4% of growth at the upper end of the range. I think to get there, if we are having 3 to $400 million of acquisitions, which, does not seem implausible to me. We can start getting to those 4% rates. What I just don't wanna do is, is set expectations that are too high, and then we you know, feel like we've tripled the growth rate of the company, but we're still you know, failing in the eyes of our investors. You know, today, you know, at $22, I think that you know, 3% is a very attractive alternative. I mean, our dividend plus growth is in the middle elevens. Which given the, you know, the stability of the company is really strong. So we just don't wanna be able to get out in front of ourselves. That said, as and as you know, I know you well know, if our stock was 28 to thirty two dollars, we grow a lot faster. And if our stock price was anywhere near our net lease peers, we could grow even faster still. The pipeline, you know, I I mean, I didn't say it lightly, and it's no BS, you know, in our in our script. You know, that the pipeline that our acquisitions team with the addition of, of Chris Wong and, Mike Iby, fantastic team. Developing a broad range of of of development and acquisition opportunities, mean, the idea that we can put, you know, a couple $100 million to work, I think, so effectively with a cost of equity that's high is a is a real, shout out to them. And if we had a cost of equity that was you know, more in line with, with what comps would show, I think we can start achieving growth rates, you know, that are even higher. But, so hopefully, that just gives you context. The I I feel better about the company today than I did a year ago. A year ago, I felt better about the company than I did a year before that. And so the team's terrific. The pipeline is outstanding. I think as we march towards getting an investment-grade rating, that will at some point, we will be a terrific healthy issuer of investment-grade debt, which will take our cost of capital down, you know, another you know, 50 to a 100 basis points. And, and I think that we'll be delivering an earnings you know, set of metrics to the market where investors will be pleased for this to be an anchor for their portfolio and an opportunity for compounding IRRs over over over many years. John Kim: So so to summarize, your your line of thinking now is getting lower leverage with more moderate growth will lead to better cost of capital. Darrell William Crate: I I I think that's right, but I I I my growth objective is really, you know, they they really are unchanging, and that I think that we are growing very nicely, but getting to lower leverage seems to be when I look at and again, we spend, you know, 90% of our time focused on, working with the US government, building our portfolio, and doing our job. You know, in in real estate world. But when you look at the comps, you have to wonder, why with our growth rate, why with our dividend, and why with our, you know, the strength of of of tenancy, you know, why is our stock at, you know, $22? It just it just doesn't make sense. And when I look at the at the comps, I think our growth rate is right in line. We're we're certainly at the upper end of office. We're a little 100 basis points below net lease peers. If we were in line with office, our stock would be 28 to $32. We were in line with net lease peers, it would be 36. And and the only thing that I can see is that our leverage level on a on a cash basis continues to be higher than the other folks. And I, you know, I can also imagine, that when we reverse split our stock and cut our dividend, those are generally not signs of of portfolio health, but what became clear is that the capital markets weren't supporting you know, that our portfolio could grow into our dividend. So it was time to husband, you know, resources, where, you know, that obviously, it's a lot easier to manage the growth in the company with a lower dividend. And back back when we cut our dividend, we were saying 2% to 3%. I think, as I said, maybe, you know, I I know into you that you know, getting closer to 3% is a lot easier when you've, when you when you have, you know, retained earnings in the company. And and so we're in a place where where I think we're poised for significant growth and a little support from the capital markets would go an awfully long way to accelerating that growth. John Kim: Okay. And then on your '26 guidance, it came in below consensus you've had some highly accretive acquisitions this year that we thought would boost earnings Can you talk about some of the headwinds in '26? I mean, it looks like you have some dispositions lined up just based on the impairment that you recorded this quarter, and maybe you wanna talk about the the cap rate on some of the asset sales. Darrell William Crate: Yeah. So, I mean, we don't have any decisions, but I'll let 10% growth rate on the company. The stock price wouldn't change. Mean, I think we need to get people I I think we need to build a base of shareholders and we try to be very transparent about what we're building. And I think the cash flow stream that we're creating is one that's you know, very valuable. And the idea of putting high expectations out there that we can exceed is not gonna benefit us. So that said, I think I I think we're we're promising to shareholders something that is way more attractive than the $22 stock price. But, Allison, why don't you just talk about 26 and what we're gonna what we're gonna do? Allison E. Marino: Sure. So at its midpoint, '26 guidance is roughly an 8¢ increase over the midpoint of '25. And if we look at how that sort of 8¢ comes to be, you're right. There is absolutely some growth from 2025 accretive that occurred. But largely, the the largest acquisition we did in 2025 was completed in very early April. So there's only about a quarter of delta, NOI delta from that particular property year over year that's going to increase 2026. So as we look to sort of that 8¢ mark, what I would share with you is that as predominantly FDA Atlanta. FDA Atlanta has been a very accretive opportunity for us to drive earnings growth So that represents a very large portion of that 8¢. We are expecting some same store growth. We typically target about up zero to 100 basis points. That's inclusive of leases renewing as well as the commencement of TI and BSAC rents throughout other already executed leases. And then that is offset by some increases in g and a. If you remember, when Bill retired, we accelerated all of the vesting of his existing awards. So this will be the first year we step into a run rate noncash comp number. John Kim: Okay. So no dispositions as part of that guidance? Allison E. Marino: There aren't there are no dispositions expected for 2026. John Kim: Final question for me is Sorry for asking so many. But No. Appreciate it. You weathered a number of government shutdowns in the past. I I think you said in the prior calls, going back many years, that there was enough to pay for thirty days of of a shut government shutdown I'm wondering if that's still the case. Or do you expect to have an accounts receivable balance if this Oh, no. Yeah. You had a great question. Thank thank thanks thanks for asking. Darrell William Crate: Because just to be super specific, I mean, all of you know, leases are funded for six months plus in the government already. And the point being, that, you know, as you're seeing, the administration and congress are moving money around to meet sets of obligations that are ongoing. In our leases, right at the bottom, it says United States Of America you know, full stop. It's not some subsidiary. It's not an agency. It's the same thing it says on your dollar bill, and it's the same thing as it says on the US treasury. If they don't send us our money, That is a default, and you will see that on the front page of every financial newspaper on the planet Earth. And I think that they're gonna find the money to continue to pay, you know, bonds t bills, and our rent. And it would be very surprising to not. And that's why, you know, I'm I I think government shutdowns are serious business, but I also call it kabuki theater. Because it is a negotiating tool that's partisan right now. And the govern you know, each each party's got a better idea on how to run the government, and fine. But they are gonna pay their bills and the, you know, the country is not gonna stop moving. So we're we're we're very sanguine about about the shutdown and and as we've also seen, we can't wait for the headline risk related to that to go away so that we can, talk about one less thing related to our strong portfolio and, you know, get on our growth path and deliver some fabulous returns to, you know, shareholders over the next five to ten years. John Kim: That's great color. Thank you. Darrell William Crate: Yeah. Anything else? Mean, seriously, we, like, I we'd love just love to hear the criticisms because I think that we your questions because we wanna make sure that and I really appreciate you asking all the questions. Questions, John, because we wanna be very specific with investors about what are any perceived challenges in the model. Because we we are very proud of the portfolio and we're proud of the growth that we're delivering. Operator: Thank you. I would now like to turn the conference back to Darrell Crate, president and CEO of Easterly Government for closing remarks. Darrell William Crate: Great. Well, thanks everybody for joining us on our third quarter conference call. We very much look forward to talking to you as the as the year ends and we begin 2026. We're and I appreciate the robust conversation. We are excited to continue to rebuild the shareholder base and again deliver growth, deliver strong dividends, and deliver an enduring All the best. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and thank you for joining Bank of Marin Bancorp's earnings call for the third quarter ended September 30, 2025. I'm Krissy Meyer, Corporate Secretary for Bank of Marin Bancorp. Joining us on the call today are Bank of Marin President and CEO, Tim Myers; and Chief Financial Officer, Dave Bonaccorso. Our earnings news release and supplementary presentation, which were issued this morning can be found in the Investor Relations section of our website at bankofmarin.com, where this call is also being webcast. Closed captioning is available during the live webcast as well as on the webcast replay. Before we get started, I want to note that we will be discussing some non-GAAP financial measures. Please refer to the reconciliation table in our earnings news release for both GAAP and non-GAAP measures. Additionally, the discussion on the call is based on information we know as of Friday, October 24, 2025, and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion on these risks and uncertainties, please review the forward-looking statements disclosure in our earnings news release as well as our SEC filings. Following our prepared remarks, Tim, Dave and our Chief Credit Officer, Misako Stewart, will be available to answer your questions. And now I'd like to turn the call over to Tim Myers. Timothy Myers: Thank you, Krissy. Good morning, everyone, and welcome to our quarterly earnings call. We executed well in the third quarter and generated positive trends in a number of key areas, including loan and deposit growth, continued expansion in our net interest margin, effective expense management and improvement in our asset quality. As a result, we saw the acceleration in our level of profitability that we expected with our net income increasing 65% compared to the third quarter of 2024 as we continue to benefit from the actions we've taken to put us in a good position to grow our balance sheet. Our improving financial performance and continued benefits from prudent balance sheet management resulted in increases in both book value and tangible book value per share in the third quarter, while we continue to invest in the company to support future profitable growth. Our banking team, driven largely by recent additions, continues to develop attractive lending opportunities and bring new relationships to the bank, including in areas like the Greater Sacramento region. While we continue to navigate a competitive market environment on both pricing and structure, we've been able to add new clients and maintain our disciplined underwriting and pricing criteria. During the quarter, our total loan originations were $101 million, including $69 million in fundings, the largest since Q2 of 2022. Our originations were a nicely diversified and granular mix across commercial banking categories, industries and property types, and we are seeing a healthy increase in CRE loan demand that meets our standards. This quarter's payoffs included the proactive workout of a $7 million loan that benefits the health of the overall portfolio. Our total deposits increased in the third quarter due to a combination of increased balances from long-time clients as well as continued activity bringing in new relationships. The rate environment remains competitive and clients remain rate sensitive. However, they continue to bank with us for our service levels, accessibility and commitment to our communities. And while our quarterly cost of deposits increased 1 basis point during Q3 due to existing relationship expansion, we've seen improvements in our spot cost of deposits, as Dave will discuss later. Given our solid financial performance and prudent balance sheet management, our capital ratios remain very strong with a total risk-based capital ratio of 16.13% and a TCE ratio of 9.72%. Given our high level of capital during the quarter, we repurchased $1.1 million of shares at prices below tangible book to further build value for our shareholders. With that, I'll turn the call over to Dave Bonaccorso to discuss our financial results in greater detail. Dave Bonaccorso: Thanks, Tim. Good morning, everyone. We had net income of $7.5 million in the third quarter or $0.47 per share. This was significantly higher than the prior quarter, which included the impact of the loss on security sales we had as part of our balance sheet repositioning. Stripping out some of the noise, though, our pretax pre-provision net income increased by 28% on a sequential quarter basis and confirms the enhancements we've made to our core earnings stream. Our net interest income increased from the prior quarter to $28.2 million, primarily due to a higher balance of average earning assets as well as a 17 basis point increase in our asset yield. Although our cost of deposits increased just 1 basis point during the quarter and negatively impacted net interest margin, our spot cost of deposits declined 4 basis points during the quarter to finish at 1.25%. And we've seen a further decline in our spot cost of deposits to 1.24% as of October 23. Though Fed funds rate cuts resume later in the year than many forecasters expected, we have made targeted cuts to deposit rates throughout the year as well as larger cuts in response to the September Fed funds rate cut, which has resulted in a 15 basis point decline in our cost of deposits year-over-year. We are well positioned to continue to reduce deposit costs going forward, in line with the expectation of additional Fed fund rate cuts over the remainder of the year, which will contribute to margin expansion. Our noninterest expense was down slightly from the prior quarter with small reductions in a number of areas. Moving to noninterest income. Setting aside the securities losses, we had a decline of $370,000 during the quarter that is mostly attributable to a BOLI debt benefit paid in Q2. Disciplined credit management remains a hallmark of Bank of Marin as well. Due to the improvement we saw in asset quality in our loan portfolio and the substantial level of reserves we have already built, we did not require any provision for credit losses in the third quarter, and our allowance for credit losses remained strong at 1.43% of total loans. Overall trends in our level of problem assets reflect our proactive and conservative approach to credit management, where we are aggressive to downgrade and cautious to upgrade. Due to the improvement we saw in the performance of some borrowers, we had a number of upgrades during the third quarter that resulted in a reduction in nonaccrual and classified loans. Subsequent to quarter end, an additional $3.6 million in nonaccrual loans paid off in full, including interest and fees. Given the continued strength of our capital ratios, our Board of Directors declared a cash dividend of $0.25 per share on October 23, the 82nd consecutive quarterly dividend paid by the company. With that, I'll turn it back over to you, Tim, to share some final comments. Timothy Myers: Thank you, Dave. In closing, we believe we are very well positioned for continued improvements in our core financial performance in areas, including balance sheet growth, net interest margin, expense management and asset quality. While broadly, there is economic uncertainty, our credit quality continues to improve and our loan demand remains healthy. Our loan pipeline remains strong, and we expect to generate solid loan production in the fourth quarter. While we always tightly manage expenses, we will also continue to take advantage of opportunities to add banking talent and enhance efficiency through technology that we believe will help support the continued profitable growth of our franchise into the future. With the strength of our balance sheet, we believe we are very well positioned to increase our market share at attractive new client relationships and further enhance the value of our franchise in 2025 and beyond. With that, I want to thank everyone on today's call for your interest and your support. Operator: [Operator Instructions] Our first question will come from Matthew Clark with Piper Sandler. Matthew Clark: I'm sure you're getting tired of being asked this question, but what are your latest thoughts on HTM securities loss trade given all your capital? Timothy Myers: Well, there's a lot of moving parts to consider. We continue to evaluate all those moving parts, but no final decision has been made. Matthew Clark: Okay. And then just on expenses going forward, any updated thoughts on the run rate there? And how should we think about seasonality and just the pace of growth you're looking to manage to next year? Dave Bonaccorso: So I think Q4 probably looks quite a bit like Q3. What's historically been the wildcard for Q4. You mentioned seasonality. In Q4 in recent years, we've had adjustments to payroll-related items. And so that's probably the wildcard this year as well, probably to a smaller degree in my estimation. But there are kind of puts and takes on both sides. And overall, you probably come in pretty close to where we were in Q3. Operator: Our next question will come from Jeff Rulis with D.A. Davidson. Jeff Rulis: Dave, you commented on the progress on the deposit costs. And just kind of looking at the Slide 5, you've got your rate sensitivities kind of signaling asset sensitive, but the reality is, it sounds like kind of pointing to further margin expansion. Could you -- and I guess, absent maybe some interest and fees you might collect on the subsequent nonaccrual payoff, just the core margin and expectations ahead? Dave Bonaccorso: Sure. So let me give you a 3-part answer. The first one relates to what you're talking about on Page 5, the traditional ALM sensitivity. So historically, we've been pretty neutral. We typically talk about shades of slightly asset-sensitive or slightly liability sensitive. This quarter, well, every quarter, we do our ALM run mid-quarter. And at that point in time, we probably had more cash than we finished the quarter and that as normal. And so I think that's adding to the asset sensitivity you see in that illustration. But I think some of that has gone away in my estimation. So that's dimension one, is the pure ALM sensitivity. Dimension two is just pure napkin math and when you look at our floating rate liabilities, which is to say, interest-bearing non-maturity deposits, those are roughly $1.7 billion. And then look at our floating rate assets, those are about $525 million between loans, securities and interest-earning cash. So the assets have a 100% beta and if you try to solve for what the beta needs to be. On the liability side, you get to around a 31% beta needed to break even. And our cycle to date non-maturity interest-bearing beta has been 35%, and we model 34% in our ALM run. So I think that speaks to near-term benefits from rate declines, though some of that does drift or fade away over time just because of the way assets reprice over time. And then I guess the third dimension is just go instrument by instrument on the balance sheet. It's just working your way down. Cash, of course, if you believe Fed funds rate expectations, that will probably be a drag down the road, but that's by far the smallest of the components. Securities, we have an AFS portfolio. It's been fully repositioned or almost fully repositioned with a book yield of 4.44%. So there's not much you can do there. The HTM portfolio has a book yield 2.40%. And so we can reinvest cash flows off that portfolio at much higher rates. We expect about $76-or-so million payouts from that HTM portfolio in the next 12 months. So that gives you a sense of what could reprice there. And then on the loan side, year-over-year, we expect our loan yield on a monthly basis to be about 20 basis points higher at September 26 compared to September 25. So that's with a flat balance sheet and payoffs at market rates. We had a 3 basis point increase this quarter, so that tracks with that. And obviously, if we have loan growth on top of that, that would give you some upside to the loan side. And then on the deposit side, we had the small increase this quarter. But of course, the Fed funds cut came in the last 10% or 15% a quarter. So the benefit we got from that wasn't as large as if it was translated over a full quarter. Our spot rate of deposits came down from 6.30% to 9.30%. So that, I think, speaks to the benefits we're going to get from further cuts moving ahead if they play out. So that quick look at instruments suggests that there's quite a bit of benefit to NIM expansion in a falling rate environment. Jeff Rulis: That sounds good. I appreciate it. It sounds fairly positive. Maybe the linked quarter, a lot of still some flow-through from the securities restructure, but kind of core, it seems like it's got some positive. So I appreciate the detail. Maybe if I just hop to credit, that also sounds fairly positive maybe Tim or Misako. Just the upgrades, is that a function of some rate relief early on and some better occupancy, maybe just overall CRE improvement? If you could speak to the -- or maybe it's project specific. I would love to check in on that. Timothy Myers: Yes. I think you talked about the classified upgrades, it was a mix of what yo u just said, Jeff, there was improved leasing activity on multifamily in San Francisco that got us above requisite debt coverage ratio. And then there was another property that had been burned down in one of the fires that finally got construction started. So there's an end in sight or light at the end of the tunnel for a repayment source. But it's all been idiosyncratic. I mean, overall, we are seeing improved leasing activity in San Francisco. Again, the other markets have held up fine, but the upgrades were idiosyncratic. Jeff Rulis: And Tim, as I guess, if you roll forward these appraisals to, I know on the larger credit, you had a recent one maybe last quarter, and that was year-over-year positive. Is that a trend that you continue to see into the third quarter? Timothy Myers: Yes. I mean we haven't done those same kind of appraisals on those same properties, but I do -- we are seeing valuations improve in San Francisco. The magnitude of that over time, it's really hard to say, but we are seeing valuations come up, yes. Jeff Rulis: Okay. And last is just the 30- to 89-day bucket increase. Is that largely procedural? Or is it just again, specific credits? Anything to touch on with that move? Timothy Myers: No, you already nailed it. It's procedural, things that needed to be extended or in the process of that negotiating. And so these are not increasing people not paying us. It's getting lines mature or extended. Operator: Your next question will come from Woody Lay with KBW. Wood Lay: I wanted to follow along on the line of thinking there. And it feels like we're seeing much more positive headlines come out of the Bay Area, and it feels like there's macro momentum at play with AI tailwinds and political impacts. Are you seeing that optimism carry over to your loan demand? Timothy Myers: I think we are. We had a higher proportion of investor CRE this quarter because I do think people are coming back into the market, although that -- the property types are really diverse there. Markets were diverse. Sacramento continues to be a big area of our growth. And so probably $20 million -- north of $20 million of our deals this quarter were CRA related with some affordable housing. So I don't really attribute that to that same kind of trend in San Francisco. But we are seeing increased activity. If you look at our construction team, financing developers, a lot of those projects are in San Francisco or immediately around. And we're seeing a higher degree of interest and activity on their part. That takes some time to translate into outstandings, but I would say that's a fair statement as well. Wood Lay: Got it. And then anything to note on the loan competition side? I feel like we've been hearing a lot about intense pricing competition. Are you seeing that as well? And anything to note on the structural side? Timothy Myers: For high-quality deals, yes, pricing competition is aggressive. We are also seeing a return of the nonrecourse. We do our best not to participate in that and only do when we have enough other things we could do to mitigate those risks. So it's rare for us, but we are seeing a return of that degree of competition, yes. Wood Lay: Got it. And then last for me, it feels like we're seeing tailwinds to the NIM. We're seeing loan growth move a little bit higher, continued expense management. We saw a really nice profitability inflection in the third quarter. Just how do you think about continued positive operating leverage from here? Timothy Myers: So I'll start on the growth aspect of it, and Dave can jump in on any margin comments. But you heard his comments on the NIM expansion built into the balance sheet today. I think that can really help us. We are seeing a continuation of the loan growth. The pipeline was bigger at the start of this quarter than last quarter, and that was a great quarter. And so there's really not a lot controllable in the payoff area, but if we can continue to outrun that and accelerate that further. We've got new hire. We have a new hire in Sacramento that we expect to add -- be additive to this effort. And so there's a lot of traction internally, obviously, externally being generated to keep the growth rate going. Deposits fluctuate and as Dave mentioned, that's really hard to predict all the seasonality of the inflows and outflows but I do think the key trends there, we expect them to continue, and that's obviously first and foremost. You can comment on the margins... Dave Bonaccorso: Nothing else to add on the margin, but just one other thing to mention on expenses. Year-to-date 2025 versus 2024, our expenses are only up 90 basis points. So I think it speaks to the ability to scale without adding a lot to the expense base. Operator: [Operator Instructions] And our next question will come from Andrew Terrell with Stephens. Andrew Terrell: Maybe just start with Dave. Thanks for the color on the spot deposit cost. I think you mentioned October 1.24% total October 23. Do you have the equivalent interest-bearing costs on that Dave? Dave Bonaccorso: Give me a moment, I'll actually give me a very quick moment. It's [ 2.18 ]. That's a total non-maturity interest-bearing [ 2.11 ]. Andrew Terrell: Got you. Okay. Yes. And I guess where I was going to go with that is it looks like I understand that growth seems like later in the quarter, at a higher cost, somewhat impede what all else equal is kind of a good repricing story later in the quarter and early into October. And I guess I just wanted to get a sense for incremental new money as it's coming on the balance sheet. Is it coming on similarly priced overall to your overall deposit franchise right now? Just given you're starting at a low base, I'm trying to get a better sense of whether this 35% interest-bearing beta is kind of a good frame of reference to use given it's on a static balance sheet or once we factor in new money being brought in at potentially higher rates, if that could somewhat impede the beta that we're kind of looking for? Dave Bonaccorso: Well, I think part of the story this quarter was that we had growth from existing accounts that made up a pretty big chunk of it. And so it's new money technically, but it's not new relationships, I'd say. And of course, we encourage our existing customers to bring more to the bank. But in terms of what we're -- what would be new flows, I'd say it's not dissimilar from our overall costs. I mean we're not chasing high-cost money. That's never really been part of what we do. So for that reason, I think the estimate is -- the beta estimate you talked about is still makes sense to me. There's nothing that would make me think otherwise. Timothy Myers: Yes, if you look at the growth in deposits by customer, the largest chunk of growth came from those customers with the longest tenured relationships. So you have to be careful on how you encouraging them to bring over more funds, fairly compensate them. Yes, new money came on at a slightly higher rate, but overall, continue to get a nice inflow of noninterest-bearing to help offset that. Andrew Terrell: Yes, yes. Got you. Yes. Good problem to have, Tim. I wanted to ask about the buyback. It looks like you were somewhat active this quarter. The stocks up a bit, but you've also still got really strong capital as well. Just thinking of the puts and takes on the buyback, should we assume you're still going to be active going forward? Timothy Myers: Well, that always comes with a big caveat of the potential uses of capital, right? So we certainly did that when we were trading below tangible book. We think that always makes sense for our shareholders. But we do continue to, as Matthew asked, explore the potentiality of further balance sheet restructurings, and that's obviously a big use of capital. And so we want to make sure we're being sensitive to those various options. And next few quarters, obviously, we'll see how the market plays out. But our intent is to make the right decision for the broadest swath of shareholders possible. Andrew Terrell: Yes. Okay. And then last for me. I know you mentioned the pipeline coming into the fourth quarter was greater than that going into the third quarter. Are you able to quantify the change in the pipeline? Timothy Myers: No. I appreciate the question, but as you know, we don't give guidance. But we are expecting at this point in time, a quarter similar to what we just experienced. Operator: Your next question will come from David Feaster with Raymond James. David Feaster: I just kind of wanted to follow up on that kind of, I guess, the pipeline to some degree. Just looking at your originations, originations were up really nicely quarter-over-quarter. It seems like an increasing contribution from C&I. Has the complexion of your pipeline changed at all? I'm just kind of curious where you're seeing the most opportunities for growth near term? Timothy Myers: It is really dispersed, David. So I would say the prior quarter had a higher component of C&I. This quarter had a lot of commercial real estate with some unfunded components. So the unused commitments made it look like that was C&I. But honestly, it was pretty CRE oriented this time. It really is coming across the footprint. If you look at the lending groups that are doing the best are primarily centered in the North Bay, Marin, Napa. But a lot of the growth, meaning where those deals are at, a lot of that is out in Sacramento. And so people following relationships. So we're seeing a really nice, again, disbursement of effort of opportunity. We had a really nice component of CRA and affordable housing this time. And so which is somewhat unique compared to prior quarters. So it really has been very diverse. David Feaster: Okay. That's great. And you talked about some new -- you talked about the hire that you made in Sacramento as well as some tweaks to maybe comp programs and calling programs that you referenced in the deck. Could you -- I guess, could you, first off, touch on your hiring appetite? Is there an appetite for additional hires? And what kind of lenders are you looking for? And then could you just maybe give some detail on as to the extent that you can, on the change in the comp program and the calling programs that you guys have made? Timothy Myers: Yes. So we are, as you noted, made another hire in Sacramento following hiring a new regional leader the prior quarter. So we expect activity to pick up considerably in that region. We will look to make opportunistic hires throughout the footprint. We think that makes sense and the people we're hiring have done a really good job for us. And so that has a contagious effect of activity, activity begets more activity. So if you ask about -- I'll kind of reverse the order of the last part of your question, much more active calling. If you look at a couple of years ago when we had really a few years ago, compared to a higher production year, most of that came out of the existing portfolio or a handful of people, 1 or 2 people. Now it is almost entirely new customers, in some cases existing but from a much more active calling activity base. And so David Bloom, Head of Commercial Banking has been very active in managing a sales process, weekly sales calls with everybody, blocking and tackling, and the people we're hiring are used to and capable of operating within that. So I'm not totally sure the comp plan is that dramatically different. It's aimed at incenting sending the right behavior. It certainly doesn't go to the length of some of our former competitors on how they pay people, but it is designed to incent the right behavior. And so we're seeing all that sort of come together. It's been a little while in the making, but we're starting to get a lot of traction. David Feaster: Okay. That's helpful. And then I know -- I mean, payoffs and paydowns have been a headwind across the industry, and I know it's -- just kind of curious what you guys are seeing on that front? How much of that is -- we just -- we touched on the competitive landscape. Then you've got natural asset sales and some of those kinds of things. But just looking at the payoffs and paydowns that you've seen, just kind of curious how much of it is maybe again, losing deals to another bank versus natural asset, just payoffs and paydowns and asset sales and those kinds of things or versus strategic deleveraging? Timothy Myers: Well, I think part and parcel to getting a more active lender program activity is managing relationships as well. So the $24 million in commercial loan payoffs last quarter, only $2 million of that came from third-party refinancing, David. So $4 million was related to assets, almost $10 million was just cash deleveraging. People just paying off debt with cash. We had about a $7 million workout that we pushed out, which was a good thing. And we mentioned that in the release. But again, only $2 million in the quarter came from losing money to another bank. David Feaster: Okay. And just one quick one. I may have missed it, but for that $3.6 million nonaccrual that was paid off after quarter end, do you have the amount of interest recovered from that, that we should expect in the fourth quarter? Timothy Myers: I do not. Dave Bonaccorso: It's a little less than $700,000. I think $670-ish is the number. Operator: Your next question will come from Tim Coffey with Janney Montgomery Scott. Timothy Coffey: Good morning, everybody. Yes, just looking at the deposit growth this quarter and the number of new accounts referenced in the -- opening the quarter referenced in the press release. I'm wondering, do you have a line of sight to deposit balance growth in the fourth quarter that might offset any kind of seasonality? Timothy Myers: No, it's really hard to forecast for us. That roughly 1,000 new accounts a quarter has been pretty consistent all year. But really the large fluctuations are in the end, what will drive what the balances are. And we've already moved some off balance sheet that we thought were maybe more volatile, but it is really hard to predict how some of the customers -- inflows and outflows in some of our larger depositors. The people that are affecting the balances are sort of the usual suspects, so nothing strange or unexpected there, but it's really hard to predict. So that was a long-winded way of saying, I don't know, Tim. Timothy Coffey: Sure. I appreciate that. The flip side of that question then is, I mean, typically, we see kind of seasonal deposit outflows due to tax payments and the like coming up. Do you see -- any sense that the payments this year will be any larger than they've been in previous years? Timothy Myers: We have not gotten any indication of that. And we do a pretty active job of talking to our clients in an effort to forecast, and we don't see any big outflows or abnormally large outflows for any particular reason happening. But again, it is hard to predict, and we inevitably will not talk to the one client that will have a big change in deposit balances. So it is a wait-and-see game, but we are actively managing talking to our customers and trying to, again, forecast any big changes. And right now, we don't see anything dramatic on the horizon. Operator: We have no further questions at this time. I will hand it back to Tim Myers for closing remarks. Timothy Myers: Thank you, everybody. We appreciate it. We're proud of the quarter, and we are happy to share that with you and answer all your questions. Thanks again.
