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Operator: Good day, and thank you for standing by. Welcome to the Hexagon Q1 Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Anders Svensson, President and CEO of Hexagon. Please go ahead, sir. Anders Svensson: Thank you, operator. Good morning, everyone, and welcome to Hexagon's First Quarter 2026 Conference Call. First, I will direct you to the standout cautionary statement, and then we turn into the next slide. Before I begin, a reminder that the upcoming potential spin-off of Octave, we are now presenting Octave as discontinued operations. We have provided this first bridge here for you to understand the performance of continuing Hexagon, Octave and taking them both together, meaning the former Hexagon Group. Looking at the headline numbers for the first quarter. Hexagon continuing operations delivered a revenue of EUR 964 million, with an organic growth of 8%. EBIT was EUR 251 million, giving us an operating margin of 26%. Octave generated EUR 327 million in revenues, organic growth was 1% and EBIT1 of EUR 83 million, delivering an operating margin of 25%. At the former group level, including Octave, revenues were EUR 1.29 billion, with organic growth of 6% and an operating margin of 26%. During the quarter, we also completed the sale of our Design & Engineering business on the 23rd of February, and the business was deconsolidated as of that date. Today, unless I mention otherwise, I will discuss Hexagon, the continuing operations, excluding Octave and with D&E deconsolidated as of the 23rd of February. Mattias will cover the Octave business separately after Norbert. So turning to the agenda for today on the next slide. So I will start with taking you through Hexagon's performance in the first quarter, and then dive into our business area performance. Norbert Hanke, our interim CFO, will then take you through the Hexagon financial performance. He will then hand over to Mattias Stenberg, CEO of Octave, who will then cover the Octave performance in the quarter. We will then, of course, have time for your questions at the end of the presentation. So next slide. Starting with the first quarter performance then for Hexagon on the highlights of the quarter slide. The first quarter of '26 was a strong start of the year and also a busy one for us at Hexagon. We delivered 8% organic growth with a gross margin of 63% and operating margin of 26% and cash conversion at 77%. Alongside this strong financial performance, we continue to take decisive portfolio actions to sharpen Hexagon's focus on the core precision measurement and positioning opportunities. We completed the Design & Engineering business sale to Cadence for approximately EUR 2.7 billion in cash and stock. And here in April in the second quarter, we announced the agreement to acquire Waygate Technologies from Baker Hughes for approximately $1.45 billion. And this is then expanding Manufacturing Intelligence into the very attractive area of nondestructive testing. And I will cover this more in detail on the next slide. Mattias and Octave team held Investor Day in New York on March 26 with the spin-off expected to become effective on May 22. We also continue to build the new Hexagon executive team. Renée Rädler has been announced as the Chief People Officer on the 1st of April, and Enrique Patrickson, who will join us as Chief Financial Officer on the 24th of April, meaning tomorrow. And I wish Enrique welcome to Hexagon, and both of them welcome to the executive team. And I'm happy to have you on board. Finally, a humanoid robot, AEON, is making excellent progress in the past quarter. AEON successfully completed a pilot at BMW and will be deployed in production at the Leipzig facility. It is a significant milestone in demonstrating the real-world industrial capabilities of AEON. In parallel to this, our pilot at Schaeffler has resulted in an agreement to deploy up to 1,000 AEONs in the next 7 years. This is a big step that we communicated here in April as well. Then we expect commercialization of AEON by the end of 2026. So a very active quarter of delivery. Let me now give you the overview of the Waygate acquisition. So next slide. Acquiring Waygate is a natural next step for us at Hexagon as a market leader in the nondestructive testing, they fit very well into our portfolio focus on precision measurement and positioning technologies. They're completing the measurement chain from surface to the interior of components. The computed tomography hardware combined with our volume graphic software creates a unique value position for customers. And the business also brings exposure to maintenance, repair and operation markets with recurring utilization-driven demand, which boosts our exposure to the growing aerospace markets. Waygate has a portfolio of assets with different growth and margin profiles. This brings a meaningful opportunity for us to create value. RBI is already growing very well at good and healthy margins of about 30% EBIT. Radiography is a strong business where we can leverage our manufacturing and sales footprint to really drive synergies across the business and leverage shareholder value. The ultrasonic testing and imaging solutions are also very good assets. But here, we will assess the position of those assets. They are either challenged by not being market leaders or they have a -- not a perfect strategic fit for us. So we will look at these assets from different perspectives, and we will try to then either through acquisitions make them into market leaders or we will have also the possibility to go through strategic reviews or do turnarounds of these assets. Now turning to our organic growth performance in more detail for the quarter on the next slide. So we delivered a strong organic growth of 8% in the first quarter and that's a significant acceleration from the prior year. This was primarily driven by Autonomous Solutions, which grew 13%; Manufacturing Intelligence, which grew 9%. Both businesses benefited from growth in aerospace and defense. Geosystems grew 2%, while completing the channel destocking program that I talked to you about in the fourth quarter report. Excluding this impact, the underlying growth would have been 4% for Geosystems, which gives us the confidence in that the momentum is again building within Geosystems. Recurring revenues grew 6% driven by continued momentum in construction software subscriptions and also GNSS correction services. You can see the rolling 12-month figures in the chart on the right. For the full transparency, excluding the impact of our Design & Engineering business, software & services account for 44% of sales for the remaining Hexagon corresponding to recurring revenues of around 28%. The new product adoption is also progressing very well, especially if you look at our laser tracker, ATS800, and also our new robotics total station, TS20, and this is, of course, supporting the growth trajectory across our businesses. Turning now to the development by region and industry in the quarter. So on the next slide. Here, you have a snapshot of the development, and I'll start with the geography. The Americas was the strongest region delivering a 15% organic growth with a positive performance across all of our business areas. North America was especially strong, while South America was weaker. EMEA recorded 4% organic growth with broad-based contributions across the portfolio. China reported a decline of 4%. Performance in Manufacturing Intelligence was very solid, but the wider China business was impacted by the weaker Geosystems business and also by the completion of the destocking actions taken within Geosystems in China. Without the destocking initiative of roughly EUR 8 million in the quarter, there was actually also single-digit growth in China as a whole. The rest of Asia delivered 7% organic growth, a solid performance, reflected the good momentum in several of our key markets in this region, and especially a strong India. By industry, if we look at it like that, construction remains our largest vertical, and we recorded a strong growth in Americas with also good growth in Western Europe. General manufacturing, the second largest vertical showed broad-based strength across all the regions. Aerospace and defense continued to perform strongly, while Mining was more mixed with uncertainty impacting the demand in South America. We also had some pull-in of deliveries from the first quarter into the fourth quarter last year, and that had some negative impact for the first quarter. Automotive remained under pressure, particularly in the EMEA, but we also saw signs of weakness in China. Electronics was very strong in the quarter, and this is primarily then in China and rest of Asia. That's where a strong majority of our exposure is, and it was very strong growth. Agriculture, while only being 2% of our sales, still remains weak globally. I now turn into profitability on the next slide, and I'll start with the gross margin. And I want to say first that the Design & Engineering that normally operates with strong margins had a challenged start to the year. So while it was very strong in the first quarter of 2025, which is the reference period, it performed quite badly during the 6, 7 weeks that it was within our business before it was sold on the 23rd of February. There's a lot of reasons for that. But if we exclude the impact of Design & Engineering in both periods, both in the first quarter of '26 and the first quarter of '25, the gross margin was 62%, and in the comparison period, 62.6%. So it's 60 bps down year-on-year. Gross margin was, however, stronger in this quarter than in the last 2 quarters, quarter 4 and quarter 3 of 2025. And you will also be able to see this in the appendix slide attached to this presentation. The ramp-up of new product sales continue to support cost volumes, but this was offset by a full quarter of tariff impact. And in the comparison period, there was very little tariff impact. And we also had input cost inflation and also on freight, and this is driven then by the Middle East conflict primarily. If you look at the currency for the quarter, that also created a significant headwind. Going forward, we will mitigate these pressures through pricing and also freight surcharges, et cetera, and actions are already taken at the end of the quarter. But the full impact of this given our delivery times should be seen in the third quarter. Turning now to operating earnings. During the first quarter, we delivered an operating margin of 26.1% versus 25.9% in 2025. Importantly, excluding also here the full impact of Design & Engineering business in both periods, the operating margin grew 80 basis points versus the previous year. And this, I would say, is a meaningful improvement, driven by the organic growth performance and benefiting from our restructuring program that we communicated in the second quarter report. With some of the contributions also a gain from a sale of a building within the quarter of about EUR 8 million. Offsetting our good performance was, like as mentioned, a weak Design & Engineering performance and tariffs and cost inflation. We also saw the strong currency headwind on EBIT, and that corresponded to a negative 60 basis point performance. Year-on-year reduction in capitalization to amortization gap, which we have talked about before, had an impact of 70 basis points negative. A key driver for the margin improvement was the cost reduction program. We benefited here about EUR 10 million during the quarter, and the program remains on track for a total savings within Hexagon at EUR 74 million at the end of the year. We also had generally good cost control despite the growth, and that also, of course, supported the performance. Now turning to the business area performance. I'll start with Manufacturing Intelligence. MI delivered a revenue of EUR 433 million and an organic growth of 9%. We also had a very strong order intake in the quarter, which is positive for the coming 2 or 3 quarters. If I start with the geography, the Americas was the strongest region, but we also saw growth in EMEA and Asia. By industry, Aerospace & defense continue to perform very strong and the automotive business remained under pressure, particularly in the European markets, but as I mentioned, also in China. Operating margins came in at 23.7%, down from 24.6% in the first quarter of last year. And this reflects the impact of currency headwinds and tariffs and the weak D&E performance in this year, which more than offset the positive operating leverage from higher volumes. Again, if we eliminate D&E as we have divested these parts from both periods, the operating margin improved from 23.1% to 23.6%, so 50 bps up. Looking ahead, we had an agreement to acquire Waygate Technologies, and this is a transformative step for Manufacturing Intelligence, and it expands, as I mentioned, into the adjacent nondestructive testing market and positions us to offer customers a truly end-to-end precision measurement solution from the surface to the interior and through the life cycle of products. And as I mentioned earlier, we did divest D&E on the 23rd of February. If I move then into Geosystems slide. Revenue was EUR 349 million with an organic growth of 2%. And even if -- great to see a return to growth here, I should note again that if we disregard the China destocking program, which now has ended, the actual underlying growth of Geosystems was around 4%, which is a more accurate read of the demand environment within the business. By geography, America was the strongest. EMEA was broadly flat. And we saw solid performance in the Western Europe, offsetting the weakness we saw in Middle East. In Asia, China reflected a destocking that I mentioned, but India performed very well. By end markets, construction software & services delivered double-digit growth, very good to see, and we are seeing also the contribution of the TS20 total station. Operating margins were 26.9% compared to 27.4% in the prior year. The decline primarily reflects currency headwinds, which were partially offset by strong cost discipline and favorable product mix. Turning now to our superstar of the quarter, Autonomous Solutions on the next slide. Revenue was EUR 176 million and organic growth of 13%. By industry, aerospace and defense continues to be a major growth driver with very strong demand. Mining was more mixed in the quarter. Customers remain cautious with capital expenditure, which also softened the demand for equipment investment, but our mining and safety business remained resilient during the quarter. Agriculture, as I mentioned, is subdued globally. We are not worried about the mining business in the midterm. There is a lot of activity. But as I said, a bit of hesitation with high oil prices for capital investments. By geography, both America and EMEA delivered strong double-digit growth, and APAC declined. Within the product portfolio, demand for anti-jamming solutions and GNSS correction services was particularly strong in the quarter, benefiting from the growing need for a secure and reliable positioning in defense, but also in critical infrastructure applications like aerospace. Operating margins expanded to 34.1%, up from 31.6% in the prior year, 250 basis points improvement is strong, and that's driven primarily by the strong operating leverage on the higher volumes and also a favorable product mix. Of course, also here, partially offset by currency headwinds and tariffs. That concludes my overview of the business area performance, and I will now hand over to Norbert, who will take you through the Hexagon continuing operations financials. Go ahead, Norbert. Norbert Hanke: Thanks, Anders. I will take you now through the Q1 performance. Unless stated otherwise, the slides and my comments will relate to continuing operations, so it will exclude Octave. Turning to the next slide, please. Let us begin with the Q1 2026 income statement, taking the sales bridge first. Revenues were EUR 964 million with a reported growth essentially flat year-over-year. Currency had a negative impact of 6%, and there was a 1% negative structural effect from the sale of D&E, resulting in organic growth of 8%. Gross earnings were EUR 606 million with a gross margin of 62.9% compared with 64.4% in Q1 last year. The 150 basis point decline reflects currency headwinds, tariff impacts and cost inflation that Anders discussed earlier. As he also mentioned, excluding the full impact of D&E, the decline would reduce to 60 basis points. EBIT1 was EUR 251 million with an operating margin of 26.1%, up 20 basis points year-on-year or up 80 basis points, excluding D&E. This improvement was supported by the cost restructuring program and organic growth in the quarter, partially offset by a reduction in the R&D gap of 70 basis points and currency. Earnings before taxes grew 4% to EUR 224 million supported by the operating improvements. Earnings per share were at EUR 0.067, up 3%. Next slide, please. Now moving to the bridge. As discussed, net sales were essentially flat on a reported basis with organic growth of 8%, offset by currency headwinds and the structural impact from D&E. On operating earnings, EBIT1 increased to EUR 251 million from EUR 249 million last year. The improvement was driven by the cost restructuring program and the net gain of the sale of the facility, supporting organic performance in the quarter. Currency represented a meaningful headwind with a 35% drop through, primarily reflecting the weaker dollar. On the margin bridge, we expanded 20 basis points to 26.1%, both organic and structural effects were accretive, while currency diluted margins by around 60 basis points. Next slide, please. Turning now to the restructuring program. We are targeting EUR 74 million of annualized savings with the full run rate expected by the end of 2026. In Q1, we delivered EUR 10 million of incremental savings, bringing the annualized run rate to EUR 51 million. We are therefore well on track and progressing towards our targets. As shown on the chart, we expect continued ramp-up through 2026, reaching the full EUR 74 million run rate by year-end. This program continues to be a meaningful contributor, and we remain confident in the delivery. Next slide, please. Turning to cash flow, where we continue to demonstrate strong operational discipline. Adjusted EBITDA was EUR 351 million, up 3% year-on-year, reflecting organic growth and benefits from the restructuring program, partly offset by currency headwinds. Capital expenditure amounted to EUR 76 million, down 38% versus the prior year, partly driven by proceeds from the sale of a building following our footprint rationalization. This resulted in cash flow post investment of EUR 250 million, up 16% year-on-year. Working capital was an outflow of EUR 56 million, reflecting the normal seasonal pattern in Q1 as we see activity ramping up through the quarters. As a result, operating cash flow before tax and interest was EUR 194 million. This translate into a cash conversion of 77%, a significant improvement from 60% in Q1 last year. After taxes of EUR 46 million and net interest of EUR 24 million, cash flow before nonrecurring items was EUR 124 million, up 84% year-on-year. Next slide, please. This slide shows working capital to sales on the new Hexagon base, providing a view of the underlying trend. On this base, Q1 performance is in line with normal seasonal patterns. Net working capital was an outflow of EUR 56 million compared to EUR 68 million in the prior year. The rolling 12 months working capital to sales ratio improved to 11.9%, trending down versus last year. So to conclude, we delivered organic growth of 8% with stable margin despite significant currency headwinds and gross margin pressure on tariffs and input cost inflation. Cash conversion improved to 77% and the restructuring program continues to deliver with EUR 10 million of savings in the quarter and an annualized run rate of EUR 51 million. Looking ahead, currency is expected to remain a headwind, and we remain focused on execution. I will now hand over to Mattias. Next slide, please. Mattias Stenberg: Thank you very much, Norbert. Let's take a look at the first quarter results for Octave. What you're seeing in the numbers this quarter, it's not just a transition to recurring revenue. It truly reflects the early impact of connecting workflows across the asset life cycle, which is where the real value in this business sits. Recurring revenue grew 6% organically compared to the prior year, with SaaS revenue continuing to grow at strong double-digit rates. Reported organic total revenue grew 2%, whereas reported revenue is down year-over-year, driven by currency impact and the disposal of the federal services business that we did last year. If you look at monthly project-driven subscription license revenue, that was roughly flat with the prior year period, while perpetual licenses and professional services revenue declined, reflecting the deliberate shift we are doing towards subscription-based models. The EBIT for the first quarter reflects the lower perpetual license contribution together with lower levels of R&D capitalization and higher related amortization. Excluding these factors, underlying profitability was in line with the prior year period as disciplined cost savings offset incremental public company costs. Cash conversion was a healthy 118% in the quarter. Next slide, please. If we look at our workflow environment in Q1, the trends were consistent with our expectations. In Design, perpetual license sales declined, while monthly subscription licenses continued their sequential improvement. Build delivered strong double-digit growth driven by SaaS adoption in construction and project controls. Operate also saw strong revenue growth across quality management, APM and EAM. And in the Protect area, recurring revenue continued to grow offset by lower perpetual licenses and services revenue. Our advantage, however, is not in a single product. It is in how these workflows connect. Intelligence created in design, build, operate and protect becomes more valuable when it is shared across the life cycle. Next slide, please. To the left here, you can see the monthly subscription licenses. We saw a step down as earlier discussed in the activity level in early 2025. However, since then, we've seen sequential improvement, and that positive trend continued in Q1, and we do expect year-over-year comparisons to get easier as we move through 2026. In the middle chart, you can see that excluding this short-term volatility from project-driven licenses, the underlying trend is, in fact, strong. Recurring revenue continues to grow at a high single-digit rate, reflecting healthy underlying momentum across the portfolio. And on the right, you can see that our quarterly perpetual licenses continue to decline in line with expectations as we shift towards recurring revenue models. We do expect this shift from perpetual to continue to pressure total revenue growth for the remainder of this year. Next slide. If we turn towards some of the information we shared at Octave's first Investor Day in March, and if you haven't watched it yet, you can access the videos and presentations at the Investors page at octave.com. One of the key takeaways that we discussed there was that we expect to accelerate organic recurring revenue growth to 10-plus percent over the medium term. Approximately 2/3 of that ARR growth is expected to come from our existing customer base. What underpins this is that expansion within our installed base is driven by the multi-workflow adoption where we see a clear step-up in ARR as customers move beyond a single workflow. We expect the remaining 1/3 of growth to come from new customers as we invest in growth areas and expand the partner channel to broaden our coverage across geographies as well as customer segments. Next slide, please. Turning to customer highlights in the quarter. We had a number of important wins, both for new logos as well as expansion. And I think these wins really reinforce several of the strategic themes we outlined at our Investor Day in March. If we start with new logos, we added Visa CashApp Racing Bulls for enterprise asset management to handle their logistics and operations in their F1 business through a multiyear SaaS contract. We signed both BNSF Railroad and Spokane 911 on multiyear SaaS deals for our OnCall Dispatch platform. We also landed a leading U.S.-based LLM developer on a design subscription for their facilities infrastructure. And these wins demonstrate 2 things that we emphasized at our Investor Day: the diversity of our addressable market across mission-critical industries and our ability to land new customers on recurring SaaS-based contracts as we accelerate the shift towards recurring revenue. On the expansion side, I want to highlight 2 deals that could not have happened a year ago, frankly, from an organizational perspective as these businesses then sat in separate Hexagon divisions. The first, a global motion and control leader and existing design customer expanded into operate through a 4-year strategic agreement, adding both our EAM and ETQ solutions across their global manufacturing operations. The other one was Kimberly-Clark, who signed a deal that consolidates over 700 of their systems onto our platform in a 5-year SaaS conversion spanning design and operate. And I think this is a great illustration of our -- how our opportunity for ARR per customer expansion where customers adopting 3 or more workflows consistently reach 7-figure ARR levels. And while the 86% of our customer base is still on a single workflow, and that is the expansion runway embedded in this business. We also expanded with a leading European chemical producer displacing a competitor for critical communications across their production plants. This customer now runs on Octave across all 4 workflow environments, design, build, operate and protect, validating both our platform strategy as well as the value customers see in consolidating onto our solutions. And lastly, we cross-sold our build solutions into a long-standing design customer with a major copper mine operator, extending our relationship to include project controls. So to me, what these examples really show is that once we land in one workflow, expansion into adjacent workflows is not theoretical. It is happening, and it materially increases our ARR. So in summary, the Q1 customer activity validates our strategy. We're winning new logos on SaaS, expanding within our base across the workflows and displacing competitors where our integrated life cycle approach gives us a clear right to win. And this is what differentiates us. We are not competing as a point solution. We are competing as a life cycle partner for mission-critical assets where failure is not an option. Next slide, please. So if we turn to our Investor Day outlook, in the nearer term, 2026 is a transition year as we become an independent public company. We're targeting 3% to 4% total revenue growth on the back of 6% to 8% ARR growth with adjusted operating margins stepping down modestly as we absorbed roughly 100 basis points of public company costs and up to 100 basis points from revenue model shift, net of savings. We do expect revenue growth to be second half weighted, reflecting both the recovery in monthly subscriptions and the typical back half seasonality of enterprise software bookings. For the second quarter on a U.S. GAAP basis, we expect organic recurring revenue growth of 6%, so similar to Q1. And we expect organic total revenue growth to be flattish year-over-year due to the declines in perpetual licenses that we have discussed. On a reported basis, which will reflect, again, then the disposal of the federal services business, we expect second quarter total reported revenue to be down approximately 4% over the prior year. Next slide, please. Our medium-term ambitions remain as we laid out in March. ARR growth of 10-plus percent and total organic revenue growth of 6% to 8%. Over time, of course, these growth rates will converge as recurring revenue becomes a larger and larger part of total revenue. We also expect free cash flow margins to expand from today's level of roughly 20% to 23% to 24% of the medium term. Next slide. So I'd like to close by reiterating why we believe Octave is a compelling investment. We operate in a large and growing market. It's $28 billion today, reaching $40 billion by 2029. We have a deeply embedded sticky installed customer base with 97% gross retention and significant room to expand. Our recurring revenue base of $1.1 billion continues to grow as a share of the mix. AI amplifies the value of 3 decades of domain data and context that is very hard for anyone to replicate. We are leaders in our product categories as recognized by basically all the major industry analyst firms. We operate in mission-critical environments where failure is not an option. And as customers connect workflows across the life cycle, value compounds and expansion becomes more predictable. That is the foundation for sustainable growth and profitability as we scale as an independent company. So final slide, please. So as a reminder, on the key dates for the separation. The Hexagon AGM vote is tomorrow, April 24. And assuming approval, the record date and effective date for the distribution is May 22, with Octave SDRs expected to begin trading on Nasdaq Stockholm on May 26, and the Class B shares on Nasdaq New York on May 28. So with that, thank you very much. And I'll hand back to you, Anders. Anders Svensson: Thank you, Mattias. Let me jump forward directly into the Q1 summary slide. So Hexagon delivered a strong financial performance. Our cost restructuring program is clearly on track and delivering. On the portfolio side, we completed the sale of our Design & Engineering business to Cadence, and we also announced here in April an acquisition of Waygate Technologies. As we have heard, the Octave spin is remaining on track. And all these actions are then sharpening Hexagon's future focus on the core positioning measurement technologies, positioning technology and autonomy opportunities. Our full executive team is now in place, as I mentioned, with Enrique and Renée. And looking ahead, we have a solid foundation entering into the second quarter. We had a strong order intake within Manufacturing Intelligence. And with the closure of the Geosystems destocking program, we provided a clean base for growth of Geosystems going forward. We remain, of course, attentive to the macroeconomic situation, particular to the tariffs, currency dynamics and also what's happening in the Middle East situation. We are, however, very confident on the momentum of our different businesses going forward. And as we have just heard from Mattias, Octave generated another very strong quarter of SaaS growth, contributing to recurring revenue growth in the mid-single digits. Before I move forward, I want to take this opportunity to thank you, Norbert Hanke, who has been an excellent interim CFO, covering from the gap in August 2025 when David Mills was stepping down. And now handing over to Enrique Patrickson. Norbert will remain as an Executive Vice President at Hexagon, leading our ventures operations and also strategic projects. And I'm very much looking forward to continue working with you, Norbert, in that capacity. Before we move to the Q&A, I would like to draw your attention to an upcoming event on the next slide. We will be hosting our Capital Markets Day in April, at April 30. That's next week, Thursday, in London. And this will include strategy updates from each of our business areas. And also importantly, we will present the new updated financial targets for Hexagon, reflecting the new portfolio composition that I have spoken about today. So of course, I encourage all of you to join us in London or follow the event via the webcast. And details and registration are available on our Investor Relations website. So with that, we are now happy to open up for questions. And in the room, we have Mattias Stenberg, Norbert Hanke, Ben Maslen, and myself. So please go ahead, operator. Operator: [Operator Instructions] We will now go to your first question, and your first question today comes from the line of Alice Jennings from Barclays. Alice Jennings: I've got a couple. So the first one is just on, I guess, the outlook for Q2. So you've expressed some confidence, but then also recognized a bit of uncertainty. So could you perhaps outline where in the business, like which divisions you have the most visibility or also the most uncertainty? So thinking about divisions, but then also the industries. And then I just have a question on the Waygate acquisition. So I understand that we're expecting to see some revenue synergies from cross-selling. But how long after the deal is closed? Can we expect to start seeing some of these synergies? And how meaningful could these be? Anders Svensson: All right. Thanks, Alice. So I can start a bit and Norbert, you can maybe contribute as well. So if we look at the different businesses and the outlook for Q2, of course, we don't give forecasts on the future. But we have a very strong order intake in our Manufacturing Intelligence business, and that will, of course, benefit us in the coming quarters. And as I mentioned within the Geosystems area, we have completed the destocking initiative. So we don't have -- we don't start every quarter with a negative sort of EUR 8 million to EUR 10 million that is already sort of cleaned, and we have now a clear base to move forward from. And as I said, the underlying growth has now turned positive within Geosystems, and we expect that to continue also going forward. In the Autonomous Solutions, we have a very strong demand in different sectors like aerospace and defense, et cetera. And we don't see any signs of that changing. And we don't see any signs of the weak business of agriculture improving dramatically either. So many of the businesses are expected to remain in a similar level. Mining, perhaps not growing very much in the second quarter because that's related to what I said in the presentation. But more in the midterm, we don't see any risk for our mining business as the activities is still very strong. If you look at electronics, for example, we expect that to continue to be a strong business for us also going forward. Automotive will be challenged in Europe. I think also we have seen now some negative growth for us in automotive in China, and that might remain. But given also the high oil prices, you might come back to more electric cars and that will also benefit our automotive sales in China. So we have to wait and see what happens within that business. General manufacturing is a strong business across all the different businesses, basically, and we expect that to continue on similar levels. So I think that's a summary of what we can say about the outlook. If I then should comment on the Waygate acquisition. So of course, there is a process here that we need to go through until we have actually closed this acquisition. And then there is an integration of the acquisition. And we will start seeing benefits, I think, quite quickly of the synergies because we have similar exposure to customers. We will also complement our offering, and we will go to market with the same people across the different geographies. So I think you will see synergies coming quite quickly after the integration of the business into Manufacturing Intelligence. Operator: Your next question comes from the line of Daniel Djurberg from Handelsbanken. Daniel Djurberg: Congrats to a nice growth profile here. I was wondering, Anders, if you could -- you mentioned some pulls from Q1 into Q4, still strong organic growth, 8%. And my question is, did you experience any prebuys for some reason? And how much of the organic growth was a result of this, if so? And also, if so, would it impact you negatively later on? Anders Svensson: Thanks, Daniel. The pull-in from Q1 to Q4, which I referenced was primarily within deliveries in mining. And I wouldn't say that, that has a significant impact for -- with the performance in the first half year here in 2026. Of course, the first part of the quarter was a bit weaker within mining, of course, due to that. But not any permanent effects in any way. Pre-buys, we actually don't see across the different businesses to any extent that we can recognize that this is a typical prebuys. So we don't see that as a future negative impact for us either. Daniel Djurberg: Super. May I ask you another question on Waygate, obviously, early days, but you mentioned that you will do a strategic review of imaging solution and ultrasonic testing. So my question is, can you already start to plan for this right now? Or do you need to await the full consolidation and then see and plan later on? Or more or less, can you do theoretically a divestment or something at the same time as you do the transaction later in 2026? A little bit hypothetical question, perhaps. Anders Svensson: Yes, I would agree with you, Daniel. I think we are here, first, making sure that we do the acquisition before we do anything else and close the acquisition. Then I didn't say that we will divest these businesses. I will say that we will evaluate them to see if we can make them into a market-leading position, #1 or #2 within those businesses as well. That could be with complementary acquisitions. We will also evaluate if we can do a turnaround of the business to improve the performance and create shareholder value. And then we don't exclude to do strategic reviews of businesses, which we don't exclude for any of our businesses, actually. We are always evaluating our portfolio. Operator: Your next question for today comes from the line of Johan Eliason from SB1 Markets. Johan Eliason: Just two questions from my side, just starting on the cash conversion, obviously, a good improvement, 77% in this quarter and then 60%, I guess, on some sort of comparable basis a year ago. But is -- I think your target has historically been 80% to 90% cash conversion. But considering Octave bringing all the SaaS and subscription prepayments with it. I guess, one should assume that this 80%, 90% target will be more difficult to achieve going forward? Or how do you see it? Norbert Hanke: Yes, Johan, I will take it here. For the time being, yes. I would agree, 77% was a good performance, as we said as well from our point of view. But say, we will have the CMD next Thursday, and I think you will hear quite a bit from Enrique as well going forward, what will be the target and how to achieve this. And I think I would then say, wait until Thursday. Hopefully, you are there. Johan Eliason: Yes, I am. Okay. Just trying. Then another question. On the robotics, you mentioned the Schaeffler, 1,000 robots coming 7 years or so. Are those on commercial terms? So can you sort of indicate what sort of price tags you are targeting for your type of robotics? I remember when you showed us them in September, I think it was -- there was a wide range of assumptions on what price tags robots could fetch from the consumer side to the professional industrial use? So do you have any indications here? And are you sort of satisfied with the returns for your clients, obviously, but with the returns for you as well in the deals you seem to have struck right now? Anders Svensson: Yes. Johan, I think we are not going out with any numbers, as you can see from the release. So we are very happy with this deal. I think the key thing for us here, it proves that this solution with AEON is commercially viable and implementable in an industrial application. And we could also see that with the BMW announcements. We are happy with the outcome for our customer here, and we are also happy with the situation for ourselves in the deal. But we don't comment on anything else regarding the deal. Operator: We will now take our final question for today, and the final question comes from the line of Mikael Laséen from DNB Carnegie. Mikael Laséen: I have a question for Mattias about Octave, and specifically, how we should think about the capitalized software development costs going from 8% to 4% over the medium term? And my question is about the total R&D expenditures. How should you think about stats in '26 and going forward? Mattias Stenberg: Yes. No, thanks, Mikael. I think I'll pass to you, Ben, for the detail. But I mean it is correct that we are stepping down capitalization. But I'll let you take it, Ben. Benjamin Maslen: Yes. Mikael, so as we said at the Analyst Day, there's no plans at the moment to change the gross level of R&D expenditure, which has been about 18% to 19% of revenues the last few years. I think there are areas where as we implement AI, we could get savings, but the priority at the moment is to reinvest in the product and drive growth. That was the message from a few weeks ago. Obviously, we're moving the product development more and more towards SaaS, where you have continuous development cycles, and it doesn't really make sense under the accounting standards to capitalize. So this will be gradual at first, and we'll go from 8% of capitalized software development costs in 2025. It will come down this year. And then we think by in the medium term, it will come down to about 4%, as we said a few weeks ago. Mikael Laséen: Okay. So the cash effect from the R&D activities will essentially then develop in line with sales? Benjamin Maslen: Yes. I think that's probably the best guide at this point, yes. Mikael Laséen: Okay. Can I also follow up with a quick question on the stock-based compensation. That probably is expected to go from 1% to 4%. Will you have a step up now when you have been separated and listed? Or will that be a gradual process? How does it work? Benjamin Maslen: Yes. It will be a gradual process as the new program gets approved and kicks in, and it layers and stacks up kind of year-over-year. So I would say it's fairly linear between the 1% and the 4%. Operator: There are no further questions. I will now hand the call back to Anders for closing remarks. Anders Svensson: Thank you very much, and thank you, everyone, for participating and engaging with questions. Looking forward to seeing you all then on next Thursday in London. And we wish you all a great day from here. Bye. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Emelie Alm: Good morning, everyone, and welcome to the presentation of the first quarter results 2026 for Husqvarna Group. My name is Emelie Alm, and I'm joined here today by our CEO, Glen Instone; and our CFO, Terry Burke. So Glen and Terry will walk you through the presentation, and then we will have a Q&A session. [Operator Instructions] So with that, I would like to hand over to you, Glen. Glen Instone: Thank you, Emelie, and a warm welcome from my side. So let's jump straight into the presentation. Q1, to summarize, off to a very solid start despite, of course, the continued uncertain market sentiment that we see out there, particularly around geopolitical tensions. We've seen a strong growth in our core portfolio, our key strategic growth areas. We're very pleased that our EBIT has expanded with some 10% given the strong product mix, but also a very good start to our savings program. From a strategic execution perspective, we've got a very good 2026 ahead of us in terms of product launches, and Q1 has started very well when it comes to our product launches ahead of the season. We made a very good start around the strategic portfolio management that we launched back in December, and we'll come back to that later in the presentation. So all in all, 2% organic sales growth, EBIT expansion to just over SEK 1.7 billion and a 12.3% operating margin. So to highlight some of the strategic areas during the quarter. Innovation. We're very, very proud, and I'm really happy to really talk about our innovation that we're bringing to the market in season '26. All 3 divisions are contributing here. Very happy to see the strong range of residential robotic lawnmowers that are coming for the small and midsized gardens, our 300 Series range, really moving the needle towards boundary wire-free AI vision technology. We also have an enhanced range of 400 Series product under the NERA brand, NERA range that also continues to expand and enhance our vision offering. Likewise, in the Gardena division, a strong range of watering products that really enhanced the first quarter result with the simply classic range of nozzles and sprayers as well as a strong range of watering controls. In Construction, we've actually brought a good new range of floor saw blades to the market that really enhances our sawing and drilling business portfolio unit. So that's just a flavor of what we brought during the first quarter. So a strong innovation pipeline already coming through in the first quarter. From a portfolio management perspective, when we launched this in December, we continue to enhance our operating model. This is where we will look much more strategically at our portfolio, grow in certain areas and, where we are not performing as well as we should be, we clearly need to turn it around or, in some cases, exit that portfolio. What I am pleased to see is we already see early signs of this coming through, and we see that in the results. We've enhanced a lot of our leaders. We've changed some leaders during the first quarter of this year to really drive those business portfolio units. So the operating model starts to get traction. Operational excellence. I'm really pleased that we got off to a good start when it comes to our savings program. We launched a SEK 4 billion cost-out program, and we've made a good start with some SEK 245 million in the first quarter, really coming through from some savings we found in sourcing and actually simplifying design, really, really supported by a strong complexity reduction already during the first quarter. So all in all, off to a good start. If we look at the sales development. Then as reported, our sales was minus 5%. That is actually including a currency headwind of minus 7%. So organically, we grew with 2%. We've seen organic growth in the Husqvarna Forest & Garden division with 3%, growth in the Construction division with 1% and a 1% organic sales decline in Gardena. As mentioned, very strong growth in our key portfolio areas, particularly around robotics, watering and handheld products. What I am pleased to say is actually we've seen a growth in all of our regions so far in quarter 1. So we're very pleased to see that. It's been some time since we've reported a strong growth or growth across all of the regions. Just to remind you what we launched back in December around the business portfolio units. We'll come back to this time and time again. We have clear segments that we're operating in what we call profitable growth. You see there are 5 key business portfolio units. Really pleased to actually say 4 of the 5 have shown growth actually during the first quarter of 2026. In the middle of the page, we have 3 which we are in increased profitability, where we really expect to grow in line with the market. In the profitable growth segment, we expect we can grow actually beyond the market. On the left-hand side is the turnaround segments where actually we've seen a continued challenge during the first quarter in all 3 of those areas. We'll come back -- and I'm very pleased actually with the plans we have in place around all of the areas, but particularly around the turnaround business portfolio units. And we'll come back to you in due course and report on them. From an earnings perspective, Terry will take us through the bridge later in the presentation. But as mentioned, we managed to expand the operating income to just over SEK 1.7 billion from SEK 1.56 billion in the prior year, resulting in a 12.3% operating margin corresponding to 10.6% last year. And really, this is a volume increase, a price increase, improved product mix, but also the result of strong cost savings. We did, however, have a currency headwind as well as a tariff headwind that culminated to some SEK 115 million and, again, Terry will take us through more of the details later in the presentation. Going into the divisional performance. If we look at Husqvarna Forest & Garden first. We saw a 3% organic sales growth, growth in all regions, which we're very pleased to see and growth in our key segments: key segments of robotic lawnmowers and key segments of handhelds. Both residential robotic lawnmowers grew as well as the professional robotic lawnmowers. So very pleased to see. So from an earnings perspective, of course, we got an improvement from the volume and improvement from the mix, but also, of course, a contribution from the cost-out program. There was a slight positive tailwind from FX impacting the Forest & Garden division, which, of course, also improved the margin. From a Gardena perspective, the top line organically declined with 1%. However, I would say it is fairly polarized. And by that, I mean we saw a strong growth in the strategically important watering business portfolio unit and a continued decline in the Powered Garden area. So strong, strong growth in watering, as I said, and we're very pleased to see that. However, the challenge remains around the Powered Garden business portfolio unit, and we'll continue to define and refine that turnaround plan, and we'll come back in due course. But I'm very pleased with the plans that the team have in place to turn around this BPU. So despite the tough top line, actually, the division managed to improve the earnings, which we're very pleased to see. So we actually saw a 10% expansion in the EBIT, really driven by strong product mix because of the watering growth and a continued strong development around the savings program, negative impact from lower volumes, negative impact from tariffs and also a slight negative impact from FX of some SEK 13 million. Moving over to Husqvarna Construction division. We actually saw a growth of 1% organically. Actually, we saw a growth in the North America region and a softer European situation. However, strong growth when it comes to sawing and drilling, one of the profitable growth areas within the portfolio, and also growth when it comes to surface preparation as well as a strong aftermarket development in the quarter. However, a continued negative when it comes to the Compaction Placement and Demolition part of the portfolio, again, in the left-hand side of that previous page I showed you. Construction is actually more exposed to FX, and we saw a negative headwind of some SEK 43 million because of the heavy presence in North America but also actually a negative headwind by way of tariffs and raw materials. So despite those headwinds, we still managed SEK 110 million in operating income in the quarter for Construction. So all in all, we're very pleased with the divisional performance. At that, Terry, I pass over to you. Terry Burke: Thank you, Glen, and good morning from my side to everybody. The Q1 EBIT bridge: 2% organic sales growth and a 10% EBIT growth moving to a 12.3% margin. If I walk you through the bridge, starting from the left going over to the right. We had a positive volume impact in the quarter. As we talked about, we had organic sales growth and we also had favorable mix. The favorable mix was really coming from robotics growth, handheld growth and watering growth. Those were the main drivers for the positive mix. However, this was partly offset by inflationary cost pressures that we've incurred during the first quarter. Moving on to the next bucket, cost savings. We've delivered SEK 245 million of cost savings during Q1, and we feel very pleased about that. We have guided roughly SEK 800 million for the year. We still hold to that SEK 800 million. We were able to take, let's call it, perhaps some of the lower-hanging fruit early in the year. So that feels good that we're able to address that, and we continue to drive our cost saving program. As Glen mentioned earlier, cost savings predominantly coming through from sourcing and design to value. Moving on to price. We had a small positive price. This is a net price improvement in the quarter. We did have price decline in the robotics. And of course, the other categories had a positive price development, ending up with a small net positive in price. Transformational initiatives is something, of course, we want to continue to invest in. These are our strategic areas. And we invested some SEK 50 million during quarter 1. Currency, we had quite a significant currency headwind last year. This has now slowed down. We only have a negative SEK 30 million in quarter 1. So that was good to see that, that's starting to play out. Just to give you some feel for how we see currency for the rest of the year, we expect another negative quarter in quarter 2 and then a slightly positive in the second half of the year. So for the full year, we expect a negative currency of some SEK 60 million to SEK 100 million negative, depending, of course, how it plays out. Tariffs in quarter 1 was a gross negative SEK 85 million. Our previous predictions, previous tariff rates, we talked about some SEK 200 million to SEK 250 million gross headwind for this year. We now see that being around a negative SEK 150 million, so a slightly improved situation from the tariffs. So negative SEK 85 million, and the rest of that SEK 150 million negative direction will come during Q2. So with that, we landed just above SEK 1.7 billion of EBIT, 12.3% margin. Cash flow. Maybe the first thing to point out is we have changed the way we report cash flow, just to make people aware that now, going forward, we will talk about free operating cash flow. Previously, we reported on direct operating cash flow. What you can see in the quarter was a negative SEK 1.1 billion. And really, this is impacted by timing, and the real movement was the change in net working capital. There's two elements to that. One is we currently stand with higher accounts receivable at the end of Q1, and that was really driven by a stronger sales development in the second half of Q1, which meant we ended the quarter with higher accounts receivable. The second one was we had lower trade payables. And I would say we are more normalized on our trade payables levels now. Last year was slightly inflated. So a more normalized situation there. But there are timing issues for both of them, and worth pointing out, quarter 1 is traditionally a negative cash flow quarter. Return on capital employed, one of our new financial targets and metrics that we launched in the Capital Markets Day in December. We've improved our return on capital employed to 7.6% from a 6.5% same time last year. So it's good to see how we've started to see an improved situation here. That's really driven by a couple of factors. First of all, we have an improved operating income. And secondly, we are seeing lower capital employed, which you can see on the chart in front of you, around SEK 3.5 billion on average lower capital employed over the last 12 months. And that's really driven by we've lowered our borrowings. We've had a couple of good years of cash flow, we've been able to lower our borrowings, and that has had a positive effect. So good development on the return on capital employed. Balance sheet. We continue with a solid balance sheet and a good financial position. Maybe a couple of things to call out here. Inventory, we are some SEK 900 million higher. If you adjust for currency, it's actually just above SEK 1 billion higher inventory. And we would say we are ready for the season to start. Quarter 1 is a sell-in season. Quarter 2 is really, we talk about, where the music plays and the sellout when the season starts. So we have good season readiness. We have good inventory around us. So we're ready to go for the season. Trade payables, I did already cover that in the cash flow part. But just again to highlight, we have higher trade receivables. It's a timing effect due to the stronger sales development in the second half of Q1. Borrowings, we've lowered by some SEK 1.5 billion compared to March '25, as you can see. And trade payables, as I mentioned earlier, some SEK 1 billion lower, and that's really again a normalized situation this year compared to slightly above normal last year timing effects. So moving on to our debt position. Our net debt/EBITDA ratio is now at 2.0 compared to 2.5 this time last year. So again, we're driving this in the right way. We lower our borrowings. Our net debt position is SEK 13.8 billion, which is pretty flat to previous year, which was around SEK 13.7 billion at that time. So a good progress on our net debt/EBITDA. Our debt maturity profile, I would say, is healthy, as you can see in the bottom chart here. And we also successfully refinanced a new 5-year bond of some SEK 1.1 billion during February 2026. We remain investment grade, BBB- with a stable outlook. With that, Glen, I pass back to you. Glen Instone: Thank you, Terry. And just to wrap up the quarter 1 presentation. So as said, a solid start to the season despite the uncertainty we see in the world. Organic sales growth of some 2%, growth in 2 divisions and a slight decline in one. A good expansion of our operating income, some 10% expansion driven from volume improvement, a stronger mix and a good start to the savings program. From a strategic perspective, just zooming out, good product launches, a great innovation pipeline. We're making good progress with the strategic portfolio management. So I'm very, very pleased with the start of the year. Good savings, good innovation and operating model starts to get momentum. So with that, Emelie, I think I'll pass back to you. Emelie Alm: Super. Thank you, Glen, and thank you, Terry. So with that, we would like to open up the Q&A session. And I will actually start with one question from the webcast, and it's from Adela Dashian from Jefferies. And I mean, we updated the tariff guidance already so you have this scenario in there already. But how do you see the April change to the Section 232 impacting our tariffs? Terry Burke: Yes. And that is all included in the communication that I gave you. We think we see a roughly exposure of SEK 150 million gross tariff impact for the year. As I said, SEK 85 million is already taken in Q1. So there's a little bit more to come. But I think the important thing is, of course, mostly mitigated through price increases. Emelie Alm: Thank you. And operator, do we have any questions on the conference call? Operator: [Operator Instructions] We have a question from Fredrik Ivarsson, ABB. Fredrik Ivarsson: Maybe first question on demand. We've seen consumer confidence coming down quite significantly, at least in some countries. Can you say anything about how consumers have reacted initially? I know it's early in the season, but any signs from that in terms of consumer behavior? Glen Instone: Fredrik, I think it's fairly early to say. Of course, as we mentioned, Q1 is our sell-in quarter, really preparing for the season. And now we're hoping that Q2 is, we often say, where the music plays, where the demand really happens. So I think it's a little bit early to say, but we're very, very happy with our sell-in and very, very happy with our strong product launches. But too early to say around the consumer demand at this point. Fredrik Ivarsson: Okay. Fair enough. And then a follow-up on the amendment of the 232 tariff. So you lowered the tariff guidance a little bit. Is that due to the amendment of Section 232? Terry Burke: It's all factors considered. Of course, there's been quite some changes. So I think it's a lot of moving parts. But ultimately, it's everything that we know of today and, of course, it can change. But everything that we know of today is all baked into those numbers that we communicate now. Fredrik Ivarsson: Okay. But should we assess that under this new sort of tariff structure, you actually expect lower tariffs? Terry Burke: Yes, yes. Fredrik Ivarsson: Okay. Okay. Good. And then on the current raw material cost inflation, can you say anything about what you're expecting in terms of input cost inflation and where you potentially could expect that to hit your P&L in terms of timing? Glen Instone: Yes. If we look at this, of course, what's going on in the world right now, particularly the Strait of Hormuz impact, we're seeing that would impact us across two areas, raw materials and logistics. We think full year impact this year would be around SEK 300 million as we know today, if it continues through the remainder of the year. That will be SEK 100 million secreting to logistics and SEK 200 million relating to raw materials. And really, the main raw materials that are impacted are plastics, aluminum and steel. And they take account of about 60% of our raw materials, and they are three main raw materials that are exposed. But we would see again around SEK 200 million from raw materials in the remainder of the year given what we know today. But just to highlight though, of course, mitigated by price. We will pass that price on. Yes, that's the gross impact. Fredrik Ivarsson: Very clear. And last one maybe. And potentially I missed this, the line broke up a little bit, but did you say anything about the growth in robotics? Glen Instone: We did. So we had a strong growth in robotics actually, particularly if I look at this in the three areas, we should say. Strong growth in professional robotics under the Husqvarna brand, strong growth in residential Husqvarna robotics as well. And we actually saw a decline in the Gardena-branded robotics, but overall, a growth in robotic lawnmowers. Operator: The next question is from Bjorn Enarson, Danske Bank. Björn Enarson: Talking a little bit about the good development in Q1 and what that is telling you. I mean, are we basically saying that the expectation are kind of downbeat and this is kind of a normalization? Or do you believe that retailers and dealers are turning more positive on the season, betting on the staycation kind of environment, if you understand that? Glen Instone: Yes. There's probably a part of that in there, Bjorn. I think the big thing is during your Q1, it's very much preparing for the season. Strong portfolio, strong innovation, so a strong sell-in in preparation for the season. That's how we're seeing this. Anything to add, Terry? Terry Burke: I think we can only control, of course, what we can control and we feel in a good position going into the season. Of course, it's highly uncertain how things are playing out. But there is an argument for a positive staycation effect, but there is also a counterargument of weak consumer sentiment, holding their money given the highly uncertain times and cost of living increases. So it's very, very difficult for us to judge and have an opinion. But we're ready for the season to start. Björn Enarson: But given that Q1 developed well, I mean, that must say something about sentiment among dealers, although they're coming from low level, if you understand what I mean. Glen Instone: Yes. That's absolutely valid, Bjorn. We do see maybe a positivity from our channel partners that are willing to take in the inventory. And of course, they've selected Husqvarna Group as their supplier. So that is a positivity. And again, well prepared for the season with what we have in the channels. Björn Enarson: Yes. And second question, I mean, you're talking a bit about the inventory situation that you are well prepared but, also again, that it's very uncertain given where the world is here and now. How should we think about that, I mean, if it's not developing along the lines of your expectation? Are we in a difficult situation? Or how should we look upon this level of inventories? Glen Instone: So I think you look at inventory in sort of two lenses here. One, of course, is our inventory that we hold in preparation for the season. And as Terry mentioned, this is slightly higher in preparation for Q2, and we feel well prepared. And then, of course, is the inventory with our trade partners as well that we monitor. And again, we seem to be on a somewhat normalized level overall with our trade partners, 1 or 2 high levels on some segments. But we're keeping a very, very close eye on the inventory levels both, of course, with our trade partners and also making sure we address our own internal inventory levels. Björn Enarson: Okay. And then maybe a quick one on the Gardena robotics. You talked about it was a decline. Was this a little bit of an intentional decline? Or I mean, are you losing share due to that you don't want to participate full out? Or is it a mix within the mix situation, where low end of the low-end robotics are perhaps growing better, et cetera? Glen Instone: No, we did expect a decline this year. It's a double-digit decline for robotics. We knew that from the listing situation. We knew that from the competitive landscape. So it was very much in line with what we thought going into the year. At the same time, the new product launches we've had under the Gardena brand in robotics, particularly the Gardena SILENO sense, that's been well received. So we've got some positivity within the general decline for Gardena robotic lawnmowers, but in line with our expectations for Q1. Operator: Next question is from Alexander Siljestrom, Pareto Securities. Alexander Siljeström: A couple of questions from me. Starting off with the cost savings program that came through there in Q1. Obviously, very impressive. Do you expect sort of the same rate here in Q2? And also if you could talk about the sort of full year guide on the run rate. Terry Burke: Yes. First of all, I absolutely agree. We feel pleased with quarter 1, how that has developed, and SEK 245 million is a good number for quarter 1. As I did say, perhaps we picked up on a little bit of the low-hanging fruit during that first quarter. So that was also important. We are working hard. We are driving cost out of this organization. We were very clear on that at the Capital Markets Day. We have a big target and we are working hard towards that target. We hold at the SEK 800 million for now. Again, we are working hard towards it. So we'll have to see how that plays out. But for now, we still stay with the SEK 800 million as the guidance for the year. Alexander Siljeström: Okay. Cool. And anything for Q2? Should we expect sort of SEK 200 million then there given the target or SEK 250 million? Or is it too early to say? Terry Burke: It's too early to say. But I mean, directionally, I'm thinking it's going to be around the same, SEK 200 million, SEK 250 million. Alexander Siljeström: Yes. Cool. And then maybe just on the growth in the robotics segment. You mentioned that Gardena was down double digits. Could you talk about the growth for sort of the non-Gardena robotics, so residential Husqvarna and professional? Was that in the sort of double digits or high single digits? Or any color there? Glen Instone: So if we look at the Husqvarna robotics, we did have a double-digit growth very much across two different segments, professional and residential, and very much in line with the guidance we provided at Capital Markets Day. So we're pleased with the start for Husqvarna. Very strong innovation pipeline, great product launches in Q1, and we feel we're very well prepared and we're really taking the shift as we move over to boundary wire-free and different vision technology. Alexander Siljeström: Cool. And maybe just a final one on North America. Impressive that you're back to growth there as well. Could you talk about sort of the main product segment drivers that you saw there and also maybe the impact from the storms? Glen Instone: Yes. So I think it's a valid point you raised on storms. We actually saw a good growth in handheld products in North America, which is good to see. Actually, a decline with wheeled. We saw a growth in the whole construction assortment in the quarter as well in North America, and we also saw a growth in watering under the Orbit brand in the Gardena division in the quarter. So growth in construction, growth in handheld products and growth in watering products in the U.S. Operator: Next question is from Johan Eliason, SB1. Johan Eliason: Yes. I guess this was me. It's Johan Eliason from SB1. Can you hear me? Emelie Alm: Yes, Johan. Johan Eliason: So I was just wondering a little bit about the robotics, coming back to that. You mentioned strong growth for the professional and the Husqvarna-branded residential. How would you say the margins for you are developing on those products and categories in a year-over-year perspective? Are you holding up the margins on that part of the robotics business, improving or declining? And any indications there would be helpful. Glen Instone: By and large, Johan, we are holding up margins with the Husqvarna-branded robotics, very much in line with our business plans. So holding up the margins, to answer, yes. Johan Eliason: Good. And on the Gardena where you see the decline, is there a mix? So you said that the new introductions are at least doing well there. Is that allowing you for a sort of a positive margin mix so you can hold it there as well? Or how should we think about the margin year-over-year on those products? I remember you did have some price cuts a year ago maybe and then still some sellout. So maybe that is also helping that part of your robotics offering more. Glen Instone: Yes. We mentioned price in the presentation. And the negative price on robotics, it really came from the Gardena assortment, particularly the older technology. Whereas the newer technology, the new launch I mentioned, that held up. So we see more positive margin from the new products and a negative margin from the older products. But all in all, margin has moved down for the Gardena robotics assortment. Terry Burke: And maybe just to be clear. The Gardena robotic is margin decretive both to the division and to the group. Johan Eliason: Okay. Okay. Good to know. Then if we look at the consumer segment now when you are transitioning to the wire-free solution. The total cost for the consumer, including with the old solution, wires and then maybe having some external help to install it vis-a-vis buying the wire-free solution today, is that a bigger total ticket for the consumer on the Husqvarna-branded side? Or is it lower? Or it's basically the same? Glen Instone: It's basically the same. Actually, Johan, we see very comparable prices year-on-year in the marketplace if we -- say, for 1,000 square meter machine, we see very comparable prices. Of course, it's higher technology and, hence, we need to take cost out of the system to maintain those margins. And that's exactly what we're doing. Emelie Alm: Thank you. Before we go on with the conference call, we can maybe have a follow-up. It's from Stefan Stjernholm regarding the inventory level at resellers. So if you can elaborate a bit on the regions and so on. Glen Instone: Yes. Stefan, so if we look at the inventory in the trade, which I understand your question is, we actually we see it normalized in Gardena, per se, with the exception of watering, and it's slightly higher given we've had a strong Q1 sell-in. So that's where it actually stands out as being slightly higher. I say that's applicable globally. If we go to Husqvarna Forest & Garden division, handheld is normalized globally. We have wheeled normal in Europe, normal to slightly higher in North America. And robotics is normal to slightly higher globally as well, again, with a very, very strong sell-in in Q1 in preparation for the Q2 season. And Construction, I would say across the board is normalized. There is still a reluctance to take on too much inventory from our construction partners. That has been the case for the past couple of years given the uncertain times we're living in. So I would say a normalized situation within Construction. Operator: We have a follow-up question from Fredrik Ivarsson, ABG. Fredrik Ivarsson: A short follow-up on the cash flow and the timing impact. Should we expect that to sort of fully reverse in Q2? Terry Burke: Yes, Fredrik. As I said during that slide, it's really a timing issue. And of course, having a stronger second half to quarter 1 from a sales perspective meant that the accounts receivable landed higher at the end of the quarter. It's purely a timing impact, and that will flush through during Q2. So yes, I would say it will all get corrected just as the timing flows through. Glen Instone: We're happy to have higher accounts receivable, Fredrik. Good indication of strong sales. Emelie Alm: Thank you. And with that, operator, I don't think we have any further questions. Or do we? Operator: There are no more questions from the phone. Emelie Alm: Okay. And we've been through all the questions on my iPad here. So with that, would you like to wrap up a little bit? Glen Instone: Absolutely. So again, thank you for joining our quarter 1 report. Off to a solid start. This is a journey we're on and it's a long transformation journey, but again, good to get a strong Q1 behind us. We are executing on our strategic areas, very strong portfolio management, good cost savings and a very strong innovation pipeline. So at that, we wrap up. Thank you. Emelie Alm: Yes. Thank you. Thank you for listening. Terry Burke: Thank you.
