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Nick Timiraos, WSJ, joins 'Closing Bell' to discuss the Federal Reserve's upcoming meetings, the labor market and much more.
Nick Timiraos, WSJ, joins 'Closing Bell' to discuss the Federal Reserve's upcoming meetings, the labor market and much more.
Nick Timiraos, WSJ, joins 'Closing Bell' to discuss the Federal Reserve's upcoming meetings, the labor market and much more.
Nick Timiraos, WSJ, joins 'Closing Bell' to discuss the Federal Reserve's upcoming meetings, the labor market and much more.
Operator: Good morning, everyone, and welcome to Grupo Televisa's Third Quarter 2025 Conference Call. Before we begin, I would like to draw your attention to the press release, which explains the use of forward-looking statements and applies to everything discussed in today's call and in the earnings release. Please note, this event is being recorded. I would now like to turn the call over to Mr. Alfonso de Angoitia, Co-Chief Executive Officer of Grupo Televisa. Please go ahead. Alfonso de Angoitia Noriega: Thank you, Elsa. Good morning, everyone, and thank you for joining us. With me today are Francisco Valim, CEO of Cable and Sky and Carlos Phillips, CFO of Grupo Televisa. Before discussing our third quarter operating and financial performance, let me share with you what we believe are the key milestones achieved this year, both at Grupo Televisa and TelevisaUnivision. At Grupo Televisa, let me touch on 4 major achievements. First, our strategy to focus on attracting and retaining value customers in cable has allowed us to grow our Internet subscriber base in the first 9 months of the year compared to the end of 2024. Second, we keep executing on implementation of OpEx efficiencies and the integration between Izzi and Sky to extract further synergies. This has already contributed to expanding our consolidated operating segment income margin by 100 basis points in the first 9 months of the year to 38.2% driven by year-on-year OpEx reduction of around 7%. Third, we continue to keep a disciplined CapEx deployment approach to focus on free cash flow generation. So far this year, we have invested MXN 7.5 billion in CapEx, which is equivalent to 16.8% of sales. In the fourth quarter, CapEx deployment should remain at similar levels to those of the third quarter. Still, our CapEx budget of $600 million for 2025 implies a reasonable CapEx to sales ratio of less than 20% for the full year. We have been able to achieve this mainly because we have had successful negotiations with suppliers, resulting in more favorable terms. And fourth, during the first 9 months of the year, we have generated around MXN 4.2 billion in free cash flow, allowing us to prepay a bank loan due in 2026 with a principal amount of around MXN 2.7 billion. This debt repayment comes on top of the $220 million principal amount of our senior notes already paid on March 18. Additionally, at the end of the third quarter, Grupo Televisa's leverage ratio of 2.1x EBITDA compared to 2.5x at the end of last year, mainly driven by our free cash flow generation. And at TelevisaUnivision, I will mention 3 key milestones. First, engagement and growth for ViX remains solid with strong momentum across both our free and premium tiers. Moreover, the Gold Cup semifinals and final and the compelling entertainment in sports slate that included the third season of La casa de los famosos, Mexico and our broadcast of Liga MX and the NFL helped drive a high single-digit increase in MAUs and robust demand for advertisers and ViX. Second, the efficiency plan to reduce operating expenses at TelevisaUnivision by over $400 million in 2025 is delivering outstanding results. In the first 9 months of the year, our total operating expenses have declined by around 12% year-on-year for total savings of around $300 million. This shows a disciplined execution of our cost savings initiatives, including lower content, technology and marketing costs and the normalization of our DTC related investments. And third, looking at TelevisaUnivision's leverage and debt profile, the company ended the quarter at 5.5x EBITDA an improvement from 5.9x in the fourth quarter of 2024, driven by growth. Moreover, so far this year, TelevisaUnivision successfully refinanced $2.3 billion of debt. As discussed in our second quarter earnings conference call, the company successfully issued $1.5 billion of new 2032 senior secured notes and refinanced over $760 million of term loan A now due in 2030. In addition, more recently, TelevisaUnivision extended its $500 million revolving credit facility and its $400 million accounts receivable facility. These transactions strengthened TelevisaUnivision's balance sheet, enhanced its liquidity and extended its maturity profile with its nearest maturity now almost 3 years away. Deleveraging remains a core strategic priority for TelevisaUnivision and management remains committed to further strengthening the capital structure of the company over the coming quarters. Having said that, let me turn the call over to Valim as he will discuss the operating and financial performance of our consolidated assets. Francisco Valim Filho: Thank you, Alfonso. Good morning, everyone. As Alfonso mentioned, we had an excellent quarter in this third quarter. First, let me walk you through the operating and financial performance of our cable operations. We ended September with a network of almost 20 million homes after passing around 20,000 new homes during the quarter. Our monthly churn rate has remained below our historical average of 2% for 2 consecutive quarters as we continue to execute our strategy to focus on value customers while working on customers' retention and satisfaction. Our broadband gross adds continues to improve on a sequential basis, allowing us to deliver 22,000 net adds during the third quarter compared to net adds of around 6,000 in the second quarter and disconnections of about 6,000 in the first quarter. In video, we also experienced a strong gross adds than in the first 2 quarters of the year and managed to reduce churn. Therefore, we lost about 43,000 video subscribers during the third quarter compared to 53,000 cancellations in the second quarter and 73,000 disconnections in the first quarter of the year. Moreover, we expect the improving trends to continue going forward, influenced by our recently announced multiyear partnership with Formula 1 to provide live coverage of all Grand Prix via Sky Sports channels available through Izzi and Sky. Beginning in the fourth quarter of this year until 2028 season, Formula 1 is the one of the fastest-growing and most passionate sports events in Mexico and around the world, and we definitely see this as a competitive advantage relative to our peers. Moving to mobile. Our net adds of 94,000 subscribers during the quarter continued to gain momentum, beating the 83,000 net adds of the second quarter and doubling those of the first quarter. Our innovative MVNO service developed by ZTE, offering enhanced user experience is already making our bundles more competitive and allowing us to increase our share of wallet from our existing customers. During the quarter, net revenues from our residential operations of MXN 10.6 billion, which accounted for around 91% of total cable revenue decreased by only 0.7% year-on-year. This marked the best quarter of the last 2 years at our residential operations from the revenue growth performance standpoint and compares well to a decline of 3% in the first half of the year. On a sequential basis, net revenue from our residential operations grew by 0.4%, potentially signaling an ongoing gradual recovery. During the quarter, revenue from our enterprise operations of MXN 1.1 billion, which accounted for around 9% of our cable revenue increased by 7.7% year-on-year. This also marks the best quarter of the last 3 years of our enterprise operations from a revenue growth performance standpoint and compares favorably to growth of 3% in the second quarter and a decline of 4.5% in the first quarter of this year. Moving on to Sky's operating and financial performance. During the third quarter, we lost 329,000 revenue-generating units, mostly coming from prepaid subscribers that have not been recharging their services. In addition, beginning in the second quarter, we started to charge an installation fee of MXN 1,250 to all satellite pay TV subscribers to increase the return on investment for this service. This translated into a slowdown of video gross additions for Sky that has been steady over the last 2 quarters. Sky's second quarter revenue of MXN 3.1 billion declined by 18.2% year-on-year mainly driven by a lower subscriber base. To sum up, segment revenue of MXN 14.7 billion fell by 4.4% year-on-year, while operating segment income of MXN 5.7 billion declined by only 0.7%, making it the best quarter of the year as we appear to be very close to reaching operating segment income stabilization. Our operating segment income margin of 38.5% extended by 140 basis points year-on-year, mainly driven by the efficiency measures that we have been implementing and synergies from the ongoing integration between Izzi and Sky. Regarding CapEx deployment, our total investment of MXN 3.6 billion account for 24.3% of sales during the third quarter. This shows a material sequential increase in CapEx deployment, but it is in line with our updated CapEx budget for 2025 of $600 million. Finally, operating cash flow for Cable and Sky, which is equivalent to EBITDA minus CapEx was MXN 2.1 billion in the third quarter, representing 14.2% of sales. Alfonso de Angoitia Noriega: Thank you, Valim, best quarter of the year indeed. Now let me take you through TelevisaUnivision's third quarter results. The company's third quarter revenue of $1.3 billion declined by 3% year-on-year, while adjusted EBITDA of $460 million increased by 9%. Excluding political advertising, revenue fell by 1% year-on-year, marking a sequential improvement compared to both the first and second quarters of this year. On the other hand, also excluding political advertising, adjusted EBITDA increased by 13% year-on-year, underscoring the scalability of a profitable DTC business and the sustained impact of cost reductions initiatives launched at the end of last year. Moving on to the details of our revenue performance. During the quarter, consolidated advertising revenue decreased by 6% year-on-year or 3% excluding political advertising expenditure. In the U.S., advertising revenue was 11% lower as growth in ViX continued to partially offset linear declines. Within ViX, the Gold Cup, semifinals and finals helped drive a high single-digit increase in MAUs and robust demand from advertisers. In Mexico, advertising revenue increased by 3% year-on-year, primarily driven by private and public sector ad sales that powered ARPU growth for ViX. Results this quarter benefited from a compelling entertainment and sports slate that including the performance of the third season of La casa de los famosos Mexico, dramas such as Monteverde and Amanecer and our broadcast of Liga MX and the NFL. During the quarter, consolidated subscription and licensing revenue increased by 3% year-on-year, driven by ViX's premium tier and higher content licensing revenue. In the U.S., subscription and licensing revenue grew by 11%, supported by ViX and results included a mid-single-digit increase in linear subscription revenue and higher content licensing revenue due to timing of content delivery. In Mexico, subscription and licensing revenue fell by 17%. Excluding the impact of the renewal cycle, subscription and licensing revenue in Mexico grew by 5% driven by ViX. To wrap up, Bernardo and I remain confident that our focus on value customers, efficiencies and ongoing integration between Izzi and Sky at Grupo Televisa and further integration and operational optimization at the TelevisaUnivision now that our DTC business has gained scale and achieved profitability will allow us to create greater value for our shareholders throughout this year. Now we are ready to take your questions. Operator, could you please provide instructions for the Q&A. Operator: [Operator Instructions] Our first question comes from Marcelo dos Santos with JPMorgan. Marcelo Santos: The first question is if you could comment a bit the CapEx outlook for 2026. How do you see this trending? And the second question is regarding the insurance claim you received. Was that related to Hurricane Otis? And is there something left to be received? Alfonso de Angoitia Noriega: Thank you, Marcelo. I'll ask Valim to answer both questions. Francisco Valim Filho: We gave -- Marcelo, we gave a guidance of around $600 million, and we should be within that range. Regarding the insurance claim, I think that's the last portion of the claim on the Otis Acapulco situation. So we shouldn't be seeing anything more from that event. Marcelo Santos: Valim, just one question. The CapEx for 2026, so for next year you're... Francisco Valim Filho: 2026, no 2026 is so far away, Marcelo. No, no, no. Alfonso de Angoitia Noriega: Let's finish 2025, then we can talk about '26. Operator: Our next question comes from Matthew Harrigan with Benchmark. Matthew Harrigan: You've actually reached a point in the U.S. when you look at the entire TV industry, there's more consumption on streaming than on linear. And I know your linear is much more durable than your English language peers. But you've got tremendous local programming positions, particularly in news and some of the largest U.S. EMAs. Are you really taking a lot of our -- hopefully, eventually almost all the news content on local stations and the distinctive content on the local stations and moving that to ViX over time because it feels like it would be a shame to lose the local identity. You have those stations because eventually, linear is going to fall off even for Hispanic audiences. And then secondly, clearly, a very dynamic situation in the U.S. and Mexico right now. Are you doing anything more on the BC side in relation to advertising for investments? And also, I can't help but ask, what's your general perspective on the U.S. and the imaginations with the administration on the tariff side and the prospects for near-shoring and everything going on. I know this is kind of ridiculously open-ended question. But just any thoughts on the stability of the economic relationship with the U.S. Alfonso de Angoitia Noriega: Yes. Thank you, Matthew, for your questions. I think, as to your first one, local news is very important for us. We are very strong in the local places where we produce news and local programming. We are exploring the possibility of including that in our streaming platform. We haven't yet included all of that content, but we're exploring that. The good thing is that, as I was saying, the local content is very strong. So very popular. As to your second question, we have made media for equity deals with great companies with great startups. We have assembled a great portfolio, I would say, and more companies are coming to us as they realize the importance of our platforms. And this is because of the strength of our platforms, we can position and grow their products and especially their brands when they're launching. Companies like Kavak, like Rappi, have become our ambassadors. At the beginning, we had doubts about the strength of linear television and most specifically in Mexico. But now they have become ambassadors of ours. We will continue to do these deals as we generate value with unsold inventory. And these companies become regular clients. So it's basically a funnel for these start-ups to grow, to position their brands, to position their products. And we take equity, which is great at very good valuations, and then they become regular clients and this is basically unsold inventory. So we're very happy with the portfolio we have been able to put together, and we'll continue to do this. As to your last question, I think that the Mexican government President, Sheinbaum has done an extraordinary job in dealing with the negotiations, the trade negotiations. I think that Mexico and the U.S. are key partners. If you look at the border region, it's one of the largest economies in the world by itself. The border, the legal border crossings that happened every day are in the millions. So I mean it's an integrated region. It's an integrated economy. So I believe that eventually, we'll be able to get to the right deal for Mexico and for the U.S. Operator: Our next question comes from Alex Azar with GBM. Alejandro Azar Wabi: Few ones on competition, Valim, on cable. If you can share a little bit of color on short-term and medium-term dynamics, especially when seeing how competitors are adding 1 million, 1.5 million net adds per year. It seems that in 2, 3 years, the market is going to be fully penetrated. So that would be my first question. And the second one is on Sky. With the levels of net disconnections you have year after year, how should we think about the EBITDA contribution in the next couple of years from Sky? Alfonso de Angoitia Noriega: Thank you, Alex. Valim? Francisco Valim Filho: Thank you, Alfonso. Well, I agree 100% with you. With this amount of net adds on a yearly basis, the market is very close to being fully penetrated. That's why our strategy is not going after volume because we know that we will be fighting for prices at the lower end of the pyramid. So our aim is to focus on the higher-end clients. That's why we have -- we are the only company in Mexico increasing ARPU consistently across the board. So I think that's the focus. So we think there's obviously a diminishing returns of this fight for the volumes of subscribers. And that's why our strategy moved away from that, and we have been successful in doing that. Regarding Sky, Alex, the way I see Sky is very straightforward. This is a business that will eventually disappear. Why? The penetration of the fiber networks and the amount of OTTs and the availability of a linear TV through cable and fiber operators is something that will obviously position Sky to only subscribers that are outside of those covered areas. So it will by definition then keep on declining. So how we perceive it, we perceive it as a cash flow from existing subscribers minus the programming cost, minus the technological cost of the satellite and all that is involved in that and then it generates a positive cash flow. That's the business and it has been generating positive cash flow and for the foreseeable future, we'll see positive contribution from Sky as a cash flow perspective. Obviously, it has this negative optics on our revenue, but just the way we see it is we've kind of segregate that from everything else and see that as an inflow of cash flow and everything else is more a stable growing businesses. Alfonso de Angoitia Noriega: Yes. And to add to your first question, to add on what Valim was saying, in Mexico, we have a 4-player market, but it's a pretty rational market, except for Telmex, which has kept its entry price unchanged for, I guess, more than 10 years, while also increasing Internet speeds and offering Netflix now for 3 -- for 6 months. They don't seem to be really interested in the profitability of Telmex as they extract value from the lease of fiber owned by other subsidiaries of theirs. And the other Megacable raised prices by around MXN 30 per month from the beginning of the year. So there, you can see that the industry is raising prices, except for Telmex. Totalplay also announced price hikes from April particularly from broadband customers that are heavy data users. So even though it's a 4-player market, it's a rational market and if you look at the prices and ARPU, we feel comfortable, and we feel confident that this will remain like that. Alejandro Azar Wabi: If I can just add a follow-up on Sky remarks. When you say Sky probably will disappear. I'm just thinking that there must be some part of the population that where fiber is not around, and they -- if Sky becomes the only thing that they can use, especially for video. Do you guys have an approximate of that? I don't know. Alfonso de Angoitia Noriega: No, you're absolutely right. I mean there are rural areas where a satellite provider makes sense. I don't know. Francisco Valim Filho: No, I don't think they will disappear per se. It's obviously a diminishing volume like we have been seeing and we'll keep on seeing. But just to give an example, in Central America, we have close to 100,000 subscribers basically flat because in those areas, there are less competitors offering a fiber network or a cable network. And it is very stable. And like Mexico, where we are all deploying network and expanding our infrastructure. So yes, I don't think it will disappear, not just there will be a day that will be just shut down. I think it will still have -- and I think there are just several hundred thousand people living in areas where there's no other option for entertainment and Sky will keep on being a solution. But that's why we don't see this as a -- I understand some people see this as a problem. We actually see this as an upside given the fact that we're generating positive cash flow. Alfonso de Angoitia Noriega: Yes. I think Valim is absolutely right. We see Sky as a cash flow. And the more we extend, we prolong the life of the subscribers, it's going to be an amazing driver for our cash flow. Operator: Our next question comes from Ernesto Gonzalez with Morgan Stanley. Ernesto Gonzalez: Look, I know it's early but going back to the discussion on broadband penetration in Mexico. Do you have any -- or can you share any expectations for cable growth rates next -- sorry, next year? Do you believe that you can accelerate growth for the unit. And the second question is on the sustainability of margins for Cable Sky but also TelevisaUnivision. They were strong in the third quarter. So I wanted to get a sense of how much more room they have to grow going forward. Francisco Valim Filho: Well, I think that -- back to your point Ernesto, I think that it's key to understand that obviously, as penetrations go higher, the level of net adds will diminish for every player in the market. And you have already saw that. As you see quarter after quarter after quarter, we already see a diminishing number of net adds being added to the different players. So that's a diminishing return in other countries like Brazil, for example, where the penetration is significantly higher even than Mexico. You see there's this dynamic as well and companies find ways by selling more products to the same existing customers to keep revenues growing but obviously, you're not going to be seeing high double-digit numbers because of the dynamic of the market. So like Alfonso just said, this is a very rational market. Nobody is flashing, prep is down. The promotions are very reasonable. And everybody is actually making money in this market like our cash flow generation that we have just presented. This is significantly -- is very significant. So I think that's a dynamic in mature market that you'll see. And what happens is you add more products, better products, more speeds and that's how you keep on increasing ARPU. And that's why we think the strategy of going after the high-end customers, they have more disposable income available as opposed to the other end of the pyramid. And I think regarding margins of cable... Alfonso de Angoitia Noriega: No. I think he asked about TU... Francisco Valim Filho: No, no, no. The answer is not over. Alfonso de Angoitia Noriega: Okay. Go ahead. Francisco Valim Filho: So the idea here is we think that we keep on improving margins. This is an ongoing, never stopping exercise that will go internally. And we find that through many different ways, mostly through technology. Obviously, we still are collecting a few synergies from Sky mostly through technology and improvement in how we provide services and processes. So there is an ongoing effort to increase margins. I'm talking about cable. Alfonso de Angoitia Noriega: Yes. Yes. And about -- I mean, TU amazing margins. I think that was a result of the cost cutting and all that we did in terms of costs and expenses in the fourth quarter of last year, which are being reflected in this year. We believe that we have the highest margins in the industry. And that has to do with that cost cutting, $415 million. And also, it has to do with owning the largest library of content in Spanish in the world, more than 300,000 hours of content. It also has to do with the very efficient way in which we produce content, especially in our studios in Mexico. And that allows us to have these amazing margins. So I think those margins in the mid-30s are sustainable. Operator: This concludes our question and answer session. I Would like to turn the conference back over to Mr. Alfonso de Noriega for any closing remarks. Alfonso de Angoitia Noriega: Well, thank you very much for participating in our call. And if you have any questions, please give us a call. Have a great weekend. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to Hammond Power Solutions Third Quarter 2025 Financial Results Conference Call. Certain statements that will be discussed in this conference call will constitute forward-looking statements. The forward-looking information and statements included in this discussion are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements will be based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information and statements. These factors include, but are not limited to, such things as the impact of general industry conditions, fluctuations of commodity prices, industry competition, availability of qualified personnel and management, stock market volatility and timely and cost-effective access to sufficient capital from internal and external sources. The risks just outlined should not be construed as exhaustive. Although management of the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Accordingly, listeners should not place undue reliance upon any of the forward-looking information discussed in this call. I'd like to hand the call over to Mr. Adrian Thomas, Chief Executive Officer of Hammond Power Solutions. Mr. Thomas? Adrian Thomas: Thank you, operator, and good morning, everyone. Thank you for joining us for our third quarter update. In the quarter, we recorded revenue of $218 million, marking this our second best quarter for shipments ever, and a 14% increase when compared to Q3 2024. The increase was driven primarily by U.S. shipments with gains in all of our channels to market. The U.S. market experienced its strongest growth in private label channel and steady growth in the distribution channel with strong sales into data centers, switchgear manufacturers, motor control and mining. While sales of stocked products has grown, they have been outpaced by higher sales of custom products. At the same time that our sales grew, profitability for the third quarter remained below the prior year results, with gross margin of 30.1%, mainly due to ongoing material cost pressures and overhead expenses associated with our new facilities in Mexico. In September, we announced that changes to steel and aluminum derivative tariffs, Section 232 tariffs have affected certain products. Although we worked closely with customers and suppliers to address and mitigate these increased costs, our margins experienced short-term negative impacts. Pricing adjustments to offset these added costs were implemented in the final weeks of the third quarter, and we expect margin improvement in the fourth quarter as these adjustments take full effect. We remain vigilant on our cost structure while maintaining strong customer relationships. While material cost inflation and overhead costs relating to our new facilities in Mexico have pressured margins, recent sales developments give us confidence in the quarters ahead. As I have said over the last few quarters, quotation activity has been strong and has now translated into order volume. This increase in order volume grew our backlog in the third quarter by 28% compared to the beginning of the year, mainly driven by our U.S. distribution network and our OEM business. Digging down a little further, we saw data center activity accelerated in the quarter, and we are pleased to note that several large orders were received shortly after it's closed, amounting to 53% of total Q3 closing backlog. These orders are expected to be shipped primarily from our new facilities in Mexico over the next 12 to 18 months. As we have said in prior quarters, particularly with data center customers, we are delivering quotes for larger projects than what had been our historic averages. In addition, these customers require commitments of delivering high volumes within a reasonable time frame. Our Monterrey IV facility was built to provide that ability and the projects we have received have been possible due to those expansions. Due to the nature of some of these projects, we'll be able to exceed our original capacity designs by reconfiguring our equipment, streamlining supply chains and further maximizing square footage. In addition, we will be adding equipment to further increase our production capacity. These new additions and adjustments will add approximately an additional $100 million of capacity to our 2 new Mexico facilities, bringing our total manufacturing capacity to around $1.2 billion by 2027. Speaking for Richard and myself, it is incredibly rewarding to have a team capable of building and launching a new manufacturing facility within just 12 months and pairing that achievement with a sales team that's already engaging with customers to fill that new capacity. I give full credit to our build teams and to our customer service teams, quotes teams and salespeople for their hard work and dedication to meeting our customers' future plans. With that, I will turn it over to Richard for some financial details on the quarter. Richard? Richard Vollering: Thank you, Adrian, and good morning, everyone. I'll start by rounding out some of the items that Adrian touched on earlier. With respect to sales, we've seen a surprisingly resilient U.S. market in terms of shipments of standard and configured products in the distribution channel. We've also seen a significant improvement in bookings for longer lead time custom products led by strong data center orders. Overall, shipments in the third quarter of 2025 to the U.S. and Mexico increased by 21% versus last year. In contrast to that, the Canadian market showed some weakness with sales down by 3%. We believe that this decrease is likely the result of the Canadian economy experiencing slower growth and greater uncertainty in recent months. Gross margin continued to show a decline versus last year and was 30.1% in the third quarter of 2025, down from 30.7% in the second quarter of 2025 and 33.8% in the third quarter of 2024, which is a record high. The decline is a result of higher input costs continuing from the second quarter, with the added impact of tariffs and products being shipped into the U.S. from manufacturing locations outside of the U.S. In the third quarter, we continued to have unabsorbed overheads in our newer factories in Mexico, negatively impacting margins by 233 basis points. Pricing actions taken in September should offset some of these impacts, and we expect absorption to improve as we ramp up production to address a rapidly growing backlog. General and administrative costs are growing more slowly in the third quarter versus previous quarters, improving leverage. Net earnings were $17,440 million in the third quarter of 2025 or $1.46 per share. Adjusted EBITDA was $30,290 million, which was lower than adjusted EBITDA of $34,377 million in the third quarter of 2024. The decrease is attributable to lower gross margins, offset by higher sales volumes. Adjusted EPS was $1.56 in the third quarter of 2025. Working capital requirements increased in the third quarter of 2025 with inventory being the most significant factor. Inventories rose in the quarter due to delays in shipping of certain large projects, safety stock requirements for certain projects and tariffs. Capital spending tracked as we expected with year-to-date spending at $27 million. Looking forward, the increased backlog will help to alleviate the under absorption challenges in the newer factories in 2026, and we expect pricing actions to offset some of the negative inflationary impact on material inputs. We look forward to the quarters ahead. I will now hand the call back to the operator to take any questions from our participants. Operator: [Operator Instructions] Our first question comes from Matthew Lee with Canaccord Genuity. Matthew Lee: I want to drill down on the demand picture a bit. You provided some commentary on the October orders would be very impressive. Do you feel like the large orders are a bit of a onetime item? Or are you seeing sort of a sustainable shift in terms of the bidding environment? Adrian Thomas: Matth, it's Adrian. So I think a couple of things. One, our orders in the quarter were up. We had those significant orders which came in just after quarter close that were significant. What we see, generally speaking, and I made a comment in my remarks is that we're seeing more activity around quotations for larger projects. So we see a trend towards larger projects, particularly in the data center business where people are trying to build quickly and they need large quantities of transformers. So I think that trend is continuing, and I think the ability for us and other manufacturers to supply those quantities is critical to winning those jobs. Matthew Lee: And maybe as a follow-up to that, why are these big projects choosing Hammond over some of the peer groups or competitors? Adrian Thomas: So one, so we've got an established reputation in the industry for the quality of our products and for delivery. And second, as I mentioned earlier, just the confidence of the customer that we have the capacity to deliver those quantities of equipment. Matthew Lee: Okay. Great. And then maybe just one on the CapEx side. You mentioned that you're able to kind of do $1.2 billion in capacity with Monterrey IV. But I mean if demand continues this way, how easily could you open up a Monterrey V? Or would capacity beyond $1.2 billion be difficult to create? Adrian Thomas: Yes. So we're always evaluating the capacity requirements and locations. I think what you saw, we built 2 factories in Mexico successively pretty quickly. We have the ability now that we have those 2 new facilities to add some equipment in there, maximize the footprint. The other thing unique about these orders, although they're custom transformers, they're high quantities, high runs. So we're also able to utilize our footprint more effectively for those. So we'll continue to analyze that. We'll continue to add equipment, and we will continue to add capacity so that we can meet our future demands. Operator: Our next question comes from Baltej Sidhu with National Bank of Canada. Baltej Sidhu: So a few questions from me. So if we're looking at Line 4 in Mexico, how are conversations with potential customers evolving, appreciating the incremental investment for capacity? And just following up on that, could you provide color on how booked out Monterrey IV is? Adrian Thomas: So we were able over the last year to bring a number of customers down to Mexico to show our facilities and our operations and progress on the plant. And so I think that built confidence with our customers that they saw the capacity coming on board. Sorry, what was your second question? Baltej Sidhu: So just any color that we can have on Monterrey IV and capacity utilization and how booked out it is? Adrian Thomas: Yes. So when we announced it, we had announced sort of $120 million capacity. We will be adding additional equipment, and we'll be optimizing supply chains. So I believe with some additional CapEx this year, we should be able to add another $100 million of capacity to that factory. Baltej Sidhu: Okay. Great. And then just turning over to the backlog. Great to see the growth in Q3. And particularly of interest was the 53% of total value booked already a month in the quarter. Could you give any color on what percent of that sales would be from data centers in the backlog? Adrian Thomas: Nearly all of it is data center. Operator: Our next question comes from Nicholas Boychuk with Cormark Securities. Nicholas Boychuk: I just want to confirm my understanding on something here. So $100 million of new capacity that you're adding, is that specifically from Monterrey IV? Or does that include the other organic initiatives and facility improvements that you're doing across the spectrum of your assets? Adrian Thomas: Primarily [ not ] Monterrey IV. Nicholas Boychuk: Okay. So are there other things that you mentioned in the MD&A quickly that there are both capacity improvements, flow improvements, things that you can do at existing facilities. Is there additional capacity we could think about on top of the $1.2 billion outside of that? Adrian Thomas: So it's primarily Monterrey IV. We are reshuffling some of our production footprint. So we will utilize other factories as we optimize Mon IV. So we are doing some enhancements at other factories that will allow us to get more output out of Mon IV by taking some other loads and putting in other factories. So it's all inclusive of our other footprint. Nicholas Boychuk: Okay. Got it. And then just thinking about Mon IV, can you guys comment at all on the contribution margin and how we should be thinking about what that looks like on the custom business versus what you've historically done in wells? Is it fair to say that once you get that facility operational and fully humming and it's doing some of these larger data center projects, is the contribution margin higher than what we've historically seen? Richard Vollering: Yes. Nick, it's Richard. So Yes. Listen, I think -- I mean, as you know and as you can imagine, manufacturing in Mexico is less expensive. And having some of these projects where we can do longer runs is more efficient, particularly when you're ramping up labor and training and that kind of thing. So the other side of that is, of course, the pricing equation, right? And so I think you have to put the 2 of those things together. And because some of these large projects, I mean, as you can imagine, they're going to be competitive, very competitive. So I wouldn't -- I don't have an expectation that it's going to be significantly accretive to our margins, but it will definitely help our absorption. So to the extent that we are unabsorbed in those factories today, a lot of that will go away as we ramp them up with this new volume. Nicholas Boychuk: Okay. Makes sense. And when you say that these are longer run items, does that mean that you have greater visibility into data center demand where you'll be able to sell the similar product into other data centers? Or does it have applicability into other more traditional segments that you've sold into? Adrian Thomas: So when Richard -- so every data center customer has a unique sort of architecture, but there's a lot of similarities. So the longer run is when we do one design and then we're producing it. So what we see in a lot of other industries, we will do a design, and there will be a handful, maybe 2, 3, maybe 6 transformer for that design for the project and then you do a different design. When Richard says longer runs, you may see hundreds of the same design for some data center buildup. So that gives us some efficiencies. To reconfigure for -- we can use the same equipment. There is some spacing and some other things that minor tweaks that we do. So that does allow us to pack more in when we're doing these longer runs that we would have to reconfigure if we had a different mix. So that's how the longer runs help us. Nicholas Boychuk: Okay. Got it. And then last for me, just on the backlog. I know in the past, you've mentioned and even in the MD&A, highlighted again that the backlog isn't necessarily fully indicative of somebody placing an order. It's not a firm deposit. But given that these data center contracts that came in subsequent to Q3 are much larger than you've historically seen, were you guys able to get them to place an actual cash deposit or make this a little bit more of a firm order that you can then bank on versus an indication in the past? Adrian Thomas: Yes. These orders have deposits and firm commitments. Operator: [Operator Instructions] Our next question comes from Jim Byrne with Acumen. Jim Byrne: Richard, could you maybe just help us quantify the Mexico impact here on Q3 margins? Is it 1%, 100 basis points from kind of a drag from where you would expect margins to be? Or -- just help us understand that. Richard Vollering: Jim, yes. So in the MD&A, we talked about the impact of absorption having a 233 basis point impact on the margins. Jim Byrne: Okay. That's helpful. And then just thinking about the stock product and kind of distribution, maybe just starting with Mexico, I know that, that was something that was kind of a goal of yours to implement more and achieve more product distribution down there. How is that going? Adrian Thomas: So we continue to develop customer relationships. We have been able to develop some relationships because of our custom product down there, and then that drives some interest in customers working with us on standard products. I would say, Jim, overall, particularly with how much the U.S. has been growing recently. It's small in the total dollars, but we're making incremental progress. Jim Byrne: Okay. And then maybe just lastly, I didn't see or didn't hear any commentary just kind of on stock product in general in the U.S. Are we past kind of the construction slowdown that kind of was impacting results earlier in the year and you're kind of seeing a more normal market down there? Richard Vollering: Yes. So it's interesting because I think generally, a lot of the segments in the market are showing some weakness. And that hasn't really trickled through to our standard product sales. There is business out there. I think maybe one of the things to remember is that construction, it can be office construction, it can be data center construction, but they all need transformers. They need the large custom transformers, but they need smaller distribution transformers as well. So I mean that demand comes from a lot of different places. But the short answer is no. I mean we haven't seen a slowdown in stock products. It's been doing quite well. Operator: Next question comes from Baltej Sidhu with National Bank of Canada. Baltej Sidhu: Just one more for me here. So private label sales strength continued into Q3 from Q2. What would be driving that demand? And could we see this sustain going forward? And would it be fair to say that this would be typically custom product? Adrian Thomas: You cut out on our end, could you repeat your question? Baltej Sidhu: Yes. So private label sales strength continued into Q3 from Q2. What would be driving that demand there? And could we see this as sustained? And would this be fair to say that, that product mix would be oriented more towards custom? Adrian Thomas: Yes. Almost all of that is custom. And generally speaking, it's commercial construction. There is some data center in there as well. But predominantly, it's general commercial construction activity. So I think, as Richard mentioned, we continue to see sales on stock product that's going into general construction, and we saw good volume in the private label side. But there is a mix of data center business in there as well. So we would expect the private label volume to continue either way. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Adrian Thomas for closing remarks. Adrian Thomas: Thank you, operator. We're proud of what we have accomplished over the last few months and are motivated by our major customer projects to continue driving our growth trajectory and expanding our organizational capacity. While we'll continue to explore acquisition opportunities, I believe our ongoing production initiatives and capital expansion plans position us well for sustained growth in a world increasingly driven by demand for data and electricity. I thank everyone for joining us today. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Alpine Income Property Trust Q3 Earnings Call. [Operator Instructions] After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised, today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jenna McKinney, please go ahead. Jenna McKinney: Thank you. Joining me in participating on the call this morning are John Albright, President and Chief Executive Officer; Philip Mays, Chief Financial Officer; and other members of the executive team that will be available to answer questions during the call. As a reminder, many of our comments today are considered forward-looking statements under federal securities laws. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we undertake no duty to update these statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's Form 10-K, Form 10-Q and other SEC filings. You can find our SEC reports, earnings release and most recent investor presentation, which contain reconciliations of the non-GAAP financial measures we use on our website at www.alpinereit.com. With that, I will turn the call over to John. John Albright: Thank you, Jenna, and good morning, everyone. We are pleased to report another strong quarter highlighted by AFFO per share growth of 4.5% compared to the same quarter last year and meaningful investment activity, both during and shortly after the quarter end. We believe this investment activity has set a foundation for continued earnings growth through the remainder of 2025 and into 2026. Starting with our investment activity. During the quarter, we acquired 2 properties ground leased to Lowe's for $21.1 million at a weighted average initial cap rate of 6% and a weighted average lease term or WALT of 11.6 years. Investment-grade rate at Lowe's is now our largest tenant by AVR, surpassing investment-grade rated DICK'S Sporting Goods, which now ranks #2. Year-to-date, through the third quarter, property acquisition volume totaled $60.8 million at a weighted average initial cap rate of 7.7% and a WALT of 13.6 years. Regarding the property dispositions during the quarter, we sold 3 assets for $6.2 million, including an Advance Auto Parts, our vacant theater arena in a vacant property formerly leased to a convenience store. Year-to-date, disposition volumes through September 30 was $34.3 million, of which $29 million, excluding vacant properties was sold at a weighted average exit cap rate of 8.4%. As of quarter end, our property portfolio consisted of 128 properties totaling 4.1 million square feet across 34 states with approximately 99.4% occupied, with 48% of ABR derived from investment-grade rated tenants and a WALT of 8.7 years. Additionally, after the quarter end, we acquired a four-property portfolio for $3.8 million with a weighted average initial cap rate of 8.4% and went nonrefundable on a sales contract on 1 of our 8 remaining Walgreens for $5.5 million. Now moving to our loan investments. As a result of our long-term reputation and deep relationships, we continue to see and capitalize on exciting opportunities to originate high-yielding quality loans with strong sponsors at compelling risk-adjusted returns. During the quarter, we originated 2 loans and 1 upsized loan totaling $28.6 million at a weighted average initial yield of 10.6%. This included a first mortgage loan for industrial redevelopment and a seller financing note related to the sale of our former theater in Reno. Year-to-date, through September 30, we originated $74.8 million of commitments for loan investments at a weighted average initial cash yield of 9.9%. Additionally, as disclosed in our earnings release, we have originated 3 loans since the quarter end. Most notably, a first mortgage loan secured by luxury residential development located in Austin, Texas metropolitan area. Under this loan agreement, we have funded $14.1 million at closing related to a Phase 1 loan with a total commitment of $29.5 million. The loan agreement also provides for Phase II loan with a commitment of up to $31.8 million, all additional funding is subject to the borrower satisfaction of certain conditions. Currently, we anticipate funding the balance of the Phase 1 loan by year-end and the Phase II loan in early 2026. The 36-month loan initially bears interest at 17% inclusive of 4% paid-in-kind interest for the full loan term, stepping down to 16% for month 7 to 12 and 14% thereafter. The loan will be repaid as collateralized home lots are sold with such sales anticipated to begin as early as late 2025. We believe this loan as all of our loans is secured by strong real estate backed by high-quality sponsor. As is often the case with our larger loans, there is institutional interest in pursuing a purchase of a senior tranche of this loan, and we currently anticipate participating in a portion of it out to reduce our net hold and further enhance our yield. In summary, we believe that our recent investment activity across both property and loan investment positions Pine for continued growth through the remainder of 2025 and into 2026. With that, I'll turn the call over to Phil. Philip Mays: Thanks, John. Beginning with financial results. For the third quarter, total revenue was $14.6 million, including lease income of $12.1 million and interest income from loan investments of $2.3 million. FFO and AFFO for the quarter were both $0.46 per diluted share, representing 2.2% and 4.5% growth, respectively, over the comparable quarter of the prior year. Year-to-date through September 30, total revenue was $43.6 million, including lease income of $36 million and interest income from loan investments of $7.4 million. FFO and AFFO were both $1.34 per share, representing 3.9% and 3.1% growth, respectively, over the comparable period of the prior year. Regarding our common dividend, as previously announced, during the quarter, we declared and paid a quarterly cash dividend of $0.285. Our dividend represents an annualized yield of approximately 8.25% and remains well covered with an approximate AFFO payout ratio of 62% for the third quarter. Moving to the balance sheet, we ended the quarter with net debt to pro forma adjusted EBITDA at 7.7x and $61 million of liquidity, consisting of approximately $1.2 million of cash available for use and $60.2 million available under our revolving credit facility. However, with in-place bank commitments, the available capacity on our revolving credit facility can expand an additional $31.3 million as we acquire properties, providing total potential liquidity of more than $90 million. Regarding our property portfolio, we ended the quarter with annualized base rent of $46.3 million on a straight-line basis. As noted before, this amount includes approximately $3.8 million of ABR related to 3 single-tenant restaurant properties acquired in 2024 through a sales leaseback transaction. Under GAAP, we are accounting for these specific sales leaseback transactions as financings. Accordingly, the current annual cash payments of approximately $2.9 million are reflected as interest income in our statement of operations as opposed to lease income. Given the level of loan activity after quarter end, let me provide a current update. Our loan portfolio as of today, reflecting the activity John discussed and some other recent activity, is now approximately $94 million at a weighted average interest rate of 11.5%. Notably, of this amount, approximately $21 million at a weighted average rate of 10.4% is scheduled to mature in 2026. We currently expect to utilize proceeds from these 2026 maturities, selling a senior tranche of 1 or more loan investments, property dispositions and existing capacity on our revolving credit facility to fund loan commitments. One quick note, the $1.9 million impairment charge recorded this quarter related to Walgreens that is currently under contract to be sold. Now turning to guidance. As a result of our recent elevated investment activity, we are increasing both our FFO and AFFO outlook for the full year of 2025 to a new range of $1.82 to $1.85 per diluted share from the previous range of $1.74 to $1.77 per diluted share. With that, operator, please open the call to questions. Operator: [Operator Instructions] Our first question comes from Michael Goldsmith with UBS. Michael Goldsmith: A lot of investment activity, both during the quarter and subsequent to quarter end. So can you just provide a little color on how you're thinking about funding all of this activity? John Albright: Michael, it's John. Thanks. Look, we -- as you know, we've been very busy on the recycling side. So some of that's going to come from asset sales as we keep on continuing to increase the credit quality of our portfolio. And then a little bit of this is our loans maturing. And then basically a little bit going to be net growth in anticipation of additional sales so a little bit of balance on both sides. Michael Goldsmith: Got it. And then all this loan activity, you're seeing really nice yields on that, I guess the way it cuts the other way is it can generate lumpiness in the quarters as they come due. So can you talk a little bit about how you're thinking about managing that and these loan expirations just to ensure the AFFO doesn't move around too much. John Albright: Yes. So obviously a good question. I mean when we started this kind of loan program about 3 years ago, that was a little bit of the pushback was, well, you can't replace these loans at these rates. But here we are. We are doing it with really existing relationships without even trying and so certainly, as we see more opportunities, part of that funding mechanism that Phil mentioned is selling off senior pieces of these loans. And these loans are very -- are very bite size, and there's a lot of capital out there. So there's a lot of opportunities. So I would -- I'm not worried about replacing these and having kind of earnings coming down because of these are onetime sort of opportunities. We're seeing a strong pipeline of super high-quality kind of assets and sponsorships. Michael Goldsmith: Got it. Well, if you're doing this without really trying -- excited to see what you do when you put some effort into it. I'm just kidding. Thank you very much, good luck in the fourth quarter. Operator: Our next question comes from R.J. Milligan with Raymond James. R.J. Milligan: John, with the recent activity now in residential development, I think you guys have a loan in Industrial. Just can you tell us how you're thinking about other property types and if you're going to continue to pursue things outside of retail? John Albright: Yes. It's not by design, kind of going out here just these unique opportunities with very strong sponsors and very strong assets. The industrial property that we did in Fremont outside of San Francisco, that was actually a retail property that the sponsor is basically converting to industrial to a higher and best use. So part of our underwriting on that is if it was -- if we ever had to foreclose it's roughly 50% of the acquisition, it could still be retail and work on our basis. So to answer your question, we're going to stay more focused on the retail side for sure. But not -- but if we see unique opportunities in that short duration, we're not opposed to taking on those opportunities. R.J. Milligan: Okay. That's helpful. And then, Phil, you talked about some of the sources of capital next year, some of the loan maturities, potential asset sales. Should we expect that to get reinvested? Or will those proceeds be used to pay down debt, lower leverage? Philip Mays: A little bit of both, but I think, first, they're going to get reinvested into a lot of the loans that were recently done, R.J. So the maturity is coming back from the '26 loans are going to -- we're just kind of proactively redeploying that capital a little early with the loans going out first. The new loans going out first. So a lot of that is going to just recycle into that. But on the margin, you could see leverage tick down a little bit. Operator: Our next question comes from Alec Feygin with Baird. Alec Feygin: So on the luxury residential development in Austin, can you talk about how you got comfortable with the loan and what stage of development it currently is at? John Albright: Yes. So we're familiar, if you think back at our origins of CTO and when I got here 14 years ago, we had 14,000 acres of land in the Daytona Beach to sell. So we are very familiar with residential lot development through that experience. So with regards to kind of where this project is, it's really at the kind of finish line of delivering lots and actually, there'll be some lot sales starting next week, in fact. So it's really kind of coming in at the late stage and not on the early stage. Alec Feygin: Nice. And kind of on that loan, how much of the loan are you looking to sell? John Albright: We'll probably look to sell potentially 50% of it. It really depends on how fast the proceeds come back. So it could be less, but potentially up to 50%. Alec Feygin: And then switching gears a bit with the vacant assets that were sold in the quarter, how much do we need to remove from operating expenses that you're carrying? Philip Mays: Yes. This is Phil. So the 2 largest vacant properties we have are the theater in Reno, which was sold, that had an annual run rate on the expense side of about $400,000. And the one that we have left at large is the former Party City and that also has a run rate of close to $400,000 on an annual basis. So you can -- if you were to run rate the current quarter, that will come down another about $400,000 on an annual basis once Party City is sold. Alec Feygin: And Party City wasn't sold this quarter that... Philip Mays: It was not. Reno was sold in the quarter. It was sold early in the quarter. So pretty much the full impact of that is reflected. But Party City is not sold yet. Alec Feygin: Okay. There were 2 vacant assets sold in the quarter. So is the other one just minor? Philip Mays: Yes, there was a little -- we have -- those are the 2 largest, Reno and Party City. We have a few. We had former convenience stores that are really small. There's sold one during the quarter, there's 2 left. Altogether, those don't even come up to $100,000 on an annual run rate. So they're very small and on the margin. Operator: Our next question comes from Rob Stevenson with Janney Montgomery Scott. Robert Stevenson: Is the sale large loan interest that you may do, is that in the disposition guidance or dispositions just properties in terms of the guidance? Philip Mays: It's -- if we were -- it's not -- it would be on the high end, Rob, that happened or exceeding the high end if it happens before the end of the year. The timing of it is a little hard every day. It could be just before the end of the year or it could be a little bit after the end of the year. If that were to happen before the end of the year, that would put us on the high end or over the high end of guidance on the dispose side. Robert Stevenson: Okay. But you would classify that as a disposition? Okay. Philip Mays: We historically put dispositions of loans with properties there. And if you look at the guidance, we kind of added the line for that a little bucket when we put year-to-date actuals and there was a line that had loan sales and it showed 0 just to kind of help clarify that we do kind of look at that as a disposition, but if the loan 1 were to happen, we would probably be just over our high end. Robert Stevenson: Okay. Because the reason why I ask is, if I look at the year-to-date investment in disposition volumes versus the guidance, they are sort of implying between $50 million and $65 million of net investments in the fourth quarter. You got $27.5 million in terms of rough numbers from the proceeds from the repayment of Publix and Verizon. Just trying to figure out how you're going to finance that especially given where the stock price is. I don't know, John, if you're comfortable issuing equity here or whether or not you guys just use the line, but was sort of curious as to like how you guys are thinking about the sort of incremental there and where does sort of leverage peak out at here in the fourth quarter if you do decide to fund any of those net investments on the line? Philip Mays: Yes. So just before -- and then I can -- I'll let John answer. But on the investments, we always put the full amount for the properties, obviously. And for the loans, we put the origination or the initial amount committed. So today, we're sitting at almost $200 million if you include all the subsequent activity on investments. And of that $130 million, $135 million is loans, Rob, but only 72 have funded so far. So we also, in the guidance, put in brackets there kind of on the loans just to help clarify, because it's a great question, how much of the loans are funded year-to-date. So the full amount of that won't fund because the loans won't fully fund by the end of the year. Robert Stevenson: Okay. So the net would wind up being lower than that sort of $50 million to $65 million that you're implying because that's including the full value. Philip Mays: Yes. I mean there could be $50 million, $60 million of that, that's loans that are not funded. Robert Stevenson: Okay. That's helpful because it was looking like that leverage was going to peak out at something more substantial here if you guys did it all on the line? Philip Mays: Yes, yes. So there could be $50 million to $60 million of that number that's loan related, that's unfunded by year-end. And then on top of that, you could also see like an A note sale prior to the end of the year that would further help lighten that load for the funding. Robert Stevenson: Okay. And then I guess, John, what is sort of left within the property portfolio that you want to sell? I mean, is this going through in sort of cleaning up anything remaining? Is it whittling down some of the dollar stuff? How are you thinking about when you look at dispositions, not only in the fourth quarter but in 2026, like what are you sort of thinking that you're going to wind up selling and where is the market for those type of assets today? John Albright: Yes. So as we discussed previously, we still have some Walgreens that we definitely are moving through and with dollar stores, as you hit on certainly will be something we'll trim back on. And then there's some other -- we've sold Advance Auto Parts and that sort of things in Tractor supplies and so those sort of assets will continue to kind of grind through, if you will, as we see good pricing. So it's just really using that as a way to kind of reinvest in some of the high credits that we put on this quarter, Lowe's and so forth. So you'll see us be active at the end of the year here with continuingly bring in some real super high-quality type credits, and we're looking forward to kind of what this company looks like starting next year. Robert Stevenson: And then I guess given the acquisition of the Lowe's, was that opportunistic? Or just from your standpoint, is the property acquisitions going forward going to be more targeted towards the higher credit quality and basically investment grade and above quality tenants? Or are you still looking to acquire stuff across the spectrum on a property-specific basis? John Albright: Yes. On the Lowe's, that was off market. It was a relationship driven. We had seen these assets before a couple of years ago, and they're pulled off the market. So we're extremely excited about having those in our portfolio. With regards to -- so you'll see more of the high-quality credit, big box sort of assets coming in. You probably won't see us be active in buying a generic Tractor Supply. Clearly, we don't have car washes. So we like that distinction that no car wash is in the portfolio. So we feel like we're set up pretty strong to kind of offer investors something a little bit different, getting the Lowe's and DICK'S in the top 5 just gives investors an exposure that they can't get at other locations? Robert Stevenson: Okay. Then last one for me. Is all of beachside open and producing at this point? Or is there still some of that stuff that's down and that you're getting insurance payments on? John Albright: No, it's all been open for a while. I mean they opened those up less than 4 months after the hurricane last year. And interesting enough, I mean, they still -- when they open, they weren't obviously as polished looking as they were previous to the hurricane, but they did better sales than they did pre-hurricane. So a lot of pent-up demand from customers and unfortunately, some of their competition did not reopen. So it just kind of drove more traffic to those restaurants. Robert Stevenson: Okay. So rent coverage today is actually higher than where it was pre-hurricane? John Albright: Yes. Robert Stevenson: Appreciate the time, and have a great weekend. John Albright: you, too. Operator: Our next question comes from Gaurav Mehta with Alliance Global Partners. Gaurav Mehta: I wanted to ask if you had any update on your properties that are leased to At Home. John Albright: Yes. So those properties as we kind of -- the one is in Concord, North Carolina, that could be sold in the not-too-distant future. And the others are the same situation where we're monitoring kind of what At Home is doing. But if they come back, we have -- we're working on replacement tenants. So the idea would be if At Home vacated 1 of the properties, we would have a replacement tenant in and then we would sell it at a better cap rate than as At Home. So it's a manageable exposure and potential upside. Gaurav Mehta: Okay. Second question, I want to go back to the 2 loans that you did after September, the interest rates on both of them are higher than the year-to-date loan activity, can you provide some color on why the rates were higher at 17% and 16%. John Albright: Phil, do you want to handle that? Philip Mays: Yes. So he was just asking about why the interest rates on the residential and the mixed use are significantly higher than the blended rate for the portfolio. John Albright: Yes. So on that, basically because it's such short duration loan that so kind of give you more background than maybe you want. Is that the competition for a loan for that sort of product would be mainly from an opportunity fund or a credit fund and those funds really aren't looking to invest where the duration is less than 2 years in order to kind of get a multiple. So we're able to give highly flexible loan, but for that we charge a much higher rate. And so just the flexibility of our loan in the short duration gives us that higher interest rate investment. Operator: Our next question comes from John Massocca with B. Riley Securities. John Massocca: So maybe given all of the investment activity on the loan front, in particularly subsequent to quarter end. Do you view that as maybe kind of the max level you want to be at in terms of a loan balance if this all kind of blends out? Or could you kind of pursue more of that and become, I guess maybe more of like a mixed loan net lease type 3. It feels like the amount of loan investments are starting to -- certainly in terms of the investment activity outweigh the net lease transactions. John Albright: I would say that the -- it just kind of really kind of came together here this last quarter. But the loan activity could tick up from here for sure. But as it's a little bit in anticipation of things burning off, paying down, paying off. And then we are super active on the core net lease side with larger type assets. So you'll see the similar balance, but we think we're delivering -- we know we're delivering really strong free cash flow and high earnings and there's other net lease REITs out there that do the loan program as well. And then you have REITs like VICI that have a balance of net lease and loans. So it's not like we're in a new frontier here. John Massocca: I just remember thinking and maybe I'm misremembering, the loans are kind of an opportunistic thing a couple of years ago, and now it feels like they've become a bigger part of the investment strategy. I'm wondering if that's something you view as like permanent on a go-forward basis? Or if it's still something that's temporary where you found this kind of opportunistic way to kind of accretively deploy your capital even in a challenged equity market? John Albright: No, it's definitely a good point. Yes. So when we are opportunistically thinking that it was like a onetime opportunity. It's become repeat, customers are coming back to us because of the flexibility and the speed that we can transact on. They're willing to pay a higher rate. And then as you know, we get right of first refusal on acquiring these assets. So if the market stalls and cap rates tick up, we have an opportunity to bring these into our portfolio. And so like I've said before, we're getting paid a much higher yield than going out and buying some sort of generic net lease property in the middle of nowhere. We're basically in Austin with very opportunistic type yields with very high-quality sponsor and high-quality asset. And then the Publix that we had payoff in Charlotte, Publix in Charlotte, I think that paid off because they sold it at 5.25% cap. So these are we're getting double-digit unlevered yields on assets that will sell for really, really low cap rates. So it's great to see the opportunities that we're able to kind of -- it's become more of a permanent fixture as the sponsors are still very active in the development side on these credit tenants and the banking system just really is slower, less proceeds, and this is -- we're just basically providing an answer to their capital needs in a much more efficient fashion. John Massocca: Understood. And then maybe on a very like micro level, with Cornerstone Exchange, pretty significant jump up in the amount you're kind of lending on that project. Why -- I guess maybe why did it increase by so much? John Albright: It's basically -- they ended up signing some additional leases. So as they've proven out their development with leases, we weren't alone on it until they have a signed lease and so that's what happened. The development has gotten larger as they've signed leases. Operator: Our next question comes from Craig Kucera with Lucid Capital Markets. Craig Kucera: John, I want to circle back with a few questions on the Austin loans. It sounds like you're not taking any entitlement or approval risk at least on Phase 1. Is that a fair assessment as Phase 2 need to be approved? John Albright: It's a fair assessment on both. The entitlements are there for both phases and everything needed to basically deliver. Craig Kucera: Okay. Great. And what is the current LTV at those loans? John Albright: I would put that one in kind of the -- on a discount NPV basis, we're in the 70s. Craig Kucera: Okay. And if you were to sell the senior tranche or a portion of those loans, and I think Phil mentioned it might be upwards of 50%, what would your yield be if you're holding the junior piece? John Albright: I don't want to like go out there with -- I mean it will be higher. I don't want to give you specific numbers. Craig Kucera: Fair enough. All right. Changing gears to Lake Toxaway mixed-use development. Is that just raw land now? Or has the developer started or kind of where in the process of that development? John Albright: Yes. The developer has started. So kind of we're coming in like when they really need to really start doing some additional work and delivering pads and that sort of thing. Operator: Our next question comes from Barry Oxford with Colliers International. Barry Oxford: John, real quick, a couple of questions on the dividend. Given what I'm hearing on the conference call, you want to retain as much capital as possible. Is it fair to say that even though you could raise the dividend for lack of a better word, substantially, any dividend increase will probably be minimal because you want to retain as much capital from an asset allocation. John Albright: That's right. I mean -- so as we progress here and earnings grow, there will be pressure to freeze the dividend just based on what we need to pay out as a REIT. Barry Oxford: Right. So you don't run afoul of the REIT rules. John Albright: Well, we don't want to pay a check to the IRS. We'd rather give it to our shareholders. Barry Oxford: Right, right, right. And then one thing that I noticed in the press release was the credit rate at tenants. Now your investment-grade tenants, the percent of the portfolio was still roughly the same, but you had a fairly good drop with the credit rated tenants. What was going on there? Philip Mays: Credit rated as a percent of the total portfolio. So at the end of the last quarter, it was 51%. Barry Oxford: Yes, it went from 81% to 66% and the credit. Yes, the credit is fine, but... Philip Mays: Yes. That was more -- Barry, that's more the Walgreens and the like that used to have a credit rating dropping them that were very, very low and h ad gone from credit rate to not from investment grade to not investment grade, but we're still carrying a rating. It's more related to a couple of tenants like that, like At Home, Walgreens and such dropping the credit rating altogether, and that's what caused that decrease. Operator: And I'm not showing any further questions at this time. And as such, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Good morning, and welcome to the NatWest Group Q3 Results 2025 Management Presentation. Today's presentation will be hosted by CEO, Paul Thwaite; and CFO, Katie Murray. After the presentation, we will take questions. Paul Thwaite: Good morning, and thanks for joining us today. I'll start with a short introduction before I hand over to Katie to take you through the numbers. We have delivered another strong quarter as we continue to execute on our priorities of disciplined growth, bank wide simplification, together with managing our balance sheet and risk well. Though inflation is above the Bank of England's 2% target, the economy is growing, unemployment is low, wage growth is above the rate of inflation and businesses and households have relatively high levels of savings and liquidity. This is reflected in the levels of customer activity we're seeing across the bank. So let me start with the headlines for the first 9 months. Lending has grown 4.4% since the year-end to GBP 388 billion, in line with our annual growth rate of more than 4% over the past 6 years. Growth has been broad-based across our 3 businesses and we attracted a further 70,000 new customers in the quarter. Mortgage lending was up by more than GBP 5 billion for the first 9 months as we broadened our customer proposition with new offers for first-time buyers and family backed mortgages, and issued mortgages to landlords in collaboration with buy-to-let specialists, [indiscernible]. Unsecured lending grew GBP 2.9 billion or 17.3%, and we made good progress integrating our recently acquired Sainsbury's customers. They're now able to view their credit card, link their Nectar card and view their Nectar points from credit card spending via the NatWest app. In commercial and institutional, we delivered lending growth of GBP 7.9 billion or 5.5% across both our large corporate and institutional and commercial mid-market businesses. in areas such as infrastructure, social housing and sustainable finance. As the #1 lender to infrastructure, we are supporting many large-scale programs up and down the country. And we have delivered GBP 7.6 billion towards our 2030 group climate and transition finance target of GBP 200 billion announced in July. Deposits grew 0.8% to GBP 435 billion as we balance volume with value in a competitive market and as customers manage their savings across cash deposits and investments. And there's more customers across the bank chose to invest with us assets under management and administration have grown 14.5% to GBP 56 billion. This has contributed to growth in noninterest income, along with higher fees from payments, cards and good performance in our currencies and capital markets business. This customer activity has resulted in a strong financial performance. Income grew to GBP 12.1 billion, 12.5% higher than the first 9 months last year. Costs were up 2.5% at GBP 5.9 billion resulting in operating profit of GBP 5.8 billion and attributable profit of GBP 4.1 billion. Our return on tangible equity was 19.5%. Given the strength of our performance, we are revising our full year guidance for income to around GBP 16.3 billion and for returns to greater than 18%. We continue to make good progress on both simplification and capital management. We have reduced the cost/income ratio by 5 percentage points to 47.8%. And and we generated 202 basis points of capital for the 9 months and ended the third quarter with a CET1 ratio of 14.2%. This strong capital generation allows us not just to support customers but to invest in the business and deliver attractive returns to shareholders. As you know, we announced a new share buyback of GBP 750 million at the half year, of which 50% has now been carried out. and we expect to complete the buyback by our full year results. Earnings per share have grown 32.4% year-on-year and TNAV per share is at 14.6% at 362p. So a strong performance for the first 9 months. I'll hand over to Katie to take you through the numbers for the third quarter. Katie Murray: Thank you, Paul. I'll talk about the third quarter using the second quarter as a comparator. Income, excluding all notable items, was up 3.9% at GBP 4.2 billion. Total income was up 8.2%, including GBP 166 million of notable income items. Operating expenses were 2.1% more at [indiscernible] due to lower litigation and conduct charges. And the impairment charge was GBP 153 million or 15 basis points of loans. Taken together, this delivered operating profit before tax of GBP 2.2 billion for the quarter and profit attributable to ordinary shareholders of GBP 1.6 billion. Our return on tangible equity was 22.3%. Turning now to income. Overall income, excluding notable items, grew 3.9% to GBP 4.2 billion. Across our 3 businesses, income increased by 2.5% or GBP 101 million. Net interest income grew 3% or GBP 94 million to GBP 3.3 billion. This was driven by further lending growth and margin expansion as tailwinds from the structural hedge and the benefit from the Sainsbury's portfolios for a full quarter more than offset the impact of the base rate cut in August. Net interest margin was up 9 basis points to 237, mainly due to deposit margin expansion and funding and other treasury activity. Noninterest income across the 3 businesses was up 0.8% compared with a strong second quarter. This was due to increased card fees in retail banking, higher investment management fees in private banking and wealth management. and a good performance in currencies and capital markets with heightened volatility. Given continued positive momentum and a clearer line of sight to the year-end, we have refined our income guidance and now expect full year total income, excluding notable items, to be around GBP 16.3 billion. We continue to assume 1 further base rate cut this year with rates reaching 3.75% by the year-end. This improved guidance alongside strong Q3 returns means we now expect return on tangible equity for the full year to be greater than 18%. Moving now to lending, where we have delivered another strong quarter of growth. Gross loans to customers across our 3 businesses increased by GBP 4.4 billion to GBP 388. 