Operator: Greetings. Welcome to Alliance Resource Partners Third Quarter 2025 Earnings Conference Call. Please note, this conference is being recorded. At this time, I'll turn the conference over to Cary Marshall, Senior Vice President and Chief Financial Officer. Thank you. You may now begin. Cary Marshall: Thank you, operator, and welcome, everyone. Earlier this morning, Alliance Resource Partners released its third quarter 2025 financial and operating results, and we will now discuss those results as well as our perspective on current market conditions and outlook for the remainder of 2025. Following our prepared remarks, we will open the call to answer your questions. Before beginning, a reminder that some of our remarks today may include forward-looking statements subject to a variety of risks, uncertainties and assumptions contained in our filings from time to time with the Securities and Exchange Commission and are also reflected in this morning's press release. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected. In providing these remarks, the partnership has no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, unless required by law to do so. Finally, we will also be discussing certain non-GAAP financial measures. Definitions and reconciliations of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures are contained at the end of ARLP's press release, which has been posted on our website and furnished to the SEC on Form 8-K. With the required preliminaries out of the way, I will begin with a review of our third quarter 2025 results, give an update of our 2025 guidance, then turn the call over to Joe Craft, our Chairman, President and Chief Executive Officer, for his comments. For the third quarter of 2025, which we refer to as the 2025 quarter, total revenues were $571.4 million compared to $613.6 million in the third quarter of 2024. which we refer to as the 2024 quarter. The year-over-year decline was driven primarily by lower coal sales prices and lower transportation revenues, partially offset by higher coal sales volumes. Compared to the second quarter of 2025, which we refer to as the sequential quarter, total revenues increased by 4.4% due to higher coal sales volumes and prices. Our average coal sales price per ton for the 2025 quarter was $58.78, a decrease of 7.5% versus the 2024 quarter, but an increase of 1.5% on a sequential basis. The year-over-year decline was primarily due to higher-priced legacy contracts entered into during the energy crisis of 2022 that expired in 2024. As it relates to volumes, total coal production in the 2025 quarter of 8.4 million tons was 8.5% higher compared to the 2024 quarter, while total coal sales volumes increased 3.9% to 8.7 million tons compared to the 2024 quarter. Compared to the sequential quarter, total coal sales volumes were up 3.8%. Total coal inventory at quarter end was approximately 950,000 tons, down 1.1 million and 0.2 million tons compared to the 2024 quarter and sequential quarter, respectively. In the Illinois Basin, coal sales volumes increased by 10.8% as compared to the 2024 quarter, led by increased volumes from our Hamilton, Warrior and River View mines, but were down 0.8% versus the sequential quarter due to timing of delivery for contracted tons. Coal sales volumes in Appalachia were down 13.3% compared to the 2024 quarter due to lower production year-to-date at our Tunnel Ridge mine, but were up 21.8% versus the sequential quarter as we successfully transitioned the longwall at Tunnel Ridge to a new longwall district during the 2025 quarter, which was the primary driver for the increased volumes. As anticipated, the new district has delivered improved geology and mining conditions compared to the challenges we experienced over the last several quarters. Segment adjusted EBITDA expense per ton sold in Appalachia improved 11.7% compared to the 2024 quarter as all mines in Appalachia achieved lower cost in the 2025 quarter. And sequentially, better results from MC Mining and Tunnel Ridge contributed to a 12.1% improvement in the 2025 quarter. In the Illinois Basin, segment adjusted expense per ton decreased 6.4% compared to the 2024 quarter, primarily as a result of increased regional production, lower longwall move days at Hamilton and improved recoveries at our River View and Hamilton mining operations. Expenses in the 2025 quarter included a $4.4 million unfavorable contingent consideration liability adjustment at our Hamilton mine related to our original acquisition based upon a revised outlook that anticipates increased production in the future at Hamilton. But for this adjustment, segment adjusted EBITDA expense per ton in the 2025 quarter in the Illinois Basin would have been flat with the sequential quarter. Turning to our royalty segment. Total revenues were $57.4 million in the 2025 quarter, up 11.9% compared to the 2024 quarter. The year-over-year increase in revenues primarily reflects higher coal royalties tons and revenue per ton sold, partially offset by lower average oil and gas price per BOE. Specifically, coal royalty tons sold during the 2025 quarter increased 38.1% compared to the prior year and 28.5% sequentially, primarily due to higher Tunnel Ridge volumes, which drove coal royalty segment adjusted EBITDA up 54.5% compared to the 2024 quarter and 44.6% higher compared to the sequential quarter. Oil and gas royalty BOE volumes during the 2025 quarter increased 4.1% year-over-year. However, a lower mix of oil volumes and lower realized crude oil pricing resulted in a 10.5% decline in average oil and gas sales price per BOE compared to the 2024 quarter. Our net income attributable to ARLP in the 2025 quarter was $95.1 million. This included a $3.7 million favorable increase in the fair value of our digital assets and $4.5 million in investment income from previous growth investments. Adjusted EBITDA for the quarter was $185.8 million, up 9% from the 2024 quarter and up 14.8% sequentially. Now turning to our balance sheet and uses of cash. As of September 30, 2025, our total and net leverage ratios were 0.75x and 0.6x debt to trailing 12 months adjusted EBITDA, respectively. Total liquidity was $541.8 million at quarter end, which included $94.5 million of cash on the balance sheet. Additionally, we held approximately 568 Bitcoin on our balance sheet, valued at $64.8 million at the end of the 2025 quarter based upon a price of approximately $114,000 per Bitcoin. For the 2025 quarter, Alliance generated free cash flow of $151.4 million after investing $63.8 million in our coal operations. Distributable cash flow for the 2025 quarter was $106.4 million, up 17% sequentially, leading to a calculated distribution coverage ratio of 1.37x based on a quarterly cash distribution of $0.60 per unit or $2.40 per unit on an annualized basis. Turning to our updated 2025 guidance detailed in this morning's release. Favorable weather for most of this past cooling season and rising electricity demand drove increased coal consumption in the Eastern United States, helping further reduce customer inventories. Long-term demand forecasts continue to be revised higher across the country. And as the more favorable regulatory environment continues, we are observing a steady stream of domestic customer solicitations for long-term supply contracts. During the 2025 quarter and subsequent to its end, ARLP has remained active in domestic utility solicitations for 2026 and beyond. Our teams have been successful in securing additional contract commitments as customers continue to value our product quality, reliability of service and financial strength. Our contracted position for 2025 is up slightly to 32.8 million tons committed and priced, including 29.8 million tons for the domestic market and 3 million tons for export. we have elected to tighten our full year sales guidance to 32.5 million to 33.25 million tons with the midpoint coming in within 1% of our previous guidance in July. Perhaps more importantly, strong demand for our supply allowed us to add to our 2026 order book once again. We have now contracted and priced 29.1 million sales tons for 2026, up 9% from last quarter, putting us in a good position for this time of year for prompter shipments. With respect to pricing, we increased the low end of our coal sales pricing guidance ranges for both the Illinois Basin and Appalachia. And on the cost side, we expect full year 2025 segment adjusted EBITDA expense per ton to be in a range of $60 to $62 per ton in Appalachia and $34 to $36 per ton in the Illinois Basin. In our oil and gas royalties business, we are adjusting our full year 2025 oil volume guidance to account for a timing delay in a high royalty interest multi-well development pad in the Delaware Basin of the Permian, which is now expected to come online in early 2026. As it relates to all our other guidance ranges, they are largely unchanged from our previous expectations. And with that, I will turn the call over to Joe for comments on the market and his outlook for ARLP. Joe? Joseph Craft: Thank you, Cary, and good morning, everyone. Our operations delivered another solid quarter of performance, tracking consistently with our operating plan, thanks to the dedication and hard work of our entire team. As Cary described, the significant infrastructure investments we have made in our coal operations over the past 3 years are beginning to pay off. Our Illinois Basin operations are performing well, led by Hamilton, which benefited from new automated longwall shields commencing operation immediately after a successful longwall move in early August. Looking forward, the combination of Shield and shear automation is expected to enhance productivity, reduce the number of personnel required on the face and minimize maintenance demands. At our River View complex, the Henderson County mine achieved a key infrastructure milestone in late August with the opening of its new portal facility. Equipment and personnel transitions to better mining conditions are planned to be in place early next year when 6 units are scheduled to be operating at the Henderson County mine and 3 units are scheduled to remain operating at the River View mine. Our Appalachia operations improvements were led by Tunnel Ridge, which successfully transitioned to a new longwall district in the 2025 quarter. As expected, the move was resulted -- has resulted in significantly improved mining conditions, dropping the mine's cost per ton sold by 8.8% compared to the 2024 quarter and 19.3% to the sequential quarter. With both regions performing well, our total cost expectations for 2025 are on track to fall within the updated guidance range. Looking at the coal market, U.S. coal demand is continuing to experience strong fundamentals, supported by a combination of favorable federal energy and environmental policy to preserve America's coal fleet plus rapid electricity demand growth. Compared to last year, year-to-date utility coal consumption has increased by 15% in MISO and 16% in PJM. This surge reflects not only favorable natural gas pricing, but more importantly, a realization of the dramatic load growth required by artificial intelligence and data centers. Natural gas fundamentals remain supportive of coal dispatch economics. Henry Hub has averaged over $3.50 per million BTU in 2025, and the current forward strip is averaging higher pricing in 2026 and 2027. Rising electricity demand, combined with the expected growth of LNG export capacity should keep upward pressure on natural gas prices, further enhancing coal's competitiveness in power generation dispatch. Furthermore, utility coal stockpiles have normalized at healthy levels, supporting more robust term contracting activity. With normalized utility inventories and unprecedented demand growth from data centers, analysts we follow are projecting 4% to 6% annual growth in electricity demand in PJM and other markets we serve over the next several years. As a result, we believe Alliance is well positioned to increase production at Tunnel Ridge and in the Illinois Basin in 2026 to meet this demand. Market signals are validating the need to keep baseload power plants online to meet this anticipated electricity demand, including coal-fired power plants previously planned for decommissioning. The recent PJM capacity auction cleared at maximum allowable prices with every megawatt of coal capacity selected, while reserve margins fell below reliability targets, clearly demonstrating that the grid needs every available megawatt of dispatchable generation. During the quarter, as I mentioned in our last earnings call, to assist in extending the lives of coal plants in our marketing footprint, we invested $22.1 million as part of a $25 million commitment in a limited partnership that indirectly acquired a coal-fired plant in the PJM service area, positioning Alliance to directly benefit from the tightening power markets and growing demand for a reliable baseload generation. We expect this investment to generate attractive cash-on-cash returns during 2026 and beyond. In conclusion, our priorities remained unchanged, maintaining a strong balance sheet, investing prudently in our core operations and positioning Alliance for long-term growth while delivering attractive after-tax returns to our unitholders. With the completion of several major capital projects at our mines, sustaining capital needs in our coal segment are expected to decline meaningfully, which enhances free cash flow visibility for 2026 and beyond. In our oil and gas royalties business, we continue to pursue disciplined accretive growth opportunities. Although lower commodity pricing has limited investment opportunities in 2025, the segment remains unlevered, and we strive to reinvest internally generated cash flow to expand our minerals position where we see attractive economics and high-quality operator activity. Returning capital to our unitholders remains a key component of our strategy. During the 2025 quarter, we declared a quarterly distribution of $0.60 per unit, equating to an annualized rate of $2.40 per unit and unchanged from the sequential quarter. As Cary said, distributable cash flow for the 2025 quarter was $106 million, $106.4 million, up 17% sequentially, leading to a calculated distribution coverage ratio of 1.37x for the 2025 quarter. We expect the operating and financial results for the fourth quarter to equal our outstanding 2025 quarter results. At Alliance, we remain laser-focused on delivering what America needs most. reliable, affordable baseload generation. With supportive policy, improving market fundamentals and disciplined execution, we believe we are well positioned for the balance of 2025 and beyond. That concludes our prepared comments, and I'll now ask the operator to open the call for questions. Operator? Operator: [Operator Instructions] And our first question is coming from the line of Nathan Martin with Benchmark. Nathan Martin: You guys talked about how domestic customer engagement has intensified as utilities seek reliable supply, and that's kind of given you greater demand visibility than you've experienced in several years. Can you guys give us a little more color on how long some of these supply contracts are being signed for now? And maybe what kind of structure is typical on the price side, whether that's fixed or if it's tied to a variable index, for example? Joseph Craft: Yes. So most of the customers are coming out for 2 to 3 years, I would say. And of those, they prefer fixed pricing. So we are looking at fixed pricing. We do have some understanding that there would be some reconsideration in the event that tariffs impact costs that aren't anticipated or expected. So there is some tariff concept of protection in those contracts, but primarily, they are fixed price for the 2- to 3-year time period. Some are going a little shorter than that, just like a 1 year or even some are still staying in the spot market. But typically, within those contract structures, there is escalation years 2 and year 3 in terms of the pricing, generally speaking. Nathan Martin: Okay. That's helpful, guys. And then what index should we be paying attention to? Is it still the Io Basin index and your Northern cap type indices? Joseph Craft: Yes. But at the same time, I don't think the index based on the volume is being tracked precisely. So I think that you need to factor in each customer is a little different. But I mean, I think those indexes are generally accurate, but we are seeing some pricing that's a little bit higher than what those indexes have been showing depending on what time you're looking at. Nathan Martin: That's very helpful. Joseph Craft: You're starting to see the index go up over the last quarter or so. And I think that's reflective of where the -- where some of these contracts are trending into. Nathan Martin: Got it. And that's actually where I was going to go with my next question. Your pricing guidance also for full year '25, I guess, a little bit higher now at the midpoint. As you look to '26, I believe you said last quarter that the expectation was for price per ton could decline around 5% year-over-year. And now that you've added some additional tonnage for '26, do you still feel like that down 5% is the right way to think about pricing for next year? Joseph Craft: Yes. I think we still have -- like we mentioned, some of our contracts rolled off in 2024. We have some contracts in Appalachia that are rolling off in 2025. So that's the main reason for the suggestion that our overall pricing is likely to be down year-over-year because of the Appalachia contracts that are rolling off in 2025, they're having to be replaced at '26 pricing. However, because of the movement of Tunnel Ridge into their favorable geology, we are expecting to pick up volume there back to levels that were more -- that we were experiencing previous to the bad geology we've experienced over the past several quarters. So we do believe that the cost improvements that we see at Tunnel Ridge would allow our margins to be maintained for '26 compared to '25. Cary Marshall: Yes. That's right, Nate. And depending upon what our volume guidance is for next year, that could impact these numbers a little bit as well. Typically, we provide that -- we'll do that at our January meeting. So we'll provide some volume guidance as well as updated pricing guidance based upon our experience from entering into solicitations for this year and what that looks like in terms of better guidance on volume when we come back and talk to you in February. Nathan Martin: All right. Perfect. Appreciate that. And then just maybe one final bigger picture question. A couple of weeks back, administration, Department of Energy announced some additional investments in the coal-fired power plant space. Maybe, Joe, could you please talk about how you see that impacting your business and your customers? I know the late retirements have been talked about a lot recently, but it would be great to get your thoughts. Joseph Craft: We are seeing a very active engagement, both by utilities and the Department of Energy on dispatching those resources. I think the number was around $625 million. Those bids are due in imminently. And there was a call recently among the various customers that were interested in taking advantage of that, and it was very robust. I believe that, that -- the request for support will be greater than that number. So we are seeing several -- significantly more than several, I guess. utilities are interested in taking advantage of that opportunity. There has been indication depending upon demand and the attractiveness of the opportunities that are presented that could open the door for more funds being available to assist these utilities and investing in their coal plants to make sure that they do dispatch and run beyond -- basically run for their original determined life, what their anticipated life would be. We know several customers that are looking at investments that we sell to that it would benefit them by actually increasing the demand that they would have in the out years if they can get these grants and/or loans from the government. Operator: Our next question is from the line of Mark Reichman with NOBLE Capital Markets. Mark La Reichman: So just was curious about the equity method investment income. So it was 2 losses for the first and the second quarter and then $4.5 million in the third quarter. And I was just kind of wondering, even though it doesn't really wag the dog here, have those investments kind of turned the corner? I mean, can we kind of expect positive numbers in the fourth quarter? I was just kind of curious for your thoughts on how those investments are playing out. Cary Marshall: Yes, Mark, I think as it relates to that, I mean, I think you're right. I think from where we are right now, I think we can anticipate modestly positive numbers in the fourth quarter here going forward. We did have some of our equity investments that we did make. We have started receiving some decent distributions in relationship to our investments that we've made in those, which has led to some higher valuations for some of those investments, which you're seeing that reflected in this quarter's number there. So this quarter is probably a little bit higher than what typically would be on a normal going-forward basis. I mean we'll see depending upon how, say, the Gavin investment may perform for us because we are anticipating cash-on-cash returns from there as well. So -- but I think what you say is modestly positive in the fourth quarter. And going forward, I think that's a fair position with where we are today. Mark La Reichman: And then on the multi-well pad in the Delaware Basin of the Permian, which is now expected to come online in early 2026. Would you say that, that's really the event that's most responsible for the change in guidance with respect to the oil and gas royalty volumes? And how early in 2026 do you think it would come online? Cary Marshall: Yes. I think that is responsible for the changes that we've made in our guidance ranges there. There's no question that it will come online. It's just a matter of timing. Right now, our best guess on that is first quarter of 2026. Mark La Reichman: And then with respect to the coal business, pricing came in ahead of our estimates and the segment adjusted EBITDA expense per ton came in lower than what we were looking for. So that's all very positive. So you had the longwall move in July, which positively impacted Appalachia, and I believe you had the Henderson in the third quarter. So Illinois Basin, if I just kind of look at the expenses, $37 a ton. So that's kind of in line with your guidance. Appalachia, you're actually -- you were at $58 to $62 last quarter. And so now you're at $60 to $62 and you were at $57.74 for this quarter. So would you frame that? Would you say that maybe you maybe expected more improvement in the expense per ton in the third quarter? Or would you say that like fourth quarter going forward, it seems to me that the expenses could actually be kind of at the lower end of your guidance kind of from this point forward. So just kind of your thoughts on the -- most particularly to Appalachia. Joseph Craft: I think that the guidance reflects that the fourth quarter for Mettiki we are anticipating costs to go up in the fourth quarter at Mettiki compared to the third quarter. So that's influenced it on a going-forward basis, we don't think that's systemic. It's just a certain circumstance of where our geology is right now for Mettiki. So going forward, '26 forward, we do believe we're going to be back on a path of having lower cost in Appalachia. Operator: The next question is from the line of Matthew Key with Texas Capital. Matthew Key: I wanted to talk about just initial expectations for volume in 2026. Given that you guys have made strong progress on the contracting front, what's your view of the best case scenario for shipments in '26 versus '25? I know you can get potentially 1 million more out of Tunnel Ridge. So I was wondering if you could just walk me through what other opportunities are out there for increasing volumes as we head into next year. Joseph Craft: I think that we do believe that Illinois Basin will also be able to yield some increase. It's yet to be determined exactly what that is. We've had some early indications based off of the contracting that we've been discussing that because of the timing of data centers that are coming online, and the -- just the strong growth continuing in 2026 that there will be opportunities to be able to grow our total overall in a 2 million ton range. And how much of that is going to be Illinois Basin versus half. It could be a little higher in half versus Illinois Basin, but it's yet to be determined. But if we were to try to make a guess today what our sales would be in '26 versus '25, it would be about 2 million tons up. Matthew Key: Got it. That's super helpful. I appreciate that color. And I just wanted to touch briefly on M&A outlook in the current market. Any opportunities out there in coal? Or do you view it more likely more focused on the oil and gas royalty business or secondary business? Joseph Craft: Yes. I would say it would be more focused on minerals. As we indicated, we're continuing to look at the infrastructure area. So we would like to find more opportunities like Gavin. So we're considering that. There's a couple of other things that we're looking at, small dollars, but that allow Matrix to be able to achieve its goals and the growth opportunities it sees beyond its own organic growth that it's looking at. So I think those would be the areas that we'd be focused on. But on an M&A standpoint, there's really no real expectation that we would participate right now in expanding our coal operations. Operator: The next question is from the line of Dave Storms with Stonegate. David Storms: Just wanted to start, you mentioned on the outlook that you're expecting to increase production at Tunnel Ridge in the Illinois Basin. Just would love to hear your thoughts around maybe the logistics of increasing that production that's going to require more staffing or anything of that nature? Joseph Craft: No. I think with the capital that we've committed over the last 2, 3 years, we're fully capitalized. I think we would not be bringing on any new units. It would just be taking advantage of the trend lines we've got of being able to roll into those investments. So when you -- we've got the staffing there at River View, when we transition those 6 units, we're just moving people over. We just have more favorable conditions and the reserves that we're moving to compared to the reserves that we would have been mining had we stayed on the original plan. So we're able to achieve more with the existing headcount, both at Hamilton and Tunnel Ridge, we anticipate that our development in '26, say, the second half of '26 will be in panels that could, in fact, allow dropping a unit or so of development. So from a headcount perspective, we don't anticipate hiring or needing to add personnel to achieve that 2 million tons of extra sales that I mentioned a few minutes ago. David Storms: Understood. That's very helpful. And then it was also mentioned they anticipate approximately 300,000 to 600,000 million tons of met to be sold in 2026 that's currently uncommitted. Can you just talk about your confidence that, that will get committed or your comfort with maybe potentially bringing that to the spot market in 2026? Joseph Craft: Yes. So on the met side of the business, that typically is priced on a quarterly basis or committed on a quarterly basis. So historically, we've really not had committed met tons, and we still don't, but we do anticipate that we will be able to place those tons and the pricing right now is -- again, the pricing is based off index at the moment in time that they actually commit. So we do believe that we can sell it. We can't really give you a prediction of what the price is going to be. Operator: Next question is coming from the line of [ Tim Snyder ] with [ Snyder Capital ]. Unknown Analyst: Thanks for all the color on the power market. Super interesting. Question I had, at what kind of level of maybe either Henry Hub or intraday pricing for the basins that you guys are kind of active in terms of delivering coal to your power customers? Are we seeing a switching either from coal to gas or gas to coal? And then the other follow-up to that is how quickly does that occur? Is that something that can happen in 24 to 48 hours or so, depending on what the front month does? Or is this a more, I guess, more of a paced switching on and off? Joseph Craft: I would answer that by saying that we're seeing the actual competition of gas to coal being less of a factor as data centers come online than what it has in the past. I think the major question back to gas and coal on gas competition is just going to get to the winter. You have to have a winter. If you don't have a winter, then your question is more relevant, and it would be more gradual as opposed to a day-to-day type decision. But I think weather dependency for winter is probably the one area where gas prices would be impacted that could have an influence on what coal demand would be. But assuming a normal winter or a winter like we had last year, we didn't experience in 2025, we haven't experienced true gas on coal competition like we had in the past. And again, I think that's driven by the capacity utilization and with the growth we're seeing. So we saw, as I mentioned in the prepared remarks, 15% to 16% growth year-over-year in electricity demand and a lot of that is anticipated to grow again 4% to 5%. So I don't see that as a direct major issue in trying to influence what spot pricing is going to be. Again, I do believe that the demand on the next 2 to 3 years is growing and they're going to need the coal supply. They need every coal plant open to meet the demand for data centers. So yes, gas prices are important, but it's not as significant as it's been in the past. Unknown Analyst: Got it. So would it be fair to say then basically from your vantage point, it's kind of all of the electrons are needed going forward irrespective of kind of source sort of sensitivity just that was there historically, just isn't there anymore going forward? Joseph Craft: Yes, that's fair. That's what I was trying to say. Operator: Next question is from the line of Michael Mathison with Sidoti & Company. Michael Mathison: Congratulations on the quarter. A couple of things that I noticed going over your financials. CapEx is lower year-over-year and in line with the sequential quarter. Does that make you see full year CapEx is coming in toward the low point of guidance? Cary Marshall: Yes. Yes, it's hard to say on that. I think really probably closer to the midpoint of guidance is fair. We do anticipate fourth quarter CapEx to be higher than where we are. But typically, we do end up with some capital that carries over year-to-year. But I think it will be higher than where we were this quarter, whether we get to the top end of the guidance range, likely not there, but somewhere in between. Michael Mathison: Great. Looking at depreciation expense, it was higher year-over-year in Q3, and I noted that you upped full year guidance. Were there onetime factors in play for that? Or does this level of depreciation feel like the new normal? Cary Marshall: Yes. I think this level is probably the new norm for where we're at in terms of depreciation levels. We've had assets that we've placed in service here throughout the year that's led for us to kind of narrow that guidance range from where we are before and just kind of the fact that where we are right now, that's a pretty good rate as we look for the balance of this year, which kind of gets you to where our guidance ranges are. Michael Mathison: Right. Then looking at some more big picture items, Joe mentioned that you were interested potentially in other transactions like Gavin. Do you see Cabin, as sort of the beginning of a trend of a lot of utilities wanting to sell off their coal-fired capacity? Or does it look like one by one at a time? Joseph Craft: It's more of the latter. I mentioned on the last call, maybe 5 to 10 units or plants, and I haven't seen anything that would change that perspective. And I'm focused strictly on east of the Mississippi. So there may be some things in the West that I'm not aware of. But as we look at the east of the Mississippi, I could see 5 to 10 units and/or plants that would be interested in transacting and changing ownership as opposed to continuing to own those plants on a going-forward basis. Michael Mathison: And just one more question back to coal operations. Expense per ton is down sharply in Appalachia. Do you feel like -- and you gave a lot of color around supporting why that would sort of endure. Do you feel like that lower expense level is something we can count on going forward? Or were there onetime factors in play? Joseph Craft: We do believe you can count on that going forward. And the primary reason is back to the new district we're going to in Tunnel Ridge. As we look at our MC mine, it's only 2 units, but that looks to be sustainable. And then as we proceed into '26 where we Mettiki, we appear -- that appears to be consistent with what we've been seeing. So -- as I mentioned a few minutes ago, we do believe that the Mettiki situation is tied to a specific geologic issue in the fourth quarter. But going forward, we do believe Appalachia is going to show very sustainable lower cost than what we've seen over the last several quarters. Operator: This now concludes our question-and-answer session. I'd like to turn the floor back over to Cary Marshall for closing comments. Cary Marshall: Thank you, operator. And to everyone on the call today, we appreciate your time this morning and also your continued support and interest in Alliance. Our next call to discuss our fourth quarter 2025 financial and operating results is currently expected to occur in February, and we hope everyone will join us again at that time. This concludes our call for the day. Thank you. Operator: Thank you. Ladies and gentlemen, thank you for your participation. Today's conference has concluded. You may disconnect your lines at this time, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Bank of Hawaii Corporation Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message device when your hand is raised. To withdraw your question, please press star 11 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chang Park. Please go ahead. Good morning and good afternoon. Chang Park: Thank you for joining us today for our Third Quarter 2025 Earnings Conference Call. Joining me today is our Chairman and CEO, Peter Ho, President and Chief Banking Officer, James Polk, CFO, Bradley S. Satenberg, and Chief Risk Officer, Bradley Shairson. Before we get started, I want to remind you that today's conference call will contain some forward-looking statements. And while we believe our assumptions are reasonable, the actual results may differ materially from those projected. During the call today, we'll be referencing a slide presentation as well as the earnings release. Both of these are available on our website, boh.com, under the Investor Relations link. And now I would like to turn the call over to Peter. Peter Ho: Thanks, Chang. Good morning or good afternoon, everyone. Thank you for your continued interest in Bank of Hawaii. We recorded yet another set of strong results for the quarter. Fully diluted earnings per share were $1.20 per share, 29% higher than the results from a year ago, and 13% higher than last quarter. Net interest margin improved for the sixth straight quarter, up seven basis points to 2.46%. Return on common equity improved to 13.6% for the quarter. Average deposits increased by 7% annualized and the period loans increased modestly. Credit quality remained and remains pristine. I'll now touch on some operating highlights as well as an update on our wealth initiative. Brad Shairson will briefly update you on credit quality, and Bradley S. Satenberg will dive a little deeper into the financials. As a reminder, Bank of Hawaii has a unique business model to create superior risk-adjusted returns by leveraging our unique core Hawaii market, our dominant brand and market positions, and our fortress risk profile. Our market-leading brand position is largely the driver of our market share outperformance. For the 2025 FDIC summary of deposits, released last month, we advanced our number one deposit market share position in Hawaii by 40 basis points as of June 30, 2025. Since February 2005, Bank of Hawaii has grown market share by 600 basis points, well in excess of any other competitor in the Hawaii market. Interest-bearing deposit costs and total cost of funds both improved in the quarter. Also in the quarter, we remixed $594 million in fixed-rate loans and investments from a roll-off rate of 4.1% and into a roll-on rate of 6.3%, helping to improve net interest margin. As I mentioned, Q3 was the sixth consecutive quarter of NIM expansion. We anticipate NIM to expand further for a number of quarters moving forward. Our fortress credit position is a long-standing core attribute of Bank of Hawaii. The portfolio is diversified by product type, predominantly secured and possessing superior long-term loss rates. We dynamically manage our credit portfolio, actively managing off loan categories we find not to meet our stringent loss standards. We believe wealth management is a nice opportunity for us, and I'd like to highlight it here. As you can see from this chart, our consumer and commercial businesses have grown steadily over the past twenty years. Wealth AUM growth, however, has lagged. With greater investment, we believe we can improve performance in the local wealth segment. Hawaii has a strong affluent marketplace relative to the broader U.S. market. The wealth segment is fragmented with Bank of Hawaii holding a small fraction of the market. We see an opportunity to leverage our dominant commercial and similar market positions along with our brand strength to build wealth market share. In the mass affluent space, we recently teamed with Saterra to help us modernize our broker-dealer platform. Our new platform named Banco Advisors will have meaningful technology, client experience, and investment product enhancements over its predecessor operation. We believe the new platform will help us delight both clients and prospective advisers alike. In the high net worth space, we believe stronger client coordination between our commercial and wealth teams will result in meaningful cross-marketing opportunities, especially in the SME segment. We've invested in numerous product and service resources geared specifically for this segment. While further updates for you all as our initiatives in this area season. And now let me turn the call over to Brad Shairson, who will provide some brief overview comments on credit. Bradley Shairson: Thanks, Peter. The Bank of Hawaii is dedicated to serving our community, lending in our core markets where our expertise allows us to make sound credit decisions. Most of our loan book is comprised of long-standing relationships with approximately 60% of our clients in both commercial and consumer having been with us for over a decade. This combination has significantly contributed to our strong credit performance over the years, resulting in a loan portfolio that is 93% Hawaii, 4% Western Pacific, and just 3% Mainland, where we support our clients who conduct business both in Hawaii and on the Mainland. As I review our credit portfolio's third-quarter performance, you will see that it has remained strong and consistent with recent quarters. Our loan book is balanced between consumer and commercial, with consumer representing a little over half of total loans at 57% or $7.9 billion. We predominantly lend on a secured basis against real estate, 86% of our consumer portfolio consists of either residential mortgage or home equity with a weighted average LTV of just 48% and a combined weighted average FICO score of 799. The remaining 14% of consumer consists of auto and personal loans where our average FICO scores are 731 and 761, respectively. Moving on to commercial, our portfolio size is $6.1 billion or 43% of total loans. 