Operator: Ladies and gentlemen, welcome to the STMicroelectronics First Quarter 2026 Earnings Release Conference Call and Live Webcast. I am Moira, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. [Operator Instructions] At this time, it's my pleasure to hand over to Jerome Ramel, EVP, Corporate Development and Integrated External Communications. Please go ahead. Jerome Ramel: Thank you, Moira. Thank you, everyone, for joining our first quarter 2026 financial results call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call are Lorenzo Grandi, President and CFO; and Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensor Group, and Head of STMicroelectronics Strategy, System Research and Applications and Innovation Office. This live webcast and presentation materials can be accessed on ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST results to differ materially from management expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results this morning and also in ST's most recent regulatory filings for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST President and CEO. Jean-Marc Chery: Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q1 2026 earnings conference call. I will start with an overview of the first quarter, including business dynamics, and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your questions. So starting with Q1. Our first quarter net revenues were $3.1 billion, including about $40 million revenues associated with NXP's MEMS sensor business, which we acquired during the quarter. Excluding this contribution on a sequential basis, net revenues were above the midpoint of our business outlook range, driven mainly by higher revenues in our engaged customer programs in Personal Electronics and in Communication Equipment and Computer Peripherals. Gross margin was 33.8% or 34.1%, excluding the impact of the purchase price allocation, so-called PPA, following our acquisition of NXP's MEMS sensor business. Excluding impairment, restructuring charges and other related phase-out costs and purchase price allocation, PPA effects from our acquisition of NXP's MEMS sensor business, non-U.S. GAAP diluted earnings per share was $0.30. During the first quarter, inventory in our balance sheet increased slightly, and we continue to work down inventories in distribution. They are now normalized. We generated a negative $720 million free cash flow, including $895 million cash out related to the payment of our acquisition of NXP MEMS sensor business. Let's now discuss our business dynamics during Q1. Well, first, we had a strong booking momentum during Q1 with book-to-bill well above 1 across all end markets and regions. In Automotive, during the quarter, revenue declined 10% sequentially. Year-over-year, revenues increased 15%, marking the return to year-over-year growth. Automotive design momentum progressed with various OEM and Tier 1 ecosystems. We had design wins across electric, hybrid and traditional vehicles, spanning onboard chargers, DC-DC converters, powertrain active suspension and vehicle control electronics. Key products include power semiconductors, smart power devices, automotive microcontrollers, analog devices and sensors. In February, we completed the acquisition of NXP's MEMS sensor business. The acquired technology and product portfolio are highly complementary to STs and strengthen our automotive sensor business. We are progressing as planned with the integration into our portfolio and operational flows. Industrial decreased by 1% sequentially and improved 26% year-over-year. Importantly, inventories in distribution further decreased and are now normalized. In Industrial, our broad portfolio of microcontrollers, sensing, analog and power devices is strongly aligned with industrial transformation trends and the evolving needs of physical AI. During the quarter, we saw design wins across industrial automation and robotics, building automation, power systems, health care and home appliances. We announced our collaboration with NVIDIA to integrate ST sensors, microcontrollers and motor control solutions with NVIDIA Robotics ecosystem. This aims to help developers design, train and deploy humanoid robots and other physical AI systems with higher efficiency, reliability and scalability. We are also proud to have been ranked the #1 vendor worldwide for general purpose microcontrollers for the fifth consecutive year based on research by Omdia. During March, we announced that the first batch of STM32 wafers fully produced in China for ST by our partner, Huahong, has been delivered to customers in China. This was a major step forward in ST China for China supply chain strategy. For Personal Electronics, first quarter revenues were down 14% sequentially, reflecting the seasonality of our engaged customer programs and up 21% year-over-year, reflecting increasing content. During the quarter, we reinforced our position in mobile platforms and connected consumer devices, supported by both engaged programs and a broad open market portfolio spanning sensors, secure solutions and power management. We announced support for motion sensing and secure wireless technology on Qualcomm Technologies' newly launched Personal AI platform based on ST smart sensor and secure NFC controllers. For Communications Equipment and Computer Peripherals, first quarter revenues were above our expectations, up 3% sequentially and 41% year-over-year. We continue to reinforce our position as a supplier of critical semiconductors that power cool and connect AI data centers from the grid to the core and from the core to the user. ST is now strategically positioned to capture upside from new AI-driven program, leveraging specialized technologies to enable the evolving AI infrastructure. We confirm our data centers revenue expectation to be nicely above USD 500 million for 2026 and well above $1 billion for 2027. In a major development, we expanded our strategic engagement with Amazon Web Services through a multiyear multibillion U.S. dollar commercial engagement to enable new high-performance compute infrastructure for cloud and AI data centers. This engagement covers a broad range of semiconductor solutions, leveraging ST portfolio of proprietary technologies. During the quarter, we secured multiple design wins for silicon and silicon carbide-based power solutions. These supports the drive for higher power density and increased energy efficiency for next-generation AI compute and data center architectures. We announced the expansion of our 800-volt DC AI data center power conversion portfolio with new 12-volt and 6-volt architectures in collaboration with NVIDIA. With this, ST now provides a complete portfolio for the 800-volt VDC power distribution inside gigawatt scale compute infrastructure, leveraging ST power, analog and mixed signal and microcontroller products. We also announced the start of high-volume production for our silicon photonics-based photonics ICs 100 -- PIC100 platform used by hyperscalers for optical interconnect for data centers and AI clusters. The technology enables higher bandwidth, low latency and greater energy efficiency. As I mentioned last quarter, the momentum in optical interconnect technologies is also driving demand growth for our high-performance microcontrollers in pluggable optics. We are also seeing initial demand for our secure element in data server power supply units to support authentication and detect data manipulation attacks. Our low-earth-orbit satellite business based mainly on our BiCMOS and panel-level packaging technologies strongly progressed during the quarter. We were selected to develop a power amplifier controller for direct-to-cell satellites based on our proprietary BCD technology by our main low earth orbit customer, and we continued to ramp shipments to our second largest customer. For sustainability, we issued our annual integrated report during the quarter. This report integrates our sustainability statement detailing our performance in 2025. We made further progress and remain on track for our commitment to becoming carbon neutral by '27 on Scopes 1 and 2 and on product transportation, business travel and employee commuting for Scope 3. We also target the sourcing of 100% renewable electricity by 2027 and achieve 86% in 2025. Now over to Lorenzo, who will present our key financial figures. Lorenzo Grandi: Thank you, Jean-Marc. Good morning, everyone. Let's start with a detailed review of the first quarter, starting with revenues on a year-over-year basis. By reportable segment. Analog products, MEMS and Sensors grew 23.2%, mainly due to Imaging and MEMS and to a lesser extent, Analog. Power and Discrete products decreased 1.8%. Embedded Processing revenues were up 31.3% due to general purpose MCU and to a lesser extent, custom processing and RF and optical communication grew 33.9%. By end market, Communication Equipment and Computer Peripherals grew 41%; Industrial 26%, Personal Electronic, 21% and Automotive 15%. Year-over-year, sales to OEMs and distribution increased 24.5% and 19.2%, respectively. On a sequential basis, Analog product, MEMS and Sensor decreased by 9.1%, Power and Discrete by 5.4%, Embedded Processing by 4% and RF & optical communication by 9%. by end market, on a sequential basis, Communication Equipment and Computer Peripheral was up 3%, while the other end markets declined. Industrial was down 1%, Automotive, 10%; and Personal Electronic, 14%. Turning now to profitability. Gross profit in the first quarter was $1.05 billion, increasing 24.3% on a year-over-year basis. Gross margin was 33.8%, increasing 40 basis points year-over-year, mainly due to lower unused capacity charges and better product mix. On a sequential basis, gross margin decreased by 140 basis points. Gross profit included $11 million purchase price allocation PPA effects from our acquisition of NXP's MEMS sensor business. Non-U.S. GAAP gross margin, excluding this item, was 34.1%, excluding the impact of NXP's MEMS sensor business and related PPA effects, gross margin stood at 33.9%, 20 basis points better than the midpoint of ST guidance, which did not include any impact related to our acquisition of NXP's MEMS sensor business. Q1 gross margin included about 50 basis points of negative impact resulting from a nonrecurring cost related to our manufacturing reshaping programs. The negative impact on gross margin from the just mentioned nonrecurring cost is expected to remain at similar level over the rest of the year. Total net operating expenses, excluding restructuring, amounted to $904 million in the first quarter. Excluding the purchase price allocation PPA effects from our acquisition of NXP's MEMS sensor business, non-U.S. GAAP OpEx stood at $885 million. Non-U.S. GAAP net OpEx included OpEx related to the acquired NXP MEMS sensor business and a one-off impact related to a settlement with a supplier. Excluding these 2 items, non-U.S. GAAP net OpEx was broadly in line with the expectations given in January, which did not include any impact related to our acquisition. For the second quarter of 2026, we expect non-U.S. GAAP net OpEx to stand between $950 million and $960 million. The sequential increase is mainly due to calendar base effect, start-up costs and 1 incremental month of OpEx related to the acquired NXP's MEMS sensor business. Excluding these items, Q2 '26 non-U.S. GAAP net OpEx would slightly decrease sequentially. In light of our acquisition of NXP's MEMS sensor business and the new AI revenues opportunity, let me give you some more color on the 2026 OpEx. For full year 2026, we now expect like-for-like net OpEx to be up mid- to high single digit year-over-year versus our previous expectation for a low single-digit increase as we are accelerating our investment in new business opportunities, including NXP's MEMS sensor business acquisition and the exchange rate impact, net OpEx should be up low double digit year-over-year. In the first quarter, we reported $70 million of operating income, which includes $71 million for impairment, restructuring charges and other related phase-out costs. These charges are related to the execution of the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base. Q1 operating income also included $30 million purchase price allocation effects from our acquisition of NXP's MEMS sensor business. Excluding these items, Q1 non-U.S. GAAP operating income stood at $171 million and non-U.S. GAAP operating margin was 5.5% with Analog product, MEMS and Sensors at 12.2%, Power and Discrete negative 21.5%, Embedded Processing at 16.9% and RF & Optical Communication at 14.9%. First quarter 2026 net income was $37 million compared to a net income of $56 million in the year ago quarter. Diluted earnings per share were $0.04 compared to $0.06 1 year ago. Non-U.S. GAAP net income stood at $122 million and non-U.S. GAAP diluted earnings per share stood at $0.13. Net cash from operating activities totaled $534 million in the first quarter compared to $574 million in the year ago quarter. Net CapEx was $362 million in the first quarter compared to $530 million in the year ago quarter. Free cash flow was negative at $723 million in the first quarter compared to a positive $30 million in Q1 2025. Q1 '26 free cash flow includes $895 million cash out related to the payment for the acquisition of NXT's MEMS sensor business. Inventory at the end of this quarter was $3.17 billion compared to $3.14 billion in Q4 2025 and $3.01 billion in Q1 2025. Days sales of inventory at quarter end were 140 days, in line with our expectation compared to 130 days of the previous quarter and 167 days in the year ago quarter. Cash dividend paid to stakeholders in the first quarter of 2026 totaled $71 million. ST maintained its financial strength with a net financial position that remained solid at $2 billion as of March 28, 2026, reflecting total liquidity of $4.57 billion and total financial debt of $2.57 billion. Now back to Jean-Marc, who will comment on our outlook. Jean-Marc Chery: Thank you, Lorenzo. Now let's move to our business outlook for Q2 2026. We are expecting Q2 2026 revenues at $3.45 billion, plus/minus 350 basis points. At the midpoint, our Q2 2026 net revenues will increase 11.6% sequentially and by 24.9% year-over-year. We expect our gross margin to be about 34.8%, plus/minus 200 basis points, including about 100 basis points of unused capacity charges. Non-U.S. GAAP gross margin is expected to be about 35.2%. This business outlook does not include any impact for potential further change to global trade tariffs compared to the current situation. To conclude, in the first quarter, despite the macroeconomic uncertainty, we saw improving demand with strong booking and normalized inventory in distribution. In the second quarter, we expect revenues well above average seasonality as well as an increased gross margin. We have a clear path to improve gross margin while staying at the forefront of innovation. We expect 2026 revenues to show double-digit growth beyond our addressable market dynamics and our already engaged customer programs. This growth will be driven by new AI programs for which we leverage our specialized technologies to enable the evolving AI infrastructure. Before handing over to Jerome, I am pleased to announce that as we did in March for Cloud AI and intelligent sensing, on May 4, we will host a dedicated call on ST's low-earth-orbit satellites, explaining how we are going to achieve our ambition of well above $3 billion cumulative revenues over the period '26 to '28 for this opportunity. You will receive the invitation today. Thank you, and we are now ready to answer your questions. Operator: [Operator Instructions] The first question comes from the line of Joshua Buchalter from TD Securities. Joshua Buchalter: Congrats on the very solid results. So you have a lot of idiosyncratic growth drivers hitting this year across data center, silicon photonics, LEO satellite and then your largest customers, normal seasonal ramp. Can you sort of help us with the shape of the year and how we should expect them to layer into the model? Like should we expect 3Q and 4Q this year to also be above seasonal because of these company-specific growth drivers? Jean-Marc Chery: I am taking the question. Well, of course, I will not guide on '26, but maybe we can share a few elements. First of all, okay, the strong booking of Q1 has shown absolutely no pull-in order. It is, let's say, a well-balanced loading of the 2026 quarter-to-quarter. So the billable on '26 from the booking we received in Q1 represent approximately 85% to 90% of the booking we received. So this is positive to make us confident that in H2, we could achieve the usual seasonality H2 versus H1. Then what will be again positive on the year 2026, looking at the current dynamic in terms of growth. In automotive, we confirm that '26 will be a growth for ADAS for sensor, of course, and also with the boost of the acquisition of MEMS from NXP and for silicon carbide. In Industrial, we will see a solid and strong growth on general purpose microcontroller. In Personal Electronics, okay, as we have already seen in Q1, our engaged customer programs in Sensor and Analog will be, let's say, a contributor of the growth but not a big one in H2 because a change of profile in the introduction of the new device. Well, in data center, it is clear that here we are seeing a really strong growth in terms of demand, acceleration, including cloud optical interconnect, both for our PIC100 for our BiCMOS but I repeat for our general purpose microcontroller and analog and power discrete as well. So we confirm the revenue nicely well above USD 500 million. But the only negative aspect of the revenue in '26 is capacity reservation fees that will decrease, okay, $140 million compared last year. So this is how we see the year 2026. So I repeat, backlog now well loaded, great confidence level to have H2 versus H1 at the usual seasonality on top of ADAS, SiC, sensor, general purpose micro, clearly, AI infrastructure and low-earth-orbit satellite will be very strong contributor to the performance of ST in 2026. Joshua Buchalter: Really appreciate it. I was hoping you could comment on the pricing backdrop. I mean, one of your large competitors last night said it was coming in a little bit better than they originally planned and now expect flat pricing. Have you seen changes in the pricing environment over the last 3 months? And sort of what are your expectations on pricing for the year? Jean-Marc Chery: So, here, I'll let Lorenzo comment. Lorenzo Grandi: Yes. Thank you for the question. If you remember last quarter, we were talking about pricing decline on low to mid-single-digit expectation. But clearly, there is some evolution in respect to this expectation. I would say that in Q1, our price decline was as expected, low single digit. What today we see, we see an environment in which actually there is some selected price increase that also we expect. So at this point, I would say that in terms of pricing, our expectation is to have a very low single-digit, let's say, price decline. So it means that actually, in terms of pricing, we see a better situation in respect to what was a few months ago. Operator: The next question comes from Francois Bouvignies from UBS. Francois-Xavier Bouvignies: Maybe just a follow-up on the pricing. I mean we have seen some announcements that you will increase your pricing in April and you are not the only one. So can you just give us an idea of how much of your revenues would be impacted by the margins? And also, Lorenzo, what about the gross margin with this pricing increase? I mean, should we -- I would imagine it takes a bit of time to fuel into your P&L. So when should we expect some gross margin impact from this gross margin increase that we see in the press? That's my first question on pricing, gross margin. Lorenzo Grandi: No. Clearly, let's say, when we look at the price environment, I would say that at this stage, yes, there is some selective price increase. It's not a price increase for what concern us across all, let's say, customer and products. Anyway, what I can say is that when we look at the dynamic, of course, of the -- dynamic of our gross margin moving from Q1 to Q2, and we may say that pricing is quite neutral in respect, let's say, to this dynamic, means that at the end, it's not a boost but it's not even a detractor. It will remain substantially flattish when we look at the evolution of the gross margin. That is not what is the normal trend when we look, let's say, the seasonality between these 2 quarters. For sure, as a positive when we look at our gross margin, there is the mix. Mix is continuing to be, let's say, positive on our gross margin evolution. But clearly, there is also lower unused capacity charges. Our fabs that are better loaded capacity charges is declining moving from Q1 to Q2. But there are still some negative. The negative is mainly related to our manufacturing efficiency. Why? Because there is some temporary suboptimal efficiency in the context of our reshaping plan. We are moving technologies, products from 200-millimeter fab to 300-millimeter from the 150-millimeter of silicon carbide to 200-millimeter. And we are really in the middle of this kind of programs that, for sure, let's say, are somehow impairing a little bit the efficiency of our fabs. And this, I would say, is the main detractor when we look at the evolution over the -- on a sequential basis of our gross margin. Pricing, as I said, is really neutral at this stage. Francois-Xavier Bouvignies: Maybe one for Jean-Marc. I mean, if we look at your customer programs, if I exclude the Personal Electronics, so if I take silicon carbide, photonics and satellites, so your big programs. Should we expect your revenues to grow quarter-on-quarter from here, like the fundamental that is increasing gradually. So no seasonality, I would imagine. So you should be able to see a growth across the board here quarter-on-quarter for the year. Is that the right assumption excluding Personal Electronics? Jean-Marc Chery: Of course, excluding Personal Electronics, this is what we expect. Operator: Next question comes from Janardan Menon from Jefferies. Janardan Menon: Just a follow-up on gross margin, Lorenzo. Looking into the second half, what would you see as the various puts and takes on that gross margin evolution? Your top line is growing perhaps much faster than what we had thought a few months ago. So would it be that, that utilization and underloading charges will get used up faster? And what is -- there's normally a lag between the revenue trend and the gross margin. So just if you could give us any commentary on how -- not in terms of actual numbers but just the puts and takes perhaps of the second half? And how do you feel about your sort of your model of getting to 45% given the kind of strength that you're seeing in end markets and the favorable product mix that you're seeing right now? Lorenzo Grandi: No. What I can say about the gross margin is definitely that the gross margin, let's say, this year will improve in respect to what has been in last year, definitely and will improve sequentially when we look Q1, Q2, Q3 and Q4. This is something that definitely we expect. This is what we expect to continue to see a sequential increase and sequential improvement over Q3 and Q4. What are, let's say, the driver we expect? Clearly, as you said, the unused capacity charges will improve, thanks to the fact that we will have higher revenues, even if I confirm that will not completely disappear. We will still have some areas in which especially related to the legacy technology that we will still have a little bit of unused capacity charge but much lower than what we saw, let's say, last year definitely. There will be progressively some manufacturing efficiency improvement. Even if I repeat what I said before, we are not yet optimized because, let's say, we are in this transition. We will start to see this benefit of the transition mainly in 2027 more and then in 2026. But for sure, there will be some improvement moving forward from Q2. Mix will be another positive impact. We will continue positive impact on mix. But clearly, we know that capacity reservation fees now are out. There will not be, I mean, much lower, let's say, there will not be a significant variation moving from Q2, Q3 and Q4, but are much lower in respect to what it was, let's say, last year. As I said, there is this cost related to this transformation of our manufacturing infrastructure. Maybe what we will have, let's say, in the second half is a little bit higher input cost for our manufacturing considering, let's say, the overall situation. But definitely, I confirm that starting from our, let's say, 35.2% Gross margin in the second quarter, we will continue to see progressively improvement in Q3 and Q4. Janardan Menon: And maybe just a quick follow-up. On your Q2 outlook of 11.6%, is there already a very significant contribution from the optical connectivity on the data center, which is driving that upside? Or is the Q2 more driven by a pickup in industrial, general purpose microcontrollers, et cetera, and the optical kicks in more meaningfully into the second half of the year? Jean-Marc Chery: The optical are starting to contribute. In fact, since Q1 is mainly through the high-performance microcontroller. But the main part of the optical overall with photonics by BiCMOS will be in H2 but microcontroller are already participating to the growth. Operator: The next question comes from Gianmarco Bonacina from Banca Akros. Gianmarco Bonacina: I have a question more for the midterm. You gave some figures for your, say, AI revenues for next year, above $1 billion. I just wanted to understand in terms of the commercial activity, we read -- we commented the big contract with AWS. So are you working on a commercial basis just to get potentially the revenues with other hyperscaler? And how confident you are that, let's say, the opportunity you realized with AWS can be also generated with other hyperscaler maybe, I mean, in the midterm, not just in the near term? Jean-Marc Chery: If we speak about midterm, our strategy on hyperscaler are the following. Basically, if you break down this, let's say, infrastructure in 3 main application domain. What we call the network flow. This is where we have spoken about, let's say, the optical cable and near technology, let's say, evolution with packaged co optic or near-packaged optics clearly here, one of the main driver will be AWS but clearly, ST is positioned to provide -- to be a provider of product and solution for optical cable far beyond, only AWS. This is the point number one. And then the second big domain is clearly well known is what we call the power flow. So it means the capability for electronics to enable the supply of the processor from 20,000 volt to 0.8 volt. And here, ST is engaged now with a large product portfolio from, let's say, SPS, low-voltage MOSFET, microcontroller, driver, sensing and so on and so forth. And this will come far beyond AWS. Of course, AWS okay, will use this component but we will provide and we will compete far beyond AWS. Then last but not the least is all the infrastructure around the thermal cooling of this infrastructure, and we are already there with our power solution, microcontroller and analog. So clearly, AWS will be a fantastic driver for ST for the growth of the revenue during the next 3, 5 years. But our ambition is well above, thanks to our product portfolio. And I repeat ST is a unique company capable to provide on this infrastructure from photonic solution, MEMS solution that will come pretty soon, microcontroller definitively, power switches, power drivers, controllers and including other sensor. So this unique position, clearly position ST in the future, to be an important contributor in terms of supply to this business line. Gianmarco Bonacina: Okay. Just a quick follow-up for Lorenzo, if I can. The change in the guidance in the OpEx, just to understand correctly. So you are talking about your clean OpEx excluding PPA and restructuring. Lorenzo Grandi: Yes. Yes. Of course, we exclude PPA and restructuring. And as I was saying before, at the end, yes, apart of the fact that we have the addition of NXP that when we were talking previously was not taken into consideration. But I have to say that thanks to the fact that we see significant, let's say, opportunity in terms of revenues, we have some programs accelerating in terms of, let's say, development and bringing a little bit more level of expenses. I have to say that in any case, when we look at our net OpEx, the expense to sales ratio 2025 compared to 2026, let's say, in 2026, the expense to sales ratio will materially decline with respect to the previous year. Operator: The next question comes from Andrew Gardiner from Citi. Andrew Gardiner: Just a couple of, I suppose, follow-ups to some of the topics that have already been discussed. First, on the AI side, Jean-Marc, you've -- I think it's a reiteration of what you were saying last month in terms of the "nicely above $500 million of revenue for this year" and "well above $1 billion for next year." Just things are moving very quickly in this part of the market to put it mildly. What is the potential for upside there? And I suppose, more importantly, for you, where are you seeing capacity constraints at the moment that may indeed limit the level of upside relative to the demand that you're seeing? And then a quick one for you, Lorenzo, just again on the OpEx. You said a low double-digit gain '26 on '25 on one of the items that you were looking at. Could you just provide us the baseline of that? I missed that when you were saying it in the prepared comments. Jean-Marc Chery: Never mind. It is clear that we are on some part of the technology and components that are enabling the solution we provide to customers, we are in ramp-up mode. Clearly on photonics and associated technology, we are in a ramp-up mode. Overall, what I can confirm today that the unconstrained demand we have today for '26 and '27 is well above the nicely above $500 million and well above $1 billion. And our ambition is to fulfill this unconstrained demand but the company first has to ramp up, okay, the capacity already installed in the second half of the year to implement additional capacity. And our ambition is to fulfill as much as we can the unconstrained demand of customers. I will provide more color in July, clearly during our next meeting. But I really confirm that '26 will show a significant breakthrough in our revenue linked to AI data center. Lorenzo Grandi: For what concern OpEx, I confirm that net OpEx sales ratio will decrease in 2026 compared to 2025. What we expect, now we expect when we say OpEx like-for-like means, let's say, the same FX and same perimeter means not including the NXP acquisition to be up mid- to single digit, let's say, in 2026 compared to 2025. You have to consider that half of this increase is related to the start-up cost that we have, let's say, in the fab 300-millimeter and, let's say, 200-millimeter for silicon carbide that is, let's say, related to our transfer from 200 to 300, 150 to 200 for silicon carbide. So it means that this is something that is not structural is coming this year but will not stay forever. If we include the NXP MEMS business acquisition, and also include the impact of the exchange rate, excluding the restructuring, we should be up low double digit versus 2025. This is assuming an exchange rate effective in the range of [ 1.15, 1.16 ] and is, of course, including, let's say, the operation of NXP MEMS business that we can estimate in the range of $50 million additional expenses for us in this year. Operator: The next question comes from Sebastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: On the transformation program, where are you standing right now in terms of capacity build and so on? And when do you expect to have the full synergies benefit? Is it for '27 or more for 2028? And the second question is on silicon carbide and your JV with Sanan in China. Where are you in the ramp-up mode with the JV? And when do you expect the first volume to start to ramp up meaningfully in China? Jean-Marc Chery: For the transformation program, clearly now we are in the middle of the execution. Clearly, we have to respect the customer qualification time, when for analog technology, we move from 200-millimeter to 300-millimeter. This is -- they have a good incentive to do it because clearly, our capacity potential increase is related to Agrate in 300-millimeter. We expect that the benefits of Agrate at full speed will be more in the end of '27 and entering in '28, not related to the fact that we don't go at the right speed in terms of qualification internal, but more related to the customer normal constraint they have to qualify their own application. On silicon carbide, it's a bit similar, in fact, okay, because here, we are moving from 6-inch to 8-inch, and this is mandatory to do it here is the same. We are not limited by our own capability, both in Catania and in Sanan in Chongqing. The limitation is more related to the qualification time of our customer. And you know that we are engaged in a very, very famous platform with an important player in Europe, which currently has a great success for this new platform in electrical car. And here, of course, we cannot take any risk and it takes time before to move to 8-inch. So for sure, are the same. The benefits will be more end of '27 and entering in '28, and in Sanan, we expect to start the production and to load this nice infrastructure starting the end of 2026. Operator: The next question comes from Sandeep Deshpande from JPMorgan. Sandeep Deshpande: My question is regarding the acquisition of the NXP sensors business. How -- I mean, how did that business grow in the past? And how will that contribute to growth in the current year? And then my follow-up question is regarding the gross margin of the company. You've said that your underutilization charges do not fully go away this year. But should we assume that in '27, the underutilization charges go away and with the mix shifting more to the AI products as well as some of the satellite products, et cetera, that there could be a much bigger move in the gross margin in full year '27? Jean-Marc Chery: Thank you, Sandeep. So Marco Cassis will take the first question on NXP -- former NXP MEMS. And Lorenzo, of course, the second question. Marco Cassis: Yes. On NXP, the combination of the capabilities of the 2 companies is translating in acceleration, of course, related to a market, which is automotive and clearly is moving at the speed of the automotive but it's an acceleration of opportunities of design-in and design win because we are putting together the best of the 2 worlds, which is a very strong positioning of NXP MEMS in accelerometers, where they do use -- sorry for a little bit of technical but monosilicon crystal, which are extremely good in terms of temperature performance for automotive and our capabilities on the 6-axis. So we do see that we are going to grow with NXP at faster speed than what is typically the market growth in safety application. So it's going to be a contribution of the growth of the overall MEMS business. I hope I'm answering to your question, Sandeep. Sandeep Deshpande: So how much was the growth in the past couple of years in that business? Marco Cassis: Well, it was in the range around low single-digit growth, which is the typical growth of safety application in automotive. Sandeep Deshpande: And you expect that to accelerate is what you're saying? Marco Cassis: I am expecting this one to accelerate, yes. Sandeep Deshpande: Understood. Lorenzo Grandi: Okay. Maybe I take the one of the gross margin, let's say, confirm what I was saying before, the gross margin will improve starting from our 35.2% this quarter of Q2 after, let's say, quarter after quarter this year driven by the seasonality of the revenues, the continued reduction of the unused capacity. As I said before, let's say, still there will be some but reducing over the second part of the year and then the continued improvement of the mix. Clearly, let's say, this is our trend to the path above 40%. We said that when the company, let's say, will be with revenues above $4 billion quarterly revenues, let's say, we expect to have our gross margin at 40%. After that, our reshaping plan will be completed. So this is going in this direction, let's say. So what I can say today is that clearly, let's say, in our gross margin, there is still some negative impact on this reshaping plan, temporary negative impact due to the activity that we are doing that we will progressively go down and transform, let's say, positive impact when we will start to have, let's say, the benefit of these programs. So yes, I confirm that at the end, let's say, there will be -- you will see a progressive improvement in our gross margin moving in Q3 and Q4 and then, of course, in 2027. Jerome Ramel: Thank you, Sandeep. We have time for a very last question. Operator: The last question for today is from Lee Simpson from Morgan Stanley. Lee Simpson: Great. Maybe just a couple of questions, if I could, around data center power and then on the photonics side. Just on the data center power, it did look as though you were saying you've seen some design wins. It looked as though with silicon, silicon carbide, most all of it first stage. I just wondered if you could give us a sense for the engagements you're seeing around gallium nitride, where regionally that may emerge? And then maybe just on the voltage regulation side on the second stage, anything really happening there, certainly as we look out to '27? Jean-Marc Chery: So Marco will answer the detail. Interestingly, for all of you, guys, maybe what I can tell you that the nicely above USD 500 million in '26 will be spread approximately between 40% related to analog and power and 60% related to microcontroller and radio frequency optical cable. Just for you to have the span of our revenue for 2026. And I'll let Marco to answer the detail. Marco Cassis: Yes. For what is related to power compared to our positioning 1 year ago, we put a major effort in expanding the portfolio to be sure that we can cover basically from grid up to driving the GPUs. And this goes through the full portfolio of ST, which is silicon-based, silicon carbide with different voltages and new packages that we are introducing where we are not present. And of course, the GaN, which is an important for the 800 volt where we are in sockets that I think will come to life during this year and next year. So the position overall in terms of portfolio is now much stronger than it was, and this will translate in revenues during '26 but mainly during '27. And this goes across the different ecosystem of suppliers, which means power supply makers based in many cases in Taiwan and of course, the ecosystem that we have in U.S. So overall, the trend is going through the full portfolio of ST, again, with a portfolio that has been expanded and now is rich and covering all the stages of the power conversion. Lee Simpson: That's very clear. Maybe if I sort of move it on to the photonics side. It always seems ST is extremely good at getting a big lead customer, pipe cleaning a new market opportunity and creating advantages, if you like, in technology, leveraging some of the IP in-house. But that transition to a standard product in the market for us always feels like the real ROI where margins can be accretive. Are we seeing when we look at the PIC and some of the engagements you have in the market, the possibility that this PIC100 becomes a standard product in the market? Jean-Marc Chery: Standard product, okay, I will not classify it as a standard product, okay? Maybe application standard specific, maybe yes. But one thing, I prefer to share with you again to show how ST is and will be a reference on silicon photonics. First of all, we are the unique company capable to provide silicon photonics technology on 12-inch. So we have the capability to increase our capacity in both in Crolles and possibly later on in Agrate. So for sure, ST, will compete on this market, largely to become a pure standard, you will have many innovation coming in the optical cable and optical solution. Again, the near-packaged optic, the co-package optics, all this will come maybe faster than expected. And silicon photon is a key enabler of all these technologies. Jerome Ramel: Okay. Thank you. Thank you, everyone. This is the end of this call. So thank you for joining us today, and we remain at your disposal if you have any follow-up questions. So sorry for the one who we couldn't squeeze into the question. So thank you very much. Have a good day. Lorenzo Grandi: Thank you. Jean-Marc Chery: Thank you. Bye-bye. 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.
Laurie Goodroe: Good morning, and welcome to Bankinter's First Quarter 2026 Results Presentation. Financial statements were posted with market authorities earlier this morning, and all materials can be found on our corporate website. Please refer to the disclaimer in the presentation and note that this call is being recorded. Today, we welcome our Chief Executive Officer, Gloria Ortiz; and our Chief Financial Officer, Jacobo Diaz. Gloria, over to you. Gloria Portero: Thank you, Laurie. Let me start with the key highlights for the quarter, which confirm the strength of our business model, disciplined volume growth, continued margin improvement, a diversified and resilient income base and best-in-class efficiency and risk metrics. In volatile markets and in an environment of geopolitical uncertainty, that combination is not a nice to have. It is what protects earnings power through the cycle. This quarter, we delivered it once again with growth that is both profitable and controlled, supported by high-quality balance sheet. First, customer volumes increased by 6.5% with customer lending up 5%, retail funds up 1% and assets under management growing by 17%. This is balanced growth. We are growing where we see attractive risk-adjusted returns, and we are doing so without compromising the quality of the franchise. Second, on margins, we continue to demonstrate strong pricing discipline with customer margins at 2.68% and NIM at 1.76%. In other words, we are not buying growth. We are growing selectively with strict pricing discipline. Third, our income sources are increasingly more diversified and resilient. Net interest income grew by 5.5% and net fees by 8%, driving gross operating income growth of 6.5%. Finally, operational excellence and balance sheet strength remain key defining features of Bankinter. We continue to improve our management ratios with the cost-to-income ratio declining towards 35%, NPL ratio below 2% and strong capital levels. All of this translates into profitability and value creation. Net profit reached EUR 291 million, up 7.6% with RoTE at 20%. Let's now go into some detail behind these figures. Customer volumes grew across the franchise, increasing by EUR 14 billion year-on-year. Growth was led by lending and assets under management with deposits stable and improving in mix. Geographically, Spain remains the core growth engine, while Portugal and Ireland continue to add faster momentum off a smaller base. On Page 7, you can see the quality of our core revenue growth. 1/3 of core revenue growth comes from fees, which now represent 26% of core revenues, a clear signal of higher-value client base and a more diversified business model. This is not cyclical growth. It reflects structurally more diversified core revenues and margin management that sustains net interest income even in shifting rate environments. Page 8, key management ratios reinforce the quality of execution behind our results. Improving efficiency, strong asset quality and strengthening capital all confirm that growth is disciplined, risk is tightly controlled and profitability is sustainable through the cycle. Let me now turn to milestones for the first half of the year -- first part of the year. Portugal is a clear success story for Bankinter. Since launching in 2016, we have delivered high-quality growth, doubling our client base, tripling business volumes and transforming efficiency from over 120% to the low 30s. Profitability has scaled strongly on the back of a disciplined and diversified model built on a fully integrated operating platform with strong internal capabilities, reinforced by joint ventures and strategic alliances with partners such as Mapfre, Sonae and Generale. None of this would have been possible without the team. So today, Bankinter Portugal has 884 employees, around 70% of whom have been with us since 2016, complemented by more than 150 new recruits from a younger generation who will help fuel the next phase of growth. Together, they underpin a genuinely scalable and sustainable model supported by digital transformation, applied AI and a clear focus on value creation. On Page 10, earlier this month, we announced 2 complementary and clearly strategic corporate transactions to scale our business in alternative investments. First, we merged our alternative investment fund manager with premium partners to strengthen leadership in direct alternative investments, expand sector expertise and reinforce capabilities. As a second step, we will take a significant economic stake in Access Capital Partners, accelerating our Pan-European expansion through scale, specialization and greater product breadth across investment strategies and geographies. Together, these 2 transactions directly enhance our value proposition while broadening access to alternative products where we already distribute today to more than 15,000 private banking and retail clients across Iberia. Overall, the strategic decision strengthen a high-value capital-light recurring fee franchise, deepening long-term client relationships. And having just reviewed 10 years of growth, delivery and profitable success in Portugal, I have the strong convictions that Bankinter investment is on the same path, building scalable long-term growth and delivering strong value creation for our shareholders. And before handing over to Jacobo, let me briefly frame my view of the current environment. While geopolitical uncertainty has increased in recent weeks, our assessment remains that this will not, in the near term, translate into a contraction in consumption in our core markets. What we are seeing is greater prudence rather than a deterioration in underlying demand supported by solid private sector fundamentals. In this context, our geographic diversification across Spain, Portugal and Ireland continues to provide stability and quality to our earnings profile. And these markets are expected also to be less impacted and to perform better than the European average. So this is all from my part, and it is now over to you, Jacobo. Thank you. Jacobo Díaz: Thank you very much, Gloria, and good morning, everyone. Let me briefly summarize the income statement. Net profit reached EUR 291 million, up 4% quarter-on-quarter and 8% year-on-year, driven by resilient net interest income, solid fees, disciplined cost control and lower provisions. I'll now walk through the key drivers behind each of these lines in more detail on the following pages. Net interest income continues to progress well. NII reached EUR 571 million in the quarter, up 5.5% year-on-year and around 2% quarter-on-quarter on an adjusted day count basis. This is driven by volume growth and improving customer margins and special due to the improvement in deposit cost, which declined by 6 basis points during the quarter, supported by better deposit pricing and mix. On Page 14, let me take a minute to talk about our deposit strategy. Our approach to deposit growth remains disciplined and margin focused. We are actively managing the mix toward higher quality, more stable retail funds while maintaining tight pricing discipline. This focus has meant prioritizing the management of the cost of our deposit base rather than maximizing volumes. During the quarter, we continued to optimize pricing, including actions on digital accounts and a review of deposit spreads for treasury and fixed term deposits. Retail funds declined by EUR 3 million due to a -- EUR 3 billion due to a seasonally softer first quarter as well as active margin management actions. We continue to optimize our funding mix with a lower share of price-sensitive term deposits and a greater share of current accounts supported by our digital strategy. This translates into lower deposit beta, lower funding costs and improved margin resilience through the cycle. Consequently, average retail deposit cost for the quarter continued to decline, reaching 81 basis points. At the same time, digital accounts continue to perform very strongly, increasing by almost EUR 2 billion during the quarter to over EUR 13 billion. This clearly demonstrates that our campaigns remain effective and customer engagement is strong even after the price reductions implemented on digital accounts during this quarter. This is fully consistent with the year-on-year trend shown on the slide, a structurally healthier and more stable retail funding mix with growth in current accounts and a continued reduction in term deposits. On Page 15, turning to fees. This grew 8% year-on-year to EUR 203 million, driven by wealth management activity as well as a strong growth in insurance activity. Q4 '25 included some one-off items, so sequential comparability is not fully like-for-like. Our underlying mix is increasingly value-added and recurring, strengthening revenue resilience. On Page 16, on other operating income and expenses, this also shows solid growth. Equity method, trading and dividend income increased by a combined 18% year-on-year, reflecting the continued diversification of revenues from business such as Bankinter investment, our insurance joint ventures as well as with our partnership with Sonae in Portugal through Universo. Overall, this further reinforces the quality, diversification and resilience of our earnings base. On expenses, Bankinter is well known for its best-in-class efficiency levels, and we want to underline that the improvement we are delivering today is structural, recurring and still has room to improve. Business growth continues to be absorbed without creating structural pressure on the cost base. At the same time, efficiency is not being achieved by underinvesting. We continue to invest in people and technology with applied AI and simplification initiatives already delivering tangible productivity gains. This allow us to grow, invest and keep improving profitability at the same time. And that leads directly to the next slide, which shows how we are maximizing the potential of AI. Our approach is very pragmatic and built on a dual framework. On the one hand, we have toned down CEO-driven priorities, applying AI across software development, commercial process and day-to-day operations. On the other hand, we are pursuing a bottom-up approach, equipping our employees with an increasingly accessible AI tool set embedded in their daily workflows. Together, this supports higher productivity per employee in front and back offices and a lower cost to serve as volumes grow. In short, AI is not a future promise. It is already reinforcing cost efficiency and strengthening the scalability of our operating model and will continue to be a key driver of efficiency improvements in the coming years. Next page on credit costs remains low and well controlled at 32 basis points in the quarter. Other provisions also performing well, down to 7 basis points. Profit before and after tax grew by 8% year-on-year with net profit at EUR 291 million, confirming the resilience of our profitability and our ability to create value through the cycle. Asset quality remains strong and clearly differentiated. NPLs are low, coverage is prudent, and we continue to outperform the sector across all geographies with risk metrics stable, well controlled and with no signs of deterioration. On Page 22, CET1 ratio closed at 12.96%, above our target range and well above minimum requirements. Strong earnings generation comfortably offsets risk-weighted assets growth, giving us flexibility to support organic growth and allocate capital to strategic opportunities like the alternative investment transaction that Gloria referred to in the introduction. Next page. Customer volumes grew by 6%, supporting a 6% increase in gross operating income with well-diversified contribution across geographies. Loan growth remains disciplined and continues to outperform the market, especially in Portugal, Ireland and business banking in Spain. Regarding Spain, Spain continues to see strong revenue growth with pretax profits rising by 10%. While retail volumes softened this quarter due to seasonal effects and tighter mortgage pricing, corporate lending and off-balance sheet wealth management have remained resilient despite market volatility. Regarding Portugal, Portugal marks, as it was mentioned, its 10th anniversary. Growth remains robust. Year-on-year movements in cost of risk largely reflect the one-off gain from an NPL sale last year in the first quarter. Excluding this effect, underlying performance remains solid and well controlled. Ireland also continues to deliver strong growth momentum with volumes up 20%, improving profitability and exceptional asset quality. The NPL ratio remains just at 0.3%. On Page 26, corporate and SME banking continues to grow well above the sector. Lending in Spain is up 8% versus 3% for the market with very strong momentum in international business, where growth reached 17%. In Page 29, in retail banking, our approach remains disciplined and margin focus on both the asset and liability sides of the balance sheet. New account activity continues to be robust with salary and digital account balances growing by close to 50% over the past year, reflecting solid customer acquisition and engagement. New mortgage origination in Spain was lower during the quarter, reflecting pricing discipline in a tight margin environment with compressed risk-adjusted returns. This is consistent with our focus of allocating capital where returns are more attractive, such as in Portugal, where mortgage growth reached 8% and in Ireland, where it grew by 37%. Overall, retail banking continues to prioritize profitability and balance sheet quality over volume at any price. Next page, despite Wealth Management, despite heightened market volatility driven by recent geopolitical tensions, our Wealth Management business continues to prove resilient. Customer wealth increased by EUR 18 billion, up 13% year-on-year, supported by net inflows and a growing high-quality client base. Even in volatile markets, our clients remain invested and continue to allocate savings, reflecting the strength of our franchise and the quality of our customer base with flows that remain resilient through the cycle even in periods of elevated uncertainty. Next page, you can see the same trend with double-digit growth in both AUMs and AUCs, reinforcing the resilient and recurring nature of this business. Finally, let me take a moment to review our ambitions for the year. This first quarter of '26, we have delivered a solid quarter and results fully aligned with our previous guidance, following a disciplined execution with excellent quality of results supported by recurring sources of revenues. The recovery of client margin level to close to 270 bps in Q1 and the improvement of efficiency levels towards our ambitions are the supportive levels of another successful year. Despite the ongoing uncertainty in the market environment, our expectations and guidance for '26 remain broadly unchanged and current levels of profitability are expected to be sustained in coming quarters. We will consider changes to our guidance in the next results presentation with more visibility of our impact on macro scenario of current geopolitical events. We continue to anticipate stable volume growth in line with our initial assumptions while maintaining our disciplined and balanced approach to liquidity and risk. On the lending side, we expect volumes to grow at mid-single-digit rates, supported by a still positive macro environment for all geographies where we operate by a selective origination and a strong focus on risk-adjusted returns. Deposit volumes will be actively managed to preserve comfortable liquidity ratios and balance sheet resilience. Deposit to loan above 100% or loan-to-deposit below 100% are levels that have been committed in the past and will continue to be in the future. Across the group, we expect growth trends to remain broadly consistent with '25 levels and year-on-year for the first quarter, with Portugal and Ireland continued to deliver a strong performance and Spain maintaining solid momentum, particularly in corporate banking. With respect to NII, the continued volatility in interest rates means that visibility over the coming quarters remains still limited. However, current levels of forward curves anticipate potential rate increases that are supportive for NII in coming quarters. We continue to manage customer margin towards the 270 basis points or above. In this context, rather than providing new guidance on NII levels, we remain focused on the levers that we can actively control, which are pricing discipline of the assets and liability, customer margin management and prudent balance sheet optimization. As a result, NII should continue to be driven primarily by volume evolution rather than by changes in pricing or margin assumptions. We expect quarter-on-quarter NII growth during the quarters in 2026. Beyond NII, we remain confident in our ability to deliver high single-digit growth in fee income, supported by our diversified business model and strong customer engagement. Recent corporate transaction on the alternative investment front is a good example of our strategic focus on recurring growth on the wealth management business. At the same time, we remain fully committed to delivering positive operating jaws in 2026 with a cost-to-income ratio expected to decline below 35% for the year, supported by simplification of our business organization and the combination of talent and technological investments. In terms of asset quality, our outlook remains stable. We do not see any signs of deterioration in credit quality, and we expect the cost of risk to remain around current levels. In this quarter, we keep improving our capital position, maintaining strong levels of capital buffers and MREL ratios. And finally, we expect return on tangible equity to remain above 20%, reflecting the underlying strength of our business model and supporting continued attractive value creation for shareholders. Now Gloria, back to you, please. Gloria Portero: Thank you, Jacobo. Well, this final slide captures the essence of this quarter, resilient performance and sustainable value creation. Even in volatile geopolitical and uncertain macro environments, our returns remain high and sustainable, supported by best-in-class efficiency, strong asset quality and solid capital ratios. RoTE stands at 20%. Shareholder value continues to build with dividends up 25% year-on-year. This consistency is not cyclical. It reflects a deliberate way of running the bank, prudent risk management, capital allocation based on risk-adjusted returns and continued investment in efficiency and organic growth. Together, these elements explain why our model delivers consistently and support our confidence in continuing to create sustainable value in 2026 and the years ahead. Well, thank you, and it is back to you, Laurie, so that we can kick off the Q&A. Laurie Goodroe: Thank you both, Jacobo and Gloria. We'll now initiate our live Q&A session. [Operator Instructions] Laurie Goodroe: Our first caller we have is Maks Mishyn from JB Capital. Maksym Mishyn: Two questions from me. The first one is on deposit growth. There was a notable slowdown in the quarter despite several digital campaigns that you've launched. I was wondering what was the reason and how you see the remainder of the year. And the second question is on your expectations for customer spreads for the remainder of the year. If you could just walk us through loan yields and deposit costs for the next quarters, that would be super useful. Gloria Portero: Hello, Maks. I will answer you the first question, and then Jacobo will answer the second one regarding customer spreads. Well, listen, we have very -- the first thing is that we have very comfortable liquidity ratios, as you might have seen in the presentation. I think, in the annex, we have an LCR over 200%. And well, we have a loan-to-deposit ratio below 90%. We have given priority this quarter to actually accelerate the change in mix in our retail funds. You have seen there is quite marked decline in deposits. So we have been reducing the duration of our deposits. And also giving greater weight to more atomized and less sensible deposits. So we feel very comfortable with the liquidity ratios we have. We will continue to work on the cost and sensibility of our deposits in future months. So we will obviously maintain, as Jacobo has said during his presentation, we will maintain our commitment to have a loan-to-deposit ratio below 100% and solid LCR ratios. Jacobo Díaz: Good morning, Maks. Taking your question on the evolution of the customer spread. I guess, first of all, the commitment to reach an average this 270 bps or above client margin spread for the year. And the trends in the lending yields are, I would say, positive in the sense that with the current levels of rates and the expected level of rates, definitely, there is a tailwind in positive repricing. First of all, in our -- in the corporate banking activity that tends to reprice faster. And then, of course, in the mortgage activity in the mortgage book that reprices with a little bit slower, but in a positive way. So in the sense of the lending yield, we should see a slight recovery or a slight growth over the following quarters. In the sense of the customer -- of the -- sorry, of the deposit cost, deposit cost, we've ended the quarter with 80, 81 basis points. We think this is a quite reasonable level where we can be. There might be a little bit room still for reduction, but this volatility in rates might be a little bit challenging for at least the second half of the year. We need to wait and see the evolution of rates. But again, our target is to ensure levels of 270 bps of customer spread. We know that the lending yields are going to be supportive, and then we will manage proactively pricing in the deposit cost to ensure that we achieve this level or even above following or monitoring the current level of rates and the expected rates. Laurie Goodroe: Our next question comes from Francisco Riquel from Alantra. Francisco Riquel Correa: My first question is a follow-up on customer funds. I see that salary and online deposits are up EUR 9 billion year-on-year. Total deposits are up just EUR 1 billion. So that means probably strong outflows in corporate deposits. If you can please comment on the pricing actions, both in retail and in corporates. And also, if you can also comment on net new money flows into wealth management because I don't see that outflows out of term deposits are retained within the bank. And my second question is if you can please elaborate more on the strategy and the return on investment that we should expect from your recent corporate transactions in alternative investments. Gloria Portero: I will answer you the first question because probably it wasn't clear enough. Well, regarding net new money flows, there has been a very strong commercial activity, over EUR 1 billion transformation in -- from deposits to our loans. But obviously, you don't see that movement because the market has detracted more or less the same amount. So this is why there is no movement from December to March. But as I've mentioned, the -- I don't have the exact figure here, but it's between EUR 1 billion and EUR 1.5 billion of net new money in funds in off-balance sheet funds. So -- and with respect, you're right, I mentioned that we are -- what we are doing -- you're right, there has been a drop or outflows in corporate funds because we are prioritizing smaller amount with less sensible to interest rates. So basically, we are growing in payroll accounts. We are growing in SMEs in transactional accounts and also in medium-sized companies in transactional accounts. So we are giving, as I've mentioned, priority to these type of accounts that are transactional and therefore, less sensible to interest rates. But there has been an important outflow as well to off-balance sheet funds of around EUR 1 billion, EUR 1.5 billion. I think -- I hope I've answered. Jacobo Díaz: [ Paco ], taking your second question, I'm not sure if it's -- I took the right way. But basically, I mean, definitely, this business of alternative investment fund is a business that generates a quite high and sustained return on equity. This is a quite attractive business from our perspective. We -- as we had mentioned in the presentation, we want to be the leader of alternative investment in Iberia. Definitely, this will provide sustained high level of fees in the long term. We think there is a huge opportunity in Iberia to progress in the development of these type of products. We provide access to investment of real assets to Spanish and Portuguese people in terms of retail clients. Of course, this is not a product for everybody, but we think there is a huge evolution and a huge potential in this business. Taking these strategic transactions, we are bringing all the know-how from our partners into the company, into the bank, and that provides us the full potential of building and developing new type of investment funds in the short, in the medium and the long term. And I think this is a huge opportunity to bring on board capabilities that the bank doesn't have today and to ensure that we can build and distribute this type of products. We are, as you know, investing in renewables, in infrastructures, in spaces, in everything. And these 2 partners are one of the leaders in Europe in these type of assets, and that's why we are achieving transactions with them. I hope I have answered. If not, I will talk later. Laurie Goodroe: Our next question comes from Alvaro Serrano from Morgan Stanley. Alvaro de Tejada: A couple of questions from me, please. Gloria, I think you said at the beginning that you're not expecting an impact on consumption, but you're seeing some prudence. Can you maybe talk us through what you saw -- what we've seen during March and maybe early April. I don't know if it's sort of deposits movements, appetite for loans or fees, maybe what you were referring to around that prudent statement? And then the second question related is when I'm thinking about the potential updates or changes to guidance that you referred to Jacobo in Q2. Are we thinking about sort of fees impact? Or can you give us a sense of in an IFRS 9 world, what the sensitivity could be to provisions if, I don't know, 50 basis points change in GP or something along those lines that gives us a sense of direction. Gloria Portero: Alvaro, when I'm saying prudence, actually, what I refer is that probably the consumption will continue to grow, but not at the same pace it has done. So it will not contribute in the same way to overall economic growth. We are not seeing really any signal in the reduction of the appetite for loans or for lending and not really any changes from last quarter. But when I say prudence is what I see in the streets and what the statistics start to say. So I don't think there is any alarm sign or anything at all. And my prediction is that consumption will grow, but not at the same pace as last year, and therefore, the contribution in GDP growth will be a bit lower than it has been. But GDP growth will still be robust and I think enough, of course, to deliver our targets. Jacobo Díaz: Good morning, Alvaro. Yes, just to clarify, I mean, we think that in 3 months, so many things have happened in terms of volatility in the market that it's probably not very prudent to change our guidance so soon. But my words were oriented to the rate environment and the volatility of rates that we are currently under expectations of potential interest rate rates in the coming months. And that is my comment about. We are not expecting for the time being any changes in fees. I think I've been very clear in terms of efficiency and in terms of cost of risk. And obviously, my comment is related to the NII guidance and the possibility to have more tailwind in coming quarters if rates continue to be high or stay high for longer. Laurie Goodroe: Our next question comes from Marta Sanchez Romero from JPMorgan. Marta Sánchez Romero: So my question is on capital. You're building capital at a faster pace than expected. I understand there will be seasonality in Q2 and Q4. But could you give us a sense of the capital generation you expect after funding growth and a 50% ordinary dividend? And related to this, can you remind us about your capital allocation priorities? You will be spending roughly 20, 25 basis points on the olds acquisition in Q4, but still that leaves you space to do more things, considering that you want to stay at around 2.4%, 2.5% core equity Tier 1. So can you remind us on your priorities, any bolt-ons that you could consider, what areas, businesses, et cetera? And when, if any, time would you consider to repay surplus capital to shareholders? Gloria Portero: Marta, yes, actually, there has been a very strong capital buildup this quarter because, as you know, traditionally, the first quarter has some seasonality in credit. Actually, we have done a much better quarter than we thought we would do taking into account the seasonality in the past. So we have done better in credit. So regarding our -- and you are right, sorry, that we will have to allocate 25 basis points next quarter to this -- well, next quarter or when it is -- when we have the regulatory go ahead, which will be, I think, in the next quarters rather probably next or the other, the following. Where are we allocating capital? We are allocating capital in the geographies where we see there are profitable opportunities like, for instance, in Ireland. As you can see, we continue to grow at double digit at 20%, 23%, 27% in mortgages. And we will continue to grow at that pace. In Portugal, we think we have opportunities to continue to grow also at double digit. And we think we will do better in corporates and enterprises than this quarter. So this means a little bit more capital allocation following quarters. And in Spain, given the situation in mortgages, where we see that the prices continue to be below -- well, below cost, cost of risk and not only cost of credit risk, but also including everything that has to do with maturity mismatches and interest rate risk. We are actually investing heavily in enterprises and corporate banking, where you have seen we are growing at a very -- I mean, at a higher digit than usually. Said that -- so we think that we will be -- we will have a comfortable management buffer. For the moment, we are not changing our dividend policy, which you know it is cash 50% of net profit. But don't forget that we have the main shareholders sitting at the Board of Directors. So if there is excess capital, obviously, we will give it back to our shareholders as we've done in the past. I mean, remember that Linea Directa deal was actually an extraordinary dividend. So well, this is more or less, I think I've answered. So I don't know if you want to add up anything, Jacobo? No. Okay. Jacobo Díaz: I think you've been clear. Laurie Goodroe: Our next question comes from Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: Here is Sofie from Goldman Sachs. So my first question would be on the customer margin versus NIM. We've all been very focused on the customer margin, and we saw a significant improvement this quarter, but the NIM was very flat quarter-on-quarter. So could you just kind of discuss what the delta is and why the NIM didn't improve this quarter and how we should think about the NIM improvement going forward? And related to that, could you also discuss your rate sensitivity and how we should think about kind of higher rate impact on your net interest income, but also on the customer margin and NIM? And then my second question would be on kind of cybersecurity. We have seen headlines about some of these AIs that can kind of penetrate banks very quickly. What are you doing to ensure that your cybersecurity is top notch? Jacobo Díaz: Thank you, Sofie. I'm going to start with your last question in terms of cybersecurity. I know this is a hot topic with latest news about Claude and Mythos. Basically, here, what has fundamentally changed I mean, Mythos does not represent a fundamentally new category of risk, but there an acceleration of existing cyber threats through AI automation. So what really changes is the speed, not the nature of the attack. So the point here is in order to react, it's just basically with the same tools, trying to be much more agile and much more quick in the execution of the responses. So basically, the bank, ourselves or other banks, what they need to do is to move faster in the responses. So from manual responses to automated responses, behavior-based defense to integrate AI into security operations, of course, maintain human side. But basically, this is the type of reaction. And I think also the type of reaction is not just a bank on bank individual type of reaction. I think this topic needs to be faced in a much more global approach in approach of an industry, of a country of an entire Europe because all these threats, all these threats is not just a threat to the banks. It's just to the whole economy. So basically, this AI threat just changed the tempo of the cyber risk, not these fundamentals. And the right response is just basically make sure that there is a coordinated automated defense from all the industries and countries and basically reinforce resilience. So the tool may be a new tool for the attackers, but it's also a new tool for the defenders. So I'm sure that everybody will accelerate this -- the use of this new technology to accelerate the execution of the defense. Okay. So related to the sensitivity. Sensitivity, we are around 3% for an increase of 100 basis points. I think that was your question. And in terms of NIM, it's just basically an activity on -- it's trading activity that has increased the volumes of non-client activity has increased volumes in the asset side and in the liability side, and that has increased a little bit volumes and therefore, maintain the NIM at current levels. But the most important thing for us is that the customer margin has been recovery, that the weight of the client activity in our balance sheet tends to be one of the highest, if not the highest. And for us, that is really, really important. So we -- as I mentioned before, we continue to expect quarter-on-quarter growth in NII for the coming quarters until the end of the year. Thank you. Laurie Goodroe: Our next question comes from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: I just have 2 questions. One is on Ireland. If you could please give us a bit of an update on your views in the country? And what should be the opportunities that you could see now after the corporate transaction and corporate movement announced by Bawag last week? And also if you could update us on the deposit strategy and the capacity to gather deposits there, when we should see a pickup on deposit growth coming from Ireland. And the second topic, it's on the ALCO. I have seen that you have increased slightly the ALCO in the quarter. If you could just remind us a bit what will be the expected contribution for the year. And also, what would be the capacity to increase that from here onwards? Gloria Portero: Ignacio, I will take your first question. In Ireland, we continue to see a lot of opportunity going forward. Basically, actually, there was very -- as I've always said, the competition, it's not as a competitive market as it is in Spain, let's say it this way. Actually, the margins, for instance, in mortgages are much higher. We are allocating more capital into this business. The recent transaction of Bawag acquiring PTSB actually is another great opportunity in the sense that PTSB needs a very heavy restructuring. And as we have seen in the past here in Spain and many other -- also in Portugal, when a bank is restructuring, clients are not served properly and therefore, the customer attrition is higher. So we will take advantage of that situation in the next months. With regard to deposits, we have been testing deposits since I think it was late 2025. And with existing clients by invitation because we wanted to test because we have a completely new platform overall and obviously, a new product. And we also wanted to test all the marketing processes as well. We launched it to open market in February, I think, but also with very little or almost no, I would say, marketing expense. We have around EUR 50 million in deposits at present. And what we want to test is the system at maturity of the of these deposits before we enter in the market in a mass mode. So this will be in the next -- because most of these deposits have been signed 3 or 6 months, max. So this will be in the coming quarter. We have also -- now we are testing a simple current account, which have already constructed. And we will probably by the summer or maybe probably after the summer because the summer is not the right month to launch these things, we will launch it to the market. When we have current accounts, it is when we will launch a more aggressive deposit-taking value proposition. So for the moment, you will just expect these little amounts to grow by a great percentage, by a low amount because what we're doing is testing our systems and also our marketing processes. Jacobo Díaz: Good morning, Ignacio. Regarding the ALCO portfolio, the ALCO portfolio, as you know, has a volume which is limited to 2.5x our equity. So since our equity keeps growing quarter after quarter, there is an opportunity to grow a little bit the ALCO portfolio. So just -- we don't expect to go far away or above that limit. So whatever increases in the ALCO portfolio, they should be expected to be some sort of limited. The current yield is around 2.5%. Expectation is that we can continue to have this level or even a little bit higher during the coming quarters, but no basic changes in the structure of the type of assets that is in the ALCO portfolio. Laurie Goodroe: Our next question comes from the Cecilia Romero from Barclays. Cecilia Romero Reyes: My first one is on asset quality and credit risk. I mean, SME lending has been an important growth engine for Bankinter. And now as macro uncertainty has increased, how do you see credit risk evolving within the SME book? And are there any particular sectors where you are becoming more cautious? And my second question is on cost. I mean you have highlighted a medium-term ambition to move cost-to-income ratio towards 30% over the next 3 to 4 years, which I don't think is reflected in consensus. Is this still realistic given higher inflation environment? And what -- could you explain us what are the key levers that will get you there? Gloria Portero: Cecilia, thank you for your question. For the moment, we are not seeing any warning signs in asset quality in any of the business segments actually. Nevertheless, the situation is such that, obviously, there could be some economic contraction -- I mean, some economic impact of all these geopolitical events that are happening. And therefore, we are being very cautious, and we've already told you, I think, in past webcast with consumer credit and particularly what we call open market, which is not within our franchise of clients banking there. So there, we are being very, very cautious. We are actually reducing exposure. With respect to SMEs, you're right, it is also one of the weakest parts of the economy. And what we are doing is actually also being very cautious. In SMEs, below EUR 2 million of turnover. And we are focusing our growth in companies above EUR 30 million of turnover and also increasing a little bit our exposure to the public sector because actually, most of -- a lot of the investment in the economy is done by the public sector at present. So just to wrap up, we don't see signs of asset quality deterioration, but we think it is wise to be prudent with consumer credit in open markets and also in smaller SMEs. Jacobo Díaz: Regarding your second question about the cost-to-income ratio and the ambition, we definitely -- this is our ambition. And of course, we do expect that the combination of talent and technology allow us to provide year after year the enough space between the growth of income and the growth of cost to achieve this target. So we keep maintaining our positive jaws during the following years. As you've seen in the P&L that in this quarter, there is more than 3 points of difference between the growth of income and the growth of the cost. So this is something that we believe we can sustain. Of course, investment in technology, but also the organizational simplicity is a key driver of this achievement. Organizational simplicity from a legal perspective, of course, but also the limited number of branches that we have and the enhancing of the digital business also is a great opportunity to achieve this. You mentioned inflation. So we do expect some inflation, as you know, but some temporary inflation. We do not expect inflation to stay at current levels for a long period of time. So we can basically deal with it. And yes, I mean, it's our ambition, and we think it's absolutely achievable. Laurie Goodroe: Moving to our next question from Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: A couple of questions from my side. One of them would be a follow-up on the interest rate sensitivity that you mentioned, so 3% for 100 basis points rise. I was just wondering, this is in a 12- or 24-month period? And maybe if you could give us just some highlights on the assumptions behind those -- that sensitivity. Finally, particularly on deposit costs and all of that. And then the second question on the cost side as well. So this 3% increase that we saw in total cost in the first Q., should we take it as a reference for the full year? Do you think costs might accelerate throughout the year? Just a bit of a view on how you see that evolving? Gloria Portero: With respect to costs, we are targeting lower increases year-on-year in 2020 -- this year. So you should expect a reduction of the pace of growth in costs. And I think you can make a point on your -- the rate sensitivity he's asking. Jacobo Díaz: And regarding the rate sensitivity, yes, good question, just to clarify my comment. So the rate sensitivity is around, as I mentioned, 3% for 100 basis points increase in 12 months. So if we were to measure this in 24 months, it will be close to 7%. Laurie Goodroe: Our next question comes from Borja Ramirez from Citi. Borja Ramirez Segura: I have 2. Firstly, on the deposits. Could you please remind me of the -- regarding your digital account deposits, which were the volumes and the average cost as of March? And also on this point, could you update on the competitive dynamics in the digital deposit market in Spain. So for example, who -- where are you seeing greater push on this side? And then my second question would be on rate sensitivity. If you could kindly provide a bit more details on the floating rate loans because I think you have a greater portion of floating rate loans. And within corporate and SME, I think given the fact that it's more focused on short-term working capital loans, I think it reprices faster than peers. So if you could kindly provide more details. Gloria Portero: Borja, thank you for your question. And I will be answering the one regarding deposits. Well, the digital organization where you have all online deposits, whether they are the ones coming from EVO or the ones that we acquired with the digital organization the last year already has EUR 11.7 billion in deposits. The average cost of all of this EUR 11.7 billion is 1.39% and it's going down. Competitive dynamics. Well, this quarter, we didn't launch a major campaign with high marketing costs. Obviously, we have always ongoing campaigns. So what we see are the higher competitors this quarter have been in the traditional banks, ING and probably, I would say, Sabadell also had a campaign this quarter. Also Openbank from Santander. And then you have the digital banks or the neobanks. But the major -- I would say, our major competition at present, the ones that take or to whom we take deposits are traditional banks. Jacobo Díaz: Regarding the rate sensitivity, you mentioned the floating rates levels in credit in -- or sorry, in SMEs or corporate. Let me just clarify. I mean, of course, working capital facilities tend to be short-term funding or lending that, I mean, in 90 days might change the rates. So that has a faster repricing. But in lending, for example, in SMEs, there is a strong level of real estate guarantees, which tends to be mortgages. So I would say that the corporate banking book has a faster repricing than the SME book. I guess that this is your question. Of course, we have the floating rate mortgages, as you know, and everything related to credits that tends to reprice faster. But for example, in the SME activity, we have at least almost 3/4 of the lending book tends to be guaranteed with real estate positions. And that means these are mortgages, and that means that it takes longer the repricing of the SME book. Laurie Goodroe: Our next question comes from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: The first one would be a bit of a follow-up on the alternative investment transaction. And sorry to go back to the topic, but it would actually be quite useful to understand a bit more of the kind of line-by-line financial impacts of the transaction that you expect in coming years, both on the revenue and the cost side. And then the second one would be a bit of a follow-up as well on some comments that I believe Gloria made last quarter. I think, Gloria, you mentioned you were working with some of your insurance partners to improve or review some of your agreements at that time and see how you could impact -- how could you change your current agreements. So I just wanted to know if there had been any updates on that side of the business on insurance income. Gloria Portero: Yes. I mean, actually, I -- we have signed, I would say, an agreement with Generale in Portugal for non-life insurance, and this will be fueling growth in insurance in Portugal in the next months. So yes, yes, we have made progress there. And we are working in Ireland. That is also one of our strategic lines. For the moment, we are not commercializing insurance, but also to be commercializing insurance to our clients in the future. And in Spain, well, I think that we are doing quite well, growing, most of the growth that you have seen in the presentation, this 8% growth in insurance actually has to do most of it with the Spanish market. Jacobo Díaz: Coming back to your question of alternative investment. We are pretty active on this type of business. So once all -- we get all the authorizations for the transactions that they might be finalized by the end of the year, what we do expect is to start generating around EUR 1 billion of new volumes every year in the future. As I mentioned before, this is a quite good business in terms of the level of fees and the stable level of volumes that we can manage. So this is a great opportunity for us to build up a very good business. In fact, we just launched a new product in Spain called FIL, F-I-L, which is an alternative investment fund to reach retail type of clients that can be switched or moved from fund to fund. So it is a great opportunity. We have similar levels of ambitions with this new product that we've launched. Again, this is a clear message of the focus that we want to put in this type of business in wealth management in general, but in this type of business, we think Bankinter has a great opportunity and plenty of new income to come with a great return on equity. Laurie Goodroe: Thank you. Let's move to our last calls, and we have 3. First is from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: First one is if you can give us the stock of the treasury deposits at the end of Q1, the one which is embedded within your side deposits that are remunerated. And if we should be expecting additional reductions in coming quarters on this deposit book? And then the second one is a follow-up to Cecilia's question on costs. I mean, how do we need to think about kind of logical evolution of headcount levels alongside the implementation of AI in the bank? Are you expecting a gradual reduction of staff personnel levels? Or do you think actually you're going to have to be replacing people leaving with new hires? Gloria Portero: Ignacio, with respect to treasury accounts, we have around EUR 11 billion. And this quarter, it has gone down by EUR 1 billion. We don't expect major reductions in this line around maybe 10% or something like that because we have already done quite of the work that needs to be done in that portfolio. So -- and with the other thing with respect to headcount. Listen, we are increasing headcount in Ireland, and we are increasing headcount in Portugal. In Portugal, for 2 reasons. We were keeping the same commercial workforce that we had in 2016. So obviously, there is a moment if we want to continue to grow and maintain the quality levels, we need to enforce, we need to reinforce the team, the commercial team. The second in Ireland, it's obvious. We are expanding our activities to be a full-fledged bank. So obviously, we need to increase also the headcount there. We are talking around 30 per country, where we are seeing that the headcount is stagnating is in Spain. We don't foresee reductions of headcount, but we don't see either increases as the business grows. So we think that much of the efficiency will come from -- in the Spanish operations. Laurie Goodroe: Our next question comes from Hugo Cruz from CBW -- KBW, sorry. Hugo Moniz Marques Da Cruz: I was wondering if you could just give a bit more color on your loan growth dynamics by product over the rest of the year. You're growing 5% year-on-year, but with the macro potential, we could see a slowdown even if you keep at mid-single digits. So if you could give a bit more color. Gloria Portero: We keep our commitment to grow this mid-single digit around this 5-ish percent. And we think we still have opportunities to grow in profitable business lines, like I've mentioned, mortgages in Portugal, mortgages in Ireland, but also enterprises in Portugal and a lot in Spain in greater -- for companies over EUR 30 million turnover and also a bit more in the public sector. Laurie Goodroe: And our last question comes from Britta Schmidt from Autonomous Research. Britta Schmidt: Just quickly coming back to the deposits. Could you give us the split of the deposits into corporate and retail where they are now and where they would be, for example, by year-end. And you mentioned that you're changing the mix to more atomized deposits. How do you think that would impact your deposit beta? It peaked at something more than 50%. If we were to see rate rises, do you think the deposit beta would be substantially lower, slightly lower. And even with these changes that we're seeing, do you still prefer to manage your NII sensitivity at around the 3% level for 12 months? Or could we see that improving? Jacobo Díaz: Now regarding the beta, as you know, it depends how you make your calculations. Today, we are around 80 bps with the current level of 2% in ECB rates that gives you a ratio of around 40%. So we do estimate this 40% to keep going down in coming quarters. So whatever increase in rates that might happen, we estimate that no more than 10% of that increase in rate could be -- could potentially impact the cost of deposits. So beta is going to continue to go down over the next quarters. Gloria Portero: With respect to the mix, I don't really have what the mix is between big corporates and because what we call retail includes also SMEs. So I don't have the exact figure. I think, yes... Jacobo Díaz: We'll come... Gloria Portero: We will come back to you later with. But yes, I mean, you can expect a reduction in bigger corporates and you can expect an increase in what we call retail or transactional accounts, which include, obviously, SMEs and also retail. Laurie Goodroe: Thank you. Thank you, everyone. Thank you, Gloria and Jacobo. And that now concludes our session. And on behalf of the entire Bankinter team, we thank you again for your interest and participation in the webcast. Everyone, please have a great day. Jacobo Díaz: Thank you very much. Bye. Gloria Portero: Bye.
