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The S&P 500 and Nasdaq closed at records as earnings foreshadowed the possibility of a profitable peace.
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Markets are overly optimistic about Middle East ceasefire developments, ignoring persistent risks from the Strait of Hormuz blockade. The physical oil price is trading at a 20% premium to futures, signaling severe supply stress and investor complacency.
The 10-year U.S. Treasury note's yield matches its three-year average.
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Erkka Salonen: Good day, ladies and gentlemen. I'm Erkka Salonen from Finnair Investor Relations, and it's my pleasure to welcome you to this Q1 2026 earnings call. I'm joined by our CEO, Turkka Kuusisto; and our CFO, Pia Aaltonen-Forsell. [Operator Instructions] But with these words, I hand it over to you, Turkka. Turkka Kuusisto: Thank you, Erkka, and a very good afternoon also on my behalf. Earlier this morning, we published in my opinion, a strong Q1 report, especially given the fact that Q1 is typically a low season for our sector and also for Finnair. While, of course, at the same time when reporting stronger results, we do see that the risk related to the operating environment have increased. And we aim at also describing that how do we see the current situation, especially when it comes to the war in Middle East area. But if I very briefly summarize the Q1 results and Pia Aaltonen will get you through more of the details. But if I start with the operating results, we were almost at breakeven. And I think that this is a remarkable improvement from Q1 last year. Although we did face the industrial action already in Q1 2025, but the direct impact of the industrial action at the time was somewhat EUR 22 million. And the kind of the comparable operating result was minus EUR 40 million. So over the past 12 months' time, we've been capable of improving the operational platform, our commercial capabilities and executing the new strategy so that result actually improved by some EUR 40 million in Q1 to Q1 comparison. Revenue increased by double-digit number, especially driven or fueled by the strong demand that we especially did see towards the end of the quarter in Asian traffic given the situation in Middle East, the closing of aerospaces of Doha and Dubai Airports, of course, consequently increased the load factors of our Asian flights. But at the same time, January and February already performed very strong in terms of healthy Asian traffic. So this was kind of a final boost towards the end of the quarter. The number of passengers increased by some 7.3%, and that then resulted also in increased load factors basically in all of our traffic areas, except Middle East. Pia will discuss in greater detail when it comes to our hedging policy. But when we started this fiscal year or calendar year, our hedging profile was actually rather supportive for what we have now witnessed. 86% of the fuel purchases were hedged in the beginning of this fiscal year. And at the end of this quarter, 82% of the Q2 fuel price is already hedged and then 69% for the rest of the year. And then when we take the customer perspective, something that we are really now focusing on investing in when it comes to the new strategy that we launched mid-November last year. The customer satisfaction is on the rise. Across the total population, we did see in international comparison, in my opinion, a good result, 36. That was a 2-point improvement from a year ago. And then when we double click into the core customers of ours, those who flies us with the most Gold cardholders, Platinum and Lumo-tiered members, we are already scoring well above 40. So that's something that we can be rather satisfied with. And in my opinion, the strategy implementation has only started. And then I will revert back to this one, but the -- over the last running 12 months time frame, the number of Finnair Plus members -- active Finnair Plus members has increased significantly. Speaking of these traffic areas, if I start with Middle East, which is, of course, the most drastically changed area, we need to keep in mind that in the compared quarter of '25, we still had until mid-January also operation from Stockholm to Doha and from Copenhagen to Doha. But then, of course, the rather drastic change in terms of ASK in revenue is mainly explained by the fact that we did stop our operation from Helsinki to Doha and Dubai when this geopolitical situation escalated, late February. But we need to continuously keep in mind or put this into perspective that the Middle East traffic area has been some 3% of our capacity or annual revenue. And then taking the very positives starting from Asia. ASK grew by some 9%, but the revenue in RASK actually grew even more so. And also the load factors are up by some 7%. And which is a consequence of a strong investment capacity allocation to Asian traffic. And we have also -- we continue to see kind of the activation of Japanese travelers flying to Europe and also activation of the business travelers. But as I already mentioned, the last mile or the final push is pretty much because of the closed aerospaces or hubs in the Middle East, and we did get some spillover effect to our Asian flights. Domestic is pretty much stable, part of it last year, but also Europe did perform a bit better than we expected. ASK grew by some 4%, but revenue 8%, and again, load factors developing rather positively. So we are in a good position when it comes to starting the summer season during which we have more than 90 destinations in the Europe. North Atlantic traffic, something that we've discussed very frequently with you or even intensively, we did see an increase of capacity. But at the same time, now the revenue development follows the capacity and also, therefore, at least the decline has stopped and we start to see some positive signals when it comes to forward-looking bookings and also business travel when it comes to origination or the U.S.A. And then very briefly, just again, reconfirming that the capacity is growing steadily according to our plans, except the Middle East traffic area and then the market shares are pretty much stable. So we don't see anything drastic when it comes to our position at the Helsinki Airport or Helsinki Europe traffic. And also, we continue to be a very relevant player in the Europe, Asia, especially in Europe, Japan routes. And then maybe a few words related to the fuel supply chain issues. And of course, given what's taking place or happening in the Middle East and Strait of Hormuz that has influenced first and foremost, the price of jet fuel and crude oil. But if this situation prolongs, there might be also issues when it comes to fuel availability. If I start with our home market being the Helsinki Airport and Helsinki Hub, we do have a rather solid situation and based on the discussions of our main supplier here in Finland. We do see that the availability of fuel is extended until the end of our summer season and also some extra capacity. So therefore, if we need to tanker when it comes to short-haul flights in Europe, we do have enough fuel capacity in Helsinki to do so. Some 80% of our European destinations can be flown by utilizing the tankering option. In North America, we don't see a big risk when it comes to the supply. And then, of course, the Far East Asia is the question mark and something that we work very intensively with on a daily basis to understand what's the situation. But based on the information that we have today on the destinations and all these that are relevant for us, we don't see short-term issues or short-term shocks related to potential fuel availability. But maybe with these words, I would hand it over to Pia to continue on the financial figures. Pia Aaltonen-Forsell: Thank you, Turkka. And good afternoon, ladies and gentlemen. And if we haven't met, my name is Pia Aaltonen-Forsell, I'm the CFO of Finnair. And of course, looking at the Q1 performance, I completely agree with you, Turkka. I really see a seasonally weak quarter where our results have still been greatly improving. And in the graphs that you can see here, we have brought a bit of a quarterly perspective on some of the key figures over a longer period of time. And maybe if we look at the revenue just for a slight moment, I think, first of all, obviously, you do see that there's a big sort of uptick compared with the first quarter of last year. As Turkka said, there were some disruption impact there already at that point, the EUR 22 million on the result. So you could say, okay, what about the comparison period. But maybe you can, in this graph also have a look back at '24, which was a sort of more stable year. And also there, you can see that we do have a great improvement. I want to talk a little bit about the result in the same context. In the same way, obviously, a big improvement compared with last year. And if we look at sort of the how the year has started. I think particularly March was impacted by the war in the Middle East through both the fuel costs, obviously, as well through like the shocks that kind of went through the world, including then the supply-demand balance. So clearly, we have seen a very strong demand, for example, in Asia. But not only in March, so I do say that our year has started in a good way. And I think particularly, our cost controls have really been in place, and I'll still come back to that in my next slide. And finally, our cash flow was strong. I'll take the opportunity to come back to some of the details around that in one of my later slides. So first, I'll go next to look a bit at the unit revenue and the unit cost of the RASK and the CASK. And I think this is important because we have a strategy where we are foreseeing growth. We are foreseeing capacity growth, passenger growth and we are, of course, very keen to do that in a profitable way to ensure that we can reach our strategic target of a 6% to 8% EBIT margin in 2029. So looking at some of the elements, obviously, here first, if we look at the unit revenues, we can see that in this quarter, they were supported. So we had good load factors, yields, if you look historically, we're somewhat improving. And of course, we have as well sort of been able to navigate and manage the capacity growth that we saw in the quarter. So this is a good development and particularly if you kind of compare quarter-to-quarter, quarter 1 of last year to quarter 1 now, it's a really strong development. But please have a look at the cost as well. I guess the fuel costs have really been sort of top of mind for a good reason. I mean, the prices, the spot prices have, of course, really, really been spiking. But if you look at sort of the proportion of the fuel cost to the overall cost profile. Even normally, we would be sort of 25% to 30%. And so this is a very significant part. But you can see that thanks to our risk management, this sort of early part of this situation has been well managed. And actually, the cost development holistically has been under control, including the other costs. While we have been growing, of course, we have been adding some costs, but proportionately, we managed to keep this under control. So I think I'm happy with the development during the quarter there. Next, I'll turn to a few of the topics around our balance sheet. So first, I'll highlight the unfunded liability. And why I'm doing that is that I think it's, of course, it's a big balance sheet item, of course. You can see it's EUR 762 million. But what it also talks about is that we have seen bookings coming in. And sometimes, when someone is like asking that are people booking kind of what's happening? I think this is sort of the euro or the balance sheet way for a CFO to answer that. Yes, it's up 10% compared with a year ago. And you can see that if you go further back in history, it's up even more. So we do see those summer bookings coming in right now. And this is, of course, one reason contributing to the strong cash flow that you could see earlier, the EUR 274 million operating cash flow in the quarter. Another thing that, of course, has been greatly supporting our strategic journey is the strong cash flow. We have an investment program. You can see that the CapEx in this quarter was around EUR 100 million. That did include EUR 20 million of the new Embraers. So when positioning the order, we also have taken some early cost or early cash out relating to that. But I want to say that this is also a pretty good description of sort of the balance between the cash flow and the CapEx going forward. I mean, we had a particularly strong cash flow right now, but also in our CMD, we said we would expect at least sort of a EUR 500 million-ish operating cash flow per year. And obviously, with sort of the finalized plans for investment that we have made right now, it seems likely that we are somewhere north of EUR 400 million per year, but maybe only slightly north of that. So this EUR 100 million sort of per quarter is a fairly good proxy for that. I just wanted to say that because when you then look at our capital structure, I mean, our equity was strong in the quarter. Our net debt keeps going down. Our leverage was 1.2x. And and our cash ratio to sales is like 30%. So