1 billion. with growth well balanced between personal and corporate customers across retail banking and private banking and wealth management, mortgage balance grew by GBP 1.7 billion, and our stock share remained stable at 12.6%. Unsecured balances increased by a further GBP 100 million, mainly in credit cards. In commercial and institutional, gross customer loans, excluding government schemes were up by GBP 3 billion. This includes GBP 1.6 billion across our commercial mid-market customers, in particular, in project finance, social housing and residential, commercial real estate as well as GBP 1.5 billion in corporate and institutions, mainly driven by infrastructure and funds lending. I'll now turn to deposits. These were broadly stable across our 3 businesses at GBP 435 billion. Retail banking deposit balances were down GBP 0.8 billion, with growth of GBP 0.6 billion in current accounts, more than offset by lower fixed-term saving balances following large maturities. Private banking balances that reduced by GBP 0.7 billion with flows into investments as customers diversify and manage their savings as well as tax payments made in July. We saw a small increase in commercial and institutional of GBP 0.4 billion, with higher balances in both commercial, mid-market and business banking. Deposit mix across the 3 businesses were broadly stable. Turning now to costs. We are pleased with our delivery of savings this year, which allows us to invest and accelerate our program of bank-wide simplification. Costs grew 1% to GBP 2 billion, including GBP 34 million of our guided onetime integration costs. This brings integration costs for the first 9 months to GBP 68 million. We remain on track for other operating expenses to be around GBP 8 billion for the full year. plus around GBP 100 million of onetime integration costs. This means you should expect expenses to be higher in the fourth quarter, driven by the annual bank levy and the timing of investment spend. I'd like to turn now to impairments. Our prime loan book is well diversified and continues to perform well. We are reporting a net impairment charge of GBP 153 million for the third quarter. equivalent to 15 basis points of loans on an annualized basis. Our post model adjustments for economic uncertainty of GBP 233 million are broadly unchanged. And following our usual review, our economic assumptions also remain unchanged. Overall, we are comfortable with our provisions and coverage, and we have no significant concerns about the credit portfolio at this time. Given the current performance of the book and the 17 basis points of impairments year-to-date, we continue to expect a lower impairment rate below 20 basis points for the full year. Turning now to capital. We ended the third quarter with a common equity Tier 1 ratio of 14.2%, up 60 basis points on the second. We generated 101 basis points of capital before distributions, taking the 9-month total to 202 basis points. Strong third quarter earnings added 84 basis points and the reduction in risk-weighted assets contributed another 8 basis points. Risk-weighted assets decreased by GBP 1 billion to GBP 189.1 billion. GBP 0.9 billion of business movements which broadly reflects our lending growth and GBP 0.3 billion from CRD 4 model inflation were more than offset by a GBP 2.2 billion reduction as a result of RWA management. This brings our CET1 ratio before distributions to 14.6%. We accrued 50% of attributable profits for the ordinary dividend as usual, equivalent to 42 basis points of capital. We continue to expect RWAs of GBP 190 billion to GBP 195 billion at the year-end, with a greater impact from CRD4 expected in the fourth quarter. Turning now to guidance for 2025. We now expect income excluding notable items, to be around GBP 16.3 billion and return on tangible equity to be greater than 18%. Our cost impairment and RWA guidance remains unchanged. And with that, I'll hand back to Paul. Thank you. Paul Thwaite: Thank you, Katie. So to conclude, we're pleased to report another very strong quarter of income growth, profits, returns and capital generation. This has been driven by customer activity across all 3 of our businesses, leading to strong broad-based lending growth and robust fee income. Our continued focus on cost discipline has delivered meaningful operating leverage. And as we actively manage both our balance sheet and risk, the business remains well positioned to deliver strong shareholder returns. As you've heard, we have upgraded our full year income and returns guidance today. And we'll update you on our guidance for 2026 and share our new targets for 2028 at the full year in February. Many thanks. We'll now open it up for questions. Operator: [Operator Instructions] Our first question comes from Benjamin Caven-Roberts of Goldman Sachs. Benjamin Caven-Roberts: So 2 for me, please. First on deposits and second, on noninterest income. So on deposits, could you talk a bit about deposit momentum in the business? And in particular, you mentioned the retail fixed term outflows over the quarter. Could you talk a bit more about how much of that is reflecting conscious pricing decisions? And then looking ahead, the sort of trajectory for deposits going forward? And then on noninterest income, very strong even when adjusting out the notable items related to derivatives. Could you talk about momentum in that franchise and what business drivers you're particularly focused on looking ahead? Paul Thwaite: Thanks, Ben. Good to hear from you. So let's take them 1 by one. So on deposits, so big picture is up around GBP 3.5 billion, around 1% year-to-date. Different stories within the different businesses. I guess, we talked at the half year around the kind of ISA season and some of the -- get the confluence of debate around the future of ISA and how that led and some of the movements in the swap curves on the back of tariffs and how that led to different pricing. That period is behind us. There's been more normalized pricing since the kind of April, May. If you look at our 3 businesses, I'd say slightly different trends. I'll finish with retail because there's more to unpack there. On the commercial side, deposits are up, encouragingly, that's in kind of the business bank and commercial mid-market. That's good. Private bank cash deposits are down. A combination of things, July, we saw some tax payments -- but also we see more funds shift from cash deposits into securities and investments, which is a net positive trend. In retail, if you look at current account balances, they are up. So kind of operational balances, salary accounts, you can see that the numbers are up there. I think the details are in the disclosures. Instant Access is flat. -- where we've seen some reductions is in fixed term accounts. And that reflects a number of mature -- large maturities that we had during the quarter. We're pleased with our retention rates. They're running about 80%, 85%. But as you alluded to, given our LDR at 88%, LCR at 148% we're finding a right balance between value and volume. So we've been pretty dynamic, and we're focusing on where we see funding and customer value. So that's that's unpacking the deposit story for you. So different stories in different businesses, relatively stable given our overall funding profile, very focused on managing appropriately for value. On the second question, which is non-NII, yes, as you alluded to, we're pleased with the quarter, and we're pleased with the year-to-date. Good momentum in the areas that we've been focusing on. I mean it's quite broad-based actually, when you unpack it, cards, payments, but obviously good contribution within C&I from our markets business driven by the strong FX franchise and by the capital markets business. So we've had a strong quarter 3 there, probably slightly stronger than we expected when we spoke to you at the half year. We feel as if our focus on those areas, whether it's the market part of commercial institutional, whether it's our payments business. But also, as you can see in our wealth business, the fees from assets under management are increasing as well. So it feels like we've got good progress and good momentum on fees and it remains a strategic area of focus for us. Thanks, Ben. Operator: Our next question comes from Sheel Shah of JPMorgan. Sheel Shah: Great. Firstly, on the costs. You've reiterated your cost guidance for the year despite the strong third quarter performance. How should we think about cost growth going forward, given we have CPI going back towards 4%. You're clearly simplifying the bank internally. Do you think a 3% cost growth number is the right level for the bank? Or do you think that maybe understates your ability to manage the cost base? And then secondly, on capital, could you give us a steer on the CRD impact that we expect for the fourth quarter? And maybe thinking about the fourth quarter capital level, how are you thinking about operating in that 13% to 14% range? Is there anything preventing you from moving down towards the 13%? Or are you managing maybe for M&A or anything else maybe in the horizon that you're thinking about? Because this is clearly the strongest capital print we've had for the last maybe 3, 4 years or maybe 2 to 3 years for the bank overall. Paul Thwaite: Thanks, Sheel. Katie, I'll take the cost and then turn it over to you on the capital piece of that okay. Katie Murray: Yes. Paul Thwaite: On cost, Sheel, so as you say, it's a -- it's a strong year-to-date picture if you look at year-on-year comparisons. And obviously, we have the one-off in terms of the integration costs as well of Sainsbury's. I am pleased with the momentum we're getting on the simplification agenda. I think that's -- you can see that starting to bear fruit. It's also I think most pleasingly, it's a bit of a flywheel because it creates investment capacity to drive further transformation in the business. And it's not only cost out it's also improving customer experience and colleague experience as well. So as you alluded to, we're holding with the current year guidance, GBP 8 billion plus the GBP 100 million of integration costs, but we are pleased with the momentum on the agenda -- on the simplification agenda. I'm not going to be drawn on kind of 26 costs or future costs. We'll talk to you in February around '26 guidance and new '28 targets. But what I would say thematically is we still have a very significant focus on cost management, and we're a very high conviction on the simplification agenda. And to help put that in context a little bit for you to deliver the cost print that we are doing this year requires us to take more than 4% out of the kind of the underlying business. so that we can support the investment, the inflation-related changes, be they wages or tech contracts. So we've got good momentum in kind of taking that, driving that efficiency out. been able to invest, but also delivering good cost control. So that's the ethos going forward. And the levers that we're pulling those levers can still be pulled moving forward, whether that's continued acceleration of our digitization, streamlizing and modernizing the tech estate. Just by way of example, we decommission 24 platforms in retail so far this year, which is great. You've seen we've done a lot of work simplifying our operating model, whether it's in our wealth business, moving some of the support areas in Switzerland to the U.K. and India rationalizing our European footprint, legal entity footprint. and just some of the good organizational health measures. So it feels as though those levers that we've been pulling can continue to be pulled -- and then obviously, you lay over that some of the productivity benefits we're seeing from AI and those activities around customer contact, software engineering. So net-net, I'm not giving you a number for '26, but hopefully giving you a sense of how we're thinking about it and where the momentum is coming from, and therefore, our confidence in maintaining a good healthy cost profile going forward. Katie? Katie Murray: Perfect. Sure. So Sheel, I'll just start off talking a little bit with CRD for the interest on capital as well. So look, as you look at it, you're absolutely right. In the quarter, limited CRD4 impact. We are expecting the majority of that in Q4 and a little bit of that may even bleed into 2026. So when you think of our kind of RWAs from here, it's very much about the loan growth, the management actions as well as that more material impact of CRD4 coming in, in the fourth quarter. And then going forward, you're familiar with Basel 3.1 coming in in 2026. That is always important to remember that comes with a bit of a Pillar 2 reduction when it comes through in terms of capital. But when I think of kind of the RWAs is to kind of think of the absolute growth that we're talking about in the book, importantly, the mix of that growth, but also the kind of risk density that you see once we pass the CRD for and the Basel 3.1. And of course, obviously, the continuing strength of our management action program that we have. And then if you turn to kind of capital, clearly, a really strong print today, very pleased with the 101 basis points we did in the third quarter, 202 bps for the first 9 months. I mean a great result by any measure. We've always said that we're happy to operate down to that 13%. We do think about capital generation and when we think of it in terms of dividends and where we're going to land and things like's that, we do debate the sort of next sort of 6, 12 months as well because you've got to think about we really try to manage a consistent program of capital return back to the market, but also it mindful of that RWA generation that's coming, whether it be from regulatory change or the growth the growth within the book. And so as you -- I would kind of as you consider where we might land and what we might think about is think on those various points. Thanks very much, Sheel. Paul Thwaite: Thanks Sheel. Operator: Our next question comes from Aman Rakkar of Barclays. Aman Rakkar: I had 2 questions, please. I guess we're all probably singularly focused on 2026 at this stage. So particularly on income, love to kind of get your take on how we should think about the various drivers from here across I guess margin developments, clearly, loan growth continues to surprise positively, but any color you can provide on kind of the drivers of fee income from here would be really helpful. And I guess the second question was around your longer-term targets that hopefully you're going to present to the market in the new year. And to me, it looks like there is the underpinning of pretty decent operating leverage for a number of years here, not least because of the structural tailwind to '28 that you guys flagged. So I guess one for Paul really in terms of your view on structural operating leverage in your business on a multiyear view from here, how confident you are in that in terms of some of the levers you might want to pull -- and I guess, I'm ultimately interested in the RoTE output. For me, you're doing 18% this year, and there's no reason to think in my mind why you don't accrete quite nicely over and above that level as you realize that operating leverage. So any kind of color you can give on that basis would be really helpful. Paul Thwaite: Katie, do you want to take '26 and I'll talk about. Katie Murray: Perfect. That's great. Thanks, good to hear your voice. Look, we do continue to expect the income growth that we've seen throughout our guidance period, and we do remain confident in that growth trajectory beyond 2025. So as I look at 2026, there's probably a few things I would kind of guide you to. One, growth. I mean, we've talked about this a lot, but we've got a strong multiyear track record of growth across all 3 of our businesses. We outpaced the wider sector on that. if we look at the breadth of our business, we know that we're well placed to capture demand as it comes through, and we'll continue to deploy capital throughout 2026, and we do expect that growth to continue. Obviously, there's a mix of growth across both sides of the balance sheet, and that's very much a function of customer and competitor behavior. The hedge, I think you're all very familiar with the hedge these days. We've talked about it such a lot over this last year, but certainly, strong growth into 2026, over GBP 1 billion higher in absolute terms in 2025. I think that's well understood by all of you. Rate cuts, we do expect one further rate cut in Q1 after our plans still have a rate cut in November. So we get to a kind of terminal rate of 3.5%. And then you'll see the kind of averaging impact of the rates we've had this year coming through into 2026. Paul has already spoken on noninterest income and our confidence in that business, very much the strength of the kind of customer franchise, always dependent on customer volatility and -- sorry, customer activity and volatility, but it served us very well this year. But if I think of all of those trends together, Aman, they will continue beyond next year as well, obviously, with the exception of rate cuts as we believe we'll get to that terminal rate in 2026. But I'd agree with you, we feel quite well placed at the moment. Paul? Paul Thwaite: Thanks, Katie, and thanks, Aman. And yes, A, we've announced today that we'll share targets for '28 in February. So we've been very explicit on that. So we look forward to that session. But as you say, it's obvious we've got good momentum in the business, and that's predicated on strong operating leverage. If you look at today's numbers, we've got a 5% cost/income ratio improvement, and we've guided to over 9% jaws for the year. So a very strong proof point of the operating leverage that we've got in the current business model and business mix, which we have talked about previously. But as I said, I'm just very pleased that it's bearing fruit as the -- both the income growth and the simplification agenda comes through. as I said to Sheel's question, we are high conviction on the simplification agenda. The levers we are pulling are working, and we can see a path to continue to pull those levers, which should further support the operating leverage to link it to Katie's answer as we see the top line growth through the different aspects. It's our seventh year of growth above 4% on the lending side. So that gives us confidence there that we've got customer businesses that will capture demand and have grown above market growth levels over a multiyear track record. So that's what's going to inform our thinking as we go through. But the underlying thesis here is very tight management of costs that creates capacity to invest, growing the customer franchises, strong jaws, generates a lot of capital, over 100 basis points in the quarter, over 200 for the year, and that gives us confidence about the outlook. So hopefully, that gives you a sense how we're thinking about it. And obviously, we'll talk specific numbers in February. Thanks Aman. Operator: Our next question comes from Alvaro Serrano from Morgan Stanley. Alvaro de Tejada: Hopefully, you can hear me okay. I guess the 2 bit follow-ups, but I'm interested. NatWest Markets continues to do very well and hold up very well. And I know there's a history there, and I suspect part of the cautious guidance has been on the limited visibility of the nature -- because of the nature of the business. But given it continues to perform pretty steadily, consensus has it down the contribution in 2026, and there's not a lot of growth medium term in noninterest income. Given the performance the last few years, can you sort of share your reflections on that business? How much is being cyclical versus what you changed in the business? And is that right to assume a normalization down medium term and next year in particular? And second, around loan growth, it continues to do very well. in corporate, I'm thinking now it was lumpy to start with in corporate and institutional, but it does look like it's much more spread out in mid-market now. Again, as we think about the next few quarters, how do you see that momentum? Should we think that this level of growth is sustainable? Paul Thwaite: Thanks, Alvaro. Katie, do you want to take the C&I kind of markets products question, and I'll take the wider lending. Katie Murray: Yes. No, absolutely. So I mean, Alvaro, it's interesting. Obviously, you've been with us for some time, and you've been on that journey in terms of NatWest Markets. And I think the real strategic important thing that kind of has happened really from the beginning of last year is actually the merging of C&I into into that kind of commercial and institutional business so that you have one team really delivering strategically for their customers. And we've really seen the benefit of that coming through. We've had very robust noninterest income. That -- there's been higher fee income coming through in payments and the strong performance from C&I is an important part of that. And it's really around the strategy that we've got of bringing more of the bank to more of our customers. And a result of that, we see -- we saw the strong demand for FX management and then really strong risk management as well against the backdrop of the volatile markets that was there. So really making sure that we were in place for our customers when they needed us in terms of the general kind of market activity. So I would say it is very much the outcome of that strategy of bringing that NatWest activity into the C&I franchise, making sure that we're there to deliver and meet the kind of customer activity as we go forward. And we would expect that to kind of continue from here. Volatility is a big part, of course. It's hard to call where that will land. Customer activity is critical, but we kind of -- we really do see that as a really strong basis going forward. I'd just remind you, as I often do on these calls, is when you're looking at noninterest income, it's always good to look at the 3 businesses. You do get a little bit of noise in the center as you move forward from here that will reduce a little bit as we go forward. But overall income outlook kind of is -- I think we're very pleased with it, and that's what's enabled us to upgrade our guidance for this year. And you've heard me talk around the confidence we have as we go into 2026 as well. Thanks, Alvaro. Paul? Paul Thwaite: Thanks, Katie. And Alvaro, I sense your question on lending was specifically around the commercial institutional business. And -- but just I think it's worth framing our, I guess, our lending growth and our lending opportunity more broadly before that. I say we've got a decent multiyear track record now of growing the 3 businesses. That's 7 years at above 4%. This year, it's currently running up GBP 16 billion. It's up 4.4%. So it's quite broad-based the growth. If you drop down into the commercial franchise, it's a good spot. The quarter 3 print and the growth of around GBP 3 billion is split between, I guess, the large corporates and the mid-market. It's pleasing to see the momentum in the commercial mid-market. You'll have heard me say before, I do think that's kind of a helpful proxy on the kind of wider U.K. environment. When you look at where the growth is coming from in the mid-market, -- you can see it in social housing. You can see it in certain parts of real estate. You can see it in parts of infrastructure. So again, it's quite broad-based. So lending as a total quantum, yes, strong, but the constituent businesses it's coming from is encouraging as well. Infrastructure is a big part of that. And what I'd say is I feel as if our commercial business is very well positioned to some of those bigger structural trends that we're seeing. So whether it is infrastructure, whether it's project finance, whether it's sort of the social housing agenda. So the kind of combination of the structural trends and the policy trends support those areas we are -- we have deep specialisms in and have had for quite a few years. So yes, encouraging, as you say. Thanks Alvaro. Operator: Our next question comes from Chris Cant of Autonomous. Christopher Cant: Can you hear me? Paul Thwaite: Yes, we can. Christopher Cant: Okay. It's still got a little mute icon on the screen, so I was a bit concerned. Paul Thwaite: Crystal clear. Christopher Cant: Just on loan growth, Paul, I mean, I think it's been an area where if I look at consensus, consensus has got 3% or less loan growth in over the next couple of years. It's been something that as a management team, you've typically been reluctant to sort of give an expectation on beyond saying you have a track record of growing quicker than the market. But as you think out to the next planning period, -- how are you thinking about that in absolute terms? I presume you have a view on how much growth you think the market is likely to see and you want to exceed that. But should we be thinking about 4% as a sort of reasonable expectation or in excess of 4% is a reasonable expectation, assuming no kind of macro volatility or blow up? And then on the returns target, please. So again, it's an area where you're a little bit different from your domestic peers. The last 2 return targets you've given, I guess, have been a little bit more of a through-the-cycle expectation where you would expect to hit them sort of regardless of what was happening to rates and the macro environment. Now that things have settled down from a, I guess, customer behavioral perspective, in particular, on the deposit front, are you going to be giving us a different flavor of return expectation when you're looking out to 2028? So will you be guiding on where you think the business will be in '28 with your base case assumption rather than a sort of a floor underpinning a broader range of potentially more downside scenarios around customer behavior and macro activity and so on? Paul Thwaite: Great. Okay. Thank you, Chris. So I'll take the second one quickly first. Obviously, we'll see you in February and talk about it. And obviously, some of the topics you alluded to are what we're thinking about as we go into February and we share '28 numbers. But obviously, we will lay out what assumptions we've made around those targets at that time. But it's a very active debate, as you rightly allude to. On the lending side, I think you characterized the position very well and very consistent with how we see it. We're very confident in the track record that we've had. Our ability to grow above market has been proven year-on-year. It does vary by business and market conditions as to as well. But that's what gives us confidence in terms of the outlook for the lending position. I'm not going to declare new targets or new deltas relative to market growth on the call. I think I've given quite enough color about, I guess, our historic track record and how we're thinking about the business going forward to hopefully give you a sense of confidence and optimism we have around the lending profile. Thanks Chris. Operator: Our next question comes from Jonathan Pierce of Jefferies. Jonathan Richard Pierce: I've got 2 questions. One is on the equity Tier 1 target moving forward. Is that something you'll potentially give us a bit more of an update on in February? Or are we going to have to wait until the back end of the year once Basel 3.1 is pretty much nailed down. I ask, of course, because the MDA is 11.6. I guess it drops 30 bps, something like that on Basel 3.1. And it feels like the scope to probably operate towards the lower end of your current range rather than the middle or the upper end of it. The second question is a bit more detailed, I'm afraid, around deferred tax assets. In the 9 months to date, the DTA deduction from capital has fallen by GBP 250 million, and it was GBP 100 million in the last quarter alone. So it's not an insignificant amount of capital build that's now coming from that DTA. So I just wondered if we should expect that sort of run rate to continue until the stock has run out a few years forward. I guess we should because RBS plc is now generating good profit and so on and so forth. And sorry, just a supplementary on that. The last 3 years, you bought back around GBP 300 million a year of unrecognized DTA back onto the balance sheet. Are we going to see the same again in the fourth quarter of this year, Katie? Paul Thwaite: Okay. Thanks, Jonathan. So Katie, why don't you lead out on the CET1? Katie Murray: And then I will get to... Paul Thwaite: And then we'll get to some of the DTI. Katie Murray: No, that's all right. It's one of my preferred specialist subjects, so I'll make you wait for the answers on that one just for a little bit longer. But on CET1 Look, there's a lot of things going on at the moment, Jonathan, with CET1, as you're very much aware. Obviously, the Bank of England is looking at their review of capital requirements. So we're looking forward to the FEC's update on that assessment. It's due to come out on December 2. So we'll see what comes through with that. Our approach on capital has always been to review it as part of our annual ICAP process and the risk appetite review that we do as well as working with the PRA on their kind of annual stress tests. And you're familiar with the numbers. We can see that our capital position has really improved over the last couple of years as we've derisked the business. We've also added a significant amount of capital into the business as a result of the RWA inflation that we've had. I think importantly, as part of the SREP process that we had this year that just came out in Q3. Our Pillar 2A there was reduced to -- by 17 basis points. which took our statutory minimum requirement to 11.6%. I do expect that number to reduce further once Basel 3.1 is implemented on the 1st of January 2027. And we've got pretty good line of sight in that. So therefore, when you look at it, you can see that we've got strong buffers relative to that lower bound of 13% of our current targets. So I'm not committing today as to the date or what we might do on any change of our 13% to 14% target, but we are actively thinking about the appropriate capital targets and capital buffers that we have required for our business on a more medium to longer term. Look, if you go to the deferred tax aspect of it, I think there's a couple of things to remember within there that the treatment within capital is slightly different than the treatment within accounting. So you sort of -- you can see changes coming through at different times. differences of recognition versus utilization of those assets. But we have just over GBP 800 million of DTA assets remaining. We have written back about GBP 1.2 billion since 2023. So we don't have a significant amount more to recognize. Interestingly, with deferred tax assets, you've got to really look at where they're sitting in terms of the legal entity structure as well and what's kind of -- and the ability to use them is very much structured by that legal entity structure. We do think, however, that our utilization in Q4 would be around in line with Q3. And then for 2026 onwards, we do expect a slightly lower utilization, probably around GBP 100 million to GBP 150 million per year. So continued support to capital generation, but at a slightly different level just given that we've used a lot of the losses up there or given where other historic losses are sitting and your ability to kind of access them. And Jonathan, we happily have a longer chat on DT offline as well with you, if that's something that would be helpful. Operator: Our next question comes from Guy Stebbings of BNP Paribas Exane. Guy Stebbings: So just around NII and the NIM bridge in Q3, and then I had one very short supplementary. So the hedge build was, I think, broadly as expected. The better performance in terms of the NIM bridge, I think came from funding and other and then to a lesser extent, the asset margins, which were up fractionally. So firstly, on the funding and other, I think that included some hedge accounting and reallocations between NII and OI. So perhaps you could just clarify exactly what's going on there. And to be clear, if it's correct to think that we should expect any sort of sequential benefits from there, but nor it reverses, that's the right way to think about it? And then on the asset margins, do you think we should expect to see further growth in there? Or is that really just a function of Sainsbury's coming in fully and then perhaps need to be mindful of some minor mortgage spread churn as we look forward? And then just a very quick point of clarification. On RWAs, I recognize the guidance hasn't changed. You flagged the business growth and CRD IV model changes. But just interested if we're coming into Q4 in a slightly better position than you originally thought and whether that means we might be more towards the lower end of that range for the full year guide. Paul Thwaite: Thanks. Katie, over to you. Katie Murray: Yes, perfect, Lovely. Thanks very much. So first of all, yes, funding and other, up 3 basis points, 2 bps related to treasury, and that's not going to repeat. This bucket is always interesting in the walk. It's got a number of different moving parts within it. And really, it's kind of the reflection of the management of a GBP 700 billion balance sheet that we need to consider kind of in any given quarter. So you do get the odd basis point that comes out. But this quarter, we did implement a hedge accounting solution for some of that FX swap activity that we've talked about over the last number of quarters. It's a one-off 2 bp benefit. in NIM, we don't expect it to repeat nor do we expect it to reverse. But going forward, you should see less volatility in the NIM from that activity quarter-on-quarter, which will be a lower drag to NII, a lower benefit to noninterest income. But really importantly, the same economic benefit overall as we go through. If I look at the asset margin, up 1 basis point is a very kind of small movement. And you're absolutely right, Guy, is benefiting from a whole quarter of Sainsbury's. I'm not expecting particular expansion in that line. It's very much dependent in one quarter on the mix and what you might see kind of happening within there at any time. If I spend a little moment on the kind of mortgage margins that we have within there, you're absolutely right. If you think of where our mortgage margins are versus the NIM overall, that's clearly something that you do see as a bit of a negative -- we've always talked that the book is around 70 basis points. We do see at the moment that we're writing a little below that, just -- and that's very much a symptom of the really intense competition that we're seeing on mortgages. So again, that will be a feature of the NIM as we go through from here. The market does move around in terms of where that is. But certainly, at the moment, there's a little bit of pressure within that space. In terms of RWAs, I would really think of that really as timing as much as anything else. I wouldn't say it's going to be particularly having an impact. In the next quarter, I have talked about more material CRD IV impacts coming through. There'll be a little bit of loan growth, of course. We've obviously continued to work on our risk management -- sorry, our RWA management program as well. But I wouldn't look at that and go actually, that's going to pull them down. It really is just timing. Thanks, Guy. Hopefully, that answered it all. Operator: Our next question comes from Robert Noble at Deutsche Bank. Robert Noble: I wanted to ask one on liquidity, please. So there's been a continued rotation in your liquidity from cash into government bonds that seems to pick up, right? So what's the spread pickup you're getting off that? And hypothetically, could you move all cash into gilts? Or what's the regulatory restriction that caps you out from doing that? And then just on the term deposit outflows in the quarter, should we expect the same next quarter given that 1 year and 2 year ago, rates looked equally as high. Is there a similar maturity issue in Q4? Paul Thwaite: Thanks, Rob. So I take the deposit one quickly and then back to you liquidity piece. On deposits, Rob, we did have some particularly large maturities in the third quarter. And you're right, if you think back 2 years ago when we had the kind of the backup in rates, they related to that. So it's not that we don't have maturities in quarter 4, but they're not of the same size or price or margin price points as what we had in quarter 3. And as I said, our retention rates are actually quite good. We're just being very dynamic in where we see value and retention and where we don't. So that's how to think about that. Katie? Katie Murray: Yes, sure. On liquidity. So we -- a couple of things going on in that liquidity ratio. One, we've recognized the TFSME repayment that we're about to do given the way that's moved through. So don't -- so don't kind of forget that piece, that will be happening in the next kind of few weeks. But you're absolutely right. If I look at the swap we've made into gilts, it really was a question to get some of that pickup. It's about 50 basis points in the 5- to 7-year kind of level. So very pleased to have done that. We wouldn't move the entire piece of our liquidity portfolio into gilts. That would be not quite putting all your money on black. But it's -- we do kind of obviously have some restrictions around where we have to hold and the restriction is really a function of that leverage ratio as well to make sure that, that's the right balance. I would say at the moment, the portfolio is split around 50-50. So there's plenty of opportunity to do a little bit more of maneuvering into gilts if we think that that's attractive as well. But certainly, just as you would expect us to be being quite dynamic in the management of that portfolio. Thanks very much, Rob. Operator: Our next question comes from Benjamin Toms of RBC. Benjamin Toms: First one is just to help my structural hedge model, if that's all right. Your guidance this year for structural hedge maturities of GBP 35 billion. Should we be making the same assumption for next year? I'm just conscious that you added to the hedge in '21 and 2022. So I'm not sure whether that should mean there's a pickup in maturities or whether you're just feathering at the front end, which means maturities should be pretty consistent as we go through the years. And then secondly, on other income, you purchased cushion in 2023 to provide workplace pension solutions. Can you just give us your latest strategic thoughts on that part of the business, what you think you do well and what you think you lack? Katie Murray: Yes, perfect. So in terms of the maturity, I mean, Ben, the way that we look at it, it's GBP 172 billion at the moment. It's obviously a function of current account and NIBs growth. We're pleased to see the growth in that. You'll recall that we do a kind of look back of 12 months as we work out how much we're going to reinvest. We also do some work during the year on the behavioral life in terms of what's happening with our actual current account holders and things like that. But actually, what I would guide you to at the moment is think of it really as GBP 35 billion a year. If we see particularly strong growth on those current accounts, it might change in the future years. But for your model, I would stick to the GBP 35 billion number. It's very even because we've been so mechanistic. So I wouldn't kind of deviate from there. Paul, do you want to? Paul Thwaite: Yes, I'll take workplace pensions. So Ben, cushion is a good business. It's got a strong proposition, very strong technology, and it's proven attractive to our kind of commercial mid-market customers. Obviously, there's kind of legal legal and kind of market dynamics that make it important for a lot of those clients to be able to offer workplace pensions to their employees and colleagues. And it's proven very attractive. And it's -- going forward, I think it's an important part of the proposition that we can provide or facilitate that service. There has also been a series of reg changes in the last couple of years around Master Trust, which certainly lend themselves to Master Trust having significant scale. So net-net, it's a good business. It's an important proposition to be able to offer to our commercial clients, but there have been some regulatory changes as well. So that's how we're thinking about, I guess, that workplace pensions area. Thanks Ben. Operator: Our next question is from Ed Firth of KBW. Edward Hugo Firth: I guess I had 2 related questions. I mean the first one is, if I look at your returns in Q3, they're now -- even if you take out the one-off, over 20%. And if I -- if you can normalize, we can normalize the hedge and capital is quite strong. So you're easily getting into the mid-20s or high 20s. And so I'm just trying to think how do you think about that in terms of what is an appropriate level of return? Because we can talk about the operating leverage and lower capital requirements going forward, et cetera, which would push that up even more. And I'm thinking of that, I guess, in the context of a bank tax potentially in November because it feels like it will be quite a tough discussion between you and the government about levels of return and appropriate levels of return. So I guess that would be my first question. At what level do you think we make enough now and actually we should be focusing on growing from here and fixing the returns? I guess that's the first question. Then the second one is sort of related to that. We're all sort of thinking now about -- I know it's sort of 2 years away, but what happens when the hedge runs out. And if you are at sort of peak returns, what do you do next, I guess, is the question? Because there was various discussions earlier in the year about potentially you buying things, but you obviously stepped away from that. And I'm just thinking, is that what we should think about going forward? Because relative to your own returns, I think it's going to be tough to find anything that makes an equivalent level if that's okay. So rather rambling 2 questions, but I think quite key. Paul Thwaite: Yes. Thanks, Ed. Good to hear from you. I guess there's a number of those points intersect with each other. First thing I'd say is, as you well know, it's taken a long time for a number of banks to return their cost of capital. So in some ways, it's healthy that we're having that discussion. You look at it through another lens, notwithstanding that, U.K. banks are still valued very differently to many other parts of the world for what could arguably be said to be similar businesses, similar business models and mixes and in certain extent, very similar regulatory regimes. I'm going to slightly disappoint you and give you a kind of a politician's answer about what's the right levels of returns. I think the key way we think about it is from a management team perspective and a Board perspective is we need to get the balance right between supporting customers and deploying our capital to do that and helping them grow and hopefully helping the U.K. between investing in the business, it's a very competitive sector, not just the large incumbents, but there's a very broad range of competitors. It's crucial that we invest in the business. And primarily, that relates to technology and people. And we need to make the right returns and return and present what hopefully everybody believes is an attractive investment case. So the debate we have is about the balance between those 3 items. It's a spot RoTE for the quarter. As you say, it has some one-offs in, but yes, fair challenge, it's year-to-date, it's 19.5%. And if you take off the one-offs, it's high 18%. We're working very hard on all the lines, not just the structural hedge. We're trying to grow lending growth. We're driving cost out of the business. We're working the balance sheet an awful lot harder. So we think those returns are the kind of the fruits of our activity. And I think as a Board, you just have to -- we just have to debate, let's get the balance right between making sure we've got a really attractive and sustainable business in the long term, and we're investing it -- we're doing what we need to do in terms of supporting customers and delivering returns. So that's how we think about it. I know I haven't shared a number there for -- because I don't think that's the appropriate way to do it. On M&A or kind of where does that lead, which is a very connected question. The strategy is working. I laid it out 2 years ago. The organic plan is obviously proving successful. We're growing all 3 of our businesses. We're driving a lot of simplification. I think we've got a good runway to go. We've managed to do that without changing our kind of risk profile. That hasn't been a constraint on our growth. We've continued to grow. So that's great. So organic plan looks good. If opportunities come to accelerate that plan, then we'll look at them. You'll have heard probably 5 times my quote about the financial high bar, but that remains true. It has to be -- if we're going to deploy capital on something that we think can accelerate the plan, it has to be compelling from a shareholder perspective. And that's how we look at things. It has to Otherwise, it's -- I think it's a hard case for me to make to investors. So we will look, but we'll be cold eyed. And the counterfactual, as you say, when the organic plan is performing so well, the counterfactual can be arguably more challenging. But I think I have a responsibility to do that in terms of the alternative uses of the capital. So I've expanded a little bit there. Hopefully, that's given you a sense of just how as management, we think about those topics. Operator: We are now approaching 10 a.m. So we'll take our last question from Andrew Coombs from Citi. Andrew Coombs: I guess one follow-up and 2 follow-ups really. Just firstly, on that point about capital return versus inorganic versus organic loan growth. I mean, you yourself have said there's a very high bar for inorganic given the returns you're already producing. And obviously, now you're trading well above tangible book. The buybacks are also slightly less accretive than they would have once been. So when you're thinking about the dividend payout, the 50% policy, any reason why that couldn't be higher going forward? What are the pros and cons of shifting that dividend payout ratio? And then second question, just on the structural hedge. You're still at 2.5-year average duration. Your peers are all now at 3.5 partly due to what they see to be the behavioral life of the deposit base. I'm sure partly due to technical reasons as well. But perhaps you could elaborate on the maturity profile of the hedge and why you don't see the need to increase it here. Paul Thwaite: Great. Thanks, Andrew. I'll take the first. You take the second, Katie? Katie Murray: Okay. Paul Thwaite: Okay. So Andy, obviously, we've increased the ordinary dividend from 40% to 50%. We're in the first year of that. In parallel, we'll also said we'll look at surplus capital at the half year and the full year, as you would expect us to with the Board. We're very keen to have a consistent approach to surplus capital distribution. So we're not actively reviewing the ordinary at the moment. But over time, obviously, it's a responsible thing for the Board to do. Katie, on the average life of the hedge? Katie Murray: Yes, absolutely. So it's interesting -- as we look at the hedge, it's important to remember the hedge has got 2 portions within it. There's the equity hedge and also the product hedge. So you're absolutely right. The product hedge is 2.5%. The total hedge is closer to 3. I think it's important as you look at the assumptions on this is the mechanistic model that we've had has played out very well for us. I mean, for me, I think you'd only increase your duration if you felt the duration of your eligible deposits had increased based on behavioral assumptions. I think given what we are seeing in terms of movement that we have not just on the current accounts, that wouldn't actually necessarily be something that I would say that we've seen in our books. I'm not doing that. And I think it's also really important. We've always been very clear that with the hedge. It isn't there for us to express a view on where rates are sitting. Others sometimes have taken different views on that, and you need to talk to them on that. But that's -- for me, if you were to try to extend at this point, the absolute pickup you'd be getting wouldn't be logical for the difference you would be making in it. And we don't necessarily see that actually within our underlying numbers that we're seeing those changes in behavioral likes that would also support that duration extension of that. But overall, product hedge 2.5 years, total hedge about closer to 3, very comfortable with the performance of it served us well for many, many years. And as we look at that increase in income this next year into 2026, greater than GBP 1 billion and continuing to grow as we go out to 2028 as well. So very happy with how it's performing. Thanks very much. Operator: Thank you for all your questions today. I will now pass back to Paul to close. Paul Thwaite: Yes. Thanks, Oliver, and thank you, everybody, for your questions. We appreciate both your time and the insightful questions on the call. So to wrap things up, we're very pleased with the performance in quarter 3 and the continuing momentum we've got in our 3 businesses. We've upgraded our income and returns guidance, and we continue to see opportunities, as I think we've conveyed today to continue to take market share and grow those businesses. We look forward to catching up with you at a couple of things. We've got the retail banking spotlight on November 25. And also, as I said earlier, we'll update you on our guidance for 2026 and share our new targets for 2028 at the full year in February. So I wish you all a good weekend. Thank you. Katie Murray: Thanks very much. Operator: That concludes today's presentation. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to Kinsale Capital Group's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. Before we get started, let me remind everyone that through the course of the teleconference, Kinsale's management may make comments that reflect their intentions, beliefs and expectations for the future. As always, these forward-looking statements are subject to certain risk factors, which could cause actual results to differ materially. These risk factors are listed in the company's various SEC filings, including the 2024 annual report on Form 10-K, which should be reviewed carefully. The company has furnished a Form 8-K with the Securities and Exchange Commission that contains the press release announcing its second quarter results. Kinsale's management may also reference certain non-GAAP financial measures in the call today. A reconciliation of GAAP to these measures can be found in the press release, which is available at the company's website at www.kinsalecapitalgroup.com. I will now turn the conference over to Kinsale's Chairman and CEO, Mr. Michael Kehoe. Please go ahead, sir. Michael Kehoe: Thank you, operator, and good morning, everyone. Bryan Petrucelli, our CFO, Brian Haney, our President and COO; and Stuart Winston, our EVP and CUO, Chief Underwriting Officer, are joining me on the call this morning. We announced some management changes last night, the most significant of which is Brian Haney's recent election to the Board of Directors and the announcement of his retirement and new role as Senior Adviser beginning next year. We congratulate him on his election and are encouraged that he will continue to have a prominent role in the governance and direction of Kinsale. Brian and I have worked together for almost 30 years at three different E&S companies. He was one of the original founders of Kinsale and has made tremendous contributions to our success over the almost 17 years we have been in business. It's been a great run. And needless to say, we are fortunate that he will continue contributing to Kinsale as a Director and as a Senior Adviser with a focus on investor communications. I'd also like to congratulate Stuart Winston on his promotion to Executive Vice President and Chief Underwriting Officer. Stuart and his team have delivered some of the best underwriting results in the industry. So this recognition is well earned, and under his leadership, we have great expectations for continued profit and growth in the future. In the third quarter 2025, Kinsale's operating earnings per share increased by 24% and gross written premium grew by 8.4% over the third quarter of 2024. For the quarter, the company posted a combined ratio of 74.9% and a 9-month operating return on equity of 25.4%. Our book value per share has increased by 25.8% since the year-end 2024, and our float has increased by 20%. E&S market conditions were steady in the third quarter, generally competitive with our growth rate varying from one market segment to another with our overall growth rate at 8.4%. Our Commercial Property division saw premium dropped by 8% in the third quarter compared to a 17% drop in the second quarter. The overall third quarter growth rate, excluding our Commercial Property division was 12.3%. And Brian Haney is going to provide some commentary on the market here in a moment. Kinsales' disciplined underwriting and low-cost business model is a consistent winner in an industry where the customers are intensely focused on cost. As the E&S market has become more competitive over the last 2 years, Kinsales' efficiency has become a more significant competitive advantage, by allowing us to deliver competitive policy terms to our customers, without compromising our margins. Likewise, in a moment in the P&C cycle characterized by loose underwriting standards, Kinsales' control of its underwriting process and superior data and analytics helps deliver consistent and attractive results. And with that, I'll turn the call over to Bryan Petrucelli. Bryan Petrucelli: Thanks, Mike. As Mike just noted, we continue to generate great results, with net income and net operating earnings, both increasing by 24% quarter-over-quarter. The 74.9% combined ratio for the quarter included 3.7 points from net favorable prior year loss reserve development, compared to 2.8 points last year with less than 1 point in CAT losses this year compared to 3.8 points in the third quarter of last year. We continue to take a cautious approach to releasing reserves. Gross written premium grew by 8.4% for the quarter, while net earned premium grew by 17.8%, which was higher than the gross written premium due to an increase in retention levels upon renewal of our reinsurance program on June 1. We produced a 21% expense ratio in the third quarter compared to 19.6% last year. Higher expense ratio is attributable to lower ceding commissions, generated on the company's Casualty and Commercial Property quota share reinsurance agreements, as a result of the higher reinsurance retention levels that I just mentioned. On the investment side, net investment income increased by 25.1% in the third quarter over last year, as a result of continued growth in the investment portfolio generated from strong operating cash flows. Kinsales' flow, mostly unpaid losses and unearned premium grew to $3 billion at September 30 up from $2.5 billion at the year-end 2024. The annual gross return was 4.3% for the first 9-months of this year and consistent with last year. New money yields are averaging slightly below 5%, with an average duration of 3.6 years on the company's fixed maturity investment portfolio. And lastly, diluted operating earnings per share continues to improve and was $5.21 per share for the quarter, compared to $4.20 per share for the third quarter of 2024. And with that, I'll pass it over to Brian Haney. Brian Haney: Thanks, Brian. First, let me say it's been an absolute honor and privilege to have worked at Kinsale for the last 17 years. There's no better E&S company in the business, and there's no better group of people to work with. Kinsale has come a long way from its first days in 2009 when we were just starting out with Bryan Petrucelli, Mike, myself as well as Bill Kenney, [ Emery Morrison ] and Ed Desch, who I see is on the phone call today. I'm grateful for the opportunities I've been giving by Mike and the Board over the years. I'm proud to have played whatever part I could in the success of Kinsale. It's a tremendous honor to have the opportunity to serve on this Board with so many talented Directors, whom I've worked with over the years, and I'm really pleased that I will continue to be associated with this great company. And I am very confident in our future. We have built an amazingly deep bench. We have great young executives like Stuart and many others like him. The investors should rest assured that this company is in great hands and will continue to be going forward. With that said, on to business. The E&S market remains competitive, as Mike said, that the intensity varies by division. The shared layered Commercial Property continues to be very competitive. But it appears we hit an inflection point sometime early in the third quarter, perhaps late in the second, where the rate of decline is abating. When you look at all the Property business in total, including the Small Property, Agribusiness Property and in the Marine, the book actually grew in the third quarter. In other areas, we're seeing the most growth in Commercial Auto, Entertainment, Energy and Allied Health. Although the market is competitive, our model of low expenses and absolute control over the underwriting and claims handling works well in any market. I would argue it works better in a competitive market because it makes our expense ratio more telling, also the fastest-growing participants in the market today are largely funding companies, whose risk-bearing partners must contend with expense ratios often double ours or higher. And that math isn't going to work out for them. Submission growth was 6% for the quarter, which is down from 9% in the first quarter. That decline is driven by our Commercial Property division. Our pricing trends are similar to the Amwins Index, which reported an overall 0.4% decrease. Commercial Property rates are still declining, but we feel we have reached that inflection point, as I mentioned, where the rates are -- rate declines are stabilizing, and I expect we will see rates in the Commercial Property market, moderate going forward. Overall, we remain optimistic. Our results are good. Our growth prospects are good and as the low-cost provider in our space, we have a durable competitive advantage that should allow us to continue to gradually take market share from our higher expense competitors, while continuing to deliver strong returns and build wealth for our investors. And with that, I will turn it back over to Mike. Michael Kehoe: Thanks, Brian. Operator, we're now ready for any questions in the queue. Operator: [Operator Instructions] Our first question will come from Bob Huang from Morgan Stanley. Jian Huang: So Brian, congratulations on the new role and the retirement. But just maybe if we go into your business outside of Commercial Property, can you maybe comment on where you think the future opportunities would be? Especially given it seems like there's a little bit of a growth deceleration for the quarter. Just kind of curious outside of Commercial Property, what are the areas that you think that are very attractive for you? And what are the areas you think you want to pullback a little bit? Brian Haney: Well, I think we've got opportunity across the whole book. I would say some of our newer areas that we've developed recently would be the Transportation segment and the Agribusiness segment. But I think there's still a great opportunity in Casualty. And then some of the other property-related lines, I think there's still a great opportunity, high-value homeowners and our Personal Lines, it is an area we're putting a lot of emphasis into. We think that's a great opportunity. So I think it's really by the spread. There's a lot of different places we can grow. Michael Kehoe: Yes. For the quarter, all of our Property Lines, except for the Large Commercial Property division, all the other property-focused lines grew at a double-digit clip. So I would reiterate what Brian said. We're pretty confident. Jian Huang: That's very helpful. My second question is with regards to technology, obviously, that's one of your core competencies here. But just curious if you can give us a little bit of color in terms of new tech innovation and implementation into the business? And then just curious as to how you're incorporating emerging technology