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Operator: Hello, and welcome to the Royal Vopak First Quarter 2026 Results Update. [Operator Instructions] This call is being recorded. I'm pleased to present, Fatjona Topciu, Head of Investor Relations. Please go ahead with your meeting. Fatjona Topciu: Good morning, everyone, and welcome to our Q1 2026 Results Analyst Call. My name is Fatjona Topciu, Head of IR. Our CEO, Dick Richelle; and CFO, Michiel Gilsing, will guide you through our latest results. We will refer to the Q1 2026 analyst presentation, which you can follow on screen and download from our website. After the presentation, we will have the opportunity for Q&A. A replay of the webcast will be made available on our website as well. Before we start, I would like to refer you to the disclaimer content of the forward-looking statements, which you are familiar with. I would like to remind you that we may make forward-looking statements during the presentation, which involve certain risks and uncertainties. Accordingly, this is applicable to the entire call, including the answers provided to questions during the Q&A. And with that, I would like to hand over the call to Dick. D.J.M. Richelle: Thank you very much, Fatjona, and good morning to all of you joining us in the call this morning. I would like to start with the key highlights of the year so far. We've had a strong start of the year, where we saw a healthy demand for our services, which is reflected by our continuously high occupancy rate of 91%. Our financial performance remains strong. Proportional EBITDA grew by 4.1% compared to Q1 2025, and that is the result adjusted for negative currency translation and divestment impact. Importantly, we were able to convert 76% of this EBITDA into operating free cash flow, resulting in an operating cash return of 16.6%. We also made good progress on executing our growth strategy. In West Canada, the construction of our REEF LPG project export terminal is progressing well. And in the Netherlands, approximately 90% of the 4th tank construction at Gate terminal has been completed. The project is on track to be commissioned within budget and on time at the end of Q3 2026. In addition, we took an investment decision in the Netherlands to repurpose capacity at our Europoort terminal for the storage of pyrolysis oil and another FID in Spain to expand the capacity in Tarragona. Finally, despite the increased volatility in the market related to the Middle East conflict, we are confirming our full year 2026 outlook, subject to ongoing market uncertainties and currency exchange movements. As per our current assessment, we anticipate the financial impact of the ongoing conflict will be absorbed by our strong underlying business performance and is within the range of our full year 2026 outlook. However, we do see that the uncertainty has increased, which is what I will talk about in more detail in the following slides. First, look at the market dynamics. Before diving into the results, I'd like to provide some context on the conflict in the Middle East. It has caused a historic supply side shock across global energy and manufacturing markets. This presents a major challenge for some of our customers. Broadly speaking, supply-side substitution has not been sufficient to offset the loss of physical products normally sourced from the Gulf countries. This has triggered significant commodity price volatility and forced a redirection of energy flows, domestic and -- towards domestic and transportation sectors, further impacting industrial demand. As a result, we see cautious customer sentiment and increased uncertainty. Let's take a closer look at how this impacts our business, starting off with our exposure to the region. We own and operate 4 storage terminals across the Middle East, with strategic locations in Saudi Arabia and the United Arab Emirates. In terms of financial exposure, around 5% of our proportional EBITDA is generated by these terminals, and they represent around 4% of our capital employed. Our terminals in Saudi Arabia are linked to industrial clusters, while our Fujairah terminal in the Emirates located outside the Strait of Hormuz, functions as an oil hub. The conflict has had severe impact on the industrial activity in the Gulf countries because of physical damage to the production facility and production halts. As a result of the closure of the Strait of Hormuz, Fujairah, despite its strategic location, faces reduced product flows. In terms of indirect exposure, to substitute for the loss of product volume from the Middle East, we see a rebalancing of trade routes emerging. While our infrastructure facilities facilitate the rebalancing of global trade flows, throughput levels are impacted by reduced products in the market. We do see that this presents a major challenge for some of our customers impacting their business continuity. While with our well-diversified portfolio of terminals, we've proven to be resilient against geopolitical tensions as well as energy market volatility and disruptions in the past. Our diversification is a structural strength, allowing our network to serve the evolving supply chain and energy security needs of our customers and partners. In addition, with the shift of our portfolio towards gas and industrial terminals, the duration of our contracts has increased significantly, reducing our exposure to short-term volatility. However, we are resilient, but we're not immune. The conflict in the Middle East introduces variables from shifts in global trade routes to heightened security risks and regional price shocks that we are not insulated from. We continue to monitor these developments to protect our operations and our customers' interest. Now let's take a closer look at our results for the different terminal types we operate. We see an overall strong performance with higher results compared to Q1 of last year when adjusting for the impact of currency translation and divestments. It's important to highlight that Q1 results had limited impact from the Middle East conflict. We saw a strong performance of our chemicals and oil terminals, which was primarily driven by increased throughput combined with strong contribution from growth projects. Our industrial terminals performed broadly stable year-on-year. However, due to the contribution of growth projects, we saw a slight increase compared to Q1 2025. For our gas terminals, we saw a slight decline year-over-year, which is primarily related to disruptive gas supply from the Middle East conflict. All in all, this has led to a proportional EBITDA of EUR 295 million and a strong operating cash return of 16.6%. Notwithstanding the volatility and uncertainty on the market during Q1, we continued to execute on our growth strategy. In the United States, at our Deer Park terminal, we commissioned repurposed capacity for biofuels. And in Spain, our Terquimsa joint venture with FID to expand its capacity to address market needs as well as further solidify its leadership position. Last but not least, we've taken a final investment decision to repurpose capacity at our Europoort terminal in the Netherlands for the storage of pyrolysis oil. This is an important step in our continued commitment to the energy transition and is strengthening and further integrating our industrial partnership at the Europoort. Since 2022, we've committed around EUR 1.9 billion to grow our base in gas and industrial terminals and to accelerate the energy transition. Around EUR 650 million of this is already commissioned and is contributing to the financial results. Around EUR 1.3 billion is still under construction. We expect to commission around EUR 775 million near year-end related to mainly Gate, the 4th tank and the LPG export terminal in Canada. In the period 2027, 2028, we expect to commission around EUR 325 million and around EUR 175 million in 2029 and beyond. This is based on the FIDs that we've taken so far. The already commissioned growth projects as well as the growth CapEx under construction will further reinforce our long-term stable return profile and diversify our revenues. Looking ahead, we remain well positioned to achieve our long-term ambitions. We've shown strong business performance in recent years and the market indicators for storage demand remain firm, supporting the delivery of growth projects and the resilient performance of our existing business. This is reflected in our long-term ambition. We have an operating cash return ambition for an annual range of between 13% to 17% and are well on track to invest EUR 4 billion growth CapEx through 2030. Also, as announced during our full year 2025 results, we are distributing around EUR 1.7 billion to our shareholders through year-end 2030 via a progressive dividend and a multiyear share buyback program. With that, I'd like to hand it over to Michiel to give more details on the Q1 2026 results. Michiel Gilsing: Thank you, Dick, and also from my side, good morning to all of you. As Dick mentioned already, we have had a very strong start of the year. We reported a healthy occupancy rate, increased our EBITDA and further improved our free cash flow generation. These results highlight the strength of our well-diversified portfolio, particularly in times of increased uncertainty and volatility. Simultaneously, we continue to invest in attractive and accretive growth projects while returning value to our shareholders. Let's take a closer look at the performance of the portfolio. Our operating cash return was broadly stable at 16.6%, compared to the 16.8% in Q1 2025, driven primarily by the negative effect of currency translation in our free cash flow. On an autonomous basis, excluding currency and divestments, our proportional operating free cash flow per share increased 7.1% versus Q1 2025. Demand for our services remained healthy, reflected in a proportional occupancy rate of 91%. Adjusted for currency movements and divestments, proportional EBITDA increased by 4.2% which we will detail further in the next slide. Moving on to our business unit performance overview. Excluding negative currency exchange effects of EUR 15 million and EUR 2 million divestment impact, our proportional EBITDA increased by 4.2% compared to Q1 2025. A large part of this growth can be explained by the strong EBITDA contribution of EUR 9 million from our growth projects, particularly in the U.S. and India. The performance across the network was relatively stable as regional headwinds are balanced by robust activities at our major oil hubs in the Netherlands and Singapore. We are continuously focused on generating predictable growing cash flows to create value for our shareholders. Compared to Q1 2025, we have seen our proportional operating free cash flow grow by 7.1%, adjusted for currency translation and divestment impact. This is primarily driven by the autonomous improvement of our proportional EBITDA and the reduced share count following our share buyback programs. Moving from the cash flows to our financial position. Our proportional leverage, which reflects the economic share of our joint venture debt remained stable at 2.6x. If we exclude the impact of assets under construction, which do not contribute yet to the EBITDA, the proportional leverage is at 1.99x, which is the lowest level in over 5 years. Our ambition for the proportional leverage range is between 2.5 and 3x. To facilitate the development of growth opportunities that enhance our operating cash return, Vopak's proportional leverage may temporarily fluctuate between 3 and 3.5 during the construction period, which can last 2 to 3 years. This is all in line with our disciplined capital allocation framework. Our capital allocation framework consists of 4 distinct pillars aiming to maintain a robust balance sheet, distribute value to shareholders, invest in attractive growth projects and yearly evaluate the share buyback program. As announced during our full year results, we are distributing around EUR 1.7 billion to our shareholders through year-end 2030 via a progressive dividend and a multiyear share buyback program. In addition, we have the ambition to invest EUR 4 billion on a proportional basis by 2030 to grow our base in gas and industrial terminals and to accelerate towards energy transition infrastructure. That brings me to the outlook for full year 2026. As mentioned by Dick, the market indicators for storage demand remain firm, supporting the delivery of growth projects and the resilient performance of our existing business. However, we do acknowledge that the market has become significantly more volatile following the conflict in the Middle East. For now, we expect that the financial impact of the ongoing situation is absorbed by our strong underlying business performance and growth project contribution. This gives us the confidence to reaffirm our full year 2026 outlook with the proportional operating free cash flow projected at around EUR 800 million and a proportional EBITDA expected to range between EUR 1.15 billion and EUR 1.2 billion. Bringing it all together in this slide, we are off to a strong start of the year with solid cash generation. Our portfolio remains well positioned to cater for increased volatility in the market. And last but not least, we continue investing in attractive growth opportunities while returning value to our shareholders. And with that, I hand over back to you, Dick. D.J.M. Richelle: Thank you, Michiel. And with that, I'd like to ask the operator to please open the line for questions and answers. Operator: [Operator Instructions] And now we're going to take our first question, and that question comes from the line of Kristof Samoy from KBC Securities. Kristof Samoy: First of all, congratulations with the results. I have 2 questions to start with. If we look at the ongoing conflict in the Middle East, there are, let's say, 2 factors at play there, which impact your business. First of all, positively, you have the rush for energy molecules, so energy security. On the other hand, you have uncertainty, which impacts the FID process that you are undergoing for certain projects. So my first question would be, how is the process looking for Australia right now? Has FID become less likely? Or although more likely given the fact that Australia can simply import oil from its own -- from another region in their country. And secondly, if you could comment on EemsEnergyTerminal and the potential extension there because we have seen the news that Exmar is progressing with the vessel conversion. And then the second question, we know that throughput rather than guaranteed offtake is more of a key driver for revenues in India. If we look at the drop in proportional occupancy rates in the Middle East and India, could we say that this drop is still mainly linked to the Middle East and that the drop linked to throughput in India has yet to be reflected in the numbers? D.J.M. Richelle: Kristof, thanks for the questions. Yes, maybe on your first question related to Australia and EET and then specifically on the timing of them, I think for Australia LNG project, the way we would look at it is and what we can see at this point in time, the need for that project is set by the local Victoria state for gas, and that's just for electricity generation. So that is a need that is almost independent of what happens in the rest of the world. They have a very strong need to find substitution for current gas supply offshore that is depleting. So there's no indication at this point in time that there is a fundamental change in -- that there is a fundamental change in the time line of that project. So we still expect to get back with more information towards the end of this year. I think that's around VVET. So that's the Australia energy project and maybe to EET. So EemsEnergy, the extension over there process is still ongoing. Yes, we've seen Exmar making the announcement. We are not there yet to make any announcement. As you know, we run an open season on the recontracting of the capacity post the end of the current contract by fourth quarter next year. And that is a moment that we are still working through or a process that we are still working through. And once we have news to share, we will come back to the market and share that. I think then maybe to the lower occupancy rate, it has more to do with the fact that the Fujairah capacity in the first quarter was lower in terms of also out-of-service capacity. Then had a direct impact of what's happening in India. I think still, if you look at Q1, it's a bit early to see the effect of any of the disruptions from the Middle East directly in our business in India. But indeed, the flows of LPG that flow to India have a lot to do with the source of origin, and that's the Middle East. Kristof Samoy: Okay. But for EemsEnergy, you do not experience a change of attitude with your partners in terms of the run-up to the FID being taken given everything that's going on in the Middle East. D.J.M. Richelle: No, I think many parties take for processing like this, a long-term approach. They know that the capacity is available in 2028. As you know, a lot of the flow that was coming from Qatar is taken out. That has a massive impact, but it is also expected to have a massive impact for, as they call it, a bit of extra supply that was expected to come in towards the end of this decade. So you could almost argue that with all the repair and restoration that is going on, it pushes out that supply -- extra supply a little bit further out in time, and it doesn't necessarily have an immediate impact on, for instance, product that needs to leave the U.S. and needs to find a home in Europe. So I think it's a bit of a long answer to say, for now, we do not see a material different approach of potential customers towards EemsEnergy. Operator: Now we're going to take our next question. And the question comes from the line of Thijs Berkelder from ODDO. Thijs Berkelder: Congrats with the strong Q1 performance, especially in chemicals. Can you maybe further explain why chemicals was so strong? And related to that, can you explain what you now see happening in your Deer Park and European chemical operations given recent Middle East events? Second question relates to the strong performance in Rest of World. Can you explain where that is coming from? D.J.M. Richelle: Thanks for that. I think on the Chemical side, I would say, overall, Deer Park has done quite well in the first quarter, and the same goes for Vlaardingen specifically that actually participated and contributed quite strongly to the results in the first quarter. When it gets to the conflict and the impact of chemicals as such for our network, I think Deer Park, although we do not see it yet fundamentally, but Deer Park or the U.S. in general, you would expect that they will benefit a bit from the fact that the U.S. as a chemical producer has quite a competitive -- a strong competitive position in the current global landscape. So we expect that, that will result in at least continued healthy demand for our services, especially Deer Park. I think that's one. So I would say strong performance there. I would say if you change that to Europe, particularly, I would say, Belgium, it's still hard to see, but quite a lot of the flows that are moving into Belgium are flows that come from the Middle East. It's a very strong market for Middle Eastern producers to sell product in Europe. That is subject to the disruptions as a result of the conflict. And what you see over there is, obviously, there's a lot of people that are trying to take positions, traders that try to take positions in that market to try to supply the demand for the end product that continues to be there. So it remains to be seen how that effect is going to balance out. Too early to tell in that sense for Belgium. If you look at it overall for the rest of the portfolio, I think what we said, it's still healthy demand on the main oil hubs, in the first quarter, Singapore Strait, strong, Rotterdam, high occupancy, high activity, so pretty strong over there and fuel distribution, quite healthy across the board in the first quarter. So I think we are pleased if we look back at the first quarter. And I think as we said, the outlook for the rest of the year given everything that's going on is within the range of what we said already in the first -- in February when we announced the 2025 results. Michiel Gilsing: We also had a few growth project contributions in the U.S. and India, which also helped on the Chemical side. So that has led to an increase versus Q4 2025 as well. Thijs Berkelder: Yes. And rest of the world primarily driven by Belgium then? D.J.M. Richelle: Not necessarily. No, not Belgium, I would say. I think if any, Belgium is a bit under pressure first quarter. I think rest of the world, just healthy across the board, not a particular region, I would say that jumps out. As I said, oil stable and relatively strong and just a positive good start of the year. China, quite well. So nothing particular that jumps out, Thijs, in a extreme way. Operator: Now, we're going to take our next question. And the question comes from the line of Philip Ngotho from Kepler Cheuvreux. Philip Ngotho: I have 3 questions, if I may. The first question is on China and North Asia. If I look at the consolidated numbers, I see the occupancy rates. It was already low last year, but it actually dropped further to 55%. So I assume it has to do with the Chinese terminals that are just generating or have low occupancy rate. I was wondering if you could share any -- because in the past, I think you also mentioned that the chemical market in China has been weak, and it seems that occupancy rate continues to drop further there. Do you have any -- what are the projections for those assets there? And could we be thinking of anything if it remains structurally weak to -- that you might take some portfolio actions there? The other thing that I'm wondering about is what portions of earnings is really dependent on throughput levels rather than really take-or-pay contracts? And the last question I have is if a client would declare force majeure and you have a take-or-pay contract with that client or client is impacted by force majeure and with the take-or-pay contract, what happens to that take-or-pay contract? Do you actually -- can you still incur revenues on that? Those are my 3 questions. Michiel Gilsing: Philip, maybe start on the China side. Yes, if you look at the consolidated occupancy, effectively, that's only one terminal. So we have a portfolio of 8 terminals in China. So that doesn't give you a very representative picture of China. Dick already mentioned, the China results were actually quite good and slightly above our own expectations. Indeed, that terminal is the Zhangjiagang terminal, which then has a relatively low occupancy because it's in a very competitive market, and it's one of the distribution terminals. Most of the terminals we have in China are industrial terminals. So basically backed by long-term take-or-pay type of contracts. So you see that the overall portfolio is quite healthy. We don't have any immediate portfolio actions, we're going to take in China. To the contrary, we commissioned last year a new terminal in China. So that is an add-on to our portfolio. We still see quite a few growth opportunities in industrial terminal locations. And overall, the returns in China, if you compare it to the rest of the portfolio is quite healthy, and we're quite capable of distributing our dividends from China back to the Netherlands. So that's maybe on the China side. On the earnings side, yes, there is always a component of throughput income. So even in contracts which -- where people buy, let's say, effectively the capacity, we still have an opportunity that if throughputs are at a higher level than expected that we will charge additionally for excess throughputs. So approximately 10% of the earnings are throughput related in some locations, more throughput related than in others. For example, location like Belgium is much more activity related than in another location. And some of the locations like I just mentioned, some of the industrial or some of the gas contracts are very low in terms of throughput dynamics. So that's maybe only a portion of the earnings, which is throughput related. And Dick, on the first, force majeure? D.J.M. Richelle: Yes. So force majeure, Philip, what we see happening is that some of our customers are declaring force majeure, but they are declaring it in all those cases towards their customers. So an inability sometimes to get product out of a region in order to deliver it to a customer that is further away that is not necessarily related to the type of services that they -- or obligations that they have towards us in the storage contract and arrangements that we have. So we obviously have to follow this case by case and understand very clearly what some of the situations of our customers are in this respect. And as was indicated, I think, in the presentation already before, we need to kind of like be prepared for those discussions because if that customers are under serious stress and under duress, we have to sit down and understand what we can do to support them. But legally speaking, the force majeure, there's very clear guidelines of what and how that applies in the contract obligations and responsibilities between the storage provider and our customers. Philip Ngotho: Okay. Very clear. Just one follow-up. So far, have you had any clients where you already had to sit down and renegotiate terms? Or given that they were just faced with difficulties or challenges? D.J.M. Richelle: It's no comment on that. And the reason for saying it, I don't want to go into individual discussions and official, it's -- I think it's a bit of a gray area where there is -- obviously, there are customers that say we're under a lot of stress, can we talk versus how official that is and how official those negotiations are. I think this is part and partial of what we've seen in previous crises. We are confident that we can manage through that. We're close to our customers and see where and when we can support them while at the same time, respecting and safeguarding the interest of Vopak, which is we made investment in certain infrastructure to support our customers in good times and in bad times. So no details. Operator: Now we'll go and take our next question. And the next question comes from the line of Quirijn Mulder from ING. Quirijn Mulder: On the whole situation in the Middle East. Can you give me an idea about, let me say, the first panic in the first week of March compared to what the situation is now? Are the customers still scrambling for products and has its impact on your throughput in, let me say, mainly in the Far East? So can you give me a view on what's in reality happening and what is -- you take a cautious stance on the second quarter. And it looks like that, okay, the March was not the issue, but maybe April is more an issue than March. Can you give any feeling on what's the current situation for many customers and also the impact on your business? D.J.M. Richelle: Yes. Quirijn, thank you for that question. I think first and foremost, as we already said, key priority for us is to make sure that people are safe and have been safe throughout the course of the conflict. The noncritical staff we leave away from the facility. We take noncritical staff not with a permanent resident in that region, take them out and move them back to their countries of origin. That has all been done. We monitor obviously the situation very closely, purely from a safety and security point of view and do whatever we can to support our partners and our people over there. I think that's in the first -- that's the first instance and first priority. If you look at it, what's happening at the moment, I think a few things to mention here. The amount of information that comes out of the region is limited. That's -- so what the exact damage is outside and far outside of the perimeter of the facilities that we operate is not publicly known, and it's also not always known to us. I think the second element is if you look at it physically what's going on, people would like to remove product in a safe manner, if that's possible as soon as possible in some instances, as we particularly have seen in Fujairah, while at the same time, making sure that now that the cease fire is in place, increased activities are happening to make sure that as much as possible, business continues as possible, as usual, with demand for fuel oil, demand for some of the products that need to be moved in and out, and that is, I wouldn't say all back to normal of how it was before because that would be too strong a statement simply because the product is not always available. The product that comes out of the region is hampered and is limited and restricted. But slowly but surely, as we speak now, things are -- people are trying to get back to normal and resume as much as possible, normal operations with a cautious view and a clear view on the uncertainty that's happening in the region, as you can imagine. Quirijn Mulder: Yes. And that's in the region, but there's a ripple effect, let me say, elsewhere in the Far East. So let me say, the situation in Australia and Sydney, et cetera. And let me say, for example, in South Africa, as you mentioned, in Pakistan. Is there anything you can update us on that -- on the development there? D.J.M. Richelle: Yes. So we continue -- what you see, Quirijn, is that things literally move quite volatile and hectically kind of like almost from week to week. So let's take South Africa, maybe as an example, dependent very much on imports from the Middle East. So in the first weeks of the conflict, you see product on the water still finding a home in South Africa. So first 2 weeks, it was almost business as usual. Then you have a period where there's no new supply coming simply because the supply was choked coming out of the Middle East. So then there's actually a bit of panic in the local market, what's happening and how can we supply new product. And then after a week, 2 weeks, you see that there's alternative supply coming into the market from different parts of the world. And for instance, West Africa is then becoming one of the suppliers of South Africa, which is then supporting. Over time, it obviously needs to work out what it does to total volumes once things start to settle down. But the challenge is it's never clear of when things really start to settle down. And I think that's what we are working through. So it's -- I think that's the best way to characterize it. And I realize you maybe want to have maybe sustainable longer-term view of where this is trending to. That's simply too hard to say at this point in time, and we continue to support where possible. And I think if I can take it one notch up, the general confidence that we have in the fact that we operate these critical assets at strategic locations that support the primary needs in local economies continues to give us a lot of confidence on the medium- to longer-term outlook for our network, but we have to navigate through the current circumstances. Quirijn Mulder: But I understand, let me say, if I look at the second quarter and especially in the month of April, then thus far -- okay, there's a lot of uncertainty, but it's not very concrete impact there, if I understand. There's not that you see, let me say, really impact from, let me say, the business happening on your -- the business happening on your business, in fact. Is that correct? D.J.M. Richelle: I think it's -- what we are saying is that with a lot of uncertainty and volatility in the market, we are certainly not immune for the supply shocks that are currently happening, Quirijn. This is not a relative easy exercise between brackets, easy exercise of rebalancing the remainder of the flows to the world. There's simply also a shortage of product in some regions, and that will have effect on the flows that are coming through some of our terminals, while at the same time, there's, in some instances, a rush for a particular storage position for a particular product because product is trapped and you need to find an intermediate source of storage. So I think it's too early still to tell. We haven't closed April yet. It's way too early to tell what the impact then will be. The assessment that we made is the assessment for the full year 2026, which is reflected in our outlook. And there, we think that we are capable of absorbing the negative impact of the conflict in the outlook that we've already presented. Michiel Gilsing: Yes. Because on outlook -- you may assume on the outlook that obviously -- well, the first quarter was relatively strong. So if you compare it to the outlook we have given, it's at the higher end of the outlook, if you would have 4 of these quarters, but then we still have some growth coming on stream and some positive currency exchange compared to Q1. So yes -- and that will compensate for the potential impact of the conflict, what we feel could be the potential impact of the conflict today because it's very hard to make an assessment. We don't know, let's say, how long this is going to last, how severe this is going to be. But we feel that where we are today and what we know today, that those compensating factors are sufficient to absorb, let's say, the impact of the Middle East. Operator: Now we're going to take our next question. And the question comes from the line of David Kerstens from Jefferies. David Kerstens: I have 2 questions also about the conflict in the Middle East. And maybe specifically on Fujairah, can you give an indication how occupancy trended in the month of March? And given that this is a hub location, do you see any impact from reduced product flows in Fujairah elsewhere, for example, going to Asia into Singapore, will there be a knock-on effect on occupancy levels there as well? And Dick, I heard you say you will see global trade flows rebalancing, I think in response to the former question, you talked about new supply coming out of West Africa. And also, you have a very well-balanced portfolio. Does that mean that you also see terminals that are seeing positive effects from the current conflict in the Middle East? D.J.M. Richelle: Yes. So I think individual occupancy level for particular months, let's refrain a little bit from that or we want to refrain from that. I think VHFL, as we said, total occupancy has gone down quite a bit in -- towards the end of the first quarter. And we see that around 8% of that capacity in Fujairah is out of service simply as a result of some of the damage that we've seen in Fujairah. So that is something that we have to repair and get back into service. The impact that, that has for the rest of the network, it's not necessarily that the immediate flows from Fujairah are moving to all other terminals throughout the network. So I think Singapore has its own dynamic, and it is impacted by the fact that there's products not flowing from the Middle East to Singapore, but that has different sources than to potentially repair that with. And we haven't seen up until now a big impact in, for instance, Singapore for the demand for oil storage. If there are positive elements in the outlook for some of our terminals, I think we mentioned already the effect in Deer Park. We see increased -- quite some increased activity in the Europoort as well. But I think you have to also understand this particular case, it's very relatively straightforward sometimes to assess what is not going well and what the direct impact is, it will take time for us to assess where we see some of the upsides coming from. I think it's simply also harder to predict that at this point in time. Operator: Now we'll go and take our next question. And the question comes from the line of Jeremy Kincaid from Van Lanschot Kempen. Jeremy Kincaid: I just have one question on your guidance. You obviously reconfirmed it today. But within that, there was -- it seems like there's some positives and negatives. On the negative side, clearly, there's the disruption from Strait of Hormuz. But on the positive side, you talked to FX. And I think the other key thing was some growth projects coming in. I assume this doesn't refer to the Europoort terminal or the Spanish development that you're working on because those seem to be -- will be operational in 2027. So can you just talk to what those growth projects are and what's changed from when you last gave the guidance? Michiel Gilsing: Well, definitely that, in the growth projects are not these projects you mentioned indeed. So the growth project, the major one, which will come on stream this year is tank #4 here of the LNG import facility, the Gate terminal here in Rotterdam. So that is still within budget, but also within its original schedule. So we would be able to commission it on time. That is the latest outlook we can give. So that's going to be the major positive contribution. There's a few other projects, but these are relatively smaller compared to the tank #4. Indeed, foreign exchange is a positive element. And then, effectively, what happened is the underlying business performed a bit better in Q1 than we expected. So as a result, if we wouldn't have had the Middle East impact, then obviously, there was -- there could have been a likelihood to basically adjust the outlook upward. But yes, the Middle East conflict basically brings the outlook to the level we have given to the market for both free cash flow as well as the EBITDA. Free cash flow is still healthy. So if you look at where we were last year and where we anticipate to be this year, we should still be able to report a strong cash flow, and that's obviously the main driver for value creation. So yes, basically, I hope that answers the question, Jeremy. Operator: Dear speakers, there are no further questions for today. Dear analysts, thank you very much for all your questions. And that does conclude our conference for today, and have a nice day. Fatjona Topciu: Thank you. D.J.M. Richelle: Thank you very much. Good day. Bye-bye.