I think we are well positioned to operate sort of in a thoughtful way in this rather complex environment right now. And I think we are also well positioned to continue to execute on our strategic journey. And my final slide is really some details on the hedging. I wanted to bring this up. Turkka already did speak about the fact that we have a good hedging ratio for Q1, for Q2, 82% and we have 69% for the remaining part of the year. And you can also see here that we are still sort of having a cost level of less than $700 per ton on this, which sort of for our cost structure is sort of very close to, I would almost say normal. But obviously, we also know that the hedging ratio is going down over time. There are still some hedges in '27. Nonetheless, of course, the percentage is going down, but I think this is giving us sort of plenty of time to act and prepare for the situation. So with that, Turkka, I would hand back to you. Turkka Kuusisto: Yes. Thank you, Pia. A few remarks related to the execution of the strategy that we launched in connection with the CMU mid-November last year. And I'm actually rather happy when it comes to how the execution has started. And in my opinion, proceeds pretty much as planned. And as a big kind of strategic element or component, we did launch the resolution when it comes to the partial renewal of our narrow-body fleet a month ago. when we communicated that in order to support the growth, efficiency, profitability and customer experience objectives of ours, we did confirm an order of 18 E2 next-generation Embraers with some options and purchase rights. But parallel with that announcement, we also communicated that up to 12 [indiscernible] Airbuses 320s or 321ceos will be acquired from the market and that those aircraft are expected to join our fleet between 2027 and 2029. As I mentioned in connection with the analyst call around this subject I think that this is a perfect combination of new aircraft and then somewhat used second hand aircraft that provides us with the needed flexibility and optionality to develop our kind of big or total fleet plan towards the end of the decade. In the meantime, as already communicated, in conjunction with the capital markets update when we discussed the so-called midterm capacity or bridge solutions. Since then, we have agreed to add to current generation E190s, E1 Embraers into our fleet and also additional 2 ATR 72-600, that will be already operative in 2026 to further strengthen our regional capabilities and capacity. And thanks to this fleet plan, we have already communicated some new openings and also extended some of the summer season routes to be all year round. So, that we can meet the growth ambitions that we have communicated. In addition to network or the convenience part of our strategy flywheel, also the other elements or other areas in our updated strategy are proceeding according to the plans. Reliability and efficient operations in Q1. The flight regularity was at 98.3%, and it's actually increasing further more during the second quarter, so I'm very happy with the operational reliability and functionality of the Finnair platform as we speak. Also, the choice-based product offering and commercial strategy is also progressing with double-digit growth the ancillary revenue per passenger during Q1 grew by some 12.5%. And the total volume of ancillary revenue grew by 20% because in addition to per passenger growth, we had more passengers, so more than EUR 50 million of revenue were collected from ancillaries. And we continue to push for the growth of modern sales channels and even more efficient sales to enable this modern retailing and personalization. And then the fourth component being the engagement. Over the past 12 months' time frame, the number of active Finnair Plus members has increased by some 27%. Again, very concrete proof point to communicate that the strategy execution has started on front foot. And with these activities, as communicated by the end of 2029, we aim at improving our profitability by some EUR 100 million. And as today, when we are describing the situation, we have identified the initiatives and the euro values across some 110 projects so that we secure the, let's say, the delivery capability, and we will meet the number by the end of the strategy period. And then as a final slide, the outlook and guidance. The outlook section has been specified and the specified section is the capacity growth measured by ASKs. Earlier, we said 5%, but because of the capacity and the operational kind of a halt when it comes to Middle East traffic, today it say approximately 3% for 2026. And then the guidance, it is unchanged. We estimate the revenue range to be from EUR 3.3 million to EUR 3.4 billion and the comparable operating result to be within the range of EUR 120 million up to EUR 190 million. And this guidance is based on the assumption that there will be no significant disruptions in fuel availability. But maybe with these words, Erkka, I guess, we are ready for the Q&A section. Erkka Salonen: Yes. Thank you, Turkka. So indeed, I would be a convenient time for any questions you may have. Please follow the operator's instructions to present them or use the chat function. Operator: [Operator Instructions] The next question comes from Jaakko Tyrvainen from SEB. Jaakko Tyrväinen: It's Jaakko, from SEB. I'll start on the ticket liability, which you highlighted that was up 10% year-over-year. Could you elaborate a bit more on this? And how much of this growth reflects the continued good demand on Asian flights in Q2. Are you seeing -- basically asking, are you seeing the bookings very strong for April, May and especially on Asian flights? Or does this tell more about the overall demand growth across the geographies? Pia Aaltonen-Forsell: It's Pia here. I think sort of broadly what I can comment on this. I don't think that this is just April and May. I mean clearly, we see the booking curve sort of also through the summer period. And furthermore, when you ask about the different regions, I still think there's as well. There's a good spread. I mean, obviously, even in Europe, we have 90 destinations. There's a lot of new destinations they are getting some interest, et cetera. So I would not sort of highlight any area. And I think picking a little bit on some of the comments that Turkka made on the regions, I think even on the North Atlantic, there was a little bit of positive signs from the Q1 numbers. Jaakko Tyrväinen: Good. Then follow-up on Turkka's comment on the jet fuel availability. Could you talk a bit kind of scenarios, which kind of scenaries you are seeing the see availability being limited first in Europe, then in Asia and lastly in Helsinki? Turkka Kuusisto: So basically, based on the information that we have today and the dialogue that we have on a weekly basis with our suppliers, I need to start from the Helsinki perspective because that is also very related to the European perspective. We do see and we've been confirmed that there is some solid availability at Helsinki Airport until the end of the summer season and some capability and capacity to actually acquire a bit more because that then opens up the opportunity for tankering so that we can fuel the aircraft at Helsinki with the needed amount of fuel to fly back and forth if we face partial fuel shortages or limitations in some of the European destinations. Some 80% of our European destinations are feasible for tankering options so that we can fly back and forth with the fuel that we have loaded at Helsinki. Based on today's information or visibility, we don't recognize clear or significant issues at any of the destinations that we operate. And that same applies to our long-haul network. U.S. is maybe the most on the safe side, but also when it comes to the Far East Asian routes, plan -- our partners and suppliers haven't communicated that there would be severe challenges during the weeks or, let's say, 1 to 3 months to come. Jaakko Tyrväinen: Okay. And then the negative scenario that the jet fuel is being limited how would you react? And how would you assume the whole market being react? Is it just so that you and the other players would just cut the most unprofitable routes? Turkka Kuusisto: I guess that's how it goes, it's the game of optimization. And of course, this is speculation, but it would also dependent on that to which extent, let's say, destination x, y, z that do you get 80% of the fuel, if you previously get 100%? Or are there more drastic changes? So it's a rather complex environment. Should we face that, but I wouldn't like to speculate about it today. But that's something that I think Finnair is famous for that when it comes to contingency plans or running scenario planning and scenario management. So let's see if the day comes, I think that we are operational ready for it. Jaakko Tyrväinen: Okay. Then, are you already selling higher ticket prices for the second half of the year? And what about then the competition, especially the rivals who may have had a bit lower fuel hedges in place? Are you seeing them hiking prices faster than you are? Turkka Kuusisto: That's a complex question, Jaakko, as we've discussed earlier also. Prices are set by the market and then the pricing algorithms are pricing tickets as we speak here today. So, we need to have a bit more backward-looking statements once we have closed the next quarter and the third quarter. But what we can see from the Q1 results that the unit prices increased mainly in Asia, was at some 5% and a slight increase in the U.S. traffic. But if the situation or the supply chain issues when it comes to fuel availability, will prolong, of course, that will, at some stage, will be visible in the ticket prices as well. What is beneficial for us, as Pia described very well in my opinion, that the hedging policy and the risk management framework that we apply gives us a lot of time and oxygen to add up to the changing situation. And of course, we are following pretty closely how the competition has approached the same topic risk management and hedging and then let's see what happens. But I think that in relative terms, Finnair is well positioned for the Q2 and early Q3. Jaakko Tyrväinen: Exactly. Then one more, if I may. On the Travel Services, we saw a decline of 4% year-over-year in top line, a bit surprising to me. What was driving this? And how do you see the summer looking this year for you in terms of Aurinkomatkat-Suntours and tours? Turkka Kuusisto: Nothing drastic, that is mainly explained by the Canary Island supply issues or constraints. At Canary Islands, the hotel supply has been constrained. So we were, to some extent, we needed to limit or cap our capacity and sales to Canary Islands. But in a big scheme of things, our Aurinkomatkat-Suntours are doing well and also the same booking pattern or customer behavior pattern that Pia described in conjunction with the parent company applies also to Aurinkomatkat-Suntours. Operator: [Operator Instructions] Kurt Hofmann: This is Kurt from Aviation Week from Austria. Realized the closure of some of the Middle East traffic to help your long-haul routes. Can we see Well, the additional traffic is coming from. You have now a lot of connected passengers, let's say, from India to the U.S. or something like this? Maybe you can give me an update on that? That's my first part. Turkka Kuusisto: So basically, there can be up to 2,000 different [indiscernible] combinations on our flights. So I would say that our population of our transfer passengers is very, very wide and rich in my opinion. But as we've discussed also previously, Indian travelers connect via Helsinki to U.S., a lot of Japanese travelers connect by Helsinki, the 90 destinations in Europe. And then, of course, the various kind of nationalities that have now utilized the opportunity of traveling via Helsinki to Far East Asia, while the major hubs at the Middle East area have been closed or capacity constraint. Kurt Hofmann: Yes. As you find, very long routes now regarding the closed air space of Russia and now I have seen you very well hedged, that helps really a lot. Do you think that the fill issue will have an effect if you're looking ahead, the expensive fill on your very long-haul flights or so far so good as you had with the hedging terms, yes? Turkka Kuusisto: So basically, the hedging policy and the hedging position that we have, 82% for the second quarter and then 69% for the rest of the year gives us time to let's say, view or evaluate how the market and the demand will develop. So we don't have urgent need to adjust anything been announced to our traffic to -- for Helsinki to Japan, for instance, is 28 weekly frequencies. But of course, it's pure mathematics that the longer you fly the more fuel you burn. But at the same time, kind of same situation for the European carriers and the Japanese carriers as well. But -- so in a way, a long answer to your good question, but too early to speculate. Currently, we are well hedged and the demand for -- from Europe to Asia is doing well. Kurt Hofmann: Is doing well. Do you think that one day the hubs in the Middle East will return to kind of normal? Do you think they will -- Emirates and Doha and Qatar and so on, do you think it will start a kind of price dumping to regenerate their