加载中...
共找到 37,646 条相关资讯
'Mad Money' host Jim Cramer talks if its time for the bears to hibernate.
The Dow crossed 46,000 for the first time ever as rate-cut hopes mount. Plus, IPO mania returns.
August US CPI data met expectations, with headline inflation at +0.4% MoM and core CPI steady at 3.1% YoY. Persistent inflation in essential sectors and a weakening labor market set the stage for a likely 25 bps Fed rate cut next week.
As the indexes soar to new heights, CNBC's Jim Cramer explained why he's still bullish, telling investors the market is set to keep roaring. "The cynics just can't believe what's happening in this market.
Julian Emanuel, Evercore ISI Chief Equity, Derivatives & Quant Strategist, says he is expecting a pullback to this bull market by the end of this year, which he is expecting as a buying opportunity. -------- More on Bloomberg Television and Markets Like this video?
Rick Santelli, CNBC On-Air Editor, joins the 'Fast Money' traders to talk what the recent movement in markets and economic data signals for Federal Reserve moves in the future.
The Dow Jones index surged more than 600 points Thursday, topping the 46,000 level for the first time. Tesla stock raced above a buy point.
The 'Fast Money' traders talk all three major indices hitting new record highs after CPI report.
Newly unemployed workers are facing higher inflation without a corresponding increase in jobless benefits to match.
Comprehensive cross-platform coverage of the U.S. market close on Bloomberg Television, Bloomberg Radio, and YouTube with Romaine Bostick, Katie Greifeld, Carol Massar and Tim Stenovec. -------- More on Bloomberg Television and Markets Like this video?
Investors on Thursday ushered the Dow Jones Industrial Average behind a velvet rope and into a new club: The blue-chip index surpassed 46000 for the first time. Reaching the latest thousand-point milestone took 191 trading days, with the price-weighted Dow pulled upward by Goldman Sachs' success and undeterred by UnitedHealth Group's woes.
With so much uncertainty, the S&P won't push much higher this year. B. Riley's Art Hogan explains why.
The SPX tapped new record highs in Thursday's session. Kevin Green explains how a breakout of a "flag pattern" helped signal a push higher for the index.
Operator: Greetings, and welcome to Oxford Industries, Inc. Second Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Brian Smith. Thank you. You may begin. Brian Smith: Thank you, and good afternoon. Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, and actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results of operations or financial condition to differ are discussed in our press release issued earlier today and in documents filed by us with the SEC, including the risk factors contained in our Form 10-K. We undertake no duty to update any forward-looking statements. During this call, we will be discussing certain non-GAAP financial measures. You can find a reconciliation of non-GAAP to GAAP financial measures in our press release issued earlier today, which is posted under the Investor Relations tab of our website at oxfordinc.com. And now I'd like to introduce today's call participants. With me today are Tom Chubb, Chairman and CEO; and Scott Grassmyer, CFO and COO. Thank you for your attention and I'd like to turn the call over to Tom Chubb. Thomas Chubb: Good afternoon and thank you for joining us today. As we continue through fiscal 2025, the second quarter brought complex but clarifying developments in the story we began sharing with you last quarter. While the macro environment remains pressured, marked by higher tariffs, elevated promotional activity across the industry and cautious consumer behavior, our team has navigated these challenges with discipline and focus, delivering net sales and adjusted EPS within and above our guidance ranges, respectively. Though down from the prior year, these results reflect our ability to while staying true to who we are as a company and maintaining the strength of our brands and margin profile. Looking at our recent performance by brand, Lilly Pulitzer continued its deep connection with its core consumer in the second quarter and posted positive direct-to-consumer total comparable sales, building on the strong engagement we saw in the first quarter. A key contributor to this momentum in the second quarter was delivering exciting innovation in our casual product, including the Linen Seaspray jacket that sold out in all colors and extending our offering of elevated everyday product, including polished shorts, silk tops and new stretch twill pants that all performed extremely well. Continuing the theme of engaging the brand's most loyal customers early in the third quarter, Lilly Pulitzer launched the highly anticipated Lilly's Vintage Vault, which debuted Lilly's Zoo, a reproduction of a beloved archival print from 1974 in its original colorway. This limited-edition capsule is the first in a series exploring Lilly's hand-painted print legacy as the brand embarks on a new celebration of its treasured heritage, drawing in Lilly loyalists and new customers alike. While still early, the initial response to the Vintage Vault has exceeded expectations and affirms the power of heritage storytelling and brand authenticity, cornerstones of Lilly Pulitzer's enduring success. Turning to Tommy Bahama. While our second quarter results did not meet our goals for the brand, we are energized by the work underway to improve performance. As always, our teams have learned in spending time in the field, listening to our customers and digging into the data to understand what's driving the softness. What we've learned is encouraging because it's actionable. We've identified that some spring and early summer deliveries missed the mark in several areas, most notably in color assortment and completeness of the line, which led to gaps in the offering that are especially relevant to our customers in Florida, where performance continues to be below our expectations. By contrast, we saw better results in the West, where the assortment resonated more effectively with the regional aesthetic. These insights galvanized our team, and we quickly implemented improvements for late summer deliveries to ensure the products available to our customers are more thoughtfully curated and locally relevant. Tommy Bahama is a brand with exceptional consumer loyalty and a deeply resonant lifestyle message. With the right adjustments, we are confident we can reaccelerate performance and reengage our customers in a more meaningful way in the second half and beyond. A great example of what's working is the recent launch of the Boracay Island chino. This updated pant, which builds on the incredible equity we've established in the original Boracay collection, comes with a higher price point of $158, but that hasn't slowed down demand in the latest. We have experienced very high sell-throughs across our own direct-to-consumer channels and also with our wholesale partners who have increased recent orders based on early success. We knew going in that the Boracay guest is incredibly loyal. Once they find a fit, they love and this product has tapped directly into that loyalty. It delivers the comfort, versatility and polish that defines the Tommy Bahama lifestyle and it does so in a way that's clearly resonating with existing and new customers. We will launch new versions of this pant, including a 5-pocket version and shorts in our upcoming seasons to capitalize on this momentum. Turning to Johnny Was. We continue to face headwinds and the business remained challenged in the second quarter. While the numbers are not where we want them to be, we remain confident in the potential of Johnny Was and are taking further action. Working closely with both internal teams and external partners, we have developed and are in the early stages of implementing a comprehensive plan to improve Johnny Was' performance. We see a meaningful opportunity to enhance the merchandising strategy, elevate brand storytelling and marketing and refine our approach to customer segmentation and pricing. Our goal is to reestablish momentum in this beautiful, differentiated brand ensure it contributes meaningfully to Oxford's portfolio. To that end, we believe that the best days for Johnny Was still lie ahead. I also want to take a moment to acknowledge the performance of our Emerging Brands Group, which delivered solid revenue growth, both from new stores and positive comp store sales in what remains a highly challenging environment. These brands, Southern Tide, the Beaufort Bonnet Company, Duck Head and Jack Rogers are still in the early stages of their development within our portfolio and yet continue to demonstrate strong customer appeal and brand momentum. The growth we're seeing reinforces our belief that there are significant growth opportunities ahead, and we are excited about the opportunity to build these brands into even more meaningful contributors in the years to come. Switching gears to our tariff mitigation plans and capital projects. We said last quarter that we would continue to control what we can, and we have. Our teams have made significant progress in mitigating tariff exposure through continued supply chain shifts and facilitating the early delivery of products to avoid tariff increases. And our gross margins, though under some pressure versus last year, reflect that discipline. We've also taken steps to safeguard profitability by enhancing inventory management and maintaining pricing integrity even in a more promotional retail environment. At the same time, we remain committed to completing the long-term investments we have underway that will serve us well beyond this fiscal year. Our Lyons, Georgia, distribution center is on schedule and continues to receive the necessary capital to bring it fully online sometime late in fiscal 2025 or early fiscal 2026. We also remain on track to deliver 3 new Marlin Bar openings and a net increase of approximately 15 full-price stores across our portfolio by year-end. While the environment remains dynamic, I'm encouraged by what we're seeing early in the third quarter. Scott will provide more details on our financial results and outlook for the remainder of the year. Total company comp sales quarter-to-date are modestly positive in the low single-digit range, a clear signal that the work our teams are doing to refine the assortments, improve storytelling and reconnect with our consumers is beginning to pay off. These are the kind of results that come from listening closely, adjusting thoughtfully, and executing with discipline. There is no doubt that this is a challenging period for our industry, but we believe that our portfolio of differentiated lifestyle-driven brands led by our exceptional teams is uniquely positioned to weather the volatility. As we move into the second half, we are doubling down on the brand equity we've built, keeping our eyes on the long-term horizon while managing short-term headwinds with resolve. We remain confident that our continued focus on execution, brand authenticity and customer happiness will allow us to emerge from this cycle stronger with even deeper connections to our customers. And now I'll hand it over to Scott for more details on our second quarter results as well as our expectations for the balance of the year. Scott? K. Grassmyer: Thank you, Tom. As Tom mentioned, our teams have shown great discipline and resilience in responding to unprecedented uncertainty and challenges related to trade and tariff developments in the first half of the year. Despite these challenges, our teams were able to deliver top-line results within our previously issued guidance range and bottom-line results slightly above our previous issued guidance range for the second quarter. In the second quarter of fiscal 2025, consolidated net sales were $403 million compared to sales of $420 million in the second quarter of fiscal 2024 and near the midpoint of our guidance range of $395 million to $415 million. Sales in our full-price brick-and-mortar locations were down 6%, driven by a negative comp of 7%, partially offset by the addition of new store locations. Sales in our wholesale channel were down 6%, while e-commerce sales declined 2% and sales in our outlet locations decreased 4%. Sales in our food and beverage locations performed better than our other channels with modest sales growth year-over-year. Overall, we finished the second quarter of fiscal 2025 with a total company comp of negative 5%, which was in line with our guidance for the quarter. Notably, Lilly Pulitzer had another strong quarter. While total sales at Lilly Pulitzer were down modestly compared to the prior year, the decline was driven by lower sales in our wholesale channel, partially offset by a low single-digit positive comp. The positive comp sales at Lilly Pulitzer, along with positive comp sales and overall sales growth in our emerging brands businesses, helped offset the high single-digit negative comp at Tommy Bahama and low double-digit negative comp at Johnny Was that led to sales declines in both businesses. Adjusted gross margin contracted 160 basis points to 61.7%, driven by approximately $9 million of increased cost of goods sold from additional tariffs implemented in fiscal 2025, net of mitigation efforts, which was partially offset by improved gross margins during promotional events at Tommy Bahama, a change in sales mix with full-price retail and e-commerce sales representing a higher proportion of net sales at Lilly Pulitzer and Johnny Was and a change in sales mix with wholesale sales representing a lower portion of net sales. Without the impact of the incremental tariffs, our gross margins would have increased. Adjusted SG&A expenses increased 5% to $224 million compared to $213 million last year, with approximately $4 million or 40% of the increase due to increases in employment costs, occupancy costs and depreciation expense due to the opening of 26 net new brick-and-mortar retail locations, including 3 new Tommy Bahama Marlin Bars since the second quarter of fiscal 2024. This includes the 11 net new stores, including 2 Tommy Bahama Marlin Bars opened in the first half of fiscal 2025. We also incurred preopening expenses related to some planned new stores, including an additional Tommy Bahama Marlin Bars scheduled to open in the fourth quarter. The result of this yielded a $28 million adjusted operating profit or 7% operating margin compared to $57 million operating profit or 13.5% operating margin in the prior year. The decrease in adjusted operating income reflects the impact of our investments in a challenging consumer and macro environment. Moving beyond operating income. Our adjusted effective tax rate of 29.6% was higher than we anticipated due to certain discrete items, most notably from the unfavorable impact on tax expense related to the annual vesting of stock-based awards during the quarter, which occurs when the stock vests at a price lower than the price expensed for book purposes. Interest expense was $1 million higher compared to the second quarter of fiscal 2024, resulting from higher average debt levels. With all this, we ended with $1.26 of adjusted net earnings per share. I'll now move on to our balance sheet, beginning with inventory. During the second quarter of fiscal '25, inventory increased $27 million or 19% on a LIFO basis and $29 million or 13% on a FIFO basis as compared to the second quarter of 2024, with inventory increasing in all of our operating groups, except Johnny Was, primarily due to the impacts associated with the U.S. tariffs that were implemented in the first half of 2025, including accelerated purchases of inventory that were implemented to try to minimize the impact of potential pending tariff increases and $5 million of increased costs capitalized into inventory after the implementation of the tariffs. Notably, as the tariff situation has stabilized to a degree, at least compared to the beginning of the fiscal year, we expect our inventory levels to decrease during the remainder of the year, excluding any additional capitalized tariff cost as the need to accelerate inventory purchases subsides. We ended the quarter with long-term debt of $81 million compared to $118 million last quarter and $31 million at the end of fiscal 2024. Cash flow from operations provided $80 million in the first half of fiscal 2025 compared to $122 million in the first half of 2024, driven primarily by lower net earnings, changes in working capital needs, including accelerated inventory purchases and $15 million of expenditures related to implementation costs associated with cloud computing arrangements that are classified as operating cash outflows. We also had $55 million of share repurchases, capital expenditures of $55 million, primarily related to the Lyons, Georgia, distribution center project and the addition of new brick-and-mortar locations and $21 million of dividends that led to an increase in our long-term debt balance since the beginning of the year. I'll now spend some time on our updated outlook for 2025. Comp sales figures in the third quarter to date are positive in the low single-digit range, also consistent with our expectations. With comp sales figures in the second quarter and third quarter to date consistent with our previously provided guidance and several of the third quarter's most important events, including the Tommy Bahama Friends and Family sale behind us, we feel confident in affirming our previously issued guidance for the remainder of the year. Consistent with our previously issued guidance, we expect the trends of flat to modestly positive comp sales to continue for the remainder of the third quarter and for the fourth quarter. For the full year, net sales are expected to be between $1.475 billion and $1.515 billion, reflecting a decline of 3% to just slightly negative compared to sales of $1.52 billion in fiscal 2024. Our sales plan for the full year of 2025, consistent with our previously issued guidance, includes decreases in our Tommy Bahama and Johnny Was segments, driven primarily by negative comps. That decline is expected to be tempered by growth in our Lilly Pulitzer and Emerging Brands segments, driven by positive comps in new store locations. By distribution channel, the sales plan consists of low single-digit decrease in e-commerce and wholesale sales, partially offset by a low to mid-single-digit increase in our food and beverage channel that will benefit from the addition of 3 new Marlin Bar locations during the year. We expect flat sales in both full price retail and outlet channels with modest negative comps offset by the addition of approximately 15 net new locations during the year. For fiscal 2025, we continue to expect gross margin to contract by approximately 200 basis points, largely due to the impact of tariffs. With the recent tariff increases announced during the second quarter, including increased tariffs in countries like Vietnam and India that were included as part of our shift away from China, largely offset by the mitigation efforts we have undertaken, including accelerated inventory receipts and quickly shifting our sourcing network. Despite recent legal challenges, our current forecast is based on the assumption that these tariffs will remain in place for the remainder of the year. Based on current tariff policies and our historical 2024 sourcing patterns, we estimated a potential incremental tariff exposure of approximately $80 million in fiscal 2025 prior to any mitigation actions such as accelerated receipts, sourcing shifts, vendor concessions or price increases. By accelerating receipts and sourcing shifts, we were able to mitigate roughly half of this exposure. Through additional vendor concessions and select second-half price increases, our current annual guidance reflects a net tariff impact of approximately $25 million to $35 million or approximately $1.25 to $1.75 per share after tax. While tariffs represent the primary driver of margin contraction this year, we also expect continued promotional activity across our brands to weigh on margins as consumers remain highly responsive to value and deal-oriented shopping in the current environment. In addition to lower sales and gross margins, we expect SG&A to grow in the mid-single-digit range, primarily due to the impact of our recent and continued investments in our business, including the annualization of incremental SG&A from the 30 net new locations added during fiscal 2024 and incremental SG&A related to the addition of approximately 15 net new locations in fiscal 2025, including 3 new Tommy Bahama Marlin Bars, including the 2 opened in the first quarter and a third planned to open on the Big Island of Hawaii late this year. Also within operating income, we expect lower royalties and other income of approximately $1 million in fiscal 2025. Additionally, our fiscal 2025 guidance includes the unfavorable impact of nonoperating items, including $7 million of interest expense compared to $2 million in 2024 or an approximate $0.20 to $0.25 incremental EPS impact. Increased debt levels in fiscal 2025 are due to our continued capital expenditures on the Lyons, Georgia distribution center, technology investments and return of capital to shareholders exceeding cash flow from operations. We also expect a higher adjusted effective tax rate of approximately 25 -- excuse me, approximately 26% to 27% compared to 20.9% in 2024. The higher tax rate is primarily a result of a significant change in the impact that our annual stock vesting had on stock compensation expense in 2025 compared to 2024. We anticipate the higher tax rate will result in approximately $0.20 to $0.25 per share impact. Considering all these items, including the $1.25 to $1.75 impact from tariffs, higher interest expense and a higher tax rate, we still expect 2025 adjusted EPS to be between $2.80 and $3.20 versus adjusted EPS of $6.68 last year. In the third quarter, we expect sales of $295 million to $310 million compared to sales of $308 million in the third quarter of 2024. This primarily reflects a high single-digit decline in wholesale sales, offset by our flat to low single-digit positive comp assumption and the impact from noncomp stores. We also expect gross margin to contract approximately 300 basis points, primarily driven by increased tariffs and a higher proportion of net sales occurring during promotional and clearance events. SG&A to grow in the low to mid-single-digit range, primarily related to the new store locations, increased interest expense of $1 million, flat royalty and other income and an effective tax rate of approximately 25%. We expect this to result in third-quarter adjusted loss per share of between $1.05 and $0.85 compared to a loss of $0.11 in the third quarter of 2024. I will now discuss our CapEx outlook -- capital expenditure outlook for the remainder of the year, largely consistent with our prior guidance. We expect capital expenditures for the year to be approximately $121 million compared to a total of $134 million in fiscal 2024. The remaining capital expenditures relate to completing the new distribution center in Lyons, Georgia and the execution of our pipeline of new stores in Tommy Bahama Marlin Bars, including increases in store count across Tommy Bahama, Lilly Pulitzer, Southern Tide and the Beaufort Bonnet Company. We expect this elevated capital expenditure level to moderate significantly in 2026 and beyond after the completion of the Lyons, Georgia, project. Consistent with the seasonal nature of our business, we expect an increase in outstanding borrowings as we head into the third quarter, which is typically our smallest quarter of the year due to our lower net earnings during fiscal 2025, elevated levels of capital expenditures, share repurchases completed in the first half of 2025. Payment of our dividend and working capital needs, we expect to remain in a debt position for the remainder of the year. Thank you for your time today, and we will now turn the call over for questions. Julian? Operator: [Operator Instructions] And our first question comes from the line of Ashley Owens with KeyBanc Capital Markets. Ashley Owens: So just to start, you mentioned that comparable store sales performance has been positive quarter-to-date. Could you just elaborate on what you believe is driving that strength or what you're seeing from a traffic or transaction perspective? Additionally, anything on a brand level? Thomas Chubb: Yes. Thank you, Ashley. So comps are positive quarter-to-date. That really -- all the brands have been part of that. Lilly continues to be positive. Tommy Bahama is around flattish at this point, but that's a significant step-up from where they were in the first and second quarters. So we've been really happy to see that. I would say it's mostly traffic-driven. During the first 2 months of the second quarter, our issue was really traffic. Conversions for the most part, hung in there pretty well. Average order values were actually strong and actually ticked up a little bit during the second quarter. And then as we got into July, we saw the traffic start to recover a bit, and that really continued into August. So I think that's the story sort of across the board. And then as I said, we're seeing nice comps in Lilly Pulitzer. Tommy Was is -- Tommy Bahama is in a much better position than they were first and second quarters, and that really -- their business started to pick up in July as well and then continued into August, especially. And so we're encouraged by what we're seeing there, Ashley. Ashley Owens: Okay. Great. And then just a follow-up maybe on promotions. I know the environment still remains volatile, and you mentioned that margins are expected to face pressure from both tariffs and then also the consumer shopping around promotional periods. Is there anything you're doing differently in terms of how you're planning your promotional cadence for the back half of the year? And then any nuances between the brands? Thomas Chubb: I think they're mostly going to follow historical patterns. We, of course, try to always remain nimble and adjust to the situation as it unfolds. But I think we're not planning any major departures from the way we've run promotions in the past. It's just, as you alluded to, Ashley, we expect to do proportionately more of the business during those periods just because we feel like a lot of consumers are really sort of waiting for those opportunities. But second quarter, you look at it, highly promotional environment, definitely had the tariff pressure, but I think you probably heard Scott say this, absent the tariff pressure, our gross margins would have increased year-over-year in the second quarter. So I think we're exercising a lot of discipline and being judicious and trying to maintain price and brand integrity to the maximum extent possible while balancing that with the need to move inventory and generate revenue. And Scott, I don't know if you'd add anything to that. K. Grassmyer: Yes. I think the only change in promotions is Tommy Bahama Friends & Family. We shifted from September -- early September last year to August this year, and that worked well for us. So we think it was the right move. But other than that, pretty much similar type of events. Thomas Chubb: And that's all within the same quarter. But I think we -- as Scott pointed out, I think we feel like that probably worked more effectively. Operator: And our next question comes from the line of Janine Stichter with BTIG. Janine Hoffman Stichter: It was impressive you were able to reiterate the gross margin guidance even with the incremental $80 million in tariff headwinds. It sounds like part of that is more price increases. I'm just curious how you're planning pricing, how that's evolved in response to tariffs and what you've seen from the initial price increases that you've taken? Thomas Chubb: So what I would say is we've been, as Scott used the word in his comments, selective price increases. So we've not done sort of an across-the-board approach to pricing. We've really looked at it on an item-by-item basis and balanced the need to protect our margins and try to recover some of the tariff impact with not wanting to get too far ahead of ourselves because that tariff number, as you know, Janine, is still very much a moving target. We're pretty sure we're going to end up with some incremental tariffs versus what they were in '24, but we still really don't know what they are. So we're trying to be careful about getting too far ahead of ourselves. And the general strategy has been to try to cover the gross margin dollars for the balance of this year. And really, as we get into spring '26, that's where it really kicks in where we're trying to recoup the gross margin dollars, but not necessarily the percent. And on average, that's led to sort of low to mid-single digit or low mid-single-digit price increases, a little bit higher than that for spring and Lilly Pulitzer, but that's -- I think across the board, there's a mix of both tariff-based price increases and then, in some cases, some changes in the mix that are driving that. And one example, though, that I'll give you of a way that we can increase prices without it, I think, being too detrimental for us are that new Boracay Island chino that I mentioned in my comments, and that's up to $158. The old version of the Boracay was $138. This is $158, which is about a 14.5% increase. It's a significantly improved product. We're getting full margin for it. while covering the incremental tariffs on it. And the consumer is -- seems to be fine with it. And I think it's because it's a new, innovative, different and better product. So they're willing to pay the up charge. And that's -- in that case, we're getting not only the margin dollars, but we're actually hanging on to the percentage as well. Then we've got other ongoing products where we're just being very cautious about increasing the price too much before we really know where things are settled out. Janine Hoffman Stichter: That's helpful. And then maybe just one more gross margin question. You talked about improved gross margin from promotional events at Tommy Bahama. Maybe just elaborate on what that was, if it's something that's repeatable, as we think about squaring that with your expectation for just more promotions or consumer shopping more around those key events. Thomas Chubb: Well, I think part of it was we ended up selling more full-price product during the promotional period. K. Grassmyer: Yes. And we just had less and like an end-of-season sale, we just had less inventory to sell. So the degree of markdowns was not as severe also. Operator: And our next question comes from the line of Dana Telsey with Telsey Advisory Group. Dana Telsey: Tom, I think a couple of calls ago, you had mentioned about the competitive environment with tariffs and how some of the competitors wouldn't even be making some of their collections given the changes with tariff pricing. What are you seeing? Is it helping you gain market share? And then as you think about this upcoming holiday season, maybe, Scott, how are you thinking of marketing spend and new products to drive activation? And then lastly, components of the comp, what did you see in the comp on your DTC side, both from online and from your own stores? Thomas Chubb: Okay. So starting in reverse order, I would say that during the quarter, traffic was retail stores were relatively stronger than e-commerce, if that makes sense. So we saw a bit of softness in both sides during the quarter. But I think, relatively speaking, retail was stronger than e-com. And that, frankly, is consistent, I think, from what -- with what we're hearing from a lot of other reporting companies that retail seems to be having a bit more strength than e-commerce. Then in terms of the competitors that may not be offering a line for the resort season and maybe doing some more extreme things around pricing, for spring. Those are privately held competitors for the most part that we're talking about, if not exclusively. So we're not seeing a lot of reporting out of them yet. What I would say is I do think that we're holding and even gaining share in our wholesale channels, which is where we can see it with the caveat that overall, that market is -- they're being very cautious with their forward buys. So the overall market is not really growing, but I think we're performing well and are getting and will get rewarded for that a bit. And I think that I'll add one other comment on that, even though you didn't exactly ask it, and that's that one of the earlier reads that we get on how our pricing is going to be received by the consumer is how the wholesale accounts react to it, and they've been very, very positive about the way that we're handling pricing. And that -- to me, that it's still the consumer ultimately that will vote on that. But those merchants at those wholesale accounts are very skilled, capable, experienced people. And if they're reacting well to the way that we're handling pricing, I think we'll the consumer will probably also react pretty well. And Scott, I don't know if you'd add anything to any of that or if I missed something. K. Grassmyer: Yes, I think you got it, I think you covered. Dana Telsey: I think you covered it. Great. And anything just to follow up on the fourth quarter marketing outlook there in terms of how you're planning for Q4? Thomas Chubb: Well, I think we'll be doing a lot of similar things to what we've done in the past. I don't want to let the cat out of the bag on a couple of the things we'll be doing around the holiday in particular, because there are going to be a few little twists on it, but I really don't want to spill the beans on that if you'll allow me. Dana Telsey: And then just lastly, just how does the consumer... Thomas Chubb: Dana, these are just sort of the tactics. I don't think from a big picture standpoint, it's a whole lot different. But some of the specific tactics we'll be doing, I think, will be slightly different than what we've done in the past. Dana Telsey: Got it. And then just on the wholesale partnerships, anything you're seeing different in terms of the wholesale partnerships and how you're planning them? Thomas Chubb: Well, I think the value of having really good partnerships, which we do with our very best customers. We have extremely close relationships with them. We work very hard to build mutually successful and mutually profitable businesses with them. We really like that part of the business. And I think that's more important than ever that you have those kinds of partnerships. And I think ours -- while it's a challenging time for everybody, I think our partnerships are, by and large, stronger than they've ever been. I'm not sure if I answered the question, but... Operator: And our next question comes from the line of Mauricio Serna with UBS. Mauricio Serna Vega: I guess just on the commentary about the positive quarter-to-date trend in the comps, could you maybe talk about like how much of a tailwind was that timing of the sale on Tommy Bahama? And just like from excluding that, if you're seeing actually like the business being positive? And then I guess just was wondering maybe if you could clarify, given that the net tariff impact is actually going to be lower than what you initially expected and the sales outlook has been kept unchanged. What is driving you to like maintain -- what is causing you to maintain your full-year EPS outlook for this year? K. Grassmyer: A couple of things. Why don't tackle the tariffs first and then we'll -- yes. On the tariffs, last quarter, we said around 40 before -- that was before price increases and vendor concessions. Now tariffs with some of the changes in tariffs, the overall exposure went up, but we accelerated. We did more acceleration of receipts and we had some more late in the year shifting out of China to lower tariff countries. So we were able to mitigate it. So I think the before price increases and vendor concessions were pretty much around the same number, as we said before. We tried to lay it out a little different kind of starting with the total exposure of $80 million and about half of that through shifting and early receipts. And then we've got some additional through the price increases and the vendor concessions. So I think overall, even though the landscape turned against us a bit, we were able to have further mitigations to kind of stay in a neutral position to where we were last quarter. And your first question on the Tommy, it was all within the quarter, Mauricio. So it shifted from August to September, and it was early September last year. So that's flushed out now. So in our quarter-to-date, we think we're back to an apples-to-apples view where August itself was apples to oranges and early September was apples to oranges. But now once you got through the Labor Day weekend, where the event was last year, we're back now to an apples-to-apples basis on Tommy. Mauricio Serna Vega: Okay. That makes a lot of sense. And then just like the one commentary also about inventory, the expectation that it's going to actually like decrease or moderate -- sorry, I forgot the term. But what is driving that? I would assume that the inventories would be higher, just given that you're bringing in inventory without tariff costs. K. Grassmyer: Well, we said before the impact of any capitalized tariff cost into inventory. But from the acceleration, we don't think we'll -- we think there's tariffs have settled down, but we won't need -- before we were trying to be -- we knew the August 27 change was coming. So we got as much in -- we didn't know what exactly was going to be, but we got as much in as we could before then. Now we don't think we'll have to have that acceleration that we had. So I think part of our -- pretty much our increase in the second quarter was capitalized tariffs and acceleration. That we believe that accounts for virtually the whole increase. And when you get to third quarter, we're only going to be dealing with the tariff impact and not the acceleration. And acceleration was the bigger piece of it. Operator: And our next question comes from the line of Joseph Civello with Truist Securities. Joseph Civello: Just following up a little bit on the price increases. I think you said select ones so far have been averaging in the low to mid-single-digit range, that picking up through the spring. Can you just talk about what the magnitude could be by then? And how you'd implement those? It would be on a broader range of products, either brand-specific, region-specific, anything like that would help. Thomas Chubb: Yes. So I would say, Joe, that the -- I think we're going to be a little bit on the conservative side with the price increases as long as tariffs remain up in the air. The so far, as far as we've really gone out is spring. And for spring, I think they're a little bit higher than they are for fall and resort. But that's kind of where we are right now. K. Grassmyer: In fall, we really -- on wholesale, we had already had prices out. So there's not the wholesale increases for fall where there will be for spring. We'll have some both direct-to-consumer and wholesale. So we'll come close -- in spring, we think should we make up the gross margin dollars. Fall, we will not quite make up the gross margin dollars. Thomas Chubb: And the other thing that I would point out, I think you're clear on this. But when we talk about, say, a 5% increase in fall prices, that's fall of this year versus fall of last year. Then when we talk about, say, another 5% increase for spring, that's spring versus spring. It's not on top of a fall increase, if that makes sense. So it's not a cumulative thing. You're not compounding those price increases. So there -- where we are so far, they're really not -- they're not that much. Joseph Civello: Just one more follow-up then on Lilly. Just talk a little bit about the direct business versus what you're seeing in wholesale. Thomas Chubb: Well, I think our specialty accounts, in particular, they tend to -- during tough times, they tend to be very cautious, and we've got a good amount of that. within Lilly Pulitzer. It's not that -- I don't think it's that we're not performing well. They just tend to get more conservative and cautious in their purchasing. And then in our major accounts, our performance has been quite good. Again, as I mentioned earlier, the majors are also in a pretty conservative stance right now when it comes to forward purchases, but I have no concerns about our position with any of the key accounts in either Tommy or Lilly. Operator: And our final question comes from the line of Paul Lejuez with Citigroup. Tracy Kogan: It's Tracy Kogan filling in for Paul. I know you guys have outlined CapEx this year at $120 million. I think a lot of that is from the DC. So I'm just wondering, as you look out to F '26 and beyond, what is a good CapEx number to use? And if there'll be any more major investments in DCs or things like that in the near future? K. Grassmyer: Yes. We expect the Lyons project to be substantially complete. There could be a tiny bit that trails over to next year. But once that's behind us, I think an ongoing, it's going to kind of be in that $75 million pace. It really depends on number of stores and the number of store pace has slowed down a little bit than what it was. But I would say somewhere in that $75 million neighborhood. Tracy Kogan: Got you. And what's your early expectation for store growth next year? Do you have any openings identified? K. Grassmyer: We've got some pipeline. Johnny Was, we are not opening stores right now. I'm not saying we won't open any, but we've really slowed that down. And then Southern Tide opened a whole lot very quickly. And we've slowed it down, not -- but there will be some Southern Tide stores. I think Tommy and Lilly will kind of be on a normal type. Thomas Chubb: Yes, subject to real estate availability… K. Grassmyer: Yes, yes. So there'll probably be a few Marlin Bars and then a few stand-alone stores at Tommy and Lilly will probably have 5 or 6 stand-alone stores. And then Beaufort Bonnet will probably have a couple also. And then Southern Tide will have a few not at the 10 or so pace they had last couple of years. Yes. So overall, probably more like this year, closer to this year, where we're going to be at 15 where we were 30 last year. So probably the 15 is probably a... Thomas Chubb: Pretty good number. K. Grassmyer: Pretty good number. And again, with a few of them being Marlin Bars, which are more expensive. Operator: And with that, there are no further questions at this time. I would like to turn the call back to Tom Chubb for closing remarks. Thomas Chubb: Okay. Thanks, Julian, and thanks to all of you for your interest. We look forward to talking to you again in December, and I hope all is well until then. Operator: Thank you. Ladies and gentlemen, with that, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time. Have a wonderful day.
