加载中...
共找到 38,088 条相关资讯
Operator: Ladies and gentlemen, welcome to the Baloise Group Half Year Results 2025 Conference Call and Audio Webcast. I am Mathilde, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Markus Holtz, Head of Investor Relations. Please go ahead, sir. Markus Holtz: Thank you. Good morning, and welcome to Baloise Q&A call about our half year results 2025. Today, we have our CEO, Michael Muller; our CFO, Carsten Stolz; and our CIO, Matthias Henny. We start with a quick overview of our results. For this, I hand over to Michael. Michael Müller: Thank you, Markus. Dear analysts and investors, ladies and gentlemen, I am happy to welcome you together with Carsten Stolz and Matthias Henny to present our half year results 2025. First half of '25 was a period marked by significant strategic decisions and operational successes. We not only successfully started to execute our refocusing strategy but also laid the foundation for further profitable growth with the planned merger with Helvetia, paving the way for a successful new area. In addition, and most importantly, our thoughts remain with the people of Blatten who were affected by the landslides in May. In these challenging times, we stood by our customers swiftly, compassionately and with a little bureaucracy as possible to offer the support they urgently needed. We again proved our commitment to being there when it matters most. Today, I am proud to present a strong set of half year results. Let me start with the key messages on Page 5. First, our refocusing strategy is working and fully on track. Over the past months, we have worked relentlessly on implementing our strategy and to further optimize our core business. This includes a broad set of measures to improve technical profitability and operational efficiency. These initiatives are proceeding as planned, including a targeted reduction of 250 FTEs by '27. After one year, we have already achieved over 50% of this goal. Second, I am very pleased to report that the strategic progress is also reflected in our financial results. Our combined ratio improved by 2.6 percentage points. Net profit increased by 26%. Return on equity rose to 15.5%. One year into our refocusing strategy, it's evident that we are making sustainable progress. Thanks to a clear focus, determined execution and above all, the dedication and hard work of our employees. I would like to extend my sincere thanks to all of them. And finally, we are well on our way in the preparation for closing the planned merger with Helvetia and are confident that we will obtain all necessary approvals in the coming weeks and months, enabling us to complete the planned transaction in the Q4 by year-end. Financial targets for Helvetia Baloise will be shared at the Capital Markets Day next year, together with the full year '25 results. IFRS and cash remittance will remain key KPIs. Now let's take a closer look at our half year figures. For that, I hand over to Carsten. Carsten Stolz: Thank you, Michael, and warm welcome from my side. The first half of 2025 shows progress in refocusing Baloise. We see growth in target segments. We see improved profitability. We are on track with our strategic targets, and we enhanced the return on equity. Let me go one by one. First, we grew in target segments in Non-life, especially due to a disciplined pricing approach where growth amounts to 3.1% in local currency if we adjust for the portfolio exits in Belgium. The investment type premiums rose sharply by 41.2%, thanks to increased contributions from Luxembourg and Belgium. The decline of 10.1% in Life mainly reflects the continuing trend in Swiss group life towards semi-autonomous solutions. Secondly, we improved profitability. Net profit increased strongly by 26% to CHF 276 million, driven by stronger results in Non-life and Asset Management & Banking. Life remained at the very healthy level of the previous year. The Non-life business benefited in particular from a very strong combined ratio, which improved by 2.6 percentage points to 90.6%. Third, based on our results, it is clear that we remain very well on track to achieve our target of remitting more than CHF 2 billion cash for the period 2024 until 2027. Finally, our capitalization remains on a strong level. While CSM and equity declined slightly, return on equity rose from 13% in half year 2024 to 15.5% in half year 2025. Slightly above our target range of 12% to 15%. The driver was the improved underlying profitability. The estimated SST ratio improved to around 215% as a result of slightly higher interest rates and higher market values of Swiss properties. Our rating of A+ was confirmed in June by Standard & Poor's. So in summary, we have earnings momentum, high earnings quality, rising capital productivity and sustained strong cash generation. Now let's take a look at Page 9 at our 4 core markets. In Switzerland, Non-life grew by 1.7%, mainly due to disciplined pricing. In Life, the market trend to semi-autonomous solutions continued. EBIT rose by 58.3%, mainly driven by Non-life, which benefited from an excellent combined ratio of 88% and a good financial result. In Belgium, we kept our focus on profitability over growth. This also included a far-reaching exit of the transport business as already mentioned in our full year 2024 results. Adjusting for this exit, growth was 1.2% in Belgium Non-life. Life grew by 15.1% driven by investment products. In Belgium, the combined ratio slightly improved to 92.5%. The proportion of claims covered by our group internal reinsurance was lower than in the previous year. This resulted in a lower EBIT. In German Non-life, premiums rose by 8.5%, supported by strong new business and price increases. EBIT increased by 11.9% due to operational improvements. Luxembourg showed solid growth in Non-life, plus 5.5% stemming from both price increases and volume effects. And in Life, plus 45.8%, driven by higher investment type premiums. EBIT declined due to a lower result from investments and financial contracts. Let's look now at our operating segments, starting on Page 15. In Non-life, EBIT reached CHF 229 million, a strong increase of 85.6%, driven by a variety of improvements. The insurance service result rose in line with a better combined ratio. The combined ratio improved to a very strong level of 90.6%. And benefited from the better loss ratio, which reflects an enhanced portfolio quality and lower large claims, including fewer nat cat events. The finance result rose to CHF 96 million, driven, among others, by a positive development of the Swiss property market. Other income and expenses finally benefited from our operational cost efficiency measures. Let's move on to the Life business. The Life EBIT remained stable at CHF 143 million on the very healthy level of the previous year while a higher insurance service result and lower costs were offset by a lower finance result. Also, the CSM release was on a similar level as last year. The CSM slightly declined to CHF 4.9 billion due to operating variances. The normalized CSM growth was positive at 0.5% with the expected business contribution and new business CSM more than compensating the CSM release. Please note that we aligned the presentation of the expected business contribution to market practice. It now includes a spread over the risk-free interest rate, which was previously captured in the economic variances. The nonannualized CSM release ratio amounted to 2.8%, slightly above the previous year value. Let's look at our Asset Management & Banking segment. The impact from our optimization measures is also reflected in the results from asset management and banking. We achieved in banking a higher fee and commission income and lower expenses. As a result, EBIT rose to CHF 26 million. This is also reflected in the improved cost/income ratio of 60.3%. In Asset Management, third-party assets increased due to higher contributions from multi-assets and real estate. The EBIT reached CHF 24 million, supported by an improved contribution from the third-party business. Thanks to these higher contributions from the bank as well as from Asset Management, the segment delivered a pleasant EBIT growth of 18.4%, up to CHF 50 million. In summary, we delivered a successful first half of the year with strong results across all segments, reflecting the quality of our business and the progress in optimizing our core business. The measures initiated and implemented in the refocusing strategy deliver financial results. With this, back to Michael. Michael Müller: Thank you very much, Carsten. Let's open directly the Q&A. As already mentioned, besides Carsten and myself is also Matthias Henny, our CIO here for the questions and answers. Operator: [Operator Instructions] The first question comes from the line of Simon Fössmeier from Vontobel. Simon Fossmeier: Just one question on the Life segment. I understand the decline in premiums. I'm surprised about the much lower new business margin. It's just -- it feels that interest rates haven't declined that much. Is that due to business mix? Or what's the driver here? Can you please explain that? Michael Müller: Thank you very much for the question. I think Carsten will go directly into this answer. Carsten Stolz: Yes. Simon, thanks for your question. It is exactly as you said, it is due to business mix, which explains the lower new business margin in half year. We have underwritten a lot of business, for example, in capital-light products. And this different business mix on the new business side in the half year explains the development of the new business margin. Operator: The next question comes from the line of Farquhar Murray from Autonomous. Farquhar Murray: Three questions, if I may. Firstly, just honing in on German Non-life. I wondered if you could detail what's driving the 8.5% growth in business there that ideally maybe split that 8.5% between tariff and volume effects. And then just on the other EBIT line, the minus CHF 63 million. Why is that more negative than the historic average? It looks like you might have put some costs through there? And then very finally, on the Life CSM development, what's driving the minus CHF 77 million operating variance this half? Michael Müller: Thank you very much. I will go to the first one. And after that, the EBIT on other and CSM bulk, give hand over then to Carsten for that. So as we already mentioned, this growth in Non-life in Germany, it's about 8.5%. It's coming from price effect, which is a little bit more than 50% coming from price effect and the rest is from volume effect. So it's from both sides, but slightly bigger part is coming from price effects. So tariff changes and things like that. And for the EBIT other, Carsten. Carsten Stolz: Thank you for your questions. So the development in the other line that you alluded to is linked to costs in connection with the refocusing strategy and the planned merger with Helvetia. And your question with regard to the CSM walk and the drivers of operating variances. This is linked to a portfolio development, mainly lower volumes in the Swiss Group Life business and the associated decline in premiums as well as updated of operating assumptions. Farquhar Murray: Okay. Just a quick follow-up on the other EBIT line. How much were the costs you put through there? Carsten Stolz: No, we have not detailed these costs. We don't detail them out. Operator: We now have a question from the line of Michael Huttner from Berenberg. Michael Huttner: My question is pretty much similar to those that have been asked, but maybe I can ask them differently. On the other line, what figure should we put in the full year? Because I mean the CHF 38 million to CHF 63 million, there's no trend here. So it -- and you presumably now know how much costs are still to come on either the merger or the refocusing strategy? And the second, Swiss real estate so lovely contribution from revaluations in Non-life, CHF 35 million. Is this a figure that we can now start repeating? Your lovely IR explained that the revaluation was 2%, but I just wondered what the trend is here. The other question is on Belgium. Why Belgium in your lovely chart by country. You said that the contribution of Belgium is down a lot. And I couldn't -- I mean, I heard your comments about refocusing volumes and stuff, but going from CHF 85 million to CHF 50 million seems kind of strange. And then the last question really is you actually virtually achieved your refocusing strategy target, so your 90.6% target, I think, is 90%. Is there anything here that you would say no, be aware there's seasonality and we're really not there? Or is it simply that the refocusing works much quicker? Michael Müller: Thank you very much, Michael, for these questions. I will start with refocusing strategy. So with the last question you had, and then also hand over for the EBIT part to Carsten and for the property in Switzerland to our CIO, to Matthias. So just starting the refocusing strategy. I think we are fully on track with our strategy. It's a half year result. Let's say, those are like that, it's always till end of year because it's also some -- sometimes it's also a question how many events you have in the first or the second half year. So for me, it's also -- let's see, at the end, but we are fully on track to our target of 90%. With 90.6%, yes, we are on a good track, but it's not fully reached. So we are also aiming for really going to the 90% overall. And I think that's where we stand at the moment. Also looking at indicated on another level, also FTE, I think we are really fully on track but it's worth to do also in the future. And it's looking at the portfolio and steering portfolio is daily business, I think. So we need also to go there in the future to reach all our goals over the time. But we are confident to reach them. Then we go to the EBIT on other, perhaps. Carsten first. Carsten Stolz: Yes, Michael, on the other EBIT, there will be effects also flowing through this line in the second half. But as we speak, we cannot provide a run rate or an outlook on this line but there will be further costs associated with the execution of the strategy and the planned merger. Michael Huttner: And just a follow-up, does this -- is this then all done in 2025? Or should I also have this slightly higher level going forward? Carsten Stolz: Well, when we talked about the way ahead and as announced on -- in April, the total integration time of the planned merger will take the next few years. And we indicated CHF 500 million to CHF 600 million of integration costs stemming from that. And the value created against these CHF 500 million and CHF 600 million is just to recall on top of the stand-alone strategies, the CHF 350 million in run rate synergies that should translate into more than CHF 200 million run rate improvement on cash remittance and 20% dividend uplift in terms of dividend capacity. So zooming in again on your question, there will be integration costs in the context of execution of the merger in the next years as indicated. And maybe I just also take the decision on -- or the question on the EBIT Belgium right away before I then hand back to Matthias for the property question. So on group level and on a consolidated level, Belgium is contributing pretty strongly and consistently also with the last year to group results. From a segment perspective, as you rightfully say, Belgium shows a lower result in the first half year. It is a group internal shift highly related to the internal reinsurance structures. But on a consolidated view, Belgium is -- this effect is more or less neutral. And with this, over to you, Matthias, with regard to the property valuation effect. Matthias Henny: Michael, the appreciation in investment property value, as you mentioned, is somewhat above 2%. If you combine Non-life and Life together divided by the overall property value that we have for insurance assets. It's mainly coming from Switzerland, where the real estate market is developing very favorably compared to, let's say, 3 years ago when we had much higher interest rates. Now interest rates have come back to 0 at the short end which drives, again, real estate prices. This is a general phenomenon. We see it across the market in Switzerland. And given the strong fundamentals, we expect this trend to continue. I mean we still have very solid or good economic development in Switzerland. We have immigration. We have limited land reserves in Switzerland as such. So fundamentals are still very favorable. And this also is then reflected, obviously, in our valuation of our properties. We continue to have a conservative approach in valuing our real estate. So even after this appreciation, we are still at the lower end of a typical pricing range in real estate valuations. Operator: [Operator Instructions] We now have a question from the line of Nasib Ahmed from UBS. Nasib Ahmed: Two on Life insurance and one on Non-life. Firstly, on life insurance, I understand the trend towards semi-autonomous and you're losing business and premium there, but it doesn't seem like you're recapturing it in Perspectiva because AUM is flat, a number of companies is flat as well. Who have you lost that business to? Second question on Life as well. The average guarantees in Belgium increased by 0.1% versus full year. So I think the 1.7% versus 1.6%. What's -- why have the average guarantees increased in Belgium? And then finally, on Non-life, similar question to Farquhar, but on Switzerland. What was the tariff increase with the volume increase in Switzerland over the first half? Michael Müller: Thank you very much, Nasib. So I will first take the Life part and then for the Life average guarantees in Belgium, I hand over to Carsten. For the Life part, yes, there is a trend to go to more to semi-autonomous solutions in Switzerland, and we have also our semi-autonomous solution with Perspectiva. It is a growing solution. During the last years, it was quite heavily growing. It's close to CHF 2 billion now assets, which are coming or invested in Perspectiva. But it's not the solution for all of these parts. It depends always also what clients are looking for. So not everything is going then into Perspectiva. But it's a growing part. I think a little bit of broader picture, I think, overall, we have also a growing part of third-party asset management, which is also coming from the -- let's say, from the same segment at the end because that's often also part is coming from the bank, which are more individual clients, but there is also a part coming then also for fund solutions in Switzerland, which is also a growing part in our business model. So overall, I think there is also some kind of a shift in different business models in that area. And second one is about the Life average guarantees in Belgium. Carsten? Carsten Stolz: Yes. Thank you, Nasib for your question. So in Belgium, we increased guarantees for some products, but it's products where there is full ALM matching for these products. So for example, there is no negative impact stemming from duration gaps or others. And therefore, these effects are neutralized. It's worth noting that these guarantees are time-limited guarantees and therefore, can adjust to different environments in subsequent years. And then with regard to the Non-life Switzerland price and volume effects, we -- the main effect in Switzerland is stemming from pricing measures. Nasib Ahmed: Yes. So 1.7% is pretty much all price and volume flat? Carsten Stolz: There's a positive price effect and in some areas intended negative volume impact in the context of steering the portfolio, but resulting overall in the stated growth that you mentioned. Nasib Ahmed: Okay. And just a follow-up on Perspectiva. Do we think about the loss of full insurance business as going into Banking, Asset Management and Perspectiva? So the third-party growth in AUM is driven by some recapture of the business. Is that correct? Michael Müller: Sorry, I didn't get the question. We had some problems in the line. Well, can you repeat, please? Nasib Ahmed: Yes, Sure. The third-party growth in AUM, in Asset Management & Banking, is that some recapture of the full insurance product in there back into Asset Management & Banking? Carsten Stolz: So the growth in -- that has been achieved in Asset Management & Banking from the asset management side with regard to third-party business is in the intended area of multi-asset and real estate, in particular, that's where the growth comes from. Matthias Henny: Yes, exactly. So it's fully in line with the strategy that we laid out a year ago. We focus on multi-assets, which is mostly sold over the insurance and banking channel and real estate in Switzerland, which is distributed mostly amongst institutional investors, pension funds, but to a certain extent, also wealth management mandates and the like. And we are well on our path to reach the goals that we set out a year ago. Operator: [Operator Instructions] The next question comes from the line of Rene Locher from ODDO BHF. René Locher: So the first question relates to Slide #6. There you see cash [ remittance ] is okay. You want to pay out 80% of the cash remittance per annum. So I did a calculation, if I go for like CHF 500 million run rate, 80% payout, I end up at CHF 400 million, divided by 45 million, 46 million shares with a potential dividend of [ CHF 8.80 ]. Now I can see in the market that a lot of my colleagues, they are going for a dividend of the combined ratio of CHF 770 million to CHF 780 million. So I was wondering a little bit if all shareholders are getting a lower dividend than the CHF 8.10 they received for last year. That's the first question. The second one, on the Non-Life market, I think with the half year results, we have seen quite a lot of companies with mid-high single-digit growth rate in Non-life and combined ratios well above 90%. Now on the other hand, we can see Baloise growth, 1.7%, combined 88%. So I'm wondering a little bit, Michael, perhaps you can comment a little bit what's the dynamic in the Swiss Non-life market. Then the third question, I guess this is for Matthias. I have seen that your Baloise Swiss property fund, you have a successful cap increase of CHF 135 million. Now you add 50 million in bonds and you are buying CHF 185 million market value real estate from the Baloise Insurance business. I mean just again, big picture, why are you doing this? And what are the -- yes, the impact on the numbers because you're losing rental income, I guess you will get the money from the fund. Just to get a little bit understanding what's the big picture here. Michael Müller: Thank you very much, Rene. So I will go for the first two ones and then hand also over to Matthias for the third one. So just for the first question you had, it's about our dividend policy. You refer to Slide 6, where we have our last year announced policy with a payout ratio of 80% or higher with our Baloise view on that. You did that's also some calculation about the future, which is a combined future planned merger with Helvetia. And for sure, that we have to align processes and the new Board, which then will, after closing be in charge also has to define common -- have to define a common view on the policy on payout ratios and also on the dividend strategy. I think something, which is already clear is that the dividend -- being a reliable dividend payer is something which will also be in the DNA for the future company. It's also something which both companies are already in. But just to be clear, the policy has to be defined by the new Board of Directors then starting after closing. Then for the Non-life market, I think you asked about this dynamic in the Swiss market. I think there is not one dynamic. I think you really also have to look on the different business lines there. Overall, I think at least what we see, we have our refocusing strategy and refocusing strategy means that we really want to go to look on our portfolios and also price it in the right level, which then also means that we are doing it during -- with the correct tariffs from our view. And that means also in some areas, perhaps market is not reacting in the same kind or is perhaps also slower or faster that you never know. And then -- but we are going for our part that means in some areas perhaps also that we are going for profitability and not for growth, could be -- I think in the long run, it always goes in both directions because at the end, I think everybody needs then also business which is profitable. So that's where we stand at the moment. But you cannot say now that there is a clear direction in every part or in every business line. I think something you see we had some kind of tariff changes also in motor business over the last months from our side. So I think overall, we have done and steered it as it is from our side, the most profitable view also to all of our stakeholders. And then perhaps, Matthias, about the third one. Matthias Henny: Yes. Regarding real estate in insurance assets and transfer to Baloise's Property Fund, you described well the mechanics that's going on. And the reason for that is that we have decreasing insurance assets in traditional life insurance. This is not something which is new, but it has been there for a couple of years. And this means we also need to reduce the balance sheet with fixed income and equities, it's quite straightforward. With real estate, it's either you sell it in the market, which we do also for some part of our real estate portfolio and the part we want to continue manage ourselves, and we move those properties into the Baloise Property Fund or, for instance, in the investment foundation that we set up a year ago. Like that, we can continue to manage these assets and become also a significant real estate player in third-party asset management area in Switzerland. Now regarding the loss of rental income, yes, that's the case. But that's a normal development if your total assets on an absolute level go down. The same happens to the current income, but on a proportional level, as we don't change the asset allocation on a relative basis, nothing changes. And given the attractiveness of real estate as an asset class, we stick to the maximum that we can legally invest, which is the 25%, which is the limit for tied assets for real estate in Switzerland. Operator: The next question comes from the line of Anne Risold from Octavian. Anne-Chantal Risold: I would have a question on your operational efficiency and FTE reduction and how are you managing the current FTE reduction, given that significant additional wave of staff cut that is expected, particularly in Switzerland with the upcoming merger. Michael Müller: Yes. Thank you very much, Anne-Chantal for this question. So overall, what we are doing at the moment that we have our efficiency program, which is coming from refocusing strategy. There we are fully on track. We are doing that in the same manner as planned. But we are preparing overall. It's also clear that at the moment, we are not -- so we look like we really have to hire people if there are some people going out. But overall, we do not see a higher rate of something which is higher than in earlier years. That's nothing we see. But what we are looking at also a little bit preparing then that we are not -- that we have it as smooth as possible also for the future because there, yes, you're absolutely right. There is a reduction for future and being prepared there is good for the overall situation we do have. Operator: [Operator Instructions] We have a follow-up question from the line of Michael Huttner from Berenberg. Michael Huttner: I had two. One, can you talk a little bit more about the cash? I know you said you're fully on track, but that still leaves -- well, I wonder if you could be a little bit more -- offer a little bit of granularity here, that would be really helpful. And then the CSM release rate in Life. The reason I ask is, although the increase is isn't much, I think it's got from -- well, the average for last year was 2.7% on the half year basis, now is 2.8%. But you're clearly well below your peers. So I'm just wondering here whether we're beginning to see this catch-up, which I think as analysts, we had been hoping for? Or is this just simply noise and we should ignore it? Michael Müller: Thank you, Michael for these questions. It seems to be two questions for Carsten. Cash is always not easy because it's flowing once per year, but -- with the dividend. But I hand over for Carsten for these two questions. Carsten Stolz: Thanks, Michael, for your follow-up questions. So as we are looking at half year results, which show growth, improved profitability and enhanced returns. This signals that also when we shift the perspective from IFRS to statutory accounts where ultimately cash is upstream and remitted from the operating entities that also from that perspective, the house is very much in order. And that's why we can draw the conclusion as we speak, that cash remittance is sustained and we can -- 2025 can contribute to achieving the overall CHF 2 billion target that we have set ourselves. So we are healthy in terms of the foundations to cash remit the success of the financial year 2025 and also up to the holding company. So that's on cash remittance. And with regard to the CSM release, the ratio is slightly up, as you say. It depends on many elements that influence the release. As you know, models play a role, business mix play a role and so on. So looking ahead, we'll move into a joint view for the combined Helvetia Baloise Group. And then we'll see how the picture will present itself. As we speak, our release ratio is the 2.8% that you mentioned, and that's our current situation. Michael Huttner: And can I just ask a very quick follow-up? It's not on this, it's a different topic. I know it doesn't appear on the current accounting, but it used to. What's the picture on PYD in the Non-life business. Have you -- are you releasing more or less? Or are you adding to buffers? Or just to get a feel for -- I know there are no numbers, but... Carsten Stolz: Yes. By and large, after the move from IFRS 4 to our [ IFRS 17/9 ] PYD as such doesn't -- it doesn't show up as such anymore. And that's why there's nothing special to flag about it. So with regard to reserving and the dynamics on the Non-life loss ratio side, nothing has [ changed ]. Michael Huttner: Another way of looking at it, but I know, I'm not sure, I'm walking on thin ice, I don't know what I'm talking about. Yesterday, I was asking a reinsurer and I said, well, one way of looking -- getting a feel for these kind of releases, buffers, whatever is the experience variance in the CSM. Now I have no idea if there is a CSM in Non-life. So I don't know, but is that a way of looking at it? Michael Müller: No, there is -- you can say that it is kind of an experience variance because it's a question of deviation from assumptions which is the basic idea in the Life CSM. In Non-life, there is no CSM because we -- it's handled under IFRS 17 under the premium allocation approach. And I would just reiterate that the guidance that we've given on Non-life side where we said that we have around 4% in large claims in a "normal year" in the new context, 2 to 3 percentage points stemming from discounting effects and those are the major effects that influenced the Non-life combined ratio on the [ IFRS 17/9 ]. I didn't say that there is no prior year loss developments included but they play less of a role. Operator: [Operator Instructions] We have a follow-up question from the line of Rene Locher from ODDO BHF. René Locher: Just a quick one for Carsten. I was wondering if you could quickly explain in a nutshell, how this IFRS 3 business combination will look like. Michael Müller: Okay. That's, I think, not an easy task in a nutshell. René Locher: But we can take it offline. It's okay. Carsten Stolz: So if you say in a nutshell, then I have a pretty small picture of a walnut in front of me. So if you allow me, I claim with -- if you open it, you have 2 nutshells. And if you allow me, I will use both of them. Probably not enough. So in a nutshell, due to the fact that accounting-wise, Baloise will be absorbed by Helvetia. Accounting-wise, Baloise moves into the direction of Helvetia. And that means, in a nutshell, revaluing and reclassifying the balance sheet of Baloise to Helvetia IFRS and then apply purchase price accounting to the combined new entity. So that means by the end of 2025, we will undergo this exercise. The Baloise balance sheet will move into a consolidated view under Helvetia following the [indiscernible] the business combination by absorption. And then from then on, the new clock will tick and we'll then see a new P&L for the combined entity for -- from 2026 onwards basically. [indiscernible] René Locher: No, no that's okay. But we should expect that we will get a kind of an opening balance sheet once , let's say, like in Q1 2026 as starting point, right? Michael Müller: Sure. There will be some opening balance sheet with closing at the end that will be the starting point for the new company. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Michael Muller, CEO, for any closing remarks. Michael Müller: Thank you very much. Ladies and gentlemen, let me summarize our results once again. First, Baloise refocusing strategy works and is fully on track. Second, our strategic progress is reflected in our strong half year '25 financials. Combined ratio improved by 2.6 percentage points, net profit rose by 26%, and return on equity increased by 2.5 percentage points. Third, the preparation of the planned merger with Helvetia are proceeding as planned. With the planned merger, we are on the threshold of a new chapter in our company's history. Together with Helvetia, we will strengthen our business, become one of the leading insurance in Europe and create a strong basis for further profitable growth. We hereby close the call. Thank you very much for joining, and have a great day. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good day, everyone, and welcome to the Methode Electronics First Quarter Fiscal 2026 Results. [Operator Instructions]. It is now my pleasure to turn the floor over to your host, Robert Cherry, Vice President, Investor Relations. Sir, the floor is yours. Robert Cherry: Thank you, operator. Good morning, and welcome to Methode Electronics Fiscal 2026 First Quarter Earnings Conference Call. For this call, we have prepared a presentation entitled Fiscal 2026 First Quarter Financial Results, which can be viewed on the webcast of this call or found at methode.com on the Investors page. This conference call contains certain forward-looking statements, which reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to the safe harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise. The forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our 10-K and 10-Q reports. On Slide 4, please see an agenda for our call today. We will begin with a business update, then a financial update, followed by a Q&A session. At this time, I'd like to turn the call over to Mr. Jon DeGaynor, President and Chief Executive Officer. Jonathan DeGaynor: Thanks, Rob, and good morning, everyone. Thank you for joining us for our first quarter earnings conference call. I'm also joined today by Laura Kowalchik, our Chief Financial Officer. Let's start with the key messages. Please turn to Slide 5. I'm happy to report the Methode transformation is firmly on track. There's still much more to do, but the trajectory is according to plan. We had another good quarter for Data Center Power Product sales with growth over the prior year. Our income from operations was up $9 million from the prior year. This was the result of reduction in SG&A costs and operational improvements that we have been sharing with you. This is clear evidence of Methode starting to earn the right as we like to say. Another example of excellent improvement is the third straight quarter of strong free cash flow and net debt reduction. Our management team is maintaining a key focus on both the income statement and the balance sheet. As we look to the remainder of fiscal '26, we are confidently affirming our guidance. Despite all the various headwinds that we are facing, the company still expects to double its EBITDA for the full year, even with a $100 million decline in sales driven by lower EV demand. The ability to affirm this profit growth is a direct result of the significant and tireless efforts of the Methode team. They put a lot of work into our transformation and the progress is tangible. Turning to Slide 6 and our results for the quarter. Our sales were $241 million, down $18 million year-over-year as we continue to navigate the transition in programs that we have previously communicated. We remain on track to launch over 30 new programs this year with most of the launches scheduled for the remainder of the year. In addition, the ongoing strength of our Power products activity was able to partially offset the program transition headwind. We recorded $9 million increase in operating income, driven by the SG&A reductions and operational improvements that I previously mentioned. At the adjusted EBITDA level, we delivered $16 million, up $6 million year-over-year. All of this is further evidence of the actions that we have taken to improve our operations, supply chain and product launch capabilities. In these 3 key areas, our performance in EMEA, particularly in Egypt, has notably improved while we continue to see solid ongoing performance in Asia. Both free cash flow and debt reduction continue to be good stories for us. The business delivered free cash flow of $18 million in the quarter which was the third quarter in a row of strong free cash flow. In turn, we reduced our net debt level also for the third quarter in a row, and we have now reduced it by $41 million over the 3 quarters. These results provide more evidence of an organization whose operating efficiency is improving. Turning to EV activity. Sales were down slightly year-over-year, but we were up on a percentage basis. For the quarter, they were 19% of our consolidated total, an increase from 18% last year. On a sequential basis, they were down from 20%. We do remain bullish on the long-term mega trend in EVs. However, the near-term outlook remains soft, mostly in North America, which is partially being offset by the strength in Europe and Asia. Based on customer EDI forecast and third-party industry projections, we still expect a significant overall rebound in EV sales in fiscal '27. Turning to Data Centers. Sales growth was a solid 12% year-over-year. As a reminder, we did have record sales in the fourth quarter of '25. So not surprisingly, our sales were lower sequentially. However, we still expect fiscal '26 sales to be similar to fiscal '25 with some upside potential. As I mentioned last quarter, we are achieving this performance based on our existing product technologies. We also have an opportunity to leverage our Power expertise developed over decades and honed by our EV activity to capture even more growth. The opportunity is being driven by vast increases in power density sought by data center operators for future installations. Again, too early to share any more details on this, but it is very promising for future growth in our Power Solutions enterprise. Turning to Slide 7. I want to spend a little more time on our Power Solutions enterprise. Power products are in Methode's DNA. Our experience goes back many years, to the time when we supplied busbars and sensors on the Apollo Lunar Landers and on the original IBM mainframe computers. Now those years of experience and expertise are being leveraged on today's power distribution needs in electric vehicle, data center and military and aerospace applications. As you can see from the chart on this slide, those applications have helped drive our Power Solutions sales to a healthy 30% compound annual growth rate over the last 3 years. Going forward, we see even more opportunities for sales growth. For Data Centers, the need for higher voltage busbars is driving further product innovation. In EVs, we are starting to supply interconnect boards for a more efficient power architecture. Lastly, from military and aerospace applications, we are supplying advanced products to meet the growing needs of defense equipment manufacturers. In all these cases, we are bringing our One Methode mindset to bear and drawing on our global creativity to drive innovation by listening to the customers' needs and bringing them solutions like cutting-edge high-voltage power products. Our Power history and DNA are providing Methode with a competitive differentiation in the marketplace. In regard to our forecast for fiscal '26 Power sales, given our guidance for flat Data Centers and decline in EV, our sales will moderate this year before reaccelerating next year. Power Solutions are clearly a long-term growth engine for Methode, and we are actively investing in this area. Turning to Slide 8. I'll give a brief update on where Methode is on its transformation journey. As I have said before, transformations are never easy, and I make a distinction between transformations and turnarounds. Quite simply, the transformation is about fixing a business in a way that enables it to evolve and positions it for future growth. The Methode journey is undoubtedly a transformation. Like any journey, the path is not linear. The first order of business was stabilizing the base, which included the significant organizational changes that we made in previous quarters. It meant focusing on executing program launches while simultaneously revamping plants and installing a new team, all in the face of numerous external distractions. We have worked hard to remediate practices that [ had atrophy ] or institute practices where they didn't exist. We now have better visibility into the business and are driving more global collaboration and efficiency, especially around engineering, product management and supply chain. The work is showing in many areas, but is exemplified in our improved working capital. We are now better positioned to leverage synergies and utilize core competencies to align with market megatrends like Data Centers and EVs. Our improvements are creating opportunities in other areas as well. We have seen a notable uptick in RFQs and RFPs, which is being driven by our ability to leverage our global footprint and respond to market changes. As a result, we are seeing potential future sales growth from takeover business. This takeover business is in both auto and non-auto markets, and it will likely result in even more customer diversity for Methode. While the financial results are not yet where we want them, our team has accomplished much since the beginning of our transformation journey, and a foundation has been laid for us to drive consistent and improved execution. At this point, I'll turn the call over to Laura, who will provide more detail on our first quarter financial results and guidance. Laura Kowalchik: Thank you, Jon, and good morning, everyone. Before I begin, I would like to address the cause of our delay in reporting first quarter earnings. Shortly before our original reporting date, we discovered an inadvertent miscalculation of dividend equivalents. This caused us to exceed our restricted payments basket for the first quarter as per our credit agreement. The amount was not material but was in excess of what the agreement allowed. We subsequently needed time to obtain a waiver from our banks, which we could not disclose until the matter was resolved. The waiver was successfully obtained. Please turn to Slide 10. The first quarter net sales were $240.5 million compared to $258.5 million in fiscal '25, a decrease of 7%. On a sequential basis, sales decreased 6%. The quarter saw continued growth in the sale of Power products, including data center applications. In the Automotive segment, sales were weaker in North America as we continue to experience a net negative impact from the transition from legacy programs to new ones. We also experienced continued sales weakness in commercial vehicle lighting applications. First quarter adjusted income from operations was $2 million, an increase of $6.7 million from fiscal '25. On a sequential basis, adjusted income from operations increased $23.6 million from the fiscal '25 fourth quarter. Please see the appendix for a reconciliation of all adjusted measures to GAAP. On a year-over-year basis, gross profit was relatively flat despite the $18 million on lower sales. The main driver of the improved operating income was a $9.6 million reduction in S&A related to lower professional fees and compensation expenses. In the sequential comparison, the fourth quarter of fiscal '25 included an excess and obsolete inventory expense and discrete inventory adjustments of $15.2 million. Overall, despite the $18 million sales headwind, Methode delivered operating income growth both over the prior year and sequentially. Please turn to Slide 11. Shifting to EBITDA, a non-GAAP financial measure. First quarter adjusted EBITDA was $15.7 million, up $5.9 million from the same period last year. On a sequential basis, adjusted EBITDA increased $22.8 million from the fiscal '25 fourth quarter. As with operating income, EBITDA increased despite the sales headwinds, driven mainly by a reduction in S&A and other operational improvements. Please turn to Slide 12. First quarter adjusted pretax loss was $5.1 million, an improvement of $4 million from fiscal '25. On a sequential basis, adjusted pretax loss improved $23.5 million from the fiscal '25 fourth quarter. Again, the pretax loss improved despite a 7% sales headwind year-over-year and was driven mainly by a reduction in S&A and other operational improvements. First quarter adjusted diluted loss per share was $0.22, a $0.09 improvement from the prior year and a $0.55 improvement from the fiscal '25 fourth quarter. Overall, our cost reduction efforts clearly bore fruit this quarter and set Methode up for improved margins when we return to sales growth. Please turn to Slide 13. The first quarter's net cash from operating activities was $25.1 million, up from $10.9 million in fiscal '25. First quarter capital expenditures were $7.1 million, down from $13.6 million in fiscal '25. The lower CapEx was according to plan as much of the program launch investments are behind us, and we are becoming more efficient in our spending on the new launches. First quarter free cash flow, a non-GAAP financial measure, was $18 million as compared to negative $2.7 million in fiscal '25, an increase of $20.7 million. This increase was mainly due to the lower working capital and lower capital expenditures. This was our third quarter in a row of strong free cash flow. Please turn to Slide 14. Just like free cash flow, we had our third quarter in a row of reduced net debt, a key focus of the Methode management team. Total debt was up $5.8 million from the fourth quarter. The increase was mostly driven by foreign exchange as the majority of our debt is based in euros. We ended the quarter with $121.1 million in cash, up $17.5 million from the fourth quarter. Net debt, a non-GAAP financial measure, decreased by $11.7 million from the fourth quarter to $202.3 million. We have now reduced net debt by $41 million over the last 3 quarters. Please turn to Slide 15. Regarding forward-looking guidance, it is based on management's best estimate and is subject to change due to a variety of factors as noted at the bottom of this slide. For fiscal '26, we are affirming our expectation for sales to be in a range of $900 million to $1 billion. Please note that fiscal '25 was a 53-week fiscal year and fiscal '26 will be a typical 52-week fiscal year. So we will have 1 less week in fiscal '26 compared to the prior year. We are also affirming our expectation for EBITDA to be in the range of $70 million to $80 million, and we expect the second half of the year to be higher than the first half. As you can see from the charts on the right of the slide, we expect fiscal '26 EBITDA to be higher than both fiscal '24 and '25 despite a significant reduction in sales over that same time period. As a percentage of net sales, we expect almost a doubling of EBITDA margin from 4.1% to 7.9%. In regard to free cash flow, as previously noted, we had a strong start to the year. For the full fiscal year '26, we expect free cash flow to be positive versus the negative $15 million in the previous fiscal year. The fiscal '26 guidance assumes the current market outlook based on third-party forecast and customer projections, the current U.S. tariff policy, depreciation and amortization of $58 million to $63, CapEx of $24 million to $29 million, interest expense of $21 million to $23 million and a tax expense of $17 million to $21 million, of which $10 million to $15 million is for valuation allowance on deferred tax assets. Our practice has been to non-GAAP the valuation allowance for our adjusted earnings calculation. So to echo John, this guidance represents a solid foundation for the Methode team to further build on. That concludes my comments, and we can now open it up to questions. Operator: [Operator Instructions] Your first question is coming from Luke Junk from Baird. Luke Junk: Jon, maybe starting with Automotive, clearly most challenging results relative to Methode overall still. I know there's a lot of countervailing factors there. Just hoping to better understand relative to the overall outlook for EBITDA to double this year. How you see the Automotive segment contributing to that incrementally, especially beyond some of the non-repeating operating items that were in the P&L last year? And then even beyond this year, assume out maybe a couple of years? Just kind of what you envision for that business at a high level on the operating side of the house? Jonathan DeGaynor: I think it's important that we separate out by region. That's why we specifically talked about the performance in EMEA and the transformation in Egypt. We have Automotive business around the world and our business in EMEA has significantly improved on a year-over-year basis. Part of the challenge that we have in North America, as you well know, is the transition of some of the historic programs rolling off that specifically hit us in Mexico. So the Automotive business globally, I would say the performance activities are impacted disproportionately in North America due to just the roll-off of that program and the subsequent delay in the EV programs, particularly with regard to Stellantis as we've mentioned to you. So we have a bit of a tremendous amount of progress in EMEA. We have stability and good performance in Asia and we have challenges both from an execution standpoint as we talked about in the Q4 call, but also from a revenue headwind perspective in North America. The second part of your question, where do I see it going forward? As we talked about, we expect to see the volumes start to stabilize and grow in fiscal '27 from an EV standpoint, that will create tailwinds for our Mexican facilities and basically for our North American business. And then you also see some of the Data Center activity that we're putting into Mexico that will help it. So I see leverage from all of our segments in our facilities, and that will help the business going forward. Luke Junk: And maybe a related question, just in terms of Asia. So I know there's been program roll off impacting that business in Automotive as well, if we look at the sales base following that roll off fairly limited on a quarterly basis right now. Just maybe at a high level, strategically, how you're thinking about Asia. And clearly, relative to EV is one of the trends that you're most focused on probably the most opportunity-rich region in China, especially. Jonathan DeGaynor: Yes. Our Asia team, really, in many ways, is leading our activity from development of new product for EV applications. The battery interconnects and some of the other advanced activities are being led out of -- from a manufacturing perspective out of Asia. So they become our -- in many situations, our launch facility and our first -- and our first product development and product validation location. So yes, true, we had headwinds for the roll-off of one customer's programs. But I see a lot of progress there. It's a very well-run organization from an operational and from an engineering perspective as well as from a working capital side. And they built -- they give us credibility with customers, both on the Power side and on the -- both on the Data Center and on the EV Power side, and give us a chance to grow around the world. Luke Junk: Got it. And then maybe just a quick one on the interface business. I know that in the bridge you've given us for the current fiscal year, there was an appliance program roll-off reflected in that bridge. Are we seeing that in the first quarter results yet and to what extent there might be any offsets from the transceiver business that we're seeing in the P&L right now? Jonathan DeGaynor: The reason we did put that bridge in there is the situation is consistent with what we have said in previous quarters. So the roll off, as we talked about in the fiscal year and how they're going to move year-over-year is consistent from 1 quarter to the other. So yes, you're seeing the impact of the roll-offs both from the user interface as well as from the Whirlpool business and then we see the ramp-up of some of the new programs as well as the backfill with some of the data center activity. Operator: Your next question is coming from John Franzreb from Sidoti. John Franzreb: I'm curious, last quarter you provided a slide that kind of really took a deep dive into the tariff outlook. Has there been any change in your tariff expectations, be it positive or negative? Jonathan DeGaynor: There has been no change, John. We had, what, $1 million worth of impact. That's more of a timing thing than it is anything else in the quarter. But we have been pretty consistent in our approach with regard to tariffs, we're not going to bear the extra cost. We worked with the customers on this. And so there has been no change different than what we said in the previous quarters, and we feel pretty confident to the greatest extent we can be confident with the changes in Washington. We feel pretty confident based on what we see right now as to where we're at and the relationships that we have with customers through this. The other thing that I would say is, and I mentioned it a little bit in the additional RFQs. The current tariff regime is actually creating opportunities for us because our facilities -- our ability to -- they are USMCA compliant and our ability to deliver in North America with 97-plus percent USMCA compliance. So it's creating opportunities in RFQs that we didn't see 6 or 9 months ago. We have customers that are new to us. John Franzreb: That's good to hear. And in terms of restructuring actions, can you talk a little bit about how far along are you in this process, Jon? You just got the low-hanging fruit at this point? And maybe some more color of what kind of we should expect maybe in fiscal 2026? Jonathan DeGaynor: Well, I mean, we've talked about the transformation of the leadership team. And in the last quarter, we talked about the move -- the consolidation of the headquarters facility. We're on track with regard to that and believe we'll have everything completed by the middle of this fiscal year, from the headquarters consolidation and facility consolidation. We continue to look at what we can do around the world with regard to reduction of whether it's engineering activities or whether it's warehouse activities or other facilities to take structural cost out. But there isn't anything at this point of a level of materiality. So the -- we reduced head count probably by 500 people, and we continue to refine that. And part of the transformation that -- part of the improvement that underlies the EBITDA growth and the performance growth is just headcount reductions in our different facilities, be it in Mexico or in Egypt in particular. John Franzreb: Got it. And just, I guess, when you look at the end markets, [indiscernible] truck, the ag and construction have been particularly favorable. I'm just curious about your thoughts on how those end markets play out in the year ahead based on what your customers are telling you? Jonathan DeGaynor: So we continue to get indications from our customers as well as from forecasting services like ACT that the commercial vehicle space is still down by 5%. We do expect it to rebound in '26, and we're starting to see -- we haven't seen that come through in EDI yet. What we are seeing is as we've -- our Lighting business has worked very hard to improve our relationships with customers. We're seeing additional RFQs. We're also seeing interest on the Power side from a commercial vehicle standpoint. That doesn't have -- that doesn't have near-term revenue impact, but it does have future impact, and it goes to John, what we've talked about with earning the right with customers from the standpoint of us being viewed as a trusted partner beyond just Lighting. So both on the commercial vehicle side and on the Ag and construction side, we still see softness in the end markets. But we are gaining business based on the improved execution of the organization. Operator: Your next question is coming from Gary Prestopino from Barrington. Gary Prestopino: Okay. A couple of questions here. First of all, when you reported Q4, you gave us a sales bridge for sales guidance for this year. Has anything changed dramatically in that bridge? I mean, are we still looking at a $40 million reduction in Stellantis programs and then about $48 million of other program launches positive on the sales side? Jonathan DeGaynor: And that's the reason why we didn't put the bridge back in again, Gary, as there's nothing to change. So as you think about how you model it, just go back and get that as the basis. Gary Prestopino: And just wanted to make sure there. Couple of questions here surrounding busbars for data centers, okay. Is this mostly a new construction market, what you guys are supplying? Or is there a repair and replace component of this market for these busbars for data centers? Jonathan DeGaynor: This is primarily new construction and everything that we talked about with regard to our guidance is what we would refer to as sort of current technology. We're working with them on future advanced activities. None of that is in our guidance. We're excited about those opportunities, but it's a little bit too soon to talk about from a revenue perspective. But everything that we're talking about here is sort of current product technology and is new construction with multiple end customers. Gary Prestopino: Right. Because the gist of my question is that, yes, it's new construction, I mean, who knows how long this is going to go on with growth in data centers. But I guess I'm getting -- what I'm leading to is -- are the plans -- can this business get to be fairly substantial relative to the whole pie. It looks like from the chart on Page 7, it looks like EV is maybe about 60% of the sales, data centers maybe about 35% of fiscal '25 sales. I mean, is there a way you can make it bigger? Or are you just range bound by the fact that it's a new construction market? Jonathan DeGaynor: No, we're not range bound because remember, we have a relatively de minimis share of the total. So what we've done, and we talked about it in previous calls, to be more responsive to our customers and offer them utilizing our global footprint in a more efficient way than what we've done in the past has allowed us to grow share on the current data center product. That's where you see the growth between fiscal '24 and fiscal '25, that also is giving us opportunities with expansion because we weren't on every one of their designs for the current data centers. But in addition to that, and so that's what we talked about is in our current guidance. In addition to that, then, as they look at putting higher voltages into their data centers and bringing high voltage closer to the rack, we are working to try to help them with that. And that's growth on top of what you see here. So the chart on Slide 7 is historical and yes it is Power activities, not just for data centers, but for Mil/Aero as well as EV. But what you heard me say earlier is now we're starting to talk about commercial vehicles. We're starting to talk about utilizing those core competencies in other pieces of our end markets and with our existing customers as well as what's the next product families with our existing customers like the data center customers. So we expect this as an opportunity for growth. That's what I mentioned in my script. Gary Prestopino: Okay. And then I want to also ask about the EV side of the business here. Can you give us an idea of the percentage of your EV sales that our products for EVs, I should say, that are outside the U.S., which will be mainly China and Europe, I suppose? Jonathan DeGaynor: So the -- we look at fiscal 2025, and that's probably the best way to look at it, so you don't get into one quarter versus another quarter. And remember that we sell things beyond just busbars into EVs. In fiscal 2025 for our total -- our total if you will, EV sales split, roughly $220 million of fiscal 2025 revenue went to EV products, as we said, the 20%; 55% of that was in EMEA, 16% of that was in Asia and 30% in North America. So when we say to you that our exposure isn't just a North American exposure to EVs, it's -- that's the basis for the data. Certainly, we had expected and you go back to the sales bridge that was the start of your question, we had expected significant growth in North America EV, particularly with Stellantis and a few other customers. That's where we see some of the headwinds in North America, but the overall split is balanced between the regions. Gary Prestopino: Okay. So in terms of what you're looking for this year, just particularly with the busbars to the EV market. It's safe to assume the majority of any growth is going to be coming from outside the U.S. just because of the Stellantis program reductions? Jonathan DeGaynor: Absolutely. Operator: Thank you. That concludes our Q&A session. I will now hand the conference back to CEO, Jon DeGaynor for closing remarks. Please go ahead. Jonathan DeGaynor: Yes, I want to thank all of you for joining us and for your interest in Methode and for your questions. We look forward to updating you on our progress in future calls. And have a great day. Operator: Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Langa Manqele: Good morning, everyone, and welcome to our half year results for the period ended 30th June 2025. I am Langa Manqele, the Head of Investor Relations for the Old Mutual Group. Today, we will be taken through our presentation by our new Group CEO, Jurie Strydom, and he will be joined on stage by our Group CFO, Casper Troskie, to present the results. As a reminder, Jurie served in the OML Board as an Independent Non-Executive Director prior to joining the group. We are pleased to have Jurie on board. As you can see on the screen right now, our results can be accessed directly on our website using the QR code that is presented. And we are pleased to also announce that we have added some additional disclosures on segmental CSM and EV. Turning into the agenda for today. Jurie will kick us off with the CEO update, followed by the highlights, which will also include the segmental overviews. Casper will then take over from there to provide the financial review. After which, he will hand over to Jurie, who will come back on stage to cover the outlook and the concluding message. I will then take over from there to facilitate the questions-and-answer session. And at that point, I will ask the operator to just remind everyone about the procedure for asking questions over the Chorus Call as per the norm as well as for submitting written questions over the webcast. And with that, I'd like to hand over to Jurie. Thank you. Johann Strydom: Good morning, everyone. It's great to be with you. My name is Jurie Strydom. My first set of interim results. I've been in the job for just about 100 days. We're talking the proverbial 100 days, just over. But what a privilege for me to be here and delighted to present these to you. I think we thought that given the fact that it's 100 days, we would start with just doing a little bit of a CEO update, giving some clarity on some of the things that we've been talking about internally and that we've aligned upon internally from a strategic point of view and to give you a sense of where we're going before we move to the financial highlights. I think first, just to give a real credit and thanks to the Old Mutual team internally and externally, external stakeholders, staff, leaders just for the warmth that I've received in coming into the group role. And particularly, Iain Williamson, I think just thanking Iain. Iain, thank you for all those coffees and handover conversations and transitions. So I think because we've had a smooth and effective transition, I think we are in a position relatively quickly to give you some clarity on really what are the key focus areas for us as a group going forward and what are the significant shifts that we're making. I think the first thing to highlight is a shift towards really understanding what we mean by creating shareholder value and a focus on creating shareholder value. And you will see that we are moving towards a pivot to group equity value, return on group equity value and cash generation as our strategic KPIs. And those are -- we will give you more detail on those at the Capital Markets Day. We are prioritizing a Capital Markets Day for quarter 4, and we will firm up the date for that shortly. I think if we start to think about the shareholder value creation, there are a couple of things that immediately stand out. I think earning the right to deploy capital for us as a group is key. And I think you'll see -- later on when I get to that slide, you'll see a reference to our multiple 3-year capital horizon framework that will give you a good sense of how we think about earning the right to deploy capital. I think the second key element is demonstrating resolve on cost. I think as you'll see also in our results that there's a real focus on generating margins as a key driver of returns going forward. Now as we move into that, a key element, of course, is in sharpening execution. And you will see already from the 1st of August that we've made some significant operating model changes. Now these operating model changes are really designed to create a sense of clarity on the role of the group as capital allocator and looking after some -- the deployment of capital and governance and as a result of that, moving towards a leaner corporate center. But at the same time, moving towards the creation of clusters that are able to operate in the different segments in an empowered and accountable way. We want to create end-to-end value chain to enable the achievement of group targets to be cascaded down into clusters. We believe that the simplification of the structure for the group is going to go a long way to enable us to be competing better in each of our segments through the clusters. So you'll see the watchwords of accountability, execution, delivery. I mean, these are the things that we're talking about internally, and that -- you'll see that coming through very strongly, I think, in the conversations we have. Just to confirm then the changes we've made in the operating model from the 1st of August, you'll see the appointment of Prabashini Moodley as the CEO of Old Mutual Life and Savings. Old Mutual Life and Savings is the cluster of 4 of our largest businesses that are at scale in the South African market: the Mass and Foundation, Personal Finance, Wealth Management and Corporate. And that really is signaling a need for us to simplify our structures and to -- within Life and Savings, really double down on the scale that we've got in those businesses, and we'll talk more about that in a moment. And then Clarence Nethengwe, of course, the CEO of OM Bank being given executive oversight of Old Mutual Finance and Old Mutual Transaction Services. So those are the initial moves. And I think -- and so the implementation of that is running over the course of this year. And I do believe that being able to move quickly with a smooth and effective transition and to be able to align around these issues is enabling us to actually catch our planning cycle, which, of course, kicks off in Q3 and Q4, and puts us in a position gives us a bit of a head start in terms of mapping out what we want to do for 2026 and beyond. I think these 4 key focus areas really capture, I suppose, our priority from a competitive and from a capital allocation point of view. As we think about value creation, I mentioned earlier that we really are focused on what value creation means for us. We see it for Old Mutual in 2 buckets. The one is a value unlock bucket, and the second one is in generating growth. They are, to some extent, overlapping, but there's also an extent to which it's sequential. And so our first focus area is driving competitiveness of our South African business. There, it's really about improving margins, delivering efficiencies, executing the basics well. We do believe that creating end-to-end accountability and the cascading of targets clearly and simply down into the businesses is going to make a big difference and going to be able us to both improve margins and also drive market share recovery. I think when we look at our OMAR region, owned by the Africa regions, we're drawing a distinction between our Southern African businesses where we have been present for a long time, a market like Malawi, we've been in for 70 years. And there, we see ourselves building scale in those markets, really being able to extract value from -- and margin from our key positions and our brand positions in those markets. So we see that as a particular area for the future. And then as we move -- and we do think that there's a value unlock opportunity there as well. We do think that we can improve the margins and the returns in those Southern African markets. Then as we move into the space of generating growth, OM Bank is, of course, a key initiative for us. One of the big pivots you've seen -- will have seen from 1 August is an acceleration of moving towards leveraging our group assets in this space, and I'll talk more about that when I get to that section. And then finally, I think looking at our growth markets, we do -- we acknowledge that getting into growth markets is tough. It hasn't always been easy for us. You've got to break new ground. You've got to establish yourself in a new market. And so we're calling out the -- kind of evaluating and pivoting in those growth markets. That's, of course, referring to East Africa, West Africa and China. And what we're focused on there is really a turnaround in margins and in returns in those space in order to justify allocating more capital. And so again, earning the right to deploy capital is the key phrase there. I think in terms of capital allocation, I referred to this earlier as giving you clarity around how we think about our capital allocation framework, and we've broken it up into 3 horizons. And those are really driven by where our returns are relative to targets. So you'll see there, relative to the 15% to the 17% target range, whilst in this half, we have achieved 15.5% return, of course. That has been buoyed by returns, I mean, in equity markets. If you normalize for that or allow for that, then actually that return is below the target range. And so our aspiration is to move through these horizons into Horizon 2 and ultimately Horizon 3, where we really are in value-accretive territory from a return point of view. And so our capital decisions will be guided by where we are, in which horizon we're in. You will see this morning that we announced a ZAR 3 billion capital share buyback. So that is a demonstration of confidence that we have both in our own balance sheet as well as in our business. And I think you'll see us being determined to be really clear as we deploy capital in terms of how tightly coupled any opportunity is, to our 4 focus areas as well as the economics of each opportunity. Turning then towards the highlights. I think just reference to the macro environment first. We, of course, have mentioned the role that equity markets have played, most notably the market in Malawi. And of course, there is an inflationary element to that. But I think if you look through to South Africa and you look at the local environment, we do see what we're calling, I suppose, a constructive outlook. We think it's constructive in the cycle. There's been an improvement in consumer confidence and also an easing of interest rates. And so that's constructive. I think we would point though that particularly in the value unlock phase in Old Mutual, we do think that we are not necessarily reliant on macro tailwinds to implement some of the things -- some of the strategies that we're talking about. So -- and I think we -- our outlook on growth in South Africa, of course, like everyone else, we are concerned about growth and lifting growth levels, and we will continue to play our role as Old Mutual with our partners in what we can do to alleviate the impediments to growth in South Africa. I think the highlights themselves, a few key points to make here. I think the first is a strong earnings story, and 19% growth in RFO per share, 31% adjusted headline earnings per share. Both of those numbers strongly supported by equity markets and the turnaround at Old Mutual Insure, turnaround in the margin there, which I'll talk about in a second, supporting also a 9% growth in our dividend to ZAR 0.37 per share. You'll see reference there to ZAR 18.40 is our group equity value per share. Just to call out that with the return on group equity value being a really important metric for us going forward, our primary value creation metric along with cash generation, we really are now focused on that as a base for us to generate returns. Ultimately, our ambition is to achieve a return on group equity value that is value accretive in the sense of above our cost of equity. So calling out again the Capital Markets Day in quarter 4, we will be giving more detail on targets and more substance to this conversation. But I think to focus on the ZAR 18.40, there have been some assumption and methodology changes that have come through in that, the most notable of which is the adjustment to the assumptions for MFC persistency. Now the pressure on persistency has been present for a number of years. We have been -- we've taken a look at this half at the extent to which we think there's -- it's a structural change in the market. We do think that there's some significant structural change. And so the lion's share of that negative variance has been brought in to our assumptions. And that then if I go to competitiveness and efficiency, you'll see is the biggest impact in taking value of new business margin, down to 1.3%. So I think at that level, 2 stories. On the one hand, in the Life and Savings world, Life APE only up 1%. I think we've had pressure on that along with many of our peers, particularly a pullback in guaranteed annuity sales in South Africa, which have been strong for the last couple of years. But it's really that margin and that is the thing that we're focused on and on returning that margin from 1.3% back into the range of the acceptable range of 2% to 3%. And again, further detail to follow on that. I think the positive story for us in these results is the OM Insure outcome, and you can see there, significant improvement in underwriting margin from 0.9% last year in the half to 9.7%. And I think that whilst we acknowledge that there's a market element to this, and you will see that in our peer group, of course, significant -- also improvements through the cycle, and we think we are in a good place in the underwriting cycle, we do want to call out the operational improvements that have happened in our business that we believe gives us sustainability to our position. So just spending a moment then on each of the clusters. This is the Life and Savings cluster, the first time I think that we really are presenting it as a business cluster in this form. Just to point out the scale of this business, the largest umbrella fund in South Africa, ZAR 187 billion. The second largest in-force book by a number of policies. And a very large wealth management business, often an underappreciated scale of that business at ZAR 442 billion, assets under management and administration. There has been pressure here, as I've said, on new business and in a persistency environment that has been particularly difficult in the Mass and Foundation cluster. So that's where that margin you see in for the cluster margin coming in, VNB margin coming at 1.4%. But you'll see there -- I mean the real focus here is to be decisive on implementing our new operating model, driving through cost efficiencies as a first lever. Remember, when it comes to VNB margin, there's sort of 3 levers we think about. The one is the cost efficiency, and the second is persistency, and the third is sales growth. And I think it's almost in that order in the near term and in the medium term that one can drive action. And so a lot of action in that space, and we will be giving further detail on that in due course. I think in the banking space, we really just want to point out the considerable group assets that we've got in banking in South Africa. We've got a ZAR 15.5 billion profitable loan book in Old Mutual Finance, a branch footprint of 346 branches through which we are originating credit. We've got ZAR 1.5 billion in money account deposits and almost 400,000 money market account customers. So if I look at the banking strategy and the milestones, you'll see that in H1 of this year, we have gone live to staff. In H2, what we're doing is going -- we've been going live to -- going through our branches and gone live to the public through that process. What we're essentially doing is activating our branch network, targeting our money account customers and in the process also have gone live to the public and so are -- able to also onboard new to Old Mutual customers. And so our focus here really is for the balance of H2 and also into 2026, acquiring customers and demonstrating traction in this space. We have talked about guidance of ZAR 1.1 billion to ZAR 1.3 billion [loss] for next year and setting aside capital of ZAR 1.6 billion for the bank. So that's the guidance that we've given. We will certainly be giving much more detail on the banking strategy at the Capital Markets Day. But suffice to say for now that the pivot to leveraging our group assets and cross-sell is a key part of our positioning that we believe is vital to our success in what is a competitive market. Old Mutual Insure is a great positive story in these results. You can see there, the margin, which we've alluded to. I think we would just point out to -- I've had the benefit of being on the Board actually as a nonexecutive of Old Mutual Insure for the last 18 months. And I think the fixing of business fundamentals, the operational turnaround is something that we would point to as well as obviously the benefit from the market. And also the successful acquisition and integration of a number of strong businesses that have diversified our income streams in this business. And what we'll be looking for going forward is the sustainability of these earnings. Old Mutual Investments, these -- I think, a credible 9% growth in RFO. The big standout here is the performance of the alternatives business, ZAR 3.4 billion alternatives capital raise, 33% growth in alternatives revenue. So very strong and a market-leading business. We, in fact, have a portfolio of excellent businesses in Old Mutual Investments. We are well aware of the OMIG fundamental SA equity performance challenge and track record. And so -- and this is a real focus for the team in OMIG in implementing their turnaround plan. But besides that, also a focus on delivering on the strong credit origination pipeline that we've got. Old Mutual Africa regions. I think, again, just drawing a distinction between the Southern -- strategically between Southern Africa and East and West Africa, but really just pointing out -- and whilst there's been a 13% growth in RFO and a lot of work has gone into optimizing the balance sheet and the repatriation of cash remittances from these businesses that has improved significantly, there has been significant pressure on top line and on margins. So muted growth in Life APE and on the short-term side, VNB in Namibia has had a difficult time in this half [with] changes in that market and also medical insurance in East Africa. So a focus really here on cost containment, addressing pricing and underwriting and optimization of the balance sheet. So finally, I think just to highlight our commitment to sustainability has been recognized. We recognized a leader in the space. MSCI, just to call out, has improved our rating from AA to AAA and also to celebrate our Moneyversity+ platform, our online education platform that's won the Tech Impact Award at the Africa Tech Week Awards. So with that, I'm going to hand over to Casper to give us a more detailed financial review, and then I'll be back a few moments after that. Casper Troskie: Good morning. Jurie, thank you for guiding us through the highlights with such clarity and insight. I will now take us into the financial review, where we will go through our performance through the lenses of value, capital and earnings. And starting with value. As Jurie mentioned, we are pivoting to return on group equity value or GEV as our key value metric. We are currently reviewing and refining our methodologies given the focus on return on GEV, ensuring that we have a robust foundation from which to drive growth. In the current period, the change in GEV was driven by both business impacts and methodology changes. Business impacts included an increase in property and casualty valuations following sustained improvement in Old Mutual Insure performance and a decrease in embedded value following the persistency change in Mass and Foundation cluster. Valuation and methodology changes included a reallocation of ZAR 3.1 billion in OMAR from covered to non-covered business. This did not have an impact on overall GEV but changed values across the lines of business, a change in the valuation of OM Bank, where we have adjusted the valuation methodology to reflect the unlock of value as we meet critical rollout milestones and embedded value assumption and model changes, which I will discuss later. Total embedded value decreased due to high capital and dividend outflows of ZAR 7.7 billion and assumption and model changes amounting to ZAR 3.7 billion. Dividend and capital outflows included strong cash remittances from OMLACSA to the group, and which totaled ZAR 4 billion as well as the OMAR reallocations mentioned previously. Assumptions and model changes included a methodology change of an increase in the non-hedgeable risk capital charge from 2% to 3.5% across the business and a business change following a comprehensive review of persistency experience, which identified systemic shifts in the funeral market in recent years. This has led to an updated long-term persistency basis, negatively impacting financial results for the period. The annualized return on embedded value was 6.9%, supported by profitable new business, positive experience variances and partially offset by assumption and model changes. As Jurie already mentioned, our South Africa Life and Savings business was the primary driver behind the decline in the group's value of new business this period, resulting from assumption and model changes I just described. Recovering our VNB and our VNB margin is a central focus area for us, and this is clearly reflected in our group's strategic priorities moving forward. Moving to the contractual service margin, or CSM. This represents the store of future life profits for the bulk of our Life business. Despite the reduction caused by significant assumption and model changes, the CSM still increased driven by new business value and interest and positive experience variances. Our annualized allocation to profit was at the upper end of the range at 11.6%. Turning to capital. We remain committed to our capital management framework, consisting of considered capital deployment, balance sheet efficiency and balance sheet strength as a means of enhancing value and returns for shareholders. Our capital deployment decisions will be guided by horizons linked to our RoNAV trajectory, as Jurie described earlier. We expect cash remitted to be between 70% and 80% of adjusted headline earnings before optimizations and special dividends. Ongoing optimizations drove strong growth in cash remitted from subsidiaries, representing 115% of adjusted headline earnings. Our South Africa Life and Savings segment continues to be the leading contributor to cash generation for the group, while Old Mutual [Insure] turnaround in sustainable earnings also resulted in a healthy contribution. Discretionary capital increased by ZAR 2.5 billion after paying ordinary dividends of ZAR 2.3 billion. This then brings us to our discretionary capital balance. We are expecting to capitalize OM Bank to the amount of ZAR 1.6 billion, which represents their capital needs for 2026. The OMLACSA special dividend of ZAR 1 billion was approved by the Prudential Authority in August and will increase our discretionary capital balance in the second half of the year. ZAR 3 billion of discretionary capital is committed for the share buyback approved by the Board and the Prudential Authority. Our current year RoNAV of 15.5% is within our target range, supported by earnings and ongoing balance sheet optimizations. Excluding higher-than-expected market returns, return on net asset value would have been 170 basis points below the target. Our RoNAV, excluding the bank, was 18.7%. Moving on to earnings. AHE was up 29%, driven mainly by shareholder investment returns, where equity market performance in South Africa and Malawi was substantially above expected returns. This was further supported by strong operating earnings growth. Despite the increase in AHE, IFRS profits and headline earnings decreased significantly due to reduced profits from the Zimbabwean business after the transition of its functional currency from Zimbabwe gold to the U.S. dollar. The impact on net asset value was limited as a result of lower currency translation losses reported in equity. We have seen a continued upward trend in RFO over the last few years, even after our ongoing investment in OM Bank with the following being noteworthy. The turnaround in Old Mutual Insure, which has seen significant earnings growth, with material contributions to group earnings from OMAR over the last 3 years. And we have seen increased performance from our Life and Savings and Investment businesses. Turning to segment-specific RFO performance and starting with the Life and Savings segment. Mass and Foundation declined by 15% as a result of the change to the persistency basis, partly offset by favorable economic variances and the one-off impairment on the Old Mutual Finance secured lending book in the previous year. Personal Finance RFO increased by 40%, off a low base in half 1 2024, impacted by poor mortality experience and was further bolstered by positive economic variances. Wealth Management profits increased by 19%, reflecting the continued growth in average asset levels and positive economic variances. And Old Mutual Corporate RFO increased by 8%, off a high base, following a [once-off] provision release in half 1 2024, a modeling change in our risk book and positive economic variances. Old Mutual Insure RFO saw excellent growth of 71%. This segment is now sustainably contributing to group RFO and supported by good top-line growth and outstanding margin improvement. Whilst recent acquisitions have performed well, continued focus remains on expense management. We continue to see the benefits of our diversified Old Mutual Investments business with consistent strong growth in alternatives, supporting our diversified revenue stream and profit outcomes with RFO increasing by 9%. Non-annuity revenue remains a major differentiator from our peer group. This revenue is more volatile but provides substantial economic value through the investment cycle. Despite the pressure on VNB in our OMAR business, we continue to see a strong contribution from the Southern region. This was across all lines of business, except property and casualty, where elevated weather claims impacted earnings. The increase in the Southern region is partially attributable to the inflationary conditions in Malawi. The losses in our banking and lending businesses in East Africa reduced significantly as we saw the impact of the 2024 restructuring exercise in Faulu contribute to lower interest and operating expenses. Although we continue to see headwinds in our property and casualty portfolio across the regions, we are seeing the benefit from exiting our loss-making Nigeria businesses. Net results from group activities no longer includes the investment in OM Bank, which is now reported under the Old Mutual Banking segment. Shareholder operational costs includes a restructuring provision of ZAR 440 million, which has been incurred to reduce future spending. Excluding the restructuring provision, shareholder operational costs decreased by 6%, in line with our previous commitment. Interest and other income increased due to elevated cash balances and favorable fair value movements on financial instruments. We have delivered a positive set of results and in particular, continued excellent results in Old Mutual Insure. Excluding higher-than-expected market returns, return on net asset value would have been below the target range. Improving our value and efficiency metrics remains our top priority, including improving group RoNAV and VNB margins to be sustainably within our target levels and improving our RoNAV consistently over the medium term. Our capital deployment strategy remains focused on short to medium value enhancement, thereby maximizing returns on net asset value and investments will be carefully targeted to growth opportunities that directly support our strategic priority areas. With that, over to you, Jurie. Johann Strydom: Thanks, Casper, and thank you for going through those financial results in more detail. We just thought we would spend just a minute recapping on some of the key messages. I think in essence, it's been a very positive period with a smooth CEO transition. I think it's been smooth and effective. I think it's fair to say we've been able to move quickly on getting clarity and alignment as a senior team [and] at Board level and also increasingly in the business around the changes we wanted to drive. I think to summarize those sort of key changes, the one is a clear articulation around what it means to create shareholder value and a pivot to return on group equity value and cash generation as our key metrics. We are clear on earning the right to deploy capital, which is linked to return on net asset value and also demonstrating result on cost where improvement in margin is required. I think we've made significant progress in implementing our new operating model that simplifies the group that creates, over time, a leaner corporate center and more empowered clusters to be able to cascade in a simple and understandable way, the key targets that we're driving as a business. And of course, we have our 4 focus areas that we've spoken about. I think just to point out to the Capital Markets Day in quarter 4, we will be firming up that date shortly. And there, you will see more detail on our financial metrics as well as the targets that we're looking to those metrics. Just to point out again, return on group equity value and cash generation really being our key value creation metrics and then what we're calling our efficiency and competitiveness metrics, which is new business volumes, value of new business margin and net underwriting margin and return on net asset value. And I think highlighting, of course, in this set of results, the key role that the value of new business margin will play going forward for us to enable us to be able to move into the aspiration of achieving a return on group equity value that is above our cost of equity. So more detail on that to come. I think with that, Langa, I'm going to move to you so we can move to questions. Thank you. Langa Manqele: Thank you very much, Jurie, and thanks to you, Casper, for covering those 2 sections. We will now turn over to the question and answers. As per the norm, I would like to start by just saying I will take the questions from the Chorus Calls. The questions will then be fed into the room by those who are already [queued] up on the call. I'll then move on to take the questions submitted to us via the webcast. At this stage, I would like just to ask the operator to please remind us of the procedure for putting through the questions. Over to you, operator. Operator: [Operator Instructions] The first question we have comes from Andrew Sinclair of Bank of America. Andrew Sinclair: Just a couple for me. First, [ thank you very much for ] the CSM splits, very helpful. If I just look at the organic CSM growth, so new business plus interest accretion minus the CSM release, it looks like there's really very little growth other than Mass and Foundation, barely anything in Personal Finance and Wealth despite that being the biggest portion of the CSM and Corporate, not much higher. Just really -- what's the scope to accelerate those numbers? What do you see as sustainable levels of growth over the medium term? That's the first question. And then the second is, just -- great to hear a focus on expenses and efficiency. Just wanted to know, Jurie, how do you think about expenses and efficiency? I personally like to think about cost-income ratios, but how do you think about measuring it? We've had a lot of cost [saved] targets in the past, but sometimes it's hard to see kind of objectively from outside that improvement in efficiency. Langa Manqele: Thank you, Andrew. You were not as clear. I will start with Jurie's question, and then I'll ask Casper to just comment on the CSM growth. And if -- Ranen, you can also please add. Over to you. Johann Strydom: Andrew, maybe a couple of comments. I think that there has been pressure on the guaranteed annuity sales in South Africa, which I think you've seen has created pressure across the market, and as you noted, some of that money then flows into linked investments, but that is spread over a wider group of competitors. I think on your point on targets, I would point you to -- obviously, the Capital Markets Day is a key moment where we're going to be putting down targets. And I think we will also there talk about growth targets and in particular, in a low-growth environment, what are our aspirations around growing market share for Old Mutual, which I think is -- I think one has to assume that South Africa is not going to become high-growth environment. And so that will be key. I think from an expense point of view, our cost ratios are difficult for a group like us. I think what we're likely to show you at the Capital Markets Day is more cluster level KPIs for expenses. But what I will say to you is that our North Star is [getting] return on group equity value into value accretive range, which is above cost of equity. And with that -- likely to achieve that, you obviously have to get your experience variances contributing and you've obviously got to get your value of new business margin into the range of 2% to 3%. And so when we think about expenses, that's a significant way in which we frame it. Value of new business margin, of course, doesn't only -- it's not only expenses, but it is the most direct short-term controllable lever. Casper, if you want to add to that? Casper Troskie: No, I think, Jurie, you've covered the 3 important areas that I would have mentioned, which is increasing our value of new business through both volume and expense management. Looking at improving our variances and making sure that we can improve those. I think it's also important, I mean, not to just look at the CSM because we have disclosed a lot more -- we've put more disclosure into our booklet, so you can look at what the growth of our [ non-IFRS 17 ] business is also bringing through. So you get a complete picture of the growth in value. Langa Manqele: The next question, please. Operator: The next question we have comes from Francois Du Toit of Anchor. Francois Du Toit: Can you hear me? Johann Strydom: Yes, we can Francois. Please go ahead. Francois Du Toit: Your Life embedded value statement shows that economic variances added ZAR 1.7 billion after tax to earnings in the period. In the past, you've given us the split and a recon between how much of that was operational and how much of that investment return and capital, and also how much of that is contributed by markets, and how much of that was contributed by economic basis changes, in other words, really interest rate changes. Can I ask for you to please provide that recon price in future? And for this opportunity, for this question, just if you can split it roughly for me, just give me a sense of how much of that -- and that's a ZAR 2 billion swing on the base period. How much of that swing was operational? How much of that came through the investment return on capital line? Or can we use the IFRS investment return on capital as a proxy for that? Yes, just trying to get a sense of how much -- how repeatable this Life earnings level is. How much of it came from the trough of markets? That's the first question. Second question relates to the positive experience variances. You've made big basis changes. Is the -- and also it looks like the unwind and the basis changes reflect -- sorry, the unwind and experience variances reflect the basis changes that's taken place already. Is that the case? Or is the experience variances on actual assumptions that existed at the start of the year? Just can you clarify that for me? Is it experience variances on the changed basis or on the year-end basis? That's the second question. Langa Manqele: Thanks. Francois. Please just hold it there on those 2. I'll ask Nico to just walk us the high level through. We do add on the disclosures, and on the one-on-ones, we'll go through too much detail. But if Niko, you could please just cover it at a high level. Nico van der Colff: Yes, Francois, you can definitely use the IFRS investment information that gets -- given as an indication of what's happening to shareholder investment returns. So there is disclosure on that. The embedded value was a bit more complicated this time around because there were a couple of method change type items in there, too. So not as material as the ones that have already been mentioned. And so you can see that information in the system if you look at [ A&W ] versus [ VF ]. Then the question on basis changes, they're all on the opening basis. But remember that the opening basis already for MFC had a material reserve against weaker persistency in 2025. And so that's why you're not seeing as big a negative variance. Effectively, the basis change that's been spoken about has a lot more to do with assuming ongoing weaker persistency beyond the first couple of years for the systemic parts of weaker persistency rather than cyclical parts of weaker persistency. Langa Manqele: Thank you, Nico. Operator, the next question, please. Just as a reminder, 2 questions per person. Operator: At this stage, there are no further questions on the conference, sir. Langa Manqele: Thank you. I will now just turn over to some of the questions that were submitted. The first one came from Baron Nkomo from JPMorgan. Please elaborate on the structural change in the market, which you believe is driving persistency. That's the first question. The second one, please explain the material decrease in the Rest of Africa embedded value, which contrasts with the positive CSM growth. Jurie, I would like you to just maybe comment briefly on the first part. Johann Strydom: So I think that there's greater competition in the funeral market. I mean that's certainly the case. I do think that there's macro headwinds South Africa, but I wouldn't overemphasize it. I think actually, there's been a big competitive shift. And I think if you think about the overlaps between banks and insurance companies, I think that there's a blurring of the lines. There's a moving of banks into insurance and likewise, insurance moving into banking. And I think what we've -- whilst we certainly have management actions to improve persistency and there are things that we can and are continuing to do, and we do believe those will bear fruit. We do think it's wise to recognize the structural change of higher churn of funeral business than perhaps we had before, and our business must adapt to that. Langa Manqele: Thank you very much, Jurie. I'll hand over to Clement, our MD for Old Mutual Africa regions to cover the question on EV and CSM growth. Clement Chinaka: Okay, thank you. The CSM growth is mainly driven by investment returns, largely in Malawi and also changes that we had in the fees on the guaranteed fund in that market as well. Then the embedded value reduction, there are 2 things. The first thing is, there was a reallocation of the adjusted net worth between the various lines of business. So we took quite some -- about ZAR 3 billion from Life to non-covered business. So that's one thing. And then the next one was an allowance for expected currency devaluation in Malawi. So there is a haircut that we put through there. Langa Manqele: Thank you very much, Clement. I will proceed with the next question from Michael Christelis from UBS. The first question from Michael is, can you explain what have you provided for in the ZAR 440 million corporate center expense provision? It doesn't look like for your FY '26 guidance that has changed. It remains for FY '22 plus inflation. I will ask Casper to take that one. But the second one, also from Michael Christelis is, what level of price to give are you prepared to continue buying the share buyback? I'll also ask Casper to comment on that with Jurie, adding a level. Casper? Casper Troskie: Michael, on the price to give, we're not disclosing that externally. We don't want people trading against us. So I think that's important to understand, that will be kept confidential. The first question on the restructuring provision. Those relate to 2 components. Those relate to headcount reductions that we finalized where we had a constructive obligation. So we finalized them by 30 June, where we had once-off costs that will reduce future expenditure. And it's the cancellation of one of our IT contracts where we have upfront settlement, which will reduce future expenditure. Those are the 2 components. Langa Manqele: Thank you very much, Casper. Operator, I would like to come back to the Chorus Call and check if we have a question there. Casper Troskie: Sorry. Operator: We have. Casper Troskie: Sorry. Just to add, Michael, we won't. We will obviously continue doing buybacks where we feel it's accretive and stop if we feel we're overpaying on the buyback. Langa Manqele: Thank you very much, Casper. Question from the Chorus Call? Operator: We have a follow-up question from Francois Du Toit of Anchor. Francois Du Toit: Maybe if you can give us a bit of color on the reduction in the regulatory solvency ratio from 170% to -- well, 180% to 170%? And how does that gel with the strong cash generation and the increased excess capital that you disclosed as well? And just around that, maybe just discuss your -- whether there's been a reduction therefore in your targeted solvency ratio for the long term as well? And then the second question just on Old Mutual Insure. I think last time I asked this question, you suggested that 5% is unlikely to be exceeded this year in terms of underwriting. Maybe if you can give us a sense of how long you think the strong cycle will be with us and whether you are considering changing your band -- your target band long term for Old Mutual Insure? Langa Manqele: Thank you very much. I will ask Jurie to take the OM Insure and ask Casper to just comment on your first question, Francois. If there is a need, Nico, you may just overlay Ranen there. Thank you. Jurie, over to you. Johann Strydom: Yes, I think we will -- at the Capital Markets Day, you'll see -- in those targets, we talk about underwriting margin as one of our key targets going forward. So we will update that for our medium-term target. I think we do all recognize that we are in a good position in the cycle. And so it's very hard to call exactly where that cycle goes. But I would point you to the Capital Markets Day probably for more detail in that conversation. Casper Troskie: Francois, just to remind you that we have to accrue for our dividends and the actual buyback in our capital ratio at the period end, if we've announced that because it's a firm commitment. We also saw quite a big increase in markets during the period. So what that does is it increases the prescribed equity shock that we're required to hold. So that would not just impact on equities that we held, it will also impact any subsidiaries, the shock that we apply to the net asset values of those subsidiaries where they're not regulated in terms of either -- where they fall outside of the sort of normal insurance solvency provisions. Langa Manqele: Thank you very much. There are no more questions from the Chorus Call. I will just maybe read 2 more questions and then bring it all to a close. From RMB Morgan Stanley, that's Warwick Bam. Warwick asked, improving the performance of MFC looks like one of the biggest opportunities for the group. What needs to happen in the core insurance business of MFC? And what time line are you looking to achieve that? I will ask our CEO for the cluster, Prabashini, to take that question. Prabashini Moodley: Thanks, Langa. Thanks, Warwick, for the question. So in our MFC business, we continue to take action on persistency. We've taken some management actions this year already to make it easier for customers to actually pay any missed premiums, and that's already giving us some very early green shoots. Then when it comes to the market and addressing the shift in the market, I think from a proposition perspective, there is some work that we can do. And we do have building blocks within the Mass and Foundation business where we can put together, for example, through our Two Mountains acquisition and improve the differentiation of the proposition that we take out. Productivity and the management of our distribution channels remain really, really good. And it's just giving those advisers the right solutions to take out and improving our premium collections. And I think we will see improvements. Thanks. Langa Manqele: Thank you very much. I think just to close off, there's -- 2 set of questions, I'll sort of combine them, if, Casper, you could just address these 2. They are related to costs. The first one is from [ Allan Grey ]. He has asked, may you please give us more color around the ZAR 440 million restructuring provision? What was allocated to that? And how will it fall -- how will it fall away going forward? There's also another similar question from [ Patricio ] that is asking, where do you see the biggest opportunity to reduce costs across the group? And can you talk around the guidance of cost reductions going forward? Casper Troskie: So just going back to the ZAR 440 million restructuring provision. As I said earlier, this relates to headcount exits that were finalized at 30 June. So where you have upfront costs. So the future salary costs, we won't be carrying. So that will be a reduction in costs. And as I said, the software costs that we accrued for that -- for stopping that software agreements, there will be no future payments, so you have upfront cost on that. So that will also reduce our expense payments going forward. We communicated to you over the last 2 years that there are a number of areas certainly in the central functions where we are looking at cost reductions. We communicated that we're running elevated costs in the center and that we're targeting to get back to 2022 plus inflation on the center line. I think the further cost reduction opportunities comes through the fact that we've rearranged our operating model, as Jurie took you through, as well as the fact that we'll be running a leaner center function. So those are the biggest opportunities. Thanks. Langa Manqele: Thank you very much, Casper, and thanks, Jurie, for all the clarification as well as to the MDs for helping us conclude the Q&A. So that concludes our Q&A session. We look forward to engaging you at our upcoming Capital Markets Day, as Jurie has already mentioned, where we'll give you more color on our strategic priorities as well as targets. Once again, on behalf of our Board and the management team, I'd like to thank you all for joining us. Have a good day further. Thank you.