Per Brilioth: Okay. Hey, welcome, everybody. This is our -- as in we are VNV Global. This is our Q1 investor call. And I'll kick things off. We have like this usual summary page, which is the next one. Yes, NAV $462 million, which is down a bunch since the end of last year. And as we tried to sort of highlight in the narrative in the report, it's because of market and the peer group, the public sort of peer group from which we take multiples, they're down a lot. In some cases, there are names that we use that are down like 30%. And that's the main driver because the portfolio at large is doing really well. And as I wrote sort of -- if that sort of peer group multiple that we download and multiply with what we see at our companies, if that would have been flat this quarter, the NAV would have been up since the end of last year. So -- but this is how we value the portfolio. And it's no -- can sort of change that from quarter-to-quarter even if we don't think it sort of reflects the reality of the value here. And so we're subject to that volatility. And sort of if we -- if the second quarter were closed today, it would have been up. We'll see where it closes. But we're basically subject to that volatility. That volatility has taken the NAV down, but it's not reflective of what's going on in our portfolio. And I don't know if one sort of just has a go at trying to put the big sort of high-level reasons for why this peer group is down. I think it sort of falls into 2 main buckets. One is this fear, uncertainty, combination of those and what AI will do to a bunch of software companies. And as we've been on and on about before, we really don't see that as relevant even sort of -- it's the other way around for our portfolio companies is that we feel that these companies in our portfolio, they benefit from the emergence of AI platforms, models, that whole new toolbox in so many ways. I mean, the combination of hardware sort of proprietary data sets and sort of a customer base that sort of goes directly onto the platforms without any intermediaries. And just the ability sort of these sort of new ways of writing code and software, et cetera, is so beneficial basically for these companies. So -- and then the other one, of course, is I think you'll agree with me is this sort of are we heading to a recession, energy prices are up, inflation is up, interest rates are high because of inflation, that whole thing. And the point there is that we have sort of strong elements of countercyclicality in our portfolio. So in tough times, you use these products more. It's most intuitive around BlaBlaCar. We'll come back to that, but it's there basically. So yes, so with that sort of long-winding intro, I thought we'd sort of kick off this -- we'll take you through the numbers and touch a little bit upon the different names. So Bjorn, do you want to run us through the numbers? Björn von Sivers: Sure. So starting off sort of the overall portfolio. Here is a simplified sort of breakdown of the balance sheet. So as Per mentioned, NAV down to $462 million, down 15% over the quarter in dollars to $3.61 per share. In SEK, that's SEK 34.25 per share or down 12% over the quarter. Total investment portfolio amounted to $503 million, consisting of sort of $486 million of investments and $17 million worth of cash. Important to note that sort of we have an additional $30 million of cash and cash equivalents, but in liquidity management investments. So all in all, we're looking at sort of cash, cash equivalents and liquidity placings in the range of $47 million, borrowings down to $45.7 million as per quarter end. Continue to trade as a significant discount to NAV as of today, sort of 49% discount. And moving down to the sort of big drivers over this quarter is, of course, the larger constituents of the portfolio and just going through sort of the few largest ones here. So BlaBlaCar, obviously, the largest driver, down 27% or $44 million to $120 million for the holding, primarily driven by depreciating multiples over the quarter, both driven sort of from the overall rapid developments and uncertainty coming from the AI space, but then also, of course, from the geopolitical tension, whereas BlaBla sort of part of that peer group is in the OTA travel-related marketplaces that's been hit a lot. Same goes for Voi, that's also down over the quarter based on multiples. It's the order of sort of 16% or $20 million. HousingAnywhere here actually valued on a new transaction, we participated with EUR 1 million and then another sort of $1.5 million sort of converted from earlier convertible investments we held. Numan and Breadfast based value on transactions were relatively flat, a little bit of FX on Numan. And then Bokadirekt down roughly 10%, also driven by contracting multiples. All in all, these 6 names represent SEK 26 per share or sort of on an aggregate basis, 77% of the NAV. And again, sort of ended the quarter with $70 million of cash and cash equivalents and $30 million in liquidity management investments. Also sort of during the quarter, we bought back another close to 500,000 VNV shares and also a small amount of the outstanding bonds, which I'll come to now, which we also sort of announced today that we announced a partial buyback offer of the outstanding bond up to a transaction cap of SEK 275 million. This is to sort of effectively take down the gross debt and also lower the interest expense going forward. We launched this today and we'll hopefully have sort of the outcome sometime next week. With that, I thought I hand back to Per and we'll touch a little bit more deep in the larger portfolio holdings. Thanks. Per Brilioth: Yes. And yes, the structure of the portfolio looks very similar to what you've seen before. And so nothing really to comment here. But if we flip to the next page, this portfolio, as we've been on and on about, trades at sort of roughly half of the reported NAV. And as we -- as I think it's clear, we think it's -- we think that NAV is attractive, cheap. And hence, we've been buying back stock as we think that, that's the absolute best thing one can do with shareholder money. Our sort of aim is absolutely to continue doing that. And the reason being, as the next slide shows, as you've seen before, is that this is a portfolio that at large is positive, is earnings positive, is profitable. The slight downtick from a year ago is because of the absence of Gett, which is a profitable company. But at large, this company -- this portfolio is profitable and not sort of craving a lot of money to stay alive. And so that's not a reason for saving money to sort of put back into the portfolio names. We can use the money we have to buyback stock. And this profitability does not come at the expense of growth. We've made a new slide, which is the next one, just to -- which sort of you'll recognize it from earlier that this portfolio continues to grow over the past sort of is it 3 years, you've got a CAGR of nearly 30% across these 6 top names in terms of revenue growth, and it's turned from being slightly negative profitability to positive. So big change there. And as we try to highlight here also just as a reminder of how markets move around, these 6 names are -- those 6 names back in '23, this quarter, first quarter of '23, we had them in our NAV at $446 million and total NAV was like $800 million back then. And we now value them at $358 million. And so despite that sort of big shift in loss-making to profitable and very, very sort of steady growth. This last quarter, that portfolio grew by some 25%, still but marked lower. The overall NAV is, of course, lower also because we've sold some stuff to pay down debt. So I think that's a useful reminder of where we've come from and where we are today, both in terms of sort of quality of the portfolio, but also how we market. Yes. If we then go into the bulk of the portfolio, there's nothing really new around BlaBlaCar. This is a good summary, I think, around how they sort of closed 2025. EUR 2 billion of GMV is a sizable number. I know GMV is not revenue, but it's -- and as you remember, a bunch of their markets are unmonetized yet and some of them are really coming strong into monetization like Brazil now, but others remain unmonetized, waiting for liquidity to sort of further improve. But still GMV, that's a tool that many people use to sort of value these kind of sort of platforms, et cetera. And if you use that number and to where we're marking it today, it's 0.4x GMV, which I think is fair to sort of categorize as attractive. Certainly, in my mind, that is. And if you go to the next page, we also have a BlaBlaCar that's doing really well at the start of 2026. They have had a strong start. And -- and also of late, we've really seen this element of countercyclicality in the business model where oil prices go up, it's -- energy prices go up at large, driven by oil prices now. The activity of BlaBlaCar goes up because it's more expensive to drive a car and you're more prone to get other people into fill those seats. You do that through the BlaBla platform. So BlaBla gets more business and the graph on the right sort of highlights that. I think that's sort of all for BlaBlaCar. If we -- let's go and talk about Voi. Dennis, do you want to run us through Voi? Dennis Mohammad: So Voi closed a record 2025 with EUR 178 million of net revenue. This is up 34% year-over-year and adjusted EBITDA of EUR 29.3 million, which is up 70% year-over-year and adjusted EBIT of around EUR 3.2 million, up from essentially breakeven in 2024. So a very significant improvement across the board in the P&L. As we alluded to earlier, the company during the year also did a tap of EUR 40 million on the existing bond framework to fund the growth CapEx for 2026. And they also secured an RCF with Danske Bank and Swedbank here in the Nordics for EUR 25 million, which is still untapped, but provides additional financing flexibility should they need it. In Q1 of 2026, we've written down the value of our stake in Voi by 16%. This is primarily driven by peer multiples trading down as Per has already talked about earlier, but in part also driven by FX as the dollar has depreciated against the euro during the quarter. Operationally, Voi has had a strong start to the year. It continues to win tenders in Q1 alone. They won tenders in the Netherlands, in France, in Germany and in Norway. And they've started to roll out their new fleet of e-scooters, the V9 scooter and e-bikes, the E5 and EL2 across the streets of Europe. So putting to use the bond money that they raised at the end of last year. The company will issue their Q1 report on Monday next week, that's on April 27. So more information will be available then. I see we already jump to the next slide, which is good. As Per wrote about in the intro to the report, when Voi issued its bond in 2024, it pioneered the financing model that industry peers have since either replicated or attempted to replicate. We have now received the first public financials from one of those peers and the comparison truly reinforces our conviction in Voi's strategy and in their execution. As you can see in the numbers here on the graph, while Voi grew revenues by 34% year-over-year and generated reported EBITDA, different from adjusted EBITDA, but reported EBITDA of EUR 19 million and EUR 24 million of cash flow from operations, the European peer here saw a revenue decline of 16% year-over-year and on essentially the same revenue base generated negative EUR 13 million of EBITDA and negative EUR 20 million of cash flow from operations. We've excluded EBIT here as the peer change methodology on this metric during the year, so making a like-for-like comparison difficult, but that number was heavily negative as well for the peer. As I said, we are convinced that Voi strategy and execution is the best in the industry. And I think one additional data point that supports that is when looking at the revenue generation per vehicle end day on the right-hand side of this slide. So Voi generating EUR 3.94 per vehicle in a day in 2025 and the peer down at EUR 2.88 in revenue per vehicle per day. We can see here that, that's a 37% more revenue generation per vehicle at Voi. And I think this really shows how Voi's investments across the full platform, everything from hardware, where they have their own proprietary IT module, high-capacity swappable batteries to software where they use machine learning for fleet optimization. They have a very strong fleet and inventory tracking system. And lastly, operations where they have best-in-class fleet sourcing, fleet management, maintenance and eventually resell is truly paying off. With that, we go to the final slide, where there's really nothing new to report. They've seen continued growth on top line and improvements on profitability across the board, as I alluded to earlier. As also mentioned, their Q1 report is out on Monday. So we encourage you to keep an eye out on their IR website then. If we then jump to the next company being HousingAnywhere, HousingAnywhere has had a good first year under Antonio Intini, who joined as a CEO roughly a year ago after having senior roles at both Immobilare and before that, Amazon. Looking at their 2025 financials, the company closed the year with continued growth on top line and positive adjusted EBITDA, which is a big improvement on the year before. In Q1, as Bjorn mentioned, HousingAnywhere closed a financing round where VNV participated with EUR 1 million and where previously held convertible loan notes were converted to equity. With this new funding, we think that the conditions are in place to push growth harder from here, and we look forward to following that transaction, which was done around the VNV mark at year-end last year. If we then finally go to Numan. Numan closed a very strong 2025 with north of 125% growth on revenues and positive adjusted EBITDA. As we've spoken about in the past, their weight loss vertical has been a key driver of this growth over the past couple of years and 2025 was no exception. In Q1 2026, the company has continued to grow, albeit we have seen growth come down from the levels it's seen in past years, primarily driven by some price changes in the market for GLP-1 in the U.K. which initially led to some stockpiling behavior ahead of the increases and then some slightly lower activity following. But as I said, they're still growing year-over-year in Q1, and we value Numan on the back of a transaction that they closed last summer. However, should we have valued it on the back of a peer group model this quarter, it would have been roughly in line with the mark we currently carried at. Finally, this company continues to invest in its unified Numan 2.0 platform, which we believe is a key driver to long-term LTV growth and patient retention, and we look forward to seeing the results from those investments in the quarters to come. That's it on Numan. Handing it back to you, Bjorn. Björn von Sivers: Thank you. I'll finish off with sort of a short comment on Breadfast here, who continue to see strong growth in its core e-commerce business and also sort of initial promising dynamics in its fintech offering. During Q1, the company announced sort of the final tranche of their $50 million funding round, which they completed sort of majority of last year, but the final tranche sort of closed in Q1. So company is funded and continues to grow well, hence, sort of flat valuation still based on this transaction. And then finally, on the top 6 here, we have Bokadirekt, who is also sort of down during the quarter, primarily driven by multiples, but on sort of that side, continued strong performance, strong profitability. Bokadirekt also announced a small acquisition during the first quarter. They bought a company called Zoezi, which is sort of a niche SaaS player for gyms and personal trainers, which will add both sort of top line and profitability to the company. And with that, I think we're through the top 6 names, and we'll head to a Q&A. Björn von Sivers: And as a reminder here on the Zoom, please use the chat function or the Q&A function in Zoom and we'll try to address them. And I believe we have a few questions. We could start with this one for you, Per. Perhaps, once you do the partial bond redemption, what do you think is the remaining headroom to repurchase shares? Or put it differently, how do you weigh sort of the bond redemption versus share buybacks going forward? Per Brilioth: Yes. We -- our target is to sort of -- our goal for a long, long time, as you know, and which we sort of achieved now with the sale of Gett, this has sort of become debt-free and not to sort of be burdened by paying a coupon to -- because of the debt we have. So this is just a continuation of that. But at the same time, we absolutely aim to have liquidity to make use of this sort of gift that the market is giving us of valuing us where we are and put shareholder money to work at that. So -- and we've been active around that, and we do it in the way we do it, as I think you've all sort of seen, we try to -- or we do sort of highlight in press release what we bought the previous week. So I think it's fair to expect us to continue doing that and to sort of and also to fund that. Now this partial bond redemption sort of leaves a little bit of cash. We're still net cash, but -- or yes, barely, but we are -- but it leaves liquidity to continue to do that. So that's good. And when we get to the sort of the end of the duration of this bond, then we -- during that sort of period, we see that we will have completed several more exits. There's an ongoing sort of process, some driven by us, some driven by sort of things at large that will provide us with liquidity. So it's too early to talk about that because nothing is done until it's done. But I feel sort of assured that we will have sort of ample liquidity both to sort of retire this bond at full and then and to buy back stock. But nothing is done, unless it's done, but this redemption leaves us with, I think, a good balance of liquidity to sort of make use of what we want to do here in the market. Björn von Sivers: Another question here on BlaBlaCar. You mentioned profitability at BlaBla briefly. Could you give us some color on how this would scale if the higher activity levels from March were to persist during the year? Does the increased activity sort of translate into higher profitability as well? Per Brilioth: For sure, it does. And we're unfortunately not at liberty to share sort of any further details as much as we would like. We're not at liberty to do that. So -- but for sure, this drives sort of revenue -- business revenue and higher sort of earnings. So it is a positive for sure. Dennis Mohammad: Maybe I can add there, Per, without saying too much to your point, we're not at the liberty to do so. But the core carpooling business that they run operates at north of 90% gross margin. So any kind of revenue coming outside of what you have anticipated covers the fixed cost is already covered, so you get a pretty high contribution on the bottom line from that. So to Per's point, the answer is yes. Per Brilioth: Yes. No, well described, Dennis. So yes, I hope that answers that question. Björn von Sivers: And then sort of a follow-up question sort of on buybacks of shares and bonds sort of given the volatility in the markets and contracting multiples, aren't you sort of more eager to increase buyback levels of the share? And/or if not, are there other plans for sort of additional investments in the existing portfolio companies or new funding rounds? Per Brilioth: There's sort of just having a go at that question, the different parts of it. So there's nothing major. None of the large ones sort of have any large rounds going on. There's small bits and pieces that we have been -- where we've been active in the portfolio, but they're really sort of on the marginal side of things. So not a big sort of draw on liquidity. And yes, no, I mean, if we -- if we had liquidity to do more now, we -- I absolutely would be a strong advocate of doing more in terms of buybacks. I think it's very attractive. I really, really believe that our NAV will be able to deliver serious returns over these coming years. And so if we have sort of liquidity to do more, we'll do that. But sort of obviously need to balance that liquidity, but very eager to sort of participate in the way we're doing now. So it's that balance that you may feel is keeps us doing this at a frustratingly timid kind of level. But it's -- yes, it's necessary to do it that way. If we can accelerate some exits that are at NAV or around NAV, then of course, it makes a lot of sense to do those and then sell. But it's -- nothing is done unless it is done. I feel very strongly that we will be able to sort of complete some further exits and hence, we'll have liquidity to do more, but got to keep an eye on that balance. Björn von Sivers: Another question here, specifically sort of on the Voi valuation, maybe for you, Dennis, other than sort of contracting multiples, what has sort of -- what levers have been moving around on that in the model? Dennis Mohammad: So the multiples are the -- is the primary driver. As you know, we value in the next 12 months. So we've moved 1 quarter forward. So the NTM outlook is obviously higher than it was in the previous quarter since the company is growing. But you also have FX, as I alluded to earlier, the dollar has depreciated against euro. So that's one negative contributor. And also net debt. And in the case of Voi, we don't simply take cash minus debt. We look at what obligations the company has with the existing cash. In this case, it's CapEx investments for 2026, where they've improved the kind of -- they've improved payment terms significantly over the past couple of years. So cash outflows happen during the year to a larger degree than everything going out when you place orders. So it's a combination of FX, net debt, but primarily, as said, multiples. Björn von Sivers: Thank you. With that, I don't think we have any further questions at this point in time. But as always, feel free to reach out over e-mail, and we'll try to be helpful. And other than that, I'll leave it to you, Per, for any final words. Per Brilioth: Nothing more to add, frustrating quarter because of all the stuff that we've talked about, but we feel really positive about the portfolio and the opportunities that we have here. . So yes, when is our next report Bjorn, it's -- we're looking at July 14, the National Day in France. So that's when we will speak next. Thank you, everyone. Dennis Mohammad: Thank you. Björn von Sivers: Thank you.
Michael Green: Good morning, and welcome to this presentation of Handelsbanken's results for the first quarter of 2026. We can conclude that the bank reported yet another solid quarter. Operating profit increased by 9% compared to Q4 and the ROE amounted to 14%. The main income lines, NII and fee and commissions were stable. While the lending growth in Sweden was held back a bit by a general slow Swedish economic growth, it was again very encouraging to see that the lending growth trend in the U.K. and the Netherlands continued both on the household and on the corporate side. This has now been a consistent trend for more than a year. The savings business continued to perform well with market shares of net inflows into mutual funds far exceeding the market share in our books in both Sweden and in Norway. Cost efficiency is always a top priority in the bank. And again, we saw expenses declining. The net asset quality remained very strong with more or less insignificant credit losses once again. The capital remains robust. The anticipated dividends for the quarter earnings were increased a bit in order to calibrate the CET1 ratio to 17.2% or 250 basis points above the regulatory requirement compared to the 285 basis points in the previous quarter. The anticipated dividends amounted to SEK 2.93 per share or 91% of the earnings generated in the quarter. When we look at the longer-term value creation for our shareholders, this solid Q1 report fits well into the picture of the bank's resilient business model. As illustrated in this graph, the growth in equity per share plus dividends has not only been consistently stable over the past decade, but also growing with an average of 14% per year. And if zooming in on the past 5 years, the average growth rate has been even higher at 15%. And not to forget, this has been achieved in a decade, which includes everything from negative interest rates, Brexit, a pandemic, war then in the Ukraine, inflation and interest rate spikes, stresses in the real estate sectors, et cetera, et cetera. This is what we strive at always generating for our shareholders and also what the shareholders should expect from a bank like us. This stability is, of course, not achieved by coincidence and not just of our way of working. It's a result of the chosen markets and geographies. Our four home markets share the following common traits. They are all stable democracies with large economies, rule of law applies and the political and regulatory landscape are stable. It also helps if there are culture similarities and shares of values. Not only the assets, but also the cash flow from our customers are stemming from stable Western European economies. In such markets, the Handelsbanken model has a chance to stand out with a unique offering and a higher customer satisfaction than our peers. It is, of course, also essential that there are large bases of potential customers with the right risk profile and that we have a demand -- and have a demand for our offering, hence, offering material scope for long-term profitable growth at a suitable risk level in stable markets. And just to add a small remark, given the recent themes into the financial markets, we have no exposures to private credit. Before going into the financials for the first quarter, just some comments on the recent business development in these four home markets. Starting with Sweden, which accounts for 76% of the profits in our home markets. Handelsbanken is the largest lender in Sweden when summing up household and corporate lending. It's therefore fairly natural that the soft general economic growth in Sweden translates into fairly flat lending volumes in the past quarters. Deposits are growing somewhat, but the key growth is seen -- clearly seen in the savings business, where we consistently for the 1.5 decade, have seen market share of net inflows into our mutual funds far exceeding the market share of our outstanding volume by more than 2x. In the U.K., we had a long period after Brexit with declining lending volumes, mainly due to customer amortizations exceeding new lending. Since more than a year, the trend has clearly shifted to a consistent lending growth quarter-by-quarter on both the household and the corporate side. Also, deposits have increased over the past years as well as the savings business. The U.K. is a market where the customer satisfaction really stands out the most when comparing with our peers in the market. In Norway, we stated 2 years ago that we needed to see a better balance between lending, deposits and savings, and the situation has improved since. While lending volume have dropped over the past year, mainly due to intense competition, growth has been seen in deposits and in particular, in the savings business. Over the past 2 years, the market share of the net flows into mutual funds in Norway has been more than 2x the market share of the outstanding volumes. This means that we are deepening the relationships with existing customers and adding new customers, which bodes for improved profitability over time. And finally, the Netherlands. Just like in the U.K., the distance to peers in terms of customer satisfaction is particularly large. Lending growth has been very strong, as you can see in deposit -- and despite the drop in deposit last year, the longer trend has also been positive. And what is even more positive is that we now see also -- we now also register a sound growth in the savings business with steady growing assets under management. Now if we look closer at the financials of the fourth quarter compared to the previous quarter -- the first quarter, sorry. ROE amounted to 14% and the CE -- cost/income ratio was 39.5%. In Q1, a VAT refund of SEK 1.1 billion was booked. An adjusted basis, the ROE was 11.7% and the cost/income ratio 42.8%. Operating profit increased by 9%, but declined on an underlying basis by 3%. NII and fee and commission were marginally down, headwinds mainly related to day count effects and FX. Income increased by 3%, but declining by 3% on an underlying basis. Credit losses amounted to SEK 35 million or 1 basis point. Regulatory fees decreased as the previous quarter included a booking of a charge for the interest-free deposits at the Central Bank. Now if we switch over and look at the quarter compared to Q1 last year. NII declined by 13% and 10% adjusted for currency effects. The decline is related to lower margins in the wake of lower short-term market rates. Net fee and commission income, on the other hand, increased by 7% adjusted for FX effect. The key driver was again the savings business and strong inflows and positive market developments. All in all, total income dropped by 6% on an underlying basis. Underlying expenses dropped by 1% despite the annual salary revision that comes into force on January 1 each year and also the general cost inflation. Last year, we had a net credit loss reverses and the regulatory fees were flat year-on-year. All in all, the underlying operating profit was down by 12%. Now if we take a closer look at the NII development compared to the previous quarter, we see that NII dropped by 1%. Volume growth contributed with SEK 20 million in the quarter due to lagging effects on interest margins from lower short-term market rates in the previous quarter, the net of margins and funding contributed negatively by SEK 67 million. Deposit guarantee fees were lower this quarter, the decline being explained by fees being elevated last quarter as the final bill for that year was received and paid. The day count effect due to 2 less days in the quarter and the currency effects due to a stronger krona on average has created some headwind, as you can see. Net fee and commission income dropped slightly in the quarter. The bulk of fee and commissions related to the savings business, especially in the mutual funds business. The positive effect on fees from the strong net inflows were, however, offset in Q1 by a negative day count effect as well as negative mix effects with an increased share of the AUM asset under management in lower fee funds. Other fees were seasonally down. The high market share of net inflows into mutual funds have added significant customer asset under management under -- to the bank over time. As illustrated in this slide, the bank has now accumulated net inflows into Swedish mutual funds at almost 2x the run up over the past decade. This success comes not only from appreciated offering and strong performance in the funds over the years, but also the bank's distribution capacity where advisers are close to and have deep relationship with our customers parallel to an appreciated offering and distribution in our digital channels. Now over to the expenses. A trend of increased cost was broken in 2024. And since then, the expenses have trended down despite annual salary revisions and general cost inflation. The bank is now in a good position in regards to cost efficiency. As illustrated in Q1 when costs continued down on both quarter-on-quarter and year-on-year, it's deeply rooted in our culture and among our employees to always look at new ways of becoming even more efficient. Next slide show our asset quality and credit losses. Over the past decades, credit losses have been very low, which they should be in the bank with our risk appetite. Since the outbreak of the pandemic in 2020, the sum of all credit losses has been SEK 50 million or on an average, SEK 2 million per quarter. And that includes the period from the pandemic, sharp savings -- sharp swings in policy rates and inflation, the disruption of supply chains following years -- following the war in the Ukraine and Middle East, et cetera, et cetera. Still more or less no credit losses. If we compare the credit losses to our closest peers, the bank also stands out over the decade. In particular, in volatile times, difference in underlying asset quality has shown. In Q1, the credit loss ratio was 1 basis point. Perhaps needless to say, asset quality remains very strong. The bank is in a very solid financial position. Credit risks, funding risks, liquidity risks and market-related risks are prudently managed and the capital position is strong. The anticipated dividend in the quarter of SEK 2.93 per share equals to 91% of the earnings in Q1 and is yet another step to gradually adjust the capital position in the bank. The CET1 ratio now stands at 250 basis points above the regulatory minimum compared to the 285 basis points in the previous quarter. The bank should, however, always be considered one of the most trustworthy and stable counterparts in the industry. This is also the view by the lending rating agencies who rate the bank the highest among comparable rates globally. And this view was again confirmed and further enforced last evening by Moody's, who upgraded the bank's baseline credit assessment rating to A1 from A2. This put the bank in a very exclusive group of only a handful of privately owned banks globally with the highest BCA rating by Moody's. Finally, to wrap up, Q1 was a solid quarter with increased operating profit and ROE, although including a positive contribution from a one-off VAT refund. Q1 NII and fee and commissions were stable and costs declined. We see lending now growing consistently in the U.K. and the Netherlands and also in the savings business broadly over the markets. Our way of doing bank is appreciated by customers where they experience close relationship with us, and it's also seen in the external surveys in all of our well-chosen home -- stable home markets. Asset quality remains just as strong as it should for a bank with our risk appetite and the capital position is very strong, and we took another step down in the target range by anticipated dividend equaling to 91% of the earnings in the quarter. Finally, I'm also happy for our shareholders that has seen share price reached an all-time high during the quarter. And with those final remarks, we now take a short break before moving into the Q&A session. Thank you. [Break] Peter Grabe: Hello, everyone, and welcome back. This is Peter Grabe, Head of Investor Relations speaking. And with me, I have Michael Green, CEO; and Marten Bjurman, CFO. As always, we would like to emphasize that we appreciate that if you ask one question at a time in order to make sure that everyone gets a chance to ask their questions. With those words, operator, could we have the first question, please? Operator: [Operator Instructions] And your first question today comes from the line of Magnus Andersson from ABG Sundal Collier. Magnus Andersson: I was just wondering regarding the -- in total, SEK 6 billion in AT1 capital you issued late in Q1 '26, whether the main reason was to be able to go down further in your management buffer or if you expect the higher volume growth going forward or a combination of both? And related to that, also, if you could confirm that the coupon will be taken directly in other comprehensive income rather than in NII... Marten Bjurman: Magnus, this is Marten speaking. Yes, I had a little bit of a difficulty hearing your first part of your question, Magnus. But I assume that you talked about the AT1 that was issued late in the quarter and booked in Q2. And it's fair what you said, it's correct what you say that this is an equity instrument. It will be booked in the equity and the interest rate, if I may call it that, the coupon, that will be booked also in the equity, yes. Magnus Andersson: Okay. And also the reason for it that you have your next call in March 2027 of USD 500 million. What was the main reason for doing this now? Was it to be able to go down the management buffer volume growth? Or... Marten Bjurman: Well, there are various components into that equation, Magnus. But obviously, we didn't have a full box of the AT1, if I may call it that. This provides flexibility to the bank. And as you know, the 2 outstanding AT1s, they are in U.S. dollar. This one is in Swedish krona. So yes, it's -- and then we take it from there. We'll see. But the main reason is that it provides flexibility for the future. Operator: Your next question today comes from the line of Markus Sandgren from Kepler Cheuvreux. Markus Sandgren: I was thinking about you, Michael, you mentioned that you're going down