73% is real estate with a weighted average LTV of only 55%. The largest segment of this book is commercial real estate with $4 billion in assets, which equates to 29% of total loans. Looking at the dynamics for real estate in Oahu, the state's largest market, a combination of consistently low vacancy rates and flat inventory levels continue to support a stable real estate market. Within the different segments, vacancy rates for industrial, office, retail, and multifamily are all below or close to their ten-year averages. Total office space has decreased about 10% over the past ten years. This has been driven by conversions primarily to multifamily and lodging. This long-term trend of office space reduction along with the return to office movement has brought the vacancy rate closer to its ten-year average and well below national averages. Breaking down our CRE portfolio, it is well diversified across property types with no sector representing more than 7% of total loans. Our conservative underwriting has been consistently applied with all weighted average LTVs under 60%. Not only is our CRE portfolio diversified across segments, but it is also diversified within each segment as evidenced by our low average loan sizes. And our scheduled maturities are fairly evenly spread out with more than half of our loans maturing in 2030 or later. Looking at the distribution of LTVs, there isn't much tail risk in our CRE portfolio. Only 1.8% of CRE loans have greater than 80% LTV. Turning to C&I, which comprises 11% of our total loans, you will notice that this book is also well diversified across industries, and also has modest average loan sizes. Additionally, only a small portion of these loans are leveraged. Given recent industry news, we've added a slide to highlight our limited exposures to non-depository financial institutions and EFIs. The loans fall within our C&I portfolio and equate to only 0.6% of total loans or $85 million. And of that $85 million, $74 million are to publicly traded equity REITs and just $11 million to private equity. Not only are the exposures small, but we know the borrowers well, and are comfortable with our nominal exposure. Turning to asset quality, credit metrics have actually improved from last quarter's pristine levels. Net charge-offs were just $2.6 million at seven basis points annualized. Flat to linked quarter and four basis points lower than a year ago. Nonperforming assets were down one basis point from the linked quarter to 12 basis points and two basis points lower than a year ago. Delinquencies ticked lower by four basis points to 29 basis points this quarter and two basis points lower than a year ago. Criticized loans dropped by one basis point to 0.5% of total loans, which is 37 basis points lower than a year ago. And the vast majority, 83% of criticized assets, are real estate secured with a weighted average LTV of 55%. As an update on the allowance for credit losses on loans and leases, the ACL ended the quarter at $148.8 million. That's up $240,000 for the linked quarter. The ratio of our ACL to outstandings remained flat at 1.06%. I will now turn this over to Bradley S. Satenberg for an update on our financials. Bradley S. Satenberg: Thanks, Brad. For the quarter, we reported net income of $53.3 million and a diluted EPS of $1.20 per share. An increase of $5.7 million and $0.14 per share compared to the linked quarter. These increases were primarily driven by the continued expansion of our net interest income and net interest margin, which grew by $7 million and seven basis points, respectively. The expansion in both our NII and NIM was driven by the combination of fixed asset repricing which added $3.3 million for NII as well as growth in the average balance of our deposits and the successful repricing of our CD book. Partially offsetting these benefits was the deposit mix shift. During the third quarter, the mix shift was $104 million and had an $800,000 negative impact on our NII. The average mix shift during the first three quarters of this year declined by $350 million to $67 million per quarter compared to $417 million per quarter for the same period last year. During the quarter, the yield on our interest-earning assets increased by seven basis points, benefiting from an improvement in the yield on both our loan portfolio and securities portfolio. At the same time, the cost of our interest-bearing liabilities declined by two basis points driven by a modest decline in the cost of our deposits, which decreased to 159 basis points. The average cost was inflated during the quarter due to several large transitory high-cost deposits. The spot rate on our deposits was 154 basis points or five basis points lower than the average during the period. Our beta at the end of the quarter was 28%, and I believe that we will ultimately achieve a 35% beta after Fed funds hits a terminal rate. The repricing of our CD book will lag our non-maturity deposits. During the quarter, the average cost of our deposits declined by 12 basis points and I expect that the vast majority of our CDs will continue to reprice down. During the next three months, over 52% of our CDs will mature at an average rate of 3.5% and will generally renew into new CDs at rates ranging from 2.5% to 3%. The spot rate on our CD book at the end of the quarter was 3.32% or eight basis points lower than our average during the quarter. We also repositioned our interest rate swap portfolio by terminating a billion dollars of swaps that were scheduled to mature in 2026. Half of these swaps hedged our loans, while the other half hedged our AFS securities. In addition, we added $100 million spot starting swap as well as $100 million forward starting swap. As a result of these actions, we finished the quarter with a pay-fixed, receive-float interest rate swap portfolio of $1.4 billion with a weighted average fixed rate of 3.56%. Down 41 basis points from the linked quarter. $1.1 billion of these swaps are hedging our loan portfolio, while $300 million are hedging our securities. In addition, we had $600 million of forward starting swaps at a weighted average fixed rate of 3.1% at the September. $100 million of the forward swaps became active in early October, while the remaining $500 million will become active in 2026. As a result of the repositioning, our fixed to float ratio migrated up from 55% to 57% during the quarter. We are currently forecasting two additional 25 basis point rate cuts this year and anticipate that each cut will initially reduce our NII by approximately $300,000 but that the impact will ultimately turn positive after our CD book reprices and result in an estimated positive contribution of $1.6 million to our quarterly NII. Non-interest income increased to $46 million during the quarter compared to $44.8 million in the linked quarter. Non-interest income in the third quarter included a $780,000 charge related to a Visa B conversion ratio change, while the linked quarter included a one-time gain of approximately $800,000 related to a BOLI recovery. Adjusting for these normalizing items, non-interest income increased by $2.8 million primarily due to higher customer derivative activity, trust and asset management earnings, and elevated loan fees. My expectation is that fourth-quarter normalized non-interest income will be between $42 million and $43 million. Non-interest expense was $112.4 million compared to $110.8 million during the prior quarter. Included in non-interest expense this quarter was a severance-related charge of $2.1 million, the linked quarter included a severance charge of $1.4 million. Excluding the impact of these items, non-interest expense increased by $900,000 compared to the prior quarter. This change was primarily due to one additional payday during the quarter. Compared to my previous forecast, actual normalized non-interest expense was higher than expected, due to additional incentives that were recorded during the period. I expect that our fourth-quarter normalized non-interest expense to be approximately $109 million. Included within my fourth-quarter forecast for both non-interest income and non-interest expense is the impact from the sale of our merchant services business which closed earlier this month. The sale resulted in a gain of approximately $18 million that was substantially offset by a repositioning of our AFS securities portfolio. The repositioning will increase our quarterly NII by approximately $1.7 million and encompass the sale of $200 million of low-yielding securities that were replaced with new securities at higher current rates. The spread improvement on these newly acquired securities was approximately 335 basis points. The sale of the merchant services business is also expected to decrease our quarterly non-interest income and non-interest expense by approximately $3 million and $2.2 million respectively. Combining the impact from the Merchant Services sale along with the securities repositioning, the total quarterly improvement to pretax earnings will be approximately $1 million or $0.02 per share. During the quarter, we also recorded a provision for credit losses of $2.5 million down from $3.3 million during the linked quarter. Further, we reported a provision for taxes of $14.4 million during the quarter, resulting in an effective tax rate of 21.3%. I expect the tax rate for the full year to be between 21 and 21.5%. Our capital ratios remained above the well-capitalized regulatory thresholds during the quarter with Tier one capital and total risk-based capital improving to 14.3% and 15.4%, respectively. And consistent with the linked quarter, we paid dividends of $28 million on our common stock and $5.3 million on our preferreds. We did not repurchase any common shares during the quarter, under our repurchase program. As a reminder, $126 million remains available under the current plan. And finally, our Board declared a dividend of $0.70 per common share that will be paid during 2025. Now I'll turn the call back over to Peter. Peter Ho: Thanks, Brad. This concludes our prepared remarks. And we'd be happy to entertain whatever questions you might have. Operator: Thank you, ladies and gentlemen. If your question has been answered and wish to move yourself from the queue, please press 11 again. First question comes from Matthew Clark with Piper Sandler. Your line is open. Matthew Clark: Hey. Good morning. Good morning. I heard the spot rate on CDs at the September, you have the spot rate on total deposits, either interest-bearing or total? Bradley S. Satenberg: Total is 154 basis points. Matthew Clark: Okay. Thank you. And then as maybe maybe for Peter. As we as we look out on the NIM, you know, when do you think you might be able to get to that 3% NIM? Do you feel it seems like it may have moved up a little bit based on a couple of actions you've taken this quarter, but just trying to get a sense for some line of sight on when we think we can get there. Peter Ho: Yeah. Yeah. That's kind of the question of the day, isn't it? So I think what what we've been fixating on and what investors have been questioning is can we achieve 2.50 by year-end? At this point, that seems to be like a reasonably likely potential for Q4. And then as we move into '26, what what we would anticipate I mean, the the fixed asset accretion is just gonna continue on for a number of years, frankly. And so the way to think about it is I think a base layer assuming deposit remix of about what we've experienced the past, couple of quarters and kind of rates in the yield curve as is, that's about a 25 basis point pickup in NIM per year. So 25 bps. And then on top of that, as Brad alluded to, there's opportunity for improvement in the NIM as fed funds comes down. And frankly, I think we still probably have you know, some opportunity in repricing of the overall deposit book moving forward. So I I guess the answer to me is 25 basis points per year and then I think there's upside in both fed funds coming down well as just overall pricing to the to the overall deposit book. Matthew Clark: Okay. Great. It's helpful. And just last one for me on the modest loan growth here, a little bit of nice little turnaround the positive. Just any commentary on the pipeline and the outlook for growth here in the fourth quarter and maybe next year without low single digits is still the right way to think about Peter Ho: Yeah. I I think low single digits is still the right way to think about it. Our continue to improve. And, you know, Q3 was definitely better than Q2. I think Q4 should be better than Q3, and we'll just continue to watch the pipelines as we get into the new year. But I I think that guidance holds, and I think if we get a little more clarity in the economy, maybe a little bit more stability some rate reduction, we may see some potential upside there too. Matthew Clark: Okay. Thank you. Operator: One moment for our next question. Our next question comes from Kelly Motta with KBW. Your line is open. Kelly Motta: Hey, good morning. Thanks for the question. Maybe, Peter, kicking off with some of the changes you made on the Wells side. Wondering, was this made last quarter and just kind of how you're thinking about, it seems like a a great opportunity to leverage the Bank of Hawaii brand. So wondering how you're thinking of that progressing. Any efforts to add talent to the to the bench help drive that? Just how you're thinking about it as as a lever moving forward. Thank you. Peter Ho: Yeah. Good question, Kelly. So we actually are in production with Saterra at this point. They've been a great partner so far. We are soon to be concluded on, you know, quote, the repapering process. So that that's gone quite smoothly. Obviously, that's taken some production capability out of the hands of our advisers as they just tend to the administrative function there. So I I think we're we're set to move smartly forward from that point on. And and that that opportunity, I think, is is a great one both the standpoint of providing just a much, much better client experience to our customers but also in terms of of really attracting you know, best in marketplace advisers because when you combine the capabilities that we now have with Saterra to our you know, the brand position the bank enjoys, in the islands. There's a lot of opportunity in there that that we are looking forward to. So that's kind of half the equation. The other half of the equation is within our our high net worth space. And they're really what we're focused on is really driving a better partnership, if you will, between our commercial bankers and our wealth advisers. We've seen some early signs of green shoots there. And then to your question, and I think it's the appropriate one, against that backdrop, we have been adding a good amount of talent really in in the advisory space. And we would intend intend to see that commitment to talent build continue on the next year or so, I'd say. Kelly Motta: Great. Thanks for all the color. Another somewhat high-level question I have here, on slide six, what really stands out is how well, Bank of Hawaii has been picking up share. The past several years. Do you can you provide any color as to what parts of the business have been driving that? Is that retail? Any you know, specific set segments, commercial? Just trying to get a sense of what has been the the most impactful in in gaining share here on the island. Peter Ho: Yeah. I think that the, the gratifying part to the question is it's really been pretty balanced. And so we've been able to pick up consumer as well as commercial as well as municipal share over the years. And I really I don't think that there's a single silver bullet here. I think it's really just our commitment to the marketplace and our consistent application of the strategy that's been working for us for past couple of decades now. Kelly Motta: Got it. Thanks for the color. Last question from me is just on capital. Ratios continue to build. It sounds like growth is picking up but still more in the low single-digit range. Any updated thoughts on buybacks when capital return? Thank you. Peter Ho: Yeah. I think, you know, we are happy with our capital levels. I mean, you know, you you can always pick up here or there. But I think given where the stocks at right now, we think that there's a great opportunity to deploy capital into into repurchases at this point. We probably are likely to be doing some of that activity here in this quarter and into next year. Obviously, the dividend is important to us, but we think the payout ratio for is in pretty good shape. And, hopefully, we'll be able to deploy some of the capital into growth as we move forward. Kelly Motta: Awesome. For all all the time today. I'll step back. Operator: Thank you. One moment for our next question. Our next question comes from Jeffrey Allen Rulis with DA Davidson. Your line is open. Jeffrey Allen Rulis: Thanks. Good morning. Circling back to the the growth outlook, sounds like that's picking up a little bit, upward trending. And just Slide 12 sort of outlines some of the derisking activities or some of the noncore has that been a part of the function of some muted growth in maybe '25 or in the rearview and maybe having done some of that is that helping the net growth equation? Just want to feel if the undertow of derisking is kind of I mean, you're always managing credit, but has that been outsized in the trailing months? Peter Ho: No, Jeff. It's a good question. I think for the most part, derisking has not been a headwind for us for for a while now, I guess I guess the the positive to that is I don't see anything or any activity in our current portfolios that would lead me to believe that it should be, you know, that it's gonna be an impediment to growth moving forward either. So it's kinda it kinda is what it is for right now. We're we're happy with the portfolios. Jeffrey Allen Rulis: Got it. Okay. So just kinda pointing out areas that you that are core and noncore, but from a growth perspective has not been much of a past and future I guess, component. Fair enough. Enough. On the if I hop to expenses, I wanna think about I appreciate the core January. If we rolled a 26 a lot of discussion of the wealth management investment. It had been in the 2% to 3% growth for twenty five. Can we think about that in 2026 at similar levels as wealth maybe put that to the upside of that range or anything else coming on if we can think about '26 growth rates? Peter Ho: Yeah. Let me let me punt that to to Bradley S. Satenberg. Bradley S. Satenberg: Yeah. Thanks, Jeff. That's a good question. I would say if you're trying to model out, I would expect, 2026 expenses to be, you know, in the March to be slightly higher because of the the payroll, the seasonal payroll charges that we have. But overall, I think, you know, we we we've projected this year 2% to 3%. I think the projection this year is going to be 3% to 4%, but probably closer to like the lower threes. Think 3.5. Jeffrey Allen Rulis: Okay. Great. Thanks. Bradley S. Satenberg: Yep. Take care. Operator: One moment for our next question. Our next question comes from Jared Shaw with Barclays. Your line is open. Jared Shaw: Hey, everybody. Good morning. Peter Ho: Morning. Jared Shaw: On the on the credit side, office, it looked like Central Business District moved from 17 or 217% loans from 24 with was there a a payoff there, or what was driving the, the reduction in in CBD office? Peter Ho: Yeah. We had what I would say as a a relationship, SNC credit, that was in the office space that we had the opportunity to exit, and we chose to exit that facility. It was a reasonable risk, but not core to what we were looking to do in that space. So opportunistic. Jared Shaw: Okay. Alright. Thanks. And then, does the NII impact from swaps on the side, does that assume the notional swaps remain at the $1.4 billion or does that take into account some of that additional I guess, it may take into account the additional growth you talked about. Bradley S. Satenberg: Can you just repeat your question there? Wasn't exactly sure what you're asking. Jared Shaw: Sure. Does the impact to net interest income from the swaps that you list out, does that assume the notional swaps remain at $1.4 billion? Or if not, what are the, what are the changes to that? Bradley S. Satenberg: Yeah. No. We we expect it to remain at 1.4. I mean, obviously, we have our forward starting swaps. So I I think I had mentioned in my script we had $100 million notional swap start in October, and then we've got the remaining 500 'll start in, you know, 2026, kinda mid to late twenty twenty six. But at this point, all of our expectations are 1.4 notional plus some roll off in 2027 of the 1.4, but also rolling on our forward starting swaps. Jared Shaw: Okay. Thank you. Operator: And I'm not showing any further at time. I'd like to turn the call back over to Chang Park for any further remarks. Chang Park: Thank you, everyone, for joining us today and your for your continued interest in Bank of Hawaii. As always, please feel free to reach out to me if you have any additional questions. Operator: Thank you. Well, ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Irakli Gilauri: Good morning and welcome to Q3 earnings call. Thanks, everybody, for joining and finding time. Today, we are going to talk about the 5 different topics. First of all, I'll talk about the key developments and in our -- in Q3. We'll talk about the performance of Q3 and 9 months. Then we will have our portfolio companies, CEOs talking about their respective large portfolio -- large company performance. As you saw, the numbers are staggering. It's really top performance our CEOs are showing, and it will be good to discuss with them outlook as well. Giorgi, our CFO, will talk about the portfolio company valuation and liquidity and dividend outlook. And in the end, I'll do the wrap-up and followed by the Q&A session. So let me start with the highlights. So NAV per share in quarter, it grew nearly 8%, excellent performance, both by Lion Finance Group share price performance. But most importantly, our private large portfolio company showed an excellent operating performance, and they continue to deliver staggering results, 30% -- nearly 30% EBITDA growth in Q3. And it's been a 9 months performance been also 30-plus. So that's kind of one of the [indiscernible] large portfolio companies. [indiscernible] our goal is to be a debt-free at GCAP level. $50 million is really a very small debt for us, but we still want to do debt-free holdco. In terms of the NCC ratio, we improved to 5.4%. That's another kind of a good development. We continue to buy back our shares. 1.4 million shares was bought back in Q3. In total, 15.2 million shares we bought for $221 million looking at the average price, what we have bought, the 15.2 million shares is really a big value creation we created by the buyback. So that's kind of another reason to like or love buybacks. We did -- our healthcare group did the acquisition, bolt-on acquisition, a small one, but we like the pricing and we like the momentum that our management is delivering. They have been delivering excellent performance, operating performance. And I think it's a great platform for us to invest more money to make -- to grow our business even further. And I think that was kind of [indiscernible] what our management has executed. We also entered the MSCI index [indiscernible] index, which played a positive role in the [indiscernible] share price -- of our shares in general, sorry. Let me give you an overlook of the progress of the GEL 700 million capital return program, which we announced in August this year. Nearly half of this program is done, $100 million is the paydown of the debt and out of $50 million, nearly $26 million we already executed in buybacks, and we continue to execute on the remaining $24 million. Now the -- so you see on the next slide, the progress. And you see that after delivering of $50 million buyback, only GEL 300 million will be left to return to the shareholders. So it's kind of -- we are moving in a very lightening progress on this [indiscernible] 1.5 years earlier. It seems like we'll be delivering this capital return program earlier than we anticipated in the beginning. I want to just highlight this, Giorgi, our CFO, put this slide together, and I like this slide because it's kind of reflects on the ownership of GCAP shares. So by holding the 100 GCAP shares -- sorry, ownership of the Bank of Georgia shares through GCAP. So if you hold the 100% GCAP shares, you used to hold 20.4 Bank of Georgia shares. in December 2020 for instance. And that has changed over time. And now it's actually you hold more 21.8 shares, which reflects the -- reflects our buybacks basically. And in reality, we did sell down a little bit Bank of Georgia because of the PFIC's reasons. But at the same time, by buying back GCAP shares, we actually didn't really change much the ownership of the Bank of Georgia's shares through GCAP. So that's kind of reflects that we have -- our shareholders have a good exposure on Bank of Georgia performance. I want to update now on the capital market [indiscernible] has been generating in the local market, and we are more and more relying on the exits or capital raising -- the capital raising on the local market, and we like this fact very much. For instance, GEL 350 million of debt in was raised by our health care group at 3.75% margin. That is kind of the 5-year maturity and the funds [indiscernible] our health care [indiscernible] out what the health care business did. On the other hand, our hospitality business issued very small bond on one of our hotels, which we sold most of the other hotels, but we have one hotel remaining in Gudauri ski resort. And we think it's a good asset, and we think we want to sell it at a good price. So we are not in a rush here, and we decided to raise a $10 million bond. It's a small bond, but it actually reflects well that we can -- even small businesses can access the capital markets locally. So this is an acquisition earlier I talked about the health care business, bolt-on acquisition. We bought -- it's less than 4x EBITDA -- forward-looking EBITDA, this business, and we think that integration and synergies, I mean, I think that the 4x is a safe way to assume that we can achieve the 4x for next year. Now the economy continues to perform extremely well in every sense. One thing which needs to be highlighted is the National Bank reserves, which have been accumulating pretty fast. In the past 3 quarters, GEL 1.5 billion unprecedented interventions and the National Bank [indiscernible] bought the $1.5 billion of reserves. And now it's a record high at $5.4 billion international reserves. So in terms of the GDP growth, we see [indiscernible] higher growth than the IMF does. So let me talk about the NAV development, NAV per share development. So 7.9% increase was mainly driven by Bank of Georgia share price increase and the operating performance of our large portfolio companies. The good thing that we haven't changed anything on the multiple side. So we had a 4.6 percentage point gain on Bank of Georgia and 2.8 percentage point gain on operating performance of all our large companies. So then we had buybacks at 1.2 percentage point positive impact. Emerging and other portfolio companies also contributed positively at nearly 0.5%. Operating performance was minus 0.2% and other was 0.9 percentage points. This mainly reflects the litigation case -- legacy litigation case, what we had in the past, which has been now done and over. In terms of -- on Slide 12, you see NAV growth over the [indiscernible] past 3 years, we have achieved 33%; 5 years, 29% COG and 18% CAGR we have achieved since the GCAP inception. So 18% is needs to be improved for sure, but we are very happy with 3% and 5% NAV COG growth for sure. In terms of the free cash flow, [indiscernible] Slide 13, you see that after the paydown of debt, our pro forma free cash flow increased from $48 million in '24 to $63 million. So -- but the growth is even more attractive per share basis because we were buying back the shares meanwhile. So per share, our free cash flow has increased by 45.6%, [indiscernible] important we are not tiring of talking about the buybacks. And we have bought back 15 million shares plus with $221 million. And now we are at 35.4 million shares, all-time low number of shares. We are really fighting the share count. We like the share count [indiscernible] discount and where we are. Now let [indiscernible] revenue is up -- on Slide 16. Revenue is up 13.5% in Q3. 9 months is 16.2% increase. Q3 EBITDA 29.5% increase and 9 months, 34%. So really, this continues the high growth momentum, and we are happy that our management of portfolio companies are delivering, and I will talk about why they are so good later on. Here, you see the cash flow development, same growth, high growth here. In the 9 months, we have 20.7% free cash flow growth. In Q3, we had 3.7%, which will -- in Q4, we will most likely see a way higher growth in cash flow as we will have more cash coming in pre-Christmas. And you have aggregate cash balances also growing of our portfolio companies stands at GEL 250 million. Now on NCC development, we have as I said, we have 5.4% NCC, which has been decreased nearly 3x over the year. One thing which we need to highlight that our contingency liquidity buffer of $50 million will be decreased due to this litigation case is over. Also, the debt levels in GCAP has decreased and our portfolio companies are a very healthy leverage ratio. So we don't need to have such a huge liquidity buffer of $50 million in Q4 [indiscernible] substantially. NCC ratio development here, you see that's coming down and we were at a record 42.5%, and we are at 5.4% of that. It's a nice development. It's along with our announced strategy of delevering the GCAP. Now let me hand over to the Retail Pharmacy CEO, Tornike, who will talk about the performance of our retail pharmacy business. And then we will have the insurance company CEO, Giorgi [indiscernible], talking about insurance and then Irakli Gilauri, CEO of Healthcare business, who will talk about the developments in health care business. Tornike Nikolaishvili: Hello, everyone. I'm pleased to share a brief business overview and update on the performance of our retail pharmacy business for the third quarter and 9 months of 2025. Let me remind that our business consists of 3 main directions: retail, wholesale business and international operations. Retail business is our core, generating around 75% of our revenue. Wholesale business is our biggest focus for growth. And in international, we are, let's say, in a start-up mode, believing to expand further in the region. We have a unique category structure in retail, having around 50% share of non-medication versus med category. So non-med category can be described by higher margins and no price regulation risks. Based on 2023 figures, we continue to be the largest player in the retail pharmacy market in Georgia with around 36% market share in organized trade. We are operating under 2 well-positioned retail brands, GPC, which targets the high-end segment and Pharmadepot serving the mass market. We also operate 2 franchise brands, the Bodyshop and Alain Afflelou (Optics) and are active in Armenia and in Azerbaijan as well. We expanded our network by 8 new pharmacies added in Q3, including 1 additional in Armenia, most of them in cost-efficient formats that require limited capital. So as of September 2025, we operate 438 pharmacies. So in terms of -- in the next slide, please, in terms of operating performance, our retail revenue grew by 6.1% in 9 months and 7.5% in quarter 3, respectively, supported by same-store growth of 5.3% and 6.6% in 9 months and quarter 3. This was despite the exit from our textile retail business, which slightly affected the headline growth. We are encouraged by this trend as it reflects healthy consumer demand and solid in-store execution. As in Q2, we continued strong growth on the wholesale side. Revenue grew by 33% as we continue to deliver on our strategic focus to grow in wholesale. It was achieved across all wholesale channels, mainly driven by increased product availability. So we also increased the average bill size around -- by around 10% year-over-year and gross profit margins improved to record high 33.4% in quarter 3, driven by a better sales mix and improved supplier terms. So on the next slide, let me share how it's translated in financial performance. So EBITDA grew by 30.6% in 9 months. We reached record high GEL 73.7 million. And in quarter 3 alone, EBITDA grew by 18%. And cash conversion from EBITDA is back on 90% plus threshold for 9 months due to strong quarter 3 performance. From a balance sheet standpoint, we remain cautious and disciplined. Our adjusted net debt to LTM EBITDA continued to improve, reaching 1.3x, which is below our target ceiling of 1.5x. We also distributed GEL 10 million in dividends during the quarter. In addition, we plan to distribute GEL 15 million dividends in quarter 4. Thus, in total, the dividend for the year will be GEL 35 million, reflecting confidence in our cash flow and overall financial health. So on the next and last slide, let me summarize. We have maintained solid revenue momentum, especially with same-store sales growth and strong wholesale results. Profitability has improved, supported by gross profit margin improvement and prudent cost discipline. Leverage remains at a healthy level, giving us flexibility for future investments and shareholder returns. Thank you again for your time. I'm happy to take your questions during Q&A session. Now let me hand over to Giorgi [indiscernible]. Unknown Executive: Thank you, Tornike. Hello, ladies and gentlemen. I will overview the insurance business today. Our insurance business comprises of 2 main business lines that we divide its property and casualty that is run under the brand name of Aldagi and we run another line of business, the main line of business, medical insurance under the meds brand of Imedi L and the medium to upper affluent brand under the name of Ardi. I would like to underline that Q3 was a record high, and I would say the record high during the existence of the insurance business in GCAP, and I will dive you in both business lines separately. So to go to the insurance revenues, our insurance revenue grew by 9% and 9 months over 9 months, the growth was almost 30%. Our pretax profit grew even more by 22% and 9 months over 9 months grew by 23%. Just a quick update on the key operating data. We have a growth of 11% in net premium written, while our P&C business grew by 14%, while the medical grew by 8%. Going forward into the separate slides and separate business lines. There are -- at this point, there are 19 insurance companies operating on the territory of Georgia and ALDAGI, our P&C business line -- business provider is the undisputed leader with 35% of market share with the closest captive company with 23%. So there's quite a big difference between the second player and ALDAGI. We had an amazing growth in insurance revenues of 16% Q-over-Q and almost more than 20% 9 months over 9 months. The main expansion was driven by the retail motor portfolio as retail remains a key strategic focus on our agenda together with the credit life insurance. The good point is that our net profits -- our pretax profit grew even more than the revenues that underlines our healthy portfolios and the disciplined underwriting. The pretax profit grew by 23% and that translates into the record high ROEs of more than 40%. That is a historic high that we never envisaged. Key operating data, net premiums written grew by 14%, as I have already mentioned. And the good point is that the combined ratios were improved by almost 1.1 points, driving it down -- they're dragging it down to 83%. Individual insurance grew by 14%, while the insurance written policies grew by 13%. The renewal rate stays still very high and promising at 75%. The good point to just -- again to underline is the good accomplishment that I would like to underline is the combined ratio that is mainly driven by the improved loss ratios in the corporate motor segment that was announced last year that we will be eliminating loss-making clients and dragging down the combined ratio. So the moves that we put into life are effective, and we are really happy with the management and the actions that they took -- they put into life and our combined ratios are in our target of 85% to them in the medium term. Going to the health insurance, we had also another record high health insurance quarter in terms of the profitability, even though the revenue in Q3 was minor because of elimination of a few big loss-making clients and a few state tenders that we didn't participate in. But going forward, we think that Q4 will be -- will return to double-digit growth. 9 months over 9 months was about 40% growth in health insurance. The actions that we put on in Life was mainly reflects the loss ratio improvement by 1.3%, and we had an 18% record high increase also in single quarter of 18% for the single policy issued. Pretax profit grew at 15%. That translates into record high ROEs of about 38%. Key operating metrics, net premiums written grew by 8%. Combined ratios went down, and that is -- I'm happy that it is because of the eliminating loss-making clients in Q3 and not participating in a few big state tenders, putting down our combined ratio by 1 point. Individual insurers are a bit down because of not participating in the state tenders, while the corporate segment grew by 17%, I mean, direct insurance. The renewal rate still remains very strong at 80%, which is considered very high and very strong in the health insurance. Both brands are doing very well. Ardi has launched our higher affluent brand has launched the new application, the new digital solutions and Imedi L also has launched the new updates for the web that was translated into 73% of the digital bookings putting down -- bringing down the costs and affecting our combined ratio. That is in line with our digitalization of all brands, all 3 brands in total. So going forward and a few words, the medical insurance still also remains the leader on the market. We hold about 32% of the market share that is in line in the appetite of 30% to 35% of targeted market. Going forward, and a few words to remember about Q3. We had an outstanding performance in both P&C and medical insurance, resulting in record high profit and all-time high ROEs of 40% -- more than 40% in P&C and almost 40% in health insurance. We had an exceptional result in motor insurance, especially the corporate motor that underlines again the healthy underwriting and the healthy portfolios in the middle of our operating principle. New brand identity was launched for the -- and transformation was done in both brands of health insurance, Imedi and Ardi and the new digital solutions were also launched in both health insurance lines. We paid almost GEL 2 million in Q3, translating into GEL 15.6 million and more cash to come to GCAP in Q4. The expectations are very good and very promising. We are hoping for even better Q4 and in both P&C and health insurance throughout all 3 insurance companies in revenues and in profits. So that was in short about the health and P&C business, insurance business. And let's wait for the Q4. I do hope that it will be much better. Thank you. And I'll pass the floor to Irakli Gilauri, who will underline our Healthcare business. Irakli Gilauri: Hello, everyone. I will walk you through Healthcare Services business latest results. I'm very pleased to report another strong quarter. We continued our focus on the outpatient direction by attracting new doctors and diversifying our services. We also optimized our revenue mix and improved patient retention. As a result, our outpatient revenue grew by 28% year-over-year in third quarter and share of outpatient revenues grew further by 2.4 percentage points from 40.8% to 43.2%. We launched new services in several hospitals and clinics addressing previously underserved medical needs. This includes the introduction of our arthroscopy sports medicine, gynecology and interventional cardiology in several hospitals. Our initiatives helped us to deliver 20% revenue growth with our EBITDA growing by 46% in Q3 and EBITDA margin surpassing 19% as well. Our last 12 months EBITDA reached GEL 89 million, up from GEL 58 million from September 2024 result, which led to net debt-to-EBITDA decrease from 5x to 3.8x. On the next slide, in our hospitals business, in third quarter 2025, we delivered revenue growth of 19% and EBITDA growth of 44%. Operating cash flows grew by 39% during 9 months of 2025. And we think that Q4 cash conversion will be very decent. Occupancy rates increased by 8.5 percentage points during the same period, while the average length of stay decreased by 0.3 days as a result of our efficiency-focused initiatives. On the next slide, in the polyclinics business, number of admissions increased by 8%, while number of tests performed in our Diagnostics business increased by 15%. This resulted in revenue growth of 26% and EBITDA growth of 55%. In Diagnostics business, we still operate at below 50% capacity and intend to increase our utilization significantly going forward. On the next slide, we signed a binding agreement to acquire Gormed, a regional health care network with 3 clinics and -- in the Central Georgia. The transaction is subject to approval by the competition agency. Gormed covers 3 cities with combined population of circa 300,000 people with 80,000 registered patients. Most notably, we entered Gori, Georgia's fifth largest city. Through this acquisition, we are strengthening our regional network in Southern and Central Georgia, enhancing our patient referrals and optimizing staff utilization across 7 interconnected clinics. In 2 cities, the Gormed was our only competitor pressuring our margins, and the acquisition will enable us to merge the 2 hospitals and extract synergies and increase effectiveness. The acquisition offers 2026 EBITDA multiple of under 4x we expect an improvement of 0.6 percentage points in annualized ROIC on the Healthcare Services business level, demonstrating our continued focus on shareholder value creation. That concludes my part of the presentation, and I will hand over to Giorgi Alpaidze. Giorgi Alpaidze: Thank you, Irakli. Hello, everyone. I will briefly take you through what these excellent results mean for GCAP's balance sheet and our NAV statement. So starting with the overview, we updated the valuations based on the internal valuation mechanisms. This is in line with what our independent third-party valuation company Kroll does every 6 months. So this time, we looked at the DCFs, we looked at how the projections that were set forth at the 6 months period, the results were actually delivered over -- in the third quarter. And overwhelmingly, all our large portfolio companies actually delivered higher EBITDA, higher revenues than what we were projecting at the end of June. This has helped us create value across the board. Briefly in the overall overview, we did have a little bit of sales in the Lion Finance Group shares, but still it continues to be the largest investment that we have on our NAV. It was 47% of our portfolio. Within the private portfolio investments, retail pharmacy was the largest business, followed by health care services and the insurance business. On the next slide, you will see that the multiple development in the third quarter was pretty much in line with the multiples at the end of the second quarter with only small minor increase in insurance, but it was broadly in line. On the next slide, you