Sandra Åberg: Good morning, and welcome to Essity's presentation of the Q1 2026 results. Here to take us through the highlights of the quarter, we have our CEO, Ulrika Kolsrud, and our CFO, Fredrik Rystedt. After their presentation, you have the opportunity to engage directly with us. [Operator Instructions] Now enough of me, let's get started. Ulrika, please take us through the quarter. Ulrika Kolsrud: Thank you, Sandra. And also from my side, welcome to this webcast. We started the year with organic sales growth coming from volume growth, and we continued to win the relative game, strengthening market shares in our branded business in retail. We furthermore strengthened our profit margins and delivered a strong cash flow. Then besides these solid results, we had 3 major events in the quarter, the decision to launch a new share buyback program of SEK 3 billion well in line with our ambition to have share buybacks as a reoccurring part of our capital allocation. We also completed our Feminine Care acquisition in North America, now more than doubling our Personal Care sales in the U.S. And we have the organizational change, meaning that we now report in our 4 new business units, Health & Medical, Personal Care, Consumer Tissue and Professional Hygiene. And let's start with Health & Medical, where we continued on our track record of consecutive growth in Medical Solutions. We were especially pleased in the quarter with the continued good growth in Wound Care across geographies. Q1 was, however, a weaker sales quarter for Incontinence Care in Health Care. Given the financial pressure that we see in health care systems and also the lower input costs that we have had, we held on to prices very well. So margins and profit delivery was as high as ever. However, the sales performance was different from market to market. And one region that performed very well in the quarter was North America. And we also supported the business going forward to grow even further in North America by upgrading the TENA ProSkin Briefs assortment. We now equip this with our latest and greatest technology when it comes to -- or technologies, I would say, when it comes to leakage security, dryness, fit and comfort. And we know that these products are highly preferred among professional caregivers. We also performed very well in incontinence care in North America in our retail channel. And actually, the good growth momentum and continued good growth momentum of incontinence care in retail was one of the key highlights in our Personal Care results. Two other key highlights were that we strengthened our share of market in 60% of our branded business and also the good growth in Feminine Care. I want to stay for a while on Feminine Care because we had some exciting developments in this category in the quarter. For one thing, as I mentioned, we completed the acquisition of the OB, Playtex, Carefree and Stayfree in North America. Now we start the integration, and it's now that the real work is starting. So our first priority is to secure business continuity to guarantee that we have uninterrupted customer execution, supply and operations during this transition period. Our second priority is to engage with in top-to-top customer meetings to now present the combined portfolio that we have and that we can offer from Essity. And then in parallel with this, we continue to work on supply chain, on branding and on innovation. So to capture synergies in supply chain to combine the 2 innovation portfolios to accelerate proven platforms and to apply our proven Essity brand-building capabilities and assets in a globally scaled and locally relevant way. The other event, I would say, or exciting development in the quarter in Feminine Care was in our leakproof apparel. So as you can see here behind me on the slide, leakproof apparel was contributing positively to the growth in Feminine Care. And this is one fast-growing segment within Feminine Care, and we have taken action to make sure that we capture the growth in this segment. So we have, for example, reduced our production and product costs in order to enable a competitive pricing in a more challenging consumer environment. We have also improved our efficiency in consumer acquisition in the D2C channel and broadened our distribution. Then with the new organization that we have put in place, we are consolidating our efforts to make sure that we drive learnings and synergies for our full portfolio in this area. Now innovation is as important for leakproof apparel as it is for all our other categories and segments. And in the quarter, we upgraded with a specific range for teens. And this is a super important target group for this segment and for feminine care in general because this is where we generate trial and get capture consumers at the point of market entry. These products are then specifically or tailored to the teen body. Also, they come with a day and a night variant, and they come with a Smart Protect concept. And some of you might remember that I talked about Smart Protect technology last quarter and that we equipped our [indiscernible] disposable feminine pads with this technology. Now we are reapplying this concept onto also leakproof apparel, which I think is a good example of how we can reapply strong concepts, of course, with the technical solutions that is fit for purpose that now secures that we have instant absorption and a good spreading of the liquid in the product. Continuing on innovation, we also launched an upgraded Libero offer in the quarter. More precisely, we made our soft Libero touch product even softer. And we know that this is highly appreciated by parents who really want soft products for the soft and delicate skin of their babies. So we have high reasons to believe that this will continue to support the very good momentum that we already have in this business because Libero had again a very strong quarter. We strengthened market shares and we increased volumes. When it comes to our retailer brand business in Baby, however, it was weaker. So overall, for Baby, we had a slight decline of organic sales. The other category where we're declining organic sales in the quarter was in Consumer Tissue. And that is the result of lower volumes and lower sales prices in Europe specifically. Latin America was doing good. Also, the good news is that we continue to perform very well in our branded business in Consumer Tissue, gaining market shares and growing volumes. And we will continue to support that profitable growth in our branded business on Consumer Tissue and by also continuing with our innovation agenda. In the quarter, we launched Zewa Wisch&Weg Smart. And what that is, is that we are reapplying our coreless technology on to household towels as well. So now we will have less waste in the kitchen moving forward. This is, first and foremost, of course, to bring convenience to our consumers, but it's also an innovation that is supporting our sustainability agenda. And that brings me to another initiative on our sustainability agenda in the quarter. Because in the quarter, we inaugurated a new biomass boiler in Kunheim factory in France. This is the second one. We have one in Le Theil since before. And I think this is a very good example of how we translate our net zero ambition into tangible industrial execution at the site level. And with this boiler, we are then covering for 70% of the steam needs at the plant. We are more than half our natural gas dependency in that plant and reducing carbon footprint by 40% or more than 40% in the paper machine. And this is also highly appreciated by our customers, which we could see also because we had a customer joining us in the inauguration. And in these times, I think it's worthwhile to mention that this is not only about sustainability by reducing our dependency on natural gas, of course, we also become more long-term cost resilient. Last but certainly not least, let's turn to Professional Hygiene. I have talked the past quarters about our strong development in strategic segments that we grow very nicely in strategic segments, which is important for us. And we continue with this positive development also in this quarter. A good example of that is that we grew Tork PeakServe more than 10%. We also grew Tork Skincare 5%. This quarter, we reported volume growth for the total Professional Hygiene as well. And that shows that the activities that we have put in place in order to fuel volume growth are starting to pay off. That's not the least true in North America, where we have gained some contracts in the fast food channel, but also work more expansive in the other channels beyond HoReCa. Then we were helped a bit by a stabilized market also in HoReCa in North America. And now to talk about the financial performance of Professional Hygiene and our other 3 business units, I hand over to Fredrik. Over to you. Fredrik Rystedt: Thank you, Ulrika. I will do my best to do exactly that. And I will start with our sales. And as you can see on the slide, we declined our sales with 5.1%. And this is, of course, just due to currency translation on the back of a stronger Swedish krona. In constant currency or using the same currency rate, we increased our sales with about SEK 0.5 billion or 1.5%. And as you can see on the slide or this bridge, 1.1% of that comes from the acquisition of the Feminine Care business in North America and the other 0.4% is related to organic sales growth. Now just to comment a little bit, it's really a bit premature perhaps to comment on the Feminine Care business from a financial standpoint. It's included as of February 2. So we've had very short experience from owning it. But so far, if you look at the full quarter, so to speak, also the period that we didn't own it, sales was roughly about comparable in comparison to last year. So, so far, as expected, pretty much. Now if I turn to volume, then you can see that we grew here with 1.1%. And we were particularly happy actually to see Professional Hygiene growing with close to 2% or 1.9%. And this is of quite a number of quarters with negative volume development for Professional Hygiene. This has been on the back of deliberate restructuring, but it's also been challenging markets. And as Ulrika mentioned, we see a bit of improvement in actually Southern Europe and North America on the market side, but we also see some good results of the initiatives. So again, a good development. And Personal Care, with 3.5% volume growth coming from a very strong or I should say, yet another very strong growth quarter for incontinence, good for feminine. And in fact, if you remember perhaps the previous few quarters that we've had relating to baby, where you see 4% to 5% of volume decline for baby, we have a much, much better situation this quarter with about 1% volume decline for that specific category. Now this is much better than before, and it's on the back of good performance in the northern part or our branded part in the Nordics, whilst the rest of the business pretty much performed in line with market. So a better situation for baby in general. When it comes to -- then to Consumer Tissue. Finally, we had a slight volume decline, so minus roughly about 0.5%. And this is, of course, just on mainly coming from the non-branded business, whilst as Ulrika mentioned earlier, the branded business actually performed super well, both from a market share perspective, but also positive volume growth. Turning to price/mix. This is all -- or I should say, mainly coming from Consumer Tissue, where we have deliberately lowered prices on the back of lower COGS. We also have -- and we reported on that before, we have selectively lowered some prices for certain SKUs in Professional Hygiene to get more growth in that area. But if you look at the combined price/mix for Professional Hygiene, it is actually slightly positive because we have a continued strong growth in our strategic products. So mix is actually bigger than the price decline. I'll go there from sales, I'll go to our margin development. And it's clear we have increased our margin with roughly 40 basis points. And all of our business areas with the exception of Consumer Tissue strengthened the margin or at least about the same margin. So a good development pretty much across the group. You can see here that there is a negative contribution margin-wise from the Feminine acquisition. And we -- if you look at that negative contribution for the group, it's roughly about 10 basis points and bigger for Personal Care. So if you look at the Personal Care margin, it has an impact of minus 70 basis points. Now we have -- if you look at the Feminine business in North America that we acquired, it has a positive operating margin, but it's very low as expected and the low margin has to do with, of course, transition costs plus service agreements that we have. And over the next 12 months, we are gradually going to take over both administration, sales and all of the other things and gradually, of course, also improve profit. So very much with the Feminine acquisition as expected. Now turning to gross profit. You can see that this is the source basically of our increase or our improved margin with 60 basis points. I already talked about volume price/mix. So of course, that contributes positively, but a lot of the improvement comes from overall lower COGS, and this is mainly related to currency actually, FX or positive currency impact, but we also have good savings. So typically, savings in COGS is quite low during the first quarter. And this quarter, we have SEK 130 million roughly in savings. So we're quite pleased with that number. So overall, 60 basis points in improved margin. We have talked a lot about investing more into growth. And of course, part of that exercise is more investments into A&P. And as you can see, we continue to invest more both from an absolute perspective, but actually also as a percentage of sales. And we compensated that partly with lower SG&A. So very much in line with our plans. Now you may think that this is possibly a consequence of our cost savings program. That's not the case. As we have reported earlier, pretty much all of those savings will appear late in the year, so more towards the third and fourth quarter and full run rate, as we have talked about at the end of the year. So savings is not really compensating so much at this point. This is other types of efficiency gains like low travel, like similar types of actions. So all in all, this was the increase of the 40 basis points. Now let me just take as a final remark on -- when it comes to margin, let me just give you a bit of an outlook for Q2. It's always -- we are in an uncertain environment. And of course, on the back of the geopolitical situation, we do expect COGS to be higher if we look at the Q2 of '26 versus Q2 of '25, so higher COGS. We also expect higher SG&A, and this is partly -- or this is all of it, I should say, due to salary -- just common salary inflation and a bit of higher IT cost. We will have a little bit of savings in compensating for that from the cost saving program. But as I said, it will be small also in Q2. Good. So turning then to the cash flow. So seasonally quite strong, SEK 4.4 billion. And if we look at our net cash flow or I should say, cash flow after finance net and taxes, SEK 3 billion. So it was a good start to the year from a cash flow perspective. And with a reasonable, I should say, working capital performance. We just -- we still think we've got more mileage to put it that way, in our working capital performance, but we were reasonably okay, I think, in the first quarter. And as partly as a consequence of that, we continue to strengthen our balance sheet even further. Now you might have expected our balance sheet to -- or net debt, I should say, perhaps to increase a little bit since we did actually acquire the Edgewell Feminine business in the quarter. And so that was, of course, a negative drain in terms of debt with approximately about SEK 3 billion, and that was fully compensated by the cash flow. But we also had a couple of other things like share buybacks of SEK 600 million and some currency impact. But we also had one thing that was quite special for the quarter, which was a reduction of our debt in our pension liabilities of a bit over SEK 3 billion. So that contributed quite a lot to that lower net debt. And all in all, as you can see, the net debt is now SEK 24.5 billion with a net debt-to-EBITDA ratio of 0.96 or 1.0 as it says on this slide. Finally, and Ulrika has already mentioned it, so let me just give the technical details around the share buyback program, SEK 3 billion, and it will start May 11, 2026, and it will go on up until the most 2027, the AGM. And you have said it, the ambition is to continue share buybacks as a recurring part of our capital allocation. And with those words, I'll leave over to you. Ulrika Kolsrud: Thank you, Fredrik. And to summarize the quarter then, we delivered volume growth. We strengthened our market shares. We strengthened our profit margins. We completed our M&A. We also strengthened our balance sheet and launched or decided on a new share buyback program. Then moving forward, we will continue our efforts to accelerate profitable growth. And important focus for us is to continue to grow market shares, supported by innovation. And when we talk innovation, it's both about raising the bar and improving differentiation in our premium assortments as well as to secure that we are competitive across the different price tiers, and we are steering our innovation agenda accordingly. Then, of course, we continue to execute our SG&A cost saving program in order to be able to reinvest in growth initiatives. And we also continue to save -- to drive savings in COGS. Now of course, looking at the situation now that we have that Fredrik talked about that we expect to have some higher costs in the coming quarters, starting with fuel and energy, we have to rebalance our pricing. As you heard from Fredrik, we are -- we have had now selective price adjustments. We are adapting to a lower input cost, but also then to fuel growth. And needless to say, that has to be rebalanced as we move forward. So we will, as we always do, compensate cost increases with price increases over time. Then the other priority that we have that we have talked about here is also then to integrate our acquisition. And we have the ambition to do that as fast as possible, so full speed ahead or you could also say off to the moon. And actually, in the quarter, we were on the back side of the moon with parts of our portfolio, namely the jobs, the compression therapy. We have a long-standing contract as an official supplier of compression therapy garments with NASA. And the fact that Astronauts are relying on JOBST, I think, is really -- it really underscores Essity's expertise in compression garments and that we have a good performance also under very challenging conditions. So as the fantastic Artemis II crew ventured around the moon and really push boundaries for what's possible, we at Essity are very proud to be a small but meaningful part of journeys like this, helping people to perform at their very best on earth and beyond. Sandra Åberg: Thank you, Ulrika. Thank you, Fredrik. Interesting. Great products off to the moon. Now we are ready to take your questions. [Operator Instructions]. And we have a good lineup of questions already. Are you ready to start to open up for questions? Ulrika Kolsrud: We are. Sandra Åberg: Perfect. Our first question comes from Aron Adamski from Goldman Sachs. Aron Adamski: I was keen to hear your thoughts on margins. I think consensus currently projects about 13.8% EBITDA margin for 2026, which would be broadly similar to what you have done in Q1. But as you said during the presentation, COGS was still a tailwind in this quarter. So given the acceleration we've seen in pulp, I think some petrochemicals have also moved higher and also the FX backdrop, do you feel comfortable with that market expectation? And then the second question, very brief on finance costs, which were lower than expected. How should we think about the level of these expenses for the remainder of the year? Sandra Åberg: I look at Fredrik. Fredrik Rystedt: Yes. I mean, Aron, thanks for the questions. First of all, if you look at the margin outlook, we -- as you very well know, we just don't give that. We can only refer to, of course, our long-term financial target when it comes to margins of more than 15%. So over the longer term, of course, our margin aspirations is quite clearly spelled out. When it look -- when you look at the short term, of course, it's always more tricky to talk about and we just don't give that forecast. Generally, we strive, of course, to continue to improve. The geopolitical situation, as Ulrika very clearly explained, is a bit tricky. And of course, exactly how that will play out is difficult to say. So we can't really give much more. I don't know if you want to add something. And then when it comes to finance net, they were a little bit lower. You should actually expect lower cost as we go forward on the back of net debt, but we also see actually a bit higher interest rates. So if anything, more stable and slightly higher if you go forward. Sandra Åberg: I hope that's perfect. Aron Adamski: That's very clear. Can I just ask a very quick follow-up related to the delay, is there any sort of time lag effect that we should consider between your COGS stepping up in Q2 versus Q1? And then are you able to surcharge that immediately on to customers? Or is there a little bit of a lag effect like we've seen in the past? Ulrika Kolsrud: If I start, I mean, there are different cost elements that have a different lag effect. So if you take the oil-based raw materials, that has a lag effect of 4 to 5 months before it is shown up in our P&L and you have everything in between there. And we have already in -- for example, in Latin America, we have already raised prices. And in some parts in Europe, we have also announced price increases. And in some parts, we are working on finding the best way now to make sure that we continue to fuel volume growth while we compensate for cost increases to come. So we are doing all of these different elements. Sandra Åberg: Let's move to the next caller, Niklas Ekman, DNB Carnegie. Niklas Ekman: Can I ask about volumes, very strong in this quarter after, as you said, there's been a couple of quarters with flat or declining volumes. Was there any impact of phasing in this quarter, either relating to the weak Q4 or if there's been any pre-buying ahead of Q2 that's impacted that number? Ulrika Kolsrud: Not that we are aware of, no pre-buying. Niklas Ekman: Okay. Very good. And just following up, when I look at the input costs, I have pulp prices for your grades up more than 20% in the last 6 months. Oil is up almost 50% in the last couple of weeks, energy costs up almost 20%. Do you recognize these figures? And how worried are we? I assume that this will not be so much an impact for Q2, but far more so for H2. And I'm just wondering, given the kind of weak consumer environment we've seen in the last few quarters, how able or how receptive the market is to price hikes? If you could elaborate a little bit on this. Ulrika Kolsrud: Maybe you start with the first part and I answer the second. Fredrik Rystedt: Yes. I'll be happy to try. I mean we -- it's exactly as you say. If you look at the numbers you were quoting there, they're observable market numbers. So from that perspective, you're right. And of course, we also know that these things tend to change every day. So I can't really have a view on what the numbers will be eventually. We talked about the lag impact. So exactly to your point, there is not going to be everything in the books of the second quarter, it will be more in the third and the fourth quarter. So that's the point. When it comes to the ability to price, let me just say -- repeat maybe, and then I'll leave it to you, Ulrika, that we always compensate, and you know that, Niklas, we always compensate in the longer run because the price elasticity from a consumer standpoint of what we do is quite low. So of course, our products are needed. But again, of course, there is a time lag, but I guess. Ulrika Kolsrud: No, that is exactly it. And I think we have proven in previous situations that we have pricing power. And that is, of course, important when we move into this type of situation. And again, I talk a lot about innovations, but there is a reason for that. And it's not only about driving growth. It's also about securing our pricing power moving forward. So to have strong assortments gives us a good foundation for being price agile. So otherwise, it's exactly as Fredrik said. Niklas Ekman: And just a quick follow-up there because I note that in the last 2.5, 3 years, your margins have been a lot more stable compared to what they were, say 4, 5 years ago when there was significant margin volatility. Is this at least to some extent, a reflection of you pushing forward cost increases more quickly than you have in the past? Or are there other dynamics behind the more stable margin? Ulrika Kolsrud: Well, maybe starting with mentioning 3 of them. One is that we have become more agile in our pricing. So we have a higher operational flexibility, and therefore, we have worked really with making sure that we can compensate with price as quickly as possible. And we have done that both in, for example, Consumer Tissue as well as in Health & Medical, where we have a more regulated environment with longer contracts. So we've increased our agility across the different business units when it comes to pricing. Then secondly, we have reduced our volatility by reducing our exposure to changes in pulp cost and energy by, for example, divesting Vinda that we did now a few years ago or a year ago. So that is 2 things. And then thirdly, I would come back to this with superiority and how important innovation is. As we talked about last quarter, we had record high levels of superiority, and we are continuously strengthening our assortment and that helps then the pricing power as well. Sandra Åberg: Let's move to [ Johannes Grunselius ] at [ SVB ] Markets. Unknown Analyst: It's Johannes here. Yes, I have a question on your attempts to hike prices. You said you've been successful in Latin America. You're now announcing in Europe. Can you elaborate a bit on what type of price hike we are talking about the magnitude and which products? Is it like across the board? So to give some color on that would be very helpful. Ulrika Kolsrud: The color that I can give on that is that it looks very different depending both on assortment, business unit as well as geography that we're talking about. But overall, we -- as you probably know, we are fastest in compensating with prices in our Consumer Tissue business. So that is also where we have materialized or have announced price increases. at this point in time. Whereas, as I mentioned, in the more regulated area, it takes a bit longer time. So there is other mechanisms, so to speak. Unknown Analyst: Yes. So the magnitude in the product categories where you hike prices the most, can you just give an indication what magnitude we're talking about? Fredrik Rystedt: We don't do that, Johannes, for commercial reasons as you -- I'm sure you appreciate. But as we have discussed many times, we will adjust as much as it takes to restore profitability, and we've always done that. So this is not just something we say. I think we have actually showed that in various forums that over time, we have always compensated. So we are able to do that with the pricing power. This is, of course, not just us. This is the sectors we're in, if you like. But of course, particularly for us, this has been a reality. So we will do it this time as well. So -- and of course, giving you an exact number is incredibly difficult given not least that things do change. We just don't know exactly what kind of impacts we will face in the next few quarters. So it's very much about kind of doing as much as it is relevant, so to speak. Sandra Åberg: Next up is Oskar Lindstrom, Danske Bank. Oskar Lindström: Very good to hear about the price increases already being announced and in some cases, already pushed through. I wanted to ask you about volume growth in this quarter and the outlook for next quarter. We saw that it was, to a large extent, driven by the Personal Care business area. Is there any reason why we should expect this not to continue going into Q2? Was there some one-off effect or that you had a special push in this quarter that's not going to be repeated in Q2 or in coming quarters? Ulrika Kolsrud: The short answer is no. I mean this was the result of our continuous efforts and operations. Oskar Lindström: Excellent. I'm going to stick to one question. That's fine. Ulrika Kolsrud: Thank you for giving you such a short answer on that one question. Sandra Åberg: Then we will move to Charles Eden from UBS. Charles Eden: So just a couple of things for me on the raw materials, please. Firstly, can you just remind us the sensitivity, for example, when we look at, say, propylene for watching superabsorbents or polypropylene for nonwoven. Clearly, there's a sensitivity that means that what you're paying is not the same magnitude of moves we're seeing in those 2 derivatives. Could you just remind us those, please? And then just secondly, in terms of hedging, just remind us in terms of policy on energy and the raw material hedging that you've got in place for both Q2 and then, I guess, for the rest of '26. Fredrik Rystedt: Yes. Ulrika Kolsrud: I look at you. Fredrik Rystedt: Right. Yes, I'm not sure how to answer your question. Let me just say that about -- if you look at our operating expenses, Charles, it's about SEK 120 billion, just to kind of use a number. And of that, if you look at the plastic products, which I believe that was what you were asking, it's about a bit over 10%. So you get approximately the sensitivity there. Now I mean, oil-based products or plastics is, of course, sensitive to oil, but not fully because you got processing costs. So if you actually try and make some sort of estimate as to what happens to the oil or plastic products, the cost of that, depending on what happens to oil, a rule of thumb is that roughly about 2.5% or a bit less actually than a bit over 2%, you can say, of the oil price actually flows through to the plastic products. So this gives you a rule of thumb. But of course, it's not an exact science because if you have a sharp spike, as an example, in some of these raw materials like oil, then, of course, the impact will be very, very little. If you have a prolonged period, then gradually cost of plastic products will also go up. So it's a bit difficult to give you an exact answer to your question, Charles, more than that. Sandra Åberg: And on energy? Fredrik Rystedt: In energy and maybe also raw material, I think you asked. And if you look at the hedging, if you look at the rest of the year, it's about 60% we're hedged and the rest is open to spot price movement. We typically don't hedge really raw material other than energy. So we're openly exposed to pulp and to plastic materials or other types of input costs. And of course, there is a, you can say, implicit hedge through the lag impact that we talked earlier, but there are no physical hedging of any kind of any raw material. So energy is that's where we hedge. Charles Eden: That's helpful. And I appreciate it's maybe a question for your procurement team more than you. But I guess given the volatility, and we don't know quite how long or the severity of the fluctuations in oil in respect to derivatives. But is it fair that I guess it's in no one's interest for prices to shoot up 40, down 40, up 40. Is there a sort of degree of smoothing of this price with your suppliers? Or really, is it sort of you take what you see in terms of the price? I'm just trying to understand the dynamics of how this works in real world rather than perhaps behind the spreadsheet. Ulrika Kolsrud: Maybe, Fredrik, you can talk to that later. But one thing is that we have, of course, different tools when it comes to our pricing as well. I mean there's everything from surcharges to lowering our promotional efforts to having list price changes and other tools as well. So it's also about using our toolbox when it comes to pricing in a smart way in order to exactly, as you say, to not raise prices permanently when that might not be the -- what is the right thing to do in order to balance volume and margin in a good way. So there, we have a lot of tools in our toolbox. Fredrik Rystedt: Yes. I don't have anything to add. I think your question was also relating to if we make arrangements with our suppliers as to smoothing of the price. And I think that's generally not the case. But to be fair, I actually don't really know exactly that. I can't give you an exact answer there. I can check that for you, Charles. Sandra Åberg: Now we have a question from Diana Gomes from Bloomberg. Diana Gomes: Just I believe, a follow-up from Charles' question. I'm not sure if I understood correctly in terms of the arrangements with suppliers on your comments. For the pulp and other raw materials that you are not hedging, for instance, I'm assuming there are some type of fixed contracts that you would have with your suppliers. Could you give us some more color in terms of the time lines of those, for instance? And related to that, there are reports of some potential concerns or constraints on supply of materials such as plastic packaging. Are you seeing any pressure on that side already? Ulrika Kolsrud: When it comes to contracts, as Fredrik said, I mean, we do not really talk about the details of our contracts, both I would say we don't necessarily have all the details of it, but also it's for commercial reasons. Then when it comes to supply, we have so far not seen -- we've not had any disruptions, and we have not had any indications of disruptions either or shortages either at this point in time. But of course, it's something that we follow very closely. Diana Gomes: And if I could squeeze just one follow-up on the cost savings. You pointed to the fact that it was higher in the first quarter than typically is. Should we see that as a more structural change in terms of the phasing of the cost savings through the year? And it seems that there could be some sequential impact from that when we come into the second quarter with less of a buffer from the cost savings. So just to understand a little bit more on the margin impact as we go through the year. Fredrik Rystedt: Yes. Thanks, Diana. No, you shouldn't interpret it in that way. We have given an outlook for the year as -- and we're talking about just to be super clear now on the productivity or COGS savings. So not the SG&A savings, but COGS savings. My comments were relating to that. And I mentioned that we had in the first quarter savings of SEK 130 million. Typically, we have a bit of lower cost savings in the first quarter. And of course -- so we felt good with that number. This is not a change to our outlook for the year, which is in the range of SEK 500 million to SEK 1 billion for the full year. So again, a good start and our outlook for the year or our estimates or aspirations for the year of SEK 500 million to SEK 2 billion remains. Sandra Åberg: Now we have a new question from Aron Adamski. Aron Adamski: I was just wondering, you mentioned the leverage was lower than we all expected. And so in the context of your balance sheet being quite healthy, I was wondering how do you assess the current M&A landscape out there in your priority categories? And are there any interesting assets that you're currently in the process of looking at? And should we expect any both on acquisitions and also over the next 12 months or so? Ulrika Kolsrud: But we always have a very active M&A agenda. So we continuously look for opportunities and assess opportunities, and that we continue to do. And our priorities when it comes to acquisitions is in the areas that we've talked about before, Incontinence Care, Wound Care, Feminine Care and strategic segments in Professional Hygiene. And I think the acquisition that we now completed in the quarter is a very good example of being an acquisition in Feminine Care also in an attractive geography in North America. So that work continues. And as you say, we have a strong balance sheet. So we have the opportunity to, of course, act on M&As when they are value creating. Sandra Åberg: We will move to Mikheil Omanadze from BNP Paribas. Mikheil Omanadze: One question from me, please. I wanted to ask about volumes. I know you don't guide as such, but if I were to think directionally, are there any factors in the comp that you would call out for Q2 and the remainder of the year? And also, would you say it is fair to start factoring in some negative elasticities as you start taking pricing actions? Ulrika Kolsrud: No specific factors. And of course, our ambition is to compensate with the cost increases with price increases while fueling volume growth. So that is our clear ambition. That's what we work for. Sandra Åberg: Perfect. Are you happy with that answer? Or do you have a follow-up question to that? Mikheil Omanadze: No follow-up questions. Sandra Åberg: Okay, perfect. [Operator Instructions]. I think that we have actually answered all the questions now. Let's give you a few seconds to ask questions if you like. But I think we're done with questions. Thanks a lot for your questions. Then before we end, I would like to hand back over to you, Ulrika, for closing remarks. Ulrika Kolsrud: Yes. Well, thank you all for joining this webcast and for a lot of questions here. And again, we start the year with volume growth, with strengthened profit margins and not the least with winning the relative game with strengthening our market shares, which is very important. And our work, as you saw here in short-term priorities, it's about continuing to accelerate profitable growth through our different initiatives that we have. Now we talked more about the near-term priorities in this call. I hope that you want to hear about our mid- and long-term priorities and initiatives as well. And to do so, please join us in our Capital Market Day on the 7th of May in Gothenburg. Looking forward to seeing you there.
Alexander Bergendorf: Good morning, this is the Axfood First Quarter 2026 Telephone Conference. And with me today are Simone Margulies, President and CEO; and Anders Lexmon, CFO. In the Investors section of our website, you will find the presentation material for today's call. We encourage you to have that presentation at hand as you listen to our prepared commentary. After the presentation, we will be taking questions. A recording of this call will be made available on our website. So with that, I will now hand over the word to Simone. So please go to Page 2. Simone Margulies: Thank you, Alex, and good morning, everyone. We summarized the quarter with volume growth, improved efficiency and increased profitability, and that's in a market that is characterized by a high activity level. Through a clear customer focus and collaboration, we continue to create value with our strong and distinctive concepts. Before we start the presentation, I briefly want to comment on the situation in the world around us. It is clear that global uncertainty has increased over the past few months, and it's currently very difficult to assess the long-term effects of the war in the Middle East. In recent years, we have successfully navigated a volatile and uncertain environment, adapting quickly as conditions have changed, and we're carefully monitoring developments. Turning to Page 3. With that very brief introduction, let me now take you through the recent market development and Axfood's first quarter performance. So next page is #4. Market growth amounted to 4.4% during the quarter, a similar level compared to the fourth quarter last year. Stronger volumes contributed to this development as the annual rate of food price inflation came down and amounted to 1.7% according to Statistics Sweden. Inflation decreased gradually during the quarter and particularly in March when the overall price level was unchanged compared to the prior year. This was mainly driven by the dairy category, but prices were also lower in several other categories, including fruits and vegetables. In addition to the improved volume trend, a 0.5% positive calendar effect from Easter also contributed to the market development this quarter. So please go to next slide, #5. As a result of positive volume traffic and high volumes, Axfood retail sales increased 3.8% in the quarter. This was below the market and also lower than what we had hoped for. Excluding City Gross, where sales have been impacted by recent store closures, growth was in line with the market. Over a 2-year period, we continue to clearly outperform with contributions from City Gross. Competition remains intense and in general, market dynamics continue to be characterized by a strong focus on price value. As you all probably know, the VAT on food was halved on April 1 from 12% to 6%, and this measure was implemented just before Easter, which typically is an important holiday for the industry. With this, the overall activity level of the market was particularly high. In Axfood, we worked intensively during the quarter to prepare for and implemented VAT reduction. Through extensive collaboration and focus on execution throughout the organization from stores and support functions to Dagab and Axfood IT, the price points on millions of items were updated in a very short amount of time. We are now on Page 6. Consolidated net sales for Axfood grew 2.6% in the quarter. And as I just mentioned, this was mainly driven by higher volume. We saw growth in all of our segments, except City Gross. And there, as I just mentioned, it is, of course, important to consider that total growth was impacted by store closures. So please go to the next Page #7. We report a strong financial development in the quarter. Group operating profit increased to SEK 806 million, and the operating margin was higher at 3.7%. Operating profit included items affecting comparability of minus SEK 6 million related to City Gross. Last year's items affecting comparability also related to City Gross and then amounted to minus SEK 38 million. Operating profit and margin on an adjusted basis, which excludes items affecting comparability also increased. Adjusted operating profit was SEK 812 million, and the adjusted operating margin amounted to 3.8%. The improved profitability was primarily driven by higher sales volumes and growth in both total and like-for-like sales, a stable gross margin, improved efficiency and also an effective cost control. So now let's turn to Willys on Page 8. Willys continued to demonstrate volume growth in the quarter through an increased number of customer visits and a high ticket -- average ticket value, but total growth was below the rate of the market. Store establishments contributed to growth, although the new stores in the first quarter were established late in March and as such, only contributed to a small extent. In recent months, Willys has temporarily closed 2 stores ahead of relocation and together with ongoing larger store modernizations, this impacted growth negatively in the first quarter. Earnings grew to SEK 498 million, which corresponded to an operating margin of 4.1%. The increase in operating profit was primarily driven by the increased sales volumes and a stable gross margin development. Willys is Sweden's leading discounter and 2 days before the VAT reduction, Willys chose to lead the way by reducing prices corresponding to the lower VAT. This, together with the increased marketing activities, which were largely concentrated to the end of the quarter, negatively impacted sales and profitability. As I mentioned, Willys store expansion progress was also concentrated to the end of the quarter. Even though the expansion pace remains high and based on the chain's strong position among consumers, there is significant potential to increase the market presence. We are now on Slide 9. Hemkop displayed a strong performance in the first quarter and clearly increased its market share, delivering retail sales growth of almost 6%. Growth was primarily driven by an increase in customer traffic and in addition, a higher average ticket value that contributed positively. Like-for-like growth was also strong, contributing to solid earnings performance. With a focus on modernizing stores and enhancing its offering in terms of price value, fresh produce and meal solutions, Hemkop has made excellent progress in recent years. The current growth clearly demonstrates that customers truly appreciate Hemkop. In total, operating profit increased to SEK 114 million, and the operating margin also increased to 5.1%. The increase in operating profit was mainly driven by the increased sales volumes, a stable gross margin development and solid cost control. Earnings in the prior year was impacted by new store establishments. Turning to Page 10. Our efforts to develop City Gross into a long-term competitive hypermarket chain is proceeding according to plan. City Gross continued to deliver a positive performance in the first quarter with healthy like-for-like growth of 3.6% and a positive earnings trend. Our improvement initiatives to develop the customer offering and streamlining operations are clearly yielding results. City Gross' loss for the quarter amounted to minus SEK 48 million on an adjusted basis, corresponding to an operating margin of minus 2.4%. This was an improvement compared to the prior year, which came from the positive like-for-like growth effects from structural measures as well as efforts to streamline operations. Similarly to Willys, City Gross went ahead and reduced prices corresponding to the VAT cut 2 days prior to implementation. And together with increased marketing activities, this negatively impacted sales and profitability. On a reported basis, the operating loss amounted to minus SEK 54 million, which corresponds to an operating margin of minus 2.7%. This included the items affecting comparability I mentioned, which refers to structural measures for stores. We are now on Page 11. Growth for Snabbgross amounted to 1% in the quarter with weak sales development for B2B consumers. The trend in the B2C sales through Snabbgross Club was, however, strong, both in total and like-for-like sales. In terms of the operating profit, Snabbgross managed to offset the weak growth through strict cost control and delivering earnings on par with last year. In total, operating profit amounted to SEK 25 million, corresponding to an operating margin of 2%. Next, Page #12. Dagab's first quarter net sales increased by almost 4%, driven by sales to food retail customers and especially Axfood's own concepts. Operating profit also increased to SEK 298 million, and the operating margin was unchanged at 1.5%. The performance was primarily due to the sales growth and a lower cost level with increased productivity and logistics. Operating profit was, however, negatively impacted by lower gross margin due to market investments. Late in the quarter, Dagab also negatively was impacted by higher fuel costs and weaker Swedish krona. That concludes the first part of the presentation. So now it's time for our CFO, Anders, to take you through the financials. And we are now on Page 13, but please go to the next Page #14. And Anders, please go ahead. Anders Lexmon: Thank you, Simone. During the first quarter, the cash flow was minus SEK 692 million, which was almost SEK 300 million lower compared to last year. The strong operational performance was offset by a negative working capital effect due to inventory build ahead of Easter. This resulted in a somewhat weaker cash flow from operating activities of almost SEK 1.1 billion, SEK 129 million lower compared to last year. The negative cash flow from investment activities of minus SEK 560 million included the initial payment of SEK 185 million for automation in the logistics center in Kungsbacka. Excluding this automation investment, the capital expenditure in the quarter was in line with last year. By the end of Q1, Axfood utilized approximately SEK 3.1 billion of our credit facilities compared to SEK 3.3 billion in Q1 last year and SEK 2.7 billion as year-end 2025. The cash flow from financing activities of SEK 1.2 billion was in line with last year and included the first dividend payment of just below SEK 1 billion. We are now on Page 15. The net debt increased compared to year-end 2025 due to dividend payout. The net debt-to-EBITDA was improved compared to Q1 last year due to a strong EBITDA development despite increased leasehold debt. The equity ratio amounted to 17.3%, which was lower than in December 2025 due to the dividend improved. The Q1 equity ratio was, however, 0.5 percentage points higher compared to Q1 2025. Total investments, excluding leasehold and acquisitions amounted to SEK 561 million in Q1 compared to SEK 371 million last year. During the quarter, we established 4 new group-owned stores, 2 more than last year. Our investments in store establishments have therefore increased during Q1 compared to last year. And as I mentioned before, the investments included the first payment of SEK 185 million connected to automation in the new logistics center in Kungsbacka. And then let's turn to Page 16. When we look at the capital efficiency, we have a stable development in our rolling 12-month net working capital and also in relation to net sales. Capital employed has increased over the last years, mainly due to the acquisitions of Bergendahls Food and City Gross as well as the investments in Balsta. The level of capital employed, however, decreased slightly during Q1 as equity was reduced not only by dividend paid, but also the dividend to be paid in Q3 later this year. The effect was partly offset by higher leasehold debt. Thanks to an improved earnings trend and the reduced capital employed, ROCE improved by 1 percentage points during the first quarter compared to year-end 2025. And by that, Simone, I have come to the end of my presentation and hand over to you again. Simone Margulies: Thank you, Anders. And we are now on Page 17, and it's time for me to give you an update on our strategic agenda and priorities. So let us turn to Page 18. We have a clear house of brand strategy in our group, and this makes us unique in Swedish food retail. We aim to deliver the strongest customer experiences, and we are present in all segments of the market with our different concepts. Please turn to next Page #19. To create the right conditions for our retail concepts to be able to succeed on the market, we leverage our strengths as a group and focus on 6 strategic development areas. We have shown you this before, and I would now like to go through some recent key strategic developments. So please turn to next Page 20. Our ambition is to provide the most attractive assortment on the market with a distinctive offering on branded as well as private label products to meet customers' diverse needs and preferences. During the first quarter, we had a high pace in developing our private label portfolio and launched more than 100 new products. We had product launches across many categories, but I would like to highlight our focus on expanding range of our international assortment. In addition, we expanded the Mevolution brand to strengthen our offering in personal care. Our private labels represent quality and innovation, and we also focus a lot on sustainability and health with a wide selection of sustainability labeled and organic products. In addition, we have a large selection of products with Swedish origin with more than 400 products under the Garant brand. In the space of sustainability and health, we have previously launched several innovative hybrid products. And this quarter, we launched ready-made meatballs made from a combination of minced meat, vegetables and legumes, an exciting launch that really can contribute to better eating habits, not least among younger people. Our private labels, including the Garant and Eldorado brands are a significant competitive edge. And with all the new products, we complement our existing portfolio and improve the offerings within our various concepts. So overall, our private label share of sales increased in the quarter and amounted to just over 32%, driven by high penetration in Hemkop and City Gross. We are now on Page 21. We will continue to develop our attractive store network in the coming years by accelerating the pace of expansion while maintaining a high rate of modernization of existing stores. This work creates new growth opportunities by ensuring that our concepts provide the best possible store experience for their customers. Willys focuses on significantly expanding its presence, but at the same time, the chain gradually rolls out its most recent store concept, 5.0. Hemkop is maintaining a high pace in modernizing the stores and in addition, expands its presence when it sees good potential to do so. For City Gross, focus in the past year has been on closing underperforming stores with 1 store closure in the first quarter this year and 1 planned for the second. This is really about creating a healthy core in City Gross' store base from which the chain can grow from. That said, City Gross has also established a new store recently in February in Norrtalje. Lastly, to create better conditions for both the restaurant trade and the convenience trade to achieve long-term growth with improved profitability, we have made the decision to bring the 2 operations together into a single organization. The convenience trade business, which is currently part of Dagab, will be transferred to Snabbgross as of January next year. The logistics operation will, however, remain in Dagab. With consolidation opportunities are being created to further strengthen the customer meetings and offerings, both for restaurants and convenience trade customers. Moving on to Page 22. We are also improving our competitiveness by maintaining a clear focus on efficiency and productivity. We are enhancing the way we work, increasing use of data and AI in all our processes. More than 100 AI models have been taken into production in recent years, and we focus a lot on developing and empowering employees through AI tools and training and assistance. We are also further optimizing our new logistics structure. And during the quarter, we completed the rollout of a new order and purchasing system that will further strengthen our supply chain. With this new system, we can be more accurate in forecasts and planning and really strengthen how we manage our order flows to balance supply and demand. As previously communicated, we plan to establish a new highly automated logistics center in Kungsbacka that will be completed in 2030 and ensure increased capacity and efficiency for future growth in Southern Sweden. During the first quarter, work continued according to plan with this project, and we will get back to you when the property lease contract is entered into. Now let's turn to Page 23. Sustainability is an integral part of our operations and strategies. We aim to be a positive force in society and to take the lead in promoting a sustainable food system by influencing decision-makers, leading the way through own initiatives and driving industry issues. Last year, we completed the transition to renewable fuels and electricity, both in our own and procured transports, a truly important achievement. And consequently, we have seen a significant decrease in emissions. Using comparable emissions factors, emission from own transport decreased 15% in the first quarter compared to the prior year. In addition to the increased use of renewable fuels, this reduction was due to a higher number of electrical vehicles and route optimization. Diversity and inclusion are also areas that are of great importance to us. And by 2030, we aim to be Sweden's most inclusive food company. During the quarter, we concluded the first work placements under so-called SAO program at Willys and Hemkop. This program aims to help young people in vulnerable areas to strengthen their position in the labor market and motivate them to study. We have been a part of this initiative since the start, and we will be offering more young people jobs in the future as the program is developed and scaled up. Lastly, I want to highlight our efforts to promote sustainable food consumption. Hemkop is the leading -- industry leader with regards on organic products and helps customers to shop more sustainably. Recently, an independent survey showed that Hemkop leads the market in terms of promoting organic food through campaigns. Willys is also doing a lot in this area and came out second in the survey. In a market where price awareness among consumers remains high, campaigns are important. And I think this really shows that we continue to push forward and take our responsibility. Moving on from our strategic agenda, and we are now on Page 24. Our outlook for the year is unchanged, and it covers investments, new store establishments and items affecting comparability. With regards to the new establishments, as Anders talked about, in total, we opened up 4 new group-owned stores in the quarter, of which 2 Willys, 1 Hemkop and the new City Gross store I mentioned earlier. So please now turn to Page 25. And let me sum up. We summarize a quarter with positive customer traffic, volume growth and increased profitability. We are investing in line with our long-term plan to gain further market share and create the conditions for continued profitable growth. And that was all for today. So now please turn to Page 26, and I hand over to the operator to open up the line for questions. Thank you. Operator: [Operator Instructions] The next question comes from Magnus Raman from SB1 Markets. Magnus Raman: I could start off asking about the temporary negative effects on Willys sales growth from major store refurbishment. Can you help quantify in any way the effects here? Is it correct that it's one store that is closed altogether pending the build of replacing store? And then are there other stores that have a significant amount of store space closed for renovation currently? Simone Margulies: No, it is -- as you said, there are some phasing effects, I would say, in the quarter regarding Willys stores. The first thing is that we had a little less new stores and the stores that were opened, opened in the end of the quarter. However, we will have a high pace as we earlier communicated in establishing new Willys stores this year. And the other thing that you said is that we have closed 2 stores for relocating them. So they are closed and they will reopen in new places. And then we also have some large modernizations in large stores that's also affecting the like-for-like growth. So this, in total, have a negative effect in the sales growth in Willys for the quarter. Magnus Raman: Great. And these 2 stores that are temporarily closed altogether, have they been closed sort of for the major of the duration of Q1 for the most of that period? Simone Margulies: Yes, yes. They closed by the end of the last year for relocating them. Magnus Raman: So if these 2 stores would have been in operation, retail sales growth in Willys should have been around 1 percentage point higher. That is fair to assume? Simone Margulies: I would say that the phasing in the stores for the Q1, together with that the marketing investment came in the late of the quarter together have a negative effect and make Willys grow a little bit less than we hoped for. Magnus Raman: Right. And then I also wanted to ask if there's any way to quantify the cost you have been taking here in terms of having the food VAT 2 days in advance in both Willys and in City Gross. Any help there to quantify? I mean, should we do 2 divided by 90 and then a little bit more because those were more trading-intensive days times 5.4%? Or do you think -- could you help us there with any figure... Simone Margulies: The reduction of prices that we made both in Willys and in City Gross and Eurocash 2 days in advance had a negative effect and also increased marketing activities in the quarter -- by the end of the quarter together that we had increased personnel cost since it was a lot of manual work of changing millions of prices in stores. And also, we've had IT development costs during the quarter. And of course, also, as you said, the real effect of reducing the prices. Magnus Raman: But is it fair to say also that the sort of short-term top line strengthening effect of this was maybe less than what you had hoped for? Simone Margulies: Yes. The purpose of doing that was to strengthen the position for Willys as the leading discounter on a long-term effect and by that leading the price reduction. But as you said, we didn't really -- we didn't get the volumes as we had hoped for. So the sales for Easter came as it normally does from -- in the middle of the week until -- and by the end of the week. So we didn't really got the volumes that we had hoped for. Magnus Raman: Understood. So sort of subsidizing the ordinary spending, but not being able to push forward the Easter shopping so to say. Simone Margulies: Yes. However, I mean, one large purpose for us was to strengthen the position as a leading discounter. So -- and that is more on a long-term effect regarding the brand. So I mean, Yes. Magnus Raman: That was mission accomplished. I understand. All right. And then final one from me here. The effects of the war in the Middle East, you mentioned here in the report that the early -- or late into the quarter, the early effects you've seen on fuel costs and then you acknowledge the currency change, the weakening of the Swedish krona. But you have not seen any negative effects on electricity prices. Is that correct? Anders Lexmon: We have seen a little bit higher electricity prices, but we work with hedge -- we hedge the prices. So we have a more sort of long-term effect when it comes to electricity. Magnus Raman: Right. And then when thinking about possible inflationary effect on food commodities, is it, in your opinion, even if this is more for the farmers maybe, is it fair to assume that the price increase and possible supply squeeze as well of fertilizers, i.e., the urea prices, that, that would mainly have an effect on next year's crops rather than this year's crop season? Simone Margulies: It's -- I mean, if you look on the direct effects on the fuel cost, that will have -- it, of course, depends on how the development will be going on forward in the Middle East. Regarding the fertilizers, it also depends a lot on the development going on forward. This summer's crops, of course, are already done, but then you have the autumn crops and also going for next year. So depending on how the development will be, there will be some delays, but there could be effects also in this autumn since we do -- you have crops not only once a year. Operator: The next question comes from Daniel Schmidt from Danske Bank. Daniel Schmidt: Just coming back to sort of you start out saying that sort of the recent months have brought increased uncertainty, and we can all sort of acknowledge that and that the focus on value for money is still very high. And I hear you when you say that you didn't get the volumes that you expected when it came to the price cuts that you made a couple of days before the 1st of April. But sort of this uncertainty in itself, wouldn't that sort of have been a tailwind for especially Willys in the quarter since early March that you didn't expect before we went into this conflict in the Middle East? And I was just wondering sort of why are you growing slower than the market? And I hear you in terms of refurbishments and all that, but you do have more stores now than you had last year. And sort of what is the dynamics? What sort of happened in the market in Q1, you think? Or is it just sort of these things that you mentioned in terms of refurbishments and closed -- temporary closed stores? Simone Margulies: Those -- I'll try to give you an answer. I mean if we look upon the first quarter, as the market as a whole, we had a good growth in the market that was primarily coming from volumes since the inflation was low and also we had deflation in March. By that, also, as you said, the activity level in the quarter also increased. And in that environment, we also had the phasing of refurbishments going on, closing down 2 stores. The new stores that we opened up came in late in the quarter, together with the VAT or our price reduction that we made, that together made us go a little bit lower than we had hoped for. So that was all. And then I would say that the cost levels for the customers, it will, of course, depend a lot on what is happening going forward. I mean the increased fuels came later in the quarter and also -- so I mean, there are many things that is happening for the consumers in the quarter, but also in the market. However, I would like to zoom out a little bit and say like Willys has a really strong position. It's one of Sweden's strongest food retailer. They are the most recommended chain. And we will continue to have a high expansion pace for Willys since we see there's a great potential to accelerate our expansions in Willys. Daniel Schmidt: Yes. Okay. But do you see that sort of these issues that we've talked about now, have they corrected themselves as we go into the second quarter of this year and you had the lowering of the VAT and all that is basically behind us now. Are you seeing a better market on the back of the lowering of the VAT? Or is that still too early to call? Simone Margulies: I think it's too early. There is still uncertainties. There are -- the VAT and the initiatives to strengthen the consumers' buying power are, of course, positive. On the other hand, also consumers have high prices for electricity and also fuels, how the increased buying power, how large that will, by the end of the day, become and also how the consumers will use their consumption, it's difficult, and it's a little bit too early to say anything actually about that. Daniel Schmidt: Yes. Okay. And just the last one on the cost for the repricing. Was all that taken in Q1? Or is there anything taken in Q2, early Q2 for Hemkop? Simone Margulies: For Hemkop? Daniel Schmidt: Given that they didn't do the changes 2 days before. Simone Margulies: Yes. Do you mean the cost for personnel and marketing and so on? Daniel Schmidt: Exactly. Exactly [indiscernible] repricing. Simone Margulies: Yes, that was taken for Hemkop -- all the chains were taking in the first quarter. I mean, both marketing, personnel costs, yes. Daniel Schmidt: Okay. And just the fact that you have to reprice the entire assortment, is that sort of -- is that resulting in a number that you want to share in terms of extra staff to just get that done? Simone Margulies: Extra -- could you please... Daniel Schmidt: Staff. Staff. Simone Margulies: Extra staff. Okay. No, we don't give any details about that. But as you say, there were a large cost, of course, for personnel to doing the job and also marketing and also the price reduction by itself. Operator: The next question comes from Erik Sandstedt from Kepler Cheuvreux. Erik Sandstedt: Erik Sandstedt here with Kepler. Three questions, please. The first one is a follow-up on one of the earlier questions here. Because you say that gross margins at Willys were stable in the quarter, right? And given these pre-VAT price reductions, which I assume had a slight negative impact on gross margins. Can you just explain then what sort of supported gross margins to offset that impact? And given that gross margins were stable and the EBIT margin were down, I suppose OpEx to sales then must have driven that margin contraction. I know it's not a big margin decline, but I'm just trying to understand the underlying drivers a bit better here. Simone Margulies: Yes. So the offset was according to, as we said in the report that the marketing investment came in the later part of the quarter. And that also, on the other hand, had marketing cost and cost of personnel that made the margin a little bit softer. Erik Sandstedt: Yes. But there must have been some positive gross margin impacts as well then if the pre-VAT reductions had a negative impact. Simone Margulies: Yes. And that was because that the marketing investment came late in the quarter. Erik Sandstedt: Okay. But marketing, is that -- that's an OpEx, right? Simone Margulies: It could be both. It could be marketing costs, but it could also be price reduction campaigns. Erik Sandstedt: Okay. Okay. You're talking about price campaign. Yes. Okay. That makes sense. Perfect. Then secondly, if input costs now go up on the back of the geopolitical tensions, will it be tougher to pass that sort of underlying price inflation on given the price competition we're seeing in the market presently? Simone Margulies: I mean increasing costs, of course, there are some, how is it time -- there's a [ lead ] time from when they appear until you can see it in the stores. And you haven't seen them in the stores. And also that depends on development going on further. But if the development continues with increased costs, you will, of course -- we are a low-margin industry. And if that will continue, you will see it in the stores also. But it also depends on how the -- yes, how the situation will develop from now. And also, it's difficult to assess what the long-term effect. But I mean, as we wrote the first -- in the end of the quarter, we saw increased costs for fuels. And there also the war affects the fertilizers and that also affects I mean, the entire food industry, it could be both animal production, but also from all the crops. So we will see how that will assess the effect in short and long term. Erik Sandstedt: Yes. But maybe to frame it differently, do you see the market being more price competitive now than, let's say, just a few quarters ago or a couple of years ago? Simone Margulies: Yes. We've seen a high competition in the market. I mean, for the last 18 months, there's been a really, really -- or forever, but I mean, the increased competition for the last 2 years, I would say. And that's also why I'm so happy that we can see that the effects we're doing on cost control, also the efficiency that we're seeing coming from the investments that were made both in Balsta and logistics structure, but also now we have implemented a new buying and forecasting system that will also help us to become more efficient. And also, of course, the help of AI and data helps us to be more efficient and also help improve our customer meetings. Erik Sandstedt: Okay. And then just finally, in terms of joint group costs, they were higher both versus the same period last year as well as versus Q4, but you have done some cost initiatives on that line, I think. So what drove the costs here? And what's a normalized level going forward? Anders Lexmon: Yes. As you mentioned, I mean, it can vary from quarter-to-quarter. We have seen that in the past as well. And now we have, in this quarter, a little bit higher level, and that is due to a couple of projects that we have done in -- for the whole group and that we have taken now. So a little bit high this quarter. And I would say it's more fair to look at the first quarter last year, if you want to have a decent level of the joint group costs. Operator: The next question comes from Fredrik Ivarsson from ABG. Fredrik Ivarsson: Two questions from my side, and sorry if you have to repeat yourself. I came in a bit late in the call. But first, if you could say anything about the consumer behavior since the VAT reductions. Have you seen any changes to, let's call it, shopping patterns so far? Simone Margulies: It's -- yes, it's a little bit early to say that since we have also effects from Easter moving within the month. So it's too early, I would say. There's still -- there's only a couple of weeks going in with the lower VAT. And also there, as we talked a lot about today, there are other -- there's a turbulent environment around our consumers with the war going on in the Middle East and increased cost for fuels and energy. So it's too early to say what effects that will have on the consumers. Will the increased buying power, how large will that be? They are important measures that have been taken with the lowering on the VAT, but how much will that by the end of the day, when the increase of fuels and increase of energy on our consumers have and will they buy more food, will they buy a new sofa or will they save more money? It's really too early actually to say that. We see that the price value is really important and that the focus on price and price worthiness is important for the consumers. And here, we are really well positioned with Willys, who choose to clarify its position by going 2 days in advance with the price reductions and also City Gross that has strengthened its price worthiness and also Hemkop the last couple of years. Fredrik Ivarsson: Okay. And second one, if you could say anything about the monthly performance in Willys, did you see January, February being more in line with the market and then somewhat weaker in March? And where I'm getting at is that historically, we've seen the market leader performing better than the competition during Easter due to, I guess, its locations of its store network and so on. Simone Margulies: I would say that the phasing of the stores that they came lately in the quarter and also that we made the price reduction that had an effect. But as we also know, Willys has a really, really strong position, but we have also had natural a little bit extra positive effects during the years of high inflation. And also last year, in the first 6 months, we had a high inflation. So we got a little bit extra, of course, growth and that when you look upon the comparison figures -- that was difficult to say, comparison figures that also, of course, have an effect in -- if you look on Willys growth for the first quarter. Operator: [Operator Instructions] The next question comes from Rob Joyce from BNP Paribas. Robert Joyce: Just a couple from me. Just the first one, have we seen any changes in your relative price positions since the VAT cut came in? I mean, have any of your competitors gone and cut prices lower or even less? So has there been any change there? And has that marketing spend or noise in the market died down since the beginning of April? That's the first one. Simone Margulies: Yes. We do not comment our pricing strategies and the price gaps. For us, it's always important to be clear with the price position, of course, for Willys as the market leader in discounting. And also, it's important for all our chains to have an attractive price position. I mean -- and since the entire -- the VAT, it was the same for all the -- say, all the actors -- not actors, all the chains in the market. That was -- I mean, that was relatively the same for all the players in the market. Robert Joyce: And in terms of marketing spends that you saw yourself were elevated, I guess, the whole market picked up at the end of the quarter. Has that died down as the second quarter started or is it still high? Simone Margulies: Could you please repeat? I didn't really understand. Robert Joyce: So you pushed marketing spend higher into the end of the quarter behind the new prices. I'm guessing the whole market did as well. Have you -- firstly, have you pulled your spend back since then? And has the market done the same? Or has the market pulled back on spend? Simone Margulies: We only commented, I mean, the first quarter. And as I said, the entire market had a really high activity level in the -- by the end of the quarter regarding to the Easter, but also for the VAT reduction. What we did that we also went ahead with the price reduction 2 days in advance for City Gross Willys and also Eurocash. So we made some extra marketing investments due to that. Robert Joyce: Okay. And I guess the second question I have is just maybe a bit more theoretical, but I guess Hemkop and City Gross, which would be your higher-priced chains seem to have traded better in the quarter on a like-for-like basis as inflation fell. Is there any concern that Willys may see a continuation of the kind of underperformance as prices fall further with the VAT reduction? Simone Margulies: I would say if we start with Hemkop, Hemkop's result is the result of a job that's been made for many years now in modernizing stores. We've had some really good modernization done in the last month. Also a job in improving both the price position, but also improving the assortment and focus on meal solution and fresh produce. So Hemkop is the result of a long-term job that's been made, and we're really happy about the performance they made in the quarter. City Gross is also a result of the job that we made a couple of months -- for a couple of months now since we made the acquisition 1.5 years ago. And so we continue to see a positive growth in City Gross. Willys still have a really strong position and has been growing for many years, no matter what economy we're in, both in good economies and bad economies. But with that said, also, Willys have had some extra push during the high inflation. We had high inflation in 2023. And also last year in the first 6 months, we had high inflation. So I mean, I think, and we see still a high focus on price and price value. I don't think that, that behavior will -- I think that behavior will last. And in that, Willys has a really, really strong position also going forward. And on top, we have a pretty low discounter share in Sweden. So there's a great potential to continue to grow Willys. Operator: There are no more questions at this time. So I hand the conference back to the speakers for closing comments. Simone Margulies: So by that, I would like to thank you all for joining today and all the questions, and I wish you a good end of the day. Thank you very much.