into your business and where are the areas you feel that would be advantageous for Kinsale going forward? Michael Kehoe: Well, Bob, this is Mike. When we started the business 17 years ago, we talked about making tech, a core competency of our company alongside of the underwriting and the claim handling. And I think we've done that. We build our own enterprise system over the years, took a long time. And about 2 or so years ago, we started what we call target state architecture, which is a complete rewrite of that entire enterprise system. It's an enormous undertaking, but it kind of puts us in a position to really speed up the implementation of new technologies and whatnot. So that target state is an enormous project. We're always enhancing and expanding our product line, that involves our technology department. We've been making ample use of the new AI tools that have come out, both in our IT department, as well as underwriting and claims, trying to drive automation in our business process. So I mean there's a there's a million ways, but I think it goes a long way to explaining why we're able to operate at such a significant cost advantage over our competitors. And I think a lot of it is, hey, we've got a really well-designed enterprise systems, specifically for our company. We don't have legacy software going back 20, 30, 40 years. We don't have thousands of legacy applications. I think we're just in a really attractive spot. Operator: Our next question comes from Michael Phillips from Oppenheimer. Michael Phillips: I wanted to touch on one line of business, the construction liability line. I was curious, was there any change in assumptions in that segment that affected your current year loss pick? Michael Kehoe: I don't know that there were any changes there specifically. We do a quarterly review of our loss reserves by stat line of business. And that goes -- we're in our, I think, 16th accident year. We've got about a dozen lines of business. So there's a high degree of complexity in that analysis -- could very well have picked up some adjustments in the construction, but I just don't know off the top of my head. I think in general, we feel great about the quarter. I think our losses continue to come in below our expectations. There's a little bit of variability in the loss ratios when you roll everything together, and I think that's normal. But again, we feel really positive about the loss performance. Michael Phillips: Okay. And then second one would be on your Excess Casualty segment. Could you talk about that segment, what you're seeing? Is there any growth opportunities there? And what you're seeing maybe for loss trends in that segment? Stuart Winston: Yes. Michael, this is Stuart. We're still seeing good opportunities in Excess Casualty. Rates are holding strong. We're seeing some pressure in the market at the high excess attachment points, where those are being more attractive for various competitors. But that's typically not where we play. We're typically in the lead or the first $10 million on most of our placements. So there's still a good opportunity for growth and rates are holding strong, where we participate in the market. Operator: Our next question comes from Mike Zaremski from BMO Capital Markets. Michael Zaremski: Going back to Casualty, but broader brush on all Casualty ex-Property, which is kind of your core business. You saw a bit of a sequential de-cel in premium growth there. Any color you can offer on just the state of the marketplace, Casualty-specific, pricing? You talked about MGAs in the past as well. Is that still -- are they still just as competitive? Michael Kehoe: I'll start, Mike, and then I'll maybe get Stuart to make a few comments. But I would just remind you that we write Casualty business across many specific underwriting divisions, each one focused on a different industry segment or coverage, and they never move in tandem, right? There's always variability as you go from one area to the next. But in general, I think things are still going well. Stuart Winston: Yes. The long-tail Casualty lines, we're seeing moderate competition, but there's a lot of rational actors out there with the adverse development over the last couple of years in the market. But there's segments like -- areas like Excess Casualty, Social Services and the Allied Health Group that are still really strong and the market will experience some dislocation, the same with Premises Liability, so General Casualty, Entertainment groups like that, it's still a very strong market there for growth. Michael Zaremski: Okay. I mean, I guess that's very helpful. So if we look at the Casualty trend, though it's still kind of -- it's decelerating from a growth perspective. I'm not saying growth, we want profitability, not growth. But is your view -- you shared your view that shared layer, things are becoming less negative, I guess, from a pricing standpoint, I'm assuming. Do you think the Casualty is also getting less competitive or it will remain -- increasing competition will remain kind of impacting the top line? Michael Kehoe: Mike, it's Mike again. I would say we're in a very competitive period in the insurance cycle. Again, it varies a little bit, division by division. But I think the -- you've seen over the last 2 years, the Kinsale growth rate has kind of come in from kind of an extraordinary 40% rate to this quarter's high single digits. I think we've reiterated many times that over the cycle, we think 10% to 20% is a good conservative estimate of our growth potential. I think that's probably the best commentary we can offer. I mean it's a diverse product line. It's a very competitive market. We've got a very competitive business strategy with the control we exercise over our underwriting. It drives a more accurate process. And then when you look at the cost advantage we have over competitors, it's extraordinary. So I think we're in a great spot. We were encouraged that the growth rate going from the second to the third quarter ticked up from 5% to 8.4%. Brian Haney highlighted the fact that if you took the Commercial Property out, that put us in the low double digits. Admittedly, that was down from -- it went from 14% to 12%. But to me, that's just kind of normal variability quarter-by-quarter. I wouldn't read too much into that 2-point decline. Michael Zaremski: Okay. That's helpful. And just to sneak one last one in. Part of your -- I think part of your special sauce, I believe, uniquely allows Kinsale to, I guess, maybe not need to [ profit share ] commissions to some of your broker partners. Is it ever a consideration, especially in more competitive times like today to rethink that strategy or that's not on the table? Michael Kehoe: The profit commissions are typically associated with delegated underwriting, right? So many companies, especially in the SME area, aren't able to handle the volume of transactions internally or for whatever reason, right? It's very common to outsource underwriting to MGAs and MGUs. And I think a lot of companies try to put some sort of profit or growth contingency into the compensation mix for the broker in order to better align incentives. We're not in that space, and we're not considering it. Our business model is to control the underwriting, provide the best customer service in the industry. I think we also offer the broadest risk appetite. So a lot of the business we write, falls out of the delegated or binding programs that are in the marketplace. So really for those reasons, no, we're not considering a change in our compensation model. Operator: Our next question comes from Mark Hughes from Truist. Mark Hughes: Congratulations, Brian, and also Stuart. Current accident year loss ratio was up a little bit. Was that mix? Was that competitive pressure? What would you say that was caused by? Michael Kehoe: Mark, I would just kind of write that off to normal variability. The overall numbers are phenomenal. The reported losses are coming in below expectations. We're always trying to be cautious with our reserving. You can look around the industry. There's a lot of examples of companies that are too optimistic in their loss reserving. We never want to be in that group. So can I would look at the loss performance is good news. Admittedly, it was up a couple of points. But to me, that's just normal kind of variability. Mark Hughes: Yes. Bryan Petrucelli, the ceded premium at 17% and then the expense ratio at 21%, given the kind of the reinsurance structure at this point to ceding commissions? Are those reasonable starting point for the next few quarters? Bryan Petrucelli: I think so, Mark. So the first full quarter that we've had with the new reinsurance terms. So it's a pretty good match for you. I would say mix of business is always going to drive a little bit of variability in that. But I think as we sit now, as good a guess as you can -- we can give you. Mark Hughes: Very good. And then one final question. The state E&S data in some of the coastal states, Florida, Texas, New York, it looked like your growth is a little faster there kind of implying that maybe in other states, growth was a little slower. Is that a correct perception? Is there anything we should read into that or the non-coastal state perhaps a little more competitive? Is there anything to think about there? Brian Haney: Mark, this is Brian Haney. I wouldn't read too much into it. We don't -- we don't know exactly how those numbers are calculated, and we don't do anything to try to match them up with our own data. Michael Kehoe: I think it's better to look at those state tax numbers over a number of months. I think there's a little bit more credibility to further look back. Mark Hughes: Well, if we put those numbers to the side, we say there's any sort of dynamic where non-coastal, the kind of those traditional E&S states, the New York, California, Texas, Florida. Are they -- are you seeing more opportunity there perhaps than elsewhere? Or would you not see it that way? Stuart Winston: I think it stayed relatively the same since Mark, it's Stuart. Relatively the same since we've been in business with obviously, the core E&S states are going to the largest bulk of our business. But I haven't seen a mix in that. Or change in that. Operator: Our next question comes from Andrew Andersen from Jefferies. Andrew Andersen: I think maybe 5 to 7 years ago, you kind of had talked about how there were certain areas you don't write like public company D&O or trucking. Maybe just bigger picture, pockets that 5 to 7 years ago, you did not write and now you're kind of rethinking that and perhaps see some new opportunities for growth? Michael Kehoe: Well, there's a bunch of examples. We've made a bigger push into homeowners. We started an Agribusiness Division. We started an Aviation Division, Ocean Marine, we're always enhancing the product line. Brian Haney: Yes. We're always looking at new products not that we don't, right that. We want to write it on our terms and our pricing to maintain our margin. So if you look at commercial auto, - we write a lot of auto adjacent, wheels adjacent business, but we will look at some small fleets at tighter terms. It's just not the large trucking schedule. So we will take a look at these out, but it's going to be a little more control. Andrew Andersen: Got it. And on the net commission ratio, about 10.5% in the quarter and recognizing there was some change to reinsurance, but the direct commission was pretty much unchanged. But if we go back a few years when the mix was more tilted towards casualty, it was kind of in a 12% to 13% range. Could we see it getting back up to that level? Or are there some offsets within there that might help keep it maybe around 11% or so? Bryan Petrucelli: Again, I think the 10.7% is as good a guide as we can give you. If we did have a change in mix of business, you could see that move around a little bit. Whether that goes up to 12% or 13%, who knows. But I think the best guide we can give you is what we have here for this first full quarter since those agreements have been in place. Operator: Our next question comes from Andrew Kligerman from TD Cowen. Andrew Kligerman: Congrats to Brian and Stuart. And first question is on the net reserve release of $10 million or 3.7 points. Just curious as to what the kind of mix on that was short tail versus casualty maybe on the casualty side vintage. Just kind of curious on the breakdown of that release. Michael Kehoe: Andrew, this is Mike. I would say, without getting too specific, the last couple of quarters, maybe even the last 2 years, including the quarter, most of the release -- the releases have been disproportionately on our first-party business. So short-tail business like property. Andrew Kligerman: Got it. Okay. And I've been noticing when talking to some of your competitors, some of them starting up micro and small, maybe even mid businesses. But I'm seeing a lot of micro and start-ups in the E&S area. Could you talk a little bit about maybe the number of competitors you're seeing in that area versus, say, 3 years ago? Michael Kehoe: I think we have more competitors today than 3 years ago, but it's not just insurance companies. There are hundreds and hundreds of MGAs that have started in the last several years. There used to be one fronting company. Somebody told me the other day, they're now 30. So a lot of capital has come into the industry, and there's just a lot more competition that reflects that. And that's certainly not new. I mean, it's always been a cyclical business, and we're hardwired to compete and win in this environment, I think. Andrew Kligerman: Got it. And the last one, in your commentary, you talked about rates in property. I heard the word stabilizing. I heard moderate. Could you possibly put some numbers around where rates were in property? I think you said that it started to inflect at the end of the second quarter. Maybe where were rates early in the second quarter going? And maybe where are they now? Just to kind of get some numbers around the commentary? Brian Haney: I don't have the exact numbers in front of me. I would have said it was double digits in the second quarter, down. If I had to guess now, I would say it's probably single digits, down. Let's call it, high single. I don't have it in front of me. So that's just an absolute speculative guess. But I do get the sense that at least in the market we're in, you have seen that inflection point, and I would expect to see that trend continue. Like I think it's going to normalize relatively quickly. Operator: Your next question comes from Ryan Tunis from Cantor Fitzgerald. Ryan Tunis: I guess just a follow-up on the underlying loss ratio. It sounded like you attributed kind of the 2-point year-over-year increase to just normal variability. Does that imply that we're not yet seeing pressure on that ratio coming from property lines? Michael Kehoe: No, we're not seeing pressure on our loss ratio from property lines because we've over-performed in property. That's why a disproportionate amount of the reserve redundancy has come from the short-tail lines like property. We've had great experience on property. And I think that's a tailwind. I think where we're being more cautious, and it's not because we're seeing any kind of a negative trend. It's just that on long-tail casualty, there's a higher degree of uncertainty. It just takes time for those accident years to mature, and coming out of a period a few years ago where we had a significant uptick in inflation, all sorts of supply chain disruptions with COVID. We saw some of our long-tail lines develop a little bit higher and a little bit later than we would have anticipated. And starting several years ago, we've addressed that with much more conservative loss picks. And so we're maintaining that conservatism to make sure that we -- we always have more than enough. We want our reserves to kind of develop favorably year by year. And when that happens, it just has a very therapeutic effect on the financial performance of our business. Ryan Tunis: That makes sense. And then I guess just a follow-up on the property. Yes. I guess it makes sense naturally that there'll be less price pressure in the third quarter simply because there's fewer like Florida [ shared and layer ] renewals. I mean to what extent is the improved pricing environment just sort of a function of seasonal mix? If you will. Michael Kehoe: Well, I'm going to start by just saying we didn't say it improved. It deteriorated at a slower rate. Brian Haney: Yes. I would characterize it more as rates were going down so fast that -- the faster rates go down, the quicker they're going to normalize, because the industry can't go around giving double-digit rate increases indefinitely. And I think we've reached that point where you're starting -- you saw that second order derivative turn positive. So I don't think it's based on the third quarter being less hurricane-intensive. Operator: Our next question comes from Joe Tumillo from Bank of America. Joseph Tumillo: Most of my questions have been answered, but I guess the first question is kind of thinking about. I appreciate the submission rate was decelerating a little bit to commercial property. If we exclude commercial property, has the submission rate kind of remained steady? Or has that also kind of decreased along with the ex property premiums? Brian Haney: It's closer to around 9%, excluding Commercial Properties. Joseph Tumillo: Okay. Great. And then the other question, just thinking about -- I saw you guys kind of stepped up the share repurchases this quarter from the $10 million from the previous ones. just kind of thinking, was that just more opportunistic where you saw the share price going? Or is that more of a function of kind of lower growth and a lot of the cash flow? I know you guys have mentioned before about kind of keeping the business kind of efficient capital. Michael Kehoe: I think it's the latter, Joe. We're generating mid-teens ROEs on a year-to-date basis and I think our year-to-date growth rate is high single digits. So we're definitely producing a lot of excess capital. And our first goal is always to grow the business. And then secondarily to that, the last couple of years, we've been looking at a very small dividend and a very small share repurchase, but I think both of those could continue to grow. Operator: Our next question comes from Pablo Singzon from JPMorgan. Pablo Singzon: So first question, with premium growth having slowed, how do you think about other underwriting expenses over the next 1 to 2 years, right? So I think over the past several years, it's been a good story. But given that growth has slowed, are you managing that line to sort of trail the growth in premiums? Or just given where you think opportunities might lie, there's a chance that you might see some degradation as you're building out new opportunity? Michael Kehoe: I think we have always worked like crazy to be as efficient as we can as a business. Given the industry that we compete in. And I think the other underwriting expenses will gradually come down over time as we drive productivity gains in the business through technology, et cetera. I don't think it's going to be sudden, but I think a gradual decline is what investors should expect. Pablo Singzon: Okay. And then, I guess, second question also related to expenses, right? So clearly, Kinsale has an expense advantage over the rest of the industry. I'd be curious to hear your thoughts about whether or not you're willing to trade some of that expense ratio to generate higher premiums and underwriting income? And I guess even if that trade is possible to begin with, right? Or are you sort of happy with the current configuration of pricing, profitability and volume? Michael Kehoe: Look, I mean, I think there's just a clear recognition that the customers we serve, principally small business owners, are intensely focused on limiting how much money they spend on insurance. And so we're doing everything we can to be as efficient as possible, to give them competitively priced insurance policies but also to protect our margins. So I don't see an advantageous trade where we would deliberately raise our costs, become less competitive and somehow that's going to net a better opportunity for our company. I was just going to say, we're going to continue to work -- do everything we can to be the efficient insurance provider in the E&S space. Pablo Singzon: Got you. And then just one small one. On reinsurance retention, do you think that could go up again in the next couple of years or you don't see any change from current status quo? Bryan Petrucelli: Yes. Again, I think what you're seeing this quarter is our best guess. Now if we had some dramatic mix of business, it could move one way or the other. Michael Kehoe: But our retention has changed many times over the years. Right. We've taken a bigger net position over and over again, and that's just consistent with our growth as a business. Operator: Our last question comes from Casey Alexander from Compass Point. Casey Alexander: Yes. And congrats to Brian and Stuart, particularly to Brian on his retirement. I'm sure that's something that we all look forward to. So not to beat a dead horse. Not to beat a dead horse, but Brian, I am particularly taken by your comments that the property rate decline is stabilizing, simply because the 20 years of covering property in the Southeast particularly in the Southeast U.S. when you have a year like this, it has a particularly low level of cat activity, at least up-to-date fingers crossed, right? You never know what happens in the month of November. It tends to attract alternative forms of capital that see very low loss ratios and think that they can get into the business and they tend to get into the business in commercial, because its than quicker than residential, and it's irrational. And so I just wondered, does that not concern you that you're possibly going to see alternative capital in 2026 enter the property market and leading with some irrational price structures? Brian Haney: You might be right. I was kind of referring more to the dynamics in the third quarter. So who knows? Operator: We have no further questions in queue. I'd like to turn the call back over to Michael Kehoe for any closing remarks. Michael Kehoe: All right. Well, we appreciate everybody joining us and look forward to speaking with you again here in a few months. Have a great day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Baker Hughes Company Third Quarter 2025 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Chase Mulvehill, Vice President of Investor Relations. Sir, you may begin. Chase Mulvehill: Thank you. Good morning everyone, and welcome to Baker Hughes' Third Quarter Earnings Conference Call. Here with me are our Chairman and CEO, Lorenzo Simonelli; and our CFO, Ahmed Mogul. The earnings release we issued yesterday evening can be found on our website at bakerhughes.com. We will also be using a presentation with our prepared remarks during this webcast, which can be found on our investor website. As a reminder, we will provide forward-looking statements during this conference call. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings in website for the factors that could cause actual results to differ materially. Reconciliations of adjusted EBITDA and certain GAAP to non-GAAP measures can be found in our earnings release. With that, I'll turn the call over to Lorenzo. Lorenzo Simonelli: Thank you, Chase. Good morning, everyone, and thanks for joining us. First, I'd like to provide a quick outline for today's call. I will begin by discussing our strong third quarter results. Next, I will highlight key awards announced during the quarter and provide some thoughts on the broader macro environment. Following this, I will share an update on the current progress in the LNG sector. I will then hand it over to Ahmed, who will present an overview of our financial results, followed by an update on our continued focus on portfolio management, including the Chart Industries acquisition. To conclude, I will summarize the main points before we open the line for questions. Let us now turn to the key highlights on Slide 4. We continue to execute at a high level, delivering another quarter of strong results. Adjusted EBITDA rose to $1.24 billion, above the midpoint of our guidance range. This performance reflects continued momentum from our business system deployment, positive trends in gas technology and strong outperformance in U.S. land, where our leverage to production is a clear advantage. Oilfield Services and Equipment margins softened in response to the broader macro environment, while Industrial and Energy Technology reported improved results, contributing to a 20 basis points year-over-year increase in consolidated adjusted EBITDA margins to 17.7%. This margin progression highlights the resilience of our portfolio and the foundation we have built through disciplined execution. Given the strong operational performance year-to-date, we now expect full year adjusted EBITDA for the total company to exceed $4.7 billion. Turning to orders. IET continues to build strong momentum, achieving $4.1 billion during the quarter, driven by LNG equipment, record Cordant Solutions orders and ongoing strength in gas infrastructure and power generation. As a result, IET backlog grew 3% sequentially, reaching a new record of $32.1 billion, further reinforcing the durability and visibility of our growth outlook. Through the first three quarters, IET orders totaled nearly $11 billion, including $1.6 billion from New Energy, already reaching the high end of the $1.4 billion to $1.6 billion guidance range. With good visibility into fourth quarter awards, we now expect full year IET orders to exceed our prior midpoint. Looking ahead, we are targeting at least $40 billion of IET orders over the next three years. This outlook is supported by the breadth and versatility of our technology portfolio, which continues to generate a robust pipeline across an expanding range of end markets. We expect growth to be led by gas infrastructure, power generation and new energy markets, while LNG equipment orders are expected to remain consistent with our solid performance over the past two years. In OFSE, Subsea Surface and Pressure Systems delivered a record quarter with $1.2 billion in orders, driven by major contract wins in Turkiye and Brazil. Turning to Slide 5. As I highlighted, we made strong progress on IET orders year-to-date, reflecting continued momentum across LNG, power generation and new energy markets. With strong visibility into our current pipeline, we expect this strength to carry into 2026. In LNG, we secured over $800 million in equipment orders this quarter, including Trains 3 and 4 of Sempra's Port Arthur Phase 2 and Train 4 of NextDecade's Rio Grande LNG. At Rio Grande, our Cordant Asset Health digital solution is being deployed on the first three trains. These awards reflect continued investment in large-scale LNG infrastructure and demonstrate our ability to deliver value by integrating equipment and digital capabilities to reduce downtime and boost availability and production. In power generation, we continue to experience strengthening demand for distributed power, cogeneration and geothermal solutions throughout the oil and gas, industrial, data center and geothermal markets. Notably, we secured a significant award from Dynamis for mobile power generation for oil and gas operations in North America, supplying more than 1 gigawatt of aeroderivative gas turbines to meet rising energy needs across upstream and downstream markets. We also made meaningful progress in geothermal power, securing a contract to design and deliver equipment for five organic rank and cycle power plants for Fervo's Cape Station project in Utah. This site will generate 300 megawatts of clean, reliable power, enough to supply approximately 180,000 homes. This builds on our earlier collaboration with Fervo, where OFSE provided subsurface drilling and production technologies. Together, these wins demonstrate the growing relevance of our integrated portfolio for scalable, low-carbon energy solutions. We also signed a collaboration agreement with Controlled Thermal Resources for the 500-megawatt Hell's Kitchen geothermal project in California. As part of this broader trend, we are seeing continued momentum in data center power demand. Year-to-date, we have now booked more than $700 million in power generation equipment orders for data center applications, led by our NovaLT technology. We remain confident in achieving $1.5 billion of data center orders ahead of our original 3-year time line, underscoring the increasing relevance of our power solutions in this fast-growing market. On aftermarket services, we secured a long-term service contract with bp for its Tangguh LNG facility in Indonesia and extended our agreement with Pembina Pipeline to support upgrades for the Alliance Pipeline system in North America. These awards reinforce the convertibility of our installed base into aftermarket and service opportunities, reflecting the resilience of our life cycle model. In offshore, a market we continue to see as a compelling long-term growth opportunity, IET secured an award to supply power generation and compression equipment for an FPSO in South America. This award further demonstrates our ability to deliver integrated solutions for critical energy infrastructure. SSPS delivered a record order quarter driven by a significant award for subsea trees in Turkiye. We will supply Turkish Petroleum with integrated subsea production and intelligent completion systems for the third phase of the Sakarya gas field. In offshore Brazil, we also announced a frame agreement with Petrobras for up to 50 subsea trees, marking our return to the subsea tree market following an extended absence. In flexible pipe systems, we booked an additional 66 kilometers of rises and flow lines for hydrocarbon production, CO2 injection and gas lift, again, highlighting our technical leadership in complex offshore developments. We will also provide an all-electric integrated completion system for the Buzios field in Brazil, enabling more precise subsurface control, increased operational efficiency and enhanced reliability. Petrobras also extended contracts for our Blue Marlin and Blue Orca stimulation vessels. In Saudi Arabia, we won a major multiyear award from Aramco to expand coiled tubing drilling operations, including six new units and extensions for four existing ones, supporting both reentry and greenfield projects across the Kingdom. For Production Solutions, we signed a 5-year extension to provide hydrocarbon and water treatment products and services across Valero's North America and U.K. refineries. We also continue to see strong demand in Mexico for our downstream chemical solutions as we help Pemex manage crude quality challenges. These awards highlight our ability to serve downstream markets as well as upstream and midstream. In ammonia, we booked a major order from Technip Energies for the Blue Point #1 project in Louisiana. This facility is set to become the world's largest low-carbon ammonia plant with a capacity of 1.4 MTPA. We will supply critical compression equipment for ammonia production and CO2 transportation along with steam turbines and generators for power solutions. Overall, we continue to see strong momentum across an increasingly diverse opportunity set, supported by the breadth and depth of our technology portfolio. Now turning to the macro on Slide 6. The macro environment has remained relatively resilient throughout 2025 despite geopolitical and policy-related headwinds. A key factor contributing to this resilience is the powerful new growth dynamic related to the rapid deployment of generative AI. This wave of investment is unlocking new growth vectors across a wide range of industries and serving as a broad stimulus for the global economy with recent estimates indicating that AI-driven investments account for approximately 30% to 40% of U.S. GDP growth this year. Globally, McKinsey projects over $1.5 trillion in data center infrastructure investments over the next three years, a major opportunity for Baker Hughes. We are seeing a clear acceleration in project activity and commitments from leading AI companies with our Power Solutions portfolio well positioned to meet this demand for resilient energy-efficient infrastructure. Now turning to oil. The market continues to navigate a range of cross currents. On one hand, there are concerns around softer demand and rising OPEC+ production. On the other, persistent geopolitical risks in the Middle East and Russia continue to support commodity prices. Despite the accelerated return of OPEC+ supply, Oil prices in the third quarter remained somewhat resilient. While it is possible some OPEC+ nations do not have the capacity to fully meet their production quotas, the near-term potential for oversupply continues to weigh on sentiment, keeping operators cautious amid the risk of short-term pricing pressure. As we shared last quarter, we continue to expect oil-related upstream investment to remain subdued until the market fully absorbs this incremental OPEC+ supply. Against this backdrop, our outlook for 2025 is unchanged, maintaining expectations for a high single-digit decline in global upstream spending. Looking ahead to 2026, early indicators point to another year of subdued activity, possibly leading to another year of global upstream spending decline. Longer term, the outlook is more positive, especially internationally and offshore, where substantial investment will be required to sustain production growth in response to rising demand. We also expect continued growth in OpEx-driven upstream investment as operators focus on enhancing recovery rates and extending the life of existing fields. On natural gas, we continue to see growing divergence between oil and natural gas fundamentals. It's abundance, low-cost reliability and lower emissions set natural gas apart from other fossil fuels. That structural advantage is increasingly reflected in both policy and capital allocation. By 2040, we expect natural gas demand to grow by over 20% with global LNG increasing by at least 75%. This growth outlook creates a favorable environment for Baker Hughes. LNG demand continues to demonstrate solid growth increasing by 6% this year, largely driven by a strong storage injection season in Europe, although this was partially offset by softer demand in China. This demand is driving record LNG contracting activity, which is essential for future project FIDs. According to Wood Mackenzie, 84 MTPA of long-term LNG offtake contracts were signed in the first nine months of the year, surpassing last year's total of 81 MTPA. Over the past two years, nearly 75 MTPA of LNG projects have taken FID with an additional 25 MTPA needed to reach our 3-year target of 100 MTPA. This would increase the global installed base to our long-held target of 800 MTPA by 2030. Beyond this, we see continued growth in the installed base, which I'll address shortly. In summary, we are seeing strong momentum in our key end markets, especially natural gas and AI-driven power despite persistent headwinds in global trade policy and oil. Our diverse portfolio positions us to manage volatility and we remain confident in our ability to continue executing against our long-term strategy. Turning to Slide 7. Let me take a few minutes to share our updated perspective on global LNG capacity expansion beyond our long-held target of 800 MTPA by 2030. That milestone is now largely supported by projects that have already reached FID, but are not yet commissioned. Looking beyond 2030, we now expect global LNG installed capacity to increase to approximately 950 MTPA by 2035. To achieve this level of capacity, an additional 175 MTPA of projects would need to reach FID by 2031. Our positive long-term outlook is anchored in a simple reality. The world needs more energy. This requirement is being amplified by the exponential growth in AI-driven power demand. Natural gas is well suited to meet this demand, offering abundance, affordability and lower emissions than coal without the intermittency issues associated with renewable sources. In many emerging markets, natural gas accounts for less than 5% of the power mix compared to over 40% in the U.S. This disparity presents substantial potential for natural gas to displace coal and support the transition to a lower carbon economy, especially in regions with high energy requirements that demands reliable and affordable power solutions. Nonetheless, periods of market volatility may occur due to the nonlinear nature of supply growth. Historically, declines in spot prices have encouraged new buyers to enter the market, thereby spurring the next wave of demand and supporting LNG's sustained long-term growth trajectory. Turning to our technology portfolio. This remains a core differentiator for Baker Hughes. Our best-in-class liquefaction solutions pair advanced compression technology with the industry's broadest selection of drivers including heavy-duty and aeroderivative gas turbines and electric motors. We consistently raised the bar for efficiency, throughput and uptime, helping customers achieve superior LNG project economics. The LM9000 aeroderivative gas turbine exemplifies this, delivering 44% simple cycle efficiency and setting new benchmarks in performance and reliability for large-scale energy infrastructure projects. We expect that the integration of Chart will further enhance the value we bring to customers, enabling greater optimization across the LNG value chain. This allows for more efficient project design, improve and better life cycle economics which we expect will result in superior outcomes for our customers. Importantly, an increasing installed base supports structural growth over the next decade in our Gas Tech services business, a key driver of long-term growth and earnings durability for Baker Hughes going forward. The service agreements are critical to ensuring the performance, reliability and emissions performance of LNG facilities over their full life cycle. Overall, we see sustained LNG growth well beyond 2030, driven by rising global energy demand, the push for decarbonization and infrastructure expansion in emerging markets. Baker Hughes is well positioned to capitalize on this trend, leveraging deep market expertise, innovative technology and reliable execution to support our customers with solutions that improve performance reduce emissions and enhance project economics. Now let me summarize the key points before handing it over to Ahmed. The first quarter was marked by strong execution and meaningful strategic progress. Operationally, we continue to form at a high level. IET delivered another quarter of strong order momentum, further demonstrating the breadth and versatility of our portfolio. At the same time, our business system continues to drive consistent performance across the company. The announced acquisition of Chart represents a significant milestone in our journey to become a leading energy and industrial technology company. We see substantial opportunity in combining our portfolios, and we expect that the acquisition will enrich our differentiated technology offerings and enhance the value we deliver to customers across critical, high-growth markets. As we announced earlier this month, we are conducting a comprehensive evaluation of our capital allocation focus, business, cost structure and operations in connection with the pending acquisition of Chart. This evaluation reflects the disciplined actions we have consistently taken over the years to establish a proven track record of driving strong performance and represents a natural progression in our ongoing value creation strategy. We have made substantial progress in driving operational improvements, advancing our portfolio and delivering leading shareholder returns and we are confident that we have the right strategy to build on this momentum and continue creating long-term value for shareholders. Lastly, I want to take this opportunity to extend my sincere congratulations to Ganesh Ramaswamy as he embarks on his next chapter as our CEO. During the past three years, Ganesh has been an exceptional leader at Baker Hughes, successfully implementing our business system and leading the organization with purpose. To maintain continuity and sustained progress within IET, Maria Claudia Borras, a seasoned and highly respected executive at Baker Hughes will step in as Interim EVP of IET. With that, I'll turn the call over to Ahmed. Ahmed Moghal: Thanks, Lorenzo. Starting on Slide 9. As Lorenzo highlighted, we delivered another quarter of strong orders with total company bookings of $8.2 billion, including $4.1 billion from IET. Adjusted EBITDA increased by 2% year-over-year to $1.24 billion based on revenue growth of 1% as margins increased by 20 basis points to 17.7%. This performance continues to reflect the benefits of structural cost improvements and continued deployment of our business system, driving greater productivity, stronger operating leverage and more durable earnings. GAAP diluted earnings per share were $0.61. Excluding adjusting items, earnings per share were $0.68. We generated free cash flow of $699 million. For the full year, we expect free cash flow conversion of 45% to 50%, with a typical strong performance expected in the fourth quarter. Turning to capital allocation on Slide 10. Our balance sheet remains in a very strong position. We ended the quarter with cash of $2.7 billion and net debt to adjusted EBITDA ratio of 0.7x and liquidity of $5.7 billion. During the quarter, we returned $227 million to shareholders through dividends. Our near-term priority is to maintain the strength of our balance sheet in preparation for the closing of the Chart acquisition. On portfolio management actions, I'm pleased to report that we closed the acquisition of Continental Disc Corporation on August 7, the sale of precision sensors and instrumentation and the creation of the surface pressure control JV with Cactus are progressing as expected with closing anticipated early next year. When these two divestitures close, they will reduce annual EBITDA by approximately $150 million and generate around $1.4 billion in gross cash proceeds. Turning to the Chart acquisition. We were pleased to receive shareholder approval on October 6. We're currently working in a number of countries to achieve the customary approvals and continue to expect the deal to close in mid-2026. As stated in the Chart acquisition announcement, our objective is to achieve a net debt to adjusted EBITDA ratio of 1 to 1.5x within 24 months following the close of the deal. This reduction will be accomplished through a combination of existing cash balances, ongoing free cash flow generation and proceeds from continued portfolio management initiatives, which are anticipated to yield $1 billion of incremental proceeds. We have formed an integration management office and commenced integration planning with the team at Chart. In the near term, the focus is on harmonizing systems and processes, supply chain, commercial and operations structured across 14 dedicated work streams. This disciplined and targeted approach is designed to enable a seamless integration and position us to realize the full $325 million in anticipated cost synergies. Our early collaborations have demonstrated that both organizations possess aligned cultural values, prioritizing the customer at the core of all activities. The integration planning team is directed by the principle of making decisions that support the future enterprise and prioritize value creation while also acknowledging the strengths and capabilities of the legacy businesses. In addition to the significant cost synergies, we're excited about the commercial opportunities enabled by the combined product and technology portfolios. The combination expands Baker Hughes capabilities in key growth markets such as LNG, data centers, gas infrastructure, hydrogen and CCUS while also enhancing our ability to deliver differentiated value-added solutions to customers. Let's now move to our segment results, starting with IET on Slide 11. During the quarter, we secured IET orders totaling $4.1 billion, including more than $800 million of LNG equipment and a second consecutive record for Cordant Solutions. With a book-to-bill of 1.2x for the quarter, IET achieved another record RPO of $32.1 billion. This RPO level and a structurally expanding installed base provides strong revenue visibility for 2026 and beyond. IET revenue increased by 15% year-over-year to $3.4 billion, led by double-digit growth in Gas Technology Services, Gas Technology Equipment and Industrial Solutions. Segment EBITDA increased 20% year-over-year to $635 million as margins expanded by 90 basis points to 18.8%. This strong performance was led by record GTE margins and the highest Cordant Solution margins in the past four years. Turning to OFSE on Slide 12. OFSE revenue this quarter was $3.6 billion, up 1% sequentially. Well construction led growth with a 4% increase driven by drilling services. OFSE delivered EBITDA of $671 million, slightly above the guidance midpoint. EBITDA margins declined by 30 basis points sequentially to 18.5% as cost inflation and business mix were largely offset by cost-out initiatives and overall productivity improvements. In International, revenue declined 1% sequentially, where declines in Saudi Arabia, Argentina and the North Sea were largely offset by growth in Asia Pacific and Middle East, excluding Saudi Arabia. In the Kingdom, we see the potential for measured rig additions during 2026. In North America, revenue was up 6% sequentially. Onshore revenues increased slightly compared to the second quarter significantly outperforming the 6% decline in North America land rig activity due to our strong weighting towards production-related businesses. In SSPS, we continue to see positive momentum offshore, where we booked record orders led by significant subsea tree awards in Turkiye and Brazil. Moving to Slide 13. I want to provide an update on our outlook as well as the ongoing impacts of the trade policy changes. Starting with trade policy, the net tariff impact to EBITDA remained near prior quarter levels. We now project this net impact will be at the low end of our $100 million to $200 million range. We continue to execute several mitigation actions to minimize the financial impact and these measures will continue to play a critical role in managing ongoing exposure. Note that this assumes no further trade policy escalation, including retaliatory tariffs and continued success of our mitigation actions across both segments. We are also monitoring the evolution of U.S.-China trade policies, particularly with the 90-day pause potentially ending on November 10. Next, I would like to update you on our outlook. The ranges for revenue, EBITDA and depreciation and amortization are shown on this slide, and I'll focus on the midpoint of our guidance ranges. For the fourth quarter, we anticipate total company adjusted EBITDA of approximately $1.255 billion, primarily driven by sustained growth and margin expansion within IET. Specifically, IET's fourth quarter performance is expected to reflect ongoing momentum supported by strong revenue conversion from the segment's record backlog and continuous productivity improvements through our business system. As a result, we project IET EBITDA of $680 million, implying more than 100 basis points of the year-over-year margin increase. For OFSE, we anticipate fourth quarter EBITDA of $650 million. This projection reflects the potential for tempered year-end product sales across offshore and international markets as well as anticipated E&P budget constraints affecting U.S. land. Now turning to our full year guidance. We have updated the ranges to include actual year-to-date results and the fourth quarter guidance. Accordingly, we are raising the midpoint of total company adjusted EBITDA to $4.74 billion. For IET, we are raising the guidance range for both revenue and EBITDA, increasing the midpoint for revenue to $13.05 billion from $12.9 billion and EBITDA to $2.4 billion from $2.35 billion. Additionally, we're increasing the midpoint of the IET orders guidance range by $500 million to $14 billion, reflecting robust year-to-date results and anticipated incremental LNG and power generation orders in the fourth quarter. The major factors driving our guidance ranges for IET will be the pace of backlog conversion in GTE, the impact of any aeroderivative supply chain tightness in gas technology, foreign exchange rates and trade policy. For OFSE, we're increasing the midpoint of revenue by $150 million to $14.35 billion and holding the EBITDA midpoint relatively unchanged at $2.62 billion. Factors driving our guidance ranges for OFSE include execution of our SSPS backlog, the impact on near-term activity levels in North America and international markets, trade policy, foreign exchange rates and pricing across more transactional markets. Looking ahead to 2026, we remain focused on delivering profitable growth alongside continued margin expansion. In IET, we anticipate continued EBITDA growth even with the PSI divestiture taken into account. This positive outlook is supported by a record backlog and another year of strong margin improvement. We remain firmly committed to achieving 20% IET margins next year. In OFSE, we expect operator activity to remain subdued throughout much of 2026, suggesting a modest reduction in global upstream spending due to softening oil fundamentals. Taking into consideration the deconsolidation of SPC's results, we anticipate positive SSPS momentum into 2026 driven by strong backlog levels. Against this backdrop, we will continue to prioritize margin resilience and closing the gap with peers. Before turning the call back to Lorenzo, I also wanted to briefly highlight the key financial commitments of our Horizon Two strategy, which we laid out in September at the Barclays conference. We are targeting total company margins of 20% by 2028, representing a substantial increase from our 2025 implied margin guidance. Over the next three years, we also aim to secure at least $40 billion in IET orders which highlights our strong market visibility and robust technology portfolio. Lastly, we remain committed to achieving at least 50% free cash flow conversion by 2028. These targets do not factor in the expected accretive benefits from churn. In closing, we are proud of our strong third quarter operational results, which further demonstrate our commitment to delivering long-term value for our shareholders. Looking ahead, we remain focused on driving sustainable improvements in both financial performance and operational efficiency, ensuring that our actions consistently translate into attractive returns and ongoing value creation for our shareholders. With that, I'll turn the call back to Lorenzo. Lorenzo Simonelli: Thank you, Ahmed. Our strong third quarter performance represents clear evidence of the consistent execution and operational discipline embedded across the organization. We have fundamentally changed the way we operate. And today, Baker Hughes is in its strongest position since the merger nearly a decade ago. Through Horizon One, we have delivered substantial operational improvement, expanding adjusted EBITDA margins by 320 basis points, while achieving tremendous commercial success. Looking ahead to Horizon Two, our focus remains on continued margin expansion, targeting a 20% margin for total company adjusted EBITDA by 2028. As we pursue our Horizon Two targets, it is important to recognize the broader context in which we operate. Baker Hughes sits at the convergence of the energy and industrial ecosystems at a time when their interdependence has never been more critical. The rise of AI is a transformative force driving both productivity and energy consumption. Combined with the rising energy demand in emerging economies, this reinforces our conviction that natural gas will play a central role in the global energy mix going forward. This is the age of gas, and Baker Hughes is well positioned to benefit. The Chart acquisition further expands this runway and is expected to enhance both our revenue growth profile and long-term margin expansion opportunity. We have outlined the significant commercial opportunities ahead as well as delivers to continue driving margin expansion and ultimately delivering stronger shareholder returns and meaningful sustained value for our customers and shareholders. As we look to the future, we are encouraged by the breadth of the opportunity in front of us with our disciplined strategy, expanding technology portfolio and teams fully aligned we believe Baker Hughes is well positioned to deliver long-term value at the intersection of energy and industrial markets. To conclude, I want to thank the entire Baker Hughes team for once again delivering outstanding results. Your passion, discipline and pursuit of excellence continue to push the company forward. With that, I'll hand it back to Chase. Chase Mulvehill: Operator, we can now open for questions. Operator: [Operator Instructions] Our first question comes from David Anderson from Barclays. John Anderson: So power has been a huge theme over the last quarter. It kind of seems to be ramping up in the last month or so. I was wondering if you could please talk about some of the various opportunities you're seeing today and over the next several years in power generation. Obviously, the data center demand for your NovaLT is getting a lot of attention. But the Dynamis order today shows how distributed power is also a growing in store in the oil patch. Then you mentioned the geothermal opportunities and then also offshore. I was wondering if you could kind of put that all together for us and talk about kind of the size and the duration of these opportunities, but also what else is out there in terms of end markets for power generation? Lorenzo Simonelli: Yes, Dave, definitely. And it's an exciting time when you think about power generation at the broad side of what's happening in the world. And really, it's a demand growth across power generation solutions, and it's definitely beyond just the NovaLTs for data center applications. When you think of Baker Hughes, we've got an equipment offering that includes generators, synchronized condensers, electric motors and geothermal solutions that really serve across power and industrial and oil and gas markets. And in addition, obviously, we've got the aeroderivatives and heavy-duty gas turbines that are available for the oil and gas power applications. And as you mentioned, we booked a significant order from Dynamis this quarter. So if you think about this award, and this quarter, we booked $800 million of power generation-related orders this quarter. And looking ahead, the pipeline is very strong. And I think it's important to note that it's not just data center, but it's really across oil and gas and industrial markets. And when you think about it, it's accelerating across the oil and gas sector. When you look at some of the basins, specifically U.S. shale basins, electrification, grid constraints are driving a steep change in the need for distributed power demand and you saw that example by the Dynamis Award, and we see that continuing also in the downstream markets. And as you look at data centers, we continue to see strong momentum. Year-to-date, we've booked approximately 1.2 gigawatts of data center power solutions. We remain confident that we'll achieve the $1.5 billion of data center orders ahead of the original 3-year time line that we mentioned. And you mentioned that as well, geothermal power generation and very pleased with the relationship that we have with Fervo and others and the award for the organic ranking cycle that we announced 300 megawatts of power and that's enough to power 180,000 homes. And as we look forward, there's continued opportunities as well with our OFSE business and the relationship we have with Fervo on the subsurface drilling production technologies, gas leak lines and really an integrated solution that we can offer that leverages both OFSE and IET capabilities. So as we think about it, in summary, there's going to be strong performance going forward on the IET side as well as the integrated solutions. The power generation business is going to be continuing to be a key contributor and really allows us to show the diversification of the solutions that we have across the total portfolio. And importantly, this continues to expand our installed base. And as you know, that turns into services business and calories as well with a long margin durability and reoccurring revenue for Baker Hughes going forward. So exciting times as the world continues to need more energy. Operator: Our next question comes from the line of Arun Jayaram from JPMorgan. Arun Jayaram: My question is wondering if you could talk a little bit about some of the key financial targets in Horizon Two and kind of give us -- Lorenzo, I meant some of the building blocks you see that are necessary to get to the 20% corporate adjusted EBITDA target by 2028 and maybe some thoughts on achieving $40 billion of IET orders over this time horizon. Lorenzo Simonelli: Yes. Sure, Arun. And let me start off with maybe the order side of the $40 billion, and then I'll pass it over to Ahmed. I think he can cover the margin progression and -- as you highlighted, we're on pace to, again, book just over $40 billion of IET orders during Horizon One, and we're extremely confident in our ability to deliver at least that level over Horizon Two, which is what we stated as the goal going forward out to 2028. And importantly, it's -- you got to remember that does not include the Chart acquisition, obviously, at this stage. And what's giving us confidence is a really strong visibility to the project activity, the pipeline that we see and the versatile technology portfolio we have across multiple areas of LNG, power generation, industrial and new energy. So if you take them one by one, if you think about LNG, we estimate 25 MTPA of FIDs that are going to take place during the course of the next 15 months to really reach our 3-year target of 100 MTPA. And that will take us to the 800 MTPA by -- that we announced for 2030. And then as we look going forward, there's going to be more FIDs taking place. And as you saw from the prepared remarks, installed capacity rising to 950 MTPA by 2035. And so as we look at the LNG space, continued order momentum going out in the next few years. And that provides with it also the opportunity for strong upgrades and service activity across our installed base as well. If you look at gas infrastructure, again, durable long cycle opportunities. As you think about natural gas and you think about gas being a prominent energy mix in the future, you're going to need more gas infrastructure as you think about the elements of being able to get the gas from out of the ground and the compression and the pipelines. We see a growing opportunity for that gas infrastructure going forward. On power generation, I mentioned it before, again, the step function change in demand for distributed power cogeneration and also geothermal solutions that we mentioned previously also to Dave. And if you look at another theme of data centers, again, emerging as one of the key new end markets, and we've secured several awards for our NovaLTs and we expect $1.5 billion target to be achieved ahead of schedule. And let's not forget new energy. And as you look at this year already, we booked $1.6 billion of orders already at the high end of our 2025 guidance, and we expect this momentum to continue across hydrogen, geothermal and Carbon Capture and Sequestration going forward. And lastly, digital. You're applying productivity and efficiency across all of this and our Cordant solutions and the capabilities we have around iCenter and really tracking over 2,000 turbomachinery assets across the globe continuing to be an opportunity as we go forward in enriching the installed base. So if you look at those factors, and it gives us a lot of confidence that the $40-plus billion of IET orders in Horizon Two out to 2028. And with that, I will hand it over to Ahmed to go through the margin. Ahmed Moghal: Yes. Thanks, Lorenzo. So look, Arun, as we look at the construct to that margin target and looking at '25, our guidance implies EBITDA margins slightly below 17.5% for the total company. So total 20% company margins represents about 250 basis points of margin improvement over those next three years. So just as a reminder, that 20% margin target does not include the expected accretion from the pending Chart acquisition. And when we step back and look at it to achieve this margin target, there are two broad buckets at the overall company level. And then maybe I'll give some color on the segment dynamics. So at the total level, continuous improvement, we continue to do that through the Baker Hughes business system. And that will always remain a cornerstone of how we execute our strategy, consistent execution, cost control and leverage and process discipline. The other piece to that, and we haven't talked about this much, but AI, I think when we look at it, it allows us to unlock new levels of efficiency and productivity. And we see that as a good tailwind over the next few years. And that goes all the way from enabling functions as well as optimizing supply chain, engineering, logistics and so forth. So this is a really exciting area for us. And then you've heard us talk about portfolio optimization, and that will remain a key lever. So over Horizon One and specifically, when you look at this year, we've made meaningful progress, and we intend to build on that momentum as we enter the horizon Two until the next three years or so. And in Horizon Two specifically, we're targeting at least $1 billion in proceeds from noncore asset sales going through the structure that we laid out in terms of how we assess that with a focus on reducing that exposure to more cyclical OFSE markets and shifting that increasing our presence in more industrial-like higher-margin areas. So that's at the overall company level. And then when you look at the segments, some color on that. For IET, first and foremost, our near-term focus is to ensure that we hit the 20% IET margins next year, so 2026. And then beyond that, we see further upside given the structural growth of the installed base that you're seeing with the book-to-bills of IET over the last few years, and the strong services pull-through that will allow for as well as the strong margin rates that are sitting in backlog, and we continue to drive that through the book-to-bills. And then in OFSE, Just to round it out, while it's a more challenging upstream market, our priority is to make sure we preserve the margin rates in the near term, as we continue to work the cost out actions, and we've been doing that over the last few years and continue to do that this year. And the focus will be continue to close the margin gap with the peers in this area. And so once -- the other thing I'd say is once Chart is closed and integrated, we expect it to be accretive to that 20% margin target. So hopefully, that gives you a little bit of color on the building blocks to the margin target. Operator: Our next question comes from the line of Stephen Gengaro with Stifel. Stephen Gengaro: So you have the Chart merger pending, and you've done a tremendous amount over the last five years, really reshaping the portfolio. And then in early October, you had a press release out and you mentioned this earlier about performing a comprehensive evaluation of capital allocation, the business costs and operations in general. Can you talk a bit more about what this entails and what we should expect to hear from Baker over the next couple of quarters? Lorenzo Simonelli: Yes, Stephen, and thanks for the question. We've been focused on enhancing shareholder value and accelerating our transformation into a differentiated energy and industrial technology company. The pending acquisition of Chart represents a major strategic milestone in that journey. And with the shareholder approval now in hand, this is the right time to evaluate additional value creation opportunities and importantly, like you said, this approach is not new to us. Over the last several years, we've consistently been taking action to drive value for our shareholders and the -- this disciplined approach has translated into tangible results during Horizon One, with EBITDA margins up over 300 basis points, while EBITDA has increased by approximately 60% which has helped us to drive significant outperformance for our shares. So we think there's still meaningful upside ahead and we'll continue the evaluation as we've been, which reflects the ongoing disciplined approach to unlocking additional value creation opportunities. And as you think about what's next, ourselves with the Board will continue to explore all the path to drive shareholder value, carrying out the -- as previously announced, comprehensive evaluation of our capital allocation focused business cost structure and operations. And I think importantly, we want investors to know that we're not resting on our laurels of recent outsized returns. We believe that there's substantial value to be recognized in the near, intermediate and long term for Baker Hughes shareholders. And we won't speculate today, but we'll keep working through the evaluation and make sure that we continue to increase shareholder value. Operator: Our next question comes from Scott Gruber from Citigroup. Scott Gruber: It's been a couple of months since the Chart acquisition announcement. You mentioned the integration planning underway. But can you provide some more color on what you can do now through the early close period to really accelerate the time to full synergy capture and accelerate the timing to full integration of Chart into IET? Lorenzo Simonelli: Definitely. And Scott, let me start by reiterating why we continue to be very confident in the strategic and industrial logic of the acquisition. And we believe that this combination is going to significantly enhance the value we can deliver to customers. It really aligns with the IET segment, adding key thermal management and air and gas handling solutions to our portfolio. The combination also expands IET's capabilities in key growth markets, unlocking commercial synergies by offering customers value-added solutions. The breadth and diversity of the combined portfolio is going to allow us to go after aftermarket potential. And again, the aftermarket service opportunity is significant also with digital opportunities. And so I feel very good about the combined portfolio being more industrial and less cyclical positioning the company to be able to deliver more resilient and consistent long-term performance. And that's going to provide significant revenue synergies as we go forward in the future. And I'll let Ahmed speak to some of the progress to date in setting up the integration team. Ahmed Moghal: Yes. Scott, as we look at the integration itself, the focus, as you said, is really the progress we can make before deal close. So we formed the integration management offices and the teams have a very strong operating rhythm. What we've seen very clearly are the cultures are very closely aligned customer at the core of all activities, which allows us to really drive some of that commercial synergy work. So in the near term, across those 14 work streams that are dedicated individuals across the board, they're focused on systems integration architecture, all sorts of systems, supply chain, commercial go-to-market and operations. So a lot of work there. And as we progress, we're keeping a very clean sort of view on that swift integration and making sure that we can realize the full $325 million in anticipated cost synergies. And just as a reminder, for the integration itself, it's now going to be led by Jim Apostolides, who's our Chief Infrastructure and Performance Officer. And he's got 25 years of operational and multi-industry leadership experience. And then specifically, when it comes to integration work at both GE prior to Baker Hughes, and at Baker Hughes. He's led many complex projects in the past and led those post-acquisition leadership teams. And so as an example, the GE separation across the enterprise that he was involved in. So he's been already working closely with the integration team given that many of the areas in the interim are, of course, focused on areas that fall under his supply chain scope. So we're really pleased on the momentum we're driving there. And with respect to timing, obviously, we mentioned the shareholder vote and the approval from Chart shareholders and we remain focused on all customary approvals that are in the queue now. So from a timing perspective, we feel good about expecting to close the deal in mid-2026. Operator: Our next question comes from the line of James West with Melius Research. James West: So I wanted to dig in on the OFSE business and particularly the margin because you guys significantly outperformed the peer group on the third quarter. You've given guidance for 4Q for a little bit more degradation, but not a lot, which is differentiated. And so I'd love to hear about the moving pieces on the margin, what you're doing to kind of address and kind of maintain high margin rate. And then -- and if you could also expand on maybe next year as you think about -- you've given kind of the -- your guidance on what you think exploration and production spending will be for next year, down slightly what do you expect for the margin to do in that segment as we go through the year? Ahmed Moghal: Yes, James, I'll take that. So look, we're pleased with how the OFSE team has performed given these market conditions and the resilience that they've been able to drive. So maybe what I'll do is I'll give an overall and then go a little bit in 3Q, 4Q and then a look forward into '26. So at the midpoint of our '25 guidance, OFSE margins, we're expecting them to be down 10 basis points despite an 8% decline in revenue. So that just shows the resilience of the work the team has been doing on cost-out initiatives that they started late last year and the continued simplification that Amerino has been driving as part of the overall OFSE organization. So that's what's really helped deliver that year-over-year margin outperformance relative to the peers in this area. And then when I look at the third quarter specifically, that modest margin decline was really driven fundamentally by business mix and a little bit of cost inflation coming through, but the team was able to offset most of that by cost-out initiatives and overall productivity that they're driving through the fields and the shops. So that again goes back to the resilience. The fourth quarter, as you mentioned, the midpoint of our guide points to both modest revenue and margin declines. And that's really built up through, I would say, a couple of things. One is typical seasonality in the Eastern Hemisphere and the other thing is tempered year-end product sales across both offshore and international markets. And then lastly, what we see as some E&P budget constraints affecting U.S. land specifically. So that wraps up the year. And then when you look into '26, as we mentioned, we expect operator activity to remain subdued throughout most of the year, and that would suggest a modest reduction in global upstream spending due to what we see as a softening of oil fundamentals. But within SSPS, as an example, our strong backlog levels, we expect to drive positive momentum into 2026, excluding the effects of, of course, the SPC deconsolidation that will happen at the beginning of the year. So stepping back, when I look at this against this macro backdrop, we're going to continue to emphasize what we've been doing, which is cost efficiency, pricing discipline and upselling opportunities and ultimately prioritizing margin quality over volume. So that is the work that's ongoing to make sure we close the gap with the peers in this area. So hopefully, it gives you some color, James. Operator: Our next question comes from the line from Marc Bianchi with TD Cowen. Marc Bianchi: I wanted to ask about NovaLT, you had a really good first half year for NovaLT, but it seems like 3Q didn't have much. What are you expecting for NovaLT in 4Q and into 2026? And what's the lead time look like for customers placing those orders? Ahmed Moghal: Yes. Marc, I'll take this one. So as we've noted, third quarter year-to-date, we've seen a sharp increase in orders for our NovaLT turbines this year. And that's across not only data centers but also traditional and emerging industrial markets. So the diversity of this industrial gas turbine is one that's really strong. So in total, when I step back and look at it, we probably expect to book over $1 billion of NovaLT orders in '25 with oil and gas applications being roughly 1/3 in data centers and broader industrial making up the difference. And of course, that's a record orders year for Novas by a wide margin and the pipeline we see is quite strong. So as we highlighted, the demand for power gen applications is really broad, and we expect it to be quite strong going forward. So in terms of capacity and how we're supporting this growth, we're -- we've been significantly increasing our manufacturing capacity. And we continue to make targeted investment in enhancing the actual performance of the industrial gas turbine in Nova, including expanding its power range and reducing startup time. So there's a piece around the actual product efficiency but also overall capacity. So we're seeing strong demand for delivery slots well into '28 and beyond. And so the durability and resilience of the market is quite strong as we can see from the backlog as well as demand signals we're looking at. And then, of course, the NovaLT that allows us to drive substantial potential for aftermarket services growth, given its industrial gas turbine. As I mentioned, new capacity going in, both on the production side but also supplying spares. And as we expand that installed base, that's going to be a key area. So that recurring revenue opportunity, that new unit pipeline is one that we're very excited about. And we see quite a lot of potential in this specific area. So hopefully, Marc, that helps you a little bit. Operator: That was our last question. I will hand you back to Mr. Lorenzo Simonelli, Chairman and Chief Executive Officer, to conclude the call. Lorenzo Simonelli: Thank you to everyone for taking the time to join our earnings call today, and I look forward to speaking with you all again soon. Operator, you may now close out the call. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Universal's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Arash Soleimani, Chief Strategy Officer. Arash Soleimani: Good morning. Thank you for joining us today. Welcome to our quarterly earnings call. On the call with me today are Steve Donaghy, Chief Executive Officer; and Frank Wilcox, Chief Financial Officer. Before we begin, please note today's discussion may contain forward-looking statements and non-GAAP financial measures. Forward-looking statements involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. For more information, please see the press release on Universal's SEC filings all of which are available on the Investors section of our website at universalinsuranceholdings.com and on the SEC's website. A reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the quarterly press release and can also be found on Universal's website at universalinsuranceholdings.com. With that, I'll turn the call over to Steve. Stephen Donaghy: Thanks, Arash. Good morning, everyone. It was a solid quarter with a 30.6% adjusted return on common equity. Our unique organic business model allows us to consistently generate deep double-digit ROEs, making us particularly well positioned to succeed in the much improved Florida market. Additionally, we commenced our annual actuarial review process considerably earlier this year and our findings are very encouraging. As we've discussed in recent periods, our reserving process has become more conservative with a focus on protecting and increasing the resilience of our balance sheet. When we look at our current and prior accident year reserves in the aggregate, we believe we're in a very strong position, further increasing our optimism as we turn a new chapter in the revamped Florida market. I'll turn it over to Frank to walk through our financial results. Frank? Frank Wilcox: Thanks, Steve, and good morning. Adjusted diluted earnings per common share was $1.36 compared to an adjusted loss per common share of $0.73 in the prior year quarter. The higher adjusted diluted earnings per common share mostly stems from a lower net loss ratio and higher net premiums earned, net investment income and commission revenue. Core revenue of $400 million was up 4.9% year-over-year, with growth primarily stemming from higher net premiums earned, net investment income and commission revenue. Direct premiums written were $592.8 million, up 3.2% from the prior year quarter. The increase stems from 22.2% growth in other states partially offset by a 2.6% decrease in Florida. Overall growth mostly reflects higher policies in force, higher rates and inflation adjustments across our multistate footprint. Direct premiums earned were $534.1 million, up 5.2% from the prior year quarter, reflecting direct premiums written growth over the last 12 months. Net premiums earned were $359.7 million, up 4% from the prior year quarter. The increase is primarily attributable to higher direct premiums earned partially offset by higher ceded premium ratio. The net combined ratio was 96.4%, down 20.5 points compared to the prior year quarter. The decrease reflects a lower net loss ratio, partially offset by a higher net expense ratio. The 70.2% net loss ratio was down 21.5 points compared to the prior year quarter, with the decrease reflecting the inclusion of Hurricanes Debby and Helene in the prior year quarter and the lack of hurricane activity in the current year quarter. The net expense ratio was 26.2%, up 1 point compared to the prior year quarter, with the increase primarily driven by a higher ceded premium ratio and higher policy acquisition costs associated with growth outside Florida. During the quarter, the company repurchased approximately 347,000 shares at an aggregate cost of $8.1 million. The company's current share repurchase authorization program has approximately $7.1 million remaining. On July 9, 2025, the Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock payable on August 9, 2025, to shareholders of record as of the close of business on August 1, 2025. With that, I'd like to ask the operator to open the line for questions. Operator: [Operator Instructions] Our first question comes from Paul Newsome with Piper Sandler. Jon Paul Newsome: And was -- maybe you could follow on a little bit more on your reserving comments. Does this foreshadow any change in how you think about profit margins prospectively and the exit year loss ratio or any change in how you think about loss picks? Stephen Donaghy: Yes. Paul, thanks for the question. We feel as though we have come through a very fraudulent time within the Florida market. And we have seen all the all the things in the past go through the book. There's still things to deal with in the future, as you know, Florida is an ever-changing market. However, we've never had as many dollars up in the aggregate as we do right now. And our file count or claims count is dramatically reduced, and our claims folks are getting the claims much faster as a result of the market that we're in. So we've seen considerably positive effects on the book and on our reserving philosophy, so to say. As we look to the future, we want to get through the year before we make any substantial adjustments and retain our conservative approach but that will be something we will look at seriously as we get into the beginning of '26 and close out 2025. Jon Paul Newsome: A different follow-up question. Any thoughts on the competitive environment. We hear all sort of talks about rate decreases in the Florida market in particular. But could you give us some general thoughts about what you're seeing both in and out of the Florida markets from a competitive perspective? Stephen Donaghy: Yes. I think, again, just to address outside of the Florida market, we're more of a niche provider, and we have our markets that we like and our rates are adequate in certain spots. And it's very -- it's highly competitive outside of Florida, and you have all the big names there as well. Within Florida, there are a lot of new players showing up. There's a lot of new players that maybe don't understand what we've understood for 25 or 26 years now. So we see a lot of various behaviors. We do not chase premium. We are sticking to rate adequacy and trying to drive a high level of service to our insurers and profitability to our shareholders. So it is competitive. There are a lot of markets. I think the agents continue to prefer to write with established providers when competitive. And so I think -- and I would say unlike other times, that's now consistent across the state. It's not just in specific markets in Florida. And I think there's different carriers that look at different geographic areas in Florida very differently. So we do -- but we continue to write new business and new policies as you've seen from last quarter. So we feel good about our position and our relationship with our agency force. Jon Paul Newsome: The last big question and then I'll let other folks ask. Capital management, you made some comments this quarter. But you now have a high-class problem here in the sense that your ROE is well above the growth rate of the company. What's your priorities there? Should we expect substantial or at least some repurchase activity prospectively as part of your sort of ongoing business given where the returns are now? Stephen Donaghy: I don't know about new purchase activity, Paul, but we consistently view our shares as a positive within our capital management. So as we look to the future and we have access to capital. We'll continue to work with the investment committee and establish guidelines and change those guidelines as we go. But we feel very confident in any acquisition of our shares that we can do at the appropriate times. Operator: Our next question comes from Nicolas Iacoviello with Dowling Partners. Nicolas Iacoviello: I just had one. Was there any net prior year development booked in the current quarter following the annual actuarial review? Frank Wilcox: Yes, there was. It's about $3.9 million related to prior year cats. Nicolas Iacoviello: All right. And I'm assuming there was nothing on the claims handling side from last year's storms, correct? Frank Wilcox: That's correct. Yes. Operator: I'm showing no further questions at this time. I would now like to turn it back to Steve Donaghy for closing remarks. Stephen Donaghy: I'd like to thank our associates, consumers, our agency force and stakeholders for their continued support of Universal and wish all a nice weekend. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Anders Edholm: Good morning, and welcome to this presentation of SCA's 2025 Third Quarter Results. With me here today, I have President and CEO, Ulf Larsson; and CFO, Andreas Ewertz, to go through the results and take your questions. Over to you, Ulf. Ulf Larsson: Thank you, Anders. And also from my side, a good morning. Happy to present results for the third quarter '25. So -- and when I summarize the quarter, we can state that SCA continued to deliver a solid result in a rather challenging environment. Our high degree of self-sufficiency in strategic areas continued to be an important factor to mitigate higher costs, not the least related to wood raw materials. Our EBITDA reached SEK 1.64 billion and by that, an EBITDA margin of 33% for the third quarter. In Q3 '25, we had substantially lower prices in the Pulp segment in comparison with the same period last year. Our planned maintenance stops in pulp and containerboard were also considerably more extensive compared to the same quarter last year. Delivery volumes in the Containerboard segment increased this year compared with the same quarter last year, driven by the continued ramp-up of our Obbola containerboard mill. The uncertain market situation, mainly dominated by changing tariffs continues to affect market conditions. The forest industry in general is momentarily challenged by a weaker -- with a market with soft underlying demand in many product areas. Turning over to some financial KPIs for the third quarter '25. As already mentioned, our EBITDA reached SEK 1.64 billion in the quarter, which corresponds to a 33% EBITDA margin and a 22% EBIT margin. Our industrial return on capital employed came out just over 6%, counted for the last 12 months. And the leverage was at 1.7x with our -- while our net debt to equity reached 11.2%. I will now make some comments for each segment, starting with Forest. Higher harvesting levels from our own forest have not the least contributed to stable supply of wood raw materials to our industries during this period. We have seen a continuous long-term trend of increasing prices for both pulpwood and sawlogs as can be seen in the graph on the bottom left. Regarding pulpwood, we have now passed the peak, I guess, and the prices have started to come down during this quarter. Demand for sawlogs continues to be high, especially for spruce logs. When one compares Q3 '25 with Q3 '24, sales were up 14%, while EBITDA was up 17%, mainly due to higher prices for wood raw materials. Turning over to Wood. In general, we still have a slow underlying market for solid wood products. As said before, we have noted signs of improvement in the repair and remodeling segment this year in comparison with the last year, but the uncertainty in general economic development continues to affect the market recovery negatively. Stock levels remain on the high side among producers for pine, but are on normal levels for spruce. Stock levels at customers continue to be on the low side. The volumes in both production and deliveries were good for SCA during the quarter, resulting in a close to unchanged stock level of sawn goods. The price for solid wood products decreased by 5% in the third quarter of '25 in comparison with the second quarter of '25. This development is in line with what I said when I presented the report for the second quarter. As expected, the cost for sawlogs has increased from the second to the third quarter, and we also expect them to continue to increase going into the fourth quarter. Sales were in line with the same quarter last year. EBITDA margin decreased from 19% to 15% due to higher raw material costs and a negative currency effect. Today's stock level of solid wood products in Sweden and Finland is described at the top left on this slide and is shown in relation to the average for the last 5 years. As mentioned earlier, we note that the inventory level is on the high side, especially for pine, while the SCA level is rather normal. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has been on a normal level during the first 8 months of '25. In the diagram to the top right, we can note that the price decreased during the third quarter. The decrease in pine has been larger in comparison with the spruce products. Going into the next quarter, I estimate that prices on average again will decrease by up to 5%, somewhat more for pine and somewhat less for spruce. And this is driven by the momentarily high availability of pine products. In the construction sector, we can conclude that start of new buildings continues to be low. As said before, uncertainties are still present, but we see improved consumption in the repair and remodeling sector. The level of duties now put in place on wood products from Canada delivered to U.S., about 45% in comparison to the level for wood products from European Union, delivered to the U.S. about 10% has strengthened the competitiveness for EU producers in comparison with Canadian producers. And I guess it's likely that the price level in U.S. will increase when stock levels are coming down from today's high levels. So over to pulp. When comparing Q3 '25 with Q3 '24, sales were down 21%, mainly due to lower prices, a lower delivery volume and a negative currency effect. EBITDA was down 57%, compared to last year, mainly due to lower prices, a negative currency effect and higher cost for wood raw materials. The cost for the planned maintenance stop was SEK 83 million this quarter compared to SEK 35 million in Q3 '24. Global demand for pulp was at a healthy level during the first quarter of '25. During the second quarter, the market changed with reduced demand and prices came under pressure, much due to uncertainty related to U.S. tariffs. During the third quarter, prices on NBSK pulp were stable at low levels. On the demand side, we saw increased activity in China during the quarter. The weakening of the U.S. dollar in relation to the Swedish krona, which started already in Q1, continued to have a negative impact on the pricing in SEK also in Q3. Tariffs on NBSK pulp from the European Union to the U.S. were removed during the third quarter, and this allows us to maintain a competitive offering in the U.S. Looking at CTMP, prices have been unchanged in Asia at low levels and have decreased slowly in Europe during the third quarter. Inventories of softwood and CTMP have been increasing in July and August, as you can see in the diagram and are now on the high level. Hardwood inventories on the contrary were stable during the third quarter. Moving over to Containerboard. Sales were up 10% in Q3 in comparison with the same period last year, driven by higher delivery volumes and higher prices, somewhat mitigated by a negative currency effect. EBITDA was down by 39%, very much driven by long planned maintenance stop with a cost of SEK 204 million versus SEK 87 million in Q3 2024. Higher costs for wood raw materials and a negative currency effect also had an impact. We have seen a softer box demand during the last quarter, but still with a positive development on a year-to-date basis. The retail business remains on a positive driver. On the other side, we continue to see a weak European manufacturing industry, which, for the moment, drives the demand in a negative direction. After a stable first half of the year of European demand of containerboard has started to decrease in Q3, due to the current turbulent macro environment, it's difficult to have a view on the long-term demand. In Q3, we have seen additional supply coming on stream with the vast majority coming in testliner. We do not expect further capacity increases in Q4, except from the ramp-up effect of newly started machines. Kraftliner inventories remain above average level in Q3, as you can see in the graph. During Q3, the availability of OCC has been good, driven by the lower demand in the quarter, which in its turn has led to decreasing prices of OCC. Moving into Q4, we see the availability of OCC to be stable and expect prices to be more or less unchanged. Prices for brown kraftliner in Central Europe has during Q3 decreased with EUR 20 per tonne, driven mainly by slow demand and reduced prices of OCC. White kraftliner has remained stable. Finally, I will say some words about renewable energy. In this area, we have had a weaker quarter compared to the same period last year, mainly due to lower prices in wind power and solid biofuels. Continued improvements in ramping up Gothenburg biorefinery are partly compensating for this. The market for solid biofuels in Northern Sweden continues to be weak due to warm weather and low electricity prices. This factor increases our export share and by that, reduced margin. For liquid biofuels, we have seen higher margins compared to previous quarters. The main reasons are tighter supply due to maintenance stops in biorefineries, European countries implementing RED III and better control mechanism within the EU regarding imported feedstock. We expect market volatility in renewable fuels to remain high as Europe ramps up the blending mandates both from -- both in HVO and SAF. Electricity prices were low during the quarter, which impacted on our wind business negatively, but it is good, of course, for SCA as a net buyer of electricity. SCA's land lease business is stable at 9.7 terawatt hours, which is equal to 20% of installed capacity of wind power in Sweden. Installed capacity on our land is expected to reach 10.5 terawatt hours by the end of the year. And by that, I hand over to you, Andreas. Andreas Ewertz: Thank you, Ulf, and good morning, everybody. I'll start off with the income statement for the third quarter. Net sales decreased 5% to SEK 5 billion, driven by negative currency effects and lower prices, which was partly offset by higher delivery volumes. EBITDA decreased 18% to SEK 1.6 billion, driven by negative currency effects, lower prices and higher costs for planned maintenance stops. EBIT decreased to SEK 1.1 billion and financial items totaled minus SEK 103 million. With an effective tax rate of just below 20%, bringing net profit to SEK 0.8 billion or SEK 1.19 per share. On the next slide, we have the financial development by segment and starting with the Forest segment to the left. Net sales decreased to SEK 2.4 billion, driven by lower delivery volumes compared to the previous quarter due to several planned maintenance stop at SCA's industries. EBITDA decreased to SEK 912 million due to seasonally lower harvest from SCA's own forest. In wood, prices decreased compared to previous quarter, while the cost for sawlogs continued to increase. Net sales decreased to SEK 1.5 billion, driven by lower delivery volumes and lower prices compared to the previous quarter. EBITDA decreased to SEK 232 million, corresponding to a margin of 15%. In pulp, net sales decreased to SEK 1.65 billion, driven by lower delivery volumes and lower prices. EBITDA decreased to SEK 242 million, corresponding to a margin of 15%. Higher costs for planned maintenance stops and lower prices were offset by lower costs. We had lower energy and raw material costs in the quarter, and Q3 is also a low-cost quarter for indirect costs in all segments, which had a positive impact. In Containerboard, net sales decreased to SEK 1.8 billion and EBITDA decreased to SEK 194 million, corresponding to a margin of 11%. Result was negatively impacted by planned maintenance stops in both Munksund and Obbola of SEK 204 million. The market for renewable energy continued to be weak. EBITDA decreased compared to previous quarter and amounted to SEK 79 million, corresponding to a margin of 21%. The decrease was mainly driven by lower deliveries of solid biofuels. On the next slide, we have the sales bridge between Q3 last year and Q3 this year. Prices decreased 2%, driven by lower pulp prices. Volumes increased 1%, driven by higher volumes in containerboard, which was also offset by lower volumes in pulp. And lastly, currency had a negative impact of 4%, bringing net sales to SEK 5 billion. Moving on to EBITDA bridge and starting to the left. Price/mix had a negative impact of SEK 99 million and higher volumes had a positive impact of SEK 14 million. Higher costs for mainly wood raw materials had a negative impact of SEK 57 million, which was mitigated by our highest degree of self-sufficiency. We had a positive impact from energy of SEK 37 million and a negative impact of currency of SEK 169 million. This was impacted by higher costs for planned maintenance stops. And in total, EBITDA decreased to SEK 1.6 billion, corresponding to a margin of 33%. Looking at the cash flow. Operating cash flow increased to SEK 1.1 billion for the quarter, and SEK 2.5 billion for the first 9 months. And as you know, other operating cash flow relates mostly to working capital currency hedges and should be seen together with changes in working capital. Looking at the balance sheet. The value of the forest asset totaled SEK 108 billion. Working capital decreased compared to previous quarter and totaled SEK 5.6 billion. Capital employed totaled SEK 160 billion and net debt decreased compared to the previous quarter to SEK 11.7 billion. And we have now almost finalized our large ongoing investment projects. Equity totaled SEK 104 billion and net debt to equity was 11%. Thank you. With that, I'll hand back to you, Ulf. Ulf Larsson: So thank you, Andreas. And well, just to summarize, I mean, as I said, we have continued to deliver a solid result in a rather challenging environment. . I guess the market has bottomed in more or less all areas except from solid wood products. On the other side, we will see a cost pressure coming in our solid wood business, wider price for pulpwood has now stabilized and are on its way down, I would say. In pulp and kraftliner, I guess, the market is going sideways now, and we are 100% focused on what we can have an impact on ourselves, which is meaning that we are focusing on the ramp-up of our big projects. And they are going very well -- did go very well during the third quarter. So by that, I think that we open up for some questions. Operator: [Operator Instructions] And we will now take our first question from Ioannis Masvoulas of Morgan Stanley. Ioannis Masvoulas: I've got 3 questions, if I may. I'll take them one at a time. First on pulpwood costs. Given the small decline that you show in your slide deck for Q3 and the typical lag in your business, what should we expect for cost development in your industries in Q4 this year and also Q1 2026? Ulf Larsson: You asked about pulpwood. And as I said, I mean, we see that now that prices for pulpwood is coming down in the market. But as you say, we have a lagging effect. And I could say that we have -- it's around 6 months or less. Andreas? Andreas Ewertz: Yes. So in the fourth quarter, I mean, fairly flat, maybe we're talking about 1% decline in pulpwood prices. So fairly flat, while the cost for sawlogs will continue to increase a bit into Q4. Ulf Larsson: And in the beginning of next year? Andreas Ewertz: Then I think that pulpwood will slowly continue to decrease. But as I said, I would say, it's around 6 months of lag effect in the terms of sawlogs. I think they will start to peak also around maybe Q1, Q1 next year. Ioannis Masvoulas: And then going back to pulp, looking at NBSK inventories on days of supply were pretty much at the top of the historical range, do you see the recent temporary curtailments among your peers to help rebalance the market in the short term? Or do we need to see more aggressive supply response? Ulf Larsson: It's hard to say, I mean, maybe I didn't say that, but I mean we are still at a very high operating rate in NBSK, and we should because we have a very low cash cost, of course. But on the other hand, we see announcements now from many areas where they have started to take curtailments. I guess also in the statistics that you see now, we haven't included the typical longer maintenance stops that we have had now during the autumn. So I guess that the inventory will come down. And as always, it's a question, it's a supply-demand issue. And I guess we will see a better balance, but I mean, underlying, we have to wait for an increase in consumption before we can say that we have a stronger market. Ioannis Masvoulas: Understood. And then just last question for me on the FX hedging. Looking at your disclosure, you seem to have brought down your USD hedge ratios for the next 4 quarters. Is that a conscious decision to avoid locking in an unfavorable FX rate? And could these ratios come down further in the coming quarters if spot FX rates persist? Andreas Ewertz: We use statistical model for our hedge strategy. So we have -- for the next 6 months, we hedge around 50% to 85% of our net exposure and then it goes down. But then it depends on statistically how favorable the currency is. So we use model and for the U.S. dollar currently in the low range of that while for euro, we are on the normal range. Operator: And we'll now take our next question from Linus Larsson of SEB. Linus Larsson: Couple of questions on use of funds. It seems to me that you have a very strong balance sheet. Cash flow is robust through the cycle. You're running at high operating rates, like you say, your competitiveness is strong. How do you look at buybacks in this context, given where your share price is trading and given your investment plans for the time being? Ulf Larsson: If we start with the investment plan, as I said, we are just now 100% focused on ramping up what we have started, and we feel that we are doing that in a good way. As I've also said, I mean, just now, we sit on our hands. We will not start up new big projects. And I guess, as all other companies, we also try to -- yes, not do too many current investments because we have an uncertain market coming going forward, I mean, that's the position we have just now. And the question about buybacks, I mean, that is more question for the Board, honestly. So let's see. We are now focused on ramping up what we have started. And by that, as you said, we expect that we will increase our cash flow capacity substantially. Linus Larsson: Yes. Yes. No, that's great. But I mean, principally, how does the Board look at buybacks? Is there like a principal view on whether or not buybacks is part of the toolbox? Ulf Larsson: Again, that's a question for the Board. But as far as I understand, we have no principles in this matter. I think we have done since the split 2017, I mean, we have invested 20% of the net sales in the company every year. For us, that's a lot of money. For all companies, it's a lot of money. So we are more focused just now to realize the cash flow that we suppose -- that we will have from these ongoing investments, so that's our focus now. Linus Larsson: Yes. No, that's clear. And just to finish off that, what's your CapEx guidance for 2025 and 2026, respectively? Andreas Ewertz: If you look at CapEx for '25, I think that current CapEx will be around SEK 1.5 billion. We might have some spillover to next year, so SEK 1.4 billion, SEK 1.5 billion. And then in terms of strategic CapEx, also depending on timing of some payment, but around SEK 1.3 billion, SEK 1.4 billion. So maybe SEK 2.8 billion in total for current and strategic, but it depends on certain timing of certain payments. For next year, strategic CapEx will go down. We have some payments left in the ramp-ups, but strategic CapEx will come down. And then I would guess that current will be slightly higher than this year since we have some spillover from this year to next year. Linus Larsson: But how much will the strategic CapEx go down? Is it SEK 0.5 billion or SEK 1 billion or around the backlog? Andreas Ewertz: It depends on some timing, but I would guess we have a couple of hundred millions left on our current projects. Operator: And we'll now take our next question from Charlie Muir-Sands of BNP Paribas. Charlie Muir-Sands: I wanted to start on the round wood market. So you mentioned obviously log prices are high and if anything, still slightly moving up due to high demand. But equally, it sounds like the wood products market in general is still quite soft. So I'm just trying to understand, is this a demand that's for other uses? Or are you basically saying this is more of a supply issue for the market? And if so, is this just of a hangover from the spark beetle delivery from prior years? Or is there any other reason why we could expect some better balance coming back on the supply side soon? And then just on the pulpwood cost side, very helpful the detail you've given so far. But just in terms of the timing effects, the changes in pricing of pulpwood hit the forestry and then the industrial segment at the same time? Or is there a phasing effect whereby the P&L benefit on forest is reduced before the cost tailwind on the industrial segments come through or anything like that to be aware of. Andreas Ewertz: Yes. So if you look at the pricing, I mean we base our internal prices of what the Forest division pays for its sourcing and a lot to buy on stumpage. So you buy the right to harvest. And then, I mean, you optimize the harvesting to try to have some larger areas to have efficient harvesting. So it can be vary. I mean, some of these -- what the harvest is couple of months. You bought it for some might be 3 months ago or 6 months ago. And then that average price is what the industry gets to pay. But the pricing is -- when the prices goes down, the industry will get a lower price, but then, of course, our Forest division will earn less money on their own harvest. But one day, what they source externally that they get paid for. And then the second question -- the first question was around the demand for sawlogs. Ulf Larsson: The coming demand. I mean, as we see just now, we have, as you saw on the graph in Sweden and Finland, the production is still on a normal level, even if we know that the price -- log prices are very, very high. And profitability in the business is, in general, rather low. We feel rather confident with the profitability we have in our own Wood division. But I mean we -- up until today, we haven't seen any signs of decreasing log prices actually. Andreas Ewertz: And also -- it's also difference between pine and spruce sawlog. On spruce sawlog, you have much lower supply compared to pine sawlog, sort of pricing and demand difference there. Charlie Muir-Sands: And then just on the wood products side, you mentioned the relative competitive advantage for EU exporters to the U.S. now versus Canadian. Can you just talk about the relative profitability of your U.S. business compared with your European business today? How big an opportunity might this be? Ulf Larsson: Yes. First, if we take the tariffs, I mean, as I said, the tariff just now going from Europe over to U.S. is 10%, and coming from Canada over to U.S., then the tariff is 45%. As it is just now, in U.S., the stock level is on the very high side. So, so far, we haven't seen any impact on the, let's say, the local price in U.S. But I guess when the inventory level is coming down, then, of course, customers, they have to start to buy and then they can buy some volume from Europe and they have to buy some volume from Canada. But then I guess that prices can in a short while, increased quite dramatically. We don't have a big volume for U.S. We do, let's say, 80,000 cubic meter per year. But again, it's a global market. So if we start to see better trade in U.S., I mean, that will, of course, have also an impact on the European market and also the Asian market and so on and so on. So we have to wait and see. But I mean, as it is just now, I guess, it's more a question of time. We will have a slow fourth quarter, as we always have. And I guess it will be rather slow also in the first quarter. But then I guess, in the beginning of the second quarter next year, then we might start to see something. Charlie Muir-Sands: But Canadian volumes can't get displaced into other parts of the world or even coming into Europe to offset that benefit? Ulf Larsson: Yes, not really. I mean, of course, you will see some Canadian volumes in China and you might -- I don't think you will see too much of it in Europe. Again, it's -- you have the distribution cost and many of those sawmills, they are located inland. And so it's also a question of distribution, inland distribution cost within in Canada so I guess if this remains, which you never know, I mean, then you probably will see further closures and capacity reductions. And honestly, I don't know really how the U.S. -- I mean, we know that U.S., they need a lot of solid wood products coming into U.S. So I guess it might be so that we see some further changes going forward now. Also when it comes to tariffs and things like that. So I mean, it's -- but all these -- I think we had a question before. But I mean, tariffs, we are not directly too much impacted by tariffs. We can handle that in a good way. But I guess that this discussion has created uncertainty globally. And that's the reason also why we have a rather slow demand in Asia in more or less all product areas. And so I mean that is the -- I guess the worst thing with tariffs is it is creating some kind of uncertainty in all areas and globally. Operator: We'll now take our next question from Robin Santavirta of DNB. Robin Santavirta: Thank you very much. Firstly, I have a question related to the Containerboard business. Looking at the delivery volumes now this year, they have been quite steady, but it seems still Obbola is not running at full capacity. And now you had the log maintenance shut. So could you give some guidelines on volume outlook for that segment in Q4 and early 2026? Should we expect a bit of a step change or more of a slow gradual ramp-up during the end of the year and next year? Ulf Larsson: When it comes to Obbola, we have said that Obbola will produce 600,000 tonnes this year, and they will do so if nothing expected will happen in the fourth quarter. Then it is a tough market in kraftliner. So we have seen during the third quarter, increasing inventories in kraftliner. And so that's the case. And as you said, we also had a rather long maintenance stop in Q3. So that also had an impact on deliveries. But production-wise, Obbola will reach 600,000 tonnes next -- this year. And then the plan is to reach 700,000 tonnes next year. Robin Santavirta: Okay. Okay. Can I ask about this EU deforestation regulation? How do you view that? Will that have any kind of impact for your businesses in Europe either way, what is your view? Ulf Larsson: I mean, it has also created a lot of uncertainty. But I guess for us, we can manage EUDR, but of course, it would be an administrative burden, which we don't like. But we can handle it. Robin Santavirta: But what about your competitors? Could it be a setup where some pulp had been imported from some countries or some paperboard that has been imported from Asia or Americas, they could end up in a bit of difficulty to do so in the future? Or will this impact trade flow at all in your view? Ulf Larsson: Yes, it's very hard to predict. I mean, we have been working quite hard to find out a system which will not create a lot of administration. And I mean, typically, we are for free trade. I think that's good. And I think that EU in the long run, they will benefit from a free trade. We don't know what -- how this will be implemented in the trade up till today. So again, this is also another thing that really creates uncertainty. But the honest answer is we don't know how that will -- this will play out. The only thing we can do is to focus on our own ability to meet the requirements that might come. Robin Santavirta: Yes, for sure, for sure. Follow-up question related to the pulp market. What is going on in the softwood pulp market? There's a lot of curtailments now during early autumn. Certainly, Finland, some in Sweden as well, I understand some in Canada as well. And historically, when you do that, you tighten up the market quite quickly. Now we're not seeing that. Is this a bit of a substitution into hardwood pulp? Is it some Chinese volumes that -- I mean, historically, they do not produce a lot of softwood pulp. Now I understand there is some production going on in China as well. So why is not the market tightening despite the quite significant production curtailments in the Northern Hemisphere? Ulf Larsson: I guess the first thing is that the underlying demand is weak. So that's the first explanation. The second thing is substitution. I don't think that we will see more of substitution today than we did last year. I mean, it's not as easy as that. And we have always had a delta between hardwood and softwood prices. So I mean, if possible, I guess, it would have already been done. So I haven't heard anything -- no structural changes in that area. What we know is that a lot of capacity in pulp is -- will be built up in China. And that, of course, sooner or later, that will -- might have an impact. As it is just now, we are more considered about the CTMP volumes. And as we have understood, I mean, the board market is very weak. And while companies in Asia while they closed down the converting and stop producing boards, I mean, they still produce CTMP, and that will, of course, give a surplus in the market. Then also, I guess, that the statistics that we also saw on our side was from August, Andreas, and I guess we will see some other figures now coming into September, October and so on. We also have had a lot of big maintenance stops in pulp. But you're right. I mean, we also hear that companies, they are taking curtailments now. So far, no big changes. But I mean -- and the prices maybe -- I guess that the price has already bottomed because at this level, we see that curtailments are taken instead of continuing to produce and of course, creating a negative cash flow. So we have reached the bottom. I guess we will see some result of actions taken now later this year. But again, the fundamental challenge is the underlying demand that must come back. Robin Santavirta: Thank you very much. Operator: And we'll now move on to our next question from Oskar Lindstrom of Danske Bank. Oskar Lindström: Three questions for me, if I may. The first one is just on the lower wood cost. You mentioned this in the Pulp division sequentially, but not in containerboard, sorry, not lower pulp costs, lower wood costs, having a positive impact on pulp, but it didn't seem to have it on Containerboard. What's the reason for that? Should I go on with the other questions? Andreas Ewertz: No, we take 1 at a time. So I mean, we have maybe 1% lower pulpwood prices in both Containerboard and in Pulp. In Pulp, we had a better yield in the quarters, we had lower consumption of both energy and wood and they generally have low cost quarter. But I would say it's more on the consumption side that we have lower cost on pulp in this quarter. Oskar Lindström: And in Containerboard, was it just the maintenance stop that sort of... Andreas Ewertz: The Containerboard, we had large maintenance stop both in Munksund and Obbola, the cost around SEK 20 million. So that quarter was impacted by that stop. Oskar Lindström: Right. Moving on to cash flow. You say that you will increase your cash flow significantly in 2026, and I presume beyond as well, while CapEx looks as if it's going to come down quite a bit. If we only look at the ramp-up of Obbola, can you say anything about what kind of contribution you expect from that 2026 versus 2025? If you reach the 100,000 tonnes, could you put a monetary value on that? Andreas Ewertz: Currently, I would say it's hard to put the money on the excess volume because you said that currently have a weaker market, and that means that the extra volumes you would place on -- you have a worst customer mix and country mix on those extra volumes that will, of course, depend on how the market develops. If you have a stronger market, I mean, those volumes would be placed in customers in Europe and places nearby. And that will have a larger impact. But if you have a weak market, of course, then we'll have to put it further away. So it depends on how the market develops. Ulf Larsson: And also to add, I mean, if you have -- yes, maybe that was exactly what you said. I mean, if you have an additional volume already this year, if you go from a little bit over 400 up to 600, I mean that puts a pressure in a tough market that puts a pressure on the market side, of course. So I mean you also have a -- you have ramp-up production-wise, but you also have a ramp-up in the market. So of course, we have to find markets overseas not at least as it is just now. Oskar Lindström: Of course. And my third question is, I mean, we've seen other companies in your sector announcing cost savings and even structural changes as a consequence of the tough market, which both they and you seem to feel is not about to change anytime soon. I mean, do you see any need for you to take actions if demand does not improve, either cost-saving actions or structural changes? Ulf Larsson: I mean, if we go back to 2017, as I said, we have been invested 20% of the net sales more or less every year. And by that, we have also top-class sites as it is just now. We have also, during this period, closed down our publication paper business. and we are focused on pulp, containerboard and also solid wood products and to some extent, also renewable energy. And step by step, I mean, as soon as we see that we can reduce the manning or if we can do something else to improve our cost position, we will do that. So for me, it's -- I don't like those programs because that means that you haven't done your work -- your ongoing work, so to say. Andreas Ewertz: For the last one and half year we had a program to reduce our personnel at our pulp division with around 80 people and has gradually begun to give an effect. Ulf Larsson: And we reduced the manning by 800 people when we closed down the publication paper business. So I mean, if you have structural changes, then, of course, you have to follow up with personnel reductions, but otherwise, that is something that you have to do. That's the everyday work. Oskar Lindström: My final question is on CapEx, which you talked a little bit about here. You say that you expect next year for current CapEx to be -- I can't remember the exact wording, but slightly higher. And then how much higher is that? And then you said the strategic CapEx will be a couple of hundred million. How many couples of hundreds of millions are we talking about? Is it possible for you to be a little bit more precise? I'm just wondering. Andreas Ewertz: It depends, of course, on what overspill we have to next year, and then it depends. I mean, we have our base CapEx for next year. And then we have some potential projects, and it depends on which of them we go through with which timing, but if we go around 1.5 this year, then you're talking maybe SEK 100 million, SEK 200 million more next year on current CapEx. But again, it depends on what projects we do. And also on the strategic side, it will -- I mean, it will be between 0 and SEK 1 billion but it depends on the timing of our strategic CapEx. For example, we have 1 payment that would either go at the end of this year or the early next year, which is around SEK 150 million, and we have a couple of hundred millions next year. So it depends. But just to give a rough figure. Ulf Larsson: But CapEx will come down. Andreas Ewertz: Yes, CapEx will come down, yes. Oskar Lindström: Thank you very much. Those are my questions. Operator: And we'll now take our next question from Martin Melbye of ABG. Martin Melbye: Given tariffs and new volumes to place, could you give some hints on prices for Pulp and Containerboard at volumes heading into Q4 quarter-over-quarter? Ulf Larsson: I mean, we don't know. That's the honest answer. But as I said, we -- I guess, we are in Pulp at the bottom level just now. I mean, as we -- as I said before, I mean, we have seen substantial curtailments taken now. And so I guess, Pulp prices will -- if they -- the only way from this point, I guess, is upwards. When will that come? Well, remains to see, I guess. I think for Containerboard, we have more capacity has come on stream during the third quarter. No additional capacity will come on stream, but we will see some ramp-ups. I guess we will see some closures in testliner going forward. The balance for kraftliner is much better, of course. I mean, the only additional volume coming in now is our own from the ramp-up in Obbola. On the other side, the inventory level is on the high side coming down a little bit now when we had the new statistics. So it's always -- it's a question of supply-demand balance, of course. But my best guess is sideways, maybe we will start to see upward trend in Pulp and maybe sideways in Containerboard. And as I already said, I guess, we will see somewhat decrease in prices in solid wood products, I guess, another 5% in the fourth quarter and then the first quarter is always -- it's tricky to increase prices in the first quarter. If something is happening now in U.S., that might have a faster impact on the pricing for solid wood products. But otherwise, I think we have to wait for the second quarter next year. Andreas Ewertz: And in terms of volumes, forest, you harvest a bit more from our own forest in the fourth quarter. In solid wood products, I sort of mentioned, you seasonally weaker quarter compared to the summer months so they have lower delivery volumes. In Containerboard, it will be slightly higher since we had a big maintenance stop in the third quarter, which we won't have in the fourth. And in Pulp, I would say it's slightly up or flat. Operator: Thank you. And we'll now take our next question from Cole Hathorn of Jefferies. Please go ahead. Cole Hathorn: I'd just like to ask what do you see would be the positive catalyst for each of your segments and like to take it in turn. But maybe starting on Pulp. What do you think is truly needed exit the demand? Do you think it's going to be capacity closure potentially something out of Canada considering they've got elevated wood costs and you see a sawmill go down and then pulpwood closure that tightens the market. Wood product, is it ultimately just a demand that's needed rather than any form of supply response? And Containerboard, I'm just wondering what are you looking for in the market for kraftliner. Is it -- do we need to rely on the recycled closures and to follow that? Or are you seeing the ability to kind of keep this premium versus recycled considering the less imports from the U.S. and much better supply-demand balance in... Ulf Larsson: If we start with pulp, I guess, it's again, it's about demand. The tissue business is rather slow, of course, it might be impacted by closures also, again, it's a supply-demand issue. And it might be so that just my speculation, but I mean, if we will have a tough -- if tariffs will remain in Canada for solid wood products that will have a negative impact on the raw material supply to the pulp mills that might have an impact over time, of course. Otherwise, it's demand and mainly then in the tissue segment. In wood, as already said, I mean, we are in the slower season just now in Q4 and Q1. I guess that sooner or later, Americans, they have -- they must start to buy solid wood products. And if the tariff level from Canada over to U.S. will remain of 45%, that definitely will mean that we will see increasing prices in solid wood products even if you're not a big supplier to U.S., which we are not, but still, that will have an impact on the global trade rather immediately, I would say. And then we know that it can start to move quite fast. But I guess if you look at the inventory level in U.S., we have to wait for at least a quarter before we can see something. In Containerboard, I mean, we look at the box consumption, and we feel that we have a slow demand from the industry while I mean, in other businesses for food and yes, maybe trade and that part -- that is going quite in a normal pace. So -- but the industry for us, I mean, heavy-duty spare parts and things like that where we typically can find a premium for kraftliner. My -- I don't know, but my guess is also that we will see closures in testliner, I guess that the main part of testliner produces just now, they don't make money. And I guess we have a chicken race on the testliner side as this just now. The balance both for Containerboard, kraftliner and also for NBSK, it's much, much better than for recycled-based production. Cole Hathorn: And then maybe just following up on capital allocation. You were clear that you're ramping up your projects, your past peak CapEx. And beyond that, you've got flexibility for consider capital returns via dividends and buybacks. But you didn't mention anything on M&A, and I'm just wondering how you think about that? And what are your criteria there? Would you consider anything in Central Eastern Europe if a very low-cost asset came available? Are you staying with your production base in Sweden? Just like your thoughts. Ulf Larsson: I mean, typically, we are a company based on organic growth. And typically, we are a company focused on Sweden where we have our own forest. We don't like to stay in countries where we can see a higher risk really. So I guess we are -- but on the other hand, you shall never say no. But typically, we are based on -- and focused on organic growth as it is. Andreas Ewertz: And as Ulf mentioned before, currently, I mean, we're focusing on our ramp-up of our current project before we add some too much complexity. Operator: And we will now move on to our next question from Andrew Jones of UBS. Andrew Jones: Can you hear me okay? Andreas Ewertz: Now, we hear you. Andrew Jones: Sorry, apologies, I missed the start of the call. So if you've mentioned this, my apologies. But on the actual solid wood products, what usually give a bit of the sort of guidance range in terms of pricing? I mean, how do you look at pricing going into the fourth quarter on -- in the Wood division? And then also, I think on the last quarter, you sort of gave us like a percentage changes you expect in the Forest division in both logs and then pulp. What sort of percentage changes are you sort of thinking about in the Forest for those 2 categories? Ulf Larsson: The first one, yes, we did mention that one. And as I said, I mean, we lost 5% in terms of price from -- in the third quarter in comparison with the second quarter. And I guess that we will lose another 5% in the fourth quarter. And that is mainly a seasonal effect as the demand always -- we always have a slower demand in the fourth quarter and in the first quarter. Forest, Andreas, you can... Andreas Ewertz: Yes. So Forest, pulpwood, I mean, they have peaked. We saw a very slight decrease here in the third quarter, maybe 1%, and we expect fairly flat, maybe 1% down in Q4 because of this lag effect. In terms of sawlogs, they will continue to increase a bit in the fourth quarter, maybe 5% compared to Q3, but that's also because you saw that the logs were quite flat within Q2 and Q3. But that's more of a mix effect. We had lower dimension on the logs, which have a lower prices. So we didn't get that so underlying, the prices increased also in Q2 to Q3. But since we had that mix, we didn't see that increase. But now we'll get that in Q4 so maybe 5% up. Andrew Jones: So it sounds like a pretty tough quarter, fourth quarter if you're sort of saying price is 5% down, log import prices 5% up. And you're probably seeing some seasonal volume weakness, I guess, maybe and it's about 5% last year. So anything to mitigate or offset those moving parts? Andreas Ewertz: Yes. So but on the solid wood products, I mean, as Ulf said, the prices will go down 5% and also the log will continue to increase a bit, but of course, continuing to focus on cost and what we can affect. Andrew Jones: Okay. And just 1 question just about the structural change. On kraftliner, I mean, you've kind of talked about the market being more balanced in kraftliner, obviously compared to testliner, but I mean, how -- why can the actual premium kraftliner and testliner fee in the medium term given the sort of substitution potential, I'm curious like to see whether that premium can be maintained in the near-ish term. Ulf Larsson: It's hard to say. I mean, the delta just now is EUR 280 or something like that. So that is a rather wide gap. And I guess if customers -- if they can substitute, they will substitute. And we see the same trend in -- we have the same question always in softwood and hardwood pulp. But the same answer, I mean, if customers, if they can substitute, they will do it because if something is cheaper, of course, they will use that instead. So I guess my perspective is more that I think we will at least remain on rather high delta between testliner and test recycled products and base products and virgin-based products as virgin fiber will be a scare resource going forward. So strategically, I guess, we will widen this gap, which we have also seen in the past years. So I think that will remain, honestly. And also, when you look at the capacity increase. I mean, the absolute main part capacity is coming in the recycled business. But in order to get raw material to the recycled business, you must have some virgin-based production. Operator: And we'll now take our next question from Pallav Mittal of Barclays. Pallav Mittal: Pallav Mittal on behalf of Gaurav Jain. So a few questions. Firstly, you and your peers have all highlighted good availability of pulpwood because of which we are now seeing this decline in pricing. And now given demand is weak and there are a number of production curtailments, how do you think these pulpwood costs could change if you start seeing some sort of improvement in demand? Ulf Larsson: Then, of course, it might be so that you have bottleneck again in raw material supply. So again, to have a stable long-term increase in the market, then the consumption must come up, the demand must come up. So that's the simple answer. And I mean, then it might be so that if -- when sawlog prices, if they come down, but pulpwood prices, when they come down, then it might be so that you see additional capacity coming on stream. And by that, of course, the supply will increase for a while. And if then the demand is not picking up, then, of course, you will have a pressure in the market again. So it is as easy as that. It's always a question about supply-demand. Andreas Ewertz: And your question on -- I mean, of course, if demand for the finished product goes up and the production goes up, that will, of course, increase the demand for wood raw material, which is already has been tight. Pallav Mittal: Sure. And then if I can ask something on CTMP. So you did mention that CTMP prices have declined in Europe, and now we are seeing new capacity in China as well. But does that impact your CTMP ramp-up? Ulf Larsson: I mean, as it is just now, we have a rather profitable business within Europe in CTMP. But as you say, I mean, we have very -- the margin is not too big in Asia. So yes, in that perspective, we are maybe in -- it's always a marginal calculation. So if we have days with high electricity price or if not now, but before when we saw that we had scarce situation when it comes to pulpwood. I mean then we -- of course, the first production site, we took containers in was in Ortviken and CTMP. So as it is just now, we are a little bit more focused on fine-tuning, I mean, also try to validate products for the European market and so on. So it is very small or from time to time, negative market going from Sweden over to Asia in CTMP as it is just now. Operator: Thank you. That was our last question. I will now hand it back to the host for closing remarks. Ulf Larsson: Thank you, and that concludes our presentation of the third quarter results. We'll come back in January for our full year report. Thank you for watching, and thank you for listening.