will see that how these multiples affected the portfolio value development. So overall, the portfolio value increased by GEL 100 million. However, it was a result of many movements. In the Lion Finance Group, you see this decrease, but that was because of the dividends that we received in the quarter, which was actually a combination of the full year dividends of 2024 plus the interim dividends where the ex-dividend date actually fell in September. So we had to record those dividends in the third quarter as well. And also the sales where we sold about 600,000 shares of Lion Finance Group that also resulted in the decrease of the stake. But overall, we recorded gains in the Lion Finance Group. In the private portfolio, the excellent growth meant that the retail pharmacy business contributed about GEL 51 million to our P&L. That includes the value creation within the business, but also the dividends that they paid us. That was followed by Healthcare Services business at GEL 40 million and insurance at GEL 36 million. Now on the next slide, you will see how these value creation is translated into the new portfolio values or the latest portfolio valuations for each business. Within Retail Pharmacy, the EBITDA growth that Tornike spoke about was GEL 42 million P&L impact for GCAP that was driven by EBITDA and additional GEL 4 million from the positive net debt change where the net debt improved, notwithstanding the GEL 10 million dividends that they paid us. So that's how we get to overall about GEL 50 million profit within our third quarter NAV statement from retail pharmacy. In insurance, we also had a 5.1% growth because of the growth in the net income, which you saw on the previous slides across the board in P&C insurance and the medical insurance that was also supported by the net debt change. And overall, this value was created by the net income growth and the strong cash flow performance. In the Healthcare Services business, EBITDA growth delivered GEL 60 million. That was partially offset by the cash conversion as the operating cash conversion in the third quarter was relatively low that we expect to recover, as Irakli mentioned earlier, in the fourth quarter. So we would expect this net debt change to be reversed as we go into the fourth quarter. But overall, the Healthcare business did deliver about GEL 40 million value creation for us. Now this concludes the valuations and briefly into the liquidity. Our liquidity continues to be very strong even as the gross debt balance that we have carried, as you can see on the top of this chart, has been reducing over time. Despite that, our liquidity has increased. We finished the quarter with $77 million worth of liquidity, which for the first time since GCAP's demerger from Bank of Georgia Group, we actually had a positive net cash balance given that our gross debt is only $20 million, we were actually negative net debt or net cash of $27 million. And then now on the next slide, we are now projecting the increase in our dividend inflows from previous GEL 180 million. We now expect GEL 200 million, around circa GEL 200 million. We have so far collected, as you see on the slide, GEL 168 million, but as it was mentioned earlier by the private portfolio companies, we expect to get more dividends from the pharmacy business as well as from the insurance business. And on top, our other portfolio companies, renewable energy and the auto services will be also paying us more dividends, which we think in the fourth quarter will bring the full year to GEL 200 million dividends. What's important here, I would highlight that on a per share basis, given the number of shares that we bought back this year, which is more than 10% so far, this means that we will be having about 31% growth on a per share basis in terms of the dividend inflows per share. That concludes my presentation and over to Irakli for the wrap-up of this excellent set of results. Irakli Gilauri: Thank you, Giorgi. So I will not repeat all the points what we have here. But basically, I think the short summary is that we have excellent performance and team is delivering. Q4 outlook is also looks positive. Economies continues to grow. Our companies continue to deliver. So let's move on the Q&A session. Operator: [Operator Instructions] So as I see, we have first question from Dmitry. Dmitry? Dmitry Vlasov: Congratulations on a really good set of results. I have 4 questions, please. The first one is on the ongoing capital allocation. You did great progress for your GEL 700 million. You paid down a good amount of debt. And now my question is about the priority between buybacks and debt maybe for the next 10 months. What should we expect? What would be the priority for you? Would it be buyback or debt? That's the first. Irakli Gilauri: Thanks, Dmitry. I think that even the fact that the leverage is really low level [indiscernible] our priority is buyback, especially at the current NAV discount level. So that's clearly a buyback at this discount level for sure. Dmitry Vlasov: Got it. And the second question is about Lion Finance Group. I understand that's your key holding and pays you very good dividends. But maybe in the near future, do you plan to trim the stake a little more or you are currently happy at the current position? Irakli Gilauri: We are happy with the current position. The only thing I don't know whether you follow this PFIC development that we had, and we had to trim a little bit off. So basically, that's kind of where we are, but we are happy with LFG holding. It continues to perform well. It's a very well-run bank. We have a very good geography and the economy. So... Dmitry Vlasov: That's clear. Then the next one is on the Healthcare segment regarding the deal, which you've done. Obviously, the multiple is very good. My question is on the EBITDA impact for the 2026. I mean it's a small one, but just to double check whether you expect any near-term pressure on the EBITDA margin maybe in the first quarter or the second quarter of 2026 or you don't expect any of that? Irakli Gilauri: On Healthcare, we don't expect EBITDA margin pressure at all. We are actually expanding EBITDA margin, as you see, and we will continue to expand because we are adding more profitable services. We are making more efficient operations. I mean this is kind of a small acquisition, but it gives you a flavor at what prices we have the appetite to invest, allocate the capital. And basically, I think that will a little bit of helps to grow the business and grow the profitability, generate more cash, and that's what we are for here. Dmitry Vlasov: Understood. That's very clear. And the last one is on Armenia in pharmacy business. If you could give me an update about the current market share and how it developed over the last 12 months. It's quite an attractive market. Irakli Gilauri: I think it's better we have Tornike talking about that, our CEO of Pharmacy business. Tornike? Tornike Nikolaishvili: So thank you for the question. So in Armenia, unfortunately, we don't count the market share because as we do in Georgia, it's transparent how the big companies are reporting their data, but it's not the case for Armenian market. So we don't have -- and the market also is very fragmented in Armenia. The key accounts as they are holding in Georgia around 90% of total market. It's very much fragmented in Armenia. Operator: Now I will read out the question that we have in the question-and-answer panel. So the question comes from Eduardo Lopez. Congrats all Georgia Capital team. Here are some questions. On retail, can you give us more color in relation to strong wholesale growth and evolution of international expansion? And the second question is about the insurance. Could you give us an insight in the breakdown of growth volume and price, especially in P&C insurance? Could you also comment the evolution of reinsurance business and potential unit economics? Irakli Gilauri: I think let's have Tornike and Giorgi answering these questions right. Tornike Nikolaishvili: Thank you. So for wholesale, let me mention that the biggest impact for our wholesale business, such a big growth is the portfolio enhancement, in fact, which means that we have -- partially, we have additional new contracts for exclusive brands and products, which we are selling in wholesale in all channels. And the second part is that we opened for our existing portfolio, which we are selling before, let's say, exclusively in our retail. But now we opened that for big pharma key accounts and also pharma traditional trade as well. So that gave us a results there. Unknown Executive: So I will answer the first question about the pricing. So the first question is about the pricing and mainly our actuaries and underwriters are looking at the portfolio analysis. So mainly last year and in Q3, we had a growth in corporate motor. So we adjusted the prices according to the loss ratios that we look at and we usually monitor the portfolios. So we are always pricing our products at market price and even more so a bit more than the market price because of the brand and because of our high NPS. So whenever there is a yellow flag from our actuaries, of course, we reprice the price, mainly it's in P&C, where we use the actuarial opinion in each line. As far as for the health insurance, of course, it's really in collaboration with the health care providers, health service providers. So -- and they are also adjusted annually or maybe even twice per annum because of the growing demand and utilization. So we see -- in health insurance, we see quite a big utilization because of the AI developed quite well. And this year, we had 2 adjustments because our patients usually ask ChatGPT -- ask AI tools and then they come directly to the doctors and ask for the prescription. So we need -- so utilization is growing, meaning that we need to adjust the prices. So we always have our hands on the pulls to keep the combined ratios at a healthy level. So we put the healthy portfolios in the middle of our working principles. So that's the first part. In terms of the international inward reinsurance, the development is really, really good. As you know, in Q2, our P&C business has been upgraded to the investment rating, and we became the first company in Georgia with the investment grading. Our announced strategy was there is that we will keep up to 10% of the total revenues at this point in the medium term for the inward reinsurance. And the good news is that we had a meeting with our reinsurance rate and they increased our inward reinsurance limit from USD 5 million to USD 15 million, and that's the recent development. So because of the prudent underwriting and the good healthy portfolios also in the inward reinsurance. So what we should expect is that we should expect the growth in inward reinsurance, but we'll take it really cautiously. We are learning the market. We are learning the region, but we really love this business to be presented in the region without any equity and using our treaties -- reinsurance treaties. So the first one is, yes, we will be developing. We will be increasing our portfolios, but cautiously, up to 10% of our total revenues. And the good development is that -- recent development is that our main partner, Hannover Re granted us increased -- tripled our inward reinsurance limit from USD 5 million to USD 15 million that's the recent development. So that is the answer. Operator: So the next question comes from Ben. Ben, you can talk now. Benjamin Maher: Can you hear me? Irakli Gilauri: Yes, yes. Benjamin Maher: I've got a few. The first one is on the capital return program. You -- this is obviously meant to run to the end of 2027, but you're tracking well ahead of that at the moment. So would you expect to announce another program next year possibly? That's my first question. The second question is just on acquisitions. So the acquisition of health care business, that seems to be positive and done at a good price. Should we expect bolt-on acquisitions and buybacks rather than larger M&A until the discount to NAV narrows? And then kind of related to that, what discount to NAV would buybacks no longer make sense for you guys? Just on the existing investments you have, do you expect to monetize any of these in the near term? Or is that more of an end 2026, 2027 event? And then my final question is just on the dividend guidance. So I saw that you upgraded it for this year, but I was just wondering to give us -- if you're able to give us any color for the dividend you expect in 2026 and beyond. Irakli Gilauri: So let me start with the capital return program. Yes, we did say end of 2027. It seems like we are moving faster, and we may do in '26 announce a new one once we finish. But I don't want to make a new deadline. So far, we are working with 2027. And last program, you know that we did 1.5 years earlier, we finished 1.5 years earlier than originally anticipated. So let's see how we go about here. As you saw on the slide, we had a GEL 300 million -- only GEL 300 million will be left after we are done with $50 million buyback program. Now in terms of the healthcare acquisition and the expectations about the investments, basically, we always said that we are running very simple capital allocation strategy. If we can find somebody with cheaper than GCAP, we'll buy it. So before, when we were running at 50%, 60% NAV discount, it was impossible to find anything. So now we did -- and we were only doing the buybacks. Now that it decreased the NAV discount is at 32%, we could have -- we found some things, not a lot, but some things we did find. So we don't expect to find many at 32% discount to NAV. So we may find from time to time some acquisition opportunities, which we will pursue. And it will be a very simple, can we buy this company cheaper than we can buy the [indiscernible]? It's a very simple question we need to answer every time we make an investment. So we found in health care and we bought it. And we don't expect to find a lot at the 32% plus discount to the fair price. [indiscernible] at this discount level. Once we will be trading at a premium, then we probably will be investing more. So that's kind of a very simple approach. Regarding the monetizations, monetizations are not planned or et cetera. They are, in a way, it's periodic. And we see -- if we see the opportunity to sell, we do that. And we -- of course, we look at the GCAP discount levels. More discount closes down on GCAP share price, more difficult will be to sell and so it's easier to sell at a higher discount than a lower discount. So it's basically very simple straightforward capital allocation program we run. It is scientific, but there is some art involved in this as well. As it's not -- mathematically, you cannot really measure everything what is the investment in health care in the region versus the investing in GCAP, it's not dissimilar. So it has to be -- the GCAP investment is way better than the investing in the regions in health care. So basically, there is a lot of science, but we also use art there. In terms of the dividend outlook, so far, we did announce the 2026, what we are expecting, and we will announce '27 outlook towards the end of the Giorgi, our CFO correct me if I'm wrong, when we will be announcing the dividend outlook for '27. Giorgi Alpaidze: So for '26, so we announced '25. So we will be announcing for '26 as we publish our fourth quarter numbers. But at the moment, we do expect that number to grow compared to 2025, Ben. Benjamin Maher: Okay. Can I just ask one more quick question if we have time. Just again related to acquisitions. Given all the hard work you've been doing through buybacks to reduce the share count back down to before the merger level, I assume that going forward, you wouldn't expect to issue further shares to fund an acquisition? Or is that something that you still would look at potentially to try and finance another acquisition? Irakli Gilauri: The buyback is not a hard work, to be honest, it's very simple work. We just don't work much. Actually, we just buy back. Buying something is hard work. You need to do due diligence, negotiation, et cetera. So we would rather do little and do the buybacks, to be honest. Sorry, I did not fully catch the question. Benjamin Maher: No, that's fair enough. I'm just wondering if going forward, would you -- should we expect the share count to increase ever again? Or are you quite keen to keep it... Irakli Gilauri: No, no. We don't like share count to increase. We like share count decreasing. No, I mean, our goal is to become a permanent capital vehicle, which is basically don't issue new capital and reinvest. So if we want to invest something somewhere, we need to sell something. And if we need to -- we can do the bridge, we can attract some bridge loans if we want to invest somewhere. But -- and then have a very clear path of repaying this loan. And so we have a very firm commitment of not increasing the number of shares. Contrary, we want to decrease. So we like the share count decreasing. We have our internal targets, how far down we want to go. It's actually 1 share. But so far, we are a long way to go -- we have a long way to go. Operator: So next question comes from [indiscernible]. Unknown Analyst: Can you hear me? Irakli Gilauri: Yes. Unknown Analyst: Yes. I wrote my questions on chat as well, so I will just read them out. With regard to the Imedi litigation, given that it was stated that there was low perceived risk in the annual report of '24, I just wanted to ask, firstly, if you have an updated view on the other [ BGA ] litigation and what was mentioned in the pharma. And if you think more provisions might be needed there, if you have anything relevant to share? Irakli Gilauri: No. At this stage, basically, we don't anticipate anything -- any provisions. We did have on NCC, the liquidity buffer on Imedi L, and we did have some provision to that Imedi L basically. But that unfortunately, it worked out that way. But at this stage, we don't see any need to provision anything else. Unknown Analyst: Okay. And secondly, I mentioned the returns that you're putting up in the insurance segment is truly phenomenal. I just want to see if you think this is sustainable and how you strategize if so, to keep those returns? How is the market -- the Georgian insurance market looking overall? Is that above market level returns you're earning? Is it not? And yes, just some commentary around how the returns on equity can be so exceptional in your insurance business. Irakli Gilauri: Giorgi, maybe you want... Unknown Executive: Yes. I'll take the question. Yes. Thanks for the question. So to start with the first part, we've been producing the exceptional return on equity for the last 10 years. So we are outperforming the market twice for the last 10 years. So -- and it's not for 1 or last 2 years. For last 10 years, Aldagi has -- our P&C business has produced twice high ROEs than the market, meaning that our main principle and the approach is that we put in the middle, the disciplined underwriting. So we don't jump from one side to another. We follow our strategy that is a disciplined underwriting, meaning that we are very sure and the management is sure that the high ROEs and the profitability and the returns we provide is very sustainable because of the healthy loss ratios that we keep. And our strategy is to keep the loss ratios in the range of 85 -- from 85% to 87% in the medium term for the next 5 years. And we've been doing this for the last 10 years, meaning that even there -- the market is very fragmented. There are 3 main players, but the idea is that we don't dampen the prices. We follow our brand and we follow our underwriting. So meaning that we are not going -- the returns will be sustained for the last -- I mean, for coming years that we are really, really sure. The competition is quite high, but the main players, I mean, are 3. The rest are small. And yes, that's it mainly that allows us to keep the high returns with the exceptional. And we are the only company in Georgia, mainly keeping the big division of the actuaries. So we do not make any decision without the actuarial opinion, and they have the right to raise yellow and red flags and every decision made by the company is made by the recommendation of the actuaries. And we will keep and we will stick to the disciplined underwriting in the coming years. Unknown Analyst: Okay. That's great. I mean the combination of growth and underwriting margin in your insurance business is truly spectacular. So congratulations. What's -- a quick follow-up maybe on that. What's the name of the 3 competitors or the 3 main players? Unknown Executive: Yes, the main group, there are 3 main competitors as us. One -- is one us. The second is the Vienna Insurance Group. We only have one international player at this point present with the Vienna Insurance Group by 2 companies. And the third one is a Captive Insurance company which is owned by one of the banks. 100% -- mainly dependent -- mainly which is dependent on the bank portfolios. Unknown Analyst: All right. And if I may, just a last final one. With regards to the whole PFIC situation, has there been any discussion around alternative solutions here? It just seems to me that Bank of Georgia can be very strongly argued to be your cheapest asset and your cheapest investment based on contribution to NAV. And then it seems this will be preventing monetization in other mature businesses, for example, health care, given that a big return of cash would prevent you to do buybacks or return that to shareholders, and you would again cross the PFIC limit by quite a lot. Just keen to hear if you have any comments and thoughts on this dynamic and if you explored other solutions. Irakli Gilauri: So basically, we are -- to be honest, this -- the Bank of Georgia thing we had to fix it quickly because it nearly doubled from year-end. So basically, it has happened in such a short period of time. We didn't have anything else to fix that problem other than they trim the Bank of Georgia. So in 6 months when the share price nearly doubles, it's very difficult to come up with alternatives. I'd love to come up with alternatives. But at that point of time, we didn't have any alternative. Unknown Analyst: Do you have any other alternatives going forward if -- given Bank of Georgia is still relatively lowly rated, if this would continue? Irakli Gilauri: Basically, we are exploring [indiscernible]. I don't know, U.S.A. that overnight or in a couple of months, 3 months, it's not happening like that. You need time to monetize business in Georgia. Giorgi Alpaidze: So [indiscernible], for example, as we grow our private portfolio as the assets on the private portfolio side grow, that is helping to keep the passive share of assets down when it comes to Bank of Georgia. For example, this acquisition, which is not yet complete, but the bolt-on in the health care business, it adds the asset base. It adds the land, it adds the building value, et cetera. That's positive for PFIC, for example. Unknown Analyst: Yes, of course, of course. I'm just saying it seems like you're so far been selling your cheapest assets based on rating. Giorgi Alpaidze: But at the same time, we've been buying back. That's why we had that one slide, which shows you that even when we are selling, when you look at it on a look-through basis, you still own same amount of -- or more amount of Bank of Georgia shares than what you own 3 years ago or 4 years ago, for example. Unknown Analyst: No, of course. Yes, very clear. Operator: Thank you, [indiscernible], for the interesting questions. We also have one question in our Q&A panel. The question comes from Barry Cohen. And the question is, what does the management think team think is the spread between the discount to NAV tightens enough where use of capital shifts to portfolio investments versus share repurchases? Irakli Gilauri: I think we answered that question basically, it is as NAV discount gets lower, smaller, more investment opportunities come and will come to us. So that's kind of -- will be available for us to make an investment. So it's a process. Operator: Perfect. And the last question that we have is from [indiscernible]. It seems like you took the slides out of the presentation regarding focusing on capital-light businesses versus capital intensive. And you also made a capital-intensive acquisition, albeit a cheap one. Is that is a sign of a change in strategy? Irakli Gilauri: No, no, I don't know whether we took a slide off. It's a very good observation, but this slide should be -- should go back in there. I think that this acquisition was mostly opportunistic and it improves the exitability of the health care business. So basically, I mean, we don't -- we cannot say that we cannot invest -- if we invest that we improve the exit opportunity, why not? So no, we did not -- we are not changing our strategy. We are very much committed to the capital-light. And this acquisition was pretty much the, first of all, very small ticket size. Second, it was a bolt-on to our current business. And thirdly, it is improving the exit opportunity for our capital-heavy business basically. Giorgi Alpaidze: And if I were to add just 2 things, and we didn't take out any slides, Bret, maybe it's in a different presentation. But one thing that's great about this bolt-on is it comes with no leverage. They have no debt, and we're buying this at less than 4x. You can imagine we can leverage this at 3x, and we only put down 1x as an equity. So as directly said, it was a very attractive structure in that sense. I don't know, over to you. Any more questions? Operator: Yes. Thank you. Thanks, Giorgi. No, there are no pending questions currently. If some of you want to -- or have any questions, please do not hesitate to write it in a Q&A panel or raise your hands. Irakli Gilauri: It seems like there are no further questions. Thanks for your time, and stay tuned for Q4 as we continue to deliver on the results -- great results. Thank you.
Operator: Good morning, ladies and gentlemen. Welcome to Galp's Third Quarter 2025 Results Presentation. I will now pass the floor to Joao Goncalves Pereira, Head of Investor Relations. Joao Pereira: Good morning, everyone, and welcome to Galp's Third Quarter of 2025 Q&A session. In the room with me, I have both our co-CEOs, Maria Joao Carioca and Joao Marques da Silva as well as the full executive team. But before passing the mic for some quick opening remarks, let me start by our usual disclaimer. During today's session, we'll be making forward-looking statements that are based on our current estimates. Actual results could differ due to factors outlined in our cautionary statements within the published materials. With this, Joao, would you like to say a few words? Joao Diogo da Silva: Thank you, Joao, and good morning, everyone. We have a couple of Joaos around here. Well, the third quarter was a strong one for Galp. Solid operating performance according businesses testifies our strong operating momentum. In Brazil, upstream production continued elevated with 115,000 barrels per day, driven by high availabilities of the fleet during the quarter. This gives us confidence on ending the year close to the upper end of our 150,000 to 110,000 guidance. On top of that, Bacalhau reached first oil just a few weeks ago, a very important milestone, a key project for Galp, which will drive our free cash flow growth in the coming years. Well, but meanwhile, in Iberia, we've captured strong seasonal trends in downstream businesses, particularly in refining and in commercial, where we posted a record high quarter EBITDA. As EVP of Commercial as well, congratulations to the team with results above pre-COVID levels. Although macro environment continues volatile and challenging, Galp operates a highly resilient portfolio with a 2026 dividend breakeven just below $40. Resilience and short-term growth underpins our distinctive investment case. Maria Joao, a few comments. Maria Joao Carioca: Thank you, Joao. Indeed, quite a few rounds around here, but strong operating performance across businesses translating into robust cash delivery. I believe that's the highlight for this quarter. Just looking at the 9 months operating cash flow, we are flattish against 2024, whereas Brent is down more than $10. So this is illustrative of the resilience that we just discussed. And on that same note of execution towards resilience, this quarter, we further reduced net debt and reinforced our financial position. Net debt is now at 0.4x. This is a reassuring level when facing the current volatility in commodity prices, it's also a solid ground on which to develop our value-accretive opportunities in the portfolio. Looking at the full year and even though we're not upgrading guidance today, we're confident that we will exceed our group EBITDA and OCF guidance based on the strong performance across the asset base so far. We acknowledge that Namibia remains the most relevant aspect in Galp's equity story. So looking into the ongoing bilateral discussions, these are showing good progress, and we maintain confidence in our time line and in establishing a strong partnership that will allow us to accelerate and to prioritize Mopane. Operator, we may now take questions. Thank you. Operator: [Operator Instructions] We will now go to our first question today and the question comes from the line of Alejandro Vigil Garcia from Santander. Alejandro Vigil: Congratulations for the strong results. The first question is if you can -- of course, very difficult. If you can give us some color about the -- what are you thinking about the Mopane farm down in terms of the structure, in terms of the -- in general, how you are seeing this -- the momentum of this transaction? And the second question, also probably difficult at this point is in terms of next year. If you can give us some color about how is projections about production next year Bacalhau start-up. You can give us some color initial, even qualitative about the next year guidance. Maria Joao Carioca: So let me start with Mopane. As you know, we've been commenting on the fact that we are very, very focused on achieving a partnership that will help us drive the asset forward. So at this time, we're still not diving into details. I believe it's still critical for us to make sure that our priorities are clear. And I think the conversations we've had so far and the bidders we've engaged with speak to those priorities. We were very keen on making sure that we had an experienced operator with us to make sure that the asset moves forward at the pace and with the priority that we see conducive to good value creation for Galp. We've been reporting and we're very glad to continue to engage in conversations with bidders, and those bidders are all very experienced operators with very relevant track records. So this is where we are. I think with those bidders sitting down to talk to us, what we're doing is making sure that we get very clear alignment on progressing Mopane. And that has been conversations, that has been the tone of the conversation and progressing well. So we're very confident on making this partnership a success by year-end. And I think that is clearly the focus and the color available at this time. On next year, so Bacalhau is very, very early days, but it's a good start. We've been, of course, testing and making sure that the early numbers and the early performance of the assets are consistent with what we were expecting so far, good news. So excluding Bacalhau, we were expecting production to be fundamentally flattish. So this is on top of what are, we believe, best practice declining rates in our assets in Brazil. So we continue to have an expectation of under 5% decline rates, particularly in Tupi and Iracema. We're working towards not only sustaining, but actually making sure that we perform above those thresholds. So there is an infill campaign under execution to continue to drive the performance of those assets. So that leads us in the end to this flattish performance that I mentioned. And on top of that, you will have Bacalhau. Bacalhau will, of course, be ramping up. So we don't expect it to get to full plateau until 2027. Operator: Your next question today comes from the line of Biraj Borkhataria from RBC. Biraj Borkhataria: The first one is just on CapEx for next year. There's obviously one big uncertain piece, which is Namibia and any carry you might get. But are you able to give some color on what you expect to spend in 2026 CapEx if we were to exclude Namibia? And then the second question is just on the financial framework. You have now EUR 1.2 billion of debt and obviously, Bacalhau is ramping up as well. In the past, you showed a chart highlighting that you had roughly EUR 1.2 billion of capital employed in your low carbon segment. I was wondering if that's still the case. And the reason I ask is I'm trying to understand if there's a sort of structural level of net debt for that part of the business because it would be helpful to think -- as we think about sort of excess payouts and uses of free cash flow. Maria Joao Carioca: Thank you, Biraj. Very comprehensive set of questions. So on CapEx and adding a bit more color to what I mentioned before, we're not revising our net CapEx guidance. So still at a little bit under EUR 0.8 billion per annum on the '25 to '26 period. So that is still the overall guidance. Now this year, we had, of course, approximately EUR 800 million from the announced divestments. So this leaves us with gross CapEx of about EUR 2.4 billion accumulated in the period. Now for 2026, we do expect numbers to be slightly lighter than in '25, but it's still a challenging year. So Bacalhau is still going to be ramping up. We are going to be keeping pace towards conclusion of our transition investments in Sines. And we have what is our normal run rate, so to say, of approximately EUR 400 million per year of CapEx. So if you dive a little bit into what that entails other than the upstream run rate CapEx, you also get maintained investments in renewables. We're still foreseeing approximately EUR 150 million to EUR 200 million in our renewables portfolio. And commercial has an ongoing transformation and digitalization program, and that is approximately another, I'd say, EUR 100 million per year. So all in all, we're maintaining, of course, a very disciplined approach. We continue to aim for a capital-light structure, but still guiding up to approximately EUR 0.8 billion per year because we are still in the critical stage of a number of these investments we have in the portfolio. On the financial framework and following up from our CapEx approach, so in terms of capital employed, you mentioned the numbers for our transition and for our low carbon investments. I believe we now hold approximately EUR 1.5 billion to EUR 1.6 billion in our capital employed that pertain to that type of assets and that type of approach. On debt, fundamentally, what we have is debt being managed at the corporate level. So in terms of what we see as our structural level, this reflects to a large extent, the free cash flow generation we have in our businesses and of course, the fact that we continue to drive our CapEx towards -- a significant portion of it being towards transition. Approximately, I'd say it's about 65% of our CapEx is still transformation. So there, of course, the numbers that we were guiding for in terms of CapEx and hence, net debt. Operator: Your next question comes from the line of Matt Smith from Bank of America. Matthew Smith: I wanted to ask -- try a couple of questions on Namibia, if I could. And the first would be, I mean, you're clearly focused on seeing the asset developed as soon as possible. So I just wanted to double check the details on that, whether that meant taking FID on the Northwest region as soon as possible, given that region is fully appraised? Or would you be open to seeing the Southeast region appraised as the next step? Or is there a red line on that topic? Or are you open to discussions with a potential new operator? So that would be the first part. And then the second part, perhaps more high level, you're clearly looking to solve for alignment on the acceleration of these assets. I mean I just wondered whether you're able to share any high-level thoughts as to how you think that can be achieved as part of the deal structure. And perhaps like a bolt-on to that, maybe it's related, maybe it's not, but a question that we're hearing more and more, would you be open to any form of asset swap as part of the transaction, if you're able to comment on that? Maria Joao Carioca: Thank you, Matt. So on Namibia, indeed, the focus is very much making sure that we align with our partners. So we do have our own technical teams looking at the assets and incorporating all the information that we absorbed. So again, it feels like it was a very long time ago, but we went through a very fast stage of drilling and finding new information. It was critical to derisk the asset, and we are now using that information, processing it ourselves and also sharing it with our prospective buyers and developing a perspective on the asset based on that. So we're very open and the teams have indeed been progressing as we acquire more knowledge and as we -- part of the conversations with our partners has also been conducive to that shared understanding, open to perspectives on the asset, not closed on which of the Northwest versus Southeast clusters needs to be the core driver for an initial development, very open to a perspective that is just the one that drives the best space for the asset overall. As for the deal structure, again, very, very early to close on what could be a deal structure. We are, of course, trying to make sure that debt structure sets the right alignment and the right perspective in moving forward with the deal. So here, I guess, fundamentally, what we're trying to make sure is that when we are considering eventual asset swaps, those are open in the discussion as long as they allow us for clear visibility on the type of return we're getting out of the Mopane assets and as long as that those also don't hinder our visibility on how to progress further with Mopane. Operator: Your next question comes from the line of Pedro Alves from CaixaBank. Pedro Alves: The first one on the 2025 outlook. Perhaps if you can share a bit more details on what drives the upside to your latest official guidance. I think we have here different moving parts in upstream production, clearly with very good availability of the fleet. But in Q4, probably you will resume some stoppages. And then in Industrial and Midstream, which probably carries the bulk of the upside to your targets, certainly above the EUR 800 million of EBIT last guided. But it's also true that you will carry heavy maintenance in refining now in this Q4. So at the consolidated level, I think it was widely expected that you would exceed guidance. I guess the question is, are you comfortable with the consensus now at around EUR 3 billion for the full year? And the second question on the recent Orange Basin discoveries in Namibia and some of your neighbors. Have you noticed that this is driving any change in the market appetite or dynamics in the talks as you engage with your potential partners for Mopane. I mean these new finds obviously raise visibility on the basin, but does waiting longer for Galp risks giving prospective buyers other alternatives to elsewhere in the basin? Joao Diogo da Silva: So I'll start with the 2025 guidance. And in fact, we are on the back of a very strong quarter, but we will not be tweaking every quarter the guidance. We are very comfortable with the previous guidance. On that revised guidance, we revised also, well, the trading conditions, we've included the Venture Global volumes. That was the major point. And as you say, we will have a last quarter with a turnaround in Sines. That's what will hit us on the fourth quarter. We still have some support on the margin side, on the refining margin side, well, supported by demand that we could call stronger than expected, but also with the supply underperformance on the new capacity, which is not coming into play as it was expected. We are also -- well, entering into the heating season and some refiners as ours will go into maintenance that will also make some support. And overall, on the downstream, we have a very strong position in Iberia. We delivered very strong results in the third quarter, but we are entering the low season. So we expect to be prudent, maintaining the previous guidance. Midstream will be, for sure, supportive, and that's all for now. Maria Joao Carioca: Thank you. So maybe I'll pick up on the second question from Pedro on our perspective concerning Namibia and recent