capacity to fill the aircraft up with life? Do you think there will be a kind of price dumping coming up? Turkka Kuusisto: I don't tend to like this competitors' activities and actions, but I would assume that if an airline company faces a situation that you need to ground the aircraft and and it's kind of a severe disruption. Today, the operation starts to ramp up. You need to fly the aircraft to keep them airworthy. You need to also get crew the opportunity to fly so that you avoid extensive simulator training and such so that the training pipeline doesn't become a bottleneck. So probably someone starts to price to the cash flow so that you can start to fly with the aircraft. Kurt Hofmann: Yes. Just 2 sub-points, if I may. Regarding the narrowbody order you have with the [indiscernible] A320s and 321s. Do you know already the share how many is 321s you will take and how many is 320s? Turkka Kuusisto: Too early to tell. It's, of course, always to some extent, an opportunistic approach when you go to the secondary market and the when the demand as supplies and there is a good deal to be signed off. So time will tell. Kurt Hofmann: I think there are a lot of good deals coming up now with many airlines probably to reduce the older fees, maybe -- what do you think? Turkka Kuusisto: Let's see. Let's see. So I don't see any big deal. Kurt Hofmann: Yes. And Australia, so the plants going on as planned for Melbourne, I think. No changes on this? Turkka Kuusisto: Yes, it is based on the information that we have today. So I guess, the maiden flight is the 26th of October, anyhow late October, and really looking forward to this opening and connecting Helsinki to down under. Operator: The next question comes from Joonas Ilvonen from Evli. Joonas Ilvonen: Joonas Ilvonen from Evil. If I may come back to this [indiscernible] ticket liability question, can you disclose to what extent this 10% year-on-year increase was driven by higher prices versus volumes? Pia Aaltonen-Forsell: It is a mix, Joonas. I mean, clearly, but if we just sort of look backward at the stats that we have shared from the third quarter, then you still see that, yes, indeed, on Asian routes the yields were improving a bit. But I mean we were not talking about sort of 2-digit numbers. So still assuming that, hey, we have increased capacity, you have seen the rather big increase in passenger volumes it is clear that volumes play a significant role here. And then there's a little bit of the yield as well. So I wouldn't say that this is driven by price. That would be an exaggeration. Joonas Ilvonen: Okay. And then another question. So you already kind of discussed this ticket pricing situation. I know it's a complex question, but if you can add just a little more for example, I just recently saw like an ad or also from in 2 ways to get to Boston starting from EUR 350, I guess you would have to add, I agree that's quite cheap. I'm not sure how representative studies of the like overall situation, but do you see like opportunities for more aggressive pricing in some places? I mean, I think basically all airlines are raising their prices. But let's say, if you were to expect that jet fuel prices are going to decline soon, which would you be in essence, be kind of ready to bet against these relatively high jet fuel prices, if you were like expect the decline by aggressively pricing tickets? Turkka Kuusisto: As mentioned earlier, the pricing is very complex, and the pricing algorithms and dynamic pricing optimizes the ticket prices in real time. And then, of course, there's -- especially in the European traffic, it's a rather tight competition. So time will tell how the price development and yield development will turn out. But then as I said earlier, if the situation prolongs and the fuel price stays at the elevated level, of course, that needs to be offset by let's say, profitable flying or sustainable flying. And then, of course, you shouldn't draw too much conclusions from a single campaign. What was it Helsinki has in Boston, that's only one example. And without knowing the data and the what we try to optimize. But it sounds like a nice deal. Maybe we should go to Boston. Pia Aaltonen-Forsell: It's a nice town, yes. Erkka Salonen: Then some questions online. So the first one comes from [indiscernible]. Will rising aviation fuel costs under low supply for Finnair to cancel flights in the next quarter, especially in the flights towards Asia and the European sector? Turkka Kuusisto: Short answer, no. We intend to cancel our flights. We have committed to the summer schedule that we have published. So you don't need to speculator be worried about our flight cancellations because there won't be such related to this situation in Middle East years. Erkka Salonen: And the next question is from Mateo Salcedo. You said that Finland and Europe have relatively good fuel supply for the time being. Could we translate this into months, since last weeks are some European destinations in which the risk of jet fuel supply disruption is more present than in others? Turkka Kuusisto: I cannot comment all of our European destinations. We have 9 of them. So based on the information that we update on a weekly basis or a daily basis, we haven't been flagged severe issues at any of the destinations as we speak. And the most confident I am -- when it comes to the situation at the Helsinki Airport, where we've been confirmed that the fuel availability won't become bottle-neck issue before the end of the summer season. Erkka Salonen: Yes. And the last question comes from [indiscernible]. So does Finland have better availability of Kerosene during 2026 than most of the European countries? Turkka Kuusisto: That's difficult to evaluate because we don't have transparency or visibility to the, let's say, reserves or national supply across the European countries. But what gives me a lot of confidence that in Finland at Helsinki, thanks to the Porvoo Refinery of Neste, we are well positioned also on this one. Erkka Salonen: So I guess we're out of questions, so we can conclude the call. Many thanks for joining and the call, and the excellent questions. We wish you a great day. Turkka Kuusisto: Thank you so much joining today, and see you again, Q2. Pia Aaltonen-Forsell: Thank you.
Operator: Hello, and welcome to the Akzo Nobel Q1 Results 2026 Earnings Call. My name is Alex. I'll be coordinating today's call. [Operator Instructions] I will now hand it over to Jan Willem to begin. Please go ahead. Jan Willem Enhus: Good morning, and welcome to Akzo Nobel's investor update for the first quarter of 2026. I'm Jan Willem Enhus, Head of Investor Relations. Today, our CEO, Gregoire Poux-Guillaume; and CFO, Maarten de Vries, will take you through our results. We'll refer to the presentation, which you can follow by webcast or download from our website at akzonobel.com. A replay of the webcast will also be made available following the event. There will be a Q&A session after the presentation. For additional information, please contact our Investor Relations team. Before we start, a reminder of our forward-looking statements disclaimer on Slide 2. Please note, this also applies to the conference call and answers to your questions. I'll now hand over to Greg, who will start on Slide 3 of the presentation. Gregoire Poux-Guillaume: Thanks, Jan Willem. Good morning to everyone on the call. In Q1, we delivered a clear beat with EBITDA of EUR 345 million, coming in 7% ahead of the EUR 323 million consensus. Organic sales were 1% lower year-on-year with a 1% pricing gain offset by 1% declines in both mix and volumes. Profitability improved meaningfully. Adjusted EBITDA was up 7% at comparable scope, while adjusted EBITDA margin rose to 14.5%, up 80 basis points. This marks the fourth quarter of margin expansion year-on-year, driven by disciplined pricing and strong execution on our cost actions in soft end markets. Operationally, our industrial transformation will be completed by year-end. We closed a further 3 sites in Q1, bringing the total to 15 since the program's inception. We've done all of this without business interruption. We also delivered a key milestone to our ongoing portfolio review in Deco Asia, signing the sale of our business in Pakistan at 14x EBITDA for an enterprise value of about EUR 50 million. Close is expected in the second half of the year. It's not a very large transaction, but it's another proof point after India that Deco assets are valuable, particularly to the right owner. On financing, we issued a EUR 1.1 billion bond dual tranche in March, extending our maturity profile and reinforcing liquidity ahead of the proposed Axalta merger, which is on schedule. We enter the rest of the year from a position of strength, well equipped to navigate the raw material headwinds ahead. Turning to Slide 4. In Q1, volumes were down 1% year-on-year, reflecting a mixed regional picture. We saw strong growth across Asia and South America, while North America and Europe remains slow. In Coatings, volumes declined 2% in Q1 against the backdrop of continued macroeconomic uncertainties. Powder, specifically, Powder demand improved in both architectural and automotive. And the strong momentum in Asia continued. Marine, Protective delivered a lower quarter driven by project phasing and tougher comps in Marine, while Protective continued to grow, particularly in Asia. Automotive and Specialty remained sequentially flat. Aerospace is a clear growth engine, while Refinish grew in Asia and stayed at trough levels in North America as expected. Industrial Coatings declined low single digit with growth in coil, more than offset by lower volumes in packaging. Moving to Deco, Q1 was a solid quarter. Volumes grew strongly across Asia and South America, offset by lower volumes in Europe, Middle East and Africa, where the season started more slowly but accelerated through March and is also doing well in April. Latin America volumes were low single digits up, driven by Brazil's return to growth together with Colombia. In Asia, growth accelerated sequentially with continued outperformance in China and Vietnam, while Indonesia is showing signs of recovery. I'd add as a comment in reaction to some of the questions we got this morning and some of the headlines that we saw that we don't see a whole lot of evidence of prebuying in either Deco or Coatings. I mean they're very different businesses. But once again, there's no evidence of significant prebuying in any part of our business at this point. Take us to the next page, Maarten. Maarten de Vries: Yes. Thanks, Greg, and good morning, everybody. At group level, organic sales declined by 1%. Volumes were down 1%, while 1% price was offset by a negative mix impact of 1%. The divestment of India had a negative 3% impact on revenue. Finally, FX translation reduced revenue by 5%, resulting in a reported revenue decline of 9%. Coatings were impacted by geopolitical uncertainty with volumes down 2%. Growth in Asia and South America was more than offset by lower volumes in North America and Europe. Deco delivered strong price mix of 2% on flat volumes. Group adjusted EBITDA was EUR 345 million, representing a 7% increase at comparable scope excluding our India disposal and in constant currencies. The EBITDA margin improved to 14.5%, up 80 bps year-on-year. This improvement was driven by 300 bps margin expansion in Deco on strong pricing and structural cost savings. In Coatings, softer volumes and negative mix weighed on profitability. Next slide. We delivered another quarter of free cash flow improvement by EUR 39 million at minus EUR 144 million versus minus EUR 183 million in Q1 last year. The first quarter is seasonal quarter with inventory build and related outflows. Working capital also improved, ending the quarter at 16.8% and 20 bps below prior year. Notably, this was achieved while we closed 3 sites as part of our industrial transformation program, which requires inventory buildup to support volume redistribution. Return on investments rose to 13.6%, up from 13.1% last year. And finally, supported by the improved cash generation, we maintained our leverage ratio at around 2x. Now handing back to Greg. Gregoire Poux-Guillaume: Thanks, Maarten. Moving to Slide 7, I think, tensions in the Middle East have pushed oil prices higher and caused significant disruption across the chemical value chain, driving expected high-teens raw material inflation for the remainder of the year. In response, we moved decisively to protect margins and have announced price increases ranging from the mid-single digits to the low teens. The announced price increases will fully offset raw material and logistics inflation based on current market conditions. We'll execute further pricing actions if conditions worsen. So once again, these price increases have been announced, they've been discussed with customers, they're being implemented. The last cycle demonstrated the strength of our ability to pass through inflation. If you think back to that time, '21, '22, EUR 2.3 billion of cumulative pricing to fully offset the EUR 2 billion of raw material inflation, although pricing took time to catch up. This time around what we're building on that experience and we've acted faster, bringing pricing and inflation into closer alignment in the early stages of the