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Customers Bancorp, Inc. Third Quarter 2025 Earnings Webcast and Conference Call [Operator Instructions] I would now like to turn the conference over to Philip Watkins, Executive Vice President, Head of Corporate Development and Investor Relations. Please go ahead. Philip Watkins: Thank you, Regina, and good morning, everyone. Thank you for joining us for the Customers Bancorp's earnings webcast for the third quarter of 2025. Before we begin, we would like to remind you that some of the statements we make today may be considered forward-looking statements under applicable securities laws. These forward-looking statements are subject to change and involve a number of risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated. Please note that these forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update these forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws. Please refer to our SEC filings, including our most recent Form 10-K and 10-Q and our current reports on Form 8-K for a more detailed description of the assumptions and risk factors related to our business. Copies of these filings may be obtained from the SEC or by visiting the Investor Relations section of our website. At this time, it is my pleasure to turn the call over to Customers Bancorp Chair, Jay Sidhu. Jay? Jay Sidhu: Thanks, Phil, and good morning, ladies and gentlemen, and welcome to Customers Bancorp's Third Quarter 2025 Earnings Call. I'm joined this morning by our President and CEO of the bank, Sam Sidhu; and Customers Bank and Customers Bancorp's CFO, Mark McCollom. We are very pleased to report another strong quarter. Once again, our results materially exceeded expectations. We experienced deposit-led growth in our balance sheet of more than $1.5 billion over the quarter, delivered positive operating leverage and strengthened our already robust capital levels through a very successful common equity offering that was oversubscribed by about 10x. That speaks volumes about investor confidence in our franchise. We also delivered top-tier earnings performance, continued to improve capital quality and drove disciplined franchise-enhancing growth across deposits, loans and also fee income. You'll hear more from Sam and Mark on those results in a moment. It is exactly these sorts of financial results that gave me the confidence last quarter to announce my transition to Executive Chairman beginning in 2026 and for Sam to be named Chief Executive Officer of the holding company besides being the CEO of the bank. From this seat, the Board of Directors and I will continue to provide all the guidance to Sam and our awesome management team to ensure customers continues to build on its trajectory of growth, consistency, full transparency, resilience and delivering the results to you on a regular consistent basis. From a financial perspective, customers has been an industry-leading EPS and book value compounder over the last 5 years for banks of our size, and that's translated into long-term results for our shareholders as we've been the #1 performing bank stock in the United States for institutions over $10 billion in assets over a 5-year period. Thank you for -- and kudos to all of you for being our long-term shareholders, and I'm thrilled to be one of them. Our mission remains unchanged to deliver long-term and consistent value for our shareholders and our communities by putting clients first and executing with excellence. The numbers you see are the result of our leadership team executing superbly on our unique strategy of single point of contact banking with the strongest risk management principles. Before we dive into the quarter, I'd like to take a moment to welcome Janet Lee and the TD Cowen team to coverage of Customers Bancorp. It's terrific to have you and Steve following our story. We appreciate your interest and look forward to your insights as we continue to execute on our strategy. With that, I'm going to turn it over to Sam to discuss in detail the quarter with you. Sam? Samvir Sidhu: Thank you, Jay, and good morning, everyone. This quarter was yet another clear demonstration of the strength of Customers Bank's diversified model. Across the franchise, we delivered strong performance, disciplined growth and continued transformation of our deposit base. We are firing on all cylinders, and our team is performing at an elite level. Q3 results represented another quarter of very strong financial performance. Here are a few of the highlights. We generated $1.4 billion of deposit growth, led by our new commercial banking teams and cubiX clients. Our loan growth was 6% quarter-over-quarter with diversified contributions across multiple verticals. Our net interest margin expanded meaningfully by 19 basis points quarter-over-quarter, and our net interest income increased by 14% in the quarter. Our efficiency ratio improved again even as we continue to invest in new teams, technology and risk management. As you heard from Jay, we had a tremendously successful common stock offering in early September, which was about 10x oversubscribed. The equity raise even further improved our capital quality and ratios meaningfully. And we compounded tangible book value at a 25% annualized pace in the quarter to nearly $60 per share, continuing our multiyear trend of 15% annualized growth, which is #1 for banks $20 billion to $100 billion in assets. We accomplished all of this while maintaining strong credit performance and ample liquidity. Advancing to the next slide, you'll see our GAAP financials. And moving to Slide 6, I'll run through the core financial highlights for the quarter. Our beat relative to consensus expectations on both a GAAP and core basis was driven by strong results across the franchise. We delivered core EPS of $2.20 with a core ROE and ROA of 15.5% and 1.25%, respectively, both important profitability milestones. This reflects solid growth on both sides of the balance sheet, resulting in total revenues of $232 million, which was up 12% in the quarter. And our credit metrics also remained strong, which Mark will cover in more detail. Our third quarter EPS grew by 22% in the quarter, which is on top of the 17% growth last quarter. As you may recall, a year ago, on our third quarter call, I said that we'd look to grow our core EPS by 30% or more this year. I'm incredibly pleased to say that we more than doubled that, up 64% from the same period a year ago. And we believe that our $24 billion balance sheet is stronger than ever with very robust capital ratios, strong credit quality and reserves and ample liquidity to support our growing pipelines. Now let's turn to deposits on Slide 7, where we continue to execute in our deposit transformation with a meaningful shift towards franchise-enhancing granular high-quality deposits. As I mentioned, total deposits grew $1.4 billion in the quarter, ending at $20.4 billion. This included an increase of $900 million in noninterest-bearing deposits, which was led by growth from existing institutional customers on our in-house developed cubiX platform. Our deposit growth was supported by several other areas, including our new banking teams onboarded since June of 2023, contributing nearly $350 million in high-quality deposits this quarter. These teams now manage approximately $2.8 billion in relationship-based granular funding, which is about 14% of our total deposits in just 2 years, which is akin to buying a $3 billion bank, but without the tangible book value dilution and integration risk of traditional bank M&A. The $900 million of growth in noninterest-bearing deposits led to a record $6.4 billion in noninterest-bearing deposit balances. In addition to cubiX growth, our core commercial franchise again delivered 9 figures of noninterest-bearing growth, which is truly incredible. As a result, noninterest-bearing deposits now represent about 31% of our total deposits at quarter end, placing us #1 amongst our peers. Our team responded well to the Fed easing in September, and we were able to lower our deposit cost by 15 basis points post Fed action, which represents a deposit beta of approximately 59%. As a result of the combination of these 2 factors, our total average cost of deposits declined 8 basis points in the quarter. And to emphasize this point further, our spot cost of deposits was another 9 basis points lower at 2.68% at quarter end or 17 basis points below our Q2 average. Now let's turn to Slide 8, where I'll provide more detail on the incredible success of our deposit transformation. We've talked a lot about our deposit gathering efforts on our calls in recent quarters, but we thought it would be helpful to look back and highlight just how much we have transformed our franchise over the past few years. In less than 3 years, we have onboarded nearly $7 billion in deposits from our new banking teams and cubiX clients. That represents nearly 40% of our deposit base at year-end of '22 and about 1/3 of our deposits today. And it's the quality of the transformation that really shines. The growth is very granular with nearly 8,000 accounts helping us to drive over 50% growth in our commercial client base. Incredibly, they are very low cost at just 1.06%. This has allowed us to increase our noninterest-bearing deposits to 31%, as I mentioned, from 10%, while simultaneously reducing our wholesale CDs from -- down from 22% to 9%. Our average cost of deposits this quarter was essentially flat relative to the end of 2022. Over that time period, interest rates are 65 basis points higher on average today than they were at the end of '22. The industry's deposit costs, however, are 128 basis points higher, which means that our outperformance is incredibly 124 basis points over that time period compared to peers. That shows the power of our deposit transformation. Moving to Slide 9. Central to our success has been our ability to consistently recruit top talent. In the first quarter of this year, we highlighted the exceptional results from the teams who joined us in 2023 and 2024. And we also outlined a road map for the types of continued team recruitment we look to execute on in 2025. This included top-performing bankers to deepen our geographic presence and continue to enhance our national specialized deposit verticals. We had shared we would add at least 2 new teams this quarter. In fact, we were able to recruit and onboard 4 new teams in the quarter. This included 2 additional geographic C&I teams as well as 2 national teams, 1 serving title companies and 1 in the sports and entertainment segment. This brings our 2025 total to 7 deposit-focused teams with approximately 30 new team members. Our brand reputation as a high-performance tech-forward bank continues to attract top-tier talent. The flywheel is turning, and we have incredible tailwinds both from continuing to scale the portfolios of the teams that join us in '23 and '24 and now significant additional opportunities from the teams that have joined us this year in 2025. It is important to highlight that in almost every one of the bankers that have joined us have come through direct referrals from our existing team members. We'll look to continue to add to the roster of new teams each quarter. Let's turn to loan growth on Slide 10. Loans grew approximately $900 million or 6% quarter-over-quarter. Growth was broad-based and relationship-driven led by fund finance, commercial real estate and venture banking. Our new commercial banking teams also contributed to loan growth while maintaining strong deposit-led economics. The portfolio remains diversified, and we continue to prioritize credit discipline and pricing. Given the depth and breadth of our platform, we continue to see opportunities to add franchise-enhancing loans with an utmost focus on credit discipline. With that, I'll turn the call over to Mark on Slide 11. Mark McCollom: Great. Thanks, Sam, and good morning, everyone. Thanks for joining us on the call. I'm going to start with our net interest margin, where we reported strong results. Net interest margin expanded by 19 basis points this quarter to 3.46%, marking the fourth consecutive quarter of improvement. Our net interest income increased by about 14% to $202 million for the quarter. As we noted last quarter, we did have a positive impact from loan accretion on a small pool of participated loans we repurchased at a significant discount last quarter. This added $10 million to net interest income this quarter compared to the second quarter. This net interest income benefit will repeat again in the fourth quarter of 2025 and then is expected to drop off in the first quarter of 2026. However, when excluding this $10 million from our third quarter results, our net interest income still increased 9% sequentially due to the following core trends. We had an increase in average deposits of over $1.4 billion at a blended cost of 2.77% for the quarter compared to 2.85% last quarter with nearly $800 million of higher average noninterest-bearing balances. We also had an increase to average loan balances of $630 million. And lastly, our overall funding needs declined as a result of the $163 million of net proceeds we received from our common equity offering in September. As Sam noted, our team responded well to the first Fed funds rate cut. Within a week of that cut, our interest-bearing deposits had declined by 15 basis points on a spot basis or a beta of almost 60% early on. We also executed off-balance sheet strategies during the quarter, layering on $800 million in notional value of received fixed swaps on the asset side of the balance sheet in order to further neutralize our asset sensitivity. While we remain modestly asset sensitive, we think we have well positioned the bank to produce solid net interest income growth in future periods regardless of macro monetary policy. Moving on to Slide 12. Our noninterest expenses declined $1.4 million to $105.2 million, while we continue to invest in people, technology and risk infrastructure. Compensation and occupancy were the categories that increased during the quarter with reductions in our FDIC assessments and professional fees driving the bulk of the decrease. Importantly, our efficiency ratio improved again now at 45.4%, placing us firmly among the top quartile of peers even as we continue to invest in this growth. And lastly, when just focusing on expenses, our noninterest expense to average asset ratio declined to 1.74%, which rates the best within our regional bank peer group. On Slide 13, tangible book value per share grew to $59.72, up 6.2% sequentially or 25% annualized. We believe this represents one of the clearest markers of long-term shareholder value creation and continues our multiyear track record of double-digit tangible book value growth. Now let's move to Slide 14 to discuss capital. We significantly strengthened our capital position this quarter. Our successful common equity raise provided $163 million of net proceeds. Through the combination of this capital raise, strong quarterly earnings and reductions in our AOCI, which is currently at a loss position, our shareholders' equity grew $263 million, which is 14% sequentially. As a result of this growth, our common equity Tier 1 ratio improved 100 basis points to 13% and tangible common equity grew 50 basis points to 8.4%, and this was even after supporting more than $1.7 billion of balance sheet growth during the period. On Slide 15, our credit performance remains stable and well managed. A strong credit culture has always been a critical success factor of customers and the results bear this out, as you can see from our metrics. Our nonperforming assets were just 25 basis points of total assets and have been consistently below peers for each of the 5 quarters shown. Excluding our small consumer loan portfolio, net charge-offs for commercial loans remained very low at 16 basis points annualized. Additionally, special mention and substandard loans were down about $14 million or about a 3% decline during the quarter. Overall, we believe the loan portfolio is well positioned, and we have strong reserve coverage within our allowance for credit loss. Currently, this allowance sits at 103 basis points and represents 534% coverage of our nonperforming loans. Moving to Slide 16. As a result of the strong quarter and emerging clarity on the remainder of the year, we are revising several of our guidance items for 2025. For deposits, we are increasing the full year growth range to 8% to 10% for the year, up from 5% to 9% given the momentum we experienced during the quarter. For loans, we are increasing full year growth to 13% to 14%, up from 8% to 11% previously. I would note that we had a very strong third quarter, which did pull forward some closings from the fourth quarter, which is why we may see less growth next quarter. But we still feel very good about our ability to deliver above-industry average loan growth with a disciplined and credit-first mindset as we head into 2026. We are now projecting our net interest income to grow between 13% and 15% for the year, up from 7% to 10% previously. This reflects the strong performance on both sides of the balance sheet in driving increased revenue as well as the margin benefits I discussed earlier. For efficiency, as a result of the stronger revenue growth and well-managed expenses, we now believe our efficiency ratio will be below 50% for the year versus 56% in 2024. As a result of our common stock offering, our CET1 ratio is now projected to be around 13% at the end of 2025, consistent with third quarter levels. And with that, I'll now pass the call back to Sam for closing remarks before we open up the line for your Q&A. Samvir Sidhu: Thanks, Mark. In closing, Customers Bank is delivering on its strategy, disciplined deposit transformation, diversified loan growth, efficiency improvements and a strong capital, credit and risk management. We increased deposits by $1.4 billion with most of the growth coming from noninterest-bearing deposits. Our noninterest-bearing deposits now stand at 31%, which is #1 of our peers. We grew our loan portfolio with franchise-enhancing relationships. We improved our net interest margin for the fourth consecutive quarter, improved our efficiency ratio for the fourth consecutive quarter, delivered a 1.25% ROA, delivered a more than 15% ROE, increased our TCE ratio by 50 basis points to 8.4%, all while maintaining excellent credit performance. Our tangible book value has grown at 15% over the last 5 years, #1 in the industry for banks of our size. Importantly, our loan, deposit and team recruitment pipelines are strong, and that is why we're incredibly excited about the prospects for this company to close the year and excel in 2026 and beyond. Operator, we'll now open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of Janet Lee with TD Cowen. Sun Young Lee: On the deposits, so if I were to look at -- obviously, you guys have been bringing in a lot of about $200 million to $350 million of lower cost deposits from the new banking team hires. If I were to look at 2026, should we expect the pace of deposit growth from the new banking team hires to continue around this pace? Or is that contemplating also the pace of new banking team hires is maintained in that like 4 teams higher per quarter range. Just want to get some color around the pace of deposit growth, how that could move versus what we saw in this quarter as we're reaching the saturation point from the big banking team hires that you guys made in 2024? Samvir Sidhu: Sure. Well, Janet, thank you so much for that question. So to add a little bit of color, you rightfully sort of mentioned that we had sort of guided previously to about $300 million to $400 million or so of quarterly deposit growth from the new teams, which we, this quarter roughly achieved. Sometimes we're a little lower, sometimes we're a little higher, but we're kind of in that type of target. We would expect that pace to continue in 2026 based upon the '23 and '24 teams. The 25 teams are really going to start adding balances in the sort of end of the first half to the middle of next year and really ramp up. We expect over the course of the year, that should give us about a 25% lift on that $300 million to $400 million. So it kind of gives you a sense of sort of the layering of the vintages of teams that are being onboarded. One thing that I would mention that the $350 million of growth that we saw this quarter, it continued to maintain that sort of just at or under 30% noninterest-bearing deposits. Those deposits also came in at less than 2%, just under 2%, in fact. So I think that -- and that's prior to rate cuts. So just gives you a sense of the high-quality nature of those sort of we call them the singles and double type deposits that our teams are bringing in from the C&I and CRE side. Sun Young Lee: That's very helpful. And obviously, the cubiX deposits grew a lot, about $800 million this quarter, about 19% of deposits. Any changes to your sort of the internal target, maybe target is not even the right word. How big could this become? I know all of these deposits from cubiX are going into cash. What drove that much of an increase in cubiX? Do you think that this cubiX deposits could sustain in terms of the growth? What is the strategic value that cubiX brings to your platform aside from the NII? Maybe if you could touch on the fee income opportunities from the cubiX payments platform, that would also be very helpful. Samvir Sidhu: Sure. Absolutely. And if I miss anything, Janet, because I think there's a couple of layers in the question, please remind me after I'm done here. But I think on the cubiX side, just as a reminder, this is -- it's a payments platform, right? So at the end of the day, our customers hold transactional operating accounts with us to support that payments business. So there's a minimum amount of deposits that they hold with us at any given time. What we -- we acted a little bit of a slide in the deck that showed this is what we've seen is, especially since November of last year, we've seen a continuous increase in the payments activity as well as the -- which translates into higher average deposit balances. So on the Q2 call, if you recall, I talked about balances being about 20% higher as of end of July when we had our call relative to the second quarter. As you can see, we maintained or even slightly increased those balances as the quarter continued post the sort of GENIUS stablecoin legislation. So we're continuing to see increased institutional activity from our existing customer base. We're also continuing to see increased institutional adoption. You also heard me say that about 20% of our deposits were coming from traditional finance customers. Even with the growth in our average deposit base, we have continued to maintain that percentage, which sort of just gives you a sense of the growth is broad-based across all of our large core customers as opposed to a customer or 2 or 3. It is universal across the overall customer base. And the low end of our top customers grew by 10%. The rest we're sort of growing overall across the base to that 25% or so -- or so growth. One other thing that I would add, just talking about activity on the network and franchise value, as you were asking about, is we're continuing to sustain. So in October, our levels are about where they were in the third quarter. I'd also say that October, going back to activity, is on track to be our highest cubiX month ever in terms of network volume and activity as well with just 3 weeks of the quarter end. You also got a sense that our activity and overall volume this year as of 9/30 or the third quarter is roughly at where we were for full year '24, which just gives you a sense of how year-over-year we're continuing to increase. So I think that was the first part of your question. I'll address the fee income, and then let me know if I missed anything. So on the -- the fee income in late last year, we started instituting outbound wire fees and some modest fees to our overall customer base. That's to the tune of $8 million or so of overall fee income. At the end of the day, we want to make sure that we have a partnership approach with our customer base that we're not -- that we're making sure that fees are aligned with driving value to our customers and to our customers' customers. So right now, we're focused on continuing to broaden the institutional breadth of our network. We're also really focused on product expansion and with our core customers. And really, what's also important internally at Customers Bank is we're continuing to further enhance our risk and compliance going far above the expectations of what regulatory standards could be and really thinking about how we can continue to build sort of a best-in-class North Star for the overall industry because we and even our customers are going to continue to see more competition as there's broader institutional adoption in the industry, which is a rising tide will obviously lift all boats. But at the same time, we want to make sure that we truly have built a platform that we, our customers and all of our stakeholders view as best-in-class. Operator: Our next question will come from the line of Steve Moss with Raymond James. Stephen Moss: Maybe following up on cubiX here for the moment. With the likelihood of additional rate cuts coming, just curious how to think about if there will be any potential increase in fees from the platform. Samvir Sidhu: Yes. So Steve, it's sort of building off of the answer I gave to sort of the last question is that at the end of the day, as we're continuing to add new products and continuing to partner with our customers on sort of more overall initiatives, we will explore fees. Right now, deposit growth is far outpacing any type of "asset sensitivity" of noninterest-bearing deposits that are held in cash. So I think that for the time being, right now, we feel very good about the position that we're in, sort of cubiX, let's say, all things equal, just with the growth that we've seen this quarter, cubiX's associated interest income would be higher based upon the balances today that we have relative to well over 100, 150 basis point rate cut relative to prior balances. Stephen Moss: Okay. Got you. Appreciate that color, Sam. And then in terms of the loan pipeline, Mark, you made a comment about a bit of a pull-through. Just kind of curious where does the loan pipeline stand these days? And maybe just kind of what does that business mix look in the current pipeline? Mark McCollom: Yes. The loan pipeline is broad-based. And I think what you've seen throughout this year is that our growth from quarter-to-quarter will come from different segments. We have a good graphic depiction on that on Slide 10 in the deck that shows where the growth came from this past quarter, where fund finance and commercial real estate led, but we've had other quarters where the commercial banking teams, health care, equipment finance, et cetera, are all going to be meaningful contributors. The point I was making was that the almost $900 million of growth that we saw in the third quarter did include some deals that a quarter ago, we may have thought were in a pipeline to maybe close in the fourth quarter. So our anticipation is that there will still be growth in the fourth quarter, but we don't expect it to approach third quarter levels. Stephen Moss: Right. Okay. And then maybe just one more for me here. Just kind of curious, you mentioned less -- you've reduced your asset-sensitive position. Just kind of curious what you're thinking about with regard to the margin pressure from a 25 basis point rate cut. I mean I realize there's a lot of noise with the cubiX deposits coming in here, but maybe just size that up a little bit. Mark McCollom: Yes, sure. So for us, when you go and look at our quarterly numbers, we quote numbers for the impact of 100 basis point, 200 basis point up or down rate move. That's that static view, which is at least one measuring stick to compare us to relative asset sensitivity to other peer banks. Obviously, the limitations on that are that no bank experiences a static across all points of the curve and then sits on their hands and does nothing to react to that. What I would tell you is that while we are still inherently asset sensitive because we are a commercial bank, and as Sam pointed out, our asset sensitivity then also increases a little bit because of our decision to hold all of the cubiX balances in cash. But with some of the -- just the mix of businesses that we have as well as some of the synthetic things that we've done with adding on some received fixed swaps, we're now at a point where for a 25 basis point rate move, it's around $1.5 million annualized impact to our NII. But we think that my comment that we think we're positioned to still be able to produce net interest income growth regardless of monetary policy is that we think there will be sufficient growth to make up any NIM compression we could see from that -- those 25 basis point rate moves. Stephen Moss: Okay. That's really helpful. Maybe if I could just squeeze one last one in. Sam, you mentioned the title and sports entertainment teams here. Maybe -- and I hear you in terms of potential deposit growth. Is it going to be a similar kind of loan-to-deposit type mix? And maybe kind of curious how many -- are there any additional verticals you may be looking at? Samvir Sidhu: Yes. Sure, Steve. So I'd say that it's difficult to fully project. I'd say broadly, the deposit to loan is a better way to think about it because these are mostly deposit-focused team. Based upon sort of the teams that we've onboarded, we expect actually that ratio to be higher than what we brought in last year. Remember, last year, we also had stated that in the beginning, as we were taking market share, we were doing more lines and onboarding sort of more existing relationships and refinancing, which meant that our deposits to loans was 3:1 versus stabilized being at sort of 4:1. I'd say these teams are a little bit lighter on the lending side relative to especially some of the specialized national teams and more heavy on the deposit side. Operator: Our next question will come from the line of Peter Winter with D.A. Davidson. Peter Winter: Congratulations on a great quarter. My question is on expenses. Mark, can you just give some context around the $3.4 million decline in FDIC assessment? Is there still room to lower it? And then secondly, with this $1.6 million decline in professional fees, is that a function of a lot of the work has been done to address the written agreement now you're expecting kind of just in the back testing phase? Mark McCollom: Sure. Yes, I'll answer the second question first. On the professional fees, yes, we continue to build out and invest in our risk infrastructure and work through the agreement. And some of those -- some of that is hiring of people. Some of that is augmenting with professional services. Some of that is starting to be completed. So we were pleased that we were able to kind of pull through some of that reduction in the third quarter. We would hope to be able to continue to see that progress being made in the fourth quarter and into '26 in that professional fees line. On the FDIC expenses, as I'm sure you're aware, that calculation, which used to be fairly straightforward, is now a very complex calculation on a quarterly basis, which incorporates several factors, but ultimately is a risk-based calculation. And as we continue to work through and derisk our balance sheet, we are making progress in ultimately getting reductions in our FDIC insurance. In this past quarter, I will say that we were pleased that not only did we see a reduction when we go through the calculation, but that reduction was actually retroactively applied to the first quarter of 2025. So of that $3.4 million reduction, about $1.9 million of that actually related to first and second quarter adjustments. So when you see the total line sitting there at about $8.4 million, $8.5 million, I would expect that line in the fourth quarter to come back up to be closer to $9.5 million to $10 million, but down significantly from where it was in the second and third quarters. I'd also remind you that in that line, the way it's working, it does include more than just FDIC insurance. I mean it also includes other above the line where us as a Pennsylvania bank, we have a PA shares tax, which also rolls through that line as well, plus a couple of other more minor regulatory fees. But good progress being made. We would continue to see progress being made going forward into next year. Peter Winter: That's great. And then Sam, big picture question. Just -- we're seeing more prevalent use of AI industry-wide. I'm just wondering, can you talk about maybe outline how AI is helping the bank today and maybe how it can help the business going forward? Samvir Sidhu: Well, Peter, thank you. It's great to get a strategy question, and it's probably our first non-modeling question in a couple of quarters. So thank you so much for allowing us to not look necessarily 90 days back, but look a couple of years forward. But AI is going to be one of the biggest efficiency and client experience unlocks that we as an industry and a country and a globe have seen since mobile banking. Our journey, I'll give you just a little bit of history. So in December of 2023, we formed a cross-functional AI discovery team. We use it to learn about AI, buy the first wave of tools, test and build solutions, train and figure out how to democratize it for everyone at the bank. Since then, we've had various areas of the bank that have seen about a 10% productivity lift or said a different way, 10% savings lift, however you want to think about it. And we see in 2025 that we're going to continue to drive further adoption throughout the bank and begin expanding our planning of Agentic AI systems, which is said a different way, it sort of AI that can observe and decide and act across our platforms and workflows. And that's also going to be sort of how we think about sort of the overall client experience and client onboarding over time as well. That's sort of our medium- to long-term plan. So again, over the next couple of years, we're going to expect AI to lift our productivity significantly. We're going to have it unlock more client experiences. It's not a side project for us. I'm leading the efforts. We see it as a foundation for the next phase of Customers Bank. We've mobilized incredibly early, as you can tell, by looking at that time line of when we formed our team and our governance process, and it's proving value. And so just to kind of put a finer point on it, we've developed over 100 use cases for Agentic AI, and we're gearing up to start beginning to test and implement. Operator: Our next question comes from the line of David Bishop with Hovde Group. David Bishop: Mark, just curious, you've seen some good growth here of late, especially in the [ nonoccupied ] commercial real estate, commercial real estate segment. Remind me where your concentration ratio is ending the quarter and appetite to grow those verticals? Samvir Sidhu: Yes. sorry, Mark, I'll take that. So we're still -- we still remain below 200%, Dave. I think that's sort of the core of your question. But what I would also like to add beyond sort of the actual question is, I think a couple of quarters ago, we sort of talked about how our deposit-to-loan ratio was -- said differently, our CRE loan growth since we onboarded the new teams was fully funded by deposit growth. Well, that's continued. In fact, our deposits are greater than loans since the third quarter of last year when the team started originating. So we have about $700 million or so of deposits we brought in across the franchise at 1.7% and less than that in loan growth at loan yields of north of 6.3%, which is about a 4.5% spread. And what's interesting is the sort of $200 million plus of loan growth in the third quarter, it's incredibly granular. So our average loan size is less than $10 million. David Bishop: Got it. Great color. And Mark, you noted the swaps, the fixed versus received. Just curious, any granularity you can give us just in terms of maybe rates on received versus fixed? Just curious if you have that handy. Mark McCollom: I don't have that right in front of me on the details of that notional. I mean it ended up being 2 separate transactions that we did at different times of the quarter. But I can follow up with the actual -- each side of that [ leg ] for you. David Bishop: Got it. And then, Sam, turning back to the -- especially the Title team, you said that was a national basis. Any way to ring-fence the deposit opportunity there, but just curious maybe how big of a book they managed at their prior shop and what the potential is there to move the needle from a deposit basis. Samvir Sidhu: Yes. So Dave, it's a bit early to sort of tell. Think of this as sort of a payments platform that is sort of supported on top of our existing retail and commercial title team efforts and platform that we have at the existing bank. And what I would say about this is these types of team recruitment initiatives. I think we've stated this before when folks have come to us and asked about sort of the types of teams that we look for. If you go back to 2023, the team that we brought on in '23 had a multibillion-dollar book. The team that we brought in -- the teams we brought in '24, most of the teams had individually about $1 billion or more of book. And similarly, as we sort of look to acquire and recruit sort of larger teams in '25, we've also looked for that similar type of threshold. So we see it as an interesting opportunity for us to leverage our operational strength, our technology strength as well as sort of the single point of contact commercial delivery model. Operator: Our next question comes from the line of Kelly Motta with KBW. Kelly Motta: Congrats on the quarter. Maybe hitting on asset quality. Your track record has been really strong. And just in light of the really strong growth you've been seeing and the earlier focus during earnings season towards NDFI lending, can you just provide some comments as to -- clearly, you've been very thoughtful in your approach. Just -- what are the biggest verticals within that for you? And what gives you comfort on those? Mark McCollom: Sure, Kelly. It's Mark. Yes, we do think, as I mentioned earlier, credit quality has always been a critical success factor for us. And when we focus on our NDFI exposure, we think that, that's also a credit strength of our franchise, and we believe arguably one of the lower risk credit risk portions of our overall C&I portfolio. I'm sure as the analyst community has learned, when you look at that category on a call report, not all NDFI lending is created equal. There are several different categories that roll up to that. For customers, NDFI loans generally fall into 3 categories: Mortgage warehouse and what we call fund finance or capital call lending, those 2 categories make up just a little less than 0.5% of our overall exposure. And then the lender finance piece makes up the other half. The first 2 categories, mortgage warehouse and capital call lending, I think most people understand those businesses and understand that they have inherently very low credit risk. Most of the recent attention this past quarter has been on the lender finance space. For customers, this is one of the oldest specialized lending businesses we've been in. It's one we've been in for over a decade. And we've not only had 0 losses, but 0 loan defaults. In this business, this is typically lending to a private credit fund where the collateral is a broadly diversified pool of loans to middle market companies. There's significant overcollateralization. We have low advance rates, and there is -- it's very diversified. So our single obligor exposure is very low, kind of mid-single digit. So when you put all those things together, it's translated into, again, 0 losses, 0 defaults. The last comment I'll make on that space is that it's always really important to understand who you're lending to. So depth of relationship is key. Again, we've been in the business for 10 years, and we have, on average, about a 5-year track record with the managers that we do business with. Kelly Motta: That's really helpful color, Mark. And then I know we've covered cubiX quite in depth here, and it's been a source of strength for you guys. Wondering, given the news of de novo entering the digital asset space, any updated thoughts in terms of the competitive moat here? Samvir Sidhu: Yes, sure. And I think that just to sort of highlight, Kelly, at the end of the day, we've -- I think we've done a pretty good job of highlighting the strength of the existing stable large-scale network and the benefits of network effect. We've also made sure that we're fully integrated and broadening our relationship with our existing customers. We've built an incredible amount of brand loyalty, and we've made significant investments in technology and risk management. So I think that's what I would sort of just sort of recap a little bit with. But to your question about sort of competition from fintechs, and there's a host of reasons that companies may want to get banking or trust licenses like trust and custody, you do consolidate under a national charter, engage in international activities beyond sort of typical state borders and offer sort of consumer products and services. So all of these are complementary to cubiX. And one of the things that's really interesting is that we have a significant number of customers that either directly are a license holder of a charter or hold subsidiaries that have a charter already, and they hold their primary accounts at Customers Bank because of the value of our network. And I think that's one of the most important things is we have a very robust 24/7 network that our customers, our customers' customers and the industry relies on. Operator: Our next question will come from the line of Hal Get with B. Riley Securities. Harold Goetsch: First question is, could you just go over the details of the $10 million net income kind of benefit in the quarter? And I think you said it was going to benefit the fourth quarter as well as kind of a housekeeping it better to understand that. And then two, back to the second question is on the FDIC insurance. Is there any way to say like, hey, your equity raise helped lower -- derisk the company a little bit, that helps lower your FDIC assessment. Is there any way of quantifying what that might have been as part of the formula just for our own identification? Mark McCollom: Yes, sure, Hal. This is Mark. So for the FDIC insurance, yes, the capital raise would have helped that somewhat. Again, it is a very complex calculation with multiple factors, but your common equity Tier 1 ratio is one of the factors that goes into that. However, I would say that some of this is also just more broader-based progress we've made across just deposit growth, reducing broker deposits. There are multiple factors that play into it. And the capital raise impacted our third quarter assessment. But as I said, some of the relief that we received was due to -- was retroactive to the first quarter. So it really reflects the progress we had made in the prior 2 quarters as well. Moving to the net interest income benefit. In the second quarter, we had previously originated some loans and had participated those loans to a partner. We had an opportunity where that partner approached us in the second quarter to repurchase those loans and it was a small pool of loans, but we had an opportunity to repurchase them at a pretty significant discount. So we executed on that transaction in June, had a very small level of accretion benefit in the second quarter. But then we had highlighted on that call that we would then see a $10 million benefit from that discount accretion in the third quarter. We would see another $10 million incremental benefit in the fourth quarter. And then that discount accretion would largely go away for the first quarter of 2026. I hope that explains that. And while I also have the benefit here, I'll answer Dave Bishop's earlier question. On the received fixed swaps that we put on, we put on those at a received fixed rate between 350 and 360 and then we're paying 1 month SOFR on that. So when you put on those kind of swaps, that's actually a negative to our net interest income right now. But again, you don't put on swaps to earn money or not earn money. It's for risk management purposes. And if rates would fall more than 75 basis points from where we are today, which the forward forecast would certainly predict at some point in 2026, those swaps would actually turn positive on us. Operator: Our final question will come from the line of Matthew Breese with Stephens. Matthew Breese: A few questions for me. Maybe big picture, Sam, for you. In April, the Treasury put out a report looking at potential growth of stablecoin, and they set some really lofty targets. I think they said stablecoin outstanding could hit $2.8 trillion by 2028, longer term, north of $6 trillion, balances today around $300 billion. The use cases in stablecoin are still very heavily tilted towards crypto. So maybe, one, do you agree with these longer-term targets? And two, how do you expect stablecoin usage to kind of break out of its current pie chart being so heavily tilted towards crypto trading and hit the masses? Samvir Sidhu: Matt, thanks for the question. It's helpful to have an analyst like you who's been covering and following the industry for such a long period of time. So your question is a good one. I think the treasury put out some incredibly lofty targets. And I think the perspective from Treasury's perspective, as I understand it, was to sort of give a little bit of a reference point and justification for GENIUS, but then also sort of a sense of demand for U.S. treasuries. So this is sort of a bit of my view in early stages. What I would say is that you're absolutely right, somewhere between 85% to 95% plus of current stablecoin activity is related to digital asset trading and settlement, and that's something that we see on our platform as well. What I would say is that there are a tremendous amount of obvious use cases for stablecoins as you think about cross-border and FX. It just -- it's reasonably intuitive and easy to kind of reconcile that for anyone who's tried to operate with sort of U.S. cards or U.S. fiats just physically going as a tourist, but then also imagine that from a commercial perspective and sort of engaging and holding working capital and transacting with folks across the border. I expect that some of the large banks that have capital markets divisions will find some interesting use cases for stablecoins in a lot of their businesses as you think about the utilization, specifically of blockchain beyond just sort of the U.S. dollar sort of movement across. And then finally, I think the biggest demand from my perspective is going to come from non-U.S. domiciled customers and countries where there could be high inflation. There is an opportunity to leapfrog from a point-of-sale perspective and really utilize the stablecoin as a transactional stablecoin to transact off of and sort of pay off of. I think those are sort of where I see some of that sort of non-U.S. growth potentially coming, and that would sort of flow into treasuries more locally. But what I would just remind you and everyone is that we have designed our platform to be really the infrastructure provider just the stablecoin to U.S. dollar sort of stablecoin issuers and to really be prevalent and relevant, you really need to be on our network and present in our bank. And that's really what we think we've done in a very unique way. Matthew Breese: Appreciate all that. A couple more for me on cubiX. I think someone else asked it earlier, but you're now up to knocking on 20% of total deposits, north of 60% of your demand deposits are in cubiX. Where do you draw the line in terms of safe balance sheet exposure to this industry? I know historically, you had a 15% cap. Where do we stand in terms of updating that cap or putting some limitations, especially given the volatile nature of the industry and the history of banks that have catered here? Samvir Sidhu: Sure. I'm happy to take that. So I think that, Matt, this question was asked last quarter and our view doesn't change and hasn't changed quarter-to-quarter. What I would say is that just as a reminder, even prior to March of '23, the industry did not hold these deposits in cash, ourselves included. And I think that's a really important change that we decided to make until we sort of had really strong operating history and that we could rely on. One of the things that's a little bit perspective that's more internal that we haven't necessarily highlighted as much is a number of our large institutional customers sort of give us minimum target thresholds that they want to sort of operate in, average balance thresholds that they sort of want to operate in that they adhere to, which is incredibly helpful for us from sort of a stability perspective. And that's seen in that 30-day rolling average deposit balance chart that we provided to you there. And I think that's really important. So that's sort of the way that we think about the $900 million that we -- or $800 million rather, I should say, that we grew in this quarter. It's being held in cash. It's adding interest income to our platform and continuing to strengthen the value of our overall franchise and sort of earnings base. And right now, I think as I mentioned earlier, we're really focused on institutional breadth of the network and product expansion, which will bring additional opportunities on the fee side and really also bring additional competitive moat to the overall infrastructure, especially when you sort of layer on the risk and compliance investments. Matthew Breese: Got it. And then I did notice that the dollar amount of uninsured deposits ticked up this quarter. And I asked a similar question last quarter, but I was curious about what the average size of deposits are on the cubiX network. And are there any that are -- or how many are north of, call it, $250 million in kind of average balances? Samvir Sidhu: Yes. So Matt, I think that -- I don't have the exact sort of number on uninsured deposits, but I think our overall uninsured deposits -- insured deposits and sort of collateralized deposits is well above sort of industry averages, I think is incredibly important. And sort of large cubiX depositors, I mentioned this before is, yes, we have large exchanges that are incredibly critical to the industry and to customers bank and to the network. And at times, these deposits do get in sort of the multiple 9-figure type territory. But what's important about the network, which is helpful, and I mentioned this earlier, is broad-based, nearly every customer increased of the hundreds of customers that are on the platform, increased their deposits based upon activity in the third quarter. And I think that's sort of how to think about the overall growth of our platform and strength of the network. Operator: That will conclude our question-and-answer session. I'll hand the call back over to Sam Sidhu for any closing comments. Samvir Sidhu: Thank you, everyone, for your interest in and support of Customers Bank. We really appreciate you being a part of this incredible franchise that we're building. And I really want to give a special shout out and thank you to our incredible team. Have a great day and a great weekend. Operator: That will conclude today's call. Thank you all for joining. You may now disconnect.
Linda Palsson: Good morning, everyone, and warm welcome to our presentation of Afry's Q3 results. I will begin with some of the highlights from the quarter, and then our CFO, Bo Sandstrom, will provide a more detailed overview of the financials. So in the third quarter, we delivered stable results and improved our EBITA margin to 6.4%. We also saw a positive development of the order backlog, which increased 3.6% compared to the same period last year, or 5.3% when adjusted for currency effects. We achieved this despite a decline in net sales with a total year-over-year growth of minus 5.1%. Similar to what we saw in the second quarter, currency effect had a significant negative impact on sales. For Q3, it amounted to minus SEK 118 million. Sales volumes were also impacted by a challenging market we experienced in parts of our business, mainly in our global division Industry. The third quarter was also the first within our new group structure and our three global divisions. Under the new group structure, we have intensified our efforts to improve utilization and to structurally address the cost base. As part of this, we have continued executing on the restructuring agenda that we initiated during the second quarter. And for the third quarter, we report restructuring costs of SEK 31 million related to this, and they are classified as item affecting comparability. So to summarize, I can conclude that we have been able to deliver stable results despite a decline in net sales, and we continue our efforts to pave the way for profitable growth. Moving on then to the market, and let's start with Energy. We see a continued strong long-term demand across segments and on a global scale. Market activity is particularly high in areas such as transmission and distribution, hydro, and nuclear. At the same time, we are seeing some short-term regional variations. This is evident in areas such as thermal, solar, and wind power, where, for example, demand in the Nordics is currently somewhat slower. With that said, this kind of variations are expected over time for a growing and dynamic sector like the energy sector. For Global Division Industry, the demand remains mixed. We see that persistent global uncertainty continues to impact the overall investment sentiment in several segments. For example, in the Pulp and Paper, where the demand for new large-scale projects remains at low level. The slowdown in the Nordic industrial market is also impacted in the automotive segment. At the same time, we see strong market opportunities in areas such as defense and also within mining and metals, which is encouraging to see. And finally, in Transportation and Places, public investments in transport infrastructure and water remains at good levels across the regions. The investments are driven by large-scale infrastructure programs and increasing focus on climate and defense-related projects. At the same time, we see that demand in the Nordic real estate market remains at low level and is mainly driven by refurbishments and public investments. So now let's dive a bit into our new global divisions and their performance in the quarter, starting with Energy. We continue to see high project activity in several of our segments, which reflects the overall market that we experience in Energy. We report negative total sales growth in the quarter, which is impacted by significant currency effects of minus SEK 45 million as well as short-term regional variations in some segments. We keep profitability at a solid level of 9.8%, which is slightly lower than last year. Moving on to our Global Division Industry, a challenging market reflects the net sales development in some of our segments. Despite this, profitability improved year-over-year, and this is due to the ongoing capacity adjustments and the improved utilization in the quarter. In the second quarter, we announced the acquisition of Reta Engineering, a Brazilian company specializing in project and construction management services with a strong foothold in the mining and metal sectors. And in the third quarter, we completed the acquisition, and the numbers are consolidated into the Industry division as of September 1st. And finally, Transportation and Places. Here, we saw some sales growth in the quarter, which was driven by high activity in projects as well as improved attendance rates. Also on the EBITDA side, we continue to see positive development, driven by the continuous efficiency measures that we do in the division. I would also like to highlight some of our key project wins in this quarter. In the Mining and Metals segments, we were selected by the British mining company, Anglo American, to lead the pre-feasibility study for the Sakatti mining project in Finland. The mine is planned as a highly automated underground operation with low carbon footprint. And once operational, the mine will supply critical minerals that are essential for Europe's green transition. And Afry's strong expertise in sustainable engineering makes this a great fit. On the Energy side, we have signed a strategic framework agreement with Svenska Kraftnät, Sweden's national grid operator. This is the second of two recently announced agreements and covers technical consultancy and design planning services within transmission and distribution, which will strengthen Sweden's energy system. Svenska Kraftnät is one of our key clients in the Swedish energy market, and we are pleased to strengthen our partnership with them through these agreements. In Denmark, we have won a contract in the Road and Rail segment, covering comprehensive advisory services in intelligent traffic systems, traffic management, and emergency preparedness. With Afry's extensive experience in traffic engineering, this project is a great opportunity to deliver innovative and effective solutions that improve road user safety and mobility. And with these great projects, I would like to hand over to you Bo. Bo Sandstrom: Thank you, Linda. So I will cover the financials for Q3 2025. Quarter three showed net sales of SEK 5.7 billion and EBITDA, excluding IAC of SEK 362 million. On rolling 12 months, we are now at SEK 26.2 billion on net sales and remain right below SEK 1.9 billion on EBITDA. On the rolling 12 months development compared to 12 months ago, we carry significant negative currency and calendar effects, explaining approximately SEK 600 million on net sales and SEK 240 million on EBITDA. In Q3, with a net sales of SEK 5.7 billion, adjusted organic growth came in at negative 3.7%, where volume continued to be pressured by capacity adjustments during the last quarters. As previously, the decline in volume was partially compensated by positive pricing. For Q3, we continue to see higher average fees, although at a somewhat lower level than the last number of quarters. Total growth is reported at minus 5.1%, affected also by FX movement from a strengthened SEK compared to last year. The negative adjusted organic growth in Q3 was sequentially lower, and global divisions, Energy and Industry, both saw lower growth levels. In particular, Industry experienced a challenging market and continued capacity adjustments pressure growth rates. In Q3, Industry also saw show lower sales of material than last year, affecting the quarterly growth. Transportation & Places showed sequential improvement, mainly driven from the Road and Rail segment. The order backlog continued to develop favorably and is reported at SEK 20.4 billion, improving to last year, but somewhat lower sequentially. Currency adjusted, the backlog has improved 5.3% to last year with improvements primarily from Global Division Industry. The Energy division maintained the largest order backlog in relation to net sales at a level in line with last year, but improving 3.7% adjusted for currency effects. EBITDA excluding IAC is reported at SEK 362 million, and the EBITA margin was at 6.4%. Calendar affects EBITA with plus SEK 15 million and the EBITA margin with plus 0.2% to last year, so that calendar adjusted margin was marginally better than last year. Currency movements have marginal impact on the EBITA margin, but on absolute terms, we estimate a negative currency impact of SEK 13 million on EBITA compared to last year. Global Divisions Industry and Transportation & Places support the calendar-adjusted margin development of the group, while Energy reports the highest margin of the global divisions, but somewhat lower than last year in this quarter. We reported utilization of 72% for Q3 in line with the rolling 12-month level. Looking at the year-over-year development by quarter, we see that Q3 '25 is again behind last year, but with a decline at a lower rate than seen last two years. Utilization is a clear focus for Afry, and we are determined to turn the negative trend. We report SEK 31 million restructuring costs as items affecting comparability in the quarter. The restructuring costs again primarily relate to redundancies across the group. In the new group structure, we will continue to address our cost base as well as making portfolio optimization in quarters to come. And we reiterate our estimate of restructuring cost of SEK 200 million to SEK 300 million in the quarters from Q3 '25 to Q2 '26. We have not guided on phasing, but given that the cost levels were slightly lower in Q3, it is fair to assume that they will, on average, be higher for the upcoming quarters. Cash flow from operating activities in Q3 was stronger than last year. Available liquidity remained at SEK 3.8 billion. Net debt remained at SEK 5.1 billion, where the positive operating cash flow compensates completion of the acquisition of Reta Engineering that was completed during the quarter. On net debt to EBITDA, we remain at 2.9x. Normal seasonality would provide significant deleveraging in the last quarter of the year and take us to around or below our financial target of 2.5x. With that, I leave back to you, Linda. Linda Palsson: Thank you for that, Bo. So I would also like to say a few words on our next chapter and what we've achieved in the third quarter. So as I mentioned in the start of today's session, we launched a new group structure in the third quarter. We now operate through three global divisions, representing 14 core segments, which all will drive global sales and delivery. This has been a key milestone, simplifying our operating model and paving the way for profitable growth. During the quarter, we also intensified our efforts to improve utilization and to structurally address our cost base. As a part of this, we continue to execute on our restructuring agenda, which remains on track and will proceed as planned through the second quarter of 2026. We have also reviewed our existing incentive structure, and we took action to align and harmonize them. This will reduce complexity and suboptimization and ultimately drive group performance. And finally, strategies for each global division and segment are now in place, which provides a strong foundation to deliver on our strategic ambitions going forward. And even if we are still in the initial stage of our strategy execution journey, it's encouraging to see the progress we are making. As we finalize our group strategy and have the organizational foundation in place, we are ready to fully move on to strategy execution. We will share more details about this at our upcoming Capital Markets Day. In parallel, we are progressing according to plan with the implementation of the fit-for-purpose operating model while continuously working to address operational efficiency and our cost base. And as mentioned, we are looking forward to welcoming you to our Capital Markets Day on November 4, where we will be presenting our new strategic direction and our plans ahead. I'm excited to meet many of you there and to good discussions and insights. And with that, let's open up for the Q&A session. Linda Palsson: [Operator Instructions] And let's start with Raymond Ke from Nordea. Raymond Ke: A couple of questions from me. I'll take them one by one. The short-term regional differences in energy, could you elaborate a bit in terms of whether it's due to market, certain customers being hesitant, or where you are in these projects? Any color to help us understand sort of how long this might persist would be helpful. Linda Palsson: They are related to wind, solar, and partly to thermal, and it's mostly related to the Nordic region. We don't expect it to be that long-term. We see it more as a temporary bump, but there are delays in some investment decisions from clients in the Nordic market. On the other hand, on the same segments, we see a strong growth in Asia in the same segment. Raymond Ke: And regarding your restructuring plans ahead then, which, of course, may impact personnel. How many FTEs or how should we think about this when we compare sort of consultants against back-office employees? What's the sort of share of headcount reduction distribution there? Bo Sandstrom: Well, I'll provide some light on it, and then hopefully, you get even more light when we come to CMD. We haven't provided guidance on that split. But like we elaborated last time, Raymond, you will have a split between different kind of redundancy costs coming out from this restructuring. There will be a part that is more on a managerial level. There will be a part that is more based on the support structure of the company, and then there will be an operational part as we move ahead into the restructuring efforts. We experienced that in Q2. We see it again in Q3, and we'll elaborate a bit further when we come to CMD. Raymond Ke: Looking forward to that. And just one final one. On the new incentive structure that you talked about there briefly, could you maybe just clarify how was it before and why you expect it maybe to make a major difference or where you expect it to make a difference this time around? Linda Palsson: As we talked about before, now when we have deep dived into our organization and the setup and our ambition to simplify, we actually saw that we had a lot of different incentive structure programs that were somewhat contradictory to each other. So, by harmonizing this, this will drive our efficiency, it will drive internal mobility. And ultimately, it will support the development of Afry. Then we'll open up for Johan Dahl from Danske Bank. Johan Dahl: Just on this -- interesting to hear that you finalized the plan for the new divisions here to sort of improve the margins. I presume that's some sort of multiyear progression to achieve financial targets. And the question is, you have been quite clear on cost-out actions in the near term, the coming 12 months. But what other buckets do you identify in this plan to sort of drive towards financial targets? If you could just broadly outline those. Linda Palsson: I can start. Yes, of course, we have the cost side, but we also have the revenue side. And here, I mean, our sales effort is paving the way for that. As you have heard over the last quarters, we have been quite successful in securing important contracts going forward, and we are building our order backlog. And this will continue. So we've continued to put a lot of efforts into our sales force and also to our structured key account approach. And this is evident that this is a way forward for us. So that's related, I would say, to the revenue side and our structure going forward. And then maybe you should comment, Bo, on the other initiatives. Bo Sandstrom: No, I can just add to it. I mean, ever since we started the work with the next chapter of Afry that we will present in just a couple of weeks, it has been clear that it's a multi-component effort that we're working on, kind of starting in sense with the clients and the commercial aspect of the business that we're doing, but also looking at what is actually the portfolio and how do we structure that and then leading into the operating model and the cost-out actions that you are referring to. So it is a multifaceted, and we'll do our best to explain that in better detail also on CMD. Johan Dahl: Do you see currently -- you talked about positive pricing in the operations. But can you see currently in the order book proof of concept that the sort of intense -- you start talking about improving the order book quality quite some time ago. Can you see that for a fact now that's having an effect? Or is that still something you expect going forward? Bo Sandstrom: Yes, I'll elaborate a bit. It is tricky. I mean the order book is, of course, a very long-term -- it's a very long-term order book, particularly given what we do and the length of many of our large projects. At the same time, the market is developing and the market is developing fairly short-term in that sense. So it's that combination. But of course, we're happy with the order book and the profitability margin in it, and the steps that we're taking towards a better profitability through the order book. But it's really difficult to see, in a sense, quarter-by-quarter, the development. But over time, we're happy with where we are also compared to 1 or 2 years ago when we started talking about these things. Johan Dahl: Final question. Just the increase, 5%, 6% FX adjusted on the order book, when will that translate to revenues, do you think? Or when would you see that inflection point on reported revenues? Linda Palsson: I start, yes. Yes. And that is exactly the tricky ones, as the order book contains of large projects over many years, and it's also very short-term. So of course, we see that continuously, we will improve, but it's difficult to say exactly what kind of revenue is converted from the order book in Q4, for instance. So -- but we see a slight improvement quarter-by-quarter. Next question is from Fredrik Lithell from Handelsbanken. Fredrik Lithell: Maybe a follow-up on Johan's question there. The order book, is it broad-based the development? Or is it sort of very narrow in certain pockets of exceptionally good demand? Or how does that look? Linda Palsson: No, I would say it's broad. We present the differences between our new 3 global divisions here. But you can see that there are some differences. And of course, that Energy, for instance, had relatively stronger order book than the others. But I would say with -- it is a broad base that we have in our order book. So it's no segment that is without orders. Fredrik Lithell: Another question is on sort of your support platforms. You have earlier, and we have talked at length many times before about your upgrades of CRM, HR, ERP, maybe billing systems, maybe something else. Where are you on that route? And how big of an impact have you had so far in better being able to follow your trends, offboarding, onboarding, billing rates, and what have you. So it would be interesting to hear you elaborate. Bo Sandstrom: Yes. It is a broad question, Fredrik. But we come quite a bit on that journey. It is a long-term journey because, like you said, it involves kind of several parts of the company. It's not just a one system, and then you can measure how far you are progressing. It's a combination of different things. I would say that we're more than halfway in that sense, but we still have a bit to go kind of to get to fully there. And successively, we're getting -- I would say that in the phase where we are right now, we're getting better and better transparency. We're shifting into the part where we can also translate the transparency to efficiency and improvements. But that is also kind of a gradual shift, if that is elaborating a bit on your wide question. Fredrik Lithell: Yes, yes, it's very helpful. And on that, just a follow-up, do you have any sort of heavy lifting? Are there any specific big steps in this project in any way? Or is it really just a gradual work every day? Bo Sandstrom: It is, to a large extent, from an overall perspective, it is a gradual work. Then, of course, we have internal milestones that we are kind of kicking off as we go. But from kind of from an investment and cost perspective, we're not expecting any significant effects kind of shifting upwards that will be material for the group as such. Linda Palsson: Thank you, Fredrik. Then we welcome Johan Sundén from DNB, Carnegie. Johan Sundén: A few questions from my side as well. I think, firstly, a little bit curious to hear some kind of high-level comments on the kind of sentiment within the organization. How has voluntary employee turnover developed over the summer? How is commitment among employees? Just curious to hear those kind of feedbacks. Linda Palsson: Thank you. That's a good question. I would start by saying it was a big shift for us of what we are doing. With that said, I think it's quite logical and well understood why we're doing it. So there's a lot of commitment within the organization towards our new strategic direction. But of course, when you are impacted directly, there will be some additional question marks. So it's not all sort of 18,000 super happy. But I would say the overall direction is good, and we have our employees with us on this journey. The second one was related to the employee turnover. Was that right? Yes. Actually, we haven't seen any sort of negative development on that. So it's in line with what we have seen the last quarters. So no change there. Healthy level. Johan Sundén: And also on the kind of more of an HR place, maybe the leadership within Transportation places, where are we in the process there? Linda Palsson: Yes. So Robert Larsson will do his last day here at AFRY, the 31st of October. And then from 1st of November, we have an acting solution in place, Tuukka Sormunen, who will take on the division as acting. And we are in the final stages of the recruitment process for the successor. Johan Sundén: And then maybe a little bit of a nitty-gritty question for Bo. Firstly, on the order backlog, and there's been pretty negative news flow regarding the forestry sector in the Nordics recently. Should we be worried for cancellation or those kind of things that could impact the order backlog going into Q4? Bo Sandstrom: No, I wouldn't be particularly concerned, Johan. I mean you're right. We're not floating a lot of positive news now, but we haven't really had that positive news flow over the last couple of years. So we're not necessarily looking at a large order backlog that is particularly exposed. So I don't see a big kind of downside risk on that from where we are right now. Johan Sundén: That's encouraging. And then 2 small nitty-gritty questions. Firstly, on working capital. If it's just possible, been a busy reporting day, I haven't had time to go into all the details, but can you please go through the dynamics between the kind of how you come with such good working capital release in this quarter? Bo Sandstrom: Yes. I mean you're right. We had a healthy working capital flow on an overall perspective, particularly if you look at a normal Q3 for us, it was a bit stronger this year than it was in a normal year. We don't have a big reason for it to present in that sense. You should expect that, that would be more seasonal swings also, then looking at how Q3 is normally then composed, then this could very well kind of have a contradicting effect in Q4. That's how it's normally played out. But it's nothing out of the ordinary in that sense, more referring to seasonal swings that we saw in a positive way, of course, in Q3. Johan Sundén: And on overhead cost, which has trended a little bit higher first quarter this year, I think you mentioned in Q1 that there was some intra-year phasing that pushed that up a little bit in Q1. Should we expect very low overhead cost in Q4 then? Or how should we think there? Bo Sandstrom: I mean we're clearly -- I mean, now we closed Q3, so we're pretty far into the year. So as been seen throughout the year, we will expect -- I mean, you should expect a higher full year than last year. That's pretty evident where we are kind of 3 quarters out. Looking at Q3 specifically, then the main rationale for the year-over-year is we have -- we carry a very high activity level currently, or particularly during this year. That's one side of it. And then we have some currency-related effects that sneak into the net group cost that we report as well. But in general, I would more look at the activity level that we are carrying at this moment. Johan Sundén: And when should we kind of be ramping down to more normal levels? Is it '26? Bo Sandstrom: Yes. No, I don't necessarily see that. I mean, over the next few quarters, we will be looking at more normalized levels. That is to be expected. Then whether it will happen in Q4 or going into '26, too early to say. But this is not -- it's not a permanent level, I would envision. Linda Palsson: Next question is from Dan Johansson from SEB. Dan Johansson: Two additional ones. Linda, I think you spoke briefly on the billing ratio declined slightly versus the quarter last year, but perhaps less so than previously. And connecting this to the restructuring program, how do you think it's progressing versus the initial plan you had when you introduced it? I know it's a short period. And I assume you did not see much now in Q3, it's a summer quarter. But you have taken out SEK 120 million of restructuring costs now. So for Q4, if we look into that, do you expect to see some first positive signs in terms of utilization? Or will it take a bit longer to see the effect from that? Just so I get it right from a run rate level here going forward. Linda Palsson: I start? Yes. Our important topic of utilization rate. And actually, as you saw on both slides, this was actually the -- it was still lower compared to Q3 last year, but not as much lower as we have seen before. So that's why we say we see some early positive signs within the quarter, and we also see the end of the quarter going better. So we will keep our focus on this question during Q4 for sure and during next year. In terms of the capacity adjustments, that is ongoing at the moment. And as Bo said, we can also expect relatively more in Q4 from that adaptation, our capacity towards our current workload, and see that we get that right, and by that, also improving our utilization rates going forward. Bo Sandstrom: Just to add a bit on it. I mean we are progressing according to our plan, and we're seeing the effects that we expect in a sense so far. But still, also with the guiding of the restructuring program that we launched right before the summer, I mean, you're completely right. We just passed a summer quarter. And then looking at the SEK 200 million to SEK 300 million that we guided, we have just stepped into that bucket, so to say, in terms of restructuring efforts. So where we are right now, a bit early days still, but we are seeing the effects that we anticipate, but more to come. Dan Johansson: And maybe a final one, if I may. In the industry, I'm still a little bit stuck in the past on your old segment structure here. So just to improve my understanding, the industry margin uptick, is that mainly an effect of your Process Industry business, the Pulp and Paper part, I guess? Or is it more like a -- the local broader industry part you have in Sweden that's a little bit better than last year, i.e., the Industrial Digital Solutions, we look at your previous segment structure. What sort of the improvement here in the quarter? Bo Sandstrom: If you're talking about the order backlog, it's more related to the Process Industries part. If you're looking at the net sales development and the negative growth, it's more related to the historical the IDS part. Linda Palsson: Thank you, Dan. And those are the questions we had today. Super. So then we say thank you for today, and we look forward to talking to you again at the Capital Markets Day. Have a nice weekend.