Operator: Good morning, and thank you for standing by. Welcome to the Associated British Foods Trading Update Conference Call hosted by George Weston, CEO; and Joana Edwards, Interim Finance Director. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to George Weston. Please go ahead. George Weston: Good morning, everyone, and thanks for joining this call. We've got quite a lot to go through because we've had a very busy second half. This, as a reminder, is the trading update for that second half of the 2025 financial year. I am pleased with how the group has performed in the second half. The environment is very challenging given ongoing consumer caution, geopolitical uncertainty, tariffs in particular, and actually persistent inflation in both the U.S. and in the U.K. markets, particularly around food. Let me start with Primark, where our overall sales are expected to be up 1% in the second half. Very pleased with the strong improvement in trading in the U.K. and Ireland. Total sales expected to be up in the second half after a difficult first half, particularly in the months that followed the budget. The product offer was strong. Womenswear is absolutely flying. The execution is good, both in-store, but also in our digital engagement. We're trialing our app, which is coming soon to all markets. Click & Collect is fully rolled out in GB. And we're continuing to optimize the store estate in the U.K., a couple of new stores and then refurbishments. All this contributed to the market share gain in the U.K. market. So from 6.6% in the first half to 6.8% in the second half gives us great confidence. In Continental Europe, the consumer environment is very difficult. Spain is, I think, more driven by income in France. It's driven, not surprisingly, by sentiment. So the second half trading after a strong first half or a very good first half in Continental Europe has been soft in the second half. U.S., good. We've opened a number of new stores. They're trading well. We are, just this week, beginning to raise prices to pay for the tariffs. The rest of the U.S. clothing retail sector is doing the same thing as best we can see. But the U.S. delivered good growth in the first half and the second. We opened 15 stores in the second half. We're actually opening two today, one in France, in Montpellier, and one in Italy. So the rollout continues. As a reminder, our first store franchise operation in the Gulf states opens before Christmas. And we think that those markets, the Gulf state markets, will be very good ones for us. Primark's profit delivery in the second half remains strong and adjusted operating profit margin for the full year broadly in line with last year. So that's Primark. Difficult consumer environment, but actually trading well. And lots of, I think, the ranges going into autumn/winter, very strong. Womenswear, good. Moving to the food businesses, where trading in the second half has been fully in line with our expectations. And we have given an update today where guiding Sugar profitability. There's profit improvement in Sugar to be delayed. We'll get some back next year. We'll be clearly profitable next year. But the restoration of margins in the European market will take a bit longer. Europe remains oversupplied. Africa, on the other hand, is doing really well. We are very close now to the commissioning of the new plant in Tanzania. Important step for us. That's one. We've done what we said we were going to do in tackling some of the difficult areas. So Vivergo very sadly has gone. It didn't need to end up where it did, but being closed. But sadly, the Vivergo part of our history is now been and gone. The restructuring of our Spanish Sugar business has again occurred. There's more to do, but we've taken a great hack out of our cost base in Spain. As I say, there's more to be done. Again, that Spanish business then will depend on the restoration of more sensible European Sugar business. The cost base is much reduced and will be further. And then in the U.K., where after dancing around each other for seemingly years, we've reached an agreement to acquire Hovis, subject to CMA approval, of course. It's an opportunity -- it gives us an opportunity to extract very significant synergies and to create a sustainably profitable bread business, which is then a platform for innovation. It's important that we all look at this merger not so much as a synergy play, not just as a synergy play, although that's important and big. It's also a new platform for improved consumer offers. As I mentioned, it's subject to CMA approval, and we've begun to work through that process. Always much more to be done, but we've done a lot. The restoration of a much better level of sales performance in the biggest market, the U.K., has been a standout trading in the U.K., actually across Continental Europe in the last few weeks as we got into the spring -- sorry, into the autumn/winter ranges has been very good. So we're confident in the performance looking forward. With that, let me hand over to questions. Operator: [Operator Instructions] We will now take the first question from the line of William Woods from Bernstein. William Woods: The first question is on Primark. Obviously, you've seen slightly softer performance in France and Italy over the last few months due to the macro. Do you think you're losing market share here? And I suppose when you look at the opportunities for expansion, France and Italy are key markets for that. Are you still comfortable on the relative market position in those markets? And then the second one is, obviously, U.K. bread has been a challenge for a long time, and you've talked about fixing the problem children. Why did you decide to make that problem potentially bigger by acquiring Hovis? And do you still see this as rational capital allocation? George Weston: Okay. France and Italy fundamentally are good markets for us. It's quite hard to track market share in both countries because our presence is reasonably small still. But yes, good first half in both markets, poor second half in both markets. I think it's a consumer sentiment issue rather than a loss of relevance. There's no reason to think that we've lost relevance in either market. U.K. breads then, I think we went down this route, but having thought about a number of others, because in the end, it's the most profitable thing for us to do. And we pay -- the synergy benefit from this merger is very, very big and gives us a platform to move from there. It would have been very -- given the scale of the losses in Allied Bakeries, it would have been hard to have sold that business for any significant consideration. To have done that, to have given it away would have been value destructive. We think that the platform that we create by merging the 2 supply chains will be a very strong one. We've got to wait for the CMA, of course, but I think it was a very rational decision. Operator: We will now take the next question from the line of Grace Smalley from Morgan Stanley. Grace Smalley: My first one would just be on Primark margins. I know you reiterated your guidance for this year. But just as you look ahead, could you comment on how you'd expect kind of Primark margins to evolve from here and the headwinds and tailwinds we should be taking into account as we forecast Primark margins for next year? And then my second question would be on space. I think for Primark, you previously said that you'd aim for kind of your medium-term growth contribution from space to be around the 4% to 5% mark. And this year was always expected to be at the lower end of that. But could you just confirm that you still see 4% to 5% as the right medium-term range? And where we should expect that to land next year or whether that should again be at the lower end for next year? And then my last question, sorry, also on Primark, would just be on the competitive landscape. We've heard from Inditex this morning that they are testing their lower price point banners, Lefties, into new markets. So just would be interested to hear your take on the current competitive landscape for Primark and any changes you're seeing, if any? George Weston: Okay. Primark margin, I'm going to share the answer to this with Joana, who's sitting beside me here. There are currency tailwinds. We won't see them really until the second half. There are, we believe, some opportunities for a company which is still -- where 90% plus of our sales are coming into Europe against the States to benefit from American retailers making different decisions and the American market looking less attractive for Asian suppliers. Joana, what else would you say about that? Joana Edwards: Well, we probably will see some tailwinds on freight. We have seen this year some tailwinds on stock loss. So there's nothing more to signal there. We're hoping to get even further under the skin of that. And then we continue to look at efficiencies as well, which are important because, as we said before, we want to invest some of that back into creating demand. So not necessarily putting it into the overall margin level, which we have said we are comfortable with now. It's back to pre-COVID. But yes, those tailwinds, there are some tailwinds, as you very rightly said, Grace. George Weston: Space, I think 4% feels about right for next year. And then into the future, we'll see how -- as you know, we've been very disciplined about not chasing space where it doesn't make -- where it isn't good space, and we'll continue to do that. But yes, around about 4%. Then the competitive landscape. Lefties is a very good operation. We've competed very successfully against them for many years in Spain. And I have no doubt at all that they have something to offer consumers in other markets as well. But just as we've competed well with them in Spain, so we'll compete well with them anywhere else. I think there is potentially a reduction in the competitive intensity from people using de minimis legislation. That's going to help us somewhat in the European markets. We hope the U.K. government gets its head around that as well. And just maybe there's a little bit of help going on from that same source in the United States. So competitively, we feel in good shape. Grace Smalley: Okay. Very clear. And sorry, just a follow-up on the margin commentary. If I put everything you said there together, clearly, there are a number of tailwinds. But then at the same time, you also said you're comfortable with the overall margin level that you've reached at the moment. So is the idea that you will be reinvesting some of these tailwinds back into the Primark business? Or are you happy to let some of these tailwinds flow through to some margin expansion as we look ahead? George Weston: I wouldn't be modeling an increase in the margin next year. We've got a lot of plans around reinvesting, as Joana said, in demand creation. Operator: We will now take the next question from the line of Monique Pollard from Citi. Monique Pollard: Three, if I could. The first is just on the U.K. market share gains that you point out in your opening comments in the statement. Just wondered if you could give us a sense of how much benefit you thought you got from Marks being down during the cyber, and whether you think you can retain the share gains from Marks now that it's back up and running? The second question was just to try and understand, in the agriculture business, you mentioned lower contribution from the joint venture, Frontier. Just wondered the scale of that lower contribution, please? And then the final question, again, on agriculture. I'm just trying to understand whether agriculture needs to get rebased going forward, FY '26 onwards, to a lower level, because you don't have the byproduct of animal feed from Vivergo ethanol production anymore? George Weston: Yes. Okay. No, we don't think our share gain was down to Marks being offline. We watch the switching data, and we didn't see anything that would indicate that, that was going on. We think the share gain has been about excellence in womenswear in particular and which continues as we get into autumn/winter ranges. And we think maybe a little bit of sharpening up of price perceptions and then the consumer having a little bit more confidence than they had in the aftermath of last year's budget. So I think that, that is where share gain is coming from. In aggregate, the JV, probably this year's underperformance has cost us between GBP 5 million and GBP 10 million. That's our share of post-tax profitability of that business. It was a horrible year to be either a grain trader or a supplier of inputs into the cereal sector, because the weather was about as unfriendly as it could have been. We think that, that will -- it's hard to imagine a worse year for that business, and some of that at least will come back. Yes, you're right that Vivergo -- the sales of Vivergo to particularly the dairy sector have come to an end with the shutting of Vivergo, probably worth between GBP 2 million and GBP 5 million to us. That's the sort of scale. So the agri business has been making kind of high 30s, low 40s. So it's not a wholesale rebasing we'd be advising you to consider. Joana Edwards: Yes. And I think, if I can add, the agriculture performance this year was impacted by one-offs. So yes, it's below prior year, both for the first half and now for the second half. But as George said, there's a weather impact on Frontier. The one-offs are significant. And therefore, those are not to be carried forward. As George said, I think that the figures that we've seen historically, yes, there is the Vivergo impact, which is not very material for the overall agri business, should allow us to go back to that sort of level that we had in the past. Operator: We will now take the next question from the line of Georgina Johanan from JPMorgan. Georgina Johanan: I've got a few quick ones, please. Just first of all, in terms of the reinvestment that you're making in the Primark business, it would just be good to hear a little bit more about that. Obviously, we've seen the new marketing campaign in the U.K. So is that more around communication of the offer? Or is there actually some price investment going in as well, please? Second one, just in terms of the strong performance that you're seeing in the U.S., it would be good to understand if the stores were back in or were now in like-for-like growth in aggregate, please? I do appreciate the subtleties around sort of space rollout and cannibalization and so on, but it would be good to understand that. And then just finally, in terms of the Hovis acquisition, assuming that's approved, what sort of time frame is it for those synergies to come through, please? And I think the synergy number that was quoted in the press was around GBP 50 million or so. It would just be good to understand if that was a sensible number to be thinking about. George Weston: Okay. I mean in terms of Primark reinvestment in consumer, yes, some of it is price. You will have seen the Palazzo jeans at GBP 12 as part of the denim offer, which we've been advertising. We've gone on air with specific range advertising in the U.K. for the very first time, and we'll see what that does for us before we decide whether we're going to do more. There's a lot of investment in digital. There's more paid marketing. There's more search engine optimization going on. There's also investment in capabilities. So the app is being trialed at the moment and will be available, we hope, in just a couple of months' time. So wide range of reinvestment in both the systems that allow the digital communication to keep on improving and also some reinvestment in -- some investment in above the line and then selective price reinvestment. We think that our price gaps are as strong as they've ever been. So we think competitively that we're very, very well placed. We're addressing or we have addressed I think, the beginnings of perceptions around our pricing. It was never a reality, but we've been working hard in campaigns like Never Basic and also, I think, the jeans offer that is in stores now. U.S. like-for-likes. We didn't talk about the like-for-likes when they weren't great, and we're not going to talk about the like-for-likes when they're much better. Otherwise, I'll have to talk about them when they weren't great again. But we're very encouraged by what we've seen in the second half, both in the performance of new stores and also in same-store sales, but I'm going to take a bioscience of where we actually are. Hovis, we expect that the process with the CMA will probably take a year. Maybe we can shorten that, because we believe the case we've got to put to them that this is in the consumers' interest is very strong. And then to harvest the synergies, think of it -- well, different waves of it, but we get most of them done in another year, and we get some of them done much quicker than that. But there's a bit of engineering to be done moving bread lines around and so on, and that takes a little while longer. But it will be pretty quick, and we know exactly what we want to do. And sorry, the GBP 50 million number. I think it's bigger than that. Not much, but that's same gang, but probably there's upside to that GBP 50 million. Operator: We will now take the next question from the line of Warwick Okines from BNP Paribas Exane. Alexander Richard Okines: George and Joana, I've got 3 as well, apologies. Firstly, just sort of to be a bit more direct, do you think you will have average selling price deflation next year in Primark? Secondly, do you think '26 looks again like a year of higher gross margins in Primark funding operating cost inflation? And as a sort of part B to that, could you tell us what you're expecting for business rates, please? And then the third question is on sugar. A year ago, when you were contracting at this time of the year, you said that the prices were down as much as EUR 300 per tonne. Where are you now? Is that a bit higher year-on-year? And maybe just quantify that. George Weston: Okay. Selling price deflation. No, I don't think we will see it. If we need to move our prices down, we will, but I go back to the answer I gave to Georgina. Our price points are exactly where they need to be. Our price gaps are exactly where they need to be. Higher gross margins funding higher costs. Yes, to some extent, labor costs in markets are up, but we have a lot of self-help, too, self-checkouts, for example, improvements in supply chain efficiency, improvements in internal data transfer. All these things help reduce our cost base. There's not a lot of inflation coming in from the cost of goods. And obviously, currency, it moves around a bit. But we're looking at the second half with a bit of a following wind against the dollar. Where do I expect business rates to go? I wish I knew. I think it would make a lot of sense for the government to reverse its course on higher business rates for larger retailers subsidizing the rest. If you want a vibrant high street, you need the anchors to be in good shape, and the higher business rates act clearly against that. What was -- there was the last point on sugar prices. Yes, they've gone up a bit, but not as far as we thought they were going to go. We thought that more acreage would come out of beet growing across Europe. It didn't. We took our acreage down a bit in other areas. In Continental Europe, the beet acreage actually went up. I'm not sure how rational some of those decisions that led to that were. In Spain, we've obviously taken out processing capacity in shutting 2 beet factories. There is other processing capacity that is being taken out in other parts in Europe. So sense is slowly returning to the market. I thought it would come back quicker than it has. That's why I made the comments about these much lower prices being temporary. They are still temporary. They're just longer. Operator: We will now take the next question from the line of Richard Chamberlain from RBC. Richard Chamberlain: I wondered if -- I've got 3, sorry, to continue the trend. But on starting off with Primark, George, I think the statement says that Primark sales were softer in a weaker German market in the second half. I wondered if you saw a big difference in Q3 and Q4 trends in Germany. That's the first one. The second one is around Primark advertising, the "In Denim We Can" campaign. Is that a sort of precedent for other markets or other parts of the business? Should we expect now a sort of more permanent step-up in marketing costs? And then just finally, back on the Sugar side. I just wondered if you guys can give a bit more color on the sort of moving parts for the Sugar profit bridge into next year. It sounds like you're targeting a small profit overall. But I was wondering how Illovo might play into that? And then I guess, following on from Warwick's question, how much of a drag could pricing be into next year? George Weston: Yes. Okay. Do you have the Q3, Q4 Germany split? You're not exactly down in the weeds, but it's -- I don't have it in my head. So that's 3 and that's 4. Yes, Q4 was worse than Q3. Both were negative, but after a very strong first half, albeit helped by the tailwind of the strike of the previous year being resolved, Q3 was mildly negative, Q4 rather more so. That's that one. Marketing campaigns, we're convinced that we have to work harder to get the attention of shoppers more generally, but particularly in an environment where consumer confidence is not great. So I think our investment in consumer-facing activity, whether it's digital or whether it's above the line, will be higher in the future than it's been in the past. As to on-air advertising of a particular range, denim in the U.K. in this example, we'll just have to see how that works for us. Early signs are good, but we won't do it again if it doesn't increase our profitability. But there's lots of other investments in consumer relationships and the systems that support it. So as I said, the app is coming and coming quite soon. There's more search engine optimization work going on. There's more paid media going on online. And that works for us. That's working for us. If I then go to the profit bridge of Sugar, essentially, margins in both Spain and the U.K. are a little bit better, but still very soggy. And Spain, we've taken a great hack to our cost base. There's another one coming. But if the most profitable -- sorry, the most efficient and historically profitable part of the European sugar processing world, which is British sugar, is still not making a proper return, then Spain won't be either. So it is a pricing issue. And so as I say, U.K. will be a bit better, but not dramatically so. We've obviously got lower beet prices and then lower beet prices in the year ahead. But equally, some of the 2-year price deals, which held over until the year just gone, have now fallen away. And so net pricing actually hasn't moved all that much, even though the headline 1-year pricing is up a bit. Africa is going well. It would be great to have Tanzania up and running. We're probably 1.5 months away from making sugar, but these are beasts to commission. So that might take a while. Zambia, really good; Malawi, really good; Eswatini really good. So Illovo is in great shape. It's a European pricing issue caused by oversupply in the European market. It's a commodity business. This stuff happens from time to time. Operator: We will now take the next question from the line of Anubhav Malhotra from Panmure Liberum. Anubhav Malhotra: I've got a couple on the Sugar business. You have touched upon a lot of them during your answers previously, but a bit more deep analysis into those. So in Tanzania, if I can ask, maybe give us color on what were the reasons for the delay, because I guess you were expecting it to start in the second half of this year, and now it's been delayed by a couple of months. And then also on the same, how do you expect the production facility to ramp up to full production, over what period of time? And what sort of profit contribution do you think that ramp-up can help you make? I mean, broad figures maybe. Obviously, you can't give me an exact answer on that, I guess. And then, again, on the sugar pricing, on the European sugar pricing, I would love to understand, compared to your views which you last gave us in April, how the sugar price has evolved compared to what you thought at that time? Because I noted in the press release, you have mentioned that they have been a bit lower than previous expectations. So just double checking if they're lower than what you had been expecting in April. And then the last one on Azucarera, just on the restructuring, potentially a broad figure on how much cost we have taken out of the business? And if, even at these levels, would the business now be like breakeven or still loss-making at these sugar price levels? George Weston: Okay. So Tanzania, I don't want to sound defensive, but in a project that's taken the best part of 3 years and started at the end of COVID in a country where there's not great infrastructure, to be a couple of months delayed, I think, is not too bad. But it is frustrating. When you're nearly there, you want to be there. Ramp-up of Tanzania is -- it might be reasonably quick. We know how to run sugar factories. There's a lot of equipment that we understand well that's been put into this new factory. So there's not a huge amount of technical newness to it. But I think that it's one of these plants where we'll get kind of 70%, 80% of the way quite quickly and, I mean, in a matter of kind of 3, 4 months. And then the last 30% may take a year or so as we come to kind of optimize processes. Profitability, well, we've said that we're spending over $200 million on this thing, and we wouldn't have signed it off if we didn't think we were getting a kind of a proper return for the risks that Africa has, so higher than our average returns across the rest of the group. So there's quite a lot to play for in that investment. European sugar pricing. I'm going to sort of be in danger of repeating myself. Acreage didn't come out as we thought it would come out. And we've still got to see whether the unusual weather has reduced yields across Europe, which would then take supply out. Early signs is that there might be some yield reduction, but not enormous. There's been some disease, but not a lot. But we'll know much more, both in terms of U.K. supply, but also European supply probably in the next 6 weeks or so. There is, as I say, capacity that's come out of manufacturing across Europe, but I can't hide the fact there's too much sugar in Europe, and there's quite -- stock levels are also quite high. And even if we got supply well under demand, we've still got a stockholding to use up. And using up that stockholding will keep prices depressed for a little while yet. So I don't think -- I mean, what is all coming back to is I think there's some cost improvement, some pricing improvement in the new campaign year, but it's got a long way to go in subsequent years. Azucarera -- no, I don't think there's a profitable sugar business in Europe at the moment. And Azucarera has taken some tens of millions out of its cost base and quite a lot more still to go. But even having done that, it will still be loss-making because everyone in Europe is loss-making at these selling prices. Operator: We will now take the next question from the line of Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: Only a couple. Just maybe going back to Primark. Can you perhaps talk to the analysis that you do to reassure yourselves on the weak like-for-likes in terms of consumer demand versus sort of homemade cannibalization and how you analyze that and how that sort of trended over the past sort of year by quarter. If you've got some insights, that would be very helpful. Secondly, on grocery, George, I think the statement draws attention to good growth in international brands, clearly flagging U.S. brands, local brands performance there. Just can you expand a little bit more here and also give us some ideas in terms of how we should think about the year ahead in terms of growth in the division and profits? George Weston: Okay. Weak like-for-likes, you look at the market share data and you triangulate. Those are the 2 big ones. So what are other people saying about their own performance, other people who are supplying a similar part of the market. And then as I say, in some countries, we've got better share information than in others. In the U.K., for example, we've got good share information. And as we made clear in the statement, our share performance in the second half in Primark has been very good, even if the headline -- I mean, the headline like-for-likes are so much better, but the consumer remains weak. In some of the other markets, France, Italy, we have less good market information. We have some, and we have the read across. We're very comfortable, for example, that particularly outside Paris, everyone is finding the consumer in a pretty bleak place. So yes, that's what we do. It's a company where internal communications are pretty good. There's a rich theme of anecdotal that turns into kind of directional information that comes up from the businesses and what they're seeing in their shopping centers and their high streets and amongst their competitors. And it's an industry where shopkeepers do talk to each other, and we get a sense of what's going on. Grocery -- yes, sorry. Joana Edwards: If I just may, on your point about how we look at cannibalization as well. Just because -- and I think your question goes to our like-for-likes always a measure we should be using in every market. And the answer is no, which is the reason why we don't have like-for-like figures for some of our markets. And how we think about that as well is, for some of our markets, we have got lots of white space. In fact, for a lot of our markets, we still have a lot of white space. So adding stores and looking at it as a total market makes sense. For example, in Portugal, where we've opened 3 stores this year, which is 30% more than we had before, because we had 10 stores, having those 3 stores was something we have been looking for, for a while, right, George? Because it's a country where every store is quite accretive. It's a very profitable market. We wouldn't look at a like-for-like in that case. We would look at, are we overall better off? And do those stores, in the context of their capital approval levels, make sense for that market. I don't know if that's where your question is going as well, but I thought it was important to give that. George Weston: Yes. Joana, having made that absolutely correct and very sensible remark, I've spent 20 years trying to persuade some people that there can be good negative like-for-likes, particularly in a process of rolling out. And I've failed in some cases. And I'm sure there are some of you who will be sitting here going, actually, no, there's no such thing as good cannibalization. But there is. Grocery has been good. Twinings, in particular, has had a strong sales year and has momentum into next year. We've had cost pressures in Ovaltine with chocolate costs that we've been dealing with. I think the worst of those pressures is behind us. The price adjustments to compensate for those have been taken, and all the collateral battles that accompany that pricing have been fought and they are in the past. So grocery, good. Acetum's balsamic vinegar. We know where the tariff level is going to be in the States now with more certainty than we've had through most of the second half. And the work to recover the cost of tariffs is largely behind us. So that's good. U.K. grocery businesses have been fine and, in some cases, good. So we're very comfortable. Australia grocery, the consumer has been in a difficult place. Australian consumers, we think, are coming out of that. So we hope to get some growth out of the Australian market next year. And the States, the last one that's worth picking up, we have a very large share of Hispanic consumers in Mazola. And there's a lot of fear in that community leading to expenditure declines. So we're facing into that, too. We really hope that, that's temporary for all sorts of reasons. But Mazola volumes -- market share of Mazola, really, really good, but absolute sales affected by reduction in the propensity to purchase of some of the Hispanic populations in the south of the country. Operator: [Operator Instructions] We will now take the next question from the line of Ashton Olds from Redburn Atlantic. Ashton Olds: I'm going to painfully ask 3 questions as well. Just... George Weston: Please ask. I don't know why you're apologizing for 3 questions this time around, because we always get 3 questions. Ashton Olds: Yes, exactly. I guess the first one just on tariffs. You've sort of mentioned that you've done some work on pricing, both in food and Primark. I'd just like to sort of clarify whether you're expecting to offset all of the tariff costs? And if so, is it about rebuilding percentage margins or just gross profit dollars? The second bit is just around Click & Collect and the contribution from that, whether it's sort of -- I think in the past, you've mentioned that you expected 1% of the like-for-like boost or so from Click & Collect. Is it at that level yet? I guess, initial learnings from rolling it out across all of your stores in the U.K. And then the final question, just I've seen your negotiated beet prices for FY '27 and some back of the envelope math points to about a GBP 20 million cost tailwind. Is that roughly right? George Weston: Because it's the quickest one to answer, beet prices, yes, you're about right. It's about -- every pound of purchase cost is about -- well, we're buying 7 million tonnes of beet, give or take. Tariffs, we're just after the cash cost recovery, not the gross margin -- not the margin percentage. And we've got, give or take, in the food businesses, most of it back. There's still a little bit to go in some areas, but we're in small numbers of millions of pounds that we still need to recover. So most of that work has been done and now done in a world where we understand the tariff rate from Europe and from the U.K. into the States. There's still some movement around with ingredients we're buying from China into the specialty ingredients companies in the States. So there's a little bit of uncertainty there still, but it's, again, reasonably small numbers. We haven't moved the prices yet for Primark to recover the tariff effects for that business, but we're beginning -- we're actually doing so, or starting the process of doing it this week. And we're watching our major competitors moving their prices too. So we feel pretty comfortable that although there may be some consumer pushback, that we're not going to lose our competitive position through taking those steps. Click & Collect, yes, I think 1% is still a pretty good number. And no, we're not up to 1% yet. I mean, we only got the capability fully rolled out in GB. So it's been a small number of months. Until it was available to everyone, pushing the consumer awareness up wasn't the right thing to do. It is now we're doing it. We're also in a better place to work out. Click & Collect helps 2 sets of consumers. One set is those that find it more difficult to get to the high street and they can get certainty that if they want something, they can buy it online and it will be there, and that's great. Particularly those consumers who don't have access to the full range that's available in a big store, perhaps their local store only has a proportion of the range. The range for them has effectively expanded because of Click & Collect. That effect we're seeing and seeing well. There's a second sale that we're after, which is about extending ranges. So leg sizes in jeans, for example, will be more available on Click & Collect and in some other product areas. So there's a sizing ranging. We can keep swimwear available throughout the year on Click & Collect, where we need the space back in stores and other things. All that experimentation is underway, but we're not -- it is not complete yet. So there's more to come from Click & Collect, but I think that 1% LFL remains a pretty good number. Operator: There are no further questions at this time. I would like to hand back over to George Weston for closing remarks. George Weston: Look, I think we've had a good knock around most of the business, Primark and Sugar in particular. Sugar will come back. We're frustrated that it's slow, but it will probably take another year. But we do, in the U.K., in particular, have a great sugar business. And in Spain, we're making what we have better and better. Don't forget Ingredients, it's had a good year, and it's got lots of growth potential ahead of us. We hope the consumer will -- European consumer, in particular, will feel more confident at some point in the future. And when that happens, we think we've got the offer to drive good like-for-likes again. The investments increasingly, this high level of investments, particularly in food are increasingly commissioning now. We'll see the benefits of those both in this year and then particularly in the year after. There's lots going on. We've tackled what I could sloppily call the problem children. And yes, we're looking to next year with enthusiasm, not that there aren't -- not there isn't a difficult environment to trade in, but we have a lot of confidence in the businesses. Let me stop there, and thank you all for attending this meeting. We'll speak again, I think, in November. Joana Edwards: Yes. George Weston: Good. Thank you. Joana Edwards: Thanks, everybody. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Gavin Ferrar: Good morning, and welcome to the Central Asia Metals Half 1 2025 Interim Financial Results. We'll start off on the results summary slide, where I'll just run you through some of the production and finance highlights. We can move to the next slide, please. Thank you. Next one. I'll start off with a summary of production and financial highlights. And you can see on the right-hand side of your slide there that we produced 6,218 tonnes of copper from our Kounrad operation in Kazakhstan, and from our Sasa lead zinc mine in Macedonia, produced 8,692 tonnes of zinc and 12,613 tonnes of lead. All this was done in a very safe fashion. We're very pleased that we achieved 0 lost time injuries for the first half. These operations drove a good financial performance. We generated revenue of $99.5 million, and EBITDA of $39.9 million for a margin of 40%. Importantly, today, we announced a dividend at 4.5p and supplemented by a $10 million share buyback program, which will commence today. That keeps our cash returns to shareholders consistent and comparable to the half 1 2024. We have a strong balance sheet and positive cash flow, $47.7 million in the bank, and that will be boosted by returns received related to the New World Resources transaction of both the break fee plus also the sale of shares in that company. Kounrad maintains its position on the cost curve and capital projects at Sasa effectively completed for the year. Now that gives you the backdrop to the financials that Louise is going to run you through right now. Louise Wrathall: Thanks, Gavin. If we go to, yes, market conditions slide, thank you. So yes, if we just spend a minute looking at the market conditions, which frame the results that we're announcing this morning. In terms of commodity markets, we saw a lot of volatility in middle of the period due mainly to the Trump trade wars. Taking everything into account for the full 6 months and comparing that with H1 2024, we saw a 3% increase on the average copper price we received, a 1% increase on the average zinc price and a 7% decrease on the lead price that we received. In terms of treatment charges, right now, it's a good time to be a miner rather than a smelter. And I think as we've mentioned before, our treatment charge contracts run from April to April. What we are seeing is a reduction in treatment charge for this year versus last year of around about 40%. And for the first half of this year, that translated into a reduction of treatment charges of around about $3 million. Looking at foreign exchange, some good news for us and bad news for us at Kazakh tenge that weakened by about 10% period-on-period, and that helps us when we come to report our costs in U.S. dollars. On the flip side, though, the Macedonian denar, which is pegged to the euro, was stronger versus the U.S. dollar. And that adversely affects our U.S. dollar costs for the Sasa operation. So looking now at the income statement. As Gavin mentioned, we've reported revenue of $99.5 million. That was very similar to revenue for the first half of last year, just 2% lower. And that reflects lower sales volumes across all the metals, but that was impacted on the positive side by the lower treatment charges that I just mentioned. Cost of sales were up by 14% or around about $7 million. Lots of factors at play there really, a lot of those related to the Sasa operation. We had an increase in the revenue royalty that we pay in North Macedonia for the metal that we produce called the concession fee. That increased from 2% to 4% from January. And that accounted for over $2 million in fees, up from $1.2 million last year. We also had higher wages at both operations, although at Kounrad, that was mitigated largely by a weaker tenge. There was the currency effects that I've just mentioned of the weaker dollar versus the Macedonian denar. We also have some additional depreciation because now we've started using the dry stack tailings plant and landform that we completed in the first half, and we also paid over $2 million extra for the silver that we buy for our silver streaming commitment. We see that effectively canceled out on the higher revenue number as well, but that does contribute to an increased cost of sales. If we look at our admin costs, they look like they were up quite significantly at 24% increase. But that relates to -- that works out at just less than $3 million. And all of that really is related to our business development activities, $2.3 million of that additional BD costs, which was related to the New World Resources attempt to acquire that company. We also spent $1.1 million on exploration both for CAML X and Sasa, and that was up from around $0.3 million in the first half of last year. And we also disposed of Copper Bay, and we incurred fees for that of $0.4 million during the year as well. So all in all, taking the revenue and costs into account, we've announced this morning EBITDA of $39.9 million at a margin of 40%. If we look quickly at the profit after tax, that's adversely affected by some quite significant noncash share-based payments, which we changed the way we report those as effectively cash settled rather than equity settled last year. We had a $1.8 million swing on foreign exchange. And we also look like we've got a higher effective tax rate. That's really due to consistent taxable profit in Kazakhstan, where our CIT is at 20%. If we look at the cost of the two operations. At Kounrad, we had a very good result cost-wise for the first half, where our C1 cost base in absolute terms decreased by $0.6 million. That's mainly due to the Kazakh tenge devaluation, but also there were some lower variable input costs, mainly reagents, and that was both usage and cost of those as well. Our C1 costs rose by $0.01 per pound, and that's just due to the slightly lower copper production versus the first half of last year. We did give our workforce an 8.5% wage increase, which was based on inflation figures, but that's largely been mitigated by the devaluation of the Kazakh tenge during the period. So all in all, we reported a margin of 72% for Kounrad, which is exactly the same as H1 last year. Turning to Sasa. Our run of mine costs increased at Sasa during the first half of this year from around $60 a tonne last year to about $65 a tonne this year. That's about an 8% increase. We've already covered some of the reasons why that was. There was the weaker dollar. There was also increased salaries and pay rises. We also incurred some higher costs for the new tailings disposal method. So we had a full period of operating the paste backfill plant, and we also began to operate the dry stack tailings plant and the landform as well. Also, our electricity costs were higher than the first half of last year by just under $1 million as well. If we look at our C1 cost base, though, that was actually only a 3% increase from $31 million to $32 million, and that was positively impacted by the lower treatment charges that I've already mentioned. And for the first half of 2025, we've reported an EBITDA margin of 26% for Sasa. Capital expenditure for the period, we've spent $7.4 million. Of that, $6.3 million was sustaining CapEx at both of the operations, $4.2 million at Sasa and $2.1 million at Kounrad. That's higher than the usual run rate at Kounrad, but we've had a good program of replacing anodes and cathodes and that cost us about $1.1 million there. We also, I think, previously told you, we're planning on moving some material called Dump 15 further away from a railway line so we could easily leach that. We spent some additional money there, moving the material in Dump, 15 and we've since completed that post the period end. Our capital projects are basically concluded now at Sasa. We spent $1.1 million on those, and that was really finishing off the dry stack tailings plant and the landform as well. We are still expecting to spend the additional $11 million to $14 million of CapEx this year. We only just started the raise boring program that just commenced in the first half of the year, and that will go -- carry on throughout the second half. We've got an extension to the landform that we're planning to get started on this year. We still have some additional underground equipment to buy and also some additional underground development. So all in all, we are reiterating our CapEx forecast and guidance for the year of $18 million to $21 million. Looking at our balance sheet. Just a few things to pull out of interest for you there. PPE looks like it's increased considerably notwithstanding depreciation, and that really reflects the weaker U.S. dollar versus the Macedonian denar. Our group cash balance of $48 million, that includes the cash and also $0.3 million restricted cash. It excludes $1.8 million of what through the audit process we clarified as being cash in transit. We had added that into the cash figure that we reported in the Q2 production numbers. So that's been adjusted for these results. It's worth pointing out that post the period end, we sold the shares that we had acquired in New World Resources to try to push ahead with that transaction. We sold those for $18.7 million. We also received a break fee of $1.6 million. So our cash position has been bolstered by that plus the cash in transit. Bank overdrafts, we built up an overdraft to $6.6 million as of 30th of June. That's substantially reduced by now around about $1 million as it stands now. One of the small things to point out, we did have a line in the balance sheet, assets classified as held-for-sale. That was Copper Bay. That's now quoted as nil for the 30th of June position because we sold Copper Bay in April. Final slide for me. Looking at our cash flow and our free cash flow. We generated $34 million cash from our operations during the first half of 2025. We paid $20.6 million in dividends. That was the 2024 final dividend. We paid taxes, that's income tax and withholding tax of $16.3 million. That was $8.1 million higher than it was in the first half of last year. We spent $7.4 million on CapEx that we've talked about, and we spent the $16.7 million on buying those New World Resources shares during the first half as well. We drew down $5.9 million of our overdraft. So we ended the period with a cash of $47.7 million. In terms of our free cash flow, we're reporting adjusted free cash flow of $16.2 million. And just to reiterate that post the period end, we have received the USD 18.7 million in cash from selling the shares, the $1.6 million break fee and the $1.8 million of cash in transits as well. I'll hand back to Gavin now, who will run through the operations. Gavin Ferrar: Thanks, Louise. So we kick off on Kounrad. Some of the highlights there really, just yet another consistent and reliable performance from Kounrad over the period with that 6,218 tonnes of copper that we produced. And that means we're on track to meet our guidance of 13,000 to 14,000 tonnes for the year. As I said, steady as you go. So not a huge amount to report yet. The solar plant, though, if you remember, we built that and commissioned it back in November '23. That's actually playing around 17% of our power requirements at Kounrad now. So that's really starting to pay for itself with some of the electricity costs going up there. And we actually received -- sorry, achieved a record in May, where we actually produced 22% of our electricity requirement from that little plant of ours. So that's all gone quite well. But as I said, steady as she goes at Kounrad, producing really well. And if we look at the next slide, We -- as Louise said, that relocation of Dump 15, that's all complete now. And we've had some additional CapEx. And part of the reason for that is just to maintain production and keep the plant fully invested so that we can extend it all the way to the 2034 and potentially beyond. If you look at that leach curve at the bottom there, the Western Dumps are outperforming and the Eastern Dumps have also outperformed over their life. So all of that points to the original forecast of 79,000 tonnes that we still have. We're calling that now the minimum recoverable given the outperformance of both West and Eastern Dumps. So that might lead us to think about extending the life of that license at some point as well. But there's quite a lot of work to be done around that. Sustainability activity, still a good part of our business. We think it's important to support local communities, and we do that through the foundations plus also some other donations. But most importantly here, we've had 0 LTIs, lost time injuries at Kounrad since May 2018, which is a simply amazing achievement and when you think about the various hazards that exist around mining projects and assets. Some of our sort of newer activities include a biodiversity management plan that's been put in place at Kounrad. And we've also instituted a big safety and occupational health assessment there as well. As I said, local communities remain important. And through cultural, medical, educational and youth initiatives, we continue to support the local communities around Kounrad. If we move on to Sasa. As we mentioned earlier, we produced 8,692 tonnes of zinc and 12,613 tonnes of lead. If we look at the table on the right-hand side, I'm pleased to report that the tonnages of the ore mine has actually gone up 8%. And if you recall from last time we presented to you, that was one of the key targets that we set ourselves, to get back up to that sort of 800,000 tonne level. That's what we've been targeting. Unfortunately, you'll notice that the grades for both zinc and lead are lower. And that's because we're still having a few teething problems with the new mining methods that's causing a little bit of dilution. And we're also encountering variable geology at depth in the mine, and we'll talk about that on the next slide. But you would have seen this was apparent through H1 with both lead and zinc production being down when we announced back in July. So we've reduced our guidance modestly and currently on track to achieve that guidance. If we go to the next slide. So what we've done at Sasa because of these issues is effectively implemented a full strategic review. We started this in about middle of H1 just to have a look at the whole operation at Sasa. We expected the ore body to narrow at depth, but -- and which is one of the reasons we're putting these new mining methods in place. But what we did encounter and what we weren't expecting was a high level of variability, both in terms of geometry and also grade as we moved into the lower levels of the mine. As I said earlier, there was a little bit of dilution from the new mining methods. And as we get better at doing those, that will reduce. But we really need to understand that ore body better. So we're drilling more holes. We're creating more drill platforms and making sure that we understand the ore body so we can plan ahead and utilize these mining methods to their best abilities. We're also tightening up on grade control and we're reviewing all aspects of the mine. This goes mining, processing, laboratories, admin, the works. And we've also -- in addition to a lot of internal initiatives that we've come up with, we've also had some external consultants just as a fresh pair of eyes over the operation as well to assist us. We're basically coming up with some recommendations. And we've already started implementing some recommendations. We'll continue to do that through H2 looking to sort of improve that performance at the Sasa operation. Sustainability, again, we've got 0 LTIs for the half, which is a good result for Sasa, much more complicated than Kounrad, underground operations, lots of moving equipment and a full sort of more mechanical looking plant, plus 2 new plants as well. So a really good result from the guys on site there. As Louise said, we've now completed our dry stack tailings plant, and we've placed around 60% of our tailings during the first half either onto that dry stacked landform or back underground as cemented paste. And that's getting us some way towards approaching our target of 70% that we're looking to achieve by 2026. We've tested an emergency alarm system that relates to the wet tailings facility, the TSF 4. That was partly due to the GISTM conformance that we announced about this time last year plus also some local regulations, and that's gone really well. And we've also continued educational support both on-site and in the communities around us as well as starting a little kick-starter program for businesses in the region as well to formulate some longer-term sustainable programs there. In terms of exploration, as you know, we've got 2 programs underway here. One is the investment in Aberdeen Minerals in Scotland, looking at their Arthrath nickel copper cobalt project, currently drilling what we call Phase 2b, that's following up on Phase 2a. Phase 2a effectively prove the geological hypothesis that there was mineralization at depth. Now it's basically chasing that mineralization and looking to sort of bulk it up into -- and guide us towards resource development there. And we expect to make a decision on whether or not we invest a further GBP 2 million into the business by the end of the year, and that will be based on the results from that Phase 2b drilling program. Early-stage exploration in Kazakhstan. We've got 4 licenses active there. We've done a lot of surface work there both in terms of geophysics and geochemical surveys, which have been completed on 2 of the licenses and underway on the other 2. Those will hopefully lead to us being able to make decisions on whether or not to drill these licenses in 2026. So good progress in Kazakhstan as well. And we've also set up an entity in Kazakhstan to look at more advanced projects than these early-stage exploration things as well. And there's some very interesting projects coming into that pipeline as well. Right. So going on to capital allocation which, as I mentioned earlier today, there's a few changes there. So we've got the 4.5p dividend and we're compensating that with that $10 million share buyback. Total cash returns, around $21 million, and that is comparable to several previous periods where we've paid these dividends. And that brings our total shareholder returns that we've announced to over $400 million since IPO. Over time, we're looking to revert back into our dividend policy of 30% to 50% of free cash flow. But we remain committed to capital returns to shareholders whilst the company is looking to find a future growth opportunity as well. So a little bit of a change there, but similar returns with the ultimate goal of getting back into policy and setting the company up for future growth. So in summary, as I said, Kounrad is on track to achieve its full year guidance. Sasa is on track to achieve guidance, but there are challenges there, which I said we're basically looking to confront over this half and improved productivity and production at Sasa. Capital allocation, just talked through that. We've got sustaining CapEx at both projects now, now that the actual capital projects are complete. We've got that 4.5p dividend up to the shareholders this morning plus that $10 million buyback, which is active right now. And we're still looking for a material growth opportunity. Now the New World Resources activities over the first half, which I'm sure many of you followed closely, basically prove a few things now. I think as a business, we're able to identify these opportunities outside of sort of usual auction processes or things like that. We're able to finance them and we also got really positive feedback from our major shareholders at the announcement of that potential transaction because we thought it was accretive and a good thing to do. And then also the timing of our withdrawal just demonstrating that sort of discipline and fiscal discipline that we've always shown as a business. Our balance sheet remains flexible with a strong cash position, as Louise talked you through earlier. And that will allow us to access debt and to finance growth in future. So at that point, I'll stop and invite questions from the floor. Thank you very much. Operator: [Operator Instructions] First, we have a question from Will Dalby from Berenberg. William Dalby: Yes. Just a couple of questions for me. Maybe starting with Sasa, just looking to maybe get a bit more color in light of that review you've had with external consultants. How should we be thinking about the mine plan there now? Is this sort of adapt and rebase lower situation in terms of grades and mining rates? Or is it more kind of wait and see how these improvement measures turn out? I guess more specifically, what sort of grades and mining rates can we expect from Sasa going forward? That's the first one. Gavin Ferrar: Yes. Thanks, Will. I think the mining rate certainly as we demonstrated are -- it's possible to get back up to that 800,000 sort of level with the new mining methods and potentially beyond that. But I think what we're trying to do is identify the areas that we can improve, not only in mining, but also processing right the way through to laboratory and other processes that we've got on the operation. So we just thought it was worth having a look at everything there. Clearly, we'll be prioritizing those things towards production initially and then rolling out the rest at the appropriate times. In terms of the grade, yes, we have confronted slightly -- being confronted with slightly lower grades, but also a highly variable ore body. So we just need to make sure we understand that a little bit better, and that will improve the dilution metrics I was talking about earlier and also our planning as we go ahead. So we'll be running additional mine plans and various other things in the background just to make sure that we still got a good handle on the asset. But at the moment, I think what we're trying to do is stick to the current plan and just make all of these improvements to ensure that we can get the metal out of ground within that guidance range. William Dalby: And then second, just on Copper Bay. So what's -- just interested to get your understanding of the development progress there given the contingent payment structure, where -- when are you modeling receiving those payments? Gavin Ferrar: Look, I mean, I think we sort of handed over a project that was fully permitted and with a full DFS. Now it's completely up to the new owners as to the -- whether they're going to reconfigure any of that project or whether they're just going to start constructing. I think they're probably still in a process of getting their team together and putting a construction team together. So really, the best outcome there would probably be, if you think about standard construction periods for these things, it's probably going to take them 18 months to 24 months to construct. And then there's ramp-up. And as you recall, the milestones on those payments are related to actual copper produced. So we got to wait for them to produce that amount of copper. So it could well be 3 years up plus. William Dalby: And then I think just the last one and I'll then free up the line is around the dividend buyback decision. I just -- obviously, the shares have had a bit of a negative reaction this morning. Kind of reading into that potentially could be some of the commentary around returning or looking to return to the dividend policy of 30% to 50%. I just wonder whether you could maybe give a bit more color on your rationale behind opting for the buyback. I know the buyback plus the lower dividend sort of nets out sort of the run rate that you've had in recent periods. But yes, I think it would just maybe be helpful to have a little bit more color there. Gavin Ferrar: Look, I mean, I think it's been a big debate at the Board for the -- the last few times we've debated the level of dividend. And I think what we've got to do is sort of balance the shareholder returns against our sort of strategic ambitions as well. And I think that is one of the key areas that we thought with the share buyback, we had a little bit more flexibility around that. So we put the share buyback in place. and ensure those returns to shareholders that are consistent. But if we had a large transaction to finance, then we'd have the option to deploy that cash in that direction. And it just gives us a little bit more flexibility. But I think the sort of overall philosophy remains fairly similar in terms of both returns to shareholders, plus also in the absence of a material transaction, then we have the option to sort of either continue that buyback. And if something comes up, then we can pause it or put it in a band somehow. So I think it just gives us a lot more flexibility around the capital returns program to our shareholders. Operator: And up next, we have a question from Julio Mondragon from BMO Capital Markets. Julio Mondragon: So just a couple of questions from my -- on my side, sorry. In terms of the operational review performed by external consultants, right, you just mentioned that to Will, but what are the key outcomes of it? I think like what things are to improve at Sasa? And also, is there any material CapEx or OpEx related to these improvements? Or how do you expect to see the results of these improvements? Gavin Ferrar: So look, I think the first point I'd make is that there's a combination of both an internal review, which has been undertaken plus the external review. And the recommendations are a compilation of both of those really. I'll answer your second question first. There's no material CapEx around this. I think what we're trying to look for is a lot of incremental improvements in terms of the way we operate in order to achieve the tonnages we're targeting, get the throughput through the mill at the sort of optimized rate as well and, therefore, produce as much metal as we can. So I think that's the overall philosophy. One of the areas that might take a little bit more understanding, as I said, is the geology, which has actually turned out to be -- the deeper we drill, the more different it turns out to be than our original interpretations. So we need to look quite carefully at that and just make sure that we've got a better handle on the geology and the lower levels of the mine so that we can, a, plan ahead appropriately and b, deploy the correct mining method to the geometry and width of the ore body that we're confronted with. Julio Mondragon: Perfect. And one more question, if I may. So in terms of your operational costs, what's the outlook for the rest of the year, right, what in H2 '25 -- I mean, into 2026? And what is your exposure to domestic currency at both operations? Gavin Ferrar: Well, I can talk a little bit about the cost. I think we're looking to -- I'd love to say we're going to improve those costs, particularly at Sasa, but I think we've still got some work to do there. So there's -- we're clearly looking to save money where we can and improve things as quickly as we can at Sasa, but some of these programs may take a little longer to roll out. In terms of the 2026, I think, is when we're going to start seeing -- again, I'm sort of open to correction here, but I think that's when we start looking at improvements late '25, early '26 really to start coming through on that front. In terms of the proportions of exposure to local currency, have you got those numbers? Louise Wrathall: About 60% to 70% in Kazakhstan. And then effectively, it's a large number. It will be a pretty significant number, probably higher than that in Macedonia because a lot of the costs are either denar or euro. Obviously, in Kazakhstan, we've actually seen the tenge continuing to weaken into the second half. So that would have a positive impact. But actually, unfortunately, we've seen the opposite with the denar and the euro. So that's continued to strengthen versus the dollar into the second half. The only other thing I'd point out is that the dry stack tailings plant and landform, we've run that for our part of the first half. And obviously, in the second half, we're going to be running that for the full 6-month period as well. Electricity, we are hopeful that, that could come down, and we could get some savings there. But a lot of the other aspects will be sort of pretty much fixed in. But just to add to what Gavin said about the strategic review that's underway with both our internal ideas and external consultants, that's focused on both productivity improvements and cost improvements as well. So it's not just productivity that we're looking at. Operator: [Operator Instructions] And we have another question now from Laura Chan from RBC Capital Markets. Laura Chan: My question is about the New World acquisition and, I guess, with not being successful in it going through, I guess just keen to hear your thoughts about learnings moving forward and acquiring something else and what could you have done differently? Gavin Ferrar: Thanks, Laura. Look, we're all really disappointed by the outcome there. But I think, ultimately, what we were confronted with was an interloper with very deep pockets and absolutely determined to purchase this asset at whatever price. So could we have done anything differently? I think probably not in this case because ultimately, it was always going to come down to price. And we got to a point where we thought, looking at it from various angles, the acquisition cost, the risks of execution of the project, risks around CapEx, various other things, it was starting to get to a point that it no longer made sense for our shareholders. So that's the decision we made then was we thought a rational decision to pull out. And I think the -- but what it did demonstrate, as I said earlier, is our ability to identify, finance and then present something to the market that had a positive impact on our business. So I think we'll be taking a lot of comfort from that moving forward. And as we repopulate that business development pipeline, we've got a fairly good handle given the interaction we had with our shareholders through the process of where their sensitivities lie, where our sensitivities lie and, therefore, how to configure the next one when it comes along. Operator: Thank you. And as there appears to be no further questions at the moment, I would now like to hand the call back over to you, Mr. Ferrar, for any additional or closing remarks. Gavin Ferrar: Thanks. So thank you very much to all of you who attended this morning. The presentations are available on our website. I think there's going to be -- this presentation will be uploaded as well at some point. But we appreciate your continued support and interest in the business. Thanks very much.