gradually in terms of capital buffers. Can you give some guidance on -- I know that the Board is deciding what you will pay out. But since you have gradually reduced this buffer in your accrual of dividends, where are we heading within the range, please? Michael Green: Yes. This is Michael speaking. I don't think you should read that much into the adjustment this quarter. But it's -- the bank is in a position where we are running the bank very operationally strong and we have a cost -- the cost in place and all that. So we have gradually come down in our target range. And when we look at the world outside and we compare what's going on there with how our customers behave in terms of risk, we don't see anything that really sticks out. So our customers, they are in very good shape. And the risk we allocate for is taken care of in our internal risk models. So I don't see the need for having SEK 285 million now. So we will -- we just take it down to SEK 250 million. And then as you just said, we decide where to go when we come into the -- what we anticipate now for the year, and then we take the decision in the Board for how we recommend the -- for the shareholders to -- on the dividend side when we come into the Q4 report. Markus Sandgren: Yes, so I understand. But what do you mean by that, you shouldn't read too much into that you change it because you do change it because you think it looks good. So there must be some message in that. Michael Green: Because it looks good. Marten Bjurman: So but let me underline a little bit also. Again, I think bear in mind where we're coming from. We have -- we're coming from SREP plus 5% or 6% and then we took it gradually down, as you know. And we felt the need to guide a little bit to say that reinforce that the message that, yes, we have this interval, it is set, and we are slowly moving into that. Now as we are within the interval, we don't feel the need to guide that much further on a quarterly basis. So you shouldn't expect us to draw the line anywhere within the range. Now we are in the range, it feels great. Operator: Your next question today comes from the line of Gulnara Saitkulova from Morgan Stanley. Gulnara Saitkulova: On your cost outlook, please, could you walk us through the key moving parts in your cost base for the next 3 quarters that we should be aware of, specifically, where do you see flexibility for further cost reductions versus what could be the areas of additional cost pressure? You previously mentioned that you have completed the centralized cost-cutting program, but do you expect more efficiencies to come through from elsewhere, for example, from the local branches? And if you look at your headcount, it's down 1% quarter-on-quarter. Do you expect any further reductions in the number of employees to come through? And how should we think about your Oktogonen contributions going forward? Marten Bjurman: Okay. Well, maybe my answer will be a little bit disappointing to you because we will not guide on the costs going forward. But it's very true what you say. We have that initiative behind us now. We have no plans of broadcasting yet another of those initiatives. But rather, we are staying very true to our culture, our model where every employee within the bank is extremely cost cautious and very sensitive to increases in costs. And this quarter was extremely successful when it comes to cost as well. It was even to me, a little bit surprising actually. But again, I think that you shouldn't expect it to go further down. We are at a level now where we are extremely confident that we can run the bank the way we want. We have resources to spend and invest where we want to spend and invest. And -- but this model is extremely decentralized. We will not interfere with our home markets. We will not interfere with our branch office managers. So ultimately, they decide. So therefore, we cannot guide any further. Gulnara Saitkulova: And what about the headcount? Marten Bjurman: Headcount number is basically the same, maybe a little bit boring answer. But still, if a home country wants to expand in terms of number of employees, they are free to do so if they have good reasons to do it. So I don't foresee any big shifts either upwards or downwards in terms of full-time employees. Michael Green: And just to add on, when Marten says we -- the decision-making for resources, both in headcounts and other cost initiatives that they could happen throughout branch networks and product or whatever. It's not that we don't guide and we don't steer, but we follow them closely. So it's a very sharp following up in terms of cost efficiency and the returns on the investment we do. So it's not do as you like. It's do what you think is necessary, and we will keep a very close track on what's going on. Operator: Your next question today comes from the line of Andreas Hakansson from SEB. Andreas Hakansson: So a little bit of a follow-up here on costs. I mean you've been reducing cost continuously now for, it feels like 8 quarters roughly. And I mean, when we speak to quite a few banks, they see that there's a lot of IT investments relating to AI and whatnot. And when we speak locally and we hear people gossiping or talking, it doesn't sound like you are clearly ahead of the pack in terms of those investments. So is it a risk that you have underinvested now over the last years because a lot of the savings have come from IT, if nothing else? Marten Bjurman: The short answer is no, I don't think so. I think it's more of a matter of how you're running your development within the IT space. We were heavily dependent on consultants for a very long time. We have now -- we are now at another place in terms of that mix between employees and consultants. So that's one thing. But the other thing is that we are running our IT development in another way now. We have much more control, generally speaking. In terms of AI, are we lagging behind? Are we the first mover? I don't think it's in our nature to be the first mover in terms of trying out different AI solutions. That being said, though, I'm extremely confident that we have navigated through these challenges and opportunities the right way so far. It's a broad area. It opens up a lot of opportunities, not only for the bank, but also for our customers. We're following it closely. We have quite a number of initiatives that are all the way from ideas to fully implemented and up and running successfully. So it's a broad range of initiatives. So I'm not worried for that matter. Andreas Hakansson: So as a CFO, it's not that you want more resources, but Michael thinks you need to slow it down still? Or what's the balance between you? Michael Green: No, no. We don't -- the balance is very good between my CFO and myself. So -- but just for the record, I totally embrace the technology and the development of that, and that's a very wide area, and we invest largely in things that we need -- that we see could fit well into our customers and also for ourselves in terms of efficiency reporting, whatever. So I'm very interested in that, and we have a quite good pace actually. So I don't really have the feeling that you described in your first question that we lag. I don't think we lag. I think we do it in a very balanced way in the way we see it from my perspective. Operator: Your next question comes from the line of Shrey Srivastava from Citi. Shrey Srivastava: My first is actually on the positive side, you've got the second consecutive strong quarter for loan volumes in the U.K. What is the profile of the new customers you're attracting versus the U.K. incumbent? Has it materially changed versus your existing customer profile? Marten Bjurman: Thank you. No, no, it hasn't changed. It's basically the same. It's the corporate lending growth that you see in U.K. is very pleasing and the trend is continuing. So very pleased with that, generally speaking. In terms of our customers, it's no new mix of customers. We are very true to our model in terms of providing financing to businesses that we understand that have strong cash flows, a strong repayment capacity and all that. So no, the short answer is no. We don't have any new features into our model in providing financing to our customers. Shrey Srivastava: Right. And my second one is, can you explain this 50 basis points negative impact on the CET1 ratio from other factors, including claims on investment banking settlements and rounding on? I don't believe it's ever been called out before explicitly. So I'm wondering why it was so large this quarter? Marten Bjurman: Well, it is large this quarter due to natural reasons because I think that, that business where this derives from is typically slowing down in Q4. So when you compare the 2 quarters, this looks quite hefty. But it's not. I think if you take this level, it could be a natural level for the coming quarters. And I think you touched upon it in your question where it comes from. This is coming from the market making in the capital market side of the bank. So this is really short-term claims. These are coming from market making and deals that are between settlement date and trade date basically. So very short-term claims on our customers, majority in the fixed income space. Shrey Srivastava: Okay. So this was a bit larger than you'd expect given the seasonality if you look versus the past few years? Marten Bjurman: No. I mean, this portion that I just explained is maybe 1/3. The other 2/3 are so many items in so many parts. So it must be considered a regular quarterly volatility, many, many smaller items in that. So I'm not surprised where we are. But again, you have to compare with a regular quarter. And in this case, Q4 might not be that one. Operator: Your next question comes from the line of Namita Samtani from Barclays. Namita Samtani: I just wondered, it's just another quarter where Nordea is growing its Swedish corporate lending by 4% quarter-on-quarter and Handelsbanken volumes are flattish. So I just wondered why you're allowing another bank to take market share from you so much so that you're not even growing the Swedish lending book in the quarter? And just a follow-up to that. I just also wondered why there's appetite to grow in commercial real estate in the U.K. and Norway, but not in Sweden just based on how you grew this quarter. Are the competitive dynamics different in Sweden versus Norway and the U.K. Michael Green: Yes. So the -- first of all, we don't allow competitors to take business from us. We compete every day and you win and you lose some. In our -- from my perspective, the volumes that we've seen leaving the bank has mainly -- or absolutely the vast majority is -- it goes to the capital market side. So it's not that any other bank is competing with us, and we do not have the capacity to compete that. So that's how it is. And I'm not going to comment on Nordea's growth. That's -- I don't know what they do there. But I think growing the lending book, it comes -- when you have market shares like we do in Sweden, you tend to grow, as we've said before, in line with the real economy growth in this country. If you want to grow more over time, you need to be very aware of pricing and risk, and we are conservative in that sense. So we follow our customers. If they invest, we will grow with them. And we will gladly compete and take business from our competitors. But in general, we grow in Sweden with our very, very strong corporates and private individuals. And if you look at the market right now when it comes to corporates, what we see from our perspective when we talk to our customers is that they are a bit reluctant now to invest both when it comes to investing in factories and production, but also invest in real estate right now. So it's a bit on a standstill due to the uncertainty in the surroundings. And when it comes to the private individuals in Sweden, we see a small pickup when it comes to buying new houses, and we have quite a strong inflow when it comes to that market, when it comes to the transition market when they buy houses. So we don't see a problem with this. We -- in Sweden, we follow our customers when they grow and when they're not growing. When it comes to the -- as you probably noticed in the U.K. and the Netherlands, we have the opposite. We have a quite strong growth there because the market share we have is quite low. And that's what you should expect, and that's what I'm expecting with high ambition in these countries. Namita Samtani: Sorry, could you just comment a bit on the differences in the commercial real estate U.K. and Norway versus Sweden? Is it more competitive in Sweden? Michael Green: No, I think there are competition everywhere we are because we're very strong and transparent countries with strong competitors. So I don't think any -- there is any difference there. Operator: Your next question today comes from the line of Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: Here is Sofie from Goldman Sachs. I was just wondering how we should think about the net interest income in the other division, given that it was up 41%, I think, quarter-on-quarter. Could you just comment on kind of what's the normalized run rate? Are there any headwinds or tailwinds we should kind of be mindful of? And also, I know you don't guide on rate sensitivity, but if you could just help us kind of think about how we should model potentially higher rates in Sweden and also elsewhere in Europe, what the kind of moving parts are? Marten Bjurman: Yes. A number of questions there. And the sensitivity to policy rates, yes, obviously, when we have -- as we had in this quarter, policy rates turned down late in the previous quarter, we will have an effect. And generally speaking, as you know, we benefit from higher rates rather than lower. So -- but in the meantime, we have lag effects that you know of when these rates are cut. And it varies a little bit between countries. But yes, generally speaking, we should expect now that, okay, policy rates were expected to go down further in U.K. and in Norway. Now we don't -- we're not so sure anymore. Some say flat, some say even a little bit of a pickup. Obviously, we will have an impact of that. It will take a little bit of time to bleed through that effect through the books as with all banks, I guess. So that's where we are, and we don't guide any further than that. Sofie Caroline Peterzens: But in terms of the other division, like -- yes, do you have any guidance on how we should think about the contribution from there because it's very difficult to model on a quarterly basis, plus 40%. So is there any way we could kind of think about how to think about the kind of volatility in this division going forward? Peter Grabe: Yes. This is Peter speaking. You can say that there are mainly two reasons. One is within the treasury department where actually both of these two items are within the treasury department. And it goes up and down in between quarters and it's connected to what's allocated to the different segments. On a group basis, everything, of course, nets out. But occasionally, you allocate out more from Central Treasury and sometimes you allocate out slightly less. And then furthermore, it's also a result of the -- of what you generate in our liquidity portfolio, i.e., the returns on the assets we have in the liquidity portfolio, which means that it can go up and down somewhat in between quarters. But I think overall, you should see it as more of relating to components that generally are sort of intertwined with the allocations out to the respective segments. Operator: Your next question comes from the line of Riccardo Rovere from Mediobanca . Riccardo Rovere: Sweden loss cut rate in September, so say, around 6 months ago, would you say that now the balance sheet on the assets and liability side has absorbed the loss cut made by the Riksbank 6 months ago? Or should we expect a little bit more tail in the coming months? Marten Bjurman: Yes. Generally speaking, yes. I think we have seen most of the effect, not all, but most of the effect for sure. So that's the short answer. Riccardo Rovere: And let's assume for a second that short-term rates remain where they are. I mean, STIBOR goes up a little bit in the quarter. That I suppose nothing of that is eventually visible in these set of numbers, I would say so. Am I right in saying so? Marten Bjurman: I'm very sorry, I didn't catch your question fully. Would you be able to repeat... Riccardo Rovere: Yes, yes, sure. The STIBOR month was a little bit higher in the -- especially in the month of March. Let's assume for a second that, that remains. I think it was 9 or 10 basis points higher in the month of March. Let's assume that, that stays for a while. Is it fair to assume that in set of numbers, we have not seen anything from this 9 or 10 basis points higher level on STIBOR 3 months. Michael Green: I think it's what we usually say. I mean the reason for us being with silent here is that it's difficult to give you a straight answer on that question. I mean, obviously, as we always say that there are tons of factors that play in when we talk about the development of net interest of funding and margins. STIBOR is, of course, one component. But how a particular STIBOR movement in between months or quarters directly will affect the NII is very difficult to guide on. And as you know, we prefer to stay away from guidance -- sorry, Marten, please go ahead. Operator: Your next question today comes from the line of Emre Prinzell from Nordea. Emre Prinzell: I know you touched upon this, but just to double check here, what do you need to see for Swedish lending growth to meaningfully pick up in the next few quarters? I mean we're expecting Swedish GDP to grow maybe 2.5%. Should we therefore see a read to you that you ought to grow 2.5% in Sweden? Or what's a reasonable way of looking at this going forward? Marten Bjurman: Yes. Great question. Yes, I would love to grow 2.5%. That would be perfect for us. And as Michael alluded to earlier, we have seen 1 or 2 tickets leaving the book in this quarter, not to other banks, but to the bond market. That happens, it can happen. And what will it take for us to really set off the corporate lending? Well, I think -- and we've been talking about this quite a bit also during previous quarters that generally speaking, we will need the economy to pick up speed in terms of the recovery phase that we are in. And everything that is disturbing that picture is obviously not good for business. So if we have globally, even if it's not evident in our books, but the appetite or the demand for credit needs to pick up speed. That's where we are. We are not growing on our own. We are growing with our customers. So if they have a need, then we support them, obviously, it's not more fancy than that. Operator: Your next question today comes from the line of Johan Ekblom from UBS. Johan Ekblom: I just wanted to pick up on some of the earlier comments you made around costs and AI, right? So I think in response to one question, you said, look, the staffing decisions are made at the branch level. And at the same time, you feel like you're doing kind of enough in terms of technology and AI. But when we think about that, I mean, surely, technology and AI are investment decisions that had to be made at a central level and the benefits of AI are expected to largely come through in the -- in the form of lower staff needs. So does that create a tension in your decentralized model? Do you think you are as well equipped to reap the benefits of AI as maybe some of your peers that run more centralized business models? Michael Green: So Johan, thank you for the question. I appreciate that because this is actually a very good point. When it comes to decentralized way of working and resources, that refers mostly to the branch business. And when it comes to decision-making in terms of infrastructure program, AI investments, which is obviously a larger ticket. that's been taken care of within the management of the different areas, but also, of course, with the Head of IT, sorry. And we discuss that both me and Marten when it comes to these large investment programs that we run to make sure that we don't have any problem with holding back on time when it comes to develop new facilities, new prospects for doing business or creating efficiencies. So this is not a decentralized way of working. The -- what we should do comes from business and from IT. And then Marten and I and Head of -- Anton Keller, Head of IT, makes decision when it comes to the more heavy investments in this. So there's not a decentralized way of doing what you like when it comes to IT investments. Johan Ekblom: But do you not need full buy-in from the organization on adoption to make the investments work. Michael Green: Yes. But that's not a problem because if the reason is correct and right and logic and good for the bank, everybody will buy in. That's up to us to really make sure that the people understand why we do this. And I don't have any -- not once have I felt or heard that there is going to be difficulties in explaining the rationale when it comes to IT investment and spending because that puts the bank in a strong kind of competition position, which will be necessary all the time for a company to grow. So I don't think there is any problem with that, actually. Operator: Your next question today comes from the line of Max Jacob Kruse from Bernstein. Jacob Kruse: Just one question then. So this quarter, you hiked your mortgage rates very late in the quarter and STIBOR moved earlier. Could you just talk a bit about what you saw in the quarter in terms of timing effects? And maybe you could touch on as well any kind of balance sheet hedge offset you have there? Marten Bjurman: We saw none of those effects is the short answer. So yes, that's it. Jacob Kruse: And sorry, how is that -- I thought your list price would be determining the kind of role of the negotiated rates or the rates on mortgages. And obviously, your STIBOR, any kind of swaps into STIBOR would have moved. So why would you not see any impact? Marten Bjurman: We reset the interest rate for mortgages the 1st of April to start with. So it's first every month is the cycle, if you will, where we reset these interest rates. Michael Green: I'll just add that the price we get from the business when we do business with our private customers when it comes to mortgages is not -- it's -- the discussion stems from the list price, but it's not where we do business. So the cost for our branches when it comes to -- the funding costs for our branches, that it's volatile. It comes from where the market rates are. And they will then push and they do business where they find there is a profitability. So this -- the list price is just the way we start with the list price. We never do business on list price. So the volatility in short rating -- short interest rates are taken care of in the day-to-day business on the branches. Jacob Kruse: So just to clarify then, so the STIBOR moves are -- the STIBOR moved in the quarter, you say your pricing on the list price changed on the 1st of April because I guess your list price changed at the end of March. But I understand that your front book is a negotiated rate. But surely, as people roll towards -- if I have negotiated the rate, that will move with the list price. I think it will not move, but that plus the discount will be the role. So I don't quite understand how you can have STIBOR moving up and list prices staying stable without having any impact in terms of... Michael Green: So when you roll your 3 months interest rate period, we have another discussion with the customers. And then we set the new price for the next coming 3 months. So I don't really understand your concern there. Jacob Kruse: Maybe I'll catch up with you. Yes. Operator: We will now take our final question for today. And the final question comes from the line of Andreas Hakansson from SEB. Andreas Hakansson: And sorry, some follow-ups since we could only ask one question. So a follow-up and a real question. And it's back to, I think it was Namita asked about the commercial real estate exposure. I mean you're one of the most commercial real estate heavy banks around. And if we look in this quarter, the only growth is coming from commercial real estate, I think, in all markets, while other corporate banking is declining. Is that a strategy that you're happy with given that, I mean, the profitability of a CRE loan is normally lower than other types of corporate banking given what you can do around it and so on. So are you steering the bank in this way? Or is it just happened to work out like this? Michael Green: So Andreas, we don't steer the bank in which customer to pick and choose. That's for the branches to do. If they find it suitable or they find the risk suits us well. We have products that could solve problems for a corporate or real estate company, we do that. So it's the steering from my side. This is the way the bank is run. We make sure that our branches are in a position to compete and then they choose which counterpart they want to do business with. And this is how the balance sheet will ends up in that case. So it's not a -- it's not a choice from my perspective on where to do business. We try to compete on all segments. We compete on industrials or we compete on commercial real estate business. It's up to the branches to do that, to choose. Andreas Hakansson: Yes, that's fine, but the branches is quite significantly steered by a cost/income ratio and want to keep costs low, as you discussed earlier. But if they would then go after some other types of corporates where the margin could potentially be thinner and the cost-income ratio would be higher and then the benefits of doing some other type of business could be taken in the markets division in Stockholm. So is the branch really the ones that would drive a higher profitability type of lending since they are driven by costs? Michael Green: Yes, I say they are because what we do when we do business on the ancillary business, for example, within FX or other parts of the Investment Bank, that's been taken care of by refund, if you put that way to the branches. So everything comes down to the branches P&L anyway. So that's just good. So we do... Andreas Hakansson: But eventually... Michael Green: Sorry. Andreas Hakansson: But eventually, but you might have to live 2 years with a low margin until you do that business because you have to be committed to the company and so on. Michael Green: No, no, that's not how it works. So you get instantly repaid from the investment bank when they do their trades or their interest rates derivatives or whatever. That comes the month after. So that's not the way it works when we steer the bank. Andreas Hakansson: Okay. Then finally, on your loan-to-deposit ratio in Norway at around 300%. If rates now start to go up in Norway, which seems to be expected, is that a positive or negative for you guys? Marten Bjurman: It will eventually be a positive thing, Andreas, but it will take a little bit of time to adjust, obviously. So yes, but it's positive long term, yes. Michael Green: We will immediately benefit from the deposit side, of course. So that will give a boost. But then it's all about adjusting the lending book as well to the new market rate. Andreas Hakansson: Yes, I was thinking that some of a very deposit-rich bank could afford to compete on the margin on the lending side, given that it makes so much more on the deposit side, will you guys have flipped the other way around. Michael Green: Yes. But that's the way it has been for many decades now when it comes to the business and how we compete in Norway. So that's nothing new. Operator: That was our final question for today. I will now hand the call back for closing remarks. Peter Grabe: All right. Thank you, everyone, for all the questions and for those of you who listened in. And as always, you know you can always reach out to the Investor Relations department for any further questions and follow-ups. With those words, we wish you all a very good day. Thank you very much.
Operator: Welcome to the Corbion Q1 2026 Results Conference Call. [Operator Instructions] Please note that this call will be recorded. I would now like to hand over to Mr. Alex Sokolowski, Head of Investor Relations. Please go ahead, sir. Alex Sokolowski: Thank you, operator. Good morning, and welcome to Corbion's First Quarter 2026 Interim Management Statement Conference Call. This morning, we published our Q1 2026 results. The press release and presentation can be found on our website, www.corbion.com Investor Relations Financial Publications. Before we begin, please note that today's discussion will include forward-looking statements based on current expectations and assumptions. These statements involve risks and uncertainties that may cause actual results to differ materially from those expressed. Factors beyond our control, including market conditions, economic changes and regulatory actions can impact outcome. Corbion does not undertake any obligation to update statements made in this call or contained in today's press release and presentation. For more details on our assumptions and estimates, please refer to our annual reports. This is Alex Sokolowski, Head of IR. And with me on the call are Olivier Rigaud, Chief Executive Officer; and Peter Kazius, Chief Financial Officer. Now I would like to hand the call over to Olivier. Olivier? Olivier Rigaud: Thank you, Alex, and good morning, everyone, and thank you for joining us today for Corbion's First Quarter 2026 Earnings Call. Let me get straight to the point. As we outlined in February, the first quarter reflects phasing effects, primarily Nutrition, and the very strong comparison base in Functional Ingredients & Solutions. Against that backdrop, we delivered group sales of nearly EUR 294 million and an adjusted EBITDA of EUR 37.8 million with a margin of 12.9%. While this is below last year's exceptional start, it's fully in line with our expectations. And importantly, it doesn't change our confidence in the year end. In fact, what we are seeing now is encouraging. April trading confirms that momentum is building, and we expect a clear acceleration in both volume and earnings as we move through the year. Let me highlight what is driving that momentum. In Functional Ingredients & Solutions, we delivered stable sales of EUR 236 million against a very strong prior year. Underneath that, volume and mix were positive, supported by continued strong demand for natural preservation solutions and the solid growth in Biochemicals and Lactic Acid to PLA. While margins were temporarily impacted by mix, we expect a steady improvement from Q2 onwards. This will be supported by lower sugar costs and disciplined cost reduction execution. Growth will continue to be driven by structural demand for food safety solutions and increasing adoption of PLA, particularly in 3D printing and as dynamics in fossil-based plastics evolve. In Health & Nutrition, Q1 sales of nearly EUR 58 million reflects phasing into the remaining of the year. The fundamentals here are strong. Demand remained robust. Fish oil prices are going up. Our contract positions are intact, and we expect a normalization of sales and volume growth from the second quarter onwards. Our Biomaterials business continues to build momentum and delivered a second record quarter in a row delivering growth across orthopedics, drug delivery and aesthetics. On the TotalEnergies Corbion joint venture, we also achieved organic growth and our divestment process is progressing as planned. At the group level, margins were impacted by mix effects and temporarily lower operational leverage in Q1. These are timing-related factors, and we expect a clear improvement as volume ramp-up and cost measures take effect. This bring me to cost discipline. In a macroeconomic environment that remains volatile, particularly with well-known geopolitical tensions, we are acting decisively and have implemented a focused cost reduction program. Turning to cash flow. Q1 free cash flow was negative at EUR 15.7 million, and as expected, given seasonal patterns. We remain fully confident in delivering EUR 85 million to EUR 90 million for the full year. Looking ahead, we fully reaffirm our 2026 outlook. We continue to target 3% to 6% organic sales growth and adjusted EBITDA margin of around 17% and strong cash generation with performance weighted towards the second half. This will be driven by sustained demand in natural preservation, normalization in nutrition, improving PLA market conditions and disciplined execution of our cost reduction initiatives. While uncertainty in energy and input cost remains, we have robust mechanisms in place, and are actively managing volatility through pricing, hedging, sourcing and operational control. So let me close with this. Q1 reflects timing and conversion effects, not the strength of our underlying business. Our fundamentals are strong. Momentum is building, and we are executing with discipline and focus. We are confident in our ability to deliver on our commitment for 2026. With that, let us move now to questions. Alex Sokolowski: Thank you, Olivier. [Operator Instructions] Our first question this morning comes from Wim Hoste, KBC Securities. Wim Hoste: Yes. I have 3, please. The first one is on the raw materials versus pricing dynamics. I know there's significant hedging on sugar and energy and some of the other components. But can you maybe quantify or elaborate a little bit on the kind of headwinds you're seeing maybe also on transportation costs or logistics issues, et cetera? And then also, what kind of pricing initiatives you put against that? So that's the first question. The second one is on foods. Can you maybe elaborate on the contract wins that are mentioned in the press release? What kind of products, geographies are we talking about regarding these contract wins? And then third and last question would be on the progress with the PLA divestments. Can you maybe elaborate a little bit on the process, the number of interested parties, the alignment with Total on that? So those are the questions. Olivier Rigaud: Okay. Thank you, Wim. I will answer the food and the contract wins, and Peter, the points on the raw material pricing and the PLA. Let me start with your second question on contract wins. Basically, what we see in foods are twofold. One is related to our natural preservatives and primarily related to some specialties in there on clean label. You might remember, we discussed during our CMD about the new EU listeria regulation, that is getting implemented in July this year '26. So we've been actively working on this, and this is bringing very nice upside, primarily related to our natural vinegar systems. And we see that really already starting in Q1, but accelerating over Q2 as customers are preparing to switch to new preservation systems. Amongst others, we see strong momentum in seafood. That is one. The second one is more U.S.