Operator: Welcome to the African Rainbow Minerals Results for the Financial Year Ended 30 June 2025. Thank you to those of us -- those of you joining us online via LinkedIn and a special thank you to those who have made an effort to be here with us in person. After the presentation, we will go into Q&A. We will start with questions from the floor, and then we will move on to webcast. Please help me in welcoming ARM's Executive Chairman, Dr. Patrice Motsepe. Patrice Motsepe: Thank you so very much. This is going to be a very brief presentation to allow as many questions as possible. I want to thank everybody and the very special thanks to our Nonexecutive Directors, our Chairman of Audit, Tom Boardman. Tom is online? He is online, okay? And our Lead Independent, Dr. Noko and the Chairman of Investments, Bongani, thank you so much, [indiscernible] and the whole of the Board members who are joining us. And also a special thanks to Phillip. Very proud of the good work you're doing and Tsu and Andre, [ Marek, Kajal ], everybody else, I see Johan [Mike ]. Mike is [indiscernible], thank you so much. And to the rest of the management team. We are in an industry that goes through ups and downs and I'm very clear in my expectations. I always want us to be the best at all times because we are judged by our results consistently. And the management feels that they need to give me all sorts of explanations why headline earnings are down because the abnormal impact of -- where is Jacques and Imrhan, yes, you can, good Imrhan and everybody relax [indiscernible] so they -- and Thabang as well, of course, she's doing all the good work. [Indiscernible] Thank you so much. Doing all the good work to engage with our shareholders. And thanks to all the shareholders who are here and everybody else. So it's very, very fundamental for us that despite what the commodity prices are doing, which is something that we don't control and despite what the rand is doing, which as well is something we do not control, we have to consistently, consistently based on results, be very competitive because the results at the end of the day, you are judged by your results And no matter how it justified the explanations because the facts are what are we doing with our volumes, what are we doing with our production, what are we doing with our profitability? And very importantly, what are we doing with our dividends because part of our commitment is to be a consistent dividend payer. And I really want to apologize for the late trading statement because I come from a very conservative background, particularly when you know that there are issues that you want the market to be aware of as quickly and as soon as possible. And do all of these explanations in terms of the discussions relating to Bokoni and there'll be -- we will be going on a roadshow to have detailed questions because I know many of the shareholders say that they prefer to ask some of these questions in a one-on-one, and that's very, very important because we have a huge obligation to, at all times, keep our shareholders and the market informed with what is happening. And sometimes, you have to focus a little bit more on the bad news and get it out. And the bad news being the prices, the prices, I mean, if you look at Bokoni, Bokoni is world-class and Bokoni will make good money for us. And the performances in ARM Ferrous and in the various other commodities that we have, I'm told that Sandra is here, where is Sandra? [indiscernible]. You look as young as you've always done Sandra. I knew Sandra many years ago. I was with Sim a few days ago, and I can't say what Sim said over the phone -- not over the phone, sorry, over the -- in public because Sim was a young smart, loyal [indiscernible], Sim Tshabalala, the CEO of Standard Bank. But good to see you, and thank you so much for coming and passing my regards to everybody at [indiscernible] to [ Patrick ] and [ Des ] and to all our other partners who are here. Thank you so much for your contributions. Now what we usually do is we take questions, and we'll take questions at the end. And the management team will stay behind. And there'll be a roadshow and in the roadshow, some of our big shareholders and some of our smaller shareholders, all shareholders are import, whether you've got 1 share or whether you've got 1 million shares, we've got a fundamental obligation to you. And often the ones who've got 1 share, they need a dividend. And we've got a huge obligation to make sure that they don't have to buy all the share. They can buy many other shares, but we have to consistently give them a convincing reason and try and make them believe based on our track record and what we do that it's good for them to remain being a shareholder. The rest of the team will do a little bit more of a detailed presentation on some of the issues that I will discuss very briefly and the issues that I will discuss broadly, okay? So the headline earnings for this financial year, the past one decreased by 47% to ZAR 2.7 billion, as I said, mainly due to the decrease in the prices of iron ore and the increased cost at Bokoni. And Phillip will give a little bit more details on Bokoni. We declared a dividend of ZAR 6 per share. We are a consistent and committed dividend player. Our financial position remains very good, robust. We've got a net cash of ZAR 6.6 billion. And you will see that, we've had discussions with our partners. There's about ZAR 9.5 billion free cash flow in Assmang and we've been in discussions with our partners to make sure that the dividend is a dividend that's good for them and good for us. And those -- it's good that to have such a strong balance sheet and to have a significant amount of -- the attributable to is ZAR 4.5 billion, more or less, ZAR 4.5 billion as we stand right now, okay. Okay. All right. We go to the next one. And I like it when there are women in the photos. They make the photos look much smarter. And they perform at some of our operations, the best drivers of these big underground trucks the women anyway, good. And you will see that the headline earnings, ARM Ferrous decreased by 31% to ZAR 3.5 billion. ARM Platinum decreased by 42%. Now this is as at the end of June, you saw that the price of PGMs have risen significantly, which is good. So we expect that in terms of -- in the medium term, we expect that the prices will more or less stay in this positive trend. And then ARM Coal went down by 88%. So this is the sort of industry we're in, and there are times when things are very positive and you've got a super cycle and we've got a huge amount of excess cash and you take that cash, this is where the ZAR 6.6 billion comes from. Put it aside for times when there are challenges and when there are challenges, that's when you grow. That's when you make deals and that's when create opportunities for partnerships because when everybody makes money, it's not a good environment. So you have to make sure that the ZAR 6.6 billion as well as the attributable ZAR 4.5 billion at Assmang and our ZAR 6.6 in particular, you keep your powder dry and positioned for growth. We've given everybody a copy of the booklet, so I'm not going to go into greater detail because you can see what is contained in the booklet and just ask whatever questions. Now if you look at our dividends per share, you look at 2022 very well. You look at 2021, 2023, you look at 2024. And then if you go backwards before 2020, you will see this continuous cycle. There are times of good performance and your management has to focus 100%. It's not what we say, it's what we do. And what we do is reflected in our results. And we are unforgiving and unrelenting and uncompromising, [Foreign Language] and of course, [ Alison ] says, why don't I say hi to her, "Hi [Alison ]." So -- and [ Busi ] as well, of course, and everybody else. I always get into trouble, why do you identify others and don't. So you see where the dividends are, and we've kept this policy, this principle that the aim is always to make sure that the second half of the year that we maintain that process of an increase, even though in 2023, the first half was higher than the second half. Dividends received went down by 10% to 4.5% and the dividends received from the investment in Harmony. I'm always surprised when shareholders who've been with us for many, many years, say, yes, but if we -- Dr. Motsepe, if we look at the name Harmony, we see the ARM logo there because those of us who were there in the beginning have a key understanding that Harmony is a merger between ARM Gold and Harmony. And at the time, there were all of these discussions, are we going to call Harmony an ARM Gold or Harmony Gold, ARM Gold as it is. Let's just call it Harmony, but in the logo, leave the ARM. And some shareholders say we want to talk to you about ARM. And then they say, no, no, we have a clear understanding of what the plans are. We're as confident as we've always been. And we've been in this company for many years. We don't just invest in ARM. We invest in various other companies. We understand the mining industry. It's this Harmony that we want your thinking as a partner.. I'm not -- we are not the executive. [Foreign Language] I'm not the executives say Chairman, hold on, ARM and you, in particular, over the last 20 years have provided a huge amount of confidence and stability and a huge amount of the success in Harmony is because of the excellent leadership that has been provided at the Board and the role that the Chairman and various -- so they give us and they give me -- and I can say that a little bit more credit than we deserve because I'm proud of what [ Bayer ] is doing, and I'm proud of what [ Massimulla ] is doing and the team. But as I said -- and thank you, Bongani for the excellent work that you are doing there as well. So Harmony is doing well. And our strategy in relation to Harmony, we said it and it stays the same and we'll continue along those lines. And as I said, you must ask whatever questions you want and our primary concern is at all times to do what's in the best interest of ARM shareholders. Segmental EBITDA split by commodity. It's there for everybody to see significant segmental EBITDA contribution from iron ore. Iron ore is very important. Many, many years ago, we said we want the other minerals and the other portfolio assets we have to significantly contribute to earnings and to growth and to dividends without the Ferrous decreasing. And you saw that there were 2 years where we were laughing with Andre. Andre, when the Platinum was contributing more than -- more than ARM Ferrous. And Andre said, we'll fix that because what is part of the plan. And you will see that we've looked at copper in Canada. We are engaged in discussions in South Africa and worldwide to identify the appropriate opportunities because this is the mining industry. You've got to think 3, 5, 7, 10 years. And the problem with copper, in particular, is that because it's a commodity that is in so much demand, the prices are exorbitant, and you've got to be careful because you can overpay. But we are confident that in the medium to long term, we will continue to grow ARM. And the performance of ARM in the first instance is -- and the assessment is by our shareholders. Just put aside what we are saying, we say what we have to. But what is more important is to hear what the shareholders are saying as well as the investment community and the market. And as I said, what I at times want to focus on is those areas where the market is saying that there are areas of weakness, there are areas where there can be improvements. Those are the things we focus on because it's important for us that we take account of that and consistently show positive results. We may not always agree, but the starting point is to get exposed. And safety and health, critically, critically important. I think I want you just to go into a little bit more detail because we are spending so much time at our operations and you and Mike and the team and Andre, you guys and Thando and Johan do excellent work. Safety is a critical, critical part of our operations. We've got a huge, huge obligation and commitment to every one of the employees that we have the privilege to work with. And we cannot do more than enough to make sure that there's 0 harm and 0 fatalities. Responsible environmental management. We are committed to climate protection and people talk about climate change. Our strategy is we are a responsible company globally that has a huge obligation to nature, to conservation, to the environment. And we do -- in relation to coal, in particular, we fully support this process of the just transition. But we are part of the ICMM, which is the largest and the most successful mining companies in the world. And it's a privilege to be there because I stood there with the top CEOs in the world, and you get exposed to the huge commitment. We have to deliver competitive returns to our shareholders consistently. And side-by-side with that, we've got to be a responsible miner that is aware of the obligations we have to our communities in the first instance, but also to rehabilitation, the areas where our mines are and contribute towards the reduction in global emissions, okay? My apologies. And then the ARM Strategy, we've spoken about that many times in the past. We've own operator. We've got an entrepreneurial management. We invest in our employees. We partner with communities and other stakeholders, critically important. Partly why we've been so successful in Bokoni despite the challenges, why we've been so successful in Modikwa and in various other operations is just the huge amount of trust that we've built with the communities. I will be visiting Khumani next week, Monday, on the 16th or something. I'll be visiting Khumani. I used to spend a lot of time visiting our operations and sometimes the management complained and said, every time you come, the workers demand even more money and the communities demand even more jobs and demand even more tenders. And it just -- please can you just come as little as possible. And then because we meet, we work with all of these communities through the Modikwa Foundation and also through the good work that African Rainbow Minerals is doing through the trust and various other deep, deep obligations and commitments we have to the communities where we operate, but also a deep obligation to the country and the people of this country, okay? I'm now going to ask that we clap hands to our young CEO who's going to come and continue with the operational review. Phillip? Phillip Tobias: Welcome to everyone, those who are attending in person and online. Thank you very much, Chair, and also to our nonexecutive directors in attendance, our joint venture partners, the executive team and the operational management at large. Despite the tough market and operating environment, we were able to achieve the following: Production volumes at our iron ore and manganese operations increased by 3% and 4%, respectively. Underpinned by improved water supply at Khumani, also addressing the critical skills shortage and ore qualities at Black Rock Mine. You'll remember that during the financial year, those were identified as challenges in that mine. And pleased to say we have really got ahead of the action plan to turn that operation around. Despite the facility and excessive rain in the first half of the year at Modikwa, production in the second half increased, resulting in an overall improvement of 1% on the tonnages that were produced. And that really continued to remind us that safety is our license to mine and that a safe mine is a productive and a profitable mine. Over the past 12 months, we have faced numerous challenges, including low commodity prices, a weaker dollar and logistic constraint. Cost containment remains a key focus and progress is reflected in our divisional unit cost performance, basically continue to emphasize about those things that are within our control. Given the volatile PGM market, we took a prudent decision to stop the Early Ounces at Bokoni and suspend the ore and mining and milling at the operation by the end of the financial year, and I will deliver it as we proceed. We remain focused on enhancing quality, making sure that we improve grade, that we basically mine to reserve grade and that we reduce waste and dilution. ARM Ferrous headline earnings were 1% lower, driven by a 15% reduction in the USD price. That was partially offset by 120% increase in headline earnings in the Manganese Division as a result of additional volume performance and also cost control. Higher headline earnings in the Manganese Division were driven by an increase in Manganese ore sales, volumes and also by prices. And then just going back, sorry, on that as well, just talking to the ARM Platinum, the PGM sector basically had losses increased by 42% due to higher operational losses at Bokoni. And I basically mentioned the issue of Early Ounces Project. In the Financial year 2025, Bokoni ramped up its operation. However, it was negatively impacted by operational challenges, higher fixed costs with Early Ounces production and increased mechanized development. What does the Early Ounces production mean? When we took over, we identified an opportunity at the back of the higher PGM basket prices to recommission and restart the 60-kilotonne UG2 concentrator and also to utilize and explore all the raise lines that were actually left hold by previous owners. To that effect, we employed the services of a contracting company because it was going to be a short-term measure. However, because of the shallowness of the ore body, there has been some several challenges that were actually achieved that we actually experienced. I mean, we've had issues of key blocks because of lack of horizontal clamping forces and other operational challenges. I mean, to that effect, a lot of interventions were actually put together to a point of expediting and accelerating the open pit mining. Unfortunately, also there were some other challenges that were experienced in that. And to that effect, we ended up really making a decision to really put a stop on that mining and milling and then focus on the ore reserve development to open up the ore body to at least 120,000 tonnes per month from Middelpunt Hill and to make sure that we set that mine up even as we have already mentioned. On the ARM Coal, the earnings declined by 88%, driven by a reduction in the realized coal price as well as lower sales volumes from GGV and PCB. Just giving color to our headline earnings variance analysis, I mean, if you look at this, what stands out really is almost approximately ZAR 1.6 billion just from the Ferrous division. Had we not really done anything, I mean, the major impact was coming from our lower iron ore prices and also the stronger rand exchange rate. Had we not done anything, I mean, we would have really lost 1.75 just from the dollar price, ZAR 450 million from the exchange rate amounting to ZAR 2.1 billion. But that being the case, the operations basically responded positively by increasing the volumes at Black Rock and also by increasing the sales tonnages and also focusing also on costs. As I said, things that were within and are still within our control. In terms of the EBITDA margin slide, it actually decreased across the board, except in the manganese ore operations where we saw a 4% improvement. Looking at the segment results variance analysis, very evident if you -- when you look at the top left, that impact of price, you can see the positive contribution from the volumes and also a positive contribution as well from others, which spoke to the issues of cost and as I said, increase of volumes as well. Total iron ore sales decreased by 15%, driven by lower offtake at Beeshoek. I mean, all of us will remember that AMSA did announce in October 2024 that they will be shutting down a Newcastle. That is where we had some negative impact in terms of our deliveries on that. The unit cash cost at Black Rock increased by 9% due to inflationary cost increases, higher labor headcount due to filling the key production vacancies because we did talk to the skills shortages previously, so we were really deliberate and intentional in terms of addressing that and also higher run of mine volumes. Just zeroing in on our iron ore business, the Chairman said he will be visiting Khumani. Khumani is still our Tier 1 asset with more than 20 years of life remaining, high grade and low strip ratio with an installed capacity of over 14 million tonnes. World-class safety stats at our Ferrous operations, both Khumani and Beeshoek are 6 years fatal-free. Total iron ore production volumes increased by 3% due to improved water situation. You remember that we did mention that this has been an ongoing thing, but we're pleased to mention that during the second half of the financial year, we didn't experience any water challenges because of measures and actions that we actually put in place. Khumani's mine unit cost increased marginally by 1%. Inflationary increases were offset by lower diesel prices and higher mining production. However, the biggest risk to our iron ore business includes, among others, the short life of Beeshoek because of our local customer. So given that, because we don't have any long-term offtake agreement at this point in time and also due to the status of that, we have actually taken a step to really wind down that business. So that effect, the Section 189 has already been issued, and that will impact a number of colleagues as we wind down that business. With regard to Black Rock, it's a high-grade, low-impurity long-life ore body with an installed capacity of 4.5 million tonnes per annum. Production volumes at Black Rock increased by 4% as a result of addressing the ore quality issues and the requisite skill set. Production was negatively impacted by the stoppage following the fall of ground fatality in April and also that loud message that safety is our license to operate and a safe mine is a productive and profitable. So we are taking the learnings and making sure that we can really turn things around and continue to really maintain that lead that we have really provided within the industry. Local sales volumes were higher due to increased uptake from our local customer. Various cost-saving initiatives are ongoing to ensure that the unit costs are contained. The objective is to make sure that we are in the right quartile of the industry cost curve so that we increase our margins and have sustainable profitability. Total capital expenditure for the Manganese ore operations decreased by 27% due to consistent effort to preserve cash given the low market prices. Reminding you that when we started the financial year, the prices were as high as $9 per dmtu, and we have really seen them really go even below $4 per dmtu.. In terms of the alloys, the high-carbon manganese alloy unit cash cost at Sakura decreased by 12%, mainly due to a 23% increase in iron ore prices -- in manganese prices and a 25% decrease in reductant prices. Cash cost and finances efficiencies were well managed despite the above inflation increases on inputs like your power and input materials. As part of our strategic restructuring, we have made difficult but necessary decisions to address underperforming and loss-making operations by closing Cato Ridge, and most of you would have heard and seen that announcement and disposing of our investment in Sakura as well as recently initiating, as we mentioned, Section 189 on the Beeshoek, dealing decisively with loss-making asset. By strategically disposing of Cato Ridge and Sakura, we avoided additional losses amounting to hundreds of millions for ARM, which would have negatively impacted our profitability and cash flows and we can now focus and allocate corporate resources towards our high potential core assets at our Khumani and Black Rock mines, thereby strengthening our overall financial position and paving the way for the future growth. Production at Cato Ridge ceased at the end of May, employees exited by the end of August. Now we are focusing on selling the final stocks, closure, responsible closure and rehabilitation. By doing so, we are repositioning ARM to be a more agile, profitable and better aligned with our long-term vision for success. And I'm confident that these steps will drive sustainable value for our shareholders and position us strongly for future achievement. Moving into the Platinum business, the U.S. dollar PGM prices recovered towards the latter part of financial year 2025 compared to the prices achieved in financial year 2024. The average prices in 2025 for platinum and rhodium were raised in 6% and 8%, respectively. However, the average palladium price declined by 8% when compared to the previous year. The bucket price was flat with an only 1% increase on year-on-year. Looking at Two Rivers Platinum, the unit cash cost increased by 5% due to marginally lower production, partially offset by cost-saving initiatives. Mining through very high geological disturbed areas called for increased mining on our waste redevelopment meters, thus also adding costs that were not foreseen. Coming down to Modikwa Platinum mine, the unit cash costs were up 3%, mainly due to marginally lower PGM ounces production and partially offset by cost-cutting initiatives. Production volumes were marginally down at both Modikwa at minus 3% and Two Rivers at minus 1% year-on-year comparatively. Capital expenditure decreased by 68% to ZAR 2 billion due to considered effort to preserve cash. And you'll remember that in the previous year, I mean, that was really the year when we made a decision to really stop the Two Rivers and Merensky project and put it on care maintenance. Subsequent to that, we only saw a very small portion of that CapEx coming into 2025. We remain focused on creating mining flexibility, especially for both Two Rivers and Modikwa, making sure that we create an enabling environment. We continue to focus on grade improvement, cost optimization and increased volumes, which will have a positive impact on our unit cash cost. We continue to focus on factors within our control. Maybe just giving an update on Bokoni mine, 4 things that I would really like to cover, just expansate on the superiority of that mineral resource. I mean, this UG2 resource at a grade of 6.18 is the highest and is relatively attractive and also the relatively attractive purchase of concentrate that we have for 23 years is basically the foundation to establish a mining operation with sufficient economies of scale. 60 kilotonnes didn't have that sufficient scale. High fixed cost, low volumes. And as a result, we ended up really being loss-making. So the investment thesis that we have at ARM is on developing a large mechanized mining operation that can unlock economies of scale and deliver competitive ramp per tonne operating costs. In terms of the Early Ounce Project, as I already mentioned, this was approved in 2023. And then with the intent to put it as a precursor towards the bigger picture, we believe that the minimum optimal size for Bokoni is 240,000 tonnes per month, in line with Modikwa, in line with where we started even with Two Rivers. So the disciplined deferral, taking into account the performance of the market and the outlook and also the PGM sector, we actually had to take a decision to defer the full implementation of that 240,000. And as a result, the 60 kilotonnes could not really deliver the economic of scale, resulting in the suspension of mining and milling at the end of the financial year. What are we doing now? We are assessing a phased development strategy, as I said, to open up the ore body, especially at Middelpunt Hill decline, thus setting it up for a phased approach towards the 240 kiloton. An update on Nkomati. We did mention that we have really entered into a sale transaction with our partners. That was actually concluded. All conditions precedent were met by the end of July. And as a result, we are now the sole owners of Nkomati. What does Nkomati bring to the table? It's an only proven nickel resource in South Africa. Its sulfide polymetallic reserve base and established infrastructure provides several relatively low capital-intensive value-enhancing options for ARM, which are currently being considered. And what are we doing at this point in time? We have just wet commissioned the chrome washing plant with an intent to treat the stockpiles amounting to about 500,000 tonnes over the next 12 months, whilst we're basically mitigating the [indiscernible] maintenance costs so that we can reduce the cash calls from the center that every business unit needs to stand on its own feet. Moving on to ARM Coal. GGV's average received export price declined by 8% to $82 a tonne, whilst PCB's average received export price also declined by 12% to USD 75 a tonne. Regarding the next one, with regard to -- due to the decrease in the coal price, trucking was significantly reduced in the financial year 2025 because previous years, we actually had to bring in the trucking but this year, because of the price being where it was, it was actually not economically viable to really truck. So as a result, that decision was made to stop that, and that resulted in the reduction in the export sales volume. On mine unit production costs at GGV increased by 14% as a direct result of the reduced saleable production and reduced capitalization of box cut. Unit price at PCB increased only by 5% as cost-saving initiatives reduced the impact of inflationary cost increases. Our investment in Surge Copper, I mean, we've announced that we took a 15% stake in this high-quality copper deposit, porphyry deposit that has actually molybdenum and silver in it. And the early indications with the progress of the studies where they are now is that Berg has the potential to become a Tier 1 asset, combining competitive C1 cash cost and capital intensity with the advantages of operating in a well-established mining jurisdiction. Given Surge's strong progress on its feasibility study, which remains on track for the completion in 2026, ARM is in the process of increasing its equity stake in Surge to 19.9% and securing a position on the Surge Board and starting to really have the meaningful input in terms of the direction that this project is going to take. ARM will continue to closely monitor progress and evaluate current and future involvement in Surge. In addition to its substantial copper endowment, the Berg project is uniquely positioned to benefit from its polymetallic resource base with significant molybdenum and silver byproducts included in the measured and indicated mineral resources, estimated at 633 million pounds and 150 million ounces, respectively. With positive trends and strong demand outlook for its byproduct, molybdenum and silver, the Berg is expected to realize substantial byproduct credits, which will contribute to industry-leading C1 cash cost when calculated by net of byproduct. The Chairman has already spoken about our strategic investment in Harmony. Harmony is currently in a strong financial position with a net cash balance to pursue its growth ambitions. ARM will continue to evaluate all options relating to its strategic investment in Harmony with the objective of unlocking and creating value for ARM, its shareholders and stakeholders. Many of you would have really seen the announcement of the Harmony collar hedge that we entered into, I mean that ARM implemented a hedging collar transaction involving 18 million shares in Harmony Gold, representing 24% of our equity in Harmony. The collar and related arrangement provide ARM with access to funding in the future of efficient terms if and when required for its strategic objectives while allowing ARM to retain further upside exposure to the Harmony share price up if that are not on the subject to call. The put option has strike price of ZAR 234.85 per share, while the call option is actually at ZAR 562.40 per share. What have we been doing? I mean, when we saw an opportunity to really create value for and unlock value for shareholders, we went into a mode of a share buyback activity. And to that effect, we can confirm that we really bought shares to an amount of ZAR 500 million, thus really reducing 7% of the shares in issue from ZAR 221 million to just approximately ZAR 207 million. The closure of Cato Ridge Works and Alloys, disposal of assets of Assmang and Assmang's interest in Sakura, those are some of the corporate actions that the team has been doing. In closing from my side, just a focus on ARM's key focus areas. What are we doing? I mean, decisive actions on underperforming assets, that including the decision that we have just made on Bokoni. The decision that we have made on Nkomati, exploring alternative options to make sure that there's no call from the -- cash call from the center and both the Cato Ridge and Sakura closure and divestment. Disciplined capital allocation, making sure that we allocate capital based on competitive margins and returns. And if you look at the year-on-year performance on CapEx, you would see that certain prudent decisions were made to make sure that we don't just spend for the sake of spending. Defer capital expenditure where appropriate. And lastly, just making sure that we continue to pursue value-enhancing growth opportunities, and that increase of our stake in Surge is a testament to that. The chrome recovery washing plant, looking at alternative revenue enhancement measures is what we are exploring across all our business. Sustainable value creation for stakeholders and various corporate actions, and we will continue to really explore and exploit any opportunities that will really enhance value and unlock value for our stakeholders. Thank you very much. I'm going to hand over to Tsu. Tsundzukani T. Mhlanga: Thank you, everyone. Chairman has asked that I recognize some of our partners that he didn't also mention before in addition to [indiscernible]. So we just want to formally recognize Sumitomo, Valterra Platinum as well as Implats. Thank you so much for joining us. In Glencore, apologies, in Glencore at our [indiscernible] operations. So when we look at our capital allocation guiding principles, during the year, we prioritized investing in our existing business, and that was in the form of sustaining capital expenditure or what others call stay in business capital expenditure. And we spent approximately across the group on an attributable basis, ZAR 2.4 billion -- ZAR 2.5 billion. And now when we look at our capital allocation, we then actively seek to also grow our existing business in addition to looking after our existing business. And we make sure that we pursue acquisitions that make sense for ARM. So what was different this year compared, I think, to a number of years, I think the last time we did this was back in 2020. As mentioned by Phillip, we completed a share repurchase program where we bought ZAR 500 million worth of ARM shares at an average price of ZAR 154.27. And those shares we subsequently canceled and delisted. So we're always on the lookout for those opportunities and ensuring that we return capital to shareholders, whether in the form of dividends or share buybacks. Now how we look at opportunities when they come across our table. We look at a number of metrics or measures before we decide on which project to pursue. And those include, and this is not an exhaustive list. We look at the payback period. We look at the maturity of the project. Obviously, brownfields are better than greenfields, so that's always prize #1. But then we also look at the return on capital employed as one of the things that are paramount. So I think in terms of capital allocation, and I think Chairman has already mentioned it, I mean, we remain committed to declaring dividends and returning capital to shareholders, which I think we have demonstrated, particularly this year and in prior years, but this year in the form of the ZAR 6 final dividend in addition to the ZAR 4.50 interim dividend as well as the share repurchases that we have completed during the year. This slide just shows how we generated cash and how that cash was allocated during the year ended 30 June 2025. So in terms of the operations, we generated ZAR 45 million, and this was a decrease of 97% compared to the corresponding period. So in F2024, that amount was circa ZAR 1.8 billion and also takes into account an increase in the net working capital of ZAR 1.2 billion. If we look at the next block, you see there are ZAR 4.9 billion in green. So included in that amount, we received ZAR 4.5 billion in dividends from our Assmang business, which is ZAR 500 million lower than the dividends received in the prior corresponding period. During the period, we also received dividends of ZAR 192 million and ZAR 240 million from our investment in ARM Coal and Harmony, respectively. In terms of how we actually applied these funds during the year, so we invested, as I mentioned earlier, into our business in the form of capital expenditure, ZAR 2.7 billion, and that was the largest outflow. However, if you compare it year-on-year, this was a decrease of ZAR 3.6 billion. Now the majority of the spend during the year was for stay-in business capital totaling about ZAR 1.8 billion, with the spend being on mining development and infrastructure on -- infrastructure-related capital expenditure at TRP as well as normal capital expenditure at our other operations. Just another highlight is that in terms of