Linda Palsson: Good morning, everyone, and warm welcome to our presentation of Afry's Q3 results. I will begin with some of the highlights from the quarter, and then our CFO, Bo Sandstrom, will provide a more detailed overview of the financials. So in the third quarter, we delivered stable results and improved our EBITA margin to 6.4%. We also saw a positive development of the order backlog, which increased 3.6% compared to the same period last year, or 5.3% when adjusted for currency effects. We achieved this despite a decline in net sales with a total year-over-year growth of minus 5.1%. Similar to what we saw in the second quarter, currency effect had a significant negative impact on sales. For Q3, it amounted to minus SEK 118 million. Sales volumes were also impacted by a challenging market we experienced in parts of our business, mainly in our global division Industry. The third quarter was also the first within our new group structure and our three global divisions. Under the new group structure, we have intensified our efforts to improve utilization and to structurally address the cost base. As part of this, we have continued executing on the restructuring agenda that we initiated during the second quarter. And for the third quarter, we report restructuring costs of SEK 31 million related to this, and they are classified as item affecting comparability. So to summarize, I can conclude that we have been able to deliver stable results despite a decline in net sales, and we continue our efforts to pave the way for profitable growth. Moving on then to the market, and let's start with Energy. We see a continued strong long-term demand across segments and on a global scale. Market activity is particularly high in areas such as transmission and distribution, hydro, and nuclear. At the same time, we are seeing some short-term regional variations. This is evident in areas such as thermal, solar, and wind power, where, for example, demand in the Nordics is currently somewhat slower. With that said, this kind of variations are expected over time for a growing and dynamic sector like the energy sector. For Global Division Industry, the demand remains mixed. We see that persistent global uncertainty continues to impact the overall investment sentiment in several segments. For example, in the Pulp and Paper, where the demand for new large-scale projects remains at low level. The slowdown in the Nordic industrial market is also impacted in the automotive segment. At the same time, we see strong market opportunities in areas such as defense and also within mining and metals, which is encouraging to see. And finally, in Transportation and Places, public investments in transport infrastructure and water remains at good levels across the regions. The investments are driven by large-scale infrastructure programs and increasing focus on climate and defense-related projects. At the same time, we see that demand in the Nordic real estate market remains at low level and is mainly driven by refurbishments and public investments. So now let's dive a bit into our new global divisions and their performance in the quarter, starting with Energy. We continue to see high project activity in several of our segments, which reflects the overall market that we experience in Energy. We report negative total sales growth in the quarter, which is impacted by significant currency effects of minus SEK 45 million as well as short-term regional variations in some segments. We keep profitability at a solid level of 9.8%, which is slightly lower than last year. Moving on to our Global Division Industry, a challenging market reflects the net sales development in some of our segments. Despite this, profitability improved year-over-year, and this is due to the ongoing capacity adjustments and the improved utilization in the quarter. In the second quarter, we announced the acquisition of Reta Engineering, a Brazilian company specializing in project and construction management services with a strong foothold in the mining and metal sectors. And in the third quarter, we completed the acquisition, and the numbers are consolidated into the Industry division as of September 1st. And finally, Transportation and Places. Here, we saw some sales growth in the quarter, which was driven by high activity in projects as well as improved attendance rates. Also on the EBITDA side, we continue to see positive development, driven by the continuous efficiency measures that we do in the division. I would also like to highlight some of our key project wins in this quarter. In the Mining and Metals segments, we were selected by the British mining company, Anglo American, to lead the pre-feasibility study for the Sakatti mining project in Finland. The mine is planned as a highly automated underground operation with low carbon footprint. And once operational, the mine will supply critical minerals that are essential for Europe's green transition. And Afry's strong expertise in sustainable engineering makes this a great fit. On the Energy side, we have signed a strategic framework agreement with Svenska Kraftnät, Sweden's national grid operator. This is the second of two recently announced agreements and covers technical consultancy and design planning services within transmission and distribution, which will strengthen Sweden's energy system. Svenska Kraftnät is one of our key clients in the Swedish energy market, and we are pleased to strengthen our partnership with them through these agreements. In Denmark, we have won a contract in the Road and Rail segment, covering comprehensive advisory services in intelligent traffic systems, traffic management, and emergency preparedness. With Afry's extensive experience in traffic engineering, this project is a great opportunity to deliver innovative and effective solutions that improve road user safety and mobility. And with these great projects, I would like to hand over to you Bo. Bo Sandstrom: Thank you, Linda. So I will cover the financials for Q3 2025. Quarter three showed net sales of SEK 5.7 billion and EBITDA, excluding IAC of SEK 362 million. On rolling 12 months, we are now at SEK 26.2 billion on net sales and remain right below SEK 1.9 billion on EBITDA. On the rolling 12 months development compared to 12 months ago, we carry significant negative currency and calendar effects, explaining approximately SEK 600 million on net sales and SEK 240 million on EBITDA. In Q3, with a net sales of SEK 5.7 billion, adjusted organic growth came in at negative 3.7%, where volume continued to be pressured by capacity adjustments during the last quarters. As previously, the decline in volume was partially compensated by positive pricing. For Q3, we continue to see higher average fees, although at a somewhat lower level than the last number of quarters. Total growth is reported at minus 5.1%, affected also by FX movement from a strengthened SEK compared to last year. The negative adjusted organic growth in Q3 was sequentially lower, and global divisions, Energy and Industry, both saw lower growth levels. In particular, Industry experienced a challenging market and continued capacity adjustments pressure growth rates. In Q3, Industry also saw show lower sales of material than last year, affecting the quarterly growth. Transportation & Places showed sequential improvement, mainly driven from the Road and Rail segment. The order backlog continued to develop favorably and is reported at SEK 20.4 billion, improving to last year, but somewhat lower sequentially. Currency adjusted, the backlog has improved 5.3% to last year with improvements primarily from Global Division Industry. The Energy division maintained the largest order backlog in relation to net sales at a level in line with last year, but improving 3.7% adjusted for currency effects. EBITDA excluding IAC is reported at SEK 362 million, and the EBITA margin was at 6.4%. Calendar affects EBITA with plus SEK 15 million and the EBITA margin with plus 0.2% to last year, so that calendar adjusted margin was marginally better than last year. Currency movements have marginal impact on the EBITA margin, but on absolute terms, we estimate a negative currency impact of SEK 13 million on EBITA compared to last year. Global Divisions Industry and Transportation & Places support the calendar-adjusted margin development of the group, while Energy reports the highest margin of the global divisions, but somewhat lower than last year in this quarter. We reported utilization of 72% for Q3 in line with the rolling 12-month level. Looking at the year-over-year development by quarter, we see that Q3 '25 is again behind last year, but with a decline at a lower rate than seen last two years. Utilization is a clear focus for Afry, and we are determined to turn the negative trend. We report SEK 31 million restructuring costs as items affecting comparability in the quarter. The restructuring costs again primarily relate to redundancies across the group. In the new group structure, we will continue to address our cost base as well as making portfolio optimization in quarters to come. And we reiterate our estimate of restructuring cost of SEK 200 million to SEK 300 million in the quarters from Q3 '25 to Q2 '26. We have not guided on phasing, but given that the cost levels were slightly lower in Q3, it is fair to assume that they will, on average, be higher for the upcoming quarters. Cash flow from operating activities in Q3 was stronger than last year. Available liquidity remained at SEK 3.8 billion. Net debt remained at SEK 5.1 billion, where the positive operating cash flow compensates completion of the acquisition of Reta Engineering that was completed during the quarter. On net debt to EBITDA, we remain at 2.9x. Normal seasonality would provide significant deleveraging in the last quarter of the year and take us to around or below our financial target of 2.5x. With that, I leave back to you, Linda. Linda Palsson: Thank you for that, Bo. So I would also like to say a few words on our next chapter and what we've achieved in the third quarter. So as I mentioned in the start of today's session, we launched a new group structure in the third quarter. We now operate through three global divisions, representing 14 core segments, which all will drive global sales and delivery. This has been a key milestone, simplifying our operating model and paving the way for profitable growth. During the quarter, we also intensified our efforts to improve utilization and to structurally address our cost base. As a part of this, we continue to execute on our restructuring agenda, which remains on track and will proceed as planned through the second quarter of 2026. We have also reviewed our existing incentive structure, and we took action to align and harmonize them. This will reduce complexity and suboptimization and ultimately drive group performance. And finally, strategies for each global division and segment are now in place, which provides a strong foundation to deliver on our strategic ambitions going forward. And even if we are still in the initial stage of our strategy execution journey, it's encouraging to see the progress we are making. As we finalize our group strategy and have the organizational foundation in place, we are ready to fully move on to strategy execution. We will share more details about this at our upcoming Capital Markets Day. In parallel, we are progressing according to plan with the implementation of the fit-for-purpose operating model while continuously working to address operational efficiency and our cost base. And as mentioned, we are looking forward to welcoming you to our Capital Markets Day on November 4, where we will be presenting our new strategic direction and our plans ahead. I'm excited to meet many of you there and to good discussions and insights. And with that, let's open up for the Q&A session. Linda Palsson: [Operator Instructions] And let's start with Raymond Ke from Nordea. Raymond Ke: A couple of questions from me. I'll take them one by one. The short-term regional differences in energy, could you elaborate a bit in terms of whether it's due to market, certain customers being hesitant, or where you are in these projects? Any color to help us understand sort of how long this might persist would be helpful. Linda Palsson: They are related to wind, solar, and partly to thermal, and it's mostly related to the Nordic region. We don't expect it to be that long-term. We see it more as a temporary bump, but there are delays in some investment decisions from clients in the Nordic market. On the other hand, on the same segments, we see a strong growth in Asia in the same segment. Raymond Ke: And regarding your restructuring plans ahead then, which, of course, may impact personnel. How many FTEs or how should we think about this when we compare sort of consultants against back-office employees? What's the sort of share of headcount reduction distribution there? Bo Sandstrom: Well, I'll provide some light on it, and then hopefully, you get even more light when we come to CMD. We haven't provided guidance on that split. But like we elaborated last time, Raymond, you will have a split between different kind of redundancy costs coming out from this restructuring. There will be a part that is more on a managerial level. There will be a part that is more based on the support structure of the company, and then there will be an operational part as we move ahead into the restructuring efforts. We experienced that in Q2. We see it again in Q3, and we'll elaborate a bit further when we come to CMD. Raymond Ke: Looking forward to that. And just one final one. On the new incentive structure that you talked about there briefly, could you maybe just clarify how was it before and why you expect it maybe to make a major difference or where you expect it to make a difference this time around? Linda Palsson: As we talked about before, now when we have deep dived into our organization and the setup and our ambition to simplify, we actually saw that we had a lot of different incentive structure programs that were somewhat contradictory to each other. So, by harmonizing this, this will drive our efficiency, it will drive internal mobility. And ultimately, it will support the development of Afry. Then we'll open up for Johan Dahl from Danske Bank. Johan Dahl: Just on this -- interesting to hear that you finalized the plan for the new divisions here to sort of improve the margins. I presume that's some sort of multiyear progression to achieve financial targets. And the question is, you have been quite clear on cost-out actions in the near term, the coming 12 months. But what other buckets do you identify in this plan to sort of drive towards financial targets? If you could just broadly outline those. Linda Palsson: I can start. Yes, of course, we have the cost side, but we also have the revenue side. And here, I mean, our sales effort is paving the way for that. As you have heard over the last quarters, we have been quite successful in securing important contracts going forward, and we are building our order backlog. And this will continue. So we've continued to put a lot of efforts into our sales force and also to our structured key account approach. And this is evident that this is a way forward for us. So that's related, I would say, to the revenue side and our structure going forward. And then maybe you should comment, Bo, on the other initiatives. Bo Sandstrom: No, I can just add to it. I mean, ever since we started the work with the next chapter of Afry that we will present in just a couple of weeks, it has been clear that it's a multi-component effort that we're working on, kind of starting in sense with the clients and the commercial aspect of the business that we're doing, but also looking at what is actually the portfolio and how do we structure that and then leading into the operating model and the cost-out actions that you are referring to. So it is a multifaceted, and we'll do our best to explain that in better detail also on CMD. Johan Dahl: Do you see currently -- you talked about positive pricing in the operations. But can you see currently in the order book proof of concept that the sort of intense -- you start talking about improving the order book quality quite some time ago. Can you see that for a fact now that's having an effect? Or is that still something you expect going forward? Bo Sandstrom: Yes, I'll elaborate a bit. It is tricky. I mean the order book is, of course, a very long-term -- it's a very long-term order book, particularly given what we do and the length of many of our large projects. At the same time, the market is developing and the market is developing fairly short-term in that sense. So it's that combination. But of course, we're happy with the order book and the profitability margin in it, and the steps that we're taking towards a better profitability through the order book. But it's really difficult to see, in a sense, quarter-by-quarter, the development. But over time, we're happy with where we are also compared to 1 or 2 years ago when we started talking about these things. Johan Dahl: Final question. Just the increase, 5%, 6% FX adjusted on the order book, when will that translate to revenues, do you think? Or when would you see that inflection point on reported revenues? Linda Palsson: I start, yes. Yes. And that is exactly the tricky ones, as the order book contains of large projects over many years, and it's also very short-term. So of course, we see that continuously, we will improve, but it's difficult to say exactly what kind of revenue is converted from the order book in Q4, for instance. So -- but we see a slight improvement quarter-by-quarter. Next question is from Fredrik Lithell from Handelsbanken. Fredrik Lithell: Maybe a follow-up on Johan's question there. The order book, is it broad-based the development? Or is it sort of very narrow in certain pockets of exceptionally good demand? Or how does that look? Linda Palsson: No, I would say it's broad. We present the differences between our new 3 global divisions here. But you can see that there are some differences. And of course, that Energy, for instance, had relatively stronger order book than the others. But I would say with -- it is a broad base that we have in our order book. So it's no segment that is without orders. Fredrik Lithell: Another question is on sort of your support platforms. You have earlier, and we have talked at length many times before about your upgrades of CRM, HR, ERP, maybe billing systems, maybe something else. Where are you on that route? And how big of an impact have you had so far in better being able to follow your trends, offboarding, onboarding, billing rates, and what have you. So it would be interesting to hear you elaborate. Bo Sandstrom: Yes. It is a broad question, Fredrik. But we come quite a bit on that journey. It is a long-term journey because, like you said, it involves kind of several parts of the company. It's not just a one system, and then you can measure how far you are progressing. It's a combination of different things. I would say that we're more than halfway in that sense, but we still have a bit to go kind of to get to fully there. And successively, we're getting -- I would say that in the phase where we are right now, we're getting better and better transparency. We're shifting into the part where we can also translate the transparency to efficiency and improvements. But that is also kind of a gradual shift, if that is elaborating a bit on your wide question. Fredrik Lithell: Yes, yes, it's very helpful. And on that, just a follow-up, do you have any sort of heavy lifting? Are there any specific big steps in this project in any way? Or is it really just a gradual work every day? Bo Sandstrom: It is, to a large extent, from an overall perspective, it is a gradual work. Then, of course, we have internal milestones that we are kind of kicking off as we go. But from kind of from an investment and cost perspective, we're not expecting any significant effects kind of shifting upwards that will be material for the group as such. Linda Palsson: Thank you, Fredrik. Then we welcome Johan Sundén from DNB, Carnegie. Johan Sundén: A few questions from my side as well. I think, firstly, a little bit curious to hear some kind of high-level comments on the kind of sentiment within the organization. How has voluntary employee turnover developed over the summer? How is commitment among employees? Just curious to hear those kind of feedbacks. Linda Palsson: Thank you. That's a good question. I would start by saying it was a big shift for us of what we are doing. With that said, I think it's quite logical and well understood why we're doing it. So there's a lot of commitment within the organization towards our new strategic direction. But of course, when you are impacted directly, there will be some additional question marks. So it's not all sort of 18,000 super happy. But I would say the overall direction is good, and we have our employees with us on this journey. The second one was related to the employee turnover. Was that right? Yes. Actually, we haven't seen any sort of negative development on that. So it's in line with what we have seen the last quarters. So no change there. Healthy level. Johan Sundén: And also on the kind of more of an HR place, maybe the leadership within Transportation places, where are we in the process there? Linda Palsson: Yes. So Robert Larsson will do his last day here at AFRY, the 31st of October. And then from 1st of November, we have an acting solution in place, Tuukka Sormunen, who will take on the division as acting. And we are in the final stages of the recruitment process for the successor. Johan Sundén: And then maybe a little bit of a nitty-gritty question for Bo. Firstly, on the order backlog, and there's been pretty negative news flow regarding the forestry sector in the Nordics recently. Should we be worried for cancellation or those kind of things that could impact the order backlog going into Q4? Bo Sandstrom: No, I wouldn't be particularly concerned, Johan. I mean you're right. We're not floating a lot of positive news now, but we haven't really had that positive news flow over the last couple of years. So we're not necessarily looking at a large order backlog that is particularly exposed. So I don't see a big kind of downside risk on that from where we are right now. Johan Sundén: That's encouraging. And then 2 small nitty-gritty questions. Firstly, on working capital. If it's just possible, been a busy reporting day, I haven't had time to go into all the details, but can you please go through the dynamics between the kind of how you come with such good working capital release in this quarter? Bo Sandstrom: Yes. I mean you're right. We had a healthy working capital flow on an overall perspective, particularly if you look at a normal Q3 for us, it was a bit stronger this year than it was in a normal year. We don't have a big reason for it to present in that sense. You should expect that, that would be more seasonal swings also, then looking at how Q3 is normally then composed, then this could very well kind of have a contradicting effect in Q4. That's how it's normally played out. But it's nothing out of the ordinary in that sense, more referring to seasonal swings that we saw in a positive way, of course, in Q3. Johan Sundén: And on overhead cost, which has trended a little bit higher first quarter this year, I think you mentioned in Q1 that there was some intra-year phasing that pushed that up a little bit in Q1. Should we expect very low overhead cost in Q4 then? Or how should we think there? Bo Sandstrom: I mean we're clearly -- I mean, now we closed Q3, so we're pretty far into the year. So as been seen throughout the year, we will expect -- I mean, you should expect a higher full year than last year. That's pretty evident where we are kind of 3 quarters out. Looking at Q3 specifically, then the main rationale for the year-over-year is we have -- we carry a very high activity level currently, or particularly during this year. That's one side of it. And then we have some currency-related effects that sneak into the net group cost that we report as well. But in general, I would more look at the activity level that we are carrying at this moment. Johan Sundén: And when should we kind of be ramping down to more normal levels? Is it '26? Bo Sandstrom: Yes. No, I don't necessarily see that. I mean, over the next few quarters, we will be looking at more normalized levels. That is to be expected. Then whether it will happen in Q4 or going into '26, too early to say. But this is not -- it's not a permanent level, I would envision. Linda Palsson: Next question is from Dan Johansson from SEB. Dan Johansson: Two additional ones. Linda, I think you spoke briefly on the billing ratio declined slightly versus the quarter last year, but perhaps less so than previously. And connecting this to the restructuring program, how do you think it's progressing versus the initial plan you had when you introduced it? I know it's a short period. And I assume you did not see much now in Q3, it's a summer quarter. But you have taken out SEK 120 million of restructuring costs now. So for Q4, if we look into that, do you expect to see some first positive signs in terms of utilization? Or will it take a bit longer to see the effect from that? Just so I get it right from a run rate level here going forward. Linda Palsson: I start? Yes. Our important topic of utilization rate. And actually, as you saw on both slides, this was actually the -- it was still lower compared to Q3 last year, but not as much lower as we have seen before. So that's why we say we see some early positive signs within the quarter, and we also see the end of the quarter going better. So we will keep our focus on this question during Q4 for sure and during next year. In terms of the capacity adjustments, that is ongoing at the moment. And as Bo said, we can also expect relatively more in Q4 from that adaptation, our capacity towards our current workload, and see that we get that right, and by that, also improving our utilization rates going forward. Bo Sandstrom: Just to add a bit on it. I mean we are progressing according to our plan, and we're seeing the effects that we expect in a sense so far. But still, also with the guiding of the restructuring program that we launched right before the summer, I mean, you're completely right. We just passed a summer quarter. And then looking at the SEK 200 million to SEK 300 million that we guided, we have just stepped into that bucket, so to say, in terms of restructuring efforts. So where we are right now, a bit early days still, but we are seeing the effects that we anticipate, but more to come. Dan Johansson: And maybe a final one, if I may. In the industry, I'm still a little bit stuck in the past on your old segment structure here. So just to improve my understanding, the industry margin uptick, is that mainly an effect of your Process Industry business, the Pulp and Paper part, I guess? Or is it more like a -- the local broader industry part you have in Sweden that's a little bit better than last year, i.e., the Industrial Digital Solutions, we look at your previous segment structure. What sort of the improvement here in the quarter? Bo Sandstrom: If you're talking about the order backlog, it's more related to the Process Industries part. If you're looking at the net sales development and the negative growth, it's more related to the historical the IDS part. Linda Palsson: Thank you, Dan. And those are the questions we had today. Super. So then we say thank you for today, and we look forward to talking to you again at the Capital Markets Day. Have a nice weekend.
Operator: Hello, everyone, and thank you for joining the Financial Institutions, Inc. Third Quarter 2025 Earnings Call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is now my pleasure to hand over to your host, Kate Croft, Director of Investor Relations, to begin. Please go ahead. Kate Croft: Thank you for joining us for today's call. Providing prepared comments will be President and CEO, Martin Birmingham and CFO, Jack Plants. They will be joined by additional members of the company's leadership team during the question-and-answer session. Today's prepared comments and Q&A will include forward-looking statements. Actual results may differ materially from forward-looking statements due to a variety of risks, uncertainties and other factors. We refer you to yesterday's earnings release and investor presentation as well as historical SEC filings, which are available on our Investor Relations website for a safe harbor description and a detailed discussion of the risk factors relating to forward-looking statements. We will also discuss certain non-GAAP financial measures intended to supplement and not substitute for comparable GAAP measures. Reconciliations of these measures to GAAP financial measures were provided in the earnings release filed as an exhibit to Form 8-K or in our latest investor presentation, available on our IR website, www.fisi-nvestors.com. Please note that this call includes information that may only be accurate as of today's date, October 24, 2025. I will now turn the call over to President and CEO, Marty Birmingham. Martin Birmingham: Thank you, Kate. Good morning, everyone, and thank you for joining us today. Our company reported strong third quarter 2025 financial results marked by balance sheet growth, robust revenue generation, improved profitability metrics and meaningful build of tangible and regulatory capital. Our teams delivered growth on both sides of the balance sheet, including loan growth of 1.2%, driven by commercial lending in our Upstate New York market and a 3.9% increase in total deposits as seasonal increases of public deposits were supported by growth of core nonpublic deposits in our commercial and consumer business lines. Record quarterly net interest income and increased noninterest income led to net income available to common shareholders of $20.1 million or $0.99 per diluted share for the third quarter. These earnings translated to return on average assets and equity of 132 basis points and 13.31%, respectively, both up notably from the linked and year ago periods. Based on our strong year-to-date performance, we are making several upward revisions to our full year 2025 guidance and tightening some ranges previously provided. Among these changes are updates to profitability metrics, including return on average assets and return on average equity. We now expect ROAA for the year to exceed 115 basis points, up from our previous guide of 110 basis points and an ROAE of greater than 12%, up from 11.25%. Given our team's continued execution, along with the opportunities we see in our markets across business lines, we would expect to raise the bar for profitability again next year as we target incremental improvement in returns through 2026. We laid out loan growth of between 1% and 3% at the start of the year amid an uncertain economic environment. Given the strength of our performance year-to-date, we expect to achieve the high end of this range. As a reminder, our loan growth guide also reflects our expectations for consumer indirect loan balances to remain relatively flat year-over-year. with growth being driven by our commercial franchise. To that end, total commercial loans of about $3 billion reflect an increase of 1.6% from June 30, 2025, and 8.3% from September 30, 2024. Commercial business loans increased 2% during the third quarter of 2025, reflecting both new originations and increased line utilization which may come down in the fourth quarter. Commercial mortgage loans were up 1.5% from the end of the linked quarter and up 8% year-over-year. Third quarter commercial growth was driven by our upstate New York markets, including C&I activity in the Syracuse region and CRE in Rochester. In the Syracuse market, we continue to see expanding opportunities fueled by Micron Technologies' $100 billion investment in our region. For example, our Syracuse team recently closed a notable deal supporting the expansion of medical office space within close proximity to Micron's Central New York semiconductor site. Our pipelines remain strong across upstate New York markets, and we believe that we'll be able to maintain momentum heading into 2026 and as pent-up demand for credit is likely to be released with future rate cuts. Turning to consumer lending. Our indirect portfolio rebounded nicely in the third quarter on the heels of softer second quarter originations. Consumer indirect balances of $838.7 million at September 30 increased 0.6% from June 30 and were down 4.1% year-over-year. As a reminder, we are a prime lending operation with more than 350 reputable new auto dealers across New York State. Credit extension is for individual vehicle purchases, not floor planned financing, and we stay within a well-defined credit box, resulting in a portfolio with a weighted average FICO store exceeding 700. This portfolio's small average loan size of about 20,000 provides natural risk dispersion. Residential lending was up modestly from the end of the linked quarter and flat to the year ago period. The housing market remains tight in the Rochester and Buffalo regions and home prices have continued to increase, particularly in Rochester. That said, new listings and inventory are up on a year-over-year basis in both regions, which is promising. Our pipelines also look healthy heading into the fourth quarter and mortgage and home equity applications are up 12% and 11% year-over-year, respectively. Turning to credit quality. Annualized net charge-offs to average loans for the quarter of 18 basis points were half the level we reported in the linked quarter and relatively in line with the 15 basis points recorded in the third quarter of 2024. In the third quarter, we recovered approximately $400,000 related to a previously charged off construction loan associated with a historic property in our Rochester market. Our consumer indirect charge-off ratio was 91 basis points in the most recent quarter, up seasonally from the linked period but down from the third quarter of last year. This remains comfortably within our historic range, reflecting the prime lending nature of our indirect business. While we experienced 2 basis point increase in our ratio of nonperforming loans to total loans to 74 basis points at September 30, 2025. This is down notably from 94 basis points 1 year ago. We continue to work through the 2 commercial relationships that have made up the majority of nonperformers for the past several quarters. The $1.5 million increase in total nonperforming loans during the third quarter relates to 4 smaller commercial loan downgrades, each in different industries and geographies facing unique issues. Accordingly, this is not indicative of a downward trend in our overall commercial loan asset quality. The overall health of both our consumer and commercial portfolios remained solid and reflects enhanced diversification over the years. Indirect auto balances and residential lending make up 18% and 16% of total loans, respectively. Our commercial portfolio is well diversified by loan type, client type and geography and does not include any lending to nondepository financial institutions. We have consistently employed strong fundamental underwriting processes and have experienced credit professionals working in separate credit delivery and relationship-based functions. That credit discipline is reflected in our low credit costs. We remain comfortable with our guided full year net charge-off ratio range of between 25 and 35 basis points and our current loan loss reserve ratio of 103 basis points. Period end, total deposits were $5.36 billion, up 3.9% from June 30, driven by seasonal increases in our public deposit portfolio and also reflective of growth in core nonpublic deposits. As a reminder, public deposits are sourced through long-standing relationships with more than 320 local municipalities and the balances peak in the first and third quarters. Total deposits were up a modest 1% from a year ago, reflecting an increase in broker deposits to help offset the BaaS platform wind down we initiated in September 2024. BaaS deposits were a modest $7 million at the end of the third quarter, and we now expect those to flow off the balance sheet in early 2026. We continue to expect total deposits at year-end 2025 to be generally flat with the prior year-end. It's now my pleasure to turn the call over to Jack for additional details on our performance and outlook. Jack Plants: Thank you, Marty. Good morning, everyone. Net interest margin expanded 16 basis points on a linked-quarter basis, reflective of improved yields on average earning assets alongside deposit repricing that supported reduced funding costs. Our active balance sheet management contributed to 11 basis points of improvement to investment securities yields largely related to the modest portfolio repositioning that occurred in June. Activity continued during the third quarter when we sold $22.3 million of 30-year fixed rate mortgage-backed securities with higher expected prepayment speeds, the proceeds of which were reinvested into investment-grade corporate bonds. As this small restructuring was completed in September 2025, we expect to see further benefit to investment security yields in the fourth quarter. Average loan yields increased 3 basis points as compared to the second quarter of 2025. As a reminder, approximately 40% of our loan portfolio is tied to floating rates with a repricing frequency of 1 month or less. We expect loan yields to decline slightly in the fourth quarter given the recent rate cut. Cost of funds decreased 11 basis points from the linked quarter as higher rate CDs matured alongside overall downward deposit repricing. Given our year-to-date results, we're tightening our expected range for full year net interest margin to between 350 and 355 basis points. This guidance includes the expectation for modest margin pressure in the fourth quarter, given recent FOMC activity, as deposit repricing lags loan repricing, given the adjustable percentage of the loan portfolio previously mentioned. That compression is expected to be temporary based upon deposit repricing assumptions. Looking ahead to 2026, we anticipate incremental margin improvement to be driven by changes in earning asset mix through loan growth, coupled with active management of our funding costs. Third quarter double-digit margin expansion supported strong net interest income of $51.8 million, up $2.7 million or 5.4% from the second quarter. Noninterest income was $12.1 million, up $1.4 million or 13.6% from the linked quarter, reflecting increases from several revenue streams. Investment advisory revenue topped $3 million, up 4.8% on a linked quarter basis. Courier Capital experienced positive net flows as new business and market-driven gains offset outflows pushing AUMs to $3.56 billion at quarter end, up $173.6 million or 5.1% from June 30. During the third quarter, we announced the opening of a satellite office in Sarasota, Florida. The office allows our wealth management firm to better serve existing clients who spend time in Florida, while also opening the door to new relationships in one of the nation's most dynamic retirement markets. Third quarter company-owned life insurance income was $2.8 million, down from $3 million last quarter. As a reminder, in the first quarter, we initiated a COLI restructuring and the redemption of the surrender policy proceeds from the carrier did not occur until June, contributing to higher levels of COLI revenue in the first half of the year. Swap fee income was up 150% to $847,000 as a result of increased commercial back-to-back swap activity during the quarter. We also recorded a net gain on investment securities of $703,000, primarily related to the modest restructuring we completed in September. We expect noninterest income, excluding gains or losses on investment securities, impairment of investment tax credits and other categories that are difficult to predict, such as limited partnership income to exceed our original guidance of up to $42 million for the year. Noninterest expense was $35.9 million in the third quarter compared to $35.7 million in the linked quarter. This remains somewhat elevated, largely due to higher claims activity in our self-funded medical plan that resulted in a $452,000 increase in salaries and benefits expenses. While we do have stop-loss insurance, given the level of claim activity that we've experienced to date, we expect this expense category to remain somewhat elevated in the fourth quarter. As a result, we now expect full year expenses to come in closer to $141 million, approximately 1% higher than our original guide of $140 million. Professional services expenses of $1.7 million were up $237,000 from the second quarter, driven in part by outsourced compliance review expense and third-party commissions on swap transactions. These increases were partially offset by lower occupancy and equipment expenses due to a change in facilities maintenance service vendors and timing of costs associated with an ongoing ATM conversion as well as lower FDIC assessments. The ATM conversion project is substantially complete, resulting in an upgraded customer experience and the associated expense is now substantially reflected in our run rate. The strength of our balance sheet and growth of our relationship-based business lines supported robust revenue expansion that has more than surpassed expense growth during the year. The year-to-date efficiency ratio of about 58% puts us solidly below the 60% threshold we were targeting this year. We remain intently focused on expense management as we finish 2025 and move into 2026 in order to maintain positive operating leverage and a favorable efficiency ratio. Considering the strength of earnings from the first 9 months of the year, we are narrowing the range for our expected effective tax rate to between 18% to 19% for 2025, including the impact of the amortization of tax credit investments placed in service in recent years. We've been keenly focused on our capital stack as evidenced by the refreshment of our share repurchase plan during the quarter. We are also carefully considering our options relative to the outstanding sub debt given the repricing of both tranches that occurred in 2025. We are comfortable with our capital position, especially given the improvement in both our TCE and regulatory ratios in the third quarter. TCE improved to 8.74% and common equity Tier 1 increased to 11.15%, given organic increases in common equity through strong earnings, coupled with active management of our balance sheet and risk-weighted assets. Overall, our prudent balance sheet management, credit disciplined loan growth and resilient noninterest income has supported strong revenue generation and positive operating leverage. I am proud of our team's execution, strength of our operating results and the corresponding growth across tangible equity and regulatory capital ratios. That concludes my prepared remarks, and I'll now turn the call back to Marty. Martin Birmingham: Thanks, Jack. Our third quarter results demonstrate our capabilities and reinforce our excitement and optimism about the opportunities ahead. Profitable organic growth remains a top priority, and we believe that our year-to-date momentum will support a strong finish to 2025 and drive incremental performance in 2026. I would like to thank you for your attention this morning. Operator, this concludes our prepared remarks. Please open the call for questions. Operator: [Operator Instructions] The first question comes from Damon DelMonte of KBW. Damon Del Monte: First question, just regarding the margin and the outlook. Jack got the commentary here in the fourth quarter kind of being down modestly. Can you just kind of give us a little perspective if we have a couple of rate cuts this quarter, kind of when you would expect the margin to bounce back in '26? I mean is it kind of a step down this quarter and then a catch-up going into '26 with some kind of a grind higher? Or how do you think about the margin? Martin Birmingham: Yes. We've been fairly aggressive with some of our deposit repricing. We demonstrated that in the fourth quarter of last year. We made some changes right at the end of September. And with the expectation that there's going to be a cut this month in October, we're preplanning for adjustments there. So our guided range that we provided for full year margin, just given that there's -- it's late in the year would have -- a rate cut would have a modest impact to the full year guide. We'd still hold on that guidance potentially at the bottom end of the range. But I would expect that going into 2026, our jumping off point would probably be somewhere around 3.60%. Damon Del Monte: Got it. Okay. And then from there, you think it can kind of grind higher as you continue to benefit from new loan production and repricing of other fixed rate loans and continued management on the cost of fund side? Martin Birmingham: That's correct. Damon Del Monte: Okay. Great. And then just second question here on the buyback. Kind of good to see capital levels growing valuation still remains right around tangible book value. What are your thoughts on getting a little bit more active in the buyback and supporting the shares a little bit? Martin Birmingham: Well, we're pleased that our Board approved the buyback. It's another option that we have to support the shares and invest in ourselves, and we look forward to updating the market, Damon, when activity occurs. Damon Del Monte: Okay. Great. And if I could just sneak one more in on the loan growth. It sounds like you seem a little bit more optimistic today than you did maybe a quarter or 2 quarters ago. How do you look at maybe coming out of '25 and into '26, do you think you can kind of get back to that mid-single-digit rate of net growth? Jack Plants: This is Jack. I can take that one. So we're in the stages of building out our financial plan for 2026. Certainly, our experience we've had lately at the tail end of 2025 has been encouraging. I think that high -- or mid-single-digit growth, as you can is appropriate for modeling purposes. Operator: We currently have no further questions. So I'd like to hand the call back to Marty for any final and closing remarks. Martin Birmingham: Thanks to everyone who called in this morning. We look forward to continuing the conversation next quarter. Have a wonderful weekend. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Hello, and welcome to the Gjensidige's Q3 2025 Results Presentation. My name is Serge and I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Mitra Negård. Head of Investor Relations, to begin today's conference. Thank you. Mitra Negård: Thank you. Good morning, everyone, and welcome to our Third Quarter Presentation of Gjensidige. As always, my name is Mitra Negård, and I'm Head of Investor Relations. As always, we will start with our CEO, Geir Holmgren, who will give you the highlights of the quarter; followed by our CFO, Jostein Amdal, who will run through the numbers in further detail. And we have plenty of time for questions after that. Geir, please. Geir Holmgren: Thank you, Mitra, and good morning, everyone. The third quarter saw a relatively stable weather in our region. However, earlier this month, Storm Amy reminded us of the growing impact of climate change and extreme weather, affecting large parts of Norway and areas in Denmark. The storm caused significant property damage through strong winds, once again, testing our organization's resilience. In preparation for the event, cross-functional teams across the organization were mobilized to ensure customer safety and uphold the consistently high standards of service. Billion lessons from past events, we have streamlined our processes for faster, more effective support. According to the Norwegian Natural Perils Pool, over 11,000 claims have been registered in Norway with total industry-wide insurance losses from Natural Perils estimated at NOK 1.5 billion to NOK 2.1 billion. Additional claims for cars, boats and water-related incidents fall in a separate insurance schemes. You can see this total claims cost for Amy in Q4 2025 is estimated at approximately NOK 400 million net of reinsurance and including reinstatement premiums. With the emergency phase behind us, the focus is now on supporting our customers in repairing and replacing what has been damaged. Events like Amy highlight the need for continued climate risk preparedness, the insurance industry remains committed to prevention, collaboration with the municipalities and developing solutions that reflect the changing risk landscape. So now let us turn to Page 3 for comments on the third quarter results. We delivered our profit before tax of NOK 2,067 million. This result includes a nonrecurring expense of NOK 429 million related to the termination of the new core IT system in our pension business. We generated a general insurance service results of NOK 2,271 million, significantly up year-on-year. Our strong growth momentum continued in the quarter with 11.3% increase in insurance revenue when adjusted for the positive effect of the change in recognition of home seller insurance. The combined ratio declined to 79.7%, reflecting the improvements in both loss and cost ratios. The underlying frequency loss ratio improved by 1.4 percentage points and our investment generated returns of NOK 534 million, contributing to delivering a solid return on equity of 29.6%. We have a solid capital position and our solvency ratio was 191% at the end of the quarter. Jostein will revert with more detailed comments on the results for the quarter. Turning to Page 4. I will start with private property insurance in Norway, which sold lower profitability this quarter, reflecting the inherent natural volatility in claims. Claims frequency increased by 5%. Repair costs increased by 4%, in line with our expectation. We continue to implement price increases, although at a more moderate level, reflecting the outlook for inflation and frequency and the current profitability level. Average premiums increased by almost 16%, over the next 12 to 18 months, we expect the repair cost to remain within the range of 3% to 5%, and we will continue to price at least in line with expected claims inflation. Our current average rate of price increases of private property in Norway is 12.5%. So moving over to private motor insurance in Norway. Profitability for this product line improved over the same quarter last year, thanks to our targeted pricing measures. Claims frequency increased by 4%, reflecting an elevated claims level in July, likely as a consequence of the good weather and high traffic density in the vacation weeks. We estimate that the increase in the underlying claims frequency was in the range of 1% to 2%, repair costs increased by 4.4%, well within our estimated range. Average premium increased by 18.6%, although inflationary pressures are easing. The overall level is likely to remain within the 3% to 6% range for the next 12 to 18 months. We are monitoring the key drivers closely and acknowledge the uncertainty stemming from, among others, geopolitical risk and escalated trade tensions. Our current average rate of price increases of private motor in Norway is 13%. Moving on to Page 5. The strong performance in Norway continued this quarter, driven by sustained growth momentum and focus on efficient operations. We are very pleased to see that our retention rates for both the private and commercial portfolios, remain at a very high levels despite the necessary price increases. Sales activity has been strong, leading to an increase in both customer numbers and volumes for private in Norway. We continue to maintain strong competitiveness in the SME part of the commercial market with strong focus on profitability as we move closer to the January renewals. In Denmark, profitability improved for the private portfolio with solid revenue growth driven by both volume and pricing. Profitability for the commercial portfolio was lower, reflecting the inherent variability. We are satisfied with the underlying developments. The implementation of our new core IT system in Denmark is progressing steadily, supported through our testing and a strong focus on quality. Sales are being rolled out gradually, and we are preparing for the migration of the portfolio next year. We are seeing clear benefits from the experience gained during the implementation and use of the system in the private portfolio. And I'm pleased to see that our Swedish operation continued to build on positive momentum, showing sustained progress through solid growth and improved profitability. We are currently conducting a thorough assessment of the core IT system in Sweden, taking into account the specific characteristics of our operations in that market. Over to Page 6. We continue to actively pursue our strong sustainability ambitions. As shown on this slide, we have launched a number of innovative initiatives that are designed to create significant customer value, while reducing claims costs over time. So with that, I will leave the word to Jostein to present the third quarter results in more detail. Jostein Amdal: Thank you, Geir, and good morning, everybody. I will start on Page 8. We delivered a profit before tax of just over NOK 2 billion in the third quarter. The insurance service result increased significantly to NOK 2,271 million, driven by continued strong top line growth and a lower loss ratio. A further decrease in the cost ratio also contributed to higher results. Private delivered a higher result driven by both Norway and Denmark. The improvement in Norway mainly reflects revenue growth across all products, improved profitability for motor insurance and a lower cost ratio. And nonrecurring effect related to home seller reinsurance also added to the result. The positive development in Private Denmark was driven by a combination of revenue growth for all main products, higher profitability for property and motor insurance and a lower cost ratio. Decrease in results from commercial was driven by our Norwegian portfolio due to revenue growth for all products, improved profitability for Accident & Health, motor and property insurance and a lower cost ratio. Higher runoff gains also contributed positively. Our Danish commercial portfolio showed lower results, primarily driven by a higher number of fires impacting property insurance and lower run-off gains. In Sweden, the increase in insurance service result mainly reflected higher profitability for private and commercial property and private payment protection insurance. Our lower cost ratio also contributed to the improved results. The pension segment reported a loss of NOK 414 million, largely related to the nonrecurring expense of NOK 429 million related to the termination of the core IT system. The net result from our investment portfolios amounted to NOK 441 million in the quarter with positive returns from all asset classes. The negative development in the result under other items this quarter is attributable to profits from Natural Perils insurance transferred to the Natural Perils Pool and provisions related to the termination of cooperation agreements with 7 fire mutuals, effective from next year. We are taking proactive steps to secure our market position in the affected areas, and we expect only a limited impact on revenue. The result from our Baltic business is recorded as discontinued operations, pending regulatory approval for the sale. We expect to close the transaction in the beginning of next year. The higher result reflects the write-down of goodwill related to the sale of the company recognized in the third quarter last year. The insurance service result also contributed positively driven by an increase in runoff gains and lower loss and cost ratios. Turning over to Page 9. Our strong growth momentum continued in the third quarter with insurance revenues for the group increasing by more than 11% in local currency when adjusting for the nonrecurring effect in Private Norway. I'm very pleased with the increase, which was mainly driven by pricing measures across the private and commercial portfolios in all geographies, solid renewals in the commercial portfolios and higher volumes in Denmark and Sweden. The growth in our Private segment was driven by both Norway and Denmark. Private Norway showed a strong growth momentum even when excluding the home seller insurance product. This strong development was primarily driven by price increases in all main product lines. And I'm very pleased that we also saw increased volumes from motor, property, travel and accident and health insurance. The growth in Denmark was also strong, thanks to both price increases and higher volumes for all main products. Growth in commercial was also driven by both Norway and Denmark. In Norway, the growth was driven by price increases for all products and solid renewals. As in the previous quarters, this year, growth for some products within accident insurance was muted due to continued focus on profitability improvements. Growth in Commercial Denmark was good. Adjusting for an accrual last year, the growth rate was 6.4% in local currency, driven by price increases for all main products and higher volumes for property, accident & health and liability insurance. Growth in Sweden was negatively impacted by accruals. The underlying growth, however, was good, mainly reflecting higher volumes for leisure boat insurance in the private portfolio and higher volume and price increases for commercial motor and private property insurance. Turning over to Page 10. I'm very pleased with the development in the Group's loss ratio, which improved by 3.2 percentage points compared with the third quarter last year. Part of the improvement was due to lower large losses, which are random in nature. Another important driver was the improvement in the underlying frequency loss ratio of 1.4 percentage points. I'm very satisfied with the development in all the segments and particularly encouraged by seeing an improvement for Private Denmark. Let's turn to Page 11. Our commitment to operational efficiency remains strong. The group's cost ratio was 10.8% this quarter. The 1 percentage point improvement was driven by private in Norway and Denmark, commercially in Norway and the Swedish operations. We continue to strengthen our competitiveness, particularly in Denmark, and we're working to optimize our cost base across the group to create greater capacity for future investments in technology and growth. Over to Slide 12 for comments on our pension operations. Our pension business delivered a pretax loss of NOK 414 million this quarter, significantly impacted by the nonrecurring expenses from discontinuing the new core IT system project. For the time being, we will continue using the existing core system as recent improvements have enabled us to extend its operational life span. The underlying development in results for our pension business is good. Business volumes for the insurance products were high this quarter, which together with price increases lifted insurance revenue. Adjusted for the nonrecurring termination expense, the insurance service results improved year-on-year, but it was still in the red, due to asymmetric recognition of onerous contracts and expected future profits from new contracts. Net finance income contributed with just over NOK 1 million this quarter, reflecting running yield and higher interest rates. The unit-linked business continues to grow with a number of occupational pension members increasing by 5,500 to almost 335,000 at the end of the third quarter. Assets under management rose by NOK 4 billion to NOK 100 billion. This drove an increase in administration fees and management income, improving the net income from the unit linked business when excluding the nonrecurring item. Moving on to the investment portfolio on Page 13. Our investment portfolio generated positive returns for all asset classes, driven by running yields, lower credit spreads and positive equity and real estate markets. The match portfolio net of unwinding and the impact of changes in financial assumptions returned around 40 basis points, mainly reflecting lower credit spreads and the fact that the investments did not fully match the accounting-based technical provisions. The free portfolio returned 110 basis points, reflecting positive returns from all asset classes. The risk in our free portfolio remained low. A few words on the latest development of our operational targets on Slide 14. The customer satisfaction score is measured annually in the fourth quarter. We continue to identify measures and take steps to maintain a strong customer offering and high customer satisfaction. As Geir mentioned, retention in Norway remained high and stable. Retention outside Norway improved slightly during the quarter, with increases seen in Sweden and the private and commercial portfolios in Denmark. We are steadily progressing toward our 2026 target of achieving a retention rate above 85% outside Norway. The improvement in the digital distribution index this quarter reflects an increase in digital sales and digital customers, somewhat offset by a decline in digital service. Distribution efficiency is progressing well, primarily as a result of higher sales in Norway, but also in Denmark. Increased sales following the acquisition of Buysure contributed positively, improving this metric by 2 percentage points. Digital claims reporting increased during the quarter driven by Denmark and Sweden, and automated claims in Norway increased as well. Now over to Page 15 and a few words on our successful Tier 1 bond issue of NOK 1.2 billion in September. We aim to take advantage of what we viewed as attractive market condition, while also preparing for the first call of another Tier 1 bond in April next year. The issue was substantially oversubscribed, and we are very satisfied with the floating rate coupon of 3-month MBR plus 215 basis points. We also took the opportunity to buy back NOK 487 million of the Tier 1 bond with the upcoming call, resulting a net increase of NOK 713 million in outstanding Tier 1 capital. Over to Page 16. We had a solvency ratio of 191% this quarter, up from 182% in the second quarter. Solvency II operating earnings and returns from the free portfolio contributed positively total eligible own funds, while the formulaic dividend which corresponds to a payout rate of 80%, reduced eligible loan funds by NOK 1.3 billion this quarter. The net increase in Tier 1 capital, I just mentioned added NOK 713 million to the eligible own funds. The capital requirement increased slightly this quarter, primarily due to growth in our pension business. The non-life underwriting risks were stable, reflecting growth, offset by the effect of settlement of larger claims and changes in currency rates. And with that, I hand the word back to Geir. Geir Holmgren: Thank you. To sum up on Page 17, we are very pleased with the performance and continued progress across the private, commercial and Swedish segments this quarter. And our capital position is strong. We continue to implement measures and maintain a strong focus on operational efficiency, progressing well toward delivering on our financial targets this year and in 2026. So finally, on Page 18. Before we open for questions, I'm very happy to announce that we have set a date for our next Capital Markets Day, which will be held on the 26th of February next year in Oslo. We are looking forward to this opportunity to speak about our ambitions and plans. We will provide more details in a while. But in the meantime, please save the date. And with that, we will now open the Q&A session for this presentation. Operator: [Operator Instructions] Our first question is from Hans Rettedal from Danske Bank. Hans Rettedal Christiansen: So my question is around the claims frequency numbers that you gave in motor and property. And I guess there's a lot of sort of volatility, especially between Q2 last quarter and Q3 this quarter with quite a sizable effect on the overall claims outcome. So I was just wondering if you could give a little bit more color on your confidence that sort of frequency will come down and also perhaps just a bit more elaboration on what was driving the July pickup in motor and also in property? And just a very small question on the amounts recovered from reinsurance, which is lower than it typically is of only NOK 12 million this quarter. I know there's nothing typical about reinsurance, but still any help on why this is or sort of drivers behind it would be interesting to hear. Operator: We'll now move to our next question from Ulrik Zürcher from Nordea. Geir Holmgren: Operator, we'll try to answer the question first, please. Hans I can start with the claims frequency volatility. As you know, we are -- have an improvement when it comes to online compared this quarter to the third quarter last year. We see an improvement both on the group level and private and commercial and also in the Swedish operations. When it comes to volatility within the Norwegian part of the business, we see in the property side, more fires this quarter than you normally see. So it's also a kind of impact on some level of volatility, which is a part of our business from quarter-to-quarter. In addition, we saw a pickup, as you mentioned, on the motor side in the start of the third quarter. That's more due to higher frequency in July due to higher traffic density vacation weeks with this time tended to be more have a kind of an impact on the frequency side when it comes to motor. We do have quite high pricing measures, as mentioned in the October renewal. We see pricing measures, both for property and motor in Norway with renewables on 12.5% to 13% price increases on average, which is still above what we expect when it comes to frequency development and inflation going forward. Jostein Amdal: Yes. On the reinsurance recoveries, comment on specific claims. There is -- there has been a reduction of the estimates from some previous large claims, which have been above the retention limits. And that has then an effect that assumed the reinsurance recoveries will come down. So they're kind of -- if you have -- I try to explain it more clearly, if you have a reduction in a large claim estimate with no net effect because they have a reduction in gross claims and a reduction in assumed reinsurance recoveries. And that's the main reason why it's such a low number in the third quarter. Was that clear, Hans? Hans Rettedal Christiansen: Yes, very clear. Operator: Our next question is from Ulrik Zürcher from Nordea. Ulrik Zürcher: Just a short one. Jostein, when you say limited effects from the fire mutuals. Is it possible to -- like how much is that of premiums? And then secondly, just a technical one. You're trying to switch on profits to the Natural Perils Pool. I was just wondering, how will this work going forward? Jostein Amdal: Okay... Ulrik Zürcher: Is it like a quarterly thing or? Jostein Amdal: Yes. I get the question. The fire mutual there's a limited effect on the future development because there is -- this is -- first of all, this is a situation we also had 5 years ago when we had the termination of a number of fire mutuals as well. And it's then the fire mutuals have sold fire insurance in their own account, and then they have had been an agent on -- for all of the products for Gjensidige. And so we have both the fire mutuals and Gjensidige has had the customer relationship. And of course, we will be competing for the same customers. And we do expect a limited negative development on the premium development from this. So we will be strengthening our efforts within these geographical areas where these fire mutuals have operated. Yes. Geir Holmgren: If you talk about the impact on the profitability, I will also mention that because that's due to kind of agent distribution setup. We also definitely reduced expenses going forward regarding distribution. So we improved the distribution efficiency when it comes to existing customers through that channel. Jostein Amdal: The second question on Natural Perils technicalities is that when the line of business called Natural Perils has a surplus that surplus is transferred to the Natural Perils pool accounts in a way and that's then something we have to pay to this central Natural Perils Pool. Yes, and that's then on the negative on the others, other lines, other items. So it's a good year -- the positive will then be in the -- in a way where it's just a surplus or deficit. So if it's a surplus, it's a negative other. So there is no positive in a way. It's just a net negative. Ulrik Zürcher: Okay. So but will this be like done on a quarterly basis or annual? Jostein Amdal: In reality is every month, but then you, of course, get accounts every quarter. Operator: We'll now move to our next question from Derald Goh from Jefferies. Derald Goh: So my question is around the cost ratio. Now you're running at 12%. Is this the new base that is sustainable or would you -- and I guess, would you consider maybe reinvesting some of that into growth? Jostein Amdal: We are very happy to see reduced cost ratios. We have very strong cost discipline, and we have many cost efficiency measures going on in the organization and in our business. Our target at the moment is around 13% next year, but we are aiming for keeping the business still cost efficient, of course, and work every day to try to improve the cost efficiency. This, at the moment, as you mentioned, it could probably argue that it's some kind of room for doing other types of investments. But every type of investments we are doing have -- will have a good business case and will make -- improve the profit over time. So we are still focused on being a cost-efficient business and that's part of the core of our business and the way we are thinking. Derald Goh: But just to be clear, I guess, is it expected to assume that some of this 12% is a reasonable run rate for now? Jostein Amdal: I think we will not give any kind of guiding on our cost ratio going forward. The best thing to mention is our target for next year, which is around 13%. Operator: And we will now take our next question from Thomas Svendsen from SEB. Thomas Svendsen: Yes. So a question to the pension operation from my side. So can you just explain a little bit more why you scrap this system? Are there any changes in -- sorry, your market approach or something other? And also just remind us of the business plan for your business -- for your pension units? And also, could you sort of indicate sort of what to expect to be sort of normalized pretax profit level given the current asset base there? Geir Holmgren: Okay. the reason for terminating the core system within the pension business is due to our needs and requirements regarding the business we have today regarding pension business and pension-related products. Our assessment is that we are not getting the full benefit out of the existing core system, which was terminated and that has developed during the years we have doing the development, I would say. So this is a conclusion on something we -- the kind of assessment and consideration we have done in the past. And our assessment is that this is not the right system for Gjensidige going forward, taking care of our pension business in the Norwegian market with all the kind of requirements needed for doing that efficiently and with high quality. Our pension business in Norway is when it comes to a more strategic view on that. It's a very integrated part of our commercial business, especially in the SME areas, we see that we are running this business very cost efficient when it comes to distribution. It's capital efficient as well due to the types of products we have in the pension business. And I'm very happy to see the growth we have had within that business during the last couple of years, and it's a very motivated organization to keep that up on a high level going forward as well. So we are focusing on occupational pension and are happy to see that the market has a high level of growth, which we definitely take our earned part. So yes, I think that's probably on the business side. Jostein Amdal: I can add on the kind of financial guiding. I mean we don't guide us on much, but we have stated a return on equity target for the pension business back in the Capital Market Day in November '23, where we said that based on IFRS earnings, which is the company accounts for the pension business, we need to -- or target to return more than 15% return on equity. And if you exclude this nonrecurring item, year-to-date, the return on equity is 20.7%. So we are well ahead of our stated financial targets for the pension business as a company. Geir Holmgren: And if you look at the accounts for IFRS 4 in that business, it's -- actually we had a very good quarter when it comes to underlying profitability, good growth on the income side, revenue side, and it's run very cost efficient as well. Operator: We'll now take our next question from the next caller, please introduce yourself by your name and the affiliation after the automated prompt. Unknown Analyst: This is [indiscernible] from Autonomous Research. Can you hear me? Geir Holmgren: Yes. Unknown Analyst: I have just one question just on solvency given the very strong progress year-to-date. I was wondering whether you could comment on where your preferences in terms of capital deployment currently lies in terms of whether you see some good M&A opportunities on the horizon or whether you are more leaning towards passing your capital and potentially repatriate some in the form of special dividend or share buyback? And then secondly, look to the capital situation, if you could comment on any update, if any, on the approval process for your own partial internal model? Geir Holmgren: Okay. Yes. I'm very happy with the capital position. We have a strong solvency number, 191, which is above our target interval. We are -- the Board will do their assessment when it comes to dividend at year-end. We are not aiming for having any kind of surplus capital within the group. So this is definitely a part of the consideration when doing the assessment of ordinary and extraordinary dividends by year-end. Yes. Jostein Amdal: And -- yes, on the process, really no update at this point, really, we are still in the process with Norwegian FSA. Unknown Analyst: And so if I could follow up. And there's nothing interesting on the M&A profit you see at the moment? Geir Holmgren: No, we are focused on organic growth in the business. So we are not considering any structural way of growing the business. We are happy with the position we have in Norway and improving the business we're having in Denmark by many operational measures, and that's our focus now. And yes. Operator: [Operator Instructions] We'll now take our next question. Vinit Malhotra: This is Vinit from Mediobanca. So my one question would be just following up on your comment on the July weather effect driving the 1 to 2 points you mentioned on the underlying. I'm just curious, is there a similar explanation? Or is that the same explanation for commercial Denmark, which seems to have worsened about 4 points in the quarter when compared to 3Q '24, is there any comment on that you could share that also throw some light on what's happening there? Jostein Amdal: Thank you, Vinit. No, it's not related to the same cost. This is more just inherent quarterly volatility on our commercial book of business. So it's really specific explanation around it, we do see a somewhat increased level of both size and frequency of claims within that business, but nothing we regard as giving the indication of a future trend, so it's volatility. Operator: We'll move to our next question. Michele Ballatore: Yes. This is Michele Ballatore from KBW. So my question is related to the -- in general, the pricing regarding your comment earlier. So can you tell us what is the status of the -- your pricing, both in private and in commercial across Norway, Denmark and Sweden? Geir Holmgren: Starting with Norway. We have over time now, 2 years' time, we have had a quite heavily pricing measures going on, which also have increased the pricing level substantial -- substantially for both property and motor insurance. The average decrease within property was approximately 60% last year and promoter between 18% and 19%. The ongoing pricing measures are still having quite high price increases. But compared to what we have done in the past is a more moderate level, but we are talking about 12% to 13% price increases on average for property and motor insurance in Norway. That's above what we expect when it comes to inflation in the next 12 to 18 months, and it's about the frequency development. So -- but we have a very good and stable position in Norway, still high retention numbers and still I'm very happy to see our competitiveness in the Norwegian market, both on private and commercial side. When it comes to commercial, large parts of the portfolio have renewals at 1st of January. So we are preparing for that as well with quite high price increases due to what we have done in the types of considerations we are doing. In Denmark, we have price increases going on in the private segment. As I mentioned before, we have not been satisfied with the profitability in our private Danish business. We have had many, many quarters with red numbers. Happy to see that we have -- can pace of progress during second quarter and third quarter and cost profitability. But price increases are needed to improve that business in addition to cost measures and improving the cost efficiency of that business. On the commercial side, my opinion is that we have a very, very strong position in Denmark when it comes to our commercial business. We do have a good relationship with the main brokers. We have recognized brand name, a stable good portfolio. When it comes to results, it will be some kind of volatility from quarter-to-quarter, but our starting point going forward is at a very, very good level when it comes to our pricing power and our position in the commercial segment. And for Sweden yes, still ongoing pricing measures, I'm very happy to see that we have succeeded when it comes to improve our efficiency and to improve the way we are doing business with more digital solutions. And it's a small business, but we have -- but the business we have succeeded to improve profitability over time during the last couple of years, and I'm very happy to see that. Michele Ballatore: Sorry to follow up on Norway. If I understood correctly, you were talking about 12%, 13% price increases. I mean this is -- am I wrong in assuming I mean this is significantly above inflation. And you have, of course, quite sizable market share in Norway. But my point is, is this something -- I mean, is there the same level of discipline in the market? I'm just trying to understand what you're doing compared to what the market is doing in Norway, specifically? Geir Holmgren: Yes, good question. We started with repricing our private portfolio in Norway, third quarter 2 years ago. So it has been ongoing pricing measures above inflation now on -- during the last 2 years. My impression -- my view is that Gjensidige probably started that kind of price using pricing measures quite heavily, started that first in the Norwegian market. So we are actually a first mover when it comes to having the pricing measures. Yes. We still see that we have good pricing power. The retention rates are still high. We are prioritizing profitability before growth and used market situation, and you also see that our competitors are doing price increases that we are still continuing with quite high price increases as well. The pricing level you mentioned, that's correct. On average, 12.5% to 13% within motor property within private above inflation numbers as we see and frequency development, as we have seen in the past. So we also take care of the kind of claims mix which you will see from time to time when you get new cars in the market and different types of claims, and that would also change from quarter-to-quarter due to the weather conditions. Mitra Negård: Operator, are there any further questions? Operator: Yes, we have a question from Hans Rettedal. Hans Rettedal Christiansen: I guess it's a bit general, but I was just wondering sort of related to the previous question, do you see any effect from the price hikes that you've implemented now on customers, perhaps dropping coverage or changing coverage, changing terms of deductibles or any sort of movements on the customer side as an effect of kind of pricing having increased quite significantly over the past couple of years? Geir Holmgren: We spend more time with the customers now than we have done in the past due to everything that's happening in the market. But we also have a situation in Norway and in Denmark that we see quite high price increases due to what we have seen in the past. So the pricing discipline among our peers are at a high level as well. But this situation also makes the customer more -- doing more considerations regarding the insurance contracts, and they are checking prices more than had done in the past. But we don't see any negative impact on our business volume when it comes to that kind of activity. We still see that the retention numbers are still high. And I'm very satisfied with the level of customer satisfaction and customer loyalty. We do have in our -- especially our Norwegian portfolio. So my view is that we still have a very good pricing power when it comes to do all the necessary measures we have mentioned. Operator: And we have another follow-up question from Derald Goh from Jefferies. Derald Goh: The first one is a clarification. Could you say what are the rate increases that you're putting through in Denmark? Like what percentage is it? And how does it compete to the claims inflation in both private and commercial side of Denmark? And then could you maybe speak to how conservative you might be recognizing some of the margins? I think there are a few questions that has already being that the rate increases seem to be far outstripping the claims inflation number. Is it a case that maybe you are building up a bit of a reserve buffer? Jostein Amdal: I think on the first, what are the actual price or rate increases that we are putting through in Denmark, we haven't been as clear as we have been on the 2 main products in Private Norway, but we are looking at price increases that are well above our expected development in claims, which is a combination of claims inflation and number of claims, the claims frequency. So that's why what we're aiming for. And of course, as always, what we will get through will be a function also of the competitive situation there. And I remind you that our business is quite a lot larger in commercial than in private -- in Denmark, and we have very strong position within Commercial Denmark. We are looking at combined ventures at around 85%, 86%, depending on if you look at the quarter or year-to-date, which is a healthy profit. But we still continue to put through price increases above our expectations of the claims development. Operator: We have another follow-up question from Thomas Svendsen from SEB. Thomas Svendsen: Yes. This is Thomas again. So just on customer behavior in Private Norway. Is there -- this change in behavior by clients, do you see much more inbound call. Clients want to discuss the price? And also do you need to sort of get back to rescue clients that are leaving you? Is that an increased activity there within the net retention levels that you talk about? Geir Holmgren: We haven't seen any change this quarter compared to the last couple of quarters when it comes to that kind of activity. If you look at the number of customers, we are increasing the number of customers in our private portfolio in Norway compared to what we had year-end '24. So I'm very satisfied with the sales activity, distribution efficiency. But in all respect, we do talk more to customers during the last couple of quarters than we have done in the past due to all the high price increases, different types of customers meet across all insurance providers and for different insurance contracts. Jostein Amdal: I'll also remind you that the growth in Private Norway was although mainly price. We had an increase in the kind of the volume, the number of customers, as Geir mentioned, but also number of cars, houses, travel insurance policies and so on. So there's an underlying volume growth as well, although the main part of the growth is price driven. Operator: And we have another follow-up question from Mediobanca. Vinit Malhotra: Vinit from Mediobanca. The second question from me is on the inflation outlook, because I remember that we were all expecting you to provide an update on inflation in this quarter, and it appears to be unchanged versus Q2, whereas, obviously, in Q2, we heard you talk about reducing some of the price increases, and we see that in the numbers. So could you just comment that is this inflation being unchanged Q2 versus Q3, a surprise to you? And what are the drivers and are you still happy with lowering the price increase within Norway, even though inflation outlook is unchanged? Geir Holmgren: Starting with property in Norway, the actual inflation third quarter this year compared to -- or during the last 12 months was 4% and our expectation for the next 12 to 18 months is between 3% and 5%. That's a combination of repair cost and labor expenses in the property segment. We -- when it comes to motor, actual inflation in the last 12 months, around 4.4% expected. The next 12 to 18 months is quite big interval between 3% to 6% and the kind of uncertainties regarding trade barriers and what's happening in especially in the motor industry. And so it's a kind of a certainty, and that's the reason for having big interval as well when it comes to inflation, expected inflation going forward. But -- as mentioned, we are having pricing measures at the moment, which are definitely above the expected inflation, including also what you have seen on the frequency development in the past. Jostein Amdal: May I also add that remember that these are the what we tell you about are the price increases that are in place for policies that will be renewing now, whereas the accounting effect is a function also of all the price increases and the levels of price increase that we had over the last 12 months, which we have informed about every quarter, which have over the last 12 months, bit slightly higher than the ones we are currently putting through to the customers. So there's an overhang of kind of all the previous price increases now. And as Geir said, given that these price increases are higher than what we expect, at least as a future claims development, that should bode for a margin improvement also further down the road. Operator: And we have a new question from new caller, please introduce yourself and your affiliation. Unknown Analyst: It's Yulis from Autonomous Research. I was wondering if you could comment on the revenue growth dynamics in the near term. I mean, in the third quarter, your 13% year on growth was -- kind of helped by some one-off factors. At the same time, you're also -- because it can earn revenue, it's also benefiting and reflecting the higher rate increases that you implemented in the past year. So I was wondering whether that 13% is a sustainable level in the near term or whether it could potentially improve on the basis that it's reflecting the earned written premiums going forward? Jostein Amdal: First of all, I remind you that we talked about a onetime effect due to a change in principle on the home seller insurance. So the kind of current adjusted for currency, and that is 11.3%, which is kind of the level we report. And nonrecurring is, of course, not -- should not influence your forecast. So it's more like the 11%, which is based on the premiums that we have implemented over the last 12 months. And we've also given the growth numbers per segment. I think that is kind of the best way for you to try to predict what's going to happen. And we combined -- commented on the kind of effects on Commercial Denmark, which is 6.4%, rather than 4.4% in the currency, if you adjust for an accounting effect last year and also that the Swedish number due to the accruals is underlying a bit higher than what we have reported, which is 2.7%. So it's more in the 6%, 7% range as well. I think that is the building blocks you should probably use for your estimate of future revenue development. Operator: And we have another question, please caller introduce yourself. Qian Lu: It's Qian Lu, UBS. I just have one on the ongoing pricing measures in Norway, which slowed down quarter-on-quarter. I'm wondering if this is implying a more proactive strategy to enhance our competitiveness in the market and grow policy accounts? Or is it more of a reaction to increased competition in the market? And I guess related to this, given one of your peers has indicated that they plan to normalize price increases from next year onwards. I wonder how you are thinking about the time line for your price adjustments? Geir Holmgren: The price increases we are having at the moment and which are implemented as mentioned, it's above expected claims inflation and frequency development. The high level of price increases we have in the past is also a response on the frequency development we have seen during the last 2 years, especially on the motor side, but we have also seen some more volatility regarding property insurance, high number of fires in some quarters, more water-related claims and so on. So we have -- that's the reason in the past for doing quite heavily pricing measures and to improve the profitability, which was weaker going 2 years back. Going forward, I'm not in a position, where I can comment on future price increases due to antitrust and competition rules. But we are only commenting on what we're doing and have done at the moment, and we are still having price increases, which is above frequency development and inflation numbers. And we don't expect the frequency development we have seen in the past. We don't expect that to continue in the kind of way it has done during the last couple of years, but we have seen especially -- for instance, on the motor side, we have seen in the last quarter, underlying development on the frequency side is between 1% and 2%, and we still expect to have some kind of frequency development also for motor going forward, but not at certain levels we have seen during the last 2 years. Operator: And appears there are currently no further questions in the queue. With this, I will like to hand the call back over to Mitra for closing remarks. Over to you, ma'am. Mitra Negård: Thank you. Thank you, everyone, for good questions. We will be participating in roadshow meetings and a seminar during the next few weeks, starting with Oslo today and London next week. Please see our financial calendar on the website for more details. So with that, thank you for your attention, and have a nice day.