David Mulholland: Good morning, ladies and gentlemen. Welcome to Nokia's First Quarter 2026 Results Call. I'm David Mulholland, Head of Nokia Investor Relations. Today with me is Justin Hotard, our President and CEO; along with Marco Wiren, our CFO. Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our Investor Relations website. Within today's presentation, references to growth rates will mostly be on a constant currency and portfolio basis and other financial items will be relating to our comparable reporting. Please note that our Q1 report and a presentation that accompanies this call are published on our website. The report includes both reported and comparable financial results and reconciliation between the two. In terms of the agenda for today, Justin will go through our key messages for the quarter. Marco will then go through the financial performance, and we'll then move to Q&A. With that, let me hand over to Justin. Justin Hotard: Thank you, David, and good morning, everyone. Our first quarter gave us a solid start to 2026. Net sales grew 4% to EUR 4.5 billion with an operating margin of 6.2%, and we delivered a free cash flow of EUR 629 million in the quarter. Gross profit was EUR 2 billion and gross margin expanded 320 basis points, supported in part by the absence of a onetime charge in mobile infrastructure in the prior year. It also benefited from strong performance in Optical Networks as we began to see the synergy benefits from the Infinera acquisition. Operating profit was EUR 281 million, with operating margin expanding 200 basis points. We saw strong momentum with AI and cloud customers. Net sales grew 49%, and we received EUR 1 billion in new orders, particularly driven by Optical Networks. At the group level, book-to-bill was above 1. And in Network Infrastructure, it was well above 1. I'm proud of Team Nokia's execution in Q1. The focus now is on delivering through the year and maximizing the growth opportunity in front of us. At our Capital Markets Day last November, we outlined our view of the AI super cycle and the market opportunity for Nokia. Since then, demand has accelerated. At the time, expectations were for the largest hyperscalers to spend around $540 billion in CapEx in 2026. Now, those expectations have increased to over $700 billion. This reflects the pace at which our customers are scaling infrastructure for AI. Today, AI-driven traffic is estimated at around 20% of total network traffic, which is roughly 80 exabytes per month and is still primarily human to machine. As we move deeper into agentic AI adoption and ultimately physical AI adoption, machine-to-machine traffic will become the primary driver of traffic, and that will lead to a step change in network traffic. We already see this demand in AI factories, both in data center interconnect and inside the data center in routing and switching. Increasingly, this is also driving demand in transport networks across metro and long haul, and we believe this is a structural shift in the market, which will sustain for multiple years. We now expect our AI and cloud addressable market to grow at a 27% CAGR between 2025 and 2028, up from the 16% we shared in November. This implies the addressable market for network infrastructure growing at a 14% CAGR compared to 9% that we shared in November. This is already benefiting Nokia in orders and in revenue. In March, we introduced several new products at OFC. These launches reflect our focus on accelerating innovation following the Infinera acquisition. The industry is scaling from hundreds to thousands of fibers between data centers. To address this demand, we introduced our next-generation hyperscale multi-rail solution, which will begin shipping later this year. It scales fiber capacity without expanding physical infrastructure, delivers an 8x increase in density and is 25% more dense than competing products announced recently. In addition, we also shared that we're evolving how we bring optical solutions to market. Our road map moves to a building block architecture with 4 optical engines that are embedded in multiple form factors compared to the 2 engines per generation previously. The architecture allows us to bring 13 application-optimized solutions to market. For customers, this means simplified deployment and a reduced total cost of ownership of up to 70%. These products will begin sampling in the first half of 2027 and will ship in volume in the second half. In Q1, we also saw strong growth in our IP networks pipeline as we build deeper engagements with our AI and cloud customers on switching and routing. We were awarded new design wins and continue to build a strong pipeline of further opportunities. We expect this to translate into new orders over the coming quarters. We've also increased our investment in optical networks and our new indium phosphide manufacturing facility in San Jose, California is on track to begin ramping production later this year. As a result, we are increasing our growth assumptions for network infrastructure in 2026. We now expect growth between 12% to 14%, up from the 6% to 8% we communicated in January. For Optical and IP networks combined, we expect growth of 18% to 20%, up from 10% to 12%. Turning now to Mobile Infrastructure. This new segment began operating in January, and the team is focused on aligning our road map to customer needs, streamlining the integrated business to improve productivity and delivering on the KPIs we outlined at our Capital Markets Day. Core software had another strong quarter, growing 5% and gaining market share. In the quarter, we delivered 6 competitive swaps. Our customers are modernizing their platforms with cloud-native solutions, adopting new security features and driving end-to-end automation with a focus on reducing operating expenses. Radio networks also delivered on our expectations. We signed several deals in the quarter, including with Virgin Media O2. At Mobile World Congress, we introduced a new generation of radios that are AI RAN ready. Our Doksuri remote radio heads deliver a 30% improvement in power efficiency and up to a 25% reduction in weight. In addition, we continue to make good progress on AI RAN in partnership with NVIDIA, and we are on track to begin field trials by the end of the year. Technology standards continue to perform well across its markets. The business continues to deliver stability, and we expect largely flat net sales for the full year with improved profit generation year-over-year. With that, I'll hand over to Marco. Marco Wiren: Thank you, Justin, and hello from my side as well. As Justin mentioned, we had a solid start to the year with EUR 4.5 billion in sales, growing 4% with growth in both operating segments. Gross profit was just over EUR 2 billion with a gross margin of 45.5%, a 320 basis points improvement on year-on-year. Operating profit was EUR 281 million, with an operating margin of 6.2%, and this is up 200 basis points compared to the previous year. Free cash flow was EUR 629 million, and the quarter ended with a net cash of EUR 3.8 billion. Network Infrastructure sales grew 6% in quarter 1. Optical Networks had another strong quarter with 20% net sales growth, and this is mainly driven by AI and cloud customers. We also grew in telecom as operators invest to meet increasing demands on transport networks. IP Network sales grew 3% with growth in AI and cloud, offset by softness in other customer segments during the quarter. We expect growth in IP Networks to start to accelerate in quarter 2 as we ramp shipments tied to new design wins with AI and cloud customers. Fixed Networks declined by 13%, reflecting our portfolio strategy to focus on higher-margin products. Sales of our optical line terminal products were largely stable in the quarter. And looking ahead, we expect the sales trend to improve as the year progresses. We see a supportive demand environment, especially in the U.S. with fiber deployments remaining a key investment focus for Tier 1 operators. Gross margin in Network Infrastructure was 43.4%, increasing 150 basis points. The increase was driven by a higher gross margin in Optical Networks, benefiting mainly from Infinera integration synergies and scale. We continue to expect some gross margin headwinds through the year as a result of product mix. Operating margin was 6.7%, a 30 basis points below the previous year as we had a full quarter of Infinera expenses compared to 1 month last year. For the full year, we do expect to slightly increase the Network Infrastructure operating margin. However, our focus this year is on investing to capture the long-term growth opportunity in the market. In Mobile Infrastructure, net sales grew by 3%. Core software sales grew 5%, while Radio Networks sales were flat. Technology Standards sales grew by 10% as a result of signing several deals in consumer electronics and multimedia, which contributed catch-up sales in the quarter. Gross margin increased by 430 basis points to 48.5%, in line with our long-term target for mobile infrastructure gross margins. The increase was mainly related to EUR 120 million contract settlement, which negatively impacted the previous year. We expect Mobile Infrastructure gross margins in the second and third quarters to be somewhat weaker and then much stronger in quarter 4. And this is consistent with the typical seasonality in the business. Operating margin was 8.9% in the quarter, an increase of 380 basis points, reflecting the settlement impact and lower operating expenses supported by the ongoing cost-saving program. If we then turn to look at our sales growth by customer segment, AI and Cloud grew 49%, mainly driven by Optical Networks. Mission-critical Enterprise and Defense grew 19% and Technology licensing grew 10%. These growing markets offset a 2% decline in telecom to deliver 4% growth for the group. The decline among telecom customers was partly related to some of the portfolio decisions we are taking in Fixed Networks. Overall, we continue to see the telecom market as relatively flat. The quarter 1 was a strong quarter for free cash flow generation, which amounted to EUR 629 million. We saw the typical working capital unwind in the first quarter related to the receivables buildup at the end of '25 from a strong quarter 4 sales seasonality. For your models, remember that quarter 2 is typically a seasonally low period for cash as we pay employee cash incentives in that quarter. Finally, to our '26 guidance assumptions. Our group level financial outlook remains unchanged, and we are currently tracking somewhat above the midpoint of the range for comparable operating profit, which is between EUR 2 billion and EUR 2.5 billion. Justin has already mentioned the 2 key assumptions for the full year that have changed. We now target to grow faster in Network Infrastructure this year with 12% to 14% growth, up from the previous assumption of 6% to 8%. And specifically in Optical and IP Networks, we now target 18% to 20% growth, up from the previous 10% to 12% growth. Then regarding quarter 2, we currently assume a 5% to 9% sequential increase in net sales. For operating profit, we expect quarter 2 to account for between 12% and 16% of the full year based on the comment I already made that we are tracking somewhat above the midpoint of the full year range. This would equate to H1 being between 24% and 28% of the full year operating profit, consistent with 2025. And this is mainly due to the growth-related investments we are making to support the long-term opportunities in the business. And with that, let me hand back to David for Q&A. David Mulholland: Thank you, Justin and Marco. As usual, for the Q&A session, as a courtesy to others in the queue, could you please limit yourself to 1 question and a brief follow-up. Sherry, could you please give the instructions? Operator: Yes, sir. Thank you. We will now begin the question and answer session. [Operator Instructions] I will now hand it back to you, Mr. David Mulholland. David Mulholland: Thanks, Sherry. We'll take our first question today from Fredrik Lithell from Handelsbanken. Fredrik Lithell: Congrats, a great report. I would like to step into the world of Optical Networks and ask you your raised assumption for the year. Is that based on that you see more positively on getting better traction on sort of production capacity throughout the year, so earlier than you anticipated before? Or is there something else in there that gives you the opportunity to raise that guidance? Justin Hotard: Yes. Thanks, Fredrik. So I think 2 things I would touch on. I think one is a little bit more confidence on supply. And obviously, the fab is one component. There's also the other -- the components of the optical subsystems, the DSPs, obviously, that's in pluggables. Obviously, as you think about our larger systems, there's multiple different elements to that. So it's a bit more supply confidence on optical from -- obviously, as we said, demand is strong -- demand continues to be strong on optical. And then it's also related to some of the traction we're starting to see in IP networking. And as we've talked about in the past, the IP networking business has been a little bit lumpy as we drive the growth, but we're starting to see more visibility for the year, and that's a part of what's driving the growth. David Mulholland: Did you have a follow-up, Fredrik? Fredrik Lithell: I'm fine with that. David Mulholland: Thanks Fredrik. We'll take our next question from Janardan Menon from Jefferies. Janardan, please go ahead. Janardan Menon: Just wanted to dive into the design wins and the EUR 1 billion that you've reported saying most of that or the bigger portion of that is from Optical. Are these still on the 800 gig side? You had put out a very impressive portfolio of products at the 1.6T, 2.4T, 3.2T at OFC, which you said would be starting to come through by late 2027. So are you already seeing some order intake on those? Or is it too early for those kind of more leading-edge products to be -- or next-generation products we're seeing orders right now? And I have a small followup. Justin Hotard: Yes. First of all, thanks, Janardan. So I think if you look at the demand that we're seeing -- the demand that we're fulfilling, I should say, for this year, I really see that momentum on the back of our 800-gig pluggable and then the associated line systems and the platforms that we have available and shipping today. A key thing that I maybe didn't touch on in my comments, I'll just emphasize is that the road map we launched at OFC, I touched on the fact that it's largely oriented towards 2027. But a key note there is that road map was designed with a real focus on AI and cloud customers and designed in collaboration with some of those customers. So we talk a lot about that customer collaboration. I talked about it at CMD a little bit. We talk about it quite a bit internally, and that's a good example. And then as I would just kind of give you macro broad brush orders, I think what we see in orders generally is some elongation in orders in terms of a desire for a longer-term commitment on orders. And that's, of course -- that's also something we're seeing in terms of our demand back into the supply chain, providing longer-term commitments. And I think that's very normal with the kind of demand expansion we're seeing in the lead times. And I think if you look at other -- our peers or other players in our ecosystem in this space, they're all saying similar things. So I would say that, that's very consistent for us as well. Janardan Menon: Understood. And I know you don't want to talk about growth in Networks and Optical separately, but it's been quite a big increase in -- it's quite a big increase in your guidance from 10% to 12% to 18% to 20%. Is most of that from Optical? Or are you going to see a meaningful acceleration in your IP side from Q2 onwards, which could, say, take you towards the double-digit 10% kind of growth rates there by the end of the year? Justin Hotard: Yes. I would say that the optimism we have on the 18% to 20% is across both sides of the business right now. David Mulholland: We'll take our next question from Artem Beletski from SEB. Artem, please go ahead. Artem Beletski: I would like to ask on AI and cloud-related orders. So I think book-to-bill was around 3 in the quarter. And when do you actually expect some catch-up to be seen in terms of deliveries? And could you maybe talk still about some potential delivery constraints what you have in this area? Justin Hotard: Yes. I think, Artem, first of all, I'd say right now, I'm focused on maximizing the opportunity that we see. And I don't see the book-to-bill is something I need -- we need to catch up to. Our focus right now is on just maximizing the demand. As I said as well, we are starting to see some elongation of the order cycle, which is normal in these. And then in terms of constraints, I mean, I won't get into too much detail, but I think it's -- generally, it's -- there's a fair amount of constraint in the semiconductor ecosystem in general. We don't talk about it, but if you think about the kinds of lead times you hear across the semiconductor manufacturers, the leading players, I think that gives you a pretty good indication of what lead times are, and then obviously, in other areas, at the scale that we're building indium phosphide as an industry, obviously, that's driving demand back into the supply chain that we need to build capacity for. And so we're working on that as well. And that gets a little bit to the point on investment. As you think about investment, I would think about it in optical in a few ways, right? One is investing and scaling the capability and capacity. We're obviously bringing on the second fab, but it's scaling production capability into the supply chain. And then, of course, continuing to invest in the product portfolio to make sure we're maximizing the coverage of the portfolio against the market demand that we see. David Mulholland: Thanks Artem. Did you have a quick follow-up? Artem Beletski: Yes, I had actually. So just relating to fixed networks. So you do highlight some headwind coming from consumer premise fiber business that is not seen strategic. Is it something that should be prevailing throughout this year or how we should think about it? Justin Hotard: Yes. I think it's something that is going to -- we're going to continue to be disciplined throughout the year. And there's probably two things to consider here. One is the macro market on fiber, particularly with what's happening in the U.S., we talked about some of this last year with the CapEx builds of the Tier 1 and Tier 2 operators, obviously, beat us some tailwind. So we feel good about the underlying business, but we want to make sure that we're focused on the right type of business for us long term. And so we expect that we'll have -- continue to have some headwind on the CPE side as we become more disciplined in that space and focus on the areas where it's valued. We also think this is a business that has good long-term prospects in data center. And we launched at OFC. I didn't touch on it, but at OFC, we launched an out-of-band management solution oriented towards data center. So we really like this business and we realized it was a bit of a tough quarter. It's just a situation where we're going through what I think is a very intentional transition to making sure the business has a long-term sustainable growth profile, not just in top line, but more importantly, in gross margin and operating profit. David Mulholland: Thanks Artem. We'll take our next question from Simon Leopold from Raymond James. Simon Leopold: Thank you, David. So the first thing I wanted to touch on was, in the past, you've floated this idea of growing the switching business by on the order of EUR 1 billion into hyperscale opportunities. I'm wondering with -- given sort of the commentary today and the wins you've had, could you update us on really the current opportunities in the sales funnel and longer-term prospects for this business unit? Justin Hotard: Yes. I don't -- Simon, I'm not sure there's much more that we'll say than what we described, but maybe just to kind of break it down a little bit. Good design wins in Q1. Those don't show up meaningfully in orders. They're in pipeline, but they're not in orders in Q1. So we expect to see some of that start to flow in, in Q2. And as you likely know, these businesses are more design win driven. And what I mean by that is it's not a procurement event where you kind of -- you have a procurement, and then if you're awarded that, you win that procurement, then you go to the next procurement. It's more about getting designed into a specific use case and application. And so that means that the sales cycle is a little bit longer, but encouraged by the progress that we're making here, and we'll continue to update you as we see the longer-term forecast. But I'm really pleased with the work that the team is doing and the progress we're making. Simon Leopold: And then as a quick follow-up here. It does seem as if the press release cadence in the mobility business has stepped up a bit. And you didn't talk that much about it today, but I just want to get a better feeling. You mentioned the field trial for the AI RAN. Wondering if there's any movement change in your view on how this particular business unit in mobility RAN might be trending, particularly relative to how you talked about it last quarter. Justin Hotard: Yes. I think, first of all, Simon, a couple of things. One is, and we touched on this a little bit in our -- well our segment performance shows it, and I think we touched on it. Overall, the telecom market is flat. I think what we realize is that strategically, this is a market where we need to find new sources of value, and those can come either from enabling new services for the telcos to monetize or a business that's less CapEx intensive. And I think we fundamentally believe that the future is much more of an evolution and is software-driven. We've talked about that in a number of forums. What I'm very pleased about right now is that the AI-RAN trials and the engagement around a model that will fundamentally be different for the baseband because we'll start to detach software innovation. And what I mean by that is not just features, but actual performance enhancements from the underlying hardware, just like you see model performance gets better in AI with GPUs, but you continue to see model performance improve even over the life of the same GPU. It's one of the benefits of that architecture. We see that same thing coming in this part of the business. And so I'm really pleased that we're seeing such strong interest from the industry. And I think this is a business as we -- as I said at CMD, our focus is not on making the business necessarily a growth business because the underlying market is not growing, but to make it one that's much more profitable and delivers an attractive return on invested capital. And that's our focus. I'm very pleased with the start the team has coming together in MI. Obviously, a lot more work to do and a big milestone later this year with NVIDIA. David Mulholland: Thanks, Simon. We'll take our next question from Rob Sanders at Deutsche Bank. Rob, please go ahead. Robert Sanders: Maybe just a question around profitability in optical. I think originally with the Infinera deal, you were looking at double-digit operating margin. But clearly, you're stepping up your investment. So I was just wondering if you're still sort of on track to hit that target maybe by next year? The second question would just be around hiring and OpEx. Given the opportunity is clearly growing, what is your view around OpEx growth this year? Justin Hotard: Do you want to take those? Marco Wiren: Yes. When it comes to the Optical, just like when we announced the deal in Infinera deal, we said that we aim for double-digit operating margins, and this is something we are still believing in. We've seen a very good synergy work that the teams have been doing, and we are on track or actually ahead of our targets when it comes to synergy captures. So we're very pleased with that work. And also when it comes to -- if you look the combination of these 2 companies, how well they actually complemented each other. And this has been extremely successful among our customers as well. So we have had very good design wins. We were very fast to decide on the road map. And this is one reason why we've seen these good wins on the Optical side. So there's a lot of positive things that we've seen, thanks to that integration and acquisition. Yes. And when it comes to OpEx, we've just said that we invest in capturing these opportunities in Optical side. And just like Justin mentioned earlier, supply is constrained. So we are investing in securing that we get the supply that is needed. So we focus on that. Otherwise, we don't guide any specific OpEx numbers. David Mulholland: Thanks Rob. We'll take our next question from Ulrich Rathe from Bernstein. Ulrich, please go ahead. Ulrich Rathe: I have 2 questions. The first one would be, so you're maintaining the group EBIT outlook with this higher growth in Optical, IP and you're explaining that you want to secure growth with higher investments. Could you talk a little bit more about the mix of these costs? Is this more R&D? Is it more sales and marketing? Is it more into production? Just more color on that cost increase would be helpful. That would be my first one. Justin Hotard: I think, first of all, Ulrich, and I'll let Marco add if he needs to. But just to remind you, we always provide a range, and we give you some direction on the range, right? So we're not changing our guidance, which is the range. What we -- and we said we're slightly above -- we're guiding somewhat above the midpoint, right? So the key thing here for us is as we look at the business, we're making investments, and you touched on a number of them. It's R&D, obviously, sales and marketing and production. And Marco just touched on some of that, right? It's -- there's obviously -- there's CapEx with the work that we're doing around the fab. But there's also investment in OpEx and scaling capability and manufacturing. And if you just think about what's happening in this part of the business, particularly around Optical, we're also going through a massive step function in volume as an industry. And so that means that we actually have to do work to mature the supply chain, mature the production capability as an industry, and we're not immune to that. So we're investing to make sure that we're successful in that and that we can capture the fullness of the opportunity around us. Marco Wiren: I think this is pretty much the same actually, if you look also the whole industry in Optical side. So the whole supply chain is doing the same as well to secure that we actually can capture those demand opportunities. But still, there's more demand than supply. So that's why it's important that we invest in capturing these opportunities. David Mulholland: Did you have a follow-up, Ulrich. Ulrich Rathe: Yes, a quick follow-up maybe. On this guidance upgrades and for the Optical growth, there still seems to be a relative dearth of customer announcements with hyperscalers. Could you talk about the reasons? You talked in the past about that you don't actually care that much, you'd rather care about the business. But is there possibly a hesitation on the side of the hyperscalers to talk about Nokia given Nokia is not a U.S. company? Or are there any other specific reasons why you wouldn't have sort of more meaningful announcement that tell us what you're doing with which hyperscaler and these kinds of questions? Justin Hotard: Yes. I think, Ulrich, you probably have to talk to our customer or perhaps through who they are, but you could ask customers about us. From my perspective, that's not my priority. My priority is making sure we're partnering with them effectively. We're delivering what they need, and we're helping them execute on their strategies. That's my focus. And obviously, we're capturing our share of the opportunity that's out there. So that's where I spend my time. Obviously, I think what's a little bit different about us than some of the U.S. players more broadly is that we also don't have a concentration dynamic because the business is more diversified. And so that may be also something, but there's no indication that I get that there's any kind of geopolitical dynamic to this. David Mulholland: Thanks Ulrich. We'll take our next question from Richard Kramer from Arete. Richard Kramer: Justin, you mentioned the elongation of the order book. Can you tell us how much of that EUR 1 billion of new contract orders is firm, i.e., that you have purchase orders against it versus long-term sort of frame contracts, just to understand the timing of realizing that additional incremental EUR 1 billion of orders. Justin Hotard: Yes. Actually, Richard, this is a great question. So just to clarify, we have -- actually across the business, including with our telco customers, we have multiyear frame agreements. And sometimes we announce some of those. But the only thing you see in orders is firm purchase orders with delivery dates. What we haven't dimensionalized for you is anything kind of above a certain lead time. But we are -- one thing we are seeing is some of that elongation. But I see that as a net positive because I think it's tied to the demand -- the underlying demand for the products, and it helps us with predictability and capacity planning. So for me, it's a positive in terms of how we're managing and scaling the business. David Mulholland: Did you have a quick follow-up, Richard? Richard Kramer: For Marco -- yes, please. A quick one for Marco. Given the working capital buildup, the employee incentives, the EUR 750 million to EUR 850 million of pending CapEx to your EUR 900 million to EUR 1 billion expectation, restructuring and so on, will year-end cash be materially lower than what we see now? It just feels like you have a lot of cash constraints or drains on the business in the next 2 to 3 quarters. Marco Wiren: Yes. Thank you. Yes. Just like you said, we had a very good cash generation in quarter 1 and quarter 2 is lower. But we do generate cash continuously year-by-year as well, and we are also securing that we have a very good cash position to have the freedom to make decisions that we need to do, of course, always allowing us to follow the capital allocation principles that we have in the company, that first priority is on R&D. And then secondly is to find other investments inorganic that could support our growth and then dividend. And if we deem to have excess capital, then we can consider share buybacks as well. But we are quite confident about our cash position. David Mulholland: Thanks Richard. We'll take our next question from Felix Henriksson from Nordea. Felix Henriksson: Congrats for a strong order quarter. Given the unprecedented demand in AI and cloud, and also the supply-constrained market environment across the sector, is pricing something that's contributing to your guidance upgrade in Optical and IP? Are you starting to see support from raising prices for that? Justin Hotard: Yes. Felix, thanks for that. Maybe I'll comment, Marco, you may want to add. But I think in general, what we see is if you look at Optical, you've actually got -- structurally, you've got a cost curve that's probably coming down, which is enabling scaling. And so I would say, in general, we don't see -- is not a contribution on pricing, it's much more unit volume. What I will say is that I think we acknowledge that there are some cases where pricing is going up. I mean memory has been talked about quite a bit as a structural pivot. And that's a place where we have some exposure across the business. And obviously, we're working with customers on that because in our minds, that's something that's structural that we're -- in some cases, we're passing on. In other cases, we're also working on things like redesigning our products, right? But again, those are focuses that we're working on mitigating. And then -- but in general, I would say, if you look at the growth, it's much more volume driven than it is price driven. Marco Wiren: And just building on that, if you think the new launches that we introduced also in the OFC, the main focus is power of the bid. So how can we improve the power of the bid for our customers because that's one of the main KPIs they have, so helping them to improve their cost base. David Mulholland: Did you have a quick follow-up, Felix? Felix Henriksson: Yes. Just a quick one. I'm not sure if I missed it already, but can you just comment on how long the lead times between getting the order to actual revenues in Optical are at the moment? Just trying to get a sense of the EUR 1 billion incremental AI and cloud orders for Q1, whether or not those will already support 2026 or more so for 2027? Justin Hotard: Yes. I don't think we gave you a specific one, Felix. But I think dimensioning probably for this -- for the broader demand that we see is like in this -- in the Optical space is 12 to 18 months. I mean there's -- as you know, there's always exceptions in these things where some things might be sooner depending on the specific product, but that's probably a good way to think about the broader lead times we're seeing today. David Mulholland: Thanks, Felix. We'll take our next question from Sandeep Deshpande from JPMorgan. Sandeep, please go ahead. Sandeep, we can't hear you. Operator: I just find this, perhaps your line in on mute. Sandeep Deshpande: My first question is regarding the switching business of Nokia. You -- on the Optical side, you probably have all the hyperscalers as customers at this point. You announced in the past few quarters wins on switches at multiple hyperscalers. Would you suggest at this point that you have a fairly broad exposure in terms of at least what is the future design win activity or future shipments at all the hyperscalers? Or is it still very limited to 1 or 2 hyperscalers in terms of your switching business? Justin Hotard: I don't know if I'll give you that much dimensioning, Sandeep, but I would say that as you look at the AI and cloud customer base -- the macro AI and cloud customer base, there's quite -- there's a set of different strategies that each one pursues. And I'd say the places where we get traction is where our portfolio fits our strategy is probably the best way to give you the answer. David Mulholland: Did you have a quick follow-up, Sandeep? Sandeep Deshpande: Is it broader today than it was, say, a year ago, the customer base? Justin Hotard: Yes. I think it's -- yes, I guess I don't quite measure it that way. I'm looking more at the design wins in the footprint. And I think that's certainly broader based on what we see today than it was a year ago. Sandeep Deshpande: And I have a quick follow-up on the financials. Marco, I mean, well before your time, I mean, Nokia in the past in terms of merger, M&A has -- in terms of integration has had problems. Clearly, at this point, you have tremendous growth. So that is helping the top line very significantly. But has the company got a structured process in place such that in terms of the integration with Infinera that this underlying doesn't have any issues going in the mid- to long term? And then secondly, given that there is a new fab ramping up as well later this year, are there any risks associated with that later in the year, given typically with semiconductor fab ramp-ups that can have issues? Marco Wiren: Yes. First of all, if you look at the integration, as I mentioned earlier as well that we are tracking extremely well on that compared to our own targets and also what we guided the Street. And we've been actually doing it better than we expected. So the team is extremely focused on securing the integration, and speed is extremely important here. So I understand your comment on the past perhaps, but this is definitely going well, and we're extremely happy with the progress. Do you want to... Justin Hotard: Yes, maybe I'll just add on that. I would just say, Sandeep, two things. One is, I think if you look underneath this, even if you took the growth out, I think you'd see very solid execution on the integration. I think the team has done really well. One of the most important things in integration that's a driver of outcome is cultural. And when you -- one thing that was clear to me when I went to OFC was, I could not -- everybody was Nokia -- was a member of Team Nokia. There wasn't an Infinera Nokia team, it was one team. That's hugely important, right, for being successful. The two other comments I'll make here is one acquisition, as you well know, does not a trend make in terms of successful execution and integration. So we have more work to do before we decide we're effective at this. And it's something that with the focus we put under the Chief Corporate Development Officer, Konstanty, obviously, one is making sure we find the right business for -- the right place for our portfolio businesses. Two is obviously being smart with how we think about capital allocation in terms of M&A where we believe that's accretive to our strategy. And then three is making sure we actually execute the integration. So that's a place where I'm pleased with the work that he and the team are doing, obviously, in close partnership with Marco, with our Chief People Officer, with all the key functions and the business presidents. But there's a journey here. And I think the net here is Infinera has been a good one. We need to get the learnings on that and then make sure we also don't forget the lessons from some of the challenges we've had in the past. Marco Wiren: And then when it comes to the manufacturing, remember that Indium phosphide is quite different compared to silicon manufacturing. So this is, first of all, much lower CapEx needed, but also it's faster. And I think that our team is working extremely well and understanding based on the learnings also from the Fab 1, we are transferring those into the Fap 2 and very good learnings from Fab 1. I don't know, Justin, if you want to say something more. Justin Hotard: Yes. I would just say our guide -- the only thing I would add is I think our guidance is risk balance understanding -- contemplating that ramp. And the reality is Fab 2 is a fraction of the ramp for '26, it's much more material to the longer term. David Mulholland: Thanks Sandeep. We'll take our next question from Jakob Bluestone from BNP Paribas. Jakob, please go ahead. Jakob Bluestone: So I had a question on the sort of margin progression as your IP revenues scale. I mean you've put through a sizable increase in your revenue guidance for some of the components for NI, but it's a sort of more modest change in your language at the group level. So if you can maybe just help us understand for IP in particular, as that business starts to accelerate, is it a bit like what we've seen on Optical, where initially it's perhaps not quite as accretive to margins? And then as that business starts to gain scale, it becomes a lot more margin accretive as well. So just if you can help us sort of understand the drivers there. Justin Hotard: I think the way I think about it, Jakob, is -- I think probably like any business, there's a scaling effect, right? I guess for me, the big focus right now is on capturing the opportunity and making sure it's accretive profit into the company. that's the priority. I don't know, Marco, if you'd add anything. Marco Wiren: No, it's -- always when you're starting with the new products, it takes some time to get the profitability up, and that's why we also mentioned that we see some impact of that in NII for first half of this year. But just like Justin said, that these are definitely accretive to our operating profit, and we see good opportunities there. Jakob Bluestone: As like San Jose... David Mulholland: Thanks Jakob. Go ahead Jakob... Jakob Bluestone: So I just had a quick follow-up. Just on the San Jose fab, can you maybe just help us understand, I don't know if there's any way to quantify whether that will cover your internal needs from the outset or not? Justin Hotard: Yes. I mean I think as we've talked about, San Jose gives us support. Certainly support for the growth that we see and expansion capacity for us as well beyond the portfolio that we have today and the volume that we see in the market. So that doesn't mean that we won't look at ways to accelerate -- further accelerate capacity because as we said, we think long term, this is a structural market, and we're pretty uniquely positioned as one of the few manufacturers with indium phosphide manufacturing capability at scale. But we think that too gives us -- certainly gives us the runway for the near term. David Mulholland: Thanks, Jakob. We'll take our next question from Sébastien Sztabowicz from Kepler. Sébastien, please go ahead. Sébastien Sztabowicz: The main opportunity for Nokia remains get across with optical line system and your pluggable optics. But I'm just curious, have you seen any specific opportunity building up around co-packaged optic or near package optics because the market seems to be quite bullish or there are a lot of demand building up these days. Justin Hotard: Yes. I think on that side, we've not made any announcements there. We've demonstrated -- at OFC, we demonstrated some technology development, but no announcements at this time. Sébastien Sztabowicz: Okay. And a follow-up on Infinera and the synergies. Previously, you were talking about maybe generating the EUR 200 million synergies in 2026 instead of '27. Are you still on track with that? And attached to this question, given the accelerated investment, is it fair to assume still a nice improvement of margin in Optical Networks this year or not? Marco Wiren: Yes. Thank you, Sébastien. Yes, the synergy, as I said earlier, we are tracking very well and a little bit ahead of our schedule. We originally said that it will take 3 years from the closing. And we said that we are tracking somewhat better than that. And we see the impact of synergies already in our quarterly reports as well. Just like in quarter 1, we mentioned that Infinera acquisition synergies are benefiting Optical business, and we will see those throughout the year as well. David Mulholland: Thanks Sébastien. We'll take our next question from Oliver Wong from Bank of America. Oliver, please go ahead. Oliver Wong: I had a question on -- going back to the Q1 AI orders and just your backlog and AI orders in general. I guess, so you mentioned that the lead times in Optical and I think IP are 12 to 18 months currently, but you also significantly increased your growth assumptions for this year for Optical and IP. So I was wondering, are these orders even though the lead times are up to 18 months are -- is much of this still quite kind of near-term loaded? And also in terms of the IP growth expected this year, I presume that most of that is from switch business. But you mentioned kind of big design wins and then that translating into orders starting next quarter. So are a lot of these design wins expected to kind of translate into revenues this year? Justin Hotard: I think as we touched on some of the design wins will start ramping this year. And yes, and I should clarify, we talked a little bit about Optical being 12 to 18 months. I think you've heard other peers in the industry talk or some of the players -- the ecosystem peers talk about being sold out over multiple years. I think that's probably a pretty good indication of where we see the Optical side. IP is a little bit shorter, but I would say there's parts of that supply chain that have constraints. And so obviously, we work closely with customers on forecasting and planning. And as we said, the only thing we register are the actual purchase orders themselves. That's what you'll see translated to orders. David Mulholland: Thanks, Oliver. We'll take our last question this morning from Emil Immonen from DNB Carnegie. Emil, please go ahead. Emil Immonen: So, I have a question on... David Mulholland: We can barely hear you. Your line is very hard to hear. Emil Immonen: Can you hear me now? David Mulholland: Yes, that's a bit better. Emil Immonen: Yes. So the growth you're saying the 27% market growth that you're now seeing instead of 16%. Could you comment on, is that volume or is that price-driven? Justin Hotard: It's volume driven. Emil Immonen: Okay. In that case, given the Fab 2 coming online at the end of this year, does that mean that you're building a third fab maybe? Because I think previously, you said that you were planning your current capacity to the earlier growth you were seeing in demand. Justin Hotard: Yes. I think one thing we've -- maybe just to clarify in case we haven't clarified in the past, Fab 2, when we shared in November, what we talked about was Fab 2 being able to be sufficient to meet the demands of the guidance we provided, and there was additional capacity on top. Obviously, we're not making any announcements about additional manufacturing capacity at this time. But that's the way I would think about it is that in the prior guidance, there was excess capacity and ability to build. I would take the -- if you kind of stitch the conversation together, I'll stitch it together for you. We're making additional investments that probably means that we're -- part of what we're doing there is investing in ramping Fab 2 at scale. And again, it's not just the fab, it's all the components of the supply chain because that fab produces a critical component, which is the optical component, but there's also a DSP, there's other components in our pluggables, and there's also many other components in our subsystems from the ecosystem. So all of that factors into this. David Mulholland: And thank you, ladies and gentlemen, for joining us today. This concludes today's call. I would like to remind you that during the call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may, therefore, differ materially from the results currently expected. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our Investor Relations website. Thank you all. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your devices.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bankwell Financial Group, Inc. First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Press 1 again. It is now my pleasure to turn the call over to Courtney E. Sacchetti, Executive Vice President and Chief Financial Officer. You may begin. Thank you. Courtney E. Sacchetti: Good morning, everyone. Welcome to Bankwell Financial Group, Inc.'s First Quarter 2026 Earnings Conference Call. To access the call over the Internet and review the presentation materials that we will reference on the call, please visit our website at investor.mybankwell.com and go to the Events and Presentations tab for supporting materials. Our first quarter earnings release is also available on our website. Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings, including those found on Forms 8-K, 10-Q, and 10-Ks, for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements. I will now turn the call over to Christopher R. Gruseke, our Chief Executive Officer. Christopher R. Gruseke: Thanks, Courtney. Welcome, and thank you to everyone for joining Bankwell Financial Group, Inc.'s quarterly earnings call. This morning, I am joined by Courtney E. Sacchetti, our Chief Financial Officer, and Matthew J. McNeill, our President and Chief Banking Officer. We appreciate your interest in our performance, and I am excited by this opportunity to discuss our results with you. We have delivered a solid start to 2026 with strong earnings, continued balance sheet improvement, and continued progress on our strategic priorities. For the first quarter, we reported GAAP net income of $11.3 million, or $1.41 per share. These results were supported by solid loan production, strong fee income from our SBA platform, lower funding costs, meaningful core deposit growth, and ongoing balance sheet optimization, including reduced reliance on wholesale funding and continued progress on building a more interest rate neutral balance sheet. Loan growth remained positive during the quarter with $190 million of originations, including $34 million of SBA production, resulting in net loan growth of $27 million. On an annualized basis, this level of growth is consistent with our previously communicated guidance of 4% to 5% for the full year, and our pipeline remains strong. Importantly, this growth is supported by strong core deposit inflows. Core deposits increased by $113 million sequentially, with $39 million coming from low-cost deposits. Included in that $39 million is $24 million of growth in analyzed checking balances, for an 8% increase on the quarter. In addition to funding our loan growth, we reduced brokered deposit balances and Federal Home Loan Bank borrowings by a combined $95 million, further improving our funding mix. Since our peak at the end of 2022, we have successfully reduced our brokered deposits by $513 million, a 50% decline. The net interest margin was 328 basis points, reflecting modest pressure from asset repricing, as floating-rate loans reset lower, and an unfavorable day-count impact relative to the prior quarter. These factors were partially offset by continued improvement in deposit costs, which declined 5 basis points sequentially to 310 basis points. Noninterest income remained a meaningful contributor to results, totaling $3.3 million, which includes $2.4 million of SBA gain-on-sale income. Our SBA division continues to be an important part of our diversified revenue strategy and a meaningful source of recurring fee income. Credit quality remains healthy with expectations of further improvement. While nonperforming assets increased modestly to 56 basis points of total assets, we have visibility into the resolution of several credits over the coming quarters. Overall asset quality metrics remain well within our internal expectations, and reserve coverage levels remain appropriate. Finally, we are excited to have opened our first full-service branch in New York during the quarter, located in Bay Ridge, Brooklyn. The branch is home to an experienced private banking team that joined Bankwell Financial Group, Inc. in 2025, and the addition of this location enables the team to deliver Bankwell Financial Group, Inc.'s full suite of commercial and private client banking services on the ground in New York. I will now turn the call back to Courtney E. Sacchetti to walk through the financial results in more detail. Courtney E. Sacchetti: Thanks, Christopher. Starting with the income statement, net interest income totaled $26.9 million for the first quarter and was largely unchanged compared to the prior quarter. Net interest margin declined modestly to 328 basis points, driven primarily by the repricing of floating-rate loans in a lower-rate environment and an unfavorable day-count impact. On a day-count normalized basis, the sequential NIM variance would have been approximately 5 basis points. These headwinds were partially offset by continued improvement in deposit costs. Total deposit costs declined to 310 basis points, down 5 basis points from the fourth quarter, and the bank exited March with a deposit cost exit rate of approximately 298 basis points. During the first quarter, we successfully repriced approximately $300 million of time deposits 44 basis points lower, generating an expected annualized benefit of $1.2 million. In addition, over the next 12 months, approximately $1.1 billion of time deposits are expected to reprice favorably with an average rate reduction of 14 basis points. This repricing is anticipated to deliver an incremental annualized benefit of roughly $1.6 million, or about 5 basis points of net interest margin. With respect to rate-sensitive assets, we have strategically increased the proportion of variable-rate loans from just over 20% at the start of 2025 to approximately 42% at quarter end. Additional detail on asset and liability repricing as well as rate sensitivity is provided on Page 8 of the investor presentation. Profitability remained solid in the quarter with return on average assets of 1.35% and return on average tangible common equity of 15%. As deposit repricing continues to flow through the balance sheet and interest rate sensitivity moderates, we expect incremental margin improvement over the balance of 2026, affirming our full-year net interest income guidance of $111 million to $112 million. Noninterest income totaled $3.3 million for the quarter, reflecting $2.4 million of gains on SBA loan sales and continued growth in service fee income driven by an expanding commercial client base. Based on our first quarter results, we are raising our full-year noninterest income guidance to $12 million to $13 million. Our pre-provision net revenue for the quarter was $13.3 million, or 1.6% of average assets, compared to 1.8% in the prior quarter. Our PPNR was impacted by approximately $1 million in annual noninterest expense typically incurred in the first quarter, elevating total noninterest expense to $16.9 million for the quarter. These annual costs are primarily related to employee compensation and certain services. Despite these seasonal expenses, our underlying noninterest expense run rate remains consistent with our prior guidance of $64 million to $65 million. The efficiency ratio for the quarter was 55.8%, which reflects the seasonality of first quarter expenses. Our provision for credit losses was a release of $1 million for the quarter, driven by the net impact of loan growth and economic factors embedded in our CECL model. The allowance for credit losses ended the quarter at 1.03% of total loans, with coverage of nonperforming loans at approximately 155%. From a capital and liquidity standpoint, the balance sheet remains strong. Total assets ended the quarter at $3.4 billion. Deposits totaled $2.9 billion, and both the bank and holding company remain well capitalized. Tangible common equity was 9.17%, and our consolidated common equity tier 1 ratio was approximately 10.5%. We repurchased 3,317 shares during the quarter at an average price of $45.32 per share. Now I will turn the call back to Christopher for closing remarks. Christopher R. Gruseke: Thanks, Courtney. In 2024, we laid out a plan to improve our funding mix, continue to grow our loan book in a disciplined manner, maintain strong credit quality, and build diversified sources of revenue. We have also committed to continue to invest in our tech-forward platform while managing expenses. We are truly gratified by the results achieved through the planning and hard work done by our team, and we thank them for their dedication. We will continue to execute on our strategic goals and look forward to sharing the results of our continuous growth and evolution with all of our stakeholders in the quarters ahead. We thank our longtime customers for their continued support and welcome the many new customers who have helped us to grow our business. We also appreciate the continued support and interest from our shareholders and the investment community. We will now open the call for questions. Operator: And from KBW, our first question comes from the line of Mark Shutley. Please go ahead. Analyst: Good morning. I appreciate the detail on the CDs and how much of that is coming due. I think you said that is a 5 basis point benefit to the margin. In this current rate environment, now that it is seemingly more flat, are you seeing more competition on the deposit side? I am trying to get a sense for how much the overall interest-bearing deposit costs can be worked down. Thanks. Christopher R. Gruseke: First of all, the numbers we put out on CDs expected to roll are based on market rates as of today. That implies no further cuts; as deposits roll to current market levels, that is what the impact would be. That addresses the first part of your question. Matthew J. McNeill: As far as deposit competition, it is very competitive out there. We are focused on bringing in low-cost deposits to bring down our funding cost, which is probably the most competitive area. However, we are finding success and have been able to substantially grow core deposits in the quarter. Christopher R. Gruseke: It is competitive. Net loan growth was approximately 2% quarter over quarter, but core loan growth was substantially higher. On deposits, core deposits grew by $113 million; roughly 25% to 30% of that was low-cost, including about $24 million of growth in analyzed checking. With the balance that did not result in loan growth, we paid down more expensive borrowings. We are happy with the deposit result despite the competitive environment, and the mix improved. In our deposit mix. Matthew J. McNeill: Yes. Analyst: Thanks, appreciate it. Switching gears, SBA was strong in the quarter, and it looks like originations are tracking higher. I think you previously talked about $100 million of originations for the year. Is there any change to that, and where does SBA fit into the overall fee guide? Thanks. Matthew J. McNeill: We are having success with SBA. We have a really strong team. We could definitely originate more SBA loans, but we are choosing to keep the volume generally where it is. We are not increasing the $100 million we put out as how we were thinking about fee income, although other fees are coming in higher as well. That is the reason for the increase in the fee guidance. Christopher R. Gruseke: If we wanted to do more, we could. We are about two years into this and have been measured in our approach. Analyst: Got it, appreciate it. That is it for me. Thanks for taking my questions. Christopher R. Gruseke: Thank you. Thanks, Mark. Matthew J. McNeill: Operator? Courtney E. Sacchetti: Operator, we are ready for the next question. Operator: Apologies. Our next question is from the line of—go ahead. Courtney E. Sacchetti: Feddie, are you there? Feddie Justin Strickland: Yes, sorry, I did not hear the name either. No worries. I wanted to start by asking about the Brooklyn office. Does that serve as a home base for some of the deposit-gathering teams in the city, and how much lending do you think you will do out of that office? Matthew J. McNeill: I think we will do a modest amount of lending out of the office, Feddie. It was not the primary reason to open the office. It was definitely a deposit play, which has already taken off and been robust. In the 10 months leading up to the branch opening, the team was very active, and we have had good success there. Lending is not a core part of the strategy there; however, we do think that some loans will come out of it. We have been lending in and around NYC since the bank’s inception, so it really should not change a whole lot in terms of the geography where we are lending. Christopher R. Gruseke: We do not have a plan to add branches just to enter markets or to make sure we have more branches. We hired the people first. This is a very experienced private client group that has been together for years and has already had material and significant impact on our organization. If what they needed was a branch to assist in their platform, then we could build a branch. We happen to love Brooklyn—I was born there—but we were not going out of our way to enter that market. We were following our deposit team and their needs. Feddie Justin Strickland: Got it, that is helpful. Switching gears to CRE concentration, given the current trend line, is it possible we could see that dip below 300% by year-end or maybe early next year? Based on what is currently in the pipeline and capital build, do you feel like you are in a range where you are pretty comfortable and not as worried about crossing that 300% threshold? Christopher R. Gruseke: We do not have 300% as a target. We are seeing a more diversified loan mix. It is conceivable, but it is not the plan. Over the last year, we have come down roughly 40 basis points from about 375%. Matthew J. McNeill: We are happy where it is. We can live with it, and I suspect over time we will get down there. Whether it is year-end or not, I do not know. It has been a trend for a while, and we are seeing a better flow of C&I deals. We have not done much office, etc. I think it will naturally get there, but it is not a particular goal. I would not be surprised to see it come down another 10 to 20 basis points over the course of the year. Feddie Justin Strickland: Got it. And then on the credit side, it looked like the modest increase in nonaccruals was CRE-driven. I apologize if I missed it in the opening remarks—can you speak a little more about what drove the increase there and what you might expect on resolution? Matthew J. McNeill: The increase was due to a tenant leaving a building; the sponsor was not able to make the payment. There is equity in the deal. We think we will be able to work with them to dispose of the real estate and be paid there. As you heard in Christopher’s comments, we have visibility into resolution of several of the credits that are on our NPAs, and we expect those to happen in the next couple of quarters, with meaningful resolution and a much lower NPA number. Feddie Justin Strickland: Perfect. Thanks for taking my question. Operator: From Raymond James, your next question comes from the line of Steve Moss. Analyst: It is Chase on for Steve. Hey, guys. On loan pricing, can you tell me where new origination yields are coming in these days? Courtney E. Sacchetti: For the first quarter, our average rate was 7.5%. Analyst: I appreciate that. And just one more for me. I saw you enabled the buyback this quarter. Can you tell us what would bring you more into that market? Christopher R. Gruseke: I am sorry, can you repeat that? I heard buybacks and then it cut out. Analyst: Yes, I saw you enabled the buybacks. Could you tell us what would bring you more into that market? Matthew J. McNeill: We look at the price daily when we are not in blackout. We have a plan in place. I expect the number to grow over the course of the year, but you would have to look at our consolidated CET1 ratio, and we are still trying to grow that. If levels hold, and given the amount of stock that we issued, I would not be surprised to see us, over the course of the year, nibble some back. But our goal is still to get to 11% on the consolidated CET1 ratio at Holdco, not necessarily by year-end. Analyst: Alright, I appreciate all the color. All my questions have been answered. Thank you. Matthew J. McNeill: Okay. Operator: With no further questions, this does conclude today’s conference call. You may now disconnect.
Operator: [Interpreted] Good morning and good evening. Thank you all for joining the conference call for the LG Display earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on LG Display's First Quarter of Fiscal Year 2026 earnings results. Dong Joo Kim: [Interpreted] Good afternoon. This is Kim Joo Dong, Vice President, in charge of Finance and Risk Management Division at LG Display. Thank you for joining our first quarter 2026 earnings conference call. Joining us today are CFO, Kim Sung-Hyun; Vice President, [ Cho Seung Hyun ] in charge of Business Control and Management; Vice President, [ Kyong Jeong Deuk ], in charge of Large Display Planning and Management; [ Hong-jae Shin ] and Ahn Yu-Shin, in charge of Medium Display Planning and Management; Vice President, [ Paek Seung-yong ], in charge of Small Display Planning and Management, Vice President, [ Sang Keuk Kwon ] in charge of Auto Marketing and [ Kim Kyu-dong ], Leader of the Business Intelligence team. Today's conference call will be conducted in both Korean and English. For detailed performance-related materials, please refer to our disclosure or the Investor Relations section in the company website. Please refer to the disclaimer before we begin the presentation. Please be informed that the financial figures presented in today's earnings release are consolidated figures prepared in accordance with International Financial Reporting Standards. These figures have not yet been audited by an external auditor and are provided for the convenience of our investors. I will now report on the company's business performance in Q1 2026. Revenue in Q1 was KRW 5.534 trillion, down 9% year-over-year and 23% quarter-on-quarter on the back of stable OLED product shipment and favorable exchange rate and despite such external factors as the seasonality and the base effect coming from the discontinuation of the LCD TV business in Q1 last year. Operating profit was KRW 146.7 billion, rising Y-o-Y, driven by strengthened business structure and sustained OLED performance. Operating profit margin was 3%, and EBITDA margin was 21%. Net income recorded a loss of KRW 575.7 billion due to the impact of FX translation loss on foreign currency debt as the high exchange rate persisted. Next is area shipment and ASP trends. Area shipment in Q1 was 3.2 million square meters, down 21% Q-o-Q. On top of the seasonality, there was continued push by the company to streamline low-margin models, primarily in the midsized product line. As for ASP per square meter, it fell 4% Q-o-Q due to the seasonal decline in small panel products with relatively high price per square meter. But at $1,244 it was up 55% Y-o-Y, thanks to the rising share of OLED as a result from the company's business structure upgrade efforts. Next, I will discuss the revenue breakdown by product category. TV was 16% and IT 37%. Mobile and Others segment accounted for 37%, down 3 percentage points Q-o-Q as the market entered into seasonality. Auto, which is relatively less season sensitive, took up 10%, up 3 percentage points Q-o-Q. The OLED product group accounted for 60% of total revenue, up 5 percentage points Y-o-Y. We believe that through our persistent internal push to enhance our business structure and shift to an OLED-centric company, we have established a structure that can generate meaningful performance despite unfavorable externality. Next is financial position and key metrics. Cash and cash equivalents in Q1 was KRW 1.525 trillion, largely unchanged Q-o-Q. Of the main financial ratios, current ratio was 74%, almost flat Q-o-Q with debt-to-equity ratio at 251% and the net debt-to-equity ratio at 157%. While there have been temporary fluctuations quarter-on-quarter due to adjustment in our borrowing portfolio and the impact of exchange rates, we plan to further strengthen our financial soundness in the long term. Next is guidance for Q2. Total area is expected to grow by low 10% level Q-o-Q, driven by shipment increase, mainly in large-sized panels. As for the price per square meter, it is expected to fall by low to mid-10% due to lower shipments resulting from mobile products seasonality, which typically command higher price per square meter. I will now turn the call over to our CFO, Senior Vice President, Kim Sung-Hyun. Sung-Hyun Kim: [Interpreted] Good morning and afternoon. This is the CFO, Kim Sung-Hyun. Thank you for joining us at this conference call. Despite the seasonality in Q1, we were able to remain profitable for 3 months in a row, thanks to our years-long internal efforts such as initiatives to transition to a business structure based on OLED and high-end strategic customers as well as the innovation of cost and improvement of operational efficiency. Furthermore, we have significantly enhanced business stability and competitiveness by increasing the share of OLED out of total revenue to 60%, a 5 percentage point increase Y-o-Y. The clearly improved business fundamentals will serve as the solid foothold for a sustainable profit-generating structure that the company aspires for and will be the driving force behind our continued improvement in business performance. We will keep working to ensure stable OLED-centered product shipments and the expansion of business performance. But looking at the external environment, uncertainties today are higher than ever before. The scope and scale of these uncertainties continue to grow, including not only rising semiconductor prices, but also declining global demand, rising energy costs and supply chain disruptions, making it difficult to estimate their full impact at this point. Accordingly, we believe that close monitoring of the external volatility and uncertainties, along with the ability to respond swiftly are essential capabilities that the company must possess and that the situation requires more cautious approach. Meanwhile, even as external uncertainties persist, it is highly positive that our competitiveness in high-spec products, which is our strength, is increasing and that technological barriers are rising along with it. Even as we seek optimal response to external uncertainties, we will strive to secure financial soundness and achieve sustainable results that meet the expectations of the market and our customers based on a company-wide effort to strengthen our technological differentiation. Next, allow me to briefly outline our plans and strategies by business segment. In the small-sized mobile business, we will flexibly respond to our customers' diverse technical needs based on our technological leadership and reliable supply capabilities. We will also efficiently utilize our existing production infrastructure to ensure seamless preparation for the future. In the midsized business, we plan to continue improving profitability by focusing on high value-added products, actively responding to customer demand with our differentiated competitiveness in tandem OLED and high-end LCD technology. We also intend to keep improving our product portfolio with a focus on profitability to further enhance production efficiency. In large panel business, we plan to strengthen our premium product lineup based on our white OLED technology while also expanding our range of price competitive products. And in monitor business, where the shift to OLED is accelerating rapidly, we intend to grow our OLED business and focus on acquiring customers by expanding our gaming product lineup, which incorporates our proprietary technology. And in auto, where competition is increasingly fierce, we will keep solidifying our market position based on our differentiated product and technology portfolio. Finally, a few words on our investment. We maintain the principle of allocating CapEx primarily towards essential current investment and future-proof technology investment. The investment disclosed last afternoon in new OLED technology infrastructure was also decided in this context. We plan to strengthen our technological competitiveness and growth foundation by continuing to upgrade our OLED technology as a way to respond to future market trends and customers' demand. At the same time, our work to optimize investment efficiency will continue unchanged. CapEx in 2026 is expected at around KRW 2 trillion. We will continue to build up a decision-making framework that enables a prudent yet flexible response by finding the right balance between preparing for future growth and ensuring financial soundness. This concludes our presentation of business highlights for Q1 2026. We will now take your questions. Operator, please commence the Q&A session. Operator: [Operator Instructions] [Interpreted] The first question will be provided by Gang Ho Park from Daishin Securities. Gang Ho Park: [Interpreted] Thank you for taking my question, which is on the disclosure of new investment that was made yesterday. So the disclosure was for about KRW 1.1 trillion in OLED. And so my question is, can the company provide more details about this disclosure? And recent media reports have mentioned that another company is exclusively supplying into foldable products. Is the disclosed investment for new -- is it for new form factors to counter this? And if that is the case, then what is LGD's business strategy regarding foldable smartphones and its market entry? Sung-Hyun Kim: [Interpreted] This is the CFO. Allow me to respond to your first question. Now as everyone would know, in the industry, we see that the technological development is really accelerating at a remarkable pace. And the importance of technology is also translating into the competitiveness of companies. So all the companies are now struggling and really competing against each other to secure the competitiveness. Now as has been reiterated several times, the company is focused on the OLED business. Accordingly, the more ready we are with new OLED technologies and the more technologically competitive we are, then there will be more business opportunities coming our way, and we will be able to maintain our competitiveness across the industry. And yes, the company has disclosed -- made disclosure about new facility investment within this context. And as for the specifics, I would love to share more of them, but then given the fact that our new technology directly translates into new technologies for our customers, please understand that I am not in the position to discuss them further. Unknown Executive: [Interpreted] This is [ Paek Seung-yong ] in charge of Small Display Planning and Management and allow me to respond to the question about the foldables. Our position and perspective on foldable devices remain unchanged. Foldables offer consumers differentiated value through a new form factor, and there are growing market expectations that they will be the new growth driver. But until we gain visibility into market size, pace of growth and our own opportunities, our strategy will be to grow performance by maximizing production and sales of existing products. If clear opportunities are identified in the smartphone sector, we will prepare a supply system after carefully reviewing such factors as market acceptance of differentiated products and growth rate, and we will then try to build on our mass production experience in midsized foldable devices to expand new business opportunities in the smartphone sector. Operator: [Interpreted] The following question will be presented by Jimmy Yoon from UBS Securities. Jimmy Yoon: [Interpreted] My question is regarding the overall panel business. Today, we see that the memory shortage is driving up memory prices and oil price is also surging following the Middle East conflict. Such mounting uncertainties may trigger more concerns regarding potential production disruptions in the tech value chain, shifts in demand, rising cost and price pressure from customers. What is the expected impact on demand? And what will be the company's response? Unknown Executive: [Interpreted] This is [ Cho Seung Hyun ] in charge of business control and management. Now it is true that the market today is facing growing uncertainties stemming from the memory shortage and the impact of the geopolitical conflict. But I believe that we have to look at the first half and the second half of the year separately. Now in the first half, we are seeing some pull in demand due to concerns over memory supply. And with the scheduled major sporting events coming around, there is expected to be some positive impact. Now going into the second half of the year, considering factors such as component price hikes, set price changes and macro uncertainties coming from the Middle Eastern situation, we will have to be more cautious in our approach to market changes. While external uncertainties are increasing across the market, the impact varies slightly by company depending on their customer and product structure. The impact of rising chip prices is more pronounced in the mid- to low-end product segments, meaning that the impact on global customers with relatively strong SCM competitiveness is likely to be quite limited. It might even be an opportunity for them. So against the risk of growing volatility, we will closely monitor changes in demand and trends in component supply and demand. We will collaborate with customers and focus more on cost innovation drawing from our global customer portfolio and established high-end product lineup and successfully navigate these challenging market conditions. Operator: [Interpreted] The following question will be presented by Jung Hoon Chang from Samsung Securities. Jung Hoon Chang: [Interpreted] My question is similar with some of the previous questions. There has been some uncertainties in the business, as the CFO has mentioned, with the pronounced effect of the U.S. and Iran conflict, especially on the rise on the commodity prices. So, so far, there was some discussion about the midsized and small-sized businesses. But then for the large panel business as well, then what will be the company's operational strategy as well as the growth strategy for the future? If you could provide us with an update, what's helpful. Unknown Executive: [Interpreted] This is [ Kyong Jeong Deuk ] in charge of large display planning and management. For our large panel business, amid industry volatility this year such as rising prices of commodity as well as the components like semiconductors, we plan to establish a stable revenue structure and strengthen our fundamentals by enhancing our high-end OLED TV lineup with leading global set makers and also by expanding our mid- to low-end OLED TV lineup. And for the OLED monitor segment, the high-end gaming monitor market is very rapidly shifting from LCD to OLED. And we -- and the share out of our total shipment is likely to grow very significantly from low teen percent last year to around 20% this year. So our product and customer strategy will be about maximizing our business performance and opportunities through an optimized production share between TVs and monitors and to keep solidifying our market leadership. Operator: [Interpreted] The following question will be presented by Won Suk Chung from iM Securities. Won Suk Chung: [Interpreted] Now I also have 2 brief questions. Now we have been discussing uncertainties a number of times so far. But now yes, as the uncertainties continue, I believe that perhaps cutting losses from the IT business has made a significant contribution to the company improving profitability Y-o-Y and also for the year. Then as the uncertainties continue, then when does the company believe that you will be able to turn around to profitability? And also looking at the OLED new investment disclosure yesterday, it seems as if the company is also increasing OLED investment into new technologies. Now given the fact that the other companies are also looking into the investment for the 8-gen IT OLED and so forth. So what is the company's plan for investment down the road? Yu-Shin Ahn: [Interpreted] This is Ahn Yu-Shin, in charge of Medium Display Planning and Management. Now the ongoing uncertainties in the external environment, including the U.S.-Iran conflict makes it difficult to expect a recovery in the IT sector this year. To prepare for increased demand volatility in the second half due to rising commodity prices and prices of components like semiconductors, we are securing supply flexibility and closely monitoring the situation. Although sales and shipment volumes decreased Y-o-Y in the first quarter, profitability improved thanks to internal initiatives like strengthening our product mix. For the year, we will focus on high-end differentiated products based on long-established customer trust, technological competency and responsiveness and further upgrade our high-end focused customer structure and maximize opportunities with a select and focused approach tailored to customer demand, which will keep up our trend of improving profitability. And regarding IT OLED, as the transition from LCD to OLED accelerates, starting with tablets and extending to monitors, we are aware of the growing interest in the market as well. IT products have a diverse customer base and product specifications and having sufficient demand to keep the fab running is crucial. To do that, we need to meet consumer needs for technological capabilities and price competitiveness as well. As the period of uncertainty and high volatility in demand continues, we intend to proceed cautiously until there is clearer demand visibility for OLED in the downstream. Until we have enough visibility to make investment decisions, we plan to utilize our existing infrastructure as efficiently as possible. We are actively exploring various strategies to prepare for future opportunities, and we will be ready to respond in a timely manner when the market begins to fully take off. We will take one last question. Operator: [Interpreted] The last question will be presented by HyeonWoo Park from Shinhan Investment & Securities. HyeonWoo Park: [Interpreted] The company is reportedly implementing voluntary retirement this year again following last year. So what is the expected scale of this adjustment? And when will this be reflected? Will there be more of this type of workforce adjustment and onetime cost in the future? Unknown Executive: [Interpreted] Yes. So as have been reported in the media, there is going to be another round of workforce adjustment this year. And this is part of the company's effort and transition to an OLED-centric company. So along with this, we have been upgrading our business structure and improving our product portfolio and strengthening our cost structure and also undertaking cost innovation. Now we are aware of the sense of fatigue that the shareholders might be feeling as the similar event continues to repeat itself. And for the short term, yes, this will be something that will incur cost to the company, and this is the kind of decision that requires very cautious approach as well. But we also see this as a necessary process for the company to remain sustainable, and we have made this decision from a long-term perspective. And as this is an internal company process, the specific terms cannot be disclosed for which I ask for understanding. But then there have been some fairly detailed reporting by the media as well. But again, the program is still ongoing. It's not been concluded yet. So as for the specific overall cost or the scale, it is too early to tell. Now yes, it is true that having the repeated implementation of the voluntary retirement by no means is desirable for the company either. But if it does have to happen, then it better happen within a short period of time so that the sense of stability will be restored among our members. And that is why we have -- we are offering a much strengthened package this time around. And this is part of the company's plan to make sure that this does not have to happen again in the near future. Now the second quarter for the company historically has been a period of poor financial performance. Now of course, we have undertaken some business restructuring, business realignment and also cost innovation efforts. And as a result of the series of efforts, we were planning and expecting profitability in the second quarter of this year. And that is how the business was managed as well for at least 1 month. So we were expecting to see profit in the second quarter. And despite that, of course, we continue to try to become a better company, a more sustainable company for the longer term. So on that note, I would also like to ask for a more positive view from the shareholders and investors as well. Operator: [Interpreted] This concludes LG Display's Q1 2026 Earnings Conference Call. We thank everyone for joining us today. Should you have any additional questions, please contact the IR team. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Bong Kwon: Greetings, everyone. I am [ Jerry Kwon ], Head of KBFG's IR Department. We will now begin 2026 Q1 Business Results Presentation. Thank you very much for participating in today's earnings release. We have here with us our CFO, Sang-Rok Na as well as other executives from the group. Regarding the agenda today, we will first have our Group CFO, deliver the 2026 Q1 major business results and then engage in a Q&A session. I would like to invite our Group CFO to deliver a presentation on our 2026 Q1 performance. Sang-Rok Na: Greetings, everyone. I am KB Financial Group CFO, Sang-Rok Na. I would like to express my deepest gratitude to everyone for taking part in 2026 Q1 business results presentation. Before I share the details of our business results, I would like to briefly cover our group's shareholder return policy and major highlights. Let's go to Page 1. KBFG established a market-leading shareholder return model through our industry's first implementation of quarterly even dividend, share buyback and Korea's only CET1 ratio linked corporate value enhancement policy. Based on this strong policy direction today, our BOD in order to once again demonstrate our firm commitment to enhancing shareholder value, resolved to cancel the entirety of our existing treasury shares. The shares subject to cancellation amount to approximately 14.26 million shares, representing about 3.8% of total issued shares. This constitutes the largest ever single cancellation in the industry in terms of value. Following the recent amendment to the commercial code, the cancellation of treasury shares has been mandated with a grace period of 1 year and 6 months. However, despite this grace period, KB Financial Group has decided to proceed with the immediate cancellation of all treasury shares currently held upon the amendment to the law. This reflects the strong commitment of our BOD and management to prioritize shareholders as well as the firm decision to proactively align with the government's policy direction and the advancement of Korea capital market. As a result, the group's number of total issued shares have been reduced by 15.2% compared to 10 years ago. You can see that significantly widening the extent of the reduction. As a result, key per share indicators such as EPS and DPS have also demonstrated growth comparable to that of leading global financial institutions. Next, let's go to Page 2. Bank core deposits have increased by approximately KRW 9.8 trillion compared to last year. And through strategic efforts to reduce funding costs, we have maintained a solid NIM. Despite concerns over potential fund outflows to capital markets, we are stably securing a stable interest income base. Accordingly, while stably guarding stable core earnings, we have actively leveraged our money move environment towards investment assets to elevate the profitability of our noninterest and nonbanking segment to the next level, and this has become a strong driver of our group's overall fundamentals. In particular, the bank's WM income has expanded meaningfully driven primarily by trust fees, while the securities business has substantially strengthened its profit-generating capacity through increased brokerage income and higher WM fees, thereby further enhancing its contribution to the group's earnings. In addition, securities and asset management business' AUM increased by 55.9% and 18.4% Q-o-Q, respectively, thereby further strengthening the noninterest income base that supports improved RORWA efficiency. With the nonbanking subsidiary driving approximately 72% of the group's fee income, KB plans to further solidify our fee income base through efficient capital allocation, leveraging the competitiveness of our nonbanking portfolio. Next, I will address shareholder returns for Q1. Today's Board meeting, we resolved to approve, a, quarterly cash dividend of KRW 1,143 per share totaling KRW 405.4 billion as well as the second round of share buybacks and cancellations in the first half of 2026 amounting to KRW 600 billion. Q1 cash dividend per share, reflecting the share buyback increased by KRW 231, a 25.3% increase year-on-year. The current share buyback and cancellation program follows the completion of the initial purchase of KRW 600 billion out of total KRW 1.2 trillion of buyback and cancellation plan for the first half of 2026, and we plan to proceed with additional purchases immediately. For your reference, the -[ 3.9 billion ] shares, share acquired in the first round will be canceled in a single batch on May 15, together with the 14.26 million treasury shares already held as previously mentioned. Next, I will walk you through KBFG's financial performance. To begin with the key highlights of Q1 of 2026 can be summarized as a demonstration of KBFG's strong fundamentals that remains resilient despite unprecedented dual headwinds, including a sharp rise in exchange rates and the war in the Middle East. The group's 2026 Q1 net income posted KRW 1,892.4 billion, while the bank's interest income base was managed in a stable manner, net fee income from the bank, securities and asset management businesses grew significantly, resulting in a 11.5% Y-o-Y increase. In addition, the group's Q1 ROE improved by 0.9 percentage points Y-o-Y, posting 13.94%, demonstrating solid growth across both profitability and capital efficiency. I will now provide a more detailed breakdown of our financial performance by business segment. For Q1 of 2026, the KBFG's net interest income recorded KRW 3.3348 trillion, representing a 2.2% increase Y-o-Y. Despite a challenging environment marked by strong capital outflows to the capital markets, this was achieved through effective cost control via an optimized funding mix strategy, including the expansion of core deposits. Such strengthening of the earnings structure supported qualitative growth in interest income alongside an improvement in net interest margin. Next, we will discuss the growth of the bank's Korean won denominated loans. As of the end of March 2026, the bank's Korean won loans totaled KRW 379 trillion, showing a slight increase of 0.4% compared to year-end. Household loans due to household debt management regulations and rising market interest rate recorded a slight decrease of 0.4% compared to year-end. For corporate loans, loans to large corporations continue to grow, while solid growth in high-quality SME loans centered on productive finance was added, resulting in an overall increase of 1.2% compared to year-end. Going forward, KBFG for household loans will make portfolio adjustments that take into account overall profitability to enhance profitability and strengthen our earnings from [indiscernible]. In parallel for corporate loans, in line with productive finance, KBFG plans to continue to identify and expand high-quality customers with strong growth potential to maintain a growth framework that ensures sustainable growth and stable earnings base. Next, we will turn to the net interest margin shown in the lower right. For Q1, KBFG and the bank recorded NIMs of 1.99% and 1.77%, respectively. The bank's NIM driven by the expansion of core deposits and the repricing of high rate term deposits as the rebalancing of the funding portfolio materialized into tangible cost reductions improved by 2 bps Q-o-Q. In addition, KBFG's NIM supported by the expansion of the bank's NIM as well as broad-based improvements in card assets, including credit card, receivables and installment financing improved by 4 bps Q-o-Q. Next, we will discuss noninterest income. For Q1, KBFG's noninterest income recorded KRW 1.6509 trillion, representing a significant increase of 27.8% Y-o-Y and marking the highest quarterly noninterest income in the group's history. In particular, for Q1, KBFG's net fee and commission income recorded KRW 1.3593 trillion, increasing by 45.5% Y-o-Y, approximately KRW 425.3 billion. This was driven by a significant expansion in fee income from capital market-related subsidiaries, including securities and asset management. In addition, the bank's wealth management fee income also improved meaningfully, providing further support. Meanwhile, for Q1, other operating profit amid intensified competition for new contracts across the industry and increased downward pressure on insurance operating profit due to a rise in the loss ratio for the long-term insurance recorded KRW 291.6 billion, decreasing 18.5% Y-o-Y. Next, we will cover G&A expenses. For Q1, G&A expenses recorded KRW 1.7649 trillion. Despite continued efforts to improve cost efficiency focused on recurring operating expenses due to higher tax induced following the tax reform at the year-end, it recorded an increase Y-o-Y. However, in the case of the group's CIR supported by an all-time high total operating income of approximately KRW 5 trillion and strong top line growth, combined with ongoing efforts to enhance workforce efficiency and optimize the cost structure recorded 35.4%. This once again demonstrates that the group's cost efficiency is being managed in a stable manner. Next is Page 9, the group's provision for credit losses. For Q1, credit loss provisions recorded KRW 493.2 billion, representing a significant decrease of 24.8% Y-o-Y or KRW 162.4 billion. The decrease was mainly due to the elimination of the base effect from last year's one-off large-scale provisioning at the bank and supported by the proactive efforts to secure loss absorption capacity and the group's conservative risk management efforts, the burden of the provisioning was reduced. In addition, the group's credit cost ratio, despite a slowdown in the asset growth, driven by improvements in credit quality also recorded a significant decline of 14 bps Y-o-Y to 40 bps. Lastly, we will discuss the group's capital ratios. On a preliminary basis, as of end of March 2026, the group's BIS ratio recorded 15.75% and its CET1 ratio recorded 13.63%. The CET1 ratio decreased by approximately 19 bps Q-o-Q. However, despite a sharp rise in the Korean won USD exchange rate by nearly KRW 80 during the quarter and the downward pressure from large-scale shareholder returns at the beginning of the year, presenting a challenging managing environment, solid earnings generation capacity and strategic capital management focus on RORWA enabled us to keep the ratio at a stable level. As you are well aware of, since shareholder returns in the second -- half of the year are linked to the CET1 ratio as of the first half, KBFG will continue to maintain disciplined capital management in Q2 to align with market expectations. Meanwhile, as of end of March 2026, the group's RWA amounted to KRW 366 trillion, increasing by approximately KRW 9 trillion or 2.5% compared to year-end. However, excluding the impact of the increase in exchange rate, the increase was limited to KRW 4 trillion or 1.1% Y-o-Y, remaining within the group's target level showing appropriate growth. The group will continue to implement qualitative growth, efficient capital allocation and stringent limit management as part of a sophisticated RWA management strategy in order to keep the growth rate at an appropriate level. The following pages provide detailed supporting materials of the earnings just presented for your reference. This concludes the presentation of KBFG's 2026 Q1 business results. Thank you very much for your attention. Bong Kwon: Thank you very much, CFO. We will now entertain questions. Operator: [Operator Instructions] I believe we have the first question from [indiscernible] Securities, [indiscernible]. Unknown Analyst: I have a question related to the company or KBFG's capital policy. And first of all, core bank and nonbank and securities like securities, capital and cards. Can you tell us about the RWA allocation and RORWA as well? If you can share it with us, it would be greatly appreciated. Secondly, we have the efficiency making the capital ratio more efficient. So I think there is some deregulation trend. So that -- I think that probably has been reflected in your second half. So can you tell us about the reflection of those changes? Operator: We will hold and then we will soon answer your question. Sang-Rok Na: Thank you very much for the insightful questions. Related to the capital ratio predictions, as you have mentioned, there has been the rationalization of capital regulations. There are some positive aspects stemming from that. However, the FX rate trend and ELS, the fees and other productive finance products are increasing. So I think there are plus factors and minus factors that are mixed in. So I believe that regarding the impact of these policies, I believe that it will not happen very short term, but I think everything will be mixed and offset. So this will be all mixed together. And from last year, we have been emphasizing that our goal is to -- in capital ratio management to have a very stable management and continuous flow, so that is our goal going forward. So we will do our best with that goal in mind. So that is something that I wanted to mention in the beginning. And regarding the RWA allocation, well, I don't think that I can answer that to you in detail right now. But regarding our group's RWA, 70% is for the bank and 15% is for securities. And I think for the rest, 15% or so, we have capital and other subsidiaries that are actually spreading it around. And for RORWA and ROE, well, when we try to compare those indicators for securities and asset management and capital, for those related to financial investment rather than group ROE, group's RORWA, you can see that it is managed at a higher level. And recently, the bank's RORWA or ROE, well, we have the group's ROE also that has been greatly improved. So I hope that will answer your question. Operator: The next question is from Jun-Sup Jung from NH Securities. Jun-Sup Jung: This is Jun-Sup Jung from NH Securities. I have 2 questions in total. The first one is with regards to the efficiency of capital ratio and the plans to achieve that and the capacity you have on hand. So the CET1 ratio, I think definitely has a lot of pressure and potential for upside. Of course, there will be an impact from your earnings, but also impact from regulations as well. So as of Q2 end, the increase -- standing of 13.5% CET1 ratio is quite positive, but then there is going to be a shareholder buyback and additional cancellation of shares that would have an impact on that. So I would like to ask for your plan and commitment to -- with regards to maintaining that number. And the second question is with regards to the role of the nonbank subsidiaries. The increase in RWA, I would like to know the group-wide strategy that you have. So for example, [indiscernible], is it to maintain that at current levels and for securities to increase the portion of RWA. Do you have an internal strategy? If so, please provide some more information. Operator: Yes, please allow some time to ask the questions and prepare the answers. Sang-Rok Na: Yes, I would like to answer the question now. As you asked, with regards to our shareholder return policy, it's 13% and to have the surplus earnings and use that for the shareholder return policy, the exceeding amount. And from 2 years ago, we have been committed to execute this strategy. And this year, this holds steady as well. Compared to other companies, we would say we don't have an internal number target, but we have a logic and a system-wide number, and we provide that as a result of our shareholder return, and we will continue to carry out such commitment and efforts. And as you asked, in terms of the role of the nonbank subsidiaries, of course, it is quite important and compared to the peer groups, we have the highest contribution from the nonbank subsidiaries at the moment. And as of now, we would say we have a complete portfolio, and we are trying to accelerate the growth engine, and we are at that phase now. In terms of the RWA allocation, what I can say from a group perspective, RORWA and ROE, the ones that are lower than that, we would try to reduce the capital and also recover more. And for banks in line with the expansion of productive finance, we are looking at overall profitability and securing additional customers and securing future growth potential, focusing on SMEs and productive finance. So RWA allocation will be allocated more towards that. I think for banks, though, it's not going to be that we're going to reduce and downsize RWA as a whole, but we're looking at the role of our expanded presence in the capital markets and also our expanded contribution for productive finance to set and execute our RWA allocation strategy. For securities, there was a paid-in capital increase of KRW 700 billion. And as of last year, ROE of securities was higher than the group, and it was improved at that level. And recently, we're expecting that there will be continuous improvement. There was additional capital injected as a result. So for growth areas, we will say that RWA will be increased further for such growth areas. So overall, the principle will be, as I mentioned before, it is kind of repetitive. But for areas that are expected to show growth and are showing high profitability, we will allocate more RWA, and that principle will continue to be upheld. Operator: We will take the next question from Mirae Asset Securities, Jeong Tae Joon. Tae Joon Jeong: I'm Jeong Tae Joon from Mirae Asset Securities. I have one question. So you see NIM that is actually on an upward trend and other positive numbers. And for the margin guidance, can you talk about any new guidance news that you might have? Sang-Rok Na: Regarding the bank NIM, maybe I can answer the question. In Q1 for bank NIM, 1.77%. And compared to the previous quarter, 2 bps increase. So the market rate has gone up, and you can see household loan profitability has been on a rebound. So for high interest rate, time deposits, we had that funding, but through rebalancing, we had the funding structure that was made more even. And when we made a prediction last year, we thought that the [indiscernible] rate, it would go down is -- was our prediction. But recently looking at the base interest rate, I think increasing it is coming up. So compared to our plans last year, I think that it will probably have a slight increase and end there. Operator: Next question is from Do Ha Kim, Hanwha Investment & Securities. Do Ha Kim: Yes. Thank you f or the opportunity to ask a question. So I think the questions are regarding CET1 a lot. I think this is probably the most important number that we look at. So we are looking at that for future guidance. I think for RWA in Q1, you said the FX impact was KRW 4 trillion, 1.1%. So if we do a simple calculation, the FX impact was about 15 bps negative to the profitability. So this kind of sensitivity, would that be the right number to take into account for the impact? And for Q1, the Basel III capital recognition related requirements and the RWA down impact as of that, I think you did also cover that. But for Q1, the specific numbers were not released. So the RWA Q2, the external factors, of course, not the FX impact, but what would be the external factors for investors to look out for? And it would be great to have that in reference for us to look out for the second half. And next question is quite similar to the one asked before, the NPL coverage ratio in Q1, it has come down significantly about Q-o-Q 20%. And it is above 120% recently. Of course, it's not necessary to be as high as COVID. But compared to the recent levels, it's not at a high level as of now. So are we going to record additional provisioning for this? Or is there any expectation or a factor that you think that will contribute to the downward pressure on the NPL ratio? Operator: So please wait a bit, while we prepare to answer your question. Sang-Rok Na: So I think 2 questions in total regarding RWA, and the NPL coverage ratio downward trend. So first on the RWA. So as you mentioned, the FX impact in terms of the CET1 ratio was about 19 bps in the first half. So in Q2, Q3 and Q4, there has been a lot of downsizing to the potential for growth throughout the year. However, despite that, the downward impact is -- majority is driven by the FX impact. So the RWA related sensitivity, we're trying a lot to try to reduce that. So for example, the over-the-counter derivatives, managing the duration and a lot of the maturity and duration related efforts are being taken to reduce the sensitivity. And on top of that, data refinement, portfolio rebalancing, additional RWA leverage options and plans are underway. As you mentioned, so additional rationalization of the capital ratio, there is not a lot of room of buffer we have, but we do have some room. So with regards to RWA, I think that would be the extent I could answer now. And in terms of the NPL coverage ratio, on a continuous basis, we have maintained quite a cautious stance in terms of provisioning and we have maintained a high CCR as a result. And managing NPL, we have been quite aggressive in rebalancing of it. Moving forward, we will continue to remain conservative in our provisioning stance. But what is of more focus now is reducing the NPL with active write-off and sell-off and an exit strategy for the existing real estate exposures we have. We will try to actively reduce our NPLs and have that ultimately improve the NPL coverage ratio as well. Operator: We will take the next question. From HSBC Securities, we have Won Jaewoong. Jaewoong Won: Despite a challenging environment, thank you very much for the great results. I have 2 questions. The first question is operational risk RWA deregulation. And I know that this was -- is applied to you. And I think in 2024, maybe 2 years ago, there was ELS-related operational risk that you had accumulated. So at that time, when it's deregulated, then in 2027, how much of CET1 improvement would you enjoy? If you can explain that positive impact, it will be greatly appreciated. And second question is for KB Kookmin Bank and to my recollection, I think you had actually turned the profit from last year. There were great improvements. So for this year, including KB Kookmin Bank for overseas earnings contribution or increase of their profit. Can you share it with us? Operator: Please hold and we will soon answer your questions. Unknown Executive: Regarding ELS, operational risks and RWA loss recognition exemption. You asked about the impact. And at that time, there was about KRW 745 billion voluntary compensation that we paid to the customers. So that is actually earmarked as losses. But in the first half of next year, if it is recognized, then there will be 20 bps positive impact on CET1. Sang-Rok Na: Yes, I'm the CFO. Regarding the question regarding RWA. Maybe I can add a little more to my answer. So we're doing a lot of the work to reduce the sensitivity to foreign exchange rate. So we talked about 15 bps of sensitivity that was mentioned by Do Ha Kim, and there are the fines that it's not actually confirmed yet, the amount. So I think we will have to reconsider how much of the finder penalties will be derived. And we believe that we have KRW 97 billion that has been recognized, we're provisioning for that amount. And related to the optimization or rationalization of capital regulations, well, regarding, I think, the details of that, it hasn't been finalized. So we are talking with the regulators regarding this. So we cannot really pinpoint a clear-cut answer to that. So I hope for your kind understanding and for the past ELS-related operational risk, well, as our CRO just mentioned, from next year, I believe that it will be gradually reflected. In the case of Bukopin and Global about the contribution to our earnings, Bukopin had restructuring for many years until now. And their IT system was upgraded. So now we have set a strong foundation so that the operational base has been laid very firm. And regarding the acquisition of CASA deposits, we are doing our best to reduce funding costs and there's the Korea desk. So we are doing wholesale retail that actually is being done. And we cannot really say that it will improve in a significant percentage, but you can see that the profit contribution of the Global was about 5% last year. And this year, we believe that it will be hike up to maybe 6% to 7% and we have a very prudent prediction that it may raise to that level this year. Operator: Next, it's from Jihyun Cho from JPMorgan. . Jihyun Cho: Well, thank you for the opportunity to ask questions. So I think definitely, the fee income was increased considerably. And at the early start of the year, I think NIM, you said the guidance was quite conservative, and thus saw a slight increase, was the comment that you provided. In 2026, in terms of guidance, the loan growth of 5% and household loan 2.2% to 3% as I recall. I think if we look at Q1, and if you look at the overall market environment, the loan growth target of 5%, is this sustainable? And the SG&A it did increase by 10%. I think early start of the year, the guidance was 4%. So is this at a manageable level? And in Q1, most importantly, the credit cost was around 40% at bps level. And considering inflation and the macro environment overall, I do think there will be some time lag and the credit cost, so the 40 bps early in that range, is this going to be attainable. So could you provide guidance on the credit cost? Does it need to be upwardly revised? Operator: Please allow some time for us to prepare for the answer. Unknown Executive: Yes. In terms of loan growth, the bank's CFO will provide an answer for you. And the CCR guidance and projections, our CRO, will provide an answer. So after that, I will also follow up with some additional answers. Sang-Rok Na: So in terms of loan asset growth, so as of end of March, Korean won loan balance was an increase of 0.4% compared to year-end. And in terms of household loan compared to year-end, it was a decrease of 0.4% and corporate loans was an increase of 2.2%. So as you well know, in terms of household loans, there is the total cap, and it's linked to such policies and directions, which does present us with some restrictions. However, within the cap, we are trying to leverage how we can increase our loan book, and there are the policy loans, the [indiscernible] loans that is provided to the young population and the elderly population. So we are trying to increase that portion. So the household loan is targeted to increase by 1% to 2%. In terms of corporate loans, so under the productive finance direction, so we're expecting a growth of 6% to 7%, and that is our target. So of course, there's going to be intensified competition to attract corporate loans. So in line with the productive finance, we will be preemptive in our efforts to try to convert to our growth momentum and diversify our portfolio to secure future growth areas. And for SMEs, loans, we will also follow the productive finance to focus on prime assets. And for SOHO, we will be quite selective to have an adequate level of growth there as well. So in total, we would say for household loan, growth target is 1% to 2%, corporate loans is about 6% to 7%. So for the bank as a whole, the credit growth is on average expected to be around 4% in our target for the year. And with regards to credit loss provisions. So as you mentioned in Q1, we have had the conservative stance in terms of provisioning and the qualitative improvement in our portfolio and this materialized. And despite the declining numbers in our NPL and such, we have remained a CCR of around 40%. But with the Middle East war and with that the high pressure on the FX rate and such, this could pose additional impact on our asset quality. So in the future, we will continue to -- and we do think it's necessary to maintain a conservative provisioning stance. Despite that, for the ones that we view with as vulnerable borrowers with a considerable risk for loss, we will have preventive provisioning for NPL. And for the existing real estate projects, if possible, we will have a sufficient loss absorption capacity for restructuring and also sell off to reduce our distress and potential exposure. And if so, the 40 bps, mid -- early to mid level of that is thought to be attainable as of now. So we currently hold that to be the same as now. And in terms of SG&A, you asked about the upward pressure on that part and I think as you know, for education tax and corporate tax, the tax rate was increased and the G&A was increased as a result. And in addition to that, securities and banks, we did have very solid performance and definitely from securities, very strong earnings. So the actual adjustments made to the bonus and such, we did have to reflect that accordingly, and that resulted in increase in G&A. So if there is an increase in the G&A, of course, this is attributable to the top line growth that we have. So we would say we are trying to manage it within the overall group level and continue our efforts for cost optimization. And if that does not undermine our cost efficiency target in plans, we do believe that it is at a manageable sustainable level. So considering the tax increase rate impact and also the strong earnings leading to additional set aside of bonus and such related payments, we do believe that the range of the SG&A increase is continued going to be -- continue to be at a manageable level. Operator: Thank you very much for your answer. There are no questions in the queue for now. So we will wait to see if other questions come in. Bong Kwon: It seems that about 40 minutes has passed since we started our earnings presentation. If you have any further questions, please contact our IR department, and we'll be happy to provide you with answers. Because we have no questions in the queue, we will conclude 2021 (sic) [ 2026 ] Q1 business results presentation. Thank you for your attention. .