outflow, we paid dividends totaling ZAR 2.6 billion to ARM shareholders during the period, which is 25% lower year-on-year. If we look at our net cash position, total borrowings increased by ZAR 906 million during the period to a balance of just over ZAR 2 billion as at the end of June 2025. The increase was due to a revolving credit facility of ZAR 1.75 billion and term loan of ZAR 1.25 billion taken out by Two Rivers to complete the Merensky project and also to finance other essentials. I think despite that loan funding that was taken out, ARM still has a relatively low interest-bearing debt and closed the year at a net cash to equity position of 11%. And then just to mention that the net cash that we show there of ZAR 6.6 billion excludes the attributable cash sitting at Assmang of ZAR 3.6 billion as at the end of June 2025. So the capital expenditure for the reporting period was covered by Phillip in each of the divisions sections. Some things that you could note. So segmental capital expenditure on an attributable basis was just over ZAR 4 billion, so that ZAR 4,020 million that you see there on the screen for the year under review, which is ZAR 4.5 billion lower than the prior corresponding period. Most of this was spent as follows. So we spent ZAR 2 billion at our ARM Platinum operations, ZAR 1.8 billion at our Ferrous operations and ZAR 275 million at our ARM Coal operations. And just to note that the ARM Ferrous capital expenditure includes capital waste stripping costs of ZAR 848 million on a 100% basis. If we compare that to the prior corresponding period, that amount was ZAR 1.3 billion. Apologies, just forgot something quickly. Just in terms of the guidance for the ensuing years, you'll see that the guidance for F2026 shows a marginal increase of ZAR 173 million, and it now has increased to ZAR 4.5 billion, and that's relative to the ZAR 4.4 billion that we had communicated at the March results. Now CapEx for F2026, '27 and '28 includes approximately ZAR 4 billion of normalized sustaining capital expenditure per annum with capitalized waste stripping costs at our iron ore operations expected to increase to about ZAR 1.5 billion on an attributable basis. Thank you very much. We will then move to questions. Patrice Motsepe: You're going to take over now. There are questions. I think what we should do is take questions from the floor and then we'll give a mic and then we'll take questions and you lead us on the questions, a few things I want to deal. Just give a mic quickly and we'll take questions from -- and take questions from -- can we have questions here quickly? Martin Creamer, who else? And I see another hand there. Okay. Can we write on the questions and deal with them and then I'm going to ask Thabang to lead with the global -- with the questions offline. Martin, can we start with you? Martin Creamer: I just want to refer to decarbonization at this stage. Initially, when you decarbonized with platinum, you built the solar yourself, and that's coming in, in next year. Now that you've looked at it again for ferrous, you are wanting to buy it out. So there's a different approach that you're going to get from IPP. That's my first quick question. The second one I ask is I'd be great if you please provide an update on the narrow-reef boring technology that ARM has planned for Bokoni and also the tunnel boring that proceeds that. And then finally, an update on the research and developing energy-efficient smelting, SmeltDirect technology on which investments have been made in the Machadodorp. Patrice Motsepe: Brilliant, brilliant questions. And you will deal with -- Andre will deal with Machadodorp and Phillip, you and Mike will deal with some of the questions you asked. Just write them down. Okay. Next question. Thank you. Just introduce yourself and which company you're from. Brian Morgan: Brian Morgan from RMB Morgan Stanley. Three questions from my side, if I may. Just on Bokoni, could you just give us an update on how much you expect to spend just CapEx or OpEx whatever it is over the next 12 months at Bokoni? And coming to feasibility, you say you come to feasibility in 2026, assuming that's bankable and it's approved, what would we be looking for 2027? Would the CapEx start immediately and the project get going at that point? And then I don't want to get too deep into the retail, but see just on the tax treatment with this impairment, it's a big part of the earnings miss here. So I just want to get an understanding of what actually went on there but I don't really understand it myself. And then sorry, just back to a project question. Merensky, you developed 2 levels of the project, 2 is Merensky. I think you said in the past, you need 5 to get going there. Just an idea of how much CapEx would be required to get Merensky up and going? Patrice Motsepe: Excellent questions. Mike, you will deal -- Mike? Yes, you and Phillip, and I think Johan may want to add as well later on the Bokoni. Tsu, you will deal with the impairments. Brilliant questions, okay? Other question there? Thobela Bixa: Thobela Bixa from Nedbank CIB. Some questions, one on the PGM assets. We see that your guided volumes for Two Rivers and Modikwa continue moving lower over the number of years. Could you just take us through as to what the thinking is behind the lower numbers? And then on the CapEx, so could you just explain as to -- or give us a breakdown because you're no longer spending some CapEx at -- for [indiscernible], but your CapEx still continues to increase. Maybe just give us a breakdown as to what is -- what are some of the cause for the CapEx increase over the years? Patrice Motsepe: Brilliant questions. Phillip, you and Mike and Johan Jansen will deal with some of those questions. I saw another hand here. No other questions on this side? Questions on this side? Sorry. Any other questions? Okay. All right. Okay so Phillip, do we start with you? Have we got a mic with you [indiscernible] you've got you up properly. Phillip Tobias: Thank you very much. Thank you for those questions. Patrice Motsepe: Then later Thabang will help us with the questions online. Phillip Tobias: Thank you very much, Chair. Thank you for those questions. I mean I'll start with the Two Rivers Platinum Merensky question. I mean the question was asked, how much capital basically is still outstanding for us to really ramp up to full production? So when we stopped, we had already developed and opened the ore body up to 3 level of the 5 levels. So we still need to do Level 4 and Level 5. But of the 3 levels, only Level 1 and 2 are currently equipped. And you remember that when we put that mine on care maintenance, we had already done some wet commissioning. So we know that the concentrator basically works. So approximately, it will require about ZAR 2 billion to complete the Merensky project, and that will be spent most probably within a period of about 24 months. And just moving into the question about the PGM guidance that it seems as if there's basically a downward trend. I mean this takes into account the geological challenges that we have experienced at Two Rivers. As we mentioned that there were quite a lot of geological structures that we went through. Phase and flexibility was a challenge, but pleasing to mention that, I mean, we had been able to negotiate beyond the South to fall block, and we have exposed basically half a level included into that. And we've increased our redevelopment with an intent to create and improve the phase length flexibility, especially mining the higher portion of the Speed Riff. So with Modikwa, we have one of the actions that we took was to shut down South 1 shaft because it was loss-making and subsequent to that, we replaced the UG2 production with South 3 open pit mining. And that is basically ramping up to the volumes of about 50,000 tonnes per month, just to make sure that we basically fill up and sweat our installed capacity at Modikwa. So and that will be taking place for the next 6 to 8 years. And maybe I can ask Mike just to talk on the Bokoni CapEx, and then I'll hand over the tax question to Tsu on the impairment. Patrice Motsepe: No, no, no. Mike, I want to be last. And Mike, after Mike, I want to go to Johan Jansen and Thando and then Andre Joubert on the ARM Ferrous and [indiscernible] and then Tsu will be -- will deal with the impairment. Okay, Mike? Unknown Executive: Sure. I can start with Bokoni, but I'd like to go straight back on to [indiscernible], if I may. The Bokoni investment was premised on full mechanization going forward, premised on where we see the price and the outlook, we decided to curtail some of that development and focus really on the primary waste and opening up the ore body. So the capital will go down over the next year relative to what we saw this year, and there were 2 gentlemen that asked that. And most of it will be on the primary waste development. The indications of this year is just over ZAR 1 billion of capital, and that's the type of expenditure we see over the next 3 years. And obviously, that then subject to Board approval on the full feasibility, which we present towards the end of the year. The capital that's gone into the mine is to reestablish the mine from what was historically a Merensky to UG2. We've, in that period yet commissioned a 60-kt plant. We've also built and commissioned the chrome plant. We've also put down a decline shaft right into the ore body to concentrate all the ore from 1 shaft instead of the historic 3 shafts and then to focus as of now on the UG2 development. It's still the preferred grade and the preferred ore body with the preferred returns. We anticipate within the next 3 years to recommission the 60 phase up to 120 and ultimately phase back to 240. I think that really covers the Bokoni issue. Martin, if I can come back to you on the narrow-reef cutting and come back to you on the tunnel boarding. So the test work on surface, all the trials have gone through rigorous processes of surface cutting, various grade densities and hardnesses on concrete slabs, performing exceptionally well. In the meanwhile, we've gone ahead and reestablished a complete new site for the underground trials. That's far advanced. The site establishment is done. The portals are ready. We're busy taking up electric cables. We will start commissioning mid-November. And by March, we'll be very well advanced with the cutting that's the tunnel boarding. And in March, the narrow-reef cutting follows through in March, and then we will probably go for a final commercialization or commercial decision by June next year. But it's going exceptionally well. It's meeting and beating all of our expectations. So I'm very confident that we'll deliver on those 2. Thanks, Martin. Patrice Motsepe: Thank you. I think let's go to Andre. Andre Joubert? André Joubert: Martin, thank you for that question. I think on the -- I'm going to start on the ARM Ferrous or [indiscernible] side in terms of the solar process, where we completed a bankable feasibility study to build our own solar plant at our operations. But there's still too many questions to answer about the potential legislation and how Eskom is going to react now that everybody is building their own site, which I mean to be fair to Eskom can only supply electricity during the day and then Eskom is going to still supply the power during the night. So in that transition phase, there's still uncertainty how Eskom is going to change their tariffs. And because of that, we decided to delay the installation of our self-built solar plant. And the IPPs have also come up now -- come forward to shorter-term contract. You don't have to enter into 20-year contracts with them anymore. So you can do like a 3-year contract or a 5-year contract. And that's what we're going to do. So basically to [indiscernible] time, literally to [indiscernible] time while still saving on our electricity costs and reducing our carbon emissions so that we have more clarity on the legislation and the tariff structure of Eskom into the future. So that's why we did what we did in that regard. In terms of the SmeltDirect Technology, I just -- if I may correct you in the public forum, it's not R&D anymore. So we've gone way beyond that phase now. And we've actually completed the full unbankable feasibility study on making ferrochrome at [indiscernible] Gold works. And at this stage, we are engaging with various partners in terms of partnering with us in terms of commissioning such a new plant or commercializing our new technology, which saves for everybody who don't know, which saves more than 70% of electricity consumption if you want to produce the same amount of ferrochrome alloys. And it also reduces your carbon emissions by about 60%. So it's really -- and it puts you on the bottom of the cost curve. So we're doing a lot of work. We're engaging with other chrome producers. We're engaging with the IDC and also with the various parties abroad in terms of commercializing this technology. But it's going to take quite a lot of effort because, I mean, you've read in the newspapers, chrome smelters are now shutting down one after the other. We ourselves has cut our ferromanganese production, the last person left site at the end of August. So I think there's going to be a huge level of cooperation from an industry level and from government level that we can revigorate industrialization and smelting in South Africa. And another positive thing that we picked up from this research that we've done is that there's also a very good application for this technology in terms of producing green steel, and we are even engaging with major steel producers at this point in time to advance that process. So it's very encouraging, and we're making very good process, but not ready to announce a project at this stage. Thank you. Patrice Motsepe: Thank you. For some weired reason, I thought Thando is still actively involved in Modikwa, so as -- Johan can you deal with those platinum issue and Thando will comment on the excellent work that he's doing in Thando. Thando, you'll talk after Johan Jansen [indiscernible] coal, and Nkomati as well. Johan? Johan Jansen: TThank you, Chair. Good afternoon. In I can start with Bokoni. Previous speakers rightfully mentioned that Bokoni is an exceptional ore body. You're looking at grades in the region of 2 grams per tonne higher than the other operations in the area. Now what we've done is Mike mentioned, we stopped the mechanized development. We moved that equipment across to the conventional development. And with the development that had been done on the conventional section before our purchase of Bokoni, we really moved directly into starting, physically doing development. We've been at it for the past 2 months. And I'm pleased to say that we have a good team on the ground and that we are achieving the development advance rates that we're planning. In addition to that, we've also put down a new decline system, the decline cluster, which we call Cliphut. Cliphut is in close proximity of where we are currently developing. And one of the constraints that had been in the UG2 mining section was the fact that the conveyor belt going to surface through the existing tunnels had been limited to about 60,000 tonnes a month. Now equipping Cliphut with a conveyor will give us the capacity to do 240,000 tonnes a month. There's also a drive through towards the eastern side, so we can very quickly start up a second cluster of declines. I'm not going to share firm numbers. We're still busy with the feasibility study, but initial indications are really very positive for the future of Bokoni. Looking at Modikwa, you are correct in observing that the volumes has dropped. We've fixed it. We started up the Merensky project. Now Merensky typically does not come with the same grade as UG2, but we've put in a lot of effort to reduce the sloping heights in the Borden pillar section. We've also introduced conventional proves, which is giving us a much higher grade in the Merensky section. So we're doing about 50,000 tonnes a month from the Merensky section at very good cost. Then we opened up the open cost section, open pit mining, initially closer to the mine on the -- just on the southern side of the mine. We've recently moved to South 3, where we've got a huge reserve that would probably last us for about 8 years, going only to a depth of about 50 meters. That will increase, but we're looking at fairly good grades and the recoveries is also good. So the open cast works for us. Two Rivers, we had challenges with geological intrusions. We've put 3 additional crews in at Two Rivers, had been doing redevelopment for about a year, and we're also now starting to see the impact of the redevelopment at Two Rivers. So I'm very positive about improvement in the ounces from both Two Rivers and Modikwa and delivering a successful feasibility study at Bokoni. Thank you, Chair. Patrice Motsepe: Thank you. Thando? Thando Mkatshana: Thank you, Chair. I think the questions related to coal on Nkomati haven't come up yet. Yes, absolute. We will wait for those questions to come if there are any. Patrice Motsepe: And how are things going at Nkomati? Thando Mkatshana: Yes. To an extent that Phillip has covered in his presentation Nkomati, we're really quite pleased that now we've got full control of that asset. It simplifies decision-making and the strategic direction. At this stage, while we're finalizing some of the options, we've already recommissioned the chrome plant, chrome washing plant, which we're going to treat stockpiles. As Phillip highlighted, we've got 500,000 tonnes of stock sitting there. The production coming out of that will be in the range of 6,000 to 7,000 tonnes a month of chrome. And given the fact that it is coming from the stockpile, it will be a very low-cost production. We are forecasting in the range of about ZAR 180 to ZAR 200 per feet ton, giving us about 700 ton, just under 900 tonnes of chrome produced. So those are the numbers that we are looking for at this point. Obviously, when we finalize our feasibility and the options that we are looking at, we'll be able to give more color to the market. Patrice Motsepe: Thank you so much. I'm trying to quickly go to closure, take those questions. And of course, two is still coming. And because I've been getting some notes that some of the people here want to ask more one-on-one questions when the media briefing has ended. And the whole team will stay behind for as long as required. And then thereafter, I think Phillip and others will go to the questions on TV and other broadcast. Tsu? Tsundzukani T. Mhlanga: Thank you very much, Chair. So I think just to address Brian's question on the Bokoni impairment. So you asked on the tax impact. So there was no tax impact on the Bokoni impairment loss. And the reason being is that Bokoni hasn't had tax expenses due to it being in a loss position. We do, however, have a deferred tax asset related to Bokoni and it arose on acquisition where we recognize some of the taxable benefits that were residing within Bokoni when we bought or when we acquired Bokoni. In terms of that deferred tax asset, we expect to utilize it over the short-to-medium term. So we're looking at a period of circa 5 years in order to realize that. Patrice Motsepe: Thank you. And if you want further information, Tsu will be around. How many questions have you got Thabang? Yes. Okay. Because I want to take as much as we can, deal with it and close the media. And as I said, you and the team will be meeting and you stay behind and deal with any private and direct questions that may require further information. Please proceed, Thabang. Thabang Thlaku: Thanks, Chairman. So the first question we have on the webcast is from Shilan Modi from HSBC. He's asking regarding PGM prices, where do you think is the incentive price in rand per 4E ounce? Patrice Motsepe: The incentive price? Thabang Thlaku: Correct, Chairman. Patrice Motsepe: Incentive price. Thabang Thlaku: That's correct. Patrice Motsepe: I don't know what that means. But anyway, yes, I assume it means the price at which it makes sense for us to continue. Thabang Thlaku: To invest. Patrice Motsepe: Exactly. Thabang Thlaku: Correct. So the incentive price to sustain old shaft? And where do you think that incentive price is for new projects? His second question is... Patrice Motsepe: So Phillip, you will take the first one. Thank you. Thabang Thlaku: The second question is, given your ambition to build a large Bokoni mine, what returns would you anticipate from the project at spot PGM prices? Given that we are still in DFS, I think we will be able to come back to the market later once we've got the results from that? Patrice Motsepe: Very good question. Mike, you will take that? Mike, did you hear that question? Unknown Executive: I did not. Patrice Motsepe: He didn't. For Mike, can you just repeat that, please? Thabang Thlaku: The question is, Mike, given your ambition to build a large Bokoni mine, what returns would you anticipate at current spot prices? Unknown Executive: Now that sound came so nicely. Patrice Motsepe: Let's keep it on. We want the good things to continue, please. What other question have we got? Thabang Thlaku: We've got 2 questions from Warren Riley from Bateleur Capital. He's saying, please update us on the Two Rivers Merensky project. What production will be targeted? So I think questions around CapEx have already been asked, but he's asking about production, unit costs and cash margins. And his second question is, what options are there around Beeshoek? Can in time -- sorry, in time, can you export Beeshoek output as [indiscernible] turns around Patrice Motsepe: Okay. So you will take the Beeshoek. Andre and then Mike, you will, Mike because they are related, you will deal with his first question, okay? Thabang Thlaku: And then Chairman... Patrice Motsepe: Phillip, you can add on to that, yes. Thabang Thlaku: We've got a question from David Fraser at Peregrine Capital. At spot prices, it appears that coal must be close to being loss-making. What action are you taking to avoid cash burn in this business? Patrice Motsepe: Okay. Thando? Thabang Thlaku: And then a question again from Shilan Modi. Do you still think Bokoni would be a second quartile producer on the cost curve? And would this mean that it would be in the third quartile after accounting for the POC agreement? Chairman, that's it for now. Patrice Motsepe: Thank you. So that's it because we're going to close that, okay? And we'll deal with -- and all the questions that they have, they can contact Thabang and as always, and we'll answer them. Can we start with you, Phillip? Phillip Tobias: Thank you very much for the question. The question that was asked was the incentive price for the breakeven. I mean for the old shaft or old operations, the PGM basket price of ZAR 850,000 per kilogram, it's basically what we require, which is about -- works out to about ZAR 22,000 per ounce. And that is basically inclusive of your stay in business capital as well. And to go to major CapEx, you would want at least an incentive price that is 30% higher than that at about ZAR 1.1 million per kilo. And you remember that when we made a Bokoni investment decision, the prices were actually hovering around ZAR 1.1 million, ZAR 1.2 million per kilogram. And then the question was asked about Two Rivers to say what sort of production profile are we looking at? You remember that the Two Rivers Merensky project, it's a 200,000 tonnes per month project. That is going to be a step change to increase the production from current installed capacity of 320,000 tonnes per month to 500,000 to 520,000 tonnes. And the rationality, remember that we had transitioned to a split reef, which is actually lower than the original reef that was mined. So it's going to basically be transformed into high-volume, a high-margin asset to really dilute your overhead fixed cost and make sure that it remains in the cost in the second quartile of the industry cost curve. The question is asked about Bokoni. Is Bokoni going to be a second quartile of that? The studies are currently underway. Our investment thesis is we want all our assets to be in the second quartile of the industry cost curve. And with that, it's going to enable us to weather all the storms that comes our way. I mean we've just been through a tsunami now in the past 2 years on the PGM. So we want our operations to still have a margin even when the prices go down. So the studies the options that will really be evaluated and assessed, we'll have to make sure that we do that. And new technology -- appropriate new technology is also being considered as Mike has already alluded to that, and we'll come back at the right time. Patrice Motsepe: Mike? Unknown Executive: Yes. I think Phillip actually addressed the questions you've asked me too, but I want to make just a comment. There was a gentleman that asked it appears on our PGM outlook that we actually continue to go down. And whilst that is reflective, remember, those numbers are only based on what has been approved, budget approved numbers without the work that's been done. Subsequent to this report, we've already got approval to continue expanding on the Modikwa and getting that and Johan's elaborated on that. And Two Rivers, Phillip just elaborated on what's going to happen. It is obviously subject to Two Rivers Board, and that is imminent with our partners. There's absolutely no reason why we won't beat the forecast this year and going forward is to improve the outlook of the PGMs, and I exclude Bokoni out of that. Definitely, Phillip made a call, when we looked at Two Rivers Merensky at the time and put it on impairment, we went in with assessed prices of about ZAR 750,000 per K and today, the Merensky is touching on ZAR 900,000. And on the UG2 Bokoni, that -- all that feasibility work was done and approved at ZAR 240,000 on ZAR 740,000 per K and it's over ZAR 850,000. And I'm talking realized price. So it may not be the number you're looking at, Brian, but these are realized prices that we work with. So the current outlook is very, very positive. And there's absolutely no reason combined with some of the technology that we are putting in place, which I've touched with Martin that we can't see that even in an environment when there's no absolute long-term certainty of our PGMs, we will reposition our businesses below the 50th percentile and stay very relevant into the future. Unknown Executive: Thank you, Chair. Yes, no, it is correct really that the current prices of coal do put pressure on the operations. However, I think one thing that perhaps today, we haven't touched on is the improved performance of TFR. That gives us a huge opportunity to be able to move and export more volumes, and it will increase our revenue generation. We do have that flexibility at GGV. If you look at the performance of GGV, we dropped the production because of the limited logistic capacity as we stopped tracking. Now with the performance of TFR, we'll be able to move more volumes. Secondly, then at the mines themselves, we are reviewing our capital spend, particularly to preserve cash and as well in terms of looking associated with the increased volumes, looking at areas where we could expedite the increase in the mining, particularly GGV. GGV is sitting quite well, being a low-cost operation. I think it will give us good flexibility in there. Thank you. André Joubert: I'll deal with the Beeshoek matter, and that's very unfortunate and sad. But Beeshoek is -- or let me rather say, and it's in the public domain that AMSA is Beeshoek's only customer. So AMSA made the announcement that they're going to shut down their Newcastle plant and there's some other challenges they have at the Newcastle at the [ Fenabel Park ] plant. So since the 27th of July, we haven't delivered any ore to AMSA and that -- and we're also in the situation that we could not renew our 3-year offtake agreement with AMSA. And because of that, we cannot continue with our operations at Beeshoek and as was said previously, we initiated very sadly Section 189 process, which during this last month. And of course, we looked at various other options. But unfortunately, with Transnet and the export capacity of Transnet, if you looked at our forecast for iron ore exports, you will see that next year -- this year that we're in now, we went from 12.3 million tonnes to 12 million tonnes. So we cut back even what we had by 300,000 tonnes. And that's because Transnet is going to do 2 periods of where they stop the line and they do the maintenance work during those periods. The first period is now going to be in October and the next period will be early next year. So typically, there's a 10-day shutdown period. Now it's going to be double that, and that is impacting our output. So there is -- so Khumani Mine, which is actually a 14 million tonne mine is already reduced to 12 million tonnes. So there's no ways that we can take additional volume through from Beeshoek. So we are exploring various options. But unfortunately, none of these options delivered economically viable results. And therefore, we're going to go through the Section 189 process. And as I said, we've started with that process, and it's going to impact the lives and livelihood of about 660 direct employees and about 400 contractors. So -- and that is unfortunately the state of the play at this point in time. Unknown Executive: Thank you, Chair. Chair, what we -- our key priority at this stage on all 3 of the mines is safety, health, sustainability. So there is a very big drive on making certain that people do not get injured in the mine. Secondly, we're building relationships with the communities. So we need to foster that culture of working together to make the success of the mines. Then the focus is on quality of work, excellent operations, achieving the best grades, cost management and quite frankly, we project managed the living daylight out of everything we do. And that's going to give us the results going into the future. And lastly is the enabling fractors, equipping of [indiscernible], extension of conveyor belts, making certain that we put people in a position where they can actually deliver on our commitments. Thank you, Chair. Patrice Motsepe: Okay. Thank you. As we go towards closure, just 2 quick remarks. This press conference has been about ARM, has been about the commitment that we've always had to make sure that African Rainbow Minerals is world-class and globally competitive. And we've always recognized that it's important for African Rainbow Minerals and the mining industry to operate within a country where there's very good partnerships that are built with the communities that are near our mines and with all stakeholders and essentially with the workers. And the perception of South Africa as a globally competitive investment destination is critically important. We need investors in South Africa to invest in the mining industry, but we also need to persuade, to convince investors outside South Africa to see the mining industry and the mining companies, not just African Rainbow Minerals, but others as well to be competitive investment companies. So why I'm mentioning this because it's very, very important as we go towards closure. I have always recognized my role and the duty I have over many years. I was President of the coming together of Black and White business and part of that was the enormous obligation that I have and those who worked with us to make sure that South Africa as a country is a good place for investment. But at the heart of that was creating jobs, at the heart of that was creating a future, ensuring that there's security, ensuring that -- and security entails we want people to be safe and more importantly, zero tolerance of crime. Now it's easy for people like myself to stand by the sideline and say, those are problems of the government and those who are in power and please don't burden me with those responsibilities. And we've never had any doubt. I've had never any doubt that I have an enormous obligation -- an enormous obligation to the people of this country and to South Africa. And it makes me proud when I meet with some of the top businessmen in the world. I was in New York a few weeks ago, and you meet the CEOs of the largest companies in the world, the largest in the world, and they engage with their government to build an environment that is good for business, but also the proven way to create jobs and to improve the living conditions of people worldwide is to make sure that the private sector finds your country as a good place, a competitive place and an attractive place for investment. Now why do I, towards closure, say some of these things? It's simply because many, many years ago, I get asked all sorts of questions in relation to what my plans are long term. And of course, there's no doubt about what my plans are in relation to the obligations I have in African Rainbow Minerals, and we will continue. That's a huge priority and the various other companies that we have and the good work that's been done via the philanthropy. But I was a bit taken back when and this issue has been raised consistently that I somehow have turned my back against the country. And of course, I'll never turn my back against the country. But I think this is because of people who -- when you go into detail, it relates to something I said many, many years ago. And I was [indiscernible], somebody gave me a seperate [indiscernible]. [indiscernible] quoted on [ 702 ] what I said 20 years ago. 20 years ago, they asked me, are you ever going to get involved in politics? And I said politics are for mad people. Now of course, I can't say that loud. And they asked Tokyo, and I forgotten I said that, but it is correct. What is correct is not that they are mad people, but that I said that because there was a whole lot of issues that were raised. So Tokyo said that I remember many years ago when he was President of [indiscernible] because part of my duty was to bring Black and White together. And we formed -- I was the President of Black business because they came and asked me to be President of [ NASCO ] and President of Black business. And part of the issue was to bring together, unite business, to unite all South Africans. And end the all of these questions. But -- so this issue that I somehow -- and of course, a few years ago, the editors of the major newspapers asked me the same thing. Are you at some stage going to get involved in politics? And my answer was always, in order for me to make my contribution, the enormous contribution, in fact, the enormous duty I have to the people of this country, I don't have to get into politics. But the issues, as I said, I have somehow turned my back and all sorts of things are being used that betrayed, which is not correct. I will continue, as we have in the past, work together with all political parties across the board. We've been privileged as a family to donate to all political parties. And those who criticize and I say to them at times, I will not give you -- you don't need my money. They all don't need my money. But the ones I sometimes say to them jokingly, if you stop criticizing me, I will not give you money at all. And they continue to do what they have to do. This country has got some really exceptional people in business, but also in politics. And we have to support and work together and encourage those who really are committed to building this country. And as I said, I'm so proud of some of the top businessmen and some leaders, some religious leaders, I have the privilege to work with the traditional leaders, the kings who recognize that, of course, everybody has to do what they do in their respective responsibilities, but also to try and unite our people, to try and work together to try and make this country a better place. So as I said, I will continue to engage and to work together and make my humble contributions to all of the people of South Africa. And there's another brother of mine. We need to unite all South Africans from all political parties, of course, within the ANC as well, the ANC is Mandela's party, I grew up in that party and but the fact that I grew up hasn't prevented me from working together and donating to others, and I'll continue to do so. I've got a brother who said that politics is not about football. He is my brother, they're all my brothers. And I'm told [Foreign Language]. So when you say [Foreign Language] it means what he said was correct. It's the truth. And whoever is elected by the ANC, I will support as I have in the past. And as I said, I will work together with all other political parties. And the people of this country are special people. So it's easy to stand by the sideline and say those problems have got nothing to do with me. I will continue. My family is in comfort and we are okay. That's not who we are. That's not how we were brought up. And that's not what we've done over the years, and we will continue in our own humble way to work together with everybody. This country has got exceptional people. And I'm confident that despite all the problems, and there are serious problems, and there are huge problems. But this country has got exceptional people, and we will succeed. Thank you very much, and we'll stay behind and deal with whatever question. Can we clap hands for the people who made their presentation. Thank you. So the team is here, engage, ask all of those individual and private questions that are required. Thank you so much.