-related where back on the GLP-1 trend, we've had a couple of major wins on high-protein functional systems for our bakery business. And we have been able to build some inventory to prepare for the big launch in Q2 on that front as well. These are the -- amongst the two major drivers of these food ingredients contract wins, you know, that we discussed about in the press release. Now to you, Peter, for the 2 other questions. Peter Kazius: Yes. So if you look on a raw material perspective, Wim, then you are right that in sugar, we have kind of full visibility for the coming periods, and look fully hedged for this year and also hedged into 2027. I think the other key components, which I would like to call out, which relates to the Middle East is, of course, energy prices and therefore transport prices, as well as if you look to the Middle East, then sulfur is playing a role as well and we use sulfuric acid in the production of lactic acid. Now, if you look to the three components: energy, and you can find it in the annual report is around 7% of input cost, is well hedged. So for the remaining part of the year. So I would say minimal exposure on that one. In transport, we do see some exposure, and I think the exposure is mainly on the sulfuric acid part of the equation, which how we currently view and look to it, we were talking here on a number in this year of up to EUR 10 million. And we are indeed taking pricing actions and mechanisms in the market, and that's a combination of prices, surcharges and all the rest. So that's a bit the current outlook, Middle East impact, I would say, from a cost perspective. Then on your question on PLA, I would like to stay a bit higher level, but we are progressing nicely and on track. And I indicated in the Q4 call that we anticipate to bring more news by mid-2026 because I don't want to hamper or jeopardize the process itself. Alex Sokolowski: Our next call this morning comes from Robert Jan Vos from ABN AMRO. Robert Vos: I have a few questions as well. Based on what you said about pricing in FI&S in Q1, still slightly negative, but the mix plus phasing of input cost materials, should we anticipate positive pricing in the forthcoming quarters? That's first on FI&S. Second one is maybe elaborate a little bit on the softness in the North American market? Then moving to H&N. You say that you expect volume mix growth to return to positive in the next quarters compensating for Q1. So my question here is, do you expect -- because Q1 was pretty negative, do you expect positive volume mix growth for H&N in the full year? And related to this what about pricing in H&N in the coming quarters? And my final question, the cost savings. Can you elaborate a little bit on this? What is the amount that you expect for this year that you can take out of your model? How is it split per division? And are there upfront costs related to this? Olivier Rigaud: Thank you, Robert Jan. So I will discuss the answer on North American softness and the H&N. Whilst Peter, you can take pricing and cost savings, yes. So let me start over, Jan, with the softness on North American market. Indeed, we are exposed to some large categories as bakery and meat there. And we've seen, of course, the inflation impact and tariffs impact in the U.S. to some large customers, that impacted already Q4 last year. And we've seen some continuation of that in some of these categories. Although I have to say lately, when we look at retail numbers, you would say bakery is leveling off. So it's not declining anymore, whilst the meat sector is still declining in the U.S. Now as I said, it's unequal. We see, indeed some of these developments, as I just mentioned, in a very specific area being the natural preservation in the clean label. There is still underlying quite a lot going on related to MAHA on clean label development, primarily on preservation specialties. And nothing new, but the continuation of the fortified proteins compounds that we see. So yes, as you know, it's a big market for us. It's a mixed bag. On the meat side, it's more negative than in bakery where things are stabilizing. There is a new spot which is a bright spot for Corbion emerging in the U.S. being around culinary, where it was part of also our strategy to develop business in culinary. And I mentioned just before on the previous question that, indeed, we also spread around this Listeria antimicrobial systems now primarily based on vinegar. So we see really strong sales of vinegar-based preservatives across the board, not just in Europe, but also in North America. On the H&N expected return, there, as we said, indeed, we see already a much better momentum starting in Q2, and we have a very good visibility as we speak now on Q2. As you know, and we explained primarily going into aquaculture, this is a concentrated market with 5 large players, and it's really phasing to one of these customers that we knew upfront, that is now kicking in as from Q2 on one side. But the reason why -- I mean -- and to your question, we expect a positive volume mix growth for the year. And we see a few strong underlying drivers. First of all, as we said, we've been able to renew the expired longer-term contract. So we have a good contracted position for the year. That's one thing. We are developing nicely into adjacent market, being human nutrition, and also we have very nice development into the shrimp market as well as we speak in the Asian markets. So that's the second driver we see supporting our growth this year. And obviously, on pricing, we see also nice upcoming impact on -- later on this year, non-contracted part of our business, supported by a fish oil price increase. You might have seen now the final quota for Peru has been officialized and is 36% lower than last year. So that is obviously driving fish oil price up, which is a nice support going forward for a non-contracted part of the business. What also these lower quota do say, just to close that point, is basically that the famous fish oil gap we've discussed many times and also at CMD was anticipated to be around 50,000 tons shortfall for fish oil, is more likely going to be much higher than the 50,000 tons for this year. Again, we are tracking that every day, but so that -- what makes us feeling really comfortable on our H&N for this year. Peter? Peter Kazius: Yes. So your point on the pricing, Robert Jan, it was indeed negative in Q1, driven, by the way, by lactic acid pass-through mechanism to the joint venture, with a bit of positive even in some other areas. The price uptake, which I just discussed related to the Middle East, is not included in Q1 and will be only as of Q2, but mainly in the second part of the year. So I anticipate a mild negative in Q2 and then basically returning into positive. If you look in terms of the acceleration of our cost savings program and if I look a bit on the timing and the impact of that, then the saving program, together with the sugar basically, if I look to an impact Q2 already versus Q1, I anticipate an increase of around EUR 5 million. It will be mainly in Functional Ingredients & Solutions and a bit and Health & Nutrition. I want to make one additional comment because you did ask, sorry, I forgot. In terms of kind of additional costs, we did incur some additional costs in Q1 in anticipation basically of this program. Robert Vos: Okay. That's very helpful. One follow-up maybe. Now that you mentioned that there were some costs taken in Q1. I also saw that depreciation and amortization was EUR 23 million in the quarter, which appeared a bit high. Is that a proxy for the remaining quarters? Or did it include some impairments in Q1? Peter Kazius: No, it includes some small adjusted items related to two different elements. One is the divestment process of PLA, as you can imagine. And the other one, which is good news, which you will not see basically in our numbers, but only in -- sorry, H1 is that we had a positive tax outcome in a discussion with the Spanish authorities, which would have a positive impact of around EUR 5 million in terms of tax this year, and we incurred some costs, which are also included in that part. So if you look from a depreciation element specifically, it's around just above EUR 22 million, which is in line basically with kind of the trend in Q2, Q3, Q1 and Q4. Alex Sokolowski: Our next question this morning comes from Fernand de Boer from the Degroof Petercam. Fernand de Boer: Fernand de Boer, Degroof Petercam. Actually I had one question. If I look to the drop in EBITDA in FI&S, you can say, okay, part is because of ForEx, maybe the mix was negative, but still, there is an absolute decline of EUR 10 million. So could you help me out a little bit on the bridge because I can understand maybe that food sales were quite negative in that respect. Peter Kazius: So if you look to the absolute EBITDA, indeed, it is a drop. There indeed currency in it, as you know, because it was $1.05 basically in last year, and it is $1.17 in the U.S. dollar in the average of this year. Then if you look to the delta, there is indeed a kind of negative impact in the equation of mix, price and volume. There is, if you compare to last year, of course, a bit of inflation in that one. We did have some additional costs as I indicated. And the other one is, and it's maybe a bit technical accounting wise, but we do share the kind of bill of SG&A, across the different segments. So that means if you have a reduction of your overall sales, it's also impacting basically the absolute number in... Alex Sokolowski: Our next question this morning comes from Setu Sharda of Barclays. Setu Sharda: Yes. So one question on the volumes, given the soft Q1 start and the ongoing inflationary pressure on end market, on customers, has your base case assumption for the volume growth changed in either division and how sensitive is your FY '26 guidance to a slower-than-expected volume ramp-up in Health & Nutrition? And my second question is on the fish oil contracts. Could you clarify how much of your Nutrition business is currently sold on a spot basis versus under contracts? And when do the existing contracts typically come up for renegotiation? And could you provide like more color on how you are approaching contracting in context of volatile fish oil prices? And my third question is on if you can give more info on the trading, how has been the Q2 trading till date in both in FI&S and Health & Nutrition? And are you already seeing some sort of recovery that you are expecting? Olivier Rigaud: Yes. Thank you, Setu. So on taking your question on H&N and fish oil, basically, if you look to the way we are ramping up the H&N volume and primarily the omega-3, which is the large chunk there, what we see is that, again, across the year -- last year, if you remember, on customer phasing, we had a kind of U-curve and this year it's more a V-curve in terms of the contract. And this is, of course, the pattern -- the ordering pattern of this business, which is volatile quarter from a quarter to another, although we have this now firm contract position for the year, but we have a great visibility on this contracted part. And then, as you know, we are adding more stable sales and predictable sales in both pet nutrition and human nutrition that is now nicely ramping up. So we have -- and there, we have also very good visibility. So if I look to the fully contracted position, this year is very similar in H&N than last year, where we have around about 2/3 of our business and their longer-term contract and 1/3 that is open. To your pricing question, obviously, what is open going forward, we have already proof of evidence that we can pass on already some price increases over the next 3 quarters. And these are roughly double-digit price increase on the open contract related to fish oil. Now, where fish oil is going, as you know, we've seen fish oil prices going from the low $3,000 per ton, now around $4,500, $4,600 sometime. And this is what we are translating. On the long-term agreement, to your second question, we are really not looking to align our pricing on fish oil only. The aim of the game during this 2 to 3 years deal is to have visibility on margin because then we are hedging our sugar. And we do not want to play the commodity game that fish oil is about. So it's about giving really visibility and security of supply to fuel the supply gap to our key customers. And some of them, of course, do share that view, others less, but this is the way we approach it. Now, on the renewal, to your question, we had a contract that was ending by end '25 that we have renewed, and the others we are ending in '26. So it means that we would probably start next multiyear negotiation for the next years in the course of the summer to renew these type of contracts because they're all ending now by end of '26. So that's, I mean, again, what I could say on that. On the inflationary pressure, this is, I mean, a difficult one because, of course, I mean, we see our customers trying to push also price to retail and to their consumers. Now, with what Peter explained and what we are facing with the Middle East crisis and how we're going to push also our sulfuric cost and extra freight costs, these are really pricing we are implemented wherever now we have open contracts, but the vast majority will be implemented as from early H2. So this is what we have and what we are planning. But quite a lot of conversations are going on. I have to say that, on freight, it's different from FI&S than H&N. In H&N, on this large aquaculture contract, we have freight clause in all these contracts where we pass immediately any freight surcharge. It's a lot more limited in FI&S where you have this lag. There's going to be a 3-month lag to push these prices as from the end of July, early August. Setu Sharda: That was helpful. Just one question, like because -- do you see any -- like how is the trading update until now, like have you seen the recovery in Health & Nutrition? Olivier Rigaud: No, it's a pretty good. We have very good visibility on Q2, very good, and it's really a very strong start of Q2 there. So I'm feeling really good, feeling really confident what we see in both divisions actually already in April. Alex Sokolowski: Okay. Our next question this morning comes from Karel Zoete from Kepler Cheuvreux. Karel Zoete: I've had two questions actually in relation to the FI&S business unit because the margin has been, of course, a bit lower than expected in the quarter. But if we zoom out, it's been a couple of quarters in which profit margins are declining instead of going up towards the 14% to 15% ambition level. So in relation to that, what are the incremental savings efficiencies, et cetera, you try to capture now? And the more longer-term question then is the positioning of the business. Where are you losing market share? Or is it simply the exposure to more mature categories in the U.S. that have been under pressure? Peter Kazius: Okay. Let me do the first one in terms of the longer-term trajectory and then Olivier can take the market one from that perspective. And you are right, that you see basically a kind of negative momentum if you look quarter after quarter. And I don't want to be -- but there is always a bit of volatility around it, frankly speaking, a bit of phasing. And I don't want to basically go to all these details. But if you look to Q2, and let's start with that. Then I did mention we anticipate a kind of EUR 5 million impact of sugar and cost reduction savings, of which the majority will be in FI&S, and that will lead to a kind of sizable margin improvement as of Q2, following actually an improvement into Q3, Q4. So with that one, I think that in terms of Q1, we reached the bottom, Karel, from a longer term perspective. If you then say the ambition level is still there, I anticipate for the full year to be higher in terms of FI&S margin than last year, but not to the 15%. Olivier Rigaud: Karel, so on the cost positioning of the business, this is a very valid question. So if you look to the entire FI&S, basically, I'm taking it outside the lactic to PLA that is a longer-term formula contract to the other pieces, basically there is this natural preservation specialty that is where we invest in growth, which is high margin, high growth. And we see even a lot more options around the lactic derivatives, but also the vinegar, the antioxidant and a lot of food ferments that are growing the mold inhibitors. So this is the part we really want to grow and focus on. And this is where we are investing in resources, as well. There is the functional systems that basically is transitioning right now from a pure bakery-only play, where we want to specialize in something that has close synergies with preservation, meaning enzyme cocktail shelf-life extension, and this is a business we are now really simplifying as part of the cost program as well to really simplify SKUs and focus on the high end. So this is really one of the big angle of our cost optimization program that Peter mentioned. And then you have what I call the basic derivatives, lactic -- plain lactic acid that is commoditizing where we basically changed the governance, where we run this business now since January with a new team in a very lean base. And that's the business we also are looking to now restructure, leveraging basically where we have the lowest cost plant in Thailand and primarily the new lactic gypsum-free plant. And this is not where we're going to invest going forward. So the aim is really to have this gradual shift in portfolio to the preservation specialties and restructure the functional systems into the shelf life extension and less exposure to bakery-only business going forward. So that's, I mean, our mission there. Now, as you know, there is still a large chunk of these commoditized lactic acid or less differentiated, if I would say, which is where I think pricing discipline is important, but also cost management. And back a minute to the FI&S margin, as Peter alluded before, we started this program. We presented our new Chief Operating Officer ambition in the CMD as well, where as part of also the new ExCo governance, he kicked off a major program that we embarked on. And of course, in Q1, you see the cost of that program is not a benefit yet. But that's fine, we are planning to develop more around that during our H1 results. So that is to come. Alex Sokolowski: Our next call this morning comes from Sebastian Bray at Berenberg. Sebastian Bray: I have two, please. You have talked about, Olivier, the pieces of movement in terms of last expiry of long-term contracts in '26 for algal oils. If everything were to remain the same as it is today and spot prices for fish oil were to remain the same, assuming that the contracts expire and are then re-struck, is the pricing effect from algal oils for 2027, roughly flat? Or is it different to that? My second question is on the ongoing negotiations regarding PLA divestment. Are there any dissynergies to think of here? Because the current setup of contracting is that there is almost an over-the-fence style cost-plus agreement. Is a buyer interested in, let's say, renegotiating that? Or do the economics in all likelihood remain intact as they are for supply of lactic acid to the PLA JV post divestment? Olivier Rigaud: Thanks, Sebastian. So your H&N question is very relevant. Now, you know, what we said publicly in the past is that these long-term contracts were at that time negotiated between $4,000 and $5,000 equivalent, yes. So obviously, we need to understand the fish oil price dynamic in the coming months when we're going to be at the table of negotiation in the summertime. Now, having said that, if you compare the fish oil price volatility, we know it has been picking up to $8,000 or $9,000 and going down as low as $2,000 in the past. We believe this type of price level are the longer-term sustainable price at the margin we have and we need going forward, and you know this level. So I mean, again, it's a difficult answer because, indeed, obviously, as we are growing volume, we have better and better operational leverage and we should get better margin as we go at this price level between $4,000 and $5,000. And we believe these are the longer-term right level of prices. Now let's see where the fish oil price development going to be over the next month, but again, for these contracts, we want to disconnect from fish oil volatility. On the PLA dissynergies, obviously, you know, and this is not -- I'm not pitching that, of course, the sale of that business, but the combination of this PLA factory next to the largest lactic acid plant in the world and the lowest cost one is very powerful for any new owner of that business. Now, obviously, there is a long-term agreement to supply lactic acid that is in place until 2035 and that would survive any change of control of the PLA JV. And for Corbion, whether we own part of the JV or not, it's a very nice plant filler because this business is, as you know, in these huge lactic acid factories, operational leverage is very important and you really make -- and start to make a lot of money when you run above 80% to 85% capacity. And for us, this plant is a guarantee that we run at really very high capacity rate. So it's quite critical. We remain the supplier, and it's the way also to buffer our two lactic plant on sites, yes. So we see it as, I think, a very nice addition. And actually, it's a deal and a contract with very little, if any, cost. It's a pipeline. So yes, on the front face, the margin might look low, but it has such a huge operational leverage impact on the rest of the lactic that we sell to the preservation and other categories that it's very important. So there are no specific dissynergies that we see from that deal. Alex Sokolowski: Our next question this morning comes from Reg Watson at ING. Reginald Watson: I'd like to come back to the cost cutting, if I may, Peter. Thank you for giving us the EUR 5 million delta between sort of Q1 and Q2. Could you break that down a bit, please? How much of that is the absence of the costs you had to take in Q1? And how much of that is the cost saving? And how much of that is the sugar? And a follow-on question from that is, how do you expect this to build through the quarters in the year? Is this a one-off cost-saving exercise? Or do you see further benefits to come in the coming quarters? Peter Kazius: Yes. No, thanks. So the EUR 5 million, by the way, relates to sugar and cost reduction activities. So it's not even reversing the other basically element. This is a kind of recurring benefit, and I actually think it will increase over the second half of the year as well. Reginald Watson: Okay. And then to that, in terms of the language and Olivier, Peter, feel free either of you to answer this. You mentioned that the sales strength in Q2 is expected to "more than compensate for Q1." As analysts, we're too hung up on quarterly volatility, if we look at first half in the round, do you expect them to deliver positive volume for -- sorry, positive sales with particular volume mix for the business as a whole? Peter Kazius: So if I look for, let's say, the business as a whole in terms of volume mix, then for the first half, I do anticipate indeed a kind of positive elements. If I look in the combination a bit, then Health & Nutrition, I see a recovery, but that is around kind of the same. If you look in terms of price, I think I alluded in terms of FI&S, I anticipate in Q2, still a mild year-on-year price reduction, driven by lactic acid to PLA and then basically reversing of that trend in the second half of the year, driven by the growth which we made on Middle East and partly pricing that's true. In terms of Health & Nutrition, if I pick pricing, then we had a kind of 4% pricing delta. I anticipate a mild kind of price erosion during the remainder part of the year. Reginald Watson: And then final question from me. How is the ramp-up of the gypsum-free lactic acid plant going? Where are you at on continuous capacity utilization? Olivier Rigaud: So Reg, so where we are, as you know, the plant is designed on 125,000 tons of lactic acid. We are now approaching really the 100,000 tons type of level on that plant, yes. And it's also important that -- because we've discussed that in the past as well. It's also because these are significant additional volume we put in the market that we -- it's important we also put that in the market wisely, also making sure that, yes, we do not come with large volume that would necessarily impact our margin anywhere. So there is a conscious ramp-up that we have as well on this. Obviously, the sooner we can fill it, the better, but we see a very nice upside on the remaining part of the year on basically PLA that is requiring a lot more globally. And that's, I would say, to me, quite an important statement because, as you know, the conversion ratio usually between lactic and PLA is 1.4. So you need 1.4x lactic to PLA. So when PLA grows, it's really accelerating massively the need of lactic acid. And we see that for our JV, but we see that also for Chinese players right now. And that's something that when we look to the whole balance of lactic market, it would be really helpful to see how Corbion can leverage on one side, the fact that we have a competitive position because we are gypsum-free. And we know our main competition is Chinese. The second is, if you look over the last 6 months, there is quite a positive trend in the favor of Corbion when we look to the carb cost, the sugar -- the Thai sugar cost versus Chinese cost and all our competitors in China are on corn. So the ratio is again back in favor of Thai sugar since September last year. So it's already 2 quarters. And that, I think, going to support also Corbion margin going forward. Reginald Watson: Okay. So I'm really pleased to view that you're running that plant at 80% capacity utilization because that must be driving efficiencies in terms of variable cost of production, et cetera. So that must make it probably the most cost-efficient plant in the world for lactic acid, Am I wrong with that? Olivier Rigaud: No. You're right. But primarily right now with the Middle East, this is the only plant in the world with no sulfuric acid because this -- the whole story about, of course, as you know, conventional lactic process is that you are using lime and then you need sulfuric to precipitate into gypsum. Reginald Watson: Yes. Olivier Rigaud: And the reason why we developed that process over the years is to have no gypsum, hence, you don't need sulfuric. So that's a big competitive advantage, primarily these days with what's happening in the Middle East. Reginald Watson: And then does that mean then that the cost benefit of the ramp-up is now already included in the numbers? Or should we continue to see more benefit to come from any further utilization, any further ramping of this, through the year? Olivier Rigaud: We have already factored in, in our outlook what we think we're going to achieve in terms of capacity this year. So the rest, we keep for '27. Alex Sokolowski: Very good. And our last question this morning comes from Eric Wilmer at Van Lanschot Kempen. Eric Wilmer: Yes, two remaining questions, brief questions, actually. Given that sugar prices or sugar costs actually have come down year-on-year, might this actually result in market dynamics and forcing lower product pricing for functional ingredients during the remainder of this year? And maybe on customer behavior, are there any signs of -- given the current disruptions, customers stocking up your product, you mentioned sulfuric acid supply chain issues. And maybe actually also a third one then on transportation costs. You talked about obviously increasing them. I was wondering to what extent are customers receptive, different from what they may read. Energy costs have actually started to come down a bit again. And I've been hearing that this is not always a very straightforward discussion. Olivier Rigaud: No, I think, Eric, so good point. So basically, I think, we have -- except -- I mean, again, in a few large U.S. contracts, and of course, the joint venture of PLA and sugar-related costs is not something we have really widely spread. So obviously, key customers do track, of course, input cost. But in terms of competitive dynamic, today, it's getting really about, as you know, our critical competitors in lactic are in China, and they are based on corn. So the important is to look to the Chinese corn versus New York 11, Thai sugar or Brazilian sugar. So that's one. And this is what plays in the competitive dynamic. On stocking, we -- I mean, we don't see that because -- of course, the situation has been heavily complexified with tariffs and still is. And what we see is that the advantage of Corbion being the only lucky producer having a plant in each geography is really helpful for us. So there are different dynamics if you look to the U.S., where we have our plant in Blair, Nebraska, in Brazil, in Campos dos Goytacazes, in Thailand. So we do not anticipate any extra customer stocking. On the opposite, we see people being so tight on working capital that we have a lot of rush orders, a lot of last minute which are creating other issues. So that's what we see. And on freight cost, yes, of course, as I said, Health & Nutrition is very different than FI&S. In Health & Nutrition, all the large contracts do have a freight clause that we review on a quarterly basis. So if freight costs are, let's say, improving or declining in the next quarter, we would apply it and vice versa. In FI&S, it's very different. And as you know, we have a big route that is impacting Corbion, where most of the European lactic acid is freight from Thailand to Europe. And this is a very large volume because this is the feedstock for all the derivatives we are making into our Spanish and Dutch operations. So that's an important one for us, where basically, we have more choices than to push these extra freight cost to the market. And this is what Peter explained what we are busy doing and what we have to do. Alex Sokolowski: Okay. This concludes our conference call this morning. Thank you all for your attendance and questions, and we look forward to discussions at upcoming conferences in the next weeks. Please note that we will hold our Annual General Shareholders Meeting on May 13, 2026, in Amsterdam, and our Q2 half year '26 results on July 31. Information on both meetings is available on the Investor Relations page of our website, and we look forward to engaging with you again. Operator, you may close the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Tom Erixon: Hello, and welcome to Alfa Laval's first quarter report. Fredrik and I will share some time going through the details. Because of today, we also have an AGM starting relatively soon, we need to limit this call to 45 minutes. So our apologies if our Q&A session is slightly short. With that, let me, as always, go to some first introductory comments before moving on to the presentation. So first, overall, we felt we had a stable quarter, well in line with our expectations. The pattern of a strong transactional business and a hesitant project business continued in the quarter. Second, the implementation of the new operating model continued in a high pace with adjustments to the financial reporting, management appointments and consolidation in various areas. The financial weight of the changes during this process was limited in the quarter. And then finally, with the war in the Middle East, our main priority has been employee safety in the region and appropriate customer support in difficult times. The financial impact on Alfa Laval was limited in the first quarter and medium term, the energy crisis may provide both some downsides and some upsides across the world in terms of our customer base. So with that, let me go to the key figures. We started '26 well with order intake growing sequentially and with a 6% organic growth compared to last year. Sales was on the low side, partly because of a very high invoicing towards the end of 2025. Despite the lower invoicing and big currency movements, the margin improved slightly to above 18%, mainly due to a positive mix. Moving on to the Energy division. Demand was as expected on a very high level across many end segments, and with a continued recovery of volumes in HVAC, including the heat pump market. The data center business was as expected, strong and continued to grow in the quarter. Going forward, we are now starting to build the data center order book for 2027. We are, of course, concerned for our customers in the Middle East with the damage inflicted on critical infrastructure. The rebuilding process in the region is not clear to us at this point, but we are ready to put all available resources to support the regional needs in the years to come in this very critical situation. Then to the Food & Pharma division. Demand was firm with a 9% organic growth in the quarter. While the transactional business was on a new record level, it was gratifying to finally book sizable oils and fats projects in Brazil, including biofuel components. The outlook for biofuel projects is improving gradually with a viable project pipeline going forward. The consolidation of the BU structure continued in the quarter and in addition to building the future growth platform for the Pharma business. In the Ocean division, we remained as expected on a lower order intake pace compared to the record last year. But at the minus 12% organic decline, it was still a good quarter and better than expected. Ship contracting at the yards was very active due to high freight rates and longer shipping routes. It had a positive effect on orders in general and for cargo pumping specifically. In this application, we are now starting to build the order book for 2028. The energy crisis may trigger additional offshore projects outside of the Gulf to gradually compensate somewhat for the shortfall of volumes. It may impact our offshore business in a positive way going forward. The margin remained stable at around 22% based on the solid order book, which will continue during 2026. Then on to Service. On group level, we remained at about 30% of orders in Service for the Ocean division higher due to the slightly lower capital sales and for the Energy division, the opposite at 25% of total orders due to significant growth in capital sales, especially on the data center side. Volumes were perhaps a little bit on the low side overall and flat compared to last year. We expect to regain the growth path in service going forward. In the Ocean division, there is a negative effect though from sanctioned ships that we cannot serve amounting to about 5% of the global fleet at this point. In addition, there is significant stress on ships and crews in the current crisis, which may delay some service work further. In general, though, as I said, we expect to return to growth in the year. A couple of comments on the top markets and regions. As you know, China and the U.S. are 2 top markets in some time, and both developed well in the quarter with the U.S. on a new all-time high. Our expansion plans in both markets continued with full speed with several site investments in both countries. We also added a smaller Chinese heat exchange companies to the group, supporting their growth plans as well as creating a better coverage of the Chinese market for Alfa Laval as a whole. In terms of the regions, please note that the numbers includes currencies, so they're not the organic. They are the overall growth numbers. And as mentioned, North America and Latin America had a very strong quarter with significant growth, especially in the North America. Europe was flattish with the exception of Eastern Europe that grew well in the quarter. Middle East and India, both faced headwinds due to the ongoing crisis and the energy crisis, and that was reflected in the order intake at this point. And in fact, both India and Southeast Asia are the 2 regions with the biggest short-term exposure to the energy crisis at this moment. Finally, Northeast Asia had a good quarter overall. But of course, they are impacted by the very high marine orders from Q1 last year. Other than that, China and Northeast Asia developed well in the quarter. So that's a summary where we are on that. And I'd like to hand over to Fredrik for some further details. Fredrik Ekstrom: And thank you, Tom. So moving on then to some comments around orders received. But before I start I have some additional comments on order intake and a quick word on the change. We have adopted an order intake approach that reflects new orders in the quarter only, meaning revaluations of the order book are not deducted from the order intake. This is highlighted and explained in more detail in Note 1 referring to accounting policies in the quarter 1 report. And now to some additional comments on order intake. A clear impact on the comparability of figures is currency rates, where the SEK has appreciated against both the euro and the U.S. dollar over the last 12 months. This impacts the comparability with almost 10%. The structural component is related to acquisitions and mainly due to volumes of the acquired Cryogenics business. Organic growth in the quarter exceeded 6% with the Energy division accounting for a good part of that increase with growing data center volumes and a recovery in the HVAC end markets. Food & Pharma also noted a strong organic growth intake in its 2 largest markets, oils and fats and dairy while the Ocean division remained stable with a normalized marine pumping systems order intake. The order book closed in the quarter at SEK 48.7 billion compared to the SEK 48.3 billion at the year-end 2025. SEK 32.1 billion of this is scheduled for invoicing this year. The current order book supports a continued good invoicing level and the order book is assessed to be in line with current input cost levels and the book-to-bill in the quarter was 1.11. On to sales. Currently, we are only experiencing minor disruptions to our supply chain related to the escalated geopolitical tensions, primarily the conflict in the Middle East. Once again, we are impacted by currency with almost 9% negative comparability. Organic growth at almost 2% with a structural contribution of 3.8%. The aggregate impact is negative with 3.3% with a quarter sales level of SEK 15.9 billion. This level, which is somewhat lower than expected, is affected by delaying -- delayed invoicing of projects to a minor extent, transportation disruptions, particularly related to the Middle East and normal seasonality from quarter 4 to quarter 1. Our gross profit margin was on a high level of 39.9% compared to 37.5% in quarter 1 2025. The positive data can be traced to an accretive invoicing mix of transactional business and service, a strong factory in engineering result and good purchase price variances from cost levels set in our standard costing. On the cost side, S&A increased with 1.9% in the quarter and R&D with 4.2%. Approximately SEK 75 million cost increase in the quarter was related to the new divisional structure. Amortization of step-up values increased to SEK 174 million, reflecting the acquisitions made during 2025 with majority related to the Cryogenics business. Taxes also landed within guidance range and operating income in the quarter landed at SEK 2.7 billion. And finally, an EPS of SEK 4.59 with the majority of the deviation stemming from lower invoicing and currency impact. Adjusted EBITDA of almost SEK 2.9 million was, as previously mentioned, supported by a strong factor in engineering result, positive purchasing price variances and an accretive invoicing mix of transactional business and service, negatively impacted by currency with SEK 264 million and SEK 75 million related to the new divisional structures and strategy initiatives. 