Leszek Iwaszko: Good morning. Thank you for standing by, and let me welcome you to Orange Polska conference call in which we will summarize our results in the first quarter of 2026. My name is Leszek Iwaszko, and I'm in charge of Investor Relations. The format of the call will be a presentation by the management team followed by a Q&A session. Speakers for today will be our CEO, Liudmila Climoc; and CFO, Jacek Kunicki. Let me now pass the floor to Liudmila to begin the presentation. Liudmila Climoc: Thank you, Leszek. Good morning, and welcome to our conference summarizing first quarter of 2026. I will start with Slide 4. I'm very happy to report that we have started the year very well, both commercially and financially. Our commercial performance was solid as we achieved healthy growth of customer bases and ARPO across all subscription services. I'm particularly pleased that in the third quarter, Orange was a leader in mobile number portability. This is a big advantage [ to ] our competitors. Moreover, in line with our balanced volume value approach, we uplifted prices for all our services in first quarter, which will fuel our growth for future. It was also another good quarter for our wholesale operations. We generated a very solid 6% revenue growth despite the multiyear national roaming contract, which is now over as from beginning of 2026. And we also see a very good pipeline for Q2. It confirms that wholesale is our strategic growth engine complementing our retail operations and improving our risk profile. Our financial results were outstanding as we closed the quarter with close to 10% EBITDA -- EBITDAaL growth and significant improvement in cash generation. And I propose to zoom on highlights of our commercial activity on the next slide. So our commercial performance, commenting on it for first quarter, reflected very strong customer demand and our focus on value as well as intensive market competition, especially in fiber. In convergence, both customer volumes and ARPO grew at a good pace, with 4% growth of customer base, which is in line with a run rate that we projected in Lead the Future strategy. This ARPO increasing by more than 4%, benefiting from our value approach and pricing, with good demand for content and popularity of higher-speed packages -- fiber packages. Fiber customer base increased 10% year-on-year. It is a very good dynamic considering intensive and diverse competitive landscape. Fixed broadband ARPO is up with 3.7% year-on-year, which reflects a solid growth, which is normalized after an exceptional performance in 2025. Mobile had another strong quarter, with net customer additions of above 70,000. As I already mentioned, for the first time in a few years, we were the winner of number portability by a big advantage. The win was driven by our main Orange brand on the consumer market in postpaid and prepaid. But also Nju, our B brand Nju and Flex were strongly contributing. We achieved this, thanks to a combination of both local marketing actions with our superior connectivity and comprehensive service. Mobile ARPO continues to reflect 5% growth of the main brand and the change in the mix of customer base towards lower ARPO in B brands. These are very solid results achieved despite challenging competitive environment. Successful commercial activity is our main priority, is an anchor of our Lead the Future strategy and value creation. And we are -- we have quite a busy commercial agenda for second quarter. So you need to stay tuned. Thank you. As for now, and I hand over the floor to Jacek. Jacek Kunicki: Thank you, Liudmila. Good morning, everyone. Let's start the financial review on Slide 7 with the highlights of our performance. Our financial results in the first quarter were excellent across the board. Revenues increased almost 3%, driven by solid core telco and wholesale dynamics. The EBITDA grew by 9.5% year-over-year. Its outstanding dynamics reflect a strong underlying growth as well as a onetime gain from VAT relief for prior year's bad debt. The net income reached almost PLN 300 million in Q1, growing by over 50% year-on-year. It was driven up by strong EBITDA and by high gain on real estate disposal. Next, PLN 300 million eCapEx figure for Q1 reflects a slow start of investments due to harsh weather conditions in winter as well as the already mentioned proceeds from high property disposals. Finally, the organic cash flow improved by PLN 175 million year-on-year due to the strong EBITDA growth combined with lower CapEx. Q1 naturally reflects a seasonally high working capital requirement. So it is the year-on-year comparison that really matters. And this quarter, it is very strong. Let's now review our Q1 results in more detail, starting with the top line. Q1 revenues grew 3% year-over-year, fueled by progress in all key business lines. Revenues from core telecom services increased by nearly 5% year-on-year, and this is in line with our expectations. I will break this item down into 2 elements so that we have a proper understanding of the trend. Firstly, all postpaid services, so convergence, fixed broadband and mobile postpaid, their combined revenues grew nearly 6% year-on-year, so exactly as much as in the prior period. We're keeping a very solid trend. This was fueled by a consistent growth of their customer bases and their respective ARPOs. Secondly, prepaid, where we record just over PLN 200 million of quarterly revenues. The dynamics have naturally slowed down versus the elevated trends that we recorded in 2025. And just to bring this into the perspective, prepaid revenue dynamics were usually flat to negative as customers progressively migrate to postpaid. However, in 2025, we lifted prepaid revenue to a double-digit percentage year-over-year growth, with price hikes for almost the entire customer base that were done in Q1 of 2025. This is highly value accretive as most of these additional revenues are now recurrent. However, we are now measuring the year-on-year progress versus a much higher comparable base, and prepaid is back to its flattish growth status, however, on the increased level. Then revenues from wholesale posted a solid 6% year-over-year growth despite the end of the national roaming contract. Here, we benefited from the fiber backhaul deal signed in H2 of 2025, although its contribution was much lower than in Q4 of last year. We benefited from infrastructure rental services as well as from a consistent 40% year-on-year growth in the number of fiber accesses that we sell through our wholesale customers. Finally, revenues from IT&IS have increased by 7% due to higher value of integration and networking projects realized by the B2B. To sum up on the revenues, we are satisfied with the pace of revenue growth in Q1. Secondly, we see good prospects for Q2 in the key lines of business, with strong trends in the B2C and solid project pipelines, both in the B2B and wholesale areas. Let's now take a look at profitability on Slide 9. Our Q1 EBITDA increased by an outstanding 9.5% year-on-year. It is driven by a 6% underlying growth, reflecting strong business trends. Our direct margin grew by 4.5% year-over-year, benefiting from a strong growth of core telecom services, wholesale and IT&IS. We're pleased with a very solid dynamics in the B2C and with the improving trends of margin in B2B, where margin recovery is amongst our top priorities for 2026. We've also built up an encouraging pipeline of projects for the second quarter, both in the B2B area and in wholesale. These are strong assets in face of an unstable macro and supply environment, so we are optimistic ahead of Q2. Our indirect costs were flat year-over-year, preserving our high operating leverage. We benefited from efficiency gains in network operations, in the employment optimization and lower cost of property maintenance. Our transformation program is accelerating, and so we should enjoy its further benefits in the future. Apart of the strong underlying performance, the EBITDA has also benefited from a PLN 28 million onetime gain related to the VAT relief on prior year's bad debts. Let me briefly explain this last item as well as its consequences. So we sell overdue receivables through factoring. So far, we were paying the nominal amount of VAT on these despite selling them below face price value. We have obtained a favorable court ruling, and we can now pay VAT in proportion to what we recovered through factoring. As a result, we have recovered the overpaid VAT for 2019 and 2020. There is an additional PLN 45 million more to be recovered over the course of the next 2 to 3 years. As a consequence, we've also modified our VAT settlements for current bad debts and adjusted our balance sheet accordingly. Finally, from Q1 onwards, we're also recognizing slightly lower bad debt costs in the current P&L. As a takeaway, we are pleased with the Q1 EBITDA. What is particularly encouraging are strong underlying trends and the commercial pipeline that we have developed for Q2. We are now clearly aiming at the upper end of the 2026 EBITDA guidance. Thank you, and I hand the floor back to Liudmila. Liudmila Climoc: Thank you, Jacek. Let me summarize and present you our focus for next month. So as you see, we've started the year very well. We are happy with our commercial and financial performance in first quarter. It provides us with strong momentum towards the achievement of our annual ambitions and further growth of shareholder value. We remain committed to disciplined execution of Lead the Future strategy. In the coming months, we focus on busy commercial agenda to prepare further value creation actions in B2C, for consumer line of business, and we have valuable projects to be delivered in enterprise, in B2B and in wholesale. In B2B, we are implementing a new operating model that is grouping all our IT&IS competencies under one roof in order to unlock more potential. On cost transformation as well, we are progressing well. Every quarter is fueled by new initiatives, and we are also shifting our focus to identify new projects that will give it another boost in 2027. So with good prospects ahead, we have high confidence to deliver full year guidance in the second year of our 4-year strategy, even if a market environment is demanding and volatile. So that's all from us. And now we are ready to take your questions. Leszek Iwaszko: Thank you. So we are switching to Q&A session. [Operator Instructions] We have a first question coming -- voice question coming from Dawid Gorzynski from PKO. Dawid Gorzynski: Congratulations on this excellent results. I have 3 questions actually. So maybe just read all of them. Firstly, I'm curious how much you are advanced right now? Maybe in like percentage terms in your cost transformation process, how much is still left for next quarters? Second question on other operating income. It was at a bit elevated level compared to previous quarters. And I wonder if that included maybe higher margin from FiberCo contract or maybe higher copper sales? And last question on CapEx. If you may quantify what was the impact of poor weather? Like to what extent the CapEx was lower because of that reason in the first quarter? Jacek Kunicki: Thank you for those. Dawid, on CapEx, I would assume that the weather impact is roughly about, let's say, PLN 70 million. That would be my best guess as to the impact on the postponement of certain projects due to weather because it's mostly connected -- well, it mostly affected January and February. So around PLN 70 million. On the other operating income net, what you will see is you will see other operating income at PLN 111 million in Q1 2026, which actually is very close to what we have recorded for Q1 of 2025, where it was PLN 106 million. It is indeed higher than the Q4 2025, where we had PLN 95 million of other operating income net. When I analyze the reasons for this, we have broadly the same impact between the 3 different quarters of the relationship with the FiberCo, so no real change here. Then there is an impact of a greater sale of copper in Q1 because this is the quarter where we usually sell more of copper. So no impact year-over-year. It is the same figure. However, this could be something around PLN 30 million impact if you compare Q1 to Q4. And then this is offset by about, I would say, up to PLN 20 million negative impact of the difference in ForEx and derivatives valuation, which were positive in Q4 2025 and slightly negative in Q1 2026. So it's most -- if you compare Q-on-Q, it's mostly the sale of copper, offset by a different timing of -- different impact of derivatives. And then for the cost transformation, it's difficult to be quantified in percentage terms, because I would need to -- I mean the impact of the transfer, at least in some categories, it is happening rather similarly in each of the years. What we are doing is we are attempting to be at least PLN 100 million greater impact of transfer for 2026, I would say, net-net, versus 2025. And here, this is, I would say, well advanced. But the impact of transformation needs to be viewed, I think, as the -- in the context of all other items that are basically affecting the cost base. So what we are aiming ultimately is to try and keep indirect costs flattish or flat year-over-year. This is the -- I would say, strategic ambition, and the transformation plan is definitely helping towards this goal. And so you will -- I think the best way to judge our progress with this regard is to look at the level of indirect costs year-over-year, quarter after quarter, and each time that we can be relatively flat or flattish a part of the different one-offs that we have, then this means we are rather achieving the objectives. I think that would be my way of trying to quantify because any other way, it just involves the gross value of initiatives while you have also some other factors, some cost indexation, you have, obviously, the pay rises that are happening. You have the holiday pay provision, which is different between the different quarters. You have the share-based payments, which are depending on the share price. And so ultimately, what we're trying to do, let's keep cost base -- indirect cost base flattish a part of the -- those major one-offs. Leszek Iwaszko: The next question is coming from Pawel Puchalski from, I guess, it's still Santander. Pawel Puchalski: Hello. Can you hear me? Jacek Kunicki: Yes. Yes, go ahead. Pawel Puchalski: Okay. Hello, everyone. I've got a couple of questions. Let's start with VAT relief. Specifically, you mentioned its tax relief for year 2019, '20. My question would be, shall we expect the same scale of VAT relief awaiting for us -- for you to be presented as positive one-offs for years 2021, '25? And could you potentially deliver those in year 2026 or maybe it's scheduled for a later period? And later onwards, I would like to know where are you aiming at growth of your core telco by year-end? Now we see that plus 4.8% year-on-year. My question, what is your best guess for Orange Polska core telco growth year-on-year in quarter 4? I would like to know the dynamics. And well, just a different -- very different question. Well, if there was any major telco for sale in Poland, would you be interested? And would you acquire one just like it is the case in France presently? Jacek Kunicki: Thank you very much for your questions, Pawel. Always a pleasure. So starting with the VAT relief. I think there are few consequences of this. So a part of the one-off that we have clearly mentioned, we have, first of all, around PLN 45 million of bad debt relief for prior years still to be recovered, okay? We expect this to be recovered over the course of the next 2 to 3 years. And it is -- some of it may actually still happen this year. We never know. It really depends on the stance of the tax authorities towards the specific cohorts because each year is a cohort, so towards specific years and the declarations that we have filed. And also on the court proceedings, which are still ongoing regarding part of these amounts. So while we are rather confident that we should be able to recover this PLN 45 million, it is not virtually certain today, so I would not be able to recognize it as an asset today. And it could take up to 3 years, I think, for most of these amounts to be recovered, knowing that our legislative system is less than predictable. But this is the amount and the timing. I think on top of that, we will have a small impact, something like PLN 2 million to PLN 3 million per quarter where our bad debts, our ongoing recurring bad debts should be lower than recognized historically. And then -- so I think that is regarding VAT, unless something is still not clear. In which case, please do probe. For the core telco services, I would say the following: the 4.8% would be my assumption of our current run rate. So if you ask me today what would be my best guess for Q2, not Q4, but for Q2, it would be roughly 4.8%. However, as Liudmila mentioned, we have a few items on our commercial agenda, on the details of which, obviously, I will not elaborate on. And it just shows you that we continuously work to initiate new actions that would exert upward pressure on this trend. Now of course, the success of this depends on the execution, depends on customer response and depends on the competition. Hence, I am not as precise as to say if this is what exactly this will be by year-end. But Q2, I would expect 4.8% because prepaid is more or less at its new norm. And then regarding telco for sale, I would assume -- no, we will not comment on M&As right now, and it's not something that you will have us commenting on a hypothetical situation. Leszek Iwaszko: Thanks. Next question is coming from the line of Ali Naqvi from HSBC. Ali Naqvi: It seems like the ICT or B2B sales had a bit of an inflection point in the quarter. Can you give us an outlook for the remainder of the year? And just in terms of the legacy business, the decline in there, is that first quarter of proxy as well for the balance of the year? And similarly, could you just explain what's going on with equipment sales, please? That would be great. Jacek Kunicki: So it's ICT, it's equipment and legacy. I guess, legacy, it's more or less in a stable trend of a decline. It's honestly nothing major for us that I would see today in terms of a change of trend in any way. Regarding equipment, because this was your second question. So here, what we have is we actually have less equipment revenues in the B2B line of business. And it's mostly got to do with the choice of both the customers but also availability of handsets. We had less high-end handsets being sold in Q1 in comparison to the Q1 of the previous year. And so the volumes were, I would say, not out of the ordinary. The pricing, at least on the B2C side was exactly the same as -- well, it was close to the average unit price of the previous year. It was mostly the mix of handsets for the B2B sector. And then regarding the IT&IS, I think what is -- I mean this is highly volatile revenue stream, obviously, because it is project based. Today, it is obviously, on the one hand, benefiting from a continued underlying strong demand in Poland for the digitalization and also from our own actions. It is, I would say, even less easy to be predicted as we know that the environment around both pricing and availability of the memory chips is very volatile. So in some cases, we're actually figuring out how to address the demand knowing that the supply side is extremely volatile. So it is less easy to be predicted, I would say, on the quarter-per-quarter basis. What we do expect in terms of IT&IS is 5% to 7% compound annual growth rate of those revenues between now and 2028. And I think we will need to -- and we strive to keep within this range of revenue growth, keeping an eye on the profitability as well. So making sure that this is not entirely achieved through very low margin activity, such as license resale, but that we have a solid mix of networking, integration, IT projects, but IT development projects, some cyber attack and cloud-based solutions to drive the margin as well as the revenue growth. So I think we need to keep an eye on this 5% to 7% CAGR. Ali Naqvi: Maybe just expanding on that then. Is there any risk that -- is the situation with memory chips and the inflation on the supply side, does that sort of derail your longer-term guidance in any way? Or is there any way that you can manage that? Jacek Kunicki: I think, honestly, the -- our colleagues on the ICT side have proven again and again extremely resilient and being able to adapt. And as this is project based and it will concern the whole industry, I'm very confident that even if we have a slowdown in this part of the activity, we will be able to exploit some other demand area and continue with the growth of both top line and the bottom line over the long-term horizon. And anyway, I think even with the memory chip crisis, while this may be an extremely volatile situation this year, it's -- and -- I mean it's hard to imagine this kind of volatility persisting for the 3 or 4 years. We might have the chips being less available or available at higher prices. But it's a different situation versus the -- what we have today, where the prices of the chips are highly fluctuating between one day and another. And I would say pricing might be elevated, in which case, it will affect the entire market. But still, it will not, I don't think it will affect the demand. But the price stability, if you think 3 years down the line, it is something that will not stay as volatile as we see it today. Liudmila Climoc: Normally, it should correct during next quarters. Leszek Iwaszko: We have no more voice questions. We have 2 questions from us -- that came to us as a text. And first from [indiscernible] pension fund. A question that we've already answered, but I will read it. In France, we are observing consolidation process on telecom market when Orange is taking part. Do you see such a possibility on Polish market? So I guess we do not comment on that. One, and there is a type of questions on -- from Piotr Raciborski from Wood & Company. The first one is referring to what we said is you're asking the guided 4% to 8% underlying growth rate in Q2 2026, do you mean sales or EBITDA? That's the first question. And the second question is on ICT. Does Orange see stronger demand on ICT from public segment in face of national recovery and resilience plan fund inflow in 2026. Liudmila Climoc: So maybe we'll start with a second question on linked with IT&IS opportunities and funds coming from different EU projects, EU funds. Obviously, we are -- there is an ongoing pipe of projects in which we are taking an active part. So we are quite optimistic, but at the same time, we are moderate linked with what has been just said with current memory chip crisis. So yes, projects are coming, prospects are there. We are participating actively, and we have very strong legitimacy to winning these projects as we are very strong in our IT&IS capabilities, cloud, cybersecurity, integration services. But main questions for short-term, very short-term, is how the tenders will go, whether we will be able -- or market will be able to respond in the required terms knowing that sometimes pricing for equipment is valid for days or for 1 week or 2 weeks, while public acquisition process usually has taken much more time as we're going through mandatory stages. So in short-term, this can be the main -- is current main disturbance to the process, which we expect it will be somehow settled during next coming months because the market will learn how to respond to this price volatility, what offers validities will be coming. So yes, now volatility is high, which is impacting also like projects, but normally, it should be settling down. Jacek Kunicki: And on the 4% to 8%, I think you have misheard. It was 4.8% that we were speaking about in terms of the expected growth rate for core telco revenues in Q2, not EBITDA. Obviously, we expect EBITDA growth in Q2. Obviously, for the full year, the guidance is 3% to 5% growth. I think we can clearly say we've had a great start. We're aiming at the high end of this guidance. And I think it's fair to say, we will monitor how successful will be in Q2. So what level of growth of EBITDA we get in Q2. And we will monitor the prospects that we will have for H2. So when we meet the next time in July, I do believe we will be in a much better situation to make any judgment on how we see H2 and the full year. I think that is -- but the question was 4.8% core telco revenue growth year-on-year expected in Q2. Leszek Iwaszko: Thank you. We have no more questions. Thanks for the call. And if you -- I repeat it every time, but if you would like to meet us, talk to us, just give us a note. Otherwise, see you in July. Thank you. Have a good day. Bye. Jacek Kunicki: Thank you very much. Liudmila Climoc: Thank you.
Henrik Høye: Hello, and welcome to the presentation of the first quarter 2026 results for Protector. We always start with all the employees. And just before we started now, there was a moment of silence, and that was the same when we started with the employees. And then I had a conversation with some people on the first row about -- and I said that I'm quite good at awkward silence. And the reason why I'm good at awkward silence is because I'm bad at small talk. So I'm not uncomfortable when it's quiet for a couple of minutes right before we start. But what we did focus on in that session is about our vision for 2030. In March, we met, it was about 550 out of 700 people in Oslo to discuss, have workshops on 3 elements that are part of our vision for 2030. And the first one is about people. The second one is about data and third one is about innovation. And it's about thinking differently. Back in 2021, we came out of a situation of poor profitability and that we needed more discipline in our underwriting and our profitability focus. And then we decided that growth was something that had to come second. It still is. Profitability is first. But we can now with a stronger basis, stronger profitability basis, have been more bold and have higher ambitions also when it comes to growth going forward. So a lot about -- a lot of it is about being the challenger and redefining what the challenger is in 2030. It is something else than what it was before and what it is today. The sector is developing. We're growing and the world around us is developing. And in that technology and AI is very important. And we have 2 targets, and they are the same as they were in 2025 for 2026. One is profitable growth. That will always be there. The other one is data. Last year, we focused on measuring data points and following up. So we have targets on data points. This year, we're shifting the focus to the value of that data. So we need to get something out of the data. An example can be that we want more recourse on the claims handling side, then we need better data in order to get more recourse or on the underwriting side, we want more relevant and bigger inbox from the brokers, and we want to quote more of that volume. The market history shows that's more about the market. So let's not target that, but we want to see more relevant business. Then we need more data to provide to the brokers, and we need to be the best one at providing data to the brokers in order to get to that place. So -- and then obviously, using AI will not be any value if we don't have good data. So that's a prerequisite for getting value out of all the projects we have. And we have solutions and functionality with AI technology in Protector today. There are examples in claims handling and in underwriting and all employees use it on a daily basis to become more efficient, but we're yet to find the way of really changing the way we work. And one focus area we've had is that if you're good at something, when you've done a process many, many, many times and you are to improve that process, you do it with incremental improvements because you know how it's done. But what's important when you have a technology that can support you in creating higher value is to think about where you want to go. And that's actually quite difficult if you're good at doing the process. So I think that we are very good at -- we have good processes, and we are good at following those processes. But that makes us -- it's a big change to say this is where I want to go. And that's where we need to be in order to make change. So we're focusing on the outcome and the target. And then we start seeing some change, some different approaches to how we do things. But it's a big focus. We're still investing and it hurts and it costs to increase data quality, quantity, structure and availability. And it costs resources and money to test and fail with AI solutions many times. But it's very interesting, and it is a great opportunity to understand our culture in a new way and a better way. Okay. That was this morning and some insight into the cultural part, which is extremely important in Protector. The first quarter is -- the growth has been basically announced previously after the quarter 4 when we talked about 1st of January. And what you can see is that the number is lower, meaning that February and March are lower than the January figure was, and that's true for basically all countries, except for the U.K. Combined ratio is very strong. I'll get back to that because you need to normalize it. There are very few large losses there. And maybe the most important figure here is the one that comes from the U.K., and I'll get back to that when I talk about the volume and the growth later on. One information here, we always really -- since we only work with insurance brokers, we have defined quality together with the brokers, and we do broker satisfaction surveys. And in new markets, we have always done it 18 months after the first policy in sets. And in France, we have now -- we're not 18 months in, but close to 18 months in. We've conducted our first survey, and we have very good results from that survey, both on the general sales underwriting service and on claims handling, the brokers we work with because we only send it to the ones we work with. So the others don't really have a lot of feedback to us. So that's 40-something brokers that have responded to this survey. So fairly small. It's very early. So the first survey, you don't -- we haven't had the opportunities to make many mistakes. But it is an indication that what we have delivered during those first 13, 14, 15 months is something that the brokers appreciate more than what the competitors have delivered. So it's a good start, but let's see when we do the next one, and it's even more important further down the line. So to the volume. And I'll spend the time on 1st of April U.K. because I think that's quite important here. 1st of April 2023, we won a lot of business in public sector and housing in the U.K. The market was hard, meaning that the rates were higher. And some of that business has been out to tender, 1st of April 2026, but not a lot of it. So we've kept a lot of that volume in our books. And what has been out to tender, we have rewon approximately 80%. So that means that the portfolio that we have that has delivered and delivers very strong profitability is very stable in public sector and housing. And that could have been different. I've previously said that we don't know when our business, when our portfolio goes to market, if the rates are too low, we won't win it back or then we will lose it. And what is for sure is that the rates will go down when it goes out to market because the rates have fallen in the market in general. So we have a renewal rate in those sectors above 100%. That is that we're retaining most of the clients, and we have inflation and there is some exposure growth for those clients, and we even have some rate increases. So the rate is above 0. The rate, if you adjust for inflation, is above 0 in public sector and housing in total for 1st of April 2026, which is a very strong result, and it could have been very different. The new sales is another story. So the rates have been falling, and we have seen approximately half of the volume as we saw last year, which was similar to the year before. And we have quoted slightly less. So there have been some clients that we don't like, that we don't have risk appetite for. The hit ratio is slightly lower, very similar for local authorities, public sector and quite a lot lower on housing associations. So that's due to pricing. Competition coming back into the market and pricing being lower. So the result on public sector and housing is -- it's a very strong result, and it's driven by that not a lot of volume has been out in the market and that we have had discipline in the underwriting. And it's strong discipline to end up with this result. And then that's only the limited segment, public sector and housing. Commercial sector is much bigger. We have a much smaller market share. And so that's where the potential is large, and that's what's driving the growth. So that's where we have the new sales in 2026. It's still a softening market in the U.K., especially on property, but it's flattening out somewhat. So we are able to convert some of our quotes to wins more than what we have done before, and we're also quoting -- seeing more and quoting more. And then we have the real estate segment, which I have talked about before. We have opened that segment. But I've also said that I don't expect us to quote a lot of business before the fourth quarter of 2026. We are quoting some business both some in the smaller segment of the real estate segment and also some of the larger clients. What we see is that rates are low as in commercial sector for now, but we are converting some. So we have some hit ratio on what we are quoting. But don't expect a lot to come from that segment before -- or we don't expect to quote a lot before fourth quarter inceptions. And then the market will be what it is. So we may not win a lot in fourth quarter, but we are more confident today with more data and more knowledge about the real estate sector that this is a segment for us. So it's very similar to the housing sector where we have had very good success. So low deductibles and cost advantage is very important. I forgot to say before I started that -- I see that they're speaking in the front here. So I forgot to say that questions during the presentation are welcome and better during the presentation than keeping them all for after. So if you have any questions, the volume side. Unknown Analyst: [indiscernible] Just on the sort of lower-than-expected tenders out there, and I appreciate that being on the public sector and housing side. But do you have any reflections of why that is? Because just intuitively, given the -- all of the comments on price pressure and a softening market, if I were to sort of renew my insurance, it feels like this is the time to do it. But now instead, customers are sort of exercising their options to automatically renew on what seems to be a bit old terms. Why aren't more sort of using this opportunity? Is that a negative read to sort of expectations for the even better prices going forward? Or what are sort of your reflections on that? Henrik Høye: I mean we don't really know. But there are several reasons that drive it. And one is that some of the capacity -- the public sector housing is in a way, a bit of a strange market because it's mostly when new capacity comes in, it comes in through the existing incumbent insurers, Zurich Municipal is one very large player or it comes through MGAs. And these MGAs are not really -- they don't really necessarily have the credibility and the trust from the brokers to be place business with. So then they are waiting with bringing it out to market. the local authorities, they are looking to have a reform in the U.K. to merge some of the local authorities and become more efficient or at least that's the ambition. So they are -- there is some uncertainty there, which makes them honor the long-term agreements or an optional year in the long-term agreements. And then obviously, the insurers are doing a lot to keep the clients. So they're doing something on the renewal side in order to avoid competitions. And that's -- we do that and our competitors do that. So I think there are several reasons why you see that type of lower tender volume in the market. But at the same time, your last comment or assumption, that's an interesting one because we do have a -- we have higher uncertainty on inflation now, and it's a dangerous combo with softening rates and higher uncertainty, and it only goes one way, then on inflation. So to expect that the softening will continue in that type of an environment with post-COVID learnings not too far away, then at least I think that that's a way of discrediting the market and our competitors because the right thing to do would be to now change. Unknown Analyst: And just a quick follow-up on that. Let's just assume that those volumes are sort of rolled over to potentially coming out in 2027, both in terms of the market, but also your -- you mentioned sort of like the portfolio composition of a lot of volumes being won in '23 and '24. And given the sort of dynamics with 3- to 5-year contracts, will then '27 be sort of like a very important year with a lot of volumes, both from volumes being basically postponed into '27, but also on your portfolio with a lot of tenders and a lot of sort of contracts having to be renewed then in '27? Henrik Høye: So both '27, '28 and even '29 are important renewals of that portfolio. So it's -- in a way, we've talked about this before, and we have some estimates of how that volume will be tendered, but we don't know exactly. So -- but let's say that we expose 20% in '27 and maybe a bit more in '28. And then the rest -- we've had some exposed now, obviously, than the rest in '29. And then it depends on the market how that is. But -- but the rates we have from there, and this is also something I've said before, they are not something that we expect to be in the portfolio over time. So that will normalize. And in a way, that market -- those market conditions are better if you have a cost advantage when there is a bit tighter margin than when the margin is very high because then everyone earns money. We go to the claims side, and we like to focus on the risks and the opportunities for improvements. That's on motor this quarter. Obviously, one quarter is short, we write and say that you need to understand that quarterly volatility must be expected both ways when it comes to growth and profitability in Protector to see it over time. But it is a fact that the underlying realities, if you correct or if you adjust the claims ratio for first quarter '26 and compare it to an adjusted figure for first quarter 2025, it is a worsening. So that's a fact. The reason for it is motor. Motor is poor profitability. Property has a very strong and stable profitability, and that's our largest product. And there are not any other problem areas on the product side. So it's motor. So good news is that motor is very short tailed, so you see it very quickly. And it's also easy to understand that if you have many claims, more claims than you had last year as a client and the broker understands this and it's unprofitable, you can adjust prices. But what surprised us is that the claims inflation, which is not only prices, but also frequency increases was higher than what we have seen previously. So there is something that could be volatility. But the way we see it is that we don't think of it as volatility and bad luck in the first place. We first try to find out if there is a reason, if we can find the reason and if there is a systematic problem. So that's how we started. Parts of it, it's in particular from Norway and Denmark. That's where the worsening is the worst or the biggest. And we also grew -- we had a strong growth. 1st of January in Norway, in particular. And parts of that portfolio, the new portfolio is not performing well. So we need to understand if we've done mistakes there or if that also is some kind of coincident or volatility. So we're obviously already looking into it. And so there is something there that we need to understand. And there are actions we need to make. And in addition, you have more uncertainty on inflation going forward. So that's a focus area. But as I said, the good thing is that this is something that we see, we can quickly understand it, and we know it's possible to do something about it. And we also know that we have very good processes of doing something about it on a client level, which gives good results on renewal pricing and adjustments. But we're not very concerned about it. No change in risk appetite. We still believe that motor is an area where we should continue growing. Any questions on claims development? When you look at the time lines here, you see on the large loss side that it's -- we're not at the 8% that we now have as a normalized level, but we still believe that, that's a sensible normalized level. And on the runoff side, I have mentioned previously that best estimate is important for us, both on the case reserving and on the actuarial reserving. But coming from a period with more uncertainty, you can expect that, that uncertainty ends up on the conservative side. It could obviously go both ways, but that's some of what you're seeing now. On the cost side, which we haven't talked about, we talked about the growth and the claims development. On the cost side, there is a reduction. You'll see that broker commission is higher. That's because we grow in France where broker commission is higher. But if you adjust for that, it's a slightly bigger decrease from last year, but most of it is due to the share price reduction and the long-term bonus plan that we have talked about before that has gone the opposite way. So there's no real reduction in cost quarter-over-quarter. And again, that's investing in data and in AI. But obviously, at some point, we need to see that in the cost ratio. And I think there are good -- we have good solutions and good process improvements that have -- that will drive a reduction and scalability in -- on the cost ratio going forward. Investments, that's volatile, as you all know. And on the equity side, we had a big loss in the quarter. Most important thing -- or the 2 most important things to mention is the increased yield. So the yield has gone up due to the interest rate increase. And the other thing is that in the equity portfolio, there was a mistake in the presentation that we sent out on estimated intrinsic value discounts, not that, that necessarily is something everyone believe in, but that said 30%, it is -- the correct figure is 37%, which makes more sense when the equity portfolio has had a loss. So -- but the point is on the equity side is that the underlying performance of the companies has been good. So it's been okay for some time. We've had some poorer performing companies. Now it is -- has turned around. So that's on a good trend. And so that's positive. And just as an example of the volatility, if you look at the equity portfolio today or a couple of days ago, year-to-date, we're plus, and you could figure that out because we have the list of equities. And so the loss is gone and there is a positive return. As of today, but tomorrow could be different. Any questions on the investment side? Yes. Profit and loss, the only thing that you see is that the tax rate is high. That's obviously due to the profit coming from insurance side and there's tax on that and that the reduction of the profit comes from equities where there's no tax. Capital position. So in the quarter, the largest reduction in the requirement on the capital side that comes from a reduced equity portfolio. So that has some effect. There is also some reducing effects on the requirement from the exchange rates, the Norwegian kroner strengthening in the quarter. And then when it comes to the dividend here, the most important factors for that dividend is obviously that we have a faster stress strong capital position. But we also have the U.K. portfolio, we have a high earnings capacity going forward. There's an increased yield in the bond portfolio, but the insurance portfolio is stable. So we know the earnings capacity from that portfolio and more transparency in that following 1st of January and 1st of April in the U.K. And then the French market now has 5 quarters, and we don't see any signs of that being mispriced or that we've had wrong clients coming in. So we're more confident in the French portfolio, even though it will be volatile, but we see some good development in the French portfolio. And we -- even though we see lots of opportunities for the future, we don't have in the short term, i.e., a year, we won't have many new markets started within 1 year. And during that time, we have a high earnings capacity. So that's -- those are the reasons for the dividend. Obviously, we would have liked to have opportunities to use that capital for -- at any time, but this is more a time element. And in the meantime, we will earn some more capital. So that's it on the summary. Any more questions? Unknown Analyst: Just a bit more big picture, the developments in the different markets, and I appreciate maybe U.K. being sort of like the main focus more than concern maybe. But just in terms of your competition, I appreciate that more in general, the underlying claims ratio is up, but some of it is due to frequency, but in some way, I guess, pricing also has an impact on that. Where do you see your competition in terms of their profitability amid a market softening. Is this sort of like a timing issue that the industry will, on a relative basis, bleed out for a few years and then we'll back -- we're back to the '22, '23 situation in the U.K. where you had pretty much the market for yourself? Or is it a change in your competition as -- are there more efficient players out there now versus before? Just any comments to sort of ease our nerves that this is not, in fact, a structural issue. It's more of an irrational behavior type of thing? Henrik Høye: I think it's interesting. But first, predicting where the market will go is very -- we don't spend a lot of energy on that because that's difficult. But we don't see any competition that is different, rather on the opposite where we see MGAs with high cost structures. So there, you know that one element is their commission level. And that commission level is in many cases, almost all cases, double of our cost ratio. And then there is a carrier behind and there's other cost elements to it. So that's -- and those are the ones that drives price in the U.K. market, if we focused on that. In the Scandinavian market, we don't see any large changes or the Nordic market. The French market is a bit early to say, but we don't see -- so if there is a difference between the French market and the U.K. market because there are large markets, there are many players, many of the same players. So if there is a difference, it is that the brokers have a larger part of the value chain in France, which gives the relevant part of the cost ratio that where we have an advantage, a smaller part to play. But at the same time, we see a change in that, that there will be -- it's not sustainable that the brokers have that large part of the value chain over time. So we don't see any signs of that. But obviously, we're paranoid about our cost position in the areas where -- that we need to improve that. because someone could come or competitors can improve. So we need to continue that journey of improvement, and we are focusing on that. So that's important. But we don't see any signs of it. And how the market cycle goes. The historical facts are that the market cycles are long in the Nordics. They're shorter in the U.K. U.K. motor, the market cycles are -- they can be almost quarterly. And that's driven by the consumer sector, but it is contagious to the sectors we are in. So -- and in a way that it's it must be a good place to be if you have a consistent approach and a disciplined approach to underwriting. And there are quick market cycles. You don't need to be part of the cycle that is unprofitable. So if you stop there and then you can be part of something that goes up, that must be a good thing. And it is, in many ways, irrational. And some of the segments we're in, we see irrational behavior now. So there is no way we would -- and maybe we're wrong, but some of those segments where you know that they're not excluding escape of water claims from their cover, our competitors because then they wouldn't be able to win clients. Those escape of water claims, they won't change a lot. They cost GBP 3,500 per claim and the frequency of them, in general, you can predict fairly easily. And when insurance is priced on the level of those claims, then you don't have anything for cost margin and large losses. So then at some point, it will stop. So in some of those segments, we think -- Thank you. Unknown Analyst: Could you please elaborate on what are the main opportunities and what are the main trends you see, when are they coming? Henrik Høye: So it's elaboration on AI and main opportunities, main threats. And I think I said some words previously. But what we -- so one example of a threat is that we have one distribution channel and thinking about whether that distribution channel is present sometime in the future and how that broker part of the value chain will be when you can use agents for parts of that work as a client. That is an interesting exercise, not because we necessarily -- we could argue against or for that scenario that brokers have a smaller role and that we lose that distribution. So it's not necessarily believing or not believing in the scenario, but it's a very interesting exercise to do both together with the brokers, but also for ourselves. And I think the outcome of that is that we will deliver -- as we go, we would deliver better to the brokers. And if that scenario ends up being, then we're prepared for them not being there. So that -- and that's agentic wording, marketing and pricing that can be done. But for the type of clients we have, remember that the average size of our clients is probably something like EUR 150,000. So -- and U.K. has very large clients. That -- to use an agent to quote that is a bit more complex because the data is it's not available like it is in the consumer sector where you have exactly the same cover and exactly the same exposure. So here, there are very many tailor-made solutions. So that -- but what we believe is that we can obviously get efficiency gains from AI solutions, we already do. So we can do more quotes, we can do more claims per person. And in parts of the processes, we have HQ wise, we can do a lot more on HR and compliance and all the requirements that come from the outside, much more efficient. But that's kind of obvious that you can get efficiency gains from large language models. What we focus on is to increase the decision-making ability for Protector that we are more precise in our decisions. And that's more dependent on data than technology because the technology is there. So that's -- and I don't know if it's answered your question exactly, but some words on that. No more questions? Thank you.
Alexander Bergendorf: Good morning, this is the Axfood First Quarter 2026 Telephone Conference. And with me today are Simone Margulies, President and CEO; and Anders Lexmon, CFO. In the Investors section of our website, you will find the presentation material for today's call. We encourage you to have that presentation at hand as you listen to our prepared commentary. After the presentation, we will be taking questions. A recording of this call will be made available on our website. So with that, I will now hand over the word to Simone. So please go to Page 2. Simone Margulies: Thank you, Alex, and good morning, everyone. We summarized the quarter with volume growth, improved efficiency and increased profitability, and that's in a market that is characterized by a high activity level. Through a clear customer focus and collaboration, we continue to create value with our strong and distinctive concepts. Before we start the presentation, I briefly want to comment on the situation in the world around us. It is clear that global uncertainty has increased over the past few months, and it's currently very difficult to assess the long-term effects of the war in the Middle East. In recent years, we have successfully navigated a volatile and uncertain environment, adapting quickly as conditions have changed, and we're carefully monitoring developments. Turning to Page 3. With that very brief introduction, let me now take you through the recent market development and Axfood's first quarter performance. So next page is #4. Market growth amounted to 4.4% during the quarter, a similar level compared to the fourth quarter last year. Stronger volumes contributed to this development as the annual rate of food price inflation came down and amounted to 1.7% according to Statistics Sweden. Inflation decreased gradually during the quarter and particularly in March when the overall price level was unchanged compared to the prior year. This was mainly driven by the dairy category, but prices were also lower in several other categories, including fruits and vegetables. In addition to the improved volume trend, a 0.5% positive calendar effect from Easter also contributed to the market development this quarter. So please go to next slide, #5. As a result of positive volume traffic and high volumes, Axfood retail sales increased 3.8% in the quarter. This was below the market and also lower than what we had hoped for. Excluding City Gross, where sales have been impacted by recent store closures, growth was in line with the market. Over a 2-year period, we continue to clearly outperform with contributions from City Gross. Competition remains intense and in general, market dynamics continue to be characterized by a strong focus on price value. As you all probably know, the VAT on food was halved on April 1 from 12% to 6%, and this measure was implemented just before Easter, which typically is an important holiday for the industry. With this, the overall activity level of the market was particularly high. In Axfood, we worked intensively during the quarter to prepare for and implemented VAT reduction. Through extensive collaboration and focus on execution throughout the organization from stores and support functions to Dagab and Axfood IT, the price points on millions of items were updated in a very short amount of time. We are now on Page 6. Consolidated net sales for Axfood grew 2.6% in the quarter. And as I just mentioned, this was mainly driven by higher volume. We saw growth in all of our segments, except City Gross. And there, as I just mentioned, it is, of course, important to consider that total growth was impacted by store closures. So please go to the next Page #7. We report a strong financial development in the quarter. Group operating profit increased to SEK 806 million, and the operating margin was higher at 3.7%. Operating profit included items affecting comparability of minus SEK 6 million related to City Gross. Last year's items affecting comparability also related to City Gross and then amounted to minus SEK 38 million. Operating profit and margin on an adjusted basis, which excludes items affecting comparability also increased. Adjusted operating profit was SEK 812 million, and the adjusted operating margin amounted to 3.8%. The improved profitability was primarily driven by higher sales volumes and growth in both total and like-for-like sales, a stable gross margin, improved efficiency and also an effective cost control. So now let's turn to Willys on Page 8. Willys continued to demonstrate volume growth in the quarter through an increased number of customer visits and a high ticket -- average ticket value, but total growth was below the rate of the market. Store establishments contributed to growth, although the new stores in the first quarter were established late in March and as such, only contributed to a small extent. In recent months, Willys has temporarily closed 2 stores ahead of relocation and together with ongoing larger store modernizations, this impacted growth negatively in the first quarter. Earnings grew to SEK 498 million, which corresponded to an operating margin of 4.1%. The increase in operating profit was primarily driven by the increased sales volumes and a stable gross margin development. Willys is Sweden's leading discounter and 2 days before the VAT reduction, Willys chose to lead the way by reducing prices corresponding to the lower VAT. This, together with the increased marketing activities, which were largely concentrated to the end of the quarter, negatively impacted sales and profitability. As I mentioned, Willys store expansion progress was also concentrated to the end of the quarter. Even though the expansion pace remains high and based on the chain's strong position among consumers, there is significant potential to increase the market presence. We are now on Slide 9. Hemkop displayed a strong performance in the first quarter and clearly increased its market share, delivering retail sales growth of almost 6%. Growth was primarily driven by an increase in customer traffic and in addition, a higher average ticket value that contributed positively. Like-for-like growth was also strong, contributing to solid earnings performance. With a focus on modernizing stores and enhancing its offering in terms of price value, fresh produce and meal solutions, Hemkop has made excellent progress in recent years. The current growth clearly demonstrates that customers truly appreciate Hemkop. In total, operating profit increased to SEK 114 million, and the operating margin also increased to 5.1%. The increase in operating profit was mainly driven by the increased sales volumes, a stable gross margin development and solid cost control. Earnings in the prior year was impacted by new store establishments. Turning to Page 10. Our efforts to develop City Gross into a long-term competitive hypermarket chain is proceeding according to plan. City Gross continued to deliver a positive performance in the first quarter with healthy like-for-like growth of 3.6% and a positive earnings trend. Our improvement initiatives to develop the customer offering and streamlining operations are clearly yielding results. City Gross' loss for the quarter amounted to minus SEK 48 million on an adjusted basis, corresponding to an operating margin of minus 2.4%. This was an improvement compared to the prior year, which came from the positive like-for-like growth effects from structural measures as well as efforts to streamline operations. Similarly to Willys, City Gross went ahead and reduced prices corresponding to the VAT cut 2 days prior to implementation. And together with increased marketing activities, this negatively impacted sales and profitability. On a reported basis, the operating loss amounted to minus SEK 54 million, which corresponds to an operating margin of minus 2.7%. This included the items affecting comparability I mentioned, which refers to structural measures for stores. We are now on Page 11. Growth for Snabbgross amounted to 1% in the quarter with weak sales development for B2B consumers. The trend in the B2C sales through Snabbgross Club was, however, strong, both in total and like-for-like sales. In terms of the operating profit, Snabbgross managed to offset the weak growth through strict cost control and delivering earnings on par with last year. In total, operating profit amounted to SEK 25 million, corresponding to an operating margin of 2%. Next, Page #12. Dagab's first quarter net sales increased by almost 4%, driven by sales to food retail customers and especially Axfood's own concepts. Operating profit also increased to SEK 298 million, and the operating margin was unchanged at 1.5%. The performance was primarily due to the sales growth and a lower cost level with increased productivity and logistics. Operating profit was, however, negatively impacted by lower gross margin due to market investments. Late in the quarter, Dagab also negatively was impacted by higher fuel costs and weaker Swedish krona. That concludes the first part of the presentation. So now it's time for our CFO, Anders, to take you through the financials. And we are now on Page 13, but please go to the next Page #14. And Anders, please go ahead. Anders Lexmon: Thank you, Simone. During the first quarter, the cash flow was minus SEK 692 million, which was almost SEK 300 million lower compared to last year. The strong operational performance was offset by a negative working capital effect due to inventory build ahead of Easter. This resulted in a somewhat weaker cash flow from operating activities of almost SEK 1.1 billion, SEK 129 million lower compared to last year. The negative cash flow from investment activities of minus SEK 560 million included the initial payment of SEK 185 million for automation in the logistics center in Kungsbacka. Excluding this automation investment, the capital expenditure in the quarter was in line with last year. By the end of Q1, Axfood utilized approximately SEK 3.1 billion of our credit facilities compared to SEK 3.3 billion in Q1 last year and SEK 2.7 billion as year-end 2025. The cash flow from financing activities of SEK 1.2 billion was in line with last year and included the first dividend payment of just below SEK 1 billion. We are now on Page 15. The net debt increased compared to year-end 2025 due to dividend payout. The net debt-to-EBITDA was improved compared to Q1 last year due to a strong EBITDA development despite increased leasehold debt. The equity ratio amounted to 17.3%, which was lower than in December 2025 due to the dividend improved. The Q1 equity ratio was, however, 0.5 percentage points higher compared to Q1 2025. Total investments, excluding leasehold and acquisitions amounted to SEK 561 million in Q1 compared to SEK 371 million last year. During the quarter, we established 4 new group-owned stores, 2 more than last year. Our investments in store establishments have therefore increased during Q1 compared to last year. And as I mentioned before, the investments included the first payment of SEK 185 million connected to automation in the new logistics center in Kungsbacka. And then let's turn to Page 16. When we look at the capital efficiency, we have a stable development in our rolling 12-month net working capital and also in relation to net sales. Capital employed has increased over the last years, mainly due to the acquisitions of Bergendahls Food and City Gross as well as the investments in Balsta. The level of capital employed, however, decreased slightly during Q1 as equity was reduced not only by dividend paid, but also the dividend to be paid in Q3 later this year. The effect was partly offset by higher leasehold debt. Thanks to an improved earnings trend and the reduced capital employed, ROCE improved by 1 percentage points during the first quarter compared to year-end 2025. And by that, Simone, I have come to the end of my presentation and hand over to you again. Simone Margulies: Thank you, Anders. And we are now on Page 17, and it's time for me to give you an update on our strategic agenda and priorities. So let us turn to Page 18. We have a clear house of brand strategy in our group, and this makes us unique in Swedish food retail. We aim to deliver the strongest customer experiences, and we are present in all segments of the market with our different concepts. Please turn to next Page #19. To create the right conditions for our retail concepts to be able to succeed on the market, we leverage our strengths as a group and focus on 6 strategic development areas. We have shown you this before, and I would now like to go through some recent key strategic developments. So please turn to next Page 20. Our ambition is to provide the most attractive assortment on the market with a distinctive offering on branded as well as private label products to meet customers' diverse needs and preferences. During the first quarter, we had a high pace in developing our private label portfolio and launched more than 100 new products. We had product launches across many categories, but I would like to highlight our focus on expanding range of our international assortment. In addition, we expanded the Mevolution brand to strengthen our offering in personal care. Our private labels represent quality and innovation, and we also focus a lot on sustainability and health with a wide selection of sustainability labeled and organic products. In addition, we have a large selection of products with Swedish origin with more than 400 products under the Garant brand. In the space of sustainability and health, we have previously launched several innovative hybrid products. And this quarter, we launched ready-made meatballs made from a combination of minced meat, vegetables and legumes, an exciting launch that really can contribute to better eating habits, not least among younger people. Our private labels, including the Garant and Eldorado brands are a significant competitive edge. And with all the new products, we complement our existing portfolio and improve the offerings within our various concepts. So overall, our private label share of sales increased in the quarter and amounted to just over 32%, driven by high penetration in Hemkop and City Gross. We are now on Page 21. We will continue to develop our attractive store network in the coming years by accelerating the pace of expansion while maintaining a high rate of modernization of existing stores. This work creates new growth opportunities by ensuring that our concepts provide the best possible store experience for their customers. Willys focuses on significantly expanding its presence, but at the same time, the chain gradually rolls out its most recent store concept, 5.0. Hemkop is maintaining a high pace in modernizing the stores and in addition, expands its presence when it sees good potential to do so. For City Gross, focus in the past year has been on closing underperforming stores with 1 store closure in the first quarter this year and 1 planned for the second. This is really about creating a healthy core in City Gross' store base from which the chain can grow from. That said, City Gross has also established a new store recently in February in Norrtalje. Lastly, to create better conditions for both the restaurant trade and the convenience trade to achieve long-term growth with improved profitability, we have made the decision to bring the 2 operations together into a single organization. The convenience trade business, which is currently part of Dagab, will be transferred to Snabbgross as of January next year. The logistics operation will, however, remain in Dagab. With consolidation opportunities are being created to further strengthen the customer meetings and offerings, both for restaurants and convenience trade customers. Moving on to Page 22. We are also improving our competitiveness by maintaining a clear focus on efficiency and productivity. We are enhancing the way we work, increasing use of data and AI in all our processes. More than 100 AI models have been taken into production in recent years, and we focus a lot on developing and empowering employees through AI tools and training and assistance. We are also further optimizing our new logistics structure. And during the quarter, we completed the rollout of a new order and purchasing system that will further strengthen our supply chain. With this new system, we can be more accurate in forecasts and planning and really strengthen how we manage our order flows to balance supply and demand. As previously communicated, we plan to establish a new highly automated logistics center in Kungsbacka that will be completed in 2030 and ensure increased capacity and efficiency for future growth in Southern Sweden. During the first quarter, work continued according to plan with this project, and we will get back to you when the property lease contract is entered into. Now let's turn to Page 23. Sustainability is an integral part of our operations and strategies. We aim to be a positive force in society and to take the lead in promoting a sustainable food system by influencing decision-makers, leading the way through own initiatives and driving industry issues. Last year, we completed the transition to renewable fuels and electricity, both in our own and procured transports, a truly important achievement. And consequently, we have seen a significant decrease in emissions. Using comparable emissions factors, emission from own transport decreased 15% in the first quarter compared to the prior year. In addition to the increased use of renewable fuels, this reduction was due to a higher number of electrical vehicles and route optimization. Diversity and inclusion are also areas that are of great importance to us. And by 2030, we aim to be Sweden's most inclusive food company. During the quarter, we concluded the first work placements under so-called SAO program at Willys and Hemkop. This program aims to help young people in vulnerable areas to strengthen their position in the labor market and motivate them to study. We have been a part of this initiative since the start, and we will be offering more young people jobs in the future as the program is developed and scaled up. Lastly, I want to highlight our efforts to promote sustainable food consumption. Hemkop is the leading -- industry leader with regards on organic products and helps customers to shop more sustainably. Recently, an independent survey showed that Hemkop leads the market in terms of promoting organic food through campaigns. Willys is also doing a lot in this area and came out second in the survey. In a market where price awareness among consumers remains high, campaigns are important. And I think this really shows that we continue to push forward and take our responsibility. Moving on from our strategic agenda, and we are now on Page 24. Our outlook for the year is unchanged, and it covers investments, new store establishments and items affecting comparability. With regards to the new establishments, as Anders talked about, in total, we opened up 4 new group-owned stores in the quarter, of which 2 Willys, 1 Hemkop and the new City Gross store I mentioned earlier. So please now turn to Page 25. And let me sum up. We summarize a quarter with positive customer traffic, volume growth and increased profitability. We are investing in line with our long-term plan to gain further market share and create the conditions for continued profitable growth. And that was all for today. So now please turn to Page 26, and I hand over to the operator to open up the line for questions. Thank you. Operator: [Operator Instructions] The next question comes from Magnus Raman from SB1 Markets. Magnus Raman: I could start off asking about the temporary negative effects on Willys sales growth from major store refurbishment. Can you help quantify in any way the effects here? Is it correct that it's one store that is closed altogether pending the build of replacing store? And then are there other stores that have a significant amount of store space closed for renovation currently? Simone Margulies: No, it is -- as you said, there are some phasing effects, I would say, in the quarter regarding Willys stores. The first thing is that we had a little less new stores and the stores that were opened, opened in the end of the quarter. However, we will have a high pace as we earlier communicated in establishing new Willys stores this year. And the other thing that you said is that we have closed 2 stores for relocating them. So they are closed and they will reopen in new places. And then we also have some large modernizations in large stores that's also affecting the like-for-like growth. So this, in total, have a negative effect in the sales growth in Willys for the quarter. Magnus Raman: Great. And these 2 stores that are temporarily closed altogether, have they been closed sort of for the major of the duration of Q1 for the most of that period? Simone Margulies: Yes, yes. They closed by the end of the last year for relocating them. Magnus Raman: So if these 2 stores would have been in operation, retail sales growth in Willys should have been around 1 percentage point higher. That is fair to assume? Simone Margulies: I would say that the phasing in the stores for the Q1, together with that the marketing investment came in the late of the quarter together have a negative effect and make Willys grow a little bit less than we hoped for. Magnus Raman: Right. And then I also wanted to ask if there's any way to quantify the cost you have been taking here in terms of having the food VAT 2 days in advance in both Willys and in City Gross. Any help there to quantify? I mean, should we do 2 divided by 90 and then a little bit more because those were more trading-intensive days times 5.4%? Or do you think -- could you help us there with any figure... Simone Margulies: The reduction of prices that we made both in Willys and in City Gross and Eurocash 2 days in advance had a negative effect and also increased marketing activities in the quarter -- by the end of the quarter together that we had increased personnel cost since it was a lot of manual work of changing millions of prices in stores. And also, we've had IT development costs during the quarter. And of course, also, as you said, the real effect of reducing the prices. Magnus Raman: But is it fair to say also that the sort of short-term top line strengthening effect of this was maybe less than what you had hoped for? Simone Margulies: Yes. The purpose of doing that was to strengthen the position for Willys as the leading discounter on a long-term effect and by that leading the price reduction. But as you said, we didn't really -- we didn't get the volumes as we had hoped for. So the sales for Easter came as it normally does from -- in the middle of the week until -- and by the end of the week. So we didn't really got the volumes that we had hoped for. Magnus Raman: Understood. So sort of subsidizing the ordinary spending, but not being able to push forward the Easter shopping so to say. Simone Margulies: Yes. However, I mean, one large purpose for us was to strengthen the position as a leading discounter. So -- and that is more on a long-term effect regarding the brand. So I mean, Yes. Magnus Raman: That was mission accomplished. I understand. All right. And then final one from me here. The effects of the war in the Middle East, you mentioned here in the report that the early -- or late into the quarter, the early effects you've seen on fuel costs and then you acknowledge the currency change, the weakening of the Swedish krona. But you have not seen any negative effects on electricity prices. Is that correct? Anders Lexmon: We have seen a little bit higher electricity prices, but we work with hedge -- we hedge the prices. So we have a more sort of long-term effect when it comes to electricity. Magnus Raman: Right. And then when thinking about possible inflationary effect on food commodities, is it, in your opinion, even if this is more for the farmers maybe, is it fair to assume that the price increase and possible supply squeeze as well of fertilizers, i.e., the urea prices, that, that would mainly have an effect on next year's crops rather than this year's crop season? Simone Margulies: It's -- I mean, if you look on the direct effects on the fuel cost, that will have -- it, of course, depends on how the development will be going on forward in the Middle East. Regarding the fertilizers, it also depends a lot on the development going on forward. This summer's crops, of course, are already done, but then you have the autumn crops and also going for next year. So depending on how the development will be, there will be some delays, but there could be effects also in this autumn since we do -- you have crops not only once a year. Operator: The next question comes from Daniel Schmidt from Danske Bank. Daniel Schmidt: Just coming back to sort of you start out saying that sort of the recent months have brought increased uncertainty, and we can all sort of acknowledge that and that the focus on value for money is still very high. And I hear you when you say that you didn't get the volumes that you expected when it came to the price cuts that you made a couple of days before the 1st of April. But sort of this uncertainty in itself, wouldn't that sort of have been a tailwind for especially Willys in the quarter since early March that you didn't expect before we went into this conflict in the Middle East? And I was just wondering sort of why are you growing slower than the market? And I hear you in terms of refurbishments and all that, but you do have more stores now than you had last year. And sort of what is the dynamics? What sort of happened in the market in Q1, you think? Or is it just sort of these things that you mentioned in terms of refurbishments and closed -- temporary closed stores? Simone Margulies: Those -- I'll try to give you an answer. I mean if we look upon the first quarter, as the market as a whole, we had a good growth in the market that was primarily coming from volumes since the inflation was low and also we had deflation in March. By that, also, as you said, the activity level in the quarter also increased. And in that environment, we also had the phasing of refurbishments going on, closing down 2 stores. The new stores that we opened up came in late in the quarter, together with the VAT or our price reduction that we made, that together made us go a little bit lower than we had hoped for. So that was all. And then I would say that the cost levels for the customers, it will, of course, depend a lot on what is happening going forward. I mean the increased fuels came later in the quarter and also -- so I mean, there are many things that is happening for the consumers in the quarter, but also in the market. However, I would like to zoom out a little bit and say like Willys has a really strong position. It's one of Sweden's strongest food retailer. They are the most recommended chain. And we will continue to have a high expansion pace for Willys since we see there's a great potential to accelerate our expansions in Willys. Daniel Schmidt: Yes. Okay. But do you see that sort of these issues that we've talked about now, have they corrected themselves as we go into the second quarter of this year and you had the lowering of the VAT and all that is basically behind us now. Are you seeing a better market on the back of the lowering of the VAT? Or is that still too early to call? Simone Margulies: I think it's too early. There is still uncertainties. There are -- the VAT and the initiatives to strengthen the consumers' buying power are, of course, positive. On the other hand, also consumers have high prices for electricity and also fuels, how the increased buying power, how large that will, by the end of the day, become and also how the consumers will use their consumption, it's difficult, and it's a little bit too early to say anything actually about that. Daniel Schmidt: Yes. Okay. And just the last one on the cost for the repricing. Was all that taken in Q1? Or is there anything taken in Q2, early Q2 for Hemkop? Simone Margulies: For Hemkop? Daniel Schmidt: Given that they didn't do the changes 2 days before. Simone Margulies: Yes. Do you mean the cost for personnel and marketing and so on? Daniel Schmidt: Exactly. Exactly [indiscernible] repricing. Simone Margulies: Yes, that was taken for Hemkop -- all the chains were taking in the first quarter. I mean, both marketing, personnel costs, yes. Daniel Schmidt: Okay. And just the fact that you have to reprice the entire assortment, is that sort of -- is that resulting in a number that you want to share in terms of extra staff to just get that done? Simone Margulies: Extra -- could you please... Daniel Schmidt: Staff. Staff. Simone Margulies: Extra staff. Okay. No, we don't give any details about that. But as you say, there were a large cost, of course, for personnel to doing the job and also marketing and also the price reduction by itself. Operator: The next question comes from Erik Sandstedt from Kepler Cheuvreux. Erik Sandstedt: Erik Sandstedt here with Kepler. Three questions, please. The first one is a follow-up on one of the earlier questions here. Because you say that gross margins at Willys were stable in the quarter, right? And given these pre-VAT price reductions, which I assume had a slight negative impact on gross margins. Can you just explain then what sort of supported gross margins to offset that impact? And given that gross margins were stable and the EBIT margin were down, I suppose OpEx to sales then must have driven that margin contraction. I know it's not a big margin decline, but I'm just trying to understand the underlying drivers a bit better here. Simone Margulies: Yes. So the offset was according to, as we said in the report that the marketing investment came in the later part of the quarter. And that also, on the other hand, had marketing cost and cost of personnel that made the margin a little bit softer. Erik Sandstedt: Yes. But there must have been some positive gross margin impacts as well then if the pre-VAT reductions had a negative impact. Simone Margulies: Yes. And that was because that the marketing investment came late in the quarter. Erik Sandstedt: Okay. But marketing, is that -- that's an OpEx, right? Simone Margulies: It could be both. It could be marketing costs, but it could also be price reduction campaigns. Erik Sandstedt: Okay. Okay. You're talking about price campaign. Yes. Okay. That makes sense. Perfect. Then secondly, if input costs now go up on the back of the geopolitical tensions, will it be tougher to pass that sort of underlying price inflation on given the price competition we're seeing in the market presently? Simone Margulies: I mean increasing costs, of course, there are some, how is it time -- there's a [ lead ] time from when they appear until you can see it in the stores. And you haven't seen them in the stores. And also that depends on development going on further. But if the development continues with increased costs, you will, of course -- we are a low-margin industry. And if that will continue, you will see it in the stores also. But it also depends on how the -- yes, how the situation will develop from now. And also, it's difficult to assess what the long-term effect. But I mean, as we wrote the first -- in the end of the quarter, we saw increased costs for fuels. And there also the war affects the fertilizers and that also affects I mean, the entire food industry, it could be both animal production, but also from all the crops. So we will see how that will assess the effect in short and long term. Erik Sandstedt: Yes. But maybe to frame it differently, do you see the market being more price competitive now than, let's say, just a few quarters ago or a couple of years ago? Simone Margulies: Yes. We've seen a high competition in the market. I mean, for the last 18 months, there's been a really, really -- or forever, but I mean, the increased competition for the last 2 years, I would say. And that's also why I'm so happy that we can see that the effects we're doing on cost control, also the efficiency that we're seeing coming from the investments that were made both in Balsta and logistics structure, but also now we have implemented a new buying and forecasting system that will also help us to become more efficient. And also, of course, the help of AI and data helps us to be more efficient and also help improve our customer meetings. Erik Sandstedt: Okay. And then just finally, in terms of joint group costs, they were higher both versus the same period last year as well as versus Q4, but you have done some cost initiatives on that line, I think. So what drove the costs here? And what's a normalized level going forward? Anders Lexmon: Yes. As you mentioned, I mean, it can vary from quarter-to-quarter. We have seen that in the past as well. And now we have, in this quarter, a little bit higher level, and that is due to a couple of projects that we have done in -- for the whole group and that we have taken now. So a little bit high this quarter. And I would say it's more fair to look at the first quarter last year, if you want to have a decent level of the joint group costs. Operator: The next question comes from Fredrik Ivarsson from ABG. Fredrik Ivarsson: Two questions from my side, and sorry if you have to repeat yourself. I came in a bit late in the call. But first, if you could say anything about the consumer behavior since the VAT reductions. Have you seen any changes to, let's call it, shopping patterns so far? Simone Margulies: It's -- yes, it's a little bit early to say that since we have also effects from Easter moving within the month. So it's too early, I would say. There's still -- there's only a couple of weeks going in with the lower VAT. And also there, as we talked a lot about today, there are other -- there's a turbulent environment around our consumers with the war going on in the Middle East and increased cost for fuels and energy. So it's too early to say what effects that will have on the consumers. Will the increased buying power, how large will that be? They are important measures that have been taken with the lowering on the VAT, but how much will that by the end of the day, when the increase of fuels and increase of energy on our consumers have and will they buy more food, will they buy a new sofa or will they save more money? It's really too early actually to say that. We see that the price value is really important and that the focus on price and price worthiness is important for the consumers. And here, we are really well positioned with Willys, who choose to clarify its position by going 2 days in advance with the price reductions and also City Gross that has strengthened its price worthiness and also Hemkop the last couple of years. Fredrik Ivarsson: Okay. And second one, if you could say anything about the monthly performance in Willys, did you see January, February being more in line with the market and then somewhat weaker in March? And where I'm getting at is that historically, we've seen the market leader performing better than the competition during Easter due to, I guess, its locations of its store network and so on. Simone Margulies: I would say that the phasing of the stores that they came lately in the quarter and also that we made the price reduction that had an effect. But as we also know, Willys has a really, really strong position, but we have also had natural a little bit extra positive effects during the years of high inflation. And also last year, in the first 6 months, we had a high inflation. So we got a little bit extra, of course, growth and that when you look upon the comparison figures -- that was difficult to say, comparison figures that also, of course, have an effect in -- if you look on Willys growth for the first quarter. Operator: [Operator Instructions] The next question comes from Rob Joyce from BNP Paribas. Robert Joyce: Just a couple from me. Just the first one, have we seen any changes in your relative price positions since the VAT cut came in? I mean, have any of your competitors gone and cut prices lower or even less? So has there been any change there? And has that marketing spend or noise in the market died down since the beginning of April? That's the first one. Simone Margulies: Yes. We do not comment our pricing strategies and the price gaps. For us, it's always important to be clear with the price position, of course, for Willys as the market leader in discounting. And also, it's important for all our chains to have an attractive price position. I mean -- and since the entire -- the VAT, it was the same for all the -- say, all the actors -- not actors, all the chains in the market. That was -- I mean, that was relatively the same for all the players in the market. Robert Joyce: And in terms of marketing spends that you saw yourself were elevated, I guess, the whole market picked up at the end of the quarter. Has that died down as the second quarter started or is it still high? Simone Margulies: Could you please repeat? I didn't really understand. Robert Joyce: So you pushed marketing spend higher into the end of the quarter behind the new prices. I'm guessing the whole market did as well. Have you -- firstly, have you pulled your spend back since then? And has the market done the same? Or has the market pulled back on spend? Simone Margulies: We only commented, I mean, the first quarter. And as I said, the entire market had a really high activity level in the -- by the end of the quarter regarding to the Easter, but also for the VAT reduction. What we did that we also went ahead with the price reduction 2 days in advance for City Gross Willys and also Eurocash. So we made some extra marketing investments due to that. Robert Joyce: Okay. And I guess the second question I have is just maybe a bit more theoretical, but I guess Hemkop and City Gross, which would be your higher-priced chains seem to have traded better in the quarter on a like-for-like basis as inflation fell. Is there any concern that Willys may see a continuation of the kind of underperformance as prices fall further with the VAT reduction? Simone Margulies: I would say if we start with Hemkop, Hemkop's result is the result of a job that's been made for many years now in modernizing stores. We've had some really good modernization done in the last month. Also a job in improving both the price position, but also improving the assortment and focus on meal solution and fresh produce. So Hemkop is the result of a long-term job that's been made, and we're really happy about the performance they made in the quarter. City Gross is also a result of the job that we made a couple of months -- for a couple of months now since we made the acquisition 1.5 years ago. And so we continue to see a positive growth in City Gross. Willys still have a really strong position and has been growing for many years, no matter what economy we're in, both in good economies and bad economies. But with that said, also, Willys have had some extra push during the high inflation. We had high inflation in 2023. And also last year in the first 6 months, we had high inflation. So I mean, I think, and we see still a high focus on price and price value. I don't think that, that behavior will -- I think that behavior will last. And in that, Willys has a really, really strong position also going forward. And on top, we have a pretty low discounter share in Sweden. So there's a great potential to continue to grow Willys. Operator: There are no more questions at this time. So I hand the conference back to the speakers for closing comments. Simone Margulies: So by that, I would like to thank you all for joining today and all the questions, and I wish you a good end of the day. Thank you very much.