Matthew Moulding: Good morning, everyone, and thank you for joining us for THG's half year results presentation. As I said in the statement this morning, trading momentum continues to build positively with the strategic changes implemented last year across both THG Beauty and THG Nutrition now bearing results. H1 was a performance of 2 halves. We entered the year following a period of focused execution, implementing significant strategic initiatives and model changes across the group, including the completion of the demerger of our Tech and Robotics division, Ingenuity. In THG Beauty, we disposed of some of our smaller operations, commenced the cycle of investment in our portfolio of own brands and took the decision to prioritize retail trading in the U.K. and the U.S. In THG Nutrition, the Myprotein global rebrand was a major talking point last year, and it's been important to gauge sentiment from existing D2C customers, new consumers and our developing network of retail and license partners. It's clear the positive reaction to the new positioning of Myprotein is starting to speak for itself with accelerating sales growth and a rapid rollout across offline retail. In a dynamic consumer environment, our results demonstrate the resilience of our digital-first model. And as we move through Q3, I'm pleased to say the group is delivering positive growth across both our businesses. Three key achievements from H1 stand out. First is the successful return to growth for our THG Nutrition division, which delivered 3% revenue growth, driven by a return to growth in new customers as well as significant expansion of our off-line retail offering across Europe, the U.S. and Asia. Secondly, in THG Beauty, we delivered a resilient trading performance despite a slower start to the year. While strategic changes impacted the headline number in the second quarter, we saw our U.K. Beauty retail business grow at its fastest rate since Q1 2024, proving the strength of our market-leading platforms and active database quality. And finally, we've strengthened and de-geared our balance sheet by extending facilities to December 2029 and reducing gross debt by GBP 374 million. Alongside the refinance, following an unsolicited approach in half 2 2024, the group sold Claremont Ingredients, a small manufacturing business within THG Nutrition. The proceeds have been received, which accelerates our plans to move the group towards a net cash position. Claremont is the U.K.'s leading independent flavor manufacturing lab for sports nutrition and was acquired in late 2020 for GBP 52 million to accelerate Myprotein's product development and global licensing ambitions. The disposal for over GBP 100 million marks a significant return on that investment with Myprotein supply chain protected through a long-term supply contract, ensuring we continue to benefit from Claremont's capabilities while also gaining access to the broader international expertise of the Nactarome Group. These actions, combined with remaining focused on cost-saving initiatives have laid a strong foundation for the second half of the year and beyond. Okay. So let's turn to the headline financial performance for half 1. Group revenue was GBP 783 million, which was 2.6% down on the prior year, reflecting the significant strategic actions we've taken, particularly within THG Beauty. The majority of Beauty's H1 revenue decline can be attributed directly to the planned discontinuation of certain operations and disposals as well as the effect of withdrawing from certain sales activity in Europe and Asia. Encouragingly, Beauty is back in growth in Q3 as expected, reflecting the benefits made from last year's model changes. THG Nutrition's return to growth in both Q1 and Q2 reflected the positive response to the global rebrand, helping to drive new customer growth as well as a rapid rollout of our offline model. As previously announced, group adjusted EBITDA for the period was GBP 24 million at an EBITDA margin of around 3.1%. Despite strong sales growth, continued high input costs in Nutrition weighed on margin performance for the business during H1. Myprotein has a much shorter supply chain than peers, and so sharp movements in commodities are felt sooner. The wider market has now caught up, allowing Myprotein's vertically integrated D2C model to return to strength with both sales and margins now returning to growth. Beauty Retail, the largest part of our Beauty division, performed well in Half 1, especially in Q2, supported by a strong and resilient U.K. beauty market. In our Beauty Own Brands division, the timing of large orders into major customers has fallen later this year, which impacted profitability of our Perricone MD brand during Half 1. An improved order pipeline is in place across our key beauty brands for H2, including for Perricone. Turning to our balance sheet and cash flow. Our financial health remains robust with cash and available facilities of around GBP 270 million at Half 1, which is prior to the Claremont disposal proceeds and prior to our seasonally strong cash generative period for the year. We maintained strong capital discipline with capital expenditure materially reduced, helped by the demerger of Ingenuity. Looking at our businesses in more detail. THG Beauty revenue stood at GBP 480 million with U.K. performance a real highlight, gaining market share in the second quarter. This is reflected in our brand health metrics with prompted awareness for Lookfantastic reaching its highest level in Q2 this year. We've launched over 70 major new brands on site and refined our product listings to keep our proposition fresh. The underlying health of our Beauty customer base is strong, and our loyalty programs continue to grow, now reaching well over 3 million members. These customers purchase more frequently and have a higher spend per account. Revenue from returning customers has increased, reflecting the success of these loyalty programs. Average order values and conversion rates via our apps continue to grow as well, and there remains a significant opportunity to enhance app functionality to deliver an even more personalized experience for our customers. In THG Nutrition, we returned to growth, delivering revenue of GBP 304 million for the half. D2C new customer growth returned in the first half, reflecting a shift in marketing investment to open funnel campaigns to build brand equity following the rebrand. Our offline retail expansion across all key geographies, including the rollout of Myprotein products in U.S. Walmart stores also supported both revenue growth and brand awareness. Product innovation remains a core strength where we've successfully launched over 200 products across 4 very different categories. These launches use multi-touch campaigns that help expand our category-leading ranges and meet changing consumer preferences. Our nutrition customer metrics tell a positive story. Myprotein is clearly the U.K.'s most preferred sports nutrition brand, leading the category in brand consideration. Our offline performance has been exceptional with more customers purchasing the Myprotein brand than ever as our offline channels rapidly expand. We now sell over 750 different product lines across 5 distinct categories through the offline retail channel, and our products are already available in over 34,000 doors globally. Now let's look ahead. The second half of the year has started well, and we are now entering the key trading weeks of the second half with THG Beauty back in growth, helped by strengthening home market demand. The launch of our advent calendars has been the strongest in our history, and we expect gross profit margins to remain at our medium-term target levels, supported by improving performance from our own brands. To prioritize long-term market share gains and customer loyalty, Myprotein will limit price increases, underpinning further acceleration of its installed base in global offline retail as well as supporting D2C new customer growth. We are confident in this strategy to protect long-term market share and loyalty. Our guidance for the full year 2025 remains unchanged, while our performance and strategic actions give us confidence in our medium-term targets. So in summary, THG has delivered a resilient first half performance, underpinned by a pleasing Q2 performance. Both businesses are now back in growth as we enter the key trading period of the year, and we've opted to deleverage the balance sheet with cash from a strategic high-return disposal. Thank you again for joining us this morning, and we will now open the floor for questions. Operator: [Operator Instructions] First, we have Patrick Folan from Barclays. Patrick Folan: Just a couple for me. How should we think about the Nutrition margin going forward as you find the balance between margin improvement and top line growth while whey prices hang in the balance? Then secondly, looks like we're in a time period where protein is the most invogue category in the consumer world. Can you maybe share with us any expectations you have on your Walmart launch? And if there's anything else you are excited about within your portfolio, especially considering the second half top line guide for Nutrition? And if I can squeeze one more in. Can you update us on the U.K. VAT situation regarding protein powders? Matthew Moulding: Okay. Look, so 3 questions there. The guys will prompt me on what they were, Patrick. But the first one was around the margins. How should we look at that given whey pricing remains elevated at record highs. I mean, look, stability is always a good thing for our business model. So what's the problem for us is when you get sharp movements. Obviously, sharp movements down in pricing are attractive because we will see the benefit of that quicker than anybody else and sharp movements up, we'll see the adverse impacts of that quicker than anybody else. And that's all driven by our supply chain. We're a vertically integrated D2C business with a short supply chain. So on average, we're probably carrying no more than -- when we get the raw materials into our warehouse, that's probably starting to be in the customers' hands within 9 weeks, whereas for offline channels, you can imagine that's probably more like 9 months. And so there's a much greater delay in raw materials feed into our supply chain so much sooner than everybody else. Now we are in a sustained period now of where pricing is stuck where it has really at these kind of record levels, and we are comping that with the prior year now as well at the same time. So that stability means that all of our peers have got that in their supply chain. And so as a result, our business model starts to operate well. And as a result, we're seeing our online D2C margins grow quite considerably year-on-year. And I wouldn't -- I can't disclose, I guess, the specifics of it, but it's hundreds of basis points better and nothing's changed in particular in the supply chain. But pricing is going up in the market as the peers are pushing their prices up, having to deal with this. Now so we're in a very strong position with that. As then you will see that why pricing starts to fall at some point, then if it's a very gradual fall, great, it doesn't matter. We're all in a level playing field. If it's a fast fall, then we'll see the benefit very quickly in terms of that. And so what I would say is we've then looked at the off-line retail opportunity, and we have been pricing to go into the offline retail opportunity at a very competitive rate. So if you were to go into any of the off-line channels, you will see that you've got Myprotein as the highest quality product on the market, priced at an incredibly cost efficient for the consumer. And as a result, we're leading the category quite typically. When we go into offline retail with a retailer, Myprotein will typically lead that category from the off, especially in the U.K., I mean, almost certainly in the U.K., that would be the case. As you then talk about, I think you mentioned Walmart, you look at places like Walmart. Obviously, U.S. is a very, very big market, and Myprotein doesn't have the same position in the U.S. as it does in the U.K., where we're clearly the #1 in the U.K. That said, the sales that have gone through Walmart so far, we've been very pleased with, and I believe everyone is very pleased with. And we have got that disruptive model at the same time that goes into it. We will continue to be disruptive. I think we announced that with the Claremont deal. We want to get that installed base across the world way beyond the 34,000 doors that we're currently. I think we're at about 45,000 by the end of the year. We've pre-released in the past that we know about. Obviously, we're targeting 100,000, and that would give us an incredible position from a standing start only a couple of years ago. So we are investing some of that D2C margin growth to a degree in the offline channel, where we're running that broadly at a breakeven for now tight position, which is a very sensible place to be as we then get category leading in all those retailers, we naturally can then push our pricing up and do push our pricing up, and we'll be doing that accordingly, which then further enhances your margins, especially into 2026. So that was the margin question, Patrick. I'll let you come back in a second to see if there's any further questions on that. The other 2 questions you had, one was on the VAT position. As we understand, well, we do understand that HMRC have been refused their right of appeal against the decision. And as a result, they've now got, I don't know, another week or so left, 2 weeks left maybe to come back and see whether they're going to try and fight this in the highest courts or not. I think we pre-released that there's a GBP 30 million contingent asset for us there. If that was to come to pass, that's actually looking more like GBP 45 million. We've obviously put our claim in accordingly and protected our position and that then continues to grow going forward. We still continue to charge VAT on the products as a matter of prudence. And even though the HMRC has lost the case because it's a position we've now been operating in for a period of time and just think that's the right thing to do. So look, let's see, but it's quite an interesting position with, at the moment, a GBP 45 million potential asset to come back into the business there. And then -- the Walmart launch Yes, the Walmart launch. So -- and we're doing -- across the U.S., we're making some really good progress there. I'm super pleased with what the team are delivering on the offline retail across the U.S. and the U.K. I think you asked are there any other interesting partnerships to come. We've -- in the detail of what we've released today, you will see a couple of licensing deals, which are quite exciting. We can't name them specifically, but you'll see that the success of the Muller has been really good. The Iceland deal is great. These are millions of products a month going into consumers' hands with serious retail value attached to them at the same time. We're now moving into the ready-to-go lunch market with a major player in the -- for the U.K., which will hopefully expand into Europe pretty quick as well, which would see us have millions of more products in consumers' hand in high protein lunchtime provisions. And then the other thing is one of the largest confectionery groups in the world, we've done a deal where we're licensing those brands in from Myprotein products, and they should be in consumers' hands, hopefully, the first of them in time for Black Friday and Cyber Week as well. But the licensing side of the business is a fantastic pipeline of licensing in and licensing out. Operator: Our next question now comes from Andrew Wade from Jefferies. Andrew Wade: A couple from me. The first one, you mentioned Beauty orders impacted by focus on active customer mix. Could you give us a little bit more detail on that? Is that reflecting sort of territory pullback? Or is that another factor as well? That's the first one. Shall I fire all of or do you want to answer? Matthew Moulding: Fire all off, Andrew. The guys are writing notes in case I forget. Andrew Wade: Nice one. So that was the first one. Second one, you talked a little bit about the investment cycle in your own brands. Could you talk about what the catalyst has been for that and sort of what impact you're expecting from that sort of period of investment? And then the last one on Claremont. Clearly, a valuable asset that you've monetized from within the group, but many haven't been thinking about. Could there be other opportunities like that within the THG table? Matthew Moulding: All right. So there was the Beauty life cycle, any other Claimants in the group? And the first one again... Unknown Executive: First one was Beauty and the... Matthew Moulding: Active customers. Yes. So look, so on the Beauty side of things, it's -- as you say, really, it's really around pullback in certain territories where we're not seeing immediate levels of profitability. I think we flagged it a while back. Our focus -- we've got real strength in the U.K. and U.S. and we've got a fantastic distribution across Europe, but it comes from Poland. And so what we've done is we focused on making sure that those customers that can deliver the requisite level of return for us on day one in key territories is where we've put our energies and focus. And so that's been the key factor there. The second question around Catalyst for the own brand. Yes. So look, the truth is as any brand owner would know, maybe not everyone talks about it, but you go through cycles with brands. You've just seen it with Myprotein, where we've had a hell of a year last year with Myprotein, and we're now reaping the rewards of that. And so quite often, the catalyst with any brand is as much as looking forward and thinking, well, do we need to tweak the path of it or something like that. We're always doing that. Beauty brands are a little bit slower, I've got to say, than nutrition. So you don't ever need to do dramatic big moves ordinarily with the Beauty brand. It's around tweaking, changing direction a little bit, et cetera. What we're really talking about here with the Beauty brands is more about the timing of some of the big customer orders. So some of the strategic things we might do is put less focus into certain channels and new focuses into other channels. But there are -- the real factors that have been affecting the brands or Perricone in particular, has been around some large orders that were in the first half of last year and fall into the second half of this year, principally. Net-net, actually, there's a bit less volume order going through it with some of those customers as there's been some volatility with some of those customer channels. But that's the principal reason for it. But we are always tweaking our brands and Beauty is just less of a requirement for major overhaul than more of your fast-moving consumer brands like Myprotein. The final point, I think, was, Andrew, around what have you got in your group that we're not thinking about, but it was an unsolicited approach that came to us in second half of last year for Claremont. We've got lots of assets in the group similar. We spent hundreds of millions through the years building additions to our business model. So even in Nutrition, we have a bar manufacturer that manufactures for some of the biggest brands in the world as well as for ourselves. We paid GBP 55 million, I think, for that 5, 6 years ago. We have a drinks manufacturing business where we similarly drinks for ourselves and other people, et cetera. In Beauty, we have the U.K. manufacturing business. We have the U.S. manufacturing business. Those businesses combined, we've probably spent the best part of GBP 250 million on getting those in position. What we've done with all of these assets, and there's others as well, but we've done with all of those assets is they're just part of the concept of how do we make the mothership a better, stronger business and the mothership would be in Nutrition, Myprotein, in Beauty, it would be Cult Beauty, Lookfantastic in particular, being the biggest in derm store in America. And everything else we do around that is at that point in time, we're just trying to make those businesses stronger and have more competitive advantage. Naturally, if at some point, we sit there and think there's a reason or a value or an unsolicited approach that needs serious consideration, then we'll do that. But long-winded way of saying, Andrew, we've got plenty of these things in the business, and we could do one of those, just a small one of those, win the VAT and you're probably pretty much at net cash, right? So without too much change to your business model, people wouldn't even notice a change in our business model, but that's how we've built the group. Operator: [Operator Instructions] And next, we move to a question from John Stevenson from Peel Hunt. John Stevenson: Again, 3 questions again. On Retail Media, obviously been around for a while, and you look to formalize your approach to the creation of THG Beauty Media. Can you talk a little bit about how that's going to accelerate the benefits of Beauty and sort of what you're doing there? On apparel, obviously, showing really strong growth through the first half. Can you give a bit more detail behind that sort of rate development and future plans? And then finally, on Nutrition, looking at progress in convenience in particular, if you get to the ready-to-eat ready-to-drink. You talked about, I guess, some of that with the licensing deals. Again, can you sort of rate your progress into convenience and how much that's going to change over the next 12 months? Matthew Moulding: All right. Look, the ones I remember, I'll start with straight away, if that's all right. The -- in terms of athleisure wear, clothing under the Myprotein, I mean, look, it's been a journey. I don't mind admitting because when you're -- there's no other sports nutrition brand in the world that's moved into serious athleisure wear. And I think what we've proven is that we've gone from doing spring vest that you buy that the average weight lifter would buy with a bag of protein now to a serious proposition of very high-quality leisure wear, gym wear, et cetera. And a point at the minute, it's triple-digit growth in there. And that's principally driven by females as well, right? So you're also bringing a lot of female customers into the ecosystem that maybe 5, 6 years ago was a bigger challenge to do. And that's been particularly pleasing. Look, I think the model itself, we have a big customer base on Myprotein globally. We have a great influencer roster of all different types of people as well. And then we have this full range from bars, snacks, all these other product categories by -- it almost just all helps itself in the flywheel because if you're somebody that wants to make a living out of being in health and wellness and being an influencer, that actually, if you work with Myprotein, you're not just pushing one product every day. You've got this whole plethora of your lifestyle in which you can push, which includes really top quality clothing at the same time. And then add to that, things like Hyrox, where we've become the global partner there, which has gone particularly well. And all of our athletes are competing in there. It's really just started to gain some real traction this year. The rebrands played a big part as well. Women don't necessarily want to walk around with big logos and things like that. And you've got -- we've now got the Micon product quality is outstanding. So I just think it's a whole long list of factors that are coming together as ever with these things, right? What we've got to do then is keep the momentum going on top of that? It's no good just growing by 100% one year and then being flat the next year or down a bit to go forward a bit, so on and so forth. So there's a lot of focus in the background on that. The other -- Retail Media and Beauty. Yes. Retail Media and Beauty. Look, it's something Amazon has led the world on this hasn't it? They're a fantastic media business with ads there. We're a big data business ourselves. And so as a result, we've seen incredible success from rolling that out through the years. And we just know there's much more for us to be able to do working with the brands in this regard, and we can show people fantastic returns by saying spend the money here on the marketing, and this is the return you get the other side. So we're just following through that consistently. One of the exciting areas actually in the years to come, we'll be able to put that into Myprotein where obviously, we've launched this brand hub where lots and lots of health and wellness brands now operate on there, and that should expand quite significantly. It's only launched in the U.K. currently. But as we expand that globally, we'll also want to put the Retail Media through there and be able to show those brands, listen, if you invest here, this is the return you're going to get. So it's just been a consistent deliver for us year after year since we launched it a few years ago, and we're just getting stronger and better at it. So that's the simple kind of mechanic that we've got there. The... Unknown Executive: This progression into convenience, nutrition. Matthew Moulding: How would you rate it? Look, I think it's been pretty outstanding in the U.K. I think we can do better in Europe. And the U.S., we're in the offline model, but we're not doing much in the way of licensing across the U.S. and the move in that regard. So I think from the U.K. perspective, we've nailed it. Still lots and lots more to go reflected in the announcement we've mentioned today around the lunchtime, but we've got the rest of the world to really get on with here. And Europe is somewhere where we're making progress, but there's -- we're scratching the surface really there. Operator: That concludes today's Q&A session. So I'd like to hand the call back over to you, Matt, for any additional or closing remarks. Matthew Moulding: All right. Well, I think everyone will be fed up with my voice, but thank you very much. And I'd like to thank the staff in particular. It's been a brutal sort of 12, 18 months of hard work and dedication, but I think they can see the rewards from that now. So thank you.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the RH 2Q '25 Earnings Call. [Operator Instructions] I would now like to turn the call over to Allison Malkin, ICR. Please go ahead. Allison Malkin: Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter fiscal 2025 earnings call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer; and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures, which suggests our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's financial results press release. A live broadcast of this call is also available on the Investor Relations section of our website at ir.rh.com. And now I would like to turn the call over to Gary. Gary Friedman: Thank you, Alex, and good afternoon, everyone. I'll start with our letter, and then we'll open the call up to questions. To our people, partners and shareholders, RH continued to generate industry-leading growth in the second quarter as revenue increased 8.4% and demand increased 13.7% despite the polarizing impact of tariff uncertainty and the worst housing market in almost 50 years. On a 2-year basis, revenues increased 12% and demand increased 21%, resulting in significant share gains and strategic separation. As a reminder, we expect the approximate 5.4 point variance between demand and revenues due to tariff disruptions will shift from the second quarter and be realized as revenues over the second half of 2025. Adjusted operating margin of 15.1% and adjusted EBITDA of 20.6% both increased 340 basis points versus last year, inclusive of an approximately 170 basis point drag from investments to support our long-term European expansion. Net income increased 79%, and we generated $81 million of free cash flow in the quarter. We continue to be pleased with the second year demand trends at RH England, with gallery demand up 76% in the second quarter and online demand up 34%. Current demand trends indicate that gallery is expected to reach approximately $37 million to $39 million of demand in 2025, its second full fiscal year with online demand reaching approximately $8 million. To put those results in perspective, if an RH Gallery in the English countryside with an estimated population of 100,000 in a 10-mile radius 2 hours outside of London can generate $46 million of total demand in its second full fiscal year, what can a gallery in the center of Mayfair, the most exclusive shopping district in London, with a population of 9.7 million do in its second full fiscal year? We believe exponentially more. While many questioned the decision to open our first RH Gallery in such a remote location believing it would fail, what they failed to understand is the value of doing something extraordinary that breaks through the clutter and creates the conversation. We've learned during our journey at RH that when we've done extraordinary and remarkable work, we've always figured out a way to monetize it. And we've also learned that it's hard to monetize ordinary and unremarkable. The most important news regarding our European expansion was the September 5 opening of RH Paris, our most innovative and immersive brand experience to date. Located on the Champs-Élysées, just off the Avenue Montaigne, RH Paris stands at the epicenter of fashion and luxury. Pass through the majestic gold leaf gate down a crushed limestone path to a secret garden where ivy-covered walls and sculpted trees frame the 18-foot cast medallion doors marking the entrance. Juxtaposing the entry is a freestanding RH Interior Design Studio. The 2-story glass structure is home to what has become 1 of the largest residential interior design firms in the world with projects on every major continent. A contemporary inlaid brass and white onyx mosaic frames a 3-dimensional image of Leonardo Da Vinci's the Vitruvian Man and the RH Design Ethos. The image and ethos not only mirror the entrance to RH Paris but are also reflected in every building we inhabit and every house we turn into a home. Step through the threshold and enter the Architecture & Design Bibliothèque. Discover rare books from the foundational Masters, Da Vinci, Palladio, Blondel, and Haussmann. Commanding the center of the Bibliothèque is 1 of the first modern printings, circa 1521 of De Architectura, The Ten Books on Architecture by first century BC architect Marcus Vitruvius. His description of a man outstretched within a circle and a square inspired Da Vinci's famous drawing, The Vitruvian Man, some 1,500 years after his death. The gallery, spanning 7 levels, is connected by a soaring atrium of floating glass medallion stairs and a glass elevator that magically appears, then disappears from an invisible shaft atop the rooftop garden. A cast bronze caryatid, circa 1870, by renowned French sculptor, Louis-Felix Chabaud, whose work is on display at the Louvre, graces the center of the atrium. Beyond their structural role, caryatids symbolize strength, grace and ingenuity, a harmony between art and engineering. We placed this specific caryatid in the center of the grand atrium as a symbol of not only our desire to connect and create harmony between the architecture, art, history and hospitality offerings of RH Paris but also our desire to create harmony between RH and the people of Paris. On the lower level, ground and first floors immerse yourself in artistic installations of furniture, antiques, artifacts and art in a gallery setting. Each level features full floor exhibits by a singular artist and carefully curated pieces not only chosen to furnish your home but also define it. Dine under a spectacular curved glass and steel structure inspired by the Grand Palais while enjoying a curated menu of American and Mediterranean classics at Le Jardin RH, located on the second floor terrace. Marvel at the stone mastery as every surface from the bar to the bathrooms is clad in rare white onyx slabs. On the third floor discover The World of RH Bar & Lounge, a physical and digital immersion into the places and spaces that define the RH brand while enjoying lite bites and a craft cocktail by legendary bartender Colin Field. Step into a jewel box of champagne-lacquered walls with a sparkling ceiling of over 7,000 individually handblown glass polyhedrons at Le Petit RH. With 30-degree views, including the Eiffel Tower, Grand Palais and the Louvre, the Le Petit rooftop is one of the most spectacular dining destinations in all of Paris, featuring a creative menu of caviar specialties, small plates, signature salads and seafood towers. While RH Paris may not sound like a retail store, it's not meant to be. It is an authentic expression of the RH vision and design ethos. It is a global destination designed to manifest dreams, generate desire and inspire an elevated and elegant way to live. I was asked by a journalist prior to opening, "You're introducing multiple hospitality concepts at RH Paris. Have you considered that Parisians have very strong opinions about their hospitality?" I thought for a moment and my answer was this. Parisians have very strong opinions about a lot more than their hospitality. Parisians have strong opinions about art, architecture, antiques, people, politics, fashion, design, food and wine. Paris is a place you come to do your very best work. It is where you have the most to gain and the most to lose. In Paris, the measure is eternity. This we know and have built accordingly. I'm also pleased to report that RH Paris is off to a very strong start. Traffic in the gallery has exceeded RH New York day by day, and the design pipeline in the first 6 days is greater than the design pipeline of our first 5 European galleries combined in their first 6 days. I didn't know what to put for this next headline, so I just kept it simple, tariffs, tariffs and the possibility for more tariffs. Just when you might have thought the tariff conversation was complete, the announcement of a new furniture investigation and the possibility for additional furniture tariffs on top of existing furniture tariffs and incremental steel and aluminum tariffs were introduced with the goal of returning furniture manufacturing back to America. We believe most in our industry hope that this investigation surfaces the difficulty of that task as current manufacturing for high-quality wood or metal furniture does not exist at scale in America. It would require years of investments in building the facilities and workforce that most in this industry cannot afford to make. Not to mention the significant inflation that we believe will start to become evident in the second half of this year and accelerate into 2026 and beyond. While strong brands like ours will benefit from the likely dislocation and consolidation more tariffs will have on our industry, many smaller companies will have difficulty surviving these levels of tariffs. Additionally, more tariffs on furniture could also result in U.S. manufacturers moving production from the U.S. to countries closer to their international clients, avoiding freight costs and the likelihood of counter tariffs. Our hope is that the investigation will seek out the perspective of a cross-section of leaders in our industry as we drive towards the best outcome for our country. As previously communicated, we've continued to shift sourcing out of China and expect receipts to decrease from 16% in Q1 to 2% in Q4, with a meaningful portion of the tariff absorbed by our vendor partners. Additionally, we are aggressively responding to the recent 50% tariffs imposed on India, which impacts 7% of our business, almost entirely hand knotted rugs. While the hand knotted rugs category is highly specialized and not manufactured in America, I think, for 100 years, we have begun the process of identifying alternative countries. We have also resourced a significant portion of our upholstered furniture to our own North Carolina factory, where we have been manufacturing for 10 years and plan to continue doing so. We are now projecting that 52% of our upholstered furniture will be produced in the United States, 21% in Italy and approximately 12% in Mexico by the end of fiscal 2025. We also expect the percentage made in the United States will continue to increase throughout 2026. While there remains uncertainty until tariff investigations are complete, we have proven we are well positioned to compete favorably in any market condition. Outlook. Due to the dislocation and continued uncertainty related to tariffs, we believe it is prudent to revise our guidance for fiscal 2025 due to the following factors: while we continue negotiations with our manufacturing partners, our updated outlook reflects a $30 million cost of incremental tariffs, net of mitigation in the second half. As communicated, due to the uncertainty related to tariffs, we delayed the launch of the new brand extension that was planned for the second half of 2025 to the spring