18.1% adjusted EBITDA margin in the quarter exceeded the 17.7% in quarter 1 of 2025 and is well above our target level of 17% over a business cycle. On debt levels, they have increased from quarter 1 last year, reflecting the financing of the Cryogenic acquisition. In the quarter, we have an MTN bond of EUR 300 million that has matured and been repaid. SEK 1.2 billion in commercial papers was issued, and we expect to issue a further amount of commercial papers during the coming quarter to cover the upcoming proposed dividend of SEK 3.7 billion. Net debt in relation to the last 12 months EBITDA was just shy of 0.7. The increase in lease liabilities reflects the balance sheet impact of renewed long-time leases for some of our operating footprint. Cash flow in the quarter saw a strong EBITDA contribution of SEK 3.7 billion. Working capital change had a negative impact of SEK 1.5 billion, where the majority comes from the building up of work-in-progress inventory and a strategic buildup of buffer inventories for some commodities that we believe are at risk of disturbance from the disruptions that are caused by the conflict in the Middle East. Capital expenditures were somewhat below guidance at SEK 529 million and yielded a free cash flow before acquisitions of SEK 708 million. Acquisitions in the quarter accounted for a cash flow impact of SEK 565 million, stemming from the majority share acquisition of the Chinese heat exchanger manufacturer and a SEK 50 million share in Industrikraft. Finally, the contribution of financing activities is related to the repayment of the EMTN bond of EUR 300 million and the issuance of commercial papers of SEK 1.2 billion. Finally, some financial guidance going forward. We expect CapEx to remain high but stable within a range of SEK 0.6 billion to SEK 0.8 billion in the next quarter and a whole year level within the range of SEK 2.5 billion to SEK 3 billion. Amortization on about the same level of quarter 1 with SEK 175 million and in the next quarter and SEK 600 million for the entire year. And finally, a tax interval of 24% to 26% for both quarter 2 and the entire year. And with that, I hand back to Tom for some forward-look commentary. Tom Erixon: Thank you, Fredrik. And while history is clear, obviously, forecasting in today's environment is somewhat complicated. We don't consider that the looming energy crisis and the war in the Middle East is having any major impact on our outlook in this moment in time. In general, we are somewhat more optimistic about the year now than when the year started about a quarter ago. And demand specifically sequentially for this year in the second quarter is expected to be on a group level, somewhat higher than the first quarter. And on a divisional level, we expect the Energy division to remain on the current all-time high level in the second quarter. We expect demand in the Ocean division to be higher than in the first quarter and we expect the Food & Pharma division to remain at approximately this level with both some upside and perhaps downside depending on how larger projects are materializing in the quarter. So that's where we are in terms of our forecasting in a crystal ball. And with that, I'd like to open up for questions. Operator: [Operator Instructions] The first question comes from the line of Daniela Costa from Goldman Sachs. Meihan Yang: It's actually Meihan here. I just want to have 1 question on data center business. What is the percentage of the energy businesses is data center now? And do you see a difference on the order intake trend on liquid cooling versus air cooling? And what's the ASP difference on those 2 products for you? Tom Erixon: If we move back 1 quarter, we then stated that the 12-month rolling order intake on the data center side amounted to approximately SEK 2 billion. If we move up to this quarter, now 1 quarter later, the ongoing rolling 12 months is at around SEK 2.5 billion. Obviously a bit higher in this quarter specifically, but over the last 12 months, that's what it is. So it's a clear growth trajectory as we have indicated earlier. We remain on that growth territory right now. I don't have in my head the split between air and liquid cooling, but what we have in the plans, and it's pretty clear is that we will have fairly slow, but still a meaningful gradual shift towards water cooling in the incoming orders. But I believe we are still clearly in the majority of the air cooling if I take it from the hip. We can confirm to you later on. But I think that's where we are. Operator: The next question comes from the line of Kim John from Deutsche Bank. John-B Kim: I'm wondering if you can help us kind of square the circle here. If you look at Clarksons data, I think you had some pretty good activity in tanker contracting. I'm trying to think about that and the cadence of your order intake, not just for Q1, but potentially through the rest of this year. Is that something that would have shown in your numbers at some point in time? Or is this still to come or am I misinterpreting here? Tom Erixon: No, I think we came in a bit stronger on the order book for new contracting in this quarter than we had expected when we started. As you know, the outlook -- your outlook was a little bit gloomy when the year started. I think right now, we are at the -- the count is at around 500 ships this year so far, which is significantly higher than last year at the same date. And so it looks like we are coming into a decent year of contracting and we saw a little bit of those effects and a little bit higher product tanker contracting than expected in the beginning of the year. And in March, we had a bit of effect on that, and we may very well have something on that kind also in Q2. Operator: The next question comes from the line of Gustaf Schwerin from Handelsbanken. Gustaf Schwerin: I have a few. Maybe starting with the invoicing level in Q1. Can you give us a sense of the magnitude of sales delay here? And also if this is an effect of customer decisions or something else? That's the first one. Tom Erixon: I'd be a little bit careful in sort of using the delay. What you should be aware of is that after the SEK 19 billion in invoicing in Q4, obviously, sort of we went a bit all in on the invoicing side towards the end of the year, and that had some spillover effect into Q1. We are shipping products on normal delivery times a normal delivery commitments without any major disruptions on our side. I think the difficulty we sometimes have is to predict exactly the percentage of completion. And so those payment schedules, typically they don't get accelerated. But for various reasons, in larger projects, the execution of those projects, they moved the time line a little bit here and there in terms of commissioning and final payments. And so I don't want to -- it's not an -- we're not looking at an operational problem. It's just a bit of seasonality between Q4, Q1, and perhaps not a perfect bridge to the timing of invoicing in the number of projects. Gustaf Schwerin: Okay. Secondly, on energy orders, clearly stronger than we had expected and also better than the comments you had back in Q4. I mean the main positive delta there is data center. Is there something else that's stacking out? Tom Erixon: I think there was a lot of things sticking out actually. I think the transactional business in Food & Pharma went to a new all-time high after a fairly strong Q4. That was not exactly in our mind at the time. The slight improvement on the ship contracting side was not exactly in our mind at the time. And maybe even the HVAC side, although we saw a turn already in Q4 last year. We picked up a bit better on that as well. So I think that there have been a number of contributing factors. So it sounds like I'm all super happy with all of the order intake. It's not -- that's exactly true. If we have 1 miss in the quarter, I think that is related to the service side, which is flattish compared to last year. There are some maybe small structural temporary reasons around that. So we feel fairly committed that we're going to return to a growth path for the rest of the year. But as an individual quarter, we didn't quite see the organic growth in service that we've been used to for the last 6, 7 years. Gustaf Schwerin: Perfect. Just lastly, the comment in the CEO letter around escalating cost inflation and you potentially considering price increases by midyear. I mean, how should we read that? As we stand now, do you foresee a material change in your cost base Q2 versus Q1? Tom Erixon: It is a reflection that the energy crisis we are going into is clearly, macroeconomic-wise continuing to drive an inflationary environment that has been higher than we've been used to for a long period of time, and we haven't got the grips with it. And this process that we have of escalating energy prices is not helpful in the current inflationary environment. We see specifically issues in part of our bill of materials. We see a bit of challenge on the logistical cost, and we are just not prepared to passively watch that escalation go on. And we are, by the way, not sure that this problem is over. And we are now returning back to some sort of normality on the energy side. So I think we created a bit of inflationary way ahead of us. And as we did last time when we had this problem, we will prefer to deal with it proactively rather than afterwards. But it's no -- it's nothing specific on Alfa Laval's sourcing mix or exposure that puts us in a different position than anybody else. I think you will see a number of companies doing the same thing. Operator: The next question comes from the line of Andreas Koski from BNP Paribas. Andreas Koski: Two questions. First on HVAC, where you're seeing the recovery continuing. Can you -- do you have a good feeling of how the distributors' inventory levels are today? Is there a possibility that we will see both end market demand improving at the same time as the distributors have to restock a lot after the destocking that we have seen over the many years? Tom Erixon: I'm looking at Frederik. Listen, I think I think we are -- when we look at the... Andreas Koski: I can ask it this way instead, if you want. I mean when we look at HVAC in the past, we were at a quite high level. And I think the heat pump business was at a total of around SEK 3 billion, and now we've been below SEK 1 billion when it comes to the heat pump business. So is there a possibility that we will reach the previous peak that we saw a few years ago in the... Tom Erixon: I think -- all right, let's take it from there. I think we actually peaked at around SEK 2 billion, if I remember correctly. And we've been partly down in the pace that has been below SEK 500 million. So this has been a really significant destocking. And we've seen now for a couple of quarters that the volumes are picking slowly up, and they were picking up a little bit faster in Q1 than before. But I don't think there's a lot of inventory, certainly not excess inventory in the systems right now. I think we are looking at -- we're looking -- we are still on less than half of the peak. So I think we are balanced with the market. I think the big question for us is how much? There's a number of questions as to the current energy crisis, how will it affect our business in offshore? How will it affect the electrification, the move to heat pump and a number of other areas. And so there are some upside coming from the current energy crisis in terms of energy resilience and diversification that may put some extra volume growth into the market. But otherwise, we expect a fairly slow growing heat pump market in Europe. And we expect to be maybe back towards the -- the then record levels early as 2030 or so. So it is -- that's our main business case. But of course, we may see increased subsidies and increased push again, higher gas prices and so on, that is again favoring the heat pump market. So it is kind of an upside, but I would not look at that upside as more than maximum SEK 1 billion or so, if I were you. Andreas Koski: Okay. Great. And then coming back to Gustaf's questions about potential price increases. And you mentioned that you're seeing inflation picking up. But can you just remind us how you are impacted by the tariffs? And if there will be an incremental impact for you because of the updated Section 232 tariffs? Fredrik Ekstrom: Yes. So as Tom expressed, I mean, the inflation that we're seeing is probably ahead of us, and it comes in the form of being -- staying close to our suppliers, and there's a signaling that for a lot of the energy-intensive inputs that we have into our products that, of course, that's being driven up by the current energy prices. That's one part of your question. And to the second part of your question, yes, there has been a shift in the so-called Section 232 or an update of it. I believe it was the second of April that the update went through. Our assessment when we look at it and we look at it from the different product groups and the different supply chains that we have is that it's fairly neutral for us. We don't see that we have a big impact neither negatively nor positively. There are some negatives and some positives, and they weigh out in the end. But of course, we keep a close eye on this. And you have to remember that when I say different supply chains. We have everything from delivering finished units to delivering components for assembly in the U.S. to spare parts and then there's whole host of supply networks around there that come from Mexico, Europe, China and so forth, it's a little bit different, but our assessment as it stands today is that it doesn't imply any major changes to the cost of tariffs as we have it today. And to be clear, from the new level that was set after the previous round of tariffs was deemed illegal. Andreas Koski: Understood. And then lastly, on the updated way of how you will present your order intake and that you will not include cancellations and revaluations. When you write about the order book in the text, in the report, will you there mention if you have had revaluations and cancellations? Or will we just see the order book development basically? Fredrik Ekstrom: Yes. No, you will see the order book development for certain. And referring to that change, I will remind you that when we went into quarter 1 last year and we had the big movements of the NOK and the U.S. dollar, in particular, to pumping systems where we had a revaluation of backlog that was reflected in our order intake at that point in time of almost SEK 800 million. And so the critique or the feedback that we got from the market was you're not really reflecting the demand and the new orders as you get them on the market if you're actually netting out revaluation. So this was a little bit a response from our side to say, let's align ourselves with the way the market is getting this information from other peer companies. So it was a little bit in response to that. So we don't see it as anything dramatic. I think the new number clearly reflects what the real demand is on the market and what the new orders in the quarter are. And I take on board your feedback on whether we should include it into the backlog in the report. Andreas Koski: No, because there is -- when I look at it now, there is a possibility that you have had some cancellations, which would also be interesting to know about, actually, because the order intake was SEK 1.6 billion higher than sales, but your order book only increased by SEK 400 million in the quarter. And that's why I was wondering if you would have mentioned in the text if you had cancellations or revaluations, but I understand that you... Fredrik Ekstrom: But I take it with me and just to answer the question, the lion part of that change is revaluation due to currency. Operator: The next question comes from the line of Klas Bergelind from Citi. Klas Bergelind: Sorry, I joined a bit late, maybe you covered some of this. So first, on Ocean, the higher demand you see into the second quarter. I'm trying to understand the dynamics between cargo pumping versus offshore and then rest of Ocean. Is this a step-up you see in cargo pumping or in the other categories, i.e., ex Framo? The reason for asking is that it typically take some time from contracting improvement until you see improved orders outside Framo. So that dynamic would be interesting. Tom Erixon: Yes. You're asking for a lot of granularity here. So I'm a little bit hesitant to meet your question too much. But as I indicated before, part of a slightly stronger order intake in the ocean than we perhaps expected for Q1 was related to higher product tanker contracting that had some effects at Framo. And it's possible that, that, to some degree, will continue. But don't keep me hostage for doing product-by-product prophesies. All in all, we see a slightly more favorable environment on it, and then you have to do a little bit of your own risk assessments there. Klas Bergelind: All right. Fair enough. My second was on the heat pump side. Did you say that there is a quarter-on-quarter improvement already in your orders now within HVAC? Or is this a sentiment improving? It feels a bit early that we would have a broad-based improvement in heat pump orders. I mean maybe in certain countries, but I'm just interested in what you said there. And sorry, I was late on the call, maybe you talked about this. Tom Erixon: Yes, we did but no problem. But there has been, over the last couple of quarters, a clear improvement in the volumes. Now I would say that the big part of that has been the completion of the destocking process, which was getting completed towards the end of last year as far as we could judge. And if we were correct in the depletion of excess stock towards the end of this year, then the first quarter order intake on heat pumps were reflecting a better production plan and a stronger production plan at our customer site in terms of their expectations into Q2, Q3. So we had a pretty clear growth at that point in time. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Tom Erixon for any closing remarks. Tom Erixon: Thank you very much. Thanks for being. It's a very busy day for all of you guys. So we appreciate taking the time and we're going to be off to AGM. And so hopefully meet some of our investors there. So thank you very much for your attention, and see you next quarter. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your line. Goodbye.
Operator: Good day, and welcome to the Stifel Financial's Q1 '26 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Joel Jeffrey, Head of Investor Relations. Please go ahead. Joel Jeffrey: Thank you, operator. Good morning, and welcome to Stifel's First Quarter 2026 Earnings Call. On behalf of Stifel Financial Corp., I will begin the call with the following information and disclaimers. This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at stifel.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Stifel Financial Corp. does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. I will now turn the call over to our Chairman and Chief Executive Officer, Ron Kruszewski. Ronald J. Kruszewski: Thanks, Joel. Good morning, and thanks to everyone for joining us. In the first quarter, we delivered very strong performance. Net revenues of $1.48 billion were up 18% from a year ago. That includes a nonrecurring gain from the sale of Stifel Independent Advisers, which closed in February, which was partially offset by interest on a legal judgment. We've excluded both from our core results. Excluding the SIA gain, revenue grew 15%. Either way, it was a record first quarter and regardless, it's the growth rate comparable to the best firms on The Street. Earnings per share were $1.48 on a GAAP basis and $1.45 on a non-GAAP basis compared to $0.33 last year. That's a significant improvement, so I want to be transparent. Last year's results were impacted by $180 million legal accrual, which was unusual to say the least. Adjusting for that, EPS was up 32% on a comparable basis. Our annualized return on tangible equity was nearly 25%. We expect 2026 to be a good year, and the first quarter reflects that, yet the environment has become more uncertain. Against a backdrop of escalating geopolitical risk, energy prices have risen, credit spreads have widened and interest rate uncertainty has increased. The wildcard remains the conflict in Iran and its potential impact on energy prices, inflation and ultimately growth. But I'd like to note that unlike some of our larger peers, Stifel's business model isn't built around trading volatility. We have a trading business, but it's client driven and relationship oriented, not structured to capitalize on market dislocations. Delivering these results in a volatile quarter tells you something important about the durability and diversification of what we've built. Our growth was broad-based. Global Wealth Management delivered record first quarter net revenue driven by record asset management revenues and growing adviser productivity. We also generated record first quarter investment banking revenue, producing a record first quarter for our Institutional business. Our firm-wide pretax margin was more than 22%, reflecting continued robust wealth management margins, coupled with an institutional pretax margin of nearly 20%. It is noteworthy that this metric improved nearly 1,300 basis points from last year, benefiting from both revenue growth and our international equities restructuring. Jim will provide more detail on that. Look, at the risk I cite remain within a range of market expectations, we are confident in the strong 2026. That confidence is grounded in something more than one quarter. Let me put these results in the longer context. Stifel is a company that both grows and understands the concept of return on invested capital. We've scaled revenue from about $100 million in 1996 to roughly $6 billion today, and we're targeting $10 billion in revenue and $1 trillion in client assets. We grow and we grow the right way. That long-term philosophy also informs how I think about some of the questions dominating every earnings call so far this season. For each one, I want to tell you what Stifel is doing and share my observations about what I'm seeing in the market around us. The first is AI. Across Stifel, we're seeing real benefit from our AI investments. The technology enables our advisers, our investment bankers, our commercial lenders and support teams to work faster and smarter. In every case, we're working to enhance client relationships with AI, keeping our professionals at the center of the value proposition. The opportunity here is significant. We are in the early process of linking our data to these new tools, and there is a lot of work ahead, but the early results give me confidence that we're on the right path. But I'd be less than candid if I didn't raise the concern about frontier models like Mythos that are becoming an entirely new category of technology as recently as a few weeks ago. I'm not sure any of us really fully understood what Mythos was, possibly even those that create it. And the next version, as I understand it, is already in development. Models this powerful increased capability on both sides of the table, for those defending and for those who would do harm. And if you ask me what our industry needs to get right before anything else, the answer is cyber, not just for Wall Street. This requires a national response. I have consistently said that this is an issue of national security. The second is credit. At Stifel, our lending philosophy has never been built around chasing yield. We treat lending as a relationship-oriented business, not a volume-driven growth engine. The headlines this season involve specific credit situations. First Brands, Tricolor, Medallia, where aggressive structures, weak collateral monitoring and in some cases fraud drove the losses. People had essentially 0 exposure to any of them. As an aside, the more recent concern has been about liquidity in private credit vehicles. Some funds are limiting withdrawals, and we're seeing secondary market participants offering liquidity at significant discounts to NAV. It reminds me of the scene in It's a Wonderful Life where Potter is trying to buy Bailey Building & Loan shares at $0.50 on the dollar during a run on the bank. The underlying assets haven't changed. But when everyone rushes to the exit at once, the gates come down. That's a structural issue. The third consistent question is around software loans. I've read the predictions that every software loan is essentially worthless given AI disruption. To put some numbers to Stifel, our software loan exposure is approximately $500 million on a $43 billion balance sheet, not a material number. The more important point is that we have reviewed our software exposure carefully. And while there are always normal pockets of stress, we don't see the broad credit issues that the headlines suggest. The fourth is legislation and market structure. Two questions are dominating this debate right now, stablecoin yield and tokenized equities. Let me tell you where Stifel stands on both. On stablecoins, we will offer them. But in my opinion, if a stablecoin pays yield, that's a deposit, subject to capital requirements, AML, BSA and the full framework of bank regulation or if the yield comes from investing in the underlying fund, then it's a money market fund. Follow those rules. Legislation should not create a third option that avoids both. On tokenized equities, we will build the capability to offer, settle and trade them. But in my opinion, the regulatory framework should follow the underlying assets, a tokenized Apple share is still Apple stock. Every rule that applies to that stock, disclosure, best execution, settlement finality, investor recourse applies to the token. The technology changes the delivery. It doesn't change the obligation. And for those who say this is about protecting the incumbents, if that was true, we wouldn't be building the capability at all, but we are building this capability. The principle is simple, a deposit is a deposit, a security is a security, custody is custody. Nearly a century of investor protection wasn't built to apply only to some participants. The technology doesn't change that. I've discussed AI and software disruption, credit markets and legislation and market structure. In each case, I wanted you to understand both where Stifel stands and my observation about what's happening around us. Over the last 30 years, we have shown a consistent ability to adjust to economic and technology change. Global Wealth Management is growing, our institutional pipelines are strong and our investments in the innovation economy through venture lending and deposit generation are paying dividends. Bottom line, what I see is a firm that is very well positioned. So Jim, please take us through the numbers. James Marischen: Thanks, Ron, and good morning, everyone. Before I jump into the financial results, I'll remind everyone that the EPS numbers are reported on a split-adjusted basis following our 3-for-2 stock split that was effective in late February of this year. Turning to the results. Total non-GAAP revenues of $1.44 billion was right in line with consensus estimates. Investment Banking was a primary upside driver, exceeding expectations by $8 million or 2% as the number of transactions closed late in the quarter. Advisory revenue was the primary driver of the beat. Transactional revenue came in 1% below expectations, but increased 7% from the prior year. I'll cover the components in more detail when we get to the Institutional segment. Asset Management revenue was modestly above consensus and increased 12% from the prior year and was driven by market appreciation and net new asset growth. Net interest income came in at the lower end of our guidance and $3 million below consensus. I'll cover the details and the second quarter guidance when we get to the Global Wealth Management section, but to highlight the miss to consensus expectations was driven by lower corporate or nonbank net interest income. Expenses were well controlled and benefited from the strategic actions Ron referenced earlier. Both our comp ratio and noncomp expenses came in below consensus. The effective tax rate was roughly 23%, slightly below both guidance and consensus due to improved profitability from our non-U.S. operations. Turning to Slide 4. Global Wealth Management generated $932 million in net revenue, the strongest first quarter in our history and essentially in line with last quarter's record. Results were driven by record Asset Management revenue and growth in net interest income. These results are particularly strong given the sale of SIA reduced our transactional and asset management run rate for 2 months during the quarter. We ended the quarter with total client assets of $539 billion and fee-based assets of $220 billion. Excluding the SIA impact, total client assets and fee-based assets were essentially flat sequentially despite the equity market decline as net new asset growth was in the low single digits and was offset by market depreciation. Our recruiting pipeline remains robust, though activity is episodic and dependent on changing competitive and market dynamics. Over the last 12 months, we've recruited trailing 12-month production totaling approximately $80 million, which does not include the impact that recruiting has on net interest income. Our client-driven balance sheet continues to enhance both earnings consistency and client engagement. As I mentioned, net interest income came in at the lower end of our guidance due to slower loan growth as market volatility impacted fund banking late in the quarter, more than offsetting growth in residential mortgages, securities-based lending and C&I loans. Nonbank interest income, particularly within corporate interest and securities lending, was approximately $3 million lower than originally forecast. For the second quarter, we expect net interest income in the range of $280 million to $290 million. Client cash balances increased meaningfully during the quarter. Sweep balances increased by more than $670 million, while non-wealth client funding increased by nearly $1.2 billion reflecting strong momentum from our venture group. Third-party money fund balances increased by nearly $200 million. We have significant funding to grow our loan book. While loan growth in the first quarter was slower than originally forecast, we've already seen fund banking activity pick up in April, and we are maintaining our full year guide of up to $4 billion in asset growth. Turning to Slide 5. Our Institutional Group posted its strongest first quarter in our history. Revenue was $495 million, up 29% year-over-year, driven by record first quarter investment banking. Investment banking revenue totaled $341 million, up 44% year-over-year, coming in slightly above our recent guidance due to the number of transactions closing late in the quarter with a particularly meaningful contribution from our new partners at Bryan, Garnier. Advisory revenues increased 59% to $218 million with continued strength in financials, industrials, consumers and health care. Equity capital raising was $67 million, our second strongest first quarter result with increased issuer engagement led by health care, industrials and energy. Fixed income underwriting of $50 million was up 9% year-over-year driven by increased public finance activity and higher corporate issuance. We remain the #1 negotiated issue manager in public finance by deal count with nearly 15% market share and are also seeing increased success in larger par value transactions. Investment Banking and Advisory pipelines remain very strong. That said, the pace of realization will depend on the geopolitical and economic factors that Ron mentioned earlier, including energy prices, credit spreads and interest rate uncertainty. We continue to anticipate a strong 2026. Transactional revenue increased 4% year-over-year, driven by a 12% increase in fixed income revenue reflecting increased client activity from market volatility. Equity transactional revenue was down 7%, entirely reflecting the European restructuring. Excluding that impact of a $9 million year-over-year decline due to those restructuring efforts, our core equity transactional business grew by 10%. This was always -- this was also the primary driver of the nearly 1,300 basis point improvement in our Institutional pretax margins year-over-year. While we've made significant progress in our non-U.S. operations, the first quarter benefited from some larger advisory fees and results will not be linear over the remainder of the year. Moving on to expenses. Our comp ratio of 57.5% was at the high end of our full year guidance and down from 58% a year ago. We are certainly conservative in our comp accruals early in the year, and we'll continue to look for leverage as the year progresses. Non-compensation expenses totaled $293 million, up 8% year-over-year after excluding the legal accrual from the first quarter of 2025. Our operating noncomp ratio was 19% and was at the midpoint of our full year guidance. The declines in our comp and noncomp ratios benefited from the strategic actions referenced earlier, and we remain confident in our full year guidance. Turning to Slide 7. Our capital position remains strong and provides meaningful strategic flexibility. The Tier 1 leverage ratio increased to 11.4% and the Tier 1 risk-based capital ratio rose to 18.7%. Based on a 10% Tier 1 leverage target, we ended the quarter with nearly $560 million of excess capital. I'd also highlight that we have thoroughly reviewed the new proposed capital rules. Based on our review, Stifel would obtain some relief across risk-based capital requirements, but these rules would have no material impact on our Tier 1 leverage capital. Finally, we repurchased 2.8 million shares during the quarter and have 10.2 million shares remaining under the current authorization. Assuming no additional repurchases and a stable stock price, our fully diluted share count for the second quarter is expected to be approximately 163.1 million shares. And with that, Ron, back to you. Ronald J. Kruszewski: Thanks, Jim. I want to close by saying that I'm generally excited about where Stifel is headed. We have a strong business and experienced team and a model that has proven itself in good times and in challenging ones. The environment is uncertain. I said that at the outset, and I mean it, but uncertainty has always been the context in which Stifel has grown. Look, Global Wealth Management is growing. Our institutional pipelines are strong, and I look forward to reporting our future progress. So with that, operator, please open the lines for questions. Operator: [Operator Instructions] We will take our first question from Devin Ryan with Citizens Bank. Devin Ryan: Question on AI. Ron, I appreciate the context you gave in the script. But a couple of questions we're getting. Obviously, as the technology gets stronger and stronger and potentially agents are automating more and even transacting, do fewer people seek out financial advisers? Or does that impact pricing that advisers charge? And then the more pointed question that we're getting is just around kind of tools that automate kind of customer cash sweep and just, does that drive balances even lower? And so that's a revenue stream that firms have to think about. Love your thoughts on both of those. Ronald J. Kruszewski: Well, look, the technology is powerful to your first question. And it just really helps adviser productivity. I believe, as I've said in many of things I've talked about that today, at least, the models are mathematically