Operator: Good morning, and thank you for standing by. Welcome to the Associated British Foods Trading Update Conference Call hosted by George Weston, CEO; and Joana Edwards, Interim Finance Director. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to George Weston. Please go ahead. George Weston: Good morning, everyone, and thanks for joining this call. We've got quite a lot to go through because we've had a very busy second half. This, as a reminder, is the trading update for that second half of the 2025 financial year. I am pleased with how the group has performed in the second half. The environment is very challenging given ongoing consumer caution, geopolitical uncertainty, tariffs in particular, and actually persistent inflation in both the U.S. and in the U.K. markets, particularly around food. Let me start with Primark, where our overall sales are expected to be up 1% in the second half. Very pleased with the strong improvement in trading in the U.K. and Ireland. Total sales expected to be up in the second half after a difficult first half, particularly in the months that followed the budget. The product offer was strong. Womenswear is absolutely flying. The execution is good, both in-store, but also in our digital engagement. We're trialing our app, which is coming soon to all markets. Click & Collect is fully rolled out in GB. And we're continuing to optimize the store estate in the U.K., a couple of new stores and then refurbishments. All this contributed to the market share gain in the U.K. market. So from 6.6% in the first half to 6.8% in the second half gives us great confidence. In Continental Europe, the consumer environment is very difficult. Spain is, I think, more driven by income in France. It's driven, not surprisingly, by sentiment. So the second half trading after a strong first half or a very good first half in Continental Europe has been soft in the second half. U.S., good. We've opened a number of new stores. They're trading well. We are, just this week, beginning to raise prices to pay for the tariffs. The rest of the U.S. clothing retail sector is doing the same thing as best we can see. But the U.S. delivered good growth in the first half and the second. We opened 15 stores in the second half. We're actually opening two today, one in France, in Montpellier, and one in Italy. So the rollout continues. As a reminder, our first store franchise operation in the Gulf states opens before Christmas. And we think that those markets, the Gulf state markets, will be very good ones for us. Primark's profit delivery in the second half remains strong and adjusted operating profit margin for the full year broadly in line with last year. So that's Primark. Difficult consumer environment, but actually trading well. And lots of, I think, the ranges going into autumn/winter, very strong. Womenswear, good. Moving to the food businesses, where trading in the second half has been fully in line with our expectations. And we have given an update today where guiding Sugar profitability. There's profit improvement in Sugar to be delayed. We'll get some back next year. We'll be clearly profitable next year. But the restoration of margins in the European market will take a bit longer. Europe remains oversupplied. Africa, on the other hand, is doing really well. We are very close now to the commissioning of the new plant in Tanzania. Important step for us. That's one. We've done what we said we were going to do in tackling some of the difficult areas. So Vivergo very sadly has gone. It didn't need to end up where it did, but being closed. But sadly, the Vivergo part of our history is now been and gone. The restructuring of our Spanish Sugar business has again occurred. There's more to do, but we've taken a great hack out of our cost base in Spain. As I say, there's more to be done. Again, that Spanish business then will depend on the restoration of more sensible European Sugar business. The cost base is much reduced and will be further. And then in the U.K., where after dancing around each other for seemingly years, we've reached an agreement to acquire Hovis, subject to CMA approval, of course. It's an opportunity -- it gives us an opportunity to extract very significant synergies and to create a sustainably profitable bread business, which is then a platform for innovation. It's important that we all look at this merger not so much as a synergy play, not just as a synergy play, although that's important and big. It's also a new platform for improved consumer offers. As I mentioned, it's subject to CMA approval, and we've begun to work through that process. Always much more to be done, but we've done a lot. The restoration of a much better level of sales performance in the biggest market, the U.K., has been a standout trading in the U.K., actually across Continental Europe in the last few weeks as we got into the spring -- sorry, into the autumn/winter ranges has been very good. So we're confident in the performance looking forward. With that, let me hand over to questions. Operator: [Operator Instructions] We will now take the first question from the line of William Woods from Bernstein. William Woods: The first question is on Primark. Obviously, you've seen slightly softer performance in France and Italy over the last few months due to the macro. Do you think you're losing market share here? And I suppose when you look at the opportunities for expansion, France and Italy are key markets for that. Are you still comfortable on the relative market position in those markets? And then the second one is, obviously, U.K. bread has been a challenge for a long time, and you've talked about fixing the problem children. Why did you decide to make that problem potentially bigger by acquiring Hovis? And do you still see this as rational capital allocation? George Weston: Okay. France and Italy fundamentally are good markets for us. It's quite hard to track market share in both countries because our presence is reasonably small still. But yes, good first half in both markets, poor second half in both markets. I think it's a consumer sentiment issue rather than a loss of relevance. There's no reason to think that we've lost relevance in either market. U.K. breads then, I think we went down this route, but having thought about a number of others, because in the end, it's the most profitable thing for us to do. And we pay -- the synergy benefit from this merger is very, very big and gives us a platform to move from there. It would have been very -- given the scale of the losses in Allied Bakeries, it would have been hard to have sold that business for any significant consideration. To have done that, to have given it away would have been value destructive. We think that the platform that we create by merging the 2 supply chains will be a very strong one. We've got to wait for the CMA, of course, but I think it was a very rational decision. Operator: We will now take the next question from the line of Grace Smalley from Morgan Stanley. Grace Smalley: My first one would just be on Primark margins. I know you reiterated your guidance for this year. But just as you look ahead, could you comment on how you'd expect kind of Primark margins to evolve from here and the headwinds and tailwinds we should be taking into account as we forecast Primark margins for next year? And then my second question would be on space. I think for Primark, you previously said that you'd aim for kind of your medium-term growth contribution from space to be around the 4% to 5% mark. And this year was always expected to be at the lower end of that. But could you just confirm that you still see 4% to 5% as the right medium-term range? And where we should expect that to land next year or whether that should again be at the lower end for next year? And then my last question, sorry, also on Primark, would just be on the competitive landscape. We've heard from Inditex this morning that they are testing their lower price point banners, Lefties, into new markets. So just would be interested to hear your take on the current competitive landscape for Primark and any changes you're seeing, if any? George Weston: Okay. Primark margin, I'm going to share the answer to this with Joana, who's sitting beside me here. There are currency tailwinds. We won't see them really until the second half. There are, we believe, some opportunities for a company which is still -- where 90% plus of our sales are coming into Europe against the States to benefit from American retailers making different decisions and the American market looking less attractive for Asian suppliers. Joana, what else would you say about that? Joana Edwards: Well, we probably will see some tailwinds on freight. We have seen this year some tailwinds on stock loss. So there's nothing more to signal there. We're hoping to get even further under the skin of that. And then we continue to look at efficiencies as well, which are important because, as we said before, we want to invest some of that back into creating demand. So not necessarily putting it into the overall margin level, which we have said we are comfortable with now. It's back to pre-COVID. But yes, those tailwinds, there are some tailwinds, as you very rightly said, Grace. George Weston: Space, I think 4% feels about right for next year. And then into the future, we'll see how -- as you know, we've been very disciplined about not chasing space where it doesn't make -- where it isn't good space, and we'll continue to do that. But yes, around about 4%. Then the competitive landscape. Lefties is a very good operation. We've competed very successfully against them for many years in Spain. And I have no doubt at all that they have something to offer consumers in other markets as well. But just as we've competed well with them in Spain, so we'll compete well with them anywhere else. I think there is potentially a reduction in the competitive intensity from people using de minimis legislation. That's going to help us somewhat in the European markets. We hope the U.K. government gets its head around that as well. And just maybe there's a little bit of help going on from that same source in the United States. So competitively, we feel in good shape. Grace Smalley: Okay. Very clear. And sorry, just a follow-up on the margin commentary. If I put everything you said there together, clearly, there are a number of tailwinds. But then at the same time, you also said you're comfortable with the overall margin level that you've reached at the moment. So is the idea that you will be reinvesting some of these tailwinds back into the Primark business? Or are you happy to let some of these tailwinds flow through to some margin expansion as we look ahead? George Weston: I wouldn't be modeling an increase in the margin next year. We've got a lot of plans around reinvesting, as Joana said, in demand creation. Operator: We will now take the next question from the line of Monique Pollard from Citi. Monique Pollard: Three, if I could. The first is just on the U.K. market share gains that you point out in your opening comments in the statement. Just wondered if you could give us a sense of how much benefit you thought you got from Marks being down during the cyber, and whether you think you can retain the share gains from Marks now that it's back up and running? The second question was just to try and understand, in the agriculture business, you mentioned lower contribution from the joint venture, Frontier. Just wondered the scale of that lower contribution, please? And then the final question, again, on agriculture. I'm just trying to understand whether agriculture needs to get rebased going forward, FY '26 onwards, to a lower level, because you don't have the byproduct of animal feed from Vivergo ethanol production anymore? George Weston: Yes. Okay. No, we don't think our share gain was down to Marks being offline. We watch the switching data, and we didn't see anything that would indicate that, that was going on. We think the share gain has been about excellence in womenswear in particular and which continues as we get into autumn/winter ranges. And we think maybe a little bit of sharpening up of price perceptions and then the consumer having a little bit more confidence than they had in the aftermath of last year's budget. So I think that, that is where share gain is coming from. In aggregate, the JV, probably this year's underperformance has cost us between GBP 5 million and GBP 10 million. That's our share of post-tax profitability of that business. It was a horrible year to be either a grain trader or a supplier of inputs into the cereal sector, because the weather was about as unfriendly as it could have been. We think that, that will -- it's hard to imagine a worse year for that business, and some of that at least will come back. Yes, you're right that Vivergo -- the sales of Vivergo to particularly the dairy sector have come to an end with the shutting of Vivergo, probably worth between GBP 2 million and GBP 5 million to us. That's the sort of scale. So the agri business has been making kind of high 30s, low 40s. So it's not a wholesale rebasing we'd be advising you to consider. Joana Edwards: Yes. And I think, if I can add, the agriculture performance this year was impacted by one-offs. So yes, it's below prior year, both for the first half and now for the second half. But as George said, there's a weather impact on Frontier. The one-offs are significant. And therefore, those are not to be carried forward. As George said, I think that the figures that we've seen historically, yes, there is the Vivergo impact, which is not very material for the overall agri business, should allow us to go back to that sort of level that we had in the past. Operator: We will now take the next question from the line of Georgina Johanan from JPMorgan. Georgina Johanan: I've got a few quick ones, please. Just first of all, in terms of the reinvestment that you're making in the Primark business, it would just be good to hear a little bit more about that. Obviously, we've seen the new marketing campaign in the U.K. So is that more around communication of the offer? Or is there actually some price investment going in as well, please? Second one, just in terms of the strong performance that you're seeing in the U.S., it would be good to understand if the stores were back in or were now in like-for-like growth in aggregate, please? I do appreciate the subtleties around sort of space rollout and cannibalization and so on, but it would be good to understand that. And then just finally, in terms of the Hovis acquisition, assuming that's approved, what sort of time frame is it for those synergies to come through, please? And I think the synergy number that was quoted in the press was around GBP 50 million or so. It would just be good to understand if that was a sensible number to be thinking about. George Weston: Okay. I mean in terms of Primark reinvestment in consumer, yes, some of it is price. You will have seen the Palazzo jeans at GBP 12 as part of the denim offer, which we've been advertising. We've gone on air with specific range advertising in the U.K. for the very first time, and we'll see what that does for us before we decide whether we're going to do more. There's a lot of investment in digital. There's more paid marketing. There's more search engine optimization going on. There's also investment in capabilities. So the app is being trialed at the moment and will be available, we hope, in just a couple of months' time. So wide range of reinvestment in both the systems that allow the digital communication to keep on improving and also some reinvestment in -- some investment in above the line and then selective price reinvestment. We think that our price gaps are as strong as they've ever been. So we think competitively that we're very, very well placed. We're addressing or we have addressed I think, the beginnings of perceptions around our pricing. It was never a reality, but we've been working hard in campaigns like Never Basic and also, I think, the jeans offer that is in stores now. U.S. like-for-likes. We didn't talk about the like-for-likes when they weren't great, and we're not going to talk about the like-for-likes when they're much better. Otherwise, I'll have to talk about them when they weren't great again. But we're very encouraged by what we've seen in the second half, both in the performance of new stores and also in same-store sales, but I'm going to take a bioscience of where we actually are. Hovis, we expect that the process with the CMA will probably take a year. Maybe we can shorten that, because we believe the case we've got to put to them that this is in the consumers' interest is very strong. And then to harvest the synergies, think of it -- well, different waves of it, but we get most of them done in another year, and we get some of them done much quicker than that. But there's a bit of engineering to be done moving bread lines around and so on, and that takes a little while longer. But it will be pretty quick, and we know exactly what we want to do. And sorry, the GBP 50 million number. I think it's bigger than that. Not much, but that's same gang, but probably there's upside to that GBP 50 million. Operator: We will now take the next question from the line of Warwick Okines from BNP Paribas Exane. Alexander Richard Okines: George and Joana, I've got 3 as well, apologies. Firstly, just sort of to be a bit more direct, do you think you will have average selling price deflation next year in Primark? Secondly, do you think '26 looks again like a year of higher gross margins in Primark funding operating cost inflation? And as a sort of part B to that, could you tell us what you're expecting for business rates, please? And then the third question is on sugar. A year ago, when you were contracting at this time of the year, you said that the prices were down as much as EUR 300 per tonne. Where are you now? Is that a bit higher year-on-year? And maybe just quantify that. George Weston: Okay. Selling price deflation. No, I don't think we will see it. If we need to move our prices down, we will, but I go back to the answer I gave to Georgina. Our price points are exactly where they need to be. Our price gaps are exactly where they need to be. Higher gross margins funding higher costs. Yes, to some extent, labor costs in markets are up, but we have a lot of self-help, too, self-checkouts, for example, improvements in supply chain efficiency, improvements in internal data transfer. All these things help reduce our cost base. There's not a lot of inflation coming in from the cost of goods. And obviously, currency, it moves around a bit. But we're looking at the second half with a bit of a following wind against the dollar. Where do I expect business rates to go? I wish I knew. I think it would make a lot of sense for the government to reverse its course on higher business rates for larger retailers subsidizing the rest. If you want a vibrant high street, you need the anchors to be in good shape, and the higher business rates act clearly against that. What was -- there was the last point on sugar prices. Yes, they've gone up a bit, but not as far as we thought they were going to go. We thought that more acreage would come out of beet growing across Europe. It didn't. We took our acreage down a bit in other areas. In Continental Europe, the beet acreage actually went up. I'm not sure how rational some of those decisions that led to that were. In Spain, we've obviously taken out processing capacity in shutting 2 beet factories. There is other processing capacity that is being taken out in other parts in Europe. So sense is slowly returning to the market. I thought it would come back quicker than it has. That's why I made the comments about these much lower prices being temporary. They are still temporary. They're just longer. Operator: We will now take the next question from the line of Richard Chamberlain from RBC. Richard Chamberlain: I wondered if -- I've got 3, sorry, to continue the trend. But on starting off with Primark, George, I think the statement says that Primark sales were softer in a weaker German market in the second half. I wondered if you saw a big difference in Q3 and Q4 trends in Germany. That's the first one. The second one is around Primark advertising, the "In Denim We Can" campaign. Is that a sort of precedent for other markets or other parts of the business? Should we expect now a sort of more permanent step-up in marketing costs? And then just finally, back on the Sugar side. I just wondered if you guys can give a bit more color on the sort of moving parts for the Sugar profit bridge into next year. It sounds like you're targeting a small profit overall. But I was wondering how Illovo might play into that? And then I guess, following on from Warwick's question, how much of a drag could pricing be into next year? George Weston: Yes. Okay. Do you have the Q3, Q4 Germany split? You're not exactly down in the weeds, but it's -- I don't have it in my head. So that's 3 and that's 4. Yes, Q4 was worse than Q3. Both were negative, but after a very strong first half, albeit helped by the tailwind of the strike of the previous year being resolved, Q3 was mildly negative, Q4 rather more so. That's that one. Marketing campaigns, we're convinced that we have to work harder to get the attention of shoppers more generally, but particularly in an environment where consumer confidence is not great. So I think our investment in consumer-facing activity, whether it's digital or whether it's above the line, will be higher in the future than it's been in the past. As to on-air advertising of a particular range, denim in the U.K. in this example, we'll just have to see how that works for us. Early signs are good, but we won't do it again if it doesn't increase our profitability. But there's lots of other investments in consumer relationships and the systems that support it. So as I said, the app is coming and coming quite soon. There's more search engine optimization work going on. There's more paid media going on online. And that works for us. That's working for us. If I then go to the profit bridge of Sugar, essentially, margins in both Spain and the U.K. are a little bit better, but still very soggy. And Spain, we've taken a great hack to our cost base. There's another one coming. But if the most profitable -- sorry, the most efficient and historically profitable part of the European sugar processing world, which is British sugar, is still not making a proper return, then Spain won't be either. So it is a pricing issue. And so as I say, U.K. will be a bit better, but not dramatically so. We've obviously got lower beet prices and then lower beet prices in the year ahead. But equally, some of the 2-year price deals, which held over until the year just gone, have now fallen away. And so net pricing actually hasn't moved all that much, even though the headline 1-year pricing is up a bit. Africa is going well. It would be great to have Tanzania up and running. We're probably 1.5 months away from making sugar, but these are beasts to commission. So that might take a while. Zambia, really good; Malawi, really good; Eswatini really good. So Illovo is in great shape. It's a European pricing issue caused by oversupply in the European market. It's a commodity business. This stuff happens from time to time. Operator: We will now take the next question from the line of Anubhav Malhotra from Panmure Liberum. Anubhav Malhotra: I've got a couple on the Sugar business. You have touched upon a lot of them during your answers previously, but a bit more deep analysis into those. So in Tanzania, if I can ask, maybe give us color on what were the reasons for the delay, because I guess you were expecting it to start in the second half of this year, and now it's been delayed by a couple of months. And then also on the same, how do you expect the production facility to ramp up to full production, over what period of time? And what sort of profit contribution do you think that ramp-up can help you make? I mean, broad figures maybe. Obviously, you can't give me an exact answer on that, I guess. And then, again, on the sugar pricing, on the European sugar pricing, I would love to understand, compared to your views which you last gave us in April, how the sugar price has evolved compared to what you thought at that time? Because I noted in the press release, you have mentioned that they have been a bit lower than previous expectations. So just double checking if they're lower than what you had been expecting in April. And then the last one on Azucarera, just on the restructuring, potentially a broad figure on how much cost we have taken out of the business? And if, even at these levels, would the business now be like breakeven or still loss-making at these sugar price levels? George Weston: Okay. So Tanzania, I don't want to sound defensive, but in a project that's taken the best part of 3 years and started at the end of COVID in a country where there's not great infrastructure, to be a couple of months delayed, I think, is not too bad. But it is frustrating. When you're nearly there, you want to be there. Ramp-up of Tanzania is -- it might be reasonably quick. We know how to run sugar factories. There's a lot of equipment that we understand well that's been put into this new factory. So there's not a huge amount of technical newness to it. But I think that it's one of these plants where we'll get kind of 70%, 80% of the way quite quickly and, I mean, in a matter of kind of 3, 4 months. And then the last 30% may take a year or so as we come to kind of optimize processes. Profitability, well, we've said that we're spending over $200 million on this thing, and we wouldn't have signed it off if we didn't think we were getting a kind of a proper return for the risks that Africa has, so higher than our average returns across the rest of the group. So there's quite a lot to play for in that investment. European sugar pricing. I'm going to sort of be in danger of repeating myself. Acreage didn't come out as we thought it would come out. And we've still got to see whether the unusual weather has reduced yields across Europe, which would then take supply out. Early signs is that there might be some yield reduction, but not enormous. There's been some disease, but not a lot. But we'll know much more, both in terms of U.K. supply, but also European supply probably in the next 6 weeks or so. There is, as I say, capacity that's come out of manufacturing across Europe, but I can't hide the fact there's too much sugar in Europe, and there's quite -- stock levels are also quite high. And even if we got supply well under demand, we've still got a stockholding to use up. And using up that stockholding will keep prices depressed for a little while yet. So I don't think -- I mean, what is all coming back to is I think there's some cost improvement, some pricing improvement in the new campaign year, but it's got a long way to go in subsequent years. Azucarera -- no, I don't think there's a profitable sugar business in Europe at the moment. And Azucarera has taken some tens of millions out of its cost base and quite a lot more still to go. But even having done that, it will still be loss-making because everyone in Europe is loss-making at these selling prices. Operator: We will now take the next question from the line of Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: Only a couple. Just maybe going back to Primark. Can you perhaps talk to the analysis that you do to reassure yourselves on the weak like-for-likes in terms of consumer demand versus sort of homemade cannibalization and how you analyze that and how that sort of trended over the past sort of year by quarter. If you've got some insights, that would be very helpful. Secondly, on grocery, George, I think the statement draws attention to good growth in international brands, clearly flagging U.S. brands, local brands performance there. Just can you expand a little bit more here and also give us some ideas in terms of how we should think about the year ahead in terms of growth in the division and profits? George Weston: Okay. Weak like-for-likes, you look at the market share data and you triangulate. Those are the 2 big ones. So what are other people saying about their own performance, other people who are supplying a similar part of the market. And then as I say, in some countries, we've got better share information than in others. In the U.K., for example, we've got good share information. And as we made clear in the statement, our share performance in the second half in Primark has been very good, even if the headline -- I mean, the headline like-for-likes are so much better, but the consumer remains weak. In some of the other markets, France, Italy, we have less good market information. We have some, and we have the read across. We're very comfortable, for example, that particularly outside Paris, everyone is finding the consumer in a pretty bleak place. So yes, that's what we do. It's a company where internal communications are pretty good. There's a rich theme of anecdotal that turns into kind of directional information that comes up from the businesses and what they're seeing in their shopping centers and their high streets and amongst their competitors. And it's an industry where shopkeepers do talk to each other, and we get a sense of what's going on. Grocery -- yes, sorry. Joana Edwards: If I just may, on your point about how we look at cannibalization as well. Just because -- and I think your question goes to our like-for-likes always a measure we should be using in every market. And the answer is no, which is the reason why we don't have like-for-like figures for some of our markets. And how we think about that as well is, for some of our markets, we have got lots of white space. In fact, for a lot of our markets, we still have a lot of white space. So adding stores and looking at it as a total market makes sense. For example, in Portugal, where we've opened 3 stores this year, which is 30% more than we had before, because we had 10 stores, having those 3 stores was something we have been looking for, for a while, right, George? Because it's a country where every store is quite accretive. It's a very profitable market. We wouldn't look at a like-for-like in that case. We would look at, are we overall better off? And do those stores, in the context of their capital approval levels, make sense for that market. I don't know if that's where your question is going as well, but I thought it was important to give that. George Weston: Yes. Joana, having made that absolutely correct and very sensible remark, I've spent 20 years trying to persuade some people that there can be good negative like-for-likes, particularly in a process of rolling out. And I've failed in some cases. And I'm sure there are some of you who will be sitting here going, actually, no, there's no such thing as good cannibalization. But there is. Grocery has been good. Twinings, in particular, has had a strong sales year and has momentum into next year. We've had cost pressures in Ovaltine with chocolate costs that we've been dealing with. I think the worst of those pressures is behind us. The price adjustments to compensate for those have been taken, and all the collateral battles that accompany that pricing have been fought and they are in the past. So grocery, good. Acetum's balsamic vinegar. We know where the tariff level is going to be in the States now with more certainty than we've had through most of the second half. And the work to recover the cost of tariffs is largely behind us. So that's good. U.K. grocery businesses have been fine and, in some cases, good. So we're very comfortable. Australia grocery, the consumer has been in a difficult place. Australian consumers, we think, are coming out of that. So we hope to get some growth out of the Australian market next year. And the States, the last one that's worth picking up, we have a very large share of Hispanic consumers in Mazola. And there's a lot of fear in that community leading to expenditure declines. So we're facing into that, too. We really hope that, that's temporary for all sorts of reasons. But Mazola volumes -- market share of Mazola, really, really good, but absolute sales affected by reduction in the propensity to purchase of some of the Hispanic populations in the south of the country. Operator: [Operator Instructions] We will now take the next question from the line of Ashton Olds from Redburn Atlantic. Ashton Olds: I'm going to painfully ask 3 questions as well. Just... George Weston: Please ask. I don't know why you're apologizing for 3 questions this time around, because we always get 3 questions. Ashton Olds: Yes, exactly. I guess the first one just on tariffs. You've sort of mentioned that you've done some work on pricing, both in food and Primark. I'd just like to sort of clarify whether you're expecting to offset all of the tariff costs? And if so, is it about rebuilding percentage margins or just gross profit dollars? The second bit is just around Click & Collect and the contribution from that, whether it's sort of -- I think in the past, you've mentioned that you expected 1% of the like-for-like boost or so from Click & Collect. Is it at that level yet? I guess, initial learnings from rolling it out across all of your stores in the U.K. And then the final question, just I've seen your negotiated beet prices for FY '27 and some back of the envelope math points to about a GBP 20 million cost tailwind. Is that roughly right? George Weston: Because it's the quickest one to answer, beet prices, yes, you're about right. It's about -- every pound of purchase cost is about -- well, we're buying 7 million tonnes of beet, give or take. Tariffs, we're just after the cash cost recovery, not the gross margin -- not the margin percentage. And we've got, give or take, in the food businesses, most of it back. There's still a little bit to go in some areas, but we're in small numbers of millions of pounds that we still need to recover. So most of that work has been done and now done in a world where we understand the tariff rate from Europe and from the U.K. into the States. There's still some movement around with ingredients we're buying from China into the specialty ingredients companies in the States. So there's a little bit of uncertainty there still, but it's, again, reasonably small numbers. We haven't moved the prices yet for Primark to recover the tariff effects for that business, but we're beginning -- we're actually doing so, or starting the process of doing it this week. And we're watching our major competitors moving their prices too. So we feel pretty comfortable that although there may be some consumer pushback, that we're not going to lose our competitive position through taking those steps. Click & Collect, yes, I think 1% is still a pretty good number. And no, we're not up to 1% yet. I mean, we only got the capability fully rolled out in GB. So it's been a small number of months. Until it was available to everyone, pushing the consumer awareness up wasn't the right thing to do. It is now we're doing it. We're also in a better place to work out. Click & Collect helps 2 sets of consumers. One set is those that find it more difficult to get to the high street and they can get certainty that if they want something, they can buy it online and it will be there, and that's great. Particularly those consumers who don't have access to the full range that's available in a big store, perhaps their local store only has a proportion of the range. The range for them has effectively expanded because of Click & Collect. That effect we're seeing and seeing well. There's a second sale that we're after, which is about extending ranges. So leg sizes in jeans, for example, will be more available on Click & Collect and in some other product areas. So there's a sizing ranging. We can keep swimwear available throughout the year on Click & Collect, where we need the space back in stores and other things. All that experimentation is underway, but we're not -- it is not complete yet. So there's more to come from Click & Collect, but I think that 1% LFL remains a pretty good number. Operator: There are no further questions at this time. I would like to hand back over to George Weston for closing remarks. George Weston: Look, I think we've had a good knock around most of the business, Primark and Sugar in particular. Sugar will come back. We're frustrated that it's slow, but it will probably take another year. But we do, in the U.K., in particular, have a great sugar business. And in Spain, we're making what we have better and better. Don't forget Ingredients, it's had a good year, and it's got lots of growth potential ahead of us. We hope the consumer will -- European consumer, in particular, will feel more confident at some point in the future. And when that happens, we think we've got the offer to drive good like-for-likes again. The investments increasingly, this high level of investments, particularly in food are increasingly commissioning now. We'll see the benefits of those both in this year and then particularly in the year after. There's lots going on. We've tackled what I could sloppily call the problem children. And yes, we're looking to next year with enthusiasm, not that there aren't -- not there isn't a difficult environment to trade in, but we have a lot of confidence in the businesses. Let me stop there, and thank you all for attending this meeting. We'll speak again, I think, in November. Joana Edwards: Yes. George Weston: Good. Thank you. Joana Edwards: Thanks, everybody. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Jacobus Loots: Good morning to all of you, and welcome to our 2025 final results presentation. Thank you very much for taking time out of your schedules to join us today. We will keep the presentation fairly brief with an opportunity for questions afterwards. Joining me in presenting today will be Marileen Kok, our Financial Director. This will be the first time Marileen reports on a full year of financial results for the group in her role as Financial Director. A special word of thanks to Marileen, the finance department and also to the rest of the amazing Pan African team for excellent work in putting these results together. You are welcome to refer to our SENS and RNS announcements and to the supplementary information available on the Pan African website should you require detail not dealt with in today's presentation. Please note the disclaimers and information on forward-looking statements on Slides #2 and 3. Reflecting on the last year, I believe Pan African has made excellent progress in our strategy of positioning ourselves as a safe and sustainable, high-margin and long-life gold producer with very attractive future prospects. Not many gold producers are able to successfully commission 2 new transformational projects within the space of 12 months. Certainly, a key highlight from the last year was bringing MTR into production ahead of schedule and below budget. This is an asset with a life of almost 20 years after the expansion currently underway, producing some 60,000 ounces per annum at a world-class all-in sustaining cost with further growth potential in the near term. We also concluded the acquisition of Tennant Mines in Australia, an asset in a Tier 1 jurisdiction and then proceeded with the incumbent Australian management team to deliver this project on budget and on schedule. And we are pleased to report today that Tennant's gold plant at Nobles reached steady-state throughput in terms of tonnes in July just after year-end. On our other surface assets, we have now successfully completed the project to extend the life of the BTRP at Barberton by another 6 years from tailings sources only. At our underground operations, we successfully restructured the Barberton underground with an estimated cost saving of approximately ZAR 200 million for the next financial year from this initiative. Consort at Barberton is also now cash flow positive, producing some 10,000 ounces per annum. Financial year 2025 was also a year of records. We achieved record half year production in the second half of the financial year. We are reporting record profits and record headline earnings per share. We are proposing record dividends to shareholders for approval at the upcoming Annual General Meeting. In U.S. dollar terms, our proposed dividend is up almost 80% year-on-year. And we are expecting to be degeared from a net debt perspective before the end of the 2026 financial year at prevailing gold prices. In the second half of the financial year, we repaid debt of almost $80 million, demonstrating the cash flow generating ability of our portfolio. I believe Pan African is now incredibly well positioned to capitalize on current gold prices and our increasing production profile. And I look forward to sharing some thoughts and further detail on many of our initiatives and plans in the following slides. On Slide #4, an overview of the presentation. We will start with Pan African's health and safety performance, which is obviously critical in our business and then provide an overview of the group and our operating environment, some key features from the last year, including our new operations at MTR and Tennant Mines with detail on asset performance as well as our cost and capital outlook. We will then spend a couple of minutes on ESG before allowing Marileen the opportunity to highlight elements of the group's financial performance for the year. The presentation will then conclude by outlining focus areas for the year ahead. If we proceed to Slide #6, our safety performance and our journey to zero harm. We continue to focus on safety initiatives and interventions and on maintaining an industry-leading record. We can also celebrate a number of safety milestones achieved during the reporting period. I would like to specifically mention the achievements of our surface business with all of our operations achieving 0 lost time and reportable injuries for the year. MTR managed to complete construction, some 1.8 million man hours worked with only 1 lost time injury. In terms of safety at our underground operations, we unfortunately suffered 2 fatal accidents, one at Evander in December of last year and the second at Barberton Sheba in June, after achieving more than 10 years fatality-free at Sheba. We are also saddened to report a fatal fall of ground accident at Evander post year-end. We again wish to extend our condolences to the families, friends and colleagues of our deceased colleagues. My commitment is that we will continue to do our utmost to ensure the safety of our people and operations. We do, however, need all stakeholders to work together to realize our goal of a zero harm work environment. Slide #8. We believe Pan African offers a compelling investment proposition. We operate a well-diversified portfolio of producing gold assets in 2 jurisdictions with outstanding mining pedigrees. We have a high margin and stable operating base, generating very attractive cash flows. We expect production to grow by almost 40% or more in the next year, driven primarily by the ramp-up of MTR and Tennant mines. Our assets are long life and the group has a huge reserve and resource base for further expansion and development. We have a proven track record of project delivery, excellent capital allocation and a sector-leading dividend. And we have the ability to leverage the existing portfolio for further attractive growth. No need for us to go buy expensive assets at high valuations at this juncture. Slide #9. I guess the proof is in the pudding or in the numbers in this case. An investment in Pan African in 2009 when the group in its current form came into being, would have increased some 38-fold. This is a gold price increase also attractive around 4x. You also would have received an attractive dividend over this period, further increasing returns on Pan African stock. Earlier this week, we announced our intended move to the main market in London. The size and prospects of the group are such that we have outgrown our current AIM listing. Slide #10. We have built a unique portfolio of surface remining and underground assets. The addition of MTR and Tennant Mines means that we now have 3 large mining complexes in South Africa and 1 in Australia, all contributing towards the material increase in gold production forecast for the year ahead. Surface operations reduce unit costs and turn legacy liabilities into profits, whilst the underground mines provide long life of mines, solid returns on investment as a result of a large sunk capital base and also attractive optionality, which we continue to bring to account in a circumspect and considered manner, always thinking about the best way to allocate capital. Slide #11. We have now successfully transitioned the business to be focused on long-life, low-cost surface remining assets. Going forward, we expect approximately 60% of our production from surface and certainly the bulk of our earnings also. As I've said, not many gold miners can boast the fully funded production growth that we will deliver in the next year with a portfolio also well diversified. Slide #12, a bit more detail on our current portfolio of assets. I think what is very helpful is that all of our operations now have extended lives with the shortest life being the BTRP at 6 years, which is still quite a while. If we compare ourselves with the sector, many producers are running out of life on their assets or have to spend significant capital for future production, not the case for Pan African. We do not have to go and acquire more assets to maintain and grow production. Slide #13, our operating environment. We continuously seek ways of making our business less susceptible to adverse external impacts in South Africa. We have now seen an extended period without any load shedding. We are rapidly expanding our renewable energy footprint. Our mining rights are long dated, and we have multiyear wage agreements in place at most operations. Pan African's track record demonstrates we can operate and grow in South Africa and do so very successfully. Our experienced Australian team will ensure the same success in that jurisdiction. We have found the Northern Territory government very welcoming and supportive of our operation. It's a great place to do business, and we look forward to expanding our business there. If we then proceed to key production cost and financial features from the year past on Slide 15. We produced just under 200,000 ounces of gold for the year, an increase of 6% from the prior year. In the second half of the financial year, we delivered record production, mostly on the back of MTR. Our guidance for the next financial year is 275,000 ounces or more with production weighted to the second half of the financial year as MTR's expansion is completed, Tennant Mines commences mining in higher grades from open pits, and we are firmly established in Evander's very high-grade 24 Level B-Line. Our final all-in sustaining cost for FY '25 was $1,600 per ounce, slightly above previous guidance of $1,525 to $1,575 per ounce. The primary reasons for overshooting on AISC or all-in sustaining costs were a hedging loss of $30 per ounce and a rand-dollar exchange rate 2% stronger than forecast in our guidance. Importantly, the group is completely unhedged from the 1st of July of this year. For the next financial year, with full years of production from MTR and Tennant Mines and increased production from Evander 8 Shaft, we can expect unit costs to decrease in real terms. We expect an all-in sustaining cost per ounce of between $1,525 to $1,575. We further expect to be net debt free in the next year at prevailing gold prices. And despite the $32 million impact of the hedges, we delivered record profits and headline earnings in FY '25. And finally, despite all of the growth and capital reinvestment, we are able to maintain our sector-leading dividends to shareholders. We are proposing a record dividend for approval at the upcoming Annual General Meeting. Slide 16 should be an interesting one for investors, demonstrating how nicely we have expanded margins in recent years, and this excludes any meaningful contribution from MTR and Tennant Mines and also the full impact of prevailing record gold prices. Slide #18. I think it is fair to say that Pan African has a record second to none in terms of conceptualizing construction and operation of tailings retreatment projects. These long-life assets now form the cornerstone of our business. And I believe we have further room to grow in this space, which should be very attractive for our investors. If we then move on to more detail on the performance per operation, starting with Elikhulu on Slide #19. Clearly, a flagship asset for the group, just under 9 years of production remaining producing at under $1,100 per ounce. Gold production remained stable as expected for the year. We look forward to another year of more than 50,000 ounces of production and clearly excellent cash flow generation in the current gold price environment. The asset generated $80 million of EBITDA for the last year. Importantly, Phases 3 and 4 of the Kinross tailings facility, the final expansion were delivered on budget and on schedule. We are also now constructing the Winkelhaak pump station ahead of when required. This will enable us to feed material from both Leslie/Bracken and Winkelhaak from FY 2027. Slide #20, the BTRP, another sterling performance from our first gold tailings retreatment plant commissioned in 2013 and the lowest cost producer of gold in the group. As previously flagged, very exciting news for the BTRP is that we have extended the life of this operation from surface remining only to 6 years. The capital requirements for this new initiative was also relatively modest, some $4 million for a new pump station. BTRP will, therefore, continue to form an integral part of Pan African's tailings retreatment story for many more years. I'm also pleased to report that the new Bramber remining infrastructure will be delivered before the end of September this year, again, on budget and ahead of schedule. MTR on Slide 21. We commissioned the plant in October of last year, ahead of schedule and with savings of approximately $8 million to upfront capital. We built all of the plant and infrastructure in about 14 months, a testament again to Pan African's ability to secure, conceptualize, fund and then execute world-class mining projects. In December, we were already exceeding the plant's nameplate capacity by more than 10%. In the current gold price environment, payback on this $130 million initial investment should be approximately 2 years with a project life of almost 20 years when we include the Soweto reserves. All-in sustaining costs were elevated during ramp-up. Going forward, we expect these to ease to below $1,200 per ounce in the year ahead and then further going forward. We are now expanding the MTR operation to 60,000 ounces of annual production. This expansion is on schedule and should be complete early in the 2026 calendar year. On Slide 22, the Soweto cluster consists of more than 130 million tonnes of tailings with a mineral reserve of more than 500,000 ounces of recoverable gold. We believe we have enough gold reserves at the Soweto cluster to sustain a stand-alone operation, treating some 1 million tonnes per month over an approximate 10-year life of mine. The feasibility on this option will be concluded by the end of this month. Given our presence in the area, there is definitely also scope for the consolidation of tailings facilities we do not already own. On Slide 23, we cannot say enough about the socioeconomic and environmental benefits of this project. Concurrent rehabilitation is in progress. We are uplifting local communities, providing much needed economic and employment opportunities and working with law enforcement to eradicate illegal mining. Slide #25. I think the acquisition of Tennant Mines caught most of our shareholders by surprise given the jurisdiction. But by the time we concluded the acquisition, we had spent more than a year assessing the assets and working closely with the management team. The investment in Tennant Mines ticked all of Pan African's boxes in terms of deploying capital for growth with the following brief points worth emphasizing. Project had certainly low construction risk in a Tier 1 jurisdiction, a quick payback on investment. We secured a dominant position in the gold field and built the largest ever processing facility to operate there. The area has very exciting exploration potential with an experienced local management team taking ownership of project delivery. It is not often that one can acquire an asset like this and commission it 6 months later. Slide 27. We are pleased to report that the Tennant Mines processing plant at Nobles is now fully commissioned with production forecast at 46,000 to 50,000 ounces in the year ahead at an all-in sustaining cost of just below $1,600 per ounce. Slide 28. As we have said, the Tennant Creek gold field offers some very exciting potential. Slide #31, the Evander underground. As previously flagged, a disappointing performance for the year. The delay in commissioning of the sub-vertical shaft for wasting impacted us severely. Thankfully, this project is now fully completed. The new infrastructure is pretty much doubling our wasting capacity with fewer cumbersome conveyors, lower unit costs with a higher mine call factor. We are guiding 46,000 to 50,000 ounces of production for the next financial year with further production increases in later years. All-in sustaining unit costs will obviously reduce commensurately with the ramp-up in production. If we proceed to Slide 32, dealing with Fairview, our flagship underground operation at the Barberton Mines complex. We would have performed a bit better if it wasn't for multiple Eskom transformer failures in November, which we estimate cost us more than 2,000 ounces of production. At Fairview, we continue to source the bulk of our ore from the MRC and Rossiter ore bodies with development to the 263 Platform well on track. Rehabilitation of existing ramp infrastructure from 38 Level downwards is also progressing according to schedule. This decline will be used to transport personnel and material to the working faces on the 3 Shaft section and will further alleviate logistical pressures on 3 Shaft, which will then mainly be used for rock wasting and improving logistics. The smaller underground operations at Barberton on Slide 33. In terms of consort, the rehabilitation of the PC Shaft pillar has been completed and now enables our contractor to recommence mining on the high-grade 41 to 45 Level mining sections. Additional development is ongoing on the MMR and the PC Shaft to access mineral reserve blocks, which will give us access to more ground to mine. I am pleased that the operation was cash flow positive in the second half of the financial year to the tune of some ZAR 50 million and sustainable at these levels. As far as our Sheba Mine is concerned, we have successfully completed the restructuring and look forward to improved production in the year ahead with significant cost savings in terms of our labor bill. On Slide 35, the section dealing with our all-in sustaining costs. 85% of our portfolio produced at an all-in sustaining cost of $1,425 per ounce, impacted by lower underground production, some once-off items mentioned previously and the stronger rand-U.S. dollar exchange rate. Slide 36 illustrates that our cost performance continues to be very much in line or better than the average for the global sector with most producers having experienced significant cost pressures in the last couple of years. As I mentioned earlier in the presentation, the next financial year should see further improvements with full years of production from MTR and Tennant Mines and increased production from the Evander underground. On Slide 38, group capital projects. We continue to invest into our assets and into growth. For FY 2026, sustaining capital is fairly subdued in terms of growth. We are, however, using increased cash flow margins in fast-tracking development at Nobles, the Winkelhaak pump station at Elikhulu and obviously, the expansion of MTR. ESG on Slide 40. We continue to be very proud of our achievements on this front, particularly on progress with renewable energy, water retreatment and social projects. We really do make a positive difference where we operate. To elaborate further on our renewable energy road map on Slide 41, we are targeting 15% renewable energy by 2027. I will now hand over to Marileen who will provide an overview of the financial results for the year. Marileen Kok: Thank you, Cobus. I'm very excited to present the full year results to you today for the first time as Financial Director. For presentation purposes, amounts and percentages have been rounded. From Slide 43, you will notice the positive impact of the increase of 36% in the average U.S. dollar gold price received and increased gold production on revenue for the year ended 30 June 2025. Revenue increased by 45% to $540 million relative to the prior financial year. The increase in revenue also resulted in an increase in adjusted EBITDA of 60% and an increase in earnings of 78% to $142 million. Headline earnings increased by 47% to $117 million. The gain on bargain purchase of $28 million as a result of the Tennant Mines acquisition is excluded from headline earnings and is the main reason for the variance between earnings and headline earnings. Earnings per share and headline earnings per share both increased by 73% and 42%, respectively. During the financial year, just over 105,000 ounces, representing 53% of gold sales were committed in terms of the hedging transactions and did not benefit from the spot gold price, resulting in an opportunity cost of $26 million as a result of the synthetic forward transaction and a hedge loss of $5.8 million as a result of the zero-cost collar transactions. The purpose of the hedging was to secure full funding for the construction of the MTR operation. The group is now fully unhedged from the 1st of July 2025 and will benefit from the prevailing record high gold prices. Production costs and all-in sustaining costs was negatively impacted by approximately 3% as a result of the appreciation of the rand against the U.S. dollar when compared to the previous financial year. The realized losses associated with the hedging, as mentioned before, had a 2% or $30 per ounce adverse impact on the all-in sustaining cost. Further above inflation increases are primarily attributable to the electricity costs and mining contract and processing costs, including reagents. The lower production as a result of the delay in the commissioning of the vent shaft hoisting project at Evander underground also negatively impacted unit cost of production due to the large fixed cost base of the operation. The increase in operating cash flows of over 70% to USD 155 million is primarily as a result of the increase in the gold price during the period, coupled with cost control discipline, resulting in the realization of high margins. We spent $158 million (sic) [ $168 million ] in CapEx during the year, which resulted in an increase in net debt of 41% to $151 million compared to June 2024. The bulk of the capital expenditure related to the completion and commissioning of the MTR and Tennant Mines operations as well as the Evander underground 24 to 25 Level project. Slide 44 demonstrates the ability of the group to generate excellent cash flows at prevailing gold prices. At current gold prices, the group is expected to be fully degeared from a net debt perspective before the 2026 financial year-end. The expected debt redemption profile is well in excess of the contractual requirements. The group net debt peaked in December 2024 at $229 million with the completion of the MTR project and the Tennant Mines project finance included on the group's balance sheet from the effective date of the acquisition. The group reduced net debt by approximately $80 million or 35% to $151 million in the last 6 months of the current financial year, clearly demonstrating the cash flow generation potential of our current operations. The green loan facility dedicated to the funding of the group's renewable energy projects was also settled in full by the 30th of June 2025. The net debt-to-equity ratio of approximately 20% as at 30 June 2025, obviously leaves us with very significant headroom. The group's debt facilities currently consist of a revolving credit facility, the term loan for the MTR project and the listed corporate bonds in South Africa, combined with the funding facilities for the Australian operations from the Northern Territory government and a private financial institution. The term loan only matures in June 2029, but will be redeemed well in advance of the maturity date. The contractual debt redemptions associated with the debt facilities are fairly muted over the next 12 months and consists primarily of the quarterly repayments on the MTR term loan facility and Tennant Mines facility, monthly repayments to the Northern Territory government and the maturity of the Par SO1 listed bond and the RCF redemption in June 2026. The RCF facility is currently undrawn, and the group will commence with the process to refinance this facility in the near future. It's likely that the RCF will again be extended as has been the case in the past as it constitutes a key component of our core working capital finance facilities. Slide 45 tracks the group's historical and proposed dividend payments. The proposed record dividend is ZAR 0.37 per share, which will result in a gross dividend distribution of ZAR 864 million or approximately $49 million at the closing exchange rate for the 2025 financial year. The proposed dividend is an increase to the dividend of the previous financial year of 68% in rand terms and 77% in U.S. dollar terms. The proposed dividend for the 2025 financial year, together with the share buyback program announced, will result in a payout ratio of approximately 38% of cash flow as defined by the dividend policy. The dividend will be proposed to shareholders for approval at the AGM to be held in November 2025. The dividend provides an attractive return to shareholders whilst ensuring that the group has enough available liquidity to fund operations, together with further renewable energy initiatives in the near future. Thank you. I will now hand back to Cobus to conclude today's presentation. Jacobus Loots: Thank you very much, Marileen. If we conclude on Slide 47 and to again reinforce some key points. We now have tailwinds from the highest gold price in history, and the group is completely unhedged. Even with slightly lower gold prices and our record dividend, the group should be degeared in terms of net debt before the end of the 2026 financial year. We have just commissioned and ramped up arguably the most successful gold tailings retreatment project in South Africa's history, below budget and ahead of schedule, and we will grow this operation further in the near term. Our Elikhulu, MTR and BTRP operations are performing really well and generating fantastic returns and cash flows and will do so for many more years. Tennant was acquired with very limited dilution to shareholders, less than 6% of our market cap at the time. We are now producing from this asset in a Tier 1 jurisdiction within 6 months of acquisition, having constructed the largest processing plant to ever operate in this gold field by a factor of 3. We are growing gold production very materially in the year ahead with 60% of our production ounces from surface. Consort Mine has turned a corner and Fairview will continue to tick along as it has for many years. Evander Mines will perform much better with the subvertical hoisting shaft complete. Clearly, in this environment, the group is currently generating very significant cash flows. Let me reassure shareholders that as always, we will continue to be incredibly prudent in terms of capital allocation and investment decisions. We have an outstanding track record in terms of generating sector-leading shareholder returns on an absolute and per share basis, and we will not compromise on this metric. Thank you very much for your time this morning. We look forward to continue mining for a future and expanding our horizons in the year ahead. I think we'll start with taking any questions from the conference call. Operator: The question comes from Richard Hatch of Berenberg. Richard Hatch: First question is just on the CapEx guidance for '26. I think the market was at $71 million and you're guiding to $146 million. Now I appreciate that some of that is, as you say, the gold price is high, so you bring forward some projects. But can you perhaps just give us a bit more color as to what's driving the CapEx going higher than what the market was looking for? And then if we look into 2027, how should we be thinking about the CapEx profile of the group as it stands just on a directional basis, please? That's the first one. Jacobus Loots: Thanks, Richard. Yes. So to your point, we are -- we've decided in this gold price environment to bring forward quite a bit of capital. The first major item would be the Winkelhaak pump station at Elikhulu. That's about $20 million. And I mean that's going to give us flexibility for the remaining, call it, 8 years of life after the end of this year at Elikhulu. And the capital there is going to be fairly muted afterwards. So we're bringing that forward. Secondly, obviously, we have the expansion of MTR. So that's going to be done in January, February latest. That's quite a big ticket item. And then we also have the TCMG capital. So I mean, which is mostly growth capital. And I think lastly, the Evander underground, there's a bit of capital that was carried over from last year. And then there's quite a bit of development happening in 24 to 25 Levels. So clearly, I mean, the benefit of this gold price and with the low cost of our operations that we can afford to spend this capital and still have increased dividend by almost 80% and then still expect it to be degeared by the end of FY '26. So sustaining capital for the group in terms of guidance, it's $50 million. Marileen Kok: $40 million to $50 million. Jacobus Loots: Call it $50-odd million sustaining capital. Clearly, if we can continue to grow the business and do so generating returns, we have now a lot of flexibility in spending capital and generating attractive returns. Richard Hatch: Okay. And then as we go into '27, so we should see it drift more towards that $40 million to $50 million. Is that the right way to think about it? Jacobus Loots: Well, it's -- call it, $50 million sustaining and then there will continue to be a bit of growth capital, but that's very well justified. I mean, you would have seen in the write-up, I mean, a project like, say, Warrego in Australia doing drilling and some of the intersections coming back 5% -- 5 grams a tonne gold and anywhere from 2% to 10% copper. So those would be very attractive growth projects. So yes, I mean, your sustaining CapEx, Barberton will continue as it has been, not a lot of sustaining capital to be spent Elikhulu, MTR. You're going to see capital coming down on the Evander underground as we now sort of have moving into 25 Level. And then TCMG base case capital is -- that includes sustaining and growth would be in the order of about... Marileen Kok: $5 million to $10 million. Jacobus Loots: Yes, sustaining capital, call it, $5 million, call it, $10 million [indiscernible]. Richard Hatch: Okay. Helpful. And then the second one is just on the Soweto cluster. I appreciate you've got a feasibility coming up on that in the next sort of month or so. But how should we think about final investment decision on that project? And just again, in terms of growth, whether it's incremental to MTR or whether it's a life extension, how are you -- where are we sort of -- where is the thinking on it at this point? Jacobus Loots: So Richard, yes, it's dependent, obviously, on the feasibility study. If we do elect to build another plant, I mean, that's going to be sizable capital. I don't want to put numbers out there. But again, at this gold price or even a lower gold price, just given the attractiveness of these projects, you can expect, again, a 2-, 3-year payback on a capital number. But I think as a base case, I mean, MTR obviously has been a fantastic success. So we started 50,000 ounces. We now are in the process for fairly limited capital expanding to 60,000 ounces. I mean what Soweto at the very least will give us is additional feedstock, and we can look to ramp up, say, to 1.2 million, 1.3 million tonnes, just the existing plant. That means you're going to have attractive growth, another, call it, 15,000 ounces out of MTR and that operational growth on that basis for 15 years. So I mean, I guess those are the options. Do we go big bang on Soweto? Obviously, the sort of -- there are risks, but it's something that we've done many times successfully. But a base case, I think shareholders can look forward to further expansions at limited capital, generating very attractive returns. Richard Hatch: Okay. So sorry, just one follow-up on that. So on balance of probabilities is the view that it's more going to be, as you say, that incremental plant feed to take you up to that 1.2 million to 1.3 million and take volumes up to more like 75,000 ounces a year rather than to put your words on it, a big bang CapEx number. So more kind of like incremental but longer life, very, very high margin rather than a perhaps a slightly shorter life but still very low-cost operation with a high CapEx number. Jacobus Loots: Yes. Look, I mean, it's too early to preempt what we'll do. But I mean, if you look at our track record in terms of capital allocation, I don't think you need to be concerned. I don't want to say to shareholders, they can bank the expansion to, say, 1.2 million, 1.3 million, but that's the logic step for us as a base case. Operator: At this stage, we have no further questions from the lines. Jacobus Loots: Shall we go then to e-mailed questions? Unknown Executive: Thank you. We've got a few questions from the webcast. The first one is from Martin Creamer at Mining Weekly. Martin wants to know in what direct or indirect ways would a London main board listing help South Africa as a whole economically and otherwise? Jacobus Loots: Well, Marileen and the teams have worked incredibly hard on getting us to where we are with this process. It's a next logical step for us. I think we've outgrown AIM given the market cap and the production level. And it's going to give us access to increased investor base. The London market, I think, is -- would be quite amenable to another gold counter of size being listed. It gives us scale in terms of indexation. Marileen Kok: Indexation, yes. Jacobus Loots: So yes, a number of benefits from that perspective. Unknown Executive: Thank you. We've got a question from Mark Bentley from Share Society. I was concerned to read about the 3 recent fatalities. What was the principal cause, breach of safety protocols, equipment failures or geophysical activity? Jacobus Loots: Mark, yes, it's very sad for us also and very difficult. So let's just start out by saying that, I mean, really, our surface business has done fantastically well. I mean we sort of moved and completed a whole year of production with no lost time or reportable injuries on any of our surface assets. Industry-leading in terms of underground safety records. But that being said, it's still not acceptable to have fatal accidents. We -- again, all of the corrective measures are detailed in our SENS, RNS announcements. We are fortunate in that we don't have huge seismicity. So it's not geotechnical issues. The fatalities were very different in their nature. And the bottom line for us is, as a group, we can and will do better. But it's not only ourselves. I mean we need to have buy-in from all stakeholders. And that means all of our employees need to follow policies and procedures and also our unions and all of the other stakeholders that are involved, and that's the key message. Unknown Executive: Question from Arnold van Graan from Nedbank. Well done, good results. What's next from a strategic and growth perspective? Is it possible to buy more assets for value at this gold price? Jacobus Loots: Arnold, I think we have a good track record, again, on allocating capital. We are in a very fortunate position in that we're not running out of any life or running out of life on any of our assets anytime soon. Organically, we can continue to grow. We've spoken about MTR. Elikhulu will be nice and stable for 9 more years, but more growth we'd like to do at Barberton. Most of the growth now is funded at Evander 8 Shaft. Obviously, Australia, very prospective. And that's just been our, I guess, mantra over the years. We don't do expensive deals. We are very conservative. And certainly, for this year, the focus mostly will be banking the growth that we've now paid for and seeing all of those benefits crystallize in terms of production numbers, costs and ultimately cash flows. Unknown Executive: Thanks, Cobus. Mark Bentley again from Share Society. Are you considering paying an interim dividend at the half year stage in FY '25, '26? Jacobus Loots: Mark, let's first start by saying, I mean, certainly, the balance sheet has a lot of flexibility now. We already are paying a very attractive dividend, sector-leading, I think, would be fair. The dividend is an increase of almost 80% from last year, and that's after all of the capital we spent on growth over the last 12 months. But that being said, I mean, we constantly look at ways of returning more capital to shareholders and making our story more attractive. So we certainly don't want to rule out an interim dividend at this stage. And we always weigh up cash returns versus buybacks versus reinvesting in our portfolio and then growth. And I mean, we -- I think successfully, we'll continue to maintain a balance on all of those requirements. Unknown Executive: Thanks, Cobus. We've got 2 CapEx-related questions from Herbert at Absa. I think we've covered the first one. How should we think about CapEx over the next 3 to 5 years? What is the minimum baseline sustaining CapEx? And the second part, I think, what is the CapEx required to develop TCMG to realize the volumes over the next 5 years? Jacobus Loots: So I mean the sustaining capital for the group, we've guided now, so circa $50 million. TCMG's baseline number, it's about $40 million to $50 million, but it depends on the growth. Marileen Kok: And the number of open pits and rate of development we do go into the underground operations. Jacobus Loots: Yes. So I mean, the bottom line is we have a very attractive business in Australia and the capital we spent, we will generate quite attractive returns. And as I mentioned, the likes of the Warrego project in itself can sustain quite a large-scale business over time. So those are the options that we are looking at as far as TCMG is concerned. Unknown Executive: Okay. Another CapEx question from Lebo from Truffle. Is it fair to assume the same amount as Mogale for Soweto cluster in case you decide to build a stand-alone plant for the Soweto cluster? Jacobus Loots: Lebo, it's probably going to be more if we do build a stand-alone plant. And why is that the case? I mean the plant would be -- have more or less the same throughput. And there's obviously been a bit of inflationary adjustments after we constructed MTR. But then we will have to build a new tailings facility. We -- in terms of MTR had the benefit of for the first years utilizing the waste [indiscernible] pit. So that will be an additional capital item. And then secondly, also the pumping infrastructure, it's about 15-odd kilometers of pumping and piping, which wasn't the case at MTR. So you can expect a higher capital bill. But again, at this gold price or even a lower gold price, I mean, that sort of capital should pay back in, say, circa 3 years. But again, I mean, we recognize that if we do undertake Soweto, it's a big bang number, as I've said. And I mean, at the very least, we'd like to think shareholders can bank on a little bit of production growth at limited capital if we just expand the MTR facility. Unknown Executive: Thanks. A question from Arnold again. Did you suffer any production losses due to the illegal mining challenges at Barberton? Jacobus Loots: Look, illegal mining, as we've highlighted, is a big issue for us. And again, I want to congratulate our security team for all of their efforts in keeping our people and assets safe, which we will continue to do. We constantly suffer production losses, and it's theft from, unfortunately, our employees and then also the illegal miners. So we require the cooperation of all stakeholders and role players, including the police, and we work very well with police on a national level. So thank you for that. And yes, I mean, definitely, it also demonstrates, I guess, the potential still after 140 years of mining that you have so many illegals underground. But no doubt, I mean, there's a lot of gold theft, and we constantly work at ways of reducing that issue. Unknown Executive: Thank you, Cobus. Another Barberton-related question from Bruce Williamson of Integral Asset Management. Can you please give some insight into the Rossiter Reef methodology and the level of reduced dilution and higher grades? Jacobus Loots: Yes. So Bruce, like with all ore bodies at Barberton, unfortunately, like these are not the easiest of ore bodies to understand and then mine. They're not tabular. I mean, as you know, they sort of are undulating. But the Rossiter has been quite a good benefit for us in terms of topping up production from the MRC. So we have 3 sort of lines into the Rossiter, continue to mine it, continue to do exploration. So it probably gives us about 20% of the Fairview -- 20%, 25% of the Fairview gold at this point. So -- but I think it's exciting. I mean there's more work to be done. And hopefully, we can prove up a larger ore body in Rossiter over time. The issue with Barberton is not the quality of the ore bodies. It really is the infrastructure after 140 years of mining. I mean nobody ever expected that we'd be mining at these depths for so long. So that's why we get to continue to reinvest and invest into infrastructure and optimization. Unknown Executive: Thank you. There's a question again from Lebo at Truffle. What are your thoughts on special dividends? Jacobus Loots: Well, we had a big debate on that, I think, Lebo, not big, but it's something we consider. But special dividends, I mean, I think the dividend that we are now proposing is at a level that we can quite comfortably sustain. And as we said, I mean, it's a balance between growth and reinvestment and returning cash to shareholders. And I do think we are very competitive from that perspective. At this point, there's no sort of, I think, ask or prospect to go and do special. I think our dividend level is very attractive. Unknown Executive: Thank you, Cobus. And I think we can end off with a question on the London listing again from Ryan Seaborne at 36ONE Asset Management. Ryan says, congratulations on great results. Will you be doing a roadshow prior to the main board listing? And when is the expected listing date? Marileen Kok: Thanks, Ryan. We are busy in the process of all of the submissions, the required submissions to the FCA. The current time line, we would expect to complete the listing process somewhere in October. We are embarking on a roadshow now post our results. So we will consider if there's any demand for an additional roadshow before the admission in October. Jacobus Loots: Yes. I think the guidance is that we should -- we're looking to have the process completed by the end of December. Unknown Executive: Last question that just come in or a comment. May you please formalize 3-year CapEx guidance given the strong pipeline of projects? Jacobus Loots: Sure. That's something we could look to provide more clarity on, no problem. But I think the positive is that, obviously, I mean, we're able to very comfortably fund the levels of capital to sustain and grow. And as we've said, any growth capital would come and increase production and increase the returns to the business and to shareholders. Unknown Executive: Thank you. There are no more questions from the webcast. Jacobus Loots: Thank you to all for joining us today.