cycle. We're not executing at pace with the P&L impact of our pricing actions ramping up in Q2 and the full effect visible in Q3. Beyond pricing, we're actively managing input cost inflation contractual terms and competitive sourcing are limiting cost increases from suppliers, while our regional-for-regional sourcing model keeps supply continuity and act and provide resilience against further destruction. In short, we've navigated this before, our response is in motion, and we believe we have the track record to back our confidence. Turning now to our outlook on Page 8. Looking ahead, our 2026 adjusted EBITDA target of at or above EUR 1.7 billion remains unchanged. The EUR 100 million step-up continues to be driven by what we control, EUR 90 million of net savings from our industrial program, with SG&A carryover and productivity offsetting inflation. We remain firmly focused on completing the industrial program by year-end while maintaining strict cost discipline. Although the Middle East conflict has limited impact in the first quarter, raw materials and logistics costs will ramp up throughout the year. The exact impact is still evolving, but additional pricing has been announced, as I said, and we'll fully offset this inflation we see. And therefore, we believe that the actions that we have in place have neutralized that impact and we'll take further actions if needed. For Q2, we expect adjusted EBITDA of around EUR 400 million. Volumes are forecasted to be broadly flat against comps that are less challenging than in Q1. And pricing will build progressively throughout the quarter, offsetting raw material inflation, while OpEx savings will be delivered as per plan. Moving to Slide 9, the merger preparations with Axalta are progressing as planned with three critical work streams running in parallel. On integration, the management office is up and running with a strong cooperation between the teams, focus is on day 1 readiness and accelerating synergy capture. The shareholder preparations continue to advance. The PCAOB audit is complete. The confidential F-4 filing was submitted end of March, and the EGM is expected to be held in early July. Separately, the regulatory process is underway with active dialogue across many jurisdictions, including the U.S., the EU and the U.K. We remain firmly on course to close by the end of the year or early next year. I'll now hand over to Jan Willem, who will close with information about upcoming events, and then we'll start the Q&A session. Jan Willem? Jan Willem Enhus: Yes. Thank you, Greg. Before we start the Q&A session, I would like to draw your attention to the upcoming events shown on Slide 10. Our AGM that will be held tomorrow, April 23, the ex-dividend date on our 2025 final dividend, April 27, and the record date is April 28, followed by payment on May 6. This concludes the formal presentation, and we'll be happy to address your questions. [Operator Instructions] Operator, please start the Q&A session. Operator: [Operator Instructions] Our first question for today comes from Thomas Wrigglesworth of Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. Firstly, around the volume outlook that you have I mean clearly an evolving picture, but obviously, you've kept the volume picture flat and you're pushing through pricing. Are you expecting to see some demand erosion? Or do you think that is too early to tell or there are mitigating factors within there that mean that, that doesn't -- that shouldn't arrive this time around? And secondly, just on the -- you successfully -- you very successfully passed through pricing in the previous cycle. But one of the issues we found was in the coatings industry, less so Akzo, was kind of unique components that were missing or became short. Just in terms of your total inventory picture, how does that vary by region? How many weeks, how many days of inventory do you have in terms of visibility and in terms of lead time to get -- to enable you to get prices up? Gregoire Poux-Guillaume: Thanks, Thomas. I'll take the first question. Maarten will take the second. From a volume perspective, we've kept the outlook flat. When we look at -- so when we look under the hood, we're not really seeing -- we didn't see any prebuying of any significance, we are not seeing a slowdown either. We're essentially seeing a trend that is -- seems to be fairly stable. So will -- if we stay in a world of higher inflation because that [indiscernible] inflation creates price inflation and creates inflation overall, would that have an impact on demand overall? I mean I think economic theory would tell you it would. But it's -- one, it's not visible today. Two, it's too early to tell. Three, we're playing against easier comps starting in Q2. You have to remember, you had Liberation Day last year and all sorts of things that made our life exciting. So I'd say so far, so good. And March was healthy. April was healthy, too. We announced price increases that we discussed with our customers without seeing them ramp up their orders or -- I think there's a view in the market that there's potentially a resolution on the horizon. But whether that's correct or not, we're not seeing anything that would lead us to change our volume outlook for the time being. Maarten, do you want to take the second question? Maarten de Vries: Yes, on the pricing dynamics and maybe a few points to make. First of all, this is really a very abrupt price increase. But of course, there is a different picture per region and also per business or per business segment. So we use differentiated pricing, of course, in that context. And on your question on lead time, what you see in general that in Asia and particularly in China, supply chains are significantly shorter compared to, for instance, Europe. So that's why in Asia, within shorter supply chain, but also a more material increase, you see also there a faster reaction to compensate. Gregoire Poux-Guillaume: It's really interesting, by the way, because Asia structurally has a higher impact from what's happening in the Middle East and the Strait of Hormuz just because where these oil and some of these refined products go. And as Maarten said, it's a shorter supply chain. So you should say, well, there's going to be more of an impact in Asia and that impact will be felt earlier. But actually in Q1, what really pulled the performance is Asia. So it's holding up well at this point in terms of demand, once again, to link Maarten's answer on the second question to the first question. Operator: Our next question comes from Laurent Favre of BNP Paribas. Laurent Favre: Greg, how much of the pricing that you're targeting for the rest of the year is underlying pricing rather than surcharges, which I guess is a way of trying to understand how much carryover we get into 2027 as things are now? And then the second question is on the Asia disposals in Deco. So you did Pakistan and obviously at a good valuation, but I guess the process there started before the war. So I'm wondering, to what extent you think the current Middle East situation is just going to push back all your, well, I guess, expectations around announcing more deals either from a valuation standpoint or just because just too much uncertainty and people don't want to [ move ] capital now? Gregoire Poux-Guillaume: Yes. Thanks, Laurent. I'll take your questions in reverse order. You're right, Pakistan, we started discussions before the war in Iran. But the war in Iran did not lead to a value erosion of that process or a fragilization of that process. So there was no time when potential buyers try to use that as a reason to either take down the price or push things back. And if you look at what we have in mind for the rest of Asia, it's really interesting. I mean we're in this world where people WhatsApp you stuff all the time. And while we were getting ready for this call, I got a WhatsApp from a senior executive of a well-known company that asked me about the availability of one of our Deco businesses in Asia. So this is like real-time stuff. So I -- what that tells you is that people look through the crisis. These are really good businesses. Nobody is trying to figure out whether -- what's the impact for 3 to 6 months. They're buying for the long term. And these are franchises, these are well-known brands with entrenched positions in countries. And I don't want to be cynical that things -- this too shall pass, but that's not how buyers look at assets. And once again, a few data points, no change on Pakistan despite events and people actively knocking on our door pretty much in real-time for anything else that we might have in mind in Deco in Asia. Your question on the price versus surcharges is -- I think it's a really good one. And we've explained in the past that about 25% of our business -- 25% of our revenue is based on formula indexes. So take Akzo overall, there's about 25% of our revenue where prices adjust based on the formula. In Industrial Coatings, for example, that's a significant part of it, but there's other places, too. Those formulas, they're not very effective for small variations, but they're really effective and really impactful for big variations. And we're in big variation land. So essentially, I was touching base with the Industrial Coatings business. And essentially, they told me yesterday that these formulas have already been agreed to the impact, and it's already being passed on. So that's being rolled out in invoices in April, in May. I think the tail end of that is things that go in on the 1st of June, no later than that. So it's kind of actually spread out between 1st of April, 1st of May, 1st of June. So that's about 25% of our revenue base. And everywhere else, in some cases, we have longer-term contracts, but a lot of it is spot essentially. And there, you have the option of going with price increases or surcharges. Our preference is to go for price increases because these -- the surcharge stuff is -- you're right, it's less sticky, but it has an advantage, though, that usually you can implement it faster. So overall, we've gone proportionally more for price increases, but there are certain areas of the business where we've gone for surcharges, usually in areas where that's the acceptable or accepted practice. But once again, that's not our preference, but that's something we do when that's the market practice and when we believe that speed is the essence. Operator: Our next question comes from Matthew Yates of Bank of America. Matthew Yates: A couple of questions. The first one just around cash flow and working capital management. If I think back to the prior cycle, you ended up consuming the best part of EUR 1 billion in additional working capital. Can you talk about sort of how you're thinking about the impact this time around and any lessons learned? I think with the benefit of hindsight, I think you yourselves were prioritizing security of supply that then led to quite a prolonged effort to unworking that. How are you engaging with your raw material suppliers at the moment to balance what you need versus not buying too much at perhaps what is the top of the market? And the second question, I'd like to follow up on what Laurent was asking around the process for Asia, and I'm a bit confused as to what the strategy here. I was under the impression that you were reviewing positions where you did not have a pathway to being a market leader. Based on recent press reports, it suggests that you're taking a more holistic look at whether keeping any Asian business would be worthwhile if it has a lack of scale. And I'm just curious, how you're thinking about this process? Is it going to be piecemeal? Or are you looking at a total exit of your Asian Deco franchise? Gregoire Poux-Guillaume: Matthew, I'll take the second question. I'll start with that, and then Maarten will take the first one. To clarify, our strategy hasn't changed. We love our Deco businesses, we believe that our capital is better allocated to leadership positions. And if you take Deco specifically, the part of the world where we don't always have a leadership position is actually Asia. So hence, the fact that in September, I think, 2024, we announced a review of our Deco Asia position. So it's not coatings at all, it's just Deco Asia. We sold India. India was a great business with 5% market share. We sold Pakistan. And we're looking at some of these other positions. And to your question of is that wholesale or retail, is that -- are we looking at potentially selling as a package? Or are we looking at assets individually? Right now, we're just having discussions in general. We're not -- we haven't decided anything, but we've been clear that if we're not the leader and we don't have a path to leadership, we will consider options. And that -- these are the options that we're talking about. By the way, that discussion does not include China. China is a really good business that is recovering ahead of the market that we're excited about for the years to come. But it's -- the scope that we are looking at from a strategic perspective is essentially the rest of Asia, which once you've taken out India and Pakistan is about EUR 300 million of business at a profitability, which is a little bit higher than the Deco average. So hopefully, that answers the question. But I don't