of 2026. We've also delayed the introduction of our Fall Interiors Sourcebook by 8 weeks, as we awaited tariff announcements needed to finalize pricing. Last year, 100% of the Fall Interiors Sourcebook were in home by the first week of August. This year, the Fall Interiors Sourcebook will be 100% in home by the last week of September, with only 28% in home as of the end of last week. We now expect approximately $40 million in revenues to shift out of Q3 and into Q4 and Q1 '26 because of that shift. Our outlook does not include any new tariffs as a result of the recently announced furniture investigation. Fiscal year 2025 outlook: revenue growth of 9% to 11%, adjusted operating margin of 13% to 14%, adjusted EBITDA margin of 19% to 20%, free cash flow of $250 million to $300 million. The above outlook includes an approximately negative 200 basis point operating margin impact from investments and start-up costs to support our international expansion and a 90 basis point impact from tariffs net of mitigations. Third quarter 2025. Revenue growth of 8% to 10%, adjusted operating margin of 12% to 13%, adjusted EBITDA margin of 18% to 19%, the above outlook includes an approximately negative 270 basis point operating impact -- operating margin impact from investments to start across this quarter in international expansion and the opening of RH Paris and a 120 point -- basis point impact from tariffs net of mitigations. Platform expansion -- elevation and expansion plans for 2025. We continue to open the most inspiring and immersive physical experiences in our industry and some would say the world, spaces that are a reflection of human design, a study of balance, symmetry and perfect proportions; spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality; spaces with garden courtyards, rooftop restaurants, wine and barista bars; spaces that activate all of the senses; and spaces that cannot be replicated online. Our plan to expand the RH brand globally, address new markets locally and transform our North American galleries represents a multibillion-dollar opportunity. Our platform elevation and expansion plans for the remainder of 2025 include the opening of 4 additional design galleries in Manhasset, San Diego, Detroit and Palm Desert. As previously communicated, we anticipate an inflection in our business across Europe as we begin to open in the important brand building markets of Paris in 2025 plus London and Milan in the spring of 2026, all with dramatic brand building hospitality experiences. We believe post-opening, we will begin to have the scale to support the necessary advertising investments to accelerate our growth in Europe. If the early reads coming out of RH Paris are an indication of what's to come, RH Europe and the Middle East should enable us to double the size of RH over the next 5 to 7 years. Looking forward, we plan to accelerate our expansion strategy to include the opening of 7 to 9 new galleries per year, plus 2 to 3 design studios, outdoor galleries or new concept galleries per year that increase our current presence in underpenetrated markets and open new markets to the RH brand. "Every decade or so, dark clouds will fill the economic skies and they will briefly rain gold," Warren Buffett. While we expect a higher risk business environment due to the uncertainty caused by tariffs, market volatility, inflation risk and an increasing level of global discord, we believe it's important to separate the signal from the noise. The fact is we've been operating in the worst housing market in almost 50 years for 3 straight years. For context, in 1978, there were 4.09 million existing homes sold when the U.S. had a population of 223 million. Contrast that to 2024 where 4.06 million existing homes sold with a population of 340 million, 50% more people and less homes sold. And it illuminates just how depressed the housing market has been this past year to 3 years. Despite that fact, we are performing at a level most would expect in a robust housing market. We believe it's the result of investing with a very narrow focus and a long-term view or what we like to call an inch wide and a mile deep, elevating and expanding our platform by creating the most desired products presenting in the most inspiring spaces in the world with bespoke interior design services and beautiful restaurants that generate energy, engagement and tremendous awareness of the RH brand. While our business has been strong, it has been so due to action versus inaction, innovating versus duplicating, investing versus divesting and aggressively taking market share during this downturn, so we are positioned to create long-term strategic separation on the other side of it. We are investing in the most iconic global locations in retail that will likely never be duplicated in our lifetimes. We are building a global hospitality company with multiple concepts across multiple continents. We are creating a global bespoke interior design business that completes million-dollar-plus full home installations. We are building a global contract and hospitality business where our products were featured in some of the finest hotels and residential projects in the world. And we are creating the most desirable and distinguished brand in our industry, all while forecasting an EBITDA margin of approximately 20%. Imagine what our margins and cash flow might look like in a robust housing market as we begin to cycle and leverage those investments. While we began the year with meaningful debt, almost entirely due to our stock repurchases of $2.2 billion, we also began the year with incredible business momentum and meaningful assets. The assets include real estate that we believe has an estimated equity value of approximately $500 million that we plan to monetize opportunistically as market conditions warrant and excess inventory of $300 million at cost that we plan to turn into cash over the next 12 to 18 months as we optimize our assortments post our product transformation. We are forecasting to generate $250 million to $300 million of cash flow in 2025, and our plans call for significant and growing cash flow from operations over the next several years if we cycle this aggressive investment period. We estimate that our adjusted capital expenditures will decrease to a range of $200 million to $250 million in 2026 and $150 million to $200 million in 2027 and beyond. We remain confident in our ability to make the necessary investments to continue our industry-leading growth while significantly reducing debt and lowering interest expense. As Warren Buffet wrote in his 2016 letter to Berkshire Hathaway shareholders, "Every decade or so, dark clouds will fill the economic skies and they will briefly rain gold. When downpours of that sort occur, it's imperative that we rush outdoors carrying washtubs, not teaspoons." Our debt is reflective of a washtub bet on ourselves. We repurchased 60% of our outstanding shares that greatly benefited our long-term shareholders post the publishing of Mr. Buffett's letter in 2016 and '17 and repurchased 30% of our outstanding shares during this housing downturn in 2022 and 2023. While the sky in our sector has been darkened by inflation, interest rates, tariffs and global politics, those clouds will soon pass, and it will not only be clear skies but also clear that it was a good time to be a shareholder of RH. Carpe diem. Operator, we'll now open the call to questions. Operator: [Operator Instructions] Your first question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: So my first question is the free cash flow is starting to sequentially improve, and you generated a decent amount this quarter. If you generate $250 million to $300 million for the full year and presumably even more through '26, is real estate monetization still something you would or even need to pursue? Gary Friedman: I don't know if we need to pursue it. We're opportunistic. We're not really real estate owners, right? We're real estate developers, and we have a sale leaseback model, and we generally hold real estate for relatively short periods of time. We saw an opportunity when we were doing our deals in Aspen that the local developer there who had acquired really an outstanding portfolio of assets, we had an opportunity to invest in that portfolio at a -- what we thought was a really attractive price. And we had a vision of possibly in a very small -- I call Aspen probably be the most influential organized small luxury town in the world. I don't know if I've ever seen anything like it. Like in about 6 square blocks, you have unbelievable retail. You have wealth all around that all comes and shops there. All comes and eats in the restaurants there. And all skis a couple of blocks from there. Just walk to Ajax and so on and so forth. And as I got to know Aspen and was looking at our opportunities, we thought, geez, what could we do here that could -- maybe in this 6 block -- 6 square block, 8 square block focused little town with a high, I think -- what is there -- 86 billionaires that live there now. I mean there's really -- I've never seen anything like it. I mean it's more unique than Saint-Tropez. It's more unique than [indiscernible]. It's more unique than any place I've seen from the aggregation of wealth and influence and your ability to -- we had an ability to build 2 brand-new buildings, right, which is on 2 of the best corners in town. I mean our galleries on Galena and the cross street is the best corner in Aspen, [ caddy corner ] to Ralph Lauren across from Casa Tua, across from Loro Piana. Right next door is Brunello Cucinelli and every luxury brand marching up the street. And our Guesthouse is in East Hyman where the cross street is where they're building Lift 1. So 1.5 blocks, 2 blocks down, they're building the second big gondola, right, and the Aman Resorts going in there. And everybody is going to be driving by that corner, and everybody is going to be walking by and driving by our other corner. So these were the 2 best, I thought, buildings that you could get. It's just, as our partner calls it, forever real estate, right? It's never going to go down. It's always going to go up. And so -- and we have the opportunity to become the landlord for CHANEL, the landlord for Gucci, the landlord, lululemon. What else in our portfolio? Jack Preston: Golden Goose, Carina Hildebrandt. I mean we got restaurants. Gary Friedman: Golden Goose, Carina Hildebrandt. Yes, we've got Sant Ambroeus. We've got -- I can't remember -- we got Catch Steak. We're the landlord. We're kind of key retail landlord in the core of Aspen. So we thought we could learn about real estate. We could learn the landlord side of it. We can understand how the other people negotiate, what's important to them, and we would just -- we get smart and then there was opportunities to do residential, a few other things that we've talked about in the past, few RH Residences at the Boomerang Lodge and build our first the Bath House & Spa and so on and so forth. And so we thought this would be a terrific place to build our brand image and have a global billboard. And then, look, unfortunately, we had the fastest rise of interest rates in the history, I think of the United States, right? And that's not really good for developers. Whether you're our partner or you're us, you're going to be developing at a much higher cost of capital. And so that kind of slowed us down and also compounded by -- our partner likes to say that building in Aspen is harder than building on the moon. So it's not the most -- not the easiest place to develop, let's just say. So we kind of have to slow things down and -- but we're very close to getting our mountain house open and very close to getting our Guesthouse open, and those are 2 of the key trophy properties in our portfolio. We're less interested -- we've been a landlord now for a while. We've learned what we needed to learn. Is that the place to tie up our capital? No, not really. We've learned a lot. And is it -- at the cost of capital today and the cost of construction in Aspen today, is it -- does it look as attractive to build there? With a really long-term view but again, I don't know it's necessary for us. So we're open. It's not a time you really want to sell right now. I mean if they keep inflation in check, which is questionable with the tariffs, and they can lower interest rates, cap rates will be more attractive, and there might be some people that want to make -- that have a long-term view and want to make a fair offer on a portfolio like this. But otherwise, we're in no rush. We're patient. But if the right opportunity came and somebody who has -- really had a long-term view and they want to own forever real estate like Aspen, it's an incredible asset. So... Jack Preston: And Simeon, I'd just add, when we communicated the value of the real estate, I think you asked if we need to do it. Our intention was never to communicate a need or a plan. It was, as Gary said, opportunistic. It's an opportunity to make sure that folks understand the value of that real estate on our balance sheet, especially as it relates to the debt that we have. Gary Friedman: Yes. And we've got other things besides that, I mean, the $500 million, right? We own RH England. We own RH Detroit. We own a property -- we're going to develop RH Shores -- RH New Jersey. We own a property in Madrid right now, but we love our current gallery. So we think we can monetize that one. We have -- actually have it in the market today. It's an incredible old palace. But we don't really -- we don't believe we need 2 stores in Madrid. We love -- we really love what we're doing there. We're going to put a small pool, Le Petit RH in there now that we developed this new pool concept that doesn't need a big kitchen. That's in Paris, which everybody ought to go to by the way. If you missed our party, I mean, you should have never missed that party. Like everybody's got to go see Paris because it is not another gallery. It is a leapfrog. It is another kind of inflection point that helps us see a whole nother opportunity here, like when you see The World of RH and when you see Le Petit RH and Le Jardin RH and you see what we've done hospitality-wise, when you see what we've done design-wise, when you see the Architecture & Design library to our second one we've done, the Bibliothèque. We did one in RH England because there was a big library that had been there for 400 years. So we made it a library. [indiscernible] you see the cool when you walk through and I mean, it's just so much that I think we've done that takes us to another level. I doubt that there's a luxury retailer in that city at the highest end that doesn't believe we just built the best store in the world. And I think everybody should go see it because it's unlike anything you've seen. The traffic, when you think about it, it's, I don't know, 1/3 of the size of New York. And it had more traffic than New York every single day that we opened. Not New York in its first 5 days, New York today, the highest volume gallery in the company, okay, New York today. It's unreal what's happening there, the people that are coming. So anyway, next. Simeon Gutman: If I can ask a follow-up -- and by the way, I'll be there next week, so -- for the Aspen party. The -- my follow-up, it's maybe paraphrasing something you said, Gary. You said the clouds could be clearing soon. And you've gotten through a lot of things over the last couple of years between rates and housing. And now embedded in your financials is investment with Europe. You have all this newness. And you're growing the revenue, and you're generating cash now. So it feels like you're knocking on the door of that period. You mentioned soon. I don't know if you were giving a financial forecast or a weather forecast, but it's soon. So what's wrong with that logic that the business is on the cusp of this growth period that you've been engineering for the last several years? Gary Friedman: Yes. I think that the business is ready. We're going to be kind of going post peak on the investment cycle. One thing we've all had to deal with and anybody who's building anything of high quality, construction costs post COVID are up like 100%. For some people I've talked to at the luxury level, they're up 150%. We've been able to develop new concepts. We talked to you about that design ecosystem, the designed compound and other things that we're taking the bigger multi-store box and breaking it into pieces and trying to create significantly better capital efficiency and putting our creativity to work that way. So you'll see it -- I think once we get there -- it's hard to make a call today, right? We're likely going to get an interest rate cut. We got 1 last year and everybody thought there was going to be like 4 or 5 more. I took my house in Beverly Hills off the market because I thought I was going to get a much better price. I should have took the offer I had back then. The housing market in L.A. is not great. And so I don't know what's going to happen. Look, I think the biggest thing for everybody to worry about is don't let the 1970s happen. If you zoom in on the chart of what happened with federal funds rate over that 10-year period, yes, it was arguably the 10 worst years in the U.S. economy. Now I remember I was 18 years old when I bought a $125 waterbed at Waterbed World at 28% interest. And I don't know how many years it kept me to pay it off at $12 a month or something like that. But I was alive long enough to remember what -- the federal funds rate peaked at 21%. We think interest rates are high now. Lose control of inflation, and you can have chaos. So what do I worry the most about? Just kill inflation. I'm more motivated about killing inflation than getting an interest rate cut right now. Because we had an interest rate cut and the tariffs create more inflation than anybody thinks. And it's not going to all come at one time in blips. The inventory is going to flow in over the course of the year. And you're going to have to cycle through inventories. You're going to have new tariffs. God forbid, they throw another tariff on furniture. I mean I think they've got it, but someone has got to come talk to us, talk to me, call me I run the biggest luxury home brand in the world. Somebody call me and ask me what I think. Because it's not really us. I worry about -- I don't want to win because 50% of our competitors who are really good, hard-working people get wiped out. You lose 15% of the people that are presenting at High Point Market or Las Vegas Market. Those markets will shut down. They'll be bankrupt. I really don't think anybody is thinking about the math. There's no one that's making wood furniture at scale, metal furniture at scale. If there is another round of tariffs in furniture, I mean, long term, it will be good for us. It's really bad for a lot of people in High Point. So whoever in High Point or North Carolina is advocating for, he's got to have a really narrow myopic view because this makes no sense for the U.S. economy long term. We will blow up people, and there will be massive job losses. And I think people need to understand that at all levels of the administration. And I'm -- look, I've been a fan of a lot that's been going on. I think, directionally, they're doing a lot of right things. But yes, I don't know, I run the biggest luxury home brand in the world. No one's talking to me. I've got a point of view, and so I'm making that known now. We're in the cusps of going too far there. That's what I worry about. Operator: Your next question comes from the line of Steve Forbes with Guggenheim. Steven Forbes: Gary, maybe shifting the focus to inventory, sort of a two-part question here. The first, given the change in the average tariff rate and the sort of excess inventory that you guys are winding down, any help on sort of coaching or framing how much room there is or for a continued reduction in net inventory on the balance sheet? And then the second point is there is -- given everything you just said, how much visibility is there into the planned launch of the new brand extension in spring? Or is there still some risk around that extension launching? Gary Friedman: Yes. I don't think there's risk around that extension launching unless we get some really silly tariffs on this investigation. I mean I really hope this investigation includes speaking to industry leaders. And it's not an investigation into a small little segment of the business. We will sell more upholstered furniture made in America than almost anybody making furniture in North Carolina, like just our upholstery business. You've got brands that are 130-year-old U.S. brands, and they don't make wood furniture or metal furniture in America anymore. They don't. So you've got to be really careful. Upholstered furniture, we can make in America. We can do that. We can be competitive because you've got advantages. It's special orders and speed to market and so on and so forth. But there's just not the workforce to make the other stuff. And there's not people there. The next generation doesn't want the jobs. You talk to people -- again, our volume in our factory and what we're going to make is as big as some of the biggest people at the high end. I mean they'll compare us to Ashley or somebody that's $10 billion at the low end. And I think that, what, 65% of their business in America, 35% of their business offshore. I'm just saying the high-end furniture market, it's not coming back for years. And all that's going to mean is people are going to -- there's a lot of people who are going to close and a lot of jobs are going to be lost. And I think people have to consider that. So -- but when you think about like it's the risk of extension launching, no, no risk at all. Things might be more expensive, but they're going to be more expensive for everyone, right? So we have advantages. We buy more than anybody in our market by probably 3x at our quality, the next closest person. So we have tremendous, tremendous leverage here. I wouldn't want to be competing with us, but I don't like winning this way. It's not going to be pretty. So I think, hopefully, we're done with furniture tariffs. And ring the register in the tariff bank, but let's not completely disrupt an industry, see High Point close, the major furniture stores close. Family, long-time businesses, they'll be dead. So that's the most important thing. Inventory reduction, everything else we're doing, fine. And again, if you're thinking do I buy our stock or not, buy our stock either way. We will win. We've spent billions building a platform here. We have most dominant, inspiring high-end platform for luxury furniture in the world. We know how to source it. We have leverage buying it. We know how to market it. What if you do -- if you're a wholesaler and all your customers go bankrupt? They can't afford it. The customers can't afford it. Like what do you do then? I think the tariffs dry up. You slow down the furniture business. You're going to slow down the tariffs. And that's why I think someone's got to sit down from the industry with the administration and go through the math. This is just simple math. Don't let it be emotional. Let it be intellectual and rational and data-driven. We've got all the math here. And I know a lot of people in the industry that would love to sit down and debate this. Jack Preston: Steve, the framework for inventory reduction, yes, one of the things to think about is just what is our -- I mean at the most simple level, what's our turn rate, turns have been in the past. Obviously, we've turned the inventory on an external basis into the high 2s, low 3s. So to even just think about the -- Gary mentioning in the letter the $200 million to $300 million of inventory reduction, where that gets us hypothetically at the end of the year. You're starting to see a run rate of a turn into the -- closer to the mid-2s. So is there room beyond that? We do believe that. Gary Friedman: In '18 and '19, we were running like 3, 3.2. Yes. Jack Preston: Yes. Gary Friedman: So we can run a much faster turn. You're seeing the slow returns we're running today, the massive product transformation, right? You're buying a lot of inventory. You're getting like right. You're getting some wrong. And so it's inefficient to do what we just did. That in and of itself is a big investment. But we're on the other side of that. I mean we do have a whole new concept coming. It's probably the biggest idea and the lowest risk we've ever taken on a brand extension. I think it's the biggest -- I mean, how quickly did Modern go to $1 billion? [ 3 years ]? Yes. I mean this is probably -- this is a $2 billion idea, and it could go really quickly. We think we're going to hit the trend dead on. The product we have in development is like nothing else at the market. It's going to be massively disruptive, exciting. And we were confident enough that we're going to open 3 galleries to launch it with. And we're going to do more if we can. We'll have the Ralph Lauren store in Greenwich, Connecticut. We've got an incredible location in West Hollywood and that we'll be announcing more about soon. And then we've got our original gallery in San Francisco that we own in the design -- right in the middle of the Design District, where we kind of relaunched the whole brand in 2010, right? Yes. Allison Malkin: 2009. Gary Friedman: 2009. And it is going to be an incredible gallery to this new concept. But we've been working on this 1 for about 4 years. So we'll be ready to go. Steven Forbes: And maybe just to confirm as a quick follow-up. So those 3 galleries are launching in conjunction or opening in conjunction with the launch of the brand extension in the spring? Gary Friedman: Yes. The ones in Greenwich in San Francisco, for sure. The one in West Hollywood, we've got to still get our permits and get through system approvals and things like that. And hopefully, it will be pretty simple. We're going to -- it's going to be a 2-stage piece where we're going to kind of remodel a location that we now own. And then Phase 2 of that once we open with the new concept, we are building a restaurant, a beautiful -- it might be the most beautiful restaurant in all of Los Angeles. We're building an incredible courtyard restaurant that we think is going to be tremendous. It's going to add a restaurant in Los Angeles, which we don't have in a major market. And in Los Angeles, we're building like an ecosystem, right? We have our Melrose gallery that we built like 12 years ago that's fantastic and on a great corner, beautiful rooftop. We've got a Modern gallery, a couple of blocks away from that. We'll have this new concept galleries that's a couple of blocks away from Melrose, and we're in the process of closing another deal for an outdoor gallery on the same street. So L.A. will have this really expansive RH ecosystem. And I think our business in L.A. should go up 40% or more. It's a big, big, big market for us. Operator: Your next question comes from the line of Max Rakhlenko with TD Cowen. Maksim Rakhlenko: Great. So first, just on Europe. It's early, but with improvements in England and the strong start to Paris, can you share what you think those galleries can actually... Gary Friedman: Max, we can't hear you quite well. I don't know if you're close enough to the speaker, but it's hard to hear what you're saying. Jack Preston: Speak up please. Maksim Rakhlenko: Apologies. But Europe starting to scale. England, that gallery's improving and Paris, obviously off to a strong start. How should we think about the revenues per market or per gallery over the medium term? And then with that, how are you thinking about the four-wall economics in Europe compared to U.S. galleries as we just think about that 200 basis point headwind easing over the medium term? Gary Friedman: Yes, I'd say, one, we'll update you periodically as things evolve here with Paris and as we get closer to London and Milan. I mean, it's going to be very quick here, right, because we'll have 2 more big really incredible galleries, all with multiple hospitality concepts and so on and so forth. So I mean, this is -- think about this as how we would have liked to launch, but to get Paris and London, there was other locations we had to take and had to open. We faced lawsuits from landlords if we didn't open them. So hence why we wanted our first impression to be something kind of inspiring and unforgettable. That's why we did RH England, really for conversation, not so much for commerce. But if you look at the numbers now, you go, hey, it looks like it might be pretty good. And we'll see what happens to that location when we open London. London may actually amplify that location as opposed to cannibalize that location. Don't know. I mean the Greater London market, it's just a huge market. The U.K. market is a huge market. And so Paris is any indication of -- I mean, we have way bigger brand awareness in London than we do Paris. But in Paris, what we're seeing -- Stef, what was it? 50% of the people know the RH brand in Paris. Stefan Duban: 50%. Gary Friedman: Shocking for us. We didn't know that. So lots of people familiar, lots of people waiting for us to come. And we're in a location that you can't miss us versus some of the other places. I don't know, we're building a brand in the other ones. And even Madrid, which is a pretty high populated city that's pretty hot now, just not -- people aren't used to kind of a retailer even like us. I mean it's a really funny quick story, is Jen Kelly, one of our curators and designers, really great curator, designer and has been with us for years and freelances with us, then comes back to work for us, if you kind of -- I don't know what she's exactly, her title is now, but she finds the cool stuff for [indiscernible] Spain. And Jen has a godson that is finishing up his master's in -- somewhere in New York and his girlfriend finishing up her master's is from Madrid. And so they were out in California. And the godson -- I hope Jen's okay that I tell the story. But the godson said, "Oh, you've got to meet my godmother. She's actually into interior design." And this young lady, 29 years old, I think, said, "Oh my God, you have to come to Madrid. The most amazing home store in the world open in Madrid and everybody is talking about it." And Jen goes, "Really? Well, where is it?" She didn't even connect the dots initially, and she gives her the address, where it is. Then she goes, "Oh, well, I worked on that store. That's our brand. That's RH." And this girl had no idea who we were, right? So I mean, it's not really the brand awareness as much, I think, in Madrid. It will take us longer there, but we're really happy. When you look at the economics on the four-wall margins, I mean, some of these were not real big rents like Madrid and -- Madrid and Brussels. The one that economics are a little more challenging is Munich. We had to take that. We didn't extend those leases because we weren't sure what the volumes would look like. But I'd say a lot of them -- we know directionally kind of what we can do, what does it look like in 14,000 square feet, what does it look like 20,000 square feet, where might we do hospitality. We were going to do a restaurant in Madrid on the top floor, but it was kind of a smaller store. And then we chickened out at the last minute, didn't put it in. Now the team's like clamoring for it. Like our brand awareness is saying like everybody will come. They love our space. It was an old palace, about 14,000 square feet. And we can put a cool little kind of Le Petit. I guess, we don't call it Le Petit because it's a French kind of thing. But the same menu. It's a perfectly cool menu. And I think they'll flip out, and our team is super excited about it. So we're going to put a restaurant on that one. We have the ability to put a restaurant in Brussels long term. We've got the space there to do that. We may do that. And then we've got to watch how Germany kind of scales here. I think we have the lowest brand awareness in Germany. They take longer. Maybe we just don't have the right location in Munich. Don't know. But we've got flexibility there. But I think the four walls, when you kind of project them out, they kind of look like the U.S. So like if Paris -- I mean, if Paris does anything directionally like we think it's going to do, I mean, it's going to be fantastic. I mean we had a little bit more operating costs and something like that. We got to have guards out at the gates and things like that. You've got to walk down 195 feet to get to the front door, and you got to figure out how all that works and especially when the weather gets tougher. But I think it's now starting to -- the dots are starting to connect. We have enough data. We're seeing how things are ramping. And we're just starting to execute. I mean what would you give an execution from like the back end, having the right goods and the right -- like there are so many rules and things we had to get around. What fabrics are -- can you use what foams, what lighting? What does like -- we're kind of bumbling around. Like I'd say, give it a C today. What do you guys think? C plus? Unknown Executive: [indiscernible] Gary Friedman: Maybe a C plus. It might be a D plus. I mean so -- our teams like to... Allison Malkin: Our teams would probably say D plus. Gary Friedman: Our teams would probably say D plus, but we had a great session, a couple of sessions with them the last few times we were there. Just had another great session with them. Like they -- we know what we need to do. We loaded up both planes. We took all our merchants there. We brought in all the leaders from all the galleries, all our best designers. We listened. We learned. And like if we just go from like a B plus, C minus to a B in execution, it's probably worth 25 points. If we go to an A, it's probably worth 50 points. So -- and we'll get there. It's just it's a little hard when you only have a few small stores and you need to kind of take people's attention off certain things to be able to execute. But now I mean, the great thing is Paris now creates massive visibility and urgency. And that's why we took everybody over there. We were there for 8 days, 7 days. Many nights, we were going home when the sun came up. We were working with the teams. Everybody is alongside each other, bringing this thing to life, and it was a great, great experience for bringing our headquarter leaders together with our field leaders and building a great team. Maksim Rakhlenko: Got it. That's super helpful. And then in the 10-Q, you discussed how the primary driver of the gross margin increase was due to increased margins in the core brand. Just any more color on what drove that? And then is the takeaway that we should consider is that promotions should continue to normalize ahead and that tariffs are just the major headwind? Or how should we take the learnings as we think about the rest of the year? Jack Preston: Yes, the margin expansion, I mean, it's a reflection of what we were doing last year and the position of the product margin and the activity last year as some of the markdown activity last year. So the year-over-year, we saw margin expansion. Gary Friedman: Yes. And we absorbed a hit on tariffs. It's much smaller. I mean if the tariffs really start hitting in Q3 and Q4 and into next year -- and again, fingers crossed, there's not another layer coming, but as Darwin said, we're not the strongest of species that survived. Just one most adaptable to change. And we got to be the most adaptable in innovation and invention, I think, in our industry. And so we'll figure it out no matter what happens. But there's going to be gross margin headwinds from tariffs coming. You just can't raise prices fast enough and you can't -- there's only so much room our manufacturing partners have. You don't want to blow them up, right? So you've got to walk a tight rope. It's very different than China. I think that maybe that's the other thing that maybe is misunderstood. I mean China was kind of funded -- I think some of China's factories got some help from the government to deal with the tariffs. That's not really happening in Vietnam. It's not happening in Indonesia. It's -- they're not China. They're not big, strong, well-developed countries like China. So that's -- it's going to hurt people. Like there's just -- there's going to be challenges there, but it is what it is, so improvise, adapt and overcome. Operator: Your next question comes from the line of Michael Lasser with UBS. Michael Lasser: So Gary, the investment community is very focused on the degree to which there's discounting and promotions. In your messaging, the results in the quarter suggest that you've been able to overcome it with your profitability. But with that being said, is it driving incremental sales? And is the thesis that you will be able to pull back on some of this discounting-oriented messaging as the housing market improves and the natural rate of demand simply increases and offset we're seeing done right now? Gary Friedman: Sure. Well, just start, Michael, with, in this world of furniture, at the luxury end, it's all in sale. Okay? At the highest end in the top design showrooms, interior designers, architects, all get 30% or 40% off. So our model of a membership model was a model to kind of smooth that out and be competitive. So this is not like CHANEL, Hermes, where they burn the markdowns or throw them out or whatever they do, right, because they have such ridiculous margins. This is not fashion. And if people confuse it with fashion, they're going to miss the whole game here. Okay. We're also in the third year of the worst housing market I've seen in my 38 years in this industry. 