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Brandywine Realty Trust First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Gerard H. Sweeney, President and CEO. Please go ahead. Gerard H. Sweeney: Thank you very much. Good morning, everyone. Thank you for participating in our first quarter 2026 earnings call. On today's call with me are Dan Palazzo, our Senior Vice President and Chief Accounting Officer, and Thomas E. Wirth, our Executive Vice President and Chief Financial Officer. Prior to beginning, certain information discussed on the call today may constitute forward-looking statements within the meaning of the federal securities laws. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports that we file with the SEC. During our prepared comments today, Tom and I will briefly review first quarter results and frame out the key assumptions driving our 2026 guidance. After that, Dan, Tom, and I are available for any questions. From an operating, portfolio management, and liquidity standpoint, the first quarter produced results very much in line with our business plan. As such, as noted in our supplemental package, all of our full-year operating and financial metrics remain unchanged from our original 2026 business plan. While the first quarter was relatively quiet from a transaction announcement standpoint, it was very busy from an activity perspective. Quarterly highlights include: we have achieved 94% of our speculative revenue target at the midpoint of our guidance. Our first quarter FFO was $0.11 per share, which was in line with consensus and management guidance. We have narrowed our full-year FFO guidance while maintaining our $0.55 full-year midpoint. Our portfolio recycling and debt reduction program is progressing on schedule, with approximately $305 million of potential sales under agreement and in various stages of due diligence, with pricing in line with our guidance. We expect the majority of these transactions to close in the second quarter. Looking more closely at first quarter operations, solid operating metrics reinforced our strong market positioning, and tenants continue to like the quality of our perspective. Our wholly owned core portfolio is 88.3% occupied and 89.9% leased. Our year-end occupancy and leasing percentages will improve throughout the year as we anticipate having positive net absorption for the first time in several years, further evidence of our improving markets. Forward leasing commencing after year-end totaled 182,000 square feet, with most taking occupancy in the next couple of quarters. We have achieved 94% of our spec revenue target, which is $400,000, running ahead of last year. Leasing activity for the quarter totaled 422,000 square feet, including 268,000 square feet in our wholly owned portfolio and 153,000 square feet in our joint venture portfolio. The wholly owned leasing activity is our highest level since 2024. Tenant retention was around 45%, very much as expected, since we know there will be a number of known move-outs throughout the course of the year. Our capital ratio is below our targeted 6.4%, driven by a low- or no-capital deal within one of our portfolios, but our capital for the year will remain within our guidance range. Our GAAP mark-to-market was 4.1%. Cash mark-to-market decreased by 2.6%, both below our annual business ranges, but we anticipate improving results in the next three quarters and, as such, we are maintaining our full-year guidance range. Same-store results were a positive 0.8% on a GAAP basis and 3.3% on a cash basis, both above our current guidance ranges. Tours in 2026 exceeded 2025 by 80%, showing a continued uptick in overall leasing activity. We also continue to experience a good conversion rate from these tours. For the trailing four quarters, 53% of our tours converted to a proposal, and from proposal, 37% converted to an executed lease. A few additional comments regarding market dynamics: in Philadelphia, which includes our Central Business District and University City portfolios, we are now 94% occupied and 96% leased, with only 6% rolling through year-end 2028. Our Commerce Square joint venture property is now 93% leased, bringing our overall combined Philadelphia holdings to 95% leased. Overall activity levels in our core CBD and University City markets remain very strong, and we continue to outperform our market share. As noted on the last call, we have captured more than double our market share in each of the last five years, and this trend continued in 2026, with 41% of all new leases signed in this market at a Brandywine Realty Trust property. In the Pennsylvania suburbs, overall, we are about 90% leased and continue to see solid levels of pipeline prospects for the existing vacancies. Austin is 70% occupied; that continues to lag the rest of our portfolio and creates a 340-basis-point drop in overall company leasing levels. Tour volume, however, increased 15% over prior quarters. The operating portfolio leasing pipeline is up again this quarter by 200,000 square feet from last quarter and remains solid at 1.7 million square feet. That includes about 314,000 square feet in advanced stages of negotiations. It does not include the leasing pipelines we have at either 3151 Market Street or our project at One Uptown. We also believe our marketing position in Philadelphia will continue to improve as we monitor office-to-residential conversion projects. We are currently monitoring more than 5 million square feet, or approximately 11% of the total office inventory in the CBD, converting from office to residential or other uses. That 5 million square feet is comprised of 1.2 million square feet that has recently been converted, 1.3 million square feet in active redevelopment, and 2.5 million square feet of projects that have been announced or are in the planning phases. From a liquidity standpoint, we remain in solid shape with only $65 million outstanding on our unsecured line of credit and $36 million of cash on hand. As previously noted, our multi-year plan is designed to return us to investment-grade metrics. As such, and you will hear more from Tom, we plan to maintain minimal balances on our line of credit. The execution of our sales program will reduce overall leverage. Almost 50% of our outstanding bonds have coupons north of 8%, which we believe provide good refinancing opportunities for us over the next several years. In the second quarter, we will repay the 3025 JFK construction loan with a lower-priced seven-year financing of approximately $100 million at a rate in the mid-5s. That transaction, once accomplished, will be secured by the residential component and will unencumber the commercial component of that property for inclusion in our unencumbered asset pool. We are also in the process of extending our current unsecured line of credit and term loans and plan to complete those extensions in the next couple of quarters. We have an active portfolio recycling program, with a majority of the sale proceeds being used to further all of our balance sheet metrics that Tom will walk you through. We anticipate our CAD ratio continuing to improve during the second half of the year, after we fully burn off the remaining tenant improvement costs relating to leases done between 2020 and 2023. As a reminder, at our 3151 project, we acquired our partner's interest in 2025, which had the temporary impact of raising our leverage levels. The pipeline on that project is up by 200,000 square feet from last quarter and stands at approximately 1.2 million square feet, roughly broken down 50% office and 50% life science. Discussions with a number of prospects are very active, with several key proposals outstanding. As a reminder, we do not have any lease commencements or revenue generating from 3151 in our 2026 business plan. At One Uptown, we are now 63% leased, up from last quarter. The pipeline now stands at over 230,000 square feet, with tenant sizes ranging between 5,000 and 50,000 square feet. We have six proposals outstanding aggregating just shy of 100,000 square feet, and we continue to see the pipeline and the velocity of decision-making accelerate at our One Uptown project. In addition, in anticipation of our 2027 lease expirations at the existing buildings in our Uptown development, we will be commencing the redevelopment of one of those existing buildings. Building 902 is about 160,000 square feet. We are completing that renovation in late second quarter or third quarter of 2027. Since our marketing launch of those projects, we have generated approximately 1.2 million additional square feet of prospects. We expect to deliver pricing levels below the rents required for new construction. As some of our larger prospective tenant requirements advance, we also have planning underway for similar renovations for several other buildings. From a capital markets perspective, our business plan projects $280 million to $300 million of sales activity. We anticipate closing most of those sales within the next 60 to 90 days. We currently have $305 million under agreement and in due diligence, and we also have several other properties in the market exploring sale exits. We plan to recapitalize both One Uptown and Solaris during 2026. These recaps could range from a complete sale to a pari passu joint venture where Brandywine Realty Trust retains a minimal stake and recovers significant capital to lower debt attribution and increase liquidity. In fact, on Solaris Center, we are already in the marketplace exploring potential refinancing options. From a broad standpoint, the vast majority of our sale proceeds will reduce debt, improve liquidity, and further strengthen all of our credit metrics. While the clear priority is to lower leverage and return to investment-grade metrics, we do anticipate, given where our stock price is, utilizing a portion of those sales to repurchase our shares while lowering our leverage levels across the board. We have about $82 million available under our existing share repurchase program. We anticipate the debt reduction program will commence during the second quarter concurrent with the receipt of sale proceeds. The response from the market on assets listed for sale has been very strong. For those under agreement of sale, there has been considerable interest, with the typical marketing process producing between seven to ten qualified bids. All buyer types were engaged, including institutional investment managers, other institutional investors, and significant interest from private capital. With that, Thomas will review financial results for 2026 and the outlook for the second quarter and the balance of the year. Thomas E. Wirth: Thank you, Gerard H. Sweeney. Good morning. Our first quarter net loss was $48.9 million, or $0.28 per share. Our first quarter FFO totaled $20 million, or $0.11 per share, in line with our fourth quarter guidance and consensus estimates. Our net loss was impacted by one-time non-cash charges for property impairments totaling about $11.9 million, or $0.07 per share. Some general observations from the first quarter: property-level NOI of $70.2 million was $800,000 above our current reforecast due to better margins throughout the portfolio. G&A expense was above forecast by $300,000, primarily due to compensation expense. Other income and term fees were $2.2 million, or $300,000 below budget, primarily due to lower income from our retail operations. Third-party fees were $2.6 million, or $1.1 million above forecast, primarily due to higher third-party leasing fees. Other forecasted results were generally in line. Looking at our debt metrics, first quarter debt service and interest coverage ratios were 1.7x, both incrementally below our fourth quarter results. The decrease is primarily due to lower interest capitalization from 3151, which increased interest expense. Our first quarter annualized combined and core net debt to EBITDA were 9.18x and 8.18x, respectively. Based on our reforecast, and our forecasted sales and debt reduction, these leverage levels will decrease during the balance of the year. Regarding our portfolio, during the fourth quarter we removed one property from our core portfolio that is being held for sale. That property totals 116,000 square feet. During the second quarter, we will add 250 King of Prussia Road, our 168,000 square foot life science property located in the Radnor submarket, to our core portfolio, as we anticipate stabilizing that property in June at 100% occupancy. From a liquidity standpoint, we continue to maintain a solid liquidity position with $30 million of cash and $65 million outstanding on the unsecured line of credit at quarter end. For sales activity, we are anticipating $290 million of wholly owned sales at the midpoint, weighted toward the first half of the year, and those cap rates are roughly 8% on a cash basis and a little above that on a GAAP basis. As Gerard H. Sweeney touched on, we now have $305 million of potential sales in various stages of due diligence, and the anticipated proceeds will be used to reduce debt and continue our path toward investment grade. We also intend to use a portion of the proceeds to opportunistically buy back shares on an earnings-neutral basis. On financing activity, the $178 million consolidated construction loan at 3025 JFK matures in July 2026. We plan to complete a secured financing on the residential portion of that property totaling $100 million and use the proceeds from that loan and the unsecured line of credit to unencumber the office portion of that property. The $100 million, seven-year secured financing will be fixed at an all-in rate of roughly 5.7%. On the credit facility, our unsecured line of credit has an initial maturity date in June 2026 with extensions through June 2027, and we are working with our bank group to amend and extend the facility ahead of its maturity. Regarding capitalization of the ATX joint ventures, as our joint ventures continue to lease up and cash flow improves, we anticipate recapitalizing those projects on a pari passu common equity joint venture basis during 2026 with our owner minority stake, or an outright sale. We announced our intent to extend two existing loans on those ATX projects. While we still anticipate closing on those transactions in 2026, we felt extending the loans will allow us time to run the sales process without concern about the maturity dates. The recapitalization of both projects should generate between $40 million and $50 million of cash that we will use to further reduce our wholly owned leverage; it will be slightly accretive to earnings and improve leverage for the balance of the year. Due to the timing and the change in ownership structure being later in 2026, we have not included any benefit of these transactions in our FFO guidance. We feel incrementally more positive about executing our land sales program this year, but we have not included any land gains or losses in our results. Focusing on the second quarter guidance, property-level operating income will total about $72.3 million and will be about $1.3 million above our first quarter. The incremental improvement is primarily due to increased NOI at our CBD portfolio and the stabilization of 250 King of Prussia Road; these increases are partially offset by start-up costs at the Radnor Hotel project, which should open during this quarter. FFO contribution from our joint ventures will be a negative $900,000 for the second quarter, the decrease primarily due to higher interest rates on some of the floating-rate debt. G&A expense for the second quarter will total about $9.5 million. The sequential decrease is consistent with prior years and is primarily due to the timing of our deferred compensation recognition. Our full-year range of $36 million to $37 million remains intact. Our interest expense, including deferred financing costs, will approximate $43 million, which includes about $7.1 million of capitalized interest. Termination and other income will total about $2.5 million. Net third-party fees will approximate $1.5 million. Interest income will be about $400,000, and our diluted share count will be about 180 million. These second quarter results and share count do not take into account any potential sales and share buybacks. Turning to our capital plan, our capital plan for the balance of the year remains active and totals about $450 million. Our first quarter 2026 CAD payout was 92.7%. However, our payout ratio for the balance of the year will remain within our 70% to 90% range, as we expect incremental improvement in the payout ratio as FFO improves during the balance of the year. Looking at the larger uses for the rest of the year, we will refinance 3025 JFK with the construction loan, utilize $140 million for debt and share buyback, development spend will be about $50 million, we have $42 million of common dividends, revenue maintain will be $25 million, and revenue create will be $25 million, with $15 million of equity contributions to primarily fund tenant leasing at One Uptown and the Solaris extension. The sources to offset those uses are $80 million of cash flow after interest payments, speculative asset sales totaling $290 million, and $100 million of loan proceeds from our VERA residential project financing. Based on the capital plan, we anticipate having approximately $10 million of net outstanding on the line of credit. We anticipate net debt to EBITDA will be within the range of 8.04x to 8.08x, and our fixed charge coverage will be about 1.8x to 2.0x. Implicit in these ratios is the execution of our sales program and the recapitalization of the ATX developments. These ratios will continue to be elevated until increased revenue comes online from our development projects, particularly 3151, which is now a $250 million wholly owned investment that is currently producing operating losses. As the developments stabilize, our deleveraging will further accelerate, and we anticipate that those leverage metrics will improve as the year progresses. I will now turn the call back over to Gerard H. Sweeney. Gerard H. Sweeney: Great. Thanks very much, Tom. As we look ahead, the operating platform enables us to capitalize on improving real estate market conditions. Our plan for 2026 shows earnings growth over 2025, and we expect further improvement in 2027. As we continue to push occupancy levels across the board and, as Tom touched on, generate results coming out of our two remaining office and life science development projects, we expect incremental NOI that will be available for strengthening our balance sheet and for other uses. The groundwork has been laid, and we will continue to build on this momentum to drive long-term value. We will now open the call for questions. Operator: And our first question comes from an Analyst with Citi. Your line is now open. Analyst: Thanks. Gerard H. Sweeney, you talked about the active transaction market and lots of buyer interest in the bidder pool there. How does that inform additional sales from here beyond what is currently under contract? Gerard H. Sweeney: Great question. I think it is very helpful for us, because we put a fairly broad range of product in the marketplace by design to test what we thought investor sentiment might be. Given the velocity we saw in each of these sales and the fairly competitive final bid processes we went through to generate the price we were targeting, we certainly, as I touched on, have a number of other properties that we are thinking about that are in the market for sale or we are underwriting to see what those POVs might be. We will put those in the marketplace. The breadth of response we got—ranging from tier-one institutional investors to large private equity funds to traditional high-net-worth family offices to syndicators—was a hoped-for result. We were not sure, with some of the properties we put in the market, what the bid list would wind up being, and they wound up being a lot more robust than we thought. With the debt market showing some signs of stability, I think that has given buyers more comfort in underwriting some of the assets we put into the marketplace. We are very happy to be sitting here with this many properties under agreement, going through final due diligence, and with closings scheduled for the next 60 to 90 days to help us execute the debt reduction and liquidity program we put in place. It is another good sign of the office market recovering from different capital sources. Analyst: Makes sense. If you do lean into it more, how would you balance additional buybacks versus leverage reductions beyond what is currently contemplated? Gerard H. Sweeney: The primary objective, as both Tom and I touched on, is to improve the credit metrics. That is by far the number one objective. As we discussed last quarter, buying out our preferred partner positions in the Schuylkill Yards project temporarily raised leverage. Our number one goal is to get those leverage levels back to what we outlined in our business plan. To the extent that pricing is better, we generate more sales velocity, and we see a clear path towards achieving those balance sheet metrics, then we certainly recognize where the stock price is and want to deploy some capital there, as Tom mentioned, on a leverage-neutral, earnings-neutral basis. Analyst: Thank you. Gerard H. Sweeney: Thank you. Operator: Thank you. Our next question comes from Manus Ebbecke with Evercore. Your line is open. Manus Ebbecke: Thanks for taking the question. Could you expand a little bit on the interest you are seeing for the 902 Building and Uptown ATX? Is the interest mainly from new-to-market tenants or existing tenants in the market? Gerard H. Sweeney: Good morning. Happy to walk through that. As we discussed last quarter, we announced to the leasing marketplace that, given the significant uptick in zoning capacity we were able to achieve at One Uptown and the pending departure of a large tenant, we focused on how we could reposition several of those assets at a very attractive price point for the tenant market. That approach was very well received. We have a couple of very large prospects we are talking to. Most of them are in-market, but several have significant expansion requirements. Some of the newer tenants in the market we are seeing are really on our existing One Uptown pipeline. The larger prospects we are talking to about the renovations of the 900 buildings are mostly in-market, but a couple have significant expansion and/or consolidation opportunities. We have been very happy with the response. There is a fairly high level of active, substantive dialogue with several of these users. We have ramped up our planning efforts to ensure that, if we do get substantive results from these prospects, we can move forward with these renovations fairly expeditiously. Manus Ebbecke: Got it. Thanks. A quick follow-up on Philly and the life science market there. Any update on how you feel about life science leasing, which has been challenging over the last year? Are those tenants coming back in 2026? Gerard H. Sweeney: We are seeing the proverbial green shoots in the life science market—capital flowing a little better. Of course, there is a macro overhang of regulatory risk, but there is definitely an uptick in tone. The pipeline at 3151 includes a couple of larger institutions we are talking to that are real in their requirements but slow in their execution pace. We also have a number of smaller life science companies with whom we continue a very active dialogue about making 3151 their home. We have seen an uptick in office tenant requirements given the tightness of the Class A office market in Philadelphia. When we are sitting with our Philadelphia trophy Class A properties at 95% plus leased with a dearth of available space for the next couple of years, we have been able to pivot some of those prospects to look at 3151. The tone of those conversations is constructive as well. We are looking forward to getting some leases executed there. Generating revenue coming out of 3151, given the size of the pipeline, is visible on the near-term horizon, and it is a very important part of our balance sheet strengthening program as well. Manus Ebbecke: Great. Thank you. Gerard H. Sweeney: You are welcome. Operator: Thank you. The next question will come from Dylan Robert Burzinski with Green Street. Your line is open. Dylan Robert Burzinski: Hey, thanks for taking the question. Going back to dispositions, you mentioned a mix of different assets. Could you share the percentage of assets you plan to sell as core versus non-core within the overall Brandywine Realty Trust portfolio? Gerard H. Sweeney: We have one asset that we would consider to be core that we are selling, and the rest are, I would not say non-core, but they are less-than-core. Our approach on the sale program, as outlined last quarter, was to put a variety of assets in the marketplace to test investor appetite across asset sizes, weighted average lease terms, age, submarket positioning, etc. One of our objectives with this first phase of sales was to get insights into how we view the investor marketplace for the next four to six quarters as we look forward to our business plan execution in 2027 as well. By design, we put a wide range of properties out there and got the response we were hoping to achieve. Dylan Robert Burzinski: Great. And on 3151, I see the yield on cost remains at 7.5%. Can you talk about confidence in hitting that, given life science leasing costs are higher today? Gerard H. Sweeney: As we go through the pro forma exercise and model the existing deals we have in place, we still feel confident about hitting that target. The timing of getting leases executed has been the more challenging aspect. We have had no real price resistance. Even with the softening of the life science market, our proposals that reflect higher tenant improvement costs show we are able to get a higher going-in rental rate, lower free rent concessions, and longer lease terms, which generate the effective rent targets we are after. Dylan Robert Burzinski: Perfect. Thanks, Gerard H. Sweeney. Have a good one. Gerard H. Sweeney: Thanks, Dylan. You too. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone. Our next question comes from Upal Dhananjay Rana with KeyBanc Capital Markets. Your line is open. Upal Dhananjay Rana: Thank you. You mentioned you have six proposals out on One Uptown totaling around 100,000 square feet. Do you have any sense of the probability of those getting done and potential timing? If those were to get done, that could bring the leased percentage up over 90%. Gerard H. Sweeney: We feel optimistic, and we are pragmatic in assessing that. Our hope is that we get at least half of those across the finish line and do another full floor at Uptown. Our anchor tenant has a call right on one of the remaining floors that is exercisable later this year, so we are tracking that carefully. On the third remaining floor, given the success we had on spec suites in that building, we are also building out another floor. We have the mechanics in place, supported by the pipeline, to show continued occupancy gains at that property quarter-over-quarter. Upal Dhananjay Rana: Great, that is helpful. And on the recapitalization of One Uptown and Solaris, could you expand on demand and whether anything has shifted from what you anticipated earlier this year? Gerard H. Sweeney: Happy to. Starting with Solaris, the residential project: we achieved a significant acceleration of lease-up in a market with weak apartment demand drivers and supply imbalance. We accelerated move-ins by providing significant concessions, so initial year-one overall rent levels were below our target. Now we are heavily into the renewal season and getting about a 16% uptick across the board on renewals, which is a very positive indicator for future NOI growth. Retention has been fairly positive as well. With those data points, we have started discussions with high-quality institutional investors about recapitalizing that project with us. Feedback has been very supportive, and we expect to get that recap done in the third quarter per our plan, possibly earlier. At One Uptown, we continue to see good activity from institutions that want to partner on that project. From our perspective, we want to get a couple of additional leases done because that is the value creation proposition for us. We have no concerns about our ability to execute the recap on either Solaris or One Uptown, given the feedback to date and the pipeline we have to get One Uptown closer to the 80% to 90% leased range. Upal Dhananjay Rana: That was great. Thank you so much. Gerard H. Sweeney: Thank you. Operator: Thank you. I show no further questions in the queue at this time. I will turn the call back to Gerard H. Sweeney for closing remarks. Gerard H. Sweeney: Thank you for your help today. To all of you, thank you very much for participating in our first quarter call. We look forward to providing a further update on our business plan progress during the second quarter call. Thank you very much, and have a great day. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
David Mulholland: Good morning, ladies and gentlemen. Welcome to Nokia's First Quarter 2026 Results Call. I'm David Mulholland, Head of Nokia Investor Relations. Today with me is Justin Hotard, our President and CEO; along with Marco Wiren, our CFO. Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our Investor Relations website. Within today's presentation, references to growth rates will mostly be on a constant currency and portfolio basis and other financial items will be relating to our comparable reporting. Please note that our Q1 report and a presentation that accompanies this call are published on our website. The report includes both reported and comparable financial results and reconciliation between the two. In terms of the agenda for today, Justin will go through our key messages for the quarter. Marco will then go through the financial performance, and we'll then move to Q&A. With that, let me hand over to Justin. Justin Hotard: Thank you, David, and good morning, everyone. Our first quarter gave us a solid start to 2026. Net sales grew 4% to EUR 4.5 billion with an operating margin of 6.2%, and we delivered a free cash flow of EUR 629 million in the quarter. Gross profit was EUR 2 billion and gross margin expanded 320 basis points, supported in part by the absence of a onetime charge in mobile infrastructure in the prior year. It also benefited from strong performance in Optical Networks as we began to see the synergy benefits from the Infinera acquisition. Operating profit was EUR 281 million, with operating margin expanding 200 basis points. We saw strong momentum with AI and cloud customers. Net sales grew 49%, and we received EUR 1 billion in new orders, particularly driven by Optical Networks. At the group level, book-to-bill was above 1. And in Network Infrastructure, it was well above 1. I'm proud of Team Nokia's execution in Q1. The focus now is on delivering through the year and maximizing the growth opportunity in front of us. At our Capital Markets Day last November, we outlined our view of the AI super cycle and the market opportunity for Nokia. Since then, demand has accelerated. At the time, expectations were for the largest hyperscalers to spend around $540 billion in CapEx in 2026. Now, those expectations have increased to over $700 billion. This reflects the pace at which our customers are scaling infrastructure for AI. Today, AI-driven traffic is estimated at around 20% of total network traffic, which is roughly 80 exabytes per month and is still primarily human to machine. As we move deeper into agentic AI adoption and ultimately physical AI adoption, machine-to-machine traffic will become the primary driver of traffic, and that will lead to a step change in network traffic. We already see this demand in AI factories, both in data center interconnect and inside the data center in routing and switching. Increasingly, this is also driving demand in transport networks across metro and long haul, and we believe this is a structural shift in the market, which will sustain for multiple years. We now expect our AI and cloud addressable market to grow at a 27% CAGR between 2025 and 2028, up from the 16% we shared in November. This implies the addressable market for network infrastructure growing at a 14% CAGR compared to 9% that we shared in November. This is already benefiting Nokia in orders and in revenue. In March, we introduced several new products at OFC. These launches reflect our focus on accelerating innovation following the Infinera acquisition. The industry is scaling from hundreds to thousands of fibers between data centers. To address this demand, we introduced our next-generation hyperscale multi-rail solution, which will begin shipping later this year. It scales fiber capacity without expanding physical infrastructure, delivers an 8x increase in density and is 25% more dense than competing products announced recently. In addition, we also shared that we're evolving how we bring optical solutions to market. Our road map moves to a building block architecture with 4 optical engines that are embedded in multiple form factors compared to the 2 engines per generation previously. The architecture allows us to bring 13 application-optimized solutions to market. For customers, this means simplified deployment and a reduced total cost of ownership of up to 70%. These products will begin sampling in the first half of 2027 and will ship in volume in the second half. In Q1, we also saw strong growth in our IP networks pipeline as we build deeper engagements with our AI and cloud customers on switching and routing. We were awarded new design wins and continue to build a strong pipeline of further opportunities. We expect this to translate into new orders over the coming quarters. We've also increased our investment in optical networks and our new indium phosphide manufacturing facility in San Jose, California is on track to begin ramping production later this year. As a result, we are increasing our growth assumptions for network infrastructure in 2026. We now expect growth between 12% to 14%, up from the 6% to 8% we communicated in January. For Optical and IP networks combined, we expect growth of 18% to 20%, up from 10% to 12%. Turning now to Mobile Infrastructure. This new segment began operating in January, and the team is focused on aligning our road map to customer needs, streamlining the integrated business to improve productivity and delivering on the KPIs we outlined at our Capital Markets Day. Core software had another strong quarter, growing 5% and gaining market share. In the quarter, we delivered 6 competitive swaps. Our customers are modernizing their platforms with cloud-native solutions, adopting new security features and driving end-to-end automation with a focus on reducing operating expenses. Radio networks also delivered on our expectations. We signed several deals in the quarter, including with Virgin Media O2. At Mobile World Congress, we introduced a new generation of radios that are AI RAN ready. Our Doksuri remote radio heads deliver a 30% improvement in power efficiency and up to a 25% reduction in weight. In addition, we continue to make good progress on AI RAN in partnership with NVIDIA, and we are on track to begin field trials by the end of the year. Technology standards continue to perform well across its markets. The business continues to deliver stability, and we expect largely flat net sales for the full year with improved profit generation year-over-year. With that, I'll hand over to Marco. Marco Wiren: Thank you, Justin, and hello from my side as well. As Justin mentioned, we had a solid start to the year with EUR 4.5 billion in sales, growing 4% with growth in both operating segments. Gross profit was just over EUR 2 billion with a gross margin of 45.5%, a 320 basis points improvement on year-on-year. Operating profit was EUR 281 million, with an operating margin of 6.2%, and this is up 200 basis points compared to the previous year. Free cash flow was EUR 629 million, and the quarter ended with a net cash of EUR 3.8 billion. Network Infrastructure sales grew 6% in quarter 1. Optical Networks had another strong quarter with 20% net sales growth, and this is mainly driven by AI and cloud customers. We also grew in telecom as operators invest to meet increasing demands on transport networks. IP Network sales grew 3% with growth in AI and cloud, offset by softness in other customer segments during the quarter. We expect growth in IP Networks to start to accelerate in quarter 2 as we ramp shipments tied to new design wins with AI and cloud customers. Fixed Networks declined by 13%, reflecting our portfolio strategy to focus on higher-margin products. Sales of our optical line terminal products were largely stable in the quarter. And looking ahead, we expect the sales trend to improve as the year progresses. We see a supportive demand environment, especially in the U.S. with fiber deployments remaining a key investment focus for Tier 1 operators. Gross margin in Network Infrastructure was 43.4%, increasing 150 basis points. The increase was driven by a higher gross margin in Optical Networks, benefiting mainly from Infinera integration synergies and scale. We continue to expect some gross margin headwinds through the year as a result of product mix. Operating margin was 6.7%, a 30 basis points below the previous year as we had a full quarter of Infinera expenses compared to 1 month last year. For the full year, we do expect to slightly increase the Network Infrastructure operating margin. However, our focus this year is on investing to capture the long-term growth opportunity in the market. In Mobile Infrastructure, net sales grew by 3%. Core software sales grew 5%, while Radio Networks sales were flat. Technology Standards sales grew by 10% as a result of signing several deals in consumer electronics and multimedia, which contributed catch-up sales in the quarter. Gross margin increased by 430 basis points to 48.5%, in line with our long-term target for mobile infrastructure gross margins. The increase was mainly related to EUR 120 million contract settlement, which negatively impacted the previous year. We expect Mobile Infrastructure gross margins in the second and third quarters to be somewhat weaker and then much stronger in quarter 4. And this is consistent with the typical seasonality in the business. Operating margin was 8.9% in the quarter, an increase of 380 basis points, reflecting the settlement impact and lower operating expenses supported by the ongoing cost-saving program. If we then turn to look at our sales growth by customer segment, AI and Cloud grew 49%, mainly driven by Optical Networks. Mission-critical Enterprise and Defense grew 19% and Technology licensing grew 10%. These growing markets offset a 2% decline in telecom to deliver 4% growth for the group. The decline among telecom customers was partly related to some of the portfolio decisions we are taking in Fixed Networks. Overall, we continue to see the telecom market as relatively flat. The quarter 1 was a strong quarter for free cash flow generation, which amounted to EUR 629 million. We saw the typical working capital unwind in the first quarter related to the receivables buildup at the end of '25 from a strong quarter 4 sales seasonality. For your models, remember that quarter 2 is typically a seasonally low period for cash as we pay employee cash incentives in that quarter. Finally, to our '26 guidance assumptions. Our group level financial outlook remains unchanged, and we are currently tracking somewhat above the midpoint of the range for comparable operating profit, which is between EUR 2 billion and EUR 2.5 billion. Justin has already mentioned the 2 key assumptions for the full year that have changed. We now target to grow faster in Network Infrastructure this year with 12% to 14% growth, up from the previous assumption of 6% to 8%. And specifically in Optical and IP Networks, we now target 18% to 20% growth, up from the previous 10% to 12% growth. Then regarding quarter 2, we currently assume a 5% to 9% sequential increase in net sales. For operating profit, we expect quarter 2 to account for between 12% and 16% of the full year based on the comment I already made that we are tracking somewhat above the midpoint of the full year range. This would equate to H1 being between 24% and 28% of the full year operating profit, consistent with 2025. And this is mainly due to the growth-related investments we are making to support the long-term opportunities in the business. And with that, let me hand back to David for Q&A. David Mulholland: Thank you, Justin and Marco. As usual, for the Q&A session, as a courtesy to others in the queue, could you please limit yourself to 1 question and a brief follow-up. Sherry, could you please give the instructions? Operator: Yes, sir. Thank you. We will now begin the question and answer session. [Operator Instructions] I will now hand it back to you, Mr. David Mulholland. David Mulholland: Thanks, Sherry. We'll take our first question today from Fredrik Lithell from Handelsbanken. Fredrik Lithell: Congrats, a great report. I would like to step into the world of Optical Networks and ask you your raised assumption for the year. Is that based on that you see more positively on getting better traction on sort of production capacity throughout the year, so earlier than you anticipated before? Or is there something else in there that gives you the opportunity to raise that guidance? Justin Hotard: Yes. Thanks, Fredrik. So I think 2 things I would touch on. I think one is a little bit more confidence on supply. And obviously, the fab is one component. There's also the other -- the components of the optical subsystems, the DSPs, obviously, that's in pluggables. Obviously, as you think about our larger systems, there's multiple different elements to that. So it's a bit more supply confidence on optical from -- obviously, as we said, demand is strong -- demand continues to be strong on optical. And then it's also related to some of the traction we're starting to see in IP networking. And as we've talked about in the past, the IP networking business has been a little bit lumpy as we drive the growth, but we're starting to see more visibility for the year, and that's a part of what's driving the growth. David Mulholland: Did you have a follow-up, Fredrik? Fredrik Lithell: I'm fine with that. David Mulholland: Thanks Fredrik. We'll take our next question from Janardan Menon from Jefferies. Janardan, please go ahead. Janardan Menon: Just wanted to dive into the design wins and the EUR 1 billion that you've reported saying most of that or the bigger portion of that is from Optical. Are these still on the 800 gig side? You had put out a very impressive portfolio of products at the 1.6T, 2.4T, 3.2T at OFC, which you said would be starting to come through by late 2027. So are you already seeing some order intake on those? Or is it too early for those kind of more leading-edge products to be -- or next-generation products we're seeing orders right now? And I have a small followup. Justin Hotard: Yes. First of all, thanks, Janardan. So I think if you look at the demand that we're seeing -- the demand that we're fulfilling, I should say, for this year, I really see that momentum on the back of our 800-gig pluggable and then the associated line systems and the platforms that we have available and shipping today. A key thing that I maybe didn't touch on in my comments, I'll just emphasize is that the road map we launched at OFC, I touched on the fact that it's largely oriented towards 2027. But a key note there is that road map was designed with a real focus on AI and cloud customers and designed in collaboration with some of those customers. So we talk a lot about that customer collaboration. I talked about it at CMD a little bit. We talk about it quite a bit internally, and that's a good example. And then as I would just kind of give you macro broad brush orders, I think what we see in orders generally is some elongation in orders in terms of a desire for a longer-term commitment on orders. And that's, of course -- that's also something we're seeing in terms of our demand back into the supply chain, providing longer-term commitments. And I think that's very normal with the kind of demand expansion we're seeing in the lead times. And I think if you look at other -- our peers or other players in our ecosystem in this space, they're all saying similar things. So I would say that, that's very consistent for us as well. Janardan Menon: Understood. And I know you don't want to talk about growth in Networks and Optical separately, but it's been quite a big increase in -- it's quite a big increase in your guidance from 10% to 12% to 18% to 20%. Is most of that from Optical? Or are you going to see a meaningful acceleration in your IP side from Q2 onwards, which could, say, take you towards the double-digit 10% kind of growth rates there by the end of the year? Justin Hotard: Yes. I would say that the optimism we have on the 18% to 20% is across both sides of the business right now. David Mulholland: We'll take our next question from Artem Beletski from SEB. Artem, please go ahead. Artem Beletski: I would like to ask on AI and cloud-related orders. So I think book-to-bill was around 3 in the quarter. And when do you actually expect some catch-up to be seen in terms of deliveries? And could you maybe talk still about some potential delivery constraints what you have in this area? Justin Hotard: Yes. I think, Artem, first of all, I'd say right now, I'm focused on maximizing the opportunity that we see. And I don't see the book-to-bill is something I need -- we need to catch up to. Our focus right now is on just maximizing the demand. As I said as well, we are starting to see some elongation of the order cycle, which is normal in these. And then in terms of constraints, I mean, I won't get into too much detail, but I think it's -- generally, it's -- there's a fair amount of constraint in the semiconductor ecosystem in general. We don't talk about it, but if you think about the kinds of lead times you hear across the semiconductor manufacturers, the leading players, I think that gives you a pretty good indication of what lead times are, and then obviously, in other areas, at the scale that we're building indium phosphide as an industry, obviously, that's driving demand back into the supply chain that we need to build capacity for. And so we're working on that as well. And that gets a little bit to the point on investment. As you think about investment, I would think about it in optical in a few ways, right? One is investing and scaling the capability and capacity. We're obviously bringing on the second fab, but it's scaling production capability into the supply chain. And then, of course, continuing to invest in the product portfolio to make sure we're maximizing the coverage of the portfolio against the market demand that we see. David Mulholland: Thanks Artem. Did you have a quick follow-up? Artem Beletski: Yes, I had actually. So just relating to fixed networks. So you do highlight some headwind coming from consumer premise fiber business that is not seen strategic. Is it something that should be prevailing throughout this year or how we should think about it? Justin Hotard: Yes. I think it's something that is going to -- we're going to continue to be disciplined throughout the year. And there's probably two things to consider here. One is the macro market on fiber, particularly with what's happening in the U.S., we talked about some of this last year with the CapEx builds of the Tier 1 and Tier 2 operators, obviously, beat us some tailwind. So we feel good about the underlying business, but we want to make sure that we're focused on the right type of business for us long term. And so we expect that we'll have -- continue to have some headwind on the CPE side as we become more disciplined in that space and focus on the areas where it's valued. We also think this is a business that has good long-term prospects in data center. And we launched at OFC. I didn't touch on it, but at OFC, we launched an out-of-band management solution oriented towards data center. So we really like this business and we realized it was a bit of a tough quarter. It's just a situation where we're going through what I think is a very intentional transition to making sure the business has a long-term sustainable growth profile, not just in top line, but more importantly, in gross margin and operating profit. David Mulholland: Thanks Artem. We'll take our next question from Simon Leopold from Raymond James. Simon Leopold: Thank you, David. So the first thing I wanted to touch on was, in the past, you've floated this idea of growing the switching business by on the order of EUR 1 billion into hyperscale opportunities. I'm wondering with -- given sort of the commentary today and the wins you've had, could you update us on really the current opportunities in the sales funnel and longer-term prospects for this business unit? Justin Hotard: Yes. I don't -- Simon, I'm not sure there's much more that we'll say than what we described, but maybe just to kind of break it down a little bit. Good design wins in Q1. Those don't show up meaningfully in orders. They're in pipeline, but they're not in orders in Q1. So we expect to see some of that start to flow in, in Q2. And as you likely know, these businesses are more design win driven. And what I mean by that is it's not a procurement event where you kind of -- you have a procurement, and then if you're awarded that, you win that procurement, then you go to the next procurement. It's more about getting designed into a specific use case and application. And so that means that the sales cycle is a little bit longer, but encouraged by the progress that we're making here, and we'll continue to update you as we see the longer-term forecast. But I'm really pleased with the work that the team is doing and the progress we're making. Simon Leopold: And then as a quick follow-up here. It does seem as if the press release cadence in the mobility business has stepped up a bit. And you didn't talk that much about it today, but I just want to get a better feeling. You mentioned the field trial for the AI RAN. Wondering if there's any movement change in your view on how this particular business unit in mobility RAN might be trending, particularly relative to how you talked about it last quarter. Justin Hotard: Yes. I think, first of all, Simon, a couple of things. One is, and we touched on this a little bit in our -- well our segment performance shows it, and I think we touched on it. Overall, the telecom market is flat. I think what we realize is that strategically, this is a market where we need to find new sources of value, and those can come either from enabling new services for the telcos to monetize or a business that's less CapEx intensive. And I think we fundamentally believe that the future is much more of an evolution and is software-driven. We've talked about that in a number of forums. What I'm very pleased about right now is that the AI-RAN trials and the engagement around a model that will fundamentally be different for the baseband because we'll start to detach software innovation. And what I mean by that is not just features, but actual performance enhancements from the underlying hardware, just like you see model performance gets better in AI with GPUs, but you continue to see model performance improve even over the life of the same GPU. It's one of the benefits of that architecture. We see that same thing coming in this part of the business. And so I'm really pleased that we're seeing such strong interest from the industry. And I think this is a business as we -- as I said at CMD, our focus is not on making the business necessarily a growth business because the underlying market is not growing, but to make it one that's much more profitable and delivers an attractive return on invested capital. And that's our focus. I'm very pleased with the start the team has coming together in MI. Obviously, a lot more work to do and a big milestone later this year with NVIDIA. David Mulholland: Thanks, Simon. We'll take our next question from Rob Sanders at Deutsche Bank. Rob, please go ahead. Robert Sanders: Maybe just a question around profitability in optical. I think originally with the Infinera deal, you were looking at double-digit operating margin. But clearly, you're stepping up your investment. So I was just wondering if you're still sort of on track to hit that target maybe by next year? The second question would just be around hiring and OpEx. Given the opportunity is clearly growing, what is your view around OpEx growth this year? Justin Hotard: Do you want to take those? Marco Wiren: Yes. When it comes to the Optical, just like when we announced the deal in Infinera deal, we said that we aim for double-digit operating margins, and this is something we are still believing in. We've seen a very good synergy work that the teams have been doing, and we are on track or actually ahead of our targets when it comes to synergy captures. So we're very pleased with that work. And also when it comes to -- if you look the combination of these 2 companies, how well they actually complemented each other. And this has been extremely successful among our customers as well. So we have had very good design wins. We were very fast to decide on the road map. And this is one reason why we've seen these good wins on the Optical side. So there's a lot of positive things that we've seen, thanks to that integration and acquisition. Yes. And when it comes to OpEx, we've just said that we invest in capturing these opportunities in Optical side. And just like Justin mentioned earlier, supply is constrained. So we are investing in securing that we get the supply that is needed. So we focus on that. Otherwise, we don't guide any specific OpEx numbers. David Mulholland: Thanks Rob. We'll take our next question from Ulrich Rathe from Bernstein. Ulrich, please go ahead. Ulrich Rathe: I have 2 questions. The first one would be, so you're maintaining the group EBIT outlook with this higher growth in Optical, IP and you're explaining that you want to secure growth with higher investments. Could you talk a little bit more about the mix of these costs? Is this more R&D? Is it more sales and marketing? Is it more into production? Just more color on that cost increase would be helpful. That would be my first one. Justin Hotard: I think, first of all, Ulrich, and I'll let Marco add if he needs to. But just to remind you, we always provide a range, and we give you some direction on the range, right? So we're not changing our guidance, which is the range. What we -- and we said we're slightly above -- we're guiding somewhat above the midpoint, right? So the key thing here for us is as we look at the business, we're making investments, and you touched on a number of them. It's R&D, obviously, sales and marketing and production. And Marco just touched on some of that, right? It's -- there's obviously -- there's CapEx with the work that we're doing around the fab. But there's also investment in OpEx and scaling capability and manufacturing. And if you just think about what's happening in this part of the business, particularly around Optical, we're also going through a massive step function in volume as an industry. And so that means that we actually have to do work to mature the supply chain, mature the production capability as an industry, and we're not immune to that. So we're investing to make sure that we're successful in that and that we can capture the fullness of the opportunity around us. Marco Wiren: I think this is pretty much the same actually, if you look also the whole industry in Optical side. So the whole supply chain is doing the same as well to secure that we actually can capture those demand opportunities. But still, there's more demand than supply. So that's why it's important that we invest in capturing these opportunities. David Mulholland: Did you have a follow-up, Ulrich. Ulrich Rathe: Yes, a quick follow-up maybe. On this guidance upgrades and for the Optical growth, there still seems to be a relative dearth of customer announcements with hyperscalers. Could you talk about the reasons? You talked in the past about that you don't actually care that much, you'd rather care about the business. But is there possibly a hesitation on the side of the hyperscalers to talk about Nokia given Nokia is not a U.S. company? Or are there any other specific reasons why you wouldn't have sort of more meaningful announcement that tell us what you're doing with which hyperscaler and these kinds of questions? Justin Hotard: Yes. I think, Ulrich, you probably have to talk to our customer or perhaps through who they are, but you could ask customers about us. From my perspective, that's not my priority. My priority is making sure we're partnering with them effectively. We're delivering what they need, and we're helping them execute on their strategies. That's my focus. And obviously, we're capturing our share of the opportunity that's out there. So that's where I spend my time. Obviously, I think what's a little bit different about us than some of the U.S. players more broadly is that we also don't have a concentration dynamic because the business is more diversified. And so that may be also something, but there's no indication that I get that there's any kind of geopolitical dynamic to this. David Mulholland: Thanks Ulrich. We'll take our next question from Richard Kramer from Arete. Richard Kramer: Justin, you mentioned the elongation of the order book. Can you tell us how much of that EUR 1 billion of new contract orders is firm, i.e., that you have purchase orders against it versus long-term sort of frame contracts, just to understand the timing of realizing that additional incremental EUR 1 billion of orders. Justin Hotard: Yes. Actually, Richard, this is a great question. So just to clarify, we have -- actually across the business, including with our telco customers, we have multiyear frame agreements. And sometimes we announce some of those. But the only thing you see in orders is firm purchase orders with delivery dates. What we haven't dimensionalized for you is anything kind of above a certain lead time. But we are -- one thing we are seeing is some of that elongation. But I see that as a net positive because I think it's tied to the demand -- the underlying demand for the products, and it helps us with predictability and capacity planning. So for me, it's a positive in terms of how we're managing and scaling the business. David Mulholland: Did you have a quick follow-up, Richard? Richard Kramer: For Marco -- yes, please. A quick one for Marco. Given the working capital buildup, the employee incentives, the EUR 750 million to EUR 850 million of pending CapEx to your EUR 900 million to EUR 1 billion expectation, restructuring and so on, will year-end cash be materially lower than what we see now? It just feels like you have a lot of cash constraints or drains on the business in the next 2 to 3 quarters. Marco Wiren: Yes. Thank you. Yes. Just like you said, we had a very good cash generation in quarter 1 and quarter 2 is lower. But we do generate cash continuously year-by-year as well, and we are also securing that we have a very good cash position to have the freedom to make decisions that we need to do, of course, always allowing us to follow the capital allocation principles that we have in the company, that first priority is on R&D. And then secondly is to find other investments inorganic that could support our growth and then dividend. And if we deem to have excess capital, then we can consider share buybacks as well. But we are quite confident about our cash position. David Mulholland: Thanks Richard. We'll take our next question from Felix Henriksson from Nordea. Felix Henriksson: Congrats for a strong order quarter. Given the unprecedented demand in AI and cloud, and also the supply-constrained market environment across the sector, is pricing something that's contributing to your guidance upgrade in Optical and IP? Are you starting to see support from raising prices for that? Justin Hotard: Yes. Felix, thanks for that. Maybe I'll comment, Marco, you may want to add. But I think in general, what we see is if you look at Optical, you've actually got -- structurally, you've got a cost curve that's probably coming down, which is enabling scaling. And so I would say, in general, we don't see -- is not a contribution on pricing, it's much more unit volume. What I will say is that I think we acknowledge that there are some cases where pricing is going up. I mean memory has been talked about quite a bit as a structural pivot. And that's a place where we have some exposure across the business. And obviously, we're working with customers on that because in our minds, that's something that's structural that we're -- in some cases, we're passing on. In other cases, we're also working on things like redesigning our products, right? But again, those are focuses that we're working on mitigating. And then -- but in general, I would say, if you look at the growth, it's much more volume driven than it is price driven. Marco Wiren: And just building on that, if you think the new launches that we introduced also in the OFC, the main focus is power of the bid. So how can we improve the power of the bid for our customers because that's one of the main KPIs they have, so helping them to improve their cost base. David Mulholland: Did you have a quick follow-up, Felix? Felix Henriksson: Yes. Just a quick one. I'm not sure if I missed it already, but can you just comment on how long the lead times between getting the order to actual revenues in Optical are at the moment? Just trying to get a sense of the EUR 1 billion incremental AI and cloud orders for Q1, whether or not those will already support 2026 or more so for 2027? Justin Hotard: Yes. I don't think we gave you a specific one, Felix. But I think dimensioning probably for this -- for the broader demand that we see is like in this -- in the Optical space is 12 to 18 months. I mean there's -- as you know, there's always exceptions in these things where some things might be sooner depending on the specific product, but that's probably a good way to think about the broader lead times we're seeing today. David Mulholland: Thanks, Felix. We'll take our next question from Sandeep Deshpande from JPMorgan. Sandeep, please go ahead. Sandeep, we can't hear you. Operator: I just find this, perhaps your line in on mute. Sandeep Deshpande: My first question is regarding the switching business of Nokia. You -- on the Optical side, you probably have all the hyperscalers as customers at this point. You announced in the past few quarters wins on switches at multiple hyperscalers. Would you suggest at this point that you have a fairly broad exposure in terms of at least what is the future design win activity or future shipments at all the hyperscalers? Or is it still very limited to 1 or 2 hyperscalers in terms of your switching business? Justin Hotard: I don't know if I'll give you that much dimensioning, Sandeep, but I would say that as you look at the AI and cloud customer base -- the macro AI and cloud customer base, there's quite -- there's a set of different strategies that each one pursues. And I'd say the places where we get traction is where our portfolio fits our strategy is probably the best way to give you the answer. David Mulholland: Did you have a quick follow-up, Sandeep? Sandeep Deshpande: Is it broader today than it was, say, a year ago, the customer base? Justin Hotard: Yes. I think it's -- yes, I guess I don't quite measure it that way. I'm looking more at the design wins in the footprint. And I think that's certainly broader based on what we see today than it was a year ago. Sandeep Deshpande: And I have a quick follow-up on the financials. Marco, I mean, well before your time, I mean, Nokia in the past in terms of merger, M&A has -- in terms of integration has had problems. Clearly, at this point, you have tremendous growth. So that is helping the top line very significantly. But has the company got a structured process in place such that in terms of the integration with Infinera that this underlying doesn't have any issues going in the mid- to long term? And then secondly, given that there is a new fab ramping up as well later this year, are there any risks associated with that later in the year, given typically with semiconductor fab ramp-ups that can have issues? Marco Wiren: Yes. First of all, if you look at the integration, as I mentioned earlier as well that we are tracking extremely well on that compared to our own targets and also what we guided the Street. And we've been actually doing it better than we expected. So the team is extremely focused on securing the integration, and speed is extremely important here. So I understand your comment on the past perhaps, but this is definitely going well, and we're extremely happy with the progress. Do you want to... Justin Hotard: Yes, maybe I'll just add on that. I would just say, Sandeep, two things. One is, I think if you look underneath this, even if you took the growth out, I think you'd see very solid execution on the integration. I think the team has done really well. One of the most important things in integration that's a driver of outcome is cultural. And when you -- one thing that was clear to me when I went to OFC was, I could not -- everybody was Nokia -- was a member of Team Nokia. There wasn't an Infinera Nokia team, it was one team. That's hugely important, right, for being successful. The two other comments I'll make here is one acquisition, as you well know, does not a trend make in terms of successful execution and integration. So we have more work to do before we decide we're effective at this. And it's something that with the focus we put under the Chief Corporate Development Officer, Konstanty, obviously, one is making sure we find the right business for -- the right place for our portfolio businesses. Two is obviously being smart with how we think about capital allocation in terms of M&A where we believe that's accretive to our strategy. And then three is making sure we actually execute the integration. So that's a place where I'm pleased with the work that he and the team are doing, obviously, in close partnership with Marco, with our Chief People Officer, with all the key functions and the business presidents. But there's a journey here. And I think the net here is Infinera has been a good one. We need to get the learnings on that and then make sure we also don't forget the lessons from some of the challenges we've had in the past. Marco Wiren: And then when it comes to the manufacturing, remember that Indium phosphide is quite different compared to silicon manufacturing. So this is, first of all, much lower CapEx needed, but also it's faster. And I think that our team is working extremely well and understanding based on the learnings also from the Fab 1, we are transferring those into the Fap 2 and very good learnings from Fab 1. I don't know, Justin, if you want to say something more. Justin Hotard: Yes. I would just say our guide -- the only thing I would add is I think our guidance is risk balance understanding -- contemplating that ramp. And the reality is Fab 2 is a fraction of the ramp for '26, it's much more material to the longer term. David Mulholland: Thanks Sandeep. We'll take our next question from Jakob Bluestone from BNP Paribas. Jakob, please go ahead. Jakob Bluestone: So I had a question on the sort of margin progression as your IP revenues scale. I mean you've put through a sizable increase in your revenue guidance for some of the components for NI, but it's a sort of more modest change in your language at the group level. So if you can maybe just help us understand for IP in particular, as that business starts to accelerate, is it a bit like what we've seen on Optical, where initially it's perhaps not quite as accretive to margins? And then as that business starts to gain scale, it becomes a lot more margin accretive as well. So just if you can help us sort of understand the drivers there. Justin Hotard: I think the way I think about it, Jakob, is -- I think probably like any business, there's a scaling effect, right? I guess for me, the big focus right now is on capturing the opportunity and making sure it's accretive profit into the company. that's the priority. I don't know, Marco, if you'd add anything. Marco Wiren: No, it's -- always when you're starting with the new products, it takes some time to get the profitability up, and that's why we also mentioned that we see some impact of that in NII for first half of this year. But just like Justin said, that these are definitely accretive to our operating profit, and we see good opportunities there. Jakob Bluestone: As like San Jose... David Mulholland: Thanks Jakob. Go ahead Jakob... Jakob Bluestone: So I just had a quick follow-up. Just on the San Jose fab, can you maybe just help us understand, I don't know if there's any way to quantify whether that will cover your internal needs from the outset or not? Justin Hotard: Yes. I mean I think as we've talked about, San Jose gives us support. Certainly support for the growth that we see and expansion capacity for us as well beyond the portfolio that we have today and the volume that we see in the market. So that doesn't mean that we won't look at ways to accelerate -- further accelerate capacity because as we said, we think long term, this is a structural market, and we're pretty uniquely positioned as one of the few manufacturers with indium phosphide manufacturing capability at scale. But we think that too gives us -- certainly gives us the runway for the near term. David Mulholland: Thanks, Jakob. We'll take our next question from Sébastien Sztabowicz from Kepler. Sébastien, please go ahead. Sébastien Sztabowicz: The main opportunity for Nokia remains get across with optical line system and your pluggable optics. But I'm just curious, have you seen any specific opportunity building up around co-packaged optic or near package optics because the market seems to be quite bullish or there are a lot of demand building up these days. Justin Hotard: Yes. I think on that side, we've not made any announcements there. We've demonstrated -- at OFC, we demonstrated some technology development, but no announcements at this time. Sébastien Sztabowicz: Okay. And a follow-up on Infinera and the synergies. Previously, you were talking about maybe generating the EUR 200 million synergies in 2026 instead of '27. Are you still on track with that? And attached to this question, given the accelerated investment, is it fair to assume still a nice improvement of margin in Optical Networks this year or not? Marco Wiren: Yes. Thank you, Sébastien. Yes, the synergy, as I said earlier, we are tracking very well and a little bit ahead of our schedule. We originally said that it will take 3 years from the closing. And we said that we are tracking somewhat better than that. And we see the impact of synergies already in our quarterly reports as well. Just like in quarter 1, we mentioned that Infinera acquisition synergies are benefiting Optical business, and we will see those throughout the year as well. David Mulholland: Thanks Sébastien. We'll take our next question from Oliver Wong from Bank of America. Oliver, please go ahead. Oliver Wong: I had a question on -- going back to the Q1 AI orders and just your backlog and AI orders in general. I guess, so you mentioned that the lead times in Optical and I think IP are 12 to 18 months currently, but you also significantly increased your growth assumptions for this year for Optical and IP. So I was wondering, are these orders even though the lead times are up to 18 months are -- is much of this still quite kind of near-term loaded? And also in terms of the IP growth expected this year, I presume that most of that is from switch business. But you mentioned kind of big design wins and then that translating into orders starting next quarter. So are a lot of these design wins expected to kind of translate into revenues this year? Justin Hotard: I think as we touched on some of the design wins will start ramping this year. And yes, and I should clarify, we talked a little bit about Optical being 12 to 18 months. I think you've heard other peers in the industry talk or some of the players -- the ecosystem peers talk about being sold out over multiple years. I think that's probably a pretty good indication of where we see the Optical side. IP is a little bit shorter, but I would say there's parts of that supply chain that have constraints. And so obviously, we work closely with customers on forecasting and planning. And as we said, the only thing we register are the actual purchase orders themselves. That's what you'll see translated to orders. David Mulholland: Thanks, Oliver. We'll take our last question this morning from Emil Immonen from DNB Carnegie. Emil, please go ahead. Emil Immonen: So, I have a question on... David Mulholland: We can barely hear you. Your line is very hard to hear. Emil Immonen: Can you hear me now? David Mulholland: Yes, that's a bit better. Emil Immonen: Yes. So the growth you're saying the 27% market growth that you're now seeing instead of 16%. Could you comment on, is that volume or is that price-driven? Justin Hotard: It's volume driven. Emil Immonen: Okay. In that case, given the Fab 2 coming online at the end of this year, does that mean that you're building a third fab maybe? Because I think previously, you said that you were planning your current capacity to the earlier growth you were seeing in demand. Justin Hotard: Yes. I think one thing we've -- maybe just to clarify in case we haven't clarified in the past, Fab 2, when we shared in November, what we talked about was Fab 2 being able to be sufficient to meet the demands of the guidance we provided, and there was additional capacity on top. Obviously, we're not making any announcements about additional manufacturing capacity at this time. But that's the way I would think about it is that in the prior guidance, there was excess capacity and ability to build. I would take the -- if you kind of stitch the conversation together, I'll stitch it together for you. We're making additional investments that probably means that we're -- part of what we're doing there is investing in ramping Fab 2 at scale. And again, it's not just the fab, it's all the components of the supply chain because that fab produces a critical component, which is the optical component, but there's also a DSP, there's other components in our pluggables, and there's also many other components in our subsystems from the ecosystem. So all of that factors into this. David Mulholland: And thank you, ladies and gentlemen, for joining us today. This concludes today's call. I would like to remind you that during the call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may, therefore, differ materially from the results currently expected. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our Investor Relations website. Thank you all. Operator: The conference has now concluded. 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Operator: Ladies and gentlemen, welcome to the Schindler Q1 Results 2026 Conference Call and Live Webcast. I am Valentina, the Chorus Call operator. [Operator Instructions] the conference is being recorded. The presentation will be followed by a Q&A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lars Brorson, Head, Investor Relations. Please go ahead. Lars Wauvert Brorson: Thank you, Valentina. Good morning, ladies and gentlemen, and welcome to our Q1 2026 results conference call. My name is Lars Brorson. I'm Head of Investor Relations at Schindler. I'm here together with Paolo Compagna, our CEO, and Carla De Geyseleer, our CFO. As usual, Paolo will discuss the highlights of our Q1 results and our 2026 market outlook, and Carla will take us through the financials. After the presentation, we are happy to take your questions. We plan to close the call at 11:00. With that, I hand over to Paolo. Paolo, please go ahead. Paolo Compagna: Thank you, Lars. Good morning, everyone. Glad to be back to report on our Q1 results. And overall, I'm pleased with the start we made in '26, continuing our strong operational momentum from the last year. At the same time, we faced a very volatile macro environment, which we are responding to more during this call. Let me start with growth. In terms of order intake, we grew close to 3% in Q1. Well, this is still not the growth level we would be happy with, but let us look together at 3 important points. First, we are pleased with our product momentum. We are seeing very good traction with our new modular platform and the new installation markets. You remember this was started to be rolled out '24 in Europe, and continued in other zones in '25. Not only is growth picking up here, but we are also seeing very visible improvements in terms of field installation efficiencies, which helps. Secondly, the ramp-up in our new mid-rise product in the U.S. continues to exceed our expectations. And thirdly, the rollout of our standardized modernization packages is gathering pace. Also increasingly facilitating growth in modernizations outside of our existing maintenance portfolio. And finally, in terms of large projects, we are seeing some improvements here, too. Large projects grew in Q1 versus the first quarter of last year, and our project pipeline looks promising for the rest of '26. An additional word on modernization. Growth here continues to stand out. Order intake was up 15% in the quarter. And I'm really pleased to see that our revenue growth was even higher. Our backlog execution continues to move in the right direction globally, and all our regions grew modernization revenue by double digits in the first quarter. We continue to expand our supply chain and field installation capacities which make us confident that we will continue to execute our modernization backlog successfully throughout '26. Looking at total group revenue growth, we were off to a slightly softer start in '26 growing 1.7% in Q1. Revenue in our new installations business was down high single digits in the quarter, with China still the main headwind. But we confirm our full year guidance of a low to mid-single-digit growth as Carla will share with you the details later. Now operationally as I said, I'm very pleased with the quarter. Our operating margin expanded by another 100 basis points to 13% in Q1. Seasonally, our lowest margin quarter of the year. And operating cash flow was strong again this quarter at over CHF 500 million. But let me briefly also talk about the broader operational environment as we see it today. It is clear that the crisis in the Middle East brings some challenges we need to respond to. As the revenue contribution from the Middle East makes up less than 2% of the Schindler Group, the top line actually -- the top line impact actually remains modest. But serving our customers in this region has been met with some challenges in the past 2 months, particularly for the new installation deliveries. We have currently around 200 units produced, which I don't hold or in transit and which we are actively looking to deliver to customer sites via alternative routing to still active parts. But outside of that, even the broader impact on our supply chain remains limited, we are facing some additional cost inflation in terms of logistics, fuel and energy costs and commodities. Carla will provide you all the details on the expected cost impact. In terms of mitigation measures, we are actively working on pricing actions in order to offset this cost pressure. Both list prices as well as surcharges across new installation, modernization and our service businesses. as well as working closely with our supply chain to manage efficiencies on the supplier side as well. Currency translation is significantly impacting our financial performance with the continued appreciation of the Swiss franc. This quarter, we faced an FX headwind of over CHF 200 million to our order intake at 7%. And Q1 match with that 1 of the highest hit quarters on record in terms of FX headwinds. Last but not least, a word on sustainability and our consistent effort in product development. We are pleased to be awarded the ESG Award '26 for our low carbon emission steel elevator pilot at the MIPIM '26. Many of you know the MIPIM is one of the leading real estate events globally in the annual calendar. The award comes at a time when we all are reminded of the importance of energy efficiency, and we are proud to be leading the industry with the first ever low carbon emission steel elevator installation. Turning now to Slide 4 and our order intake in the first 3 months of the year. In service, our maintenance portfolio continued to expand with the strongest growth in Asia Pacific, excluding China. In Americas, while we saw growth in value terms, our selectivity was leading in units recaptured to a modest decrease, confirming our overall strategy. But next, we expect to see a gradual improvement over the coming quarters. In modernization, we have been able to continue with the strong momentum recorded in '25, with the only exception being Asia Pacific, excluding China, where orders marginally decreased primarily due to lack of large projects in the quarter. China again was the standout with growth well into double digits as we continue to benefit from the bond program further scaled up from '26 -- up for '26 from the 120,000 elevators units replaced last year. In new installations, our global order volumes declined by more than 5% to China. In the rest of the world, our NI, New Installation orders grew double digit, driven by EMEA and Asia, again, excluding China. Moving to the market outlook on Slide 5. We have decided to keep our outlook unchanged for the time being, while continuing to closely monitor the effects from heightening geopolitical tensions on construction markets, both in Middle East and globally. Foreign investment has played a significant role in driving growth within Middle Eastern real estate markets in recent years. Therefore, we remain attentive to any potential impact on investment flows to the region. Construction input costs were still at elevated levels already prior to the onset of the conflict in Iran 8 weeks ago. These, together with rising oil and gas prices are likely to contribute to further cost increases placing burden on builders and subsequentially on homebuyers. The surge in inflation has also altered the global interest rate outlook from a trajectory of steady reductions to one that now carries an increased risk of further rate hikes with implication for both demand and supply within the real estate sector. In spite of these challenges, we did observe robust activity modernization markets across nearly all regions. However, at this time, we are not revising our outlook upwards, preferring to await confirmation of the continued strength in the coming quarters. In installation, just to call out a few selected markets, construction activities continued to gradually pick up in Germany with multifamily building permits up close to double digits on the 12-month rolling basis and strong growth in new orders recorded by builders in the residential sector. Activity in Brazil remains solid, driven by affordable housing. And in the U.S., there have been mixed signals as multifamily permits and starts have risen in spite of Architectural Billings Index remaining below 50 for 33 consecutive months. In China, construction remains under pressure with all key lead indicators such as floor space started and real estate investment down by more than 10% again in Q1. With that, let me turn over to Carla to walk us through our financial results in more details. Carla Geyseleer: Thank you, Paolo. Good morning, everybody. A pleasure to have you on the phone. So let's take a look at the financial results. So Slide 7, so the usual summary slide of the current quarter compared to the last 4 quarters. As Paolo said, we are pleased with the operational momentum in the first quarter. Margins up 100 basis points year-on-year, both reported and adjusted EBIT. And another quarter with a very good operating cash flow, even if we didn't quite hit last year's exceptional high level for the first quarter. Finally, we moved our net profit margin into double digits, which is also a very pleasing development. Now a quick word on currency. As mentioned, we have been facing accelerating FX headwind in recent quarters. And in terms of the revenue impact, it amounted to more than CHF 180 million in the first quarter, so close to 7%. And this obviously comes from the appreciation of the Swiss franc versus our main currency exposures, particularly the dollar. But the headwinds from some of our smaller exposure such as the Indian rupee are also having a notable impact. Now looking back over the last 10 years, the cumulative FX impact shaved off over CHF 3 billion of our top line and over CHF 350 million of EBIT. Now moving to our top line development on Slide 8. So giving you some insights what we see in our different regions and in our different segments. So first of all, regionally, we grew the order intake and the revenue in local currencies in all regions outside of China. At the order level, China cut 1.5 percentage points of group growth in the quarter with order growth as a result, 4.3%, excluding China compared to the reported 2.8%. The standout region was Europe, particularly Northern Europe, which showed high single-digit order growth in the first quarter on a reasonably tough comparison from last year. So overall, very pleasing to see growth here, including a very good development in Germany. Now looking at our business segments, as Paolo mentioned already, modernization contributed strongly to the order intake and the revenue in the first quarter, both growing at 15%. New installations saw order intake stabilized this quarter, but revenues declined high single digit with China down over 20%. And finally, growth in service business continues to be accretive to the group growth overall. From this slow start of the year, now we expect to see a modest but gradual improvement over the next 3 quarters, consistent with our full year guidance of low to mid-single-digit growth. Growth in our order backlog was up 2.5% year-on-year, 3% sequentially in local currency, driven by modernization, which was up 15% year-on-year and the backlog margin improved somewhat sequentially. Now moving to EBIT and EBIT adjusted. So you can see here on the slide, the FX impact is also hitting our EBIT bridge. This quarter, minus CHF 23 million. Now the good news is that we are more than offsetting this by operational improvements, which was plus CHF 33 million in the first quarter, which is in line with the quarterly levels we saw throughout '25. So we are maintaining our productivity momentum with savings coming from SG&A, procurement, supply chain and field efficiencies. Particularly, the latter has picked up in recent quarters, which is pleasing. Now price and mix were contributors to the CHF 33 million operational improvement, but less so than efficiencies. So our equation, pricing plus efficiency outweighing inflation remains firmly positive with both inflation and pricing likely to gradually increase over the coming quarters. Now moving on to the net profit and the operating cash flow on Slide 10. So good development in net profit driven by our operational improvement, which is more than offsetting a decline in financial income as well as FX headwinds. And now margins into double digits. And operating cash flow was good, reaching CHF 532 million for the quarter, just shy of last year's exceptionally strong performance. Again, uptick in our operating earnings drove the strong performance whilst net working capital improved, but less so than in the first quarter last year and hence, a bit of a headwind in our year-on-year bridge. We will continue making progress on our net working capital initiatives, and I expect us to have another good year for operating cash flow in line with the last 2 years. And I expect as a result that we continue to show industry-leading cash conversion levels that means converting well above 100% again in '26. Now moving to the next slide. In terms of full year guidance, obviously, we confirm the full year guidance. So in terms of our revenue growth guidance of low to mid-single digits in local currency in '26, we expect a modest gradual acceleration in -- from the 1.7% in quarter 1. And that assumes continued strong double digit in modernization, stable mid-single-digit growth in service and a gradual easing of the headwind in new installation from the high single-digit decline in quarter 1. Now on to the margin guidance of 13% in '26. So the improvement versus '25 is clearly driven by continued productivity improvement, increasingly from field efficiencies. So we expect an acceleration here to offset a moderation in procurement and SG&A savings such that we can achieve the same overall level of incremental savings in '26 as we did in '25. Now a little reminder on the mix, which we have as a headwind in '26. Mix was a tailwind in quarter 1, but we expect that to neutralize over the coming quarters. Let me also say a few words on cost inflation. So based on our current assessment, we face some additional inflation from energy, commodity and commodity. So firstly, on logistics and fuel cost, we estimate that each of these add approximately CHF 15 million, 1-5, to our annual cost. So CHF 30 million in total on a 12-month basis. Outside of that, energy is a small cost category for Schindler and the inflation would amount to less than CHF 1 million. That is electricity usage in building and so on. And finally, on raw materials, there is no change to the CHF 15 million, CHF 20 million annual cost inflation estimate that we shared with you in February. And so that is primarily associated with the higher copper and aluminum prices. So putting all of this together, we face up to CHF 50 million of additional cost inflation on an annual basis from the elements I just outlined. And obviously, we are working hard on mitigating to offset these elements. Now touching on tariffs. It remains a bit of a moving picture, but our estimate of the annual gross P&L impact remains largely unchanged from what we shared in February. That is approximately CHF 15 million, 1-5, based on current tariff levels. And again, we continue to work hard at mitigating the impact, including making appropriate price adjustments. So in conclusion, let me end by thanking together with my colleagues in the Executive Committee, all our employees around the world. And as you know, unfortunately, many of them are operating in exceptionally challenging circumstances, not least in the Middle East currently. So a big thank you to our colleagues there. And with that, I hand over to Lars. Lars Wauvert Brorson: Thank you, Carla. Let me remind you of our Capital Markets Day, which is scheduled for the 3rd of June this year at our headquarter in Ebikon. Switzerland. We look forward to seeing many of you here as our campus. Please note that the registration to the event closes on the 15th of May, and the number of participants are limited. So with that, we are happy now to take your questions. I would like you please to limit yourself to 2 questions only, given the limited time we have available. With that, operator, please. Operator: [Operator Instructions] The first question comes from Andre Kukhnin from UBS. Andre Kukhnin: Really, the main question I have is that now we are heading into this, again, heightened inflation environment. And given the track record across the whole industry of, say, 2022. Can you really confirm to us that the industry attitude towards pricing has changed structurally and now that you have the contract price escalation clauses in place and that you can price proactively as inflation ramps up and therefore, avoid that kind of gap in potential gap in profitability. If we could talk about that, that would be great. And then yes, I have a quick follow-up on U.S. service orders as well, if that's okay. Paolo Compagna: Andre, thank you for the good question. Yes, obviously, we can confirm your expectation that the lessons learned in '22, how to face inflationary jumps up and down has shaped the industry as well as ourselves. So number one. Number two, in the actual situation, what is happening is a very proactive pricing, number one, you mentioned yourself, following the -- in the meantime, established discipline in contracts and all that as well as, as I mentioned before, that we are applying where possible, surcharges to address the super high-speed increasing gasoline, oil costs, energy costs. which maybe was not very much the case in '22, right? It was more on commodities and material. So well, to summarize, your assumption is right. We are executing pricing according to the contracts, yes. And obviously, all of you know, there might be also a timing effect how these pricing actions will come to the books as when you price NI, it comes then when you build NI with a longer term, right? Modernization somewhere in between. And on services, the timing to see the pricing and the subsequent benefit of it might be shorter. Andre Kukhnin: That's really helpful. My second question is just on the U.S. service orders in your slides that showed us down in Q1. I think that's in units. Could you just talk about how it's done and how it's performed in value? And how do you see the outlook for this segment for the rest of the year, please? Paolo Compagna: Yes, very good question. Thank you for that. That helped me clarifying something which I was mentioning before. In value, important to know, we grew in Americas and U.S., too. So service value is growing. On units, as we report on units, we have a slightly decrease, which is mainly due to some -- yes, I call it, selectivity, some larger accounts we on purpose didn't rebook as we didn't pursue to continue to fully stick with our overall strategy we have. So now to the second part of your question, Andre, very clear. We and also myself expect in the course of the year also to -- not to recall to recap or to catch up on unit growth. So value is already and units should follow during the year. Operator: The next question comes from Daniela Costa, Goldman Sachs. Daniela Costa: Just wanted to ask you sort of on the path of light savings and efficiency from here and also on mix, you gave great detail on the whole inflation items and commented already a lot on price. I wonder on those 2 elements and the cadence from here. That's the first question. And the second question, just for an update on where -- how do your view stand regarding when service regulation could change in China? Paolo Compagna: Maybe, Carla, you can elaborate on the efficiency gains, and then we can come back on China. Carla Geyseleer: Daniela, so happy to take your question. So yes, as I said earlier, it is clear that we have these inflationary impacts, but we expect them to be offset by the pricing. Paolo just outlined our view in terms of pricing. There might be here or there a bit of a timing effect, but that clearly will not realize. So from that perspective, the increased inflation will be offset by the pricing. Coming to the real efficiency, there is not as such a big change to what we shared before. So we are still looking for the approximately CHF 200 million of efficiency coming in, mainly the 4 pillars that you're well aware of. So it's clear that the composition slightly changed, but the overall numbers, they stay in line with the projections that we shared. Does that answer your question, Daniela? Daniela Costa: Yes. Maybe just of the CHF 200 million sort of how much is left? Carla Geyseleer: Well, I mean, it's clearly that the main contributions are coming from supply chain and procurement saving and what is currently picking up is the field efficiency savings. So whatever now in the future will be a bit going on the moderate side in terms of incremental from supply chain procurement or the SG&A will be picked up or will be offset by the pickup in the field efficiency, both in the -- well, actually in the 3 activities and NI, Mod and in the service. Paolo Compagna: Coming -- let me catch up on China. That's a very good question. And so regulation in China, let me start. Whenever it will come, I said it also before, you remember, this will have a positive and welcome impact to the industry and also to us. However, it has been just postponed for another 6 months. Now it's expected that it would be published earliest, end of this year and being enforced end of next year. So well, if we put these 3 informations together, it's become obvious that any impact can only be expected in the course of '28. Well, now we can be philosophical and it's quarter 2, quarter 3, I don't know. So hence, we have to be a bit more patient, then I think we can have a full insight into the expected benefits first when we have studied documents, again, maybe Q1 next year, we have a better insight. However, it's important to know that by now, in all our plans, expectation outlooks, we didn't include yet any significant contribution of it already now. So therefore, yes, we have all to be patient and catch up on this in my personal opinion, in 1 year from now. Unfortunately, we can see. Operator: The next question comes from Midha Vivek from Citi. Vivek Midha: I have 2 questions. My first is on the order intake, particularly in Europe, EMEA up double digits for the quarter. The market outlook is still for 0% to 5% growth on a full year basis. I was wondering if you might be able to give us some color maybe breaking that down between how much you think was underlying market developments in the quarter itself? How much was a pickup in the larger project orders and whether you think there was any contribution from any market share gains? Paolo Compagna: Vivek, thank you for the question. I'll address all the points one after the other. Number one, EMEA up, yes. It's not a big secret, maybe with some differences between Central, Northern European countries and yes, most famous EMEA at the moment. But we are pleased to see that Europe, as EMEA for us, or Europe is contributing positively to our order intake, which was a bit expected, so number one. Number two, how it is between pickup on large projects and rest of the business. This is also, I must say, different country by country, as you can imagine, we see now also to be anticipated a bit of a slowdown in large projects signed in the whole Middle East region is not a secret, the large project pipeline list was or is including also a portion of those projects. And we are always a bit more on the conscious side. Now we don't have to say we keep it on the list, but we don't count on them short term, while the rest of the projects still look promising. Talking countries and markets, well, I was mentioning before, we are happy to see Germany picking up as we were saying last year, let's keep the fingers crossed that now the darkest period is behind us in Germany, and we can confirm at the moment, everything is confirming is right. But also other markets are coming nicely in Spain, Italy, there's many more. So summarizing on the commodity sector going well in the commercial segment, different country by country, large projects, as you can imagine yourself, is now a bit in the light of geopolitical movements, different between infrastructure projects, which continues and private finance projects, which one could say, they might be a bit delayed until the financial situation now globally speaking, has been clarified. Vivek Midha: Very clear. My second question is a follow-up on the cost inflation topic. One cost item you didn't mention, particularly on the raw material side with steel. Would you be able to give us a quick summary of your exposure there and what sort of assumptions you've made around that? Carla Geyseleer: When it -- Actually, when it comes to the steel, we locked in actually for the longer term. So it creates less volatility for us for the remainder of the year, to be honest. That's why I didn't mention it. Vivek Midha: Very clear. So is there a -- how much of a price increase do you need to put through just relating to the steel on the new orders? Paolo Compagna: That's a good question. But actually, the price increases placed in the new orders now are less related to one single component, right? It's a more general price increase you place, right, to the customers. At the moment, obviously, there are more items contributing to the price increases. And I was mentioning before to Andre, we have learned in '22, I guess, the whole industry, but we Schindler -- we also learned in '22 how to address pricing much better than ever done in the past. So that here, I must say it's a bit difficult to assign to each inch of the price increase, one component. And we also have copper moving, we have oil moving, we have energy moving. We have wage inflations moving, very different country by country. So actually the pricing you set in the new orders now is a combination of all these and also not a secret, is also a bit different country by country as reflecting on especially wage inflation, this varies a lot among the countries. Operator: The next question comes from Nick Housden from RBC Capital Markets. Nicholas Housden: Firstly, I was just hoping you could comment on the growth components in service, so kind of the mix of unit growth, price net of mix and churn and then also dynamics in the repair business, which from competitors, it sounds like that's been quite strong recently. Paolo Compagna: Well, looking at value growth in service, I must say the unit growth and the value growth, one could say is quite aligned. So it's not that we are generating an additional value growth by overpricing anything. So at the moment, we can confirm that our growth in value is, if you look to the different markets, very much in line with our growth in business -- sorry, in units. Carla, something? Carla Geyseleer: Yes. Well, I mean maybe just adding when it comes to the portfolio and in units, we definitely are positioned very favorable when it comes to the churn rates when we see what is going on in the market. And I think that is a very, very good point. And we still are on a neutral basis when we compare the churn with the recoveries overall. So that is -- yes, that is where we are in terms of portfolio evolution. And as Paolo mentioned already, in terms of pricing, I think we remained also very disciplined there, and we will continue. So whatever comes from inflation, we will definitely make sure that it is recovered. Nicholas Housden: Okay. Great. And then my second question revolves around the sequencing of growth for sales in Americas new installations. I think we've had a couple of decent years of order intake in units. And I would imagine that pricing has also been quite solid there. So I'm just curious as to when we start to see that feeding through a bit more meaningfully into new equipment sales growth. Paolo Compagna: Well, difficult to say in which months we see it, but we can confirm that at the moment, the positive trend we were also referring in the past continues. So now let us keep the finger crossed, nothing changes, right? So now very soon, we will also see it contributing subsequentially to our order intake as well as I was also mentioning last quarter, and it is unchanged. We are also participating more and more in large projects, which then going forward will also contribute on both order intake. And then yes, with the time line you have for -- to generate -- sorry, to create the revenue also contributing there. So we don't change our constructive positive outlook on the U.S. in terms of new installations. So yes, your observation is right. Revenue will be subsequently generated large projects a bit slower, commodities coming linear, not to forget modernization, which is also coming very strongly and with a shorter delivery time, obviously, right, between the order intake and contribution to revenue. Operator: The next question comes from Martin Flueckiger from Kepler Cheuvreux. Martin Flueckiger: First one is on your remarks regarding building permits ramping up in Europe over the last few quarters. Now I appreciate those comments, but I've recently also checked that according to ECB, European Central Bank data, the mortgage volumes in Europe have started to turn more or less flattish. They were down in January, but slightly up in February. If you compare that to the growth we have seen, which was clearly double digit, up to 40%, 50% or more percent in 2025, depending on the month, that seems to be noteworthy. I was just wondering whether you had any thoughts on that development with regards to financing decisions in Europe being postponed, which ultimately could hit your residential exposure to the region? That's my first question. And my second question is on CapEx. I noticed CapEx was up sharply year-on-year in Q1. Just curious how we should think about that number going into the remaining quarters and what kind of comments you could make on CapEx guidance for the full year? Paolo Compagna: Martin, let me take the first one and the second one, I will happily pass to Carla for the CapEx. That's a good one. How would we expect the financing structures, availability, especially in Europe, I think, is your question, might impact the green shoots we have seen coming, especially let's talk about the largest markets we have like Germany, Spain, Italy and so on. So first of all, by now, in the residential segment, and allow me to split briefly in 20 seconds in segments, then we and we personally expect in the worst case, a bit of a different scenario in residential, one could expect based on the strong demand we have in all large markets and already made decisions on financing, on building permissions and so on, we would expect a more resilient new installation order intakes going forward. So other words, the expected growth rates in commodity -- sorry, in residential, we might still expect. When it goes to large projects, I was moving -- mentioning before, I would move to a more differentiated picture. We see at the moment everything which is more related to infrastructure, public investments is continuing as planned. So here, I would also -- I see your point of volatile mortgages and so on, but it doesn't play a big role here for the moment. And yes, you have a good observation. Fully private finance developments might see a bit of a delay. However, if I look over Europe at the moment, day-to-day, still decisions made to progress on projects, excluding Middle East. So all in all, if we have to expect some changes going forward, I think it's appropriate to be more conscious on large projects, private finance, followed by large projects, infrastructure which we see more safe kind of sort of saying. And residential, we would expect for '26, more or less flat. I hope this addresses your first question, and Carla takes up on CapEx. Carla Geyseleer: Yes, Martin. So thank you for the question. Good observation. So yes, our CapEx investments in Q1, they amount to CHF 46 million versus indeed CHF 18 million last year. And that is actually a replacement -- a real estate replacement investment. So it comes from the purchase of a land plot in Switzerland, yes, for replacement of a factory. So that is actually what's there. So it's not like a trend to further increase now the CapEx going forward. So it's actually, I would say, a one-off that you see there. Operator: The next question comes from Martin Husler from Zurcher Kantonalbank. Martin Huesler: I have 2 questions. The first one, when it comes to claiming a refund of overcharged U.S. tariffs, what is your approach here? Carla Geyseleer: Yes. Obviously, we are looking into that. We are doing our homework, and then we will conclude at the right time to file for it. Martin Huesler: But your guidance of impact of U.S. tariffs doesn't actually include any, let's say, payback of what you paid? Carla Geyseleer: No, no, absolutely not given the uncertainty about the timing, et cetera. So when it comes, it comes, yes. So it's an upside, but we don't count on it in the numbers that I shared. Martin Huesler: And then the next question, maybe a bit of a broader one. When it comes to consolidation in the sector and the opportunities to expand your service footprint, mainly, I guess, what is the reason for a rather cautious approach for external growth that we see for Schindler? Paolo Compagna: Martin Well, conscious approach, I leave it to you to judge. What we said and we are working on is, yes, we like to expand our portfolio footprint also by inorganic investments, I think, is what you referred to, right? What we said is, at the same time, we would not jeopardize our overall strategy, which we call profitable growth. by doing things which afterwards look good but aren't. So this being said, when we look at external opportunities, is what Carla always calls the bolt-on acquisitions and even maybe large acquisitions, we always prove them against our midterm strategy, and we will talk a lot also on the upcoming Investors Day with you guys. So therefore, I would not confirm that we are not interested in expanding our footprint inorganically, you were saying externally. But yes, I would confirm that we still make sure it fits to us and it fits to what we promise to every one of our investors we intend to do in the next many years with the portfolio. Carla Geyseleer: Yes. If I just -- Martin, we have our own criteria for actually assessing opportunities and if they fit our plans, yes or no. So we stick to this criteria. What is clear for us, what we are not going after that is overpriced assets and also loss-making business. So there, we are -- stay away from because we -- I think we would -- if we acquire things, we want to actually generate a return on it. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: On modernization, I'm wondering if you could characterize what you see as the trajectory on contribution margins over the next 2 to 3 years? And also maybe a bit of color here, given the strength of China on unit counts and the bond program, how you see kind of mix geographically evolving from current level, I suppose? Paolo Compagna: John, let's take the second part first. Now do we see a geographical mix. First of all, well, I must say, if we look at the distribution of the installed units on this planet, obviously, there will be over the years, an increasing contribution also modernization coming from China. So the longer term, we look at the modernization business, and I'm talking 5 to 10 years, the more the contribution will be out of China, obviously, right, as the half of the units installed on this planet are, for whatever reason, installed in China. So this is anticipated at the moment, obviously, the biggest potential for the very next years in terms of value, in terms of margins is obviously there where the installed base is much more aged and the market is much more mature. So obviously, you can -- it's the Americas, Europe and Asia Pacific outside of China. This is the second part of the question. So the first one, and then I will leave to Carla to give more color, if you like. Well, we expect the modernization business also in terms of contribution to the bottom line to continuously improving and continuously evolving. As mentioned before, we are doing a lot in terms of products, in terms of processes, in terms of expanding capacities, production as well as installation. We talked about in the past also here, we will have some more points for you when we see us in June. So there, we can only expect over the course of the next years, an increasing contribution. But Carla, please, anything to add on that? No? Okay. John-B Kim: And one follow-up, if I may. Historically, you provided some very useful color on segmentation in Chinese real estate markets, tiers of cities and so forth. I'm wondering if there's anything you could help us on here in the current outlook. Paolo Compagna: I think with more details, we can also touch on China. But for now, we have segmentation in tiers, I must say one has to ask if we -- if you focus on profitability, and we have reassessed a lot of our organization in China and also going forward, there's still a big difference between Tier 1, Tier 2, Tier 3 cities. Segmentation remains very similar in terms of business opportunities. And hence, when we will share with you where we like to go in the next couple of years, you will also understand what we plan to do in which segment within China to secure that China contributes to our overall plan going forward. Operator: The next question comes from Lewis Merrick from BNP Paribas. Lewis Merrick: You mentioned wanting to grow in the U.S. service market and reverse the trend you've seen in 1Q. One of your peers is also seeing challenges growing there. I'm just wondering, are you seeing the competitive environment potentially heat up in the U.S. market? Or are there any early green shoots you can point to supporting a turnaround? Paolo Compagna: Yes. Lewis, that's a very good question. Now I think you're referring more to the service segment, right? U.S. to U.S., and allow me that I talk about us and not about competition. In the U.S., what we see is a clear trend of increasing presence, let me do it very politely this way, of the ISPs, very active in the market, which are shaping kind of, if I may say, the service business in the U.S. It's not Americas, it's the U.S. There's a lot of contribution into that from private equity going into that segment in the ISPs. And hence, yes, the service market environment is changing in the U.S. Is it changing for stay there forever? I don't know. But what I can confirm is that we are adjusting and working on it heavily and in high speed. And it's the reason why before I was confirming that we expect our numbers to catch up and continue to improve throughout the year. Operator: The next question comes from Philip Buller from JPMorgan. Philip Buller: I have 2 questions, please. Firstly you're obviously working very hard to mitigate input cost inflation. Is your policy regarding hedging on some of those costs changing in any way given the volatility? And the same on FX. The underlying results are obviously good, but FX has been overshadowing that now for quite a long time. So is there anything you plan to do differently in relation to hedging, be that on the cost or FX side? And the second question, I know you don't want to front run the CMD, but can you remind us of what the right level of leverage is for Schindler. I appreciate the comments on M&A needing to have the right returns profile. So how does that pipeline look today and the valuation of those assets? Is that screening well for you relative to potential cash returns to shareholders? Carla Geyseleer: Yes. Thank you very much for the multiple questions. So I try to take them one by one. So obviously, we have -- when it comes to the hedging of the raw materials, there is no change in policies because I believe that we hedge what we can hedge. Now in terms of the FX impact there, of course, we did quite some work over the prior periods and especially then contracts that are in our -- yes, strong Swiss franc. I mean we convert most of them already in non-Swiss currency. So quite a lot of energy went into that. So in order to de facto come to a hedge. And when it comes to the capital allocation question, I'm actually yes, looking forward to give you more insight into the Capital Markets Day, also what the next follow-up is because, yes, our share buyback program advances very well. So if you can give a bit of patience there, I will definitely give full insight into that topic. Operator: The next question comes from Rizk Maidi from Jefferies. Rizk Maidi: Just maybe a little bit of clarification on the pricing element when it comes to service. It doesn't feel like this according to my calculations that pricing was not a big component within the service growth. Maybe if you could just shed a bit of light there and give us a flavor on how do you see it sort of by region? And then secondly, I would like to shift away, hope you don't mind me doing this from -- away from the results, but just take your view on potential large consolidation in the industry. We know this is quite a very consolidated industry. So what kind of impact do you see in the market in terms of density pricing if 2 of the largest -- your largest peers merge? Paolo Compagna: Maybe, Carla, I'll take this one. So the first one. The first one on the contribution of the pricing to the service and bear with me that we don't go now into region by region. But overall, we can say the contribution from pricing is in the mid-single-digit range. So therefore, I was saying the overall growth is not overinflated by pricing. This was my message before, and thank you for helping me clarifying it. So -- but nonetheless, the pricing contribution is in the mid-single-digit area, and that's actually what normally you do every year as you cope normally also with inflation. We did in the past, we do now and maybe now actually right now with an additional component to offset the Middle East crisis FX, as mentioned before. Coming to your second question about larger consolidations and without looking at any specific one, our view is, first of all, if there's a consolidation on highest level, and we can name it, if the 1, 2 of the big 4 would go together, I personally already expressed our opinion and my personal opinion very clearly in the past, one has to ask mid-first and long first, where is the benefit for whom. And this explains for me also the subsequential impact on what you were just mentioning, pricing and movement in the markets. Consolidation on high level always, we have to ask, is there a benefit for the customer? Yes, no, the answer you can give yourself. Is a benefit for employees? You can give your benefit -- the answer yourself. Is there a benefit on underlying efficiencies by consolidation, which could bring some benefits to the bottom line? Well, here, one can speculate and say, yes. Good. Let's take this one. To get to these benefits, you have to do a lot before. And here, I like to share our and my very personal opinion. You have to put it in the timing. It is quite often intense time, which is not 1, 2 years. It will be longer until you can at all generate these underlying efficiency benefits in your books. In all that period, this consolidation would just work against benefits for customers and employees. If you put it on this high level, then the answer is, for me, quite subsequentially logical that it might have a short-term impact on pricing. However, the opportunity also for others to grow and expand customer and business baseline would also increase. So here, I must say for the industry, there might be a reshaping, there might be changes. However, this also bears opportunities for the others. Different when you look at consolidation on lower levels is what we have talked a lot about in the past is what then has a totally different consequence to the market. But you were explicitly mentioning, I think, the larger scale consolidations. Operator: The next question comes from Aron Ceccarelli, Bank of America. Aron Ceccarelli: My first one is on tariffs. I understand the situation remain extremely fluid at the moment. You highlighted the CHF 15 million that you announced at the beginning of the year. Could you perhaps elaborate a little bit on the new 232 regime, perhaps expanding on your exposure to Mexico and Canada? And if this CHF 15 million, you think could be revised upward because of these new changes? That would be my first question. Paolo Compagna: Thank you. Talking exposure to tariffs for us, it remains unchanged since the last adjustments, which you know they were adjusted for Switzerland. So there is no change. And Carla has mentioned before, in our numbers, we are sharing with you today and in the outlook we don't foresee any downside at all and also, for the moment, no upside. So first part of the answer. Second part of the answer, special exposure to Canada and Mexico. This is for us quite limited as we have our supply chain base distributed in other markets. So it's not Canada and Mexico. It's 5 other places in the world. And this actually reduced our exposure to tariffs a lot. So for the moment, no impact to our bottom line and to the numbers presented by Carla. Carla Geyseleer: Yes. Just maybe to add and to be concrete on numbers. So initially, we talked about around CHF 20 million. This CHF 20 million, they came down now to CHF 30 million. So yes, so we go clearly as it just decreases the impact for the reason mentioned here. Aron Ceccarelli: That's clear. The second question is on pricing and your backlog. I understand there will be a lag on the effect of pricing on new orders. I wanted to understand to what extent if there's any kind of ability to go and reprice some of your existing orders in new equipment and perhaps maybe modernization eases because of the churn. But trying to understand, considering the current situation, if there's any chance you are able to go to your customers with an existing orders and say, look, things have changed, we might have to revise price upward. Paolo Compagna: Thank you. First of all, do we do it where it is possible? Yes. Is it everywhere possible and in every contract? No. So therefore, do we expect some impact on the backlog positively from pricing? Yes, but it might remain minor that it is not critical to be now disclosed here, right? So therefore, the effort we are doing, and I said before, we are quite diligent in our pricing discipline, I must say. However, looking explicitly at new installation orders, it also plays a role how old this order is. So therefore, it's quite of -- not volatile, it's quite of a diverse picture. So -- but I can confirm where possible and together with the customers, we address it. In some cases, it's obvious, it doesn't work. Lars Wauvert Brorson: Thank you, Aron. Thank you. We'll take the final question, please, and then we'll close out for today. Operator: Last question comes from Midha Vivek from Citi. Vivek Midha: It's a follow-up on one of the questions on CapEx, just more broadly on cash conversion. You mentioned earlier, this should be again a year of over 100% cash conversion. Your cash conversion has been very strong over the last few years. For how long can you continue with this sort of level of cash conversion? And what should we bear in mind regarding the moving items within that? Carla Geyseleer: Well, I'm actually, yes, very convinced that we can continue with this nice cash generation. Yes, first of all, I mean, we believe or we are clear, I think, where we go in terms of profit. And when I look at the net working capital, I can tell you, I still see my pockets where I can further optimize and I will not let go. So based on the combination of the 2, I feel comfortable making that statement. So I don't know if that answers your question, but I'm very passionate, I must say, about it. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Lars Brorson for any closing remarks. Lars Wauvert Brorson: Thank you very much, operator, and thank you all for attending this call today. Please feel free to reach out to me and the Investor Relations team for any follow-ups you might have. The next scheduled event is our Capital Markets Day on the 3rd of June, and we look forward to seeing many of you there here in Ebikon, of course. With that, thank you, and goodbye. 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.
Even Westerveld: Good morning, everyone. Welcome to the presentation of the first quarter results for DNB and also welcome to everyone following the stream. Just for information, the emergency exits are in the front and also in the back, and there are no planned drills this morning. Spring is here. The sun is shining, and we are really eager to present the results for you. CEO, Kjerstin Braathen, will kick off and then our CFO, Rasmus Figenschou, will continue with the details. And there will be time for questions afterwards. Kjerstin, the floor is yours. Kjerstin Braathen: Thank you so much, Even, and a particularly warm welcome, we can say, since it's spring, as Even said, and the sun outside is shining. That, nonetheless, does not mean that there are calm waters around us in the world because this quarter, the turbulence around geopolitics has continued certainly with the increasing conflict and the war in the Middle East. This is something that has led to high and very volatile energy prices and the level of uncertainty is, as we have seen now for several quarters and years, higher than what we have been used to. Despite the geopolitical backdrop and despite energy prices being higher, the market reactions overall, we would qualify as relatively benign. And the Norwegian economy continues to be resilient in this environment. Business activity overall across the Nordic markets, which does represent the majority of our activity, we would consider at healthy levels and the Norwegian households are robust. So despite a turbulent environment, we are relentless in our focus, which remains with our customers, focusing on giving them good customer experiences contributing with value creation and focus on the business short term and longer term. As always, I would like to start also with the customer and demonstrate how we are working towards our mission, which is really to simplify life and help our customers prosper. In terms of simplification, we have this quarter launched a new equity trading platform in our digital savings app, Spare. This was launched in March. And already in the month of March, we saw that 1 out of 4 trades in shares were actually done on the platform, and I don't think we can get better feedback from our customers than that, that this is actually contributing both to simplicity and efficiency. We continue to see that our customers are putting their trust in us with their savings and their investments, and this is demonstrated by a record net inflow in our Asset Management business this quarter of NOK 20 billion. Making it easier for the young children and adolescents to become customers is also something that we've done this quarter. Now young people below the age of 18 can become a customer with DNB in less than 2 minutes. For our Sbanken customers in chat, we have introduced an all AI -- generative AI chatbot, meaning it's not a chatbot that we have trained, it trains itself. And this has rapidly taken over 75% of the responses in chat and inquiries from our customers in Sbanken with very good customer satisfaction. Across Large Corporates and DNB Carnegie, we continue to see a confirmation of our strengthened position and the offering. First, from Prospera in the Grand Total survey for Norway, where we are qualified as the leading bank in terms of customer satisfaction. And for DNB Carnegie this quarter in equities, where individually, we are #1 in each of the 4 Nordic countries and also with the overall number 1 position. And as always, I am very proud of the efforts that our team put in every day for our customers. On to the results. The return on equity comes in at 14% this quarter, 15.5% on a rolling 12-month basis. This does represent a solid contribution from all our customer segments and also the macroeconomic development with lower rates than we saw this time last year. We do see profitable growth both in loans and deposits, a stronger development in deposits than loans this quarter. And the growth is offset by repricing effects and also a fewer number of interest days in the first quarter. And NII as a result of this is down by 5.4% compared to the previous quarter. Net commission and fees is up by 18%. Contributions materially from all various product areas, the strong point, again, I would highlight is Asset Management, where we see a strong net inflow. We see assets under management grow despite values coming down. And we also see a record flow for the past 12-month period. The portfolio in a turbulent environment, again, remains very robust and well diversified. We do not see any structural changes or any negative migration in the portfolio as such. We do book impairments of NOK 644 million in the quarter in all its -- not in all its entirety, but primarily related to customer-specific events and no systematic development in the portfolio. Capital position remains solid, 18.1% core equity Tier 1 ratio, 170 basis points headroom to the required and expected level and a strong earnings per share, we believe, with NOK 6.5 in the first quarter. The Norwegian economy is impacted by what goes on around us in the world. We are an open economy. We are an economy that trades with others. As a net exporter of oil and gas, we are partly benefiting also from higher energy prices and somewhat less impacted by inflation stemming from higher energy prices than other countries, but we emphasize that there is an increased uncertainty in the environment around us. This has led to growth estimates for the year coming somewhat down, but to what we would still qualify as healthy levels with an expected GDP growth in the Mainland economy of 1.4% this year and 0.9% next year. Unemployment is something that we follow very clearly and talk to you about every quarter, still a stable level. We would qualify it with 2.1%, and we expect it to stay low and relatively stable in the time ahead of us. We do expect yet again this year to see real wage growth for consumers. This leads to increases in disposable income, and it does support consumption as a key driver for economic growth. Given the development in inflation that has been more sticky than expected, I think, by both the Norwegian Central Bank and markets, we have seen a shift in the outlook for interest rates during this quarter, both in the messaging from the Central Bank as well as in the messaging from our own team in DNB Carnegie. The outlook for rates is now an expectation that we will see 2 rate increases this year, each by 25 basis points up to the level of 4.5% for the key policy rate, and rates are expected to come down by the similar amount in the year 2027 and stabilize around 4%. So again, in an uncertain world, the robustness of the Norwegian economy continues to be demonstrated as well as the resilience in households, and we do qualify this as a very healthy environment for us to run a sustainable business in. A few highlights on the customer segments. And I would underline that we continue to see a very solid underlying performance across all of our customer segments in a competitive environment. The growth platform we've talked about in Norway as well as outside of Norway continues to deliver, and we see strongest growth on the lending side in Large Corporates. And in this quarter, the nominal growth in Large Corporates is offset by a somewhat stronger Norwegian kroner. We see a very healthy deposit growth across Personal customers as well as Corporate customers in Norway. In Large Corporates, we are more, I would call it, opportunistic. We qualify pricing towards the cost of funding in treasury and the volumes develop accordingly. For Personal customers, we see that the activity in the housing market is somewhat more muted this quarter, but I would highlight the very strong results that we see in our brokerage business in Personal customers. I would like to highlight the pace of innovation that we experienced from the team in Personal customers as well as a strong cost control development in this area. In Corporate customers Norway, last quarter, we talked to you about some larger transactions that were closed towards the end of the quarter in commercial real estate and the plan to syndicate and distribute these. This has been done successfully, both in terms of syndicating to other banks as well as taking out parts of the volume in the bond market. This has impacted volumes along a more stable development of volumes also across the SME market and volumes are slightly down in Corporate customers Norway. We do note a strong growth in other income in Corporate customers Norway compared to the same quarter last year, and this reflects not only an increased level of activity with DNB Carnegie, but also the systematic effort over time to work broadly on cross-selling in this area. Large Corporates that delivers the strongest growth this quarter comes in at 2.3% for the quarter, 9.1% if we look at the year overall currency adjusted. We are working and making progress in terms of strengthening the team in Sweden, and we are getting positive feedback from that process and also how the cooperation is developing with the team across DNB Carnegie. And we see that half of the growth that we deliver is outside of Norway. And again, I reiterate the robustness and the strong quality of the portfolio and that we do not see other systematic risk outside of customer-specific situations. So all in all, a robust development we see for our customer segments. We continue to talk about our activity across DNB Carnegie and across wealth management as the key growth drivers in our business going forward. And we saw a very strong start to the year that has been somewhat -- has been somewhat impacted by more turbulence towards the month of March. But despite this, we continue to see that the level of revenue growth both in DNB Carnegie and our Wealth Management business. One year now after closing the Carnegie transaction, the integration is progressing well, and we continue to reap the benefits from having an improved and more competitive and broader offering towards our customers. We saw a very strong start to the year again across all product areas, I would say, in Investment Banking. With the conflict in the Middle East, we have seen and experienced that some of our clients naturally have decided to postpone some of their investment activity and activity related to stock listing and others, but we have not yet seen this leading to any cancellations of any plans. So the pipeline in the business remains strong going into the second quarter. On Asset Management, again, I would highlight the strong point being net flows, NOK 20 billion for the quarter, NOK 65 billion for the year. This last quarter, more than NOK 5 billion stems from the retail market. And this is an effort we are systematically working on to grow that part of the business as it's more sticky, more recurring. And we have seen that customers are changing their positions, but they are more comfortable remaining in their investments in the market compared to what we saw during the turbulence that stemmed from Liberation Day during 2025. So all in all, a robust quarter. And with that, I will hand over to my excellent CFO, Rasmus, who will take it from here. Rasmus Aage Figenschou: Thank you, Kjerstin. I will now take you through the Q1 results in more detail. And please keep in mind that for 2025, Carnegie's results were included in 1 month of the first quarter. We note continued high activity across all segments with FX-adjusted loan growth up 0.3%. Looking at the Retail Personal Customer segment, the growth is up by 0.2%. As mentioned by Kjerstin and as mentioned last quarter to the market, the growth in the commercial real estate was -- had a planned syndication of -- in Q1 and has been taken out with other banks as well as in the bond markets and thus leading to a volume reduction of 1.2%. Within the Large Corporate area, FX-adjusted volumes were up by 2.3%, driven by increasing volumes across industries and across geographies, mainly in low-risk customers. And we see that more than 50% of the growth comes from our international growth platform. Currency-adjusted deposits were up by 2.6%, driven by positive development both in the Personal customer segment and Corporate customers in Norway. We maintain a strong deposit-to-loan ratio within the customer segment of 73.8%. As in every -- almost every first quarter, activity is slower. This naturally impacts net interest margin, which was down by 7 basis points, ending at 174 basis points. The reduction reflects narrowed combined spreads and other NII not included in the customer segments. Combined spreads in the customer segments were down by 5 basis points, driven by repricing effects, product portfolio mix effects and margin pressure and continued strong competition. NII is down 5.4% in the quarter. We note that spreads are down by NOK 449 million, where roughly 1/3 stems from the full effects of the most recent repricing in November, roughly 1/3 comes from portfolio and product mix effects and slightly less than 1/3 comes from stronger competition. Higher average volumes during the quarter increased -- offset this with NOK 231 million and then having a negative FX effect of NOK 86 million. The reduction of 2 fewer interest days in the quarter was -- came in at NOK 248 million. Amortization effects and fees are down by NOK 176 million, reflecting lower activity, as mentioned in the quarter. No treasury effects in other NII of roughly NOK 150 million. Moving on to commission and fees. Our fee platform is strong and well diversified in total, up 18% from the corresponding quarter last year. Real estate broking was up 3%, reflecting strong performance in a slower market where fewer properties were sold compared to Q1 last year. Investment Banking Services was up by 38%. We note strong development despite of market uncertainties. Our pipeline remains strong, as mentioned by Kjerstin, noting though the transaction in recent months have been postponed. Asset Management and custodial services was up by 34% and assets under management were down 1.2% due to high volatility and negative market developments. However, and more importantly, we noted the positive net flow of NOK 20.4 billion this quarter, a record high, but also a record high when looking at the last 12 months of NOK 65 billion, well balanced between the retail and institutional investors. Money transfer and banking services were down by 17%. We note high customer activity, offset by costs related to payment services and use of credit insurance related to corporate exposures, which is part of our OAD model, driving profitability for the group as a whole. Sale of insurance products was up by 19%, supported by positive development from the non-life insurance commissions and continued strong income from defined contribution in our life insurance business. In addition to what can be seen on this slide, we also note positive momentum in other income with strong results from our life insurance company, DNB Liv, and our non-life insurance provider, Fremtind. Operating expenses are down by NOK 920 million compared to Q4, of which NOK 51 million is currency effects. The reduction reflects seasonally lower activity as well as a persistent cost culture to drive efficiency. Activity is exemplified by the decrease in expenses related to variable salaries and IT and the nonrecurring effects booked last quarter of NOK 200 million. Low return on the closed defined benefit pension scheme is related to market development contribution and that contributes to lower cost this quarter. The scheme is partly hedged and reflected in our financial instruments. Due to seasonality, the second quarter generally carries higher activity-related costs and as well -- compared to the first quarter as well as the effects from the annual salary increases adjustment from May 1. Now moving on to portfolio quality, which remains robust and well diversified with 99.4% being in Stages 1 and 2. In the Personal customers portfolio, which accounts for approximately 50% of our exposure, remains strong. We continue to note record low request for installment holidays and fewer loans with interest only compared to last quarter. Impairment provisions in the Personal customer segment is affected by a model adjustment on inputs on consumer finance and the underlying portfolio remains solid. For the Corporate customer, impairments totaled NOK 556 million. The portfolio remains robust and well diversified across industries and geographies. There is no structural change to our portfolio or general negative migration to note. The impairments in Stage 3 are related to customer-specific situations, and these are typically exposures we've been following over time. And most are -- recent are industries that have been challenging for some time, such as construction. We remain comfortable with the quality of our portfolio. Now moving over to capital. Our CET ratio -- CET1 ratio remains strong at 18.1% with 170 basis point headroom to the regulatory expectations. It was positively affected by the profit generation in the quarter as well as ordinary dividend of NOK 1.9 billion from DNB Liv. In line with previous years, the AGM on Tuesday gave the Board of Directors authority to buy back up to 3% of outstanding shares and an application has been sent to the FSA for approval. The leverage ratio remains strong at 6.5%, well above the regulatory requirements of 3% and combined with a CET1 ratio of 18.1%, our capital position remains strong and enables us to continue to deliver on our dividend policy and continue to support our customers. Summing up, we delivered a strong set of results in the first quarter, having return on equity coming in at 14%, cost/income ratio of 38.7% and an earnings per share of NOK 6.5. We also mentioned that for 2026, tax rate is expected to be 22%, but our long-term guiding remains unchanged at 23%. With that, I thank you for your attention, and we open up for questions. Even Westerveld: Thank you so much, Rasmus and Kjerstin. We have a few microphones in the room, please. Yes, Roy Tilley from Arctic. Roy Tilley: A couple of questions from me. Just on the -- touch upon the margin side, just on the competitive picture on retail, in particular. Have you -- has it changed anything recently? Or is it kind of still the same pressure? And is there anything similar on the corporate side? That's the first question. And then a question on funding. So money market rates have come up quite significantly in the last few weeks. So on the funding side, you've already got a rate hike in your funding cost, I guess, and spreads have also widened somewhat. So I was just wondering, are you able to mitigate any of that on pricing on the asset side? I guess, repricing mortgages will be difficult until we get an actual rate hike, but have you done anything on deposits? And then the third one, just on buybacks. Have you sent an application to the FSA? And if you have, when would we expect an answer? Kjerstin Braathen: Thank you, Roy. I can do the first and Rasmus, the 2 following. Competition is fierce. I would say it's gradually intensifying. We've seen that over the past year. It does reflect that there is ample capacity in the market that surpasses the credit demand overall. It is fierce in Personal customers. It's definitely fierce also in Corporate customers in Norway, including in the commercial real estate sector that we usually see when there is capital looking for employment across the market. Still, we are very pleased to see that there is a high activity and interest coming into the business as such. In particular, we are focusing on our position towards young people. We have 12,000 people buying their first home, young people buying their first home during the course of last year. We continue to see stable to growing volumes even in a competitive market. For us, it's a demonstration of the performance in our team overall, and we are able to continue to grow at sustainable levels, and that continues to be a priority for us, and it will be. But overall, the market is impacted by competition, yes. Rasmus Aage Figenschou: Very good. And on the funding side, of course, there is -- when there is volatility, I'm very happy that we have a strong set of treasury team that plans ahead. So for us, we are not affected by the day-to-day developments in that funding. And I will not go into detail of when we move in the market, but we are well funded. And we, of course, when the whole key policy -- well, when the market has moved in total, we are, of course, affected by that, and then that will feed on to our customers. But the volatility that you're referring to, we are funding our way through it, so to speak. When it comes to the FSA application, we have applied similar to -- as previous years for 1%, and we'll refer to the market when we have their answer. Kjerstin Braathen: And just as Rasmus is saying very correctly, we have -- our team has funded a bit early in terms of expecting market development to be more volatile. But do keep in mind that relative to the LIBOR and the money market rate, our position is more or less stable. And this is in view of how our assets and liability size are matched in terms of margin-related exposure to customer versus what we are funding in the third-party market. So there is a slight impact from rate movement. But really, overall, I think you should see that more or less stable. And then what matters beyond that is, of course, the level of spreads. And coming into the year, we saw the lowest risk premiums that we've seen in a long time. They have come out somewhat, but not to a very large extent. And our goal is always to fund ourselves better than our peers. That increases our competitiveness towards customers, and we continue to see that we get very, very competitive funding. Even Westerveld: Thank you. Herman Zahl from Pareto. Herman Zahl: Just following up on competition. Could you say something about what kind of peers are driving competition in Norway Corporate segment, specifically? Since it seems like both larger savings banks and your Nordic peers have stepped up a bit. Kjerstin Braathen: I think we have a clear principle that we'd rather talk about our performance and not so much specifically about others. I think what we can contribute and shed light on is that it's a broad specter of players that are active in the market. Changes that have been made to capital structures that has improved the position of standard banks as a more general example has taken an impact. We can see that, that has made that category of banks more competitive. Otherwise, there is a larger number of players who are very actively driving competition in the market. Herman Zahl: Yes. And then just on some of the core banking fees, I think you mentioned some margin changes in guaranteed on the slides and money transfer fees as well. Is there something structural we should bear in mind there? Or is it mix effect? Kjerstin Braathen: It's an element impacting over the past 4 or 5 quarters or so, where we have more actively engaged in ensuring part of the exposure that we provide for some of our clients in larger corporates. So it's an added tool in the toolbox to originate and distribute. So when we look at that on a transaction per transaction basis, the return on the transaction and the customer and then to the group is improved because we have less exposure, but the cost related to this does appear in the commission and fee part of the book and has an impact there. Even Westerveld: Thank you. Thomas Svendsen, SEB. Thomas Svendsen: First, a question to commercial real estate. Now that the hope for interest rate declines have diminished and rates are going up, one could imagine that impacts the cash flow and the liquidity for these companies. So how do you look at commercial real estate? Kjerstin Braathen: We continue to remain comfortable with commercial real estate, Thomas. But as you know, of course, rates are very important in that sector of activity, and we have followed it closely. And I would say since rates topping out the last time around, there has been a restructuring and a shift in values that now is more or less 2 years back in time where some players that needed to reposition have positioned. We are now going back to interest rate levels we were at not too long ago, at least that's the expectation in the market. We do not see this as a particularly concerning factor related to our commercial real estate exposure overall. Keep in mind that it is 10% of our book, and it's limited to that. 72% of the exposure is in low-risk customers. It is a diversified exposure across geographies, but mainly concentrated in the larger cities in Norway, and it's diversified across offices, across hotels, across the shopping malls and others. And there is no particular concern that we would like to highlight in view of rates coming somewhat back up again. Thomas Svendsen: Okay. And just a second question on your latest CMD, you said you were targeting NOK 3 billion in gross cost cutting. Now that more than 1 year has passed, how are you according to this target? And should we expect it to be sort of linear over the planning period? Rasmus Aage Figenschou: So we are progressing according to plan on that. And we are -- as our cost slide represented, we are working adamantly on the cost efficiency in the bank, and we see numerous specific targets or areas that we're working on. We're not going into detail on that, except that we are progressing according to plan. Kjerstin Braathen: But I think roughly, we can share that we feel that we are more or less on track. Our cost-income ratio this quarter is somewhat north of 38%. So it's higher than what you've seen in previous quarters. This is an expected impact from the Carnegie acquisition. We have bought a meaningful piece of business that has a higher cost income component, but an improved return for the business overall. And of course, we acknowledge that it's more difficult for you to follow gross cost-saving initiatives, but you have seen us taking several initiatives in terms of restructuring and making changements to our staff. We are working in areas such as digitization and automation, but I would also add innovation in terms of simplifying and reinventing value chains. And of course, AI is a very important tool for us in this area. Also simplifying business, increasing the magnitude of straight through processing in more complex processes. I talked about a couple of examples in simplifying life for our customers, and we like doing that. But of course, simplifying life for customers also means improved efficiency for us. So we are on plan. It's not necessarily linear. Of course, we will also see what can be done with AI. That is a moving picture. But I think it's hard to give you sort of any guidance in terms of how you will see it being linear or not. Even Westerveld: Thank you. Any questions from the online audience? Yes, if we can pass the mic to Rune? Rune Helland: We have a question from Markus Sandgren from Kepler Cheuvreux. Nordea recently highlighted that Norwegian saving banks are currently competing quite aggressively, particularly on pricing. Are you seeing and sharing this view? And how is this affecting your ability to grow volumes without sacrificing margins? More specifically, how should we think about the trade-off between defending market share and protecting net interest margin in the current environment? Kjerstin Braathen: Thank you. I think we've touched upon parts of this question already, and it is a very important question. We recognize that there is competition in the market. I don't think we would limit it to a specific category of banks. I think we see it more broadly. But we also see that our team continues to perform and that we are able to continue to do profitable and sustainable business. Our growth platform stems across all of our customer segments. This is part of the strength that we have highlighted both in Norway and outside of Norway. And across the sectors, we will continue to prioritize growth. And I think we have proven that in periods if growth is somewhat slower in Norway, we are able to leverage other parts of that growth platform to deliver profitable growth in the area of 3% to 4%, which we continue to target. Growth in the previous 12-month period has been 3.5% in terms of lending, non-currency adjusted. Currency adjusted, I believe it has been somewhat stronger. And we have seen a growth in Personal customers of 1.6%. We have seen in Corporate customers, 5.6% and then Large Corporates, 5% noncurrency adjusted for the year as a whole. And I think this demonstrates also in what has been a competitive market, our ability to deliver growth. The priority remains very firm also on profitability. Even Westerveld: Thank you. Any more questions, Rune? Rune Helland: No. Even Westerveld: I think we will close the session, if I don't see any more hands. Management will be available for members of the press, like we always are in the couch area afterwards. And I wish you all a very nice Thursday.