Operator: Welcome to the Trelleborg Q3 2025 report presentation. [Operator Instructions] Now I will hand the conference over to CEO, Peter Nilsson; and CFO, Fredrik Nilsson. Please go ahead. Peter Nilsson: Hello, everybody. Peter Nilsson speaking. Welcome all of you to this Q3 of 2025 results. What we're going to give you some of our, let's say, input on how the quarter developed. Joining me on this call is also Fredrik Nilsson, our Group CFO; and also Christofer Sjögren, who is heading our Investor Relations. So as usual, we're going to refer to a slide deck from our web page. And then on that, turning to Page 2 on that section, the agenda slide and a normal starting with some general highlights, some comments on the business areas, and then Fredrik's going to guide us through the financials and then finishing off with a summary and some comments on the outlook for the running quarter. And then finally, ending our call with a Q&A session. So that's the agenda for this call this morning. Turning then to Page 3. Heading of our report, organic growth with higher margin. So a solid quarter in more or less all aspects, the development in the right direction in more or less all aspects, sales ending up relatively flat compared to last year in Swedish krona, an increase of 1%. But behind this, a very solid organic growth, plus 4%, which is something we have not seen for quite some time. M&A also benefiting. We have done several acquisitions, several smaller bolt-on acquisitions here in the last 12 months. And that is, of course, also bringing in some sales. So that is adding 3%. And then we have a currency headwind, well known by everybody, which is 6% in the quarter, which is then once again ending up with a 1% on the total sales. EBITDA also up and also with an improved margin, which is an all-time high margin and results for the third quarter. We are, let's say, a notch above 18% EBITDA margin in the quarter. And this is, as I already said, it's a stronger third quarter to date for us, both in terms of profit and margins. So solid. And I mean, the great thing, you're going to see later also is coming from all business areas. We have a substantial negative FX on EBITDA, almost SEK 100 million or SEK 90 million, bringing us in the wrong direction, if you may say. Items affecting comparability running as planned, relatively high level this year, but also coming from this rather high number of acquisitions, which is then kind of creating opportunities to improve the structure and then make sure we get all the benefits from these acquisitions as we move forward. Cash flow, very strong. I mean, we have to admit, surprisingly strong ending of the quarter on the cash flow, which, of course, is going to bounce back a little bit here in Q4. But nevertheless, we are happy to have the money in our pockets instead of sitting somewhere else. So very solid cash flow, which is, of course, yes, creating a stronger balance sheet and overall, a better business. We've done a smaller acquisition, small but important acquisition in Singapore called Masterseals, which is an acquisition which is strengthening a little bit, oil and gas markets and generally more in the kind of aftermarket-related segments of Sealing Solutions, which is an area which we are developing at the moment, an area we're growing into kind of a global business for us. Also note, continued share buyback on a level slightly north of SEK 500 million being spent on share buybacks in the quarter. So this is the quarter. This is what it is. And I mean, overall, once again, a solid quarter. So turning then to the next page, Page 4, where you see new slide for us, which I hope you will give some more input on the sales split per geography, which I don't going to comment that much on. But we also, more importantly, we see organic growth in all 3 major geographical areas, with Europe for us being the softest, slightly better in Americas, 5% organic growth in Americas, which is kind of on a high level, driven a little bit by project deliveries, but that's the way it is. But nevertheless, good solid quarter and a very solid quarter also for Asia, then particularly strong in China for us. But overall, strong in Asia and kind of a little bit bounce back in Americas and then Europe a little bit softer. So this is the -- and in all areas or levels, which, I mean, we have not seen for some time, especially if you talk both Americas and Europe while Asia continues on a good level, as you've seen throughout the year for Trelleborg. Turning to Page 5, the agenda slide, business areas and then quickly turning to Page 6 with some more detailed comments on Industrial Solutions, organic growth and we say stable margin, a slight uptick in margin. Organic sales 2%; M&A, adding 4%. And then, of course, also, as others here, a negative exchange rate of some 6%. Also behind these figures, we see oil and gas project declined in the quarter, sales declined in the quarter, but that is mainly due to a rather tough year-on-year comparison. Overall market still developing well and a very solid cash flow. But some of these sales is rather project heavy. It is that it sometimes goes a little up a little bit and sometimes it will be down and this quarter was a little bit down in the sales, but it's not -- once again, it's not a reflection of overall lower activity in this part of the business. Construction industry is still muted but we noted satisfaction that is getting slightly better if you look sequentially, although still, let's say, quite strong decline if we compare year-on-year. But once again, some light in the tunnel and some improvements kicking in. Automotive sales increased in the quarter. I mean it's been a little bit -- how should I say a little bit strange quarter, if I may say, for automotive. Those of you following automotive, you see that it's still relatively tough sales in Europe and North America, while China was extraordinary in the quarter, which as I said, 10% plus organic growth. And I mean, the business that we have in Industrial Solutions has a very good market share in China. And that is where we benefit from this. So we have actually a strong development in automotive within Industrial Solutions in this quarter. And then EBITDA and margin improved slightly. I mean Industrial Solutions is a fairly diverse business, and there are some ups and downs always. But overall, we continue to move in the right direction. We continue to improve. It's not major steps. It's a hard work coming from kind of operational focus and also some of the structural investment, structural improvements kicking in. Overall, a good quarter, well managed in more or less all aspects. And then we also should note that when we look at the margin here, this acquisitions that we've been doing is on a lower margin than the overall, and we have some tens of a percent negative kicking in for that. It could be -- I don't know, looking at Fredrik, 0.3%, 0.5% on the margin actually coming from kind of this acquisition kicking in and it will take us a year or so before we can get them back to the overall margin of Industrial Solutions. But that is also something that you need to note when you look at the margin development within Industrial Solutions. Turning to Page 7. Trelleborg Medical Solutions, strong organic sales growth. Organic sales is up by 13%. M&A, not doing any changes, so 0 impact from that. But we have to note here as well that we have some project deliveries related to one of our major customers, which is, let's say, boosting the sales dramatically -- in the sales. I mean, if you look underlying and try to kind of neglect these organic sales, I mean the more correct probably underlying organic sales is more in the kind of mid-single-digit territory. Medtech sales, we see also medtech sales in Europe developing well. North America, where we still -- struggle is the wrong word, but we still see some negative development where we still have some inventory issues. We don't see the overall activity going down, but we still see our sales is a little bit below where it should be. So we are pretty certain that we're still impacted by inventory reductions especially in North America, which we have been for some time, and we honestly, we believe that it's going to turn the corner, but we see it continuous. It is difficult to really see through exactly when it will turn, but we continue to gain business. We continue to gain orders, and we are overall satisfied with the development, even though the sales, we would like to sell more, of course, in Americas as well going forward. Life Science, which is kind of the smaller segment of medical, is developing, if I may say, very nice, and we are growing that. And we are starting -- we have been investing in that segment with new factories, both in North America and in Europe, and with satisfaction, we see that these investments is slowly, let's say, benefiting us, and that is an area also where we see continued growth going forward. EBIT margin up and also, let's say, in absolute terms, we have EBITDA up. I mean there's higher volumes, as you expect, but also continuous structure improvements, especially starting to benefit from -- continuing to benefit from this acquisition of Baron that was made, let's say, a year ago now. Turning then to Page 8, Sealing Solutions. If I may say, very solid organic growth in the quarter coming from several areas. But I mean, if I should highlight something, it's really that we have underlying kind of industrials, the big kind of industrial segment of TSS is starting to do better. We see now growth in Europe kicking in. Asia continued on a good level, which has been good for us for quite some time. We continue to see some weakness in North America. But overall, these core segments of Sealing Solutions improved in the quarter. Both in sales and also kind of a higher activity level. Automotive for TSS is still below last year, particularly still impacted by, let's say, very soft development, very soft development in the aftermarket business. And we cannot -- I mean, it's not like the aftermarket in itself is down. It's more that we see very, let's say, uncertainty, especially in the North American market, this is -- we see that they are downsizing. In stock, inventories is down, and we do expect it to kick back. But also here, we don't know exactly when, but it is kind of we are supplying substantially below the market demand for a few quarters here, and we do expect that to bounce back eventually. We note in automotive here as well as we also commented on TSS, a very good development in China. We have a good market share for some of the products, in TSS, especially that's our shim business, our brake business has a solid market share in China. And of course, we are benefiting from that as the Chinese market has been developing very, very good in the quarter. Aerospace, very strong all over. We continue to, let's say, get more orders than we sell. So let's say, order book is growing and the activity level is growing. Of course, we note, as a trusted -- the ones of you was following aerospace that's about Airbus and Boeing is very ambitious in the growth plans going forward, and we, of course, do our best to follow that. So good development in aerospace. And overall, this means that EBITDA and margin is improving, higher production volumes kicking in. We have been underproducing for some time. And we see also the benefits from the operational improvements, but we also have to note also here we have a negative impact from acquisitions being made, which is kind of the same dimension as we see in Industrial Solutions, some 0.3%, 0.5% negative impact on the margin if we were trying to kind of adjust for the acquisitions. But we're doing the acquisitions, of course, because we believe they are good for us and they are improving the business overall, but it will take some time to get all business improvements into the margin. Already commented on the Masterseals acquisition in Singapore that is part of small acquisition, but it's part of an overall game plan to strengthen our activity within, let's say, aftermarket for seals and especially related to oil and gas and mining and other segments, which is more kind of project-related where you need, to say, local presence in order to get this business into our books. So that's -- we're happy to be that, and we think it's a good strategic add-on, although once again on a very minor level compared to the overall sales of Trelleborg. Turning to Page 9, some comments on sustainability, continue to improve substantially. I mean, we say here, we are not getting to the end of the game, but we are getting down to levels of CO2 emissions from our Scope 1 and Scope 2, which is kind of becoming very low. We're, of course, going to continue to improve. We continue to do better also in this aspect. But I mean, do not expect these kind of improvements steps going forward. Next page, Page 10 and it's basically the same here, where we have a substantial tick up in share of renewable and fossil-free electricity. We are now up to 92%. And I mean the remainder here is very difficult because in some geographies, you actually cannot get it, and we are getting also here to a situation where we cannot improve that much anymore to you on this because we are, let's say, stopped either but by very major investments to turn it around or that is simply not available in a few geographies. So very good development, very happy to show this. There was continued good development in sustainability, and we are doing good in these aspects. And I mean, once again, the focus -- we cannot improve on this criteria. So the focus going forward will be more smaller steps and more kind of what we call say, energy excellence programs. We'll be working hard with all the factories in order to improve and to do better in more minor aspects. So these big steps, you will not see these big steps going forward, but we're getting to a situation. I don't say it being perfect, but we're getting to a level where we cannot justify the final steps to get it even better. Turning then to agenda slide again, Page 11, financials on Page 12. I'll leave it over to Fredrik to guide us through this section. Fredrik Nilsson: Thank you, Peter. Let's then start on Page 12, looking at the sales development. Reported net sales increased by 1% from SEK 8.442 billion to EUR 8.532 billion. We have organic sales growth in all 3 business areas in total 4%. Structural changes added 3% growth in the quarter. And then as Peter mentioned, we have negative translation effects that reduced growth by 6% during the quarter. If we then move to Page 13, showing historical sales growth. In the third quarter, we were close to our sales growth targets, achieving 7% sales growth at constant FX. Looking at Page 14, showing the quarterly sales and rolling 12 for continuing operations. The sales in the quarter, as I said, reached SEK 8.5 billion at net rolling 12 months, it's reached SEK 34.7 billion. Moving on to Page 15, looking at the EBITA and the EBITA margin, that continued to improve further. EBITA excluding items affecting comparability, increased by 5% to SEK 1.541 billion in the third quarter. We saw profit growth in all 3 business areas. And looking at -- we start with Industrial Solutions, which was up 1% in EBITA due to operational structure improvements, which was partly offset by negative translation effects. And then Medical Solutions, up 10% in the quarter. And then finally, Sealing Solutions was up 6% in the quarter due to higher production volumes and operational improvements. And margin-wise, we rose from 17.3% up to 18.1%, supported by the organic volume growth and the operational improvements. Looking at then the EBITA and EBITA margin on a rolling 12 months basis. EBITA amounted to SEK 6.331 billion with a margin of 18.2% and EBITA has been growing with 6% during the last 12 months. Moving on to profit and loss statement. Looking into some more details in the income statements, items that are affecting comparability, SEK 72 million in the quarter, which was entirely related to restructuring costs for adjusting our cost base and due to the recent acquisition. Financial net I would say, on par compared to last year, SEK 126 million compared to SEK 128 million. This is actually despite that the debt level is higher this year. So that is also a good achievement. Tax rate for the quarter, excluding items affecting comparability, amounted to 26%, a slight increase due to timing. Page 18, earnings per share, excluding items affecting comparability, amounted to SEK 4.20 in the quarter and increased by 11%, and that was due to the higher profitability and the effect of the ongoing share buyback program. And for the group, including items affecting comparability, earnings per share were up SEK 3.94, also 11% up. Moving on to Page 19. As Peter mentioned, we have a very strong cash flow in the quarter, which reached SEK 1.741 billion. On a high level, half of the improvement came from the higher EBITDA and the rest from efficient management of the working capital. CapEx is well aligned with the communicated guidelines for the full year but marginally higher than Q3 last year. Moving on to Page 20, the cash flow conversion. The cash flow conversion was 92%. So we continue to deliver a high cash conversion ratio. Moving on Page 21, the gearing and the leverage development. Net debt at the end of the quarter at SEK 8.280 billion. Share buyback during the quarter was SEK 554 million, ended the quarter with a debt-to-equity ratio at 22%. So small improvement compared to Q2. And then net debt in relation to EBITDA, 1.1, which was slightly higher than year-end. But of course, we have also paid out a dividend during the second quarter, and we have continued the share buyback program. In other words, our balance sheet remains strong. Moving on to Page 22, return on capital employed reached 12% for the quarter, and our capital employed has increased compared to last year mainly due to the acquisitions, but I think also I would like to note that our return on capital employed has sequentially increased for Q2 to Q3. And then finally, the financial guidelines for 2025, unchanged compared to what we communicated after our second quarter CapEx, SEK 1.650 billion for the full year, restructuring costs around SEK 500 million for the full year as well. Amortization of intangibles, SEK 650 million and underlying tax rate for the full year around 25%. And by that, I would like to hand back the microphone to Peter. Peter Nilsson: Thank you. Agenda slide, summary and outlook. Quickly turning to Page 25. Looking at the quarter, organic growth with higher margins, good quarter overall, but it picked out a few highlights. We see in the quarter in improved -- generally an improved demand, higher activity levels or continued high activity level in some areas. We see an improvement in that. And we also note with satisfaction, of course, that all our 3 business areas recorded organic growth in the quarter, which has been quite some time since we saw that the last time. So overall, better activity, although not kind of a big jump upwards. But nevertheless, improvements in most areas. We also note that these higher sales is also improving our margins. We have a fairly sizable uptick in the margin year-on-year. And it then boils down to the strongest quarter -- strongest third quarter to date, both in terms of profit and margin. We also note that we continue to do value -- what we call value-adding M&A, although impact, this is our 10th bolt-on acquisitions since Q3 last year. And of course, this is a high activity level in [indiscernible] we said before, is impacting our margin negatively in Sealing Solutions and Industrial Solutions, but we are, at the same time, improving our overall positions, and we are very certain that this -- when that's fully integrated, there will not be a drain on the margin or rather the opposite, but it takes some time to get there. And we also note that continue buybacks, we continue to have a solid balance sheet, which is, let's say, allowing us both to continue on high CapEx level, continue to do M&A, continue to absorb the growth, which is in the quarter in terms of working capital, but also on top of that, we also continue to do share buybacks. So that was the summary and then turning to -- for the last quarter and then turning to Page 26 and some outlook. We expect the demand to remain on this level. For those of you who have read the reports see that we have this extraordinary sales or project sales within medical, we were not going to kick in. So with this outlook, you should read it that the continued overall demand, we might be -- we don't know exactly, as we otherwise were sitting exactly where we end up. But of course, we believe that this is probably not going to be of north of 4% in the next quarter, but we could be a 1 percentage point or some lower than 4%, but we believe it's going to be on a similar level. And I mean if this continued higher activity level, remain, then we will look with more positivism on the future. But with this comment, of course, also, we all know there is a big year -- still a big, what we call political situation or geopolitical challenges out there and things might happen, which could impact the demand short term. So that is, of course, with this comment on the continued good market, it comes with this kind of comment. And then turning to Page 27 agenda and into the final agenda point and turning to Page 28 and opening up for questions. Operator: [Operator Instructions] The next question comes from Alexander Jones from BofA. Alexander Jones: If I can have two please. The first on Sealing Solutions and specifically the Industrial business within that, you talked about higher growth this quarter. Could you help us understand was that broad-based or the particular end markets within Industrial driving that? And to what extent was that the end market improving or more market share gains and innovation success that you've had as Trelleborg? And then the second question, if I can, just on the Medical business. Can I clarify on the one-off project sales this quarter. Is there any element there have pulled forward that will be reversed in future quarters? Or is that just sort of one-off extra sales that we should not extrapolate in our future numbers? Peter Nilsson: Alexander, talking -- starting with the medical one, I mean that is really a startup of a new program for one of our customers, which is a one-off delivery. So it's not really about impacting the future. So it's not kind of a pull from any future sales. It's simply sales in the quarter due to the [indiscernible] starting new programs. So that is kind of the way it is sometimes, but it's not kind of any forward buying or something, it's simply a one-off sales. So nothing really that we need -- we don't expect it to -- yes, to impact the sales going forward. So that's it. And then if you talk about Industrial, I mean, one thing is also on the industrial sales of Sealing, which you've seen in the quarter, I mean we have been, for quite a few quarters, talking about destocking in these activities. So one of the impacts in the quarter is no more destocking, and we are kind of supplying in line with underlying demand. I mean, so that is one of the impacts. But we don't see still as an inventory buildup, but we still believe that there is supplying. But we are not kind of oversupplying in the way that they are building stock. And I mean -- and the core driver for this is kind of the biggest subsegment, if I say in Sealing, which is more hydraulics, machinery and this kind of core industrial business. That is where we see the improvements. So we're not surprised, I shouldn't say we're surprised because it's been undersupplying for a few quarters. And now we feel that we're supplying in line with the overall demand. So I don't know whether that is enough for you. Alexander Jones: Yes, that's very helpful. . Operator: The next question comes from Agnieszka Vilela from Nordea. Agnieszka Vilela: So I have a few questions, maybe starting with the first one on the growth trajectory in the quarter, if you could share any flavor of how was development in September? And then also, how is it progressing in October? And then also, Peter, I think before you used to refer to your order intake. So how is that developing right now for you? Peter Nilsson: I mean there was an improvement throughout the quarter, but also the trick on Q3 September is always important. Since the other 2 months is a little bit impacted by vacation period. So it was kind of an acceleration in the quarter, so a stronger ending than beginning in the quarter, but we don't, let's say, put too much emphasis on that one. But it is kind of an improvement in the quarter, if I may say. And October, I mean, we don't see any kind of differences and we don't really want to comment on it. So it's really overall guidance remains that we believe is going to be same growth in Q4 with, let's say, some adjustments coming from this extraordinary sales in Medical. So my read this, I mean it might be 4, it might be 3. But I mean, we don't really know. We have an overall good order intake. We have overall good activity level. I mean, we should say book-to-bill in the quarter is positive. We have booked more orders in Q3 than we have been selling. So we are growing the order book. But we also remain a little bit cautious on this because we know there is inventory focus, cash flow focus on some customers. So we don't really want to read too much into it. But if we simply did the Excel sheet calculation, then of course, we will, let's say, be more positive than negative in that one. I don't know whether that is enough, Agnieszka. Agnieszka Vilela: Yes, yes, absolutely. But then maybe if you could give us some color on the regional development as well. Obviously, you have -- you have had very strong development in Asia, now followed by Americas, Europe also now slightly positive. In the next few quarters, do you expect any changes to this order like any other -- any region taking over? Peter Nilsson: No. I mean I think Asia, little bit, has been a little bit extraordinary strong, especially in automotive since we have this big boost. I can't remember exactly, but I think production levels in China for automotive was up by some 12%, 13%. So that's, of course, since we have a high -- good position with a few of our automotive segment, that is benefiting us, but also the overall industrial development in Asia, especially in China has been good for us, somewhat difficult to fully understand, to be honest, but it's been ongoing for quite a few quarters, and we do not expect that to be -- of course, comps getting more difficult going forward. But nevertheless, a good development in there. Europe is probably more tricky in a way to read. But we see -- I mean, in the core, as I commented before, the core Industrial segments of TSS is improving. And that is more -- part of it is a reflection that no more destocking and more of kind of delivery in line with underlying demand. We do not see any kind of inventory buildup at the moment, and that is, of course, if it turns more positive, we will see that as well. So we've been undersupplying for a few quarters. We do expect as the market -- if the markets turn more positive that we will be oversupplying. But we don't really see that happening short term. But if you go into early next year and this development continues, we're probably going to have some of that. U.S. is probably, for us, a little bit more positive than it should be because we have a few project deliveries in U.S., which is kind of impacting the sales there. But nevertheless, let's say, for us, a good positive territory also coming there from kind of hydraulics and the pneumatic segments, which is also a part of our core business in North America for Sealing. I guess that is -- I don't know, Fredrik, if you want to elaborate. I think that is kind of just to be a little bit more color for that development. Agnieszka Vilela: That's very helpful. And then the last one from me. I noticed that you didn't really mention the tariff impact in your report or in your presentation. Was there any kind of growth tariffs now affecting you in the quarter and how are you mitigating those? Peter Nilsson: We have a few individual businesses where we need to kind of redo the supply chain and working with that. But I mean, overall, this kind of minor activity. So that is why we don't see that as a kind of impacting us. We have a very regional setup. We have as I said, manufacturing in Asia, we have manufacturing in Europe, we have manufacturing in the U.S., and we don't really have a lot of these flows going across. I mean, the challenge here is more the metal content where we need to find out. We have a few products, but we have metal content, and that is something where we need to work. And that is also our question going forward on these tariffs in Europe because some of the export business from Europe into other territories might be impacted by that. But it kind of remains an action point and that is something we're working on. But overall, on a group level, we don't see this at any topic in a way, to be honest. Underlying demand could be impacted, I mean to say. But I mean for our trading and margins, it's not really something that we discuss too much. Operator: The next question comes from Forbes Goldman from Pareto Securities. Forbes Goldman: Yes. One question on the TSS margin, which was quite strong here in the quarter. Is this the start of a sustained recovery there? And how are you thinking about the 23% target from here? What do you sort of need to reach it? Peter Nilsson: No. I mean it is a solid, let's say, step in the right direction. Looking at the margin, of course, once again, you need to remind yourself as well that we have also a negative impact from the acquisitions. Of course, it is a step up compared to last year. And we have always said that we're going to get this back to our levels and is kind of step in that direction. And then I don't want to guide exactly what kind of quarter, but it is coming as expected, as planned, if I may say, this margin expansion coming from a little bit bounce back in our core segments of TSS. I mean that is what we've been waiting for. Once again, we refer to this kind of fluid power, hydraulics, pneumatics, that segment, which is the major part of Sealing Solutions, and that is the area which is going to drive this improvement by extra volumes. And also in that extra volumes in the right areas, if I may say, because it's also driving kind of a positive mix within Sealing Solutions. So this is a step in the right direction, and we still have the kind of overall objective to get back to this, say, '22, '23, '24. I mean that is where we want it to be. And we are fairly certain that we are moving in that direction. Forbes Goldman: Great. I have a follow-up on that. TSS margins are typically seasonally weaker during the second half of the year. So could you maybe just say anything directionally about Q4? Peter Nilsson: No, we don't want to do. I mean, we are moving in the right direction, and we are -- of course. I mean TSS is more, should I say, consumable where we supply into the supply chains of a large number of industrial customers. And I mean there is always Christmas breaks and all of that. So it's always a bit softer by the end of the year depending on the activity level that they're planning for after the holidays. And that is the same seasonality as we always have. So it's -- I don't know if we can comment any more on that. I don't think so. I mean that is the way it is. Forbes Goldman: Final follow-up. On the restructuring cost, it looks like quite a big step-up here into Q4. Anything in particular happening there? Fredrik Nilsson: No, nothing really. It's more a timing. So there are some projects that we have worked with for a while, and that will be booked as restructuring costs during the fourth quarter. Operator: The next question comes from Hampus Engellau from Handelsbanken. Hampus Engellau: Could we discuss organic growth on the group level and I guess also in Sealing Solutions, if you would remove Automotive, just to get a sense on how the underlying ex autos is moving, given that we have an opinion on autos going forward? Peter Nilsson: Automotive in Sealing Solutions was not positive. So that is something where we -- because they are severely hit, but they are hit by specialist aftermarket dropped for our brake business. So that is kind of negative. So I mean, if you neglect for Automotive, in Sealing Solutions, is actually going to be even better. So that is the one. We are benefiting from the China OE sales, but that is in no way compensating for the drop in the aftermarket business. But for TSS, I mean it's not a major impact, to be honest, but there is a slight positive in Industrial Solutions in this -- what we call our boots business, where we have a very strong market share in China as well. So that is where we are benefiting. But I mean it's neglectable in a way if you look at Industrial because it's not a major business of Industrial Solutions, but it is positive. So that's one. So the underlying kind of non-automotive organic growth in Sealing Solutions is actually slightly better. Hampus Engellau: Excellent. And do you bear giving some indications on how you see autos -- autos part in Sealing maybe for Q4. I guess you presume you're looking at the S&P numbers and also have an opinion on aftermarket? Peter Nilsson: On the aftermarket -- sorry, your... Hampus Engellau: Yes. I guess on fetching for if you're expecting some contribution in Q4. Peter Nilsson: To be honest on that, we are a little bit surprised that it continued on this low level. It's not that people are kind of changing less brakes. And the only thing we can read into this that there is where we have some carriers, we have some metal content in those and some of our aftermarket customers are kind of reluctant to build. Also, when they order from us in Europe, and we are sending to U.S., it takes 6 to 8 weeks. And it seems like they are not buying, they're not speculating. But of course, the stock is going down and eventually, they need to fill it up. So that is -- I mean, where we are a little bit surprised, to be honest, about this rather dramatic drop in aftermarket, which is not -- I mean, it's not that either that they can buy from anybody else. They need to buy from us and because we are specified and we are kind of regional equipment suppliers, and so that is kind of a strange, which we have now seen for 2, 3 quarters -- 2, 3 quarters. So that is something where we don't fully understand. I mean sometimes you try to understand, but sometimes you cannot get the right answers, but it cannot continue on that. I mean, let's put it, you cannot continue on that level, unless people are neglecting, not changing brakes anymore. Operator: The next question comes from Timothy Lee from Barclays. Timothy Lee: I have a follow-up question on margin. So for Sealing Solutions, there's definitely a very good margin development in the quarter. Can I also say that it is implying some synergies that you get finally from the previous acquisition of MRP. Is it something that kicking in the quarter. And also in terms of the -- your previous target of the 20% run rate EBITDA -- EBITA margin by the end of this fiscal year. Is that still something you are looking for? Peter Nilsson: To talk about synergies, of course. I mean we have always said on MRP that I mean some of the major impact is coming from the hydraulics fluid power segment. And as that now we see finally some improvements in that. Of course, we're getting some benefits from that into the figures. But I mean it's -- MRP is getting more into normal business for us. So it's not really synergies as such. It's more that the market segments, which was strengthened by the MRP has been very soft. And now we see these markets getting back. And then, of course, we get the benefit into the figure. But we are not at the end of that one because it still has to go up. It should still -- I don't know exactly the figures, but we are probably still some 15% or something below kind of the levels where we believe it should be in that particular segment. So that is still at a low activity and especially you're talking about the farming in U.S., you look at little bit construction equipment, which is still, especially the agriculture looks still very soft. And that, of course, we're starting -- if you talk to the new administration in the U.S., I don't know -- it's difficult to kind of guess where they're heading. But one of the areas which I have not been kind of supporting yet and which have been suffering is, of course, the farmers in U.S. So if something comes into that area, we should see even better improvements, especially in that segment. About 20% is still within reach, but I mean it's going to be tough to get there, I mean, to be very open to get to that level here already in Q4, but we are moving in the right direction. And we still see that with the reach in a not-too-distant future. But I mean I shouldn't sit here and say that we can get to 20% in Q4, because that has been -- there has been some market development. We know the tariff situation. We know the geopolitical areas and we know this kind of softness still in the construction and, let's say, still -- yes, quite some distance to go before we are back to normal, especially in this fluid power, which is once again the major segment of Sealing Solutions. Timothy Lee: Understood. Very helpful. And my another question would be on your M&A potential. So Continental actually previously mentioned, they could probably look for the divestments of the ContiTech business. I'm not sure whether you can comment on this or whether it is something that you may see interest or if it's in your M&A portfolio? Peter Nilsson: Yes. I mean the overall ContiTech is definitely a lot of interest for us because the majority of the ContiTech business has no -- I would say, we are in the same overall segment. But if you look at their conveyer belts or timing belts or also this what I call surface solutions. I mean it's nothing to do with that. We have some overlap in terms of nonautomotive anti-vibration and some fluid or [indiscernible], which, of course, we will be interested if we could cherry-pick, but I don't think there will be any kind of cherry-pick possibilities. So I mean, we're watching it. We're looking at it. But overall, ContiTech is a not of interest for us. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Peter Nilsson: Thank you. And thanks for listening in our quarterly call. And summary of a good quarter for us, a good organic growth, good margin development and an improved demand throughout the quarter. We still note that there is still a lot of uncertainty in the, let's say, the global arena. And that is, of course, something we're watching, but we feel confident that we're going to continue to improve Trelleborg, and continue to build a better Trelleborg with ambition, of course, to deliver even better figures going forward. So thanks to all of you, and I am happy to support you in individual calls. Christofer is always available and so are Fredrik and myself, if you want any follow-up discussions or get some clarity on other issues not covered in the call. So thanks again, and see you soon and do take care.