38 years, I've never seen a third year like this, and I've never seen 1 like this. So you could decide to not promote. I mean, some people are telling you they're not promoting and they are promoting. So I don't even know how anybody publishes press, and you know who they are, like, oh, they're not promoting. Like look at their emails. They're promoting every week. And it's disguising it is like not storewide. Okay. Whatever. It's got to be the highest percentage of their business is being done on promotion. It's just -- if you're selling furniture, you get away with some of the other categories like frames and other stuff like that. And those are bigger -- for other people's businesses, if they're a home furnishings kind of driven business and have a lower furniture mix -- we're 80% furniture. We have the highest probably mix of furniture of anybody we compete with. We eliminated Christmas. We eliminated holidays. We don't sell Halloween plates and all that stuff that renders the furniture less value. So -- but furniture is an industry that, at the highest level, does not sell at full price. It doesn't. So people just get over it. You don't understand the furniture industry at the luxury level. And unless you just want to f****** go bankrupt, excuse my language, in a market like this and stand there and be righteous and saying I'm not promoting, good luck. Good luck. Go for it. Tell me who's not doing it, Michael. Who's not promoting? Michael Lasser: It's hard to name names right now, Gary. But it's a great segue into my second question, which is there is some skepticism around the margin outlook in the back half of the year. You're guiding below what was expected for the third quarter and well above for the fourth quarter. Can you give us more detail on what underlies those margin expectations and build the market confidence that those are realistic? Gary Friedman: Jack, do you want to take that? Jack Preston: Well, Michael, we didn't -- we gave a back -- the H2 guidance, we didn't give out any quarterly guidance. So if you're referring to how the analyst community is [indiscernible] but I meant he's saying, what I heard Michael, maybe to clarify is how it changed versus the prior guidance. Is that what you asked or did I mishear you? Michael Lasser: I'm just asking for what drives those or underlies those, Jack. So if you could give us a sense for what you're expecting, is it that tariffs are going to be a headwind in 3Q, but you'll take price by the time you get to 4Q? Let's say, you'll see a significant amount of leverage in the fourth quarter. Gary Friedman: I think gross margins [ will be coming ]. Gross margin or operating margin. Jack Preston: Yes, Michael, you're talking about operating income? Michael Lasser: Yes, sir. Jack Preston: Okay. Yes. Look, just as a reminder, we have seasonality in our business as it relates to advertising expense and the books that get expensed when there's our mailings. So that's one factor that I'd point out. I don't -- we're not here to point out pricing actions or timing of those and those kind of offsets. That's all embedded in our guidance. But we're not as -- that commentary we're going to be making. Operator: Your next question comes from the line of Steven Zaccone with Citi. Steven Zaccone: Great. I wanted to go over that pricing comment and just kind of understand, could you -- Gary, you mentioned about pricing in the industry because of tariffs. What's your assessment of pricing from an industry perspective? Does it get worse as we get into the back half of the year in terms of increases because of these tariffs? And do you think the second half is when we see the peak? Or does that kind of carry it to 2026? Gary Friedman: Yes. Look, I listen to everybody's conference calls, right, that's in our industry. And I don't think anybody has really addressed the tariffs with transparency. I think they're all dancing around it, and everybody's waiting for somebody to tell the truth. And maybe we're the first ones telling the truth. I don't think anybody is getting better pricing than we do. I don't think anybody is mitigating more than we are. No one's got the same leverage we do for a single brand. And so I think everybody has got to take price in the second half. I think there's going to be big furniture inflation in the second half everywhere. I don't know how anybody gets around it unless you're some little, tiny person making all your stuff in America. But then again, they're going to get hit because all the parts are coming for -- all kinds of the pieces and parts are coming from places, like fabrics coming out of Asia for a lot of those people. And like other people that might be saying they're making furniture in America -- and hopefully, this is what the investigation is about, is people that are having all the wood made and finished in Asia and then kind of shipped in a flat pack to America and they're actually screwing it together, and they're saying assembled in America or something like that. And they think they're going to not get tariffed. I mean there might be some -- I was trying to think like what triggered this next investigation of the tariffs. And the only thing I can think about is something like that. That does go on. And so there's probably people out there that are trying to avoid tariffs some way, bringing it in unassembled. They're doing something. So it's parts from other places. And maybe that's where you're going to see new tariffs coming. But I think everybody's got to take pricing. There's just no way. I mean your margins are going to get killed. Steven Zaccone: Yes, understood. Then a follow-up on the international margin question that Max had. So if we think about the 200 basis points drag this year -- does that ease next year? Or should we be thinking London, opening in Milan are still going to have some pretty heavy start-up costs? Gary Friedman: Still have heavy start-up costs. Yes. I mean, we -- it will all depend where the ramp in Paris goes, which will inform the ramp in London, which should be meaningfully higher than Paris. And Milan, I don't know where Milan actually is going to fall, probably little less in Paris. But it's bigger, so it might do more. I mean, it is a big market. So we'll see. I mean, we're opening Salone, which is the biggest design show in the world. 500,000 people go to Milan for Salone. It is -- the world of design goes there for a week. And we're opening on that week. Any of these next 2 parties, you don't want to miss, these openings. Operator: Your final question comes from the line of Brian Nagel with Oppenheimer. Brian Nagel: So a couple of questions. First, I want to make sure I understand this -- the dynamic correctly. So if you look at an inventory growth perspective, it seems like you're managing inventory is much better here. We've seen growth moderate significantly in the second quarter. And then I guess that dynamic would help to drive cash. But again, I just want to make sure I've seen that correctly. But the question I have is, as you think about managed inventories better, does that potentially become a headwind to sales if your inventories are tighter through the back half of the year or whatever? Gary Friedman: Yes. Look, there's -- everything is worth something, right? So it all depends where the housing market goes, what offsets you're going to have, how much like our new concept is going to be worse. I think this is the biggest new thing we've ever done. I think it's going to be bigger than Modern significantly. It deals with the biggest part of the market. We've got new galleries and things happening. We've got big galleries happening in London and Milan. I mean we got outdoor galleries coming, new concept galleries coming, and we got compounds coming. I mean there's just a lot that we've invested into, time and capital to set the company up for the next 10 years. That's how we think about this next move. If we do really well -- and I mean like I can tell you, Paris, we're getting a lot of inbounds on, "Hey, do you want to open in Abu Dhabi? Do you want to open in Dubai? Can we partner [indiscernible], license your brand? Can we do this, that?" When you see something like Paris that you've never seen anywhere in the world by anybody at any level, there are buyers of that, meaning whether it's developers, whether it's someone that wants to run the brand for us there, and maybe in the Middle East, we do a low capital kind of deal. And we take some percentage off the top, and we sell the rights for a big chunk of money for the next 20 years, or we run it ourselves. And we want the sales growth and so on and so forth. And we're willing to put in the cap -- we are creating optionality. The key is breakthrough, breakthrough and become one of the most admired brands in the world in this next period by doing what we're doing in Europe. And it creates all kinds of options. When we go to Asia, what are we going to do? Like we've had people try to get us to come to the Middle East for 12, 15 years, come to Asia for the last 10 years. It's like we wanted to do it in the right order. And somewhere along the line, I heard someone say that Bernard Arnault was asked how do you build a brand in China, and his answer was you build great stores in Paris, London and New York. So we did a little backwards, right, because we come from Americas. So we said the first thing we had to do is build the bridge to Europe, and we built RH New York. And we got a lot of visibility there and a lot of European clients coming over and they know us. And we wanted to do Paris and London next. But to get Paris and London, we had opened things in a different order. But now that Paris and London are coming and then Milan is coming, we're going to know a lot more. I mean I think the brand heat is going to exponentially build. I think the quality of work that we're doing, I mean I really -- if you want to -- I said this when we first built like I think it was Atlanta or something. I said put down your spreadsheet and go to Atlanta. If you want to know us, go and see us, right? We all have 6 senses, but our sight is our dominant sense, and it drives 80% of our behavior, our perception and our education. If you really want to go know where RH is going, get on a plane and go see Paris, and then give us a call, or just fly right back to the Center of Innovation and really come see what we're doing because what we're about to do next is the greatest work in the history of this company, and it might be some of the greatest work in the history of any part of the retail industry. I'm not trying to boast. At the end of the day, it's not what we say or think is Jane Austen say, "It's what we do that defines us." So go see the work. That's what's going to define us. You'll understand it. I mean, Max, [indiscernible]. Steve, you were there. A few other people were there. I mean I think everybody was there is like, holy cow, I had no idea what was coming. When you see The World of RH and what we did there to communicate to the world who we are, to see our body of work around the world and all of our places presented in this incredible sexy salon style with a bar, you can order food, you can take client meetings there and people walking freely. You see RH New York, RH Boston, RH Chicago, all the great work we've done everywhere presented beautifully and beautiful velvet draped walls with picture lighting and then you've got these giant French art easels with, I don't know how big the TVs are, like 6 feet, giant TVs and beautiful giant gold frames with videos that you watch, watch the making of RH Boston, the making of RH New York. You can watch videos on the designers, on the artisans. It's a physical and digital immersion into the brand. It's so cool. I mean my biggest worry, people are going to go what is this and no one would be there. At night, in the party, it was packed in that room. We had our first diner at our 2 restaurants, and that's kind of a semi third to have a bar. We have to serve food there. So we've got a menu. Then the first meal we serve is in bar, The World of RH. And everybody who's seen it is like, oh my God -- like essentially people don't know us like, "We had no idea." It's just we have the body of work that no one else has in the world from an architecture, interior design and landscape architecture point of view. It gives us great credibility in our interior design business, which is now morphing into an interior architecture business and a landscape architecture business, right, in our bespoke part of that business, which is one of the fastest-growing parts of the business, is doing these super high-end premium, complete redo. And we had already -- before we even got to Paris, we had done an incredible complete metamorphosis of an apartment in Paris for a U.S. customer, transformed it completely, complete new interior architecture, fireplaces, everything. So that's the other thing to really understand what we're doing interior design. Like we are the biggest interior design -- residential interior design platform in the world today, and we're investing in it in a meaningful way. In Paris, it is a freestanding building on our property that we've built. So our RH Interior Design has its own building, its own entry and its [ character ]. Like it might be the best interior design office anywhere in the world. And it sends to people that we want on the team -- like we're prepared to invest to get the best people in the world. We're not just a retailer. We're something that hasn't been done before. And when it all comes together, I think it's going to make a lot of sense. Brian Nagel: Great. I maybe ask just a quick follow-up and I think maybe for Jack. But just with regard to tariffs. So should we expect that RH is putting in mitigation efforts, particularly price increases as the tariff hit? Or you were able to, in some instances, start adjusting prices before the actual tariff is hitting you? Gary Friedman: Turkey is a little wacky. We also did the membership thing. Jack Preston: Yes. I think it's a bit of both to be honest. I mean it's -- obviously, we want to be very judicious about price increases. And as Gary talked about, on the one hand, you're protecting margin, but on the other hand, you can't -- you want to also be thoughtful about the revenue of the business and the impact of that. So I -- we're very strategic and thoughtful, and we've been doing this ever since we had to deal with the 2018 tariffs -- or 2017 or 2018 tariffs, initial ones in China. So we'll keep doing -- keep running our playbook. Operator: That concludes our question-and-answer session. I will now turn the call back over to Gary Friedman for closing remarks. Gary Friedman: Great. Well, thank you, everyone, for your interest. It is interesting times in our industry but even more interesting times for our company. And I just want to congratulate everybody throughout our organization. Even though you might not be in Paris or you weren't in Paris, everybody had a hand at it. Everybody has worked hard to put this company in a position to open what we believe is the most exciting immersive retail experience at any level in the world today. And we couldn't be more proud. I told the team -- I said, if only for a moment, we kind of broke through and poked our head up at the top of the luxury mountain. Now it's up to us to just plant a flag up there, right? And there's a lot more work to do. But they know -- the people at the top, I think they now know the potential that we have, the work that we've demonstrated that we can do. And I think we've earned their respect and they expect us to come. So we've got a lot of work to do to really plant that flag and to build one of the most admired brands in the world. But the momentum we have, kind of the ceiling we broke through, it peaked up. And it was a proud moment for this company. And I want to just thank everybody on every level for the -- just the effort that everybody is putting through in these 3 difficult years that we've had. The clouds will break as Warren Buffet said and the sun will come out again, and when it does, we'll be there. So thank you, everyone, for your interest. Thank you, team RH, for your leadership and your hard work and for living and breathing our values. Our time has come, so thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome to the Culp First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead. Dru Anderson: Thank you. Good morning, and welcome to the Culp conference call to review the company's results for the first quarter of fiscal 2026. As we start, let me state that this morning's call will contain forward-looking statements about the business, financial condition and prospects of the company. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results or otherwise are not statements of historical fact. The actual performance of the company could differ materially from that indicated by the forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filings, including the company's most recent filings on Form 10-K and Form 10-Q. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results. You are cautioned not to place undue reliance on forward-looking statements made today, and each such statement speaks only as of today. We undertake no obligation to update or to revise forward-looking statements. In addition, during this call, the company will be discussing non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurement is included in the tables to the press release included as an exhibit to the company's 8-K filed yesterday and posted on the company's website at culp.com. The Investor Relations presentation is also available on the company's website as part of the webcast of today's call. I will now turn the call over to Iv Culp, President and Chief Executive Officer of Culp. Please go ahead. Robert Culp: Thank you, Dru, and good morning, and thank you to everyone for joining us today and for your interest in our company. With me on the call is Ken Bowling, our Chief Financial Officer. Tommy Bruno and Mary Beth Hunsberger are not on the call today as they are fully engaged in their respective roles as Chief Commercial Officer and Chief Operations Officer, both of which are going exceedingly well. I will begin the call with some detailed comments. And as mentioned in the introduction, we have posted a slide presentation to our website that provides some information that is supplemental to what we will speak about today. That slide presentation is simply entitled First Quarter FY '26 Supplemental Information. Ken will then review the financial results for the quarter. And after that, I will briefly review our business outlook for the remainder of fiscal '26, and we will take some questions. Looking at our performance for the first quarter, the key takeaway from our perspective is that we were able to build on the momentum we had to close out last fiscal year and realize improvement in our operating results despite not only the depressed demand across the home furnishings industry that we're all too familiar with at this point, but also the continuing challenges from tariffs and the uncertain global trade environment. Even with these two significant headwinds, we were able to achieve substantial double-digit improvement at both the gross profit and operating lines during the quarter, particularly due to our streamlined bedding segment. An improvement of that nature in this market and macroeconomic environment is a testament to the effective work of the Culp team over the last year. Throughout fiscal '25 and into fiscal '26, we made tremendous strides to successfully transform our Culp Home Fashions mattress fabrics business, which following the integration of our two former divisions we now call our bedding segment. I'm impressed with how our team was able to execute on the comprehensive restructuring effort, including the closure and pivoting of production at a long-term manufacturing facility in Canada to our owned U.S. facility and some external strategic partners while also making sure that our customer service levels remained the highest priority. I think it's important to emphasize that we're certainly not yet where we want to be from an operating and profitability standpoint and where we believe we ultimately will be, but our improving trend tells us that we're doing a good job of controlling and influencing the things we can in an unmistakably tough industry environment. The actions and gross profit impacts of our fiscal '25 North American bedding consolidation and restructuring project are summarized on Pages 8 and 9 of the supplemental presentation that is now available on our website. Before we take a closer look at our results for the quarter, I'd like to take a moment to focus on some interesting data and market commentary out there regarding activity in the bedding industry published by the International Sleep Products Association and others, which we've included on Page 13 and 14 of the supplemental presentation. While the industry is obviously still in a down cycle, this information effectively shows how long the industry has been running below historic unit levels in the current cycle and correspondingly, how much pent-up demand may be building to support an industry recovery in the future. Some analysts who closely follow the market appear to be of the mind that demand for mattresses is finally close to bottoming out and the demand may be set to increase due to cyclical factors such as product replacement cadence and growth in household formation. To some degree, this information and commentary align with our own thoughts on the general direction of the mattress market, given the low activity levels we've seen over the last several years. However, as I've already mentioned, we are making the changes and updates to our business that are necessary to return Culp to profitability in this current demand environment. We will be pleased when the market recovers, but we are not counting on that. We are just working to get ourselves even better positioned to strongly capitalize on any recovery. This industry data also indicates to us that we've been able to win market share and gain a larger piece of the available mattress business by leveraging our competitive advantages in scale, product development and innovation and the ability to use our global platform to value engineer products and offer better supply chain solutions to customers. With our Canada restructuring mostly behind us, we have competitive, stylish, and innovative offerings in knits, wovens, cut and sewn covers and some bedding accessory products. Despite the historically low industry volume and ongoing tariff fluidity, our bedding segment was able to grow sales sequentially versus last quarter and comp sales year-over-year. Moreover and notably, with our newly streamlined platform in place, we achieved double-digit gross margins in the bedding quarter compared to negative gross profit in the prior year period. We also expect that our bedding segment margins will continue to improve with sequential sales growth and normalize at a much higher range and particularly once the price increases we've initiated to mitigate tariff costs and also rightsize margins in certain areas become effective for the majority of the second quarter. Turning to Culp upholstery fabrics, which we will now just refer to as our upholstery segment. Soft market conditions across the home furnishings industry, driven by muted consumer spending and housing market trends continue to impact that part of our business, especially on the residential upholstery side. The global trade and tariff situation continue to add more complexity to this business during the quarter, due to the primarily Asian supply concentration that the residential upholstery industry has gravitated to in the last few decades. The historically high and temporary tariffs on China produced imports last spring, which again reached over 150%, basically shut down our residential upholstery orders and shipments for over a month. Rather than absorb these cost increases for which we had no realistic time to plan, we simply did not ship any containers from China to the U.S.A. and waited for tariff rates to reduce to a more commercially reasonable level. The delayed effects of that pause in activity, along with the general market uneasiness and hesitancy that all these tariff changes and negotiations have created significantly dampened sales in our first quarter of fiscal '26. We do have the ability company-wide to navigate tariff fluidity and a snapshot of our global footprint is shown on a map on Page 15 of the supplemental presentation. It has long been a hallmark of Culp to have options in our supply chain, and that advantage was definitely supportive to our bedding performance this quarter. We have tremendous flexibility in our supply chain to service bedding customers strategically and from multiple locations. Likewise, our global platform has a strength in upholstery as well, but the pace and ever-changing tariff rates in April and May were extremely challenging to the industry. With time to react, we can manage upholstery tariffs effectively and with strength, and we will continue to keep our ear to the ground and balance our production to best serve our customers. Sales in our upholstery segment were also challenged during the quarter by an uneven year-over-year comparison caused by a large residential fabric customer's decision to focus most of its purchasing in the front half of last year, including a notable onetime buying uptick in last year's first quarter. We think this issue is now pretty much behind us as we expect a more even purchasing cadence from that customer this year and for sales comparisons to smooth out in the second quarter and the rest of fiscal '26. Despite the challenges mentioned in residential upholstery, demand in the higher-margin channels of our upholstery segment, hospitality and commercial remained relatively solid, and those products comprised almost 40% of our total upholstery segment sales for the quarter. These channels are less directly impacted by discretionary consumer spending and housing market trends, given their focus on upholstery fabric for furniture, window treatments, and related applications in hotel, theater, office, retail and other commercial settings. Moreover, the supply chains in these channels are less Asia-centric, although we are seeing some of our customers' projects and building plans impacted by the current tariff environment. As a final bigger picture note on tariffs, they've obviously been a disruption to our overall business, whether it's actual tariff rates on our imported items or delays on customer projects. Again, though, when we can manage through changes with appropriate warning and time, we believe the disruption can actually become a competitive advantage for us. We've also made solid progress on an initiative we announced last quarter, the integration of our two former divisions into a unified Culp-branded business. We have internally named this activity Project Blaze, and our work should provide a significant boost to the operating profile of our business overall and also help us better navigate the difficult residential upholstery demand and tariff environments. This project supports the two industry sales channels we target, but also allows us to move to a shared cost and talent model. Under the leadership of Tommy Bruno as Chief Commercial Officer; and Mary Beth Hunsberger as Chief Operations Officer, we are becoming more streamlined in sharing best practices across products, resources, processes, technology, and supply chains. A summarized scope of this work by major project is contained on Pages 10 and 11 of our supplemental deck. The transition of upholstery operations at our leased facility in Burlington, North Carolina, to a shared management model within our Stokesdale, North Carolina location is underway, and we expect the anticipated cost and efficiency benefits of that move to begin to manifest in our second quarter results with the majority of the benefits supporting the second half of this fiscal year. Additionally, we recently announced internally a similar transition in our upholstery segment's Read Window business, via which we are consolidating and shuttering operations at a leased facility in Tennessee into a more cost-effective shared management platform within our owned Stokesdale location, along with outsourcing to some valued domestic partners. This move should begin to positively affect our results in the third quarter as we reduce lease and manufacturing costs accordingly. Once fully implemented, these integration actions, together with the price increases I previously mentioned that are going into effect in our bedding segment beginning in the second quarter to mitigate tariffs and rationalize margins in some areas are expected to generate at least $6 million in annualized cost and efficiency enhancements, which are additive to the $10 million to $11 million of annualized benefits expected from last year's restructuring initiatives. Once again, the schedule and impacts of all these actions are summarized on the table on Slide 11 in our supplemental deck. The Culp team has clearly not been sitting on its hands and waiting for the market to turn around. We are executing our strategies to become a leaner and more unified company that is prepared to thrive in a variety of market conditions, and we are very well-poised for an eventual and general market recovery. We have best-in-class innovative products and a strong U.S. manufacturing base with well-established nearshore and offshore platforms that together give us what we believe is a growing competitive advantage in the market, particularly as customers continue to look for supply chain alternatives and geographic diversity in the current trade and tariff landscape. And as I mentioned in our press release, our highest priorities at Culp are to get back to sustained operating profitability and reduce debt regardless of any improvement in market conditions, and we believe that we are well on our way to doing so. I'm encouraged by our progress, the talent we have leading our two segments and the opportunities I believe we have to grow revenue and increase our operating performance. I'll now turn it over to Ken to provide more detail on our first quarter financial performance. Kenneth Bowling: Thanks, Iv. Here are the financial highlights for the first quarter. Net sales for the first quarter, which included an extra week, were $50.7 million compared to net sales in the prior year period of $56.5 million. The decline was driven primarily by the continued market softness and the tariff-driven pause in residential upholstery shipments that Iv discussed earlier. Gross profit for the quarter was $7.2 million or 14.3% of sales compared to prior year period gross profit of $5.1 million or 9% of sales. This year-over-year improvement of 530 basis points was driven primarily by the cost and efficiency benefits flowing from the restructuring initiatives in the bedding segment completed last year. Operating income for the quarter was $1.6 million compared with a loss from operations of $6.9 million for the prior year period. Adjusting for restructuring credits and expenses, including a net credit of approximately $3.5 million driven by a gain on the sale of our Canadian manufacturing facility, non-GAAP operating loss for the quarter was $1.9 million compared to prior year period's non-GAAP operating loss of $4.1 million. Net loss for the fourth quarter was $231,000 or $0.02 per diluted share compared with a net loss of $7.3 million or $0.58 per diluted share for the prior year period. EBITDA adjusted for the impacts of restructuring and related credits and expenses was a negative $1.1 million for the first quarter compared to negative $2.7 million in the prior year period. Our overall operating performance for the first quarter as compared to the prior year period benefited primarily from continued momentum in our bedding segment driven by the positive impacts of last year's restructuring initiatives in that area. Operating performance also benefited from the continued profitability in our upholstery segment despite the low revenue industry environment and tariff-related challenges Iv spoke to. The effective income tax rate for the first quarter of this fiscal year was 120.3% compared with a negative 3.4% for the same period a year ago and was impacted by the gain on the sale of our Canadian manufacturing facility and by the company's mix of earnings between our U.S. and foreign subsidiaries. Our cash income tax payments totaled $46,000 for the quarter. Importantly, as of April 27, 2025, we had $88.1 million in U.S. federal net operating loss carryforwards with related future income tax benefits of $18.5 million. Before we take a look at our reporting segments, we now refer to our mattress fabrics business as our bedding segment and our upholstery fabrics business as our upholstery segment. Moreover, as part of that integration, we now manage and assess SG&A expenses on a consolidated basis. As a result, we will no longer report operating performance at the segment level, just down to the gross profit level. The segment breakdown is covered in more detail on Slides 4 through 6 in our investor presentation. For the bedding segment, sales for the first quarter were $28 million, generally flat compared with last year's first quarter sales. As I spoke to, sales continue to be pressured by low industry demand and challenges from consumer spending and housing market trends, but we were able to continue our trend of winning share in key targeted areas. The newly restructured cost platform in our Bedding segment drove gross profit to $2.9 million or 10.5% of sales, a significant improvement from the prior year period's negative $326,000 or negative 1.2% of sales. We were pleased to see the profitability momentum in this segment continued during the quarter. For the upholstery segment, sales for the first quarter were $22.6 million, down approximately 20% from the sales in the prior year period of $28.5 million. This decline in sales was driven primarily by the continued softness in the home furnishings market and corresponding weakness in the residential upholstery channel. In addition, the lagging effects of the pause in residential order flow in our fourth quarter last year, stemming from historically high tariffs on China imports impacted first quarter sales, and the uniquely heavier purchasing by a large residential fabric customer in last year's first quarter unevenly impacted our year-over-year sales comparison. As I mentioned, we expect this timing-driven disparity to smooth out beginning in the second quarter, given our expectation for this customer's purchasing activity in fiscal 2026. Gross profit in the upholstery segment was $4.3 million or 18.9% of sales, down from $5.5 million or 19.4% of sales in the prior year period and driven largely by comparable sales or lower comparable sales. Now I'll turn to the balance sheet. We reported $11.1 million in total cash and $18.1 million in outstanding debt as of the end of the first quarter, which includes $2.8 million attributable to supplier financing, maintaining an equivalent $7.1 million net debt position as compared to the end of fiscal 2025. The outstanding debt was primarily driven by worldwide working capital needs, but also includes approximately $3 million in debt we incurred voluntarily to take advantage of availability and borrowing opportunities at current preferred rates in China. We believe this decision was prudent given today's challenging economic environment and uncertain trade relations. Further, we were able to invest these proceeds into a high-yield savings account in China at a rate materially higher than the interest rate paid on the debt. This strategy more than covers our interest cost for the debt while at the same time, giving us significant flexibility in managing our worldwide cash position. Our liquidity breakdown and other supporting information are covered on Slide 7 in our investor presentation. Cash flow from operations was a negative $695,000 and primarily driven by operating losses, partially offset by favorable working capital. Adjusted for capital expenditures, proceeds from the sale of PP&E and other items, free cash flow was $311,000 positive for the first quarter. Generating free cash flow and reducing our debt continue to be among our highest priorities and key focus points throughout all areas of our company. Capital expenditures were $179,000 for the first quarter compared with $501,000 for the prior year period. This decrease stems from our strategic efforts to closely