Jacobus Loots: Good morning to all of you, and welcome to our 2025 final results presentation. Thank you very much for taking time out of your schedules to join us today. We will keep the presentation fairly brief with an opportunity for questions afterwards. Joining me in presenting today will be Marileen Kok, our Financial Director. This will be the first time Marileen reports on a full year of financial results for the group in her role as Financial Director. A special word of thanks to Marileen, the finance department and also to the rest of the amazing Pan African team for excellent work in putting these results together. You are welcome to refer to our SENS and RNS announcements and to the supplementary information available on the Pan African website should you require detail not dealt with in today's presentation. Please note the disclaimers and information on forward-looking statements on Slides #2 and 3. Reflecting on the last year, I believe Pan African has made excellent progress in our strategy of positioning ourselves as a safe and sustainable, high-margin and long-life gold producer with very attractive future prospects. Not many gold producers are able to successfully commission 2 new transformational projects within the space of 12 months. Certainly, a key highlight from the last year was bringing MTR into production ahead of schedule and below budget. This is an asset with a life of almost 20 years after the expansion currently underway, producing some 60,000 ounces per annum at a world-class all-in sustaining cost with further growth potential in the near term. We also concluded the acquisition of Tennant Mines in Australia, an asset in a Tier 1 jurisdiction and then proceeded with the incumbent Australian management team to deliver this project on budget and on schedule. And we are pleased to report today that Tennant's gold plant at Nobles reached steady-state throughput in terms of tonnes in July just after year-end. On our other surface assets, we have now successfully completed the project to extend the life of the BTRP at Barberton by another 6 years from tailings sources only. At our underground operations, we successfully restructured the Barberton underground with an estimated cost saving of approximately ZAR 200 million for the next financial year from this initiative. Consort at Barberton is also now cash flow positive, producing some 10,000 ounces per annum. Financial year 2025 was also a year of records. We achieved record half year production in the second half of the financial year. We are reporting record profits and record headline earnings per share. We are proposing record dividends to shareholders for approval at the upcoming Annual General Meeting. In U.S. dollar terms, our proposed dividend is up almost 80% year-on-year. And we are expecting to be degeared from a net debt perspective before the end of the 2026 financial year at prevailing gold prices. In the second half of the financial year, we repaid debt of almost $80 million, demonstrating the cash flow generating ability of our portfolio. I believe Pan African is now incredibly well positioned to capitalize on current gold prices and our increasing production profile. And I look forward to sharing some thoughts and further detail on many of our initiatives and plans in the following slides. On Slide #4, an overview of the presentation. We will start with Pan African's health and safety performance, which is obviously critical in our business and then provide an overview of the group and our operating environment, some key features from the last year, including our new operations at MTR and Tennant Mines with detail on asset performance as well as our cost and capital outlook. We will then spend a couple of minutes on ESG before allowing Marileen the opportunity to highlight elements of the group's financial performance for the year. The presentation will then conclude by outlining focus areas for the year ahead. If we proceed to Slide #6, our safety performance and our journey to zero harm. We continue to focus on safety initiatives and interventions and on maintaining an industry-leading record. We can also celebrate a number of safety milestones achieved during the reporting period. I would like to specifically mention the achievements of our surface business with all of our operations achieving 0 lost time and reportable injuries for the year. MTR managed to complete construction, some 1.8 million man hours worked with only 1 lost time injury. In terms of safety at our underground operations, we unfortunately suffered 2 fatal accidents, one at Evander in December of last year and the second at Barberton Sheba in June, after achieving more than 10 years fatality-free at Sheba. We are also saddened to report a fatal fall of ground accident at Evander post year-end. We again wish to extend our condolences to the families, friends and colleagues of our deceased colleagues. My commitment is that we will continue to do our utmost to ensure the safety of our people and operations. We do, however, need all stakeholders to work together to realize our goal of a zero harm work environment. Slide #8. We believe Pan African offers a compelling investment proposition. We operate a well-diversified portfolio of producing gold assets in 2 jurisdictions with outstanding mining pedigrees. We have a high margin and stable operating base, generating very attractive cash flows. We expect production to grow by almost 40% or more in the next year, driven primarily by the ramp-up of MTR and Tennant mines. Our assets are long life and the group has a huge reserve and resource base for further expansion and development. We have a proven track record of project delivery, excellent capital allocation and a sector-leading dividend. And we have the ability to leverage the existing portfolio for further attractive growth. No need for us to go buy expensive assets at high valuations at this juncture. Slide #9. I guess the proof is in the pudding or in the numbers in this case. An investment in Pan African in 2009 when the group in its current form came into being, would have increased some 38-fold. This is a gold price increase also attractive around 4x. You also would have received an attractive dividend over this period, further increasing returns on Pan African stock. Earlier this week, we announced our intended move to the main market in London. The size and prospects of the group are such that we have outgrown our current AIM listing. Slide #10. We have built a unique portfolio of surface remining and underground assets. The addition of MTR and Tennant Mines means that we now have 3 large mining complexes in South Africa and 1 in Australia, all contributing towards the material increase in gold production forecast for the year ahead. Surface operations reduce unit costs and turn legacy liabilities into profits, whilst the underground mines provide long life of mines, solid returns on investment as a result of a large sunk capital base and also attractive optionality, which we continue to bring to account in a circumspect and considered manner, always thinking about the best way to allocate capital. Slide #11. We have now successfully transitioned the business to be focused on long-life, low-cost surface remining assets. Going forward, we expect approximately 60% of our production from surface and certainly the bulk of our earnings also. As I've said, not many gold miners can boast the fully funded production growth that we will deliver in the next year with a portfolio also well diversified. Slide #12, a bit more detail on our current portfolio of assets. I think what is very helpful is that all of our operations now have extended lives with the shortest life being the BTRP at 6 years, which is still quite a while. If we compare ourselves with the sector, many producers are running out of life on their assets or have to spend significant capital for future production, not the case for Pan African. We do not have to go and acquire more assets to maintain and grow production. Slide #13, our operating environment. We continuously seek ways of making our business less susceptible to adverse external impacts in South Africa. We have now seen an extended period without any load shedding. We are rapidly expanding our renewable energy footprint. Our mining rights are long dated, and we have multiyear wage agreements in place at most operations. Pan African's track record demonstrates we can operate and grow in South Africa and do so very successfully. Our experienced Australian team will ensure the same success in that jurisdiction. We have found the Northern Territory government very welcoming and supportive of our operation. It's a great place to do business, and we look forward to expanding our business there. If we then proceed to key production cost and financial features from the year past on Slide 15. We produced just under 200,000 ounces of gold for the year, an increase of 6% from the prior year. In the second half of the financial year, we delivered record production, mostly on the back of MTR. Our guidance for the next financial year is 275,000 ounces or more with production weighted to the second half of the financial year as MTR's expansion is completed, Tennant Mines commences mining in higher grades from open pits, and we are firmly established in Evander's very high-grade 24 Level B-Line. Our final all-in sustaining cost for FY '25 was $1,600 per ounce, slightly above previous guidance of $1,525 to $1,575 per ounce. The primary reasons for overshooting on AISC or all-in sustaining costs were a hedging loss of $30 per ounce and a rand-dollar exchange rate 2% stronger than forecast in our guidance. Importantly, the group is completely unhedged from the 1st of July of this year. For the next financial year, with full years of production from MTR and Tennant Mines and increased production from Evander 8 Shaft, we can expect unit costs to decrease in real terms. We expect an all-in sustaining cost per ounce of between $1,525 to $1,575. We further expect to be net debt free in the next year at prevailing gold prices. And despite the $32 million impact of the hedges, we delivered record profits and headline earnings in FY '25. And finally, despite all of the growth and capital reinvestment, we are able to maintain our sector-leading dividends to shareholders. We are proposing a record dividend for approval at the upcoming Annual General Meeting. Slide 16 should be an interesting one for investors, demonstrating how nicely we have expanded margins in recent years, and this excludes any meaningful contribution from MTR and Tennant Mines and also the full impact of prevailing record gold prices. Slide #18. I think it is fair to say that Pan African has a record second to none in terms of conceptualizing construction and operation of tailings retreatment projects. These long-life assets now form the cornerstone of our business. And I believe we have further room to grow in this space, which should be very attractive for our investors. If we then move on to more detail on the performance per operation, starting with Elikhulu on Slide #19. Clearly, a flagship asset for the group, just under 9 years of production remaining producing at under $1,100 per ounce. Gold production remained stable as expected for the year. We look forward to another year of more than 50,000 ounces of production and clearly excellent cash flow generation in the current gold price environment. The asset generated $80 million of EBITDA for the last year. Importantly, Phases 3 and 4 of the Kinross tailings facility, the final expansion were delivered on budget and on schedule. We are also now constructing the Winkelhaak pump station ahead of when required. This will enable us to feed material from both Leslie/Bracken and Winkelhaak from FY 2027. Slide #20, the BTRP, another sterling performance from our first gold tailings retreatment plant commissioned in 2013 and the lowest cost producer of gold in the group. As previously flagged, very exciting news for the BTRP is that we have extended the life of this operation from surface remining only to 6 years. The capital requirements for this new initiative was also relatively modest, some $4 million for a new pump station. BTRP will, therefore, continue to form an integral part of Pan African's tailings retreatment story for many more years. I'm also pleased to report that the new Bramber remining infrastructure will be delivered before the end of September this year, again, on budget and ahead of schedule. MTR on Slide 21. We commissioned the plant in October of last year, ahead of schedule and with savings of approximately $8 million to upfront capital. We built all of the plant and infrastructure in about 14 months, a testament again to Pan African's ability to secure, conceptualize, fund and then execute world-class mining projects. In December, we were already exceeding the plant's nameplate capacity by more than 10%. In the current gold price environment, payback on this $130 million initial investment should be approximately 2 years with a project life of almost 20 years when we include the Soweto reserves. All-in sustaining costs were elevated during ramp-up. Going forward, we expect these to ease to below $1,200 per ounce in the year ahead and then further going forward. We are now expanding the MTR operation to 60,000 ounces of annual production. This expansion is on schedule and should be complete early in the 2026 calendar year. On Slide 22, the Soweto cluster consists of more than 130 million tonnes of tailings with a mineral reserve of more than 500,000 ounces of recoverable gold. We believe we have enough gold reserves at the Soweto cluster to sustain a stand-alone operation, treating some 1 million tonnes per month over an approximate 10-year life of mine. The feasibility on this option will be concluded by the end of this month. Given our presence in the area, there is definitely also scope for the consolidation of tailings facilities we do not already own. On Slide 23, we cannot say enough about the socioeconomic and environmental benefits of this project. Concurrent rehabilitation is in progress. We are uplifting local communities, providing much needed economic and employment opportunities and working with law enforcement to eradicate illegal mining. Slide #25. I think the acquisition of Tennant Mines caught most of our shareholders by surprise given the jurisdiction. But by the time we concluded the acquisition, we had spent more than a year assessing the assets and working closely with the management team. The investment in Tennant Mines ticked all of Pan African's boxes in terms of deploying capital for growth with the following brief points worth emphasizing. Project had certainly low construction risk in a Tier 1 jurisdiction, a quick payback on investment. We secured a dominant position in the gold field and built the largest ever processing facility to operate there. The area has very exciting exploration potential with an experienced local management team taking ownership of project delivery. It is not often that one can acquire an asset like this and commission it 6 months later. Slide 27. We are pleased to report that the Tennant Mines processing plant at Nobles is now fully commissioned with production forecast at 46,000 to 50,000 ounces in the year ahead at an all-in sustaining cost of just below $1,600 per ounce. Slide 28. As we have said, the Tennant Creek gold field offers some very exciting potential. Slide #31, the Evander underground. As previously flagged, a disappointing performance for the year. The delay in commissioning of the sub-vertical shaft for wasting impacted us severely. Thankfully, this project is now fully completed. The new infrastructure is pretty much doubling our wasting capacity with fewer cumbersome conveyors, lower unit costs with a higher mine call factor. We are guiding 46,000 to 50,000 ounces of production for the next financial year with further production increases in later years. All-in sustaining unit costs will obviously reduce commensurately with the ramp-up in production. If we proceed to Slide 32, dealing with Fairview, our flagship underground operation at the Barberton Mines complex. We would have performed a bit better if it wasn't for multiple Eskom transformer failures in November, which we estimate cost us more than 2,000 ounces of production. At Fairview, we continue to source the bulk of our ore from the MRC and Rossiter ore bodies with development to the 263 Platform well on track. Rehabilitation of existing ramp infrastructure from 38 Level downwards is also progressing according to schedule. This decline will be used to transport personnel and material to the working faces on the 3 Shaft section and will further alleviate logistical pressures on 3 Shaft, which will then mainly be used for rock wasting and improving logistics. The smaller underground operations at Barberton on Slide 33. In terms of consort, the rehabilitation of the PC Shaft pillar has been completed and now enables our contractor to recommence mining on the high-grade 41 to 45 Level mining sections. Additional development is ongoing on the MMR and the PC Shaft to access mineral reserve blocks, which will give us access to more ground to mine. I am pleased that the operation was cash flow positive in the second half of the financial year to the tune of some ZAR 50 million and sustainable at these levels. As far as our Sheba Mine is concerned, we have successfully completed the restructuring and look forward to improved production in the year ahead with significant cost savings in terms of our labor bill. On Slide 35, the section dealing with our all-in sustaining costs. 85% of our portfolio produced at an all-in sustaining cost of $1,425 per ounce, impacted by lower underground production, some once-off items mentioned previously and the stronger rand-U.S. dollar exchange rate. Slide 36 illustrates that our cost performance continues to be very much in line or better than the average for the global sector with most producers having experienced significant cost pressures in the last couple of years. As I mentioned earlier in the presentation, the next financial year should see further improvements with full years of production from MTR and Tennant Mines and increased production from the Evander underground. On Slide 38, group capital projects. We continue to invest into our assets and into growth. For FY 2026, sustaining capital is fairly subdued in terms of growth. We are, however, using increased cash flow margins in fast-tracking development at Nobles, the Winkelhaak pump station at Elikhulu and obviously, the expansion of MTR. ESG on Slide 40. We continue to be very proud of our achievements on this front, particularly on progress with renewable energy, water retreatment and social projects. We really do make a positive difference where we operate. To elaborate further on our renewable energy road map on Slide 41, we are targeting 15% renewable energy by 2027. I will now hand over to Marileen who will provide an overview of the financial results for the year. Marileen Kok: Thank you, Cobus. I'm very excited to present the full year results to you today for the first time as Financial Director. For presentation purposes, amounts and percentages have been rounded. From Slide 43, you will notice the positive impact of the increase of 36% in the average U.S. dollar gold price received and increased gold production on revenue for the year ended 30 June 2025. Revenue increased by 45% to $540 million relative to the prior financial year. The increase in revenue also resulted in an increase in adjusted EBITDA of 60% and an increase in earnings of 78% to $142 million. Headline earnings increased by 47% to $117 million. The gain on bargain purchase of $28 million as a result of the Tennant Mines acquisition is excluded from headline earnings and is the main reason for the variance between earnings and headline earnings. Earnings per share and headline earnings per share both increased by 73% and 42%, respectively. During the financial year, just over 105,000 ounces, representing 53% of gold sales were committed in terms of the hedging transactions and did not benefit from the spot gold price, resulting in an opportunity cost of $26 million as a result of the synthetic forward transaction and a hedge loss of $5.8 million as a result of the zero-cost collar transactions. The purpose of the hedging was to secure full funding for the construction of the MTR operation. The group is now fully unhedged from the 1st of July 2025 and will benefit from the prevailing record high gold prices. Production costs and all-in sustaining costs was negatively impacted by approximately 3% as a result of the appreciation of the rand against the U.S. dollar when compared to the previous financial year. The realized losses associated with the hedging, as mentioned before, had a 2% or $30 per ounce adverse impact on the all-in sustaining cost. Further above inflation increases are primarily attributable to the electricity costs and mining contract and processing costs, including reagents. The lower production as a result of the delay in the commissioning of the vent shaft hoisting project at Evander underground also negatively impacted unit cost of production due to the large fixed cost base of the operation. The increase in operating cash flows of over 70% to USD 155 million is primarily as a result of the increase in the gold price during the period, coupled with cost control discipline, resulting in the realization of high margins. We spent $158 million (sic) [ $168 million ] in CapEx during the year, which resulted in an increase in net debt of 41% to $151 million compared to June 2024. The bulk of the capital expenditure related to the completion and commissioning of the MTR and Tennant Mines operations as well as the Evander underground 24 to 25 Level project. Slide 44 demonstrates the ability of the group to generate excellent cash flows at prevailing gold prices. At current gold prices, the group is expected to be fully degeared from a net debt perspective before the 2026 financial year-end. The expected debt redemption profile is well in excess of the contractual requirements. The group net debt peaked in December 2024 at $229 million with the completion of the MTR project and the Tennant Mines project finance included on the group's balance sheet from the effective date of the acquisition. The group reduced net debt by approximately $80 million or 35% to $151 million in the last 6 months of the current financial year, clearly demonstrating the cash flow generation potential of our current operations. The green loan facility dedicated to the funding of the group's renewable energy projects was also settled in full by the 30th of June 2025. The net debt-to-equity ratio of approximately 20% as at 30 June 2025, obviously leaves us with very significant headroom. The group's debt facilities currently consist of a revolving credit facility, the term loan for the MTR project and the listed corporate bonds in South Africa, combined with the funding facilities for the Australian operations from the Northern Territory government and a private financial institution. The term loan only matures in June 2029, but will be redeemed well in advance of the maturity date. The contractual debt redemptions associated with the debt facilities are fairly muted over the next 12 months and consists primarily of the quarterly repayments on the MTR term loan facility and Tennant Mines facility, monthly repayments to the Northern Territory government and the maturity of the Par SO1 listed bond and the RCF redemption in June 2026. The RCF facility is currently undrawn, and the group will commence with the process to refinance this facility in the near future. It's likely that the RCF will again be extended as has been the case in the past as it constitutes a key component of our core working capital finance facilities. Slide 45 tracks the group's historical and proposed dividend payments. The proposed record dividend is ZAR 0.37 per share, which will result in a gross dividend distribution of ZAR 864 million or approximately $49 million at the closing exchange rate for the 2025 financial year. The proposed dividend is an increase to the dividend of the previous financial year of 68% in rand terms and 77% in U.S. dollar terms. The proposed dividend for the 2025 financial year, together with the share buyback program announced, will result in a payout ratio of approximately 38% of cash flow as defined by the dividend policy. The dividend will be proposed to shareholders for approval at the AGM to be held in November 2025. The dividend provides an attractive return to shareholders whilst ensuring that the group has enough available liquidity to fund operations, together with further renewable energy initiatives in the near future. Thank you. I will now hand back to Cobus to conclude today's presentation. Jacobus Loots: Thank you very much, Marileen. If we conclude on Slide 47 and to again reinforce some key points. We now have tailwinds from the highest gold price in history, and the group is completely unhedged. Even with slightly lower gold prices and our record dividend, the group should be degeared in terms of net debt before the end of the 2026 financial year. We have just commissioned and ramped up arguably the most successful gold tailings retreatment project in South Africa's history, below budget and ahead of schedule, and we will grow this operation further in the near term. Our Elikhulu, MTR and BTRP operations are performing really well and generating fantastic returns and cash flows and will do so for many more years. Tennant was acquired with very limited dilution to shareholders, less than 6% of our market cap at the time. We are now producing from this asset in a Tier 1 jurisdiction within 6 months of acquisition, having constructed the largest processing plant to ever operate in this gold field by a factor of 3. We are growing gold production very materially in the year ahead with 60% of our production ounces from surface. Consort Mine has turned a corner and Fairview will continue to tick along as it has for many years. Evander Mines will perform much better with the subvertical hoisting shaft complete. Clearly, in this environment, the group is currently generating very significant cash flows. Let me reassure shareholders that as always, we will continue to be incredibly prudent in terms of capital allocation and investment decisions. We have an outstanding track record in terms of generating sector-leading shareholder returns on an absolute and per share basis, and we will not compromise on this metric. Thank you very much for your time this morning. We look forward to continue mining for a future and expanding our horizons in the year ahead. I think we'll start with taking any questions from the conference call. Operator: The question comes from Richard Hatch of Berenberg. Richard Hatch: First question is just on the CapEx guidance for '26. I think the market was at $71 million and you're guiding to $146 million. Now I appreciate that some of that is, as you say, the gold price is high, so you bring forward some projects. But can you perhaps just give us a bit more color as to what's driving the CapEx going higher than what the market was looking for? And then if we look into 2027, how should we be thinking about the CapEx profile of the group as it stands just on a directional basis, please? That's the first one. Jacobus Loots: Thanks, Richard. Yes. So to your point, we are -- we've decided in this gold price environment to bring forward quite a bit of capital. The first major item would be the Winkelhaak pump station at Elikhulu. That's about $20 million. And I mean that's going to give us flexibility for the remaining, call it, 8 years of life after the end of this year at Elikhulu. And the capital there is going to be fairly muted afterwards. So we're bringing that forward. Secondly, obviously, we have the expansion of MTR. So that's going to be done in January, February latest. That's quite a big ticket item. And then we also have the TCMG capital. So I mean, which is mostly growth capital. And I think lastly, the Evander underground, there's a bit of capital that was carried over from last year. And then there's quite a bit of development happening in 24 to 25 Levels. So clearly, I mean, the benefit of this gold price and with the low cost of our operations that we can afford to spend this capital and still have increased dividend by almost 80% and then still expect it to be degeared by the end of FY '26. So sustaining capital for the group in terms of guidance, it's $50 million. Marileen Kok: $40 million to $50 million. Jacobus Loots: Call it $50-odd million sustaining capital. Clearly, if we can continue to grow the business and do so generating returns, we have now a lot of flexibility in spending capital and generating attractive returns. Richard Hatch: Okay. And then as we go into '27, so we should see it drift more towards that $40 million to $50 million. Is that the right way to think about it? Jacobus Loots: Well, it's -- call it, $50 million sustaining and then there will continue to be a bit of growth capital, but that's very well justified. I mean, you would have seen in the write-up, I mean, a project like, say, Warrego in Australia doing drilling and some of the intersections coming back 5% -- 5 grams a tonne gold and anywhere from 2% to 10% copper. So those would be very attractive growth projects. So yes, I mean, your sustaining CapEx, Barberton will continue as it has been, not a lot of sustaining capital to be spent Elikhulu, MTR. You're going to see capital coming down on the Evander underground as we now sort of have moving into 25 Level. And then TCMG base case capital is -- that includes sustaining and growth would be in the order of about... Marileen Kok: $5 million to $10 million. Jacobus Loots: Yes, sustaining capital, call it, $5 million, call it, $10 million [indiscernible]. Richard Hatch: Okay. Helpful. And then the second one is just on the Soweto cluster. I appreciate you've got a feasibility coming up on that in the next sort of month or so. But how should we think about final investment decision on that project? And just again, in terms of growth, whether it's incremental to MTR or whether it's a life extension, how are you -- where are we sort of -- where is the thinking on it at this point? Jacobus Loots: So Richard, yes, it's dependent, obviously, on the feasibility study. If we do elect to build another plant, I mean, that's going to be sizable capital. I don't want to put numbers out there. But again, at this gold price or even a lower gold price, just given the attractiveness of these projects, you can expect, again, a 2-, 3-year payback on a capital number. But I think as a base case, I mean, MTR obviously has been a fantastic success. So we started 50,000 ounces. We now are in the process for fairly limited capital expanding to 60,000 ounces. I mean what Soweto at the very least will give us is additional feedstock, and we can look to ramp up, say, to 1.2 million, 1.3 million tonnes, just the existing plant. That means you're going to have attractive growth, another, call it, 15,000 ounces out of MTR and that operational growth on that basis for 15 years. So I mean, I guess those are the options. Do we go big bang on Soweto? Obviously, the sort of -- there are risks, but it's something that we've done many times successfully. But a base case, I think shareholders can look forward to further expansions at limited capital, generating very attractive returns. Richard Hatch: Okay. So sorry, just one follow-up on that. So on balance of probabilities is the view that it's more going to be, as you say, that incremental plant feed to take you up to that 1.2 million to 1.3 million and take volumes up to more like 75,000 ounces a year rather than to put your words on it, a big bang CapEx number. So more kind of like incremental but longer life, very, very high margin rather than a perhaps a slightly shorter life but still very low-cost operation with a high CapEx number. Jacobus Loots: Yes. Look, I mean, it's too early to preempt what we'll do. But I mean, if you look at our track record in terms of capital allocation, I don't think you need to be concerned. I don't want to say to shareholders, they can bank the expansion to, say, 1.2 million, 1.3 million, but that's the logic step for us as a base case. Operator: At this stage, we have no further questions from the lines. Jacobus Loots: Shall we go then to e-mailed questions? Unknown Executive: Thank you. We've got a few questions from the webcast. The first one is from Martin Creamer at Mining Weekly. Martin wants to know in what direct or indirect ways would a London main board listing help South Africa as a whole economically and otherwise? Jacobus Loots: Well, Marileen and the teams have worked incredibly hard on getting us to where we are with this process. It's a next logical step for us. I think we've outgrown AIM given the market cap and the production level. And it's going to give us access to increased investor base. The London market, I think, is -- would be quite amenable to another gold counter of size being listed. It gives us scale in terms of indexation. Marileen Kok: Indexation, yes. Jacobus Loots: So yes, a number of benefits from that perspective. Unknown Executive: Thank you. We've got a question from Mark Bentley from Share Society. I was concerned to read about the 3 recent fatalities. What was the principal cause, breach of safety protocols, equipment failures or geophysical activity? Jacobus Loots: Mark, yes, it's very sad for us also and very difficult. So let's just start out by saying that, I mean, really, our surface business has done fantastically well. I mean we sort of moved and completed a whole year of production with no lost time or reportable injuries on any of our surface assets. Industry-leading in terms of underground safety records. But that being said, it's still not acceptable to have fatal accidents. We -- again, all of the corrective measures are detailed in our SENS, RNS announcements. We are fortunate in that we don't have huge seismicity. So it's not geotechnical issues. The fatalities were very different in their nature. And the bottom line for us is, as a group, we can and will do better. But it's not only ourselves. I mean we need to have buy-in from all stakeholders. And that means all of our employees need to follow policies and procedures and also our unions and all of the other stakeholders that are involved, and that's the key message. Unknown Executive: Question from Arnold van Graan from Nedbank. Well done, good results. What's next from a strategic and growth perspective? Is it possible to buy more assets for value at this gold price? Jacobus Loots: Arnold, I think we have a good track record, again, on allocating capital. We are in a very fortunate position in that we're not running out of any life or running out of life on any of our assets anytime soon. Organically, we can continue to grow. We've spoken about MTR. Elikhulu will be nice and stable for 9 more years, but more growth we'd like to do at Barberton. Most of the growth now is funded at Evander 8 Shaft. Obviously, Australia, very prospective. And that's just been our, I guess, mantra over the years. We don't do expensive deals. We are very conservative. And certainly, for this year, the focus mostly will be banking the growth that we've now paid for and seeing all of those benefits crystallize in terms of production numbers, costs and ultimately cash flows. Unknown Executive: Thanks, Cobus. Mark Bentley again from Share Society. Are you considering paying an interim dividend at the half year stage in FY '25, '26? Jacobus Loots: Mark, let's first start by saying, I mean, certainly, the balance sheet has a lot of flexibility now. We already are paying a very attractive dividend, sector-leading, I think, would be fair. The dividend is an increase of almost 80% from last year, and that's after all of the capital we spent on growth over the last 12 months. But that being said, I mean, we constantly look at ways of returning more capital to shareholders and making our story more attractive. So we certainly don't want to rule out an interim dividend at this stage. And we always weigh up cash returns versus buybacks versus reinvesting in our portfolio and then growth. And I mean, we -- I think successfully, we'll continue to maintain a balance on all of those requirements. Unknown Executive: Thanks, Cobus. We've got 2 CapEx-related questions from Herbert at Absa. I think we've covered the first one. How should we think about CapEx over the next 3 to 5 years? What is the minimum baseline sustaining CapEx? And the second part, I think, what is the CapEx required to develop TCMG to realize the volumes over the next 5 years? Jacobus Loots: So I mean the sustaining capital for the group, we've guided now, so circa $50 million. TCMG's baseline number, it's about $40 million to $50 million, but it depends on the growth. Marileen Kok: And the number of open pits and rate of development we do go into the underground operations. Jacobus Loots: Yes. So I mean, the bottom line is we have a very attractive business in Australia and the capital we spent, we will generate quite attractive returns. And as I mentioned, the likes of the Warrego project in itself can sustain quite a large-scale business over time. So those are the options that we are looking at as far as TCMG is concerned. Unknown Executive: Okay. Another CapEx question from Lebo from Truffle. Is it fair to assume the same amount as Mogale for Soweto cluster in case you decide to build a stand-alone plant for the Soweto cluster? Jacobus Loots: Lebo, it's probably going to be more if we do build a stand-alone plant. And why is that the case? I mean the plant would be -- have more or less the same throughput. And there's obviously been a bit of inflationary adjustments after we constructed MTR. But then we will have to build a new tailings facility. We -- in terms of MTR had the benefit of for the first years utilizing the waste [indiscernible] pit. So that will be an additional capital item. And then secondly, also the pumping infrastructure, it's about 15-odd kilometers of pumping and piping, which wasn't the case at MTR. So you can expect a higher capital bill. But again, at this gold price or even a lower gold price, I mean, that sort of capital should pay back in, say, circa 3 years. But again, I mean, we recognize that if we do undertake Soweto, it's a big bang number, as I've said. And I mean, at the very least, we'd like to think shareholders can bank on a little bit of production growth at limited capital if we just expand the MTR facility. Unknown Executive: Thanks. A question from Arnold again. Did you suffer any production losses due to the illegal mining challenges at Barberton? Jacobus Loots: Look, illegal mining, as we've highlighted, is a big issue for us. And again, I want to congratulate our security team for all of their efforts in keeping our people and assets safe, which we will continue to do. We constantly suffer production losses, and it's theft from, unfortunately, our employees and then also the illegal miners. So we require the cooperation of all stakeholders and role players, including the police, and we work very well with police on a national level. So thank you for that. And yes, I mean, definitely, it also demonstrates, I guess, the potential still after 140 years of mining that you have so many illegals underground. But no doubt, I mean, there's a lot of gold theft, and we constantly work at ways of reducing that issue. Unknown Executive: Thank you, Cobus. Another Barberton-related question from Bruce Williamson of Integral Asset Management. Can you please give some insight into the Rossiter Reef methodology and the level of reduced dilution and higher grades? Jacobus Loots: Yes. So Bruce, like with all ore bodies at Barberton, unfortunately, like these are not the easiest of ore bodies to understand and then mine. They're not tabular. I mean, as you know, they sort of are undulating. But the Rossiter has been quite a good benefit for us in terms of topping up production from the MRC. So we have 3 sort of lines into the Rossiter, continue to mine it, continue to do exploration. So it probably gives us about 20% of the Fairview -- 20%, 25% of the Fairview gold at this point. So -- but I think it's exciting. I mean there's more work to be done. And hopefully, we can prove up a larger ore body in Rossiter over time. The issue with Barberton is not the quality of the ore bodies. It really is the infrastructure after 140 years of mining. I mean nobody ever expected that we'd be mining at these depths for so long. So that's why we get to continue to reinvest and invest into infrastructure and optimization. Unknown Executive: Thank you. There's a question again from Lebo at Truffle. What are your thoughts on special dividends? Jacobus Loots: Well, we had a big debate on that, I think, Lebo, not big, but it's something we consider. But special dividends, I mean, I think the dividend that we are now proposing is at a level that we can quite comfortably sustain. And as we said, I mean, it's a balance between growth and reinvestment and returning cash to shareholders. And I do think we are very competitive from that perspective. At this point, there's no sort of, I think, ask or prospect to go and do special. I think our dividend level is very attractive. Unknown Executive: Thank you, Cobus. And I think we can end off with a question on the London listing again from Ryan Seaborne at 36ONE Asset Management. Ryan says, congratulations on great results. Will you be doing a roadshow prior to the main board listing? And when is the expected listing date? Marileen Kok: Thanks, Ryan. We are busy in the process of all of the submissions, the required submissions to the FCA. The current time line, we would expect to complete the listing process somewhere in October. We are embarking on a roadshow now post our results. So we will consider if there's any demand for an additional roadshow before the admission in October. Jacobus Loots: Yes. I think the guidance is that we should -- we're looking to have the process completed by the end of December. Unknown Executive: Last question that just come in or a comment. May you please formalize 3-year CapEx guidance given the strong pipeline of projects? Jacobus Loots: Sure. That's something we could look to provide more clarity on, no problem. But I think the positive is that, obviously, I mean, we're able to very comfortably fund the levels of capital to sustain and grow. And as we've said, any growth capital would come and increase production and increase the returns to the business and to shareholders. Unknown Executive: Thank you. There are no more questions from the webcast. Jacobus Loots: Thank you to all for joining us today.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Sylvania Platinum Limited Investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. After the company can review all questions submitted today and will publish responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, we would just like to submit the following poll. And if you give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Sylvania Platinum Limited. Jaco, good afternoon, sir. Johannes Prinsloo: Good afternoon, Jake, and thank you everyone for joining us for this presentation. And myself and our CFO, Lewanne Carminati, will be taking you through the presentation to discuss the highlights of this past financial year and also hopefully to answer some questions at the end of the presentation. I think maybe just as an introduction for anybody who's maybe new to the company and a bit of background. Sylvania is a low-risk cash generative dividend paying mid-tier platinum mining company that has been in operation for just over 17 years now. And at the heart of our business are the Sylvania Dump Operations, where we operate currently 6 chrome and PGM beneficiation plants on the Igneous Bushveld Complex in South Africa where we treat a combination of both historic and current chrome tailing sources as well as ROM chrome ore from our host mine partners. So while our 6, first 6 SDO operations, we're only generating a stable PGM revenue stream, our exciting new Thaba joint venture, which has just been commissioned during the past quarter. Now we'll also introduce an attractive diversified chrome revenue stream to our business. And I will touch a bit more detail -- in a bit more detail on this later in the presentation. While we also own some greenfield's PGM exploration assets that could offer some future growth optionality, the operational and financial performance that we will be discussing today relates purely to the production and revenue generated from the aforementioned Sylvania Dump Operations. If I just look to the results for the past financial year. I am very happy with a remarkable overall performance for the period under review. After revising our PGM production target twice during the past financial year, our Sylvania Dump Operations managed to deliver a new record PGM performance of 81,002 4E PGM ounces in 2025. That was higher than our ultimate guidance and also 11% improvement on the previous financial year. From a financial perspective, we saw a very encouraging improvement in the 4E PGM basket price, especially during the past 4 to 6 months, bringing the average basket price for the year to about $1,507 per ounce, which is an increase of nearly 13% year-on-year. And then if you combine this higher PGM basket price of the higher PGM production, it enabled us to post a net revenue of $104 million for the year, a 28% improvement on the previous year. Together with group cash costs that are well controlled and a good revenue performance, we were also fortunate then to post a 117% higher EBITDA for the year of $29.3 million for the year. Now once we take this very robust financial performance into account, our still attractive and positive cash balance that we have and considering it in line with our dividend policy, I'm very pleased that the Board has approved a final cash dividend of 2p per ordinary share, that's been declared and to be paid during December, which results in a total dividend for the year of about 2.75p if you want to consider also the interim dividend of 0.75p that we paid in February or declared in February this year. And comparing to the previous financial year, if we exclude the special dividend, we paid with regards to the process from Grasvally, this '25 finance total dividend is higher than the '24 financial year, and also materially higher than the minimum required under our dividend policy. So overall, a very good production and financial performance that we are proud of. Besides looking after our shareholders and retaining value, we also have a significant focus on the well-being of our employees and also in terms of the communities where we operate. And to that end, I am also very proud of our performance during the past year, where the company achieved the best overall safety performance in the history for 2025 in terms of the overall amount of injuries. And it also includes some significant milestones like the Doornbosch operation that achieved 13 years lost time injury free during the period as well as our entire Eastern Operation complex that achieved 1-year total injury free. So not even the medical treatment case during the period. If we just for a moment, look at the operational performance per se and what was driving the record PGM production performance, you will see that the primary driver during the past financial year was primarily our 18% improvement in PGM feed grades. And in particular there, what contributed was higher feed sources from our host mines, such as our Tweefontein and Mooinooi operations. The continuous treatment of higher-grade third-party material feed source and treated our Eastern Operations, as well as the new higher grade current arisings feed source we have -- that has been introduced at Lesedi since about October last year, and that all contributed to the higher PGM grades. For the period, our PGM feed tons was marginally down, some of it impacted by the abnormal heavy rains on this Western Bushveld at the beginning of the year as well as the intervention we had at the city to get it ready for the third party -- for the new current arisings material. From a growth point of view, I'm excited that our new Thaba Joint Venture operation is now commissioned, and we look forward to starting -- for it to start contributing, both in terms of PGMs, but also in terms of chrome revenues during 2026, which will ultimately assist to take our overall attributable production to between 83,000 and 86,000 ounces 4E in '26 and '27 when steady state is reached. But I will deal a bit more later in the presentation on Thaba specifically. In terms of our focus areas, obviously, our primary focus for this next year is to ramp up and optimize the Thaba operation now post commissioning. But at the same time, we also continue to ensure that the existing Sylvania Dump Operations are looked after and further optimized where possible. So -- and just maybe some of the most significant of these are the Lesedi optimization as the host mine run of mine feed at current arisings continue to ramp up during the -- which we expect during the second quarter of this financial year. And also then various other technical initiatives that is aimed at improving PGM concentrate quality and process efficiencies for both PGM and chrome recovery. So I'm going to hand over to Lewanne now to just take us through some of the financial highlights, and then I will talk some more on the market outlook and the -- our growth projects. Lewanne Carminati: Thanks, Jaco. So this year has been quite a successful year for the company, both operationally and financially. And the improvement in the basket price, although only in the latter part of the financial year had a significant impact on the profitability of the company and highlights once again just how sensitive the industry is to the PGM basket price. Sylvania had the benefit of the record production as well as the price improvements, which has translated into year-end financial results, which have exceeded our initial estimates. Our net revenue of $104 million is 28% higher than the prior year, and our costs are up 14%. Royalty tax reduced as a result of the additional CapEx allowances, reducing the percentage payable. The other expenses reduced 35% year-on-year. This cost is mainly general and admin costs at a corporate level, and the reduction from the prior year is as a result of the interest that was written off in 2024 on the settlement of the Grasvally transaction. Our corporate income tax is charged at 27% on taxable profits, which generated in South Africa. And the tax expense line also includes the movement in deferred tax and any dividend withholding taxes incurred on dividends which are declared from the operational entities in South Africa up to the parent, Sylvania Platinum. Full year, our earnings per share was $0.0773 against $0.226 in the prior year. If we look at our revenue in a little more detail, you'll see that the improvement in the metal price contributed 16% to our revenue and the higher production, an additional 12% to our revenue for the financial year. The 6E revenue split has remained fairly consistent with a slight shift between the palladium and rhodium contributions of about 2% and our EBITDA for 2025 more than doubled from the prior year and exceeded our previous estimates at half year. The major contributors, again, being the increase in the metal prices and the increased production. Looking forward to the new financial year, the EBITDA is forecast to increase quite significantly based on the latest consensus pricing, the slightly higher PGM ounces that we're forecasting as well as the introduction of chrome revenue. Moving on to the operational costs. Our current tailings retreatment operations incurred a cash cost of $759 per PGM ounce. Although the total operating costs were higher than the prior year, the cost per ounce remained in line with 2024 due to the higher ounces. Costs for the current year included a full year of third-party material. This was initially only planned up until June 2025. But this contract was extended in March with new pricing terms, and therefore, the slightly increased operational costs will continue into 2026. Although this does impact costs, the additional material does extend the life of the operations, and the higher-grade material increases ounce production. The other significant contributors to operational costs include labor being our largest cost, followed by the power and consumables. Our all-in sustaining costs reduced by 3% on the prior year, but the all-in cost for 2025 increased 14%. This was, however, in line with our capital spend for the year on tailing dams and the Thaba JV. The 2026 tailings dams' capital will result in the all-in cost remaining at around the $1,300 level, but then it will taper off to approximately $1,000 to $1,100 from 2027. As you'll see, the company has maintained a strong balance sheet with a net asset value of [ $244 million ] and a cash balance of $60 million at 30 June. During the year, the operations generated cash flows after tax of just under $20 million. The total tax paid out was $2.9 million, but we also received a refund from the prior year of $1.56 million. So the net effect of tax outflows was $2.3 million. Dividends actually paid out to shareholders in the financial year totaled $5.8 million. This was the final dividend from 2024 as well as the interim for 2025. In addition to the dividends paid, the company also spent $1 million on share buybacks. Our capital cash outflow for the year totaled $31 million. And this includes $16.6 million attributable spend on the Thaba JV, $7 million on tailings stands and $6 million on business improvement and strategic projects, which includes the filtration Plant as well as the collision avoidance system. The capital forecast for 2026 is at similar levels to the past financial year, around $32 million, with the largest spend being that on tailings dams of approximately $21 million. And then this tapers down to just under $10 million from 2027 when all the required tailings dams have been completed. Returning value to our shareholders through maintaining a sustainable business while also paying dividends and buying back shares is a priority for the Board. And as Jaco mentioned, a 2p final dividend for the year was declared, bringing our annual dividend to 2.75p. Including this final dividend, the company has returned $117 million to shareholders since 2018. And we've also bought back 65 million shares since 2015, of which 26 million have been canceled. The company's capital allocation framework provides a balance for allocating capital to sustain our operations, drive long-term growth and consistently return value to our shareholders. Now I hand back to Jaco for the company and market outlooks. Johannes Prinsloo: Thank you, Lewanne. And I think yes, now that we have discussed an overview of the past periods performance and also hopefully demonstrated how we are adding significant return and value to our shareholders. It's important also how we consider, how we aim to continue growing the business, so that we can sustain attractive returns also into the future. So from a growth perspective, we basically have 2 ways of approaching growth in terms of our strategy. Firstly, we continuously look at how we can unlock further potential and value from our existing suite of assets, and these include our current dump operations as well as our various own exploration assets. And I think we've done that very successfully over the years. So growing our production profile from about 10,000 ounces in the initial stages to more than 80,000 ounces achieved this year. And then secondly, we are looking to create value from external growth opportunities where we can replicate our proven operating model and leverage our successful track record and expertise. And 1 such opportunity is the Thaba Joint Venture operation that we have embarked on in collaboration with our partners at Limberg Chrome Mine. So just before giving you an update on the current project progress, let me maybe briefly give you a little update or recap of what the project is about. The Thaba JV project represents significant and exciting diversification for the company in terms of our product portfolio in the sense that it now adds significant chromite concentrate revenue to the business, whereas our current Sylvania Dump Operations only generate PGM revenue stream. And it further combines the proven expertise in PGM recovery of Sylvania with our JV partners' extensive experience in chrome operations. And that assist us to leverage strength of both companies to the maximum benefit of the JV. So from an attributable point of view, the Thaba JV will increase Sylvania's existing 4E PGM production profile by about 9% at steady state and also introduced about 210,000 tons of attributable chrome revenue to Sylvania, so chrome product and there's an attractive revenue stream once that's steady state. And I think the total revenue for the project at steady state is about $33 million a year, of which about 75% originates from the chrome production and about 25% from our PGM sales based on the current pricing assumptions. Based on the current PGM and chrome price assumptions, this will also equate to around $18 million to $20 million of attributable EBITDA for the group. I think it's maybe just important to note here because this is the mining operations. Our waste stripping costs on the mining is capitalized, and therefore, we've included the all-in sustaining cost graph at the bottom. So there's about $67 million of sustaining capital that will go towards stripping to be taken exploration in terms of the EBITDA. But overall, a very attractive project still with gross profit margin of 35% to 40% depending on metal prices. And as we said, within a 3- to 4-year simple payback on the operation. If we look at the -- in terms of project execution and operational readiness, I'm very pleased that the plant construction and commissioning phases are now complete and that we're currently in the operational ramp-up phase. Unfortunately, like many projects of this nature and complexity, we also had some challenges. One obvious include the impact of abnormally higher rainfall over the months of November to -- November '24 to January '25 that's affected the critical path of the project can ultimately cause some delays during the final construction phases. We also had a safety-related incident here in June with electrical injury that resulted in suspension of electrical work impacted on the final commissioning phase of the project. And ultimately, also during recent months as we were ramping up the production towards full capacity throughput, there were some challenges emerging on our interim power supply agreement -- arrangement while our new primary Eskom substation is still under construction, and that resulted in us adjusting our ramp-up schedule slightly. So we did, however, put some mitigation measures in place with additional generators brought on site, which we've commissioned over the past weekend in order to reduce our reliance on the current old rural Eskom power supply line and improved our power stability so that we can ramp up the project. And then we also look forward to the completion of the primary -- new primary supply facility towards the end of October. So we now expect the operation to reach steady state during the third quarter of 2026. However, despite the revised ramp-up plan, as I mentioned earlier, the project investment fundamentals remained robust. There's still a very attractive project that is on track to become a significant revenue contributor for the company asset reach full operational capacity. These are just some pictures from the operation for information. I think at the top left shows a nice view of the chrome primary ROM and secondary fine chrome spiral plants. The bottom left is our primary and secondary mills, also some flotation cells and our [ flotation ] stages. So overall, certainly a very impressive and a world-class project that we have constructed. If we look at growth beyond Thaba, we're also currently busy investigating a number of alternative opportunities with the aim of either increasing the existing PGM ounce profile or to add alternative revenue streams like chrome in like we've done for the Thaba JV or alternatively exploring how to extend life of existing operations. So while this slide do include Thaba and also Lesedi current arisings and the third-party source material I already mentioned, I'm just maybe focusing on 1 or 2 initiatives not mentioned earlier, one being our new Eastern Limb treatment facility that is currently under investigation. We have initiated a pre-feasibility study during the past financial year to determine if we should focus on either just a dump only or a dump and run of mine materials, similar like the Thaba JV and when and how to progress with the feasibility study and execution. And we expect to have an outcome of the pre-feasibility study towards the end of this financial year. And then finally, we continue with ongoing technical and commercial due diligences on various complementary projects and opportunities, and we specifically look at those opportunities and projects that aligned with our current skills and expertise and especially where there is a coproduction potential like Thaba with the chrome and PGMs. And we're quite confident that we will continue to grow the company's production profile going forward. If we look at the -- just a bit on the market overview and what has happened on PGMs during the past year and especially recent months. I think it's worth standing still for a moment, just considering the industry PGM cost curve. The latest one is compiled by Nedbank Corporate Investment Banking. And I think when we compare this to the same cost curve of about 6 months ago, we can see that there's been so much needed relief for PGM producers. 6 months ago, nearly half the industry or something -- sometimes even more of the producers were loss-making from a cash cost plus capital point of view. And with the recent improvement in PGM prices only about 20% of the industry seems to be loss-making at the current PGM basket prices. Certainly, a significant improvement and creating a bit of breathing space for PGM producers. I think also noteworthy from this graph is that Sylvania is still very nicely positioned in the bottom quartile of the PGM cost curve. And what that means for us is that when prices are subdued or tough, like it's been for 2 years, Sylvania is able to still generate attractive cash in a down cycle to fund both our growth aspirations and return value to our shareholders. And when we have a positive price environment, it enables us to capitalize further on this and generate additional cash either for distribution to our shareholders or to reinvest in growth of the company. Before I maybe just move on to the supply and demand fundamentals. Just on the left of this slide is reminding you about Sylvania's PGM basket composition or the prill split. And we -- about -- in our prill split, specifically Sylvania, we have about 12% rhodium and 65% platinum and this makes up more than, say, more than 74% of our total 6E revenue while palladium at 23% is also still significant. And I think especially what we're starting to see as there has been significant price movements is that the miner by products like iridium and ruthenium is becoming more significant and added about 14% of our 6E revenue during the past year. Looking at the various -- at the PGM market per se, from a demand perspective, Auto Catalysts still is one of the biggest drivers of demand and the most significant aspects for us to consider, especially from palladium and rhodium, that's primarily Auto Catalysts consumption. But also, we've seen some interesting movements either platinum over the years. While the growth -- the estimate sales for 2025 is the outlook is about 91 million to 92 million units, it's slightly down from the beginning of the year before some of the tariff rates from the U.S. The outlook was probably close to 94 million vehicles, but still a good improvement on recent years. And combining that with the fact that plug-in hybrid electric vehicles and range extended vehicles, growth rate is outpacing that of the pure battery electric vehicles means so there's still a good demand for Auto Catalysts. So overall, we remain confident of that. And I think finally, also, there's been some increase in the loadings per vehicle in China following a long period where they lagged international peers. So certainly, the Auto Cats some interesting developments. From other demands in the industry, platinum in particular, is -- has seen quite an interesting demand increase in jewelry, and that comes -- especially when gold jewelry and the current gold price, the price parity between gold and PGMs is such that consumers are now buying a lot more platinum jewelry. Platinum, obviously, also has very good applications and future in terms of the energy transition and hydrogen economy and then also in the glass-making industry. So strong fundamentals for platinum. I think rhodium, maybe noteworthy is and we've seen quite a recovery in the rhodium price during recent months. And part of that is with the reintroduction or increasing of rhodium being the glass makers bushings, when rhodium was at all-time high, some of the glass makers were eliminating or reducing rhodium content. But to -- considering durability of the bushings and manufacturing process, they are reintroducing rhodium to a larger extent. From a supply perspective, I have mentioned that there has been recently some relief for PGM producers. But I think what is important to consider is that the short-term relief we've seen in the price so far is not enough to overturn the impact of the significant decline in capital investment and production cuts that have been instituted and evolved over the past decade. So certainly, South African PGM supply on the long term in terms of platinum, rhodium and then also ruthenium is expected to tighten. Outside of South Africa, obviously, the North American palladium supply, is still under pressure with palladium relative low prices and low margins. And there's been quite a bit of restructuring and production cuts at many of the North American operations. So what does that mean for our outlook on PGMs overall? I think we know that platinum, palladium, and rhodium are in deficit for '25. Platinum, palladium still in '26. There's a small swing of rhodium in '26 and '27, but with rhodium having so much lower volumes and a small change in the market can easily swing it from a surplus to a deficit, and I think that's why the rhodium prices is always volatile, and we still maintain a robust outlook on the rhodium as well. From a chrome perspective, I'm not going to talk in too much detail about it, just that we know the bulk of the consumption for ferrochrome is in the stainless-steel industry, and we know the stainless-steel industry is consistently growing at 4% to 6% per annum. And while we acknowledge that the global economic growth rates and also some of the tariff threats and uncertainty from the U.S. to impact short-term consumer trends and industrial development, the long-term demand is robust. And from a supply point of view, so Africa is the largest chrome ore producer in the world. And obviously, with a number of chrome operations and the growing PGM demand, we believe that there will be a tight balance in terms of supply demand going forward. So we maintain a favorable outlook in terms of chrome prices going forward. So overall, we are quite positive for both the PGM and the chrome markets. Before closing, I'm going to just add back or transfer back to Lewanne to just talk us through a brief overview of our ESG performance, and then I'll close the presentation. Lewanne Carminati: Just, yes, as Jaco said briefly on the ESG, I think over the years, we've demonstrated that sustainability is more than just regulatory compliance for Sylvania, and we're quite proud of the ongoing progress that we've made in all aspects of ESG. On the environmental side, excuse me, management of the tailings dams under our control is critical to our business, and we ensure compliance with the South African regulatory requirements and align the management of these with GISTM through ongoing monitoring and annual audits. We also understand the water stewardship is very important given the increasing scarcity of this resource. We're continuously improving our measurement accuracy at the operations, enabling more reliable tracking of flows and losses. And we're also now able to monitor the use of recycled water more efficiently, reducing the need for fresh top-up water. Our revegetation program is progressing well, and we are planning the first full-scale rehabilitation of a tailings dam in the new financial year. Under the social and governance banners, as Jaco mentioned, we are exceptionally proud of our safety records and achievements, especially the Doornbosch operation achieving 13 years LTI-free. The Board and management are committed to diversity and equity throughout the group, and we continue to train and develop our employees through various platforms. We've also made significant contributions to the South African economy where we operate, and this is through the payment of taxes, the use of local suppliers and remuneration payments to our employees. We'll obviously continue to build on these key sustainability focus areas, and we are publishing our annual ESG report in October. So please do look out for that. Johannes Prinsloo: Thank you, Lewanne, for that as well. I think maybe just then -- what's next? What can we expect for '26 and beyond? I think just briefly, I've mentioned earlier, our primary focus at the moment is to ramp up the Thaba JV operation. And you can expect steady state production to be achieved at Thaba during the third quarter, and that's what we're aiming towards. We also expect the host mines new ROM commissioned plant Lesedi to continue ramping up and is likely to achieve steady state by December this year. And then we expect a continued strong performance from our existing SDO operations. And we believe that a lot of the positive momentum from this past record year is being carried through into the next financial year, and we have a positive outlook. And therefore, we have a production target of 83,000 to 86,000 ounces of 4E PGMs for the year, and also estimating 100,000 to 130,000 tons of chromite concentrate from Thaba to be added to our production for the year, and in which will ultimately '27 onwards, increased to around 200,000 tons as the state. We further expect the PGM metal price to be stronger than '25, and we -- our current forecast pricing equated to about $1,800 an ounce, $1,809 for '26, increasing up to about $1,890 in '27 compared to $1,500 per ounce of '25. But we also -- while you consider the current spot price is sitting at about $1,900 to $1,960, we do we think that is realistic. So the solid bars on the EBITDA represent those price outlooks, but we do, as always, illustrate what a 10% movement in either chrome or PGM price would have on the PGMs. So overall, a positive outlook for us on the year, both in terms of production and EBITDA. So I think in closing, I'm very happy with our performance for the past year, both from a production and a financial perspective. And I think we again illustrated that we are a very attractive company in terms of delivering on what we set out to do and promise to the market, delivering on our performance targets and consistently delivering strong value and returns for our shareholders. So thank you again for everybody's support and also, we're looking forward to the year ahead. I think maybe just finally, I want to mention and maybe as we are at the end of the presentation, I'll put my screen. I think Lewanne also put her camera back on. I think I want to take the opportunity [Technical Difficulty] as many of you have seen that we have announced that Lewanne after 16 years with the company, have decided to step down from her position as CFO and also a Director of the Board at the end of October to pursue some -- at the end of November, sorry, the 30th November to pursue some personal aspirations and objectives. And we thank to Lewanne for the valuable contribution over the 16 years with Sylvania and also for being an integral part of our senior management team and the executive. She's been integral part of the team for a long time and contributed significantly to the management team, to myself and my role and also to the Board. I'm also happy to announce that Ms. Ronel Bosman, our current Executive Officer, Finance who's been with the company since 2021 and been an integral part of our senior management team in Sylvania will be taking over the reins from Lewanne on the 1st of December. And I also welcome Ronel, and congratulate her for being selected for the role, and I expect a seamless transition in that regard. But I just thought it's worth taking Lewanne as well for the contributions today. So yes, with that, Jake, I'll maybe hand back to you. Lewanne Carminati: Sorry may -- if I may. Thank you, Jaco. Thanks for the kind words. I just also wanted to thank you and the whole team from Sylvania for the past 16 years. It has been an incredible journey of growth, learning and teamwork. And I think it has been a genuine privilege to serve as CFO of Sylvania and as a director. And I'm extremely proud of everything that we've accomplished as a company and a team over the 16 years. I also wanted to just take this opportunity to thank all investors for the trust and support over the years and to reassure them that the company is in excellent hands as Ronel steps into the role in December. I'm really, really excited for what lies ahead for the company, and I'm quite confident that Sylvania will keep to -- keep building on its success and delivering value to its shareholders. Thank you. Operator: Perfect guys. If I may just jump back in. Thank you very much indeed for your presentation this afternoon. [Operator Instructions] But just while the team take a few moments to review those questions that have been submitted already, I'd just like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can all be accessed via your investor dashboards. As you can see there, we have received a number of questions throughout your presentation this afternoon. Thank you to all of those on the call for taking the time to submit their questions. But Jaco, Lewanne, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that would be great. Johannes Prinsloo: Thank you, Jake. Yes. If I look at the questions, I think maybe the first one is about PGM markets and specifically in terms of the price of rhodium that have risen significantly during the year. And that's how I would just ask for the main reasons. I think I've mentioned the fact that the reintroduction and the increase of rhodium loadings in the glass maker industry has improved. So that's one of the aspects. What I probably did not touch on a lot was what we have seen on both -- well, on all 3 metals, platinum, palladium, and rhodium is that the current above surface stocks are also significantly lower, they're between a 5- and 7-year lows at the moment. And I think if people look at the supply-demand balance and considering that the surface stocks have been reducing, there has been some additional buying and then also price movement in rhodium. So that, I think, is in terms of rhodium. The second question also deals with rhodium and somebody have asked that given the change in the cycle of precious metal in recent months and the share buybacks from the company seems to have been to the benefit of shareholders, may I ask that during the sudden downturn in rhodium price over the last year as the company withheld some of the reserves to sell at a time like this to take advantage of the sudden cycle -- the up cycle? And if not, what was the reason behind not holding on to reserves during downturn? I understand that the cash reserves have been mostly maintained and used to the joint venture, but I would hope that this action was also done with the reserves of the precious metals in the company's position during those periods. Might also ask what the time frame is for holding reserves and what percentage permitted by the company if there is a legal requirement to do so. Many thanks. So okay, I think maybe 2 things is due to the nature of the PGM product that we produce and our offtake with our smelters, we are not able to hold back reserves in the company. But I think it also comes to a question that somebody -- some investors asked us before about does the company hedge any of our products. We don't have a policy of hedging any products, and we don't have intentional policy of holding back any reserves or stock. So yes, unfortunately, that we don't do that in terms of the metals. I don't think there's necessarily legislation that prevents you from doing it that the practicalities of handling and being able to store stock and also the security aspects around that means that it is not something that is commonly done in the industry. If I move to the next question, it's something just asked what the current 4E basket price is for August. August was -- between August and now, we ranged between $1,900 and $1,960 per ounce 4E. So it is higher -- significantly higher than what we closed the past financial year on. And it is also higher than what the consensus forecast that we use for our forward-looking EBITDA statements. Another question to ask if the Board will consider a new buyback program. Lewanne, maybe you can just touch briefly on the capital allocation policy and also how we discuss the buybacks. Lewanne Carminati: Yes. So we've recently formalized our capital allocation framework. And we, as I said in the -- during the presentation, we prioritized maintaining a sustainable business, long-term growth and then returns to shareholders. This is mainly through dividends, and there is no formal policy around buybacks. But the Board does review this at every Board meeting and does implement share buybacks on an opportunistic basis when the share price moves through certain thresholds and there is surplus cash. So it's certainly -- the Board will consider further buybacks, but it will be very dependent on other cash requirements as well as what the market is doing at the time. Johannes Prinsloo: Thank you, Lewanne. Then somebody also asked and say, thanks. They start -- the question is impressive. Thank you very much for that. And then also ask what is the platinum price that we're using in the revenue forecast. So we have touched in the back of the presentation in the appendix, our metal price assumptions. But just to guide you, the platinum price forecast $1,319 is consensus forecast for '26. That forms part of the total price, and as I said, $1,809 is fully basket price, but we do have a breakdown per year and per element of the metal prices used in our EBITDA and revenue forecast in the presentation. So that is there. And then -- another question about further buybacks, but I believe Lewanne have answered that one. And I think the last question that I can see on the screen here is just saying with the current metal prices, could we see a significant increase in the earnings per share in 2026. And I think we have illustrated with the amounts of shares and issue and the EBITDA rising. Yes, there would be an improvement in earnings per share, and we do include that in the outlook slide. There's one last question that's just come in. As I've been talking to say if platinum spikes to USD 2,500, would your company please consider locking in some production revenue via hedging? Thank you. And I think it ties back to maybe the previous question where we had to say we just, there's not a formal hedging policy in place. But certainly, as I said, I think if we get to those prices, there should hopefully be very attractive returns to our shareholders. Jake, I think that is handling all the questions -- sorry. Just as I said, I'll handle there's another one that's just come in to say how familiar are the analysts following the stock with the chromite impact on the company in the coming 2 to 3 years. Look, I think the -- quite a few of the analysts that are covering us and looking at our business model are also familiar, for instance, with a model of Tharisa Minerals, that is chrome and PGMs and also listed on the LSE here in London. So I do think that there is some good experience and understanding of how the chrome and PGMs impact the revenue streams. And yes, I think that is the bulk of the questions that we have. So Jake, let me hand back to you. Operator: Perfect guys. That's great. And thank you very much indeed for being so advanced of your time and addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. But Jaco, perhaps before really now just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments, just to wrap up with, that would be great. Johannes Prinsloo: Thank you, Jake. Look, as I mentioned earlier, I'm very thankful to the contribution of our management, all our employees and our staff. We made this past year contributed towards a very successful year that was just completed. And as I said, I hope we can demonstrate to our shareholders that we remain an attractive company to invest in, to support and that we can continue to generate very attractive cash from our operations, both the existing as well as the Thaba JV that will be ramping up in the new year. So there's, I think, a couple of very exciting things to look out for the company. And we certainly remain committed despite having still some significant capital allocation to our tailings dams and growth projects as we've communicated. We still remain very committed to maintain very good returns to our shareholders for a balance of dividends and share buybacks. So I hope whether we can continue to do that for well into the future. So thank you very much for your time. Thank you for your support, and I'll leave it at that. Operator: Yes. Okay. That's great. Thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of management team of Sylvania Platinum Limited, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Sylvania Platinum Limited Investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. After the company can review all questions submitted today and will publish responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, we would just like to submit the following poll. And if you give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Sylvania Platinum Limited. Jaco, good afternoon, sir. Johannes Prinsloo: Good afternoon, Jake, and thank you everyone for joining us for this presentation. And myself and our CFO, Lewanne Carminati, will be taking you through the presentation to discuss the highlights of this past financial year and also hopefully to answer some questions at the end of the presentation. I think maybe just as an introduction for anybody who's maybe new to the company and a bit of background. Sylvania is a low-risk cash generative dividend paying mid-tier platinum mining company that has been in operation for just over 17 years now. And at the heart of our business are the Sylvania Dump Operations, where we operate currently 6 chrome and PGM beneficiation plants on the Igneous Bushveld Complex in South Africa where we treat a combination of both historic and current chrome tailing sources as well as ROM chrome ore from our host mine partners. So while our 6, first 6 SDO operations, we're only generating a stable PGM revenue stream, our exciting new Thaba joint venture, which has just been commissioned during the past quarter. Now we'll also introduce an attractive diversified chrome revenue stream to our business. And I will touch a bit more detail -- in a bit more detail on this later in the presentation. While we also own some greenfield's PGM exploration assets that could offer some future growth optionality, the operational and financial performance that we will be discussing today relates purely to the production and revenue generated from the aforementioned Sylvania Dump Operations. If I just look to the results for the past financial year. I am very happy with a remarkable overall performance for the period under review. After revising our PGM production target twice during the past financial year, our Sylvania Dump Operations managed to deliver a new record PGM performance of 81,002 4E PGM ounces in 2025. That was higher than our ultimate guidance and also 11% improvement on the previous financial year. From a financial perspective, we saw a very encouraging improvement in the 4E PGM basket price, especially during the past 4 to 6 months, bringing the average basket price for the year to about $1,507 per ounce, which is an increase of nearly 13% year-on-year. And then if you combine this higher PGM basket price of the higher PGM production, it enabled us to post a net revenue of $104 million for the year, a 28% improvement on the previous year. Together with group cash costs that are well controlled and a good revenue performance, we were also fortunate then to post a 117% higher EBITDA for the year of $29.3 million for the year. Now once we take this very robust financial performance into account, our still attractive and positive cash balance that we have and considering it in line with our dividend policy, I'm very pleased that the Board has approved a final cash dividend of 2p per ordinary share, that's been declared and to be paid during December, which results in a total dividend for the year of about 2.75p if you want to consider also the interim dividend of 0.75p that we paid in February or declared in February this year. And comparing to the previous financial year, if we exclude the special dividend, we paid with regards to the process from Grasvally, this '25 finance total dividend is higher than the '24 financial year, and also materially higher than the minimum required under our dividend policy. So overall, a very good production and financial performance that we are proud of. Besides looking after our shareholders and retaining value, we also have a significant focus on the well-being of our employees and also in terms of the communities where we operate. And to that end, I am also very proud of our performance during the past year, where the company achieved the best overall safety performance in the history for 2025 in terms of the overall amount of injuries. And it also includes some significant milestones like the Doornbosch operation that achieved 13 years lost time injury free during the period as well as our entire Eastern Operation complex that achieved 1-year total injury free. So not even the medical treatment case during the period. If we just for a moment, look at the operational performance per se and what was driving the record PGM production performance, you will see that the primary driver during the past financial year was primarily our 18% improvement in PGM feed grades. And in particular there, what contributed was higher feed sources from our host mines, such as our Tweefontein and Mooinooi operations. The continuous treatment of higher-grade third-party material feed source and treated our Eastern Operations, as well as the new higher grade current arisings feed source we have -- that has been introduced at Lesedi since about October last year, and that all contributed to the higher PGM grades. For the period, our PGM feed tons was marginally down, some of it impacted by the abnormal heavy rains on this Western Bushveld at the beginning of the year as well as the intervention we had at the city to get it ready for the third party -- for the new current arisings material. From a growth point of view, I'm excited that our new Thaba Joint Venture operation is now commissioned, and we look forward to starting -- for it to start contributing, both in terms of PGMs, but also in terms of chrome revenues during 2026, which will ultimately assist to take our overall attributable production to between 83,000 and 86,000 ounces 4E in '26 and '27 when steady state is reached. But I will deal a bit more later in the presentation on Thaba specifically. In terms of our focus areas, obviously, our primary focus for this next year is to ramp up and optimize the Thaba operation now post commissioning. But at the same time, we also continue to ensure that the existing Sylvania Dump Operations are looked after and further optimized where possible. So -- and just maybe some of the most significant of these are the Lesedi optimization as the host mine run of mine feed at current arisings continue to ramp up during the -- which we expect during the second quarter of this financial year. And also then various other technical initiatives that is aimed at improving PGM concentrate quality and process efficiencies for both PGM and chrome recovery. So I'm going to hand over to Lewanne now to just take us through some of the financial highlights, and then I will talk some more on the market outlook and the -- our growth projects. Lewanne Carminati: Thanks, Jaco. So this year has been quite a successful year for the company, both operationally and financially. And the improvement in the basket price, although only in the latter part of the financial year had a significant impact on the profitability of the company and highlights once again just how sensitive the industry is to the PGM basket price. Sylvania had the benefit of the record production as well as the price improvements, which has translated into year-end financial results, which have exceeded our initial estimates. Our net revenue of $104 million is 28% higher than the prior year, and our costs are up 14%. Royalty tax reduced as a result of the additional CapEx allowances, reducing the percentage payable. The other expenses reduced 35% year-on-year. This cost is mainly general and admin costs at a corporate level, and the reduction from the prior year is as a result of the interest that was written off in 2024 on the settlement of the Grasvally transaction. Our corporate income tax is charged at 27% on taxable profits, which generated in South Africa. And the tax expense line also includes the movement in deferred tax and any dividend withholding taxes incurred on dividends which are declared from the operational entities in South Africa up to the parent, Sylvania Platinum. Full year, our earnings per share was $0.0773 against $0.226 in the prior year. If we look at our revenue in a little more detail, you'll see that the improvement in the metal price contributed 16% to our revenue and the higher production, an additional 12% to our revenue for the financial year. The 6E revenue split has remained fairly consistent with a slight shift between the palladium and rhodium contributions of about 2% and our EBITDA for 2025 more than doubled from the prior year and exceeded our previous estimates at half year. The major contributors, again, being the increase in the metal prices and the increased production. Looking forward to the new financial year, the EBITDA is forecast to increase quite significantly based on the latest consensus pricing, the slightly higher PGM ounces that we're forecasting as well as the introduction of chrome revenue. Moving on to the operational costs. Our current tailings retreatment operations incurred a cash cost of $759 per PGM ounce. Although the total operating costs were higher than the prior year, the cost per ounce remained in line with 2024 due to the higher ounces. Costs for the current year included a full year of third-party material. This was initially only planned up until June 2025. But this contract was extended in March with new pricing terms, and therefore, the slightly increased operational costs will continue into 2026. Although this does impact costs, the additional material does extend the life of the operations, and the higher-grade material increases ounce production. The other significant contributors to operational costs include labor being our largest cost, followed by the power and consumables. Our all-in sustaining costs reduced by 3% on the prior year, but the all-in cost for 2025 increased 14%. This was, however, in line with our capital spend for the year on tailing dams and the Thaba JV. The 2026 tailings dams' capital will result in the all-in cost remaining at around the $1,300 level, but then it will taper off to approximately $1,000 to $1,100 from 2027. As you'll see, the company has maintained a strong balance sheet with a net asset value of [ $244 million ] and a cash balance of $60 million at 30 June. During the year, the operations generated cash flows after tax of just under $20 million. The total tax paid out was $2.9 million, but we also received a refund from the prior year of $1.56 million. So the net effect of tax outflows was $2.3 million. Dividends actually paid out to shareholders in the financial year totaled $5.8 million. This was the final dividend from 2024 as well as the interim for 2025. In addition to the dividends paid, the company also spent $1 million on share buybacks. Our capital cash outflow for the year totaled $31 million. And this includes $16.6 million attributable spend on the Thaba JV, $7 million on tailings stands and $6 million on business improvement and strategic projects, which includes the filtration Plant as well as the collision avoidance system. The capital forecast for 2026 is at similar levels to the past financial year, around $32 million, with the largest spend being that on tailings dams of approximately $21 million. And then this tapers down to just under $10 million from 2027 when all the required tailings dams have been completed. Returning value to our shareholders through maintaining a sustainable business while also paying dividends and buying back shares is a priority for the Board. And as Jaco mentioned, a 2p final dividend for the year was declared, bringing our annual dividend to 2.75p. Including this final dividend, the company has returned $117 million to shareholders since 2018. And we've also bought back 65 million shares since 2015, of which 26 million have been canceled. The company's capital allocation framework provides a balance for allocating capital to sustain our operations, drive long-term growth and consistently return value to our shareholders. Now I hand back to Jaco for the company and market outlooks. Johannes Prinsloo: Thank you, Lewanne. And I think yes, now that we have discussed an overview of the past periods performance and also hopefully demonstrated how we are adding significant return and value to our shareholders. It's important also how we consider, how we aim to continue growing the business, so that we can sustain attractive returns also into the future. So from a growth perspective, we basically have 2 ways of approaching growth in terms of our strategy. Firstly, we continuously look at how we can unlock further potential and value from our existing suite of assets, and these include our current dump operations as well as our various own exploration assets. And I think we've done that very successfully over the years. So growing our production profile from about 10,000 ounces in the initial stages to more than 80,000 ounces achieved this year. And then secondly, we are looking to create value from external growth opportunities where we can replicate our proven operating model and leverage our successful track record and expertise. And 1 such opportunity is the Thaba Joint Venture operation that we have embarked on in collaboration with our partners at Limberg Chrome Mine. So just before giving you an update on the current project progress, let me maybe briefly give you a little update or recap of what the project is about. The Thaba JV project represents significant and exciting diversification for the company in terms of our product portfolio in the sense that it now adds significant chromite concentrate revenue to the business, whereas our current Sylvania Dump Operations only generate PGM revenue stream. And it further combines the proven expertise in PGM recovery of Sylvania with our JV partners' extensive experience in chrome operations. And that assist us to leverage strength of both companies to the maximum benefit of the JV. So from an attributable point of view, the Thaba JV will increase Sylvania's existing 4E PGM production profile by about 9% at steady state and also introduced about 210,000 tons of attributable chrome revenue to Sylvania, so chrome product and there's an attractive revenue stream once that's steady state. And I think the total revenue for the project at steady state is about $33 million a year, of which about 75% originates from the chrome production and about 25% from our PGM sales based on the current pricing assumptions. Based on the current PGM and chrome price assumptions, this will also equate to around $18 million to $20 million of attributable EBITDA for the group. I think it's maybe just important to note here because this is the mining operations. Our waste stripping costs on the mining is capitalized, and therefore, we've included the all-in sustaining cost graph at the bottom. So there's about $67 million of sustaining capital that will go towards stripping to be taken exploration in terms of the EBITDA. But overall, a very attractive project still with gross profit margin of 35% to 40% depending on metal prices. And as we said, within a 3- to 4-year simple payback on the operation. If we look at the -- in terms of project execution and operational readiness, I'm very pleased that the plant construction and commissioning phases are now complete and that we're currently in the operational ramp-up phase. Unfortunately, like many projects of this nature and complexity, we also had some challenges. One obvious include the impact of abnormally higher rainfall over the months of November to -- November '24 to January '25 that's affected the critical path of the project can ultimately cause some delays during the final construction phases. We also had a safety-related incident here in June with electrical injury that resulted in suspension of electrical work impacted on the final commissioning phase of the project. And ultimately, also during recent months as we were ramping up the production towards full capacity throughput, there were some challenges emerging on our interim power supply agreement -- arrangement while our new primary Eskom substation is still under construction, and that resulted in us adjusting our ramp-up schedule slightly. So we did, however, put some mitigation measures in place with additional generators brought on site, which we've commissioned over the past weekend in order to reduce our reliance on the current old rural Eskom power supply line and improved our power stability so that we can ramp up the project. And then we also look forward to the completion of the primary -- new primary supply facility towards the end of October. So we now expect the operation to reach steady state during the third quarter of 2026. However, despite the revised ramp-up plan, as I mentioned earlier, the project investment fundamentals remained robust. There's still a very attractive project that is on track to become a significant revenue contributor for the company asset reach full operational capacity. These are just some pictures from the operation for information. I think at the top left shows a nice view of the chrome primary ROM and secondary fine chrome spiral plants. The bottom left is our primary and secondary mills, also some flotation cells and our [ flotation ] stages. So overall, certainly a very impressive and a world-class project that we have constructed. If we look at growth beyond Thaba, we're also currently busy investigating a number of alternative opportunities with the aim of either increasing the existing PGM ounce profile or to add alternative revenue streams like chrome in like we've done for the Thaba JV or alternatively exploring how to extend life of existing operations. So while this slide do include Thaba and also Lesedi current arisings and the third-party source material I already mentioned, I'm just maybe focusing on 1 or 2 initiatives not mentioned earlier, one being our new Eastern Limb treatment facility that is currently under investigation. We have initiated a pre-feasibility study during the past financial year to determine if we should focus on either just a dump only or a dump and run of mine materials, similar like the Thaba JV and when and how to progress with the feasibility study and execution. And we expect to have an outcome of the pre-feasibility study towards the end of this financial year. And then finally, we continue with ongoing technical and commercial due diligences on various complementary projects and opportunities, and we specifically look at those opportunities and projects that aligned with our current skills and expertise and especially where there is a coproduction potential like Thaba with the chrome and PGMs. And we're quite confident that we will continue to grow the company's production profile going forward. If we look at the -- just a bit on the market overview and what has happened on PGMs during the past year and especially recent months. I think it's worth standing still for a moment, just considering the industry PGM cost curve. The latest one is compiled by Nedbank Corporate Investment Banking. And I think when we compare this to the same cost curve of about 6 months ago, we can see that there's been so much needed relief for PGM producers. 6 months ago, nearly half the industry or something -- sometimes even more of the producers were loss-making from a cash cost plus capital point of view. And with the recent improvement in PGM prices only about 20% of the industry seems to be loss-making at the current PGM basket prices. Certainly, a significant improvement and creating a bit of breathing space for PGM producers. I think also noteworthy from this graph is that Sylvania is still very nicely positioned in the bottom quartile of the PGM cost curve. And what that means for us is that when prices are subdued or tough, like it's been for 2 years, Sylvania is able to still generate attractive cash in a down cycle to fund both our growth aspirations and return value to our shareholders. And when we have a positive price environment, it enables us to capitalize further on this and generate additional cash either for distribution to our shareholders or to reinvest in growth of the company. Before I maybe just move on to the supply and demand fundamentals. Just on the left of this slide is reminding you about Sylvania's PGM basket composition or the prill split. And we -- about -- in our prill split, specifically Sylvania, we have about 12% rhodium and 65% platinum and this makes up more than, say, more than 74% of our total 6E revenue while palladium at 23% is also still significant. And I think especially what we're starting to see as there has been significant price movements is that the miner by products like iridium and ruthenium is becoming more significant and added about 14% of our 6E revenue during the past year. Looking at the various -- at the PGM market per se, from a demand perspective, Auto Catalysts still is one of the biggest drivers of demand and the most significant aspects for us to consider, especially from palladium and rhodium, that's primarily Auto Catalysts consumption. But also, we've seen some interesting movements either platinum over the years. While the growth -- the estimate sales for 2025 is the outlook is about 91 million to 92 million units, it's slightly down from the beginning of the year before some of the tariff rates from the U.S. The outlook was probably close to 94 million vehicles, but still a good improvement on recent years. And combining that with the fact that plug-in hybrid electric vehicles and range extended vehicles, growth rate is outpacing that of the pure battery electric vehicles means so there's still a good demand for Auto Catalysts. So overall, we remain confident of that. And I think finally, also, there's been some increase in the loadings per vehicle in China following a long period where they lagged international peers. So certainly, the Auto Cats some interesting developments. From other demands in the industry, platinum in particular, is -- has seen quite an interesting demand increase in jewelry, and that comes -- especially when gold jewelry and the current gold price, the price parity between gold and PGMs is such that consumers are now buying a lot more platinum jewelry. Platinum, obviously, also has very good applications and future in terms of the energy transition and hydrogen economy and then also in the glass-making industry. So strong fundamentals for platinum. I think rhodium, maybe noteworthy is and we've seen quite a recovery in the rhodium price during recent months. And part of that is with the reintroduction or increasing of rhodium being the glass makers bushings, when rhodium was at all-time high, some of the glass makers were eliminating or reducing rhodium content. But to -- considering durability of the bushings and manufacturing process, they are reintroducing rhodium to a larger extent. From a supply perspective, I have mentioned that there has been recently some relief for PGM producers. But I think what is important to consider is that the short-term relief we've seen in the price so far is not enough to overturn the impact of the significant decline in capital investment and production cuts that have been instituted and evolved over the past decade. So certainly, South African PGM supply on the long term in terms of platinum, rhodium and then also ruthenium is expected to tighten. Outside of South Africa, obviously, the North American palladium supply, is still under pressure with palladium relative low prices and low margins. And there's been quite a bit of restructuring and production cuts at many of the North American operations. So what does that mean for our outlook on PGMs overall? I think we know that platinum, palladium, and rhodium are in deficit for '25. Platinum, palladium still in '26. There's a small swing of rhodium in '26 and '27, but with rhodium having so much lower volumes and a small change in the market can easily swing it from a surplus to a deficit, and I think that's why the rhodium prices is always volatile, and we still maintain a robust outlook on the rhodium as well. From a chrome perspective, I'm not going to talk in too much detail about it, just that we know the bulk of the consumption for ferrochrome is in the stainless-steel industry, and we know the stainless-steel industry is consistently growing at 4% to 6% per annum. And while we acknowledge that the global economic growth rates and also some of the tariff threats and uncertainty from the U.S. to impact short-term consumer trends and industrial development, the long-term demand is robust. And from a supply point of view, so Africa is the largest chrome ore producer in the world. And obviously, with a number of chrome operations and the growing PGM demand, we believe that there will be a tight balance in terms of supply demand going forward. So we maintain a favorable outlook in terms of chrome prices going forward. So overall, we are quite positive for both the PGM and the chrome markets. Before closing, I'm going to just add back or transfer back to Lewanne to just talk us through a brief overview of our ESG performance, and then I'll close the presentation. Lewanne Carminati: Just, yes, as Jaco said briefly on the ESG, I think over the years, we've demonstrated that sustainability is more than just regulatory compliance for Sylvania, and we're quite proud of the ongoing progress that we've made in all aspects of ESG. On the environmental side, excuse me, management of the tailings dams under our control is critical to our business, and we ensure compliance with the South African regulatory requirements and align the management of these with GISTM through ongoing monitoring and annual audits. We also understand the water stewardship is very important given the increasing scarcity of this resource. We're continuously improving our measurement accuracy at the operations, enabling more reliable tracking of flows and losses. And we're also now able to monitor the use of recycled water more efficiently, reducing the need for fresh top-up water. Our revegetation program is progressing well, and we are planning the first full-scale rehabilitation of a tailings dam in the new financial year. Under the social and governance banners, as Jaco mentioned, we are exceptionally proud of our safety records and achievements, especially the Doornbosch operation achieving 13 years LTI-free. The Board and management are committed to diversity and equity throughout the group, and we continue to train and develop our employees through various platforms. We've also made significant contributions to the South African economy where we operate, and this is through the payment of taxes, the use of local suppliers and remuneration payments to our employees. We'll obviously continue to build on these key sustainability focus areas, and we are publishing our annual ESG report in October. So please do look out for that. Johannes Prinsloo: Thank you, Lewanne, for that as well. I think maybe just then -- what's next? What can we expect for '26 and beyond? I think just briefly, I've mentioned earlier, our primary focus at the moment is to ramp up the Thaba JV operation. And you can expect steady state production to be achieved at Thaba during the third quarter, and that's what we're aiming towards. We also expect the host mines new ROM commissioned plant Lesedi to continue ramping up and is likely to achieve steady state by December this year. And then we expect a continued strong performance from our existing SDO operations. And we believe that a lot of the positive momentum from this past record year is being carried through into the next financial year, and we have a positive outlook. And therefore, we have a production target of 83,000 to 86,000 ounces of 4E PGMs for the year, and also estimating 100,000 to 130,000 tons of chromite concentrate from Thaba to be added to our production for the year, and in which will ultimately '27 onwards, increased to around 200,000 tons as the state. We further expect the PGM metal price to be stronger than '25, and we -- our current forecast pricing equated to about $1,800 an ounce, $1,809 for '26, increasing up to about $1,890 in '27 compared to $1,500 per ounce of '25. But we also -- while you consider the current spot price is sitting at about $1,900 to $1,960, we do we think that is realistic. So the solid bars on the EBITDA represent those price outlooks, but we do, as always, illustrate what a 10% movement in either chrome or PGM price would have on the PGMs. So overall, a positive outlook for us on the year, both in terms of production and EBITDA. So I think in closing, I'm very happy with our performance for the past year, both from a production and a financial perspective. And I think we again illustrated that we are a very attractive company in terms of delivering on what we set out to do and promise to the market, delivering on our performance targets and consistently delivering strong value and returns for our shareholders. So thank you again for everybody's support and also, we're looking forward to the year ahead. I think maybe just finally, I want to mention and maybe as we are at the end of the presentation, I'll put my screen. I think Lewanne also put her camera back on. I think I want to take the opportunity [Technical Difficulty] as many of you have seen that we have announced that Lewanne after 16 years with the company, have decided to step down from her position as CFO and also a Director of the Board at the end of October to pursue some -- at the end of November, sorry, the 30th November to pursue some personal aspirations and objectives. And we thank to Lewanne for the valuable contribution over the 16 years with Sylvania and also for being an integral part of our senior management team and the executive. She's been integral part of the team for a long time and contributed significantly to the management team, to myself and my role and also to the Board. I'm also happy to announce that Ms. Ronel Bosman, our current Executive Officer, Finance who's been with the company since 2021 and been an integral part of our senior management team in Sylvania will be taking over the reins from Lewanne on the 1st of December. And I also welcome Ronel, and congratulate her for being selected for the role, and I expect a seamless transition in that regard. But I just thought it's worth taking Lewanne as well for the contributions today. So yes, with that, Jake, I'll maybe hand back to you. Lewanne Carminati: Sorry may -- if I may. Thank you, Jaco. Thanks for the kind words. I just also wanted to thank you and the whole team from Sylvania for the past 16 years. It has been an incredible journey of growth, learning and teamwork. And I think it has been a genuine privilege to serve as CFO of Sylvania and as a director. And I'm extremely proud of everything that we've accomplished as a company and a team over the 16 years. I also wanted to just take this opportunity to thank all investors for the trust and support over the years and to reassure them that the company is in excellent hands as Ronel steps into the role in December. I'm really, really excited for what lies ahead for the company, and I'm quite confident that Sylvania will keep to -- keep building on its success and delivering value to its shareholders. Thank you. Operator: Perfect guys. If I may just jump back in. Thank you very much indeed for your presentation this afternoon. [Operator Instructions] But just while the team take a few moments to review those questions that have been submitted already, I'd just like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can all be accessed via your investor dashboards. As you can see there, we have received a number of questions throughout your presentation this afternoon. Thank you to all of those on the call for taking the time to submit their questions. But Jaco, Lewanne, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that would be great. Johannes Prinsloo: Thank you, Jake. Yes. If I look at the questions, I think maybe the first one is about PGM markets and specifically in terms of the price of rhodium that have risen significantly during the year. And that's how I would just ask for the main reasons. I think I've mentioned the fact that the reintroduction and the increase of rhodium loadings in the glass maker industry has improved. So that's one of the aspects. What I probably did not touch on a lot was what we have seen on both -- well, on all 3 metals, platinum, palladium, and rhodium is that the current above surface stocks are also significantly lower, they're between a 5- and 7-year lows at the moment. And I think if people look at the supply-demand balance and considering that the surface stocks have been reducing, there has been some additional buying and then also price movement in rhodium. So that, I think, is in terms of rhodium. The second question also deals with rhodium and somebody have asked that given the change in the cycle of precious metal in recent months and the share buybacks from the company seems to have been to the benefit of shareholders, may I ask that during the sudden downturn in rhodium price over the last year as the company withheld some of the reserves to sell at a time like this to take advantage of the sudden cycle -- the up cycle? And if not, what was the reason behind not holding on to reserves during downturn? I understand that the cash reserves have been mostly maintained and used to the joint venture, but I would hope that this action was also done with the reserves of the precious metals in the company's position during those periods. Might also ask what the time frame is for holding reserves and what percentage permitted by the company if there is a legal requirement to do so. Many thanks. So okay, I think maybe 2 things is due to the nature of the PGM product that we produce and our offtake with our smelters, we are not able to hold back reserves in the company. But I think it also comes to a question that somebody -- some investors asked us before about does the company hedge any of our products. We don't have a policy of hedging any products, and we don't have intentional policy of holding back any reserves or stock. So yes, unfortunately, that we don't do that in terms of the metals. I don't think there's necessarily legislation that prevents you from doing it that the practicalities of handling and being able to store stock and also the security aspects around that means that it is not something that is commonly done in the industry. If I move to the next question, it's something just asked what the current 4E basket price is for August. August was -- between August and now, we ranged between $1,900 and $1,960 per ounce 4E. So it is higher -- significantly higher than what we closed the past financial year on. And it is also higher than what the consensus forecast that we use for our forward-looking EBITDA statements. Another question to ask if the Board will consider a new buyback program. Lewanne, maybe you can just touch briefly on the capital allocation policy and also how we discuss the buybacks. Lewanne Carminati: Yes. So we've recently formalized our capital allocation framework. And we, as I said in the -- during the presentation, we prioritized maintaining a sustainable business, long-term growth and then returns to shareholders. This is mainly through dividends, and there is no formal policy around buybacks. But the Board does review this at every Board meeting and does implement share buybacks on an opportunistic basis when the share price moves through certain thresholds and there is surplus cash. So it's certainly -- the Board will consider further buybacks, but it will be very dependent on other cash requirements as well as what the market is doing at the time. Johannes Prinsloo: Thank you, Lewanne. Then somebody also asked and say, thanks. They start -- the question is impressive. Thank you very much for that. And then also ask what is the platinum price that we're using in the revenue forecast. So we have touched in the back of the presentation in the appendix, our metal price assumptions. But just to guide you, the platinum price forecast $1,319 is consensus forecast for '26. That forms part of the total price, and as I said, $1,809 is fully basket price, but we do have a breakdown per year and per element of the metal prices used in our EBITDA and revenue forecast in the presentation. So that is there. And then -- another question about further buybacks, but I believe Lewanne have answered that one. And I think the last question that I can see on the screen here is just saying with the current metal prices, could we see a significant increase in the earnings per share in 2026. And I think we have illustrated with the amounts of shares and issue and the EBITDA rising. Yes, there would be an improvement in earnings per share, and we do include that in the outlook slide. There's one last question that's just come in. As I've been talking to say if platinum spikes to USD 2,500, would your company please consider locking in some production revenue via hedging? Thank you. And I think it ties back to maybe the previous question where we had to say we just, there's not a formal hedging policy in place. But certainly, as I said, I think if we get to those prices, there should hopefully be very attractive returns to our shareholders. Jake, I think that is handling all the questions -- sorry. Just as I said, I'll handle there's another one that's just come in to say how familiar are the analysts following the stock with the chromite impact on the company in the coming 2 to 3 years. Look, I think the -- quite a few of the analysts that are covering us and looking at our business model are also familiar, for instance, with a model of Tharisa Minerals, that is chrome and PGMs and also listed on the LSE here in London. So I do think that there is some good experience and understanding of how the chrome and PGMs impact the revenue streams. And yes, I think that is the bulk of the questions that we have. So Jake, let me hand back to you. Operator: Perfect guys. That's great. And thank you very much indeed for being so advanced of your time and addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. But Jaco, perhaps before really now just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments, just to wrap up with, that would be great. Johannes Prinsloo: Thank you, Jake. Look, as I mentioned earlier, I'm very thankful to the contribution of our management, all our employees and our staff. We made this past year contributed towards a very successful year that was just completed. And as I said, I hope we can demonstrate to our shareholders that we remain an attractive company to invest in, to support and that we can continue to generate very attractive cash from our operations, both the existing as well as the Thaba JV that will be ramping up in the new year. So there's, I think, a couple of very exciting things to look out for the company. And we certainly remain committed despite having still some significant capital allocation to our tailings dams and growth projects as we've communicated. We still remain very committed to maintain very good returns to our shareholders for a balance of dividends and share buybacks. So I hope whether we can continue to do that for well into the future. So thank you very much for your time. Thank you for your support, and I'll leave it at that. Operator: Yes. Okay. That's great. Thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of management team of Sylvania Platinum Limited, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.