Operator: Welcome to the Trelleborg Q3 2025 report presentation. [Operator Instructions] Now I will hand the conference over to CEO, Peter Nilsson; and CFO, Fredrik Nilsson. Please go ahead. Peter Nilsson: Hello, everybody. Peter Nilsson speaking. Welcome all of you to this Q3 of 2025 results. What we're going to give you some of our, let's say, input on how the quarter developed. Joining me on this call is also Fredrik Nilsson, our Group CFO; and also Christofer Sjögren, who is heading our Investor Relations. So as usual, we're going to refer to a slide deck from our web page. And then on that, turning to Page 2 on that section, the agenda slide and a normal starting with some general highlights, some comments on the business areas, and then Fredrik's going to guide us through the financials and then finishing off with a summary and some comments on the outlook for the running quarter. And then finally, ending our call with a Q&A session. So that's the agenda for this call this morning. Turning then to Page 3. Heading of our report, organic growth with higher margin. So a solid quarter in more or less all aspects, the development in the right direction in more or less all aspects, sales ending up relatively flat compared to last year in Swedish krona, an increase of 1%. But behind this, a very solid organic growth, plus 4%, which is something we have not seen for quite some time. M&A also benefiting. We have done several acquisitions, several smaller bolt-on acquisitions here in the last 12 months. And that is, of course, also bringing in some sales. So that is adding 3%. And then we have a currency headwind, well known by everybody, which is 6% in the quarter, which is then once again ending up with a 1% on the total sales. EBITDA also up and also with an improved margin, which is an all-time high margin and results for the third quarter. We are, let's say, a notch above 18% EBITDA margin in the quarter. And this is, as I already said, it's a stronger third quarter to date for us, both in terms of profit and margins. So solid. And I mean, the great thing, you're going to see later also is coming from all business areas. We have a substantial negative FX on EBITDA, almost SEK 100 million or SEK 90 million, bringing us in the wrong direction, if you may say. Items affecting comparability running as planned, relatively high level this year, but also coming from this rather high number of acquisitions, which is then kind of creating opportunities to improve the structure and then make sure we get all the benefits from these acquisitions as we move forward. Cash flow, very strong. I mean, we have to admit, surprisingly strong ending of the quarter on the cash flow, which, of course, is going to bounce back a little bit here in Q4. But nevertheless, we are happy to have the money in our pockets instead of sitting somewhere else. So very solid cash flow, which is, of course, yes, creating a stronger balance sheet and overall, a better business. We've done a smaller acquisition, small but important acquisition in Singapore called Masterseals, which is an acquisition which is strengthening a little bit, oil and gas markets and generally more in the kind of aftermarket-related segments of Sealing Solutions, which is an area which we are developing at the moment, an area we're growing into kind of a global business for us. Also note, continued share buyback on a level slightly north of SEK 500 million being spent on share buybacks in the quarter. So this is the quarter. This is what it is. And I mean, overall, once again, a solid quarter. So turning then to the next page, Page 4, where you see new slide for us, which I hope you will give some more input on the sales split per geography, which I don't going to comment that much on. But we also, more importantly, we see organic growth in all 3 major geographical areas, with Europe for us being the softest, slightly better in Americas, 5% organic growth in Americas, which is kind of on a high level, driven a little bit by project deliveries, but that's the way it is. But nevertheless, good solid quarter and a very solid quarter also for Asia, then particularly strong in China for us. But overall, strong in Asia and kind of a little bit bounce back in Americas and then Europe a little bit softer. So this is the -- and in all areas or levels, which, I mean, we have not seen for some time, especially if you talk both Americas and Europe while Asia continues on a good level, as you've seen throughout the year for Trelleborg. Turning to Page 5, the agenda slide, business areas and then quickly turning to Page 6 with some more detailed comments on Industrial Solutions, organic growth and we say stable margin, a slight uptick in margin. Organic sales 2%; M&A, adding 4%. And then, of course, also, as others here, a negative exchange rate of some 6%. Also behind these figures, we see oil and gas project declined in the quarter, sales declined in the quarter, but that is mainly due to a rather tough year-on-year comparison. Overall market still developing well and a very solid cash flow. But some of these sales is rather project heavy. It is that it sometimes goes a little up a little bit and sometimes it will be down and this quarter was a little bit down in the sales, but it's not -- once again, it's not a reflection of overall lower activity in this part of the business. Construction industry is still muted but we noted satisfaction that is getting slightly better if you look sequentially, although still, let's say, quite strong decline if we compare year-on-year. But once again, some light in the tunnel and some improvements kicking in. Automotive sales increased in the quarter. I mean it's been a little bit -- how should I say a little bit strange quarter, if I may say, for automotive. Those of you following automotive, you see that it's still relatively tough sales in Europe and North America, while China was extraordinary in the quarter, which as I said, 10% plus organic growth. And I mean, the business that we have in Industrial Solutions has a very good market share in China. And that is where we benefit from this. So we have actually a strong development in automotive within Industrial Solutions in this quarter. And then EBITDA and margin improved slightly. I mean Industrial Solutions is a fairly diverse business, and there are some ups and downs always. But overall, we continue to move in the right direction. We continue to improve. It's not major steps. It's a hard work coming from kind of operational focus and also some of the structural investment, structural improvements kicking in. Overall, a good quarter, well managed in more or less all aspects. And then we also should note that when we look at the margin here, this acquisitions that we've been doing is on a lower margin than the overall, and we have some tens of a percent negative kicking in for that. It could be -- I don't know, looking at Fredrik, 0.3%, 0.5% on the margin actually coming from kind of this acquisition kicking in and it will take us a year or so before we can get them back to the overall margin of Industrial Solutions. But that is also something that you need to note when you look at the margin development within Industrial Solutions. Turning to Page 7. Trelleborg Medical Solutions, strong organic sales growth. Organic sales is up by 13%. M&A, not doing any changes, so 0 impact from that. But we have to note here as well that we have some project deliveries related to one of our major customers, which is, let's say, boosting the sales dramatically -- in the sales. I mean, if you look underlying and try to kind of neglect these organic sales, I mean the more correct probably underlying organic sales is more in the kind of mid-single-digit territory. Medtech sales, we see also medtech sales in Europe developing well. North America, where we still -- struggle is the wrong word, but we still see some negative development where we still have some inventory issues. We don't see the overall activity going down, but we still see our sales is a little bit below where it should be. So we are pretty certain that we're still impacted by inventory reductions especially in North America, which we have been for some time, and we honestly, we believe that it's going to turn the corner, but we see it continuous. It is difficult to really see through exactly when it will turn, but we continue to gain business. We continue to gain orders, and we are overall satisfied with the development, even though the sales, we would like to sell more, of course, in Americas as well going forward. Life Science, which is kind of the smaller segment of medical, is developing, if I may say, very nice, and we are growing that. And we are starting -- we have been investing in that segment with new factories, both in North America and in Europe, and with satisfaction, we see that these investments is slowly, let's say, benefiting us, and that is an area also where we see continued growth going forward. EBIT margin up and also, let's say, in absolute terms, we have EBITDA up. I mean there's higher volumes, as you expect, but also continuous structure improvements, especially starting to benefit from -- continuing to benefit from this acquisition of Baron that was made, let's say, a year ago now. Turning then to Page 8, Sealing Solutions. If I may say, very solid organic growth in the quarter coming from several areas. But I mean, if I should highlight something, it's really that we have underlying kind of industrials, the big kind of industrial segment of TSS is starting to do better. We see now growth in Europe kicking in. Asia continued on a good level, which has been good for us for quite some time. We continue to see some weakness in North America. But overall, these core segments of Sealing Solutions improved in the quarter. Both in sales and also kind of a higher activity level. Automotive for TSS is still below last year, particularly still impacted by, let's say, very soft development, very soft development in the aftermarket business. And we cannot -- I mean, it's not like the aftermarket in itself is down. It's more that we see very, let's say, uncertainty, especially in the North American market, this is -- we see that they are downsizing. In stock, inventories is down, and we do expect it to kick back. But also here, we don't know exactly when, but it is kind of we are supplying substantially below the market demand for a few quarters here, and we do expect that to bounce back eventually. We note in automotive here as well as we also commented on TSS, a very good development in China. We have a good market share for some of the products, in TSS, especially that's our shim business, our brake business has a solid market share in China. And of course, we are benefiting from that as the Chinese market has been developing very, very good in the quarter. Aerospace, very strong all over. We continue to, let's say, get more orders than we sell. So let's say, order book is growing and the activity level is growing. Of course, we note, as a trusted -- the ones of you was following aerospace that's about Airbus and Boeing is very ambitious in the growth plans going forward, and we, of course, do our best to follow that. So good development in aerospace. And overall, this means that EBITDA and margin is improving, higher production volumes kicking in. We have been underproducing for some time. And we see also the benefits from the operational improvements, but we also have to note also here we have a negative impact from acquisitions being made, which is kind of the same dimension as we see in Industrial Solutions, some 0.3%, 0.5% negative impact on the margin if we were trying to kind of adjust for the acquisitions. But we're doing the acquisitions, of course, because we believe they are good for us and they are improving the business overall, but it will take some time to get all business improvements into the margin. Already commented on the Masterseals acquisition in Singapore that is part of small acquisition, but it's part of an overall game plan to strengthen our activity within, let's say, aftermarket for seals and especially related to oil and gas and mining and other segments, which is more kind of project-related where you need, to say, local presence in order to get this business into our books. So that's -- we're happy to be that, and we think it's a good strategic add-on, although once again on a very minor level compared to the overall sales of Trelleborg. Turning to Page 9, some comments on sustainability, continue to improve substantially. I mean, we say here, we are not getting to the end of the game, but we are getting down to levels of CO2 emissions from our Scope 1 and Scope 2, which is kind of becoming very low. We're, of course, going to continue to improve. We continue to do better also in this aspect. But I mean, do not expect these kind of improvements steps going forward. Next page, Page 10 and it's basically the same here, where we have a substantial tick up in share of renewable and fossil-free electricity. We are now up to 92%. And I mean the remainder here is very difficult because in some geographies, you actually cannot get it, and we are getting also here to a situation where we cannot improve that much anymore to you on this because we are, let's say, stopped either but by very major investments to turn it around or that is simply not available in a few geographies. So very good development, very happy to show this. There was continued good development in sustainability, and we are doing good in these aspects. And I mean, once again, the focus -- we cannot improve on this criteria. So the focus going forward will be more smaller steps and more kind of what we call say, energy excellence programs. We'll be working hard with all the factories in order to improve and to do better in more minor aspects. So these big steps, you will not see these big steps going forward, but we're getting to a situation. I don't say it being perfect, but we're getting to a level where we cannot justify the final steps to get it even better. Turning then to agenda slide again, Page 11, financials on Page 12. I'll leave it over to Fredrik to guide us through this section. Fredrik Nilsson: Thank you, Peter. Let's then start on Page 12, looking at the sales development. Reported net sales increased by 1% from SEK 8.442 billion to EUR 8.532 billion. We have organic sales growth in all 3 business areas in total 4%. Structural changes added 3% growth in the quarter. And then as Peter mentioned, we have negative translation effects that reduced growth by 6% during the quarter. If we then move to Page 13, showing historical sales growth. In the third quarter, we were close to our sales growth targets, achieving 7% sales growth at constant FX. Looking at Page 14, showing the quarterly sales and rolling 12 for continuing operations. The sales in the quarter, as I said, reached SEK 8.5 billion at net rolling 12 months, it's reached SEK 34.7 billion. Moving on to Page 15, looking at the EBITA and the EBITA margin, that continued to improve further. EBITA excluding items affecting comparability, increased by 5% to SEK 1.541 billion in the third quarter. We saw profit growth in all 3 business areas. And looking at -- we start with Industrial Solutions, which was up 1% in EBITA due to operational structure improvements, which was partly offset by negative translation effects. And then Medical Solutions, up 10% in the quarter. And then finally, Sealing Solutions was up 6% in the quarter due to higher production volumes and operational improvements. And margin-wise, we rose from 17.3% up to 18.1%, supported by the organic volume growth and the operational improvements. Looking at then the EBITA and EBITA margin on a rolling 12 months basis. EBITA amounted to SEK 6.331 billion with a margin of 18.2% and EBITA has been growing with 6% during the last 12 months. Moving on to profit and loss statement. Looking into some more details in the income statements, items that are affecting comparability, SEK 72 million in the quarter, which was entirely related to restructuring costs for adjusting our cost base and due to the recent acquisition. Financial net I would say, on par compared to last year, SEK 126 million compared to SEK 128 million. This is actually despite that the debt level is higher this year. So that is also a good achievement. Tax rate for the quarter, excluding items affecting comparability, amounted to 26%, a slight increase due to timing. Page 18, earnings per share, excluding items affecting comparability, amounted to SEK 4.20 in the quarter and increased by 11%, and that was due to the higher profitability and the effect of the ongoing share buyback program. And for the group, including items affecting comparability, earnings per share were up SEK 3.94, also 11% up. Moving on to Page 19. As Peter mentioned, we have a very strong cash flow in the quarter, which reached SEK 1.741 billion. On a high level, half of the improvement came from the higher EBITDA and the rest from efficient management of the working capital. CapEx is well aligned with the communicated guidelines for the full year but marginally higher than Q3 last year. Moving on to Page 20, the cash flow conversion. The cash flow conversion was 92%. So we continue to deliver a high cash conversion ratio. Moving on Page 21, the gearing and the leverage development. Net debt at the end of the quarter at SEK 8.280 billion. Share buyback during the quarter was SEK 554 million, ended the quarter with a debt-to-equity ratio at 22%. So small improvement compared to Q2. And then net debt in relation to EBITDA, 1.1, which was slightly higher than year-end. But of course, we have also paid out a dividend during the second quarter, and we have continued the share buyback program. In other words, our balance sheet remains strong. Moving on to Page 22, return on capital employed reached 12% for the quarter, and our capital employed has increased compared to last year mainly due to the acquisitions, but I think also I would like to note that our return on capital employed has sequentially increased for Q2 to Q3. And then finally, the financial guidelines for 2025, unchanged compared to what we communicated after our second quarter CapEx, SEK 1.650 billion for the full year, restructuring costs around SEK 500 million for the full year as well. Amortization of intangibles, SEK 650 million and underlying tax rate for the full year around 25%. And by that, I would like to hand back the microphone to Peter. Peter Nilsson: Thank you. Agenda slide, summary and outlook. Quickly turning to Page 25. Looking at the quarter, organic growth with higher margins, good quarter overall, but it picked out a few highlights. We see in the quarter in improved -- generally an improved demand, higher activity levels or continued high activity level in some areas. We see an improvement in that. And we also note with satisfaction, of course, that all our 3 business areas recorded organic growth in the quarter, which has been quite some time since we saw that the last time. So overall, better activity, although not kind of a big jump upwards. But nevertheless, improvements in most areas. We also note that these higher sales is also improving our margins. We have a fairly sizable uptick in the margin year-on-year. And it then boils down to the strongest quarter -- strongest third quarter to date, both in terms of profit and margin. We also note that we continue to do value -- what we call value-adding M&A, although impact, this is our 10th bolt-on acquisitions since Q3 last year. And of course, this is a high activity level in [indiscernible] we said before, is impacting our margin negatively in Sealing Solutions and Industrial Solutions, but we are, at the same time, improving our overall positions, and we are very certain that this -- when that's fully integrated, there will not be a drain on the margin or rather the opposite, but it takes some time to get there. And we also note that continue buybacks, we continue to have a solid balance sheet, which is, let's say, allowing us both to continue on high CapEx level, continue to do M&A, continue to absorb the growth, which is in the quarter in terms of working capital, but also on top of that, we also continue to do share buybacks. So that was the summary and then turning to -- for the last quarter and then turning to Page 26 and some outlook. We expect the demand to remain on this level. For those of you who have read the reports see that we have this extraordinary sales or project sales within medical, we were not going to kick in. So with this outlook, you should read it that the continued overall demand, we might be -- we don't know exactly, as we otherwise were sitting exactly where we end up. But of course, we believe that this is probably not going to be of north of 4% in the next quarter, but we could be a 1 percentage point or some lower than 4%, but we believe it's going to be on a similar level. And I mean if this continued higher activity level, remain, then we will look with more positivism on the future. But with this comment, of course, also, we all know there is a big year -- still a big, what we call political situation or geopolitical challenges out there and things might happen, which could impact the demand short term. So that is, of course, with this comment on the continued good market, it comes with this kind of comment. And then turning to Page 27 agenda and into the final agenda point and turning to Page 28 and opening up for questions. Operator: [Operator Instructions] The next question comes from Alexander Jones from BofA. Alexander Jones: If I can have two please. The first on Sealing Solutions and specifically the Industrial business within that, you talked about higher growth this quarter. Could you help us understand was that broad-based or the particular end markets within Industrial driving that? And to what extent was that the end market improving or more market share gains and innovation success that you've had as Trelleborg? And then the second question, if I can, just on the Medical business. Can I clarify on the one-off project sales this quarter. Is there any element there have pulled forward that will be reversed in future quarters? Or is that just sort of one-off extra sales that we should not extrapolate in our future numbers? Peter Nilsson: Alexander, talking -- starting with the medical one, I mean that is really a startup of a new program for one of our customers, which is a one-off delivery. So it's not really about impacting the future. So it's not kind of a pull from any future sales. It's simply sales in the quarter due to the [indiscernible] starting new programs. So that is kind of the way it is sometimes, but it's not kind of any forward buying or something, it's simply a one-off sales. So nothing really that we need -- we don't expect it to -- yes, to impact the sales going forward. So that's it. And then if you talk about Industrial, I mean, one thing is also on the industrial sales of Sealing, which you've seen in the quarter, I mean we have been, for quite a few quarters, talking about destocking in these activities. So one of the impacts in the quarter is no more destocking, and we are kind of supplying in line with underlying demand. I mean, so that is one of the impacts. But we don't see still as an inventory buildup, but we still believe that there is supplying. But we are not kind of oversupplying in the way that they are building stock. And I mean -- and the core driver for this is kind of the biggest subsegment, if I say in Sealing, which is more hydraulics, machinery and this kind of core industrial business. That is where we see the improvements. So we're not surprised, I shouldn't say we're surprised because it's been undersupplying for a few quarters. And now we feel that we're supplying in line with the overall demand. So I don't know whether that is enough for you. Alexander Jones: Yes, that's very helpful. . Operator: The next question comes from Agnieszka Vilela from Nordea. Agnieszka Vilela: So I have a few questions, maybe starting with the first one on the growth trajectory in the quarter, if you could share any flavor of how was development in September? And then also, how is it progressing in October? And then also, Peter, I think before you used to refer to your order intake. So how is that developing right now for you? Peter Nilsson: I mean there was an improvement throughout the quarter, but also the trick on Q3 September is always important. Since the other 2 months is a little bit impacted by vacation period. So it was kind of an acceleration in the quarter, so a stronger ending than beginning in the quarter, but we don't, let's say, put too much emphasis on that one. But it is kind of an improvement in the quarter, if I may say. And October, I mean, we don't see any kind of differences and we don't really want to comment on it. So it's really overall guidance remains that we believe is going to be same growth in Q4 with, let's say, some adjustments coming from this extraordinary sales in Medical. So my read this, I mean it might be 4, it might be 3. But I mean, we don't really know. We have an overall good order intake. We have overall good activity level. I mean, we should say book-to-bill in the quarter is positive. We have booked more orders in Q3 than we have been selling. So we are growing the order book. But we also remain a little bit cautious on this because we know there is inventory focus, cash flow focus on some customers. So we don't really want to read too much into it. But if we simply did the Excel sheet calculation, then of course, we will, let's say, be more positive than negative in that one. I don't know whether that is enough, Agnieszka. Agnieszka Vilela: Yes, yes, absolutely. But then maybe if you could give us some color on the regional development as well. Obviously, you have -- you have had very strong development in Asia, now followed by Americas, Europe also now slightly positive. In the next few quarters, do you expect any changes to this order like any other -- any region taking over? Peter Nilsson: No. I mean I think Asia, little bit, has been a little bit extraordinary strong, especially in automotive since we have this big boost. I can't remember exactly, but I think production levels in China for automotive was up by some 12%, 13%. So that's, of course, since we have a high -- good position with a few of our automotive segment, that is benefiting us, but also the overall industrial development in Asia, especially in China has been good for us, somewhat difficult to fully understand, to be honest, but it's been ongoing for quite a few quarters, and we do not expect that to be -- of course, comps getting more difficult going forward. But nevertheless, a good development in there. Europe is probably more tricky in a way to read. But we see -- I mean, in the core, as I commented before, the core Industrial segments of TSS is improving. And that is more -- part of it is a reflection that no more destocking and more of kind of delivery in line with underlying demand. We do not see any kind of inventory buildup at the moment, and that is, of course, if it turns more positive, we will see that as well. So we've been undersupplying for a few quarters. We do expect as the market -- if the markets turn more positive that we will be oversupplying. But we don't really see that happening short term. But if you go into early next year and this development continues, we're probably going to have some of that. U.S. is probably, for us, a little bit more positive than it should be because we have a few project deliveries in U.S., which is kind of impacting the sales there. But nevertheless, let's say, for us, a good positive territory also coming there from kind of hydraulics and the pneumatic segments, which is also a part of our core business in North America for Sealing. I guess that is -- I don't know, Fredrik, if you want to elaborate. I think that is kind of just to be a little bit more color for that development. Agnieszka Vilela: That's very helpful. And then the last one from me. I noticed that you didn't really mention the tariff impact in your report or in your presentation. Was there any kind of growth tariffs now affecting you in the quarter and how are you mitigating those? Peter Nilsson: We have a few individual businesses where we need to kind of redo the supply chain and working with that. But I mean, overall, this kind of minor activity. So that is why we don't see that as a kind of impacting us. We have a very regional setup. We have as I said, manufacturing in Asia, we have manufacturing in Europe, we have manufacturing in the U.S., and we don't really have a lot of these flows going across. I mean, the challenge here is more the metal content where we need to find out. We have a few products, but we have metal content, and that is something where we need to work. And that is also our question going forward on these tariffs in Europe because some of the export business from Europe into other territories might be impacted by that. But it kind of remains an action point and that is something we're working on. But overall, on a group level, we don't see this at any topic in a way, to be honest. Underlying demand could be impacted, I mean to say. But I mean for our trading and margins, it's not really something that we discuss too much. Operator: The next question comes from Forbes Goldman from Pareto Securities. Forbes Goldman: Yes. One question on the TSS margin, which was quite strong here in the quarter. Is this the start of a sustained recovery there? And how are you thinking about the 23% target from here? What do you sort of need to reach it? Peter Nilsson: No. I mean it is a solid, let's say, step in the right direction. Looking at the margin, of course, once again, you need to remind yourself as well that we have also a negative impact from the acquisitions. Of course, it is a step up compared to last year. And we have always said that we're going to get this back to our levels and is kind of step in that direction. And then I don't want to guide exactly what kind of quarter, but it is coming as expected, as planned, if I may say, this margin expansion coming from a little bit bounce back in our core segments of TSS. I mean that is what we've been waiting for. Once again, we refer to this kind of fluid power, hydraulics, pneumatics, that segment, which is the major part of Sealing Solutions, and that is the area which is going to drive this improvement by extra volumes. And also in that extra volumes in the right areas, if I may say, because it's also driving kind of a positive mix within Sealing Solutions. So this is a step in the right direction, and we still have the kind of overall objective to get back to this, say, '22, '23, '24. I mean that is where we want it to be. And we are fairly certain that we are moving in that direction. Forbes Goldman: Great. I have a follow-up on that. TSS margins are typically seasonally weaker during the second half of the year. So could you maybe just say anything directionally about Q4? Peter Nilsson: No, we don't want to do. I mean, we are moving in the right direction, and we are -- of course. I mean TSS is more, should I say, consumable where we supply into the supply chains of a large number of industrial customers. And I mean there is always Christmas breaks and all of that. So it's always a bit softer by the end of the year depending on the activity level that they're planning for after the holidays. And that is the same seasonality as we always have. So it's -- I don't know if we can comment any more on that. I don't think so. I mean that is the way it is. Forbes Goldman: Final follow-up. On the restructuring cost, it looks like quite a big step-up here into Q4. Anything in particular happening there? Fredrik Nilsson: No, nothing really. It's more a timing. So there are some projects that we have worked with for a while, and that will be booked as restructuring costs during the fourth quarter. Operator: The next question comes from Hampus Engellau from Handelsbanken. Hampus Engellau: Could we discuss organic growth on the group level and I guess also in Sealing Solutions, if you would remove Automotive, just to get a sense on how the underlying ex autos is moving, given that we have an opinion on autos going forward? Peter Nilsson: Automotive in Sealing Solutions was not positive. So that is something where we -- because they are severely hit, but they are hit by specialist aftermarket dropped for our brake business. So that is kind of negative. So I mean, if you neglect for Automotive, in Sealing Solutions, is actually going to be even better. So that is the one. We are benefiting from the China OE sales, but that is in no way compensating for the drop in the aftermarket business. But for TSS, I mean it's not a major impact, to be honest, but there is a slight positive in Industrial Solutions in this -- what we call our boots business, where we have a very strong market share in China as well. So that is where we are benefiting. But I mean it's neglectable in a way if you look at Industrial because it's not a major business of Industrial Solutions, but it is positive. So that's one. So the underlying kind of non-automotive organic growth in Sealing Solutions is actually slightly better. Hampus Engellau: Excellent. And do you bear giving some indications on how you see autos -- autos part in Sealing maybe for Q4. I guess you presume you're looking at the S&P numbers and also have an opinion on aftermarket? Peter Nilsson: On the aftermarket -- sorry, your... Hampus Engellau: Yes. I guess on fetching for if you're expecting some contribution in Q4. Peter Nilsson: To be honest on that, we are a little bit surprised that it continued on this low level. It's not that people are kind of changing less brakes. And the only thing we can read into this that there is where we have some carriers, we have some metal content in those and some of our aftermarket customers are kind of reluctant to build. Also, when they order from us in Europe, and we are sending to U.S., it takes 6 to 8 weeks. And it seems like they are not buying, they're not speculating. But of course, the stock is going down and eventually, they need to fill it up. So that is -- I mean, where we are a little bit surprised, to be honest, about this rather dramatic drop in aftermarket, which is not -- I mean, it's not that either that they can buy from anybody else. They need to buy from us and because we are specified and we are kind of regional equipment suppliers, and so that is kind of a strange, which we have now seen for 2, 3 quarters -- 2, 3 quarters. So that is something where we don't fully understand. I mean sometimes you try to understand, but sometimes you cannot get the right answers, but it cannot continue on that. I mean, let's put it, you cannot continue on that level, unless people are neglecting, not changing brakes anymore. Operator: The next question comes from Timothy Lee from Barclays. Timothy Lee: I have a follow-up question on margin. So for Sealing Solutions, there's definitely a very good margin development in the quarter. Can I also say that it is implying some synergies that you get finally from the previous acquisition of MRP. Is it something that kicking in the quarter. And also in terms of the -- your previous target of the 20% run rate EBITDA -- EBITA margin by the end of this fiscal year. Is that still something you are looking for? Peter Nilsson: To talk about synergies, of course. I mean we have always said on MRP that I mean some of the major impact is coming from the hydraulics fluid power segment. And as that now we see finally some improvements in that. Of course, we're getting some benefits from that into the figures. But I mean it's -- MRP is getting more into normal business for us. So it's not really synergies as such. It's more that the market segments, which was strengthened by the MRP has been very soft. And now we see these markets getting back. And then, of course, we get the benefit into the figure. But we are not at the end of that one because it still has to go up. It should still -- I don't know exactly the figures, but we are probably still some 15% or something below kind of the levels where we believe it should be in that particular segment. So that is still at a low activity and especially you're talking about the farming in U.S., you look at little bit construction equipment, which is still, especially the agriculture looks still very soft. And that, of course, we're starting -- if you talk to the new administration in the U.S., I don't know -- it's difficult to kind of guess where they're heading. But one of the areas which I have not been kind of supporting yet and which have been suffering is, of course, the farmers in U.S. So if something comes into that area, we should see even better improvements, especially in that segment. About 20% is still within reach, but I mean it's going to be tough to get there, I mean, to be very open to get to that level here already in Q4, but we are moving in the right direction. And we still see that with the reach in a not-too-distant future. But I mean I shouldn't sit here and say that we can get to 20% in Q4, because that has been -- there has been some market development. We know the tariff situation. We know the geopolitical areas and we know this kind of softness still in the construction and, let's say, still -- yes, quite some distance to go before we are back to normal, especially in this fluid power, which is once again the major segment of Sealing Solutions. Timothy Lee: Understood. Very helpful. And my another question would be on your M&A potential. So Continental actually previously mentioned, they could probably look for the divestments of the ContiTech business. I'm not sure whether you can comment on this or whether it is something that you may see interest or if it's in your M&A portfolio? Peter Nilsson: Yes. I mean the overall ContiTech is definitely a lot of interest for us because the majority of the ContiTech business has no -- I would say, we are in the same overall segment. But if you look at their conveyer belts or timing belts or also this what I call surface solutions. I mean it's nothing to do with that. We have some overlap in terms of nonautomotive anti-vibration and some fluid or [indiscernible], which, of course, we will be interested if we could cherry-pick, but I don't think there will be any kind of cherry-pick possibilities. So I mean, we're watching it. We're looking at it. But overall, ContiTech is a not of interest for us. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Peter Nilsson: Thank you. And thanks for listening in our quarterly call. And summary of a good quarter for us, a good organic growth, good margin development and an improved demand throughout the quarter. We still note that there is still a lot of uncertainty in the, let's say, the global arena. And that is, of course, something we're watching, but we feel confident that we're going to continue to improve Trelleborg, and continue to build a better Trelleborg with ambition, of course, to deliver even better figures going forward. So thanks to all of you, and I am happy to support you in individual calls. Christofer is always available and so are Fredrik and myself, if you want any follow-up discussions or get some clarity on other issues not covered in the call. So thanks again, and see you soon and do take care.
Operator: Hello, and welcome to the Gjensidige's Q3 2025 Results Presentation. My name is Serge and I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Mitra Negård. Head of Investor Relations, to begin today's conference. Thank you. Mitra Negård: Thank you. Good morning, everyone, and welcome to our Third Quarter Presentation of Gjensidige. As always, my name is Mitra Negård, and I'm Head of Investor Relations. As always, we will start with our CEO, Geir Holmgren, who will give you the highlights of the quarter; followed by our CFO, Jostein Amdal, who will run through the numbers in further detail. And we have plenty of time for questions after that. Geir, please. Geir Holmgren: Thank you, Mitra, and good morning, everyone. The third quarter saw a relatively stable weather in our region. However, earlier this month, Storm Amy reminded us of the growing impact of climate change and extreme weather, affecting large parts of Norway and areas in Denmark. The storm caused significant property damage through strong winds, once again, testing our organization's resilience. In preparation for the event, cross-functional teams across the organization were mobilized to ensure customer safety and uphold the consistently high standards of service. Billion lessons from past events, we have streamlined our processes for faster, more effective support. According to the Norwegian Natural Perils Pool, over 11,000 claims have been registered in Norway with total industry-wide insurance losses from Natural Perils estimated at NOK 1.5 billion to NOK 2.1 billion. Additional claims for cars, boats and water-related incidents fall in a separate insurance schemes. You can see this total claims cost for Amy in Q4 2025 is estimated at approximately NOK 400 million net of reinsurance and including reinstatement premiums. With the emergency phase behind us, the focus is now on supporting our customers in repairing and replacing what has been damaged. Events like Amy highlight the need for continued climate risk preparedness, the insurance industry remains committed to prevention, collaboration with the municipalities and developing solutions that reflect the changing risk landscape. So now let us turn to Page 3 for comments on the third quarter results. We delivered our profit before tax of NOK 2,067 million. This result includes a nonrecurring expense of NOK 429 million related to the termination of the new core IT system in our pension business. We generated a general insurance service results of NOK 2,271 million, significantly up year-on-year. Our strong growth momentum continued in the quarter with 11.3% increase in insurance revenue when adjusted for the positive effect of the change in recognition of home seller insurance. The combined ratio declined to 79.7%, reflecting the improvements in both loss and cost ratios. The underlying frequency loss ratio improved by 1.4 percentage points and our investment generated returns of NOK 534 million, contributing to delivering a solid return on equity of 29.6%. We have a solid capital position and our solvency ratio was 191% at the end of the quarter. Jostein will revert with more detailed comments on the results for the quarter. Turning to Page 4. I will start with private property insurance in Norway, which sold lower profitability this quarter, reflecting the inherent natural volatility in claims. Claims frequency increased by 5%. Repair costs increased by 4%, in line with our expectation. We continue to implement price increases, although at a more moderate level, reflecting the outlook for inflation and frequency and the current profitability level. Average premiums increased by almost 16%, over the next 12 to 18 months, we expect the repair cost to remain within the range of 3% to 5%, and we will continue to price at least in line with expected claims inflation. Our current average rate of price increases of private property in Norway is 12.5%. So moving over to private motor insurance in Norway. Profitability for this product line improved over the same quarter last year, thanks to our targeted pricing measures. Claims frequency increased by 4%, reflecting an elevated claims level in July, likely as a consequence of the good weather and high traffic density in the vacation weeks. We estimate that the increase in the underlying claims frequency was in the range of 1% to 2%, repair costs increased by 4.4%, well within our estimated range. Average premium increased by 18.6%, although inflationary pressures are easing. The overall level is likely to remain within the 3% to 6% range for the next 12 to 18 months. We are monitoring the key drivers closely and acknowledge the uncertainty stemming from, among others, geopolitical risk and escalated trade tensions. Our current average rate of price increases of private motor in Norway is 13%. Moving on to Page 5. The strong performance in Norway continued this quarter, driven by sustained growth momentum and focus on efficient operations. We are very pleased to see that our retention rates for both the private and commercial portfolios, remain at a very high levels despite the necessary price increases. Sales activity has been strong, leading to an increase in both customer numbers and volumes for private in Norway. We continue to maintain strong competitiveness in the SME part of the commercial market with strong focus on profitability as we move closer to the January renewals. In Denmark, profitability improved for the private portfolio with solid revenue growth driven by both volume and pricing. Profitability for the commercial portfolio was lower, reflecting the inherent variability. We are satisfied with the underlying developments. The implementation of our new core IT system in Denmark is progressing steadily, supported through our testing and a strong focus on quality. Sales are being rolled out gradually, and we are preparing for the migration of the portfolio next year. We are seeing clear benefits from the experience gained during the implementation and use of the system in the private portfolio. And I'm pleased to see that our Swedish operation continued to build on positive momentum, showing sustained progress through solid growth and improved profitability. We are currently conducting a thorough assessment of the core IT system in Sweden, taking into account the specific characteristics of our operations in that market. Over to Page 6. We continue to actively pursue our strong sustainability ambitions. As shown on this slide, we have launched a number of innovative initiatives that are designed to create significant customer value, while reducing claims costs over time. So with that, I will leave the word to Jostein to present the third quarter results in more detail. Jostein Amdal: Thank you, Geir, and good morning, everybody. I will start on Page 8. We delivered a profit before tax of just over NOK 2 billion in the third quarter. The insurance service result increased significantly to NOK 2,271 million, driven by continued strong top line growth and a lower loss ratio. A further decrease in the cost ratio also contributed to higher results. Private delivered a higher result driven by both Norway and Denmark. The improvement in Norway mainly reflects revenue growth across all products, improved profitability for motor insurance and a lower cost ratio. And nonrecurring effect related to home seller reinsurance also added to the result. The positive development in Private Denmark was driven by a combination of revenue growth for all main products, higher profitability for property and motor insurance and a lower cost ratio. Decrease in results from commercial was driven by our Norwegian portfolio due to revenue growth for all products, improved profitability for Accident & Health, motor and property insurance and a lower cost ratio. Higher runoff gains also contributed positively. Our Danish commercial portfolio showed lower results, primarily driven by a higher number of fires impacting property insurance and lower run-off gains. In Sweden, the increase in insurance service result mainly reflected higher profitability for private and commercial property and private payment protection insurance. Our lower cost ratio also contributed to the improved results. The pension segment reported a loss of NOK 414 million, largely related to the nonrecurring expense of NOK 429 million related to the termination of the core IT system. The net result from our investment portfolios amounted to NOK 441 million in the quarter with positive returns from all asset classes. The negative development in the result under other items this quarter is attributable to profits from Natural Perils insurance transferred to the Natural Perils Pool and provisions related to the termination of cooperation agreements with 7 fire mutuals, effective from next year. We are taking proactive steps to secure our market position in the affected areas, and we expect only a limited impact on revenue. The result from our Baltic business is recorded as discontinued operations, pending regulatory approval for the sale. We expect to close the transaction in the beginning of next year. The higher result reflects the write-down of goodwill related to the sale of the company recognized in the third quarter last year. The insurance service result also contributed positively driven by an increase in runoff gains and lower loss and cost ratios. Turning over to Page 9. Our strong growth momentum continued in the third quarter with insurance revenues for the group increasing by more than 11% in local currency when adjusting for the nonrecurring effect in Private Norway. I'm very pleased with the increase, which was mainly driven by pricing measures across the private and commercial portfolios in all geographies, solid renewals in the commercial portfolios and higher volumes in Denmark and Sweden. The growth in our Private segment was driven by both Norway and Denmark. Private Norway showed a strong growth momentum even when excluding the home seller insurance product. This strong development was primarily driven by price increases in all main product lines. And I'm very pleased that we also saw increased volumes from motor, property, travel and accident and health insurance. The growth in Denmark was also strong, thanks to both price increases and higher volumes for all main products. Growth in commercial was also driven by both Norway and Denmark. In Norway, the growth was driven by price increases for all products and solid renewals. As in the previous quarters, this year, growth for some products within accident insurance was muted due to continued focus on profitability improvements. Growth in Commercial Denmark was good. Adjusting for an accrual last year, the growth rate was 6.4% in local currency, driven by price increases for all main products and higher volumes for property, accident & health and liability insurance. Growth in Sweden was negatively impacted by accruals. The underlying growth, however, was good, mainly reflecting higher volumes for leisure boat insurance in the private portfolio and higher volume and price increases for commercial motor and private property insurance. Turning over to Page 10. I'm very pleased with the development in the Group's loss ratio, which improved by 3.2 percentage points compared with the third quarter last year. Part of the improvement was due to lower large losses, which are random in nature. Another important driver was the improvement in the underlying frequency loss ratio of 1.4 percentage points. I'm very satisfied with the development in all the segments and particularly encouraged by seeing an improvement for Private Denmark. Let's turn to Page 11. Our commitment to operational efficiency remains strong. The group's cost ratio was 10.8% this quarter. The 1 percentage point improvement was driven by private in Norway and Denmark, commercially in Norway and the Swedish operations. We continue to strengthen our competitiveness, particularly in Denmark, and we're working to optimize our cost base across the group to create greater capacity for future investments in technology and growth. Over to Slide 12 for comments on our pension operations. Our pension business delivered a pretax loss of NOK 414 million this quarter, significantly impacted by the nonrecurring expenses from discontinuing the new core IT system project. For the time being, we will continue using the existing core system as recent improvements have enabled us to extend its operational life span. The underlying development in results for our pension business is good. Business volumes for the insurance products were high this quarter, which together with price increases lifted insurance revenue. Adjusted for the nonrecurring termination expense, the insurance service results improved year-on-year, but it was still in the red, due to asymmetric recognition of onerous contracts and expected future profits from new contracts. Net finance income contributed with just over NOK 1 million this quarter, reflecting running yield and higher interest rates. The unit-linked business continues to grow with a number of occupational pension members increasing by 5,500 to almost 335,000 at the end of the third quarter. Assets under management rose by NOK 4 billion to NOK 100 billion. This drove an increase in administration fees and management income, improving the net income from the unit linked business when excluding the nonrecurring item. Moving on to the investment portfolio on Page 13. Our investment portfolio generated positive returns for all asset classes, driven by running yields, lower credit spreads and positive equity and real estate markets. The match portfolio net of unwinding and the impact of changes in financial assumptions returned around 40 basis points, mainly reflecting lower credit spreads and the fact that the investments did not fully match the accounting-based technical provisions. The free portfolio returned 110 basis points, reflecting positive returns from all asset classes. The risk in our free portfolio remained low. A few words on the latest development of our operational targets on Slide 14. The customer satisfaction score is measured annually in the fourth quarter. We continue to identify measures and take steps to maintain a strong customer offering and high customer satisfaction. As Geir mentioned, retention in Norway remained high and stable. Retention outside Norway improved slightly during the quarter, with increases seen in Sweden and the private and commercial portfolios in Denmark. We are steadily progressing toward our 2026 target of achieving a retention rate above 85% outside Norway. The improvement in the digital distribution index this quarter reflects an increase in digital sales and digital customers, somewhat offset by a decline in digital service. Distribution efficiency is progressing well, primarily as a result of higher sales in Norway, but also in Denmark. Increased sales following the acquisition of Buysure contributed positively, improving this metric by 2 percentage points. Digital claims reporting increased during the quarter driven by Denmark and Sweden, and automated claims in Norway increased as well. Now over to Page 15 and a few words on our successful Tier 1 bond issue of NOK 1.2 billion in September. We aim to take advantage of what we viewed as attractive market condition, while also preparing for the first call of another Tier 1 bond in April next year. The issue was substantially oversubscribed, and we are very satisfied with the floating rate coupon of 3-month MBR plus 215 basis points. We also took the opportunity to buy back NOK 487 million of the Tier 1 bond with the upcoming call, resulting a net increase of NOK 713 million in outstanding Tier 1 capital. Over to Page 16. We had a solvency ratio of 191% this quarter, up from 182% in the second quarter. Solvency II operating earnings and returns from the free portfolio contributed positively total eligible own funds, while the formulaic dividend which corresponds to a payout rate of 80%, reduced eligible loan funds by NOK 1.3 billion this quarter. The net increase in Tier 1 capital, I just mentioned added NOK 713 million to the eligible own funds. The capital requirement increased slightly this quarter, primarily due to growth in our pension business. The non-life underwriting risks were stable, reflecting growth, offset by the effect of settlement of larger claims and changes in currency rates. And with that, I hand the word back to Geir. Geir Holmgren: Thank you. To sum up on Page 17, we are very pleased with the performance and continued progress across the private, commercial and Swedish segments this quarter. And our capital position is strong. We continue to implement measures and maintain a strong focus on operational efficiency, progressing well toward delivering on our financial targets this year and in 2026. So finally, on Page 18. Before we open for questions, I'm very happy to announce that we have set a date for our next Capital Markets Day, which will be held on the 26th of February next year in Oslo. We are looking forward to this opportunity to speak about our ambitions and plans. We will provide more details in a while. But in the meantime, please save the date. And with that, we will now open the Q&A session for this presentation. Operator: [Operator Instructions] Our first question is from Hans Rettedal from Danske Bank. Hans Rettedal Christiansen: So my question is around the claims frequency numbers that you gave in motor and property. And I guess there's a lot of sort of volatility, especially between Q2 last quarter and Q3 this quarter with quite a sizable effect on the overall claims outcome. So I was just wondering if you could give a little bit more color on your confidence that sort of frequency will come down and also perhaps just a bit more elaboration on what was driving the July pickup in motor and also in property? And just a very small question on the amounts recovered from reinsurance, which is lower than it typically is of only NOK 12 million this quarter. I know there's nothing typical about reinsurance, but still any help on why this is or sort of drivers behind it would be interesting to hear. Operator: We'll now move to our next question from Ulrik Zürcher from Nordea. Geir Holmgren: Operator, we'll try to answer the question first, please. Hans I can start with the claims frequency volatility. As you know, we are -- have an improvement when it comes to online compared this quarter to the third quarter last year. We see an improvement both on the group level and private and commercial and also in the Swedish operations. When it comes to volatility within the Norwegian part of the business, we see in the property side, more fires this quarter than you normally see. So it's also a kind of impact on some level of volatility, which is a part of our business from quarter-to-quarter. In addition, we saw a pickup, as you mentioned, on the motor side in the start of the third quarter. That's more due to higher frequency in July due to higher traffic density vacation weeks with this time tended to be more have a kind of an impact on the frequency side when it comes to motor. We do have quite high pricing measures, as mentioned in the October renewal. We see pricing measures, both for property and motor in Norway with renewables on 12.5% to 13% price increases on average, which is still above what we expect when it comes to frequency development and inflation going forward. Jostein Amdal: Yes. On the reinsurance recoveries, comment on specific claims. There is -- there has been a reduction of the estimates from some previous large claims, which have been above the retention limits. And that has then an effect that assumed the reinsurance recoveries will come down. So they're kind of -- if you have -- I try to explain it more clearly, if you have a reduction in a large claim estimate with no net effect because they have a reduction in gross claims and a reduction in assumed reinsurance recoveries. And that's the main reason why it's such a low number in the third quarter. Was that clear, Hans? Hans Rettedal Christiansen: Yes, very clear. Operator: Our next question is from Ulrik Zürcher from Nordea. Ulrik Zürcher: Just a short one. Jostein, when you say limited effects from the fire mutuals. Is it possible to -- like how much is that of premiums? And then secondly, just a technical one. You're trying to switch on profits to the Natural Perils Pool. I was just wondering, how will this work going forward? Jostein Amdal: Okay... Ulrik Zürcher: Is it like a quarterly thing or? Jostein Amdal: Yes. I get the question. The fire mutual there's a limited effect on the future development because there is -- this is -- first of all, this is a situation we also had 5 years ago when we had the termination of a number of fire mutuals as well. And it's then the fire mutuals have sold fire insurance in their own account, and then they have had been an agent on -- for all of the products for Gjensidige. And so we have both the fire mutuals and Gjensidige has had the customer relationship. And of course, we will be competing for the same customers. And we do expect a limited negative development on the premium development from this. So we will be strengthening our efforts within these geographical areas where these fire mutuals have operated. Yes. Geir Holmgren: If you talk about the impact on the profitability, I will also mention that because that's due to kind of agent distribution setup. We also definitely reduced expenses going forward regarding distribution. So we improved the distribution efficiency when it comes to existing customers through that channel. Jostein Amdal: The second question on Natural Perils technicalities is that when the line of business called Natural Perils has a surplus that surplus is transferred to the Natural Perils pool accounts in a way and that's then something we have to pay to this central Natural Perils Pool. Yes, and that's then on the negative on the others, other lines, other items. So it's a good year -- the positive will then be in the -- in a way where it's just a surplus or deficit. So if it's a surplus, it's a negative other. So there is no positive in a way. It's just a net negative. Ulrik Zürcher: Okay. So but will this be like done on a quarterly basis or annual? Jostein Amdal: In reality is every month, but then you, of course, get accounts every quarter. Operator: We'll now move to our next question from Derald Goh from Jefferies. Derald Goh: So my question is around the cost ratio. Now you're running at 12%. Is this the new base that is sustainable or would you -- and I guess, would you consider maybe reinvesting some of that into growth? Jostein Amdal: We are very happy to see reduced cost ratios. We have very strong cost discipline, and we have many cost efficiency measures going on in the organization and in our business. Our target at the moment is around 13% next year, but we are aiming for keeping the business still cost efficient, of course, and work every day to try to improve the cost efficiency. This, at the moment, as you mentioned, it could probably argue that it's some kind of room for doing other types of investments. But every type of investments we are doing have -- will have a good business case and will make -- improve the profit over time. So we are still focused on being a cost-efficient business and that's part of the core of our business and the way we are thinking. Derald Goh: But just to be clear, I guess, is it expected to assume that some of this 12% is a reasonable run rate for now? Jostein Amdal: I think we will not give any kind of guiding on our cost ratio going forward. The best thing to mention is our target for next year, which is around 13%. Operator: And we will now take our next question from Thomas Svendsen from SEB. Thomas Svendsen: Yes. So a question to the pension operation from my side. So can you just explain a little bit more why you scrap this system? Are there any changes in -- sorry, your market approach or something other? And also just remind us of the business plan for your business -- for your pension units? And also, could you sort of indicate sort of what to expect to be sort of normalized pretax profit level given the current asset base there? Geir Holmgren: Okay. the reason for terminating the core system within the pension business is due to our needs and requirements regarding the business we have today regarding pension business and pension-related products. Our assessment is that we are not getting the full benefit out of the existing core system, which was terminated and that has developed during the years we have doing the development, I would say. So this is a conclusion on something we -- the kind of assessment and consideration we have done in the past. And our assessment is that this is not the right system for Gjensidige going forward, taking care of our pension business in the Norwegian market with all the kind of requirements needed for doing that efficiently and with high quality. Our pension business in Norway is when it comes to a more strategic view on that. It's a very integrated part of our commercial business, especially in the SME areas, we see that we are running this business very cost efficient when it comes to distribution. It's capital efficient as well due to the types of products we have in the pension business. And I'm very happy to see the growth we have had within that business during the last couple of years, and it's a very motivated organization to keep that up on a high level going forward as well. So we are focusing on occupational pension and are happy to see that the market has a high level of growth, which we definitely take our earned part. So yes, I think that's probably on the business side. Jostein Amdal: I can add on the kind of financial guiding. I mean we don't guide us on much, but we have stated a return on equity target for the pension business back in the Capital Market Day in November '23, where we said that based on IFRS earnings, which is the company accounts for the pension business, we need to -- or target to return more than 15% return on equity. And if you exclude this nonrecurring item, year-to-date, the return on equity is 20.7%. So we are well ahead of our stated financial targets for the pension business as a company. Geir Holmgren: And if you look at the accounts for IFRS 4 in that business, it's -- actually we had a very good quarter when it comes to underlying profitability, good growth on the income side, revenue side, and it's run very cost efficient as well. Operator: We'll now take our next question from the next caller, please introduce yourself by your name and the affiliation after the automated prompt. Unknown Analyst: This is [indiscernible] from Autonomous Research. Can you hear me? Geir Holmgren: Yes. Unknown Analyst: I have just one question just on solvency given the very strong progress year-to-date. I was wondering whether you could comment on where your preferences in terms of capital deployment currently lies in terms of whether you see some good M&A opportunities on the horizon or whether you are more leaning towards passing your capital and potentially repatriate some in the form of special dividend or share buyback? And then secondly, look to the capital situation, if you could comment on any update, if any, on the approval process for your own partial internal model? Geir Holmgren: Okay. Yes. I'm very happy with the capital position. We have a strong solvency number, 191, which is above our target interval. We are -- the Board will do their assessment when it comes to dividend at year-end. We are not aiming for having any kind of surplus capital within the group. So this is definitely a part of the consideration when doing the assessment of ordinary and extraordinary dividends by year-end. Yes. Jostein Amdal: And -- yes, on the process, really no update at this point, really, we are still in the process with Norwegian FSA. Unknown Analyst: And so if I could follow up. And there's nothing interesting on the M&A profit you see at the moment? Geir Holmgren: No, we are focused on organic growth in the business. So we are not considering any structural way of growing the business. We are happy with the position we have in Norway and improving the business we're having in Denmark by many operational measures, and that's our focus now. And yes. Operator: [Operator Instructions] We'll now take our next question. Vinit Malhotra: This is Vinit from Mediobanca. So my one question would be just following up on your comment on the July weather effect driving the 1 to 2 points you mentioned on the underlying. I'm just curious, is there a similar explanation? Or is that the same explanation for commercial Denmark, which seems to have worsened about 4 points in the quarter when compared to 3Q '24, is there any comment on that you could share that also throw some light on what's happening there? Jostein Amdal: Thank you, Vinit. No, it's not related to the same cost. This is more just inherent quarterly volatility on our commercial book of business. So it's really specific explanation around it, we do see a somewhat increased level of both size and frequency of claims within that business, but nothing we regard as giving the indication of a future trend, so it's volatility. Operator: We'll move to our next question. Michele Ballatore: Yes. This is Michele Ballatore from KBW. So my question is related to the -- in general, the pricing regarding your comment earlier. So can you tell us what is the status of the -- your pricing, both in private and in commercial across Norway, Denmark and Sweden? Geir Holmgren: Starting with Norway. We have over time now, 2 years' time, we have had a quite heavily pricing measures going on, which also have increased the pricing level substantial -- substantially for both property and motor insurance. The average decrease within property was approximately 60% last year and promoter between 18% and 19%. The ongoing pricing measures are still having quite high price increases. But compared to what we have done in the past is a more moderate level, but we are talking about 12% to 13% price increases on average for property and motor insurance in Norway. That's above what we expect when it comes to inflation in the next 12 to 18 months, and it's about the frequency development. So -- but we have a very good and stable position in Norway, still high retention numbers and still I'm very happy to see our competitiveness in the Norwegian market, both on private and commercial side. When it comes to commercial, large parts of the portfolio have renewals at 1st of January. So we are preparing for that as well with quite high price increases due to what we have done in the types of considerations we are doing. In Denmark, we have price increases going on in the private segment. As I mentioned before, we have not been satisfied with the profitability in our private Danish business. We have had many, many quarters with red numbers. Happy to see that we have -- can pace of progress during second quarter and third quarter and cost profitability. But price increases are needed to improve that business in addition to cost measures and improving the cost efficiency of that business. On the commercial side, my opinion is that we have a very, very strong position in Denmark when it comes to our commercial business. We do have a good relationship with the main brokers. We have recognized brand name, a stable good portfolio. When it comes to results, it will be some kind of volatility from quarter-to-quarter, but our starting point going forward is at a very, very good level when it comes to our pricing power and our position in the commercial segment. And for Sweden yes, still ongoing pricing measures, I'm very happy to see that we have succeeded when it comes to improve our efficiency and to improve the way we are doing business with more digital solutions. And it's a small business, but we have -- but the business we have succeeded to improve profitability over time during the last couple of years, and I'm very happy to see that. Michele Ballatore: Sorry to follow up on Norway. If I understood correctly, you were talking about 12%, 13% price increases. I mean this is -- am I wrong in assuming I mean this is significantly above inflation. And you have, of course, quite sizable market share in Norway. But my point is, is this something -- I mean, is there the same level of discipline in the market? I'm just trying to understand what you're doing compared to what the market is doing in Norway, specifically? Geir Holmgren: Yes, good question. We started with repricing our private portfolio in Norway, third quarter 2 years ago. So it has been ongoing pricing measures above inflation now on -- during the last 2 years. My impression -- my view is that Gjensidige probably started that kind of price using pricing measures quite heavily, started that first in the Norwegian market. So we are actually a first mover when it comes to having the pricing measures. Yes. We still see that we have good pricing power. The retention rates are still high. We are prioritizing profitability before growth and used market situation, and you also see that our competitors are doing price increases that we are still continuing with quite high price increases as well. The pricing level you mentioned, that's correct. On average, 12.5% to 13% within motor property within private above inflation numbers as we see and frequency development, as we have seen in the past. So we also take care of the kind of claims mix which you will see from time to time when you get new cars in the market and different types of claims, and that would also change from quarter-to-quarter due to the weather conditions. Mitra Negård: Operator, are there any further questions? Operator: Yes, we have a question from Hans Rettedal. Hans Rettedal Christiansen: I guess it's a bit general, but I was just wondering sort of related to the previous question, do you see any effect from the price hikes that you've implemented now on customers, perhaps dropping coverage or changing coverage, changing terms of deductibles or any sort of movements on the customer side as an effect of kind of pricing having increased quite significantly over the past couple of years? Geir Holmgren: We spend more time with the customers now than we have done in the past due to everything that's happening in the market. But we also have a situation in Norway and in Denmark that we see quite high price increases due to what we have seen in the past. So the pricing discipline among our peers are at a high level as well. But this situation also makes the customer more -- doing more considerations regarding the insurance contracts, and they are checking prices more than had done in the past. But we don't see any negative impact on our business volume when it comes to that kind of activity. We still see that the retention numbers are still high. And I'm very satisfied with the level of customer satisfaction and customer loyalty. We do have in our -- especially our Norwegian portfolio. So my view is that we still have a very good pricing power when it comes to do all the necessary measures we have mentioned. Operator: And we have another follow-up question from Derald Goh from Jefferies. Derald Goh: The first one is a clarification. Could you say what are the rate increases that you're putting through in Denmark? Like what percentage is it? And how does it compete to the claims inflation in both private and commercial side of Denmark? And then could you maybe speak to how conservative you might be recognizing some of the margins? I think there are a few questions that has already being that the rate increases seem to be far outstripping the claims inflation number. Is it a case that maybe you are building up a bit of a reserve buffer? Jostein Amdal: I think on the first, what are the actual price or rate increases that we are putting through in Denmark, we haven't been as clear as we have been on the 2 main products in Private Norway, but we are looking at price increases that are well above our expected development in claims, which is a combination of claims inflation and number of claims, the claims frequency. So that's why what we're aiming for. And of course, as always, what we will get through will be a function also of the competitive situation there. And I remind you that our business is quite a lot larger in commercial than in private -- in Denmark, and we have very strong position within Commercial Denmark. We are looking at combined ventures at around 85%, 86%, depending on if you look at the quarter or year-to-date, which is a healthy profit. But we still continue to put through price increases above our expectations of the claims development. Operator: We have another follow-up question from Thomas Svendsen from SEB. Thomas Svendsen: Yes. This is Thomas again. So just on customer behavior in Private Norway. Is there -- this change in behavior by clients, do you see much more inbound call. Clients want to discuss the price? And also do you need to sort of get back to rescue clients that are leaving you? Is that an increased activity there within the net retention levels that you talk about? Geir Holmgren: We haven't seen any change this quarter compared to the last couple of quarters when it comes to that kind of activity. If you look at the number of customers, we are increasing the number of customers in our private portfolio in Norway compared to what we had year-end '24. So I'm very satisfied with the sales activity, distribution efficiency. But in all respect, we do talk more to customers during the last couple of quarters than we have done in the past due to all the high price increases, different types of customers meet across all insurance providers and for different insurance contracts. Jostein Amdal: I'll also remind you that the growth in Private Norway was although mainly price. We had an increase in the kind of the volume, the number of customers, as Geir mentioned, but also number of cars, houses, travel insurance policies and so on. So there's an underlying volume growth as well, although the main part of the growth is price driven. Operator: And we have another follow-up question from Mediobanca. Vinit Malhotra: Vinit from Mediobanca. The second question from me is on the inflation outlook, because I remember that we were all expecting you to provide an update on inflation in this quarter, and it appears to be unchanged versus Q2, whereas, obviously, in Q2, we heard you talk about reducing some of the price increases, and we see that in the numbers. So could you just comment that is this inflation being unchanged Q2 versus Q3, a surprise to you? And what are the drivers and are you still happy with lowering the price increase within Norway, even though inflation outlook is unchanged? Geir Holmgren: Starting with property in Norway, the actual inflation third quarter this year compared to -- or during the last 12 months was 4% and our expectation for the next 12 to 18 months is between 3% and 5%. That's a combination of repair cost and labor expenses in the property segment. We -- when it comes to motor, actual inflation in the last 12 months, around 4.4% expected. The next 12 to 18 months is quite big interval between 3% to 6% and the kind of uncertainties regarding trade barriers and what's happening in especially in the motor industry. And so it's a kind of a certainty, and that's the reason for having big interval as well when it comes to inflation, expected inflation going forward. But -- as mentioned, we are having pricing measures at the moment, which are definitely above the expected inflation, including also what you have seen on the frequency development in the past. Jostein Amdal: May I also add that remember that these are the what we tell you about are the price increases that are in place for policies that will be renewing now, whereas the accounting effect is a function also of all the price increases and the levels of price increase that we had over the last 12 months, which we have informed about every quarter, which have over the last 12 months, bit slightly higher than the ones we are currently putting through to the customers. So there's an overhang of kind of all the previous price increases now. And as Geir said, given that these price increases are higher than what we expect, at least as a future claims development, that should bode for a margin improvement also further down the road. Operator: And we have a new question from new caller, please introduce yourself and your affiliation. Unknown Analyst: It's Yulis from Autonomous Research. I was wondering if you could comment on the revenue growth dynamics in the near term. I mean, in the third quarter, your 13% year on growth was -- kind of helped by some one-off factors. At the same time, you're also -- because it can earn revenue, it's also benefiting and reflecting the higher rate increases that you implemented in the past year. So I was wondering whether that 13% is a sustainable level in the near term or whether it could potentially improve on the basis that it's reflecting the earned written premiums going forward? Jostein Amdal: First of all, I remind you that we talked about a onetime effect due to a change in principle on the home seller insurance. So the kind of current adjusted for currency, and that is 11.3%, which is kind of the level we report. And nonrecurring is, of course, not -- should not influence your forecast. So it's more like the 11%, which is based on the premiums that we have implemented over the last 12 months. And we've also given the growth numbers per segment. I think that is kind of the best way for you to try to predict what's going to happen. And we combined -- commented on the kind of effects on Commercial Denmark, which is 6.4%, rather than 4.4% in the currency, if you adjust for an accounting effect last year and also that the Swedish number due to the accruals is underlying a bit higher than what we have reported, which is 2.7%. So it's more in the 6%, 7% range as well. I think that is the building blocks you should probably use for your estimate of future revenue development. Operator: And we have another question, please caller introduce yourself. Qian Lu: It's Qian Lu, UBS. I just have one on the ongoing pricing measures in Norway, which slowed down quarter-on-quarter. I'm wondering if this is implying a more proactive strategy to enhance our competitiveness in the market and grow policy accounts? Or is it more of a reaction to increased competition in the market? And I guess related to this, given one of your peers has indicated that they plan to normalize price increases from next year onwards. I wonder how you are thinking about the time line for your price adjustments? Geir Holmgren: The price increases we are having at the moment and which are implemented as mentioned, it's above expected claims inflation and frequency development. The high level of price increases we have in the past is also a response on the frequency development we have seen during the last 2 years, especially on the motor side, but we have also seen some more volatility regarding property insurance, high number of fires in some quarters, more water-related claims and so on. So we have -- that's the reason in the past for doing quite heavily pricing measures and to improve the profitability, which was weaker going 2 years back. Going forward, I'm not in a position, where I can comment on future price increases due to antitrust and competition rules. But we are only commenting on what we're doing and have done at the moment, and we are still having price increases, which is above frequency development and inflation numbers. And we don't expect the frequency development we have seen in the past. We don't expect that to continue in the kind of way it has done during the last couple of years, but we have seen especially -- for instance, on the motor side, we have seen in the last quarter, underlying development on the frequency side is between 1% and 2%, and we still expect to have some kind of frequency development also for motor going forward, but not at certain levels we have seen during the last 2 years. Operator: And appears there are currently no further questions in the queue. With this, I will like to hand the call back over to Mitra for closing remarks. Over to you, ma'am. Mitra Negård: Thank you. Thank you, everyone, for good questions. We will be participating in roadshow meetings and a seminar during the next few weeks, starting with Oslo today and London next week. Please see our financial calendar on the website for more details. So with that, thank you for your attention, and have a nice day.