driven, and they're great at summarizing, organizing, putting -- helping you solve math. I said it's like chess. It's a finite board, and it's very good at that. When you move to judgment, which is what our advisers do, it just really isn't that good, and I'm not really comfortable thinking that we're going to serve our clients with some consensus building mathematical AI, to be honest with you. And we can debate whether or not human judgment will matter. But investing in markets are not a finite game. It's constantly changing. Every second, it changes. The participants change. Their outcomes change, their risk tolerances change. And so that's an ever-moving target. So to answer your question, what will happen, I believe, at least on the adviser side, is that this will make our advisers more productive. It will unearth potentially and it will, more opportunities, more ideas, more things on tax savings idea, more on a state, more things that will help our advisers do what they do, which is generally be the financial adviser to not only individuals, but the families. So I see this as a tailwind to advice, not a headwind. And it's a more sophisticated version. We've seen it in the past with robo-advisers and a number of things. This technology will be better, but again, I'm going to say it's a tailwind to the advice business. As it relates to agentic-type models and the cash optimization. Look, we've been through that, Devin. I mean we have about -- I'm going to say this, I think -- when I look at it overall, we have about $60 billion of our AUM that I would say is allocated to short-term cash between sweep deposits, smart rate, money market funds, short-term treasuries, it is about $60 billion, which is frankly about consistent, a little 11%, 12% of our AUM toward that portion. And of that, when you get right down to it after you take out adviser cash, we have about $7 billion that is, if you would be unsorted. I love that industry term. And look, it's transactional cash. It's -- I look at my own accounts. I have transactional cash because I have cash and I have needs, and I'm paying bills or I'm doing things or I'm getting a dividend, I'm reinvesting it. So will some technology come that will help optimize that? I think so, but at what cost, it's not free and what kind of movement, what kind of transactional things are going to happen. Listen, I think it will happen, but do I lose sleep over that? No. Okay. This is a business model question. And I'm hearing a lot of things, well, you just replace it with fees and things like that. And I think, well, look, we could do that, we do it anyway. We're not going to do it just because of this. So not overly concerned about the second, very optimistic about the first part of your question. Jim? James Marischen: Maybe add a little bit of detail there to support what Ron was saying is of the $60 billion as of the end of the first quarter, $12 billion was in sweep. So roughly 1/3 of that is an advisory cash accounts. And so that's not subject to the same type of sorting dynamics we're talking about here. So that's how you get to that $7 billion or $8 billion that's remaining. And I'd just say, as Ron reiterated, we've been out in front of this topic, minimizing our exposure to this. We've adjusted our balance sheet, both on the asset side and the liability side to give clients the yield-seeking products they want on the liability side and having a flexible balance sheet on the asset side to earn an acceptable return. So do we have some exposure here? I think everyone has some exposure, but you're never going to see, as Ron said, transactional cash go to 0. So I think on a relative basis, this general topic is less impactful to Stifel than to a lot of other players. If you think back 10 years ago, we funded our bank balance sheet 100% with sweep accounts. Today, that's [ 12 ] of much bigger numbers. So we've diversified and have already seen the sorting occur to a material extent. Ronald J. Kruszewski: Yes. And I answered the question, I tell you it's not that big of an issue. I'm giving a lot of oxygen to it. But I do think about these things. And I think for Stifel, it really is not a big issue. I mean I have to look at the numbers. But you can take it to the broader financial system, and zero-based interest in many banks and stuff and you wonder what will happen there. And my viewpoint is that the market will adjust. If rates go up, so are loan, banks are earning their spread and return on capital. So enough said, there's a lot of oxygen to something that I'm not thinking that much about. Devin Ryan: I appreciate it to both of you. And it's a question that we're, I think, all getting quite a bit. So just addressing it and I appreciate it. I'll ask a quick follow-up just on investment banking. Obviously, a very good start to the year. It sounds like backlogs are at a pretty healthy level as well. When you drill into that, can you just talk about the depository side, like just the expectations for more activity there and how that's kind of feeding into, I think, maybe the announced backlog or even preannounced backlog? And then with sponsors, are middle market sponsors reengaged right now? Or do we need to see them ramp up and that's the hope as the year progresses? Ronald J. Kruszewski: Yes. Look, on the depository side, I was talking with Tom Michaud a little bit about this. And what I would say is that -- in fact, it crossed M&A, not just on the depository side, but specifically on the depository side, there's a lot of uncertainty. And this uncertainty is impacting buyers. You talk -- reading the press saying about $150 oil and interest rates may be rising and what happens to credit spreads, et cetera, et cetera. And I think that, that is a pause. There's some market concerns about have the deals been done with enough of a premium. So there's a little bit of combine all this, and I think making people think about it. But the overriding question as depositories is that this administration and just compared to the last administration is fostering and encouraging bank M&A, and that's not going to change. And as we get closer to an election, not the midterms per se, but the 2028 elections, the potential and what's going to happen is going to happen, right, as people are incented to do that. It's not linear, which is what we're seeing now. And that's -- and you need the same thing as it relates to 2026. Deals got to be announced in the next couple of months. Otherwise, the 2027 deals. But that's what I would say. And overall M&A, look, we're seeing a lot of activity. But my sense is that if we didn't have the economic uncertainty that we have out there, we'd be seeing even more. James Marischen: Specific to sponsor, we're seeing a lot of activity and growth in backlog across a number of verticals. The one area I would call out that has been a little bit weaker is technology. And that's not as big of a vertical for us, but that is certainly an area that has been slower. Ronald J. Kruszewski: Software. James Marischen: Software specifically. Operator: We will take our next question from Mike Brown with UBS. Michael Brown: So Ron, you're allocating more capital to recruitment in 2026 and some good organic growth in the first quarter. Maybe can you just expand on how the recruitment and productivity efforts are faring relative to your expectations? Maybe what specific profile adviser are you kind of more aggressively targeting and having success recruiting? And then how is the competitive space from the wirehouses or some of your other peers? How is that been impacting recruitment and maybe cost of recruitment? Ronald J. Kruszewski: Well, I'll take your second part first. The competitive environment, a number -- a couple of the large firms, you may know some of them yourself, have really, really ramped some of these -- the competitive aspects of transitional pay, the so-called deals, and that's been interesting. But the quarter across the industry was slower for, I think, the same reasons that we're talking about M&A and everything else. It's just some uncertain times. As it relates to us, our strategy hasn't changed. We continue to be disciplined. As I said earlier in my remarks, that we grow and we've grown through acquisition for a number of years and recruitment and our return on tangible equity is 25%. You don't do that by making investments with an RO -- return on invested capital of 5%. It just doesn't work. So I'm very confident. What I'm mostly pleased about is our ability to compete, attract and recruit large teams, which is relatively being in the last, say, 10 years, new to Stifel and that we have that, and we're talking to a number of large teams. And that, to me, is encouraging. So recruiting [indiscernible] you get this every quarter, same question. My answer seems to be the same every quarter. Michael Brown: I appreciate the color there, Ron. Ronald J. Kruszewski: Yes. I mean it's -- no big news there in terms of -- we're still -- we're #1 in J.D. Power. We're #1 in advisory. We have a great culture. We have things -- if anything, what we're trying to do, and we've talked about this, it takes a little bit longer. We're just trying to get our name out there. I get discouraged sometimes when I'll talk to people and they say, oh, I didn't really know -- I didn't know that much about Stifel. And we're really trying to fix that. We've done that with a lot of our brand advertising and a lot of things we're trying to get out there. But that's still an area that we can improve, we will improve, and then that will improve our results. Michael Brown: Great. That makes sense. And just as a follow-up, I appreciate the color on the advisory side. I wanted to ask about the IPO window, which has certainly had some stops and starts in 2025 and in 2026. And we've had the Middle East volatility this year that seems to have contributed to some delays. But what's your read on maybe the ECM calendar specifically as we think about the back half of 2026 for Stifel and the industry here? Ronald J. Kruszewski: Look, I think it's good. I was talking to our desk. This might be dated by a week or so. But what I said was what's happening. And often when deals get delayed, they just get pulled and they'll get pulled maybe for the next set of numbers. And we've seen delays that are a week or two. So people are -- what that told me at the time was that people or clients or issuers and buyers are just concerned about volatility. And the volatility has always impacted ECM, and I think that's the case now. But when I layer that with the fact that things are just being delayed maybe for the next news that comes out of the Middle East or something or next comment. But it's healthy, I think. And now the environment changes in a nanosecond, as you know. But as I sit here today, I would say that, that's a healthy market. Operator: We will take our next question from Steven Chubak with Wolfe Research. Steven Chubak: So wanted to double-click, Ron, into some of the comments that you made around Agentic AI. I know you gave it quite a bit of airplay and you might argue too much airplay during at least at the start of Q&A. But this is perceived to be a pretty meaningful potential source of pressure eventually on idle Sweep Cash, whether it's Agentic AI, tokenization, lots of technology that's in the nascent stages of development. And I was hoping you could simply speak to the levers you might consider if headwinds to Sweep Cash do, in fact, materialize? And how does your pricing model differ from some of your competitors just in terms of account fees, platform fees that could serve eventually as potential offsets down the road? Ronald J. Kruszewski: Yes. Well, I read your report this morning, and so well thought out, I would tell you that. And the -- but again, when I put it down -- yes, I didn't go oh my gosh, we got an issue here at Stifel because we don't. But as it relates -- Steven, I don't -- I do think that there will be changes, okay? And there were changes on 0 rate commissions. And one of the leading consultants at the time said there wouldn't be another commission trade done by 2004. And the robo-advisers were going to do this, and were going to do that. And it's a business model. And the business model will adjust. And so if, in fact, Agentic can come in and be more efficient at sweeping cash, I don't really see how it's going to be that much more efficient, myself with all of the things that you would have to do. You'd have to actually give something -- access to everything, not only your recurring expenses, but your nonrecurring and your clearing checks and your -- all your credit cards, not just your one single account. And that's not going to be done for free. And so you're going to sit there and tell me that because of transactional cash is -- has a lower yield that someone is going to do and pay for that and give all that information, maybe, but it's a ways away, in my opinion. And if it does happen, there's a lot of things that you can do. Many banks will raise the yield in general, there's a competitive thing just to make sure that the NIM remains. And as it relates to platform fees, which I know you referred to in your report and you just did in your question, platform fees and account fees and inactive account fees, those are all levers. We don't have an account fee at Stifel. We don't have an inactive account fee. So those levers are actually unpulled at Stifel today, while many of our competitors do, do that. And so a fair question to me would be, well, why don't you do it? And my answer is it's not that easy, okay? It just -- I'm reminded of a commercial we did years ago where the person says, hey, what are all these fees? Why don't I have an idea, why don't we charge a fee on a fee. And the guy said, that's a good idea. It's just as difficult to do. And I'll be watching. And if the market -- if the cost of advice across the industry begins to be consistently with platform fees and done for firms that are trying -- that have bigger issues with cash sorting than we do. And you know that, Steven. We're probably at the low end of your issue of firms that are going to impact it on this. I think that's what your report said. So look, we have a lot of levers. We have dealt with changing economics in this business for as long as I've been in the business, and we will continue to do so. James Marischen: The other thing you have to think about here is the impact on the client and higher interest income is not just a complete wash based upon the fee when you think about the tax effect of those things because the higher interest income is taxable while the fee that they're paying is not tax deductible. So you have to consider that overall impact on the client as well when you're doing your overall thesis here. Ronald J. Kruszewski: Yes. I'd be interested when you get your feedback as to the number of firms that will say, oh, yes, it would be easy to institute these fees because I would take the other side of that. Steven Chubak: We'll certainly keep you in the loop, and I appreciate that perspective. For my follow-up, just on the restructuring within Europe, I was hoping that you could quantify the benefit to the margins that we're expecting in the coming year just from shuttering some of the businesses. And I was also hoping to get your longer-term perspective on how this informs at least your ambitions or appetite to expand outside the U.S. and tying that with just your M&A appetite in general, at least in the current environment amid what remains a heightened level of uncertainty. Ronald J. Kruszewski: That's a fair question. I'm going to let Jim -- I don't think we can really talk nor do we disclose margin improvement in that segment, but I'll lateral to Jim and let him decide whether he can answer in a moment. So you can think about that, Jim. As it relates to our strategy and what we have seen margin improvement, what we did and something that we sort of unwound was the fact that we invested in sales trading and capital markets within Europe and thinking we'll either be on the London Exchange or the Nordics, and we would do IPOs and we do sales trading and research over there. And what we found was that, that market because of MiFID and what they've done raised to themselves is that, that business, even at scale, I'm not sure you make any really money, but you certainly were not making -- we weren't making any money at the size that we were. But just as importantly was that when I would visit clients in Europe, and I would ask them what their objectives were, it was interesting. Most of them -- and this is a credit to the United States, their dream was to list on NASDAQ or the New York Stock Exchange. And we started -- and we've seen this. We just did a large transaction, European-based. We listed it on the U.S. Jim referred to it. And so what we decided to do strategically, and it frames or you can frame my thoughts about this is to lead our U.S. capabilities into Europe through advice, our advisory platform. And then we -- and then when we have an equity capital markets transaction, for the most part, they're coming back to the U.S., especially in health care and in areas where we have some expertise. So I feel that this was maybe you can criticize the way we started, but where we're ending up is where we want to be. We're a global firm. We have global capabilities. I just don't think we needed to do market-making sales trading in local markets to achieve our ultimate goal. And frankly, many of the clients' ultimate goal, which is to access the U.S. capital markets. Jim, I don't know... James Marischen: So in terms of some numbers to support the question you're asking here is as we've talked about this in prior quarters, we frame this up with a combination of not just the European restructuring, but also the sale of SIA. And we've told you in the past, that's about $100 million of revenue, probably roughly half and half between the 2 groups, the SIA as well as the European equities business. You think about it, that was probably somewhere between 70%, 80% comp margin that we're going to save off of. And then we talked about $20 million to $25 million of non-comp expenses gets you roughly to around a breakeven number of pulling those revenues out, and that's a good way to think about it. As we look at the non-comp expenses and what actually occurred, we were able to pull out about $6 million here in the first quarter, which is relatively consistent to what our guide was or what we talked about as we kind of framed this up last quarter. And so all of those things are fairly consistent. As we look forward, there's still more costs to be taken out of some of our European operations post restructuring. Think of some of the longer-term contracts like leases, think of subscription agreements and things like that. So more to come. But as we sit here today, we'll just caveat that this is a pretty good quarter for the international or the non-U.S. business, given some of the larger fees Ron talked about, it won't necessarily be linear, but it gives you a sense of kind of the overall financial benefit we'll receive over this entire year. Ronald J. Kruszewski: And look, you see it in our margins. Our margins in Institutional when I was getting questioned about that when it was sub-10% and now it's nearly 20%. That's a combination of both productivity and revenue plus the restructuring that we did. So I mean, it's a good thing. Operator: We will take our next question from Brennan Hawken with BMO Capital Markets. Brennan Hawken: So I wanted to touch on NII. You touched a little bit on the headwinds in the quarter. You mentioned corp and securities-based loan headwinds. But maybe could you provide a little bit more texture around what caused that versus your prior expectations? And then in the context of the $280 million to $290 million expected for next quarter, good to see your expectations for that to uplift. But maybe could you provide a little bit more texture around what's going to drive that? Ronald J. Kruszewski: I love giving NII and margin questions to Jim, and that's -- I'm not -- I'm going to do that right now. So Jim. James Marischen: Right. So in terms of this quarter, obviously, the nonbank NII is the main piece there. If you look at kind of the consolidated NII numbers and back off what you see in Global Wealth Management, you can compare 1Q year-over-year, and you can see the nonbank is down about $3 million. So it's consistent. That delta is consistent with what we described there. Most of that -- some of it is corporate interest. It wasn't securities-based lending, it was kind of stock -- securities lending, stock lending, if you will. That's opportunistic based upon individual hard to borrowers in your box. That number can move around from period to period. It was just somewhat slower in this individual quarter. We do view that kind of getting back to its normalized run rate. But the bigger piece of the $280 million to $290 million NII guide is going to go back to asset growth within the bank. And we said on the call that we still feel comfortable with up to $4 billion of asset growth. We're seeing things like fund banking pick back up in April. There was a number of paydowns kind of late in the quarter specific to fund banking that kind of caused the period-over-period end-of-period balances to decline. So as we look forward, we feel comfortable. Our original NII guide is $1.1 billion to $1.2 billion. We're already annualizing the low end of that, and we think there's a fair amount of growth that can occur in the second through fourth quarter that can help support getting higher in that range. So we feel pretty good about where we're at. Ronald J. Kruszewski: Yes. And it's not necessarily NIM expansion. It's just growing -- it's just growth. And we've never -- growth is always there in banking. That's not the issue. The issue is prudent growth, and that's what we're doing. But we see a lot of opportunities. I've always -- I am still optimistic about what we're building in venture and for the innovation economy, and that is -- that's got nice growth written all over it. Brennan Hawken: Great. And then you touched on this a little bit, Ron, in your prepared remarks about concerns around the software loans and whatnot. But curious to hear your -- what you're seeing in the CLO portfolio. So we've seen spreads widen out in the levered loan market, equity and lower-rated layers of CLOs have been under some pressure recently. So totally appreciate that you're in the higher layers, which have been fine. But what underlying trends are you seeing? Ronald J. Kruszewski: Yes, Jim? James Marischen: Yes. So our CLO book at the end of the quarter sat right around $6.8 billion. I'd say a little over 60% or 62% of those holdings are AAA rated with the rest AA rated. What we're seeing in terms of credit enhancement has remained consistent with what we've said in prior periods. On a blended basis, that's around 32%. You can see AAA class is 36% and north of there in terms of credit enhancement. AA class is around 24%. The underlying collateral here is very well diversified. There's no particular concentrations over, call it, 11%, 12%, 13% of the underlying portfolio. Our portfolio is spread out over nearly 100 CLO managers. And I think the key here is that what we see in our stress testing has not changed. We're not seeing any new issues. We're seeing consistent levels of the ability to withstand stress that are multiples of the great financial crisis and not break the underlying structure. So we feel very comfortable with the overall credit exposure in terms of CLOs. Ronald J. Kruszewski: Yes. And look, I've always said that,Brennan, what people are talking about is the lower rated tranches. That's really what they're talking about as you would expect. But as it relates to diversification, I don't think there's any class that's more than 10%. I think they can't go more than 15%. And every time I look at it, which I think I did in the first quarter, I just put it down. It's not an issue for us when we look at -- we look at it individual loan by individual loan across CLOs and look at it consolidated and individually. Our team does a really good job. But at the AAA, where we are at the top and what happens when it gets stressed, actually, the subordination gets higher as stress occurs because you divert cash flow. So what I sometimes ask myself is that is the yield give up worth the subordination, sometimes we got a lot of subordination. Remember, we don't get the full yield. We get the AAA yield. And thus far, over 10 years, risk weighting, risk-based capital, the way that it's allowed us to sort cash because a variable rate asset, it's been a great asset class for us, and I don't really see any stress in what we own. Operator: We will take the next question from Alex Blostein with Goldman Sachs. Alexander Blostein: I got almost as enthusiastic of response as you gave to Steve, so I appreciate that. So I wanted to ask you guys a question around the bank growth and loan growth and kind of how that comes together. Obviously, that's a priority for the firm for some time. I'm curious how you're thinking about funding that? Because if we look at the sweep deposit balances, they've been basically in a range of, I don't know, $10 billion, $11 billion for quite some time, a couple of years, even holding the whole AI sweep cash issue aside, as you think about the forward loan growth and without a whole lot of balance sheet sweep options, how do you sort of think about the funding mix here over time? Is that more institutional? Is it more sort of high-yield savings? I'm just trying to think about the funding of the bank on the forward. Ronald J. Kruszewski: Well, [indiscernible] both, but I would have [ accused ] Alex. I thought you might have complemented us on our deposit growth, okay, relative to our muted loan growth, okay, in terms of -- I think our deposit growth was $2 billion. And what we're seeing is much of our loan growth and the potential we see is not only self-funded, if you will, by deposit generation, but self-funded in a multiple of the loans outstanding. So some of those deposits are not sweep. So if you're focusing on sweep, then we got to go all the way back around the barn and come back and say, transactional cash and clients isn't going to get that much higher for all the reasons that we've been talking about. But in terms of our smart rate and our venture deposits and our sort of non-wealth deposits, that growth has been very strong. And that's -- to then answer your question, that's how we're funding that growth. James Marischen: If you look at the supplement and you look at Page 10, the bottom of Page 10 has a disclosure of third-party deposits available to Stifel Bancorp. There's $6.2 billion of excess deposits that are off balance sheet today that we can use to fund that growth. Obviously, a good portion of that is going to be in that third-party commercial treasury deposit line. So that's $5.7 billion of it. The vast majority of that's going to be obviously venture and fund banking. And as you think about that, that grew $1.2 billion in the first quarter. And if you look at that as kind of a mark-to-market of where we're at through, I don't know, as of yesterday, that's up another $700 million. So that's a significant source of funding capacity growth that continues to occur that's been fairly consistent and gives us a lot of flexibility if we're talking about up to $4 billion of asset growth. Ronald J. Kruszewski: And I'll end by saying, as I've said before, in this segment of what we're doing, we're really in the early innings of some of the things that we can do as we've been adding, frankly, technology capabilities to our treasury platform, international settlements. So there's a lot of work that we're doing to have a very competitive platform. And I see the potential. It's a great question. But again, we've said that it's almost self-funding what we're doing. Alexander Blostein: That's really helpful. Question on the buyback. Really nice to see pickup. I know you guys tend to do a little more in the first quarter than typically over the course of the year. So as you think about your share repurchase plans from here on through the rest of the year, any thoughts you'd share would be helpful. Ronald J. Kruszewski: Capital allocation, capital utilization, return on invested capital, all of those are the inputs to the model that will -- we're always buying back shares. The pace of -- that math changes daily as well as to what is. That's why we don't just sit there and say, we'll buy x number per day. We look at it. We balance that against M&A, other opportunities. But we've been more consistent because we felt that relative to our growth, our stock has been undervalued. So you see us buying back our stock. Jim do you want to... James Marischen: Ron touched on the strategy and how we think about it. In terms of capacity, we had $560 million of excess capital at the end of the quarter. If you think about what we've talked with the balance sheet growth expectation of up to $4 billion, say we do the full $4 billion. That's only about 70% of the current excess before retained earnings. So we certainly have a fairly material amount of capacity if the strategic rationale that Ron talked about, if that math works, we can buy back a lot of stock if we're so inclined. Operator: We'll take our next question from Bill Katz with TD Cowen. William Katz: Most of my big picture questions have been asked already. So maybe just thinking tactically, update us on sort of what's been happening in April just in terms of maybe client engagement, whether it be on the advisory side or on the institutional side and what the sort of cash levels look like just net of maybe billings and/or seasonal tax payments? Ronald J. Kruszewski: Yes. Look, I said client engagement remains strong. It certainly hasn't -- I just said that, Bill, and that wasn't through the quarter, I guess, my comments were through this call. And it is. I have to caution though, because from where I sit, the level of uncertainty, which we're not seeing right now, but the things that can change pretty quick whether it would be on the technology, this Mythos Anthropic thing is concerning. There's a number of things that can change investor sentiment and perspective very quickly. And this is one of those environments where it just feels like there's a lot of uncertainty. But today, things are good. Engagement is strong. Jim, I don't know if you want to comment on cash. James Marischen: Right. So if you kind of go bucket by bucket, sweep is down since quarter end. Smart rate is down since quarter end, while treasury deposits are up. And to provide some detail, you're down probably $1.4 billion in sweep, so call it about [ 10.6% ]. You're down about $400 million in smart rate. And then again, you're seeing a $700 million increase offsetting some of that in the other treasury deposits. Ronald J. Kruszewski: Yes. But you know what, I would just say that -- yes, this is so seasonal. I wonder if we've ever had an increase in April, okay, ever, is an outflow for -- and it's a lot of taxes. That's just what happens. And that's across the street, Bill. So that's -- I don't want those comments to be taken as some trend. It's April. William Katz: Of course. And then as a follow-up, I'm just sort of curious, you mentioned on the banking side, a very good pipeline, but it also seems like a lot of this conversation is about just sort of the ebbs and flows around uncertainty and certainly appreciate one day to next with the headlines coming out of Middle East is the confounding for everything. Should we be assuming that a little bit of a deceleration here in terms of activity from a revenue perspective, given your comments that if some things don't get sort of booked in the next couple of months, it's more about 2027, just as we think about the pacing for this year versus next for the advisory side of investment banking? Ronald J. Kruszewski: Look, I think our banking is overall strong. We're seeing real pockets and our at least what our guys tell me is it's strong. I think we caution a little bit on depositor. We're big in depositories. And so that feels like it's a low a little bit, but that can change quickly, too. And software and the technology side, which we haven't been as big at, but we can see when we look at numbers, that appears to be more muted relative to what else is going on. But overall, as I've said, if the risks land within the range of market expectations, we see the business improving. It's -- if some of these things get resolved, it could really improve. It's not just all downside from here. The business especially in ECM can really pick up here if we take some of the volatility out of this and uncertainty out of this market. There's always volatility. There's always uncertainty. It's just heightened, and we all know this. I'm not telling you anyone on this call anything that news from my desk. Operator: There are no further questions at this time. I will turn the conference back to Mr. Kruszewski for any additional or closing remarks. Ronald J. Kruszewski: Well, I would just want to complement all the questions. Actually was very robust questions, and we like being able to engage and give you our best answers, and I appreciate that. I appreciate everyone's time, and I look forward to talking to you in July. I would just say who knows what's going to happen between now and July, but we'll -- many of you will be talking before then. But to our investors that are on the call, thank you for calling in, and have a great day. Thank you. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2026 Second Quarter Results Conference Call. [Operator Instructions] Also note that this call is being recorded on April 22, 2026. And I would like to turn the conference over to Sharon Kadoche, Director, Investor Relations and Corporate Finance. Please go ahead. Sharon Kadoche: [Foreign Language] Good morning, everyone, and thank you for joining us today. Our comments will focus on the financial results of our second quarter, which ended on March 14. With me today is Mr. Eric La Fleche, President and CEO; Nicolas Amyot, Executive VP and CFO; Marc Giroux, Chief Operating Officer; and Jean-Michel Coutu, President of the Pharmacy division. During the call, we will present our second quarter results and comment on its highlights. We will then be happy to take your questions. Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statement which does not constitute a historical fact may be deemed a forward-looking statement. Words or expressions such as expect, intend, are confident that, will and other similar words or expressions are generally indicative of forward-looking statements. The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, our annual budget and our 2026 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown as well as uncertainties that could cause the outcome to differ materially. Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by our forward-looking statements are described under the Risk Management section in our 2025 annual report. We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements, except as required by applicable law. I will now turn the call over to Nicolas. Nicolas Amyot: All right. Thank you, Sharon, and good morning, everyone. I will go directly to our Q2 results as Eric will comment on the status of the current strike in our Quebec operations. Q2 sales reached $5.1 billion, an increase of 4.1% versus the second quarter last year. Sales were positively impacted by new store openings, same-store sales growth as well as the transfer of one significant pre-Christmas shopping day to the second quarter this year. Front store sales -- or food same-store sales grew by 1.8% in the quarter, up 1.5% when adjusting for the Christmas shift. On the pharmacy side, same-store sales grew by 5.1%, supported by a 6.1% growth in prescription sales and a 2.8% growth in front store sales. Similar to food, when adjusting for the Christmas shift, front store sales were up 2.3%. Our gross margin reached $1.03 billion or 20.1% of sales in the quarter. This compares to 20% in Q2 last year. Part of the increase is attributable to productivity gains recorded in our distribution centers. As mentioned on the last call, our operations are back to normal in our Toronto distribution center. Operating expenses were $538.9 million in the quarter, up 3.4% year-over-year. As a percentage of sales, operating expenses were 10.5% versus 10.6% in the second quarter last year, reflected continued cost discipline. The asset disposals recognized in the second quarter of 2026 generated net gains of $20.4 million, of which $20.1 million was attributable to the disposal of out-of-service warehouses. EBITDA for the quarter amounted to $508.6 million. That's up 10.3% year-over-year and represented 9.9% of sales. Excluding the gain on sale from the disposal of out-of-service warehouses of $20.1 million, adjusted EBITDA stood at $488.5 million, up 6% year-over-year, reaching 9.6% of sales, an increase of 16 basis points over the second quarter of 2025. Depreciation and amortization expense for the quarter was $144.3 million, up $8.2 million. The increase in depreciation and amortization is mainly due to the increase in retail network investments, including right-of-use assets as well as ongoing investments in technology. Net financial costs for the quarter were $37.3 million compared to $33.4 million last year. The increase is mainly due to higher interest expense on net debt. On February 25 this quarter, the company tapped the bond market and issued a 5-year $350 million note bearing interest at a rate of 3.469%. We used the proceeds of the offering to repay debt under our revolving credit facility and for general corporate purposes. Including this financing, our debt-to-EBITDA ratio stands at about 2.2x. Our effective tax rate of 24.6%, which continues to benefit from the Terrebonne DC tax holiday is similar to the effective tax rate of 24.5% in the second quarter last year. Adjusted net earnings were $236.5 million in the quarter compared to $226.6 million last year, an increase of 4.4%, while adjusted fully diluted net earnings per share amounted to $1.11 versus $1.02 last year, up 8.8% year-over-year. Our capital expenditures in Q2 totaled $85.3 million, consistent with last year. After 24 weeks on the food retail side, we opened or converted 6 stores and carried out 4 major renovation projects for a net increase of 141,000 square feet or 0.6% of our food retail network square footage. Under our normal course issuer bid program, as of April 2, we have repurchased 2.9 million shares for a total consideration of $279.8 million at an average share price of $96.47. In closing, we delivered solid Q2 results, supported by strong sales growth and good expense control. On this, I will now turn it over to Eric for additional color on our Q2 results. Thank you. Eric La Flèche: Thank you, Nicolas, and good morning, everyone. Before turning to the results, I will provide an update on the strike that started on March 30 in our Quebec operations and which is impacting produce distribution to our stores in Quebec. We are obviously disappointed by the strike now in its fourth week. We have been back at the bargaining table since April 8 and remain determined to reach an agreement that takes into account the needs of our employees and those of our customers while ensuring the long-term competitiveness of our company. As in any situation of this kind, the first days of the labor dispute required adjustments while our contingency plan was being fully implemented. Our contingency plan is now in place and our stores, although not in perfect condition, are generally well stocked. The strike has impacted our sales, especially given that it happened the week before Easter. We will be able to specify the financial impact once the dispute is settled. Turning to our second quarter results. We delivered solid results driven by strong revenue growth and good expense control as our teams continue to offer the best value possible to our customers in all of our banners. We are very pleased with our discount store expansion plan that is fueling our food sales growth and with the continued strong momentum in our pharmacy business. In Q2, sales grew by 4.1%, adjusted EBITDA by 6% and adjusted earnings per share by 8.8%. Total food sales were up 3.6% and food same-store sales were up 1.8%. In pharmacy, we had another strong quarter with 5.1% total same-store sales growth on top of 7% last year. Our discount banners continue to perform well with same-store sales growth exceeding that of Metro, together with the continued contribution of new store openings and conversions. Our internal food basket inflation was in line with the reported food CPI of 4.3%. We continue to see inflationary pressures on certain commodity prices, namely in the meat category, in addition to higher-than-usual CPG vendor cost increases. Our teams remain highly focused on cost mitigation initiatives through supplier negotiations and pricing discipline with the objective of offering the best value possible to our customers. During the quarter, comparable store customer traffic was slightly lower, offset by growth in the average basket. Absolute traffic across the network increased, supported by new store openings. Promotional activity remains elevated and private label sales continued to outperform national brand, contributing to our gross margin performance. Competitive environment remains intense but rational. Online sales grew by 19.8% in the quarter. Growth is being driven by third-party marketplaces, the ramp-up of click and collect services and delivery within our discount banners. We are pleased with the sales performance of our own services and third-party marketplaces, which are recording similar growth rates compared to last year. Turning to pharmacy. Prescription sales were up 6.1%, driven by continued organic growth, specialty medications and GLP-1s. Commercial sales grew by 2.8%, led by cosmetics and health and beauty categories, partly offset by a softer performance in OTC. The cough and cold season was compressed this year. It peaked earlier and was shorter in duration. Our retail CapEx plan is on track as we successfully opened 3 new stores in Q2, including 2 discount stores. Halfway through F '26, our food retail network square footage growth increased by 0.6%. And over the last 12 months, it increased by 1.9% as we execute our new store opening plan, mostly in discount and mostly in Ontario. On the pharmacy side, after 2 quarters, we have completed 15 out of the 35 renovation projects planned for F '26, including 7 pharmacies with our new concept. So to conclude, we're confident that our effective merchandising programs, strong private label offering, our Moi program, consistent execution at store level as well as our ongoing collaboration with our supply chain partners will allow us to continue to grow and deliver long-term shareholder value. Thank you, and we'll now be happy to take your questions. Operator: [Operator Instructions] And your first question will be from Mark Carden at UBS. Mark Carden: So to start, your food inflation was essentially in line with the 4% plus purchase from store CPI. Just as inflationary pressures persist, have you seen any sequential changes in customer behavior? Are they leaning even more heavily into discount? You called out the strength there in your release. Are you seeing any incremental uptick on trade down within your stores? Just any changes on that front? Eric La Flèche: No real changes, very consistent customer behavior as we've been reporting over the last several quarters that I tried to outline in my opening remarks. Yes, discount is growing faster. People are searching for value in all of our banners, not just discount. Private label is up, penetration remains elevated. So it's very consistent. Food inflation is driven a lot by the meat category. And as I said, CPG cost increases. I would sum it up that way. Mark Carden: Great. That's helpful. And then as a follow-up, just given where fuel prices are today, historically, have you guys seen any demand destruction or consumers taking units out of their baskets when prices at the pump cross a certain threshold or any broader shifts in food shopping behavior at your stores? Eric La Flèche: We don't have a specific number to report to you, but energy prices pressures, fuel price pressures contribute to affordability crisis and contributes to customers searching for value in everything that they buy, including food. So it's just one more element that puts pressure on the customer, and we're well positioned with our multiple store formats and growing discount formats to address those customer needs. Operator: The next question will be from Michael Van Aelst at TD Cowen. Michael Van Aelst: I just wanted to start by following up on the competitive question. So last quarter, you pointed to competitive -- the competitive nature of the industry has seemed to spook the stock a little bit. But you suggested that it's intense but rational. So that doesn't seem like anything different than what you've said in the past. But do you feel that the moderating trend of normalized same-store sales growth from Q1 to Q2 reflects an increasing competition or a consumer that's under more pressure and therefore, trending down more or cutting back on tonnage? Eric La Flèche: Tonnage in the whole market is flat to down. So clearly, there's pressure on the consumer side. So I think it's a general market dynamic of lower low consumption and people being careful. The competitive environment, as I said, it's intense. We are competing with large players. Everybody is looking for market share, and it's competitive out there, the way it's always been. Last quarter, I was perhaps referring more to the square footage growth and people opening stores. That creates some noise in the market, but nothing abnormal and nothing that we've not seen before. And we're, like I said, well positioned to compete. Michael Van Aelst: Okay. And then just on the fuel cost increases. I know you mentioned your comments relative to the consumer impact. But as far as your cost impact, I know you have a lot of third-party distribution. So are you seeing fuel cost surcharges already? And if so, are you able to pass those on? Or should we expect that to have some pressure on margins? Nicolas Amyot: Yes. Maybe I'll take this one, Michael. I would say that from a fuel cost increase perspective, two sides to the story. On the products that we buy from the supply chain, so far, we have not received that many price increase requests, only a few actually. And we're negotiating the conditions and trying to delay the impact that this might have on food pricing. Obviously, the situation, as everybody knows, is very volatile, and we don't know how long it's going to last and how it's going to unfold. So -- but at this point, nothing to say per se on cost of product. In terms on our own distribution side, the cost of fuel is impacting our activity to distribute food and drugs to stores and pharmacies, and that's pretty direct. So we've started feeling it, and that the current elevated pricing of fuel you could imagine a $5 million-ish per quarter impact if everything was to hold as the situation is today. So that's obviously, everything else being equal, more pressure that we need to manage. Michael Van Aelst: So in the past, I think you said you typically pass on these higher fuel costs in your distribution system. Is that something you're already working for? Or you're looking for other ways to offset? Eric La Flèche: Well, it's part of our cost structure, and we have to manage and keep our prices competitive in the market. Over time, we expect that higher costs like that will be reflected, but it hasn't started to happen yet. Operator: Next question will be from Mark Petrie at CIBC. Mark Petrie: I know you're not going to give specific numbers, but obviously, the strike impact is on people's minds. So hoping you can give us some qualitative comments just with regards to how Quebec or Ontario might be tracking differently in Q2 so far? And if you can give us some sense of the incremental costs that are incurred as a result of your mitigation strategies? Eric La Flèche: Like I said in my opening remarks, we're going to keep the impact for a later date in due course when we have the full tally. Like I said, we lost some sales. When you lose sales, you lose the bottom line. So clearly, it has had an impact. There are direct costs to set up a contingency plan. So we will communicate in full transparency when we're in a position to do so, but I don't want to give at this time any color. This is a strike that's affecting our Quebec business, not our Ontario business. So let's be clear on that. But it is having an impact. The contingency plan is better every day. Stores are looking better every day. And we are, I think, decent -- we're not perfect, like I said. There's maybe some small varieties missing from one store to another or from time to time. But generally, our stores are looking okay, looking good, and we can answer most of the customer needs in our Quebec stores. So hopefully, we'll settle the strike. But like I said, we need to be competitive. The demands at the table are not reasonable and can't be accepted. So we will we are patient, and we will preserve our long-term competitiveness. Nicolas Amyot: Maybe, Mark, just a quick comment. I think in your question, you referred to Q2, but it's really Q3 for us, right? The strike started on March 30. So it's going to be no impact in Q2. It's going to be impacting us in Q2. Eric La Flèche: In Q3. Mark Petrie: Yes. Yes. Understood. totally understand. I guess one other question. I'm just curious if you can share any trends or data with regards to the impact of buy Canadian and how some of the most affected products and categories last year have been performing as you lap sort of the biggest impact last year. Marc Giroux: Mark, it's Marc here. We said in the last few quarters that buying Canadian, there was still elevated sales on Canadian product, but it has softened over the last few quarters. So buying Canadian continues to be of interest for consumers, but we have not seen a significant increase of sales year-over-year on Canadian product right now. Mark Petrie: Yes. Okay. But as you're lapping the big sort of initial surge last year, are you seeing outright declines in any of those sort of most affected categories? Marc Giroux: No, I would say that it's pretty stable, Mark. Operator: Next question will be from John Zamparo at Scotiabank. John Zamparo: I wanted to ask about the pharmacy side of the business and prescriptions in particular, that saw same-store sales accelerate this quarter. I wonder if you could add more color on what you're seeing from your GLP-1 sales. I think you listed that third among the drivers of growth. Is that to say it was less of a driver this quarter against prior quarters? And does Coutu capture a similar level of market share on GLP-1s as it does on the rest of its pharmacy business? Nicolas Amyot: I'm sorry, I missed the last part around market share. John Zamparo: Yes. The second part of it is, is the market share on GLP-1 similar to the rest of the pharmacy business? Nicolas Amyot: Yes. Perfect. You are correct in saying when we listed it as organic specialty and GLP-1s. GLP-1s is a slightly less strong contributor to same-store sales growth as the other 2. Despite that, it is considerable and it's continuing to grow at a very strong pace, especially as new generations of GLP-1s are coming to market, and that's driving a lot of the growth right now in the GLP-1 sector. In terms of share, we are definitely holding our normal share and even for some molecules outperforming, I'd say. John Zamparo: Okay. Understood. And then back to the grocery business, the growth from e-commerce continues to be robust. I wonder if this sustains at or around these levels and if the e-commerce business continues to grow, does that eventually create a drag on gross margins? Or is profitability from these sales roughly in line with the overall consolidated number? Marc Giroux: That's a good question. We believe that e-com growth will normalize at some point as the market matures. But as you're pointing out, we continue to see strong growth on both food and pharma. E-com has a lower contribution -- e-com sales has a lower contribution as brick-and-mortar sales. However, we've been able with our e-com model to mitigate those -- that profitability gap with efficiency and multiple efficiency strategies, and we will continue to do so. That's what allowed us to continue to deliver the type of EBIT growth as a business as a total. So we'll continue to leverage our flexible model to meet customers where they are. More and more customers are moving to same-day delivery and our model and fulfillment model allows us to meet that demand from customers, and we'll continue to be focused on, as I say, efficiency, not only in e-com, but in our overall business. Hopefully, I've answered your question. Operator: [Operator Instructions] Next is Chris Li at Desjardins. Christopher Li: I was wondering if you can provide some sort of very high-level colors on how the food gross margin performed during the quarter. I know in the opening remarks, you referenced private label and some DC efficiency as being positive. But just at the overall level, like did the gross margin in food, was it largely stable? Or did it improve slightly? Eric La Flèche: We don't segregate between food and pharma on the gross margin. But like I said, private label contributes, lower shrink contributes, better forecasting contributes. So I think the teams did a good job to protect and slightly grow gross margin, and we're pleased with that performance. Christopher Li: Okay. That's helpful, Eric. And then maybe a follow-up just on the Moi loyalty program in Ontario. It's been, I think, in the market for 1.5 years now. Just where are you on your journey to leverage the enhanced data analytics to deliver more personalization and effective promotions in Ontario through the new program? Marc Giroux: Thanks for your question, Chris. It's Marc here. Moi continues to perform well and sales penetration continues to increase and digital customer engagement continues to increase as well. So we're satisfied with the progress we're making on Moi in Ontario and in Quebec, in food and pharma in Quebec. We've been leveraging data for a number of years even before the launch of Moi in Ontario with our partner, dunnhumby. We use that data in our merchandising team to optimize promotion, to optimize assortment and make sure that we have the right commercial strategy to meet the customers. We've been doing that before Moi and now are continuing to do it with Moi. On personalization, since our launch, as more and more customers engage digitally, we can have direct digital contact with them and deliver personalization directly to different channel. So as Moi progresses, our reach in terms of personalization increases. As for Quebec, the program has been in market now for a few years in both food and pharma. And with our multiple banners and high penetration of Quebec household, the extent of our reach and personalization is greater in Quebec and the cross-shopping and the impact of cross-shopping in Quebec is greater as well. While we see cross-shopping and the benefit of cross-shopping in Ontario as well, to give you an example, in Quebec, as consumers shop food and pharma, they spend 100% more with our business as a whole through all of our stores and different channels. So we'll continue to focus on increasing reach, increasing digital reach so we can continue to drive personalization. There's still opportunity for us in both markets, more in Ontario as the program continues to grow. Operator: And at this time, gentlemen, it appears we have no other questions registered. Please proceed. Sharon Kadoche: Thank you all for your interest in Metro, and please mark your calendars for our third quarter results on August 12. Thank you. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Enjoy the rest of your day.
Operator: Hello, and welcome, everyone, joining today's Kimberly-Clark de México First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to CEO, Pablo Gonzalez. Please go ahead. Pablo Roberto González Guajardo: Thanks so much, Nicki. Good morning, everyone. I hope you're all doing well, and thanks for participating on our call. We had another strong quarter and a good start to the year with record revenue behind a strong performance in our Consumer Products businesses, double-digit increases in gross profit, operating profit, EBITDA and net income and EBITDA margin at the top end of our range. Our strategies and actions are having the intended impact, spearheaded by strong commercial and operating execution, and we continue to make progress on our KCM+ innovation, growth and transformation strategy. More on that after Xavier takes you through our first quarter results. Xavier? Xavier Cortés Lascurain: Thank you. Good morning, everyone. During the quarter, our sales were MXN 14.3 billion, a 3.6% increase versus the first quarter of 2025 and an all-time high. Total volume was up 3.7%, driven by consumer products, while price/mix was flat. Net sales were boosted by consumer products, which grew 5.4% with a 3.7% volume increase and 1.7% price and mix growth, while away-from-home decreased 1.3%. Exports were down 6.8% due to lower hard rolled sales, while converted products grew 15.8%. Sequentially, Consumer Products grew 1.4%, mainly volume driven, while away-from-home and exports grew 10.1% and 6.2%, respectively. Cost of goods sold decreased 1.1%. Our cost reduction program once again had very good results and yielded approximately MXN 450 million of savings during the quarter. These savings are mainly at the cost of goods sold level. They were generated through a combination of global fiber contracting initiatives, changes in sourcing and the use of alternative fibers, product redesigns and the introduction of new raw materials in nonwoven fabrics, diaper geometry redesigns to improve material efficiency and logistics and distribution efficiencies across our network. These initiatives reflect ongoing actions across procurement, product design, manufacturing and logistics. In addition to these actions, compared to last year, virgin and recycled fibers, fluff, superabsorbent materials and resins compared favorably. The FX was also lower, averaging around 15% less than last year. Gross profit increased 11.1% for the quarter. SG&A expenses were 10.2% higher year-over-year and as a percentage of sales were up 100 basis points. Distribution expenses were higher, while we continue to invest behind our brands and work to improve our footprint and streamline logistics operations. Operating profit increased 11.9% and operating margin was 23.2%. We generated MXN 3.8 billion of EBITDA, a 10.1% increase year-over-year with EBITDA margin at 26.7% at the upper part of our long-term range. Cost of financing was MXN 439 million in the first quarter compared to MXN 295 million in the same period last year. Net interest expense was higher since we earned less on our cash investments. During the quarter, we had a MXN 9 million foreign exchange loss compared to a MXN 14 million gain last year. During the quarter, in early March, considering that maturities of recent years have been paid from cash, we issued Certificados Bursátiles for MXN 10 billion through 2 placements. The first placement was for MXN 8 billion with equal amortizations in years '10, '11 and '12, and the second placement was for MXN 2 billion with a 2.6-year term. This allowed us to benefit from favorable conditions and improve our debt maturity profile. Net income for the quarter was MXN 2 billion, a 10.2% increase. Earnings per share were MXN 0.68, a 13.3% increase. We maintain a very strong and healthy balance sheet. Our total cash position as of March 31 was MXN 20.4 billion. Our net debt-to-EBITDA ratio was 0.9x with EBITDA to net interest coverage of 9x. With that, I turn that to Pablo.Thank you. Pablo Roberto González Guajardo: As mentioned, we had a strong start to the year despite still subdued economic growth and private consumption. We expect growth to improve as the year progresses, spurred by job creation and higher salaries, together with increased spending in anticipation of and during the World Cup. We expect consumer products businesses to continue to lead the way, Professional business stabilizing during the second quarter and growing during the second half of the year and parent roll sales still trailing due to more tissue required for consumer product sales, but becoming less of a drag as the year goes on. With respect to raw material costs, fundamentals support lower dollar prices versus last year, but we will experience some months of higher costs, both sequentially and in some cases versus last year, stemming from the oil shock the world is experiencing. We hope the impact will be limited in both strength and duration with prices returning to underlying market fundamentals. In the meantime, we're focused on price realization. We just implemented price increases in most of our businesses averaging 4%, and we'll continue to apply our revenue growth management capabilities. And we'll continue to be focused on operational efficiencies and ensuring another good year in cost reduction efforts. Of greater importance, we continue to make good progress on our KCM+ strategies. Our core businesses are performing well, and our diamond categories are accelerating growth behind consumer-centric, relevant and differentiated innovation together with greater engagement and improved commercial execution. Further, we're making inroads in private label and have identified opportunities to strengthen the North American supply chain together with our strategic partner. When it comes to new areas of growth, in the coming quarters, we will be working to consolidate and to increase efficiencies in adjacencies. Further, we continue to make progress on pet food and are actively analyzing the Kenvue opportunity. All in all, our KCM+ initiatives focused on accelerating growth are going well. Equally important, we have specific initiatives to develop our skill set, better utilize data to define consumer needs and engagement, work closely with our retail partners to remain a supplier of choice and continue to improve and where needed, transform our end-to-end cost structure in an increasingly dynamic environment. Effectively deploying and efficiently utilizing the most advanced technology solutions is the fundamental layer to support and drive all these efforts and time is of the essence. We hope these comments provide a good picture of where we stand and why we are so excited about KCM's present and future. With that, let me open the call for questions. Operator: [Operator Instructions] We'll take our first question from Ben Theurer with Barclays. Benjamin Theurer: Two quick ones. So first, if I remember right, about a year ago, the strategy over summer in terms of campaigning, promoting, you took a little bit more of a hands-off approach, a little bit more on the back, not as aggressive as in prior years. So just wanted to understand with the announcement you just had the 4% price increase on certain products that you're pushing, what should we expect from you guys as we go into the summer promotional campaign that usually kicks off by the end of the second quarter? That's my first question. And I'll have a quick follow-up. Pablo Roberto González Guajardo: Sure, Ben. Thanks for the question. We will follow the same path as last year, meaning we will not be as aggressive as in the past, although one thing that is happening is that the summer promotional season continues to expand in length. It's pretty much has already started here in mid-April. And it might have to do with the World Cup and all of the retailers wanted to get ahead of that event. But we're starting to see more promotion out there. But in our case, we continue to be more disciplined about it to ensure we can keep the value of our categories. Benjamin Theurer: Okay. And then a quick follow-up on the commodity cost side because I kind of like missed the commentary because obviously, you do have some exposure to oil price derivative products. So I just wanted to understand how the current surge in oil prices is kind of like affecting you on what might be more like, call it, a petro-exposed or just oil derivative exposed raw material cost pressure. Pablo Roberto González Guajardo: Yes, we are seeing some pressure on oil derivatives. But so far, and given where things stand, we believe it will be limited both in strength and duration. But that's where it stands right now. And as it is, it would have some impact, of course, on our cost and our margins, but we don't think it will be significant. Now things can change, of course, but where it stands right now, again, limited in both strength and duration. Operator: Our next question comes from Bob Ford with Bank of America. Robert Ford: Pablo, can you comment a little bit about how clients and competitors are responding to your 4% price hike? And when it comes to the North American production footprint with Kimberly-Clark Corp, how should we think about the magnitude of the opportunity as well as the economics of that? And is there a role for you in the very short term to help address the inventory loss that Kimberly-Clark Corp suffered in California? And then lastly, how are you thinking about Kenvue Mexico with respect to the final deal terms and the closing date? Pablo Roberto González Guajardo: Sure. Thank you, Bob, for the questions. First, on retailers and competitors responding to our price increases. I mean we're right in the midst of implementing those. It was really at the end of March, early April. We haven't seen anyone respond so far, not unusual because you know they always lag. Now it might be a little bit more difficult this time around to see that response and to even have this reflected quickly. Because again, we're already starting with the summer promotional season. And although we're going to be more disciplined, that always has an impact. So we expect that as this season goes through and we get into the third quarter, then we might see competitors react and our own prices reflect fully on going forward. When it comes to the U.S., I mean, we continue to have very good meetings with our partner to understand our regional footprint and what's best for everyone and how we can have the most competitive and efficient footprint in the region. And we're finding really good opportunities that I think will take a little bit of time to materialize, but we're seeing some very interesting opportunities, both for them and for us, and we continue to work on those going forward. And I think some of them will start to materialize end of this year, probably next year. Hard to tell the magnitude of the opportunity. We believe it's important. But again, we're starting with a couple of projects to make sure this goes the way we all expect and continue to look for opportunities. In the short term, yes, we are helping them bring back their inventories given what happened in the warehouse in California. So in the short term, we'll be helping with that. And then when it comes to Kenvue, we are in the process of the due diligence of the business and we're starting our discussions with our partner on the business. As you know, they're moving forth with their integration plans. And as part of that, we're discussing with them what would be next for KCM Mexico. I expect that we will have a more complete analysis and discussion with them probably May, early June and hopefully have a decision by the end of this quarter or early next quarter on whether we move forward with this or not, but things are looking good. Operator: We'll take our next question from Renata Cabral with Citigroup. Renata Fonseca Cabral Sturani: Congrats on the results. So my first question is related to costs and a follow-up actually. As considering the current level of the FX, it's natural we consider that those margin improvements can carry over along the year, but we are now in a situation of volatility in terms of raw material prices. Just to check the view regarding this margin trend along the year broadly, if you can? And the number two is related to the consumer division that had a growth of 5%. We see the slowdown in the Mexican economy. If you can give us some color in terms of a category that is doing better, would be great as well. Pablo Roberto González Guajardo: Thank you, Renata. Well, first, on the cost side, yes, you're right. I mean, the FX will continue to be a tailwind. And again, if raw materials were driven at this moment for by fundamentals, we would continue to see improvements, and that would also be a tailwind. But again, we're experiencing this uncertainty right now with the oil shock and the impact that, that's having on all derivative commodities. So that will have an impact, but we still believe that we have enough with our efficiencies, our cost reduction program and the FX to continue to post margins within our target and most likely at the upper range of our target even with that cost impact. Now if that goes away, then we could see further improvements throughout the year. When it comes to the market, yes, it still feels, as I mentioned, the economy is still stagnated. I mean we are not seeing great growth and domestic consumption is still pretty subdued. And we continue to see the same dynamics in our categories as we saw second half of last year. So that's soft volume growth and some pricing in most of the categories, particularly on the core categories, that's bathroom tissue, diapers, napkins, a little bit more growth in categories that have further room for penetration like incontinence and wipes, et cetera. So no changes really there on the dynamic on the categories. So all in all, given where the categories stand, our results of 5.4% in consumer products and I think particularly 3.7% in volume, we believe those are pretty strong given that there's not a lot of volume growth in the categories. So that also means that our shares are strong, and we continue to make inroads with the innovation we're putting out there in the market. So good start to the year, and we feel good about where we're positioned and a lot more coming in terms of innovation and commercial execution to continue this trend that really started in the second half of last year with consumer products. We had a very strong 3 quarters sequentially in Consumer Products, and we hope we can get that to continue. Operator: We will move next with Alejandro Fuchs with Itau. Alejandro Fuchs: Pablo, Xavier, and team, congratulations on the results. My question is just a very quick one regarding the MXN 10 billion increase in debt that you posted during the quarter. I wanted to see maybe, Xavier, if you can elaborate a little bit more on what the use of proceeds is -- and if this has anything to do maybe with, as Pablo was mentioning, a potential deal with Kenvue and KC in the U.S. in the second half of the year, maybe. Xavier Cortés Lascurain: Alejandro, in principle, the placement was not tagged to anything directly. As you know, we usually like to renew debt in advance when we see an opportunity, given the size of the deals that you need to do for them to be efficient. We prefinance, let me use that word, 2 or 3 years ahead. And the last 2 debt payments that we did came from our cash. Having said that, if we were to do anything in terms of M&A coming forward, this places us in a good position to be already prefinanced for that. I hope that answers it. Operator: [Operator Instructions] We will take our next question from Antonio Hernandez with Actinver. Antonio Hernandez: Congrats on the results. Just a quick one regarding Away from Home that continues declining. What is your perspective here? Do you see any data that reflects an overall improvement, maybe how you started the quarter versus how you ended the quarter? Pablo Roberto González Guajardo: Thanks for the question, Antonio. Look, Away from Home was lower versus last year, but it did have an important sequential improvement. So we see the business starting to improve. As I've mentioned in prior calls, this is a business that suffered more the effects of the slowdown of the economy and the adjustment in inventories by the trade. And we continue to see some of that. But again, our volumes are starting to improve sequentially. And we believe this might be -- the second quarter might be still a little bit flattish. But given where we see inventory levels at this stage in the trade and our plans going forward, we expect this business to grow in the second half of the year. So it's had a little bit of a rough patch, but I think it's coming under control and the right trend. And again, second half, we should be growing the business nicely. Operator: And at this time, there are no further questions in queue. I will now turn the meeting back to Pablo Gonzalez for closing comments. Pablo Roberto González Guajardo: Well, nothing more to say. Just thanks so much for participating in the call. We really, really appreciate it. And as always, if there's further questions, you can certainly reach out to us, and we'll be more than glad to talk to you. So thanks again, and have a great rest of the week. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect. Pablo Roberto González Guajardo: Thank you, Nicki.