Operator: Greetings. Welcome to MIND Technology's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you. Mr. Vaughan. You may begin. Zach Vaughan: Thank you, operator. Good morning, and welcome to MIND Technology's Fiscal 2026 Second Quarter Earnings Conference Call. We appreciate all of you joining us today. With me are Rob Capps, President and Chief Executive Officer; and Mark Cox, Vice President and Chief Financial Officer. Before I turn the call over to Rob, I have a few items to cover. If you would like to listen to a replay of today's call, it will be available for 90 days via webcast by going to the Investor Relations section of the company's website at mind-technology.com or via a recorded instant replay until September 17. Information on how to access the replay was provided in yesterday's earnings release. Information reported on this call speaks only as of today, Wednesday, September 10, 2025, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Before we begin, let me remind you that certain statements made by management during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties and other factors, many of which the company is unable to predict or control that may cause the company's actual future financial results or performance to materially differ from any future results or performance expressed or implied by those statements. These risks and uncertainties include the risk factors disclosed by the company from time to time in its filings with the SEC, including in its annual report on Form 10-K for the year ended January 31, 2025. Furthermore, as we start this call, please also refer to the statement regarding forward-looking statements incorporated in our press release issued yesterday, and please note that the contents of our conference call this morning are covered by these statements. Now, I'd like to turn the call over to Rob Capps. Robert Capps: Thanks, Zach, and thank you all for joining us today. Today, I'll discuss some highlights from the quarter. Mark will then provide a more detailed update on our financials, and I'll return to wrap things up with some remarks about our outlook. MIND delivered strong results for the second quarter that were in line with our expectations. We were able to get back on track and return to profitability after certain delivery delays in the first quarter. We generated increased second quarter Seamap revenues, driven by system sales and the growing contributions from our aftermarket activities, which I'll touch on in more detail shortly. Our business continues to operate efficiently, and our execution is generating resilient results. Despite some economic uncertainty, we are finding ways to capitalize on pockets of demand, and our near-term visibility bodes well for the balance of this fiscal year. MIND remains strategically positioned for growth, favorable financial results and continued profitability in the coming periods. Our backlog of firm orders as of July 31, 2025, was approximately $12.8 million, compared to $21.1 million as of April 30, 2025, and approximately $26 million as of July 31, 2024. Now, I'll remind you that it's not uncommon to see positives in order activity throughout the year, especially during the summer months, and more specifically, our second quarter. Therefore, this lower sequential backlog is not unexpected after the substantial deliveries we made this quarter. Let me also remind you that for an order to be included in our backlog, we must have a purchase order or a signed contract in hand. There are a number of pending orders in various stages that we are highly confident in. Let me give you a little color on that. There are 2 orders in particular, totaling about $10 million that we believe are imminent. We've been in almost constant contact with this customer finalizing technical specifications, which is necessary before the formal purchase orders are issued. These orders are not in our backlog, but we are highly confident that they will be received soon. Our pipeline of potential orders remain strong. We believe we will continue to convert these into firm orders. Within our backlog, our orders for MIND is 3 main product lines: GunLink source controllers, BuoyLink positioning systems and SeaLink streamer systems. All 3 of these product lines provide the foundation for our business and will continue to drive our financial results going forward. As a whole, our Seamap business continues to enjoy a strong market position in each of its products, even a dominant position in some cases. As I mentioned earlier, another component that has meaningfully contributed to our improved financial results is our aftermarket business. This consists of spare parts, repair, service and other support activities. Contribution as a percentage of revenue fluctuates from quarter-to-quarter based on product mix and the timing of larger system deliveries. However, in the first 6 months of this fiscal year, aftermarket revenue accounted for about 68% of our total revenues. I'm pleased that our aftermarket activity has continued to meaningfully support revenue. Additionally, this often carries higher margins since these orders normally do not attract discounts as might a full system order. As our installed base of Seamap products continues to expand, with it comes the prospect for increased aftermarket activity. Now, to address this growing aftermarket opportunity, and as I highlighted last quarter, we recently expanded our manufacturing and repair facility in Huntsville, Texas. This expansion provides us with additional floor space and other enhancements that will allow our MIND Maritime Acoustics unit to efficiently take on significantly larger manufacturing and product repair projects from that location. This increased capacity will be used to further support our existing Seamap products, newly developed products and services to third parties. Now, turning to our results. Marine Technology product revenues for the second quarter of fiscal 2026 were $13.6 million. This was a healthy improvement from the same quarter last year. And despite the noise from the first quarter, we remain on track to achieve our fiscal 2026 goals. I'll touch on our outlook in a moment, but I'm pleased with our ability to navigate uncertainty within the market to generate favorable results. We will continue to capitalize on opportunity as it presents itself to stimulate order flow and generate improved returns in future periods. Although we are pleased with our results for the second quarter and maintain our near-term optimism, the current market and global economic environment remain impacted by various macro uncertainties that are limiting visibility into next year. General market conditions within the marine technology space continued to be good. However, at this stage, some customers are taking a more wait and see approach. This has caused some delays in purchase commitments. Despite this limited visibility, we remain encouraged by the favorable long-term market dynamics within the marine technology industry and expect customers to firm up their calendar 2026 plans in the coming months. I continue to believe that we have a differentiated approach and best-in-class suite of products that will give us a competitive advantage. To maintain this competitive edge, we will continue making additional investments to further develop and advance our next generation of marine technology products to meet the evolving needs of our customers. Now, I'll let Mark walk you through our second quarter financial results in a bit more detail. Mark Cox: Thanks, Rob, and good morning, everyone. As Rob mentioned earlier, revenues from marine technology product sales totaled $13.6 million for the quarter, which was up approximately 35% from the same period a year ago. We are continuing to see strength in all our key markets, and the current favorable customer demand environment and our backlog give us confidence for solid results in the second half of fiscal 2026. Second quarter gross profit was $6.8 million. This represents a gross profit margin of 50% for the quarter. These metrics improved both sequentially and year-over-year due primarily to product mix, which included a greater proportion of spare parts and other aftermarket activity. Additionally, higher revenue in the quarter helped absorb overhead costs. We also continue to benefit from our cost structure optimization, which includes greater production efficiencies, and we expect these efforts to help maintain favorable gross profit and margins in future quarters. Our general and administrative expenses were approximately $3.6 million for the second quarter fiscal 2026. This was up both sequentially and compared to the same quarter a year ago. The sequential increase is partially expected due to normal seasonality of certain costs, such as incentive and stock-based compensation. Our research and development expense for the second quarter was $311,000, which was down slightly compared to the same quarter a year ago. Consistent with prior periods, these costs were largely directed toward the development and enhancement of our streamer and source controller arm. Operating income for the second quarter was approximately $2.7 million, which represents an increase of approximately 86% when compared to operating income of $1.4 million in the same quarter a year ago. Second quarter adjusted EBITDA was approximately $3.1 million compared to adjusted EBITDA of $1.8 million in the second quarter a year ago. Net income for the second quarter was approximately $1.9 million compared to net income of $798,000 in the same quarter a year ago. As of July 31, 2025, we had working capital of approximately $25.1 million, including $7.8 million of cash on hand. Liquidity is impacted by the timing of receipts and expenditures as well as our operational requirements, such as acquiring inventory and executing on our backlog of orders. The company continues to maintain clean, debt-free balance sheet with a simplified capital structure. We continue to believe our solid footing and flexibility will help us enhance stockholder value in future periods. I'll now pass it back over to Rob for some concluding comments. Robert Capps: Thanks, Mark. MIND remains well positioned for long-term success, and we are focused on enhancing and maximizing stockholder value. We've taken necessary steps to strategically position the company to realize its full potential. We intend to evaluate all suitable opportunities with the goal of maintaining financial flexibility, preserving our balance sheet, adding scale, expanding offerings and growing existing product lines. This proactive approach should enable us to strengthen MIND and improve its standing within the market for the benefit of all stockholders. Operationally, we have a streamlined footprint, but our technological innovation allows us to expand our capabilities and address new opportunities. We are constantly evaluating unique ways to repurpose our existing technology for new applications. I'm excited to chase these new opportunities in coming periods. We look forward to providing an update as we strive for growth. Given our current visibility, we remain bullish on the balance of this fiscal year. Customer interest and engagement related to our Seamap product lines remain steady. However, the prevalent uncertainty within the market has slowed some customer decision-making for the next year. Despite this, the current strength of our existing backlog and pipeline of orders gives us optimism with favorable financial performance in the coming quarters. We expect customers to solidify their plans for next year in the coming months, and I look forward to sharing updates as our longer-term pipeline takes shape. Now, let me take a moment to address our recent actions to establish an at-the-market, or ATM, program and the stock buyback program. I know some of you have questioned these steps or at least the timing of the steps. We believe that these preparatory actions are entirely consistent with and supportive of our stated objective of enhancing stockholder value by whatever remains available. The ATM facility enables us to raise capital if and when we believe circumstances dictate and in amounts we think appropriate. By having the program in place in advance, we can act quickly and efficiently to take advantage of opportunities. These opportunities could include acquisitions of businesses or product lines to help grow our business. We intend to be very disciplined in our approach to this, weighing the expected return with the cost of capital. Cost of additional capital, essentially the price of our stock at the time, will always be an important consideration. Conversely, market conditions and our view of the prospects for our business might indicate that buying our own stock is the best use of our capital. By establishing the buyback program now, we are able to react quickly and efficiently should circumstances dictate. There's always a chance that timing issues or customer delivery delays, like the ones we experienced earlier this year, could impact our results in any given period. However, our current belief is that our results for fiscal 2026 will look similar to that of fiscal 2025. Our marine technology products continue to penetrate a variety of industries and markets. We believe our backlog of firm orders and the pipeline of pending orders and other prospects are reflective of the significant demand and market adoption of our product lines. As a result, we have line of sight that gives us confidence for continued favorable financial results in the near future. Barring any unforeseen circumstances, we expect to achieve positive adjusted EBITDA and profitability in each of the remaining quarters of fiscal 2026 and on a full year basis. Looking forward, we are encouraged by the setup for the back half of this year. With a solid existing backlog and pipeline of pending and highly competent orders, that will prove advantageous, as we aim to deliver consistently favorable financial results. We are also pursuing several new opportunities within our current and future markets, which I'm confident will bear fruit. We will remain focused on controlling what we can control, which includes optimizing our operations and efficiently managing our cost. Customer delivery requirements and other factors may impact future periods, but we are doing everything in our power to mitigate these impacts in our -- on our financial results. We have a differentiated and market-leading suite of products, a favorable market environment and a clean capital structure. We look forward to sharing updates on our strategic actions in the coming periods, as we strive to enhance stockholder value. With that, operator, I think we can now open the call up for some questions. Operator: [Operator Instructions] Our first question is from Tyson Bauer with KC Capital. Tyson Bauer: Just a couple of clarifications on some of the numbers. The parts and services revenue, given you're 68% for the full year, so that was roughly about $7 million in the quarter. Robert Capps: That's probably about right. I don't have the number in front of me, but that's in the ballpark anyway. Tyson Bauer: All right. No, that's how the math works. Does that include any catch-up from Huntsville, where you had kind of the delays until you got that capital project done? Or is that $7 million from what we've seen in the first quarter, second quarter, a fairly good run rate as we go through the second half of the year? Robert Capps: Yes. So it's -- there's really no catch-up from Huntsville, first answer. Run rate, I'm hesitant to say that's a run rate. I think it's indicative of where that trend is going. Could it be less next quarter? Sure, it could because there will still be some fluctuations in that. But clearly, that line is trending up and going to be more consistent as we go forward. Tyson Bauer: And should we see a boost given the expansion in Huntsville at some point going forward? Robert Capps: I think we will. We'll be ramping up that operation to the balance of this year and into next year. So I think we'll see that start to increase. Tyson Bauer: Okay. You had a $4.5 million delayed order in Q1 that hit in Q2, at least that was what was related to us on the last conference call. Given the $7 million, that leaves about $2 million in new activity in the quarter to hit your revenue level, which I find interesting with your backlog because you ended April with $21.1 million, you had a $4 million order on June 10, a GunLink system. So if you deliver that $4.5 million, you had $2 million in new activity, backlog looks like it should be closer to $18 million, ended up $12.8 million. Were there a cancellation? Were there a reclassification? Just kind of where is that variance of $6 million. Robert Capps: Yes. So a couple of things. There's no cancellations for sure. Some of the aftermarket business will be in backlog. So we'll get an order for spare parts that will be in backlog at some point in time. So that's part of it. And I'm not sure the $7 million is exactly the number for the quarter. Again, I don't have that in front of me. So I think the combination of those things make up that difference. Tyson Bauer: Okay. As we go forward, you made a comment that fiscal '26 should be now similar to fiscal '25, which is a little different. We are almost like the Fed speak here. Previously, you said that fiscal '25. So you have a little bit of an adjustment there. The implication is with your expectation of parts and services, that's about 1 -- basically 2 or 3 more full systems delivered before year-end to hit those numbers. Does that sound about right? And if we're going to get $10 million immediately on new orders, it almost seems like we need to get another $10 million just to feel comfortable that that's achievable for the second half of the year. Robert Capps: Yes. So it's -- Tyson, the timing of some of these orders is when we'll get them out the door is there's some uncertainty there, of course, as when we actually get some of the new orders. So when we'll actually be able to lever them or when they want to be delivered. We do have additional systems in the pipeline, including the 2 orders that we talked about specifically. So that's what we're trying to guide to. And I think it's not too inconsistent with what we said before. I mean, I think we -- I think what we said before was we're going to be in the same ballpark. I think what I tried to guide to is don't expect the same sort of growth in this fiscal year as you saw it before. It's going to be a little more consistent. And I think we're still seeing that. Could there be a $2 million or $3 million swing or a $4 million swing between quarters because of delivery? You bet there could be, as we saw in the first quarter. But I think our general view of the year is pretty consistent as it has been all along. Tyson Bauer: Okay. This is the time of the year where you typically have received a large annual order from our Scandinavian friends, companies over there. Are they still in that time schedule? Or have -- are they cautious also? Robert Capps: I think there is some cautiousness in the marketplace. There has been some softening in the seismic market at least, at least temporarily. So I think there's some caution there. I think people have been careful about CapEx commitments right now. So I think, again, that's what we're trying to indicate. And the one reason I think we've seen the backlog down a bit from where it had been. But I think, again, the long-term prospects, the overall activity, offshore exploration is very bullish. So I think it's just a matter of timing from that standpoint. So again, people are just being cautious about making those commitments until they have their business in hand. I think it's across the board. That's just not Scandinavia. That's across the board. Tyson Bauer: Okay. And last 1 for me, and I'll let others ask questions about your capital stuff. The -- what we hear from the rhetoric from the administration, let's play a little, what's real, what's just headlines, moratorium and offshore wind projects, having an adverse look at wind energy, especially the offshore stuff, but wanting more rare earths and deep sea mapping, those kind of things, which we say may be off in the future or may be more of a commentary of what they want to do as opposed to what will be done. What's true? What's false between these headlines regarding those 2 things that do affect your business? Robert Capps: Well, I wish if I knew all those answers, I guess I would have to work for a living, Tyson. But I think what we're seeing is we're -- remember, we're selling to people who do survey work. And that's all sorts of different kind of survey work. It can be energy exploration, it can be wind farm installations, it can be carbon capture installations, it can be rare earth exploration. So they're doing lots of different things. And we don't always know what they're buying the equipment for. Sometimes you do based on configuration, but not always. Certainly, there's been a slowdown in U.S. activity for offshore wind, no doubt about that. But we're seeing continued activity elsewhere in the world. So that's still been a good market for us. I think that's part of the cautiousness we see in the market right now is as to what is going to happen from a macro standpoint, what's this administration going to do. So it's hard to know what's really going to happen there. I think it's certainly though has caused some of the caution that we're experiencing right now. But again, I think long term, I think those things will work themselves out, and it's still very bullish. Operator: Our next question is from Ross Taylor with ARS Investment Partners. Ross Taylor: First, great quarter. I will admit I was one of those people who was somewhat surprised. I think I've been in this business for a little over 40 years, and I've never seen an ATM and a buyback announced on the same press release, but it's always good to learn. Along that line, I'd love for you to talk to me or us a little bit more about your acquisition strategy from what you've said and the like, what makes the most sense as you'd use the ATM if you were looking at -- you had a very interesting acquisition that fell in. What is your -- what are you looking for? Are you looking for products that you see fit into your current structure? What would be additive? Also what's your thinking of dilution and the like? You've talked a lot about wanting to do the right thing by shareholders and driving and concerns about share price. I'm curious about have you given thought about what parameters you would put on any acquisition you would make. Robert Capps: Yes. So Ross, what we're looking for primarily are things that are additive to what we do. We don't want to do a large step out, and frankly, do another client. We don't want to -- that's not what we're looking to do. What we're wanting to do are things that are additive to what we're doing, things that we understand well operationally, so things that we can tuck in, not go out to make a $30 million acquisition of another company necessarily. The things that tie into our customer base, the technologies that we know, so things that have a lower risk profile from that standpoint. With any acquisition, there's risk. But the better you understand it, the closer it is to what you're doing, the lower that risk. So that's the sort of thing we're looking for. Ross Taylor: Okay. So products or small divisions of other companies, things of that nature is what you'd be looking to do? Robert Capps: Yes, that's the ideal situation for us. Ross Taylor: Okay. Last quarter, we talked about a deal with a company that's innovative newcomer into the mapping space and the like. Has there been any progress with that? Robert Capps: There has. We -- that project is ongoing right now. So we're right in the middle of it. I really don't have anything I could share right now for some proprietary reasons, but we are right in the middle of that right now. That is progressing well. Ross Taylor: And what kind of opportunities do you think if we come back -- looking back a year in the future, 2 years or 3 years in the future, what kind of opportunity are you looking at from that? Robert Capps: In that deal specifically? Ross Taylor: Yes. Robert Capps: Yes. Again, I think I don't want to get too specific on that. I think, again, that is a product that would be used by our existing customer base, so it will be easy for us to sell in partnership with the other company. So it's an easy step out for us. It's a technology that's very familiar to us. Is it going to double the company? No. But is it additive? Can it add a few million dollars? Yes. That's that sort of magnitude, just to give you a sense of it. So again, relatively low risk, relatively low investment at this point. So that's the ideal situation for us. Ross Taylor: I might have missed it, but did you mention what cash was at the end of the quarter? Robert Capps: I think it's about $7.2 million. Mark Cox: Yes. Robert Capps: $7.2 million. Ross Taylor: Okay. Also, can you talk about the opportunity -- you've mentioned, and Tyson asked about Huntsville, can you talk about the opportunities? What is Huntsville going to do? And what kind of opportunities do you see coming out of it business-wise? Will this be something that's meaningful? Meaningful meaning do you see it being able to add around 10% or more to annual revenues? Or is it something less meaningful than that? Robert Capps: Well, I think it's in that magnitude if not a little bit more, frankly. So what we are doing is we are repairing products that have been manufactured by others, so third-party products. We're doing some repair work, and not just one customer. We are doing some ancillary work for Seamap at Singapore. There are some things that we can do here effectively or efficiently that help expand their capacity. So that's new products as well as some support activities as well. We also, in some cases, are doing some manufacturing for third parties of their designs. So it's not our IP, it's their IP that we're building for them. So it's really a combination of those things. The other thing that's interesting is if we're able to move our technology into the maritime security space, as we've talked about, and again, it's still very early days there, being able to do that in the United States is a real plus for security reasons. So that's another reason we want to expand that still. Ross Taylor: And also for tax and cash flow reasons then, right, as well, right? Robert Capps: Absolutely right. For cash flow, for sure. We don't have to bring money back from overseas. Obviously, we have tax loss carry forward. So if we can generate U.S. income, we can shelter that very efficiently. You're exactly right about that. Ross Taylor: So that would be meaningful as well. With regard to your comments about this year, last year, last year, top line grew at about 29%. So far this year, it's been growing at about a 9% rate. Listening to you and Tyson talk, leaves me feeling that you're probably -- you might not want to commit to it, but you're probably shooting for that kind of a continuation of the first half growth over -- year-over-year to see in the second half or something in that high single digits, low double digits type range. Am I wrong in that interpretation? Robert Capps: No, you're not wrong. I think the caution I'm trying to throw in here is given what we saw in the first quarter, that situation, that situation can repeat itself and that can have a big impact on that growth rate. So I think, generally, we're seeing that -- those opportunities for that sort of maybe a single-digit -- high single-digit growth rate. Will that all fall within this time period? That's more difficult to say with precision right now. So that's the reason I want everyone to be cautious. Ross Taylor: Yes. So it's lumpy, but the trends are there. And if it's not made, it's likely it's going to be seen in the backlog if you're not able to get it because... Robert Capps: That's right. Ross Taylor: Right. Robert Capps: That's what we think. Yes. Ross Taylor: Okay. So basically, we're looking at this thing, so we can still trust Tyson in his numbers. I don't usually drink early in the morning, but sometimes I. So -- but yes, it's great. Good job. I think you continue to push forward with it. Thank you for giving us some explanation on the overlapping ATM and share buyback, that did leave me somewhat scratching my rather thinning hair. But other than that, thank you, keep it up. Robert Capps: Thanks, Ross. Appreciate it. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Rob for closing comments. Robert Capps: Okay. Thanks, everyone, for joining us today, and I look forward to getting with you again here in just a few months after we report our third quarter in early December. Thanks very much. Operator: This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Ladies and gentlemen, welcome to the Baloise Group Half Year Results 2025 Conference Call and Audio Webcast. I am Mathilde, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Markus Holtz, Head of Investor Relations. Please go ahead, sir. Markus Holtz: Thank you. Good morning, and welcome to Baloise Q&A call about our half year results 2025. Today, we have our CEO, Michael Muller; our CFO, Carsten Stolz; and our CIO, Matthias Henny. We start with a quick overview of our results. For this, I hand over to Michael. Michael Müller: Thank you, Markus. Dear analysts and investors, ladies and gentlemen, I am happy to welcome you together with Carsten Stolz and Matthias Henny to present our half year results 2025. First half of '25 was a period marked by significant strategic decisions and operational successes. We not only successfully started to execute our refocusing strategy but also laid the foundation for further profitable growth with the planned merger with Helvetia, paving the way for a successful new area. In addition, and most importantly, our thoughts remain with the people of Blatten who were affected by the landslides in May. In these challenging times, we stood by our customers swiftly, compassionately and with a little bureaucracy as possible to offer the support they urgently needed. We again proved our commitment to being there when it matters most. Today, I am proud to present a strong set of half year results. Let me start with the key messages on Page 5. First, our refocusing strategy is working and fully on track. Over the past months, we have worked relentlessly on implementing our strategy and to further optimize our core business. This includes a broad set of measures to improve technical profitability and operational efficiency. These initiatives are proceeding as planned, including a targeted reduction of 250 FTEs by '27. After one year, we have already achieved over 50% of this goal. Second, I am very pleased to report that the strategic progress is also reflected in our financial results. Our combined ratio improved by 2.6 percentage points. Net profit increased by 26%. Return on equity rose to 15.5%. One year into our refocusing strategy, it's evident that we are making sustainable progress. Thanks to a clear focus, determined execution and above all, the dedication and hard work of our employees. I would like to extend my sincere thanks to all of them. And finally, we are well on our way in the preparation for closing the planned merger with Helvetia and are confident that we will obtain all necessary approvals in the coming weeks and months, enabling us to complete the planned transaction in the Q4 by year-end. Financial targets for Helvetia Baloise will be shared at the Capital Markets Day next year, together with the full year '25 results. IFRS and cash remittance will remain key KPIs. Now let's take a closer look at our half year figures. For that, I hand over to Carsten. Carsten Stolz: Thank you, Michael, and warm welcome from my side. The first half of 2025 shows progress in refocusing Baloise. We see growth in target segments. We see improved profitability. We are on track with our strategic targets, and we enhanced the return on equity. Let me go one by one. First, we grew in target segments in Non-life, especially due to a disciplined pricing approach where growth amounts to 3.1% in local currency if we adjust for the portfolio exits in Belgium. The investment type premiums rose sharply by 41.2%, thanks to increased contributions from Luxembourg and Belgium. The decline of 10.1% in Life mainly reflects the continuing trend in Swiss group life towards semi-autonomous solutions. Secondly, we improved profitability. Net profit increased strongly by 26% to CHF 276 million, driven by stronger results in Non-life and Asset Management & Banking. Life remained at the very healthy level of the previous year. The Non-life business benefited in particular from a very strong combined ratio, which improved by 2.6 percentage points to 90.6%. Third, based on our results, it is clear that we remain very well on track to achieve our target of remitting more than CHF 2 billion cash for the period 2024 until 2027. Finally, our capitalization remains on a strong level. While CSM and equity declined slightly, return on equity rose from 13% in half year 2024 to 15.5% in half year 2025. Slightly above our target range of 12% to 15%. The driver was the improved underlying profitability. The estimated SST ratio improved to around 215% as a result of slightly higher interest rates and higher market values of Swiss properties. Our rating of A+ was confirmed in June by Standard & Poor's. So in summary, we have earnings momentum, high earnings quality, rising capital productivity and sustained strong cash generation. Now let's take a look at Page 9 at our 4 core markets. In Switzerland, Non-life grew by 1.7%, mainly due to disciplined pricing. In Life, the market trend to semi-autonomous solutions continued. EBIT rose by 58.3%, mainly driven by Non-life, which benefited from an excellent combined ratio of 88% and a good financial result. In Belgium, we kept our focus on profitability over growth. This also included a far-reaching exit of the transport business as already mentioned in our full year 2024 results. Adjusting for this exit, growth was 1.2% in Belgium Non-life. Life grew by 15.1% driven by investment products. In Belgium, the combined ratio slightly improved to 92.5%. The proportion of claims covered by our group internal reinsurance was lower than in the previous year. This resulted in a lower EBIT. In German Non-life, premiums rose by 8.5%, supported by strong new business and price increases. EBIT increased by 11.9% due to operational improvements. Luxembourg showed solid growth in Non-life, plus 5.5% stemming from both price increases and volume effects. And in Life, plus 45.8%, driven by higher investment type premiums. EBIT declined due to a lower result from investments and financial contracts. Let's look now at our operating segments, starting on Page 15. In Non-life, EBIT reached CHF 229 million, a strong increase of 85.6%, driven by a variety of improvements. The insurance service result rose in line with a better combined ratio. The combined ratio improved to a very strong level of 90.6%. And benefited from the better loss ratio, which reflects an enhanced portfolio quality and lower large claims, including fewer nat cat events. The finance result rose to CHF 96 million, driven, among others, by a positive development of the Swiss property market. Other income and expenses finally benefited from our operational cost efficiency measures. Let's move on to the Life business. The Life EBIT remained stable at CHF 143 million on the very healthy level of the previous year while a higher insurance service result and lower costs were offset by a lower finance result. Also, the CSM release was on a similar level as last year. The CSM slightly declined to CHF 4.9 billion due to operating variances. The normalized CSM growth was positive at 0.5% with the expected business contribution and new business CSM more than compensating the CSM release. Please note that we aligned the presentation of the expected business contribution to market practice. It now includes a spread over the risk-free interest rate, which was previously captured in the economic variances. The nonannualized CSM release ratio amounted to 2.8%, slightly above the previous year value. Let's look at our Asset Management & Banking segment. The impact from our optimization measures is also reflected in the results from asset management and banking. We achieved in banking a higher fee and commission income and lower expenses. As a result, EBIT rose to CHF 26 million. This is also reflected in the improved cost/income ratio of 60.3%. In Asset Management, third-party assets increased due to higher contributions from multi-assets and real estate. The EBIT reached CHF 24 million, supported by an improved contribution from the third-party business. Thanks to these higher contributions from the bank as well as from Asset Management, the segment delivered a pleasant EBIT growth of 18.4%, up to CHF 50 million. In summary, we delivered a successful first half of the year with strong results across all segments, reflecting the quality of our business and the progress in optimizing our core business. The measures initiated and implemented in the refocusing strategy deliver financial results. With this, back to Michael. Michael Müller: Thank you very much, Carsten. Let's open directly the Q&A. As already mentioned, besides Carsten and myself is also Matthias Henny, our CIO here for the questions and answers. Operator: [Operator Instructions] The first question comes from the line of Simon Fössmeier from Vontobel. Simon Fossmeier: Just one question on the Life segment. I understand the decline in premiums. I'm surprised about the much lower new business margin. It's just -- it feels that interest rates haven't declined that much. Is that due to business mix? Or what's the driver here? Can you please explain that? Michael Müller: Thank you very much for the question. I think Carsten will go directly into this answer. Carsten Stolz: Yes. Simon, thanks for your question. It is exactly as you said, it is due to business mix, which explains the lower new business margin in half year. We have underwritten a lot of business, for example, in capital-light products. And this different business mix on the new business side in the half year explains the development of the new business margin. Operator: The next question comes from the line of Farquhar Murray from Autonomous. Farquhar Murray: Three questions, if I may. Firstly, just honing in on German Non-life. I wondered if you could detail what's driving the 8.5% growth in business there that ideally maybe split that 8.5% between tariff and volume effects. And then just on the other EBIT line, the minus CHF 63 million. Why is that more negative than the historic average? It looks like you might have put some costs through there? And then very finally, on the Life CSM development, what's driving the minus CHF 77 million operating variance this half? Michael Müller: Thank you very much. I will go to the first one. And after that, the EBIT on other and CSM bulk, give hand over then to Carsten for that. So as we already mentioned, this growth in Non-life in Germany, it's about 8.5%. It's coming from price effect, which is a little bit more than 50% coming from price effect and the rest is from volume effect. So it's from both sides, but slightly bigger part is coming from price effects. So tariff changes and things like that. And for the EBIT other, Carsten. Carsten Stolz: Thank you for your questions. So the development in the other line that you alluded to is linked to costs in connection with the refocusing strategy and the planned merger with Helvetia. And your question with regard to the CSM walk and the drivers of operating variances. This is linked to a portfolio development, mainly lower volumes in the Swiss Group Life business and the associated decline in premiums as well as updated of operating assumptions. Farquhar Murray: Okay. Just a quick follow-up on the other EBIT line. How much were the costs you put through there? Carsten Stolz: No, we have not detailed these costs. We don't detail them out. Operator: We now have a question from the line of Michael Huttner from Berenberg. Michael Huttner: My question is pretty much similar to those that have been asked, but maybe I can ask them differently. On the other line, what figure should we put in the full year? Because I mean the CHF 38 million to CHF 63 million, there's no trend here. So it -- and you presumably now know how much costs are still to come on either the merger or the refocusing strategy? And the second, Swiss real estate so lovely contribution from revaluations in Non-life, CHF 35 million. Is this a figure that we can now start repeating? Your lovely IR explained that the revaluation was 2%, but I just wondered what the trend is here. The other question is on Belgium. Why Belgium in your lovely chart by country. You said that the contribution of Belgium is down a lot. And I couldn't -- I mean, I heard your comments about refocusing volumes and stuff, but going from CHF 85 million to CHF 50 million seems kind of strange. And then the last question really is you actually virtually achieved your refocusing strategy target, so your 90.6% target, I think, is 90%. Is there anything here that you would say no, be aware there's seasonality and we're really not there? Or is it simply that the refocusing works much quicker? Michael Müller: Thank you very much, Michael, for these questions. I will start with refocusing strategy. So with the last question you had, and then also hand over for the EBIT part to Carsten and for the property in Switzerland to our CIO, to Matthias. So just starting the refocusing strategy. I think we are fully on track with our strategy. It's a half year result. Let's say, those are like that, it's always till end of year because it's also some -- sometimes it's also a question how many events you have in the first or the second half year. So for me, it's also -- let's see, at the end, but we are fully on track to our target of 90%. With 90.6%, yes, we are on a good track, but it's not fully reached. So we are also aiming for really going to the 90% overall. And I think that's where we stand at the moment. Also looking at indicated on another level, also FTE, I think we are really fully on track but it's worth to do also in the future. And it's looking at the portfolio and steering portfolio is daily business, I think. So we need also to go there in the future to reach all our goals over the time. But we are confident to reach them. Then we go to the EBIT on other, perhaps. Carsten first. Carsten Stolz: Yes, Michael, on the other EBIT, there will be effects also flowing through this line in the second half. But as we speak, we cannot provide a run rate or an outlook on this line but there will be further costs associated with the execution of the strategy and the planned merger. Michael Huttner: And just a follow-up, does this -- is this then all done in 2025? Or should I also have this slightly higher level going forward? Carsten Stolz: Well, when we talked about the way ahead and as announced on -- in April, the total integration time of the planned merger will take the next few years. And we indicated CHF 500 million to CHF 600 million of integration costs stemming from that. And the value created against these CHF 500 million and CHF 600 million is just to recall on top of the stand-alone strategies, the CHF 350 million in run rate synergies that should translate into more than CHF 200 million run rate improvement on cash remittance and 20% dividend uplift in terms of dividend capacity. So zooming in again on your question, there will be integration costs in the context of execution of the merger in the next years as indicated. And maybe I just also take the decision on -- or the question on the EBIT Belgium right away before I then hand back to Matthias for the property question. So on group level and on a consolidated level, Belgium is contributing pretty strongly and consistently also with the last year to group results. From a segment perspective, as you rightfully say, Belgium shows a lower result in the first half year. It is a group internal shift highly related to the internal reinsurance structures. But on a consolidated view, Belgium is -- this effect is more or less neutral. And with this, over to you, Matthias, with regard to the property valuation effect. Matthias Henny: Michael, the appreciation in investment property value, as you mentioned, is somewhat above 2%. If you combine Non-life and Life together divided by the overall property value that we have for insurance assets. It's mainly coming from Switzerland, where the real estate market is developing very favorably compared to, let's say, 3 years ago when we had much higher interest rates. Now interest rates have come back to 0 at the short end which drives, again, real estate prices. This is a general phenomenon. We see it across the market in Switzerland. And given the strong fundamentals, we expect this trend to continue. I mean we still have very solid or good economic development in Switzerland. We have immigration. We have limited land reserves in Switzerland as such. So fundamentals are still very favorable. And this also is then reflected, obviously, in our valuation of our properties. We continue to have a conservative approach in valuing our real estate. So even after this appreciation, we are still at the lower end of a typical pricing range in real estate valuations. Operator: [Operator Instructions] We now have a question from the line of Nasib Ahmed from UBS. Nasib Ahmed: Two on Life insurance and one on Non-life. Firstly, on life insurance, I understand the trend towards semi-autonomous and you're losing business and premium there, but it doesn't seem like you're recapturing it in Perspectiva because AUM is flat, a number of companies is flat as well. Who have you lost that business to? Second question on Life as well. The average guarantees in Belgium increased by 0.1% versus full year. So I think the 1.7% versus 1.6%. What's -- why have the average guarantees increased in Belgium? And then finally, on Non-life, similar question to Farquhar, but on Switzerland. What was the tariff increase with the volume increase in Switzerland over the first half? Michael Müller: Thank you very much, Nasib. So I will first take the Life part and then for the Life average guarantees in Belgium, I hand over to Carsten. For the Life part, yes, there is a trend to go to more to semi-autonomous solutions in Switzerland, and we have also our semi-autonomous solution with Perspectiva. It is a growing solution. During the last years, it was quite heavily growing. It's close to CHF 2 billion now assets, which are coming or invested in Perspectiva. But it's not the solution for all of these parts. It depends always also what clients are looking for. So not everything is going then into Perspectiva. But it's a growing part. I think a little bit of broader picture, I think, overall, we have also a growing part of third-party asset management, which is also coming from the -- let's say, from the same segment at the end because that's often also part is coming from the bank, which are more individual clients, but there is also a part coming then also for fund solutions in Switzerland, which is also a growing part in our business model. So overall, I think there is also some kind of a shift in different business models in that area. And second one is about the Life average guarantees in Belgium. Carsten? Carsten Stolz: Yes. Thank you, Nasib for your question. So in Belgium, we increased guarantees for some products, but it's products where there is full ALM matching for these products. So for example, there is no negative impact stemming from duration gaps or others. And therefore, these effects are neutralized. It's worth noting that these guarantees are time-limited guarantees and therefore, can adjust to different environments in subsequent years. And then with regard to the Non-life Switzerland price and volume effects, we -- the main effect in Switzerland is stemming from pricing measures. Nasib Ahmed: Yes. So 1.7% is pretty much all price and volume flat? Carsten Stolz: There's a positive price effect and in some areas intended negative volume impact in the context of steering the portfolio, but resulting overall in the stated growth that you mentioned. Nasib Ahmed: Okay. And just a follow-up on Perspectiva. Do we think about the loss of full insurance business as going into Banking, Asset Management and Perspectiva? So the third-party growth in AUM is driven by some recapture of the business. Is that correct? Michael Müller: Sorry, I didn't get the question. We had some problems in the line. Well, can you repeat, please? Nasib Ahmed: Yes, Sure. The third-party growth in AUM, in Asset Management & Banking, is that some recapture of the full insurance product in there back into Asset Management & Banking? Carsten Stolz: So the growth in -- that has been achieved in Asset Management & Banking from the asset management side with regard to third-party business is in the intended area of multi-asset and real estate, in particular, that's where the growth comes from. Matthias Henny: Yes, exactly. So it's fully in line with the strategy that we laid out a year ago. We focus on multi-assets, which is mostly sold over the insurance and banking channel and real estate in Switzerland, which is distributed mostly amongst institutional investors, pension funds, but to a certain extent, also wealth management mandates and the like. And we are well on our path to reach the goals that we set out a year ago. Operator: [Operator Instructions] The next question comes from the line of Rene Locher from ODDO BHF. René Locher: So the first question relates to Slide #6. There you see cash [ remittance ] is okay. You want to pay out 80% of the cash remittance per annum. So I did a calculation, if I go for like CHF 500 million run rate, 80% payout, I end up at CHF 400 million, divided by 45 million, 46 million shares with a potential dividend of [ CHF 8.80 ]. Now I can see in the market that a lot of my colleagues, they are going for a dividend of the combined ratio of CHF 770 million to CHF 780 million. So I was wondering a little bit if all shareholders are getting a lower dividend than the CHF 8.10 they received for last year. That's the first question. The second one, on the Non-Life market, I think with the half year results, we have seen quite a lot of companies with mid-high single-digit growth rate in Non-life and combined ratios well above 90%. Now on the other hand, we can see Baloise growth, 1.7%, combined 88%. So I'm wondering a little bit, Michael, perhaps you can comment a little bit what's the dynamic in the Swiss Non-life market. Then the third question, I guess this is for Matthias. I have seen that your Baloise Swiss property fund, you have a successful cap increase of CHF 135 million. Now you add 50 million in bonds and you are buying CHF 185 million market value real estate from the Baloise Insurance business. I mean just again, big picture, why are you doing this? And what are the -- yes, the impact on the numbers because you're losing rental income, I guess you will get the money from the fund. Just to get a little bit understanding what's the big picture here. Michael Müller: Thank you very much, Rene. So I will go for the first two ones and then hand also over to Matthias for the third one. So just for the first question you had, it's about our dividend policy. You refer to Slide 6, where we have our last year announced policy with a payout ratio of 80% or higher with our Baloise view on that. You did that's also some calculation about the future, which is a combined future planned merger with Helvetia. And for sure, that we have to align processes and the new Board, which then will, after closing be in charge also has to define common -- have to define a common view on the policy on payout ratios and also on the dividend strategy. I think something, which is already clear is that the dividend -- being a reliable dividend payer is something which will also be in the DNA for the future company. It's also something which both companies are already in. But just to be clear, the policy has to be defined by the new Board of Directors then starting after closing. Then for the Non-life market, I think you asked about this dynamic in the Swiss market. I think there is not one dynamic. I think you really also have to look on the different business lines there. Overall, I think at least what we see, we have our refocusing strategy and refocusing strategy means that we really want to go to look on our portfolios and also price it in the right level, which then also means that we are doing it during -- with the correct tariffs from our view. And that means also in some areas, perhaps market is not reacting in the same kind or is perhaps also slower or faster that you never know. And then -- but we are going for our part that means in some areas perhaps also that we are going for profitability and not for growth, could be -- I think in the long run, it always goes in both directions because at the end, I think everybody needs then also business which is profitable. So that's where we stand at the moment. But you cannot say now that there is a clear direction in every part or in every business line. I think something you see we had some kind of tariff changes also in motor business over the last months from our side. So I think overall, we have done and steered it as it is from our side, the most profitable view also to all of our stakeholders. And then perhaps, Matthias, about the third one. Matthias Henny: Yes. Regarding real estate in insurance assets and transfer to Baloise's Property Fund, you described well the mechanics that's going on. And the reason for that is that we have decreasing insurance assets in traditional life insurance. This is not something which is new, but it has been there for a couple of years. And this means we also need to reduce the balance sheet with fixed income and equities, it's quite straightforward. With real estate, it's either you sell it in the market, which we do also for some part of our real estate portfolio and the part we want to continue manage ourselves, and we move those properties into the Baloise Property Fund or, for instance, in the investment foundation that we set up a year ago. Like that, we can continue to manage these assets and become also a significant real estate player in third-party asset management area in Switzerland. Now regarding the loss of rental income, yes, that's the case. But that's a normal development if your total assets on an absolute level go down. The same happens to the current income, but on a proportional level, as we don't change the asset allocation on a relative basis, nothing changes. And given the attractiveness of real estate as an asset class, we stick to the maximum that we can legally invest, which is the 25%, which is the limit for tied assets for real estate in Switzerland. Operator: The next question comes from the line of Anne Risold from Octavian. Anne-Chantal Risold: I would have a question on your operational efficiency and FTE reduction and how are you managing the current FTE reduction, given that significant additional wave of staff cut that is expected, particularly in Switzerland with the upcoming merger. Michael Müller: Yes. Thank you very much, Anne-Chantal for this question. So overall, what we are doing at the moment that we have our efficiency program, which is coming from refocusing strategy. There we are fully on track. We are doing that in the same manner as planned. But we are preparing overall. It's also clear that at the moment, we are not -- so we look like we really have to hire people if there are some people going out. But overall, we do not see a higher rate of something which is higher than in earlier years. That's nothing we see. But what we are looking at also a little bit preparing then that we are not -- that we have it as smooth as possible also for the future because there, yes, you're absolutely right. There is a reduction for future and being prepared there is good for the overall situation we do have. Operator: [Operator Instructions] We have a follow-up question from the line of Michael Huttner from Berenberg. Michael Huttner: I had two. One, can you talk a little bit more about the cash? I know you said you're fully on track, but that still leaves -- well, I wonder if you could be a little bit more -- offer a little bit of granularity here, that would be really helpful. And then the CSM release rate in Life. The reason I ask is, although the increase is isn't much, I think it's got from -- well, the average for last year was 2.7% on the half year basis, now is 2.8%. But you're clearly well below your peers. So I'm just wondering here whether we're beginning to see this catch-up, which I think as analysts, we had been hoping for? Or is this just simply noise and we should ignore it? Michael Müller: Thank you, Michael for these questions. It seems to be two questions for Carsten. Cash is always not easy because it's flowing once per year, but -- with the dividend. But I hand over for Carsten for these two questions. Carsten Stolz: Thanks, Michael, for your follow-up questions. So as we are looking at half year results, which show growth, improved profitability and enhanced returns. This signals that also when we shift the perspective from IFRS to statutory accounts where ultimately cash is upstream and remitted from the operating entities that also from that perspective, the house is very much in order. And that's why we can draw the conclusion as we speak, that cash remittance is sustained and we can -- 2025 can contribute to achieving the overall CHF 2 billion target that we have set ourselves. So we are healthy in terms of the foundations to cash remit the success of the financial year 2025 and also up to the holding company. So that's on cash remittance. And with regard to the CSM release, the ratio is slightly up, as you say. It depends on many elements that influence the release. As you know, models play a role, business mix play a role and so on. So looking ahead, we'll move into a joint view for the combined Helvetia Baloise Group. And then we'll see how the picture will present itself. As we speak, our release ratio is the 2.8% that you mentioned, and that's our current situation. Michael Huttner: And can I just ask a very quick follow-up? It's not on this, it's a different topic. I know it doesn't appear on the current accounting, but it used to. What's the picture on PYD in the Non-life business. Have you -- are you releasing more or less? Or are you adding to buffers? Or just to get a feel for -- I know there are no numbers, but... Carsten Stolz: Yes. By and large, after the move from IFRS 4 to our [ IFRS 17/9 ] PYD as such doesn't -- it doesn't show up as such anymore. And that's why there's nothing special to flag about it. So with regard to reserving and the dynamics on the Non-life loss ratio side, nothing has [ changed ]. Michael Huttner: Another way of looking at it, but I know, I'm not sure, I'm walking on thin ice, I don't know what I'm talking about. Yesterday, I was asking a reinsurer and I said, well, one way of looking -- getting a feel for these kind of releases, buffers, whatever is the experience variance in the CSM. Now I have no idea if there is a CSM in Non-life. So I don't know, but is that a way of looking at it? Michael Müller: No, there is -- you can say that it is kind of an experience variance because it's a question of deviation from assumptions which is the basic idea in the Life CSM. In Non-life, there is no CSM because we -- it's handled under IFRS 17 under the premium allocation approach. And I would just reiterate that the guidance that we've given on Non-life side where we said that we have around 4% in large claims in a "normal year" in the new context, 2 to 3 percentage points stemming from discounting effects and those are the major effects that influenced the Non-life combined ratio on the [ IFRS 17/9 ]. I didn't say that there is no prior year loss developments included but they play less of a role. Operator: [Operator Instructions] We have a follow-up question from the line of Rene Locher from ODDO BHF. René Locher: Just a quick one for Carsten. I was wondering if you could quickly explain in a nutshell, how this IFRS 3 business combination will look like. Michael Müller: Okay. That's, I think, not an easy task in a nutshell. René Locher: But we can take it offline. It's okay. Carsten Stolz: So if you say in a nutshell, then I have a pretty small picture of a walnut in front of me. So if you allow me, I claim with -- if you open it, you have 2 nutshells. And if you allow me, I will use both of them. Probably not enough. So in a nutshell, due to the fact that accounting-wise, Baloise will be absorbed by Helvetia. Accounting-wise, Baloise moves into the direction of Helvetia. And that means, in a nutshell, revaluing and reclassifying the balance sheet of Baloise to Helvetia IFRS and then apply purchase price accounting to the combined new entity. So that means by the end of 2025, we will undergo this exercise. The Baloise balance sheet will move into a consolidated view under Helvetia following the [indiscernible] the business combination by absorption. And then from then on, the new clock will tick and we'll then see a new P&L for the combined entity for -- from 2026 onwards basically. [indiscernible] René Locher: No, no that's okay. But we should expect that we will get a kind of an opening balance sheet once , let's say, like in Q1 2026 as starting point, right? Michael Müller: Sure. There will be some opening balance sheet with closing at the end that will be the starting point for the new company. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Michael Muller, CEO, for any closing remarks. Michael Müller: Thank you very much. Ladies and gentlemen, let me summarize our results once again. First, Baloise refocusing strategy works and is fully on track. Second, our strategic progress is reflected in our strong half year '25 financials. Combined ratio improved by 2.6 percentage points, net profit rose by 26%, and return on equity increased by 2.5 percentage points. Third, the preparation of the planned merger with Helvetia are proceeding as planned. With the planned merger, we are on the threshold of a new chapter in our company's history. Together with Helvetia, we will strengthen our business, become one of the leading insurance in Europe and create a strong basis for further profitable growth. We hereby close the call. Thank you very much for joining, and have a great day. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Hello, and welcome to the Gym Group Half Year Results 2025. If you're joining us on Zoom, automated subtitles are available, and you can turn this feature on or off within your Zoom app settings. But please note, this is an automated service and transcription errors sometimes occur. I'm now going to hand over to Will Orr, CEO. Will, please go ahead. William Orr: Good morning, and welcome to the 2025 half year results presentation for the Gym Group. Thank you for making the time to join us in the room and on the dial-in. After the presentation, we'll take your questions in the room first and then on the webcast. Our CFO, Luke Tait and I will be doing the presenting today. And here's what we plan to cover. I'll start with an overview before handing to Luke to share the 2025 half year financial results. I'll then provide a progress report on our next chapter growth plan before summarizing and taking your questions. So starting with the overview. I'm pleased to report strong performance for the first half of 2025. Closing membership was up 5%, with revenue for the period up 8%, 3% on a like-for-like basis. With this performance and strong management of costs, EBITDA less normalized rent was up 24%. The market we're in remains highly attractive, and gym penetration has again reached new highs, supported by structural growth tailwinds. And within our next chapter growth plan, the program to strengthen the core continues to drive mature site performance, underpinning confidence in further progress on mature site ROIC, which we'll report on at full year results. And when it comes to new sites, we're on track to increase openings to 14 to 16 in 2025, in line with our plan to open circa 50 new sites over 3 years, funded from free cash flow. So the momentum continues. And with that, I'll hand over to Luke for the financial results. Luke Tait: Thanks, Will. Good morning. So starting with a summary of our financial KPIs. The key revenue KPIs, which were released in July have both shown good growth year-on-year. We had average members across the first half of 953,000, up 4% versus last year, and average revenue per member month was GBP 21.16 for the first half, also up 4% on prior year. As a result, revenue was GBP 121 million, up 8% on last year. The additional revenue converted well to profit with EBITDA less normalized rent of GBP 27.4 million, up 24% on prior year. Statutory profit before tax was GBP 3.3 million, up GBP 3.1 million on prior year. Free cash flow of GBP 25.1 million was up 8% on prior year and enabled a net debt reduction of GBP 10.1 million to GBP 51.2 million, reducing the net debt-to-EBITDA leverage ratio to 1x. We will look at each of these key financial metrics in more detail in the following slides. Turning to the income statement. EBITDA grew strongly in the first half of the year, up 24% versus last year. Revenue was GBP 121 million, up by GBP 8.9 million year-on-year. Approximately 1/3 of the incremental revenue year-on-year was generated from like-for-like gyms and 2/3 from new openings since December 2022. Costs in the first half evolved in line with expectations. Site costs of GBP 57.9 million benefited from a reduction in electricity costs from lower commodity rates, resulting in site cost margin improvement of 2%. I'll come back to the other key site cost movement shortly. Central costs grew by 7%, with the growth rate expected to slow further in the second half, and therefore, the central cost margin is expected to drop to circa 11% as guided in March. Normalized rent increased by 7%, reflecting a combination of new site growth and underlying lease inflation. EBITDA was GBP 27.4 million, with EBITDA margin at 23% for the first half, an improvement of 3% versus prior year. Moving on down the P&L. The noncash charge for share-based payments of GBP 2.5 million was higher than prior year due to the delay in the commencement of the new scheme last year. Net financing costs of GBP 10.4 million remained flat year-on-year, as lower interest rates offset an increase in property lease liabilities. The charge consists of GBP 8.1 million relating to property lease interest and GBP 2.5 million relating to our borrowing facilities. Profit before tax and non-underlying items was GBP 4.9 million, up GBP 4.4 million on prior year. Non-underlying items of GBP 1.6 million principally relates to the implementation of a new member management and payment system. Finally, profit before tax for the 6 months was GBP 3.3 million, up from breakeven last year. Revenue grew by 8% in the first half. Average revenue per member per month grew by 4%. This was principally down to a combination of yield increases in their like-for-like estate, and the optimization of yield in the new site openings, including coming off introductory headline rate discounts. The average headline rate of a standard membership was GBP 25.10, up by GBP 1.16 year-on-year. Like-for-like revenue was 3%, in line with guidance, with the average membership remaining at 100% year-on-year and the average yield increasing by 3%. Looking at site costs in more detail. We've been able to control site costs in the first half despite the ongoing inflationary environment. In the first half, like-for-like site costs were down by 1%. This was driven by a further reduction in electricity commodity prices and our energy optimization program. For example, we have now installed 120 voltage optimization units across the estate. Efficiencies in the staffing model and cleaning have partially offset the National Living Wage and NIC increases in Q2. And rates rebates have partially offset the Q2 increase in the UBR. In the second half, we expect site cost inflation to return, bringing the full year in line with our guidance of like-for-like site cost growth of 2%. This is as a result of an increase in the non-commodity element of the electricity cost from Q4 as well as 2 quarters of National Living Wage, NI (sic) [ NIC ] and UBR increases. Turning now to the cash flow. Strong cash flow generation in the year enabled us to self-fund our expansionary CapEx, buy shares for the EBT and pay down debt. The working capital inflow of GBP 8 million reflects the cash generative nature of the business model when growing, and a higher proportion of payout front memberships, although some unwind of this inflow is expected by year-end. After deducting the cash spend on maintenance CapEx of GBP 7.3 million, operating cash flow was GBP 28.1 million. The cash element of non-underlying costs was GBP 0.5 million, bank and lease interest was GBP 2.5 million. It's worth noting that due to losses incurred during COVID and accelerated capital ounces, we do not expect any cash tax until 2028. Free cash flow was GBP 25.1 million. Expansionary CapEx was GBP 12.6 million. And after refinancing and EBT share purchase costs, net debt reduced by GBP 10.1 million during the first half. We continue to invest to grow the business and ensure a well-maintained estate. Total cash CapEx in the first half of the year was GBP 19.9 million. Maintenance CapEx across both property and tech was GBP 7.3 million in the first half. Property maintenance of GBP 6.2 million was 5% of revenue. Tech and data maintenance CapEx of GBP 1.1 million was spent on hardware, including CCTV upgrades and on our data infrastructure. Expansionary CapEx was GBP 12.6 million, with the main spend being on new sites as we target 14 to 16 new sites this year. Tech and data expansionary spend relates principally to investments in the website to enable next chapter growth initiatives such as product add-ons and website conversion optimization. Spend on replacement member management and payment systems was GBP 0.7 million and is expected to increase significantly in the second half as this project ramps up. We continue to expect total CapEx to be approximately GBP 50 million for the full year. Turning now to net debt. The strong free cash flow in the first half has allowed good progress on leverage reduction. Non-property net debt was GBP 51.2 million at the end of June, down GBP 10.1 million from the year-end. The debt consisted of GBP 59 million of bank debt and GBP 1.5 million of finance leases. As a result of the reduction in debt, the net debt-to-EBITDA multiple reduced to 1x EBITDA, down from 1.3x at year-end. Given the second half weighting of CapEx and an unexpected element of working capital unwind, year-end net debt is expected to be at a similar level to last year end at circa GBP 60 million. In June, we agreed an amend and extend of our current facilities with our bank syndicate, increasing the total facilities to GBP 102 million and extending the maturity to 2028. The new sites continue to perform well. The 25 sites opened in 2022 are expected to deliver ROIC of 30% this year. The small 2023 cohort is on track to deliver an average ROIC of 25% with one site having been impacted by an unusual level of competitors' openings. And although early in their tenure, the 12 2024 sites are progressing well with strong initial membership volume. Overall, our confidence remains high on returning 30% on new openings. Finally, turning to current trading and outlook. Current trading momentum has continued through July and August. We're now entering the key student acquisition period. We've opened 5 new gyms so far this year with another 8 gyms currently on site. For the full year, like-for-like revenue is expected to grow at circa 3% and like-for-like cost growth is expected to be circa 2%. Given the current trading momentum, we now expect EBITDA at the top end of market expectations. We do not expect to pay any cash tax before 2028. We're on track to open 14 to 16 new openings in 2025, in line with our March guidance, with total CapEx of circa GBP 50 million expected for the full year. Therefore, net debt is expected to trend back to last year's level by year-end. I will now hand over to Will. William Orr: Thank you, Luke. In March 2024, I set out our next chapter growth plan and wanted to provide you with a further update on the strong progress we're making. Firstly, a reminder of investment case, sustained growth from free cash flow and why we think it's so compelling. Starting at 12:00 on the circle, health and fitness is a very large market that's benefiting from continued structural growth. And in gyms, the high-value, low-cost sector is growing fast. As with other categories, we're benefiting from consumers' appetite for no-frills great value propositions and from new more committed generations of gym goers. This winning proposition has high levels of customer satisfaction and is delivered by a strategically advantaged labor-light business model. We also have multiple drivers of growth listed on the right-hand side of the slide with detailed plans on each of them. Strong execution on those growth drivers is increasing returns in our existing estate, in turn, funding the organic rollout of quality new sites. This virtuous circle of sustained growth is being powered by data and technology, 2 areas we continue to invest in is the foundation for any successful digital subscription business. Demand for gyms continues to grow. U.K. consumers now spend GBP 6.5 billion on gym memberships with 11.3 million of us being members. That penetration continues to grow with another strong increase in 2025 to 16.6%. And as you can see, low-cost gym growth is strong. With the proposition that's high quality and affordable, we're introducing new generations of gym goers to something they really value as well as benefiting from the continued trade down from the mid-market. And in this growing market segment, we're 1 of 2 brands that account for 80%-member share. Seeing the way future generations, particularly Gen Z, are embracing gyms is one of the reasons we're so optimistic about the Gym Group's future. With around 40% of our members being in this cohort, we now publish a Gen Z fitness report based on a regular independent survey of over 2,000 respondents. The most recent results are again encouraging. Nearly 3/4 of this group now saying they're making time for fitness at least twice a week. And their fitness is their top priority when it comes to discretionary spend. For a growing number of this generation, fitness is a nonnegotiable. These are consumers who are highly engaged in fitness for its physical and mental health benefits, who have a growing appetite for strength training, best done in a well-equipped and affordable gym and who increasingly see going to the gym as part of their identity and social life. And I should add that these trends extend beyond Gen Z and into our membership base as a whole. The future is bright for fitness and gyms. To take full advantage of the market with structural growth, you need a winning proposition and ours resonates more than ever. For any subscription business, usage is a good health indicator. And the proportion of members visiting us 4 times a month or more increased again year-on-year. While the proportion of members rating us 5 out of 5 in satisfaction surveys has risen to a remarkable 62%. And when it comes to Google reviews, we lead the market with every one of our gyms scoring 4 out of 5 or better. So the Gym Group is growing in a growing part of a growing market, benefiting from structural market growth and an advantaged labor-light business model that delivers a winning proposition. The Gym Group also has a clear growth plan. As a reminder, there are 3 elements to the next chapter. Strength in the core is focused on increasing returns from our existing sites, principally by growing like-for-like revenue. It's the program that helped us deliver our 25% midterm target for mature site ROIC in full year 2024 ahead of schedule, and is generating the cash to accelerate our organically funded rollout of quality sites in the U.K. As we said in March, those first 2 COGS are very much where our executional focus is for the time being because we see so much headroom here. I will, however, also update on the third COG, broaden our growth later in the presentation. Turning in more detail to strengthen the core. We've again delivered multiple wins across 3 levers of customer revenue growth. On pricing and revenue management, we're seeing a sustained upside opportunity based on our strong value-for-money credentials and I'm confident we have the data and capability to continue growing yield. When it comes to acquiring new members, we're using data, ad technology, brand management, local targeting and e-commerce skills to create a highly efficient acquisition engine. And thirdly, on member retention. We continue to increase the average tenure of our membership by taking a systematic approach. On the next few slides, I'll give you some examples of the progress we're making in these areas. In explaining why, we see such a sustained opportunity on pricing and yield, I wanted to start with the U.K. gym market as a whole. At the Gym -- at The Gym Group gym, you get a large, clean, well-equipped, well-maintained gym with friendly expert people. You also get 24/7 access, and you're not tied into a contract. And yet, because of our advantaged business model, we're able to offer all this at prices that as well as being marginally lower than the direct competition are comprehensively lower than the rest of market. And as I'll touch on shortly, we have ways to keep enhancing the perceived value of what we offer without adding to our costs. So our market position gives us a strong long-term pricing and yield opportunity. And critically, that opportunity exists in the minds of our consumers. The graph on the left-hand side is output from a large quantitative study we refreshed again in H1 with Simon-Kucher Partners. It plots perceived value on the X-axis against perceived price on the Y-axis and shows that the high-value low-cost gym sector remains underpriced in the minds of our target consumer. In other words, they continue to perceive more value than they pay. And when you consider the value proposition I just described, that large, well equipped, well maintained 24/7 gym for about GBP 25 a month, that's not surprising. It is a phenomenal piece of value engineering. And as you can see on the right-hand side of the chart, this delivers strong value, for money scores, which remains stable despite increasing prices again over the last 12 months. With this opportunity in mind, we delivered several wins again in H1, all these have been underpinned by analytics and AB testing, derisking our decision-making as we execute. Firstly, we've increased our headline rates for new members, while remaining cheaper than the competition in competing sites. We note that our main competitors continue to take a similar approach with JD Gyms particularly aggressive in the period and further pure gym price increases noted already in H2. Secondly, we've continued to test and innovate on promotions, seeking to optimize for return on spend. This has included more targeted treatments at site level and ongoing deployment of our churn-reducing stepped kickers. Thirdly, we've continued to revenue optimize our product range, including offering premium features like Guest Pass and Multi-Site Access as add-ons to standard membership. And finally, we've developed a data model to assess site level headroom in the mature estate, enabling even more targeted pricing and volume interventions as a result. I'll return to this data model later. Turning to acquisition. We're also taking a targeted approach here. As I've described before, to maximize return, we're spending our marketing money close to our sites where the demand will naturally be. And as you can see in the graph, unprompted awareness within 3 miles of our sites is growing. When it comes to then converting prospects into sales, our program of web conversion improvements continues with 9 successful AB tests completed and adopted in H1. We're also progressing initiatives to be as relevant and attractive as possible to our core audience of Gen Z consumers. This includes growing our footprint in social media and enhancing the presentation of our brand and our sites. To expand on this a bit further, as you can see on the left-hand side of this chart, our social media reach, both at national and local level continues to grow at pace with well over 0.5 million people interacting with us in social. This is a key channel for quality fitness advice, engagement and, of course, sales, and we'll continue to prioritize this area. We're also evolving the aesthetic presentation of the Gym Group in marketing activity and in our gyms. This is one of the ways we'll continue to build our perceived value in the minds of members, supporting pricing and revenue growth. And I'll return to what evolves in gym design in more detail shortly. Our focus on retention is one of the reasons we've been able to hold like-for-like membership constant, while pricing up and where the average tenure of our members continues to grow. Churn rates are highest in the first 45 days of the members' tenure, which is why we developed our early life plan. Part of this plan is encouraging new members to visit more often in their first month, and in H1, we launched targeted nudge messages in the app to encourage visits. As well as this, we're enhancing all aspects of the new joiner experience. For example, we've renamed and better promoted the free Kickstart induction session we offer new members. Kickstart introduces the new member to the gym and helps them get the most from it. We've seen a 37% increase in participation and 10% higher retention rates among participating members. Rejoins are also an important part of our member mix, with members benefiting from our flexible proposition. We have a program of enhancements to capture as many returning members as possible and increase the 6-month rejoin rate by 6% in H1. And finally, we continue to grow our base of members on a longer-term commitment. We call these 6-, 9- and 12-month product savers and have enhanced them in several ways, growing this base by 37% in H1. So that's a few examples of the many ways we're strengthening the core of the business and improving mature site ROIC. To remind you, we grew that measure 4 percentage points in full year 24% to 25%, and look forward to reporting further progress on this metric at full year results. Now turning to the second part of the plan. In line with our strategy and capital allocation policy, we're currently deploying free cash flow to accelerate the rollout of quality sites in the U.K. PwC estimates 10 years plus of U.K. white space for low-cost gyms. So the opportunity for sustained rollout is clear. And we're taking a disciplined returns-focused approach to unlocking that opportunity. We opened 12 new sites in 2024 at the top end of guidance and are on track to open the guided 14 to 16 in 2025. Using data to isolate the characteristics of our best-performing mature sites, we're then applying that formula to the new sites we open. And as a result, I'm pleased to say that the 5 sites we've opened so far this year are performing ahead of expectations. Given the power of data-driven site selection, we continue to enhance our methodology. In H1, we devoted a new fully bespoke site selection model with more data sources and machine learning to further increase accuracy and speed of appraisal. And as referenced earlier, we're elevating design aesthetic and kit innovation in new sites. I'll provide some more detail on that now. We have great gyms with strong customer ratings and improving returns. But we've identified headroom to elevate the gym experience further, driving those high value perceptions and supporting sustained revenue growth. The evolved approach is being applied to all new sites and as I'll cover in a moment, being rolled out in our mature estate in a commercially targeted way within our existing maintenance CapEx program. The work to do this, which has included input from a world-leading retail design agency was based on 5 principles. Firstly, this is a careful evolution, so we wanted to build on the strengths we have and continue to create welcoming gyms for all our members. That said, we're evolving the look to be more on trend and premium. This includes some darker colors, more use of original building features, more use of neon and lighting design, black kit, better change rooms and better zoning. Thirdly, kit is a very important part of why customers choose the Gym Group. So we're innovating here with more advanced strength training equipment and in the introduction of some sort after kit brands like Booty Builder and [ ExCo ]. We're also being more conscious about creating spaces for members to socialize in an environment suited to posting on social media. Finally, and critically, through thoughtful cost engineering, we're doing all this without adding to fit-out costs. And here are some visuals of the new approach. I'm pleased to say the performance of the 8 sites we've opened so far with the new approach has been strong. The rate at which we fill these gyms with members is well above our historic growth curve, and at an average of 4 out of -- 4.8 out of 5. The feedback on Google reviews is excellent, too. As well as opening new sites with this improved approach, we want to apply it to the mature estate within our existing CapEx budget. And we'll prioritize this maintenance spend based on likely return. To aid this, we recently completed a multi-variant statistical model to analyze potential membership headroom across the estate. This is allowing us to prioritize our refurbishment program, where the returns should be highest. It will also help us to target local marketing and pricing as well as those in gym enhancements. Here's an early example of the approach. The model identified membership headroom in Bristol Longwell Green. We business case the site investment within our maintenance CapEx budget and rolling refurb program. And then we reopened with a new design approach and some local relaunch marketing. I'm extremely encouraged by the early results we're seeing. And across new and existing sites, we expect around 40 of our gyms to benefit from the new design approach in the full year 2025, with a program then continuing into 2026. So that's some examples of the progress across the first 2 COGS of our growth plan. As I said earlier, we see headroom in both of these areas, headroom to further strengthen the core of the business by continuing to improve mature site ROIC and headroom to accelerate our organically funded rollout of quality sites into ample U.K. white space. And that's why these 2 areas remain the majority of our focus. We have, however, continued to analyze opportunities to broaden our sources of growth. So a brief update on this part of the plan. One area we've explored here is channels to market, new scale channels delivering incremental members. Wellhub is a B2B2C channel, providing a platform of fitness and wellness benefits to 1.5 million eligible employees across 450 U.K. companies, including the likes of Santander, Tesco and Nationwide. We recently started a 6-month pilot on the platform with a robust framework to assess incrementality when it comes to new members. If the pilot delivers in line with our estimates, and we've seen an encouraging start, we'll roll this out nationally as a new source of like-for-like membership growth. We also continue to investigate other significant adjacencies, well aligned not just a fitness, but also to our core competencies. We'll, of course, update on this in more detail at the appropriate time. So that's the progress report on the next chapter growth plan. I'd like to take the opportunity to thank the committed expert people across our gyms and support center for delivering the progress you can see. We'll very shortly take your questions. But before that, I'll briefly summarize today's presentation. The Gym Group operates in a large market with structural growth. We have an advantaged labor-light business model that delivers high value at low cost and limits exposure to national living wage and national insurance increases. With a clear growth plan and significant white space, H1 saw 24% growth in EBITDA less normalized rent, underpinning confidence in full year progress on mature site, ROIC. Profit growth is converting into strong cash flow, and that's allowing us to accelerate our