Operator: Good day, and thank you for standing by. Welcome to the Hexagon Q1 Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Anders Svensson, President and CEO of Hexagon. Please go ahead, sir. Anders Svensson: Thank you, operator. Good morning, everyone, and welcome to Hexagon's First Quarter 2026 Conference Call. First, I will direct you to the standout cautionary statement, and then we turn into the next slide. Before I begin, a reminder that the upcoming potential spin-off of Octave, we are now presenting Octave as discontinued operations. We have provided this first bridge here for you to understand the performance of continuing Hexagon, Octave and taking them both together, meaning the former Hexagon Group. Looking at the headline numbers for the first quarter. Hexagon continuing operations delivered a revenue of EUR 964 million, with an organic growth of 8%. EBIT was EUR 251 million, giving us an operating margin of 26%. Octave generated EUR 327 million in revenues, organic growth was 1% and EBIT1 of EUR 83 million, delivering an operating margin of 25%. At the former group level, including Octave, revenues were EUR 1.29 billion, with organic growth of 6% and an operating margin of 26%. During the quarter, we also completed the sale of our Design & Engineering business on the 23rd of February, and the business was deconsolidated as of that date. Today, unless I mention otherwise, I will discuss Hexagon, the continuing operations, excluding Octave and with D&E deconsolidated as of the 23rd of February. Mattias will cover the Octave business separately after Norbert. So turning to the agenda for today on the next slide. So I will start with taking you through Hexagon's performance in the first quarter, and then dive into our business area performance. Norbert Hanke, our interim CFO, will then take you through the Hexagon financial performance. He will then hand over to Mattias Stenberg, CEO of Octave, who will then cover the Octave performance in the quarter. We will then, of course, have time for your questions at the end of the presentation. So next slide. Starting with the first quarter performance then for Hexagon on the highlights of the quarter slide. The first quarter of '26 was a strong start of the year and also a busy one for us at Hexagon. We delivered 8% organic growth with a gross margin of 63% and operating margin of 26% and cash conversion at 77%. Alongside this strong financial performance, we continue to take decisive portfolio actions to sharpen Hexagon's focus on the core precision measurement and positioning opportunities. We completed the Design & Engineering business sale to Cadence for approximately EUR 2.7 billion in cash and stock. And here in April in the second quarter, we announced the agreement to acquire Waygate Technologies from Baker Hughes for approximately $1.45 billion. And this is then expanding Manufacturing Intelligence into the very attractive area of nondestructive testing. And I will cover this more in detail on the next slide. Mattias and Octave team held Investor Day in New York on March 26 with the spin-off expected to become effective on May 22. We also continue to build the new Hexagon executive team. Renée Rädler has been announced as the Chief People Officer on the 1st of April, and Enrique Patrickson, who will join us as Chief Financial Officer on the 24th of April, meaning tomorrow. And I wish Enrique welcome to Hexagon, and both of them welcome to the executive team. And I'm happy to have you on board. Finally, a humanoid robot, AEON, is making excellent progress in the past quarter. AEON successfully completed a pilot at BMW and will be deployed in production at the Leipzig facility. It is a significant milestone in demonstrating the real-world industrial capabilities of AEON. In parallel to this, our pilot at Schaeffler has resulted in an agreement to deploy up to 1,000 AEONs in the next 7 years. This is a big step that we communicated here in April as well. Then we expect commercialization of AEON by the end of 2026. So a very active quarter of delivery. Let me now give you the overview of the Waygate acquisition. So next slide. Acquiring Waygate is a natural next step for us at Hexagon as a market leader in the nondestructive testing, they fit very well into our portfolio focus on precision measurement and positioning technologies. They're completing the measurement chain from surface to the interior of components. The computed tomography hardware combined with our volume graphic software creates a unique value position for customers. And the business also brings exposure to maintenance, repair and operation markets with recurring utilization-driven demand, which boosts our exposure to the growing aerospace markets. Waygate has a portfolio of assets with different growth and margin profiles. This brings a meaningful opportunity for us to create value. RBI is already growing very well at good and healthy margins of about 30% EBIT. Radiography is a strong business where we can leverage our manufacturing and sales footprint to really drive synergies across the business and leverage shareholder value. The ultrasonic testing and imaging solutions are also very good assets. But here, we will assess the position of those assets. They are either challenged by not being market leaders or they have a -- not a perfect strategic fit for us. So we will look at these assets from different perspectives, and we will try to then either through acquisitions make them into market leaders or we will have also the possibility to go through strategic reviews or do turnarounds of these assets. Now turning to our organic growth performance in more detail for the quarter on the next slide. So we delivered a strong organic growth of 8% in the first quarter and that's a significant acceleration from the prior year. This was primarily driven by Autonomous Solutions, which grew 13%; Manufacturing Intelligence, which grew 9%. Both businesses benefited from growth in aerospace and defense. Geosystems grew 2%, while completing the channel destocking program that I talked to you about in the fourth quarter report. Excluding this impact, the underlying growth would have been 4% for Geosystems, which gives us the confidence in that the momentum is again building within Geosystems. Recurring revenues grew 6% driven by continued momentum in construction software subscriptions and also GNSS correction services. You can see the rolling 12-month figures in the chart on the right. For the full transparency, excluding the impact of our Design & Engineering business, software & services account for 44% of sales for the remaining Hexagon corresponding to recurring revenues of around 28%. The new product adoption is also progressing very well, especially if you look at our laser tracker, ATS800, and also our new robotics total station, TS20, and this is, of course, supporting the growth trajectory across our businesses. Turning now to the development by region and industry in the quarter. So on the next slide. Here, you have a snapshot of the development, and I'll start with the geography. The Americas was the strongest region delivering a 15% organic growth with a positive performance across all of our business areas. North America was especially strong, while South America was weaker. EMEA recorded 4% organic growth with broad-based contributions across the portfolio. China reported a decline of 4%. Performance in Manufacturing Intelligence was very solid, but the wider China business was impacted by the weaker Geosystems business and also by the completion of the destocking actions taken within Geosystems in China. Without the destocking initiative of roughly EUR 8 million in the quarter, there was actually also single-digit growth in China as a whole. The rest of Asia delivered 7% organic growth, a solid performance, reflected the good momentum in several of our key markets in this region, and especially a strong India. By industry, if we look at it like that, construction remains our largest vertical, and we recorded a strong growth in Americas with also good growth in Western Europe. General manufacturing, the second largest vertical showed broad-based strength across all the regions. Aerospace and defense continued to perform strongly, while Mining was more mixed with uncertainty impacting the demand in South America. We also had some pull-in of deliveries from the first quarter into the fourth quarter last year, and that had some negative impact for the first quarter. Automotive remained under pressure, particularly in the EMEA, but we also saw signs of weakness in China. Electronics was very strong in the quarter, and this is primarily then in China and rest of Asia. That's where a strong majority of our exposure is, and it was very strong growth. Agriculture, while only being 2% of our sales, still remains weak globally. I now turn into profitability on the next slide, and I'll start with the gross margin. And I want to say first that the Design & Engineering that normally operates with strong margins had a challenged start to the year. So while it was very strong in the first quarter of 2025, which is the reference period, it performed quite badly during the 6, 7 weeks that it was within our business before it was sold on the 23rd of February. There's a lot of reasons for that. But if we exclude the impact of Design & Engineering in both periods, both in the first quarter of '26 and the first quarter of '25, the gross margin was 62%, and in the comparison period, 62.6%. So it's 60 bps down year-on-year. Gross margin was, however, stronger in this quarter than in the last 2 quarters, quarter 4 and quarter 3 of 2025. And you will also be able to see this in the appendix slide attached to this presentation. The ramp-up of new product sales continue to support cost volumes, but this was offset by a full quarter of tariff impact. And in the comparison period, there was very little tariff impact. And we also had input cost inflation and also on freight, and this is driven then by the Middle East conflict primarily. If you look at the currency for the quarter, that also created a significant headwind. Going forward, we will mitigate these pressures through pricing and also freight surcharges, et cetera, and actions are already taken at the end of the quarter. But the full impact of this given our delivery times should be seen in the third quarter. Turning now to operating earnings. During the first quarter, we delivered an operating margin of 26.1% versus 25.9% in 2025. Importantly, excluding also here the full impact of Design & Engineering business in both periods, the operating margin grew 80 basis points versus the previous year. And this, I would say, is a meaningful improvement, driven by the organic growth performance and benefiting from our restructuring program that we communicated in the second quarter report. With some of the contributions also a gain from a sale of a building within the quarter of about EUR 8 million. Offsetting our good performance was, like as mentioned, a weak Design & Engineering performance and tariffs and cost inflation. We also saw the strong currency headwind on EBIT, and that corresponded to a negative 60 basis point performance. Year-on-year reduction in capitalization to amortization gap, which we have talked about before, had an impact of 70 basis points negative. A key driver for the margin improvement was the cost reduction program. We benefited here about EUR 10 million during the quarter, and the program remains on track for a total savings within Hexagon at EUR 74 million at the end of the year. We also had generally good cost control despite the growth, and that also, of course, supported the performance. Now turning to the business area performance. I'll start with Manufacturing Intelligence. MI delivered a revenue of EUR 433 million and an organic growth of 9%. We also had a very strong order intake in the quarter, which is positive for the coming 2 or 3 quarters. If I start with the geography, the Americas was the strongest region, but we also saw growth in EMEA and Asia. By industry, Aerospace & defense continue to perform very strong and the automotive business remained under pressure, particularly in the European markets, but as I mentioned, also in China. Operating margins came in at 23.7%, down from 24.6% in the first quarter of last year. And this reflects the impact of currency headwinds and tariffs and the weak D&E performance in this year, which more than offset the positive operating leverage from higher volumes. Again, if we eliminate D&E as we have divested these parts from both periods, the operating margin improved from 23.1% to 23.6%, so 50 bps up. Looking ahead, we had an agreement to acquire Waygate Technologies, and this is a transformative step for Manufacturing Intelligence, and it expands, as I mentioned, into the adjacent nondestructive testing market and positions us to offer customers a truly end-to-end precision measurement solution from the surface to the interior and through the life cycle of products. And as I mentioned earlier, we did divest D&E on the 23rd of February. If I move then into Geosystems slide. Revenue was EUR 349 million with an organic growth of 2%. And even if -- great to see a return to growth here, I should note again that if we disregard the China destocking program, which now has ended, the actual underlying growth of Geosystems was around 4%, which is a more accurate read of the demand environment within the business. By geography, America was the strongest. EMEA was broadly flat. And we saw solid performance in the Western Europe, offsetting the weakness we saw in Middle East. In Asia, China reflected a destocking that I mentioned, but India performed very well. By end markets, construction software & services delivered double-digit growth, very good to see, and we are seeing also the contribution of the TS20 total station. Operating margins were 26.9% compared to 27.4% in the prior year. The decline primarily reflects currency headwinds, which were partially offset by strong cost discipline and favorable product mix. Turning now to our superstar of the quarter, Autonomous Solutions on the next slide. Revenue was EUR 176 million and organic growth of 13%. By industry, aerospace and defense continues to be a major growth driver with very strong demand. Mining was more mixed in the quarter. Customers remain cautious with capital expenditure, which also softened the demand for equipment investment, but our mining and safety business remained resilient during the quarter. Agriculture, as I mentioned, is subdued globally. We are not worried about the mining business in the midterm. There is a lot of activity. But as I said, a bit of hesitation with high oil prices for capital investments. By geography, both America and EMEA delivered strong double-digit growth, and APAC declined. Within the product portfolio, demand for anti-jamming solutions and GNSS correction services was particularly strong in the quarter, benefiting from the growing need for a secure and reliable positioning in defense, but also in critical infrastructure applications like aerospace. Operating margins expanded to 34.1%, up from 31.6% in the prior year, 250 basis points improvement is strong, and that's driven primarily by the strong operating leverage on the higher volumes and also a favorable product mix. Of course, also here, partially offset by currency headwinds and tariffs. That concludes my overview of the business area performance, and I will now hand over to Norbert, who will take you through the Hexagon continuing operations financials. Go ahead, Norbert. Norbert Hanke: Thanks, Anders. I will take you now through the Q1 performance. Unless stated otherwise, the slides and my comments will relate to continuing operations, so it will exclude Octave. Turning to the next slide, please. Let us begin with the Q1 2026 income statement, taking the sales bridge first. Revenues were EUR 964 million with a reported growth essentially flat year-over-year. Currency had a negative impact of 6%, and there was a 1% negative structural effect from the sale of D&E, resulting in organic growth of 8%. Gross earnings were EUR 606 million with a gross margin of 62.9% compared with 64.4% in Q1 last year. The 150 basis point decline reflects currency headwinds, tariff impacts and cost inflation that Anders discussed earlier. As he also mentioned, excluding the full impact of D&E, the decline would reduce to 60 basis points. EBIT1 was EUR 251 million with an operating margin of 26.1%, up 20 basis points year-on-year or up 80 basis points, excluding D&E. This improvement was supported by the cost restructuring program and organic growth in the quarter, partially offset by a reduction in the R&D gap of 70 basis points and currency. Earnings before taxes grew 4% to EUR 224 million supported by the operating improvements. Earnings per share were at EUR 0.067, up 3%. Next slide, please. Now moving to the bridge. As discussed, net sales were essentially flat on a reported basis with organic growth of 8%, offset by currency headwinds and the structural impact from D&E. On operating earnings, EBIT1 increased to EUR 251 million from EUR 249 million last year. The improvement was driven by the cost restructuring program and the net gain of the sale of the facility, supporting organic performance in the quarter. Currency represented a meaningful headwind with a 35% drop through, primarily reflecting the weaker dollar. On the margin bridge, we expanded 20 basis points to 26.1%, both organic and structural effects were accretive, while currency diluted margins by around 60 basis points. Next slide, please. Turning now to the restructuring program. We are targeting EUR 74 million of annualized savings with the full run rate expected by the end of 2026. In Q1, we delivered EUR 10 million of incremental savings, bringing the annualized run rate to EUR 51 million. We are therefore well on track and progressing towards our targets. As shown on the chart, we expect continued ramp-up through 2026, reaching the full EUR 74 million run rate by year-end. This program continues to be a meaningful contributor, and we remain confident in the delivery. Next slide, please. Turning to cash flow, where we continue to demonstrate strong operational discipline. Adjusted EBITDA was EUR 351 million, up 3% year-on-year, reflecting organic growth and benefits from the restructuring program, partly offset by currency headwinds. Capital expenditure amounted to EUR 76 million, down 38% versus the prior year, partly driven by proceeds from the sale of a building following our footprint rationalization. This resulted in cash flow post investment of EUR 250 million, up 16% year-on-year. Working capital was an outflow of EUR 56 million, reflecting the normal seasonal pattern in Q1 as we see activity ramping up through the quarters. As a result, operating cash flow before tax and interest was EUR 194 million. This translate into a cash conversion of 77%, a significant improvement from 60% in Q1 last year. After taxes of EUR 46 million and net interest of EUR 24 million, cash flow before nonrecurring items was EUR 124 million, up 84% year-on-year. Next slide, please. This slide shows working capital to sales on the new Hexagon base, providing a view of the underlying trend. On this base, Q1 performance is in line with normal seasonal patterns. Net working capital was an outflow of EUR 56 million compared to EUR 68 million in the prior year. The rolling 12 months working capital to sales ratio improved to 11.9%, trending down versus last year. So to conclude, we delivered organic growth of 8% with stable margin despite significant currency headwinds and gross margin pressure on tariffs and input cost inflation. Cash conversion improved to 77% and the restructuring program continues to deliver with EUR 10 million of savings in the quarter and an annualized run rate of EUR 51 million. Looking ahead, currency is expected to remain a headwind, and we remain focused on execution. I will now hand over to Mattias. Next slide, please. Mattias Stenberg: Thank you very much, Norbert. Let's take a look at the first quarter results for Octave. What you're seeing in the numbers this quarter, it's not just a transition to recurring revenue. It truly reflects the early impact of connecting workflows across the asset life cycle, which is where the real value in this business sits. Recurring revenue grew 6% organically compared to the prior year, with SaaS revenue continuing to grow at strong double-digit rates. Reported organic total revenue grew 2%, whereas reported revenue is down year-over-year, driven by currency impact and the disposal of the federal services business that we did last year. If you look at monthly project-driven subscription license revenue, that was roughly flat with the prior year period, while perpetual licenses and professional services revenue declined, reflecting the deliberate shift we are doing towards subscription-based models. The EBIT for the first quarter reflects the lower perpetual license contribution together with lower levels of R&D capitalization and higher related amortization. Excluding these factors, underlying profitability was in line with the prior year period as disciplined cost savings offset incremental public company costs. Cash conversion was a healthy 118% in the quarter. Next slide, please. If we look at our workflow environment in Q1, the trends were consistent with our expectations. In Design, perpetual license sales declined, while monthly subscription licenses continued their sequential improvement. Build delivered strong double-digit growth driven by SaaS adoption in construction and project controls. Operate also saw strong revenue growth across quality management, APM and EAM. And in the Protect area, recurring revenue continued to grow offset by lower perpetual licenses and services revenue. Our advantage, however, is not in a single product. It is in how these workflows connect. Intelligence created in design, build, operate and protect becomes more valuable when it is shared across the life cycle. Next slide, please. To the left here, you can see the monthly subscription licenses. We saw a step down as earlier discussed in the activity level in early 2025. However, since then, we've seen sequential improvement, and that positive trend continued in Q1, and we do expect year-over-year comparisons to get easier as we move through 2026. In the middle chart, you can see that excluding this short-term volatility from project-driven licenses, the underlying trend is, in fact, strong. Recurring revenue continues to grow at a high single-digit rate, reflecting healthy underlying momentum across the portfolio. And on the right, you can see that our quarterly perpetual licenses continue to decline in line with expectations as we shift towards recurring revenue models. We do expect this shift from perpetual to continue to pressure total revenue growth for the remainder of this year. Next slide. If we turn towards some of the information we shared at Octave's first Investor Day in March, and if you haven't watched it yet, you can access the videos and presentations at the Investors page at octave.com. One of the key takeaways that we discussed there was that we expect to accelerate organic recurring revenue growth to 10-plus percent over the medium term. Approximately 2/3 of that ARR growth is expected to come from our existing customer base. What underpins this is that expansion within our installed base is driven by the multi-workflow adoption where we see a clear step-up in ARR as customers move beyond a single workflow. We expect the remaining 1/3 of growth to come from new customers as we invest in growth areas and expand the partner channel to broaden our coverage across geographies as well as customer segments. Next slide, please. Turning to customer highlights in the quarter. We had a number of important wins, both for new logos as well as expansion. And I think these wins really reinforce several of the strategic themes we outlined at our Investor Day in March. If we start with new logos, we added Visa CashApp Racing Bulls for enterprise asset management to handle their logistics and operations in their F1 business through a multiyear SaaS contract. We signed both BNSF Railroad and Spokane 911 on multiyear SaaS deals for our OnCall Dispatch platform. We also landed a leading U.S.-based LLM developer on a design subscription for their facilities infrastructure. And these wins demonstrate 2 things that we emphasized at our Investor Day: the diversity of our addressable market across mission-critical industries and our ability to land new customers on recurring SaaS-based contracts as we accelerate the shift towards recurring revenue. On the expansion side, I want to highlight 2 deals that could not have happened a year ago, frankly, from an organizational perspective as these businesses then sat in separate Hexagon divisions. The first, a global motion and control leader and existing design customer expanded into operate through a 4-year strategic agreement, adding both our EAM and ETQ solutions across their global manufacturing operations. The other one was Kimberly-Clark, who signed a deal that consolidates over 700 of their systems onto our platform in a 5-year SaaS conversion spanning design and operate. And I think this is a great illustration of our -- how our opportunity for ARR per customer expansion where customers adopting 3 or more workflows consistently reach 7-figure ARR levels. And while the 86% of our customer base is still on a single workflow, and that is the expansion runway embedded in this business. We also expanded with a leading European chemical producer displacing a competitor for critical communications across their production plants. This customer now runs on Octave across all 4 workflow environments, design, build, operate and protect, validating both our platform strategy as well as the value customers see in consolidating onto our solutions. And lastly, we cross-sold our build solutions into a long-standing design customer with a major copper mine operator, extending our relationship to include project controls. So to me, what these examples really show is that once we land in one workflow, expansion into adjacent workflows is not theoretical. It is happening, and it materially increases our ARR. So in summary, the Q1 customer activity validates our strategy. We're winning new logos on SaaS, expanding within our base across the workflows and displacing competitors where our integrated life cycle approach gives us a clear right to win. And this is what differentiates us. We are not competing as a point solution. We are competing as a life cycle partner for mission-critical assets where failure is not an option. Next slide, please. So if we turn to our Investor Day outlook, in the nearer term, 2026 is a transition year as we become an independent public company. We're targeting 3% to 4% total revenue growth on the back of 6% to 8% ARR growth with adjusted operating margins stepping down modestly as we absorbed roughly 100 basis points of public company costs and up to 100 basis points from revenue model shift, net of savings. We do expect revenue growth to be second half weighted, reflecting both the recovery in monthly subscriptions and the typical back half seasonality of enterprise software bookings. For the second quarter on a U.S. GAAP basis, we expect organic recurring revenue growth of 6%, so similar to Q1. And we expect organic total revenue growth to be flattish year-over-year due to the declines in perpetual licenses that we have discussed. On a reported basis, which will reflect, again, then the disposal of the federal services business, we expect second quarter total reported revenue to be down approximately 4% over the prior year. Next slide, please. Our medium-term ambitions remain as we laid out in March. ARR growth of 10-plus percent and total organic revenue growth of 6% to 8%. Over time, of course, these growth rates will converge as recurring revenue becomes a larger and larger part of total revenue. We also expect free cash flow margins to expand from today's level of roughly 20% to 23% to 24% of the medium term. Next slide. So I'd like to close by reiterating why we believe Octave is a compelling investment. We operate in a large and growing market. It's $28 billion today, reaching $40 billion by 2029. We have a deeply embedded sticky installed customer base with 97% gross retention and significant room to expand. Our recurring revenue base of $1.1 billion continues to grow as a share of the mix. AI amplifies the value of 3 decades of domain data and context that is very hard for anyone to replicate. We are leaders in our product categories as recognized by basically all the major industry analyst firms. We operate in mission-critical environments where failure is not an option. And as customers connect workflows across the life cycle, value compounds and expansion becomes more predictable. That is the foundation for sustainable growth and profitability as we scale as an independent company. So final slide, please. So as a reminder, on the key dates for the separation. The Hexagon AGM vote is tomorrow, April 24. And assuming approval, the record date and effective date for the distribution is May 22, with Octave SDRs expected to begin trading on Nasdaq Stockholm on May 26, and the Class B shares on Nasdaq New York on May 28. So with that, thank you very much. And I'll hand back to you, Anders. Anders Svensson: Thank you, Mattias. Let me jump forward directly into the Q1 summary slide. So Hexagon delivered a strong financial performance. Our cost restructuring program is clearly on track and delivering. On the portfolio side, we completed the sale of our Design & Engineering business to Cadence, and we also announced here in April an acquisition of Waygate Technologies. As we have heard, the Octave spin is remaining on track. And all these actions are then sharpening Hexagon's future focus on the core positioning measurement technologies, positioning technology and autonomy opportunities. Our full executive team is now in place, as I mentioned, with Enrique and Renée. And looking ahead, we have a solid foundation entering into the second quarter. We had a strong order intake within Manufacturing Intelligence. And with the closure of the Geosystems destocking program, we provided a clean base for growth of Geosystems going forward. We remain, of course, attentive to the macroeconomic situation, particular to the tariffs, currency dynamics and also what's happening in the Middle East situation. We are, however, very confident on the momentum of our different businesses going forward. And as we have just heard from Mattias, Octave generated another very strong quarter of SaaS growth, contributing to recurring revenue growth in the mid-single digits. Before I move forward, I want to take this opportunity to thank you, Norbert Hanke, who has been an excellent interim CFO, covering from the gap in August 2025 when David Mills was stepping down. And now handing over to Enrique Patrickson. Norbert will remain as an Executive Vice President at Hexagon, leading our ventures operations and also strategic projects. And I'm very much looking forward to continue working with you, Norbert, in that capacity. Before we move to the Q&A, I would like to draw your attention to an upcoming event on the next slide. We will be hosting our Capital Markets Day in April, at April 30. That's next week, Thursday, in London. And this will include strategy updates from each of our business areas. And also importantly, we will present the new updated financial targets for Hexagon, reflecting the new portfolio composition that I have spoken about today. So of course, I encourage all of you to join us in London or follow the event via the webcast. And details and registration are available on our Investor Relations website. So with that, we are now happy to open up for questions. And in the room, we have Mattias Stenberg, Norbert Hanke, Ben Maslen, and myself. So please go ahead, operator. Operator: [Operator Instructions] We will now go to your first question, and your first question today comes from the line of Alice Jennings from Barclays. Alice Jennings: I've got a couple. So the first one is just on, I guess, the outlook for Q2. So you've expressed some confidence, but then also recognized a bit of uncertainty. So could you perhaps outline where in the business, like which divisions you have the most visibility or also the most uncertainty? So thinking about divisions, but then also the industries. And then I just have a question on the Waygate acquisition. So I understand that we're expecting to see some revenue synergies from cross-selling. But how long after the deal is closed? Can we expect to start seeing some of these synergies? And how meaningful could these be? Anders Svensson: All right. Thanks, Alice. So I can start a bit and Norbert, you can maybe contribute as well. So if we look at the different businesses and the outlook for Q2, of course, we don't give forecasts on the future. But we have a very strong order intake in our Manufacturing Intelligence business, and that will, of course, benefit us in the coming quarters. And as I mentioned within the Geosystems area, we have completed the destocking initiative. So we don't have -- we don't start every quarter with a negative sort of EUR 8 million to EUR 10 million that is already sort of cleaned, and we have now a clear base to move forward from. And as I said, the underlying growth has now turned positive within Geosystems, and we expect that to continue also going forward. In the Autonomous Solutions, we have a very strong demand in different sectors like aerospace and defense, et cetera. And we don't see any signs of that changing. And we don't see any signs of the weak business of agriculture improving dramatically either. So many of the businesses are expected to remain in a similar level. Mining, perhaps not growing very much in the second quarter because that's related to what I said in the presentation. But more in the midterm, we don't see any risk for our mining business as the activities is still very strong. If you look at electronics, for example, we expect that to continue to be a strong business for us also going forward. Automotive will be challenged in Europe. I think also we have seen now some negative growth for us in automotive in China, and that might remain. But given also the high oil prices, you might come back to more electric cars and that will also benefit our automotive sales in China. So we have to wait and see what happens within that business. General manufacturing is a strong business across all the different businesses, basically, and we expect that to continue on similar levels. So I think that's a summary of what we can say about the outlook. If I then should comment on the Waygate acquisition. So of course, there is a process here that we need to go through until we have actually closed this acquisition. And then there is an integration of the acquisition. And we will start seeing benefits, I think, quite quickly of the synergies because we have similar exposure to customers. We will also complement our offering, and we will go to market with the same people across the different geographies. So I think you will see synergies coming quite quickly after the integration of the business into Manufacturing Intelligence. Operator: Your next question comes from the line of Daniel Djurberg from Handelsbanken. Daniel Djurberg: Congrats to a nice growth profile here. I was wondering, Anders, if you could -- you mentioned some pulls from Q1 into Q4, still strong organic growth, 8%. And my question is, did you experience any prebuys for some reason? And how much of the organic growth was a result of this, if so? And also, if so, would it impact you negatively later on? Anders Svensson: Thanks, Daniel. The pull-in from Q1 to Q4, which I referenced was primarily within deliveries in mining. And I wouldn't say that, that has a significant impact for -- with the performance in the first half year here in 2026. Of course, the first part of the quarter was a bit weaker within mining, of course, due to that. But not any permanent effects in any way. Pre-buys, we actually don't see across the different businesses to any extent that we can recognize that this is a typical prebuys. So we don't see that as a future negative impact for us either. Daniel Djurberg: Super. May I ask you another question on Waygate, obviously, early days, but you mentioned that you will do a strategic review of imaging solution and ultrasonic testing. So my question is, can you already start to plan for this right now? Or do you need to await the full consolidation and then see and plan later on? Or more or less, can you do theoretically a divestment or something at the same time as you do the transaction later in 2026? A little bit hypothetical question, perhaps. Anders Svensson: Yes, I would agree with you, Daniel. I think we are here, first, making sure that we do the acquisition before we do anything else and close the acquisition. Then I didn't say that we will divest these businesses. I will say that we will evaluate them to see if we can make them into a market-leading position, #1 or #2 within those businesses as well. That could be with complementary acquisitions. We will also evaluate if we can do a turnaround of the business to improve the performance and create shareholder value. And then we don't exclude to do strategic reviews of businesses, which we don't exclude for any of our businesses, actually. We are always evaluating our portfolio. Operator: Your next question for today comes from the line of Johan Eliason from SB1 Markets. Johan Eliason: Just two questions from my side, just starting on the cash conversion, obviously, a good improvement, 77% in this quarter and then 60%, I guess, on some sort of comparable basis a year ago. But is -- I think your target has historically been 80% to 90% cash conversion. But considering Octave bringing all the SaaS and subscription prepayments with it. I guess, one should assume that this 80%, 90% target will be more difficult to achieve going forward? Or how do you see it? Norbert Hanke: Yes, Johan, I will take it here. For the time being, yes. I would agree, 77% was a good performance, as we said as well from our point of view. But say, we will have the CMD next Thursday, and I think you will hear quite a bit from Enrique as well going forward, what will be the target and how to achieve this. And I think I would then say, wait until Thursday. Hopefully, you are there. Johan Eliason: Yes, I am. Okay. Just trying. Then another question. On the robotics, you mentioned the Schaeffler, 1,000 robots coming 7 years or so. Are those on commercial terms? So can you sort of indicate what sort of price tags you are targeting for your type of robotics? I remember when you showed us them in September, I think it was -- there was a wide range of assumptions on what price tags robots could fetch from the consumer side to the professional industrial use? So do you have any indications here? And are you sort of satisfied with the returns for your clients, obviously, but with the returns for you as well in the deals you seem to have struck right now? Anders Svensson: Yes. Johan, I think we are not going out with any numbers, as you can see from the release. So we are very happy with this deal. I think the key thing for us here, it proves that this solution with AEON is commercially viable and implementable in an industrial application. And we could also see that with the BMW announcements. We are happy with the outcome for our customer here, and we are also happy with the situation for ourselves in the deal. But we don't comment on anything else regarding the deal. Operator: We will now take our final question for today, and the final question comes from the line of Mikael Laséen from DNB Carnegie. Mikael Laséen: I have a question for Mattias about Octave, and specifically, how we should think about the capitalized software development costs going from 8% to 4% over the medium term? And my question is about the total R&D expenditures. How should you think about stats in '26 and going forward? Mattias Stenberg: Yes. No, thanks, Mikael. I think I'll pass to you, Ben, for the detail. But I mean it is correct that we are stepping down capitalization. But I'll let you take it, Ben. Benjamin Maslen: Yes. Mikael, so as we said at the Analyst Day, there's no plans at the moment to change the gross level of R&D expenditure, which has been about 18% to 19% of revenues the last few years. I think there are areas where as we implement AI, we could get savings, but the priority at the moment is to reinvest in the product and drive growth. That was the message from a few weeks ago. Obviously, we're moving the product development more and more towards SaaS, where you have continuous development cycles, and it doesn't really make sense under the accounting standards to capitalize. So this will be gradual at first, and we'll go from 8% of capitalized software development costs in 2025. It will come down this year. And then we think by in the medium term, it will come down to about 4%, as we said a few weeks ago. Mikael Laséen: Okay. So the cash effect from the R&D activities will essentially then develop in line with sales? Benjamin Maslen: Yes. I think that's probably the best guide at this point, yes. Mikael Laséen: Okay. Can I also follow up with a quick question on the stock-based compensation. That probably is expected to go from 1% to 4%. Will you have a step up now when you have been separated and listed? Or will that be a gradual process? How does it work? Benjamin Maslen: Yes. It will be a gradual process as the new program gets approved and kicks in, and it layers and stacks up kind of year-over-year. So I would say it's fairly linear between the 1% and the 4%. Operator: There are no further questions. I will now hand the call back to Anders for closing remarks. Anders Svensson: Thank you very much, and thank you, everyone, for participating and engaging with questions. Looking forward to seeing you all then on next Thursday in London. And we wish you all a great day from here. Bye. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the STMicroelectronics First Quarter 2026 Earnings Release Conference Call and Live Webcast. I am Moira, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. [Operator Instructions] At this time, it's my pleasure to hand over to Jerome Ramel, EVP, Corporate Development and Integrated External Communications. Please go ahead. Jerome Ramel: Thank you, Moira. Thank you, everyone, for joining our first quarter 2026 financial results call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call are Lorenzo Grandi, President and CFO; and Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensor Group, and Head of STMicroelectronics Strategy, System Research and Applications and Innovation Office. This live webcast and presentation materials can be accessed on ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST results to differ materially from management expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results this morning and also in ST's most recent regulatory filings for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST President and CEO. Jean-Marc Chery: Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q1 2026 earnings conference call. I will start with an overview of the first quarter, including business dynamics, and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your questions. So starting with Q1. Our first quarter net revenues were $3.1 billion, including about $40 million revenues associated with NXP's MEMS sensor business, which we acquired during the quarter. Excluding this contribution on a sequential basis, net revenues were above the midpoint of our business outlook range, driven mainly by higher revenues in our engaged customer programs in Personal Electronics and in Communication Equipment and Computer Peripherals. Gross margin was 33.8% or 34.1%, excluding the impact of the purchase price allocation, so-called PPA, following our acquisition of NXP's MEMS sensor business. Excluding impairment, restructuring charges and other related phase-out costs and purchase price allocation, PPA effects from our acquisition of NXP's MEMS sensor business, non-U.S. GAAP diluted earnings per share was $0.30. During the first quarter, inventory in our balance sheet increased slightly, and we continue to work down inventories in distribution. They are now normalized. We generated a negative $720 million free cash flow, including $895 million cash out related to the payment of our acquisition of NXP MEMS sensor business. Let's now discuss our business dynamics during Q1. Well, first, we had a strong booking momentum during Q1 with book-to-bill well above 1 across all end markets and regions. In Automotive, during the quarter, revenue declined 10% sequentially. Year-over-year, revenues increased 15%, marking the return to year-over-year growth. Automotive design momentum progressed with various OEM and Tier 1 ecosystems. We had design wins across electric, hybrid and traditional vehicles, spanning onboard chargers, DC-DC converters, powertrain active suspension and vehicle control electronics. Key products include power semiconductors, smart power devices, automotive microcontrollers, analog devices and sensors. In February, we completed the acquisition of NXP's MEMS sensor business. The acquired technology and product portfolio are highly complementary to STs and strengthen our automotive sensor business. We are progressing as planned with the integration into our portfolio and operational flows. Industrial decreased by 1% sequentially and improved 26% year-over-year. Importantly, inventories in distribution further decreased and are now normalized. In Industrial, our broad portfolio of microcontrollers, sensing, analog and power devices is strongly aligned with industrial transformation trends and the evolving needs of physical AI. During the quarter, we saw design wins across industrial automation and robotics, building automation, power systems, health care and home appliances. We announced our collaboration with NVIDIA to integrate ST sensors, microcontrollers and motor control solutions with NVIDIA Robotics ecosystem. This aims to help developers design, train and deploy humanoid robots and other physical AI systems with higher efficiency, reliability and scalability. We are also proud to have been ranked the #1 vendor worldwide for general purpose microcontrollers for the fifth consecutive year based on research by Omdia. During March, we announced that the first batch of STM32 wafers fully produced in China for ST by our partner, Huahong, has been delivered to customers in China. This was a major step forward in ST China for China supply chain strategy. For Personal Electronics, first quarter revenues were down 14% sequentially, reflecting the seasonality of our engaged customer programs and up 21% year-over-year, reflecting increasing content. During the quarter, we reinforced our position in mobile platforms and connected consumer devices, supported by both engaged programs and a broad open market portfolio spanning sensors, secure solutions and power management. We announced support for motion sensing and secure wireless technology on Qualcomm Technologies' newly launched Personal AI platform based on ST smart sensor and secure NFC controllers. For Communications Equipment and Computer Peripherals, first quarter revenues were above our expectations, up 3% sequentially and 41% year-over-year. We continue to reinforce our position as a supplier of critical semiconductors that power cool and connect AI data centers from the grid to the core and from the core to the user. ST is now strategically positioned to capture upside from new AI-driven program, leveraging specialized technologies to enable the evolving AI infrastructure. We confirm our data centers revenue expectation to be nicely above USD 500 million for 2026 and well above $1 billion for 2027. In a major development, we expanded our strategic engagement with Amazon Web Services through a multiyear multibillion U.S. dollar commercial engagement to enable new high-performance compute infrastructure for cloud and AI data centers. This engagement covers a broad range of semiconductor solutions, leveraging ST portfolio of proprietary technologies. During the quarter, we secured multiple design wins for silicon and silicon carbide-based power solutions. These supports the drive for higher power density and increased energy efficiency for next-generation AI compute and data center architectures. We announced the expansion of our 800-volt DC AI data center power conversion portfolio with new 12-volt and 6-volt architectures in collaboration with NVIDIA. With this, ST now provides a complete portfolio for the 800-volt VDC power distribution inside gigawatt scale compute infrastructure, leveraging ST power, analog and mixed signal and microcontroller products. We also announced the start of high-volume production for our silicon photonics-based photonics ICs 100 -- PIC100 platform used by hyperscalers for optical interconnect for data centers and AI clusters. The technology enables higher bandwidth, low latency and greater energy efficiency. As I mentioned last quarter, the momentum in optical interconnect technologies is also driving demand growth for our high-performance microcontrollers in pluggable optics. We are also seeing initial demand for our secure element in data server power supply units to support authentication and detect data manipulation attacks. Our low-earth-orbit satellite business based mainly on our BiCMOS and panel-level packaging technologies strongly progressed during the quarter. We were selected to develop a power amplifier controller for direct-to-cell satellites based on our proprietary BCD technology by our main low earth orbit customer, and we continued to ramp shipments to our second largest customer. For sustainability, we issued our annual integrated report during the quarter. This report integrates our sustainability statement detailing our performance in 2025. We made further progress and remain on track for our commitment to becoming carbon neutral by '27 on Scopes 1 and 2 and on product transportation, business travel and employee commuting for Scope 3. We also target the sourcing of 100% renewable electricity by 2027 and achieve 86% in 2025. Now over to Lorenzo, who will present our key financial figures. Lorenzo Grandi: Thank you, Jean-Marc. Good morning, everyone. Let's start with a detailed review of the first quarter, starting with revenues on a year-over-year basis. By reportable segment. Analog products, MEMS and Sensors grew 23.2%, mainly due to Imaging and MEMS and to a lesser extent, Analog. Power and Discrete products decreased 1.8%. Embedded Processing revenues were up 31.3% due to general purpose MCU and to a lesser extent, custom processing and RF and optical communication grew 33.9%. By end market, Communication Equipment and Computer Peripherals grew 41%; Industrial 26%, Personal Electronic, 21% and Automotive 15%. Year-over-year, sales to OEMs and distribution increased 24.5% and 19.2%, respectively. On a sequential basis, Analog product, MEMS and Sensor decreased by 9.1%, Power and Discrete by 5.4%, Embedded Processing by 4% and RF & optical communication by 9%. by end market, on a sequential basis, Communication Equipment and Computer Peripheral was up 3%, while the other end markets declined. Industrial was down 1%, Automotive, 10%; and Personal Electronic, 14%. Turning now to profitability. Gross profit in the first quarter was $1.05 billion, increasing 24.3% on a year-over-year basis. Gross margin was 33.8%, increasing 40 basis points year-over-year, mainly due to lower unused capacity charges and better product mix. On a sequential basis, gross margin decreased by 140 basis points. Gross profit included $11 million purchase price allocation PPA effects from our acquisition of NXP's MEMS sensor business. Non-U.S. GAAP gross margin, excluding this item, was 34.1%, excluding the impact of NXP's MEMS sensor business and related PPA effects, gross margin stood at 33.9%, 20 basis points better than the midpoint of ST guidance, which did not include any impact related to our acquisition of NXP's MEMS sensor business. Q1 gross margin included about 50 basis points of negative impact resulting from a nonrecurring cost related to our manufacturing reshaping programs. The negative impact on gross margin from the just mentioned nonrecurring cost is expected to remain at similar level over the rest of the year. Total net operating expenses, excluding restructuring, amounted to $904 million in the first quarter. Excluding the purchase price allocation PPA effects from our acquisition of NXP's MEMS sensor business, non-U.S. GAAP OpEx stood at $885 million. Non-U.S. GAAP net OpEx included OpEx related to the acquired NXP MEMS sensor business and a one-off impact related to a settlement with a supplier. Excluding these 2 items, non-U.S. GAAP net OpEx was broadly in line with the expectations given in January, which did not include any impact related to our acquisition. For the second quarter of 2026, we expect non-U.S. GAAP net OpEx to stand between $950 million and $960 million. The sequential increase is mainly due to calendar base effect, start-up costs and 1 incremental month of OpEx related to the acquired NXP's MEMS sensor business. Excluding these items, Q2 '26 non-U.S. GAAP net OpEx would slightly decrease sequentially. In light of our acquisition of NXP's MEMS sensor business and the new AI revenues opportunity, let me give you some more color on the 2026 OpEx. For full year 2026, we now expect like-for-like net OpEx to be up mid- to high single digit year-over-year versus our previous expectation for a low single-digit increase as we are accelerating our investment in new business opportunities, including NXP's MEMS sensor business acquisition and the exchange rate impact, net OpEx should be up low double digit year-over-year. In the first quarter, we reported $70 million of operating income, which includes $71 million for impairment, restructuring charges and other related phase-out costs. These charges are related to the execution of the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base. Q1 operating income also included $30 million purchase price allocation effects from our acquisition of NXP's MEMS sensor business. Excluding these items, Q1 non-U.S. GAAP operating income stood at $171 million and non-U.S. GAAP operating margin was 5.5% with Analog product, MEMS and Sensors at 12.2%, Power and Discrete negative 21.5%, Embedded Processing at 16.9% and RF & Optical Communication at 14.9%. First quarter 2026 net income was $37 million compared to a net income of $56 million in the year ago quarter. Diluted earnings per share were $0.04 compared to $0.06 1 year ago. Non-U.S. GAAP net income stood at $122 million and non-U.S. GAAP diluted earnings per share stood at $0.13. Net cash from operating activities totaled $534 million in the first quarter compared to $574 million in the year ago quarter. Net CapEx was $362 million in the first quarter compared to $530 million in the year ago quarter. Free cash flow was negative at $723 million in the first quarter compared to a positive $30 million in Q1 2025. Q1 '26 free cash flow includes $895 million cash out related to the payment for the acquisition of NXT's MEMS sensor business. Inventory at the end of this quarter was $3.17 billion compared to $3.14 billion in Q4 2025 and $3.01 billion in Q1 2025. Days sales of inventory at quarter end were 140 days, in line with our expectation compared to 130 days of the previous quarter and 167 days in the year ago quarter. Cash dividend paid to stakeholders in the first quarter of 2026 totaled $71 million. ST maintained its financial strength with a net financial position that remained solid at $2 billion as of March 28, 2026, reflecting total liquidity of $4.57 billion and total financial debt of $2.57 billion. Now back to Jean-Marc, who will comment on our outlook. Jean-Marc Chery: Thank you, Lorenzo. Now let's move to our business outlook for Q2 2026. We are expecting Q2 2026 revenues at $3.45 billion, plus/minus 350 basis points. At the midpoint, our Q2 2026 net revenues will increase 11.6% sequentially and by 24.9% year-over-year. We expect our gross margin to be about 34.8%, plus/minus 200 basis points, including about 100 basis points of unused capacity charges. Non-U.S. GAAP gross margin is expected to be about 35.2%. This business outlook does not include any impact for potential further change to global trade tariffs compared to the current situation. To conclude, in the first quarter, despite the macroeconomic uncertainty, we saw improving demand with strong booking and normalized inventory in distribution. In the second quarter, we expect revenues well above average seasonality as well as an increased gross margin. We have a clear path to improve gross margin while staying at the forefront of innovation. We expect 2026 revenues to show double-digit growth beyond our addressable market dynamics and our already engaged customer programs. This growth will be driven by new AI programs for which we leverage our specialized technologies to enable the evolving AI infrastructure. Before handing over to Jerome, I am pleased to announce that as we did in March for Cloud AI and intelligent sensing, on May 4, we will host a dedicated call on ST's low-earth-orbit satellites, explaining how we are going to achieve our ambition of well above $3 billion cumulative revenues over the period '26 to '28 for this opportunity. You will receive the invitation today. Thank you, and we are now ready to answer your questions. Operator: [Operator Instructions] The first question comes from the line of Joshua Buchalter from TD Securities. Joshua Buchalter: Congrats on the very solid results. So you have a lot of idiosyncratic growth drivers hitting this year across data center, silicon photonics, LEO satellite and then your largest customers, normal seasonal ramp. Can you sort of help us with the shape of the year and how we should expect them to layer into the model? Like should we expect 3Q and 4Q this year to also be above seasonal because of these company-specific growth drivers? Jean-Marc Chery: I am taking the question. Well, of course, I will not guide on '26, but maybe we can share a few elements. First of all, okay, the strong booking of Q1 has shown absolutely no pull-in order. It is, let's say, a well-balanced loading of the 2026 quarter-to-quarter. So the billable on '26 from the booking we received in Q1 represent approximately 85% to 90% of the booking we received. So this is positive to make us confident that in H2, we could achieve the usual seasonality H2 versus H1. Then what will be again positive on the year 2026, looking at the current dynamic in terms of growth. In automotive, we confirm that '26 will be a growth for ADAS for sensor, of course, and also with the boost of the acquisition of MEMS from NXP and for silicon carbide. In Industrial, we will see a solid and strong growth on general purpose microcontroller. In Personal Electronics, okay, as we have already seen in Q1, our engaged customer programs in Sensor and Analog will be, let's say, a contributor of the growth but not a big one in H2 because a change of profile in the introduction of the new device. Well, in data center, it is clear that here we are seeing a really strong growth in terms of demand, acceleration, including cloud optical interconnect, both for our PIC100 for our BiCMOS but I repeat for our general purpose microcontroller and analog and power discrete as well. So we confirm the revenue nicely well above USD 500 million. But the only negative aspect of the revenue in '26 is capacity reservation fees that will decrease, okay, $140 million compared last year. So this is how we see the year 2026. So I repeat, backlog now well loaded, great confidence level to have H2 versus H1 at the usual seasonality on top of ADAS, SiC, sensor, general purpose micro, clearly, AI infrastructure and low-earth-orbit satellite will be very strong contributor to the performance of ST in 2026. Joshua Buchalter: Really appreciate it. I was hoping you could comment on the pricing backdrop. I mean, one of your large competitors last night said it was coming in a little bit better than they originally planned and now expect flat pricing. Have you seen changes in the pricing environment over the last 3 months? And sort of what are your expectations on pricing for the year? Jean-Marc Chery: So, here, I'll let Lorenzo comment. Lorenzo Grandi: Yes. Thank you for the question. If you remember last quarter, we were talking about pricing decline on low to mid-single-digit expectation. But clearly, there is some evolution in respect to this expectation. I would say that in Q1, our price decline was as expected, low single digit. What today we see, we see an environment in which actually there is some selected price increase that also we expect. So at this point, I would say that in terms of pricing, our expectation is to have a very low single-digit, let's say, price decline. So it means that actually, in terms of pricing, we see a better situation in respect to what was a few months ago. Operator: The next question comes from Francois Bouvignies from UBS. Francois-Xavier Bouvignies: Maybe just a follow-up on the pricing. I mean we have seen some announcements that you will increase your pricing in April and you are not the only one. So can you just give us an idea of how much of your revenues would be impacted by the margins? And also, Lorenzo, what about the gross margin with this pricing increase? I mean, should we -- I would imagine it takes a bit of time to fuel into your P&L. So when should we expect some gross margin impact from this gross margin increase that we see in the press? That's my first question on pricing, gross margin. Lorenzo Grandi: No. Clearly, let's say, when we look at the price environment, I would say that at this stage, yes, there is some selective price increase. It's not a price increase for what concern us across all, let's say, customer and products. Anyway, what I can say is that when we look at the dynamic, of course, of the -- dynamic of our gross margin moving from Q1 to Q2, and we may say that pricing is quite neutral in respect, let's say, to this dynamic, means that at the end, it's not a boost but it's not even a detractor. It will remain substantially flattish when we look at the evolution of the gross margin. That is not what is the normal trend when we look, let's say, the seasonality between these 2 quarters. For sure, as a positive when we look at our gross margin, there is the mix. Mix is continuing to be, let's say, positive on our gross margin evolution. But clearly, there is also lower unused capacity charges. Our fabs that are better loaded capacity charges is declining moving from Q1 to Q2. But there are still some negative. The negative is mainly related to our manufacturing efficiency. Why? Because there is some temporary suboptimal efficiency in the context of our reshaping plan. We are moving technologies, products from 200-millimeter fab to 300-millimeter from the 150-millimeter of silicon carbide to 200-millimeter. And we are really in the middle of this kind of programs that, for sure, let's say, are somehow impairing a little bit the efficiency of our fabs. And this, I would say, is the main detractor when we look at the evolution over the -- on a sequential basis of our gross margin. Pricing, as I said, is really neutral at this stage. Francois-Xavier Bouvignies: Maybe one for Jean-Marc. I mean, if we look at your customer programs, if I exclude the Personal Electronics, so if I take silicon carbide, photonics and satellites, so your big programs. Should we expect your revenues to grow quarter-on-quarter from here, like the fundamental that is increasing gradually. So no seasonality, I would imagine. So you should be able to see a growth across the board here quarter-on-quarter for the year. Is that the right assumption excluding Personal Electronics? Jean-Marc Chery: Of course, excluding Personal Electronics, this is what we expect. Operator: Next question comes from Janardan Menon from Jefferies. Janardan Menon: Just a follow-up on gross margin, Lorenzo. Looking into the second half, what would you see as the various puts and takes on that gross margin evolution? Your top line is growing perhaps much faster than what we had thought a few months ago. So would it be that, that utilization and underloading charges will get used up faster? And what is -- there's normally a lag between the revenue trend and the gross margin. So just if you could give us any commentary on how -- not in terms of actual numbers but just the puts and takes perhaps of the second half? And how do you feel about your sort of your model of getting to 45% given the kind of strength that you're seeing in end markets and the favorable product mix that you're seeing right now? Lorenzo Grandi: No. What I can say about the gross margin is definitely that the gross margin, let's say, this year will improve in respect to what has been in last year, definitely and will improve sequentially when we look Q1, Q2, Q3 and Q4. This is something that definitely we expect. This is what we expect to continue to see a sequential increase and sequential improvement over Q3 and Q4. What are, let's say, the driver we expect? Clearly, as you said, the unused capacity charges will improve, thanks to the fact that we will have higher revenues, even if I confirm that will not completely disappear. We will still have some areas in which especially related to the legacy technology that we will still have a little bit of unused capacity charge but much lower than what we saw, let's say, last year definitely. There will be progressively some manufacturing efficiency improvement. Even if I repeat what I said before, we are not yet optimized because, let's say, we are in this transition. We will start to see this benefit of the transition mainly in 2027 more and then in 2026. But for sure, there will be some improvement moving forward from Q2. Mix will be another positive impact. We will continue positive impact on mix. But clearly, we know that capacity reservation fees now are out. There will not be, I mean, much lower, let's say, there will not be a significant variation moving from Q2, Q3 and Q4, but are much lower in respect to what it was, let's say, last year. As I said, there is this cost related to this transformation of our manufacturing infrastructure. Maybe what we will have, let's say, in the second half is a little bit higher input cost for our manufacturing considering, let's say, the overall situation. But definitely, I confirm that starting from our, let's say, 35.2% Gross margin in the second quarter, we will continue to see progressively improvement in Q3 and Q4. Janardan Menon: And maybe just a quick follow-up. On your Q2 outlook of 11.6%, is there already a very significant contribution from the optical connectivity on the data center, which is driving that upside? Or is the Q2 more driven by a pickup in industrial, general purpose microcontrollers, et cetera, and the optical kicks in more meaningfully into the second half of the year? Jean-Marc Chery: The optical are starting to contribute. In fact, since Q1 is mainly through the high-performance microcontroller. But the main part of the optical overall with photonics by BiCMOS will be in H2 but microcontroller are already participating to the growth. Operator: The next question comes from Gianmarco Bonacina from Banca Akros. Gianmarco Bonacina: I have a question more for the midterm. You gave some figures for your, say, AI revenues for next year, above $1 billion. I just wanted to understand in terms of the commercial activity, we read -- we commented the big contract with AWS. So are you working on a commercial basis just to get potentially the revenues with other hyperscaler? And how confident you are that, let's say, the opportunity you realized with AWS can be also generated with other hyperscaler maybe, I mean, in the midterm, not just in the near term? Jean-Marc Chery: If we speak about midterm, our strategy on hyperscaler are the following. Basically, if you break down this, let's say, infrastructure in 3 main application domain. What we call the network flow. This is where we have spoken about, let's say, the optical cable and near technology, let's say, evolution with packaged co optic or near-packaged optics clearly here, one of the main driver will be AWS but clearly, ST is positioned to provide -- to be a provider of product and solution for optical cable far beyond, only AWS. This is the point number one. And then the second big domain is clearly well known is what we call the power flow. So it means the capability for electronics to enable the supply of the processor from 20,000 volt to 0.8 volt. And here, ST is engaged now with a large product portfolio from, let's say, SPS, low-voltage MOSFET, microcontroller, driver, sensing and so on and so forth. And this will come far beyond AWS. Of course, AWS okay, will use this component but we will provide and we will compete far beyond AWS. Then last but not the least is all the infrastructure around the thermal cooling of this infrastructure, and we are already there with our power solution, microcontroller and analog. So clearly, AWS will be a fantastic driver for ST for the growth of the revenue during the next 3, 5 years. But our ambition is well above, thanks to our product portfolio. And I repeat ST is a unique company capable to provide on this infrastructure from photonic solution, MEMS solution that will come pretty soon, microcontroller definitively, power switches, power drivers, controllers and including other sensor. So this unique position, clearly position ST in the future, to be an important contributor in terms of supply to this business line. Gianmarco Bonacina: Okay. Just a quick follow-up for Lorenzo, if I can. The change in the guidance in the OpEx, just to understand correctly. So you are talking about your clean OpEx excluding PPA and restructuring. Lorenzo Grandi: Yes. Yes. Of course, we exclude PPA and restructuring. And as I was saying before, at the end, yes, apart of the fact that we have the addition of NXP that when we were talking previously was not taken into consideration. But I have to say that thanks to the fact that we see significant, let's say, opportunity in terms of revenues, we have some programs accelerating in terms of, let's say, development and bringing a little bit more level of expenses. I have to say that in any case, when we look at our net OpEx, the expense to sales ratio 2025 compared to 2026, let's say, in 2026, the expense to sales ratio will materially decline with respect to the previous year. Operator: The next question comes from Andrew Gardiner from Citi. Andrew Gardiner: Just a couple of, I suppose, follow-ups to some of the topics that have already been discussed. First, on the AI side, Jean-Marc, you've -- I think it's a reiteration of what you were saying last month in terms of the "nicely above $500 million of revenue for this year" and "well above $1 billion for next year." Just things are moving very quickly in this part of the market to put it mildly. What is the potential for upside there? And I suppose, more importantly, for you, where are you seeing capacity constraints at the moment that may indeed limit the level of upside relative to the demand that you're seeing? And then a quick one for you, Lorenzo, just again on the OpEx. You said a low double-digit gain '26 on '25 on one of the items that you were looking at. Could you just provide us the baseline of that? I missed that when you were saying it in the prepared comments. Jean-Marc Chery: Never mind. It is clear that we are on some part of the technology and components that are enabling the solution we provide to customers, we are in ramp-up mode. Clearly on photonics and associated technology, we are in a ramp-up mode. Overall, what I can confirm today that the unconstrained demand we have today for '26 and '27 is well above the nicely above $500 million and well above $1 billion. And our ambition is to fulfill this unconstrained demand but the company first has to ramp up, okay, the capacity already installed in the second half of the year to implement additional capacity. And our ambition is to fulfill as much as we can the unconstrained demand of customers. I will provide more color in July, clearly during our next meeting. But I really confirm that '26 will show a significant breakthrough in our revenue linked to AI data center. Lorenzo Grandi: For what concern OpEx, I confirm that net OpEx sales ratio will decrease in 2026 compared to 2025. What we expect, now we expect when we say OpEx like-for-like means, let's say, the same FX and same perimeter means not including the NXP acquisition to be up mid- to single digit, let's say, in 2026 compared to 2025. You have to consider that half of this increase is related to the start-up cost that we have, let's say, in the fab 300-millimeter and, let's say, 200-millimeter for silicon carbide that is, let's say, related to our transfer from 200 to 300, 150 to 200 for silicon carbide. So it means that this is something that is not structural is coming this year but will not stay forever. If we include the NXP MEMS business acquisition, and also include the impact of the exchange rate, excluding the restructuring, we should be up low double digit versus 2025. This is assuming an exchange rate effective in the range of [ 1.15, 1.16 ] and is, of course, including, let's say, the operation of NXP MEMS business that we can estimate in the range of $50 million additional expenses for us in this year. Operator: The next question comes from Sebastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: On the transformation program, where are you standing right now in terms of capacity build and so on? And when do you expect to have the full synergies benefit? Is it for '27 or more for 2028? And the second question is on silicon carbide and your JV with Sanan in China. Where are you in the ramp-up mode with the JV? And when do you expect the first volume to start to ramp up meaningfully in China? Jean-Marc Chery: For the transformation program, clearly now we are in the middle of the execution. Clearly, we have to respect the customer qualification time, when for analog technology, we move from 200-millimeter to 300-millimeter. This is -- they have a good incentive to do it because clearly, our capacity potential increase is related to Agrate in 300-millimeter. We expect that the benefits of Agrate at full speed will be more in the end of '27 and entering in '28, not related to the fact that we don't go at the right speed in terms of qualification internal, but more related to the customer normal constraint they have to qualify their own application. On silicon carbide, it's a bit similar, in fact, okay, because here, we are moving from 6-inch to 8-inch, and this is mandatory to do it here is the same. We are not limited by our own capability, both in Catania and in Sanan in Chongqing. The limitation is more related to the qualification time of our customer. And you know that we are engaged in a very, very famous platform with an important player in Europe, which currently has a great success for this new platform in electrical car. And here, of course, we cannot take any risk and it takes time before to move to 8-inch. So for sure, are the same. The benefits will be more end of '27 and entering in '28, and in Sanan, we expect to start the production and to load this nice infrastructure starting the end of 2026. Operator: The next question comes from Sandeep Deshpande from JPMorgan. Sandeep Deshpande: My question is regarding the acquisition of the NXP sensors business. How -- I mean, how did that business grow in the past? And how will that contribute to growth in the current year? And then my follow-up question is regarding the gross margin of the company. You've said that your underutilization charges do not fully go away this year. But should we assume that in '27, the underutilization charges go away and with the mix shifting more to the AI products as well as some of the satellite products, et cetera, that there could be a much bigger move in the gross margin in full year '27? Jean-Marc Chery: Thank you, Sandeep. So Marco Cassis will take the first question on NXP -- former NXP MEMS. And Lorenzo, of course, the second question. Marco Cassis: Yes. On NXP, the combination of the capabilities of the 2 companies is translating in acceleration, of course, related to a market, which is automotive and clearly is moving at the speed of the automotive but it's an acceleration of opportunities of design-in and design win because we are putting together the best of the 2 worlds, which is a very strong positioning of NXP MEMS in accelerometers, where they do use -- sorry for a little bit of technical but monosilicon crystal, which are extremely good in terms of temperature performance for automotive and our capabilities on the 6-axis. So we do see that we are going to grow with NXP at faster speed than what is typically the market growth in safety application. So it's going to be a contribution of the growth of the overall MEMS business. I hope I'm answering to your question, Sandeep. Sandeep Deshpande: So how much was the growth in the past couple of years in that business? Marco Cassis: Well, it was in the range around low single-digit growth, which is the typical growth of safety application in automotive. Sandeep Deshpande: And you expect that to accelerate is what you're saying? Marco Cassis: I am expecting this one to accelerate, yes. Sandeep Deshpande: Understood. Lorenzo Grandi: Okay. Maybe I take the one of the gross margin, let's say, confirm what I was saying before, the gross margin will improve starting from our 35.2% this quarter of Q2 after, let's say, quarter after quarter this year driven by the seasonality of the revenues, the continued reduction of the unused capacity. As I said before, let's say, still there will be some but reducing over the second part of the year and then the continued improvement of the mix. Clearly, let's say, this is our trend to the path above 40%. We said that when the company, let's say, will be with revenues above $4 billion quarterly revenues, let's say, we expect to have our gross margin at 40%. After that, our reshaping plan will be completed. So this is going in this direction, let's say. So what I can say today is that clearly, let's say, in our gross margin, there is still some negative impact on this reshaping plan, temporary negative impact due to the activity that we are doing that we will progressively go down and transform, let's say, positive impact when we will start to have, let's say, the benefit of these programs. So yes, I confirm that at the end, let's say, there will be -- you will see a progressive improvement in our gross margin moving in Q3 and Q4 and then, of course, in 2027. Jerome Ramel: Thank you, Sandeep. We have time for a very last question. Operator: The last question for today is from Lee Simpson from Morgan Stanley. Lee Simpson: Great. Maybe just a couple of questions, if I could, around data center power and then on the photonics side. Just on the data center power, it did look as though you were saying you've seen some design wins. It looked as though with silicon, silicon carbide, most all of it first stage. I just wondered if you could give us a sense for the engagements you're seeing around gallium nitride, where regionally that may emerge? And then maybe just on the voltage regulation side on the second stage, anything really happening there, certainly as we look out to '27? Jean-Marc Chery: So Marco will answer the detail. Interestingly, for all of you, guys, maybe what I can tell you that the nicely above USD 500 million in '26 will be spread approximately between 40% related to analog and power and 60% related to microcontroller and radio frequency optical cable. Just for you to have the span of our revenue for 2026. And I'll let Marco to answer the detail. Marco Cassis: Yes. For what is related to power compared to our positioning 1 year ago, we put a major effort in expanding the portfolio to be sure that we can cover basically from grid up to driving the GPUs. And this goes through the full portfolio of ST, which is silicon-based, silicon carbide with different voltages and new packages that we are introducing where we are not present. And of course, the GaN, which is an important for the 800 volt where we are in sockets that I think will come to life during this year and next year. So the position overall in terms of portfolio is now much stronger than it was, and this will translate in revenues during '26 but mainly during '27. And this goes across the different ecosystem of suppliers, which means power supply makers based in many cases in Taiwan and of course, the ecosystem that we have in U.S. So overall, the trend is going through the full portfolio of ST, again, with a portfolio that has been expanded and now is rich and covering all the stages of the power conversion. Lee Simpson: That's very clear. Maybe if I sort of move it on to the photonics side. It always seems ST is extremely good at getting a big lead customer, pipe cleaning a new market opportunity and creating advantages, if you like, in technology, leveraging some of the IP in-house. But that transition to a standard product in the market for us always feels like the real ROI where margins can be accretive. Are we seeing when we look at the PIC and some of the engagements you have in the market, the possibility that this PIC100 becomes a standard product in the market? Jean-Marc Chery: Standard product, okay, I will not classify it as a standard product, okay? Maybe application standard specific, maybe yes. But one thing, I prefer to share with you again to show how ST is and will be a reference on silicon photonics. First of all, we are the unique company capable to provide silicon photonics technology on 12-inch. So we have the capability to increase our capacity in both in Crolles and possibly later on in Agrate. So for sure, ST, will compete on this market, largely to become a pure standard, you will have many innovation coming in the optical cable and optical solution. Again, the near-packaged optic, the co-package optics, all this will come maybe faster than expected. And silicon photon is a key enabler of all these technologies. Jerome Ramel: Okay. Thank you. Thank you, everyone. This is the end of this call. So thank you for joining us today, and we remain at your disposal if you have any follow-up questions. So sorry for the one who we couldn't squeeze into the question. So thank you very much. Have a good day. Lorenzo Grandi: Thank you. Jean-Marc Chery: Thank you. Bye-bye. 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.
Unknown Executive: [Interpreted] Distinguished leaders, investors and analysts, good afternoon. Thank you for joining us today for the China Oilfield Services Limited, COSL First Quarter Earnings Conference Call. COSL is one of the world's largest integrated oilfield-service providers. Our services span every stage of oil and gas exploration, development, and production. Our operations are categorized into 4 segments: geophysical and engineering exploration, drilling services, well services and marine support services. By leveraging our integrated capabilities, we provide clients with full life-cycle oilfield solutions. We remain highly responsive to evolving trends in the international oil and gas market while steadfastly prioritizing technological innovation as our leading strategic driver. We continue to refine our lean cost-control measures and actively promote the synergy between domestic and international markets, the so-called dual circulation strategy. We are committed to translating our premium equipment and technical prowess into a leading market position, striving to deliver robust performance to reward our shareholders and society at large. Please allow me to introduce the members of our management today joining us, Mr. Qie Ji, our Chief Financial Officer. Today's conference will consist of 2 parts. First, our CFO, Mr. Qie Ji, will provide an overview of the company's performance for the first quarter of 2026, and then this will be followed by a Q&A session. I will now turn the floor over to our CFO, Mr. Qie. Ji Qie: [Foreign Language] Unknown Executive: [Interpreted] Thank you, Mr. Qie, for the presentation. We will now proceed to the Q&A session. To allow more investors the opportunity to participate, please limit yourselves to no more than two questions. Before asking your question, please state your name and the company's relation. Please note that [indiscernible] interpretation will be provided throughout the Q&A session. We kindly ask you to [indiscernible] after each question to allow time for interpreter. [Operator Instructions] Unknown Analyst: [Interpreted] So I am [indiscernible] Everbright Securities. I have 2 questions, starting by the first question. As we can observe that with China's national strategy of ensuring national energy security, COSL has seen increased production output as well as reserves, in particular, with remarkable achievements in the deepwater area and South China Sea. We have also seen that you have increased the utilization of your semi-sub platform in deepwater area in Q1. So the first question concerns, can you give us a guide on the day rate forecast and operational volume of your deepwater platform throughout the year? So that's the first part of the first question. And the second part is, how do you see your competitiveness against international oil service giants? And the second question is we have observed that oil prices have been skyrocketing since beginning of March and have remained at high level, in particular, given the high oil prices and given the current geopolitical conflict, China's national energy security becomes all the more important. Me and a lot of other investors all agree that Chinese government will do more in safeguarding its national energy security. So the question is, how do you see the status quo of your operational volume? And do you have any forecast for your operational volume down the road as well as CapEx forecast? Do you feel the same as I have just introduced, in particular, how is your order reflecting such a new situation? Unknown Executive: [Interpreted] So you have touched upon 2 questions. One more concerning the macro side and other more about our forecast. I'll try to answer both of the questions briefly. So firstly, on the whole, our deepwater semi-sub platforms have been doing quite well for the first quarter of this year, mostly benefiting from our overseas operations, especially operations in Brazil, south part of Brazil, which have seen obvious -- clearly improved operational days because that platform was not became operational until September last year. As for the Chinese business, our semi-sub platform's operational days or operational volume have maintained relatively stable as new prices become executed. While to be honest, some of the semi-sub platforms, the price have increased slightly. This offset the slight decrease of the actual operational days of our semi-sub, which maintained the overall increase of our drilling platform services. As for the full year cost because we are waiting for the whole year cost, from our clients, we maintain dynamic conversations with them, hoping to satisfy their requirements of resources in either against the geopolitical situation in the Middle East or in the new era of the 15th Five-year plan period. As for the second question, I think that we still need to investigate and analyze how things change regarding the oil prices and regarding the Middle East situation because we were seeing spot prices as high as more than $110 or $120 and even higher. And at one time, WTI was even higher than Brent. However, over the past couple of days, we do see spot went down to about $80 plus. So such volatility has already become something that we can barely make any forecast about. I still believe that oil and gas suppliers will make sustainable and rational judgment on their part. As for domestic China situation, CNOOC is working to become a leading supplier contributing to oil and gas production increase in China domestic. And we have also seen that their crude output for Q1 increased and they contributed a large part of the output increase of crude oil coming from China. So again, to align with the first question, we will keep observing CapEx adjustment and whole year forecast adjustment made by CNOOC, and we will provide resources to provide guarantee to their request. Lawrence Lau: [Interpreted] Lawrence from BOCI, Bank of China International. I also have 2 questions. The first question is that I've seen that in the first quarter of your finance expenses, there was a large part of exchange losses. So can you walk us through to what extent or how large such losses and why there was such a loss? And secondly, I would like you to walk us through the income and profit performance of the first quarter. Unknown Executive: [Interpreted] Okay. Thank you very much for asking the questions. Regarding your first question about our finance costs, indeed, in Q1 2026, we have seen exchange losses to the amount of around CNY 300 million, CNY 303 million to be more specific, which is CNY 208 million higher than the same period last year, mainly because of the accounting denomination currency that we use, and we have business dealings with overseas subsidiaries and the balance contributing to such number that you have seen. It's not necessarily a result of our increased business scale overseas. However, as we keep dealing with our overseas intermediaries, the balance and the number will always be there. To elaborate further on this question, we are very much aware of either exchange profits or losses as a result of the situation that I just introduced and how it affects or even disturbance the operating performance of the company, we are even bothered by that. So we are currently examining and looking at some possible solutions to take measures at the right time, we choose the timing to take measures for the purpose of closing any influence on the normal operation of the company as a result of such FX exposure arising from accounting treatment. Measures include, but not limited to, adjusting the functional currency that we use in bookkeeping. And then when it comes to a specific breakdown of our revenue and profitability, on the whole, things are better than expectation in terms of segment breakdown. For our drilling service, domestic and overseas revenue, operating margin, and operating profit, all 3 are better compared with the same period last year. In terms of the well services, domestic and overseas, with especially overseas revenue performed better than expectation. Operating profit margin reached around 18%, 1-8-percent and both domestic and overseas well service revenue and profit have increased year-on-year. As for geophysical and vessel service, both performed stable. And to add one more thing about the operating profit. So for the first quarter of this year, operating profit of COSL reached CNY 1.53 billion, an increase of 22% year-on-year. Both domestic and overseas have increased 20% year-on-year, which means that the company's normal operations have been rather good, excluding or aside from whatever impact that we suffer from the exchange losses. Beina Yan: [Interpreted] Yan Bei Na From CICC. I have 2 questions. The first question is about your jackup because I've noticed that your jackup platforms utilization days in Q1 of this year went down a little bit because of some scheduled repair and maintenance scheme. So the question is, after the maintenance and repair complete, do you see their utilization days increase in Q2 compared with this quarter? And my second question is about your business in the Middle East because we do see some pause in the operation of some contractors in the Middle East in March. However, starting from mid-April, a lot of contractors have recovered their operations. So I wonder how that will impact your Middle East operation. Unknown Executive: [Interpreted] So to firstly answer your first question. Indeed, in Q1, our jackups repair days have increased significantly compared with the same period last year. Such repair has already been planned for by the company. And you will find that throughout the year of this year, there will be more repair days -- scheduled repair days of our platforms compared with previous years. And for Q1, mostly such repairs are concentrated in our jackup platforms domestic, and our semi-subs repair have maintained stable. But you will also find that whatever impact the increased repair days of our platforms has on our company's revenue has already been offset by the high day rate of China domestic jackups and semi-subs and the execution of the high day rate in Norway and increased part contribution by Brazil. There is one more thing I want to add for the first question because there is a part about our repair plan for Q2. Such plan will be very much aligned with the operational plan of our clients. So that's about the first question. As for the second question, the situation in the Middle East, the war occurred or took place in the Middle East on the 20th of February. So in Q1, the situation didn't impact us in a major way. However, we do gradually start to feel such impact starting from mid or late March. Specifically, our jackup and semi-subs in Saudi Arabia and Kuwait maintain operational and keep charging. However, the land rigs in Iraq have been affected by the decreased output in Iraq and such impact is already being felt. Then regarding your question about the Middle East changing situation, we basically will take 2 measures in response. One is to try to scale up our businesses in the Middle East. Let me give you some examples. We have recently secured a long-term large value contract for our well service in that region. And also, we have secured a turnkey or EPC contract for our drilling service in Iraq. In addition to that, given our global landscape, leveraging such advantage as a global player, we try to have opportunities in ASEAN as well as in America as an EPC contractor. We already see progress in both fronts. The increased business, we hope, can hopefully offset the impact as a result of Middle East. And on the other hand, we keep a close eye on the Middle East situation and make plans so that we are always ready when our clients are ready to resume their operations in that region. In another -- thirdly, we will seek opportunities as maximum as we can try to replace some of the players. Unknown Analyst: [Interpreted] From Guosen Securities. My question is, I noticed that a couple of days ago, COSL announced a cooperation framework agreement with a player in Kazakhstan because when it comes to the Middle Asia, COSL is a new player. Middle East -- Middle Asia features new in your global landscape. So can you walk us through the overall market of oilfield services in the Middle Asia or specific in Kazakhstan? And I would appreciate it very much if you can give us more details on how -- when do you expect the cooperation become more of a substantiality. Unknown Executive: [Interpreted] Thank you for the question. Due to the limitation of my professional knowledge, I can only share with you to the best of my knowledge for COSL and for CNOOC, Middle Asia or Central Asia has been an area that we have left for a long time and the reentry into this place is something of significance. So not long ago, the Chair of the Board, Mr. Zhao, went personally to Kazakhstan to sign the cooperation framework agreement that you have just mentioned, which will add a very promising point to the global landscape of COSL. So we did have conducted some preliminary investigation into the basic oil reserve situation of that country, and we find that mostly the reserves are in the mudflat area and very much prone to extremely cold weather. So the plan will mostly request efforts by our colleagues from the cementing business area, directional drilling, LWD and the colleagues specializing in other areas to work together. We are currently having discussions on doing some -- on creating operational plans for some test wells. As more of the details of such plans are coming out, we will be happy to share with all of you more details. Unknown Analyst: [Interpreted] From Bank of America. I have 2 questions. So for the first question, I would like to pursue further on the exchange losses because we know that exchange profits or losses, only transactional differences are recorded in your profit. As for translational differences, such differences are recorded in your OCI. So I wonder whether the appreciation of RMB has affected your dollar-denominated contracts already signed. And also, I would like to ask because you mentioned that your semi-sub platform day rates have increased. So may I ask whether such increase is observed in domestic China? Or is it because you have made adjustment of your day rate because of the RMB appreciation trend that you expect will continue down the road? And one more part of the question is if RMB keeps appreciating, whether exchange losses will keep being recorded in your profit in the future? And my second question is regarding your well service; can you walk us through it more? Unknown Executive: [Interpreted] So to answer the question, let me give you a very simple example using specific numbers so that you understand it more easily. Let's assume that the parent company, transmits USD 100,000 to its overseas subsidiary, so the USD 100,000 is reflected on the balance sheet of the parent company at RMB 700,000 if the exchange rate is RMB 7. In an extreme situation, if the exchange rate goes to RMB 6, which means on the balance sheet of the parent company, the RMB 700,000 becomes RMB 600,000 and the RMB 100,000 is naturally recorded as the exchange loss. For the overseas subsidiary because the RMB 100,000 is not -- USD 100,000 does not change because everything is priced in U.S. dollars. In doing balance sheet consolidation, USD 100,000 can be balanced out, but the RMB 100,000 as a result of exchange loss is recorded as finance expense. So if, say, RMB keeps appreciating against the U.S. dollar, the exchange loss that you will find on our balance sheet will expand as a result of the example that I just mentioned. So we are working on taking different measures, trying to narrow the USD 100,000 exposure, taking different means, for example, including narrowing it from USD 100,000 to USD 10,000 in order to minimize the impact. But if you take a look at a longer timeframe, throughout the 14th Five-year plan period in between the 2 years of '21, '22, there was 1 year a major exchange profit and the next year, a major exchange loss. But the overall impact on the company's balance sheet throughout the 14th Five-year plan period was CNY 40 million, 4-0-million. As for the second part of your first question, you have actually raised 3 questions. So the second part of your first question regarding the semi-subs, on the whole day rate of our semi-subs for this year did not change in any major way. However, there was indeed one semi-sub in domestic China, the day rate has increased significantly in Q1, and its utilization rate reached almost 100%, which greatly contributing to the revenue increase of our semi-sub. As for overseas semi-sub platforms, because we have signed long-term fixed rate contracts with the clients, therefore, didn't -- there wasn't any major change. As for the well-service business segment, in Q1, the revenue was CNY 6.07 billion, an increase of 5% year-on-year, mainly benefiting from the integration trend of our overseas business, which is growing very fast. In Q1, net margin was CNY 1.11 billion, an increase of 18% year-on-year. Both domestic and overseas have increased, especially overseas net margin has increased. As for the well service margin rate, in Q1, the margin rate was 18.2%, an increase of 2 percentage points year-on-year. Domestic margin rate exceeded 20%, becoming a main contributor of our profit margin increase in Q1, mainly because last year, there were certain one-off factors reducing our margin and such factors becoming absent this year contributed to the margin increase. Going forward, we will continue to work harder in securing new contracts for our well-services. As mentioned, despite the worst in the Middle East, we still managed to secure one high-value long-term contract for cementing service. I believe that the impact -- for all the impact, there will be such impact is only short term. As you can see, we still have 4 well-leader drill lock systems operating simultaneously in Iraq, which will help us to gain increasing market recognition and help us accelerate our business scale up in Middle East. Operator: [Interpreted] In the interest of time, this will be the last investor. Unknown Analyst: [Interpreted] From Changjiang Securities, the question is about your shareholder return plan for the 15th Five-year plan period. Do you have any plan to increase your dividend payout to the shareholders? Unknown Executive: [Interpreted] Thank you very much for the question. Giving back to investors or investor return, it is fair to say it's a purpose and the center of focus of all the business and operational activities of the company. As you can see, the increased EPS is a reflection of the 20% net margin increase of the net profit attributable to the shareholders, which is a testament to the fact that we respect and give back to shareholders. So for the -- throughout the 14th Five-year plan period, you noticed that our revenue or our turnover increased from CNY 30 billion to CNY 40 billion and to CNY 50 billion, exceeding CNY 50 billion. We are still making plans and adjusting plans for the 15th Five-year plan period. But the hope is in the next 5 years, our revenue can achieve another milestone increase as we have seen before. As for the dividend payout, we, of course, hope to fully share our growth with shareholders. This is very much dependent on the business growth of the company and strong cash flow situation of the company. And on the whole, the payout ratio, we hope the payout ratio shall be stable with the increase. Operator: [Interpreted] Thank you for the questions, and thanks to Mr. Qie and the management team for their detailed insights. We would also like to express our sincere gratitude to everyone for your ongoing interest in and support for COSL. Due to time constraints, this earnings conference call is now drawing to a close. If you have any further questions, please feel free to reach out to our IR department any time. This concludes our conference call for today. Thank you all and have a nice day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]