have anything else to communicate on this at this point beyond the fact that we're continuing with the exact same strategy, taking a critical look at these assets, and we are having a bunch of conversations because it's not like we've been discrete about it. So people are calling up or to allude to my answer to Laurent's question, people are WhatsApping me. We're very modern. Maarten, do you want to take the first question? Maarten de Vries: Yes. Yes, Matthew, it's a very good point. And obviously, we have taken the lessons learned from the previous cycle. We are operating at the moment end of Q1 at an inventory level, which sits just above 100 days and is in line with last year Q1, by the way, despite the massive transformation we are doing as part of our industrial footprint. Clearly, we will -- and we are and we will manage our inventories at a tight level because it doesn't make sense to start to buy when prices of raw material have spiked already because the spike is already there in terms of raw material prices. So we manage it tightly, not buying at the highest level to make sure that we manage our working capital in a proper way. And as you know, yes, in value, inventory goes up, but payables will also go up. So that compensates each other, and that underpins kind of the trajectory we see from -- for working capital throughout the year. Gregoire Poux-Guillaume: But Matthew, you're correct. Last time around in '21, '22, we did really well in terms of pricing to mitigate the impact. We did really badly in terms of anticipating raw material prices and availability, and we had a tendency to hoard. And when the situation started normalizing, we had 2 or 3 quarters of relative underperformance because we were still working down higher-priced inventories. So in terms of lessons learned, that's lesson learned, which is we're going to keep a very close eye on days of inventories. And we haven't given our people relief, we haven't told them that target of getting under 100 days of the [ IO ] is suspended. Let's go out and buy whatever we can. That's absolutely not what we're doing. It's business as usual, but it's business as usual in a more dynamic way because the market is a little bit stretched. Operator: Our next question comes from Katie Richards of Barclays. Katie Richards: Two questions from me, please. The first, I just want to understand, to what extent the positive margin momentum in the Deco side was driven by the higher inventory backlog you've been describing? Because you were talking about ahead of site closures, you are building inventories ahead of that. And secondly, you mentioned earlier that now the market has a view that there's a resolution on the horizon, so I'd just be interesting to understand whether you're finding it more difficult to push through price increases now that the news headlines are focused on a ceasefire. Gregoire Poux-Guillaume: Thanks, Katie. The second question is -- I'm not trying to be a geopolitical commentator. I was explaining why -- I was giving a reason or an explanation of why we're not seeing a lot of prebuying. People are fairly calm in the value chain. But I think we all understand that even if there's resolution tomorrow, oil prices will remain at a higher level for the quarters to come and the chemical value chain will take some time to resorb. The moment you open the Strait of Hormuz, in all likelihood, the ships that will be given priority are the VLCs, the very large crude carriers. And all the stuff that has chemicals on them will be at the back of the queue. So I think we all understand that whatever happens, this impact is going to be carried for the rest of the year. There's no magic wand to go back to pre-Iran quickly. So no, whatever is happening is not impacting our price discussions. And also, I think people have gotten used to the fact that those discussions are a roller coaster. So no specific impact from that perspective. Your point on Deco margins, you saw that our margins were up 300 basis points in Q1. And actually, your question is a really good question because you're essentially -- if I phrase it differently, you're asking whether that performance is supported by positive inventory revaluations. And the answer is that it's not. The inventory revaluations have not impacted Q1. And therefore, that performance was achieved the old-fashioned way. And the old-fashioned way has been specifically to this, this industrial transformation that we undertook where we're closing a lot of factories, we're streamlining the business, we're taking out some of the overheads. Over time, it pays off. And what you're seeing is those actions paying off. You're not seeing any kind of weird one-off accounting impact of raw [ mats ] go up and therefore, we do an inventory revaluation that's positive that underpins the Q1 performance. That's not the case. I can confirm that. Operator: Our next question comes from Tony Jones of Rothschild & Co. Tony Jones: I've got two. On site closures, you have reported you've taken out 3 in this quarter, and I think you said that's 15 in total. Could you remind us what the target is for this calendar year and how that might split by division and region, if that's possible? And also, what are the criteria now with -- we're at the end of April, you have the Axalta merger hopefully on track for the next 6 to 12 months. Is that also starting to take effect? And then in terms of the divestments, sort of circling back to early questions, how much of the divestment strategy, particularly Asia, is now starting to also consider the combined footprint with Axalta? Or is that just not relevant at this point? Gregoire Poux-Guillaume: Thanks, Tony. The site closure question, we said we've done 15. We never gave an overall target. But if you go back to where we were last year, we were at 12. And we said that we've done 6 for the year, and we said there were at least as many in 2026 as in 2025. So at least as many, it means above 18. I'm sorry to be coy and to -- but you understand these things are sensitive. But roughly 18 plus, and all of those are going to happen. And none of that is changed by the impending Axalta merger. These are all things that we believe makes sense regardless of whether we merge with somebody else or the market environment. So we're going ahead with those. And there was a divestment question, I think, Maarten? Maarten de Vries: Yes, there was a divestment question. And again, we are going ahead, as we mentioned earlier. And there is no relationship to the Axalta merger, also not related to the footprint. We are executing our stand-alone strategy. And we are focusing on this year, and the merger will come from early next year onwards. Gregoire Poux-Guillaume: And I think if I may add something to what Maarten said, it ties to a question we've been asked multiple times by investors, which the merger, there's really good investor support. But if they have one gripe, it's -- this pushes returns out into the future because a lot of people look at this and go like, "Well, you're going to be busy with regulatory until closing. So that takes care of 2026. And in '27, you're going to spend $600 million to generate EUR 600 million of synergies. So that means that the earlier I can start seeing returns is 2028." But the reality, if you read the merger agreement is that we've maintained the right to monetize some of our assets in Deco Asia. And as you can tell from what we're saying, we're continuing, which means that some of those returns are being brought forward by whatever we do with those assets specifically. And once again, no change, no change because of Axalta and no change because of the market. If anything, that those processes are generating quite a bit of interest. Operator: Our next question comes from Chetan Udeshi of JPMorgan. Chetan Udeshi: The first question I had was, Greg, you mentioned the local sourcing for local region strategy. But I mean, correct me if I'm wrong, I sort of remember in Europe, about 12% to 30% of your raw material requirement is actually typically imported from China. And I'm just curious, is this going to change how you look at importing from China in the future? Of course, the prices from China tends to be much lower. But then if you have these sort of supply shocks like COVID, wars, does that make sense or does it make sense in your view to double down on local sourcing in Europe or rest of Asia, even if that means you have to pay higher prices to local suppliers? The second question, just going back to the pricing, it seems to me at least that these are the price increases that you are pushing through. Can you give us any color on how the acceptance has been so far from your customers? Are they -- do they understand? Are they pushing back? Is it a kind of war? Because we all take the price increases on the face value, but of course, what matters is how much will stick. Maarten de Vries: Let me take the first question on regional or local sourcing. In fact, what happened post-COVID, we have focused more and more on local sourcing. And if you look at specifically Europe, and our local sourcing versus what we source from Asia, particularly China; that is, in fact, a very low piece. So it is significantly lower versus what you are mentioning. Currently, we are more or less at a 10% level. So our model has more change to regional/local sourcing. Gregoire Poux-Guillaume: Which, by the way, we talked about, I think, maybe 18 months ago or 2 years ago because the question was, are we taking advantage of the exceptionally low prices in China at a time, if you remember, it was when Europe was passing on tariffs on Chinese [ TiO2 ], antidumping. And what we said at the time is that we had derisked our flows. We realized that there's a geopolitical risk associated to having too many eggs in the same basket and that we were willing to absorb a little bit more cost to have more certainty. So it's exactly what Maarten said. And if you kind of go back to what we said at the time, you'll see that it's very consistent. The second question, Maarten? Maarten de Vries: It's on the price increases and customer acceptance. Gregoire Poux-Guillaume: Customer acceptance. It's -- I go back to my answer to Laurent's question. There's about 25% of our revenue, which is formula-based, and then that takes away a lot of the emotion. On the B2B side, so the other coating businesses, it's been -- the industry reaction has been fairly kind of consistent across the board. If you look at the announcements that came out from different players, we're all pretty much saying the same thing. And our customers are also B2B players. So they're also looking to see how they pass on. So those discussions have been constructive. On the Deco side, it really depends. In some Deco markets, we are still on the tail end of discussions for the annual price increase for 2026 because these things have -- they have a tendency to be settled at the beginning of the high season, and the beginning of the high season is essentially now. So it puts a lot of things on the table at the same time, but everybody understands that this phenomenon is something that has to be mitigated. And actually, a lot of our customers are -- have already increased their prices in Deco. And any discussion that they have with us is more about margin expansion for them than it is about whether there's a logic to the price increases. But I'd say so far, so good, Chetan. Operator: Our next question comes from Georgina Fraser of Goldman Sachs. Georgina Iwamoto: I wanted to just ask a bigger-picture question, just revisiting the strategy to shrink Deco and consolidate and get bigger in the Coatings business. Are there actually any dis-synergies to owning both of these businesses? Or how do you present the value-creation strategy behind this idea to shareholders? Or is the disposal strategy in Deco just about the fact that you haven't been able to delever organically? Looking at the balance sheet, it's -- we're kind of just stuck and have been for some time. Gregoire Poux-Guillaume: Thanks, Georgina. It really is not about the balance sheet at all. Our cash flow generation was really solid last year. We are delivering at a higher level also in Q1. We're -- we've been actively managing working capital. We're not worried about our ability to generate cash, and we're certainly not worried about the balance sheet. And it's not at all about wanting to shrink Deco. It's about wanting to make sure that we are fighting battles that we can win, meaning that we have -- we want to focus in Deco on businesses, on countries where we have a leadership position because Deco is a local game, and it's a relative market share gain. We're very strong in Latin America. We're the market leader in Colombia, we're the market leader in Argentina. The impact of having Colombia on Argentina is pretty much zero and vice versa. These are not different brands, the products don't travel from one country to the next, production is local. So the way you win in Deco is by having the strongest brand and the best distribution. So it's a relative market share gain. So once again, if you look at the profitability of our businesses in Q1, I mean, Deco is at like 17.3%. It's 400 basis points higher than Coatings almost. Now it's a moment in time, Coatings is more