organically funded expansion. As a result of this strong progress and our current trading performance, we're now expecting 2025 EBITDA less normalized rent to be at the top end of analysts' forecast range. Thank you, and we'll now take your questions. Operator: [Operator Instructions] Sahill Shan: Sahill Shan from Singer. Three questions from me. Just on the ending of your presentation, Will, in terms of broadening our growth part of the presentation. Should we assume that as part of our strategy, moving overseas could be an option over the medium term? Second question is given the strength of the free cash flow and self-funding and where leverage is now, how should we be thinking about capital returns going forward? And the final question, I suppose, this is for you, Luke, any update in terms of what's happening to site costs relative to previous guidance? William Orr: Thank you. I'll take the first one. So in terms of broaden our growth, I mean, as I said, we see a lot of U.K. headroom, both in terms of sort of mature site performance and white space. So that's very much where our focus is for the time being. To the international piece, we wouldn't rule out anything. And periodically, we sort of assess the landscape. But for the time being, we're very much focused on the U.K. So that's that one. And perhaps, Luke, do you want to talk buyback and cost. Luke Tait: Sue. So, as you know, it was 18 months ago, we set out our capital allocation policy, which I think still essentially remains the same. First priority is making sure that net debt leverage remained below 2x. It is now down to 1x as we just reported, but will increase again a bit towards year-end. So obviously, well within scope there. The second was to prioritize organic growth as long as we had high-level confidence on achieving 30% ROIC. I think we're still there. And then the third was if we felt we had excess free cash flow, we would consider returns to shareholders. And we're very much still looking at that actively. The returns are pretty good, and in theory, at least risk fee. That said, there is still quite a big gap between those returns and the returns we think we can get from deploying the CapEx on organic growth. So for the time being, we're still concentrating on that organic growth, but it is something that is under active consideration by the Board. And we may well make changes in the future. The third question was around site costs. So we had a very strong first half in terms of site costs -- like-for-like site costs actually down year-on-year, driven by that commodity -- continuing reduction in the commodity rate, which actually we continue to see going into the future. We had only 1/4 of the sort of changes imposed on us around Living Wage, NI and rates. We will have 2 quarters of that in the second half, so that adds to the inflation burden, and we will also see non-commodity rates increase in the final quarter, as I said. So if we're down one in the first half and then up 2 for the full year. You can see that second half will -- we will have a much sort of more significant increase. From point of view of what that means going into next year, that non-commodity increase will last for a year, and its 2-year contract will then be flat thereafter. So it's kind of one hump to get over if you see what I mean. And then on the National Living Wage for next year, I'd be interested in your view, so -- but we'll find out in November. And I think we'll guide when we know more, which is probably early January. Sahill Shan: Sorry, my third question, I was thinking more about CapEx per new site much have been reduced...? Luke Tait: Oh, sorry. So get CapEx on new sites, essentially running in line, I think, to sort of more general levels of inflation. So we do see some increase from wage costs coming through. That said, everything is tendered to minimum of 3 contractors. And as a result, we're not seeing massive increases year-on-year. The biggest variation really is down to site level sort of dimensions such as, is it Central London or London? Or is it outside of London? Is it a complex site to develop? Or is it a nice clean sort of industrial-type box. But no, nothing more than sort of headline inflation rates. Ross Broadfoot: Ross Broadfoot for RBC. You referred a few times to average tenure continuing to grow. I was wondering if you could give any color on sort of where it's been and where it is, just to give that a bit more sort of scope. Number two, you talked about strong volumes at the enhanced new sites. And just question, to what extent discounting has played a role in the strong volumes or whether those sort of normal volume growth, if you see what I mean? And then thirdly, off-peak now 13% of the mix. I think previously, you've said mid-teens is where you sort of see it maturing? Any update on that at all? William Orr: So yes, on tenure, I mean, the average tenure of our membership is sort of around 18 months with a very significant sort of dispersion around that, the average of 18 months and it's been sort of ticking up nicely over the last couple of years. So that's that one. And yes, we continue to work on that. I think volume at new sites, yes, well ahead of historical averages. I would say, we've been moderately more aggressive on kind of opening offers because strategically, we think it's good to fill new sites fast and then yield up thereafter, but it's not been a sort of huge change to our sort of historical approach. So yes, there's a little bit of promotion in there. But I would still say that I think what we're seeing from the kind of the new aesthetic and so on, I think is encouraging, very encouraging in its own right. So that's that one. Off peak, do you want to take. Luke Tait: It's not off peak, Ross. So yes, I think that guidance of sort of mid-teens still is sort of our best direction. And I think in around off-peak has performed pretty much as expected from the trials, has some multifunctions. It has added some volume, which has helped offset some of our price increases. It's also enabled us to price more aggressively in the other essentially 85% of members, 87% of members, and it also gives us that sort of excellent marketing low headline rate, which we use. I think we'll continue to optimize it. So we do literally set that differential in pricing at a gym level. And therefore, we can sort of control that volume depending on what we think will maximize revenue. Harold Jack: It's Douglas Jack, Peel Hunt. Three questions, if that's okay. First one is, are you seeing much difference in terms of regional performance across the U.K., i.e., London versus outside in particular. And are you seeing any changes in terms of competitor behavior in terms of expansion? And in terms of the refurb program, how many are you doing at the moment per annum? And what does that mean in terms of that pipeline applying your latest format to the mature estate. William Orr: Yes. I mean, maybe I'll start with the last one and then sort of work up from there. Yes. I mean, I think I said that between the new sites that we're opening this year and the sort of significant refurbs, we'd estimate about 40 of our sites by the end of this year. We'll sort of -- would have had a sort of -- will either be the new look because it's a new site or have had a sort of significant refurb. There's actually over 100 sites in the refurb program gets some form of treatment, let's say, upgrade. So -- yes, sort of I think happy with the pace of that, and then it will continue into 2026. And I think I'm sort of excited by this now more granular ability to try and assess how we should prioritize that maintenance program. But I think we will -- as we move into next year, we'll have a sort of a significant proportion of the estate with that kind of new and more premium look and feel, if that answers that question. I think on competitor behavior. I think as we've said before, we continue to think the market is rational, I think rational on pricing, rationale on sort of site selection and sort of looking at trade areas and those sorts of things, I think we noted JD being particularly aggressive on pricing in H1. And as I say, PureGym doing some pricing already in H2. So that direction of travel looks to be very sort of consistent. And then in terms of rollout speed, PureGym are going faster than us, but opening quite a lot of small sites, and we're principally sticking to our sort of tried and trusted formula of larger sites. But I think the market continues to be to be rational. There's a lot of white space. I think there's a lot of room for everybody to be on this among us and PureGym. And then on regional performance, I don't think there's any particular change, and we have strong performing sites right across the U.K. I mean, London -- Greater London has always been a good area for us, but we haven't seen any real change in that. Jack Cummings: Jack Cummings at Berenberg. My first question is just on-site openings. And it's a bit H2 weighted this year and obviously, it's accelerating next year. Could you just give us a little bit more kind of color in terms of your confidence behind those targets and also what phasing we should expect in 2026? You mentioned the new add-ons like guest passes, multisite access, et cetera. What sort of penetration are you getting for this? And has this been rolled out across the entire estate and all of your members? And then the final one is just going back to the prioritizing of that mature estate investment. Is there potentially a discussion internally actually accelerating the amount of maintenance CapEx, given this headroom and the returns that you could get from it? William Orr: [indiscernible] one answer and I'll try the first and third. So phasing of new openings, I think we are confident about our guided 14 to 16 for this year. We've opened 5. We're on site at another 9. So we -- I think we're on track there. It is going to be back weighted for sure this year. And then in terms of 2026, I think we actually -- the pipeline for 2026 is looking strong already. I think we're sort of further ahead at this point than we have been historically, not sure of the exact phasing of all of that in next year. But I think net back weighted this year, but confident on guidance and looking really promising actually for next year as we step up. So that's that one. I think on the mature estate investment, I think as I said, various times in that presentation sort of trying to do it within the existing sort of envelope at the moment. But to your question, we assess the performance of every newly refurb site. It takes a bit of time to assess that performance because it needs to go through sort of a bit of a trading cycle. But if we see really strong returns and really strong improvements then we would potentially accelerate that. But I think we'd sort of guide if that's something we thought we were going to do. Luke Tait: Yes, Jack, on the add-ons, it's very early in the launch process. So I think it's probably premature to give stats on that. William Orr: I think we're on site at 8, not 9. I saw Catherine looking at me in a horrified way. But yes, I think we're on track for our 14 to 16. Timothy Barrett: Tim Barrett from Deutsche Numis. The first question was about yield. Obviously, the 3% price increase you put through certainly wasn't greedy versus the competition. Do you feel you might go faster in 2026? Is there scope for more catch-up? And then Slide 32 is really interesting about local market headroom. Can you give us an idea of what the scale was on that chart? And does it include the workforce-centric gyms. I'm just thinking whether you might be able to recoup some of the previous lost members there. Luke Tait: Yes, sure. Thanks, Tim. So yes, on yield, as you said, I think sort of 3% which was proportionate to the inflationary pressures we were seeing, I think. So I don't -- I think there is definitely sort of continued, as we also set out in those slides, continued midterm opportunity to take yield. And whilst our input inflation isn't a driver, it's definitely an important consideration. And we do know that particularly around that noncommodity utility rate, we will be seeing some more inflation next year. So we will definitely wait and see what happens through the budget on other cost lines. But I think depending on the inflationary pressure, I think we will sort of flex our pricing plan to match that. William Orr: And then on that headroom piece, I think that the headroom in certain sites, as you see on the left is significant. That's not to say it can be automatically unlocked and it's a statistical model, and we're now applying it to sites like the one I showed and sort of assessing the performance. So we've got to sort of test the model. But yes, I mean, there's definitely a number of sites on there that look like they had good headroom. And then I think the second part in terms of workforce, yes, the model would suggest that there's some opportunity there, but I don't think it would be our first priority, to be honest. But it's something that we'll sort of continue to keep under review. And I think you are sort of seeing incremental return to office working and so on. So I hope that answers the question. So I think some good headroom in that model. We need to prove that out. But I think were -- those sort of that small handful of workforce is unlikely to be the top priority for the deployment of that effort. Unknown Analyst: Jane from Ocean Wall. Can you help us a bit with the algebra on the ex workforce ROIC calculations, because in the 2025 presentation, you showed the 184 mature sites delivering this huge uplift in ROIC. But with the same EBITDA margin as the ex workforce 159 sites in the 2023 presentation. So it just seems strange that the EBITDA margin, admittedly one includes rent-free, one doesn't, I think. But why isn't the margin showing a bigger improvement? And is -- does that mean that we should be worrying about the workforce gyms? Or put it another way, is there still a 200 basis point drag from the workforce gyms, then -- and the portfolio is 25 mature gyms bigger, should we be -- is there a deterioration in the workforce gyms? I suppose is a long-winded way of saying that. Luke Tait: So I'm not sure I totally followed all of your numbers in the first part of the question. But to the second part of the question, I don't -- we're not seeing any particular deterioration in the workforce dependent gyms. And I would anticipate a similar level of drag by year-end. So I don't think that will have changed at year-end. Unknown Analyst: So even though the portfolio is bigger the drag is the same, so it should be getting smaller, shouldn't that? Luke Tait: The portfolio will have increased by 4%, whatever it is. So -- yes, it will have got a bit smaller, but it won't be -- I don't think it will be material there. Unknown Analyst: And can I just follow-up on rents? Are they inflation linked by and large, and the [indiscernible]...? Luke Tait: They are, by and large, inflation linked with colors and caps. Anna? Anna Barnfather: Anna Barnfather from Panmure Liberum. A lot of questions have been asked already. Can I just drill a bit deeper on marketing costs? Obviously, you changed your approach to be more local. Can you give us a sense of where that is as a percentage of revenues and how that will trend? And then a bit of a technical one, Luke, on business rates. You talked about sort of inflationary impact of the rise in the second half. Business rates may well be reviewed in the budget, who knows. Can you just give me a sense of what business rates are as a percentage of revenue as well? Luke Tait: Yes, sure. So marketing costs, I think we've historically said marketing costs are around about 5% of revenue, and we are not materially outside of that. I mean I think what we would say is as we continue to sort of optimize the way we spend the marketing money on media and get a better and better understanding of CPAs and particularly incremental CPAs, I think we will -- we are trying to move into a world where we see marketing costs more -- almost more as a variable cost as in if we think by deploying more in a given moment that we can drive new members that write incremental CPA, then we would do that. But I mean, essentially, I think for modeling purposes, probably 5% of revenue is the right assumption. On business rates, I don't think we've ever sort of given that as a margin. I mean it's a significant cost, but not the biggest cost. We have seen UBR rates, I think, increased to 6% this year. So it was sort of similar -- 6% to 7%, similar to living wage. What we've heard about rates going into next year is that there'll be quite a meaningful reset where I think the ratable values are expected to be increased quite significantly, but offset by reductions in UBRs, particularly in properties, which have rental -- annual rental charges of less than GBP 0.5 million, which broadly speaking, is us. So I don't know what will happen in November, but there is a possibility of some good news. Anna Barnfather: Just on the marketing then. Sorry, just a follow-up on the marketing cost. So maybe I asked as a percentage of revenues. Do you look at it internally acquisition member cost of acquisition per member? Luke Tait: Yes, absolutely. I mean, there are... Anna Barnfather: And is that trending down? Luke Tait: It varies by month within the year. And generally speaking, there is inflationary pressure on media costs, but we have been able to offset the majority of those through continued efficiencies in how we deploy it. But media, there has been inflation in media historically, if that makes sense. William Orr: But with that, the percentage staying largely constant, we'd expect marketing spend to increase, but only in line with revenue growth. Luke Tait: And on CPA specifically, if we if we decided to push a bit harder, you might actually see your CPA go up, but we'd only do that if the LTV of the acquired members justified that incremental CPA. Harold Jack: Douglas Jack at Peel Hunt. Just a couple more rather boring accounting questions. IFRS 16 is still a headwind in these results. When do you think it will become a tailwind to you? And the second question is, historically, fixed asset depreciation precise being much higher than what you've had to spend on maintenance CapEx. You've been very conservative on that. Can we expect depreciation per site to perhaps come down in the future? Luke Tait: Thanks, Doug. Yes. So on IFRS, I expect the drag to be about GBP 2 million this year, and I think most of that should be gone within the next 2 years. And then in theory, we're actually in a place where we will see a benefit. And then on fixed asset depreciation, yes, you're right. I mean a big chunk of the leasehold improvements will never be replicated through maintenance CapEx, and therefore, we should continue to see maintenance CapEx below fixed asset depreciation. And as the estate matures, which is obviously also a driver that IFRS point, we should see sites starting, as you say, to come off that original maintenance depreciation cycle, and therefore, it should be a benefit. Operator: [Operator Instructions] Ross Broadfoot: Ross again. Just a quick one on the pilot, the B2B2C. When do you think we'll hear more about how that sort of pilot is going? And is that something you would expect to see nationwide? And sort of part 2, could there actually be a benefit then for the workforce dependent gyms? William Orr: So 2 parts to that. I mean the pilot is a sort of roughly 6-month pilot. So I'd expect we'd update on that in March potentially. And then the second part of the question is this isn't specifically a workforce site play. Already, we're seeing participation sort of right across the estate because it's more about where we have gyms that fit with that particular employer. So it's a sort of like-for-like volume play right across the estate, but very early days, but I should think by March, I'd expect we could give an update on that. Operator: Thank you for all your questions. I will now hand back to Will for any closing comments. William Orr: Well, thank you for coming. Tube strikes, notwithstanding. Thank you, and I think that's it. Thanks.
Operator: Ladies and gentlemen, thank you for standing by. I'm Vassilios, your Chorus Call operator. Welcome, and thank you for joining the Sarantis Group conference call and live webcast to present and discuss the Sarantis Group's Half Year 2025 Financial Results. With us today, we have Mr. Ioannis Bouras, Group CEO; and Mr. Christos Varsos, Group CFO. [Operator Instructions] The conference is being recorded. [Operator Instructions] Please be reminded that this presentation contains the formal disclaimer with regards to forward-looking statements. The presentation and discussion are conducted subject to this disclaimer. At this time, I would like to turn the conference over to Mr. Ioannis Bouras, Group CEO. Mr. Bouras, you may now proceed. Ioannis Bouras: Hello, everyone. I would like to thank you for joining the call today. We're very happy to have you all here. We are ready to start. So first of all, I would try to highlight -- we give some highlights at the glance of the first 6 months of 2025. What we would like to confirm is that our strategy remains the same. We are consistent and very precise with our strategy designed over the last 3, 4 years and consistent execution is also critical for our performance. This year, the first half of 2025 has been massive in terms of investment and energy behind the CapEx investments in our group, and we are on track on that, where all these CapEx are supporting the growth for the future. The Stella Pack integration is in the final stage as we are working right now on combining warehouses in Poland for the local operations plus all the networks in the markets. And of course, a significant part of our CapEx investments directed to Stella Pack upgrade -- factory upgrade, supporting our regrnulation capabilities in Poland. On the digital transformation, we are well on track. It's also a significant amount of energy from the team to deliver our digital agenda. We are -- of course, we'll have some details later on that. 2025, we continue our investments in our people as the capability enhancement of our people and of course, the leadership development is critical for our future of our business. And another highlight is the expansion of our footprint in the U.S. market via our Sun Care brand, Carroten, which is well advanced and has been also significant for the first half of the year. From a commercial excellence point of view, the priorities and strategy remains the same. The HERO SKU philosophy continues and even we are working towards that. We're applying a lot of rules of revenue growth management in the market, focusing on the mix of the portfolio, the investment strategy, promotional strategy and how we are delivering the growth via the categories that are improving our profitability as a business. On the innovation side, many new things coming through. And of course -- but as always, we are focusing on fewer and bigger initiatives. And the international expansion, as I mentioned, is driving growth and strengthening, of course, our select international markets that is one of our key priorities in our strategy. So in terms of numbers, of course, from a top line point of view, plus 0.5%. It's -- we're keeping -- just to remind you that last year, first half was very, very strong. So we're keeping our power in the market. On gross profit, we have also equivalent growth. But when it comes to EBITDA, EBIT and EBT and net profits are double-digit growth is coming through. And this is happening, of course, because of our operational efficiency, cost controlling and of course, all the work happened over the years to make the organization much more efficient, plus the mix of some of the categories are helping towards this direction. Now when it comes to category, as you can see clearly here, as we always present, Beauty and Skin and Sun category has provided significant growth in the first half of the year, plus 22.7%. This is, of course, includes the international markets growth where U.S. also is critical to this journey. Personal Care. Personal Care, there are some pressures in this category. Of course, intensive competition is coming to the game. There are things happening in the market that are affecting the top line growth, but still is one -- it's a very big category for us. Home Care Solutions, also similar. We have a pressure in the market where it's coming from demand from specific markets. And this is also something that we are working on. Strategic partnerships, we have a 2.1% growth, and this is coming mainly because of the work that we are doing with our strategic partners on some of the innovations they are providing for us, plus some new smaller businesses that they are coming to our portfolio. Private label has been minus 16.7%. We have discussed this in the past that private label is a business that is supporting our supply chain agenda for Home Care solutions category. So key priority for us also is the profitability of this category. It's not -- as you will see later, it's not a massive profitable category for us. So we have to balance between the growth and the profits at the same time. So although the category for us is dropping by 16% from a profit margin point of view is not significant. On the right-hand side, you can see that the branded business of Sarantis Group for the first 6 months is growing by 2.5%, while in private label, we are dropping by 16.7%. Now a bit of an update on international expansion. As we said, Skin and Beauty is a significant growth category for Sarantis Group as a whole. And within that category, the international expansion of beauty and skin is a critical part in our agenda. We have set up this priority 2, 3 years ago. The projects that we are running in different parts of the world are doing very, very well with, of course, U.S. been exceptionally -- running exceptionally well for the first half of 2025. We are working with some of our portfolio from a planning point of view and becoming a very successful in the U.S. market in different retailers, either online retailers or offline retailers, where this year, of course -- and this is also increasing our appetite for further initiatives in the market for the years to come, right? So this is something that is helping us a lot. And of course, we'll put a lot of energy and efforts behind. On top of U.S., though, we have on the other side of Earth is Australia, where the news are that we have listed in one of the leading retailers in Australia, one of the 2 biggest retailers in Australia. So it's going to hit the market in the coming summer for summer, meaning Australian summer, November, December this year. With Philippines, we continue with our Bioten very strongly. Of course, the brand is launched many years ago. So we are now quite mature. But of course, the product is developing nicely there together with Clinea. And recently, we had some openings in the Middle East with Saudi in the #1 retailer in Health and Beauty and United Arabic Emirates with the second -- #2 retailer in Health and Beauty with our Carroten brand in Middle East. So plenty of initiatives here. And of course, as a team, we are working behind all this and some others that they are rising over the last period. When it comes to geographies, so here is the usual table about the different markets. As you can see, Greece is growing nicely. It is not only the international markets that they are growing by 52%, but also Greece domestic market, which is the biggest, it would a growth of 3.5%, which is very, very positive. And Poland is -- overall, if you see, there is a minus 4.7%, but this is mainly due to the private label business, which is included in Poland country. While in the branded portfolio, we are growing 1.1%. Romania, the first 6 months has been challenging for Romania market. There are several issues on the market. We believe that going forward, things will get better. There are some political things happening in the market affecting the overall demand from the consumer. When it comes to Czech and Slovakia, very, very good growth and continuing growing from the previous years. West Balkans also have been facing some challenges, especially in Serbia over the last months. Ukraine, yes, minus 12%. But just to remind you here, we have disposed some business from Stella business that we bought last year, mainly private label or tactical business that they had in Ukraine. So if you compare like-for-like, this is minus 1.2%. So actually, Ukraine business for us is flat versus 2024. When it comes to Bulgaria, it's again, a smaller market, flat, and then Hungary is developing by plus 5.2%. So this is a picture from the geographies point of view. And now regarding all the things that I mentioned at the beginning of the highlights, 3 major pillars here. One is the digital transformation. So if you remember, we said before that we are implementing new SAP for our business and plus other systems together with that. So where we want to build a unified data platform across our markets. So the go-live of SAP went first in Greece, Czech Slovakia and Hungary, very successfully in the Q1 of 2025. And now we are preparing the Wave 2 for January '26, which includes West Balkans, Romania and Bulgaria. The whole project on this one will be concluded beginning of '27 with Poland and Ukraine. So we are well advanced now with our plans. Team is very confident, and I think the implementation is successful and without disruptions. Now the integrated business planning completed. This is already completed in June this year. So we have a new platform for planning and for the whole organization, critical to manage our complexity to include our commercial planning together with the supply planning. and, of course, be more accurate in our forecasting and our planning accuracy. The new -- we have new digital tools coming together with the new systems that are helping to optimizing our operations and workflow and processes. So this is critical. On the manufacturing upgrade, as I said before, the Stella Pack regranulation update is well on track. And of course, the whole project will be completed by Q4 2025. And I think this is critical as the investment is around EUR 15 million, and this investment is critical for making sure that our supply chain of garbage bags is one of the most competitive supply chains in Europe. And of course, having a fully recycling granulated materials for producing our garbage bags, which is a differentiator for us as well. Our [ Innovita ] plant because of the expansion of our Skin Care business and our export business of the sun care, we have another EUR 10 million investment program that is going to be completed by Q1 '26. But of course, the majority of that will be happening also this year, increasing our capacity for our Beauty and Skin and Sun Care sales. All of these CapEx investments are linking also our sustainability and ESG agenda, where energy efficiency is also critical for the business. And of course, all the automations around our plants in Greece and Poland are critical also to improve our productivity. On the ESG agenda, we have commitments. We are following through properly our agenda on delivering the commitments that we promised. Now we are in the position to validate with SBTi our near-term climate targets. Also, we are working on with the digital agenda to have a proper accurate and fast way of measuring our progress. So everybody will be accountable and dedicated to the delivery. We are working with the ratings right now, CDP and EcoVadis to get proper rating and also -- and this is also part of our agenda of ESG. So that's an introduction from my side with the basic numbers. I will hand over to Christos right now, Varsos, our CFO, to give us more detail about the numbers and the financial results. Christos Varsos: Thank you, Ioannis. Let me now provide some details behind the key numbers Ioannis described. Our net sales grew marginally compared to 2024 with focus on our core categories in Beauty Skin and Sun Care, which influenced favorably the mix of sales. I remind you that we are cycling a very strong half year 1 in 2024 when we had very hot summer across Europe, which was not the case this year for several of our countries. Our gross profit grew marginally with a gross profit margin remaining at 38.6%. EBITDA grew significantly by almost 16% to EUR 48.3 million, leveraging on the mix of categories of our core portfolio with strong growth, as mentioned, our beauty skin sun care category, supported by our export business, cost benefit from initial phase of commercial integration of Stella that was completed last year, while controlling OpEx overall in our business. EBITDA margin grew by 200 bps coming to 15.9%, plus EBIT at EUR 37.5 million, an 18% increase versus EUR 31.8 million last year and EBIT margin of 12.3%, an increase of 181 bps. Financial expenses in 2025 improved significantly following the early prepayment in the last quarter of 2024 of EUR 18 million of debt, combined with lower interest rates. We will continue prepaying early debt, supporting further improvement in our earnings per share. Following the improvement of financial expenses, our earnings before tax grew by 21% to EUR 36.5 million from EUR 30.1 million in 2024 and PBT margin grew by 200 bps to 12% from 9.9% last year. Net income, EUR 29.2 million, up by 20% versus EUR 24.3 million in 2024 and EPS at EUR 0.46, a 22% decrease to prior year of EUR 0.37. Moving now to our product categories, so you can understand more about the dynamics in the first 6 months of the year. Beauty, Skin and Sun Care. As we have already mentioned in our 5 years plan, achieving disproportional growth in the Beauty skin and sun care category is a key pillar where we build our organic growth strategy. In half year 1 2025, we grew by 22.7% to EUR 55 million, supported by our Sun Care sales that continued accelerating this year with the help also of our export business that Ioannis described. Category EBIT grew by 72% and EBIT margin by 800 bps to almost 29%, affected by the mix within the category. Personal Care. In terms of Personal Care, which is a core profit generator for us, we have a decline of 3.5% of net sales, as Ioannis described, compared to prior year, but EBIT grew by 13% to reach EUR 8.5 million EBIT with EBIT margin of 16.7%, an improvement of almost 250 bps compared to prior year. Home Care Solutions. Home Care Solutions declined by 2.9% to EUR 101.7 million, affected by pressure in some of our markets like Ukraine and West Balkans, which are mostly represented in this category. EBIT declined by EUR 1.5 million to EUR 11.1 million, largely affected by the sales and the [indiscernible] expenses of Stella supply chain as we are optimizing our supply chain network while continuing investing heavily. However, the real support and the benefits from these investments and from the optimization will be benefiting mostly 2026 rather than the current year. Private label sales were mainly impacted by continued rationalization of the private label product portfolio, especially in terms of Stella Pack products. We expect that the completion of our CapEx investments in the granulation lines will support us not only to be more cost efficient, but also will improve our overall competitiveness, both for our private label and branded portfolio. As mentioned in the past, we use private label on a tactical basis to absorb costs from branded business will over time increase branded business and decrease the private label portfolio. Strategic partnerships. Finally, in our strategic partnerships, we had a healthy performance, increasing our sales by 2%, while improving our EBIT by 9% to EUR 2.8 million, improving slightly also the margin. As mentioned in the past, we use the category for market leverage, and we are focusing in fewer and better relationships. For the total group, we had a solid net sales performance, reaching EUR 304 million of net sales. EBIT grew, as mentioned, by 18% to EUR 13.5 million, and EBIT margin grew by 180 bps to 12.3%. Now turning to our geographies. As discussed in the past, we wanted to share with the investor community the different dynamics outlining our performance. For Greece, we are splitting the sales between the domestic market and the exports to selected international markets. For Poland, we're splitting Poland between branded products and private label as this affects mainly the geography of Poland. Greece grew in total to EUR 97 -- almost EUR 98 million, an increase of almost 10%. In terms of EBIT, this grew by 56% to EUR 19.3 million and EBIT margin grew by 600 bps to 19.8%. If we look at the subsegments, Greece domestic business net sales showed a healthy growth rate, posting an increase of 3.5% despite citing a very strong half year 1 2024 due to Sun Care sales with an EBIT of EUR 12.1 million, a 32% increase to prior year and 15.1% margin, an improvement of more than 300 bps affected by mix of categories and cost control. In export markets, we grew by 53% to EUR 17.6 million and EBIT to EUR 7.2 million, which is more than double compared to prior year. As you see, exports have much higher EBIT of almost 41%, and that's why we strongly believe in this segment as an accelerator to our growth for our 5-year plan. In Poland, the total business had net sales of almost EUR 90 million, a 4.7% decrease versus prior year, with EBIT also declining affected by the private label portfolio. The branded portfolio grew by 1% to EUR 64.3 million, while EBIT decreased by 7.6%, coming to almost EUR 6 million, including also supply chain integration expenses, as already mentioned. Private label declined by 6.7% on the back of rationalization of contracts in the product portfolio, especially for Stella, with EBIT being similar to prior year. In other territories, we had a mixed picture driven by specifics in each country. Romania, as already mentioned by Ioannis, had a slower start this year with EUR 46 million of net sales, a decline of 5% versus prior year, cycling a strong performance in prior year. In terms of EBIT, Romania achieved almost EUR 7 million, representing a decline of 7% with flattish EBIT margin at 15%. Czech and Slovakia accelerated growth by adding 8% more net sales, reaching almost EUR 25 million with EBIT of EUR 3.4 million, a 23% increase to last year. In terms of EBIT margin, this improved by 160 bps, reaching 13.8% West Balkans showed a decline in the net sales of 4% to EUR 19 million, mainly impacted by the Serbian market with some arrest in the year and market pressure. However, in terms of EBIT delivery, West Balkans managed to grow EBIT by 5.6% to EUR 1.6 million and EBIT margin 8.6% with support from cost control. For Ukraine, it is a year of pressure in the results as identified already from our full year results discussion. However, Ukraine specifically was also impacted by the sale of Stella Ukraine completed at year-end. Stella Ukraine for the record had EUR 1.4 million of sales in half year 2024, EUR 100,000 EBIT. Without this impact, the net sales would be almost flat and the EBIT would be growing by 4.5%. As mentioned, we are working with resilience in Ukraine and expanding our portfolio outside the Home Care category, which is the key category for Ukraine, which still -- and still it is a leading business in the area. Moving now to our healthy and strong balance sheet. As we have discussed also in the past, we maintain a strong balance sheet, which can support our organic growth, the next steps on our transformation agenda and M&A activities. As of 30th of June, we had a net debt of EUR 32.8 million compared to EUR 43.9 million net debt as of 30th of June 2024. I remind you that due to the seasonality, our lowest net debt position -- our worst net debt position is on 30th of June, whereas the best is on 31st of December. Already today, today, I'm talking about today, 10th of September as we speak, our net debt has improved more than EUR 20 million compared to the June numbers, standing today at around EUR 12 million. Thus, by year-end, we should be again close to net cash position. During half 1, we have received the EUR 20.8 million installment from Estee Lauder with the final one expected for January 2028. As discussed also in the full year results, in the last quarter of 2024, we have made early debt prepayments of EUR 18 million, reducing our financing expenses. We have now committed and formed one of our lenders for EUR 5 million early prepayment to be executed next week and further enhancing further our earnings per share. In half 1 2025, we have generated free cash flow of EUR 13.4 million with our working capital improving compared to last year by 2.3 days. Enhancing our shareholder value is key for us. EPS reached EUR 0.46 from EUR 0.37 last year, an increase of more than 22%. During the first half, we paid dividend of EUR 20 million or EUR 0.31 per share, representing a 33.3% increase compared to the EUR 15 million paid last year. This represented a 43.5% payout ratio versus 38.2% payout ratio last year. And as you remember, as per our dividend policy, we said that floor or the minimum we're going to pay will be 38% and more. I would like now to provide an update on our CapEx for this year. We are assuming less CapEx this year with respect to the distribution center next to our Nova factory due to later commencement of the project. We are now in the competitive process to commission the construction company that will build it for us, so we expect to start within the next month. This will mean that only EUR 1.5 million from the EUR 7 million initially assumed will be spent this year and the remaining amount of EUR 5.5 million will be invested next year. The rest of CapEx remains the same as per our guidance back in March. Thus, our new CapEx expectation for 2025 is EUR 34.5 million from EUR 40 million we communicated earlier this year, while '26 -- 2026 will be EUR 35.5 million from EUR 30 million initially communicated. This will impact obviously favorably the free cash flow generation delivery by -- for full year 2025 by EUR 5.5 million. Finally, we would like also to update you on our 2025 outlook. We reiterate our 2025 profitability guidance. I remind you that our estimations for 2025 are EBITDA of EUR 92 million, improved by 12.7% versus 2024. EBIT to EUR 70 million improved by almost 3% versus 2024. For net sales, we now expect a growth of 2% versus 2024, which will bring our net sales for 2025 to EUR 612 million. Thank you. Operator: [Operator Instructions] The first question comes from the line of Svyrou Natalia with Eurobank Equities. Natalia Svyrou Svyriadi: I was wondering if you could -- if you have any indication on how we are -- exports are running into Q3 as we entered because we are talking about products that are summer care products. Should we assume that these are continuing also in Q3 and running rates are holding in this period also? And as I understand, with the expansion into Australia, we're trying to get the seasonality there. So maybe you could give us also an indication about the exports you are expecting in the other markets. And based on the experience you've already seen, what are you thinking? What numbers are you thinking there? That's one question. I also have a question again regarding exports. If you could remind us -- this is just a reminder, these are higher-margin products, higher margin actually and the products we are talking about. Could you remind us a range there? How much this boosts our EBIT line? Okay. These are the questions I have for now. Ioannis Bouras: Yes. Okay. On the export side, because, yes, Sun Care products is the majority of the growth coming for the export business. So the seasonality is critical. So until the first half of June of 2025, the majority of the sales are in -- so the second half of the year will not be the same, not the same momentum. Definitely, though, Australian business like Australia will help. But what we know is that it's not going to be near to the ones have in U.S. in the first half of the year. So you cannot put the same second 6 months for the exports. It's a slower pace, of course. And this is also helping, of course, the first half of the year from this category point of view. So just to remind you that last year, total year exports were EUR 19 million for the full year. And this first half is EUR 17.5 million, if I'm not mistaken, right? You said... Christos Varsos: EUR 16.5 million. Ioannis Bouras: EUR 16.5 million. So our expectation -- and also just to remind you, in the 5-year plan, we said that by 2028, we'll get to EUR 30 million. So it looks that this one is coming much faster. So the expectation of the year will be something a bit below -- in the area of EUR 24 million, EUR 25 million, right, just to give you the perspective. Christos Varsos: So practically, we'll bring this from 2028, most likely will be at this range in '26. Ioannis Bouras: But of course, you cannot expect the same rate of sales for the second half of the year because the majority still is in Northern Hemisphere is not in the South, is only in Australia in the South. So it's not enough to do the same. Now regarding the margin, I think Christos presented that the EBIT margin for export is around... Christos Varsos: 41%. Ioannis Bouras: 41%. So this is the accelerator from a profitability point of view, is presented in the presentation, right? So it is a margin that it is really accretive to the margin due to the structure that we have discussed in the past. So this brings much more. Natalia Svyrou Svyriadi: Okay. Great. Yes, I remember the margin around 30%. That's why I wanted to get this clear. Okay. Well, that's a good business coming in. Also, I wanted to ask something -- a follow-up. I just thought about that. Poland has been running, if I recall correctly, 1%, 1.5% on sales, the local market. But should we expect this to continue at this rate? Or should we see there -- not the private label products, the rest of the -- should we expect an acceleration there? It's one of your big markets. So I'm wondering how this should evolve? Ioannis Bouras: We're expecting to be higher. We don't have exactly the number to share with you right now. But of course, if you remember also because this is a general comment, this is not taking the opportunity because in the 5-year plan, we talk about 4.5% to 5% -- 4% to 5% growth, organic growth every year. So this year, what we said right now, we are guiding for 2% at the end of the year, including private label, including all the roles of the different categories. We are not changing the thinking and the mindset for the organic growth for the coming years. We believe that 2025 has been a little bit challenging in the sequence of some markets. And -- but we are not changing our strategy or say we are keeping our 5-year mindset and thinking behind the growth and organic growth. So we believe that -- and all the action plans we are taking in every country, in every category is to deliver these numbers. right? So what we are expecting coming to your question specifically is not only in Poland, but also in other markets that today showing a drop for the first half of the year to go back to growth and go closer to the numbers that we have in our 5-year plan. Operator: [Operator Instructions]. Christos Varsos: We can look at the questions that we have already received also in writing, so we can start answering that. And as if people want in the meantime, they can also continue asking questions. Operator: Okay. Great. There are no further audio questions. We will now accommodate any written questions from the webcast participants. The first written question comes from Iakovos Kourtesis with Piraeus Securities. And I quote, "What is your CapEx estimate for full year 2025?" Christos Varsos: We have actually, we included in the presentation. So as I said, we'll just -- we had EUR 40 million, now we have almost EUR 35 million, EUR 34.5 million. And we're only switching EUR 5 million to next year because of the later start of the distribution center in [ Nofta. ] So for this year, instead of EUR 40 million will be EUR 35 million, EUR 34.5 million. Next year instead of EUR 30 million will be... Operator: The next written question comes from [ Giorgio Andreopoulos ] with Piraeus Asset Management. They quote, "Given the slowdown in sales within the Personal Care segment, do you anticipate this trend continuing into the second half of the year and into 2026? Additionally, what strategies are you implementing to remain competitive in that market? Finally, should we expect any changes to the sales guidance provided in the Q1 report for this year or subsequent years, 2026, 2027 and 2028 sales growth of 5.5%. And what should we expect in terms of EBITDA margin in the medium term?" Ioannis Bouras: Now starting from the end, I think I said something before, but now I can reinforce, as we speak right now, we are keeping the 5-year plan and the guidance of the top line and the EBIT margins the same. Of course, this year is 1 year as we are moving on following the closure of the year in March and of course, the guidance for 2026, things can be a little bit -- but this is what we keep right now, haven't worked another plan. So that's the plan that we have. Of course, as you remember, it was doubling the EBITDA when we presented. So it's a strong and challenging plan. But this is what we keep and the mindset of the growth as a company, organic growth is still here with our strategy that we are implementing. Regarding the Personal Care specifically, I think I also -- Christos mentioned about the top line in the first half, but also the profitability growth. these categories are quite competitive, and we have strong plans behind to bring back to growth and of course, to even further grow in our coming years. So this is a continuous battle in the stores. And of course, with everybody participating in this category. So competitors in this category coming from new product, innovation, coming from promotional strategies, from advertising strategies, all this mix that is critical for all FMCG companies. So we are working on all these plans behind with our big brands and our hero brands in different markets or the whole region. Operator: The next question comes from Iakovos Kourtesis with Piraeus Securities. And I quote, "Do you expect the recent VAT rate increases in Romania as of 1st August 2025 to further affect demand in the country? Do you have a specific strategy to cope with this?" Ioannis Bouras: Definitely, any measurements that are affecting the consumer income, they are not positive for the market, right? But this is something is not only in Romania, but other markets have other measures. So the #1 priority for us is to be competitive and of course, adaptable to the new reality, and this is what we do. Competitiveness, meaning that you have to be aware about the consumer disposable income. And of course, what is your promotional strategy and how you're promoting your brands and taking every little opportunity from the market. This is the way we work. This is the way we worked before, and this is the way we keep working right now. So there is no magic recipe. There is one thing. We have to do multiple things right in order to compete. But definitely, things like that are affecting the consumer demand. This is for sure a reality. Operator: The next written question comes again from Iakovos Kourtesis with Piraeus Securities, and I quote, "Could you provide us with an update on the third quarter 2025 trading for specific international markets, Poland, Romania and Serbia. Do you see improved trends in these markets?" Ioannis Bouras: In the third quarter, of course, not ending. So September is a significant month for all these markets because it's true that July and August are months that are not heavy in terms of sales and, of course, of activities. So we have to wait to see the closure of September. But again, the things are not like they are on flying. There are, of course, continue there have been challenges in these markets, right? But of course, we still need to wait the closure of September. Christos Varsos: We're going to announce the third quarter end quarter in 24th of October or something like that. So we will have a full view on the September. And by then, we'll have also a portion of October. Operator: The next question comes from Emmanuel de Figueiredo with LBV Asset Management. And I quote, "Could you give more color on the seasonality of the business as skin and beauty grow more, does this mean the company become more have to weighted?" Christos Varsos: Thank you for the question. So if you remember the season in terms of seasonality, Q2 is a very strong period every year because of the sale of sun care. I remind you that we sell the sun, we start selling the sun. We produce it late in the year. Then first quarter, we actually send it to the stores and especially in the second quarter, then the stores sell it on the third quarter. So practically in every year, the first 6 months is the growth due to the sun care, which is seasonal, is much stronger. Obviously, we have seasonality at the year-end with gifting and with our selected business as well. But in terms of half 1, it is always the stronger pace in terms of growth of our revenue. In this respect, the duty scheme is growing, obviously, not only the Sun Care. So the Sun Care is what we're talking about. But as Ioannis already mentioned, we have the exports will be a slower growth on the second part of the year. So to your question, we're not becoming much more heavy half 2 weighted. We are still largely half 1 weighting. But again, this supports also the difference in the profitability. Operator: The next question is again from Emmanuel de Figueiredo with LBV Asset Management and I quote, "For 2025, should we expect a stronger second half than first half?" Christos Varsos: I think you have seen the first half and you have seen the guidance for profitability for the full year and for revenue. So in this terms, it is -- it's almost 50-50 in terms of net sales, if you think about it, EUR 304 million versus EUR 612 million. In terms of profitability, we maintain at the same pace. So I don't think that we're talking about stronger or less strong half 1. We mentioned about the exports and everything that continue growing, which improves also the EBIT margin. Operator: The next question comes from Georgia [indiscernible] Securities. And I quote, "Can you please elaborate on the reduction in your OpEx? Can you please discuss the impact of the changing product mix on your EBIT margin? Can you discuss your strategy on private label?" Ioannis Bouras: I think on the OpEx side, elaborate. I mean, all the investments that we started a few years ago, and of course, we are accelerating in 2025 with more digital investments and everything, including our way we do business. This is helping, of course, the cost of doing business, and that's one of the major objectives. And this is what we are doing. It's not a magic recipe, plus making an efficient organization. Of course, we can grow without increasing our costs. This is also critical from this side. This is meaning also we are challenging the way we do things. with new systems in place, we can challenge the way we did things in the past that were not that efficient. So efficiency in our business, meaning lower cost, right, definitely. Christos Varsos: It is a sequence of events as well. Don't forget that last year, we started integrating Stella, and we started getting the commercial integration, which has finished last year. So we're reaping the benefits now. Now we're doing the supply chain optimization, and we're actually controlling this, which you'll see much benefits coming in 2026. So the OpEx is not a drastic type of thing. It is -- we built on it, and we built the culture as well to be able to have this saving moving forward. Now... Ioannis Bouras: Product mix. Christos Varsos: Product mix. As you remember and we have discussed even in the 5-year plan, in our plan for organic growth over 5 years in order to double our EBITDA to EUR 120 million, we said that we want to disproportionately grow Beauty, Skin and Sun Care because this has the highest margin. And I think this 6 months is pretty obvious of this because we are improving largely in a product category that we're gaining large EBIT margins, whereas at the same time, we're rationalizing a category like the private label, which in terms, it didn't have a strong EBIT. So practically, we removed, if you think about it, we removed the balance that you see removed in private label really affected the bottom line. So this, you can see it going forward, and we believe that the acceleration also of the Beauty, Skin and Sun Care categories and the export, obviously, as discussed, will support very much the mix towards the direction that we've already communicated in the 5-year plan. Ioannis Bouras: On the private label because I think we said during the call, we said before private label in [indiscernible] is complementary to our supply chain as an activity. It is a big size. It's important for us for 2 things. One is fulfilling capacities and of course, keeping our competitiveness. On the other side, we are not going to build more capacity to serve private label. This is that we made it clear. And our objective is to build and grow our branded business over the years and gradually removing capacity from private label. Operator: The next question comes from Dimitris Giannoulis with Researchgreece and I quote, "What level of EBIT do you expect for the private label segment post rationalization? Which countries contributed in international sales in first half besides the U.S.?" Ioannis Bouras: In the EBIT of the private label, we don't expect to be -- it's going to be a single-digit EBIT, right? So this is positive. So this is going to happen. It's not going to change significantly our profitability because of the rationalization. Regarding the countries contributed national sales, we have countries like Middle East, Philippines, we have Australia and of course, we have some Middle East, as I said. And we have countries, the U.S. is a big part of the H1. Operator: The next question comes from John Kalogeropoulos with Beta Securities, and I quote, "What about further expansion abroad, examining any further opportunities?" Ioannis Bouras: Yes. I mean what we say internally, I mean, this is one of our growth pillars for the future, in line with our skin and beauty strategy that we have as a strategic pillar. And of course, some of the initiatives that we are doing in the markets are giving us the signal that our brands, whether it's skin care brands, Bioten, Clinea or our Sun Care brand, Carroten, they are well accepted by consumers in different markets because of the quality, because of the claims that we have, the seriousness behind the production and of course, the competitiveness in general. So as we speak right now, of course, we are scoping other markets around the world. Just to remind you, international business, meaning markets outside our territory, right? So whether markets can be in Western Europe can be an activation place for us, for our brands. And of course, accelerating markets like Australia and U.S. because U.S. we just started a year ago, less than a year ago. So we are having plans to expanding our distribution in the U.S. or bringing more products into the market, and we are well advanced with these plans for 2026. More news on that, we will have on -- either on October this year in the 9-month results or in the results of the year-end in March 2026. Operator: The next question comes from Bruno [indiscernible], and I quote, "The Romanian economy is currently slowing fast. What level of sales are you expecting for the full sales are you now estimating?" Ioannis Bouras: What we're estimating for the full year is to have a flat year for Romania or minus 1%. This is the number that we are looking at right now. Operator: The next question comes from Emmanuel de Figueiredo with LBV Asset Management and I quote, "How likely are you to perform any M&A? Do you have any open due diligence ongoing for bolt-on acquisitions?" Ioannis Bouras: Starting from the end, we have no any due diligence at this moment in time. From the M&A point of view, as you already know, Sarantis is always open and active on this field. As long as there are any targets that are in line with our strategy, where the strategy is in our categories that we operate in our markets that we operate here in the Eastern Europe and in our channels. So at this moment in time, we have no active due diligence process. But of course, there are opportunities out there, which may arise anytime soon or not. I don't know right now. I can't give you any information on that. Operator: The next question comes from [indiscernible] and I quote, "Anything in the M&A pipeline considering the potential return to net cash by year-end?" Christos Varsos: Starting from a net cash position, as you know, we are a cash flow generative business. Obviously, we have also committed debt and we have committed lines if we want to buy something. So in this sense, we have the framework, and we're actually in the market, as Ioannis described to have -- and we have things that we would like to buy. Obviously, they need to be -- wanted to be sold as well at a reasonable price. So in our strategy, we maintain and want to do bolt-on acquisitions. Obviously, it's a matter of timing. But we have all the capability internal and the funding to actually do larger things as well. Operator: The next question comes from John Kalogeropoulos with Beta Securities and I quote, "You mentioned lower CapEx and potential shareholders reward uptick. To what extent?" Christos Varsos: I mentioned lower CapEx, and I mentioned that we have higher free cash flow by EUR 5 million. What I mentioned as well was that we have a policy, a dividend policy that we're paying at least 38% of our net income as dividend. This year, when we saw also the profitability this year, we actually gave 43%, and that was the EUR 20 million. So it is not that it will be anything outside of our policy, and we'll continue making sure that we provide a good return to our shareholders and the good value for our shareholders. Operator: The next question comes from Bruno [indiscernible] and I quote, "Please explain what caused the large drop of sales in the private label segment. What is the outlook for sales in the private label market in second half?" Ioannis Bouras: I'll take the first part. I think we mentioned also while presenting that it has to do with rationalization of our contracts, especially of contracts, and we wanted to make sure that they actually are much more profitable. That's why you saw that despite the difference in the net sales line, practically nothing changed. So actually, we're doing -- we're removing the correct contracts out of the case. So... Christos Varsos: And also just to add here that some of the big customers that we have in private label, they have a bit of slowdown in sales as well. So we are not -- we are depending on also their activities in the private label. So this is also affecting. From the H2 on the private label, we don't expect any significant change versus H1. Maybe we expect things to improve. So we'll bring the level of sales minus 10% versus 2024. This is what we see right now. But of course, these things are changing right now. And of course, new discussions are happening in every -- with different types of customers for the year to go. Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you. Ioannis Bouras: I would like to thank you for participating in the call. I hope we explained and present our case properly. Thank you very much for the participation and the questions and talk to you soon in our future interactions, right? Christos Varsos: Looking forward for our next announcement in late quarter and obviously, to the continuous discussions with you, understanding more of our case and the execution of our 5-year plan. Thank you. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good evening.
James O'Shaughnessy: Buenos días and good morning to everyone today. A warm welcome to all those taking part in our half year 2025 results presentation. My name is James O'Shaughnessy, Investor Relations. The presentation today will be led by Inditex's CEO, Oscar Garcia Maceiras; our CFO, Andrés Sánchez; and Gorka García-Tapia, Director of Investor Relations. [Operator Instructions] Let's take the disclaimer as read. Over to you, Oscar. Oscar Maceiras: Good morning. Welcome to our results presentation. It's good to be with you all today. In the first half of 2025, we have again achieved a solid performance with satisfactory sales in a complex market environment and keeping strong levels of profitability. The efficient execution accomplished by our teams demonstrates the strength of Inditex's business model. This business model continues to be driven by our unique fashion proposition and increasingly optimized customer experience, our focus on sustainability and the quality and commitment of our teams. These factors continue to enhance our competitive differentiation. Our Spring Summer collections have been well received by customers. We had a satisfactory sales growth of 1.6%. Sales in constant currency increased by 5.1%. It's evident from the figures we are providing this morning that the execution of the business model has also been strong, reflected in the good gross margin performance and by disciplined cost control. At the bottom line, net income increased 0.8% to EUR 2.8 billion. This satisfactory performance has continued going into the second half of the year. Store and online sales in constant currency between the 1st of August and the 8th of September grew 9%. Our diversified presence across 214 markets in conjunction with a relatively low market penetration in most of these markets underpins our belief in the significant global growth opportunities we have ahead of us. This confidence comes from the fact that we have a unique model that permits us to build upon the increasing levels of differentiation we have seen in recent years. And now let's move to Andrés to go over the numbers. Andrés Sánchez Iglesias: Thanks, Oscar. As you have seen in the report released early this morning, Inditex executed in a very consistent manner in the first semester of 2025. Sales performed well at plus 1.6%. Furthermore, by actively managing our supply chain, we have been able to generate a very good gross margin performance. In line with what we saw in the first quarter results, operating expenses in the first half have been closely monitored. EBITDA in turn increased 1.5% to reach EUR 5.1 billion. And net income grew by 0.8% to EUR 2.8 billion. On the top line, I'll point out that sales reached 1.6% to reach EUR 18.4 billion. In constant currency, that translates to 5.1%. We saw consistent growth in sales in our integrated model across both channels. At current exchange rates, we expect a minus 4% top line currency impact for the full year 2025. We enjoy a presence in 214 markets as well as a low market share in the vast majority of these markets. It should also be pointed out that the sector as a whole continues to be very fragmented. It is due to these factors that we see continued growth for Inditex over the medium to long term. In constant currency, all geographical areas had a positive sales evolution. In the first half of 2025, gross profit increased 1.5% to reach EUR 10.7 billion. The gross margin reached 58.3%. This gross margin performance serves as a demonstration of the good execution of the business model over the period despite a challenging market environment. Based on the data we have at our disposal right now, for the full year 2025, we expect a stable gross margin of plus/minus 50 basis points. As you can see throughout the half year, we have been able to maintain firm control over operating expenses across the business. Operating expenses increased 2.2% in the first 6 months of 2025. It is worth highlighting that the PBT margin came in at 19.6%. Operating working capital remains negative as a result of the business model. The development of operating working capital is very much aligned with the performance of the business over the period, as you would expect. In conjunction with the satisfactory operating performance we have seen in the first semester Inditex's inventory as of the 31st of July was 3% higher. It is important to note that the closing inventory at the end of the trading period was of high quality. As you can see from this slide, we continue to generate very strong levels of cash flow. Funds from operations increased 5% to EUR 3.7 billion. Capital expenditure reached EUR 1.3 billion, reflecting the ordinary and extraordinary investments in 2025, focused on ensuring future growth. Cash flow in the period was impacted by the calendar of payments coming from the normalization of supply chain conditions over the last year relating to the Red Sea. And now over to you, Gorka. Gorka Yturriaga: Thank you, Andrés. As Oscar and Andrés have alluded to already, we are content with the performance of the group in the first half of 2025 and with the overall execution of the model over the period. The global rollout of the optimization program continues to take place. As per usual, we are, of course, referring to new store openings, refurbishments, enlargements and absorptions. It may interest you to know that sales in constant currency have been positive across all concepts over the period. To give you a taste of what we've been doing in the first 6 months of this year, Inditex opened stores in 35 different markets all across the globe. Each of the concepts with no exception, are participating in the global growth plan. We continue to expand our concepts into new markets. Stradivarius entered Austria in July with a store in Vienna. Tomorrow, 11th of September, Oysho opens its first store in the Netherlands in Amsterdam, Kalverstraat. Finally, Manchester Trafford Centre is a good example of our active store optimization program. Taking advantage of a large real estate opportunity, Zara and Pull&Bear have all relocated to new stores with larger footprints, while Bershka has opened its first store in the mall. We'll go into more detail as to some of these activities shortly. And now back to you, Oscar. Oscar Maceiras: Thank you, Gorka. Our objective has always been to continually strengthen and reinforce the key pillars of our highly integrated business model. As has always been the case, our first priority is to enhance the appeal of our commercial proposition. After all, it is the creativity, innovation, design and quality of our collections that will determine our success going forward. Thanks to our more than 700 designers and our prototype teams, every meticulous detail in the design process is taken care of, enabling us to offer the highest quality fashion to customers in all corners of the globe. The end result of our unique approach is the integration of the physical with the online experience in a seamless manner that permits us across multiple formats to rapidly react to changing fashion trends and offer the latest collections. With our integrated store and online model, our teams have been able to take advantage of the growth opportunities we see across all channels, concepts and markets. Underlining this consistent level of growth are the new openings, enlargements and the refurbishments of stores in the very best locations, expanding into new cities and into new territories and launching new services that enhance the customers' shopping experience. As Gorka has already mentioned, in August, Zara relocated to a new store in Manchester Trafford, which has dedicated spaces for our collections, including Zara Athleticz, which offers customers a sportwear fashion for them. Another example is the recent reopening of our store in Madrid Serrano. This iconic location includes our third The Apartment, a new way of interacting with our customers. Also available in Compostela Coruña and [indiscernible] Paris that offers the premium part of our Zara and Zara Home collections in a highly curated way. The rollout of the soft-tag program at Zara was completed last year. This program adds to the existing in-store technology ecosystem with Click & Collect silos, assisted checkouts and drop-off points and sorters. We are using this as a springboard for the further integration of the online platforms with our increasingly digitalized stores for the years to come. The technology is being rolled out currently in Bershka and Pull&Bear. Within the bringyourbag initiative and thanks to the reuse of shopping bags by our customers, we have reduced their consumption in our stores by 49%. We are investing the equivalent full amount raised from charging for recycled paper bags and envelopes in environmental projects in over 30 countries, in partnership with non-profit organizations such as Conservation International and WWF. Recently, we have formalized a new program, in collaboration with the international environmental organization, Ocean Conservancy, aimed at the protection of marine ecosystems and biodiversity. This agreement, endowed by Inditex, includes the removal of more than 450 tonnes of plastics from beaches and areas of high environmental value, the collection of nets and fishing gear abandoned in the oceans and the promotion of zero waste projects for the collection and recovery of waste. With a view to Inditex's long-term growth potential, in the current year, we are planning investments that will scale our capabilities, generate efficiencies and increase our competitive differentiation. The growth of annual gross space in the period 2025 to 2026 is expected to be around 5%. Over this same time period, Inditex expects net space to be positive along with strong online sales. For 2025, we estimate ordinary capital expenditure of approximately EUR 1.8 billion. We continue to focus the ordinary capital expenditure on our global store base, the online platform and the rollout of technology programs aimed at enhancing the level of integration. As we have already shared in recent results presentations, given our view on Inditex's strong long-term growth opportunities, we are in the process of executing the logistics expansion plan set for 2024 and 2025. This 2-year extraordinary investment program, focusing on the expansion of the business allocates EUR 900 million per year to increase logistic capacities in each of the 2024 and 2025 financial years. The logistics expansion plan is on track. The Zaragoza II I distribution center is now up and running. Our centers have the highest standards of sustainability and cutting-edge technology. We focus on productivity and team well-being. In July, Inditex invested in Theker Robotics, a start-up developing AI-driven logistics automation. A brief reminder on the dividend. The final dividend payment for 2024 of EUR 0.84 per share will be made on the 3rd of November 2025. I would like to finish with a comment on our current performance. Autumn/Winter collections continue to be very well received by our customers. Store and online sales in constant currency increased 9% between the 1st of August and the 8th of September 2025 versus the same time period of 2024. Thank you all for attending this results presentation. That concludes our presentation for today. We will be happy to answer any questions you may have. James O'Shaughnessy: [Operator Instructions] The first question comes from Geoff Lowery from Redburn. Geoff Lowery: It's not often that Inditex comments on markets, but you've used the interesting phrase of complex. Can you help us understand more exactly what you mean by that? Is it what you're seeing from the consumer? Is it a comment on supply chain or tariffs? Sort of just help us understand this a little bit more, please. Gorka Yturriaga: Thank you, Geoff. No, I mean, when we are talking about market and challenging conditions, we're really talking about the market as a whole. So you think of, for example, the tariffs and the trade wars and the consequence of the FX swings that we've seen over the period. So we're really just highlighting that. In any case, what we are also liking to mention is the fact that as you've seen the performance of the group in the quarter and the resulting gross margin, which we think is a good reflection of the strong execution of the unique business model that we have, we've been able to somehow overcome all of those headwinds. Thank you. James O'Shaughnessy: The next question comes from Anne Critchlow from Berenberg. Anne Critchlow: I had a question on Lefties because I believe it's stepping up expansion at this point. And I'm just wondering if there are any regions or countries where you think Lefties wouldn't be relevant and which countries and regions are the focus of store openings in the short to medium term? Gorka Yturriaga: Great. Thank you, Anne. I mean with regards to Lefties, we've talked about the fact that it already has an international presence. It originated with more focus in its heritage markets of Spain, Portugal and also Mexico. Currently, it has presence in 18 markets, and we are testing Lefties in a series of other markets. We've also reported today, as you've seen in the note, that Lefties currently has 210 stores versus last year's store count, which was about 198 stores. So we're just growing as we are with all concepts with a lot of opportunities that we see on a project-by-project basis. Thank you. James O'Shaughnessy: The next question comes from Monique Pollard from Citi. Monique Pollard: My question is just coming back to this point of the strength of the gross margin in the second quarter or stability over the first half. I guess, as you point out, given the headwinds from the tariffs, et cetera, that has come in quite a bit better than expected. Just wondered if you could talk a bit about what you have done to manage the tariff impact, if there have been some consumer-focused price increases in the U.S., negotiations with suppliers, et cetera. Gorka Yturriaga: Thank you, Monique. Great. So with regards to tariffs, I think, first of all, I'd like to say that the current environment is difficult to predict, and we're, of course, continuously monitoring the situation, and it's quite fluid. We generally feel that as a company, we have 3 key tools at our disposal. And I think we've talked about this in the past. First of all, you have to consider that we are a global company and, therefore, we have a lot of experience with related to tariff regimes and changes of tariff regimes. The second one is one point that we always highlight that we have a very broad-based diversification, both in terms of sales as well as in the sourcing. And I think this is a great advantage for us to manage all of these issues. And then finally, of course, the flexibility of the business model, which is also leveraged on that proximity sourcing that we always highlight. I think that with regards to the tariffs in the U.S. specifically, we have a stable pricing policy that we're always talking about. And of course, all pricing activity, be it in the U.S. or any other geography is primarily driven by commercial decisions, not financial ones. And what we try to do in every market is maintain our relative position. So with all that in mind, we're quite confident with regards to the gross margin guidance for the year of plus/minus 50 basis points. James O'Shaughnessy: The next question comes from Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: I guess if you could talk a little bit about online versus stores. Clearly, last couple of years, online has been growing considerably faster than stores. Do you think that is to continue? And as a result of the space growth we see this year is a good proxy for the medium term as well, please? Gorka Yturriaga: Great. Thank you, Sreedhar. As you know, we have a fully integrated business model. And the reason I mentioned this is because it's difficult to think of online growth without the physical store presence. So you really have to see it as a whole and not try to separate both channels as for us, really, we feel that it is one a consequence of the other. If you think of, for example, online sales without a store or store sales without online, it's difficult for us because of that fully integrated business model. I think what you should consider is that we continue growing and we see great opportunities of growth in both channels, in all markets and throughout all concepts. James O'Shaughnessy: The next question comes from Warwick Okines from BNP. Alexander Richard Okines: Perhaps you could just talk a bit more about the growth in the Americas region in the half. And in particular, just going back to March 2023 when you said that you'd have at least 30 expansion projects in the U.S. over 3 years. Are you on track to meet that number? Oscar Maceiras: Thanks for the question. Well, the growth of the group is broad-based across all regions and concepts. And as you know, in the U.S., it's a very relevant market for us, and we continue to see opportunities to keep on executing that strategy of selective growth in the market. In 2025, we remain very active in the U.S. In June, for instance, we relocated to a new flagship store in L.A., The Grove with significant more space and upgraded customer experience. Some additional projects have already been executed, including another openings, Boston CambridgeSide Mall or relocations, New York Hudson Yards. More projects for the rest of the year will be new openings, Las Vegas Forum Shops at Caesars. Our new Zara Man stand-alone store in Costa Mesa. Or enlargements like Boston Newbury or Austin, Texas. For 2026, we are planning very relevant initiatives, refurbishments in iconic stores like New York Fifth Avenue, new openings for instance, the 400 Post Street, our new flagship store in San Francisco or the opening of the store in Charlotte that will imply the opening of our state #26 with stores in the U.S. And of course, all of them combined with solid -- very solid performance of our online platform in the states. We keep on exploring new opportunities for sure in the market for our different formats. Thank you. James O'Shaughnessy: The next question comes from James Grzinic from Jefferies. James Grzinic: Congratulations. Just had a quick one. I appreciate your guidance around gross margin. But I was wondering, when I think about the timing of supply chain cost deflation, FX tailwind building on sourcing, product cost deflation, should I be thinking that these start property building in the current autumn/winter ranges that are hitting the stores now? I would be curious on your thoughts about that dynamic and the timing of that, please? Gorka Yturriaga: Great. No, that's a good question. I think from our perspective, what we see is that, in general, the demand of our collection has always been driven by the ability of us to be able to execute the business model. And so that's how we're thinking about the second half of the year. I get your point with regards to, for example, FX, but you have to also consider that though we do have a sourcing in U.S. dollar, we have somewhat of a natural hedge on the sales side as well, which is what gives us a little bit of a confidence when we're talking about a stable gross margin of plus/minus 50 basis points. Thank you. James O'Shaughnessy: The next question comes from Richard Chamberlain from RBC. Richard Chamberlain: I just had a question on working capital, please. I wondered if you could just explain the drivers of the working capital outflow that you've seen in the first half in the cash flow statement, in particular, the change in current liabilities, it's an EUR 811 million cash outflow by the looks of it in the first half. Andrés Sánchez Iglesias: Thank you for your question. As we explained during the presentation, this decline was driven primarily by the normalization of our supply chain conditions over the last year related to the Red Sea. So this has led to more normal payments during the period compared to the same period of last year. And this is, as we had explained during fiscal year 2024 results, would also explain why inventory levels have also fluctuated over the last 2 years, a slight shift in timing. This impact will normalize next year. Thank you. James O'Shaughnessy: We're going to move over to the webcast questions now. There's a couple of questions -- a few questions we've had today. The first of which relates to the new flagship store in Manchester. You recently opened a new flagship store in Manchester. Can you give us some color on this and your general view on the U.K., please? Oscar Maceiras: Thanks for the question. Well, the U.K. is, of course, a very relevant market for us. We continue to see very good opportunities to keep on growing both for Zara and the other concepts in different locations. After recent relevant projects in cities like Liverpool or Birmingham and our recent flagship stores for Pull&Bear, Massimo Dutti, and Oysho in Oxford Street, London, we have taken advantage of our large real estate opportunity in Manchester Trafford Centre, as we mentioned during the presentation. And this opportunity is allowing us to expand our Zara store over 40%, relocate Pull&Bear, open Bershka; and in the coming months, also to relocate our Stradivarius store. The experience of our customers has significantly improved as we are offering our different collections with a state-of-the-art technology that includes silos for online orders and returns and assisted checkout areas. For 2026, we will continue to be very active in the U.K. with plans, for instance, to refurbish some of our iconic stores in London, such as our Zara stores in Bond Street and Brompton Road. Thank you. James O'Shaughnessy: Thank you, Oscar. The next question on the webcast platform relates more to the younger concepts. Can you explain why some of the younger concepts have been growing quite so strongly recently, provide some color. Oscar Maceiras: Thank you. Well, we are happy with the performance of our different concepts, of course, including Zara. Our other concepts are performing very well with the ambition of further diversifying our customer base and our product offering. We continue to see additional good opportunities to expand their presence in new markets. We have just mentioned during our presentation 2 examples, the arrival of Stradivarius and Oysho to Austria and the Netherlands with the opening of our new stores in Donauzentrum, Vienna and Kalverstraat, Amsterdam. Another example is Denmark for Bershka that is about to open its first store in that market after having a very positive feedback in recent openings of the first stores in Sweden and India. James O'Shaughnessy: The next question relates more to the technology systems within the stores. Can you provide some more detail on the store technology ecosystem, including sorters, please? Oscar Maceiras: As we have mentioned during the call, we are executing many projects to improve the customer experience in our stores, thanks to the rollout of soft-tag technology. Some of these projects involve customer-facing technology like assisted checkouts, Click & Collect and drop-off points. Customers feedback, as I have just mentioned, with the example of Manchester Trafford has been very positive with an increasing level of adoption in the different markets. We are also introducing technology that impacts and improves the experience of our team behind the scenes in the stores. And one of these technologies, which we are rolling out in the stores are our sorters that support some processes that are key in order to make as quick as possible available to customers products that are temporarily outside the commercial floor in the stock rooms or fitting rooms or when new products arrive. James O'Shaughnessy: The next question on the webcast platform relates to the trading update. We had a good trading update of 9% going into the second half of the year. Can you provide some color on this, please? Oscar Maceiras: Thanks for the question. Well, I guess that's obvious that we are seeing a positive evolution throughout the year. First quarter plus 4% in constant currency; second quarter, plus 6% in constant currency. And this morning, we are providing a trading update for the first 5 weeks of the third quarter, plus 9% that reflects an acceleration of the sales. We remain confident about the year ahead and, as always, focused on increasing the differentiation of the business model. The results that we have announced this morning demonstrate the strength of the model that, as we mentioned, in a complex environment keeps with high levels of profitability. James O'Shaughnessy: Thank you. And that concludes the webcast questions for today. Oscar Maceiras: Thank you to all of those participating in the presentation today. For any additional questions you may have, please get in touch with our Investor Relations department, and we will welcome you back in December for the 9 months 2025 results.