developments, if I recall correct your question. So Pedro, we normally abstain from commenting on what we see in the market coming out as news from other players. But generally, yes, I acknowledge the perspective you put forth as we hear news from other players and from drilling ongoing, -- and as we see what's coming out of the different players there, I mean, recently, we've heard news from Rhino. We've heard news from BW. What we still see is a basin that is very young in terms of its prospective development, but one where there's a convergence of developments that give it room for growth, and we see the concentration of interest there as very conducive to that growth actually taking place. We also see alignment in its core stakeholders. Relationships with local authorities with the government continue. There's continued interest. There's a good vision of what is the importance of having full support to the development of the asset. So all in all, what we're seeing is still a very young basin, but one where prospects continue to be conducive to investment taking place, and we continue to like the risk of the assets. So we will be farming down a bit, but still holding on to a relevant perspective -- a relevant percentage. So I think that speaks the loudest on the overview we continue to have of the basin and of Mopane in particular. Operator: Your next question comes from the line of Alessandro Pozzi from Mediobanca. Alessandro Pozzi: 2 for me. The first one on commercial, strong results in Q3. And just wondering if you can maybe give us your view on whether the results that we've seen in this quarter is just a function of a much stronger seasonality than usual or whether there is a structural change that would support a further improvement into 2026? And the second question is more on financials. Working capital, I think it was a positive movement during the quarter, but still negative for the 9 months. Maybe if you can give us any guidance on Q4. Joao Diogo da Silva: Thank you, Alessandro. It's indeed a very strong quarter. On commercial, we need to assume, well, we have some tailwinds. It's always the stronger quarter of the year. So when you perform well on the stronger quarter of the year, it's an important one. I would, well, divide in 2 main aspects of the business referring to your transformation claim. So we have, of course, better news from the Spanish side after -- well, a number of volumes were removed from the market related with players that were not playing in a level brownfield. So that's one. So very supportive volumes with around 20% year-on-year growth on the fuel side. But on the second hand, we have a fully revamped nonfuel business. nonfuel as per today is contributing nearly 30% nonfuel and new business, nearly at 30% of the full delivered value on this business. So that's something that we need to sustain. Today, more than half of our tickets are nonfuel, less than half are tobacco, which was clearly a very strong anchor on the path. So if you ask me on the 2026 view, we will be clearly aiming to surpass the $300 million. That's what we will deliver this year. But of course, with the growing electric mobility network that is already on the breakeven, we've crossed the 9,000 charges mark this year, and that's also very important because as of today, we are offering a complete diverse offer to the customer when he enters into our commercial retail network, and that's one, but also supported as an integrated play. So the play with industrial, the play with midstream, it's an integrated play. And we are taking advantage of that also. So strong results and surely for the next year, above the EUR 300 million. Maria Joao Carioca: On working capital, so maybe to put in perspective, the 9 months of this year reflect the fact that actually we ended 2024 with a particularly low level of working capital. There were very few cargoes in transit. So overall, we had a working capital level that we knew was going to be adjusted throughout 2025. And a couple of events up to the beginning of that early 2025 that impacted, the bad weather and the blackout in the Iberian Peninsula had an impact in our accounts. But fundamentally, we're returning to regular levels, not much to highlight there in terms of working capital all within expectations. Operator: Your next question comes from the line of Alastair Syme from Citi. Alastair Syme: In your negotiations on Namibia, are you finding broad agreement on the asset resources? I ask simply because it's quite a long time since you've updated the market on the resources. You've talked about EUR 10 billion plus in place, significant volumes of light oil. I mean are these statements that you think the prospective buyers agree with? I ask because I think this is why the sales process broke down last year. So just to get a sense of where that's at. And then secondly, very quickly, can you talk to upstream tax rates? You were low in 2Q, you're low again this quarter. What's going on? And what do you think the rate is that we should be using in our models going forward? Maria Joao Carioca: Thanks, Alastair. So let me pick up on the Namibia. So no issues in terms of agreement as to what our asset resources in place in Mopane is. It's a topic for technical discussion, of course. But actually, as we share information and as we have the technical teams engaged, I believe there is significant alignment and the vision we have on where the most interesting areas of the assets lie and what those represent in terms of potential overall asset resources have not been an issue of stress or an issue of disagreement at all. Quite on the contrary, very supportive and aligned discussions. So on upstream, the second part of your question, what do you see in tax rates? Actually, I believe you see it on the overall tax rate for the integrated portfolio, it does reflect the fact that in this quarter, in particular, the weight -- the relative weight of upstream in our overall portfolio was lower. So as upstream usually has a higher tax incidence when you have very good performances across other businesses, so industrial delivering, midstream delivering, commercial, as we mentioned already, with record high levels, that brings our overall tax rate down, and I believe that was what you were referring to. Operator: Your next question comes from the line of Joshua Stone from UBS. Joshua Eliot Stone: 2 questions, please. One on Venture Global. Just if you can give any indication of when you expect a decision on the arbitration there and any expectation around what to expect, noting that we've seen different outcomes for different plaintiffs so far? And then second, on Namibia, thank you for the additional insight. I just wonder, are you able to say how many partners you're still in talks with after your short list? I'm just trying to gauge competitive tension and how that's changed during the process, which seems quite important for you. Joao Diogo da Silva: On Venture Global, we are not expecting any outcome before next year, and that's it. Maria Joao Carioca: On Namibia then, we're not commenting on how many partners. It's plural. I think the critical thing to us all very experienced operators, as I mentioned before, competitive tension has been in play, productive conversations. So I think the conditions for a good progress have been met, and we've been engaging with partners, different paces, but still good conversations and good progress so far. Thank you. Operator: Your next question comes from the line of Irene Himona from Bernstein. Irene Himona: My first question is on refining in the fourth quarter. Your maintenance will last about 6 weeks. We can work out the utilization. But can you give us a sense of where your unit margins in refining may move to in relation to the $3.2 in Q3? Are we looking at something around $5, for example? And then my second question on the upstream in Q3, you alluded to the fact that your sales were higher than your production. Can you perhaps quantify that? So what were your sales in the quarter? And what was the EBITDA benefit of that overlift? Joao Diogo da Silva: So on the first one, so we -- well, we are expecting the turnaround to go until mid-November. We will have Plant 1 and the FCC around 50 to 45 days together at the same time. So on the quarter, we are expecting negative contribution from refining. That's what we are taking at this point. Of course, this contribution will be offset by a strong continued contribution on the midstream side. Maria Joao Carioca: On upstream, I believe what you're referring to is the fact that this quarter, we have a lower number of cargoes in transit. So that equates a little bit to having sold more than what we actually produced. The overall impact we estimate from that, so it was approximately one less cargo in transit that we had before. The value we estimate for that is of approximately EUR 40 million, that's EUR 4-0 million. All in all, what we see is still strong production being at the top range of what is our current guidance of 105,000 to 110,000. So this effect we registered in the quarter was fundamentally ongoing normal progress of operations and just transiting the cargoes as they come into our possession. Operator: Your next question comes from the line of Ignacio Domenech from JB Capital. Ignacio Doménech: The first one is on exploration on Sao Tome e Principe. So Shell recently spud a well there, and I would assume that will be looking to do the same in 2026. So just wanted to know your thoughts on the exploration campaign there, if there is any commitment by that to do any drilling in the next year? And my second question is a follow-up on the declining rates in Brazil. I think you mentioned that production, excluding Bacalhau, should be flat next year. So if you can elaborate a bit on the declining rates there? And maybe if there's been any change in the recovery factor at Tupi? Maria Joao Carioca: Thank you, Ignacio. So starting with Sao Tome e Prince, STP. No commitments so far. We do see the development in the recent activity -- the activity by Shell to be something that we will incorporate in our thought. As you know, we're looking at Sao Tome e Prince for its potential, high potential exploratory region. We do have plans to spud there in '26 to '27. But again, the information that is coming up on Block 10, and that's not a block we're in, but that information will be important in adjusting our perspective. Having said this, we are very aware of how important our growth profile is as a differentiating factor. So we're always looking at our assets and making sure that we're addressing them in a way that delivers at pace with our profile. I guess that's the perfect segue into your question about how do we see our declining rates in Brazil. So I mentioned that we're currently having -- experiencing declining rates of approximately 5% in the portfolio as a whole. And this is, as we see it very good performances. We would expect that for the type of depth and the type of assets that we're operating, declining annual rates would be in the neighborhood of 8%. We're actually delivering at below that in 5%. That delivery is in -- that concern with that type of best practice delivery is precisely what's behind the flattish production for next year. So next year, we will have the input or the uptick, if you'd like, from the infill campaigns that are under execution. So those when they come in, they allow us to halt a little bit the natural decline rate. It is already a best-performing decline rate vis-a-vis similar assets. So that's where we're standing there. Operator: [Operator Instructions] And your next question today comes from the line of Matt Lofting from JPMorgan. Matthew Lofting: 2, if I could, please. First, clearly, the second and third quarters have been very strong quarters operationally for Galp, which I'd like to congratulate you all on. You indicated this morning that you now expect to surpass the sort of the full year guidance, which was only updated in the summer. So I wondered if you could just expand on what areas of the business have outperformed the expectations or the baseline that you had in the summer? How much of that is a higher refining margin? How much of it is non-refining? And then secondly, I think you communicated earlier this month that Galp had formally notified Mozambique on the dispute concerning the capital gains situation in the country. Could you update on the latest status there, please, and your thoughts on it? Maria Joao Carioca: Thanks, Matt. Let me start with how we performed so far and what the best tell us for our guidance. So I think overall, it's been good performance across all businesses. But looking into the fourth quarter, what we expect is that coming in on top of what has been very good production in upstream. So we still expect to be at the upper level of the reference we gave on 105,000 to 110,000. So that is, of course, a good driver towards our results. If you add to that the combined performances of the remaining businesses that will add to the overall perspective of delivering above the current consensus. So no particular focus there, just general throughout the portfolio, good performance, if anything, top-tier performance in terms of what we had guided for in upstream. Joao, do you want to comment on Mozambique? Joao Diogo da Silva: I will. Thank you, Matt. So at this point, international arbitration was triggered, but we need to say that we are continuing to pursue a constructive engagement with Mozambique. Well, Galp is in Mozambique for more than 65 years at this point. We've invested more than EUR 1.1 billion in upstream projects. We are very, very, very present on the downstream business with terminals. So that's a country that we fully respect. However, on this case, the government estimates based on accounting books share capital disregards fully all the investments made in upstream. And Galp does not contest its tax obligation. But of course, we need to challenge incorrect and inconsistent interpretation of the law. And that's something that creates uncertainty and that we need to fight and to help Mozambique. So at this point, we don't have any provision recognized in the books. It's fully supported by our external assessment that reiterates our position. So we believe there are no legal grounds to sustain the account claim. But more than that, I finish where I started. We are very, very engaged to pursue a solution with the government and we fully respect. So hopefully, we will find that solution soon. Operator: Your next question today comes from the line of Paul Redman from BNP Paribas. Paul Redman: I wanted to come at Namibia maybe with a slightly different angle, but you talked about in your press release the fact you had a bunch of nonbinding offers through the summer and now you have a short list. I just wanted to ask, is there anything you can say on what drove that shortlist? Was it partner? Was it the valuation, FID dates, start of production date? Any color here would be really useful. And just also on Namibia, just trying to work out, I think I get a sense from who's answering which questions kind of as co-CEOs, who's running the process? Or are you both involved in the process? And then secondly, just on Mozambique, does the arbitration put any risk on the cash expected in 4Q '25? And secondly, have you thought about if Rovuma LNG does get FID-ed, how you would think to allocate that cash in 2026? Maria Joao Carioca: Paul, I do tend to answer many of your questions, but we're all fully engaged, and I'm sure Joao would likely take up. But then again, on your question here, the shortlist notion is fundamentally taking into consideration the prospective offers we got, the pace at which the different bidders were able to address the questions that we engaged and actually the depth and the comprehensiveness of the analysis that was entailed in the initial offers. So fundamentally, we've moved at a faster pace with those players that had the best positioning and had the best ability to engage in the discussions that came in the later stages after the initial offer there. So on Mozambique, maybe just to comment on the cash issue, what Joao just mentioned, we continue a dialogue with the Mozambican government. We've also been continuing our dialogue with our advisers in terms of making sure that our position on what is the due tax is further explained and strengthened. So we don't expect any additional cash issues or cash risks in the fourth quarter concerning this topic. We do expect conversations with the Mozambican government to continue, and we do see conditions for us to continue our presence in Mozambique. I think I would underline what Joao mentioned before, this is a market where we've been for a very long time. We respect our institutional obligations. We are just pursuing the due course of the law. So finally, I believe there was an additional question there on Rovuma FID in 2026. For cautionary reasons, we do not include any additional proceeds in our numbers. So we've seen positive news in recent days. We'll see how those proceed. And hopefully, there will be an FID, but we will we will expect news on that front. We have not yet included that as an upside in our numbers. If those come along, it plays into the discussion we were having before then maybe is a big elephant in the room, a lot of what will be our future discussion in terms of how to go from there. It will be something that we will bring up once the deal is concluded. Operator: Your next question today comes from the line of Nash Cui from Barclays. Naisheng Cui: 2, please. The first one is on distribution. Galp delivered a very strong earnings and cash flow and net debt has coming down. I wonder if you could talk about how we should think about cash distribution in 2026, please? Then the second question is on refining margin outlook. I know your Sines refinery is going to be back online very soon. How do you see refining margin in November, December and into Q1, please? Maria Joao Carioca: Thanks, Nash. So let me start with distribution. We are maintaining for now our 1/3 of OCF guideline. But we see that as something that has been very aligned to the type of consistency and predictability going together with the flexibility that we value considering ongoing processes such as Namibia. So the 1/3 OCF, again, together with what we've been delivering in terms of cash dividend growth, that's about 4% per annum with the flexibility to give an uptick such as the one we had last year, acknowledging favorable conditions. So this gives us sufficient room for -- as growth comes through our balance sheet and our P&L, we are indeed sharing that and distributing that to our shareholders. We like the consistency through the cycle of having a steady guideline based on OCF. And you have seen us use buybacks as kind of the plug-in number to ensure additional performance flows through to investors as we release it. So no expectations all in all to change this overall guideline. We do believe it will serve us well, and it will allow us to flow through any good performance in terms of cash generation straight through to our shareholders. Joao Diogo da Silva: And Nash, on the refining outlook, I've made a couple of mentions to the demand -- supply-demand balance at this point. So we are we are expecting, if we think forward on the first Q, we are expecting some part of the underperformance of the new capacity, [indiscernible], we are assuming that they will come back in full potential. So that's one. On the second hand, we will be in the heating season and some refiners will be into maintenance on the last quarter, but they will come back, hopefully. That will be the case of Sines. So that's another one. And thirdly, at this point, we know that we have lower inventory levels on both sides of the Atlantic and a couple of Russian capacity at this point are affected. So around 20% to 40% of the Russian capacity is affected. So there are a number of factors that will add us to a much more prudent environment on the refining side. So we are expecting a lower margins on the first Q. But all in all, we are very focused at this point on the turnaround and to do it in a safe way, and that's where we are. Operator: [Operator Instructions] And your next question comes from the line of Guilherme Levy from Morgan Stanley. Guilherme Levy: I have 2, please. The first one, we have seen later last week that Petrobras has had a setback on its arbitration proceedings against the ANP on the ring fence discussions on the Tupi/Iracema [indiscernible] fields. Are there any updates that you can share with us? And are there any courts that you can take this process to after arbitration? And then the second one also related to the ANP, but are there any updates on the unitization proceedings of Berbigao? Maria Joao Carioca: Thank you, Guilherme. So on the recent developments on the arbitrations, we see these as a lot of news flow here and a very important asset. So the discussions on the ring fence are, of course, very, very loud. But what we see here is not a setback, an ongoing discussion. We are progressing with our arguments. We see local authorities still engaged and making sure that we take the asset forward. We understand the conditions in Brazil. So we understand that there is the need to discuss the ability to generate value from that asset and to make sure that all the parties and stakeholders involved are driving the right value out of it. But fundamentally, what we continue to try to work on is an active dialogue with ANP, with Petrobras, our partners in Block and with the local government. The developments that we see are steps. We are -- we've acknowledged that we don't share in the vision concerning the way to treat these reservoirs. The geological data tells us those are separate reservoirs. So we continue to activate the appropriate legal actions to protect our interest there. So the recent decision has been focused only on future outflows. That means that currently forgot that we no longer have any cash outflows concerning our position in preserving our interest there. So overall, we'll continue to monitor. We'll continue to be very actively engaged, and we'll see how that progresses, but still defending our interests. On the unitization of Berbigao, so no fundamental decision. It's still an open matter. Thank you. Operator: We will now take our final question for today. And your final question comes from the line of Peter Low from Rothschild & Co. Redburn. Peter Low: The first was just on Bacalhau. Can you comment what you expect the production contribution to be in the fourth quarter? And then what the shape of that ramp-up might look like through 2026 and into 2027? And then the second question was on cash tax payments. They looked like they were quite low in 2Q and 3Q. Is there any kind of seasonality at play there? And should we expect a step-up in the fourth quarter? Maria Joao Carioca: Thanks, Peter. On Bacalhau, so we had a very low volume expectation for this year, so for the fourth quarter of '25. The first oil did come up in line with what were our expectations. But overall, the contribution is still very slow. What we're seeing in terms of take-up from the actual operations is positive. It's good pressures and also what we're seeing is also good delivery so far. But we'll monitor and assess to make sure that the ramp-up takes place. What we have as referenced for the ramp-up continues to be our cost experience in the basin. So in Tupi, for instance, some of our best performers had the fastest ramp-up of approximately 11 months. So it's clearly a different size boat and some differences in the assets. So we do see ramp-up of at least a year. Again, going back to my prior mention of full contribution coming up only in 2027. So when it does come up, just as a reminder, that should be approximately 40,000 barrels per day share. And if the Brent holds at, say, 70,000, this should be approximately EUR 400 million in OCF per annum at plateau, but we'll see throughout 2026, and those are expected numbers only for 2027 as we plateau. Cash tax payments. So again, what we have is there's an element of phasing in our taxes. So typically, we have a pretty high first quarter, and that took place. Our overall guidance is still at the level of approximately EUR 0.9 billion. So no change there. And what you've seen in this quarter was, again, as a recall, just the impact of having a lower weight of our upstream business, which is more heavily taxated than our remaining businesses. So a mix effect in our overall tax rate with our cash overall payments expected to be fully within guidance for the year. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to Galp's Third Quarter 2025 Results Presentation. I will now pass the floor to Joao Goncalves Pereira, Head of Investor Relations. Joao Pereira: Good morning, everyone, and welcome to Galp's Third Quarter of 2025 Q&A session. In the room with me, I have both our co-CEOs, Maria Joao Carioca and Joao Marques da Silva as well as the full executive team. But before passing the mic for some quick opening remarks, let me start by our usual disclaimer. During today's session, we'll be making forward-looking statements that are based on our current estimates. Actual results could differ due to factors outlined in our cautionary statements within the published materials. With this, Joao, would you like to say a few words? Joao Diogo da Silva: Thank you, Joao, and good morning, everyone. We have a couple of Joaos around here. Well, the third quarter was a strong one for Galp. Solid operating performance according businesses testifies our strong operating momentum. In Brazil, upstream production continued elevated with 115,000 barrels per day, driven by high availabilities of the fleet during the quarter. This gives us confidence on ending the year close to the upper end of our 150,000 to 110,000 guidance. On top of that, Bacalhau reached first oil just a few weeks ago, a very important milestone, a key project for Galp, which will drive our free cash flow growth in the coming years. Well, but meanwhile, in Iberia, we've captured strong seasonal trends in downstream businesses, particularly in refining and in commercial, where we posted a record high quarter EBITDA. As EVP of Commercial as well, congratulations to the team with results above pre-COVID levels. Although macro environment continues volatile and challenging, Galp operates a highly resilient portfolio with a 2026 dividend breakeven just below $40. Resilience and short-term growth underpins our distinctive investment case. Maria Joao, a few comments. Maria Joao Carioca: Thank you, Joao. Indeed, quite a few rounds around here, but strong operating performance across businesses translating into robust cash delivery. I believe that's the highlight for this quarter. Just looking at the 9 months operating cash flow, we are flattish against 2024, whereas Brent is down more than $10. So this is illustrative of the resilience that we just discussed. And on that same note of execution towards resilience, this quarter, we further reduced net debt and reinforced our financial position. Net debt is now at 0.4x. This is a reassuring level when facing the current volatility in commodity prices, it's also a solid ground on which to develop our value-accretive opportunities in the portfolio. Looking at the full year and even though we're not upgrading guidance today, we're confident that we will exceed our group EBITDA and OCF guidance based on the strong performance across the asset base so far. We acknowledge that Namibia remains the most relevant aspect in Galp's equity story. So looking into the ongoing bilateral discussions, these are showing good progress, and we maintain confidence in our time line and in establishing a strong partnership that will allow us to accelerate and to prioritize Mopane. Operator, we may now take questions. Thank you. Operator: [Operator Instructions] We will now go to our first question today and the question comes from the line of Alejandro Vigil Garcia from Santander. Alejandro Vigil: Congratulations for the strong results. The first question is if you can -- of course, very difficult. If you can give us some color about the -- what are you thinking about the Mopane farm down in terms of the structure, in terms of the -- in general, how you are seeing this -- the momentum of this transaction? And the second question, also probably difficult at this point is in terms of next year. If you can give us some color about how is projections about production next year Bacalhau start-up. You can give us some color initial, even qualitative about the next year guidance. Maria Joao Carioca: So let me start with Mopane. As you know, we've been commenting on the fact that we are very, very focused on achieving a partnership that will help us drive the asset forward. So at this time, we're still not diving into details. I believe it's still critical for us to make sure that our priorities are clear. And I think the conversations we've had so far and the bidders we've engaged with speak to those priorities. We were very keen on making sure that we had an experienced operator with us to make sure that the asset moves forward at the pace and with the priority that we see conducive to good value creation for Galp. We've been reporting and we're very glad to continue to engage in conversations with bidders, and those bidders are all very experienced operators with very relevant track records. So this is where we are. I think with those bidders sitting down to talk to us, what we're doing is making sure that we get very clear alignment on progressing Mopane. And that has been conversations, that has been the tone of the conversation and progressing well. So we're very confident on making this partnership a success by year-end. And I think that is clearly the focus and the color available at this time. On next year, so Bacalhau is very, very early days, but it's a good start. We've been, of course, testing and making sure that the early numbers and the early performance of the assets are consistent with what we were expecting so far, good news. So excluding Bacalhau, we were expecting production to be fundamentally flattish. So this is on top of what are, we believe, best practice declining rates in our assets in Brazil. So we continue to have an expectation of under 5% decline rates, particularly in Tupi and Iracema. We're working towards not only sustaining, but actually making sure that we perform above those thresholds. So there is an infill campaign under execution to continue to drive the performance of those assets. So that leads us in the end to this flattish performance that I mentioned. And on top of that, you will have Bacalhau. Bacalhau will, of course, be ramping up. So we don't expect it to get to full plateau until 2027. Operator: Your next question today comes from the line of Biraj Borkhataria from RBC. Biraj Borkhataria: The first one is just on CapEx for next year. There's obviously one big uncertain piece, which is Namibia and any carry you might get. But are you able to give some color on what you expect to spend in 2026 CapEx if we were to exclude Namibia? And then the second question is just on the financial framework. You have now EUR 1.2 billion of debt and obviously, Bacalhau is ramping up as well. In the past, you showed a chart highlighting that you had roughly EUR 1.2 billion of capital employed in your low carbon segment. I was wondering if that's still the case. And the reason I ask is I'm trying to understand if there's a sort of structural level of net debt for that part of the business because it would be helpful to think -- as we think about sort of excess payouts and uses of free cash flow. Maria Joao Carioca: Thank you, Biraj. Very comprehensive set of questions. So on CapEx and adding a bit more color to what I mentioned before, we're not revising our net CapEx guidance. So still at a little bit under EUR 0.8 billion per annum on the '25 to '26 period. So that is still the overall guidance. Now this year, we had, of course, approximately EUR 800 million from the announced divestments. So this leaves us with gross CapEx of about EUR 2.4 billion accumulated in the period. Now for 2026, we do expect numbers to be slightly lighter than in '25, but it's still a challenging year. So Bacalhau is still going to be ramping up. We are going to be keeping pace towards conclusion of our transition investments in Sines. And we have what is our normal run rate, so to say, of approximately EUR 400 million per year of CapEx. So if you dive a little bit into what that entails other than the upstream run rate CapEx, you also get maintained investments in renewables. We're still foreseeing approximately EUR 150 million to EUR 200 million in our renewables portfolio. And commercial has an ongoing transformation and digitalization program, and that is approximately another, I'd say, EUR 100 million per year. So all in all, we're maintaining, of course, a very disciplined approach. We continue to aim for a capital-light structure, but still guiding up to approximately EUR 0.8 billion per year because we are still in the critical stage of a number of these investments we have in the portfolio. On the financial framework and following up from our CapEx approach, so in terms of capital employed, you mentioned the numbers for our transition and for our low carbon investments. I believe we now hold approximately EUR 1.5 billion to EUR 1.6 billion in our capital employed that pertain to that type of assets and that type of approach. On debt, fundamentally, what we have is debt being managed at the corporate level. So in terms of what we see as our structural level, this reflects to a large extent, the free cash flow generation we have in our businesses and of course, the fact that we continue to drive our CapEx towards -- a significant portion of it being towards transition. Approximately, I'd say it's about 65% of our CapEx is still transformation. So there, of course, the numbers that we were guiding for in terms of CapEx and hence, net debt. Operator: Your next question comes from the line of Matt Smith from Bank of America. Matthew Smith: I wanted to ask -- try a couple of questions on Namibia, if I could. And the first would be, I mean, you're clearly focused on seeing the asset developed as soon as possible. So I just wanted to double check the details on that, whether that meant taking FID on the Northwest region as soon as possible, given that region is fully appraised? Or would you be open to seeing the Southeast region appraised as the next step? Or is there a red line on that topic? Or are you open to discussions with a potential new operator? So that would be the first part. And then the second part, perhaps more high level, you're clearly looking to solve for alignment on the acceleration of these assets. I mean I just wondered whether you're able to share any high-level thoughts as to how you think that can be achieved as part of the deal structure. And perhaps like a bolt-on to that, maybe it's related, maybe it's not, but a question that we're hearing more and more, would you be open to any form of asset swap as part of the transaction, if you're able to comment on that? Maria Joao Carioca: Thank you, Matt. So on Namibia, indeed, the focus is very much making sure that we align with our partners. So we do have our own technical teams looking at the assets and incorporating all the information that we absorbed. So again, it feels like it was a very long time ago, but we went through a very fast stage of drilling and finding new information. It was critical to derisk the asset, and we are now using that information, processing it ourselves and also sharing it with our prospective buyers and developing a perspective on the asset based on that. So we're very open and the teams have indeed been progressing as we acquire more knowledge and as we -- part of the conversations with our partners has also been conducive to that shared understanding, open to perspectives on the asset, not closed on which of the Northwest versus Southeast clusters needs to be the core driver for an initial development, very open to a perspective that is just the one that drives the best space for the asset overall. As for the deal structure, again, very, very early to close on what could be a deal structure. We are, of course, trying to make sure that debt structure sets the right alignment and the right perspective in moving forward with the deal. So here, I guess, fundamentally, what we're trying to make sure is that when we are considering eventual asset swaps, those are open in the discussion as long as they allow us for clear visibility on the type of return we're getting out of the Mopane assets and as long as that those also don't hinder our visibility on how to progress further with Mopane. Operator: Your next question comes from the line of Pedro Alves from CaixaBank. Pedro Alves: The first one on the 2025 outlook. Perhaps if you can share a bit more details on what drives the upside to your latest official guidance. I think we have here different moving parts in upstream production, clearly with very good availability of the fleet. But in Q4, probably you will resume some stoppages. And then in Industrial and Midstream, which probably carries the bulk of the upside to your targets, certainly above the EUR 800 million of EBIT last guided. But it's also true that you will carry heavy maintenance in refining now in this Q4. So at the consolidated level, I think it was widely expected that you would exceed guidance. I guess the question is, are you comfortable with the consensus now at around EUR 3 billion for the full year? And the second question on the recent Orange Basin discoveries in Namibia and some of your neighbors. Have you noticed that this is driving any change in the market appetite or dynamics in the talks as you engage with your potential partners for Mopane. I mean these new finds obviously raise visibility on the basin, but does waiting longer for Galp risks giving prospective buyers other alternatives to elsewhere in the basin? Joao Diogo da Silva: So I'll start with the 2025 guidance. And in fact, we are on the back of a very strong quarter, but we will not be tweaking every quarter the guidance. We are very comfortable with the previous guidance. On that revised guidance, we revised also, well, the trading conditions, we've included the Venture Global volumes. That was the major point. And as you say, we will have a last quarter with a turnaround in Sines. That's what will hit us on the fourth quarter. We still have some support on the margin side, on the refining margin side, well, supported by demand that we could call stronger than expected, but also with the supply underperformance on the new capacity, which is not coming into play as it was expected. We are also -- well, entering into the heating season and some refiners as ours will go into maintenance that will also make some support. And overall, on the downstream, we have a very strong position in Iberia. We delivered very strong results in the third quarter, but we are entering the low season. So we expect to be prudent, maintaining the previous guidance. Midstream will be, for sure, supportive, and that's all for now. Maria Joao Carioca: Thank you. So maybe I'll pick up on the second question from Pedro on our perspective concerning Namibia and recent developments, if I recall correct your question. So Pedro, we normally abstain from commenting on what we see in the market coming out as news from other players. But generally, yes, I acknowledge the perspective you put forth as we hear news from other players and from drilling ongoing, -- and as we see what's coming out of the different players there, I mean, recently, we've heard news from Rhino. We've heard news from BW. What we still see is a basin that is very young in terms of its prospective development, but one where there's a convergence of developments that give it room for growth, and we see the concentration of interest there as very conducive to that growth actually taking place. We also see alignment in its core stakeholders. Relationships with local authorities with the government continue. There's continued interest. There's a good vision of what is the importance of having full support to the development of the asset. So all in all, what we're seeing is still a very young basin, but one where prospects continue to be conducive to investment taking place, and we continue to like the risk of the assets. So we will be farming down a bit, but still holding on to a relevant perspective -- a relevant percentage. So I think that speaks the loudest on the overview we continue to have of the basin and of Mopane in particular. Operator: Your