impacted than Deco by what's happening in the world. But these businesses are really good businesses. But once again, we want to be in the countries where we have a winning hand. And we are -- we've also demonstrated with India and Pakistan that in countries where we're not necessarily the leader, these businesses are way more valuable to people other than us. So I don't know that any investor will look at me strangely if I sell a business where we have 5% market share and the market leader has 50%, and we sell that business at 24x EBITDA, which is exactly the situation in India. So once again, not about the balance sheet, it's about focus, it's about making sure that we are not to -- spread too thin. And to your question of are there dissynergies to owning both? Not really. I mean, I think the -- there's complexity, which is that it makes -- it forces investors to have conversations ranging from the weather in the U.K. to aerospace travel to whether people are crashing their cars in North America. So it makes the story a little bit more complex. And from a management perspective, we're essentially within Akzo, we're running a B2B business, and then we're running a smaller version of Unilever. Deco is essentially an FMCG business, although it's -- the F is a small F, but it's very similar to those businesses and -- which means that you manage them and you allocate capital to them in a very different way as you would for the Coating businesses. So that's all it is. It's not -- it's pretty straightforward, not about balance sheet, a little bit about complexity and a lot about capital allocation and value. Operator: Our next question comes from Sebastian Bray from Berenberg. Sebastian Bray: There on the Refinish business, please, can you give an idea of the geographic distribution of sales at Akzo Nobel within Refinish? And any comments on both the underlying market development, given that volumes have been weaker in recent quarters? And the relative performance of Akzo's own business would be welcome. Gregoire Poux-Guillaume: I don't think we've ever given the geographical split of the Refinish business. What I would say is that we're top 4 in the U.S. and in Europe. We have a stronger position in Asia. Our Refinish business in Asia did very well in Q1. Refinish in the U.S., as you know, was impacted by that sort of tension between higher insurance premiums and lower disposable income, and that stabilized at a trough, but it hasn't picked up yet. And Europe was less impacted, but is not rebounding yet. So if you run a Refinish -- if you own a Refinish business these days, what you have is growth in emerging markets, you have -- you're stabilized at a trough in Europe and the U.S. And -- but with an impending rebound that the bigger guys, PPG and Axalta, we're forecasting for the second half of the year, which might shift a little bit if gas is $4 per gallon at the pump in the U.S., maybe that has an impact on driving season. But it's a business that continues to have significant pricing power because it's a business that differentiates on technology. For the body shops, the cost of the paint is not a big cost item. What makes a body shop profitable or not is essentially throughput and labor costs. So if you offer a product that achieves a better result in less time, you're going to make good money and you're going to have pricing power. Hopefully, I've answered your -- I didn't give you percentages, but hopefully, I gave you some color. Operator: At this time, we currently have no further questions. So I'll hand it back to Greg for any further remarks. Gregoire Poux-Guillaume: Thank you. Well, look, strong Q1 in a market that is a little bit distracted by what's happening in the world. The market was soft in the first place that is always a source of concern. But as we look at how our business unfolded, January, February, small months; March was actually a good month, April is looking pretty good, too. There doesn't seem to be any signs of panic or significant disruption in the market, no significant prebuying, no changes in consumer patterns that we can see at this point. Once again, we're keeping a close eye on that for the rest of the year. But keep in mind that we're forecasting flat and our comps get easier. Our cost structure is really under control. We continue to take cost out, and it continues to have a positive impact, as you can see from the performance of Deco in Q1 as just one data point. And then we were pricing up before Iran, and we've stepped up one level because of the raw material impact, once again, in the high teens in our basket for the rest of the year, but mitigated by already announced price actions that we believe will neutralize the effect. So that gives us some level of comfort for the rest of the year. Once again, volumes are always the question mark, but so far, so good. We expect EBITDA to be about $400 million in Q2. And once again, you'll see progressively, you'll see the raw material impact materializing in our P&L, but you'll also see the corresponding price increases making their way through our P&L at the same time. And our aim is not to capitalize to expand margins. Our aim is really to price to neutralize the impact. Merger is making good progress. And we thank you for your time and your attention today. Thanks. Operator: This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.
Gustaf Meyer: Hello, everyone, and welcome to today's Live Q with Senzime. With me here, I have the CEO of Senzime, Philip Siberg. First of all, we will hear a presentation from him. And after that, we will have a Q&A session. And also, on our website, you can see that you can send in questions to the Q&A session. But first, we will hear the presentation from Philip. Philip Siberg: Okay. Good morning, pleasure to be here. I am pleased to announce the Q1 2026 report from Senzime. So just to start off with kind of a high-level summary. So Q1 2026 was a little bit of an outlier quarter. We reported a temporary dip on our growth journey, yet, at the same time, we reported strength in margins and good cash flow. And the full year targets remain intact. What kind of stuck out in Q1 was slower sales in the U.S., specifically of closing new monitor deals, and mainly driven what we've seen as delayed purchasing processes and a year starting with a bit of macro concerns in the U.S. Nevertheless, we reported 40% growth in our sensor sales, calculated in constant currencies. Our underlying gross margin continues to improve very nicely. And we also reported a good traction on our operating cash flow. So all in all, I remain confident in our full year targets despite the growth dip, and I will explain a little bit more on the background. So let's deep dive a little bit specifically on the U.S. market that I mentioned. If you look at the U.S. business, it grew 11% in local currencies in U.S. dollars. Specifically look at disposables, the sensors, it grew at 55%. But then we were affected by, of course, the strong Swedish krona and the weak U.S. dollar. So versus the first quarter of last year, it was about 15% lower. So this ultimately led to our reported sales decreasing with 5% in the U.S., which was about SEK 2.5 million (sic) [ SEK 0.75 million ]. But as I said, the growth, I would say, was predominantly delayed because of TetraGraph deals that were delayed and many of them moved into the second quarter. We do not see any of our deals that have been lost to competition. On the contrary, we've been secured with a number of verbal commitments, and we know that they are in the pipeline to close as they come. So during the quarter in the U.S., we shipped out 246 TetraGraphs, and I will tell you a little bit more about a new business model that we've launched as a complementary service. And of those 246, 120 of them were part of our new TetraGraph-as-a-Service model. So if we look at the TetraGraph-as-a-Service, this is a business model that we've introduced in the U.S. It's a little bit of copying what's been common typically in the robotic surgery world. So what we do is that we provide the TetraGraph monitors on subscription. So we own them and we place them with hospitals. And then we charge customers with a premium on the disposables that are used. So for hospitals, this is a compelling rationale, because it shifts kind of the capital purchasing process rather to operational processes and costs. So it simplifies and accelerates purchasing processes. And for us what it does is that it shortens sales cycles. The 2 deals that we have secured during the first quarter were closed at about half of the time versus a typical capital purchase. And if you look at the type of deals that we sell to customers, the value for us over time is about 90% of the revenues contribute from the sensors. So by having a variable sensor price, it creates strong margin enhancements for us over time. So the first 2 key wins in the U.S. were to 2 Ivy League hospitals on the East Coast, and we supplied them with 120 TetraGraphs to their hospitals. So we have had a tradition of focusing very hard on the U.S. market, because that's where the conversion to our technology is happening the fastest. This is a map that I've shown before. We've had a lot of announced and big hospital wins over the last 15 months. And if I now start to add up to that one, and I put in -- so what we've done so far this year? And I'm saying year-to-date April. So we've had a number of important accounts. We secured a big hospital extension in Florida. We recently announced a statewide IDN expansion deal. This is to become one of our larger customers with a run rate of about SEK 6 million a year. We announced an IDN entry. So we've entered into one of the largest IDNs in the world, secured a number of hospitals, both on the Central U.S., but also on the West Coast. And there's a huge potential for us to further leverage that opportunity. We've won a very important children's hospital in Texas and the Ivy League hospitals I already mentioned. So just to just give you a few of what's going on in the first 4 months of the year. So right now, in the U.S., we have about 250 hospitals as customers. Okay. So to wrap up the U.S. and try to conclude a little bit and comparing the numbers apples-to-apples. So if you look at what it was last year. So last year, in Q1, that was the time when we rolled out the new next-generation TetraGraph. Quite a few of the rollouts were demo monitors and some were upgrades to accounts we already had. So if I compare that and then I look at, okay, what happened this quarter. So I had my reported sales, and then I had about SEK 2.5 million in currency effects, and on top of that, I had the TetraGraph-as-a-Service where it did not have a capital revenue, rather the long-term enhanced margin revenue on sensors. So if we look at that all in all, and just compare these apples, just to explain, there's about 6.5 million, the ratio of difference here. So the underlying business in the U.S. is still moving in the right trajectory. Okay. So let's move on and look at, in general, the global business. So we continue to grow our installed base and grow our shipments of TetraGraph. So we've shipped over 5,500 TetraGraphs by now. In the quarter, we shipped out 376 in total versus 443 last year. And again, last year was a little bit boosted by upgrades and demo units that came out. If we look at our disposable sensors, remember, this is a razor-razorblade business where each patient connects to a sensor. We continue to grow the sensor business very nicely. We passed the milestone during the quarter of 1 million monitored patients. And this is an important milestone for us. Not only does it help to enhance margins, we get economies of scale, but it also provides kind of the reference base for further growth. So if you look at the rolling 12 months of the sensors, and sometimes go up and down in volume, it's a 66% (sic) [ 27% ] growth. So to sum up a little bit of sales numbers. We've talked about the U.S. here first in line. Europe has had a decent start of the year, almost 60% growth in terms of disposables. We also had a small currency negative effect because of the euro. The rest of the world had a little bit of weaker start of the year, still very strong belief in the opportunities in Japan and South Korea, and we will certainly catch up that during the year. So you can see, if you look at the spread of our business today, U.S. is a little bit less dependent and the sensor sales continue to be very strong as part of our company. Something that was announced during the quarter and that we have preannounced before, but during the quarter, the actual publication of the new pediatric guideline was published. So this is a guideline set that was created by the European Society of Intensive Care and Anesthesia. And really what it says is that children that receive neuromuscular blocking drugs as part of surgery should be monitored using a quantitative neuromuscular monitor and preferably use an EMG-based solution because of the higher accuracy and reliability, and that's exactly what we offer. So the pediatric opportunity is interesting. I mean it is a smaller part of our overall business. I would say it's about 5 million patients a year versus about 100 million in total for adults and all patients. But children are a