manage capital and focus on integration and other initiatives targeting operating efficiency. We expect capital spending for fiscal 2026 to generally track fiscal 2025 levels as we continue to spend only as necessary. Our liquidity at the end of the first quarter was $28.7 million, consisting of $11.1 million in cash and $17.6 million in borrowing availability under our domestic credit facility, which, as we mentioned last quarter, was recently extended for 3 years. Another important call out with regard to liquidity options concerns our Stokesdale, North Carolina manufacturing facility, which is owned. Our net book value for the land, building and building improvements as of August 3, 2025, was $12.1 million with an estimated market value of $40 million to $45 million. Now I'll turn the call over to Iv to discuss our updated outlook for the fiscal 2026, and then we'll take some questions. Robert Culp: Thank you, Ken. Due to the market and macroeconomic uncertainty and the fluid global trade and tariff environment that we've talked about today, we are only providing limited forward guidance at this time. Despite what we anticipate to remain a low demand environment for home furnishings in the near term that pressures sales in both of our businesses, we currently expect sequential overall sales growth in the second quarter and throughout fiscal '26. We believe we are gaining market share with key customers that support this improvement. Moreover, we expect the cost and efficiency benefits of our multiple restructuring and division integration initiatives, along with the price increases I mentioned to drive adjusted EBITDA results in a range from near breakeven to slightly positive for the second quarter of fiscal '26. We also anticipate our operating performance and profitability to improve sequentially throughout the remainder of fiscal '26. As Ken spoke to, while we intend to continue to utilize borrowings as necessary under our credit facilities during fiscal '26, we will continue to aggressively manage liquidity and capital expenditures and prioritize free cash flow. And finally, please just note that our forward guidance and expectations are based on information available as of today and reflect certain assumptions regarding our business and overall industry trends, the projected impact of our restructuring and integration initiatives and ongoing market headwinds. Our expectations also assume no further meaningful impacts from tariffs and trade negotiations. Thank you again, and we'll now take some questions. Operator: [Operator Instructions] The first question comes from Doug Lane with Water Tower Research. Douglas Lane: Thank you for the commentary on tariffs. It's obviously been front and center in the news, particularly in your industry. Are you at the point now where all the known information on tariffs is out there and your initiatives, both from the cost side and the pricing side have captured that? Or is there still more actions to be taken based on the current news? Robert Culp: Hi, Doug. Good morning, this is Iv. Thank you for joining today. I appreciate the question. Yes, we did try to touch on tariffs a lot in our script. It has been a major talking point in the industry, as you referenced. I actually think that where we are today, we can, in some ways, take tariffs off of our immediate worry. It's certainly been very disruptive. And it's not so much the level of tariffs that have been applied as it is the variability and the changes to the tariffs. It's just been hard to plan and everyone's been dealing in some uncertainty. The only real major issue we had was when tariffs were up over 150% in China, and we just had to stop shipping, which we talked about was impactful to our first quarter here. But we have options. That's long been our strategy. We've adjusted our pricing. We have multiple manufacturing locations. We can pivot to best support our customers as we need to. And of course, I'm only speaking to what I know today, but to your direct question, as it is now, we've immersed the tariffs, and we are able to perform and grow our margins under this current environment. Douglas Lane: That's good news. You mentioned part of your initiatives of pricing. What is the elasticity these days? Are you able to put the pricing through? Or is it too early to tell? Robert Culp: Well, Doug, we're certainly in competitive businesses. And there are certainly price levels that the markets will bear. But we have to be profitable, and we have to turn our business to profitability in this environment. We have options. Again, our supply chain allows us to be competitive across a myriad of different platforms. Prices are never easy to pass, but our customers understand the competitive landscape. And we're being fair but aggressive to get prices in to cover tariffs and to also rightsize margins. And we just have to do that with some discipline. Douglas Lane: No. And the margin story is looking really good, that chart on Slide 9 showing the steady improvement in gross profits. Maybe could you give us a feel you have on Slide 11, a list of all the initiatives you've taken. And the total is $18 million. How far along are we in realizing that $18 million? And when do you think we'll fully realize that $18 million annual run rate? Robert Culp: Well, I can let Ken touch on some of this, too, but we've tried to schedule out as best we can. I know it's maybe -- it's good to talk about it in more details. The $10 million to $11 million was really a fiscal '25 initiative. So that primarily revolved around us closing our Canadian operations and relocating that business to the U.S. and to some strategic outsourced partners. That project is done. It should be fully implemented for fiscal '26. We should have an impact across the full year. So that's great. We did -- we got some of that in '25, but it's really a '26 impact. The other initiatives we talked about are pretty much back half impacts. We'll get those in Q3 and Q4, although some of the price increase that we speak to is a Q2 initiative. So I think it just -- a lot of it's in for '26 and all of it should be in for the back half. Douglas Lane: Okay. That's helpful. I'm looking also at some of the market commentary that you referenced here. And I'm new to the company here, so I just maybe need a little bit of background on how would you compare this dip here post COVID, if you will, versus, say, The Great Recession back in the 2000s? Robert Culp: Yes. If you spend a long time in the textile industry, you get to talk about lots of ups and downs. It's one of the blessings and curses of my role in life. But I would say we had always been used to variability in the market. That's not abnormal. We have seen down cycles and up cycles. This current period, for whatever reason, seems to be protracted. It's not unusual to see downtimes, but typically will come back pretty quick. Ever since 2020, it's just been a protracted down cycle in the units, whether that's some pull forward compounded by people buying early when they're standing at home, then compounded by interest rates and now deferred purchases, whatever the reasons are, housing being slow, we just have seen a low cycle. The good news that we see is that we are in segments that while they're not necessities, people need and want to buy furniture, it's part of the lifestyle. So we know the business is going to come back, and we're confident that it will. What we just aren't willing to do is wait for it to come back. We're going to make our adjustments, get ourselves profitable in the current environment. And then when it does come back, we're just better prepared and leaner to capitalize even stronger on the recovery. So we know it's coming, Doug, but we just -- we're going to make moves, and we're not -- we can't wait for it. Douglas Lane: No, you can't forecast when things turn. I mean you have the commentary from the research that you cited showing significant pent-up demand, people calling a turn in 2026, which, of course, may or may not happen. But what does that mean for Culp? Are you able to satisfy a turn in demand with your existing cost structure? Or will you have to begin to spend and chase the demand when it does come, assuming it does come in the next year or so? Robert Culp: Yes, a really good question. And what we have been very careful about, and we stressed this as we've done these restructuring initiatives. We have made changes to our platform very strategically, but we have not given up capacity. Now it doesn't mean it's all -- we don't have necessarily multiple plants duplicated in similar geographies. But across the globe, we have ways to grow capacity almost unlimited. With any type of planning or foresight, we can grow capacity. So we have not limited ourselves. And the real benefit to us is we think that there's a lot of upside leverage on the current base. So if we can increase the denominator, put some more fuel on the fire with revenue, we have a lot of cost leverage. We don't need to add back and margins can really go up. We're really encouraged as the market grows. But we're also very encouraged just as it is. We're going to grow the margins now. But when the fuel comes on, Doug, there's no limit for us. We got to plan it well and we got to strategize it well, but that's where the cost leverage really pays off. Douglas Lane: That sounds encouraging for sure. And again, new to the story, I'm fascinated by some of these hidden assets that you have here, Ken. You mentioned a market value of real estate of $40 million to $45 million, and you've got federal NOLs of $88 million. How much of that real estate is on the books and how much of that is really not on the books? And then how are the NOLs going to play out going forward? Kenneth Bowling: Yes, Doug, thanks. Good question. So regarding the real estate, I mean, we put in there our net book value for that asset is around $12 million. So you've got about $30-some million of excess room there. And again, the $40 million to $45 million is our estimate for the value, but we've had some similar sales around the area. So we feel good about that. So that property is stellar. It's in magnificent shape, and so we feel very good about that estimate. As far as the taxes, I mean, that's -- we continue to evaluate that each year. It's made up of obviously continued losses in the U.S. And so that will probably grow over time or will grow over time. And so it's just something that as of today, it's a benefit. Now as far as future use, when the time comes when we start being profitable in the U.S., that's when it will come into play. But that's an untapped value there that -- that's there available once we become profitable. And so it's a tremendous benefit for us going forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Iv Culp for any closing remarks. Robert Culp: Thank you, Dru. And again, thank you for your participation and your interest in Culp, and we certainly look forward to updating everyone on our progress next quarter. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Currency Exchange International Q3 2025 Financial Results Conference Call. [Operator Instructions] Also note that this call is being recorded on Thursday, September 11, 2025. I would now like to turn the conference over to Bill Mitoulas, Investor Relations. Please go ahead, sir. Bill Mitoulas: Thank you, operator. Good morning, everyone. Welcome to the Currency Exchange International conference call to discuss the financial results for the third quarter of the 2025 fiscal year. Thanks for joining us. With us today are President and CEO, Randolph Pinna; and Group CFO, Gerhard Barnard. Gerhard will provide an overview of CXI's financial results with the latest perspective on the company's operations. Randolph will then provide his commentary on CXI's strategic initiatives, sales efforts and business activities, after which we'll open it up for your questions. Today's conference call is for shareholders, prospective shareholders, members of the investment community, including the media. For those of you who may happen to leave this call before its conclusion, please be advised that this conference call will be recorded and then uploaded to CXI's Investor Relations website page, along with financial statements and MD&A. Please note that this conference call will include forward-looking information, which is based on a number of assumptions, and actual results could differ materially. Please refer to our financial statements and MD&A reports for more information about the factors that could cause these different results and the assumptions that we have made. With that, I'll turn the call over to Gerhard. Gerhard, please go ahead. Gerhard Barnard: Thank you, Bill, and thank you, everyone, for joining today's call. These results are presented in U.S. dollars and my overview of the company, CXI, will also incorporate the results of the discontinued operations of Exchange Bank of Canada. As a reminder, on February 18, 2025, the group announced its decision to seize the operations of its wholly owned subsidiary, Exchange Bank of Canada. All customer activity has ceased as planned by the end of August 2025 and preparation for administration and financial statements year-end audits are underway to submit an application to the Minister of Finance in Canada to discontinue Exchange Bank of Canada from the Bank Act. The application to discontinue is expected to be made in the fourth quarter of 2025 with the actual discontinuance of the bank being subject to receipt of all necessary regulatory approvals. Starting in the second quarter of 2025 and following the Board's decision to discontinue the bank's operations, the group updated its financial statement's preparation and presentation to predict continuing and discontinuing operations separately in accordance with IFRS accounting standards. Therefore, included in the group's financial statements are the results of the United States operations under continuing operations and the results of Exchange Bank of Canada under discontinuing operations. Now the group reported net income of $4.2 million for the third quarter, 8% higher than the prior year and this reflects net income of $5.2 million from continuing operations and a net loss of $1 million from Exchange Bank of Canada. These third quarter results included a net restructuring credit of about $100,000 related to discontinued operations in Canada. Now management anticipates that certain operating expenses and personnel costs that are currently shared with EBC will be 100% borne by CXI after EBC's exits from Canada and the current annualized estimated cost would be approximately $3 million after tax. This estimate is subject to change throughout EBC's discontinuance proceeds. Before we go into the results, I'd like to note that the group measures and evaluates its performance using several financial metrics and measures, some of which do not have standardized meanings under General Accepted Accounting Principles, GAAP, and may not be comparable to other companies. We call these measures non-GAAP financial measures and/or adjusted results. Management believes that these measures are more reflective of its operating results and provides a better understanding of management's perspective on performance. These measures enhance the comparability of our financial performance for the current period with the corresponding period in 2024. Management included a full reconciliation of the key performance and non-GAAP financial measures in the MD&A. When we refer to reported results, we refer to the results reported in the financial statements based on IFRS. And when we refer to adjusted results, such as adjusted net income, we refer to performance of non-GAAP measures. With that, here is a summary of the third quarter's results comparing this year's third quarter to the prior year's third quarter. Revenue grew to $21.3 million by roughly $1.3 million or 7%. Now operating expenses increased to $13.1 million or just under $1 million, close to 8%. Our EBITDA grew by -- grew to $8 million by $0.3 million or roughly 4% over last year, and our reported group net income grew to $4.2 million by $0.3 million or 8%. So that's an important one. Net income grew to $4.2 million by roughly $0.3 million or 8%. Adjusted group net income was $0.5 million or 10% lower than last year due to EBC's revenue tapering during the current quarter as a result of the discontinuance of its operations. Let's look at the consolidated performance of the third quarter of 2025 compared to the prior year's quarter. Our revenue growth was driven by 24% growth in the payments product line and 4% growth in the Banknotes revenue, primarily through direct-to-consumer channels. Now wholesale banknotes grew roughly $0.25 million or 3% and represents 44% of the total revenue. And while trading volumes declined due to a weaker consumer demand for foreign currencies, this product line grew 4% over the last year due to the continued addition of new domestic financial institution customers in addition to certain large customer transactions at the end of the quarter. Direct-to-consumer banknotes grew roughly $0.4 million or 5%, and this represents 40% of our total revenue with growth coming mainly from the OnlineFX platform due to increased demand for exotic and foreign currencies and the addition of 138 new airport agents in various locations. Our Payments revenue grew $650,000 or 24%, now almost 16% of our total revenue. The growth was supported by a 30% increase in trading volume activity for existing financial institution customers and the onboarding of new customers. Following is a highlight of operating expenses from continuing operations for the third quarter '25 compared to the same quarter last year. CXI's operating expenses increased about $920,000 or 8% compared to the same period in the prior year. Now variable costs, mostly our cost of goods sold, post the shipping bank charges, sales commission and incentive compensation, totaled roughly $3.3 million, a 4% decrease compared to the $3.5 million of the prior year. Salaries and wages increased mostly driven by Google Vault staff growth and the addition of company-owned branch locations, in addition to general inflationary increases. Legal and professional expenses increased due to audit and tax services as well as other legal and advisory services provided in the normal course of business. Marketing and publicity increased as CXI continued to focus on marketing initiatives, campaigns, retail investments and establishing a customer referral program that supports corporate goals with a focus on the direct consumer business growth. Net foreign exchange losses for the current quarter were primarily driven by hedging costs and foreign exchange losses in the prior quarter were associated with CXI's banknote holdings in the Mexican pesos. Bank services charges are primarily driven by the Payments product line. In the current quarter, CXI continued to process certain payment transactions via EBC's correspondent bank and received a chargeback allocated via intercompany allocations. Now it's important to remind that intercompany allocations are excluded from the results of continuing operations as per IFRS 5. It is relevant to mention that CXI's payment processing has fully migrated away from EBC's correspondent bank during August 2025. Stock-based compensation includes a noncash amortization expense related to the vesting of the company's equity-based stock options in addition to certain cash-based awards represented by RSUs and DSUs. CXI incurred a net expense in the amount of $73,000 related to DSUs and RSUs, which is lower when compared to about $185,000 for the same quarter last year as a result of the decline in the stock price in the current quarter compared to the previous quarter. Interest expense decreased as a result of the decline in the average borrowing of funding EBC's operations and working capital requirements, and it's tapering significantly following the decision to discontinue operations in Canada. Average outstanding borrowings for the quarter was about $1.3 million compared to $2.1 million during the same quarter last year. The average interest rate is also decreasing, and it was 6.7% compared to 7.7%. Income tax expense in the current quarter represents taxable income growth over the prior year and reflected an effective tax rate of 26%. Summarizing the results of continuing operations for the 9-month period ended July 31, 2025 and 2024. As stated in the beginning of this document, all earnings from continuing operations have been revised to exclude EBC's results and all associated intercompany transactions. Now for the 9 months for CXI, the continuing operations, revenue grew to roughly $52.5 million or $2.1 million of growth, roughly 4%. Operating expenses increased to $35.5 million, $0.5 million higher or 1% more than the prior 9-month period. And EBITDA grew to $16.7 million, which is about $1.3 million higher than the prior year or 9%. Reported group net -- group net income grew to $7 million almost $1.7 million or 33% higher, while the adjusted group net income grew to $7.5 million, about $100,000-or-so and 2% higher than the prior year. Deep diving into the 9 months ended July 31, 2025. CXI's Payments revenue. So now we're just going to look at the 9 months income statement revenue growth. Payments for the 9 months grew 16% or $1.2 million with a 27% increase in trading volume activity where business grading volumes for the 9 months was roughly $4.7 billion compared to $3.7 billion in the prior year. Direct-to-consumer and wholesale banknotes combined grew 2% or $940,000, driven by growth in customer demand for certain foreign currencies such as euro and the Mexican peso, which offset the declining volumes from other currencies, such as the Canadian dollar. During the current year, that's the 9 months, CXI added 192 new non-airport agents and 2 new states to the OnlineFX platform, reflecting increased volumes from exotic currencies. The group reported net income of $7 million versus for the 9 months again, including the results from discontinued operations compared to $5.3 million for the same period last year. This included net income from continuing operations of roughly $9.6 million compared to $9.9 million from the same period last year. As I mentioned, the group had an adjusted net income of $7.5 million in the current 9-month period, 2% higher than the prior year. Now looking at the results of discontinued operations. And again, this relates to the Exchange Back of Canada. The bank had a net loss of $1 million in the third quarter compared to a net loss of roughly $1.2 million for the same period in the prior year. For the 9 months ended July 31, 2025, the bank had a net loss of $2.6 million compared to last year's $4.6 million in the same period. Diluted loss per share from discontinued operations was a loss of $0.17 for the third quarter compared to -- and a loss of $0.41 for the 9 months ending compared to roughly $0.18 and $0.70 in the same period last year. The application to discontinue is expected to be made in the fourth quarter of 2025 with the actual discontinuance of the bank being subject to receipt of all necessary regulatory approvals. Now reviewing the balance sheet as at 31st of July 2025, due to the company's business being subject to seasonality, CXI is using a trailing 12-month net income amount to calculate ROE, which was a consistent 12% over the last 12 months and it includes the discontinued operations results. Now CXI has net working capital of $67 million and total equity of $84 million and 100% available, a 100% available unused line of credit totaling $40 million, all debts were paid. Maximizing the return on capital to our shareholders through share buybacks remain a key focus. During the 9-month period ended July 31, 2020, the group purchased for cancellation to 190,300 common shares at the normal market prices trading on the TSX for roughly $2.85 million under its second share buyback program or Normal Course Issuer Bid. On August 20, the group announced a retroactive increase in its second NCIB. The Board of Directors and management believe that the market price of the common shares may not, from time to time, fully reflect the long-term value of CXI and between August 1 of this year and September 10, yesterday, the group had purchased for cancellation an additional 92,100 shares for a total of about $1.4 million. Our total repurchase shares through to September 10 is now 282,400 common shares, equivalent to roughly USD 4.25 million. Now at this time, I will turn the call over to Randolph Pinna, our CEO, for his perspective. Thank you, Randolph. Randolph Pinna: Thank you, Gerhard, and thank you all on the call. I appreciate everybody being available and especially those out West who are up early in the morning. As usual, I'd like to start with EBC. I think you've heard clearly, we are in the final stretch of our discontinuance according to our approved discontinuance plan. It was a sad day to see the last transactions here in Toronto, where I sit right now. And we are in the final phase of completely exiting Canada. I'm sitting in the EBC office, which is mostly vacant. And this month will be the last month that staff are in this office. As whatever staff is remaining will be working from home as we discontinue Exchange Bank of Canada. We will be filing, as I mentioned, this year, and we will be then waiting for regulatory approvals. Moving to CXI. As you can imagine, with no longer having a wholly owned subsidiary bank, we are in the final phase of updating our strategic plan for the next 3 to 5 years. In this process, we actually have went out and recruited the voice of over 1,000 U.S. consumers to get the voice of the consumer, whether they want to exchange money at their bank, at a Bureau they change, at an airport or what have you. We also did a deep dive and got the voice of our customer, not just to the banks and financial institutions, but also our agent customers and other customers to understand the customers' needs and goals for the next 3 to 5 years as well. And lastly, we have done quite a few meetings with our shareholders. And we do have that incorporated in our strategic plan as well, the voice of our shareholders. We are going to focus for the fiscal '26 year on continuing to grow our revenues while also focusing on efficiency, utilizing automation and simplification efforts. We hope that the '26 year will be a clean year, won't have all the noise of continuing and discontinuing. And so we are excited to embark on our new fiscal year with our updated strategic plan. On the actual business itself, as you see, we are continuing to grow in our consumer area with our online store with the new states, we're now well over 90% of the entire U.S. population can be serviced through their home and office should they not want to visit their customer bank, I mean their bank or their CXI locations. We are continuing to selectively add company-owned and operated retail stores. The new market in -- the new store in Phoenix, Scottsdale, Arizona has opened and doing very well. We're adding another location in New York, and we will continue to add selective locations each year. And most importantly, our agent program, as you see, is continuing to grow. We really enjoy the agent relationship. It is a win-win-win situation for all involved, and we will continue to focus on our agents. Overall, our consumer business is healthy, but we feel there's a lot more growth, both in the online agent and physical stores by adding additional products and services, utilizing the same infrastructure in place. Moving to the Wholesale business. We will continue to always focus on selling banknotes to financial institutions that is both banks and credit unions, but we are also complementary selling the Payment product. As you can see, we continue to invest our sales efforts and successfully adding new locations to continue to allow our Payment business to diversify our total group revenues. And lastly, I wanted to just talk about M&A. Gerhard and I have been quite busy reviewing and investigating opportunities that are strategic and would be accretive to the company. There's nothing imminent. However, we are continuing to explore and always looking for an opportunity that will complement our business and accelerate our growth. That's all I have for the -- my mini update, and I thought the best thing now would be to open it up for questions that Gerhard and I can answer for you, so thank you. Operator: [Operator Instructions] First, we will hear from Robin Cornwell at Catalyst Research. Robin Cornwell: I wondered if I could ask the first question is, if you could expand on the EBC referral agreements? You indicated that it's over a 4-year term. I wondered if you could give us some idea whether it's the material amount you'd be expecting? And what kind of potential income that might be generated from that? Randolph Pinna: Thank you, Robin. I appreciate the question. We have 2 referral agreements in place, one with a financial institution here in Toronto that is focused on the wholesale banknote business. We have not yet received the first report from that company. Although I have heard, they seem to be doing well. And we do not predict or forecast future earnings. As you know, we don't give guidance. And so I don't have an estimate to provide to you, but I do confirm that the existing bank note referral agreement with the Toronto institution is in place and customers have migrated to them. And so we will know more as it is reported in our next quarterly report, which I don't think will be highlighted as a separate line item since to be a separate line item, it would need to be more than 10% of total revenue. So it will not be that large, but you will see additional fee income from that. The second referral agreement is with a money service business based in Vancouver to take over payment clients. This is not expected to be as material as the bank notes since only 3 employees and their "book of customers" migrated to the new company, so that referral agreement would be less material indeed. So that is all I can comment on the referral agreements. Did that hopefully help answer the question? Robin Cornwell: Okay. And one little quick question. The payments revenue was up quite significantly, had any of that volume was it related to tariffs and the front-ending of imports and things like that in the United States, could you comment on that? Randolph Pinna: I don't know the direct impact of any tariff activity. I do know that the tariff activity has reduced foreign demand to come to America. And -- but as far as payment revenue, it has -- I don't think has had a material impact on it. Our payment growth increases is because we're continuing to add new clients as a result of the integrations we've done with the software providers that run bank software systems. And so the growth that you're seeing is real growth from new and existing relationships. And again, I don't have any insight into whether some of that is because of prebuying of the tariffs. I don't believe it is. Robin Cornwell: Okay. And Randolph one more... Gerhard Barnard: Robin, maybe to comment on that point. As Randolph mentioned, we saw that about $0.5 million of that growth or, let's say, close to 2/3 was by adding new customers and that just creates an annuity stream for us and existing customers also grew in that payment space that we have. So as you saw, the volumes continue to pick up, the additional payments that we do, you look at those billions of dollars of money that we move, that gives you a good sense of Payments current velocity. Robin Cornwell: Terrific. Okay. Thank you for that extra thought. Randolph, I do have one question for you, and it's a broader-based question. It's planning or how you plan to grow perhaps the Software-as-a-Service capabilities because you've invested a tremendous amount of money in the SaaS and you're using it now. But do you have any more insights as to where you might drive your business with the software? Randolph Pinna: Thank you for that question. And just as a -- for the whole audience, we're going to try to limit questions to 2 per person. I'm happy to do the third one, Robin. But if there are more, please requeue just out of respect for the other people on the call. But yes, I'm very excited about the fact that we have got past our pilot where we have some clients paying a fee to utilize the software since it is true payment rails for both foreign currency wires as well as U.S. dollar wires. And so we expect in '26 that we will be seeing a noticeable new fee income from a software licensing as opposed to our current model of where our banks get our software in return for doing their wires with us. We are pivoting that way where we are going to be seeing additional income from our Software-as-a-Service. So I don't -- like the other, I can't forecast what that number is. But I do confirm that, one, you're right, we have invested and built out an excellent system for both foreign currency and U.S. dollar wires. And this is being sought by quite a few banking companies, lots of which are customers using banknote services. So we have a captive audience to continue to expand this business line. Operator: Next question will be from Peter Rabover at Artko Capital. Peter Rabover: I have a big one for you, Randolph, and then I have a housekeeping one for Gerhard. But maybe now that you're kind of unencumbered from Canada, could you just talk about the big drivers and kind of give a scorecard of your business as it stands today, the U.S. business? And what's most sensitive to? And what are you seeing out there so just the conditions? Randolph Pinna: Thank you, Peter. First of all, yes, it feels good to not be having spent as much time in Canada, which will be going down to 0 soon. And so that allows me 100% focus on our overall business in the United States. And as I said, with the updating of the strategic plan, it is focused on our core areas of expanding our relationships with financial institutions across the United States for both banknotes and payments. And as I was just telling Robin, our payments business line will continue to grow with additional new clients as well as Software-as-a-Service fee income. In the actual currency exchange business, as I had said earlier, we see a lot of opportunity online. We feel that the fact that we can service 90% to 95% of the whole U.S. population, we will be continuing to invest into marketing and growing our online presence and selectively opening new stores with possibly a new service that could add fee income. We are very focused on our agents. We see that as winning a large national retail chain, adding the new service of currency exchange will be significant for us. And as I said, the wholesale business will continue to grow because of the new customers we add and the expansion and diversification of the Payment revenue. And lastly, we are looking and have identified opportunities. But again, we will only do a transaction if it's accretive and in line to our existing business. The voice of the shareholder revealed that 1 or 2 shareholders just basically want to stay focused on our core business and not "chase a shiny object." So you will see that the next 3 years will allow for a clean business here in the U.S., and it will -- that growth in revenue will come from both the consumer channel as well as our wholesale channel. So Peter, is that what you were looking for or was there anything... Peter Rabover: I mean, I definitely appreciate the color what the business drivers are. I was actually asking more on like what's going on today, what you're seeing in the macroeconomic kind of competitive conditions, but this was just as good. So I don't want to -- I mean, I have one more small question to Gerhard, but if you want to answer my... Randolph Pinna: Yes. So Peter, I didn't get -- I can't forecast what the tariffs are doing or the people getting shot in America and what international visitors are thinking of America right now. So I can't guess as to what the year ahead will be from a macro level. We just know that our focus is we have a valuable service to potential clients. We have a good revenue stream with a lot of expenses supporting that. And so we feel that we continue to double down on our sales and adding new clients, all while Gerhard and the entire company focuses on efficiency through internal automation and even elimination of certain items now that we're no longer a bank group and so no longer having that bank group structure will allow for improved efficiency in our current business in the United States. So that's the macro comment. Peter Rabover: Okay. And then my follow-up is on the cash line. There's a $12 million line of cash to be paid to shareholders. Is that basically the release of funds of the cash that was held by the bank back to the group that will be more available to you that wasn't available in the past? Is that the way to read that? Gerhard Barnard: So Peter, you're referring to Page 18 of the financial statements. That 18 is definitely a portion of it because we have to be reminded that this is at the end of July 2025. We still got 2 months of business to run. We -- as I mentioned, we've repaid intercompany loan accounts. We have lower working capital requirements. So if you look at that number, you have to consider the fact that there is various other items that has to be run through the cash mill, if I can call it that until the end of the year. We are still heading towards a repatriation of some capital at the end of the year and the full -- and once the working capital decreases to close to 0 as the bank continues its discontinuance. Peter Rabover: Okay. I mean that's great. But just -- I just want to be clear. The way to read that is that cash was not available because it was held by bank as part of capital requirements. And now it will -- whatever that number will end up being, and now it is more available to you as -- to use for acquisition and share buybacks. Gerhard Barnard: Absolutely right. Yes. And obviously take out working capital, take out intercompany transactions and then just running the bank for the next 3 months. But yes, you're on the right track. Operator: [Operator Instructions] Next, we will hear from Stephen Ranzini at University Bank. Stephen Ranzini: First of all, congratulations on a pretty good quarter operationally in the United States. We're very happy with our investment in CXI, because of the good job that you are doing. We've increased our ownership to 12.44% at a cost of less than book value. So I was very pleased to see the increase in book value. My question relates to the discontinuance of the bank in Canada, and it had some licenses, particularly with the New York Federal Reserve that you guys had been utilizing for the whole business. How are you going to handle those things that you don't have now that you don't have a Canadian bank to help you gain access to it? Are you losing any functionality? Do you have plans to replace that functionality? What are you doing? Will it have any other follow-on impacts? Randolph Pinna: Thank you, Stephen. Yes, I want to just point out that the Exchange Bank of relationship with the Federal Reserve Bank of New York through the FBICS program is completely ceased. We have closed our accounts with the Federal Reserve. But that business did not help CXI whatsoever because the license that we have with the Federal Reserve prohibited Exchange Bank of Canada to sell or buy U.S. dollars in America. So CXI had 0 benefit from that. We, of course, as a group, established a relationship, and so I'm very proud to tell you that our payment business is a part of the Federal Reserve Fed Direct program, and therefore, it has enabled our payment business to be more attractive to U.S. financial institutions. And as you can already see, the Payment revenue growth is well underway. And as one of the previous questions alluded to, there is a lot of opportunity in the '26 year. The other capability that Exchange Bank provided us was that CXI processed the majority of its wires through Exchange Bank, and hence, its correspondent relationship. As Gerhard mentioned in his commentary, we have totally migrated all of that activity away from Exchange Bank as a part of our discontinuance plan and that is currently being processed by 2 U.S. financial institutions with their global network. But we are always looking for additional strategic relationships. But the Fed relationship at Exchange Bank was in a specific wholesale banknote business product which was bulk U.S. dollars and, of course, other foreign currencies selling. We have exited that business line in Canada, and CXI is not replicating international bulk U.S. dollar activity globally. While we do have some select relationships that are international based in our Florida office, but that is not the same as what Exchange Bank was doing with banks that we had in France, in U.K. and Switzerland and so forth, so that wholesale banknote business will not be replicated, at least in the next year or 2 at CXI. Did that answer your question, Stephen? Stephen Ranzini: Yes, completely. My follow-up question, second and final question is with respect to Crown Agents Bank. You had mentioned previously that you're working on setting up some relationships with them. How is that going? What functionality are you gaining from that? Is there good progress volumes? Is this helping your business yet or not? Or do you think it will be material in the future or not? Randolph Pinna: So as I said, we are always looking to have strong strategic banking relationships. Crown Agents Bank specialty is with exotic currencies around the world, which is not a top wire that we do. So we do have a relationship with them, but there are limitations to their capabilities. And so the 2 primary U.S.