next question comes from the line of Alessandro Pozzi from Mediobanca. Alessandro Pozzi: 2 for me. The first one on commercial, strong results in Q3. And just wondering if you can maybe give us your view on whether the results that we've seen in this quarter is just a function of a much stronger seasonality than usual or whether there is a structural change that would support a further improvement into 2026? And the second question is more on financials. Working capital, I think it was a positive movement during the quarter, but still negative for the 9 months. Maybe if you can give us any guidance on Q4. Joao Diogo da Silva: Thank you, Alessandro. It's indeed a very strong quarter. On commercial, we need to assume, well, we have some tailwinds. It's always the stronger quarter of the year. So when you perform well on the stronger quarter of the year, it's an important one. I would, well, divide in 2 main aspects of the business referring to your transformation claim. So we have, of course, better news from the Spanish side after -- well, a number of volumes were removed from the market related with players that were not playing in a level brownfield. So that's one. So very supportive volumes with around 20% year-on-year growth on the fuel side. But on the second hand, we have a fully revamped nonfuel business. nonfuel as per today is contributing nearly 30% nonfuel and new business, nearly at 30% of the full delivered value on this business. So that's something that we need to sustain. Today, more than half of our tickets are nonfuel, less than half are tobacco, which was clearly a very strong anchor on the path. So if you ask me on the 2026 view, we will be clearly aiming to surpass the $300 million. That's what we will deliver this year. But of course, with the growing electric mobility network that is already on the breakeven, we've crossed the 9,000 charges mark this year, and that's also very important because as of today, we are offering a complete diverse offer to the customer when he enters into our commercial retail network, and that's one, but also supported as an integrated play. So the play with industrial, the play with midstream, it's an integrated play. And we are taking advantage of that also. So strong results and surely for the next year, above the EUR 300 million. Maria Joao Carioca: On working capital, so maybe to put in perspective, the 9 months of this year reflect the fact that actually we ended 2024 with a particularly low level of working capital. There were very few cargoes in transit. So overall, we had a working capital level that we knew was going to be adjusted throughout 2025. And a couple of events up to the beginning of that early 2025 that impacted, the bad weather and the blackout in the Iberian Peninsula had an impact in our accounts. But fundamentally, we're returning to regular levels, not much to highlight there in terms of working capital all within expectations. Operator: Your next question comes from the line of Alastair Syme from Citi. Alastair Syme: In your negotiations on Namibia, are you finding broad agreement on the asset resources? I ask simply because it's quite a long time since you've updated the market on the resources. You've talked about EUR 10 billion plus in place, significant volumes of light oil. I mean are these statements that you think the prospective buyers agree with? I ask because I think this is why the sales process broke down last year. So just to get a sense of where that's at. And then secondly, very quickly, can you talk to upstream tax rates? You were low in 2Q, you're low again this quarter. What's going on? And what do you think the rate is that we should be using in our models going forward? Maria Joao Carioca: Thanks, Alastair. So let me pick up on the Namibia. So no issues in terms of agreement as to what our asset resources in place in Mopane is. It's a topic for technical discussion, of course. But actually, as we share information and as we have the technical teams engaged, I believe there is significant alignment and the vision we have on where the most interesting areas of the assets lie and what those represent in terms of potential overall asset resources have not been an issue of stress or an issue of disagreement at all. Quite on the contrary, very supportive and aligned discussions. So on upstream, the second part of your question, what do you see in tax rates? Actually, I believe you see it on the overall tax rate for the integrated portfolio, it does reflect the fact that in this quarter, in particular, the weight -- the relative weight of upstream in our overall portfolio was lower. So as upstream usually has a higher tax incidence when you have very good performances across other businesses, so industrial delivering, midstream delivering, commercial, as we mentioned already, with record high levels, that brings our overall tax rate down, and I believe that was what you were referring to. Operator: Your next question comes from the line of Joshua Stone from UBS. Joshua Eliot Stone: 2 questions, please. One on Venture Global. Just if you can give any indication of when you expect a decision on the arbitration there and any expectation around what to expect, noting that we've seen different outcomes for different plaintiffs so far? And then second, on Namibia, thank you for the additional insight. I just wonder, are you able to say how many partners you're still in talks with after your short list? I'm just trying to gauge competitive tension and how that's changed during the process, which seems quite important for you. Joao Diogo da Silva: On Venture Global, we are not expecting any outcome before next year, and that's it. Maria Joao Carioca: On Namibia then, we're not commenting on how many partners. It's plural. I think the critical thing to us all very experienced operators, as I mentioned before, competitive tension has been in play, productive conversations. So I think the conditions for a good progress have been met, and we've been engaging with partners, different paces, but still good conversations and good progress so far. Thank you. Operator: Your next question comes from the line of Irene Himona from Bernstein. Irene Himona: My first question is on refining in the fourth quarter. Your maintenance will last about 6 weeks. We can work out the utilization. But can you give us a sense of where your unit margins in refining may move to in relation to the $3.2 in Q3? Are we looking at something around $5, for example? And then my second question on the upstream in Q3, you alluded to the fact that your sales were higher than your production. Can you perhaps quantify that? So what were your sales in the quarter? And what was the EBITDA benefit of that overlift? Joao Diogo da Silva: So on the first one, so we -- well, we are expecting the turnaround to go until mid-November. We will have Plant 1 and the FCC around 50 to 45 days together at the same time. So on the quarter, we are expecting negative contribution from refining. That's what we are taking at this point. Of course, this contribution will be offset by a strong continued contribution on the midstream side. Maria Joao Carioca: On upstream, I believe what you're referring to is the fact that this quarter, we have a lower number of cargoes in transit. So that equates a little bit to having sold more than what we actually produced. The overall impact we estimate from that, so it was approximately one less cargo in transit that we had before. The value we estimate for that is of approximately EUR 40 million, that's EUR 4-0 million. All in all, what we see is still strong production being at the top range of what is our current guidance of 105,000 to 110,000. So this effect we registered in the quarter was fundamentally ongoing normal progress of operations and just transiting the cargoes as they come into our possession. Operator: Your next question comes from the line of Ignacio Domenech from JB Capital. Ignacio Doménech: The first one is on exploration on Sao Tome e Principe. So Shell recently spud a well there, and I would assume that will be looking to do the same in 2026. So just wanted to know your thoughts on the exploration campaign there, if there is any commitment by that to do any drilling in the next year? And my second question is a follow-up on the declining rates in Brazil. I think you mentioned that production, excluding Bacalhau, should be flat next year. So if you can elaborate a bit on the declining rates there? And maybe if there's been any change in the recovery factor at Tupi? Maria Joao Carioca: Thank you, Ignacio. So starting with Sao Tome e Prince, STP. No commitments so far. We do see the development in the recent activity -- the activity by Shell to be something that we will incorporate in our thought. As you know, we're looking at Sao Tome e Prince for its potential, high potential exploratory region. We do have plans to spud there in '26 to '27. But again, the information that is coming up on Block 10, and that's not a block we're in, but that information will be important in adjusting our perspective. Having said this, we are very aware of how important our growth profile is as a differentiating factor. So we're always looking at our assets and making sure that we're addressing them in a way that delivers at pace with our profile. I guess that's the perfect segue into your question about how do we see our declining rates in Brazil. So I mentioned that we're currently having -- experiencing declining rates of approximately 5% in the portfolio as a whole. And this is, as we see it very good performances. We would expect that for the type of depth and the type of assets that we're operating, declining annual rates would be in the neighborhood of 8%. We're actually delivering at below that in 5%. That delivery is in -- that concern with that type of best practice delivery is precisely what's behind the flattish production for next year. So next year, we will have the input or the uptick, if you'd like, from the infill campaigns that are under execution. So those when they come in, they allow us to halt a little bit the natural decline rate. It is already a best-performing decline rate vis-a-vis similar assets. So that's where we're standing there. Operator: [Operator Instructions] And your next question today comes from the line of Matt Lofting from JPMorgan. Matthew Lofting: 2, if I could, please. First, clearly, the second and third quarters have been very strong quarters operationally for Galp, which I'd like to congratulate you all on. You indicated this morning that you now expect to surpass the sort of the full year guidance, which was only updated in the summer. So I wondered if you could just expand on what areas of the business have outperformed the expectations or the baseline that you had in the summer? How much of that is a higher refining margin? How much of it is non-refining? And then secondly, I think you communicated earlier this month that Galp had formally notified Mozambique on the dispute concerning the capital gains situation in the country. Could you update on the latest status there, please, and your thoughts on it? Maria Joao Carioca: Thanks, Matt. Let me start with how we performed so far and what the best tell us for our guidance. So I think overall, it's been good performance across all businesses. But looking into the fourth quarter, what we expect is that coming in on top of what has been very good production in upstream. So we still expect to be at the upper level of the reference we gave on 105,000 to 110,000. So that is, of course, a good driver towards our results. If you add to that the combined performances of the remaining businesses that will add to the overall perspective of delivering above the current consensus. So no particular focus there, just general throughout the portfolio, good performance, if anything, top-tier performance in terms of what we had guided for in upstream. Joao, do you want to comment on Mozambique? Joao Diogo da Silva: I will. Thank you, Matt. So at this point, international arbitration was triggered, but we need to say that we are continuing to pursue a constructive engagement with Mozambique. Well, Galp is in Mozambique for more than 65 years at this point. We've invested more than EUR 1.1 billion in upstream projects. We are very, very, very present on the downstream business with terminals. So that's a country that we fully respect. However, on this case, the government estimates based on accounting books share capital disregards fully all the investments made in upstream. And Galp does not contest its tax obligation. But of course, we need to challenge incorrect and inconsistent interpretation of the law. And that's something that creates uncertainty and that we need to fight and to help Mozambique. So at this point, we don't have any provision recognized in the books. It's fully supported by our external assessment that reiterates our position. So we believe there are no legal grounds to sustain the account claim. But more than that, I finish where I started. We are very, very engaged to pursue a solution with the government and we fully respect. So hopefully, we will find that solution soon. Operator: Your next question today comes from the line of Paul Redman from BNP Paribas. Paul Redman: I wanted to come at Namibia maybe with a slightly different angle, but you talked about in your press release the fact you had a bunch of nonbinding offers through the summer and now you have a short list. I just wanted to ask, is there anything you can say on what drove that shortlist? Was it partner? Was it the valuation, FID dates, start of production date? Any color here would be really useful. And just also on Namibia, just trying to work out, I think I get a sense from who's answering which questions kind of as co-CEOs, who's running the process? Or are you both involved in the process? And then secondly, just on Mozambique, does the arbitration put any risk on the cash expected in 4Q '25? And secondly, have you thought about if Rovuma LNG does get FID-ed, how you would think to allocate that cash in 2026? Maria Joao Carioca: Paul, I do tend to answer many of your questions, but we're all fully engaged, and I'm sure Joao would likely take up. But then again, on your question here, the shortlist notion is fundamentally taking into consideration the prospective offers we got, the pace at which the different bidders were able to address the questions that we engaged and actually the depth and the comprehensiveness of the analysis that was entailed in the initial offers. So fundamentally, we've moved at a faster pace with those players that had the best positioning and had the best ability to engage in the discussions that came in the later stages after the initial offer there. So on Mozambique, maybe just to comment on the cash issue, what Joao just mentioned, we continue a dialogue with the Mozambican government. We've also been continuing our dialogue with our advisers in terms of making sure that our position on what is the due tax is further explained and strengthened. So we don't expect any additional cash issues or cash risks in the fourth quarter concerning this topic. We do expect conversations with the Mozambican government to continue, and we do see conditions for us to continue our presence in Mozambique. I think I would underline what Joao mentioned before, this is a market where we've been for a very long time. We respect our institutional obligations. We are just pursuing the due course of the law. So finally, I believe there was an additional question there on Rovuma FID in 2026. For cautionary reasons, we do not include any additional proceeds in our numbers. So we've seen positive news in recent days. We'll see how those proceed. And hopefully, there will be an FID, but we will we will expect news on that front. We have not yet included that as an upside in our numbers. If those come along, it plays into the discussion we were having before then maybe is a big elephant in the room, a lot of what will be our future discussion in terms of how to go from there. It will be something that we will bring up once the deal is concluded. Operator: Your next question today comes from the line of Nash Cui from Barclays. Naisheng Cui: 2, please. The first one is on distribution. Galp delivered a very strong earnings and cash flow and net debt has coming down. I wonder if you could talk about how we should think about cash distribution in 2026, please? Then the second question is on refining margin outlook. I know your Sines refinery is going to be back online very soon. How do you see refining margin in November, December and into Q1, please? Maria Joao Carioca: Thanks, Nash. So let me start with distribution. We are maintaining for now our 1/3 of OCF guideline. But we see that as something that has been very aligned to the type of consistency and predictability going together with the flexibility that we value considering ongoing processes such as Namibia. So the 1/3 OCF, again, together with what we've been delivering in terms of cash dividend growth, that's about 4% per annum with the flexibility to give an uptick such as the one we had last year, acknowledging favorable conditions. So this gives us sufficient room for -- as growth comes through our balance sheet and our P&L, we are indeed sharing that and distributing that to our shareholders. We like the consistency through the cycle of having a steady guideline based on OCF. And you have seen us use buybacks as kind of the plug-in number to ensure additional performance flows through to investors as we release it. So no expectations all in all to change this overall guideline. We do believe it will serve us well, and it will allow us to flow through any good performance in terms of cash generation straight through to our shareholders. Joao Diogo da Silva: And Nash, on the refining outlook, I've made a couple of mentions to the demand -- supply-demand balance at this point. So we are we are expecting, if we think forward on the first Q, we are expecting some part of the underperformance of the new capacity, [indiscernible], we are assuming that they will come back in full potential. So that's one. On the second hand, we will be in the heating season and some refiners will be into maintenance on the last quarter, but they will come back, hopefully. That will be the case of Sines. So that's another one. And thirdly, at this point, we know that we have lower inventory levels on both sides of the Atlantic and a couple of Russian capacity at this point are affected. So around 20% to 40% of the Russian capacity is affected. So there are a number of factors that will add us to a much more prudent environment on the refining side. So we are expecting a lower margins on the first Q. But all in all, we are very focused at this point on the turnaround and to do it in a safe way, and that's where we are. Operator: [Operator Instructions] And your next question comes from the line of Guilherme Levy from Morgan Stanley. Guilherme Levy: I have 2, please. The first one, we have seen later last week that Petrobras has had a setback on its arbitration proceedings against the ANP on the ring fence discussions on the Tupi/Iracema [indiscernible] fields. Are there any updates that you can share with us? And are there any courts that you can take this process to after arbitration? And then the second one also related to the ANP, but are there any updates on the unitization proceedings of Berbigao? Maria Joao Carioca: Thank you, Guilherme. So on the recent developments on the arbitrations, we see these as a lot of news flow here and a very important asset. So the discussions on the ring fence are, of course, very, very loud. But what we see here is not a setback, an ongoing discussion. We are progressing with our arguments. We see local authorities still engaged and making sure that we take the asset forward. We understand the conditions in Brazil. So we understand that there is the need to discuss the ability to generate value from that asset and to make sure that all the parties and stakeholders involved are driving the right value out of it. But fundamentally, what we continue to try to work on is an active dialogue with ANP, with Petrobras, our partners in Block and with the local government. The developments that we see are steps. We are -- we've acknowledged that we don't share in the vision concerning the way to treat these reservoirs. The geological data tells us those are separate reservoirs. So we continue to activate the appropriate legal actions to protect our interest there. So the recent decision has been focused only on future outflows. That means that currently forgot that we no longer have any cash outflows concerning our position in preserving our interest there. So overall, we'll continue to monitor. We'll continue to be very actively engaged, and we'll see how that progresses, but still defending our interests. On the unitization of Berbigao, so no fundamental decision. It's still an open matter. Thank you. Operator: We will now take our final question for today. And your final question comes from the line of Peter Low from Rothschild & Co. Redburn. Peter Low: The first was just on Bacalhau. Can you comment what you expect the production contribution to be in the fourth quarter? And then what the shape of that ramp-up might look like through 2026 and into 2027? And then the second question was on cash tax payments. They looked like they were quite low in 2Q and 3Q. Is there any kind of seasonality at play there? And should we expect a step-up in the fourth quarter? Maria Joao Carioca: Thanks, Peter. On Bacalhau, so we had a very low volume expectation for this year, so for the fourth quarter of '25. The first oil did come up in line with what were our expectations. But overall, the contribution is still very slow. What we're seeing in terms of take-up from the actual operations is positive. It's good pressures and also what we're seeing is also good delivery so far. But we'll monitor and assess to make sure that the ramp-up takes place. What we have as referenced for the ramp-up continues to be our cost experience in the basin. So in Tupi, for instance, some of our best performers had the fastest ramp-up of approximately 11 months. So it's clearly a different size boat and some differences in the assets. So we do see ramp-up of at least a year. Again, going back to my prior mention of full contribution coming up only in 2027. So when it does come up, just as a reminder, that should be approximately 40,000 barrels per day share. And if the Brent holds at, say, 70,000, this should be approximately EUR 400 million in OCF per annum at plateau, but we'll see throughout 2026, and those are expected numbers only for 2027 as we plateau. Cash tax payments. So again, what we have is there's an element of phasing in our taxes. So typically, we have a pretty high first quarter, and that took place. Our overall guidance is still at the level of approximately EUR 0.9 billion. So no change there. And what you've seen in this quarter was, again, as a recall, just the impact of having a lower weight of our upstream business, which is more heavily taxated than our remaining businesses. So a mix effect in our overall tax rate with our cash overall payments expected to be fully within guidance for the year. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning. My name is Anna, and I will be your conference operator. [Operator Instructions] This is FHipo's Third Quarter 2025 Conference Call. There will be a question-and-answer session after the speaker's opening remarks, and instructions will be given at that time. FHipo released its earnings report [indiscernible] October 24, after the market closed. If you did not receive the report, please contact FHipo's IR department [indiscernible]. Questions from the media will not be taken nor should the call be reported on. Any forward-looking statements made in this conference call are based on information that is currently available. Please refer to the disclaimer in the earnings release for guidance on this matter. We are joined by Daniel Braatz, Chief Executive Officer; Ignacio Gutiérrez, Chief Financial Officer; and Jesús Gómez, Chief Operating Officer. I would now like to turn the call over to Daniel Braatz. Daniel, please go ahead. Daniel Michael Zamudio: Good morning, everyone, and thank you for joining us today. Let me walk you through our third quarter 2025 results. Throughout 2025, we have remained focused on strengthening our platform, prioritizing high-quality yielding assets and maintaining a resilient, efficient and forward-looking investment strategy. The disciplined execution of this strategy supported by a solid capital structure positions us to continue adapting to a changing environment while pursuing sustainable growth. In the third Q, we reaffirmed our commitment to delivering profitability to our investors. Historically, as of the end of this quarter, we have distributed over MXN 7.2 billion to our investors, reinforcing our focus on sustained value creation. Our strong capitalization profile remains a pillar of FHipo's financial strength. In the third Q, we maintained a 59.7% capitalization ratio and a 0.65x debt-to-equity ratio. Our disciplined deleveraging strategy has strengthened the balance sheet and positioned us to capitalize on future growth opportunities. Our financial margin stood at 56.8% of total interest income, once again reflecting our stable profitability and operating discipline. Among the quarter's highlights, we closed at MXN 1 billion of financing between a renewal of our $500 million credit facility with Banco Ve por Más and signed a new facility with Banco Santander for the same amount further strengthening our financial flexibility and confirming the market's confidence in our business model. Furthermore, on September 22, the full early amortization of CDVITOT 15U and CDVITOT 15-2U trust certificates took place, resulting in a nonrecurring effect on quarterly results, in line with our objective of continuing the reduction of exposure to VSM-denominated loan portfolio. If we move on to Slide 5, we highlight our consistent track record of delivering value to our investors through stable distributions. For the third quarter, our annualized yield per CBFI stands at 11.5% based on an estimated quarterly distribution of MXN 0.35 per CBFI, subject to our current distribution policy. As I mentioned before, since FHipo was created, we have distributed approximately over MXN 7.2 billion to our investors, equivalent to MXN 19.32 per CBFI. These results underscore our strategic direction centered on creating long-term value and maintaining a focused approach for our investors. Moving to Slide 6. As of the third Q, our debt-to-equity ratio considering both on-balance and off-balance financings was 1.38x highlighting the fact that during the period of the third Q 2019 to third Q of 2025, we achieved a deleveraging of 0.9x in our total on and off balance debt. Over this period, we remain disciplined in maintaining a solid and resilient balance sheet, which positions us to capture future opportunities aligned with our long-term objectives. At the same time, our financial margin reached 56.8% for the quarter, representing a 5% points improvement year-over-year. This reflects the continued efficiency and reinforces our commitment to operating with discipline, focus and a sound financial structure. On Slide 7, we highlight our continued emphasis on higher yielding assets. As of the third quarter of 2025, originations through digital mortgage platforms accounted for 19.7% of the total portfolio. Up to 8.6% in the third Q 2023, reflecting a 2-year CAGR of 38.4%. Our portfolio has a strong asset quality profile with an average loan-to-value of 77% at origination and an estimated loan-to-value of 29% based on current market value of housing. Moving on to Slide 8, on the third Q, our nonperforming loan ratio calculated for the accumulated balances of the total portfolio at origination stood at 3.04%. Overall, our portfolio continues to reflect prudent levels of nonperforming loans, which remains consistent with the nature of the maturity profile of our assets. Finally, on Slide 9, FHipo affirms it commitment to sustainability and ESG best practices. We aim to generate long-term positive impact beyond financial returns. We have financed over 100,000 loans with 55% going to low-income households. Women represent 31% of our total portfolio and 35% of our digital mortgage platforms, while 39% of our workers are women. On governance, our Nomination, Audit and Best practices committees are fully independent and more than half of our technical committee members are independent as well. On the environmental side, about 70% of Infonavit borrowers have taken the green mortgage program benefit. And internally, we have implemented initiatives to reduce paper, plastic and water use. These actions reflect FHipo's ongoing commitment to incorporating strong ESG principles into our business model and decision-making process. Now I will turn the call over to our CFO, Ignacio Gutiérrez, who will discuss the leverage strategy. Ignacio Gutiérrez Sainz: Thank you, Daniel, and again, good morning, everyone. I'll first walk you through our different funding sources on Slide 11. FHipo has continued to strengthen its balance sheet. As of the third quarter of 2025, our total debt-to-equity ratio, including both on and off balance sheet financing stood at 1.38x, down from 2.3x in the third quarter of 2019 reflecting a deleveraging of 0.9x over that period. On a stand-alone basis, our on-balance sheet leverage ratio was of 0.65x. This financial discipline has improved our flexibility and reinforced our capacity to negative changing market environments. Our funding structure remains diversified and robust, allowing us to efficiently manage liquidity to support future growth opportunities. If we turn to Slide 12, as shown in the breakdown of our consolidated funding as of the third quarter of 2025, more than 70% of our financing has legal maturities exceeding 20 years. This profile provides us with a comfortable long-term debt structure aligned with the nature of our assets. In addition, our financing costs remain at current and competitive levels, supporting the sustainability of our capital structure over time. Now I'll turn the call over to our COO, Jesús Gómez, who will go through the portfolio breakdown before I discuss our financials. José de Jesús Gómez Dorantes: Thank you, Ignacio. Good morning, everyone. Thank you for joining us today. Let's move to Slide 14 to take a close look at the breakdown of our mortgage portfolio as of the end of the third quarter of 2025. FHipo's consolidated portfolio comprised 47,543 loans as of September 30, 2025, with an outstanding balance of MXN 17.8 billion, an average loan-to-value at origination of 77% and a payment-to-income ratio of 24.4%, at the end of the quarter 92.4% of the portfolio remain performing. Our portfolio remains diversified across several origination programs, including Infonavit Total, Infonavit Más Crédito, FOVISSSTE and the digital mortgage platforms, which now represents nearly 20% of the consolidated portfolio. Moving on to Slide 15. FHipo's portfolio remains geographically diversified across all 32 Mexican states. Nuevo León, Estado de México and Jalisco are still the largest contributors together accounting for approximately 29% of the total portfolio balance. In terms of our partnership originations programs, here's the breakdown of the portfolio. First, Infonavit Más Crédito accounts for 49.9% of our total portfolio equivalent to MXN 8.9 billion. The digital mortgage platform portfolio accounted for 19% of the portfolio equivalent to MXN 3.5 billion. The Infonavit Total Pesos program represented 14% of the total portfolio equivalent to MXN 2.5 billion. Fovissste portfolio accounted for 11.8% of the total portfolio equivalent to MXN 2.1 billion. And finally, Infonavit Total (VSM) program reached 4.6% equivalent to MXN 800 million. The distribution reflects our strategy to prioritize origination programs that offer strong risk-adjusted returns while maintaining a diversified portfolio aligned with market demand. I will now turn back the call to our CFO, Ignacio Gutiérrez, to discuss FHipo's financial results for the third quarter of 2025. Ignacio Gutiérrez Sainz: Thank you Jesús. On Slide 17, we will discuss our NPL and provision coverage levels. Our consolidated nonperforming loan ratio stood at 7.6% as of the end of the quarter. As of the end of this quarter, we continue to maintain a solid reserve and loan loss allowance policy with an expected loss coverage of 1.43x against NPL and against expected loss and NPL coverage of 0.58x. If we move to Slide 19, and here, we will go through our financial results for the quarter. Total interest income for the third quarter of 2025 was of MXN 318 million, showing a decrease compared to the $332 million reported in the third quarter of 2024. This decrease is primarily attributed to the natural amortization of the portfolio, which was partially offset by the growth of the mortgage portfolio originated through the general mortgage platforms. The interest expense totaled MXN 137 million, representing a 14.2% decrease compared to the MXN 160 million reported in the third quarter of 2024, mainly though to the declining interest rates over the past 12 months. Our financial margin was of MXN 180 million, representing a 56.8% of the total interest income an increase of 5 percentage points compared to 51.8% in the third quarter of 2024. The allowance for loan losses recorded for the third quarter of 2025 was of MXN 65.2 million and the valuation of receivable benefits from securitization transactions showed a net decrease of MXN 115 million in fair value during this quarter. This result is mainly explained, as Daniel mentioned, to nonrecurring events such as the net effect derived from the total early amortization of the CDVITOT 15U trust certificates carried out in September 2025 and the consideration of observable factors related to the cleanup call of upcoming securitizations with similar portfolios. In addition to the amortization pace of the loan portfolio underlying the trust certificates given that these securitization structures are close-ended by nature and to the performance of the portfolio in collateral of such trust certificates during the quarter. Total expenses for the quarter totaled MXN 96.4 million, a decrease of 20% with respect to the same period of 2024. And considering these FHipo registered a result of minus MXN 98 million during the quarter. The estimated distribution for the third quarter of 2025, subject to the current distribution policy is of $0.356 per CBFI and which considering the price of the CBFI as of the end of the third quarter of 2025 results in an annualized dividend yield of 11.5%. With this, I will now hand the call back to our CEO, Daniel Braatz, for some closing remarks before we move to the Q&A section. Daniel Michael Zamudio: Thank you, Ignacio. As for the third Q of 2025, we have continued to strengthen FHipo's financial profile, maintaining a disciplined management approach, a healthy balance sheet and a solid capitalization. Our capital structure remains prudent, allowing us to preserve financial flexibility and continue distributing attractive yields to our investors. Looking ahead, our focus remains on prudent risk management and identifying new opportunities aligned with our long-term strategic objectives. At the same time, we continue to prioritize long-term profitability and the ongoing enhancement of our portfolio's quality. The initiatives we have implemented throughout the year have further reinforced our foundation to capture future opportunities and create sustainable value over time. We will keep advancing our ESG agenda and contributing to long-term value creation for all stakeholders, including the communities we serve. Thank you for your continued trust. I'll now hand the call back to the operator to open the Q&A session. Thank you for your continued trust. I'll now hand the call. Operator: [Operator Instructions] We would like to take this moment to thank you for joining FHipo's Third Quarter 2025 Results Conference Call. We have not received any questions at this point. So that concludes our question-and-answer session. Thank you. I would now like to hand the call back over to Daniel Braatz for some closing remarks. Daniel Michael Zamudio: Thank you all for joining us today. Please don't hesitate to reach out to us if you have any more questions or concerns. We appreciate your interest in the company and look forward to speaking with you soon. Operator: That concludes today's call. You may now disconnect.