James O'Shaughnessy: Buenos días and good morning to everyone today. A warm welcome to all those taking part in our half year 2025 results presentation. My name is James O'Shaughnessy, Investor Relations. The presentation today will be led by Inditex's CEO, Oscar Garcia Maceiras; our CFO, Andrés Sánchez; and Gorka García-Tapia, Director of Investor Relations. [Operator Instructions] Let's take the disclaimer as read. Over to you, Oscar. Oscar Maceiras: Good morning. Welcome to our results presentation. It's good to be with you all today. In the first half of 2025, we have again achieved a solid performance with satisfactory sales in a complex market environment and keeping strong levels of profitability. The efficient execution accomplished by our teams demonstrates the strength of Inditex's business model. This business model continues to be driven by our unique fashion proposition and increasingly optimized customer experience, our focus on sustainability and the quality and commitment of our teams. These factors continue to enhance our competitive differentiation. Our Spring Summer collections have been well received by customers. We had a satisfactory sales growth of 1.6%. Sales in constant currency increased by 5.1%. It's evident from the figures we are providing this morning that the execution of the business model has also been strong, reflected in the good gross margin performance and by disciplined cost control. At the bottom line, net income increased 0.8% to EUR 2.8 billion. This satisfactory performance has continued going into the second half of the year. Store and online sales in constant currency between the 1st of August and the 8th of September grew 9%. Our diversified presence across 214 markets in conjunction with a relatively low market penetration in most of these markets underpins our belief in the significant global growth opportunities we have ahead of us. This confidence comes from the fact that we have a unique model that permits us to build upon the increasing levels of differentiation we have seen in recent years. And now let's move to Andrés to go over the numbers. Andrés Sánchez Iglesias: Thanks, Oscar. As you have seen in the report released early this morning, Inditex executed in a very consistent manner in the first semester of 2025. Sales performed well at plus 1.6%. Furthermore, by actively managing our supply chain, we have been able to generate a very good gross margin performance. In line with what we saw in the first quarter results, operating expenses in the first half have been closely monitored. EBITDA in turn increased 1.5% to reach EUR 5.1 billion. And net income grew by 0.8% to EUR 2.8 billion. On the top line, I'll point out that sales reached 1.6% to reach EUR 18.4 billion. In constant currency, that translates to 5.1%. We saw consistent growth in sales in our integrated model across both channels. At current exchange rates, we expect a minus 4% top line currency impact for the full year 2025. We enjoy a presence in 214 markets as well as a low market share in the vast majority of these markets. It should also be pointed out that the sector as a whole continues to be very fragmented. It is due to these factors that we see continued growth for Inditex over the medium to long term. In constant currency, all geographical areas had a positive sales evolution. In the first half of 2025, gross profit increased 1.5% to reach EUR 10.7 billion. The gross margin reached 58.3%. This gross margin performance serves as a demonstration of the good execution of the business model over the period despite a challenging market environment. Based on the data we have at our disposal right now, for the full year 2025, we expect a stable gross margin of plus/minus 50 basis points. As you can see throughout the half year, we have been able to maintain firm control over operating expenses across the business. Operating expenses increased 2.2% in the first 6 months of 2025. It is worth highlighting that the PBT margin came in at 19.6%. Operating working capital remains negative as a result of the business model. The development of operating working capital is very much aligned with the performance of the business over the period, as you would expect. In conjunction with the satisfactory operating performance we have seen in the first semester Inditex's inventory as of the 31st of July was 3% higher. It is important to note that the closing inventory at the end of the trading period was of high quality. As you can see from this slide, we continue to generate very strong levels of cash flow. Funds from operations increased 5% to EUR 3.7 billion. Capital expenditure reached EUR 1.3 billion, reflecting the ordinary and extraordinary investments in 2025, focused on ensuring future growth. Cash flow in the period was impacted by the calendar of payments coming from the normalization of supply chain conditions over the last year relating to the Red Sea. And now over to you, Gorka. Gorka Yturriaga: Thank you, Andrés. As Oscar and Andrés have alluded to already, we are content with the performance of the group in the first half of 2025 and with the overall execution of the model over the period. The global rollout of the optimization program continues to take place. As per usual, we are, of course, referring to new store openings, refurbishments, enlargements and absorptions. It may interest you to know that sales in constant currency have been positive across all concepts over the period. To give you a taste of what we've been doing in the first 6 months of this year, Inditex opened stores in 35 different markets all across the globe. Each of the concepts with no exception, are participating in the global growth plan. We continue to expand our concepts into new markets. Stradivarius entered Austria in July with a store in Vienna. Tomorrow, 11th of September, Oysho opens its first store in the Netherlands in Amsterdam, Kalverstraat. Finally, Manchester Trafford Centre is a good example of our active store optimization program. Taking advantage of a large real estate opportunity, Zara and Pull&Bear have all relocated to new stores with larger footprints, while Bershka has opened its first store in the mall. We'll go into more detail as to some of these activities shortly. And now back to you, Oscar. Oscar Maceiras: Thank you, Gorka. Our objective has always been to continually strengthen and reinforce the key pillars of our highly integrated business model. As has always been the case, our first priority is to enhance the appeal of our commercial proposition. After all, it is the creativity, innovation, design and quality of our collections that will determine our success going forward. Thanks to our more than 700 designers and our prototype teams, every meticulous detail in the design process is taken care of, enabling us to offer the highest quality fashion to customers in all corners of the globe. The end result of our unique approach is the integration of the physical with the online experience in a seamless manner that permits us across multiple formats to rapidly react to changing fashion trends and offer the latest collections. With our integrated store and online model, our teams have been able to take advantage of the growth opportunities we see across all channels, concepts and markets. Underlining this consistent level of growth are the new openings, enlargements and the refurbishments of stores in the very best locations, expanding into new cities and into new territories and launching new services that enhance the customers' shopping experience. As Gorka has already mentioned, in August, Zara relocated to a new store in Manchester Trafford, which has dedicated spaces for our collections, including Zara Athleticz, which offers customers a sportwear fashion for them. Another example is the recent reopening of our store in Madrid Serrano. This iconic location includes our third The Apartment, a new way of interacting with our customers. Also available in Compostela Coruña and [indiscernible] Paris that offers the premium part of our Zara and Zara Home collections in a highly curated way. The rollout of the soft-tag program at Zara was completed last year. This program adds to the existing in-store technology ecosystem with Click & Collect silos, assisted checkouts and drop-off points and sorters. We are using this as a springboard for the further integration of the online platforms with our increasingly digitalized stores for the years to come. The technology is being rolled out currently in Bershka and Pull&Bear. Within the bringyourbag initiative and thanks to the reuse of shopping bags by our customers, we have reduced their consumption in our stores by 49%. We are investing the equivalent full amount raised from charging for recycled paper bags and envelopes in environmental projects in over 30 countries, in partnership with non-profit organizations such as Conservation International and WWF. Recently, we have formalized a new program, in collaboration with the international environmental organization, Ocean Conservancy, aimed at the protection of marine ecosystems and biodiversity. This agreement, endowed by Inditex, includes the removal of more than 450 tonnes of plastics from beaches and areas of high environmental value, the collection of nets and fishing gear abandoned in the oceans and the promotion of zero waste projects for the collection and recovery of waste. With a view to Inditex's long-term growth potential, in the current year, we are planning investments that will scale our capabilities, generate efficiencies and increase our competitive differentiation. The growth of annual gross space in the period 2025 to 2026 is expected to be around 5%. Over this same time period, Inditex expects net space to be positive along with strong online sales. For 2025, we estimate ordinary capital expenditure of approximately EUR 1.8 billion. We continue to focus the ordinary capital expenditure on our global store base, the online platform and the rollout of technology programs aimed at enhancing the level of integration. As we have already shared in recent results presentations, given our view on Inditex's strong long-term growth opportunities, we are in the process of executing the logistics expansion plan set for 2024 and 2025. This 2-year extraordinary investment program, focusing on the expansion of the business allocates EUR 900 million per year to increase logistic capacities in each of the 2024 and 2025 financial years. The logistics expansion plan is on track. The Zaragoza II I distribution center is now up and running. Our centers have the highest standards of sustainability and cutting-edge technology. We focus on productivity and team well-being. In July, Inditex invested in Theker Robotics, a start-up developing AI-driven logistics automation. A brief reminder on the dividend. The final dividend payment for 2024 of EUR 0.84 per share will be made on the 3rd of November 2025. I would like to finish with a comment on our current performance. Autumn/Winter collections continue to be very well received by our customers. Store and online sales in constant currency increased 9% between the 1st of August and the 8th of September 2025 versus the same time period of 2024. Thank you all for attending this results presentation. That concludes our presentation for today. We will be happy to answer any questions you may have. James O'Shaughnessy: [Operator Instructions] The first question comes from Geoff Lowery from Redburn. Geoff Lowery: It's not often that Inditex comments on markets, but you've used the interesting phrase of complex. Can you help us understand more exactly what you mean by that? Is it what you're seeing from the consumer? Is it a comment on supply chain or tariffs? Sort of just help us understand this a little bit more, please. Gorka Yturriaga: Thank you, Geoff. No, I mean, when we are talking about market and challenging conditions, we're really talking about the market as a whole. So you think of, for example, the tariffs and the trade wars and the consequence of the FX swings that we've seen over the period. So we're really just highlighting that. In any case, what we are also liking to mention is the fact that as you've seen the performance of the group in the quarter and the resulting gross margin, which we think is a good reflection of the strong execution of the unique business model that we have, we've been able to somehow overcome all of those headwinds. Thank you. James O'Shaughnessy: The next question comes from Anne Critchlow from Berenberg. Anne Critchlow: I had a question on Lefties because I believe it's stepping up expansion at this point. And I'm just wondering if there are any regions or countries where you think Lefties wouldn't be relevant and which countries and regions are the focus of store openings in the short to medium term? Gorka Yturriaga: Great. Thank you, Anne. I mean with regards to Lefties, we've talked about the fact that it already has an international presence. It originated with more focus in its heritage markets of Spain, Portugal and also Mexico. Currently, it has presence in 18 markets, and we are testing Lefties in a series of other markets. We've also reported today, as you've seen in the note, that Lefties currently has 210 stores versus last year's store count, which was about 198 stores. So we're just growing as we are with all concepts with a lot of opportunities that we see on a project-by-project basis. Thank you. James O'Shaughnessy: The next question comes from Monique Pollard from Citi. Monique Pollard: My question is just coming back to this point of the strength of the gross margin in the second quarter or stability over the first half. I guess, as you point out, given the headwinds from the tariffs, et cetera, that has come in quite a bit better than expected. Just wondered if you could talk a bit about what you have done to manage the tariff impact, if there have been some consumer-focused price increases in the U.S., negotiations with suppliers, et cetera. Gorka Yturriaga: Thank you, Monique. Great. So with regards to tariffs, I think, first of all, I'd like to say that the current environment is difficult to predict, and we're, of course, continuously monitoring the situation, and it's quite fluid. We generally feel that as a company, we have 3 key tools at our disposal. And I think we've talked about this in the past. First of all, you have to consider that we are a global company and, therefore, we have a lot of experience with related to tariff regimes and changes of tariff regimes. The second one is one point that we always highlight that we have a very broad-based diversification, both in terms of sales as well as in the sourcing. And I think this is a great advantage for us to manage all of these issues. And then finally, of course, the flexibility of the business model, which is also leveraged on that proximity sourcing that we always highlight. I think that with regards to the tariffs in the U.S. specifically, we have a stable pricing policy that we're always talking about. And of course, all pricing activity, be it in the U.S. or any other geography is primarily driven by commercial decisions, not financial ones. And what we try to do in every market is maintain our relative position. So with all that in mind, we're quite confident with regards to the gross margin guidance for the year of plus/minus 50 basis points. James O'Shaughnessy: The next question comes from Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: I guess if you could talk a little bit about online versus stores. Clearly, last couple of years, online has been growing considerably faster than stores. Do you think that is to continue? And as a result of the space growth we see this year is a good proxy for the medium term as well, please? Gorka Yturriaga: Great. Thank you, Sreedhar. As you know, we have a fully integrated business model. And the reason I mentioned this is because it's difficult to think of online growth without the physical store presence. So you really have to see it as a whole and not try to separate both channels as for us, really, we feel that it is one a consequence of the other. If you think of, for example, online sales without a store or store sales without online, it's difficult for us because of that fully integrated business model. I think what you should consider is that we continue growing and we see great opportunities of growth in both channels, in all markets and throughout all concepts. James O'Shaughnessy: The next question comes from Warwick Okines from BNP. Alexander Richard Okines: Perhaps you could just talk a bit more about the growth in the Americas region in the half. And in particular, just going back to March 2023 when you said that you'd have at least 30 expansion projects in the U.S. over 3 years. Are you on track to meet that number? Oscar Maceiras: Thanks for the question. Well, the growth of the group is broad-based across all regions and concepts. And as you know, in the U.S., it's a very relevant market for us, and we continue to see opportunities to keep on executing that strategy of selective growth in the market. In 2025, we remain very active in the U.S. In June, for instance, we relocated to a new flagship store in L.A., The Grove with significant more space and upgraded customer experience. Some additional projects have already been executed, including another openings, Boston CambridgeSide Mall or relocations, New York Hudson Yards. More projects for the rest of the year will be new openings, Las Vegas Forum Shops at Caesars. Our new Zara Man stand-alone store in Costa Mesa. Or enlargements like Boston Newbury or Austin, Texas. For 2026, we are planning very relevant initiatives, refurbishments in iconic stores like New York Fifth Avenue, new openings for instance, the 400 Post Street, our new flagship store in San Francisco or the opening of the store in Charlotte that will imply the opening of our state #26 with stores in the U.S. And of course, all of them combined with solid -- very solid performance of our online platform in the states. We keep on exploring new opportunities for sure in the market for our different formats. Thank you. James O'Shaughnessy: The next question comes from James Grzinic from Jefferies. James Grzinic: Congratulations. Just had a quick one. I appreciate your guidance around gross margin. But I was wondering, when I think about the timing of supply chain cost deflation, FX tailwind building on sourcing, product cost deflation, should I be thinking that these start property building in the current autumn/winter ranges that are hitting the stores now? I would be curious on your thoughts about that dynamic and the timing of that, please? Gorka Yturriaga: Great. No, that's a good question. I think from our perspective, what we see is that, in general, the demand of our collection has always been driven by the ability of us to be able to execute the business model. And so that's how we're thinking about the second half of the year. I get your point with regards to, for example, FX, but you have to also consider that though we do have a sourcing in U.S. dollar, we have somewhat of a natural hedge on the sales side as well, which is what gives us a little bit of a confidence when we're talking about a stable gross margin of plus/minus 50 basis points. Thank you. James O'Shaughnessy: The next question comes from Richard Chamberlain from RBC. Richard Chamberlain: I just had a question on working capital, please. I wondered if you could just explain the drivers of the working capital outflow that you've seen in the first half in the cash flow statement, in particular, the change in current liabilities, it's an EUR 811 million cash outflow by the looks of it in the first half. Andrés Sánchez Iglesias: Thank you for your question. As we explained during the presentation, this decline was driven primarily by the normalization of our supply chain conditions over the last year related to the Red Sea. So this has led to more normal payments during the period compared to the same period of last year. And this is, as we had explained during fiscal year 2024 results, would also explain why inventory levels have also fluctuated over the last 2 years, a slight shift in timing. This impact will normalize next year. Thank you. James O'Shaughnessy: We're going to move over to the webcast questions now. There's a couple of questions -- a few questions we've had today. The first of which relates to the new flagship store in Manchester. You recently opened a new flagship store in Manchester. Can you give us some color on this and your general view on the U.K., please? Oscar Maceiras: Thanks for the question. Well, the U.K. is, of course, a very relevant market for us. We continue to see very good opportunities to keep on growing both for Zara and the other concepts in different locations. After recent relevant projects in cities like Liverpool or Birmingham and our recent flagship stores for Pull&Bear, Massimo Dutti, and Oysho in Oxford Street, London, we have taken advantage of our large real estate opportunity in Manchester Trafford Centre, as we mentioned during the presentation. And this opportunity is allowing us to expand our Zara store over 40%, relocate Pull&Bear, open Bershka; and in the coming months, also to relocate our Stradivarius store. The experience of our customers has significantly improved as we are offering our different collections with a state-of-the-art technology that includes silos for online orders and returns and assisted checkout areas. For 2026, we will continue to be very active in the U.K. with plans, for instance, to refurbish some of our iconic stores in London, such as our Zara stores in Bond Street and Brompton Road. Thank you. James O'Shaughnessy: Thank you, Oscar. The next question on the webcast platform relates more to the younger concepts. Can you explain why some of the younger concepts have been growing quite so strongly recently, provide some color. Oscar Maceiras: Thank you. Well, we are happy with the performance of our different concepts, of course, including Zara. Our other concepts are performing very well with the ambition of further diversifying our customer base and our product offering. We continue to see additional good opportunities to expand their presence in new markets. We have just mentioned during our presentation 2 examples, the arrival of Stradivarius and Oysho to Austria and the Netherlands with the opening of our new stores in Donauzentrum, Vienna and Kalverstraat, Amsterdam. Another example is Denmark for Bershka that is about to open its first store in that market after having a very positive feedback in recent openings of the first stores in Sweden and India. James O'Shaughnessy: The next question relates more to the technology systems within the stores. Can you provide some more detail on the store technology ecosystem, including sorters, please? Oscar Maceiras: As we have mentioned during the call, we are executing many projects to improve the customer experience in our stores, thanks to the rollout of soft-tag technology. Some of these projects involve customer-facing technology like assisted checkouts, Click & Collect and drop-off points. Customers feedback, as I have just mentioned, with the example of Manchester Trafford has been very positive with an increasing level of adoption in the different markets. We are also introducing technology that impacts and improves the experience of our team behind the scenes in the stores. And one of these technologies, which we are rolling out in the stores are our sorters that support some processes that are key in order to make as quick as possible available to customers products that are temporarily outside the commercial floor in the stock rooms or fitting rooms or when new products arrive. James O'Shaughnessy: The next question on the webcast platform relates to the trading update. We had a good trading update of 9% going into the second half of the year. Can you provide some color on this, please? Oscar Maceiras: Thanks for the question. Well, I guess that's obvious that we are seeing a positive evolution throughout the year. First quarter plus 4% in constant currency; second quarter, plus 6% in constant currency. And this morning, we are providing a trading update for the first 5 weeks of the third quarter, plus 9% that reflects an acceleration of the sales. We remain confident about the year ahead and, as always, focused on increasing the differentiation of the business model. The results that we have announced this morning demonstrate the strength of the model that, as we mentioned, in a complex environment keeps with high levels of profitability. James O'Shaughnessy: Thank you. And that concludes the webcast questions for today. Oscar Maceiras: Thank you to all of those participating in the presentation today. For any additional questions you may have, please get in touch with our Investor Relations department, and we will welcome you back in December for the 9 months 2025 results.
Operator: Greetings, ladies and gentlemen, and welcome to the SEALSQ First Half 2025 Financial Results Earnings Conference Call. As a reminder, this conference call contains forward-looking statements. Such statements involve certain known and unknown risks, uncertainties and other factors which could cause the actual results, financial condition, performance or achievements of SEALSQ to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. SEALSQ is providing this communication as of this date and does not undertake to update any forward-looking statements contained herein as a result of new information, future events or otherwise. These risks are also discussed in our filings made with the Securities and Exchange Commission. Please be advised that our first half 2025 earnings release was issued on Tuesday, September 9, 2025. Also, our Form 6-K for the 6-month period ended June 30, 2025, which was filed with the SEC on Tuesday, September 9, 2025, can be found by visiting the Investors section of the SEALSQ website at investor.sealsq.com. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce Carlos Moreira, Founder and Chief Executive Officer of SEALSQ. Mr. Moreira, you may begin. Carlos Moreira: Thank you very much, Kevin. Good afternoon to those joining us from Europe and good morning to those joining us from the United States. I will begin today, the call by discussing our business milestone for the first half of 2025, then I will provide our growth initiatives and outlook for the second half of '25 and beyond and hand over to John to provide our financial performances of the year -- for the half year. So 2025 was a transformative year. It has been a pivotal year for SEALSQ as we accelerated our mission to deliver quantum-resistant semiconductor solutions and secure digital infrastructure for our rapidly evolving global market. The first half of the year confirmed the strength of our strategy, the resilience of our operations and the scale of opportunities ahead. As a fabless semiconductor innovator, SEALSQ designs market secure microcontrollers, both off the shelf and custom designed, integrated within a vertical trust service ecosystem featuring a post-quantum root of trust managed by public infrastructure services and secure chip personalization. Our solutions protect industries such as IoT, energy, automobile and smart homes, as well as sensitive applications in health care, government and defense. While the global embedded security chip market is projected to reach nearly $10 billion by 2028, suppliers offering certified secure products remain scarce. This creates a significant opportunity for SEALSQ, uniquely positioned to deliver both regulatory compliance and resilience against emerging threats such as quantum computers. Our strength market recognition, bolstered by the urgent need for secure microcontrollers to defend against post-quantum threat, has attracted a strong investors' confidence. Since November 2024, we have raised over $140 million in additional capital to accelerate our product road map, execute strategic investments and expand our growth pipeline. So in terms of the product and technology milestones, in the first half of '25, we achieved tangible progress on innovation and commercialization. The first one is with QUASAR Program, engineering sample of the QS7001, which is a post-quantum microcontroller delivered to initial partners in Q2 2025 for testing. Production samples and development kits are scheduled for Q3 '25, with initial revenue expected in 2026. It is important to mention here that we are one of the first companies in the world with that type of aggressive road map, and this can be transformed into a very important business opportunity and revenue generation in 2026. The QVault TPM, which is a pilot-customer sampling for QVault TPM V183. It is expected in Q4 '25, followed by V185 in Q1 '26. Initial revenues are projected for '26. The VaultIC408 secure microcontroller, which is an advance to FIPS 140-3 level 3 validation, has been confirmed by UL independent lab tests, which is NIST review ongoing now. The MS6003 Secure Element launched with FIDO2 passwordless authentication to meet demand in the fast-growing authentication market. Also INeS Box, which is deployed for factory IoT identification injection and in larger scale projects, ensuring compliance with Matter, which is the Homeland Certification for Home Appliances in the United States and the U.S. Cyber Trust Mark. Also the Quantum RootCA, very important development achieved during the first year, introduced by the OISTE Foundation as the first PQC integrated PKI system to safeguard IoT, financial and defense infrastructure against quantum encryption. Commercial achievement. So the commercial momentum mirror our technology progress. Revenue is on track to increase 59% to 82% in 2025 versus 2024, supported by a strong demand for PKI services, secure hardware and custom ASICs. Our TPM engagement more than doubled from 35 customers at the end of 2024 to 82 customers by mid-'25, validating the relevance of our road map. We also secured a multiyear supply agreement with global leaders such as the Hager Group, Dyson, MIWA and [ Delta Dore ]. Expanding collaboration with Landis+Gyr, which is one of the leading provider of smart meters in the world, including PKI deployment for 30 million utilities users in Asia and for the development for the U.S. market. Smart meters is one of the potential hardware that can be in real trouble if they are not post-quantum ready, and this company is taking the right step to make resilient at the product level with our technology. Advance on Card Reader business in Asia with new customers committing to several hundred thousand annual units, expanding our global footprint by opening a sales office in India and appointing distribution in Asia, Europe and Turkey. So now talking about the strategic investment and partnership. So 2025 has also marked a transformational phase in our growth strategy. The IC'ALPS acquisition, bringing 100 engineers to our staff force. In August 2025, we completed the acquisition of 100% of IC'ALPS, a French company located in Grenoble, which are ASIC design specialists, bringing, as I mentioned, 100 skilled engineers into the SEALSQ force. This has strengthened our common and custom post-quantum ASIC capability for medical, automobile and IoT industry, as this company has been provided this technology to leading health companies and automobile companies in Europe, all of them requiring new and specialized generation of chips. Quantix Edge Security facility, which executed a EUR 40 million investment in Murcia, Spain with EUR 20 million from the Spanish government, which is sitting now in $18 billion of investment in semiconductor in Spain, and we were one of the first projects authorized by them with a EUR 10 million investment from WISeKey and SEALSQ and EUR 10 million investment from partners localized in Spain like OdinS and TProtege. This facility, aligned with the EU Chips Act, will focus on post-quantum RISC-V chip design and secure semiconductor personalization, with revenue expected already in 2026. Quantum Investment Fund was launched initially launched at $20 million in late 2024, which has been expanded to $35 million in March '25. The first investment was ColibriTD, a French Quantum-as-a-Service company with whom we are codeveloping a quantum simulation approach to improve semiconductor wafer yields, potentially increased yield from 50% to 80% and reducing per chip cost by up to 50% in order to be more competitive in the market. This Quantum Investment Fund is now looking into other companies, as our vision is that both quantum technologies will merge very soon with quantum capability and quantum computer companies, creating major leaders in this sector. Therefore, the requirement of this aggressive road map and investment fund that has been created within the company. We also invested, as has been discussed in the last call, in space technologies. So we -- in cooperation with WISeSat, we have been deploying a constellation which is now sitting on 22 satellites. And SEALSQ has invested $10 million to expand our secure quantum-ready satellite constellation. So from the next launch of the satellites in November this year, we will have the capability of securing post-quantum connections from the space all the way down to objects on Earth in what is going to be one of the first ever secure post-quantum communication, connecting mobile phones with our satellite. With two launches completed already in '25, SEALSQ now has one of the largest constellations in Europe with 22 operational satellites, with plans to scale to 102 satellites by 2027. A strategic project with the Swiss Army has been signed, and we are in full deployment with their own requirements of the use of those satellites. Very strong year also in terms of research and development in order to maintain the leading edge. We continue to invest heavily in research and development, allocating $4.7 million in the first half of '25 as part of the $7.2 billion full year budget. This underscores our commitment to leadership in post-quantum innovation and the commercialization of next-generation chips. Also, on the financial strength with a robust cash reserve of $121 million as June 30, '25 and actually $150 million at September 9, '25. So the company is sitting now, $150 million that, combined with a strong balance sheet, positions SEALSQ to capitalize on growing demand for post-quantum resilient technology, potentially look into acquisitions and strategic investment in the post-quantum road map. We are all placed to drive commercialization to our new technologies while funding strategies, growth initiative becomes available. In August '25, SEALSQ unveiled Convergence, a forward-looking initiative integrating AI quantum technology and next-generation solution. The market is converging. All technologies are getting exponential, and they are creating synergies between themselves. And there is a huge market opportunity to develop business model around this convergence opportunity. Convergence unify PQC aligned with NIST standard tokenization advanced encryption, WISeSat 22 satellite constellation, decentralized physical infrastructure network, DePIN and machine-to-machine end-to-end communication. Its goal is to build a robust digital trust architecture for the group, protecting over 1.6 billion devices that is already in the market across health care, IoT, financial services, smart cities and space infrastructure. So the outlook for 2025 is also promising. Revenue is expecting to be in the range of $17.5 million to $20 million, representing already a growth of 59% to 82% year on. As you all know, the revenue on quantum computers is still small because the market is not yet ready, and people are now taking decision in investing in quantum technology. But one of the things coming first even in quantum is the post-quantum, and you need to build their own resilience at the enterprise level, government level, hospital level, airport level so you are ready when those quantums computer arrive in 3 to 5 years to be able to defend their attacks. This includes contribution from IC'ALPS following the August acquisition, the Quantix Edge Security project and renewed demand for traditional products. So 2023 -- sorry, 2026, the growth will be fueled by a full year of ICL's revenue, new personalization center project revenue, including Quantix Edge Security, and the launch -- and this is the most important part for the year -- visibility of our quantum-resistant TPM. Initial estimate reflects 50% to 100% revenue growth year-on-year, which is unseen in this sector for the moment. Pipeline, so we have a very strong pipeline. Our business pipeline stands at $170 million in opportunities for 2026 to 2028, reflecting a surge in demand for quantum-resistant security solution and sovereign semiconductor expertise. I will now turn the call to John O'Hara, our CFO, who will discuss in detail the financial results for the first half 2025 and our guidance for the second half of the year as a complement of my information provided so far. Please, John, go ahead. John O'Hara: Good morning, good afternoon, everybody. For the half 1 2025 revenue, our revenue of $4.8 million, which was consistent with the first half of 2024, was entirely in line with our expectations. It reflects the anticipated continued strategic transition period ahead of the launch of our new post-quantum technologies, and we expect the second half of the year to start to grow, as we'll come on to shortly. The gross profit was $1.6 million, and the gross profit margin increased by 15 percentage points from 19% last year to 34% this year. We do expect when the revenues return to a more steady state level and we grow further that, that will settle somewhere around the 45% to 50% margin on our legacy [indiscernible] chip products and with the [ rep ] margin from IC'ALPS is expected to be somewhat higher due to the nature of their revenue and their services. We had cash reserves of $121 million as at June 30, 2025, which was up from $19 million at the same point last year and up from $85 million at the end of 2024. Our current estimate is that this -- our cash burn, this gives us sufficient cash flow for a long time now on our cash burn rate. And we therefore believe we've got a strong war chest to also take advantage of any investment opportunities, any M&A activity that might come our way. We invested $4.7 million in research and development in the first half of the year, and we continue to have over $7 million allocated in the budget for this area for 2025, which is up from $5 million in the prior year. And that's before we take into account the research and development activities of IC'ALPS, which will also be consolidated in our second half results. As Carlos has already mentioned, for the full year 2025, we expect our revenue to be between $17.5 million and $20 million, representing between 59% and 82% growth year-on-year, which is, therefore, noting a return to growth in demand for our current semiconductor products as well as consolidating the revenue of IC'ALPS since acquisition. We also look forward for a strong 2026, as Carlos has also highlighted with some very early guidance, which will be supported by a new business pipeline of $170 million of identified opportunities for 2026 to 2028 across PQC, ASIC and sovereign semiconductor markets. With that, we have finalized the prepared remarks. And I will pass back to Carlos, so we can open up the call for Q&A. Thank you for your attention. Carlos Moreira: So thank you, John. Just as an end of the call remarks before we move into Q&A, just to mention that 2026 is going to be a very important year for the quantum industry and particularly post-quantum as the regulatory and technology landscape is moving in our favor with frameworks such as the European Union Cyber Resilience Act, the U.S. government Cyber Trust Mark and the UK PSTI Act mandating secure identities, encryption and life cycle management. So governments and strategic institutions worldwide have published road map requiring PQC adoption within the decade. So as I mentioned before, this industry is a emerging industry. We are in quantum, what we were on the web in the year 2000. Major players, and they have developed technologies and positions such as SEALSQ will become automatically high demanded companies as they bring a concrete solution for a concrete problem. Insurance companies are already announcing that they will increase their insurance premium if you are not yet PQC-compliant. Government regulations are putting regulations bringing companies and other government institutions to be PQC-compliant. And that will be reflected, obviously, on valuations of companies as the entry level to become a PQC-compliant and quantum company is still very high and requires hundreds of millions of dollars of investment. So with the strong financial resources, then we have the proven innovation and a strategic investment in place, SEALSQ enters the second half of 2025 with a very strong momentum and confidence. Our vision is clear: To lead the world in quantum resilience, cybersecurity and semiconductor innovation while we have a very proven quantum road map in place. So we thank our shareholders and employee partners and customers for their continued trust and support as we scale SEALSQ into the next phase of growth. So with that, we are finalizing the remarks. I would like to open now the call for Q&A. Thank you very much for your attention. Operator: [Operator Instructions] Our first question today is coming from Matthew Galinko from Maxim. Matthew Galinko: Firstly, just if we could clarify a little bit on the full year R&D budget. I think you mentioned it was around $7 million. And I think for the first half, reported $4.7 million, would seem that you're tracking ahead of that. So was there anything unusual in the first half spending that would not repeat in the second half? Just kind of ignoring the impact of the consolidation of the acquisition that we might expect? John O'Hara: Yes. Matt, hope you're well. So yes, so within the first half of the year, there was a bit of an expense of -- one-off expense for some stock-based compensation that falls under R&D. So that was the main... Matthew Galinko: Got it. Okay. And could you venture a guess for what kind of the annual R&D run rate, taking that out would be when you layer in the acquisition? [Technical Difficulty] Operator: Matthew, go ahead. Please go ahead. Carlos Moreira: Okay. So Matthew, sorry, we were disconnected. So did you got the answer from John? Matthew Galinko: I'm not sure if you got my second question or not? John O'Hara: No, I didn't. Carlos Moreira: No, no, we didn't. I'm sorry. John O'Hara: Did you get the answer to the first one on the research and development though, Matt, did you get that answer? Matthew Galinko: Yes. Yes. So I want to -- I appreciate the follow-up. So the -- I guess the question is what the run rate or if you could offer a run rate on the revenue -- on the R&D line, if you kind of back out that onetime stock-based comp piece under R&D in the first half and later on, the R&D consolidation in the second half, what would kind of the annual rate of R&D be? John O'Hara: So on the underlying business down in Provence, we would probably put that around about sort of $500,000, $550,000 per month. Matthew Galinko: Got it. Okay. All right. And then I also wanted to ask about the pipeline. I think you shared $170 million. As far as the prospective customers and perspective-type numbers in that pipeline, is that -- how do you build the pipeline estimate, I guess? Can you provide a little bit more of the process for how you include stuff in the pipeline? John O'Hara: Yes, sure. So essentially, my understanding is it's a relatively standard process where we go from certainly in the industry, I believe, where we go from kind of identifying an opportunity and evaluating that to the best of our ability, but then applying a relatively low success percentage to that. Because obviously, when we've just identified it, we haven't really gone very far, and then we go through the phase of identified, then qualified when we've kind of ratified the opportunity, and we've made at least first contact with the potential client. Then comes into design in, which is usually when we've signed up to provide them with a kind of a test kit and actually spec out and create a potential solution for a set of clients. And then design win at the end, which is the point where we believe that where we've been mandated to go ahead and produce the product and are in the final stage with that client. So obviously, by the time we get to design win, we apply a much heavier percentage because at that point, we're the only people in the game, so we generally expect at that point to get an order unless there is a technical limitation to the product or the client cancels their own internal project. So yes, so we put all that together, apply the weightings and then we tend to look 3 years into the future. So that $170 million will include revenues over '26, '27 and '28. What it does not include is the revenues for the clients that we've already won. So once we actually have received our first major purchase order of a significant volume and therefore, we've gone into production, we move that out the pipeline, and then we're kind of operating on a backlog where it's based on them sending and giving us orders. Carlos Moreira: Yes. Just to add on that, the sales cycle is long. On the hardware part, it's around 6 months. And the reason -- I mean, there's a lot of complexities to introduce those new generation chips into existing hardware that their electronics are now being designed to introduce the chip, and that requires engineering. So that means that you have to first understanding the problem, let's say, a smart meter or let's say, a connected car or a drone. So you have to understand the electronics, you have to redesign some of those components, so you insert the chip, then you have to check the connectivity, the chip in with electronics in order to create a post-quantum capability. So all that takes a long time, right? And normally, companies, the way they act on that is, as I mentioned in my presentation, post-quantum technology is emerging technology in terms of many customers don't realize the need of moving PQC yet. There are some that say quantum computers will be in 30 years, so why we should bother now. So this has been slowly, gradually, the education in the market has been improved by even companies that they have this type of thinking before. So that creates some kind of urgency in our clients. And now they are saying, okay, let's just start with 1 generation of products. So they don't immediately want to PQC-enable all their products. So they start with 1 type of products, they test and then they go to the next cycle of expansion internally in the company as you not only need to modify the security of the product, which is the hardware component, but also the software part. So that needs to be integrated into their back end, right? So that process as we move forward, will be more -- a more automated process. Actually, AI is helping a lot to create more efficiencies on that cycle so we can reduce the time and we can increase the numbers. So this is the present situation. That's why we believe that the revenue of these type of companies make now is not that important because what we are addressing is a much bigger problem in the future, which is when regulation arrives and regulations says, company, you need to have PQC enablement in your products, otherwise, you cannot sell them anymore because your products will not be authorized to enter into a specific territory. So there is the inflection point. We believe the big opportunity is for us. Operator: [Operator Instructions] We reached the end of our question-and-answer session. I'd like to turn the floor back to the call to Carlos for any further or closing comments. Carlos Moreira: So just to, again, to recap it too later on what we say, a huge opportunity ahead of us. 2026 is going to be a critical year, especially once this post-quantum chip will be available in the market. I know that some investors have been disappointed by the latest price of the share. I always say that '26 is the year where you -- everybody needs to be betting on and not '25. '25 was a transitional year. Despite that, we managed to end the first quarter -- the first semester of the year with a very strong position and very strong cash position, which is essential in this industry. And we are available for any further discussions, website, documentation is available. And our investment relation contacts in New York are available to set up one-to-one meetings. John and I, we're going to be doing a non-deal road show starting the third week of -- sorry, the second week of October. And it will culminate in New York in an event, the Quantum + AI event, where we are providing the keynotes, and where we're going to be bringing more results, and we will also be discussing, which we didn't discuss on this call, our U.S. strategy. As we have been informing in the past, SEALSQ is looking to personalize semiconductors in U.S. territory, and this is something that is top priority. We were looking into different locations such as Arizona and others. So we will be giving in a few weeks, a full update on that. And I'm sure everybody will be very satisfied to see the progress also in that area. So we'd like to thank our shareholders, employee partners and customers and all the participants on this call for their support as we scale SEALSQ into the next phase of growth. Thank you very much for your attention. Have a great day. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Ladies and gentlemen, welcome to the Synopsys Earnings Conference Call for the Third Quarter Fiscal Year 2025. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you should require assistance during the call, please press star 0, and an operator will assist you. Today's call will last one hour. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Tushar Jain, Investor Relations. Please go ahead. Tushar Jain: Good afternoon, everyone. With us today are Sassine Ghazi, President and CEO of Synopsys, and Shelagh Glaser, CFO. Before we begin, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts, targets, and other forward-looking statements regarding the company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release. Pursuant to the close of the ANSYS acquisition on July 17, our results include roughly two weeks of ANSYS financials. As shown in today's financial statements, the vast majority of ANSYS revenue appears under the simulation and product group, with the remainder included under EDA. In addition, we will refer to certain non-GAAP financial measures during this discussion. Reconciliations to their most directly comparable GAAP financial measures, and supplemental financial information, can be found in the earnings press release financial supplement, and 8-K that we released earlier today. All of these items plus the most recent investor presentation, are available on our website at www.synopsys.com. In addition, the prepared remarks will be posted on our website at the conclusion of the call. With that, I'll turn the call over to Sassine Ghazi. Sassine Ghazi: Good afternoon. Q3 was a transformational milestone quarter for Synopsys. Against an unprecedented and challenging geopolitical environment, we closed the ANSYS acquisition, expanding our revenue, our customer base, and our long-term opportunity. We delivered third-quarter revenue of $1.74 billion and non-GAAP EPS of $3.39. Our results were primarily impacted by underperformance in the IP business as we had the expectation of deals that did not materialize, driven largely by the following three factors. One, new export restrictions disrupted design starts in China, compounding China weakness. Two, challenges at a major foundry customer are also having a sizable impact on the year. And finally, we made certain roadmaps and resource decisions that did not yield their intended results. We are actively pivoting our IP resources and roadmap towards the highest growth opportunities which I'll discuss in more detail. Looking ahead, we believe we have derisked our forecast knowing that transformation takes time and the external headwinds I cited will continue. We are taking a more cautious view of Q4 while still expecting to deliver a record revenue year. Let me provide more color on our Q3 execution and the actions we're taking to accelerate our strategy before Shelagh covers the financials in more detail. Zooming out, AI continues to drive unprecedented investment in infrastructure and R&D. Demand for high-performance computing and AI applications continues, while semiconductor demand in markets like industrial and automotive remains subdued. Despite the uncertainties and industry dynamics that we must navigate, I remain very optimistic about Synopsys' future. The increasing complexity, cost, and time-to-market pressure of designing and delivering AI-powered systems is a trend that persists across industries and underpins our opportunity. Now more than ever, we believe Synopsys will be a mission-critical partner in addressing these challenges. Adding ANSYS' gold standard simulation and analysis solutions to our portfolio dramatically expands our long-term growth opportunity. We are now not only the EDA leader, we are the global leader in engineering solutions from silicon to systems. This acquisition marks a significant milestone for not only Synopsys but also our customers and the industry. As products evolve into more sophisticated intelligent systems, their designs grow increasingly complex while development cycles continue to accelerate. The rise of physical AI underscores the importance of our combined expertise. R&D teams must not only optimize product design for performance and efficiency but also consider the real-world interactions of these products. That's why, for example, we're embedding NVIDIA Omniverse technology into our ANSYS simulation solutions making it easier to develop, train, test, and validate autonomous systems with greater speed and confidence. Not only can we deliver new innovation, with ANSYS now part of Synopsys, we have diversified our portfolio and our global customer base. Together, we will maximize the capabilities of engineering teams across industries, from semiconductor to automotive, industrial, aerospace, and beyond, enabling them all to rapidly innovate AI-powered products. Let's move on to business highlights. Design automation revenue inclusive of ANSYS products was up 23% year over year led by strength in hardware. As the complexity of designing silicon for AI workloads drives demand for Synopsys' powerful emulation and prototyping solutions. In Q3, we achieved multiple competitive wins with leading hyperscalers and shipped record Zebu Server 5 and HAPS 200 Xebu 200 units. EDA continues to demonstrate resiliency. Our Q3 results reinforce our leadership in next-generation chip design. Synopsys continues to win competitive bids for full-flow digital implementations, including a multiyear commitment with a leading AI customer. Synopsys' sign-off and extraction platforms also continue to set the industry standard with broader customer deployments and successful tape-outs on advanced designs. Synopsys' leading AI capabilities are a key differentiator. Today, roughly 20 customers are broadly piloting Synopsys.ai GenAI-powered capabilities. These capabilities pave the way for agent engineer technology. We believe the evolution of AI from helper to a doer will truly transform engineering workflows. Multi-die momentum also continued in Q3. We enabled multiple successful multi-die tape-outs for leading AI semi companies. Customers are enthusiastic about the promise of integrating our semiconductor timing and power sign-off capabilities with ANSYS' gold standard of thermal sign-off. And we expect to deliver our first fully integrated solution in the first half of next year. I'll turn now to simulation and analysis products which empower users to build and test products virtually. These solutions represent the largest portion of our ANSYS acquisition and performed in line with our expectations for the quarter. As is typically the case, the largest contributors were in the high-tech, aerospace, and automotive verticals. In Q3, we released ANSYS 2025 R2, providing customers access to groundbreaking advancements in AI-driven simulation, GPU acceleration, system-level modeling, and cloud computing. These newly released products extend Synopsys' AI leadership into simulation and analysis to help customers more efficiently develop and deliver their innovations. Turning to design IP, which was down 8% year over year due to the headwinds I previously mentioned. Again, we need to pivot our IP resources and roadmap to the highest growth opportunities. These changes are already underway. Let me give some context. Zooming out, evolving data center architectures, particularly those focused on AI, are accelerating the demand for faster data movement. This trend is driving strong demand for high-speed protocol IP and solutions that enable both scaling up and scaling out of large-scale systems. At the same time, the semiconductor and IT landscape is undergoing profound change. What was once a business rooted in individual licensing is rapidly evolving. The industry is increasingly requiring more sophisticated subsystems and chiplet-based solutions to combat complexity and accelerate time to market. In summary, our high-performance silicon-proven IP portfolio positions us as the leader in the fast-growing interface IP market. We support a broad spectrum of applications, including HPC, Edge AI, automotive, mobile, and consumer. By retargeting our resources and portfolio toward higher-value solutions, we are further strengthening our leadership in advanced interface and foundation IP. Before handing over to Shelagh, I want to address the company-wide steps we're taking to achieve greater scale and efficiency to accelerate our silicon-to-systems strategy and drive long-term growth. Synopsys' transformation, which began with the divestiture of the Software Integrity Group followed by our strategic acquisition of ANSYS, continues. Specifically, we are conducting a strategic portfolio review and will be taking actions to focus our investments and our execution on the highest growth opportunities. We look forward to delivering with ANSYS a differentiated design solutions roadmap and remain firmly committed to realizing the projected synergies of the merger. In addition, our enterprise-wide initiative to develop and deploy custom GenAI is boosting productivity. We will continue harnessing AI efficiencies to optimize our cost structure. Taken together, we expect to undertake related actions starting soon that will reduce our global headcount roughly 10% by the end of fiscal year 2026. A few closing thoughts. Synopsys is transforming. With ANSYS, we are now the leader in engineering solutions from silicon to systems. We've expanded our opportunity, broadened our portfolio, and increased the resiliency of our business. We remain focused on maintaining our leadership position while pioneering new solutions that will shape the next wave of innovation. Near term, we are deeply committed to prioritizing our IT execution and improving our efficiency to scale the business, accelerate our strategy, and capitalize on the highest growth opportunities. Thank you to our employees, customers, and partners for your continued commitment. Engineering is undergoing unprecedented transformation and Synopsys is seizing the opportunity to reengineer engineering. Now over to Shelagh. Shelagh Glaser: Thank you, Sassine. Q3 revenue came in at $1.74 billion, non-GAAP operating margin at 38.5%, and non-GAAP EPS at $3.39. Backlog came in at $10.1 billion including ANSYS, underscoring the resilience of our business. Our results were impacted by the underperformance in the IP business due to the headwinds Sassine outlined. Tailwinds from a strong quarter in our design automation segment and the close of the ANSYS acquisition partially offset these headwinds. In light of these headwinds and tailwinds, we are taking a conservative view on Q4 and updating our full-year 2025 targets for revenue, operating margin, EPS, and free cash flow. I'll now review our third-quarter results. All comparisons are year over year unless otherwise stated. We generated total revenue of $1.74 billion, up 14%, with strong growth in design automation. Regionally, we saw strength in Europe and North America, and despite sequential improvement in China, headwinds persist. Total GAAP costs and expenses were $1.57 billion and total non-GAAP costs and expenses were $1.07 billion, resulting in a non-GAAP operating margin of 38.5%. GAAP earnings per share were $1.50, and non-GAAP earnings per share were $3.39. Earnings included the impact of lower cash on our balance sheet and the additional $4.3 billion term loan used to fund a portion of the cash consideration and expenses associated with the ANSYS acquisition. Now onto our segments. Design automation segment revenue was $1.31 billion, up 23%, with strong performance from our hardware business. Design automation adjusted operating margin 44.5%. Design IP segment revenue was $428 million, down 8%. As mentioned before, our IP business faced several headwinds. In response, we are taking a more conservative view of Q4 and we are realigning our IP resources to the highest growth opportunities and improving our execution. Third-quarter Design IP adjusted operating margin was 20.1%, due to the lower than expected revenue and the investments we are making in the IP roadmap. Moving to cash. Free cash flow was approximately $632 million. We ended the quarter with cash and short-term investments of $2.6 billion and debt of $14.3 billion. Now to guidance, which has been updated to include ANSYS, as well as factoring the continuation of the headwinds previously discussed. For fiscal year 2025, the full-year targets are revenue of $7.03 to $7 billion, total GAAP costs and expenses between $6.08 and $6.1 billion, total non-GAAP costs and expenses between $4.43 and $4.44 billion, non-GAAP tax rate of 16%, GAAP earnings of $5.03 to $5.16 per share, non-GAAP earnings of $12.76 to $12.80 per share. Cash flow from operations of $1.13 billion and free cash flow of approximately $950 million, lower than prior expectations due to lower revenue and the interest impact of cash utilization and additional debt for the ANSYS acquisition. Now to targets for the fourth quarter. Revenue between $2.23 and $2.26 billion, total GAAP costs and expenses between $2.12 and $2.14 billion, total non-GAAP costs and expenses between $1.44 and $1.45 billion, GAAP earnings of negative 27¢ to negative 16¢ per share, and non-GAAP earnings of $2.76 to $2.80 per share. Our press release and financial supplement include additional targets in GAAP to non-GAAP reconciliations. With the ANSYS acquisition now closed, we remain confident in achieving the committed synergies of the merger. This is despite the delay in completing the follow-on divestitures of the Optical Solutions Group and PowerArtist business which is elongating the full integration of ANSYS as we work to obtain a final regulatory approval of the buyer. In conclusion, this was a milestone quarter for Synopsys. We are clear-eyed about the challenges we face and the actions we must take to align our portfolio to the highest growth opportunities, optimize our cost structure to drive greater scale and efficiency, which will include reducing our global headcount roughly 10% by 2026, and importantly, to extend our leadership position in engineering solutions from silicon to systems. Delivering a differentiated design solutions roadmap with ANSYS. The team is laser-focused on executing a strong finish to the year and delivering resilient, long-term growth for our shareholders. With that, I'll turn it over to the operator for questions. Thank you. Operator: Thank you. To ask a question, please press 1 on your telephone keypad. Please ensure you are not on mute when called upon. Before we begin the Q&A session, I would like to ask everyone to please limit yourself to one question and one brief follow-up to allow us to accommodate all participants. If you have additional questions, please reenter the queue, and we'll take as many as time permits. Again, it is star one to ask a question. Your first question comes from Ruben Roy of Stifel. Your line is open. Ruben Roy: Yes, hi. Thank you very much. Sassine, I'm wondering if you could maybe spend a few minutes just walking through the three challenges around the IT business. Just kind of thinking through export restrictions and design starts in China and then the foundry customer versus the roadmap and, you know, the impact of that. It seems like that's potentially a bigger issue that could be a headwind longer term. And maybe you could just kind of describe Q3 and kind of what the impacts were across each of those three issues. And then, you know, as you think about next year, and, you know, resource reallocation, etcetera, you know, will this require acceleration in things like M&A, or are you, you know, kind of positioned to address the needs of your customers with what you're working on for organically? And how soon can you turn this around on what sounds to be the most important part of those three headwinds? Thank you. Sassine Ghazi: Yeah. Thank you, Ruben, for the question. You're right. There are three factors that we mentioned that impact our IP performance for the year. The first one is the China BIS. Even though the restriction was only limited to six weeks, the impact from our customer behavior lasted definitely longer than the six weeks restriction. Customers were questioning whether or not they will invest in a multiyear commitment with Synopsys, how broad will they make that investment, they start an investment in a chip, can they finish it? Can they tape it out? So I don't want us to assume that the impact was limited to the restriction period, which was six weeks. The other factor, which is the foundry customer impact, where we have made a significant investment in building out our IP for that foundry customer with an expectation that there will be a return in '25 and that did not materialize for a number of reasons out of our control. They are market-driven reasons and customer-related reasons for that. So when we look at the impact for the quarter and as we derisk our Q4, those two primary reasons were what created the impact for the revenue during Q3 and as we're anticipating, Q4 and continuation of these factors. As for the last point, which is the roadmap and resource allocation, it's somewhat related to bullet number two. As we make investments and as the leader in IP, we have responsibility as part of the market position we have. We're not a boutique IP. We have the broadest IP portfolio and our customers expect us to serve various needs and requirements that they have. So some of the decisions we made were investing, for example, in edge AI opportunities for IP, that we put resources on delivering to these opportunities and it came at some roadmap cost. On which foundry to make that investment and for data center delay in some of our IP titles. That is something we know exactly what we need to do, and we're already underway to address them and to give you some color on what we are doing. Within Q3, we have merged two engineering teams. So we have our IP team that builds and delivers on what we call standalone IP. And the market is shifting towards subsystem and potentially in the future chiplet delivery, and we had a separate team that works on customization, which we call the system solution group. We merged these two groups together in order to accelerate our ability to deliver to the opportunities that they're in front of us. So it's all about scaling and we are addressing the scaling opportunities. And I have no doubt that we will see our ability to pivot these resources. And these are things you cannot visit within a ninety-day window. But as we look at the roadmap and the priority of the roadmap, we will commit and deliver to these items. Ruben Roy: Thank you for that detail, Sassine. If I could segue then into a question for Shelagh on the operating margin. With IP coming down, and ANSYS, you know, sort of coming into the model here. I've done my math correctly. It looks like, Shelagh, the operating margin is gonna net out to a little less than 36% for Q4. And just wondering if you can comment on kind of the decline in operating margins and maybe how you bridge to the longer-term target in the mid-40s? Shelagh Glaser: Yeah. Thanks for the question, Ruben. It's really the impact of the IP business and the downside on revenue of the IP business. As Sassine talked about, that's a very resource-intensive business. So as the revenue headwinds that we talked about are hitting the business, we're realigning the resources but we want to continue to invest in that roadmap for the long term. And so, that's really the impact. I would say it's a lesser impact. Obviously, ANSYS is fully integrated. ANSYS came with a higher operating margin, so the impact is really the IP. And our commitment to the long-term margin in the mid-forties is still intact. So our short-term headwinds that we're managing through are really short-term headwinds, but there's no change in our long-term commitment. Ruben Roy: Got it. Thank you, Shelagh. Sassine Ghazi: Thank you, Ruben. Operator: The next question comes from Lee Simpson of Morgan Stanley. Your line is open. Lee Simpson: Great. Thanks for squeezing me in. I mean, maybe I'll start again with the design IP. I mean, clearly, the weakness here has come as quite a surprise for everyone. We haven't seen this elsewhere. It does look maybe on simplistic mathematics that it's run about $120 million that you're weaker versus expectation anyway for design IP and I think you've called out the two elements, China and, of course, the foundry customer as primary here. So I'm just trying to understand how much of a heads up did you have on this weakness, this design IP slowdown, and maybe how much of this is permanent? I mean, does the China business come back, you think? Does the foundry business evolve into something else? And I'm really just trying to get a color on how permanent this might actually be. Thanks. Sassine Ghazi: Yeah. Thank you, Lee, for the question. I want to start with that we had an aggressive plan in IP for FY 2025 after an outsized performance the year prior where we grew that IP business by 24% and the year before that, by 17%. And there were some large agreements we were not able to get during this, I want to call it, hyper and intense period of our company's history. I know I communicated to some of you that during Q3, I was in China six times. In order to work on the transformative acquisition that we got to a positive outcome. Of course, it was the most important thing we had to do, and we got it done and we're very excited about it. In the process, there were signals that were missed in the forecast as to the magnitude of the factors I described, the two factors that you outlined. So I don't believe that these factors are just a Q3 impact. We will continue on derisking our forecast and anticipate that we will have a transitional and muted year in IP as we look ahead into FY '26. Now in December, we'll provide more color about the overall FY '26 components and we feel strongly about the other segments of the business. But as it relates to IP, and these two factors regarding China and the conditions in China, I don't believe this is a Q3 only challenge. As it relates to the foundry customer, it all depends on where do they go with the technology that we already developed the IP for. And what's the opportunity to sell that IP we developed it? Now is it permanent? It depends what you mean by permanent and at what level of the IP business. We have an incredible market position in IP. The demand actually is much higher than our capacity to deliver. One of the challenges that I described as roadmap, resource allocation, we have a massive team working on IP yet we cannot capture all the opportunities ahead. I mentioned some of the actions we took, there will be more, deeper look in terms of priority as well as our ability to scale by leveraging technology like AI. New methodology to be able for our team to deliver the IP faster, higher quality, etcetera. So the opportunity in IP is absolutely strong, but there will be a transitional period due to the factors I mentioned. Lee Simpson: Gotcha. And maybe just one further clarification on the roadmap and resourcing. I'm just trying to understand. Is there a specific area that we should be thinking about here? It sounds to my ears, and I could be wrong, obviously, that this is mainly foundational IP that you're realigning for. Because you did mention interface technology but didn't suggest that that was where you're realigning. That almost seemed like where you were doubling down. Have I got that the right way around? Sassine Ghazi: Let me add more color, Lee, because it's not quite. So today, if you look at the Synopsys portfolio for IP, we serve multiple markets. HPC, Edge AI, automotive, mobile, consumer, and we serve that portfolio for multiple foundries, not only one foundry. And as I mentioned to Ruben when he asked the question, we have and our customer has expectations. And we have the responsibility given that portfolio breadth that we have to serve the multiple foundries for those multiple markets. In both interface IP and foundation IP. There's more and more customization in particular for interface IP. And these customizations are moving from an off-the-shelf to a more subsystem delivery. Which is it takes longer, it takes more resources. And our ability to change the business model or the need to change the business model is an ongoing dialogue with our customers. Because as they're expecting us to do more work than just off-the-shelf IP, there's an opportunity for higher monetization. And that's what we're pivoting our resources, our methodology, our approach, from an architecture point of view to serve that market for the interface IP that I talked about. Lee Simpson: That's very clear. Thanks so much. Sassine Ghazi: Thank you, Lee. Operator: Your next question comes from Charles Shi with Needham and Company. Your line is open. Charles Shi: Yeah. Good afternoon. I do want to follow-up. The pivoting on the IP side of the business. It does sound like, other than the China and maybe the foundry customer challenges, Synopsys is really going through a transition in the IP business model. I think one thing really caught my attention in your prior remarks, Sassine, was about the higher level of customization, maybe more migration into subsystems. It seems like that it's something your IP, not necessarily a competitor, but another peer of your IP in the IP business is going through over the past couple of years. I wonder how should we rethink about the long-term IP operating profitability from that perspective because we do get the idea of why this is moving to that direction, but are you able to maintain or the same kind of IP long-term operating profitability targets going forward? Wonder if you can provide some strategic thoughts on that direction. Thanks. Sassine Ghazi: Yeah. Thank you, Charles. You know, the pivot from our customers in terms of expectation from off-the-shelf IP to customization is not new. But what is new is the magnitude in which the number of customers are expecting for us to deliver instead of discrete IP, to deliver a number of IP that we glue them together with some customization logic and test logic, etcetera, and validate and ensure that it hits the mark with the right quality. Each one of those engagements historically had two components. It had an NRE component and a use fee component. Given the demand for that customization, we need to ensure that we are capturing the right value for the impact we're delivering. Therefore, it's not something that we are, I want to say, happy to just say it's an NRE plus a use fee. There has to be another element in order for us to put priority for these opportunities and deliver too. And that's what discussions we're having with a number of these customers. And as you look ahead, if you fast forward two plus years from now, will we start delivering from a discrete IP to a subsystem to possibly chiplet? What level of chiplet? Is it a soft chiplet? Is it a hardened chiplet? Meaning, GDSII? Is it all the way down to a known good die with a partner? These are all questions and expectations our customers are asking us given we are the leader in that space. And we have a number of engagements with a few strategic partners, we are absolutely assessing as this market is pivoted and we're pivoting with it what is the business model to maintain the right profitability? In order to capture the opportunity and growth that we have? Charles Shi: Thanks, Sassine. Maybe I'll follow-up a short-term 10.1 billion backlog for the quarter exiting July. How much of that was ANSYS backlog and how much of that was legacy Synopsys backlog? Thanks. Shelagh Glaser: Hi, Charles. We're not gonna be breaking that out, but we have strength across the business. So we continue to see strength in our core business. We saw strength in ANSYS. And that gives us a lot of confidence in the long-term growth of the business. 