specific group here. I mean, residual paralysis is common. And with residual paralysis, I mean that they wake up and they're still partly paralyzed. The consequences of this are serious. Children end up in postoperative care and they get all kinds of different respiratory issues. And the issue has been here, lack of available technology and a lack of kind of practice standards. So I think this is a very strong guideline, and we have had the fortune to work with a lot of the guideline authors. We've conducted a number of webinars and seminars, and I believe we have the support to really grow this business opportunity. And to look like where are we in this pediatric opportunity. It has been a small yet important part of our business, but it's a notable number to see that in Q1 -- the number should actually be here 2026, I can see -- we actually threefold increased the sensor units, and we sold 65 TetraGraphs specifically delivered to pediatric operating rooms. So definitely a trend shift here, yet from small levels. Another important news piece we had during the quarter is that we introduced what's called the TetraCom. The TetraCom is a novel technology that enables physicians and IT personnel to connect the Senzime TetraGraph directly to hospital health records, meaning directly into Epic and Oracle and other types of systems. And we do have a suite of partnerships where you can connect the data through providers such as Philips, Masimo, GE, and Mindray. But with the TetraCom, you can connect seamlessly, wirelessly directly into these systems. So it's a way for us to provide a service and also monetize on the data and the value to the customers. Let's look a little bit more about the numbers. So gross margin, I mentioned initially that the underlying gross margin continues to improve, and it does. So in the quarter, the underlying gross margin was 69.3% (sic) [ 69.2% ]. We continue to improve it versus end of last year and Q1 last year. We continue to have a number of effects on the gross margin that are, I would say, beyond the company's control. We have the U.S. tariffs. They are still hitting us. We will see where that ends up, and we have the currency effect. So we had quite a hit on the currency in Q1. So the reported gross margin was 63.1%. We continue to increase pricing. We are noting U.S. pricing levels now for us increasing. So I continue to iterate that the gross margin will improve over time. If we look at our operating expense level, I've iterated before, we continue to keep it very flat. So we try to grow this business rapidly with a flat operating expense curve. We were actually down 5% versus last year and almost 17.5% versus Q4 of last year. And this is important, because we continue to invest in sales, in marketing, in med affairs, and we continue to do a lot of science to be the industry leader in our field. If we then move down the profit and loss and look at the cash flow. So I think the cash flow stood out this quarter. It improved by 33%. Yes, we are still negative, but as we work diligently on optimizing working capital, we're starting to see that the burn rate is significantly getting down. EBITDA was slightly better than last year. Net earnings improved drastically, which was majority of focus or a result of currency effects. So we had SEK 55.3 million in cash by the end of the quarter, and then we have a credit facility of an additional SEK 42.5 million. So I think we're well funded for our venture. And to comment on the credit facility, this was something we announced in conjunction with our Q4 report, but just to iterate it again, we had a group of key shareholders and a bank, DBT, which is part of NOBA Bank Group, that provided us with a credit facility of SEK 50 million. This is to be used for working capital purposes to give us the flexibility to grow very fast. And there are no warrants, no dilutive instruments or any other type of special conversion rights. We have called for SEK 7.5 million of this, and that was part of a contractual obligation as part of the credit facility from DBT Group. If we look at our shareholder base, if we look at the kind of the top 10, it hasn't changed very much. There are some small changes, but the top 5 shareholders remain very strong and intact. We have 3,600 shareholders. There has been some good trading volumes. So definitely has been shares trading hands. I don't have the specifics of who's been buying or selling at this point. Okay. So a little bit back on the goals and where are we. As I've said so many times before, we're on a mission here to radically build and create the undisputed market leader within quantitative neuromuscular monitoring. We're targeting a very big market. There's a lot of hospitals, and there's a lot of operating rooms left to be converted. And the outlook for our business is that we're going to continue to grow in line with what we've done in the past. So if you look at our full year goal, it remains strong and intact despite this little dip in the growth rate of Q1. And we're going to make this happen by continued streamlining and optimizing the gross margin, continuing to scale down on the operating expense level and continue to grow our recurring base of revenues. So just a minute on what is it we do again. So remember, we have developed -- we're the first in the world to have pioneered a technology, make it available in operating rooms to make sure that people are intubated at the right time, that they get the right amount of these paralytic drugs and the reversals of them, and that they are extubated at the right time. Sophisticated technology. We have over 109 patents now, 40 years of research behind this, but a very smart real-time technology to assess and monitor the level of paralysis in the patient. And this is specifically important in operating rooms where, for example, you're doing robotic surgery. This is just an example picture from a Swedish hospital, a good customer of ours. But what's been seen in published research, if you use the type of technology we have, you can eliminate complications related to these dangerous drugs. And you can actually reduce the amount of these drugs by 70%. So you're not only saving the patient, but you're saving the hospital a lot of money on this. So to wrap up on the key takeaways. I mean, we are in a hyper growth journey. We've had a CAGR of almost 60% over the last 5 years. Yes, Q1 stuck out a little bit, but that curve is going to continue. Operating expenses and margins, we are improving. We're on the path to profitability. There is a strong demand for our products out there. The pipeline is strong. We have a lot going on and I think will materialize, and I'll come back to that. And again, the guidelines are there, the science is there, and the clinical need is there. And we have the people, we have the technology, and we have the funding to make it happen. So join us on our mission as we safeguard every patient's journey from anesthesia to recovery. Thank you. Gustaf Meyer: Perfect. Thank you very much for the presentation. Philip Siberg: Thank you. Gustaf Meyer: So we have received some questions, and I'll also have some questions by myself. First, maybe we can focus on the sales. Came in a bit lower than expected. You also stated that this is mainly due to FX, also a softer U.S. market. You also believe that this is temporary. What kind of arguments do you have for that statement? Philip Siberg: Yes. I mean, like I said, it was an outlier, a little bit of kind of a onetime quarter. I think we saw that so many of these opportunities have been working on for a long time. Just had a difficulty. I mean there's these budget processes, the year starts, and it was difficult this year to really get it to close as fast as we were hoping. So we just saw a general -- specifically in the U.S., that is like 60%, 70% of our business, which is pushed forward. And it was difficult to put a very, very sharp kind of excuse on it, but just hearing like, okay, macro level, we're a little bit concerned about what's going to happen in inflation rates in the U.S., et cetera. So it just kind of gently pushed. And I think we caught up a little bit here and some of the things that happened early April. And I feel that the market is kind of waking up. And I've noticed some industry colleagues and peers seeing similar types of -- a little bit of a whirlwind in the U.S. market in Q1. Gustaf Meyer: Because also, if we look at your press releases during Q2, it has been a better order flow. However, of course, you do not press release all of your orders. Philip Siberg: No, we don't. Gustaf Meyer: But you would say that, in general, it looks much better during Q2? Philip Siberg: I mean, so far, so good. We're just 3 weeks into April, but I feel more confident now than I did a couple of weeks ago. And I feel a different tonality, so definitely. Gustaf Meyer: Perfect. I was actually a bit surprised about the sensor sales during the quarter, because if you look at your installed base, it continues to increase. And I expect the sensor sales to increase quarter-by-quarter. What is the reason behind that? Is that delayed orders as well? Philip Siberg: Yes. I mean there's always a little bit of fluctuations between months. And some sensor orders came in on the 30th of December and then it kind of stocked up. So I think I don't see any -- there's no kind of worrying trends or differences. It just kind of comes and goes with a little bit of ordering patterns. But perhaps what I noted a little bit -- I was looking at the same thing, why it's a little bit -- it's just -- I mean, we had a number of big hospital opportunities and wins that we did last year. And it's just taking time for things to materialize. And for example, we were awarded this big NHS contract in the U.K. in December, and the hospital is still working to get everything installed and getting it planned as part of their operations. So we're a little bit tied in the hands behind the big hospital systems. Gustaf Meyer: And what about the rest of the world markets? It was also a little bit of a setback there as well. Philip Siberg: Yes. So if we start way to the East, so Japan, we announced in December that they got the regulatory approval for a new system. They started rolling it out early January. They've secured -- so we had a pretty good kind of volume shipment to them in December. They've now started to win deals. So they're on good progression. Japan is going to do the big kind of major launch in May in the Japanese market. South Korea keeps doing well. We're still struggling with the regulatory approval. It takes time in South Korea. So a couple of months left, I believe. And South Korea is on a good trajectory. It was just a little bit of phase between the quarters in terms of sensor shipments. So nothing really that stood out in any way. But South Korea is a little bit awaiting the new TetraGraph to be approved. Gustaf Meyer: But do you still expect a little bit of a bounce back? Philip Siberg: I do. I do. Yes. And I have -- I mean, in Asia, I have 2 very strong partners. They give me very clear, like accurate pipelines. So I feel more confident working with them. Gustaf Meyer: Perfect. Also, I received a question from an investor. You write that no deals have been lost and that several purchases were postponed into Q2. How much of these delayed deals have already materialized or been confirmed after the end of the quarter? Philip Siberg: Yes. I mean, good question. And the deals typically, specifically in the U.S., are always -- the larger ones are competitive in some way. So the hospitals invite 2 or 3 of us in the industry, they evaluate it and they test it. And so we always try to understand like did we win this competitive deal or not. And we continue to have very strong win rate when there's a competitive deal. Then there might be deals happening outside that we know of, of course, but others are winning. But as I noted, we've seen that a number of these deals, we typically get a verbal acceptance afterwards. They say, okay, we've chosen your system, there's been a vote, we like it, and now it goes to contracting purchasing. And that's the process that sometimes takes time, because you end up in a big bunch of contracts and sometimes it takes a week and sometimes it takes 9 months. But overall, some of these things that we knew about came in now and they keep on coming in. Yes. Gustaf Meyer: Perfect. Let's leave the sales for now and focus on the costs, because I also received a few questions about the cost development. OpEx during this quarter came in at SEK 35.6 million. It's a little bit of a decrease. What kind of level should we expect in the upcoming quarters? Philip Siberg: I mean, we're going to continue on that type of a level that we are now, potentially even a little bit lower. I mean, we've invested heavily in bringing out a new technology to market. But I think the larger we get, the bigger scale and the leverage we have. So as we're now inside IDNs, we're inside hospital systems, the cost of sales will reduce over time, because we can automatically get scale effects from where we are. And we've done a lot -- a lot of groundwork has been done. So that's why I keep on saying, we're foreseeing that we can keep this level potentially even a little bit lower, just being