Operator: Greetings, and welcome to the SIFI Technologies Financial Results for Second Quarter Financial Year 2025-2026 Conference Call. [Operator Instructions] And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Praveen Krishna. Sir, you may begin. Praveen Krishna: Thank you, Ali. I'd like to extend a warm welcome to all our participants on behalf of SIFI Technologies Limited. I'm joined on the call today by Sir. Raju Vegesna, Chairman; and Mr. M.P. Vijay Kumar, Executive Director and Group CFO of SIFI Technologies. Following our comments on the results, there will be an opportunity for questions. If you do not have a copy of our press release, please call Luri Group at 1 (646) 824-2856, and we'll have one 1 sent to you. Alternatively, you may obtain a copy of the release at the Investor Information section on the company's corporate website at www.sifytechnologies.convestors. A replay of today's call may be accessed by dialing in on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the SIFI corporate website. Some of the financial measures referred to during this call and in the earnings release may include non-GAAP measures. Sify's results for the year are according to the International Financial Reporting Standard, or IFRS, and will defer some work from the GAAP announcements made in previous years. The presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP and a reconciliation of such non-GAAP measures and of the differences between such non-GAAP measures and the most comparable financial measures calculated and presented in accordance with GAAP will be made available on Sify's website. Before we continue, I'd like to point out that certain statements contained in the earnings release and on this conference call are forward-looking statements rather than historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those described. With respect to such forward-looking statements, the company seeks protection afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments and risk factors listed from time to time in the company's SEC reports and public releases. Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward-looking statements but are not intended to represent a complete list of all risks and uncertainties inherent to the company's business. Let me now introduce Mr. Raju Begesna, Chairman of Sify Technologies Limited. Chairman. Raju Vegesna: Thank you, Praveen. Good morning. Thank you for joining us on the call. As India's digital transformation is entering a decisive phase, redefining its role in the global technology ecosystem. The acceleration in the cloud adoption, AI integration and data center expansion underscores India emerges as the next hub of digital infrastructure. Our focus remains on aligning with this momentum through the sustained investments in the hyperscale data center robust network expansion and I release cell platforms. These initiatives are strengthening our position as a trusted enabler of enterprise transformation across both public and private sectors. We believe the next decade will see India's set global benchmark for digital innovation. Sify will continue to play a pivotal role in empowering the journey, building the infrastructure and platforms that will drive the country's growth in the AI-led economy. Let me now bring our Executive Director and Group CFO, Mr. Vijay Kumar, to explain both on the business and the financial highlights. Vijay Kumar? M. Vijay Kumar: Yes. Thank you, Chairman. We remain steadfast in our commitment to fiscal discipline while continuing to invest strategically for long-term growth. The current phase of expansion across our data center, network and digital platforms. reflects deliberate choices to build future ready capabilities. The network and data center businesses are scaling as per plan, the loss in our IT services business, represents our continued investment to prepare ourselves for the opportunities ahead. Our liquidity position remains robust underpinned by prudent cash flow management and operational efficiency. As we move ahead, our focus will be on sustaining agility in financial planning, embedding accountability and sustainability into every vision and driving enduring value creation for all stakeholders. Let me now expand on the business highlights for the quarter. The revenue split between the 3 businesses for the quarter was Network services, 41%; data center services, 13% and digital services 20%. During the quarter, Sify sold 3-megawatt additional data center capacity, as of 30th September 2025, Sify provides services via 1,196 fiber nodes across the country, a 12% increase over the same quarter last year and has deployed 9,992 contracted SDWAN service points across the country. A detailed list of our key wins is recorded in our press release, now live on our website. Let me briefly sum up the financial performance for Q2 for financial year '25, '26. Revenue was INR 10,533 million, an increase of 3% over the same quarter last year. EBITDA was INR 2,361 million, an increase of 20% over the same quarter last year. Loss before tax was INR 194 million and loss after tax was INR 275 million. Capital expenditure during the quarter was INR 3,064 million. The cash balance at the end of the quarter was INR 4,149 million. I will now hand over to our Chairman for his closing remarks. Chairman? Raju Vegesna: Thank you, Vijay Kumar. In the coming quarters, our focus will sharpen an empowering AI-led transformation and partnering with the new generation of enterprises that ready to innovate and scale with our integrated infrastructure and mature suite of digital services, Sify stands poised to lead in this new era of intelligent computing. I extend my sincere thanks to your continued trust and belief in our future. Thank you for joining on this. I will now hand over to the operator for questions. Operator: [Operator Instructions] Our first question is coming from Jonathan Atkin with RBC Capital. Jonathan Atkin: A couple of questions, if I may, about the data center services segment. First of all, can you give us a flavor for the types of returns, financial returns that you are achieving when you do sort of like the 3-megawatt deal that you referred to and just the range of financial returns that you're thinking about for enterprise as well as hyperscale deals. And if you could also remind us what you consider to be kind of your all-in cost of capital. M. Vijay Kumar: So as far as the 3-megawatt deal is concerned, it's a very small enterprise deal. Our data center business is both hyperscale and enterprise, approximately in the ratio of 2/3, 1/3, and our project IRR historically have yielded IRRs north of 20%, which is a little late 20% kind of IRRs have been the returns which we have generated. Jonathan Atkin: And then as you look at the opportunity set, given where India is in terms of hyperscale AI, but also enterprise AI adoption as we look over the next couple of years, what do you see the sales pipeline looking like that you could accommodate? And then any sort of general comments about other players in the market that are also building in some cases, larger scale projects compared to yourself and how you see the competitive environment? M. Vijay Kumar: The next couple of -- yes, please, sir, please go ahead. Raju Vegesna: John, basically, as you know that we have big campuses in Mumbai and in Noida and Chennai. And we invested what are the basic requirements as India I scales up, we are getting ready. Like similarly, we are looking at multiple places. And basically, we are capable of delivering big projects, and we are looking at this AI momentum tick off in India, and which is we are seeing some positiveness both hyperscalers and enterprises. So what is in a simple sense, is we are ready to expand. And your point is there are other people. Yes, there are other people. But I think one other thing is being 25 years in the market in India, and we are established as a brand. And I think we will get our own share here. Jonathan Atkin: And then lastly, just in terms of the breadth of opportunity, you mentioned 3 markets where there's scale development and demand, but also a lot of activity around edge, like multiple double-digit number of cities where there is also data center opportunities that are recognized and maybe comment about the edge opportunity as well as maybe how that kind of fits in with your network services business? Raju Vegesna: Yes. So yes, we are building edge data centers also. And one of the uniqueness of Sify is having a network business that positions us not only just a colo player and network integrated with that. So we have a plan to expand these Tier 2, Tier 3 cities where it is age is important. And we have our own sites planning, building 10 to 12 sites over the time based on the demand. So there also, we are making ahead into certain cities. Once they're live, we will more than happy to share with. And yes, you're right. It also we are playing -- we are going to play a role. Operator: Our next question is coming from Greg Burns with Sidoti & Company. Gregory Burns: Just wanted to ask about the proposed IPO of Infinite spaces. Why was now the right time to consider that type of transaction? M. Vijay Kumar: Yes. So Greg, the tailwinds for the data center, colocation industry growth is very strong. And it is important to have access to capital. And the listing will help us to continuously access capital to meet the demand forecast, which we see. Gregory Burns: Okay. And what percent of the -- the new entity will Sify retained ownership of? M. Vijay Kumar: We will retain ownership of a substantial percentage grade the exact percentage will be known after the book building process is completed. But what we will be holding is a very substantial percentage going forward and actually [indiscernible] we will dilute. Gregory Burns: Okay. Great. And Kotak, their investment is converting into Infinite spaces equity? Or are they -- does it convert into Sify Technologies equity? And what percent -- or how much stock are there debentures converting into? M. Vijay Kumar: Yes. So their debentures will get converted into Sify Infinite Spaces equity. And this conversion will happen after the draft prospectus is filed by -- is approved by the securities regulator in India. And at that time, we'll publish the exact percentage of how much will be they're holding. And Kotak's interest is to remain invested in the company. A small portion of their holding, they will be offering for sale as part of the public offering, essentially to support the float on that stock. Gregory Burns: Okay. And then you mentioned kind of how your network business integrates or works with the data center operations. So once you split off the data center business. Are they going to be signing long-term like multiyear agreements with the networking operations? Or are they free to kind of go contract elsewhere? M. Vijay Kumar: No. Even at present, the contracting happened separately for the networking with the parent company, which carries the licenses for the networking business. And for co-location, there are separate contracts which are entered with the data center company. The customer relationships and the go-to-market strategy for the company will continue to remain the same. And to our customers, we'll present an integrated offering where they'll consume network services, colocation services and IT services, which they would require. Gregory Burns: Okay. Great. And then just lastly, you mentioned the 3 megawatts of new contracting capacity this quarter. Can you just give us the full complexion of the data center business. I know you have 14 operational like how much design capacity do you have in the market and versus like what is currently operational? M. Vijay Kumar: We have about 188 megawatts of design capacity, which is ready for sale, out of which about 130-megawatt is built. And what is now sold is a small requirement for one of our existing customers. The rest of it is ready for sale and at different stages of customer conversations for contracting. Gregory Burns: Okay. And then what is the -- I guess, the road map for the rest of the -- or maybe the next 12 months in terms of data center builds, how much design capacity are you how much design capacity, I guess, is in the pipeline to be built out? M. Vijay Kumar: Yes. So Greg, I have a little bit of a constraint. Generally, we don't make forward statements and more importantly, having filed the draft prospectus with the securities regulator I'm prohibited from making any forward statements. But I just want to suffice it to say that there is a substantial amount of new greenfield project construction, which is happening in parallel. Operator: Our next question is coming from [ Maher Saker ] with [ Prithvi ]. Unknown Attendee: I have a few detailed questions and we'll take a bit of time for the Q&A. So my first question is regarding the IP of the Sify Infinite Spaces, in which Sify Technologies directly holds equity given that Sify NASDAQ listed entirely where about 84% is held by Promoter Group and 16% by ADR holders. Could you please explain the rationale behind pursuing the IPO of Sify Infinite through a holding company structure under rather than directly distributing ownership or demerger based structure in Sify Infinite between promoters and ADR holders in the same 84-16 proportion and then proceeding with the -- so basically, because of this holding company set up, both the promoter shareholders and ADR holders are currently unable to directly participate in the valuation upside of the data center business. So what was the like strategic regulator, your tax rationale behind adopting this holding company now. M. Vijay Kumar: Prithvi, I think it's a very involved question. I think we have got guided largely by our bankers and advisers in terms of the best structure for raising capital. And as you know, the data center business is completely India-focused business and capital-intensive business. And equally important, there is depth of capital market in India, which we have witnessed over the last few years. And in terms of value realization, and to eventually reflect hopefully, in the parent company. The bankers have advised is the best part. Unknown Attendee: Like actually, I have also the limited knowledge. So if you had gone through the demo structure, so it would have been helpful to the minority holders to unlock the value. So like is there any intent post IPO to simplify the structure? M. Vijay Kumar: It's difficult to respond to that, Prithvi, now. We will see it as time passes by whatever best headways we get in terms of what is best for the shareholders, we will certainly see. Unknown Attendee: It would be just helpful like if you can keep this in the mine like for future perspective. And my next question is regarding -- like I just wanted to get a sense of the road map like what is the expected time line for the infinite IPO from here? M. Vijay Kumar: Yes, the DRHP was filed last week. And usually, CB takes a time of 3 months for approval of the draft prospectus. And thereafter, we get guided by the bankers in terms of what is the appropriate timing to take to the market. Unknown Attendee: Okay. Okay. My next question is regarding the network services business. So if we look at the trend over the last decade, the operating margins have declined materially from 23%, 25% during FY 2016 to '20 to about 10%, 15% levels between -- in last 5 years, even though revenues have grown only at about 5%, 6% CAGR. So while I noticed the recent improvement in margins in Q1 and Q2 at around 14%, 18%, could you please like elaborate on what led to this sharp margin compression earlier like is this margin behavior structural or cyclical? Can we expect this segment to gradually revert to the 20%-plus range as utilization and demand improves? M. Vijay Kumar: Correct. It is structural, and it's by design. And you have started witnessing the improvement in margin. What happens is as the network expansion happens. And more importantly, when you invest in new age networks to support AI kind of demand. You invest in new infrastructure, which will take time to monetize. And these are important investments, which have to be done ahead of time. So these are done by design and as a structure and the trend which you have observed should continue. . Unknown Attendee: Okay. So like should we assume like the current 14%, 16% band as the new steady state? M. Vijay Kumar: No, no, no, no. it should get better. Unknown Attendee: So like over the future period should -- we should be able to see 20% plus kind of range, right? M. Vijay Kumar: Yes. That's our expectation, and we are working towards that. Unknown Attendee: Okay. And my last question is on the digital services segment. So like similarly, over the last decade, the business has shown like in revenue growth periods of high growth like FY 2016 to '18, then FY '23, followed by flat or negative years with an overall CAGR of about 11%. At the same time, operating margins have steadily eroded from around 15%, 20% during FY '16, '18 to negative territory in '24, '25. And the losses have also continued in Q1 and Q2. So can you please help us let me understand the key factors behind this deterioration? M. Vijay Kumar: Yes. So 2 reasons, Prithvi. One is there's a complete change in the way IT is getting consumed by enterprises post-COVID. Earlier, there is to be a substantial amount of IT projects, which were delivered on a system integration model. But post-COVID, most of it is consumed as a service. So project-based revenues by design as a company, we have chosen to scale it down. So unlike in the past, that's 1 reason. Second is also what's happening in the last 3, 4 years, and we have consistently shared in all our communication. This is a business where we are investing significantly in terms of people and in terms of building IP to be very relevant for the way IT is going to be consumed by the large enterprises and the upper end of the medium enterprises. So there's a lot of work happening there. It will take some time. It will take some time. But we are confident that we will be relevant to the market with the investments which we are making now. And we'll continue to do this for a few more quarters before we start hopefully seeing the results. Operator: [Operator Instructions] We have a question from [ Sri Tho ] who is a private investor. Unknown Attendee: I have a couple of questions, pretty much in line with what other participants have asked. Correct me if I'm wrong, from whatever I have reviewed the published results. The network services has grown at 16%. Data Services is around 25%. The digital services has degrown around 30%, 35%. This quarter. Is that a fair statement? M. Vijay Kumar: Yes. Unknown Attendee: So related to this, the digital services, I know we have spoken like in the last few quarters, that whole offering is being redesigned, maybe some non-value added services are being discontinued. That entire division is being revamped, so to speak. I know the network services and data center are kind of related to each other that you could offer both. How much of digital services is stand-alone? And how much is it actually dependent on other 2 businesses? So to reframe the question, data center client might request even the network services. How much of them are actually requesting for digital services? M. Vijay Kumar: Yes. So Srikanth, as far as the IT services are concerned, we broadly offer network managed services, then we offer the cloud and managed services. then we have security-related services broadly at a high level. The network managed services is very closely linked with our network business, the network infrastructure business. So in the network managed services, we manage for enterprises, large and including the bank's PSUs. We manage the networks for them. irrespective of where they are sourcing from the whole network is managed best. So there is a correlation there. And as far as the cloud and managed services are concerned. The cloud services, ultimately for the customers that require a good network to reach the cloud, whether it is cloud, which we build for them in our facility or the public clouds. So we have solutions, including technology platforms, which help enterprises to manage hybrid cloud consumption where they consume partly from public cloud and partly from the private cloud, which is set up on our data center, there's a correlation. And our security solutions are again largely around the infrastructure related security solution, whether it is security at the network layer or at the data center layer or the cloud layer. And of course, we do some bit of security around applications as well. So there is correlation. And beyond this, as far as our enterprise customers are concerned, the customer touch points are similar. So our effort is to ensure that -- in the large enterprises, we are able to maximize our share of engagement with them. So we have witnessed some amount of success in that. will continue to put our efforts to get it better. Unknown Attendee: Okay. Okay. So the other question, again, going on to the digital services. So it's basically the loss in the Digital Services division has dragged the overall results. Otherwise, this quarter result is probably similar to last quarter, maybe it growth? Had it not been for the loss in digital services? M. Vijay Kumar: Correct. Correct. Correct. Unknown Attendee: Okay. Okay. So obviously, I'm sure this division is on focus now on everybody's radar that you would obviously don't want this to drag the results of other divisions within the group. M. Vijay Kumar: Correct. Correct. You're right. And we are focused on that. But we don't want to stop investigated because in the -- unlike the network and data center where your investments are in balance sheet items, in the case of IT services business, your investment is in the P&L item. So this loss sort of reflects our investments for the future. And of course, we are focused on reducing this monetizing it early. And if some of our beds are not working, we will redesign our strategy. And also, we are focused on that. Unknown Attendee: Okay. Okay. And 1 last question, sir, on the upcoming IPO. The fact that the CPI Infinity spaces will be listed in India. Sify Technologies is the holding company, which is a NASDAQ listed. So we are indirectly a shareholder in not indirectly, directly shareholder in Sify Infinity Spaces, which will be listed in India. Given that the existing Sify Technologies shareholders will not be able to directly participate other than any Indian resident who can apply in the IPO, have you considered doing any kind of -- I mean lack of better word, maybe private placement or some kind of opportunity for existing investors and Sify Technologies who have an appetite to probably participate in the proposed IPO other than just applying in the IPO whoever is eligible? M. Vijay Kumar: Yes. We haven't done any specific work on this. But let me socialize with the bankers. We have guided on the entire process by the bankers of regulatory process and what is best for maximizing the value to all the existing shareholders. Unknown Attendee: It just may be a nice way of rewarding the existing shareholders. M. Vijay Kumar: I've understood your ask, but I think I need to be conscious of the regulatory network as well. Operator: As we have no further questions on the line at this time, I would like to turn the call back over to Mr. Raju Vegesna, for any closing remarks. Raju Vegesna: No. Thank you very much for joining this call and having continuous interest in Sify, and have a good day. Thank you. Operator: Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning. My name is Anna, and I will be your conference operator. [Operator Instructions] This is FHipo's Third Quarter 2025 Conference Call. There will be a question-and-answer session after the speaker's opening remarks, and instructions will be given at that time. FHipo released its earnings report [indiscernible] October 24, after the market closed. If you did not receive the report, please contact FHipo's IR department [indiscernible]. Questions from the media will not be taken nor should the call be reported on. Any forward-looking statements made in this conference call are based on information that is currently available. Please refer to the disclaimer in the earnings release for guidance on this matter. We are joined by Daniel Braatz, Chief Executive Officer; Ignacio Gutiérrez, Chief Financial Officer; and Jesús Gómez, Chief Operating Officer. I would now like to turn the call over to Daniel Braatz. Daniel, please go ahead. Daniel Michael Zamudio: Good morning, everyone, and thank you for joining us today. Let me walk you through our third quarter 2025 results. Throughout 2025, we have remained focused on strengthening our platform, prioritizing high-quality yielding assets and maintaining a resilient, efficient and forward-looking investment strategy. The disciplined execution of this strategy supported by a solid capital structure positions us to continue adapting to a changing environment while pursuing sustainable growth. In the third Q, we reaffirmed our commitment to delivering profitability to our investors. Historically, as of the end of this quarter, we have distributed over MXN 7.2 billion to our investors, reinforcing our focus on sustained value creation. Our strong capitalization profile remains a pillar of FHipo's financial strength. In the third Q, we maintained a 59.7% capitalization ratio and a 0.65x debt-to-equity ratio. Our disciplined deleveraging strategy has strengthened the balance sheet and positioned us to capitalize on future growth opportunities. Our financial margin stood at 56.8% of total interest income, once again reflecting our stable profitability and operating discipline. Among the quarter's highlights, we closed at MXN 1 billion of financing between a renewal of our $500 million credit facility with Banco Ve por Más and signed a new facility with Banco Santander for the same amount further strengthening our financial flexibility and confirming the market's confidence in our business model. Furthermore, on September 22, the full early amortization of CDVITOT 15U and CDVITOT 15-2U trust certificates took place, resulting in a nonrecurring effect on quarterly results, in line with our objective of continuing the reduction of exposure to VSM-denominated loan portfolio. If we move on to Slide 5, we highlight our consistent track record of delivering value to our investors through stable distributions. For the third quarter, our annualized yield per CBFI stands at 11.5% based on an estimated quarterly distribution of MXN 0.35 per CBFI, subject to our current distribution policy. As I mentioned before, since FHipo was created, we have distributed approximately over MXN 7.2 billion to our investors, equivalent to MXN 19.32 per CBFI. These results underscore our strategic direction centered on creating long-term value and maintaining a focused approach for our investors. Moving to Slide 6. As of the third Q, our debt-to-equity ratio considering both on-balance and off-balance financings was 1.38x highlighting the fact that during the period of the third Q 2019 to third Q of 2025, we achieved a deleveraging of 0.9x in our total on and off balance debt. Over this period, we remain disciplined in maintaining a solid and resilient balance sheet, which positions us to capture future opportunities aligned with our long-term objectives. At the same time, our financial margin reached 56.8% for the quarter, representing a 5% points improvement year-over-year. This reflects the continued efficiency and reinforces our commitment to operating with discipline, focus and a sound financial structure. On Slide 7, we highlight our continued emphasis on higher yielding assets. As of the third quarter of 2025, originations through digital mortgage platforms accounted for 19.7% of the total portfolio. Up to 8.6% in the third Q 2023, reflecting a 2-year CAGR of 38.4%. Our portfolio has a strong asset quality profile with an average loan-to-value of 77% at origination and an estimated loan-to-value of 29% based on current market value of housing. Moving on to Slide 8, on the third Q, our nonperforming loan ratio calculated for the accumulated balances of the total portfolio at origination stood at 3.04%. Overall, our portfolio continues to reflect prudent levels of nonperforming loans, which remains consistent with the nature of the maturity profile of our assets. Finally, on Slide 9, FHipo affirms it commitment to sustainability and ESG best practices. We aim to generate long-term positive impact beyond financial returns. We have financed over 100,000 loans with 55% going to low-income households. Women represent 31% of our total portfolio and 35% of our digital mortgage platforms, while 39% of our workers are women. On governance, our Nomination, Audit and Best practices committees are fully independent and more than half of our technical committee members are independent as well. On the environmental side, about 70% of Infonavit borrowers have taken the green mortgage program benefit. And internally, we have implemented initiatives to reduce paper, plastic and water use. These actions reflect FHipo's ongoing commitment to incorporating strong ESG principles into our business model and decision-making process. Now I will turn the call over to our CFO, Ignacio Gutiérrez, who will discuss the leverage strategy. Ignacio Gutiérrez Sainz: Thank you, Daniel, and again, good morning, everyone. I'll first walk you through our different funding sources on Slide 11. FHipo has continued to strengthen its balance sheet. As of the third quarter of 2025, our total debt-to-equity ratio, including both on and off balance sheet financing stood at 1.38x, down from 2.3x in the third quarter of 2019 reflecting a deleveraging of 0.9x over that period. On a stand-alone basis, our on-balance sheet leverage ratio was of 0.65x. This financial discipline has improved our flexibility and reinforced our capacity to negative changing market environments. Our funding structure remains diversified and robust, allowing us to efficiently manage liquidity to support future growth opportunities. If we turn to Slide 12, as shown in the breakdown of our consolidated funding as of the third quarter of 2025, more than 70% of our financing has legal maturities exceeding 20 years. This profile provides us with a comfortable long-term debt structure aligned with the nature of our assets. In addition, our financing costs remain at current and competitive levels, supporting the sustainability of our capital structure over time. Now I'll turn the call over to our COO, Jesús Gómez, who will go through the portfolio breakdown before I discuss our financials. José de Jesús Gómez Dorantes: Thank you, Ignacio. Good morning, everyone. Thank you for joining us today. Let's move to Slide 14 to take a close look at the breakdown of our mortgage portfolio as of the end of the third quarter of 2025. FHipo's consolidated portfolio comprised 47,543 loans as of September 30, 2025, with an outstanding balance of MXN 17.8 billion, an average loan-to-value at origination of 77% and a payment-to-income ratio of 24.4%, at the end of the quarter 92.4% of the portfolio remain performing. Our portfolio remains diversified across several origination programs, including Infonavit Total, Infonavit Más Crédito, FOVISSSTE and the digital mortgage platforms, which now represents nearly 20% of the consolidated portfolio. Moving on to Slide 15. FHipo's portfolio remains geographically diversified across all 32 Mexican states. Nuevo León, Estado de México and Jalisco are still the largest contributors together accounting for approximately 29% of the total portfolio balance. In terms of our partnership originations programs, here's the breakdown of the portfolio. First, Infonavit Más Crédito accounts for 49.9% of our total portfolio equivalent to MXN 8.9 billion. The digital mortgage platform portfolio accounted for 19% of the portfolio equivalent to MXN 3.5 billion. The Infonavit Total Pesos program represented 14% of the total portfolio equivalent to MXN 2.5 billion. Fovissste portfolio accounted for 11.8% of the total portfolio equivalent to MXN 2.1 billion. And finally, Infonavit Total (VSM) program reached 4.6% equivalent to MXN 800 million. The distribution reflects our strategy to prioritize origination programs that offer strong risk-adjusted returns while maintaining a diversified portfolio aligned with market demand. I will now turn back the call to our CFO, Ignacio Gutiérrez, to discuss FHipo's financial results for the third quarter of 2025. Ignacio Gutiérrez Sainz: Thank you Jesús. On Slide 17, we will discuss our NPL and provision coverage levels. Our consolidated nonperforming loan ratio stood at 7.6% as of the end of the quarter. As of the end of this quarter, we continue to maintain a solid reserve and loan loss allowance policy with an expected loss coverage of 1.43x against NPL and against expected loss and NPL coverage of 0.58x. If we move to Slide 19, and here, we will go through our financial results for the quarter. Total interest income for the third quarter of 2025 was of MXN 318 million, showing a decrease compared to the $332 million reported in the third quarter of 2024. This decrease is primarily attributed to the natural amortization of the portfolio, which was partially offset by the growth of the mortgage portfolio originated through the general mortgage platforms. The interest expense totaled MXN 137 million, representing a 14.2% decrease compared to the MXN 160 million reported in the third quarter of 2024, mainly though to the declining interest rates over the past 12 months. Our financial margin was of MXN 180 million, representing a 56.8% of the total interest income an increase of 5 percentage points compared to 51.8% in the third quarter of 2024. The allowance for loan losses recorded for the third quarter of 2025 was of MXN 65.2 million and the valuation of receivable benefits from securitization transactions showed a net decrease of MXN 115 million in fair value during this quarter. This result is mainly explained, as Daniel mentioned, to nonrecurring events such as the net effect derived from the total early amortization of the CDVITOT 15U trust certificates carried out in September 2025 and the consideration of observable factors related to the cleanup call of upcoming securitizations with similar portfolios. In addition to the amortization pace of the loan portfolio underlying the trust certificates given that these securitization structures are close-ended by nature and to the performance of the portfolio in collateral of such trust certificates during the quarter. Total expenses for the quarter totaled MXN 96.4 million, a decrease of 20% with respect to the same period of 2024. And considering these FHipo registered a result of minus MXN 98 million during the quarter. The estimated distribution for the third quarter of 2025, subject to the current distribution policy is of $0.356 per CBFI and which considering the price of the CBFI as of the end of the third quarter of 2025 results in an annualized dividend yield of 11.5%. With this, I will now hand the call back to our CEO, Daniel Braatz, for some closing remarks before we move to the Q&A section. Daniel Michael Zamudio: Thank you, Ignacio. As for the third Q of 2025, we have continued to strengthen FHipo's financial profile, maintaining a disciplined management approach, a healthy balance sheet and a solid capitalization. Our capital structure remains prudent, allowing us to preserve financial flexibility and continue distributing attractive yields to our investors. Looking ahead, our focus remains on prudent risk management and identifying new opportunities aligned with our long-term strategic objectives. At the same time, we continue to prioritize long-term profitability and the ongoing enhancement of our portfolio's quality. The initiatives we have implemented throughout the year have further reinforced our foundation to capture future opportunities and create sustainable value over time. We will keep advancing our ESG agenda and contributing to long-term value creation for all stakeholders, including the communities we serve. Thank you for your continued trust. I'll now hand the call back to the operator to open the Q&A session. Thank you for your continued trust. I'll now hand the call. Operator: [Operator Instructions] We would like to take this moment to thank you for joining FHipo's Third Quarter 2025 Results Conference Call. We have not received any questions at this point. So that concludes our question-and-answer session. Thank you. I would now like to hand the call back over to Daniel Braatz for some closing remarks. Daniel Michael Zamudio: Thank you all for joining us today. Please don't hesitate to reach out to us if you have any more questions or concerns. We appreciate your interest in the company and look forward to speaking with you soon. Operator: That concludes today's call. You may now disconnect.
Irakli Gilauri: Good morning and welcome to Q3 earnings call. Thanks, everybody, for joining and finding time. Today, we are going to talk about the 5 different topics. First of all, I'll talk about the key developments and in our -- in Q3. We'll talk about the performance of Q3 and 9 months. Then we will have our portfolio companies, CEOs talking about their respective large portfolio -- large company performance. As you saw, the numbers are staggering. It's really top performance our CEOs are showing, and it will be good to discuss with them outlook as well. Giorgi, our CFO, will talk about the portfolio company valuation and liquidity and dividend outlook. And in the end, I'll do the wrap-up and followed by the Q&A session. So let me start with the highlights. So NAV per share in quarter, it grew nearly 8%, excellent performance, both by Lion Finance Group share price performance. But most importantly, our private large portfolio company showed an excellent operating performance, and they continue to deliver staggering results, 30% -- nearly 30% EBITDA growth in Q3. And it's been a 9 months performance been also 30-plus. So that's kind of one of the [indiscernible] large portfolio companies. [indiscernible] our goal is to be a debt-free at GCAP level. $50 million is really a very small debt for us, but we still want to do debt-free holdco. In terms of the NCC ratio, we improved to 5.4%. That's another kind of a good development. We continue to buy back our shares. 1.4 million shares was bought back in Q3. In total, 15.2 million shares we bought for $221 million looking at the average price, what we have bought, the 15.2 million shares is really a big value creation we created by the buyback. So that's kind of another reason to like or love buybacks. We did -- our healthcare group did the acquisition, bolt-on acquisition, a small one, but we like the pricing and we like the momentum that our management is delivering. They have been delivering excellent performance, operating performance. And I think it's a great platform for us to invest more money to make -- to grow our business even further. And I think that was kind of [indiscernible] what our management has executed. We also entered the MSCI index [indiscernible] index, which played a positive role in the [indiscernible] share price -- of our shares in general, sorry. Let me give you an overlook of the progress of the GEL 700 million capital return program, which we announced in August this year. Nearly half of this program is done, $100 million is the paydown of the debt and out of $50 million, nearly $26 million we already executed in buybacks, and we continue to execute on the remaining $24 million. Now the -- so you see on the next slide, the progress. And you see that after delivering of $50 million buyback, only GEL 300 million will be left to return to the shareholders. So it's kind of -- we are moving in a very lightening progress on this [indiscernible] 1.5 years earlier. It seems like we'll be delivering this capital return program earlier than we anticipated in the beginning. I want to just highlight this, Giorgi, our CFO, put this slide together, and I like this slide because it's kind of reflects on the ownership of GCAP shares. So by holding the 100 GCAP shares -- sorry, ownership of the Bank of Georgia shares through GCAP. So if you hold the 100% GCAP shares, you used to hold 20.4 Bank of Georgia shares. in December 2020 for instance. And that has changed over time. And now it's actually you hold more 21.8 shares, which reflects the -- reflects our buybacks basically. And in reality, we did sell down a little bit Bank of Georgia because of the PFIC's reasons. But at the same time, by buying back GCAP shares, we actually didn't really change much the ownership of the Bank of Georgia's shares through GCAP. So that's kind of reflects that we have -- our shareholders have a good exposure on Bank of Georgia performance. I want to update now on the capital market [indiscernible] has been generating in the local market, and we are more and more relying on the exits or capital raising -- the capital raising on the local market, and we like this fact very much. For instance, GEL 350 million of debt in was raised by our health care group at 3.75% margin. That is kind of the 5-year maturity and the funds [indiscernible] our health care [indiscernible] out what the health care business did. On the other hand, our hospitality business issued very small bond on one of our hotels, which we sold most of the other hotels, but we have one hotel remaining in Gudauri ski resort. And we think it's a good asset, and we think we want to sell it at a good price. So we are not in a rush here, and we decided to raise a $10 million bond. It's a small bond, but it actually reflects well that we can -- even small businesses can access the capital markets locally. So this is an acquisition earlier I talked about the health care business, bolt-on acquisition. We bought -- it's less than 4x EBITDA -- forward-looking EBITDA, this business, and we think that integration and synergies, I mean, I think that the 4x is a safe way to assume that we can achieve the 4x for next year. Now the economy continues to perform extremely well in every sense. One thing which needs to be highlighted is the National Bank reserves, which have been accumulating pretty fast. In the past 3 quarters, GEL 1.5 billion unprecedented interventions and the National Bank [indiscernible] bought the $1.5 billion of reserves. And now it's a record high at $5.4 billion international reserves. So in terms of the GDP growth, we see [indiscernible] higher growth than the IMF does. So let me talk about the NAV development, NAV per share development. So 7.9% increase was mainly driven by Bank of Georgia share price increase and the operating performance of our large portfolio companies. The good thing that we haven't changed anything on the multiple side. So we had a 4.6 percentage point gain on Bank of Georgia and 2.8 percentage point gain on operating performance of all our large companies. So then we had buybacks at 1.2 percentage point positive impact. Emerging and other portfolio companies also contributed positively at nearly 0.5%. Operating performance was minus 0.2% and other was 0.9 percentage points. This mainly reflects the litigation case -- legacy litigation case, what we had in the past, which has been now done and over. In terms of -- on Slide 12, you see NAV growth over the [indiscernible] past 3 years, we have achieved 33%; 5 years, 29% COG and 18% CAGR we have achieved since the GCAP inception. So 18% is needs to be improved for sure, but we are very happy with 3% and 5% NAV COG growth for sure. In terms of the free cash flow, [indiscernible] Slide 13, you see that after the paydown of debt, our pro forma free cash flow increased from $48 million in '24 to $63 million. So -- but the growth is even more attractive per share basis because we were buying back the shares meanwhile. So per share, our free cash flow has increased by 45.6%, [indiscernible] important we are not tiring of talking about the buybacks. And we have bought back 15 million shares plus with $221 million. And now we are at 35.4 million shares, all-time low number of shares. We are really fighting the share count. We like the share count [indiscernible] discount and where we are. Now let [indiscernible] revenue is up -- on Slide 16. Revenue is up 13.5% in Q3. 