10.1 billion. Thank you. Operator: Thanks for the question, Charles. The next question comes from Joe Quatrochi with Wells Fargo. Your line is open. Joe Quatrochi: Yeah. Thanks for taking the questions. Maybe just to follow-up on that last kind of train of thought on the IP business. I mean, are we to think about, you know, you looking at different business models in terms of royalty, and things of that nature similar to some of your competitors? And I guess, you talk about just if your customers, I think you talked about them wanting to move very quickly on these subsystems and IP. I guess, can you talk about just time to market and the competition there? Sassine Ghazi: Yeah. Joe, the key is the IP business is scaling. And Synopsys, we've been fortunate. We've been in that business for 26 years and we do have the investment and the scale. But given the fragmentation, I want to call it, based on our customer needs and requirements that are becoming more customized. No matter how much scale you have, you need to put priority. And based on the priority, the right business model, in order to capture the right value for what we are delivering to those customers. And some of the discussions we're having with our customers is a combination that does include some sort of a royalty. We're in a fairly early phase in this discussion, and those are very much related to subsystem type of delivery to our customers. So I hope that clarifies it, Joe, what I mean by we need to look at something different than an NRE plus a use fee given that customization opportunity. Joe Quatrochi: Yeah. Appreciate the detail. And then as a follow-up, for Shelagh, how should we think about just on the go-forward basis? Like, what's the right level of cash balance that you need, you know, day to day as we think about just the debt pay down and the pace? Shelagh Glaser: Sure. So in terms of our day-to-day cash balance, we have a minimum that we hold just to ensure that, you know, we're properly able to invest in the business. We're well above that with the cash balance we have. This year, we'll make interest payments on the debt. And we anticipate being able to start to pay some of the principal next year on the term loans. Those two term loans are due in '27 in the '28 time frame. So well above our minimum to be able to manage the business. And the one other cash inflow that we'll have once it was in my prepared remarks, but once we complete the approval with SAMR of the buyer, of OSG and PowerArtist, we'll have that cash in. Both of those dispositions. Thank you. Operator: Thanks for the question. Your next question comes from Sitikantha Panigrahi with Mizuho. Your line is open. Sitikantha Panigrahi: Thank you. I want to switch to the ANSYS acquisition. So it's been now ANSYS one and a half more than one and a half months. With after the close. So what are the puts and takes in terms of, you know, what you expected at the beginning last year when you talked about versus after you having? What are the surprises that you have seen? And, specifically, I think you talked about the revenue synergy. You still reiterated, but going back to the ANSYS growth, if we look at S-4 filing there, they were talking about low to mid-teens over the next few years. So what are the potential drivers for that ANSYS to grow above that 10% market growth? Any color would be helpful. Sassine Ghazi: Yeah. Thank you, Sitikantha, for the question. As you can imagine, we are incredibly thrilled and enthusiastic about the opportunities ahead. And the market is speaking, actually, when you look at the moves that are happening in the market, to grab assets in order to bring in the solution that is required for physical AI to have a digital twin of a system. And in order to have it on time with high quality and low cost, you need simulation. You need virtualization of these systems. And in order to have it, with high quality, you need a sign-off product, multiple levels of physics in order to make it happen. Now the opportunity is not waiting for the physical AI when it takes place and it happens. There's an immediate opportunity, which is 3D IC. With 3D IC, there's a thermal need. There's a structure need. There's a fluid need. And ANSYS is bringing a great position into the Synopsys portfolio and integrating this technology during the semiconductor and chip design phase. So when you're building that multi-die system, you are confident that you're signing off with the right technology in order to achieve the right outcome. So from a surprises, there are no surprises actually except pleasant ones, given we know the team very well, a lot of enthusiasm, and energy and excitement from the teams. As Shelagh mentioned in her remarks, there's a final stage that we're trying to close with SAMR as soon as possible, which is the acquisition's scope has been, oh, sorry. The divestiture scope has been approved. But the buyer is in the process of approval. So we are taking some measures to keep the business and the integrity of the optical and power artist separate. But once that is behind us, the integration full force ahead to deliver on these solutions. Sitikantha Panigrahi: And, Shelagh, just a follow-up to that. ANSYS revenue, $78 million in Q3. But what's your assumption of ANSYS revenue embedded into the Q4 guidance? Is Q4 historically a strong quarter for ANSYS, but, again, you'll only include October. So is there any linearity in the quarter that we should consider? Any color will be helpful. Shelagh Glaser: Yeah. So in Q3, as you noted, the $78 million revenue disaggregation of S&A, and as we noted in the prepared remarks at the beginning, there's a small portion of ANSYS revenue that is also in our EDA. And for Q4, it's included in the full guide that we have ANSYS for all weeks of the quarter. And then in terms of ANSYS, they have conformed to our fiscal calendar, which as you note, their Q4 only one month of it falls into our fiscal calendar. So, obviously, some of that, some strength that you see in sort of the November time frame, that'll be in our Q1. And so we've aligned that fully. But I'm not gonna give a subsegment view as we don't guide below the total company. Thanks for the question. Sitikantha Panigrahi: Thank you. Operator: Your next question comes from Joe Vruwink with Baird. Your line is open. Joe Vruwink: Great. Thanks for taking my questions. EDA and IP as industries have fairly diversified opportunities, and that's true across customer accounts and end markets. But Synopsys has always been fairly unique that traditionally, you have one outsized account. It exposure, and some of the things you're saying seem to consider a need to diversify further. You made a remark, Sassine, earlier, about two years, you know, two years from now, we'll look back, and I think contract lengths being two to three years. Is that the appropriate time frame to fully enact the changes you're focused on and getting the business back on the track you believe is right? Sassine Ghazi: You're right. In terms of EDA and IP, we have a fairly diversified customer base simply because you cannot build a semiconductor chip without the need of EDA or IP. So while we have a fairly diversified customer base, Synopsys has been very successful with capturing the large percentage of wallet from leading large semiconductor companies. That has been our strength. With this one customer exposure that you're talking about, we have derisked part of that exposure in our FY '25. And there's a blend of contracts we have with that customer no different than any other customer, which is EDA, software, hardware, and IP. They have different time horizons, and it's very difficult at this stage to forecast what will happen and by when not knowing the situation of that customer one, two years from now. But that being said, we work very actively to expand our business at multiple levels of growth opportunities and that's where ANSYS will bring us a significant and positive opportunity to diversify the portfolio as well in terms of customer concentration as well as regional concentration. For example, the percentage of business in Europe versus China for ANSYS is very different than Synopsys Classic. So there's a big opportunity to diversify further with the ANSYS addition to the portfolio. Joe Vruwink: Okay. That's helpful. Thank you. Shelagh, maybe you'd answered this already, but I think it would be helpful just to get a baseline around what's changing in this guidance versus the guidance that was previously on the table. You know, how much is IP coming down, how much does ANSYS add, China is a factor. Just anything there that can help get us all on the right baseline going forward. Shelagh Glaser: Sure. So, as you know, the three headwinds that Sassine talked about in the IP, those are fully incorporated, and it's a balance between those three. What the impact was, and then as you noted, ANSYS has been added and it was a sub-period in Q3, so somewhat minimal. You saw the S&A, $78 million. And then ANSYS for Q4, again, I will remind you, the question that was asked previously. So I would say the biggest part of the ANSYS quarter is usually in the November time frame, and that'll be in our Q1. You know, the decline was really that update on the IP and then that's offset by the addition of ANSYS. Joe Vruwink: Okay. Thank you. Operator: Thanks for the question. Your next question comes from Harlan Sur with JPMorgan. Your line is open. Harlan Sur: Good afternoon. Thanks for taking my question. I assume that the Q3 foundry revenue weakness in IP was due to your largest customer as they pivot from their prior focus on 18A to now 14A foundry manufacturing technology? Is that the right assessment? And given the challenges of this customer, I mean, there's still question marks on their ability to be successful in Foundry. Is this Synopsys team still gonna support this customer on their future Foundry roadmaps? Sassine Ghazi: Harlan, as you know, I used the word earlier. There's an expectation. When you're the leader in IP, and you engage with a customer, we cannot tell that customer that we want to pick and choose what project or which foundry and for which application we want to engage. Because then they will not trust and the relationship with Synopsys. That has been our strength. As far as the whole 18A and the pivot to possibly a different technology, that's a customer choice. Whatever choice they make, we already have the IP available to the node that we have built it to. And part of the relationship with the foundry is we look ahead at timing, and the size of the opportunity, meaning the commitment to Synopsys and the post-delivery on that IP, what is the available market that we can sell it to? So that's really the situation that we have in general in IP. And specifically with some of our foundry customers. Harlan Sur: Thank you for that, Sassine. And then, Shelagh, looks like your total expense guidance for Q4 is coming in about $15 million higher, about three and a half percent higher than if I just combine your total expense structure and ANSYS' total expense structure prior to the close of the acquisition. So what's driving the higher expense outlook for Q4? And then more importantly, from the Q4 base, how do we how should we think about the potential cost synergies looking out over the next few quarters? In other words, how should we think about the fiscal 2026 Q4 exit run rate on total expenses? Shelagh Glaser: For the question, Harlan. On the first one, there's just some cost with, you know, really the initial quarter of bringing ANSYS on. And we want to make sure that it's a very successful integration. So I would say it's just part of ensuring that we've got a smooth integration going on. And then in terms of longer-term guidance, we'll talk about that in our Q4 earnings, what the expectations are for 2026. As we talked about in our prepared remarks, we are taking a comprehensive portfolio look and we're also driving greater scale and efficiency with a 10% overall headcount reduction that will drive through fiscal year 2026. And so that has the effect of actually accelerating our synergies that we had talked about when we announced the deal. So we'll talk more specifically though, Harlan, about sort of the direction of travel in '26. When we do Q4 earnings. Harlan Sur: Okay. Thank you. Operator: Your next question comes from Jay Vleeschhouwer with Griffin Securities. Jay Vleeschhouwer: Sassine, for you first, is the 10% targeted reduction of headcount something that you would have done irrespective of the current and anticipated unpleasantness in IP? And in other words, you would have done that anyway. It looks as though your organic headcount ex ANSYS was up 2,000 heads year over year, up over 600 sequentially. So perhaps you got a bit ahead of yourselves in terms of the organic expansion. And in the meantime, can you talk about the integration or consolidation that you've done of ANSYS already? Our understanding is that very soon after the close, you consolidated around the named accounts direct business. And perhaps you could also talk about your intentions on their very large indirect business. And then my follow-up for Shelagh. Sassine Ghazi: Jay, thanks for the question. As you can imagine, with an eighteen-month regulatory process, we were somewhat limited in terms of our ability to take actions on either portfolio or headcount adjustments. So the 10% headcount adjustment is something we would have done and we've been planning for it for a while and before even the acquisition was approved in preparation that we will be ready to act and carefully and thoughtfully of where to target that reduction. So that we have gone through internal strategic portfolio review. We're looking at the multiple layers of management processes, systems, the impact of AI that we have been deploying inside the company for about two years. So there are many opportunities actually to make sure we're putting the resources at the high impact, high return, and reducing where we can reduce, leveraging technology and the impact of it for further reduction or cost avoidance in the future. There's a very thoughtful process we've gone through for a number of months in preparation for action to be taken post-close. In terms of integration, as I mentioned a few questions ago, we have to make sure that we are very careful in our integration speed as we still are owning OSG, which is the optical business and PowerArtist. To make sure there's no contamination, there's no impact whatsoever in terms of the health of that business as we're handing it over to the buyer. So we are moving in some places where there's no impact. In other places, we're being very cautious and careful how fast do we go. Jay Vleeschhouwer: Okay. Shelagh, you made the interesting comment that you've already coordinated ANSYS' fiscal period with yours. And you noted the Q1 concentration. Following up on that, historically, ANSYS was indeed highly seasonal, particularly in their Q4, but not only in their Q4 because of 606 effects. So the question is, do you think that over time you could perhaps smooth out those seasonality and or 606 effects that they had so pronounced in their numbers? In other words, do you think you might change their lease and upfront model to more of your prevailing subscription model? Shelagh Glaser: Jay, that's certainly something we're looking at over time as we deploy new products and have new offerings for customers, how there might be more alignment with how we renew with customers, we give products to customers, and then we service them. So that's certainly something, but as you mentioned, that's a bit longer term because the renewal dates and the products that customers are buying are those have to be on the shelf right now. So as we move forward, there's an opportunity to do that. I do want to follow-up because you had a question for Sassine on the channel, I think. And so I want to make sure that we do address that. As a really important part of is about 25% of ANSYS. We're really thrilled to have such a robust channel, and we are ensuring that that's very smooth and that's very seamless, and those customers continue to get service. And then there's an opportunity, of course, because at Synopsys Classic, we did not have a channel. But now there's an opportunity for our products to be sold by those great partners. So there's no change whatsoever for the channel. They're just, you know, a wonderful asset, and we're ensuring that there's no disruption to the channel as we move forward. Jay Vleeschhouwer: Okay. Thank you. Kevin, I'll take one more question. Operator: Thank you. Our final question comes from Jason Celino with KeyBanc Capital Markets. Your line is open. Jason Celino: Hey. No. I appreciate you fitting me in. I'll just ask one. In the essence of time. I think, you know, you've mentioned multiple times that you've tried to derisk, you know, the Q4 guide to adjust for some of the headwinds you've been seeing. Without knowing how much ANSYS is contributing, it's hard to measure how conservative or derisked it is. So maybe I'll ask it a different way and say, you know, IP historically has been up sequentially for the past two years in Q4. Maybe it's regular seasonality or maybe it was something more specific. But, you know, given the headwinds you've seen directionally, you know, could we see the same trend again with seasonality in IP for the last couple of years? Sassine Ghazi: Jason, we do expect a transitional period and a muted year as we look ahead in IP. And that's due to the two factors we don't believe they will disappear in a short period of time. Now we have it balanced with a number of other opportunities to scale and deliver to the points I mentioned, like the subsystem opportunity, the serving the various markets, various foundries, etcetera, etcetera. But that's the expectation as we look ahead. Sassine Ghazi: Thank you all for joining our call. We look forward to talking you through the quarter. Sarah, could you please close us out? Operator: Thank you. This concludes today's conference. We thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry First Quarter Fiscal Year 2026 Conference Call. As a reminder, this conference call is being recorded for replay purposes. We have also made available in the Investor Relations section of our website at kornferry.com a copy of the financial presentation that we will be reviewing with you today. Before I turn the call over to your host, Mr. Gary Burnison, let me first read a cautionary statement to investors. Certain statements made in the call today, such as those relating to future performance, plans and goals constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, investors are cautioned not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties, which are beyond the company's control. Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic and other reports filed by the company with the SEC, including the company's annual report for fiscal year 2025 and in the company's soon to be filed quarterly report for the quarter ended July 31, 2025. Also, some of the comments today may reference non-GAAP financial measures such as constant currency amounts, EBITDA and adjusted EBITDA. Additional information concerning these measures, including reconciliations to the most directly comparable GAAP financial measures is contained in the financial presentation and earnings release relating to this call, both of which are posted in the Investor Relations section of the company's website at www.kornferry.com. With that, I'll turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison. Gary Burnison: Okay. Thank you, Regina, and thanks to everybody for joining us. I'm really, really pleased with our performance in the quarter. The team is going to get into the results in a little bit. But when I look at the results, even over the past few quarters, with all the choppiness, the uncertainty around tariffs, the labor and economic environment, it's clear that our strategy is working. In fact, when you consider our diversification strategy and the current and future demographic trends alone, the opportunity is immense. And I think that's evidenced this quarter by the growth in all of our solutions. And today, we're driving performance with a far more sophisticated, holistic approach that delivers our expertise and robust IP through integrated solutions in every region of the world. In the quarter, we won a number of notable engagements. I'll highlight a couple, a top pharma company with over 20,000 employees where we're building a globally aligned leadership team, helping them foster a culture of innovation and streamline talent development across the regions. It's part of a multiyear engagement or a FTSE 100 retailer, we're now the exclusive assessment provider across all levels of the organization using our consulting-led assessments and our digital at-scale solutions with the ambition to deliver our capabilities from the shop floor to the boardroom. And finally, a top provider of HR management software, where we're going to deliver a subscription-based digital solution, a global leadership offering that includes content, instructor-led materials, micro learning and more and that complements the consulting engagement that includes leadership assessments and coaching. And these are just 3 examples of how we're integrating multiple solutions to create enduring client partnerships. We also continue to make measured capital investments that extend our offerings and solutions and expand our impact with clients. And a case in point is Talent Suite, which offers seamless integration of proprietary IP and data and talent applications into 1 digital SaaS platform, which enables our clients to make better hiring decisions, structure their organizations, assess, develop and reward their talent. In other words, Talent Suite enables clients to unlock human and organizational potential at scale. Our evolution towards large-scale, multi-solution client engagements is real. As we change the fundamental composition and scale of our business, and when I just look at the tail of the tape, today, we have loyal, repeatable clients of scale. Marquee & Diamond accounts generating almost 40% of our revenue, a 10-year revenue CAGR of 10%, driven by an expanding set of diversified solutions. We have strong top line synergies with 25% of revenue generated from cross-solution referrals. Clearly, this diversification is driving resilience and durability in our business and contributing to sustained shareholder value, and that's evidenced through our balanced capital allocation strategy, which includes 6 dividend increases in the last 5 years and a demonstrated track record of M&A and share repurchases. I'm optimistic, truly optimistic about the trajectory of this firm and more importantly, the impact we're making. We have a strong foundation with incredible brand permission that is fostering deep client relationships. We have relevant, diverse, scale and increasingly more integrated solutions that are even more closely aligned with the talent needs of our clients. And through our disciplined approach, I'm confident we are poised and well positioned for the future. With that, Regina, I'll now turn it over to Bob. Bob, it's all yours. Robert Rozek: Great. Thanks, Gary, and good morning, good afternoon, depending on where you're at. The global business environment over the last quarter remained extremely uncertain with many lingering economic challenges, keeping investment spending cautious. Unresolved tariff issues added to ongoing geopolitical tensions, readings on inflation cause uncertainties as to whether interest rates would remain higher for longer. . And despite the impact of these uncertainties on business sentiment, our clients continue to see the impact and value of our services and solutions. Our financial results for the first quarter of fiscal '26 remained strong providing further proof that our integrated business strategy, which is really diversified across industries, geographies and solutions is working. In fact, the current economic environment has created opportunity for Korn Ferry to really strengthen our client relationships and continue becoming a trusted global partner of choice, helping our clients solve complex talent in organizational performance challenges. And today, we're helping our clients resolve these challenges with both our skilled workforce and our proprietary data and IP, which is really a product of decades of behavioral science research. Additionally, we focus our efforts to sell larger, more integrated solutions via our [indiscernible] Korn Ferry go-to-market strategy. We're paving the way for stronger, more durable long-term growth. I'm also pleased to share that we remain on track for the market launch of our new Talent Suite platform that Gary referenced this November. Talent Suite will enable our consultants and clients to more easily derive and prioritize insights across our multiple Talent products using client data, our own proprietary data and select third-party data to help them make better and more insightful talent decisions. Now in addition to the detailed results found in our posted earnings presentation, I just want to go over a couple of company-wide solution-specific highlights for the first quarter. As Gary mentioned, the Marquee & Diamond accounts remained strong at almost 40% of our consolidated fee revenue. And that program delivered a little better than 7% fee revenue growth when you look at it year-over-year. Our cross-solution referrals also remained strong at 25% of our consolidated fee revenue. Executive Search fee revenue also remained strong, growing 8% in the quarter, and that's our fifth consecutive quarter of year-over-year growth in that solution area. Professional search and interim fee revenue was up 10% year-over-year with growth in both professional services perm placement, plus 5% and interim was up 14%. Our digital subscription and licensed new business grew 10% year-over-year in the first quarter and with 39% of total digital new business, and that's going to continue to add stability and predictability to our overall revenue base. And last, our average bill rates in Consulting and Interim both grew year-over-year, Consulting by 9% and Interim by 4%. Now turning to company overall results. Our consolidated fee revenue grew 5% year-over-year to $709 million, which is a second consecutive quarter of positive growth. Earnings and profitability also continued to grow. Adjusted EBITDA grew $9 million or 8% year-over-year to $120 million. Adjusted EBITDA margin grew 50 basis points year-over-year to 17% and our adjusted diluted earnings per share grew $0.13 or 11% year-over-year to $1.31. Total company new business, excluding RPO, grew 5% year-over-year led by strength in EMEA and APAC. Our RPO delivered $99 million of new business in the quarter, 46% of that came from new logos, 54% from renewals and the renewals included one large financial institution at $32 million. Estimated remaining fees under existing contracts also remained strong in the first quarter. Now as a reminder, this operating metric that we introduced last quarter is the quarter ending estimated fees under existing contracts to be recognized in future periods. At the end of the first quarter, this amounted to $1.67 billion, which was up 9% year-over-year. Of this amount, we expect approximately 58% or $972 million will be recognized as fees within the next year and 42% or $702 million to be recognized thereafter. Now turning to our regional results. Fee revenue in the Americas was down 2% year-over-year, with growth in Executive Search and RPO being offset by slightly lower demand in consulting, digital and professional search and interim. EMEA fee revenue was strong, growing 19% year-over-year, and we saw growth in all solutions. APAC fee revenue was also strong, growing 12% year-over-year also with growth in all solutions. And finally, our capital allocation in the first quarter remained balanced as we returned $36 million to shareholders through combined share repurchases and dividends, and we invested $22 million in capital expenditures focused on Talent Suite, our new technology platform as well as productivity tools and other product enhancements. Now turning to our outlook for the second quarter of fiscal '26. Assuming no further changes in worldwide geopolitical conditions, economic conditions, financial markets and foreign exchange rates, we expect fee revenue in the second quarter of fiscal '26 to range from $690 million to $710 million. Our adjusted EBITDA margin to range from approximately 17% to 17.5% and our consolidated adjusted diluted earnings per share to range from $1.23 to $1.33. Finally, we expect our GAAP diluted earnings per share in the second quarter to range from $1.10 to $1.16. Now I'd like to note that our GAAP diluted earnings per share includes approximately $10 million or $0.14 per share of accelerated depreciation, and that's related to our current product technology platform, which will be sunsetted as the Talent Suite is commercially launched at the beginning of the third quarter in November. We remain committed to controlling what we can control, leaning into identified growth opportunities and driving operational excellence. We will continue to promote a culture of innovation and remain focused on delivering outstanding client service. Korn Ferry is a global consulting firm that powers client performance. We're focused on improving our go-to-market efforts, engaging with our clients as one firm, we are Korn Ferry. We are well positioned for the next step in our growth, and I'm more confident and excited than I've ever been about what this company can become. With that, we would be glad to answer any questions you may have. Operator: [Operator Instructions] Our first question will come from the line of Trevor Romeo with William Blair. Trevor Romeo: Just maybe I had a couple on your digital business to start, the Talent Suite rollout coming up in November. As you're getting ready for that commercial launch, I guess, what are some of the key milestones you'll be tracking there? And how should we be thinking about maybe the time line for the benefits there to start flowing through the financials? Gary Burnison: Well, I think the benefits will take some time. I think it will be towards the end of calendar '26 realistically when we start to see the true benefits of it. Some of the milestones that we are working on include the partnerships that we have and further accelerating the go-to-market strategy around those partnerships. That's very important, particularly with the 3 or 4 large HCM players, that's certainly one thing we're working on. The second is enabling our colleagues and training our colleagues. We have a robust schedule in front of us to train all of our 1,800 frontline consultants on awareness and provocation, and selling of the Talent Suite. That's going to be happening over the next 6 months starting in October. And we also have a targeted strategy with milestones there around our Marquee and Diamond accounts. So it's really kind of a balanced approach here, a multipronged approach. Outside with partners, with our Marquee & Diamond accounts top down, bottom up with many of our clients, then there's an internal mobility strategy as well. Trevor Romeo: Thanks, Gary. Maybe just one quick follow-up on digital. The subscription and license piece of the segment going above, I think, 40% of segment revenue now. Could you maybe just remind us what is your kind of long-term aspirational target for how big those subscriptions could grow as a percentage of that segment? Gary Burnison: Well, we'd like to see it be north of, say, 60%, but that's certainly not in the next several months. But I just think there's this opportunity to impact a lot of people's lives and the destination of organizations through our IP, and we just have to figure out the best way to drive scale. And I think the best way to drive scale in that business is through our partnerships that we have. And we -- that's something that we're going to pursue very aggressively. Robert Rozek: Trevor, this is Bob. One thing I would add to that, as you think about Talent Suite, obviously, selling subscriptions and licenses is important for us. But it is -- also think about it as an enabler of the delivery of our other services solutions. So whether it's Talent acquisition, it's consulting, other areas in the organization are going to really benefit from having all of the assets, IP, data content, what we call foundational assets at the center of the organization, right? And they're going to be able to much easier -- gain much easier access and utilization of those. And then we have a reporting and analytics layer. And then when you layer on AI and Gen AI in terms of being able to access, slice and dice data much faster, easier, quicker you have to think about it more broadly than just selling subscriptions and licenses. Trevor Romeo: Great. And then maybe one more, if you don't mind. Maybe for you, Bob. Just on the guidance, I think typically, Q2 is a little bit of a stronger seasonal revenue quarter for you. So I guess the guidance may be a slight dip at the midpoint sequentially for revenue. Can we just maybe reconcile that. Should we read that as a little bit of conservatism or any reasons across the businesses that would make you think you wouldn't see a little bit of an uptick? Robert Rozek: I would say, Trevor, just given the uncertainties in the backdrop out there, we're probably on little bit on the conservative side. Operator: Our next question will come from the line of Tobey Sommer with Truist. Tobey Sommer: I wanted to ask what you're hearing from clients. You mentioned in your -- that uncertainty out in the economy prompted some conservatism in guidance, we see the BLS revision lower here this morning for job creation over the last year, maybe rates starting to come down here at the Fed sometime soon. What are customers telling you? Gary Burnison: Well, it depends where you are in the world. Look, everybody has got to play on the pitch. Everybody is dealing with the same economic and labor environment. I've spent the last several months with clients and colleagues in Europe in many different countries. And I think, broadly speaking, there's a great deal of optimism. And in the Americas, I think people are dealing with the lack of pricing power and the fact that costs have escalated 50% over the last 5.5 to 6 years. And look, I'm not surprised at all by the downward revision in those BLS numbers. I mean that's not shocking. There's been a labor recession for 2 years. And so companies are -- they're not doing massive downsizing, but they're letting natural attrition take its course and they're not replacing those hires. And then the other big thing not only in Europe, but in America and Asia is what does AI do long term in terms of how does an organization get work done. And with how many people. We've seen a really good rebound in Asia. And we've seen it in the numbers, both Europe and Asia really performed well. That was fairly broad-based in both regions. Life Sciences clients are -- that's a tougher deal as well as health care. We've seen a lot of great activity in industrial, which is 30% of the company. Private equity has been a source of significant strength because they have thousands of companies that are past their sell by date. And because of that, they're actually having to go in and think about how you really operate the company beyond just cutting costs and increasing EBITDA. So those would be the major themes that I've heard from clients directly. Tobey Sommer: Just sort of a specific question on consulting, if I could. With respect to your merger and divestiture kind of services in playbook. What are you seeing there? Because we've seen sort of an uptick in at least announced deals. And many of them seem to be sort of corporate breakups, I'm wondering if you're participating in that from a consulting perspective? Gary Burnison: There's actually -- there are a couple that we are participating. I can't talk about it, but there are a couple. But I think the bigger activity has actually been on the private equity side. And I think that's a direct result of firms hanging on to portfolio companies longer and the work that has to be done beyond 3, 4, 5 years. Tobey Sommer: Appreciate that. Last question for me is if we do see an appreciable uptick in demand or across the businesses and get a little bit faster revenue growth for the firm. Do you have some excess capacity now sort of in the businesses to be able to meet that? Or might you need to step on the gas with hiring and have sort of flat to down-ish margins for a quarter or 2 while you ramp things up? Gary Burnison: No. We're continually managing that talent. And I do think that there is capacity. And I think the big question what do you have to believe for this economic environment that we've seen now for a couple of years to actually turn. There's got to be some significant rate cuts. The Fed has been slow. It was never transitory several years ago. Anybody with any common sense could have said that. And that's what you have to see to get this thing going. Robert Rozek: Tobey, it's Bob. The other thing I would add to that, too, is we've set ourselves formally organized around AI, Gen AI and we're driving that into the organization. So from a capacity perspective, I would expect that to help us get through any groundswell that comes out of a more rapid rebound. Operator: Our next question comes from the line of George Tong with Goldman Sachs. Unknown Analyst: This is Sami on for George. Could you talk about how consulting new business performed in the quarter? What is your outlook for consulting for the remainder of the year? Any -- and the key drivers behind your expectations? Gary Burnison: Well, I think it's going to depend regionally too. I'm not looking -- I just don't think the economic environment particularly is going to change dramatically unless we see the Fed take action. And I think it's been a very, very difficult consulting market for 8 quarters now. And when you look at the overall firm results quarter on quarter-on-quarter and what I would characterize as the labor recession, it is incredibly, incredibly impressive. And so I would assume that in Europe and Asia, we're going to see continued momentum with our consulting solutions. And in the Americas, I think it's going to be a bit more challenging given the backdrop of what we're dealing with. And then the other move that we're making and this is not new. But many, many years ago, we said, look, we've got to get into bigger, larger scale and as Bob said, more integrated solutions, delivering impact to our clients. And so we purposely made an effort towards bigger, more transformational assignments. And it shows in the numbers. This isn't just rhetoric. When you look at the average look at rate per out as an example. That has gone from -- it's gone up 50% from $300 an hour, just a few years ago, to now almost $500 an hour, $470 an hour. When you look at the backlog, the backlog is actually increasing in consulting, 42% of that backlog is engagements over $1 million. And when you look at the new wins, those are also a good part of them, not the majority, but a good part are over $1 million. So what's happening is we're moving the entire organization towards more integrated solutions. The numbers reflect that. And with that then becomes a slower consumption by clients of the backlog. And so when we look at new business, it was your specific question in consulting, in the quarter, it was decent. I mean it was definitely on the plus side. But I tend to look at the firm as a whole and what we're doing there. And I just think you look quarter-on-quarter in the environment that's been very difficult and looking at the company's profitability, it's impressive. Unknown Analyst: Got it. And on digital, the number of consultants was down significantly this quarter. Could you talk about what drove the decision to reduce digital head count, especially given you have the launch of Talent Suite coming up? And is the head count now fully aligned with the current demand? Or could we see further rightsizing? Gary Burnison: Well, we are always managing the workforce, and so we've done it over the last 2 to 3 years, if you look at professional search and interim, for example, you'll find there that we've made significant changes in that workforce and reposition that workforce, and we've done the same thing in digital. So for us, it's -- again, it's around the firm. And it's not around these segments. It's around enabling the entire firm to be able to deliver the platform. And that platform is at its very, very foundation, how do you unlock human and organizational performance. How do you design an organization? How do you assess what type of leaders do you need? How do you develop and how do you pay them? That's what it's about. So it's not strictly around the 236 digital sellers that we have. It's around the entire firm. And the 1,800 frontline consultants that we have and their ability to deliver the entire firm. Unknown Analyst: That's helpful. Operator: Our next question comes from the line of Josh Chan with UBS. Joshua Chan: If I look at the -- if I look at the geography, the North American part of the business, most parts of the business is down somewhat, which jives with the macro, but Exec Search is still up in North America. So what's going on in Exec Search that's allowing that part of your business to really seemingly outperform the environment? Gary Burnison: Yes. It's a combination of [indiscernible]. It's the phenomenon where I've talked about this for a good 6 quarters, 7 quarters, it's peak 65, so there's the demographic shifts and trends that I referred to in my opening comment. So you've got that playing out. You've got the fact that many of the executives in the C-suite we're probably in the C-suite during COVID. And so you had a period of going from light to darkness to light and all the things in between around that time than the subsequent pent-up demand and great resignation. And so you've got people that are making the decision for themselves around work-life balance. Then you have boards looking at the C-suite and saying, is the leadership team that I need over the next 5 years what are their skills that will be needed and versus the past 5 years. So it's really those combination of factors that I believe are driving the Executive Search business. Joshua Chan: Great, Gary. And I think you guys also mentioned that in a choppy environment that could provide some opportunity for you to strengthen your position. I'm sure you'd love a stronger environment, but curious how you can still win business in a weaker environment and what kind of opportunities those might be? Gary Burnison: Yes. This is the best environment. I mean it's we're on most motivated. This is where good companies become great companies. It's only in these types of environments because people don't change unless there's a reason to change. And I think the environment gives us that reason to change. So I look at it and I -- it's not a question of just dealing with ambiguity, but it's embracing the ambiguity. And I love the environment and it does present opportunities for us, and it presents an opportunity even internally around how we think about ourselves and do we think about ourselves as business segments or do you think about yourself as Korn Ferry? And the truth is that we don't have the 5 businesses. We have 1 business, which is Korn Ferry. We have 5 solutions, but we have 1 business. And so the ability to change mindset in an environment like this, you have to take advantage of it. And that's what we're doing, and that's what we plan to do over the next several months is to continue to change mindset particularly around how we go to market. Robert Rozek: One of the things that I've talked about quite a bit with investors is when the world is somewhat [indiscernible] chaotic. It's actually, as Gary mentioned, a good thing for us. Think about Covid hit, everybody went home. Work got done differently, different work had to be get done and organizations turn to us to help figure that out. Right now, there's a lot of uncertainty out there, AI, Gen AIs out there. How do I change -- how does that impact my workforce? Does it change my job profiles? Do people have the right skills, to any different people. So when there's chaos out in the world and organizations are trying to figure their way through it, they turn to us to help them do that. So for -- as Gary indicated, it's actually a good thing for us. Joshua Chan: That's an interesting perspective. Operator: Our next question will come from the line of Mark Marcon with Baird. Mark Marcon: Gary in your discussion, you talked a lot about some of the bigger deals that you've been signing and you specifically noted one with a big HCM company. I'm wondering if you can elaborate in terms of what you're going to do for them? Gary Burnison: I'm not going to get into -- it's really a transformational program centered around leadership development. And so it's a big learning engagement where that particular client is not only licensing our IP around developing and transforming a workforce, but it also includes consulting with assessments in coaching. So it's really around kind of transforming a workforce in transforming not just skill set, but mindset, and it's using both our IP and consulting. Mark Marcon: That's really interesting. How big of a program could something like that be? Gary Burnison: These are typically multiyear and several million dollars. I'm not saying that this particular one is that, but that's generally what these look like. And part of it then is it gets consumed by the clients, not the digital piece, but the consulting wraparound on these leadership development programs, they have to consume it. They have to pull it down on the shelf. And that's why I can think of one that is huge. It was an 8-digit sale to a massive, massive organization. And we are now -- we've just completed year 3, and we've touched about 40% of that organization. And so the consumption of all of those services, not the IP, obviously, but the consumption of the services is really dependent on the client's speed, not on us. And that's one reason why you see the backlog, for example, in consulting increasing is because of that phenomenon moving to multiyear, multimillion dollar engagements. Mark Marcon: That's great. Gary, we have been in a labor recession. You guys have held up the best of arguably any of the major players that are out there that most investors look at. You've been getting more and more into professional search and interim. You've made a number of acquisitions there. I'm wondering as the environment remains relatively uncertain, what's your posture there? What have you learned from the acquisitions that you've made in terms of [indiscernible] what are the types of acquisitions, the best spaces where you guys actually fit? And how many more opportunities are there in terms of bolstering the areas where you really do fit? Gary Burnison: I think the pro search -- let me bifurcate that. The pro search market, as you said, is enormous. Today, most of that business that we have, most of that solution is in the U.S. What we've learned is the contingent part of that market opportunity does not work for us for the most part. So the learning there is we love the market. We want to go into it, but we also want to be eyes wide open. We don't want to be in contingent recruiting. It doesn't fit well with the brand in the Marquee and Diamond account strategy. And there is a -- still a big opportunity outside the U.S. we're underpenetrated there. And we have to be very cognizant both in pro search and interim as to what technology is going to do to a company's labor force over the next 5 or 10 years. So we have to be very, very targeted there and very smart. On the interim side, what we've learned is that it is, number one, why did we get into it? We got into it because we see a mega trend that's playing out that we continue things going to play out even with AI, with fractional workers. And so we think that megatrend is something that we should invest into. What we've learned there is that it is very synergistic with our brand. And similar to Pro Search, the opportunity is quite significant outside of the United States. And in fact, when you look at both pro search and interim, you would find that 70% or so of our solution today is in the United States. And there's an enormous market opportunity. I think you would see us on the acquisition side, more oriented towards interim than pro search because on the pro search side, there are a number of transactions we could do today. But will those transactions would come with a large pro search contingent piece, which we don't think is commensurate with our brand. Robert Rozek: Mark, just maybe a little bit more color. A couple of things for me that have been learning, Gary mentioned the synergistic in the ability to sell across the organization within the interim business itself, since we started down that path, we've created over 1,200 incremental opportunities by referring work across the system that never would have existed in those organizations had they stayed independent. And the other thing is I talk to people in the field that I find very interesting is a lot of our clients are asking us, you do my firm hiring now, why wouldn't you help us with the interim or temporary labor force as well. So I think there's -- the market is used as Gary indicated, and there's great demand amongst our client base. And it is extremely synergistic as you bring it into this organization. Mark Marcon: That's terrific. And then can I just ask about AI, twofold question. One is, clearly, there's been a labor recession for anybody who's been following the labor market for some time. And the question revolves around like even if we do see some [indiscernible] a little bit more actively. Gary, what do you think about the chance of uncertainty around AI kind of freezing certain employers. And in some cases, we are seeing some sections where labor demand is being reduced by AI. So I'm just wondering what you're seeing on the client front. . And then secondly, you mentioned you're injecting [indiscernible] processes. Wondering if you can be a little bit more specific in terms of specific areas that you're injecting to AI? How much are you spending there? And do you expect it to be an efficiency driver? And what's that impact going to be in terms of your own headcount? Gary Burnison: I'll let Bob -- Bob, you can address the second part. I guess I would -- none of us have a crystal ball. I would say when you look at the -- take the America, there's no question that lower birth rates over the last 30 years, are going to result in significantly less people coming into the labor force over the next many years. And so therefore, if a country wants to grow productivity like America has done at 2% a year, how does that supply and demand imbalance get corrected. Well, it gets corrected through technology. So I think there will be whether -- in whatever form that is, agentic AI, whatever it is, I think there will be a massive sucking sound, and it will be this huge pull that technology will have to bridge that -- less people into the American workforce. So I think that's undeniable. That's mathematics, that's data. And in this environment, that companies have been dealing with now for a couple of years, the reality people can talk about inflation at 2% or 2.5% to 3%, that is like such [[indiscernible] the fact is costs are up 40% to 50%, and that's a direct result of COVID. So in this environment, companies are having to look at ways to deliver impact to their customers more efficiently. And that has played out in the labor force over the last 8 quarters by letting -- for the most part, letting attrition take its course and not being so hell-bent on replacing those people that leave. There's no doubt that when you look at what you can do today with AI that any CEO would be absolutely looking at their organization and saying, what does this mean for my workforce strategy and it invariably has to mean, but I'm probably going to have less employees. I don't see how one would come to a different conclusion than that. And so for us, -- we are -- broadly, there's inside out and outside in inside out. We're doing the things that you would expect around our own workforce and how we mobilize that workforce with AI. And then there's the outside in with our delivery services and not only the consulting engagements, such as we have today around going into an organization and saying, are they AI ready, which we have many, many of those engagements, we're actually using, again, our IP to assess and benchmark company's AI readiness. But we're also using it relative to our assessment and coaching engagements. So Bob, maybe you could take the second part of Mark's question. Robert Rozek: Sure. So Mark, we're -- we actually are making investments into this area that are fairly substantial. Now we haven't gone out and hired a bunch of people. What we've done is we've taken approximately 40 individuals who had been within each of our solution areas, working on various aspects of AI, Gen AI and we've organized them under a central leader only, Brian Akerman. And Brian is driving the AI, Gen AI usage in the firm. We -- so we've taken those roughly 40 people centralize them. We now have rolled out licenses depending on your skill level or what your job role is and so on, the licenses may have -- some might be more -- have more efficacy than others. And we're going through right now and figuring out the impact that the AIG is going to have on our work. I guess where we are today, if you think about AI and Gen AI, it's -- to me, it's -- mantra is human plus AI. So it's really looking at those as efficiency tools. I think where it potentially gets more interesting is with the use of agents ultimately as they will be integrated into workflows work process, and so the impact of that is obviously something that we're going to -- we'll figure out, but that's down the road. I would say that as I look at our workforce scale, Gary mentioned a couple of times on the call, our backlog, right? So to me, it's not just about how do I look at AI and Gen AI as a way to get our head count down. But it's also a way is how do I take out some of the menial tasks that folks are doing today and I could take that freed-up capacity and use that to deliver the backlog that we have. So in my mind, it's sort of a combination of, yes, will it have an impact on our overall head count? Absolutely. But it's also going to give us the ability to free up capacity to provide and deliver services to our clients more -- on a more rapid basis. Operator: And it appears that there are no further questions, Mr. Burnison. Gary Burnison: Okay. Regina, thank you for hosting us, and we certainly appreciate you listening to our story. And we look forward to talking to you here over the next few days and over the next quarter. Thanks a lot. Operator: Ladies and gentlemen, this conference call will be available for replay for 1 week starting running through the day September 16, 2025; and at midnight. You may access the Echo replay service by dialing (800) 770-2030 and entering the access code 5927-661 followed by the pound key. Additionally, the replay will be available for playback at the company's website, www.kornferry.com in the Investor Relations section. This concludes our call today. Thank you for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter 2025 Hello Group, Inc. Earnings Conference Call. Please note, this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Ms. Ashley Jing. Thank you. Please go ahead, ma'am. Ashley Jing: Thank you, operator. Good morning, and good evening, everyone. Thank you for joining us today for -- hello Group's Second Quarter 2025 Earnings Conference Call. The company's results were released earlier today and are available on the company's IR website. On the call today are Mr. Tang Yan, CEO of the company; Ms. Zhang Sichuan, COO of the company; and Ms. Peng Hui, CFO of the company. They will discuss the company's business operations and highlights as well as the financials and guidance. We will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law. I will now pass the call over to our COO, Ms. Zhang Sichuan. Mr. Zhang? Sichuan Zhang: Thank you. Appreciate it. Hello, everyone. Thank you for joining our call. In Q2, both our domestic and overseas business continued to see positive trends again at the start of the year, achieving good results across various operational and financial metrics. Next, I will give you an update on execution of our strategic goals. Starting with the financial performance. For Q2 '25, total group revenue was RMB 2.62 billion, down 3% year-over-year. Domestic revenue reached RMB 2.18 billion, down 11% year-over-year, while overseas business was RMB 442 million, up 73% year-over-year. Adjusted operating income was RMB 448 million, down 6% from Q2 last year with a margin of 17%. Our key priorities for 2025 include the following: for Momo, the goal is to maintain the productivity of this cash cow business with the healthy social ecosystem. For Tantan, the goal is to maintain and improve its core dating experience and build an efficient business model that drives profitable growth. For the new endeavors, our goal is to continue deepening our presence in overseas markets, enriching our brand portfolio and building a long-term growth engine. In the first half of 2025, our domestic business gradually stabilized with both revenue and profit exceeding our initial expectations. For overseas business, we continue to drive rapid revenue growth with controllable costs and expenses. And now let me walk you through the details. First, on Momo app, all products and user acquisition efforts were focused around the goal of ensuring the productivity of the cash cow business. On the product side, the focus was to enhance user track experience to ensure long-term stability through our healthy social ecosystem. In Q2, we fully roll out in-house developed AI greeting feature, which have male users to generate personalized reading, driving the rates up by a high single-digit percentage. Using our use of AI to enhance icebreaking chat experience, we have also been testing an AI chat assistant feature, which provides content suggestion for male users during the ongoing conversations. This feature drives an increase in number of multiround conversation and rate of in-depth tracks, thereby improving retention and playing positive growth in stabilizing Momo's user base. On the user acquisition front, we further refined our approach based on ROI and reduced the budget of inefficient channels. We also optimized acquisition materials for high ARPPU users and drove sequential growth in ARPPU by enhancing the on-boarding experience for paying features among users from these channels. The reduction in unit acquisition costs combined with the ARPPU growth drove further improvement in ROI, which has already achieved a target greater than 100% in Q1. The overall user retention remained stable despite increased channel investments thanks to the improved user experience driven by product enhancements and algorithm optimization as well as the ability to accommodate channel users more effectively. In Q2, Momo app had 3.5 million paying users, a sequential decrease of 0.6 million due to our ongoing efforts to cut user acquisition investments with negative ROI. Since the ultra low paying users that we proactively abandon, make very limited contribution to the top line. The absence of this group has had a very minimal negative impact on revenue. Instead, their absence contribute to an improvement in profitability. We believe that the current user acquisition environment in China has fundamentally changed from the pre-pandemic experience and our user acquisition strategy to also evolve to achieve ongoing improvements in ROI. I believe that -- I'm confident that both Momo and Tantan still have room for continuous improvement in this area. Now on the productivity of the cash -- of Momo cash cow capital. In Q2, Momo value-added service revenue reached RMB 1.85 billion, down 11% year-over-year. The decline was mainly due to the soft spending sentiment among high-paying users, particularly in live streaming experience amid the weak macro environment. In light of this, we increased operational efforts in chat room experience, which is popular among mid cohort users. We adjusted common recommendation algorithm to enhance penetration rates and user scale of the audio and video-based experiences thereby stimulating consumption amongst mid cohort users. After the seasonal lows in Q2, reorganized non-bonus driven competition events in live streaming and increased the exposure rate of high-quality broadcasters to high-paying users in our algorithm. On the product side, we introduced new interactive gifts that further facilitate relationship building and paying conversion between users and broadcasters. With the joint efforts of our algorithm and product, we enhanced our traffic monetization efficiency, coupled with a seasonal recovery. VAS revenue increased 4% from last quarter. Turning to Tantan. In order to maintain profitability amid revenue pressure, we continue our strategy of reducing channel investments in Q2. A plan initiated at the start of the year with a target ROI of over 100%, we further scaled back budgets for underperforming channels. This decrease in channel traffic puts some pressure on the overall user scale. However, organic user growth show a positive trend since the beginning of the year and increased steadily over quarter-over-quarter, which potentially offset the decline in user numbers caused by the reduction in marketing expense. In June, Tantan's MAU reached 10.2 million, down 5% from last quarter. As of the end of Q2, Tantan had 740,000 paying users, a decrease of 80,000 from Q1. In addition to a decrease in MAU, another reason for the decline in paying users is the short-term pressure on the paying conversion caused by the improvement in user experience associated with the product upgrade. Following the full-scale rollout of the pilot projects, there was a slight quarter-over-quarter decrease in paying ratio. Turning to Tantan's financials. Revenue from the onshore business in Q2 was RMB 160 million, down 18% year-over-year and 4% quarter-over-quarter. The revenue decrease was due to a decline in the number of paying users, but ARPPU increased 18% year-over-year and 8% quarter-over-quarter, which particularly alleviated the pressure on revenue. At the product level, to explore dating experiences for Asian, we launched product upgrades from last year. Our key efforts included: first, strengthening view user application to enhance user authenticity and brand trust. Number two, we're focusing on the core dating experience by simplifying the UI layout to focus on key information, while downplaying noncore dating features such as fees and good track. The improvement in user experience has a certain negative impact on paying ratio and user retention. The upgraded version was fully rolled out in Q2. And currently, we are mitigated the negative impact of the new version on user metrics and amortization through continuous product fine-tuning. On user acquisition, our goal was to achieve 100% ROI including personnel costs and to eliminate budgets from the underperforming channels. The unit acquisition cost narrowed significantly and ARPPU will slightly compared to last quarter. In Q2, ROI remained stable at a level far exceeding 100%. The improvement in organic traffic and in the channel ROI has led to a significant year-over-year and quarter-over-quarter growth in Tantan's profitability. In terms of monetization, we mitigated the impact of the product upgrade on paying ratio by restructuring the membership package and refining the operations of core cities and user groups. The differentiated product design and pricing schemes has driven a continuous increase in ARPPU, recording a revenue decline that is significantly smaller than the decrease in the number of paying users. Lastly, on the overseas business. In Q2, overseas revenue reached RMB 442 million, up 17.3% year-over-year and 7% quarter-over-quarter. The overseas revenue accounted for 17% of the group revenue compared to 10% in the same period last year. In Q2, overseas revenue maintained its rapid growth momentum driven by the audio and video-based social product in the MENA region. Soulchill product optimization to the core chat room experience, boosted both the paying conversion ratio and the paying user accounts, thereby driving the crucial revenue growth from a high base. for Yahale and Amar, the local teams drove growth involves the number of paying users and ARPPU by continuously optimizing product features and strictly adhering to a paying user-oriented acquisition strategy. We initiated expected the overseas revenue would have grow even faster with more aggressive marketing expansion. We decided to be more prudent due to the following reasons. Number one, train -- Soulchill expansion to an affluent Gulf region, we felt the need for a better segmentation among different user groups. Therefore, we are currently trying to penetrate the market with a stand-alone app, which might take a bit more time. Number two, we noticed that the unit acquisition costs increased a bit too fast as we increased channel investment in two new apps. Therefore, we decided to move a bit slowly on the marketing expansion plans, focusing on improving ARPPU and optimizing acquisition costs, first. We will increase our channel investment again once ROI reaches a satisfactory level. We prefer such kind of prudent model that balance growth and bottom line because it prevents the from entering an awkward offer situation, where the rapid top line expansion is achieved through bottom line sacrifice. It's worth to mention that our overseas business is not limited to audio and video-based social product in the MENA market. Another key focus of our overseas business lies in the dating market across developed countries. Turning the overseas dating products led by our Singapore team already contributed a double-digit percentage of our total overseas revenue, primarily driven by Tantan International. After checking over last year, the Singapore team, we evaluated the brand positioning and product strategy for overseas Chinese and other Asian country users. Tantan International shifted from balancing entertainment and dating to focusing on the core dating experience. Based on this, we have initiated the product and branding. After 1 year's effort, Tantan International revenue has now stabilized. Moving forward, we will focus on dating and the growth opportunities in overseas Chinese communities and the Southeast Asia market. We plan to take Tantan International as a pilot product to our presence in our overseas stating field, providing users with some more dating brands that facilitate the discovery of romantic relationships and effectively establish connection from online to offline. This concludes my remarks. Now let me pass the call over to Cathy for the financial review. Cathy, please. Cathy Peng: Thank you, Sic. Hello, everyone. Thank you for joining our conference call today. Now let me take you through the financial review. Total revenue for the second quarter 2025 was RMB 2.62 billion, down 3% year-on-year, but up 4% quarter-over-quarter. Non-GAAP net loss was RMB 96.0 million compared to RMB 449.2 million from the same period of 2024. In the second quarter, we accrued an additional amount of withholding income tax of RMB 547.9 million, associated with profits generated by our -- in China for prior periods. I will elaborate on this accounting treatment later. This tax expense item is one-off in nature and did not reflect the normal business operations of the current and future periods. Excluding this special item, non-GAAP net income for the quarter would have been RMB 451.9 million, up 1% from Q2 last year and 12% from last quarter. Looking into the key revenue items for Q2. Total revenue from value added services for the second quarter of 2025 was RMB 2.58 billion, down 3% year-on-year, but up 4% quarter-on-quarter. On a user geography basis, PRC Mainland SaaS revenue was RMB 2.14 billion, down 11% year-on-year, but up 3% quarter-over-quarter. The year-over-year decrease was primarily due to soft consumer sentiment stemming from the macro factors, which put pressure on Momo business, and, to a lesser degree, a decline in compound paying users. The sequential increase was primarily driven by the recovery from Q1 seasonal weakness. VAS overseas revenue came in at RMB 440.7 million, up 73% year-over-year and 7% quarter-over-quarter. The year-over-year and sequential growth was mainly driven by the rapid expansion from multiple social entertainment and dating brands across our rich portfolio. Turning to cost and expenses. Non-GAAP cost of revenue for the second quarter of 2025 was RMB 1.60 billion compared to RMB 1.59 billion for the same period last year. Non-GAAP gross margin for the quarter was 38.8%, down 2 percentage points from the year ago period. The year-over-year decrease was due to three factors. Number one, an elevated payout ratio driven by structural revenue shifts towards overseas markets, which have a higher payout ratio, especially during fast expansion phases. Number two, workforce optimization leading to one-off severance payments. Number three, payment channel costs and structure -- infrastructure expenses accounted for a larger revenue proportion due to geographic mix tilting towards international operations, where fee structures are systematically higher compared to domestic business. Non-GAAP R&D expenses for the second quarter was RMB 172.0 million compared to RMB 179.7 million for the same period last year, representing a 4% decrease year-over-year. The decrease was attributed to personnel optimization. Non-GAAP R&D expenses remained stable at 7% of revenue, consistent with the figure from the previous year. We ended the quarter with 1,268 total employees compared to 1,364 from a year ago. The R&D personnel as a percentage of total employees for the group was 58% compared with 62% from Q2 last year. Non-GAAP sales and marketing expenses for the second quarter was RMB 239.7 million compared to RMB 360.6 million for the same period last year, both representing 13% of total revenue. The year-over-year decrease in sales and marketing expenses was attributable to the ongoing cost control strategy for the PRC Mainland businesses where both Momo and Tantan narrowed their marketing spend. This decrease was partially offset by the increase in channel investment for the overseas app. Non-GAAP G&A expenses was RMB 67.5 million for the second quarter compared to RMB 89.5 million for the same quarter last year, both representing 3% of total revenue. Non-GAAP operating income was RMB 447.7 million with a margin of 17.1% compared with RMB 476.5 million with a margin of 17.7% from the same period last year. Non-GAAP operating expenses as a percentage of total revenue was 22%, a decrease from 23% from Q2 2024. Now on income tax expenses. Total income tax expenses was RMB 638 million for the quarter. In Q2, the company accrued withholding income tax of RMB 578 million, of which RMB 547.9 million was a special item -- special nonrecurring item related to prior periods, namely that in the second quarter of 2025, we accrued an additional withholding tax of RMB 547.9 million, related to dividends paid or payable by our WOFE in Mainland China to its offshore parent company in Hong Kong. This accrual followed a notice received by our WOFE Momo Beijing from the Chinese tax authorities requiring it to withhold tax at the standard rate of 10% instead of the previously applied preferential rate of 5%. While the company continues to believe our initial assessment was reasonable, we note the authorities most recent interpretation and position and have complied accordingly. Among the total amount accrued, RMB 356.1 million was related to dividends paid by WOFE in 2024 and in the first half of 2025, and this amount has been paid in September 2025. The remaining RMB 191.8 million was the additional 5% withholding tax accrued for the undistributed retained earnings of Momo Beijing as of March 31, 2025. So from Q2 2025 onwards, we will accrue withholding tax rate at 10% and for profit generated by our Beijing WOFE. Without withholding tax, our estimated non-GAAP effective tax rate was around 11% in the second quarter. Now turning to balance sheet and cash flow items. As of June 30, 2025, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits and restricted cash totaled RMB 12.39 billion compared to RMB 14.73 billion as of December 31, 2024. The decrease in cash reserves was largely attributable to the repayment of RMB 1.76 billion bank loan, including accrued interest in the first half of 2025. Additionally, in Q2, we paid an equivalent of RMB 346 -- we paid an equivalent of RMB 346 million cash dividend to our shareholders. Net cash provided by operating activities in the second quarter 2025 was RMB 250.1 million. Lastly, on business outlook. We estimated our third quarter revenue to come in the range from RMB 2.59 billion to RMB 2.69 billion, representing a decrease of 3.2% to an increase of 0.6% year-on-year. This is based on assumption that on a year-over-year basis, PRC Mainland business will decrease mid- to low teens, while overseas revenue is expected to grow in mid-60s. Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to changes. That concluded the prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please. Ashley Jing: Thank you. Just before we take the questions, for those who can speak Chinese, please ask your questions in Chinese first, followed by Enrich translation by yourself. Thank you. And operator, we're ready to take questions, please. Operator: [Operator Instructions] Your first question comes from Thomas Chong from Jefferies. Thomas Chong: [Foreign Language] We have seen Momo fundamentals in first half came in better than expectations set in early 2025. Can you talk about our second half outlook. On the other hand, we just talk about different AI tools like AI greetings and AI chat assistance. Can you also talk about what are our thoughts and strategy on AI application? Ashley Jing: [Interpreted] Let me translate this first. So Momo revenue achieved a sequential growth in the second quarter, primarily due to seasonal recovery. Additionally, with some the relatively stable consumer sentiment and regulatory environment, we took this opportunity to organize a number of nonbonus-oriented competition events. By offering the winners incentives such as training tours abroad or production of heat music videos, instead of simply cash rewards. We simulated broadcasters participation in this competition events at a relatively low cost. Whether this trend can be sustained in the second half of the year, largely depends on the overall consumer sentiment as well as the enthusiasm of agency and broadcasters. Regarding consumer sentiment. We currently do not see any significant deterioration, but are relatively fragile overall. On the other hand, due to some new tax regulations, agents and broadcasters may be affected in the second half of the year. Internally, we are adjusting our operational policies to address this issue. The main goal of our policy adjustment is to help the supply side enhance compliance while maintaining the normal and reasonable income and profit. This may put some pressure on the platform's revenue and gross margin, but our team will strive to mitigate this impact through improved product operations. Currently, Momo's overall revenue and profit in the second half of the year expected to be relatively controllable. Moreover, tax compliance across the entire industry is also a good thing for the long-term stability of the social entertainment platform. Okay. Let me translate this. So the second question is about application of AI in the social field. Since 2022, the group has done a lot of explorations and innovations in this area with significant strategic deployment and efforts. At the application level, it mainly involves several aspects. Firstly, we are integrating AI into existing social products to enhance user experience. And Chinese users generally struggle with icebreaking conversations, which posted a significant barrier to building new connections and maintaining ongoing interactions. This has been a key user of pain point we have sought to address through product operations. AI, however, can play a substantial supporting role in this area. Momo's previous product practice in AI-assisted icebreaking have observed a strong evidence of this. We believe AI has broad application potential in this area, such as offering chat advice and providing other similar systems functions. In addition to existing applications, we have recently launched a stand-alone AI character role play in chat in Japan. Users can choose their preferable IPs and storylines to be engaged in chat and role playing. This app is currently doing very well in Japanese market, and we have initiated preliminary monetization efforts. And beyond these application level exploration, we have also made significant efforts in underlying technology and infrastructure. Since there are no off-the-shelf AI vertical models tailored for the social sector available on the market, our group has set up a dedicated team for large model applications and continuously invested resources in this area. Based on Momo's we are conducting in-depth research and model training on how to leverage AI to better help users build and maintain new connections more efficiently. Our progress achieved in this area will significantly enhance the product and commercial value to Momo and Tantan and many of our new social products in the overseas markets. Thomas, I think that's the answer to your question. So operator, we're ready for the next question. Operator: Your next question comes from Leo Chiang from Deutsche Bank. Leo Chiang: [Foreign Language] Management mentioned in the prepared remarks that the company has taken measures to restructure the membership package and require the operations of core cities and user groups to mitigate the impact of the product upgrade on paying ratio. Can management elaborate more details of what measures you have taken? Sichuan Zhang: I will take this. So the recent Tantan product upgrade has led an increase in the number of users completing real person verification and profile pages now show more comprehensive information. User feedback shows that it feels like they can see more real people on Tantan. However, this improvement has resulted in users which has put some pressure on revenue to adjusted -- in Q2, we adopted a user classification approach, specifically with group user base on whether they have complete real personification, engagement level, paying history and factors such as appearance. For different user groups, we implemented tailor exposure strategy and monetization approaches. For example, for users with high paying potential, we moderately adjusted their matching rate and pay design to improve their paying conversion and ARPPU. Additionally, we divided domestic cities into several tiers based on user engagement level and regional consumption capacity. We developed suitable membership packages and pricing plans. Our goal is to maximize revenue, either by increasing the paying ratio to grow the number of paying users or by boosting ARPPU to drive revenue growth. In terms of UI design, we focus on core saving features by the previously quarter images and test information on the homepage. We now highlight the key information such as age, online status and systems. The revenue pressure caused by the product upgrade was fully evaluated in Q2. Recent product and algorithm adjustments gradually mitigated the negative impact of the upgrade on the revenue. So therefore, it's worth noting that the improved user experience has helped drive organic user growth and user retention. Previously, the vast majority of new users on Tantan were acquired to pay marketing channels. However, since the start of this year, the number of organic users have been steadily increasing. In Q2, the number of new organic users significantly bypassed acquired through channels. We believe the enhanced user experience provided by the product has established a solid foundation for recovering our user base and revenue following a reduction in channel investment. Ashley Jing: Yes, that's it for the answer. Operator: Your next question comes from Yicheng Yuan from UBS. Yicheng Yuan: [Foreign Language] So we've seen like overseas revenue grow over -- grew by over 17% year-over-year for two consecutive quarters. So could management please share your views on sustainability of the strong growth? And what are your expectations for overseas revenue in the second half? Sichuan Zhang: Thank you for the question. I will kick this to sum up the rapid growth of the overseas business in the first half of the year in one line that is pretty well across the board. For the social entertainment business, Soulchill has maintained steady growth momentum. The accelerated growth in the first half of the year is mainly driven by continuous breakthrough with Yahale and Amar. Despite the ongoing increase in channel investments, the ROI has constantly met target, allowing us to achieve revenue growth while improving profitability. This marks our most significant breakthrough since the start of the year. In fact, our social entertainment business could have grown even faster in Q2 and Q3. However, given the strict profit requirements set by the group, aiming for higher growth will sacrifice on profits, and we are conscious about the risky growth model at the moment. So in Q2 and Q3, we will focus on increasing ARPU and optimizing user acquisition costs. Although year-on-year growth may slow slightly, these three apps targeting MENA is still expecting to deliver very healthy and robust growth overall. So beyond social entertainment, our overseas dating business has also performed very well this year. This includes the stabilization of Tantan's overseas operation and other overseas dating products that managed by our Singapore team. We have also recently completed the acquisition of the -- although this scale is larger, isn't large compared to our overall overseas business. This brand has significant untapped potential in terms of user user possession in European markets and team capacity -- capabilities. We believe that this overseas dating brands will become key growth driver for our international revenue in the future. As for the revenue outlook, I will turn it over to Cathy. Cathy Peng: Okay. Sic has already given pretty clear and detailed answers about the growth dynamics of our overseas business. Let me try to translate into those comments into more quantifiable terms that model builders can work with. First of all, as you can see in Q1, Q2, we delivered over 70% overseas growth, which reflects strong momentum across both social and our -- some of our emerging brands. We -- as Sic mentioned, we could have moved a little bit faster in Q2 in terms of top line growth. However, we purposely slowed down a bit towards mid Q2, so we didn't have to sacrifice profit for faster top line and market expansion. It was really a decision out of strategic discipline and priority on growth with profit rather than growth at the expense of profit. And for that same reason, in Q3, we expect a temporary moderation maybe toward a year-over-year growth of around 60% as we deliberately pace marketing spend and focus on improving ROI through optimizing user acquisition costs and enhancing ARPU. That said, nonsocial emerging brands as a whole are continuing to accelerate at a triple-digit pace and will become an increasingly important growth driver as the year progresses. This is a good thing for the group because a lot of the new brands are subscription-based with higher margins. And these brands -- as these brands mature, we could see gradual improvement in our overall margin profile. By Q4 as ROI optimization take effect and with the contribution from some of the newer brands, we expect overseas growth to reaccelerate again. Hopefully, that answers your question. Back to Ashley to take more questions. Ashley Jing: Okay. So in the interest of time, maybe let's just take one last question before we wrap up for today's conference. Please, operator, if we have any. Operator: Your final question comes from Xueqing Zhang from CICC. Xueqing Zhang: [Foreign Language] The management just share the revenue outlook the second half of this year. And I would like to know if there will be any change in terms of profit margin. In particular, regarding the withholding tax issue that Cathy just mentioned in the prepared remarks. Can you will share more details. I believe investors are quite concerned about whether this is an issue specific to the company itself are effectively related to industry-wide process. Cathy Peng: Okay. On margins, it's hard to separate the discussion on margin from our overall top line outlook. So here is a recap on how to think about revenue outlook for 2025 at the group level, again, in a more quantifiable way. As mentioned earlier, we expect some pressure on Momo's value-added services in the second half, primarily due to recent tightened up in tax scrutiny affecting a lot of our performers and agencies. And of course, macro remains an uncertainty factor here as well. For these reasons, there could be some fluctuations in revenue and gross margins, particularly in Q3 and Q4. That said, we've been adjusting our revenue sharing policies to offset part of the impact. So the overall effect on top line should remain pretty manageable. On the other hand, content's performance, as you can see, has been a positive surprise after the restructuring at the beginning of the year where we substantially cut down personnel and marketing costs. Despite significantly reducing marketing spend, product improvements and monetization enhancements have kept revenue more resilient than expected. And the revenue is stabilizing as we move through the back half of the year. So it looks like we've achieved stabilizing revenue trend on top of significant cost savings for Tantan, which will give us pretty meaningful improvement in Tantan's profitability compared to last year. Now moving back to group level revenue outlook for 2025. We continue to see somewhere around the low teens year-over-year decline for domestic revenue, offset by strong growth in overseas where we anticipate a year-over-year growth around 70% taken for the whole year. Taken together, this implies that group top line in 2025 could either see a slight downtick from or remain flattish versus 2024. That's the current view of mine. Turning to margins. On the gross margin line, there are mixed forces that sometimes oppose one another. First, we are slightly raising payout ratios to support domestic agencies as well as performance as they adapt to the new tax environment, that could mean a 1 to 2 percentage point increase in overall payout on normal. Second, as the overseas revenue contribution becomes increasingly meaningful, mix shift across businesses could swing gross margin one way or another, making it difficult to pin down the group level margin expectations. For example, if the dating brands continue to outperform, margin will improve. However, if some of our newer entertainment brands grow faster, it could shift the margin profile the other way around. That said, I can give you guys my best estimate at this point. As a reference point, adjusted gross margin was 39% in 2024. Last quarter, we guided for -- if I remember correctly, somewhere around 36%, 37% for 2025. Given the recent developments in the live streaming and value-added services space in China, we now expect 2025 gross margin to land closer to the lower end of that range. So that's for gross margin. Below the gross margin line, R&D will trend lower in absolute dollar terms as we continue to optimize headcount. Sales and marketing will increase low teens percentage-wise, reflecting our investment to drive overseas growth, especially some of the newer applications that we are launching in the second half, especially in Q4. At the operating margin level, last quarter, we guided for -- from 13% to maybe 14% on an adjusted basis for 2025. Our current view is that we will probably land in the lower end of that range depending on where the top line ends. So overall, despite some near-term challenges faced by some of our agencies from tax scrutiny, our annual margin profile remains broadly stable and, I believe, aligned with prior guidance as we continue to exercise cost discipline and fund overseas expansions. So now the big question, moving below the operating profit line, it's probably worth elaborating a little bit more on the big special tax item for Q2. Basically, here is what happened. Recently, actually towards end of August, the tax authorities provided an interpretation that we believe represents a new position regarding the applicable withholding tax rate for dividends distributed by our WOFE to its Hong Kong parent company, Momo Hong Kong. The authorities have determined that the standard 10% rate should apply rather than the 5% preferential rate under the Mainland China and Hong Kong tax arrangement that we have applied in prior periods. Actually, from April 2025 to -- I'm sorry, from April 2024 to April 2025, our tax filings with 5% preferential dividend tax rate were subject to multiple routine reviews by the local tax bureau -- local tax authority, which raised no objections or concerns at the time. In addition, we believe the practice we previously followed was a common industry approach for companies in similar situations. That's why we were surprised by the subsequent reassessment of the authorities. While we continue to believe our initial assessment was reasonable, we note that the application of tax laws can involve very complex interpretation. As a reasonable corporate citizen, we have complied with the authority's latest guidance and have adjusted our accounting accordingly. As to the question about whether this is industry-wide or specific to Hello Group, from our recent dialogues with the third-party advisers who have been involved all along in this specific matter as well as the dialogues with the authorities, it is our belief and our understanding that the latest scrutiny that Hello Group experience is not unique to us alone. Our original approach was not unique either. Many companies with similar structures have followed the same practice. And if so, according to the authorities, there is a possibility that they could face similar scrutiny as well. That's what I can say at this point. So maybe back to Ashley to wrap up the call. Ashley Jing: Yes. I think times up. So let's call the day, and thank you for joining us today, and we will see you next quarter. Operator, we're ready to close. Thank you. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]