a lot more effective and a lot of the work done, so now it's just about execution. Gustaf Meyer: So when you also say that maybe OpEx can even go down a bit, is that mainly, if we talk about the specific line item, is it selling expenses and so on? Philip Siberg: Just always being super cost conscious and keeping everything under control. Gustaf Meyer: Yes. Also, if we talk about -- you changed your business model a bit when you're now offering the TetraGraph for free. So my question is, what has the market response been? Philip Siberg: Yes. We don't offer it for free. We offer it as a service. Gustaf Meyer: Yes. Philip Siberg: So I think the response has been very positive, because even the hospitals know that contracting purposes or process can take over 2 years. So by doing this, by coming in, it just changes the opportunity to be more a standard operational. And the deals that we announced were closed in just a couple of months. So it's a different shift. And I mean, some big hospital systems, they want to own the capital. They have the funding and that's part of their business. But many are used to this kind of just a service process. We take care of it. And we can control it. And if they don't deliver on the volumes that we want them to, we simply take them back and we move into the next hospital. So it's a flexibility for us. But again, the value is here in the premium price that we get on the sensors. And then we do a lot of other kind of compliance requirements in terms of training and other things that they should do. So I believe this -- I will come back in the next quarter to show that this is actually going to drive up utilization. Gustaf Meyer: But if you look at the number of monitors that were delivered during this quarter, it was 367 sic [ 376 ], if I'm correct. And was it around 250 in the U.S... Philip Siberg: Something like that. Yes. Gustaf Meyer: And 120 of them were as a service. Philip Siberg: Yes. Gustaf Meyer: Do you expect it to be like 50-50 between the... Philip Siberg: Roughly, probably a little bit lower on the service side, but somewhere around there. Gustaf Meyer: Yes. Great. Also, another investor wanted to know more about TetraCom. Also about that. Maybe you can -- what has the... Philip Siberg: Yes. I mean, as I presented it -- I mean, it's a platform technology offering connectivity of our systems directly into electronic health records. And when you sell this, you typically sell it under the IT budget. So the IT budgets, if I generalize them, there is a little bit more elasticity there, there's a little bit more funds available. They understand the cost. So by doing this, we can add a cost. We sell the TetraCom at a specific price point. And then we also charge for an annual service fee for this. So we kind of introduce both. We upscale the TetraGraph hardware device, but also get even more kind of recurring revenues on it. And then there's some other benefits to this is that we can actually pull out the data as well. We can use the data for continued product development, research purposes, and can help the customers to summarize the data and kind of AI-generated reports to see how are they doing, how are they progressing to guidelines and to best practices, et cetera. So there's a number of benefits. Gustaf Meyer: But it's always -- sometimes the rollout, it always takes some time and so... Philip Siberg: It does take some time. We're just about to wrap up the first big installation with the TetraCom. Gustaf Meyer: Okay. But when do you expect that we can see significant numbers in quarterly reports? Philip Siberg: I think, later this year. Gustaf Meyer: And you will disclose it separately or... Philip Siberg: I will try to, yes, hopefully. Gustaf Meyer: Great. Also, I wanted to talk to you about the contract that you signed with this major IDN in the U.S. So maybe you can just talk more about that, because it's a huge potential. Philip Siberg: It is. Yes, definitely. I mean, again, IDNs control a large part of U.S. health care. It's like big clusters of hospital systems. Some of the bigger ones have up towards 150 to 200 hospitals. So there's strong powerful kind of mechanisms. And getting in there, the benefit of them is that you can ultimately get centralized contracts, but it's a long path. And you need to work your way [ underwards ] and you need to win hospitals and then get key opinion leaders who drive and mandate for your technology and then get them to ultimately convince the C-suite on top. And we've been working on this big kind of umbrella IDN for a long time, and we've now made our way into different corners of this IDN, and we identified the champion who is driving this internally. So why I wanted to make a news announcement about it is just because I think there is an apparent opportunity to grow this and become kind of a centralized vendor within the IDN system. So that was one important. I mean the other one that we announced last week was also interesting because there, we're already in, and it shows just how we can expand within an IDN once you're in. Sales process is faster. It's already validated. And again, I can grow the business with limited expenses, because I'm already in the system. Gustaf Meyer: But what's the probability -- if I talk about the first IDNs, up to 150 or more than 150 hospitals, what is the probability that you will, let's say, a couple of years or a few years that you will have TetraGraph monitors on each of these hospitals? Philip Siberg: I think it's unlikely that we'll have it in 150 hospitals. But I think there's an opportunity to become a big supplier to the whole of the system, definitely. And as guidelines increase kind of the requirement of them, I think, yes, there is ultimately an opportunity to have it. I just want to be moderately careful in my expectations. Gustaf Meyer: Okay. Great. I'll turn to the next question actually about the U.S. market, about your whole addressable market. How much would you see that you are penetrating at the moment? Philip Siberg: We're just skimming the ocean here. Like I said in the presentation, we have about 250 hospitals as customers. The U.S. has roughly 5,500 hospitals. On top of that, you have a number of ambulatory surgery centers. So there's a lot left to be done. And the driving force is, again, references, the products, the guidelines. And one thing that stood out that I'm starting to hear, there's more and more legal lawsuits going on in the U.S. market, where hospitals have not had adequate monitoring, patients have had complications, and they're now saying that, okay, well, we need to have this type of technology, because we're not guidelines compliant. So that will ultimately help to drive our business and accelerate it. Gustaf Meyer: Great. And also, what would you say is the -- when you have these dialogues with hospitals, of course, you have a high win rate, but what are the biggest reasons why hospitals do not want to adopt TetraGraph? Philip Siberg: I've always said that the worst competitor I have is kind of the anesthesiologist who's been doing one way for 40 years and doesn't want to change. Gustaf Meyer: But now you have the guidelines. Philip Siberg: Yes, yes. So I mean, we have a target to have 80% compliance. That's what we see. And some of our best customers are up towards 90% compliance, but you will never get 100% compliance of any technology in a hospital despite guidelines or standard of care. There's always going to be discrepancy. So it's just hard work time and then getting -- we're trying to help every single hospital to adopt kind of protocolization and make it standard of care, so you get to that 80% to 90% compliance rate. Gustaf Meyer: Perfect. But if we look into the rest of this year, and maybe except the U.S., what other markets would you say will be extra interesting to follow in this year? Philip Siberg: I mean, we've always kind of tried to keep it focused on a couple of Asian countries, Europe and the U.S. We have some interesting outlier markets that are popping up. I mentioned last year, we got approval in Mexico, for example. We've had some notable deals won during the first 4 months here in Mexico. So that's an interesting market. Mexico kind of resembles a lot about U.S. Recently, we had market approval in Saudi and a couple of Middle Eastern countries. I think Saudi is a very interesting market. And I think that's going to be our major markets in the future. It's just a little bit disrupted down there right now, so it's delayed some of the things. But we have a great partner. They are working on getting the kind of local buy-in. So I think we're going to have traction in there. And then we continue to expand very carefully, very sharply without more expenses, but we got approval in Vietnam. We got approval in Taiwan. So we're expanding carefully with partners. Gustaf Meyer: Yes. Also, you stated in the report that you continue to have the objective to become cash flow positive at the end of this year. Looking into this quarter, a little bit of a setback, you expect a bounce back in upcoming quarters, also cost to maybe be flat or even decrease a bit. But how confident are you that you will be cash flow positive in Q4? Philip Siberg: Yes. So a number of things need to happen. One, we need to keep on growing. We have a strong pipeline, specifically U.S. market, but also together with our partners. So we need to continue to leverage on that. We need to see that the recurring revenues -- remember, the sensors are recurring revenues. And they were, what, 70%, 74% of the business. So that keeps growing up. The gross margin, I've talked a lot about before, it will continue to grow. There are some volume things happening here. We kind of celebrated this 1 million mark, and that triggered kind of a volume price component to it. So the gross margin has all the prerequisites to really increase. And we'll see about the tariffs. We just started the project yesterday. I was trying to get back. We have paid about roughly SEK 5 million in tariffs to the U.S. It would be fantastic if we get that money back. It's going to probably -- we're probably going to get a little bit back, I believe, now hearing, but it's going to take time. And then the third part is strict cost control. So these 3 things, plus working with working capital, getting paid faster and then being optimal there, all those stars aligned together, I still believe strongly that we have the opportunity to get to these goals. Gustaf Meyer: And as you mentioned, the gross margin, if we look at your numbers in the presentation, it was at minus 4.4% in currency effect. Do you have any plans for any actions to maybe reduce that? Because it's always difficult FX. Philip Siberg: Definitely. I mean, we increased the prices in the U.S. I'm seeing -- there was about 5% increase now that I saw on the average sales price. So it's started to kick in. I think we're trying to always get a higher price point, and we're building into every single contract that we are independent of tariffs, et cetera, that, that will -- so we've backed off to do kind of currency hedging, because there's always -- it's a lottery here, which way it will go, we do not know. And for now, we're just trying to stabilize the cost. Gustaf Meyer: And also your other, not objective, maybe it's more of a guidance that you have a sales growth in 2026 in line with previous years. Are you still that confident of that one? Philip Siberg: I am. And that's why I reiterated that the long-term targets remain intact, yes. We set up -- I mean, we haven't guided anyway this year in terms of quarter. We set a goal for the year, and we said that we want to continue to grow in the same pace as before. And that means in absolute terms to grow in the same kind of base that we have. And again, we do it by recurring base of business, winning new deals and getting more recurring on that one. And the further we progress as a company, the bigger the base is, and we're just -- we're getting scale. That's really the message here. Gustaf Meyer: And what about the cash situation? Yes, do you believe that it will be sufficient to... Philip Siberg: Yes. I mean, we were clear in the report and the annual report. I mean, we have the funds needed to do this. If we, for some reason, foresee that we need to accelerate things again or do differently, then things can change. But I have the support from strong shareholders. We did the credit line to have like a backup, and we're not foreseeing any low-priced rights issues or anything like that to happen. Gustaf Meyer: Perfect. Just one last question before we end. Or is there anything else that you would like to highlight? Philip Siberg: No, I'm just -- I mean, I wasn't -- when you're on a growth journey like we are, I've tried to kind of raise a warning signal in the past. Some quarters will have a little bit of a dip. You can't have -- but I've had the fortune to, every single quarter, quarter after quarter the last 3 years, always have a fantastic growth. So it hurts, and I'm annoyed when the growth curve takes a dip, but it just creates more energy and more confidence. We're going to get back. It's just about grit and delivery. Gustaf Meyer: Yes. I hope that we see a really good bounce back in Q2. Thank you very much. Thank you for being here. Philip Siberg: Thanks.