9 months is 16.2% increase. Q3 EBITDA 29.5% increase and 9 months, 34%. So really, this continues the high growth momentum, and we are happy that our management of portfolio companies are delivering, and I will talk about why they are so good later on. Here, you see the cash flow development, same growth, high growth here. In the 9 months, we have 20.7% free cash flow growth. In Q3, we had 3.7%, which will -- in Q4, we will most likely see a way higher growth in cash flow as we will have more cash coming in pre-Christmas. And you have aggregate cash balances also growing of our portfolio companies stands at GEL 250 million. Now on NCC development, we have as I said, we have 5.4% NCC, which has been decreased nearly 3x over the year. One thing which we need to highlight that our contingency liquidity buffer of $50 million will be decreased due to this litigation case is over. Also, the debt levels in GCAP has decreased and our portfolio companies are a very healthy leverage ratio. So we don't need to have such a huge liquidity buffer of $50 million in Q4 [indiscernible] substantially. NCC ratio development here, you see that's coming down and we were at a record 42.5%, and we are at 5.4% of that. It's a nice development. It's along with our announced strategy of delevering the GCAP. Now let me hand over to the Retail Pharmacy CEO, Tornike, who will talk about the performance of our retail pharmacy business. And then we will have the insurance company CEO, Giorgi [indiscernible], talking about insurance and then Irakli Gilauri, CEO of Healthcare business, who will talk about the developments in health care business. Tornike Nikolaishvili: Hello, everyone. I'm pleased to share a brief business overview and update on the performance of our retail pharmacy business for the third quarter and 9 months of 2025. Let me remind that our business consists of 3 main directions: retail, wholesale business and international operations. Retail business is our core, generating around 75% of our revenue. Wholesale business is our biggest focus for growth. And in international, we are, let's say, in a start-up mode, believing to expand further in the region. We have a unique category structure in retail, having around 50% share of non-medication versus med category. So non-med category can be described by higher margins and no price regulation risks. Based on 2023 figures, we continue to be the largest player in the retail pharmacy market in Georgia with around 36% market share in organized trade. We are operating under 2 well-positioned retail brands, GPC, which targets the high-end segment and Pharmadepot serving the mass market. We also operate 2 franchise brands, the Bodyshop and Alain Afflelou (Optics) and are active in Armenia and in Azerbaijan as well. We expanded our network by 8 new pharmacies added in Q3, including 1 additional in Armenia, most of them in cost-efficient formats that require limited capital. So as of September 2025, we operate 438 pharmacies. So in terms of -- in the next slide, please, in terms of operating performance, our retail revenue grew by 6.1% in 9 months and 7.5% in quarter 3, respectively, supported by same-store growth of 5.3% and 6.6% in 9 months and quarter 3. This was despite the exit from our textile retail business, which slightly affected the headline growth. We are encouraged by this trend as it reflects healthy consumer demand and solid in-store execution. As in Q2, we continued strong growth on the wholesale side. Revenue grew by 33% as we continue to deliver on our strategic focus to grow in wholesale. It was achieved across all wholesale channels, mainly driven by increased product availability. So we also increased the average bill size around -- by around 10% year-over-year and gross profit margins improved to record high 33.4% in quarter 3, driven by a better sales mix and improved supplier terms. So on the next slide, let me share how it's translated in financial performance. So EBITDA grew by 30.6% in 9 months. We reached record high GEL 73.7 million. And in quarter 3 alone, EBITDA grew by 18%. And cash conversion from EBITDA is back on 90% plus threshold for 9 months due to strong quarter 3 performance. From a balance sheet standpoint, we remain cautious and disciplined. Our adjusted net debt to LTM EBITDA continued to improve, reaching 1.3x, which is below our target ceiling of 1.5x. We also distributed GEL 10 million in dividends during the quarter. In addition, we plan to distribute GEL 15 million dividends in quarter 4. Thus, in total, the dividend for the year will be GEL 35 million, reflecting confidence in our cash flow and overall financial health. So on the next and last slide, let me summarize. We have maintained solid revenue momentum, especially with same-store sales growth and strong wholesale results. Profitability has improved, supported by gross profit margin improvement and prudent cost discipline. Leverage remains at a healthy level, giving us flexibility for future investments and shareholder returns. Thank you again for your time. I'm happy to take your questions during Q&A session. Now let me hand over to Giorgi [indiscernible]. Unknown Executive: Thank you, Tornike. Hello, ladies and gentlemen. I will overview the insurance business today. Our insurance business comprises of 2 main business lines that we divide its property and casualty that is run under the brand name of Aldagi and we run another line of business, the main line of business, medical insurance under the meds brand of Imedi L and the medium to upper affluent brand under the name of Ardi. I would like to underline that Q3 was a record high, and I would say the record high during the existence of the insurance business in GCAP, and I will dive you in both business lines separately. So to go to the insurance revenues, our insurance revenue grew by 9% and 9 months over 9 months, the growth was almost 30%. Our pretax profit grew even more by 22% and 9 months over 9 months grew by 23%. Just a quick update on the key operating data. We have a growth of 11% in net premium written, while our P&C business grew by 14%, while the medical grew by 8%. Going forward into the separate slides and separate business lines. There are -- at this point, there are 19 insurance companies operating on the territory of Georgia and ALDAGI, our P&C business line -- business provider is the undisputed leader with 35% of market share with the closest captive company with 23%. So there's quite a big difference between the second player and ALDAGI. We had an amazing growth in insurance revenues of 16% Q-over-Q and almost more than 20% 9 months over 9 months. The main expansion was driven by the retail motor portfolio as retail remains a key strategic focus on our agenda together with the credit life insurance. The good point is that our net profits -- our pretax profit grew even more than the revenues that underlines our healthy portfolios and the disciplined underwriting. The pretax profit grew by 23% and that translates into the record high ROEs of more than 40%. That is a historic high that we never envisaged. Key operating data, net premiums written grew by 14%, as I have already mentioned. And the good point is that the combined ratios were improved by almost 1.1 points, driving it down -- they're dragging it down to 83%. Individual insurance grew by 14%, while the insurance written policies grew by 13%. The renewal rate stays still very high and promising at 75%. The good point to just -- again to underline is the good accomplishment that I would like to underline is the combined ratio that is mainly driven by the improved loss ratios in the corporate motor segment that was announced last year that we will be eliminating loss-making clients and dragging down the combined ratio. So the moves that we put into life are effective, and we are really happy with the management and the actions that they took -- they put into life and our combined ratios are in our target of 85% to them in the medium term. Going to the health insurance, we had also another record high health insurance quarter in terms of the profitability, even though the revenue in Q3 was minor because of elimination of a few big loss-making clients and a few state tenders that we didn't participate in. But going forward, we think that Q4 will be -- will return to double-digit growth. 9 months over 9 months was about 40% growth in health insurance. The actions that we put on in Life was mainly reflects the loss ratio improvement by 1.3%, and we had an 18% record high increase also in single quarter of 18% for the single policy issued. Pretax profit grew at 15%. That translates into record high ROEs of about 38%. Key operating metrics, net premiums written grew by 8%. Combined ratios went down, and that is -- I'm happy that it is because of the eliminating loss-making clients in Q3 and not participating in a few big state tenders, putting down our combined ratio by 1 point. Individual insurers are a bit down because of not participating in the state tenders, while the corporate segment grew by 17%, I mean, direct insurance. The renewal rate still remains very strong at 80%, which is considered very high and very strong in the health insurance. Both brands are doing very well. Ardi has launched our higher affluent brand has launched the new application, the new digital solutions and Imedi L also has launched the new updates for the web that was translated into 73% of the digital bookings putting down -- bringing down the costs and affecting our combined ratio. That is in line with our digitalization of all brands, all 3 brands in total. So going forward and a few words, the medical insurance still also remains the leader on the market. We hold about 32% of the market share that is in line in the appetite of 30% to 35% of targeted market. Going forward, and a few words to remember about Q3. We had an outstanding performance in both P&C and medical insurance, resulting in record high profit and all-time high ROEs of 40% -- more than 40% in P&C and almost 40% in health insurance. We had an exceptional result in motor insurance, especially the corporate motor that underlines again the healthy underwriting and the healthy portfolios in the middle of our operating principle. New brand identity was launched for the -- and transformation was done in both brands of health insurance, Imedi and Ardi and the new digital solutions were also launched in both health insurance lines. We paid almost GEL 2 million in Q3, translating into GEL 15.6 million and more cash to come to GCAP in Q4. The expectations are very good and very promising. We are hoping for even better Q4 and in both P&C and health insurance throughout all 3 insurance companies in revenues and in profits. So that was in short about the health and P&C business, insurance business. And let's wait for the Q4. I do hope that it will be much better. Thank you. And I'll pass the floor to Irakli Gilauri, who will underline our Healthcare business. Irakli Gilauri: Hello, everyone. I will walk you through Healthcare Services business latest results. I'm very pleased to report another strong quarter. We continued our focus on the outpatient direction by attracting new doctors and diversifying our services. We also optimized our revenue mix and improved patient retention. As a result, our outpatient revenue grew by 28% year-over-year in third quarter and share of outpatient revenues grew further by 2.4 percentage points from 40.8% to 43.2%. We launched new services in several hospitals and clinics addressing previously underserved medical needs. This includes the introduction of our arthroscopy sports medicine, gynecology and interventional cardiology in several hospitals. Our initiatives helped us to deliver 20% revenue growth with our EBITDA growing by 46% in Q3 and EBITDA margin surpassing 19% as well. Our last 12 months EBITDA reached GEL 89 million, up from GEL 58 million from September 2024 result, which led to net debt-to-EBITDA decrease from 5x to 3.8x. On the next slide, in our hospitals business, in third quarter 2025, we delivered revenue growth of 19% and EBITDA growth of 44%. Operating cash flows grew by 39% during 9 months of 2025. And we think that Q4 cash conversion will be very decent. Occupancy rates increased by 8.5 percentage points during the same period, while the average length of stay decreased by 0.3 days as a result of our efficiency-focused initiatives. On the next slide, in the polyclinics business, number of admissions increased by 8%, while number of tests performed in our Diagnostics business increased by 15%. This resulted in revenue growth of 26% and EBITDA growth of 55%. In Diagnostics business, we still operate at below 50% capacity and intend to increase our utilization significantly going forward. On the next slide, we signed a binding agreement to acquire Gormed, a regional health care network with 3 clinics and -- in the Central Georgia. The transaction is subject to approval by the competition agency. Gormed covers 3 cities with combined population of circa 300,000 people with 80,000 registered patients. Most notably, we entered Gori, Georgia's fifth largest city. Through this acquisition, we are strengthening our regional network in Southern and Central Georgia, enhancing our patient referrals and optimizing staff utilization across 7 interconnected clinics. In 2 cities, the Gormed was our only competitor pressuring our margins, and the acquisition will enable us to merge the 2 hospitals and extract synergies and increase effectiveness. The acquisition offers 2026 EBITDA multiple of under 4x we expect an improvement of 0.6 percentage points in annualized ROIC on the Healthcare Services business level, demonstrating our continued focus on shareholder value creation. That concludes my part of the presentation, and I will hand over to Giorgi Alpaidze. Giorgi Alpaidze: Thank you, Irakli. Hello, everyone. I will briefly take you through what these excellent results mean for GCAP's balance sheet and our NAV statement. So starting with the overview, we updated the valuations based on the internal valuation mechanisms. This is in line with what our independent third-party valuation company Kroll does every 6 months. So this time, we looked at the DCFs, we looked at how the projections that were set forth at the 6 months period, the results were actually delivered over -- in the third quarter. And overwhelmingly, all our large portfolio companies actually delivered higher EBITDA, higher revenues than what we were projecting at the end of June. This has helped us create value across the board. Briefly in the overall overview, we did have a little bit of sales in the Lion Finance Group shares, but still it continues to be the largest investment that we have on our NAV. It was 47% of our portfolio. Within the private portfolio investments, retail pharmacy was the largest business, followed by health care services and the insurance business. On the next slide, you will see that the multiple development in the third quarter was pretty much in line with the multiples at the end of the second quarter with only small minor increase in insurance, but it was broadly in line. On the next slide, you will see that how these multiples affected the portfolio value development. So overall, the portfolio value increased by GEL 100 million. However, it was a result of many movements. In the Lion Finance Group, you see this decrease, but that was because of the dividends that we received in the quarter, which was actually a combination of the full year dividends of 2024 plus the interim dividends where the ex-dividend date actually fell in September. So we had to record those dividends in the third quarter as well. And also the sales where we sold about 600,000 shares of Lion Finance Group that also resulted in the decrease of the stake. But overall, we recorded gains in the Lion Finance Group. In the private portfolio, the excellent growth meant that the retail pharmacy business contributed about GEL 51 million to our P&L. That includes the value creation within the business, but also the dividends that they paid us. That was followed by Healthcare Services business at GEL 40 million and insurance at GEL 36 million. Now on the next slide, you will see how these value creation is translated into the new portfolio values or the latest portfolio valuations for each business. Within Retail Pharmacy, the EBITDA growth that Tornike spoke about was GEL 42 million P&L impact for GCAP that was driven by EBITDA and additional GEL 4 million from the positive net debt change where the net debt improved, notwithstanding the GEL 10 million dividends that they paid us. So that's how we get to overall about GEL 50 million profit within our third quarter NAV statement from retail pharmacy. In insurance, we also had a 5.1% growth because of the growth in the net income, which you saw on the previous slides across the board in P&C insurance and the medical insurance that was also supported by the net debt change. And overall, this value was created by the net income growth and the strong cash flow performance. In the Healthcare Services business, EBITDA growth delivered GEL 60 million. That was partially offset by the cash conversion as the operating cash conversion in the third quarter was relatively low that we expect to recover, as Irakli mentioned earlier, in the fourth quarter. So we would expect this net debt change to be reversed as we go into the fourth quarter. But overall, the Healthcare business did deliver about GEL 40 million value creation for us. Now this concludes the valuations and briefly into the liquidity. Our liquidity continues to be very strong even as the gross debt balance that we have carried, as you can see on the top of this chart, has been reducing over time. Despite that, our liquidity has increased. We finished the quarter with $77 million worth of liquidity, which for the first time since GCAP's demerger from Bank of Georgia Group, we actually had a positive net cash balance given that our gross debt is only $20 million, we were actually negative net debt or net cash of $27 million. And then now on the next slide, we are now projecting the increase in our dividend inflows from previous GEL 180 million. We now expect GEL 200 million, around circa GEL 200 million. We have so far collected, as you see on the slide, GEL 168 million, but as it was mentioned earlier by the private portfolio companies, we expect to get more dividends from the pharmacy business as well as from the insurance business. And on top, our other portfolio companies, renewable energy and the auto services will be also paying us more dividends, which we think in the fourth quarter will bring the full year to GEL 200 million dividends. What's important here, I would highlight that on a per share basis, given the number of shares that we bought back this year, which is more than 10% so far, this means that we will be having about 31% growth on a per share basis in terms of the dividend inflows per share. That concludes my presentation and over to Irakli for the wrap-up of this excellent set of results. Irakli Gilauri: Thank you, Giorgi. So I will not repeat all the points what we have here. But basically, I think the short summary is that we have excellent performance and team is delivering. Q4 outlook is also looks positive. Economies continues to grow. Our companies continue to deliver. So let's move on the Q&A session. Operator: [Operator Instructions] So as I see, we have first question from Dmitry. Dmitry? Dmitry Vlasov: Congratulations on a really good set of results. I have 4 questions, please. The first one is on the ongoing capital allocation. You did great progress for your GEL 700 million. You paid down a good amount of debt. And now my question is about the priority between buybacks and debt maybe for the next 10 months. What should we expect? What would be the priority for you? Would it be buyback or debt? That's the first. Irakli Gilauri: Thanks, Dmitry. I think that even the fact that the leverage is really low level [indiscernible] our priority is buyback, especially at the current NAV discount level. So that's clearly a buyback at this discount level for sure. Dmitry Vlasov: Got it. And the second question is about Lion Finance Group. I understand that's your key holding and pays you very good dividends. But maybe in the near future, do you plan to trim the stake a little more or you are currently happy at the current position? Irakli Gilauri: We are happy with the current position. The only thing I don't know whether you follow this PFIC development that we had, and we had to trim a little bit off. So basically, that's kind of where we are, but we are happy with LFG holding. It continues to perform well. It's a very well-run bank. We have a very good geography and the economy. So... Dmitry Vlasov: That's clear. Then the next one is on the Healthcare segment regarding the deal, which you've done. Obviously, the multiple is very good. My question is on the EBITDA impact for the 2026. I mean it's a small one, but just to double check whether you expect any near-term pressure on the EBITDA margin maybe in the first quarter or the second quarter of 2026 or you don't expect any of that? Irakli Gilauri: On Healthcare, we don't expect EBITDA margin pressure at all. We are actually expanding EBITDA margin, as you see, and we will continue to expand because we are adding more profitable services. We are making more efficient operations. I mean this is kind of a small acquisition, but it gives you a flavor at what prices we have the appetite to invest, allocate the capital. And basically, I think that will a little bit of helps to grow the business and grow the profitability, generate more cash, and that's what we are for here. Dmitry Vlasov: Understood. That's very clear. And the last one is on Armenia in pharmacy business. If you could give me an update about the current market share and how it developed over the last 12 months. It's quite an attractive market. Irakli Gilauri: I think it's better we have Tornike talking about that, our CEO of Pharmacy business. Tornike? Tornike Nikolaishvili: So thank you for the question. So in Armenia, unfortunately, we don't count the market share because as we do in Georgia, it's transparent how the big companies are reporting their data, but it's not the case for Armenian market. So we don't have -- and the market also is very fragmented in Armenia. The key accounts as they are holding in Georgia around 90% of total market. It's very much fragmented in Armenia. Operator: Now I will read out the question that we have in the question-and-answer panel. So the question comes from Eduardo Lopez. Congrats all Georgia Capital team. Here are some questions. On retail, can you give us more color in relation to strong wholesale growth and evolution of international expansion? And the second question is about the insurance. Could you give us an insight in the breakdown of growth volume and price, especially in P&C insurance? Could you also comment the evolution of reinsurance business and potential unit economics? Irakli Gilauri: I think let's have Tornike and Giorgi answering these questions right. Tornike Nikolaishvili: Thank you. So for wholesale, let me mention that the biggest impact for our wholesale business, such a big growth is the portfolio enhancement, in fact, which means that we have -- partially, we have additional new contracts for exclusive brands and products, which we are selling in wholesale in all channels. And the second part is that we opened for our existing portfolio, which we are selling before, let's say, exclusively in our retail. But now we opened that for big pharma key accounts and also pharma traditional trade as well. So that gave us a results there. Unknown Executive: So I will answer the first question about the pricing. So the first question is about the pricing and mainly our actuaries and underwriters are looking at the portfolio analysis. So mainly last year and in Q3, we had a growth in corporate motor. So we adjusted the prices according to the loss ratios that we look at and we usually monitor the portfolios. So we are always pricing our products at market price and even more so a bit more than the market price because of the brand and because of our high NPS. So whenever there is a yellow flag from our actuaries, of course, we reprice the price, mainly it's in P&C, where we use the actuarial opinion in each line. As far as for the health insurance, of course, it's really in collaboration with the health care providers, health service providers. So -- and they are also adjusted annually or maybe even twice per annum because of the growing demand and utilization. So we see -- in health insurance, we see quite a big utilization because of the AI developed quite well. And this year, we had 2 adjustments because our patients usually ask ChatGPT -- ask AI tools and then they come directly to the doctors and ask for the prescription. So we need -- so utilization is growing, meaning that we need to adjust the prices. So we always have our hands on the pulls to keep the combined ratios at a healthy level. So we put the healthy portfolios in the middle of our working principles. So that's the first part. In terms of the international inward reinsurance, the development is really, really good. As you know, in Q2, our P&C business has been upgraded to the investment rating, and we became the first company in Georgia with the investment grading. Our announced strategy was there is that we will keep up to 10% of the total revenues at this point in the medium term for the inward reinsurance. And the good news is that we had a meeting with our reinsurance rate and they increased our inward reinsurance limit from USD 5 million to USD 15 million, and that's the recent development. So because of the prudent underwriting and the good healthy portfolios also in the inward reinsurance. So what we should expect is that we should expect the growth in inward reinsurance, but we'll take it really cautiously. We are learning the market. We are learning the region, but we really love this business to be presented in the region without any equity and using our treaties -- reinsurance treaties. So the first one is, yes, we will be developing. We will be increasing our portfolios, but cautiously, up to 10% of our total revenues. And the good development is that -- recent development is that our main partner, Hannover Re granted us increased -- tripled our inward reinsurance limit from USD 5 million to USD 15 million that's the recent development. So that is the answer. Operator: So the next question comes from Ben. Ben, you can talk now. Benjamin Maher: Can you hear me? Irakli Gilauri: Yes, yes. Benjamin Maher: I've got a few. The first one is on the capital return program. You -- this is obviously meant to run to the end of 2027, but you're tracking well ahead of that at the moment. So would you expect to announce another program next year possibly? That's my first question. The second question is just on acquisitions. So the acquisition of health care business, that seems to be positive and done at a good price. Should we expect bolt-on acquisitions and buybacks rather than larger M&A until the discount to NAV narrows? And then kind of related to that, what discount to NAV would buybacks no longer make sense for you guys? Just on the existing investments you have, do you expect to monetize any of these in the near term? Or is that more of an end 2026, 2027 event? And then my final question is just on the dividend guidance. So I saw that you upgraded it for this year, but I was just wondering to give us -- if you're able to give us any color for the dividend you expect in 2026 and beyond. Irakli Gilauri: So let me start with the capital return program. Yes, we did say end of 2027. It seems like we are moving faster, and we may do in '26 announce a new one once we finish. But I don't want to make a new deadline. So far, we are working with 2027. And last program, you know that we did 1.5 years earlier, we finished 1.5 years earlier than originally anticipated. So let's see how we go about here. As you saw on the slide, we had a GEL 300 million -- only GEL 300 million will be left after we are done with $50 million buyback program. Now in terms of the healthcare acquisition and the expectations about the investments, basically, we always said that we are running very simple capital allocation strategy. If we can find somebody with cheaper than GCAP, we'll buy it. So before, when we were running at 50%, 60% NAV discount, it was impossible to find anything. So now we did -- and we were only doing the buybacks. Now that it decreased the NAV discount is at 32%, we could have -- we found some things, not a lot, but some things we did find. So we don't expect to find many at 32% discount to NAV. So we may find from time to time some acquisition opportunities, which we will pursue. And it will be a very simple, can we buy this company cheaper than we can buy the [indiscernible]? It's a very simple question we need to answer every time we make an investment. So we found in health care and we bought it. And we don't expect to find a lot at the 32% plus discount to the fair price. [indiscernible] at this discount level. Once we will be trading at a premium, then we probably will be investing more. So that's kind of a very simple approach. Regarding the monetizations, monetizations are not planned or et cetera. They are, in a way, it's periodic. And we see -- if we see the opportunity to sell, we do that. And we -- of course, we look at the GCAP discount levels. More discount closes down on GCAP share price, more difficult will be to sell and so it's easier to sell at a higher discount than a lower discount. So it's basically very simple straightforward capital allocation program we run. It is scientific, but there is some art involved in this as well. As it's not -- mathematically, you cannot really measure everything what is the investment in health care in the region versus the investing in GCAP, it's not dissimilar. So it has to be -- the GCAP investment is way better than the investing in the regions in health care. So basically, there is a lot of science, but we also use art there. In terms of the dividend outlook, so far, we did announce the 2026, what we are expecting, and we will announce '27 outlook towards the end of the Giorgi, our CFO correct me if I'm wrong, when we will be announcing the dividend outlook for '27. Giorgi Alpaidze: So for '26, so we announced '25. So we will be announcing for '26 as we publish our fourth quarter numbers. But at the moment, we do expect that number to grow compared to 2025, Ben. Benjamin Maher: Okay. Can I just ask one more quick question if we have time. Just again related to acquisitions. Given all the hard work you've been doing through buybacks to reduce the share count back down to before the merger level, I assume that going forward, you wouldn't expect to issue further shares to fund an acquisition? Or is that something that you still would look at potentially to try and finance another acquisition? Irakli Gilauri: The buyback is not a hard work, to be honest, it's very simple work. We just don't work much. Actually, we just buy back. Buying something is hard work. You need to do due diligence, negotiation, et cetera. So we would rather do little and do the buybacks, to be honest. Sorry, I did not fully catch the question. Benjamin Maher: No, that's fair enough. I'm just wondering if going forward, would you -- should we expect the share count to increase ever again? Or are you quite keen to keep it... Irakli Gilauri: No, no. We don't like share count to increase. We like share count decreasing. No, I mean, our goal is to become a permanent capital vehicle, which is basically don't issue new capital and reinvest. So if we want to invest something somewhere, we need to sell something. And if we need to -- we can do the bridge, we can attract some bridge loans if we want to invest somewhere. But -- and then have a very clear path of repaying this loan. And so we have a very firm commitment of not increasing the number of shares. Contrary, we want to decrease. So we like the share count decreasing. We have our internal targets, how far down we want to go. It's actually 1 share. But so far, we are a long way to go -- we have a long way to go. Operator: So next question comes from [indiscernible]. Unknown Analyst: Can you hear me? Irakli Gilauri: Yes. Unknown Analyst: Yes. I wrote my questions on chat as well, so I will just read them out. With regard to the Imedi litigation, given that it was stated that there was low perceived risk in the annual report of '24, I just wanted to ask, firstly, if you have an updated view on the other [ BGA ] litigation and what was mentioned in the pharma. And if you think more provisions might be needed there, if you have anything relevant to share? Irakli Gilauri: No. At this stage, basically, we don't anticipate anything -- any provisions. We did have on NCC, the liquidity buffer on Imedi L, and we did have some provision to that Imedi L basically. But that unfortunately, it worked out that way. But at this stage, we don't see any need to provision anything else. Unknown Analyst: Okay. And secondly, I mentioned the returns that you're putting up in the insurance segment is truly phenomenal. I just want to see if you think this is sustainable and how you strategize if so, to keep those returns? How is the market -- the Georgian insurance market looking overall? Is that above market level returns you're earning? Is it not? And yes, just some commentary around how the returns on equity can be so exceptional in your insurance business. Irakli Gilauri: Giorgi, maybe you want... Unknown Executive: Yes. I'll take the question. Yes. Thanks for the question. So to start with the first part, we've been producing the exceptional return on equity for the last 10 years. So we are outperforming the market twice for the last 10 years. So -- and it's not for 1 or last 2 years. For last 10 years, Aldagi has -- our P&C business has produced twice high ROEs than the market, meaning that our main principle and the approach is that we put in the middle, the disciplined underwriting. So we don't jump from one side to another. We follow our strategy that is a disciplined underwriting, meaning that we are very sure and the management is sure that the high ROEs and the profitability and the returns we provide is very sustainable because of the healthy loss ratios that we keep. And our strategy is to keep the loss ratios in the range of 85 -- from 85% to 87% in the medium term for the next 5 years. And we've been doing this for the last 10 years, meaning that even there -- the market is very fragmented. There are 3 main players, but the idea is that we don't dampen the prices. We follow our brand and we follow our underwriting. So meaning that we are not going -- the returns will be sustained for the last -- I mean, for coming years that we are really, really sure. The competition is quite high, but the main players, I mean, are 3. The rest are small. And yes, that's it mainly that allows us to keep the high returns with the exceptional. And we are the only company in Georgia, mainly keeping the big division of the actuaries. So we do not make any decision without the actuarial opinion, and they have the right to raise yellow and red flags and every decision made by the company is made by the recommendation of the actuaries. And we will keep and we will stick to the disciplined underwriting in the coming years. Unknown Analyst: Okay. That's great. I mean the combination of growth and underwriting margin in your insurance business is truly spectacular. So congratulations. What's -- a quick follow-up maybe on that. What's the name of the 3 competitors or the 3 main players? Unknown Executive: Yes, the main group, there are 3 main competitors as us. One -- is one us. The second is the Vienna Insurance Group. We only have one international player at this point present with the Vienna Insurance Group by 2 companies. And the third one is a Captive Insurance company which is owned by one of the banks. 100% -- mainly dependent -- mainly which is dependent on the bank portfolios. Unknown Analyst: All right. And if I may, just a last final one. With regards to the whole PFIC situation, has there been any discussion around alternative solutions here? It just seems to me that Bank of Georgia can be very strongly argued to be your cheapest asset and your cheapest investment based on contribution to NAV. And then it seems this will be preventing monetization in other mature businesses, for example, health care, given that a big return of cash would prevent you to do buybacks or return that to shareholders, and you would again cross the PFIC limit by quite a lot. Just keen to hear if you have any comments and thoughts on this dynamic and if you explored other solutions. Irakli Gilauri: So basically, we are -- to be honest, this -- the Bank of Georgia thing we had to fix it quickly because it nearly doubled from year-end. So basically, it has happened in such a short period of time. We didn't have anything else to fix that problem other than they trim the Bank of Georgia. So in 6 months when the share price nearly doubles, it's very difficult to come up with alternatives. I'd love to come up with alternatives. But at that point of time, we didn't have any alternative. Unknown Analyst: Do you have any other alternatives going forward if -- given Bank of Georgia is still relatively lowly rated, if this would continue? Irakli Gilauri: Basically, we are exploring [indiscernible]. I don't know, U.S.A. that overnight or in a couple of months, 3 months, it's not happening like that. You need time to monetize business in Georgia. Giorgi Alpaidze: So [indiscernible], for example, as we grow our private portfolio as the assets on the private portfolio side grow, that is helping to keep the passive share of assets down when it comes to Bank of Georgia. For example, this acquisition, which is not yet complete, but the bolt-on in the health care business, it adds the asset base. It adds the land, it adds the building value, et cetera. That's positive for PFIC, for example. Unknown Analyst: Yes, of course, of course. I'm just saying it seems like you're so far been selling your cheapest assets based on rating. Giorgi Alpaidze: But at the same time, we've been buying back. That's why we had that one slide, which shows you that even when we are selling, when you look at it on a look-through basis, you still own same amount of -- or more amount of Bank of Georgia shares than what you own 3 years ago or 4 years ago, for example. Unknown Analyst: No, of course. Yes, very clear. Operator: Thank you, [indiscernible], for the interesting questions. We also have one question in our Q&A panel. The question comes from Barry Cohen. And the question is, what does the management think team think is the spread between the discount to NAV tightens enough where use of capital shifts to portfolio investments versus share repurchases? Irakli Gilauri: I think we answered that question basically, it is as NAV discount gets lower, smaller, more investment opportunities come and will come to us. So that's kind of -- will be available for us to make an investment. So it's a process. Operator: Perfect. And the last question that we have is from [indiscernible]. It seems like you took the slides out of the presentation regarding focusing on capital-light businesses versus capital intensive. And you also made a capital-intensive acquisition, albeit a cheap one. Is that is a sign of a change in strategy? Irakli Gilauri: No, no, I don't know whether we took a slide off. It's a very good observation, but this slide should be -- should go back in there. I think that this acquisition was mostly opportunistic and it improves the exitability of the health care business. So basically, I mean, we don't -- we cannot say that we cannot invest -- if we invest that we improve the exit opportunity, why not? So no, we did not -- we are not changing our strategy. We are very much committed to the capital-light. And this acquisition was pretty much the, first of all, very small ticket size. Second, it was a bolt-on to our current business. And thirdly, it is improving the exit opportunity for our capital-heavy business basically. Giorgi Alpaidze: And if I were to add just 2 things, and we didn't take out any slides, Bret, maybe it's in a different presentation. But one thing that's great about this bolt-on is it comes with no leverage. They have no debt, and we're buying this at less than 4x. You can imagine we can leverage this at 3x, and we only put down 1x as an equity. So as directly said, it was a very attractive structure in that sense. I don't know, over to you. Any more questions? Operator: Yes. Thank you. Thanks, Giorgi. No, there are no pending questions currently. If some of you want to -- or have any questions, please do not hesitate to write it in a Q&A panel or raise your hands. Irakli Gilauri: It seems like there are no further questions. Thanks for your time, and stay tuned for Q4 as we continue to deliver on the results -- great results. Thank you.