-based financial institutions that are currently our wholesale correspondent bank have been sufficient. But we do, I would call it, cherrypick with Crown Agents as they do have some strengths that are attractive to payment providers like ourselves. So we do work with them some, but not as much as I would think we could have done, but because of some of their limitations. Operator: Next question will be from Jim Byrne at Acumen Capital. Jim Byrne: I just wanted to clarify on the expenses, want to see the run rate from this quarter continuing operations. Is that what we should expect kind of going forward, obviously, given seasonality? I just wanted to clarify, given your comments about that $3 million in expenses that will be absorbed. I just want to make sure that, that has been absorbed in this quarter. Gerhard Barnard: Jim, good question. As we stated, continuing operations excludes currently any intercompany transactions. So if you look at the stranded cost that we are reporting, we'd probably be $3 million after tax. That consists of roughly 40% as bank charges. Of course, the correspondent relationship we have with EBC, and we have fully migrated that relationship in the middle of August to CXI, hence, in the fourth quarter, pretty much half of all the bank charges will actually be in continuing operations. So 40% of stranded cost bank charges, 40% of stranded costs is basically salaries and wages as we obtain the 100% portions, the non-100% portions of the FTE. And then we've got about 1/4 of computer and systems, insurance and licenses. So what you see right now with continued and discontinued operations is not fully incorporating all the stranded costs because there is still expenses running through Exchange Bank of Canada, that is in discontinued operations. So if you look forward, you would probably be able to add about $100,000 to $150,000 a month to our salaries and wages line, which moves you closer to about $2.4 million per month. And then if you look at bank charges, as I mentioned, 40% of that $3 million after tax will start spilling over to CXI when we -- as we fully operationalize that new relationship of us, but we are actively, as a management and a Board, going through all our various expenses as part of our strategic plan in really mitigating that enhanced cost structure that's coming through. Jim Byrne: Okay. That's helpful. And then just as a follow-up, I wanted to just doublecheck on your IT spend. It's come down and is that, again, kind of the continuing run rate that we should expect? Gerhard Barnard: IT spend is -- well, you know what constantly depending on the systems and any additional pushes that we do. We -- I would not predict that -- or I would not determine that what you currently see as the run rate going forward. IT is extremely important to us as well as our cybersecurity and we continue to invest in it. So not an increase, but don't see a decreasing run rate in IT. As we know our payments business are growing, our volumes are growing and IT for us is a strategic driver with OnlineFX platform and so forth. So that is one item that we are comfortable to make the necessary capital investments in to continue to grow our business. Randolph Pinna: I can confirm that we have a very well-structured IT department. Our Senior Vice President, Paul Ohm, has ensured that we have a fully capable team. So we won't be hiring any new IT gurus or anything like that. So I think what Gerhard is trying to show you is that while we will continue to do integrations and so forth, hence, we have a pretty fixed cost structure in IT, and we are not going to be hiring any additional people in IT that would significantly increase that. But because the banks closed, doesn't mean you'll see a big reduction in IT because our cybersecurity is always a focus. And so we have a pretty consistent IT team now, and I don't think there'll be any radical changes in either direction. Gerhard Barnard: Yes, maybe just to complement that point. If you really go through our operating expenses, you'll see that IT is either we hold it fairly stable. If I look at the 9 months, it's about $100,000 higher than the prior 9 months. And if you look at the quarter, you can say, depending on 1 or 2 things that we've specifically done in this quarter, it might be $50,000 to $100,000 higher than the prior quarter. So that $731,000 for the 3 months ending July versus $517,000 for the prior year on Page 31, I would say our quarterly $0.75 million gives you a fair indication of the future projections, taking staff increases and inflation and so forth into account. Operator: Next question will be from Yale Bock at YH&C Investment. Yale Bock: Two questions. First, regarding the agent relationships. There was a dramatic increase in, I guess, the AAA. And if you could just provide a little color on duty-free and maybe with the cruise industry, there was an announcement of a partnership? And then the second one is your thoughts on the Genius Act and stablecoins and potentially how that might impact the foreign exchange market over time and how you're thinking about it? Gerhard Barnard: Okay. Thank you, Yale. Good to hear from you. To begin with the agent growth that is because of the AAA relationship, continue to grow. If you're familiar with the AAA structure, they have their "clubs" in each market. And the nice thing is there's still several clubs that are not under our umbrella. However, as we do CXI and AAA headquarters have a strong relationship and is encouraged that all clubs migrate to CXI. So you will continue to see that. Duty Free is still a good customer. Unfortunately, because of the challenges that, that business has had, it has not afforded the attention we required for us to add all of their southern locations, but we do hope that in fiscal '26, we will be adding their locations down south. And we are always looking for additional agent relationships, especially ideally with a national provider -- national retailer that has good real estate and a good audience, but does not offer currency exchange. So we are going to continue to focus on that. On the payment side, we have spent quite a bit of time keeping up with the change with stablecoins. And we -- from a practicality where banks, our customers that are moving their customers, corporations, money around the world -- we don't see that there will be in the next 3 to 5 years, a material impact on foreign wire transfers. We're seeing the stablecoin being a U.S. dollar-centric push. And whether how fast the adoption rate goes to stablecoins or even broader crypto activity is unknown. We still are tapping into existing flows of payments, and we feel that there is a lot of upside potential in our current payment model, which does not incorporate utilizing a stablecoin. Operator: Next is a follow-up from Peter Rabover at Artko Capital. Peter Rabover: One of my questions was answered on the $3 million and whether that was absorbed. So I guess I'll ask a question or I know you won't really be able to answer the way I would ask it. So now that you're a mostly U.S.-based company, would you -- or soon will be, would you say it's inefficient for the stock to be traded on a Canadian exchange? Gerhard Barnard: We -- one, I confirm in fiscal '26, we will be only a U.S.-based company, regardless, even if for some reason that our bank did not get the final regulatory approval. As I said, our here, and I'm sitting in Toronto, our lease here ends October 31. We will be actually exiting the building sooner than that, and we are basically going to have a clean empty shell that will be audited at fiscal year-end, and that will be the crux is supporting the application to discontinue. So in 2016, we will be a U.S. company only and not a bank group. And as far as our Toronto Stock Exchange listing of the Ontario Securities Commission and the TSX has been a very good, solid market for us. We have a large Canadian shareholder base. We do recognize we have also a good U.S. shareholder base. And so NASDAQ is being evaluated as far as what additional costs and increased regulatory concerns because this SEC, we imagine is much heavier than the OSC. So it is not a plan to move right away to Nasdaq, but it is being explored as an alternative to where our stock trades. But right now, because of our upgrade on the OTC market, we have seen an improvement and reaction from some U.S. shareholders that is good step. And of course, I believe where you're headed with this is you think we should be on Nasdaq, and we would consider it. But right now, I've asked our team to evaluate the total cost structure, not only just the listing fees, but the legal implications of that as well as any other costs, like Director and officer liability costs go up. And so we have to do a wholesome review of the costs relative to the reward of being on the bigger exchange. Peter Rabover: Okay. Well, I think you know how I feel, I think the reward is pretty good if you for -- especially for our companies undervalued as you. But I appreciate the -- at least the consideration of it. Randolph Pinna: No problem here. We understand, and it would be nice if we did. It got big enough to be on the Russell 2000 and so forth. So we do see the upside, but it is only prudent of us as the guidance of our company and all of our shareholder money, we want to ensure that we understand the full cost and ramifications of a potential stock market switch. Operator: Next is a follow-up from Stephen Ranzini of University Bank. Stephen Ranzini: Yes. The last question prompted me to make a follow-up. So I would encourage you to discontinue the Canadian filings and go and stay on the OTCQB. We're also on the OTC markets. Our bank holding company is not the OTC markets. We're simply UNIB. Every investment bank that I talked to, every institutional investors that I talk to does SEC registration and in our company history, we were a SEC registered at one point for well over a decade. Isn't a good idea unless you're able to be in the Russell 2000 index? And you spend a significant sum of money doing all the SEC filings, but the market being made in Nasdaq versus the market being made in the OTCQX in your case, is not materially different according to investment banks. It's only if you get to the Russell 2000 that the full benefit of being a Nasdaq is actually unleashed. So I don't know if you have any reaction to that, but that's the advice that I'm giving. Randolph Pinna: Thank you, Stephen. And as I just told, Peter, that is why we need to take a holistic view. We need to understand all the costs and all the benefits. So we can -- the Board and I can make a final decision. So we appreciate that feedback. And I do confirm it is something that is on our radar to consider. But that is why we did upgrade on the OTCQX and so we're comfortable where we sit now. However, being fully American, it does indicate or imply that you should probably be on an American exchange fully. So we will consider that and it will be discussed in the upcoming Board meetings. Operator: And at this time, gentlemen, we have no other questions registered. Please proceed. Randolph Pinna: Okay. Thank you. I just want to thank all of our shareholders for their interest and support of CXI. I wanted to thank our entire management team; a special call out for Katie Davis, our Group Treasurer; as well as the interim CFO of Exchange Bank, who's done a fabulous job sticking to our discontinuance plan in ensuring all the many, many, many pieces of completely exiting Canada are done and on time. So a real hats off to her. So thank you for that. But again, and all the people in Canada that have unfortunately had to find new jobs here. It is a bit of a sad day. But again, I want to give a big thanks to all of us together, both the shareholders and the team for getting us where we are and having a clear path ahead in the '26, years to come. So thank you. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Full Year 2026 Consolidated 3 Months Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Jacopo Laschetti, Stakeholder and Corporate Sustainability Manager of SeSa. Please go ahead, sir. Jacopo Laschetti: Good morning, and thank you for joining the SeSa Group presentation. Representing the group today are Alessandro Fabbroni, Group CEO; Caterina Gori, Investor Relations and Corporate Finance and M&A Manager; and myself, Stakeholder Relations and Head of Sustainability. Earlier today, the Board of Directors approved the consolidated financial results for the first quarter of fiscal year 2026 ended July 13, 2025 (sic) [ July 31, 2025 ]. The corporate presentation is available on the SeSa website and will serve as a reference throughout today's conference call. Alessandro will begin by providing an overview of our key business developments and achievements. Alessandro Fabbroni: Good morning, and thank you all for joining today's call. In the first quarter of the new fiscal year, SeSa returned to growth, confirming the achievability of the guidance of the new industrial plan. Overall, first quarter 2026 shows a solid recovery in consolidated revenues and EBITDA, along with a significant improvement in net profitability, supported by a substantial reduction in financial expenses and the improvement of the net financial position compared to April 30, '25, with a clear and progressive reversal of the main trends of revenues and profitability. In the first quarter, on a consolidated basis, the group recorded revenues for EUR 846 million, up 8%, and EBITDA of EUR 61 million, up 7.2% year-on-year, and an adjusted net profit for EUR 29.8 million, up 6.4% year-on-year, with an adjusted group net profit equal to EUR 27.9 million, up by 4.5% year-on-year. The trend in [ human ] people shows 6,593 employees as of July 2025, with a moderate growth up 0.9% compared to April 30, '25, in line with our target of growing operating efficiency of the new industrial plan. On organic basis, revenues increased by 2.2% year-on-year, EBITDA by 4% year-on-year and adjusted group net profit by 2.3% year-on-year compared with the pro forma figures as of July '24, restated to include the quarterly results of Greensun, company acquired last November '24. Consolidated revenues by sector show a positive trend compared with fourth quarter '25. ICT VAS, with revenues for EUR 497 million, down 2.7%, entirely organic, showing progressive recovery from the 8.2% decline in fourth quarter '25, with return to growth expected from second quarter 2026, following the double-digit increase in the July and August 2025 backlog. Digital Green VAS, with revenues for EUR 111 million, up 24.7% year-on-year, driven by 20% organic growth and strong business demand, supported by rising energy needs related to digitalization and the high adoption. Software and System Integration sector with revenues for EUR 220 million, up 2.8% year-on-year despite a slower demand in some key Made in Italy districts and the re-engineering activities in some business units. And finally, Business Services sector, with revenues for EUR 37 million, up by 3.0% year-on-year, which continues to grow entirely organically, supported by the increasing focus on digital platforms and vertical applications, and the expected acceleration in upcoming quarters, thanks to new agreements with some major Italian banks. Consolidated EBITDA increased by 7.2% year-on-year, reaching EUR 61 million, up 4% versus the pro forma figures, and driven by the 20% growth of Green VAS and Business Services sector, while the ICT VAS and Software System Integration sector remained broadly stable year-on-year. ICT VAS achieved an EBITDA of EUR 22.2 million, down 0.9% year-on-year, with an EBITDA margin equals to 4.5% as of July '25, up from 4.4% as of July '24. Digital Green VAS reported an EBITDA of EUR 6.2 million, up 18% year-on-year, with an EBITDA margin of 5.6% as of July '25, slightly down from 5.9% as of July '24. Software and System Integration sector achieved an EBITDA of EUR 23.5 million, down 2.7% year-on-year, with an EBITDA margin equals to 10.7% as of July '25 compared to 10.8% in the full year '25. This reflects the re-engineering operations in some business units, with EBITDA margin expected to stabilize in full year '26, the same level of the full year '25. Business Services reported an EBITDA equals to EUR 7.3 million, up by 25% year-on-year, with an EBITDA margin of 20%, driven by the progressive focus of revenues on proprietary digital platforms and vertical applications developed over the past 2 years. Adjusted consolidated EBIT was equal to EUR 47.3 million, up 4.2% year-on-year after depreciation and amortization of tangible and intangible assets equals to EUR 12.7 million, up 15% year-on-year and provisions for around EUR 0.7 million. As expected, in the new industrial plan, net financial position show a significant reduction equals to 12% compared to first quarter '25 and equals to 36% compared to fourth quarter '25, driven by lower interest rates and efficiency measures in group financial management. The first quarter adjusted consolidated net profit was equal to EUR 29.8 million, up 6.4% year-on-year, reflecting stronger operating profitability and a reduction in financial expenses. The adjusted group consolidated net profit reached EUR 28 million, up 4.5% year-on-year and up by 2.3% versus the pro forma figures as of July '24. Finally, consolidated report in that financial position as of July 2025 equals to a net debt for EUR 65 million shows a significant improvement compared to EUR 75 million as of April 30, '25, thanks to operating cash flow in the quarter and lower investment compared to the previous year, with CapEx and M&A equal to approximately EUR 11.5 million in first quarter '26 alone. Now I'll give the floor to Caterina to present our new strategy in terms of M&A and the main resolution of the last shareholders' meeting held on August 27, 2025. Caterina Gori: After years of significant M&A investments, our new FY 2026, 2027 industrial plan marks a strategic shift, focusing on group simplification and organic growth. We will leverage the capabilities and business model we have built over the years to drive sustainable growth, supported by dedicated CapEx in AI and automation to enhance efficiency, scalability and market penetration. As a result, annual M&A investments are projected to decline to around EUR 30 million, guided by a selective value-driven strategy, while CapEx is expected to remain at approximately EUR 50 million per year. In the first quarter of FY '26, we further strengthened our international presence through only 2 strategic acquisitions, with total investments of approximately EUR 7 million. Visicon GmbH in Germany, an SAP consulting specialist, with EUR 5.3 million in revenues; and [ Delta Informaciones], Spain, an AI-driven player in digital identity with EUR 2 million in revenues. Both companies delivered EBITDA margin above 10%. These acquisitions confirm our strategy, a selective approach to high-value M&A in Europe, combined with strong investments in digital transformation areas such as AI, automation and digital platform. As outlined in 2026-2027 industrial plan, we are focused on generating strong cash flow and delivering solid returns to our shareholders, as demonstrated by our last shareholder meeting on August 27, 2025, where we approved a dividend of EUR 1 per share in line with the previous year, a significant increase in the share buyback program from EUR 10 million in FY '25 to EUR 25 million for the coming year, almost 3x the previous amount to further enhance the shareholder value by increasing the payout ratio from 30% of the last year to 40% of the current year. We have already started the program the day following its approval, underlining our commitment to create sustainable value for our shareholders. Then the cancellation of treasury shares up to a maximum of 2% of SeSa share capital over the next 18 months. As of August 27, 2025, approximately 1% of shares had already been canceled. I now invite Jacopo to present our ECG (sic) [ ESG ] results for the first quarter of FY '26. Jacopo Laschetti: Good morning, and thank you, Caterina. In terms of sustainability path, in light of the new CSRD regulations and the new ESG standards, we confirm our strong commitment to value generation for our stakeholders, and we continue to invest in sustainability and environmental protection, supporting intensively our customers to be responsible on the management of natural resources. By the way, our Digital Green sector contributes significantly to reduce overall CO2 emissions, thanks to our leadership position, which allows to improve the sustainability profile and performance of our partners. In line with our ESG growth path, our sustainability plan for 2026 and 2027 defines priorities, targets and specific actions to integrate sustainability in our business model, contributing to the creation of long-term value for stakeholders. On this point, our last results were characterized by a significant improvement in ESG performance and the achievement of some relevant sustainable development goals set. We reinforced our group purpose that confirm our corporate values and goals of long-term sustainable value creation for the benefit of all stakeholders. Digital innovation, long-term value creation, sustainability and digitalization continues to be the core pillars of our strategy, defining the group's purpose. We also continue to extend our main group certification, confirming all of our ESG ratings. In terms of HR management, we are facing a consolidation phase with an increasing focus on work and collaboration efficiency and the progressive integration of digital enablers in our organization and the way we work. After big improvement of our human capital over the last 4 years, in the first quarter of the new fiscal year, we increased the headcount by 0.9% only, in line with our strategic industrial plan. We continue to work to further improve our loyalty rate, reinforcing at the same time our education, hiring and welfare programs with wider and specific measure to support parenting, diversity, well-being and work-life balancing, thanks to dedicated programs in favor of diversity and inclusion. Now I give the floor again to Alessandro for the final conclusions. Alessandro Fabbroni: Thank you, Caterina and Jacopo. I will now share the final remarks and conclude our session. Three months ago, we presented our new industrial plan, aiming at group's transformation by focusing on organic growth of our core businesses, organization streamlined, growing operating efficiency and market penetration by reinforcing our role as a leading digital integrator and partner of customers' digital transformation. In the first quarter of '26, we worked strongly to deliver the main strategic targets of the industrial plan, driving organic growth across the group sectors, streamlining legal entities and adopting AI and digital enablers to boost operating efficiency. In particular, in the first quarter of FY '26, we achieved a 25% growth in profitability of Business Services sector, driven by the expanding market penetration of our proprietary digital platforms and vertical applications developed over the past 2 years, a double-digit organic growth in both revenues and EBITDA for the Digital Green VAS sector, fueled by strong business demand and rising energy needs driven by digitalization and AI adoption, recovery in ICT VAS trend compared to fourth quarter '25 with a double-digit backlog growth in the month of July and August '25, supporting an expected return to a year-on-year growth from the second quarter '26. And we also achieved a significant reduction in the net financial expenses, down 36% compared to fourth quarter '25, and down by 12% compared to first quarter '25, reflecting the ongoing recovery trend, supported by lower market interest rates and the efficiency measures implemented during FY '25. Thanks to our strategy, we strengthened our position as a leading digital integrator with a strong focus on cybersecurity, AI, automation, vertical application and digital platforms. And at the same time, our Business Services sector continued to grow in the financial services industry, driven by rising demand for specialized vertical platforms and applications. In the light of our first quarter 2026 strategic achievements and the disciplined way we have been executing the new industrial plan, today we confirm our commitment to deliver all growth targets that we have outlined last July for the new FY '26. This means a 5% to 7.5% growth in revenues, a 5% to 10% increase in EBITDA, and about 10% improvement in net consolidated profit, confirming that we are on track to achieve the main value generation targets for our shareholders. Considering the positive trend of our net financial position improving by around EUR 10 million compared to April 30, '25, we are delivering the planned 40% payout ratio compared to the 30% of the previous year by executing the new EUR 25 million buyback program approved by our last shareholders' meeting. Now we will continue to execute the new industrial plan with strong discipline, focusing on organic growth, operating efficiency, the adoption of digital enablers and inspired by a corporate vision oriented towards sustainable growth and digital innovation. Thank you very much for your kind attention. Now we open the Q&A session. Operator: [Operator Instructions] The first question is from Andrea Randone, Intermonte. Andrea Randone: My question is about the outlook you provided for the business segments. We can see that Digital Green is performing slightly ahead or I can say, ahead of initial expectations, while maybe Software and System Integration is a bit softer. So my questions are, what is the visibility you have on the most recent months? And if you can provide some indication on the full year profitability you are expecting compared to what we have seen in the first quarter? And any further comment on this -- the expected evolution of the business segment is welcome. Alessandro Fabbroni: Andrea, thank you for the questions. So first of all, the trend of business segment is characterized by growing focus on proprietary digital platform. So that means, as a result, growing level of EBITDA margin that we achieved record 19.9% of revenues. So we grew by 3% in terms of revenue. We expect to accelerate the trend of revenues, considering also several main contracts that we won during the first quarter that we will account starting from the second quarter. So our guidance continues to be a double-digit growth in terms of revenues and in particular, in terms of profitability. In the Digital Green, we capitalized the great effort we did in the last quarter. So the merger between PM Service and Greensun created a leading player in Italian market. We increased our market share in the business segment. There is a great demand of energy for renewable sources, considering the low prices that stabilized. So the trend of prices were stable in the quarter. So the lower level that we achieved over the past 1.5 years made very competitive the green energy solution, and there's a great demand from corporate organization in that direction. So the trend of the market is a trend of high single-digit growth, and we plan to be able to perform to continue to grow double digit, thanks to our competitive advantages and our market share we achieved in the Italian market. The situation of the Software and System Integration in the quarter characterized by a recovery of EBITDA marginality in comparison to the fourth quarter because we performed with a 10.7% compared to 10.2%. We expect to stabilize this level around 10.8%, 11%. And so to start increase also in terms of EBITDA quarter-by-quarter. So our feeling is that the first quarter of that fiscal year was the most difficult to face because we are in the beginning of the industrial plan, but the actions that we perform, we will disclose most of their effect in the upcoming quarters. So that is the reason that we confirm the consolidated guidance for the whole group with a visibility level that increased a lot compared to 3 months ago. Operator: [Operator Instructions] The next question is from Gabriele Berti, Intesa Sanpaolo. Gabriele Berti: First question on CapEx, considering you mentioned a shift in the CapEx mix used from M&A and internal development, where do you see CapEx in this fiscal year? And how much will be dedicated to internal development? And if you could also provide some color on which kind of projects are you developing? And then second question, if you could elaborate on the driver behind the acceleration in the backlog for the VAS segment? Alessandro Fabbroni: Gabriele, thank you for the question. Yes, in terms of CapEx, including M&A investment, we have around EUR 11.5 million in the first quarter, of which EUR 7 million M&A. So that means we are more or less on track because our full year indication is an indication of EUR 75 million, EUR 80 million, of which EUR 30 million, EUR 35 million dedicated to selected M&A. So the internal development refer mainly the so-called digital enablers adoption. It means AI automation and also the development of digital platforms and vertical application for penetrating the market and also for our organization. In terms of trend of ICT VAS, first of all, we closed the quarter with an upturn in comparison to the trend of the fourth quarter. So we declined 2.5% compared to a decline of 8%. But in particular, we closed the quarter with very, very positive trend in the backlog. The backlog increased by over than 10% in July, over than 10% in August with a good start in September. And so considering also the trend we had in the previous year, now we expect to recover a positive increase in revenues starting from the second quarter. I remember that our indication for the full year is to grow low single digit in terms of revenues and EBITDA and double-digit in terms of profitability. And in fact, in the first quarter, we increased in terms of net profitability in this sector by around 17%. So that means we are on track not only in terms of trend of revenues and EBITDA, but in particular also in terms of profitability and net income. Operator: The next question is from Guy Breeden, Quilter Cheviot. Mr. Breeden, your line is open. Maybe your line is on mute? Unfortunately, we cannot hear you. Could you please open up your line? Maybe you are muted? [Operator Instructions] The next question is from [ Paolo Cipriani ], a private investor. Unknown Shareholder: Alessandro, can you hear me well? Alessandro Fabbroni: Yes, very well, yes. Unknown Shareholder: Yes. I have a question regarding the financial expenses that are improving and should be expected to improve further. Could you just maybe help me to understand whether a bit more just to say something a bit more on what they are related to. I mean just are they, for example, related to the acquisition of the previous small companies acquired in the previous years, I mean, related to the working capital management of these companies? And maybe just say something about the full effect of cost optimization initiatives that seems to improve these financial charges? Alessandro Fabbroni: Thank you for the question. So first of all, we are capitalizing 2 main factors. The first one is the lower level of interest rates. I remember that in any case, we will benefit in a progressive way because several financial costs are accounted for in advance for 3, 6 months. And so we will benefit moving forward. The second one is obviously the improvement that we are achieving in working capital management and also in several other measures that we are introducing starting from 1 year. So the lower number of legal entities, the adoption of cash flow and obviously planning and, generally speaking, the identification of planning and several targets for any group's legal entity. So the start of the fiscal year was positive because of the comparison with the previous year in terms of first quarter 2025 was a comparison with an improvement by 12%. But if we compare the first quarter '26 with the fourth quarter '25, we improved by 35%. So that is the reason we expect to accelerate in our progressive improvement quarter-by-quarter. Operator: [Operator Instructions] Gentlemen, Mr. Laschetti, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Jacopo Laschetti: Thank you very much. As usual, we stay available for any additional information, and thank you very much for your participation. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.