Annukka Angeria: Good afternoon, and welcome to Nokian Tyres First Quarter 2026 Results Audiocast. I am Annukka Angeria from Nokian Tyres Investor Relations. And together with me in this call, I have our President and CEO, Paolo Pompei and our new CFO, Timo Koponen. As usual, Paolo and Timo will run through the presentation. And after that, we will open the line for questions. But before we start, I would like to ask you Timo a couple of questions. You have been with us only a few days. And first of all, welcome to the company. Timo Koponen: Thank you. Annukka Angeria: It's great to have you here. With the short but intense experience with the company, what are your first impressions? Timo Koponen: Yes. Well, it has been very, very busy start as everybody can anticipate that. First of all, I'm very excited to be on board finally. It's been a long wait and kind of looking back when we started discussions with Paolo and the other people in the company, I got really intrigued by the momentum and drive the Nokian has. And obviously, that intriguement remains. And you only need to look at the just ended first quarter, and you see many product launches and so on, and you can really see that we have a second gear on. It's good to be here. Annukka Angeria: Good to hear. Maybe if you can also briefly say a few words about your background. Timo Koponen: Sure, sure. Yes, as I think it was already mentioned in the announcement, I have a long background in a Finnish industrial equipment companies, Konecranes, Hackman, Metos, Wartsila and last couple of years at Normet and have been working in finance as well as in the line management roles both in Finland and overall, France, China and U.K. and now in Finland. Annukka Angeria: Thank you. And with that, I will now hand over to you, Paolo, for the first quarter results. Paolo Pompei: Excellent. Thank you very much, Annukka and also from my side, welcome on board, Timo. Let's start immediately with the headlines, where you can see that sales increased across all regions and operating profit improved significantly, driven by disciplined strategy execution. But let's move to the agenda. We will start with the quarterly highlights, moving to the financial performance, then Timo will come in the business unit performance as well as our cash flow and financial position and then we will close this call with assumption and guidance. And of course, at the end, there will be question and answer. Moving directly to Slide #4. Operating profit improved significantly. This was really supported by volume, price mix improvement and lower manufacturing and material costs. Operating profit improved by more than 50% and we had really good also price and mix improvement during this quarter. effective working capital management, lower CapEx has contributed to improve our cash flow by over EUR 50 million in quarter 1 and this is also important, an important achievement in this quarter. We keep working on our continuous improvement initiative that are really supporting strongly our strategic plan and our EUR 220 million EBITDA improvement by 2029. And this was also an exciting quarter when we talk about product innovation. We were able -- actually we were releasing 2 important flagship in our product range for the Nordics and the Central European market and also a new tire for EBITDA division, a new line for truck tires. Moving to Slide #5. As I said, this was an exciting quarter and it's worth really to spend a few words about our achievements because we were able to release once again the new disruptive technology, the Hakkapeliitta 01 with -- start with -- that is actually delivering a tire that is able to operate and to adapt to the change of temperature with start on or start off depending on the driving condition with different temperatures. This is really a great achievement. It's a disruptive innovation. And we're really proud about the achievement of our R&D team and what our company has been able to develop through intense R&D work as well as intense testing in the last few years. We're also releasing the Nokian Tyre Snowproof 3P. This is also an extremely high-performing product dedicated to the Central and South Europe -- Southern European markets that is beating actually the key competitors in many parameters. And of course, we are extremely excited about our strong improvement in the product performance in a strategic market, a growing market for all of us. We have invited to test our tires solution more than 500 customers during the month of March in our test center here in White Hell in Ivalo. And this is obviously the best way to promote our product to make sure that our customers can really experience the good performance and the good capabilities of our own facilities as well of our own products. Now let's move to the financial performance. So moving directly to Slide #7. When we look at the market, we see actually market declining, both in Europe and North America. This is making us even more satisfied with our existing journey because, obviously, in passenger car tire, we've been able to outperform the market in quarter 1. So the market is estimated to be at this stage, minus 3% in Europe in passenger car tire and minus 8%, so significantly down in North America. Truck tire business has been positive actually in quarter 1. And we can say that the agriculture and forestry business was flat, both in the OE and the replacement market in the same period. Moving to Slide #8. We see that net sales increased by 4.9% in quarter 1. I would like to highlight the strong performance of passenger car tire that was plus 9% in comparable currency. We were growing in all the regions, and this is also very important in our existing journey. We improved segment EBITDA to EUR 30.2 million, so plus almost EUR 18 million compared to previous year, and this is representing finally 2-digit EBITDA, 10.8% of net sales compared to 4.6% in 2025. We improved our segment operating profit by more than EUR 14 million. This is a growth of 70% moving to minus EUR 4.3 million, so very close to the breakeven coming from EUR 18.5 million in 2025. And finally, we improved our operating profit by 50% to minus to minus EUR 17.8 million versus almost minus EUR 36 million in 2025. So the numbers are improving according to plan, and we are really pleased about these developments. Moving to Slide #9. You will see, as we have anticipated that sales are growing in any region. Obviously, this in comparable currency, we see a growth of 1.4% in the Nordics, strong growth in Central and Southern Europe with 9.1% and also very good growth in comparable currency in North America with plus 7.8%. I remind you in a market that is declining by 8% in quarter 1. So passenger car tire was outperforming the market. Heavy tire, the sales were down by 1.6% and but it were improving -- the profit was improving significantly above 15%, 15.7%. And Vianor was slightly positive with 1.7%. Moving to Slide #10. This is a new slide that we are presenting in this deck that is giving you a better understanding of the mix development of the company. You will see that in quarter 1 we were growing in terms of a percentage of sales in the all-season and summer tire business, while we were declining from 37% to 30% in the winter tire business. Just a reminder, obviously, quarter 1 is not a winter tire quarter in our industry. And also second reminder is that obviously, we are leveraging this year the product launches that we did last year in 2025 in Central Europe for the all-season and summer tire business as well also in North America for the all-weather. We are also happy about the progress we are doing on 18 inches plus larger tire diameters when we are reaching -- they are reaching today 51% in value of our total sales. So I would say, from the mix development point of view, we are developing the business in line with the plan and in line with the strategic targets that we released in February 2026. Moving to Slide #11. Of course, we see more or less the same numbers, but I would like to focus your attention on 3 main KPIs: One, obviously, the reduction of the debt by approximately EUR 45 million, and Timo will tell you more about that, the reduction of the capital expenditure to EUR 7.3 million from EUR 52 million last year, obviously, we say that we were ending a very heavy investment period, and now we'll get back to normal. And then, of course, the cash flow from operating activities has been also improving by more than EUR 50 million. Moving to Slide #12, you will see that we are targeting this year an investment level more or less in line with the depreciation of approximately EUR 130 million at this stage. So we get back really to a normal investment level which is obviously supporting our strategic plan journey moving forward to 2029. Then I leave the stage to Timo for the business or comments. Timo Koponen: Okay. Thank you, Paolo. So as it has already been mentioned a couple of times, we are very pleased about the performance we had in Passenger Car Tyres. Net sales increasing by 9.1% on comparable currencies. At the same time, the pricing continued improving. And very importantly, we operated with the lower manufacturing and as well as material costs and this logically all resulted -- results in significantly improved segment operating profit. And as we can see, we moved from losses a year ago, EUR 6.2 million, up to EUR 10.2 million or 5.5%. Moving on to Page 15, when looking at different components in the Passenger Car Tyres in net sales, volume contributed EUR 10 million of that increase, plus 5.7% and price/mix, EUR 6 million plus 3.4%. Headwind we had related to currencies, minus 2.1% and that comes from mainly from the North American sales. In the lower part, in segment operating profit level, lower material cost was the biggest lever we had by EUR 11 million. Sales volume and price mix having also a significant positive effect of EUR 5 million and EUR 6 million respectively. And as we already anticipated in the Capital Markets Day during the period may have made significant investments in our brand and marketing. And that shows as a higher SG&A. And it's needless to say the growth always takes some money. Moving on then and looking at the -- also the picture that we are very happy about sales volume turned to growth after 2 declining coming quarters, growing by 5.7% on quarter 1. And regarding the price/mix we can see the price increase continuing also on the quarter this time by 3.4% and currencies we already commented earlier. Then moving to Heavy Tyres. There, the net sales decreased by 1.6%, and that was due to lower demand in forestry segment. And this part of the segment that -- despite of that, the segment operating profit improved by EUR 8.6 million, and that is thanks to good [ pit ] pricing disabling. Percentage-wise, as Paolo already mentioned, we are back above 15% level at 15.77%. And as it has been our target already in this business is to fix the profitability, and we are very happy to see that happening. And then finally, on the business units, the Vianor, there, we had a disappointing first quarter, as already mentioned, and this part of the increased net sales, it went up by 1.7%. The segment operating profit declined and was minus EUR 17.1 million and the main cost there was the 2 factors, basically, the cost inflation and then one-off inventory revaluation, which both had a negative effect. And then as a reminder, as most of you already know, Q1 is seasonally low for Vianor so nothing new there. And then moving to cash flow and financial positions. positive cash flow development was already mentioned, 2 main contributors there. First of all, thanks to very effective working capital management we were able to improve. And there, the factors are, as we have previously communicated, we have several initiatives ongoing. Improve our position, inventories, payables and so on. Another big improvement compared to a year ago was the lower CapEx. There are some seasonalities on that, but we also have to remember that we have very high scrutiny on new investments, what we are taking in and focusing on improving cash flow. And then Finally, on a debt position, as already I mentioned, net debt went down by EUR 45 million on the quarter on the liquidity at the moment or end of the quarter, it was EUR 441 million. consisting of cash and then the EUR 304 million undrawn cash credit facilities. And regarding the debt maturities on the right-hand side, as we already commented in the report, during the period, we executed an extension of 1 year for EUR 100 million loan, and that was the only event that we had on the quarter. Paolo Pompei: Excellent. Thank you very much, Timo. And let's move now to the assumption and guidance. So if we can move to Slide #23, you will see that we are actually not changing the assumption for this year. We believe the market will remain plus and minus 2% pretty stable, impacting car tire as well as in agri and forestry tires where we see actually the demand pretty stable and low level in the OE market and slightly positive in the aftermarket for the rest of the year. So moving to Slide #24 and looking at the guidance, there are no changes to our previous guidance. We believe that in 2026, the Nokian Tyres sales will grow compared to previous year. And obviously, operating profit as a percentage of net sales will be between 8% to 10%. The tire demand is expected to remain flat. Obviously, we are continuously watching the evolution of the existing conflict in Middle East. This is an important part of the assumption. But at the moment, we are able looking at the outlook and considering our continuous improvement plan, we are able to confirm that our guidance is pretty strong and stable. The profitability, obviously, will improve, supported by new products, but also by price and mix, as you can see also in quarter 1 and continuous efficiency in Poland. So I would like to close the -- this quarterly presentation reminding that our long-term objective, we remain focused, and we want to remain fully focused in our leading position in winter -- keeping our leading position in winter time, we are targeting to grow above market level in the old season or weather segment as well as in the agri and forestry tire business. Three different journeys in -- by geography in Nordic is about strengthening our first position while in Central Europe as well as in North America it's about growing above market average. We will do that always supporting value premium value positioning and mix enhancement. We will do that, expanding our B&L network in Europe and focusing more and more on B2B and B2C, in particular, consumers. We have a strong product innovation in the pipeline. Actually, we are counting the 2029, I remind you in the Passenger Car Tyres to release a new product in all the segments where we operate, 90% of those new products will be dedicated to winter tire and all-season and all-weather consumer focus to add investments in marketing, in particular, and then we will keep working on operational excellence where we see great opportunities to improve significantly our cost structure. Our local to local business model will enable us to be less vulnerable in front of geopolitical tensions and of course, we can count more and more in an experienced and engaged team, we will be able to achieve our financial target. So our long-term financial targets remain the same. EUR 1.8 billion to EUR 2 billion within 2029, segment EBITDA above 24% and segment operating profit above 15% reducing the debt level to a ratio between net debt and segment EBITDA below 2. We can now move on to the question and answer, and thank you for your attention. Operator: [Operator Instructions] The next question comes from Artem Beletski from SEB. Artem Beletski: Paolo and Timo, I actually have 3 to be asked. So the first one is relating to raw materials and Paolo, you also mentioned conflict and Middle East. Could you maybe comment whether you have been doing already some price increases due to this topic or have seen competitors acting. And maybe just in terms of time lag, when you need -- when this type of higher oil-related raw material costs will start to increase for you? Maybe I'll start with that one. Paolo Pompei: Yes. Thank you for the question. This is an important one, really relevant, of course. So when we talk about raw material, there is time gap, as you know very well, I mean, we are estimating to see the impact of the raw material changes more through the end of the year, meaning quarter -- end of quarter 3, beginning of quarter 4. Clearly, we are not concerned about compensating this effect that will come up. As you can see, our pricing are moving up despite we have a favorable trend at the moment of the raw material trends. So clearly, prices is the tool to compensate the raw material trend long term. Obviously, we don't comment about competitors. But I can only say in 30 years in our industry, the market is very disciplined in transferring this cost, obviously, when they are coming. Artem Beletski: Yes. This is very clear. And maybe the second question, what I would like to ask is relating to Heavy Tyres and indeed, you delivered quite nice profitability improvement in Q1. Do you see that this level is now sustainable and maybe you can update us with your view what comes to market recovery. Do you still expect it potentially to happen in second half of this year? Paolo Pompei: Yes. This is also a very good question actually. The Heavy Tyres business is improving because, obviously, good price discipline. As we said, it's keeping and, of course, some internal operational efficiency actions that we have activated. I think the Heavy Tyres business is now at the end of a very long negative cycle. So we expect the market, obviously, to move up. It's difficult for anyone to say, particularly today with existing crisis in Middle East to say really when the market. The OE market in particular will pick up because the replacement market I think, is already moving in a better direction. It's more about understanding when the OE market for us, as you know, is very important, the forestry market as well. So my original estimation was the market will improve in the second half of the year. But of course, this, at the moment, is not yet visible. At least we don't have any visibility about this potential improvement already in the second half of the year, but we will keep you updated by step. Artem Beletski: Yes, great. And then the last one that I had was relating to SG&A expenses and those went up EUR 6 million in Q1 year-over-year. And I fully understand that it has to relate to this very interesting new products, what you introduced to the market. Is it fair to say that the increase during the remainder of the year will be much smaller given the fact that those product introductions and presumably, big events are behind us. Paolo Pompei: Yes, of course. Don't forget in quarter 1, 2025, we were coming out from a very, very difficult 2024, building a company, stretching everything at minimum, not really investing too much in our future. And then now we are investing on our future with growing sales force and growing marketing investments and of course, a big product launches that we did in March 2026. Clearly, we will keep investing in growth, but it has to be a profitable growth. So as I said, of course, you should not expect a 12% SG&A increase every quarter, but otherwise, this will not be sustainable, but you should expect that, obviously, we will keep investing on our brand for the future. Operator: [Operator Instructions] The next question comes from Thomas Besson from Kepler Chevreux. Thomas Besson: Thank you very much. Good afternoon. I hope you can hear me. The quality of the line was disastrous during the previous question. So I may ask a question for almost the second time, but I'd like to make sure I understood correctly. I think, Paolo, you said that the industry has basically been raising prices to offset higher energy and input cost historically. But my question was really to try to have a view on what you're assuming in terms of energy and raw materials headwind for the year or Nokian in 2026. And when these energy and raw materials are going to turn from a tailwind into a headwind? And what kind of price hike you need to be able to offset this assumed headwind. That's my first question. I have more questions that I'll ask later. Paolo Pompei: I'm sorry if the line was not -- I hope it's better now, but that is an important question. As we said, I mean, the raw material effect of the current situation will probably be visible end of quarter 3, beginning of quarter 4. And of course, this is changing every day, as you know very well. I mean it's depending on different announcements that are happening every day. But let's say, in our assumptions, we consider the existing raw material level, the one that we will see moving forward. Then the -- obviously, we are expecting to see some impact end of quarter to beginning of quarter 4. I think the pricing action we have in place are able to compensate this raw material effect. I will keep repeating that the problem is not about transferring the cost, it's always about evaluating the consumer behavior at the end. So tire industry, we were always very disciplined in managing price and raw material we tried in the last -- actually in the last couple of years now, 1.5 years to improve also our positioning through new products and through price increases. But in general, I would say that I will not be concerned about the balance between prices and raw material. We need to see how the demand will evolve. But at the same time, we need to say that our journey is a little bit in particular, outside of the Nordic, it's a little bit independent, meaning that we come from a niche position, a small position. So we still have plenty of opportunity to manage our growth. Thomas Besson: Second question, your Q1 volumes in passenger cars were up 5.7%, while your reference markets in Europe and the U.S. were both done. And it comes against Q1 25, where you already had a strong jump in volumes. Can you elaborate on what has been allowing this? Where have you gained share? And whether you do expect to be able to continue to largely outperform your end markets in Q2 and the rest of '26. Paolo Pompei: Sure. We are growing in terms of market share, as we said in the 2, I would say, new market, we could not even say new because obviously, we were before the crisis in Russia, we were already pretty present in Central Europe. But we are regaining obviously market share in Central Europe, we are growing market share in North America. And this is driven by a combination of elements, as we know very well. First of all, we have a completely new manufacturing footprint that is giving the possibility to have dedicated factories for dedicating markets, meaning that we can really focus on the development of specific market with dedicated manufacturing capabilities. Secondly, a lot of new products. We are releasing a lot of new products that are giving also the possibility to our team to promote our innovation capabilities. And of course, we are enforcing the team as well at the same time, also exploring new channels, reinforcing our B2B and B2C channels. So it's a combination. Clearly, for us, it's a continuous journey. And -- but it's very important that this journey is going to be profitable. So in Q1 2025, you saw an important growth 22%, but you didn't see an improvement of profitability. Now if you notice, you see a different journey in the last few quarters, we focus more on profitability improvement at this stage of our life. And then, of course, we are happy to see, like in quarter 1, when profitability and growth are moving together in the same direction because this is really what any healthy company should provide to investors every quarter. Thomas Besson: Clear. Can you just say a few words about what you expect in the coming quarters about your share gains, do you think it can continue? Or this was the best outperformance you're going to show during the year? Paolo Pompei: The guidance is about growth. So what I mean is that we keep guiding single-digit growth, and that is really important. So we are not guiding 2-digit growth, but we are guiding single-digit growth. Thomas Besson: Understood. Last question for me, please. You -- I mean, I think it's fantastic, that you barely spent any money in Q1 on CapEx, EUR 7 million. So obviously, driving an unusually big decline in debt over the quarter. Can you explain why this is the case? Are you facing something very slowly? Or do you still think you're going to need to spend EUR 120 million, EUR 130 million for the year? Or did you get some of the Romanian state aid that you wanted? Paolo Pompei: Timo has already anticipated very well that clearly, when you look at CapEx, you need to see also a sort of seasonality. Normally, for reasons, we do maintenance during factory closing. So obviously, the CapEx level in quarter -- end of quarter 1, beginning of quarter 2 will increase because it's the maintenance period for many of our own operations. As I said, I would consider EUR 130 million, the maximum roof. Actually, we are targeting less than this EUR 130 million. For us, it's very important to be capital efficient, meaning to be able really to invest whatever is needed in terms of maintenance, but also wherever we see a clear and faster return. So I will not take quarter 1 as a reference. But in general, of course, we have projects, we have maintenance projects. We have a small operational project to complete the Oradea plant that is not fully completed yet. But of course, we are guiding, as I said, at this stage, EUR 130 million and probably a bit less, but we will guide you better in the second quarter. Operator: There are no more questions at this time, so I hand the conference back to the speakers. Annukka Angeria: If there are no further questions, this concludes today's call. Thank you, Paolo and Timo and all for joining this call. And we wish you a great rest of the day. Thank you very much. Timo Koponen: Thank you..
Operator: Welcome to Evolution Q1 Report 2026 Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Martin Carlesund; and CFO, Joakim Andersson. Please go ahead. Martin Carlesund: Good morning, everyone. Welcome to the presentation of interim report for the first quarter of 2026. My name is Martin Carlesund, and I'm the CEO of Evolution. With me, I have our CFO, Joakim Andersson. As always, I will start with some comments on our performance and then hand over to Joakim for a closer look at our financials. After that, I will conclude an outlook, and then we will open up for your questions. Next slide, please. So let's start with the financial and operational highlights in the quarter. Net revenues were EUR 513 million, corresponding to a year-on-year decline of 1.5%. EBITDA came in at EUR 335.3 million, corresponding to a margin of 65.4%. The regional development was somewhat mixed in the quarter. Europe is not performing well at the moment, whereas LatAm is having a great momentum. North America continues its steady growth at a slightly higher pace than in Q4. In Asia, we made some further progress on combating cybercrime. Live revenue was hurt by the development in Europe and declined 3.1% on a year-on-year basis. RNG took a step forward with higher growth than what we have seen in the past quarters, up 8.1% year-on-year. During the quarter, we have continued to expand our studio network with new additions in Latvia, the U.S. and Argentina. We have also started to deliver on our amazing product road map for 2026. I will talk more about that later in the presentation. Next slide, please. If we then move to our operational KPIs, first, consisting of Headcount and then Game Rounds index. On Headcount, we are growing by 2.9% year-on-year and 1.7% on a quarter-on-quarter basis. We are on a good path with expansion, and we will continue to optimize the distribution and cost mix throughout 2026. The Game Rounds index can be seen as a general indicator of activity throughout our network over time. For an individual quarter, it can vary quite a lot and does not always correlate with revenue development. The long-term trend should be an increase in Game Rounds as game sessions in general gets faster and with smaller bets. I'm satisfied with the development in Q1, especially with the backdrop of the development in Europe. Next slide, please. In the last report, we introduced a real breakdown of revenues based on our customers location where Europe is dominant. Compared to the fourth quarter, North America and Latin America have grown their respective share of the total revenue, which reflects the overall development in the first quarter. As we require all our customers to carry a license in regulated jurisdictions, all our revenues are regulated. You also see a revenue split based on our customers and their players, our customers' customer, which is an estimation based on the IP number of players received from our customers and purchased by a third-party geo information. This is the breakdown of the revenues we have included for several years. See from that perspective that all our customers are regulated, our revenue is regulated to 100%. If instead looking at the estimation of the geo position and approximation of revenue based on our customers', customers' players' IP address, about 48% of the estimated revenue is regulated. Next slide, please. I will now give you a few comments on each of the major regions based on the estimation of revenue based on our customers' customers' IP number. As already mentioned, Europe did not do well and continued to decline quarter-on-quarter, largely due to regulatory volatility and subjectivity, which hurt our player activity. It has now also been almost a year since we introduced our extensive ring-fencing measures, which ensure that the players can only reach Evolution content from licensed operators within their respective markets. It was the right thing to do. And in the world of perfect regulation, it would not have caused any issues. However, due to that regulation in some markets fails to strike the right balance between player protection and entertainment, players continue to access unregulated operators and channelization is decreasing fast and significantly. This harms the total business and the most vulnerable players lose the player protection of playing of regulated operators and search by products from Evolution. Looking at the operational side, we have opened a second studio in Riga in the quarter. It is currently the home of our Always 6 Blackjack tables. But later this year, it will host both game shows, Game Night and Monopoly Filthy Rich. Looking at Asia, this is now the second quarter in a row with a quarter-on-quarter growth. This is, of course, a positive signal. We are in a better place right now than a year ago. However, as the challenge has been somewhat of a cat and mouse game, we remain cautious. Next slide, please. Both North America and LatAm reported yet another all-time high revenues. Growth rate in North America improved compared to the fourth quarter. It looks somewhat soft in our reporting currency, euro, but in U.S. dollars, year-on-year growth was roughly 21% compared to 19% in Q4. In the quarter, we launched several Monopoly theme titles, which have been off to a great start. Last week, we also launched Monopoly Live in Connecticut, which is an important milestone as we know that the Monopoly franchise is particularly strong in the U.S. market. It will be rolled out in additional states going forward. We have also completed the construction of the second studio in Michigan, located in Grand Rapids. It's a milestone as well. It's now going through inspections and regulatory approvals, and we are expecting to launch it in the next few months, hopefully earlier. Looking at the regulation, we note 2 positive developments. In the U.S., the main governor has now signed the iGaming bill into law. In Canada, Alberta will regulate its iGaming market in July. We have had presence in the program since 2021, serving the only available online gaming service run by the local government with live casino games. Now the market will open up for more operators. Last note on North America is the ongoing process to acquire Galaxy Gaming, where we are still working on the necessary approvals before the 17th of July deadline. We don't have any new information to share today more than that the process is ongoing. Latin America is doing really well at the moment. A highlight from the quarter is that we have completed the acquisition of a live studio in Argentina from a competitor who has decided to withdraw from the market. The studio will form the base for further growth in Argentina, and we are now adapting to evolution standard. In Brazil, we continue to perform well after regulation, which was about a year ago. We have launched a localized version of Crazy Time that is sure to attract a lot of new players in Brazil. LatAm truly is exciting. We're in full expansion mode. In addition to Argentina, we continue to expand our presence in Brazil and in Colombia to fully leverage the big market potential. With that, we don't have a specific chart for other markets, which mainly comprise of Africa. It continues to grow from a small base. Fresh games are widely popular in the region, and our recently launched Red Baron has so far exceeded expectations. Also, our RMG offering is starting to gain traction. To conclude this slide, the U.S. and LatAm are where we will invest the most in 2026. Both regions have high potential with life still being in early days. Next slide, please. As you are aware of, we have a spectacular road map for 2026, where we will take fun and entertainment to yet another level. Over the past month, we have made some initial releases like Always 6 Blackjack and Dragon Dragon, but the big splash is still ahead of us. Based on our exclusive partnership with Hasbro, we will continue to expand our portfolio of Monopoly games and closest in time for release of Monopoly Roulette and Monopoly Roll 'Em. Monopoly is an extremely strong franchise that is continuously gaining more popularity. And I think that it will be an important piece of the puzzle one -- continue to push the boundaries for entertainment. Another exciting development is the introduction of a new feature that we call SciPlay. It will allow players to enjoy slots alongside the live game attraction. With just a click, you will be able to activate selected slots from our RNG brands such as Nolimit City and NetEnt. Within the live interface, a mini lobby will make personalized recommendation to keep content relevant and engaging. I think this is a great feature as it brings together live casino and slots in one streamlined view, the best of 2 worlds and yet another feature and advantage of OSS, One Stop Shop. Since Evolution was founded 20 years ago, we've been obsessed with the end user satisfaction and the entertainment factor. And delivering the satisfaction is not just about innovation, it's about getting the fundaments right, every single day, top-notch gameplay, a flawless lobby, world-class studios, a game integrity that set the global benchmark. We often highlight what's new each quarter because innovation is exciting, but I want to be crystal clear. These basics are absolutely crystal -- critical for the experience because if the fundament slips, end user notice immediately. So with that said, 2026 is going to be another great year of innovation, while we also continue to enhance overall experience with playing our games. The combination of the two will ensure that we will bring the most entertaining experiences to the players and increase the gap to competition more than ever before. With that, I will hand over to Joakim for a closer look at our financials. Next slide, please. Joakim Andersson: Thank you, Martin. As usual, I have a few slides that will focus on the key highlights as we go through them. Starting with this slide, Slide 8, which shows our revenue and EBITDA development over time. If you look at the data on the far right, we can again see the Q1 revenue of EUR 513 million, represented by the blue bar, EBITDA of EUR 335.3 million in the gray bar and our EBITDA margin of 65.4% shown by the line above. Let's go to the next slide. And here we have a more detailed look of our profit and loss statement. As before, I have highlighted the key takeaways on this slide, and I will talk you through them one by one. First, the net revenues, of course, amounted to EUR 513 million, which is down 1.5% year-on-year, but practically flat quarter-on-quarter. Second, total operating expenses were EUR 220 million, which is 1.3% higher than Q1 last year and up 2.5% quarter-on-quarter. Personnel expenses increased by 4% quarter-on-quarter. However, on a rolling 12-month basis, we continue to see a deceleration in the growth rate each quarter. Third, profit for the period amounted to EUR 251.9 million. And as the fourth highlight, our earnings per share after dilution amounted to EUR 1.26. Let's move on to the next slide, where I show you the development of our cash flow. First, on the left-hand side, we show our operating cash flow after investments. This amounted to EUR 311 million for the quarter, representing a solid improvement compared with Q4, partly driven by a recovery in working capital. The last 12 months cash conversion remains strong and stays around the long-term trend with 81% in the quarter. Turning to the chart on the right, which shows our capital expenditures. Total CapEx related to tangible and intangible assets amounted to EUR 34.6 million for the quarter. This remains stable as a share of net revenues as illustrated by the black line. Next slide, please. Turning to our financial position. And as you can see on this slide, there are no major changes compared to recent quarters. We continue to be in a very strong position with total cash of EUR 1.2 billion, including our bond portfolio and total equity of EUR 4.3 billion. With that, I'll conclude my remarks for this quarter. And overall, it was a fairly uneventful quarter from a financial standpoint. I'll now hand it back to you, Martin, to wrap things up. Martin Carlesund: Thank you very much. So let's summarize and then move to the Q&A. If we look beyond Europe, 2026 has started really good. We grow across all regions. We maintain the margin, and we have started to deliver on the amazing product road map. I'm a little bit frustrated that the majority of our showcase games will be launched during the second half of the year, but they will be worth the wait. Europe is the main headache right now, but the long-term positive view is intact. I've talked about it many times before. Regulation changes over time. And right now, the balance is not where it should be. But as channelization continues to decrease, regulators will eventually have to adopt -- adapt to protect the players and not by force, but by some regulation, get them back into the regulated part of the market. We're doing what we can to mitigate the current development, working smarter and harder, releasing the best games, pulling the players back. As highlighted, we will continue to invest mostly in U.S.A. and LatAm alongside our internal focus on product innovation. Some further expansion in Europe will also be needed, but we are naturally more cautious in the short term. I don't want the U.S. litigation against a competitor to take focus from the results, but when a competitor sets aside all rules and deliberately try to hurt us, we must take action to protect our shareholder value. They have stated that they stand behind the defamatory report. But please remember that they paid enormous amounts of money during 4 years to not be exposed as the commissioner of that said report. Please also remember that the report was based on a success fee structure where the report producer was being paid based on how severely they could hurt our shareholder value. Evolution works hard. We are methodic. We are patient, and we are very disciplined. We believe in right and have strong and good culture based on morale and solid ethics. And as a last note in the quarter, the Board has proposed that no dividend will be distributed for 2025 as it has assessed that the cash dividend currently is not the best way to create long-term shareholder value. The Board has not made further decisions on the capital allocation for 2026 yet. It's not dramatic, rather refreshing. When further decisions are made, we will let you know about it. So with that, we thank you for listening so far, and now we open up for questions. Operator: [Operator Instructions] The next question comes from Pravin Gondhale from Barclays. Pravin Gondhale: Firstly, on capital allocation, I appreciate that Board of Directors have not decided to propose any dividends. Could you explain what are the reasons behind those decisions? And when can we expect any further communication in this regards? And secondly, on Europe, what are the key countries in Europe where you flagged that channelization is decreasing at faster pace? Has that materially accelerated in Q1? And when do you expect that to stabilize? Martin Carlesund: On the capital allocation, the Board is responsible for that, and they will take a decision that is creating the most shareholder value, and they are thoroughly and taking this question serious and looking at it. And as a result, they cancel the dividend for 2026. As soon as they have made their analyze, taking the decisions, they will get back and we will communicate what to do with our excess cash. I cannot, at the moment, give any more clarification on that. When it comes to channelization in Europe, and if we split this in two, channelization in Europe in a number of countries are not really known. The ones that make some of the investigations and estimations of that could be U.K. They have a low channelization. It's dropped significantly over the years. Netherlands, the same, but there are also others such as maybe even Sweden. It's quite hard to get those figures in total as the market -- the unregulated market is growing and not clear. So that's the comment on that. There are also other countries taking other regulatory measures or governmental measures that affect the situation in Europe as well. So that's the background or backdrop to Europe. Pravin Gondhale: And if I sort of follow up on that, could you just elaborate on what is the subjectivity part of the impact, which is impacting the player activity in Europe and in which countries? Martin Carlesund: I think that -- I will briefly comment on it, but I think that the regulation in many countries stays the same, but the subjective evaluation or the implementation of the regulations have changed. So even though the regulatory framework stays the same, suddenly, it's applied in a different way. That's what I mean with subjectivity. Operator: The next question comes from Georg Attling from Pareto Securities. Georg Attling: Martin and Joakim, I have a couple of questions, starting with Asia. So another quarter of sequential growth. And also when I look at the player data here in April, it looks very strong for Baccarat. So I'm just wondering what makes you reluctant to calling the trend shift here in Asia for the rest of the year. Martin Carlesund: I think that we need to be cautious. We need to be also prepared for that as I write in that it's a little bit of a cat and mouse game. And we methodically, systematically work on the situation, as you can see, and we're very happy with the 2 quarters in a row where we grow, but we're just a little bit cautious in our communication. Georg Attling: On Europe, another question. You alluded to it earlier, but just wondering, is this a broad-based decline across most countries or focused on a few countries where large declines? Martin Carlesund: I think you would say that it's a little bit of both. I mean there are war, oil price situation in the world, and it affects, I think, Europe quite a lot. You can also see that it affects the dollar and other. And there are specific countries taking measures and it's a little bit of mix. Georg Attling: Okay. Just a follow-up on that. What do you view is really in your hands when it comes to Europe because there's only so much you can do with the channelization and I assume you're quite keen to stop this negative trend in the region. Martin Carlesund: End user satisfaction, desire to play Evolution games, strengthen and higher entertainment value. That's the key for us. We are even looking at it like if we do even better games, higher entertainment, we will pull players back into the regulated environment, even though the hurdle has been created, which make them go away. So our core focus, as always, see to that we deliver the best games that the players desire, position them with the operator or the future operators, see to that we always are on top. That's the only thing that will matter in the long run. Georg Attling: That's clear. Just a final question on LatAm, where growth is accelerating quite nicely. Just wondering what do you view as the drivers to this acceleration? Is it market growth, studio expansion, larger game portfolio or something else? Martin Carlesund: Great games again, end user desire to play our games, studio expansion, market growth situation and so on. It's a good environment to be in. But if we didn't have the games to supply to the market, we would be nothing. So it's a combination. Operator: The next question comes from Nikola Kalanoski from ABG Sundal Collier. Nikola Kalanoski: I'm a bit curious on game shows. And so from an outside-in perspective, game shows seem to be growing quite nicely with respect to player count and the category seems to be becoming a larger and larger share of the player count. Are you generally seeing a less volatile revenue profile from game shows compared to some of the other game categories? Martin Carlesund: No. Nikola Kalanoski: Short and sweet. And then a short question on Ice Fishing. Are there any regions in which this game is particularly popular? Or would you say it's equally popular all over the world? Martin Carlesund: Ice Fishing is a super success, a great game, gaining traction all over the world. Actually, a loved game, one of the best we've made. Operator: The next question comes from Ben Shelley from UBS. Benjamin Shelley: I've got 3 questions. Question one, do you think margins can remain stable year-on-year given Europe and Asia are still declining and you are expanding capacity in Latin America? Martin Carlesund: I think that the incremental margin and the scalability of our business model is for sure proven this quarter. I think that in spite of the situation in Europe, we delivered good cash flow, fantastic margins, and it shows that the investments that we do are really, really well placed. So my view is yes. Benjamin Shelley: And given channelization issues in Europe, how do you see the outlook for the U.K. amid material iGaming tax hikes? And is there anything interesting you are seeing from operators in the market already? Martin Carlesund: I think that -- I will answer it in general terms. Everyone in the online gaming sector in one way or the other, if you're an operator or a supplier or even something else, you would know that if you have a tax level that is like somewhere around 25%, 20%, but even 15% is great and 20% works and 25%. But as soon as you hit like the 30% bracket, it starts to be really difficult and you open up for lowering channelization and unregulated play. When you put taxes on 40% level and a lot of other hurdles, you make it so difficult and not nice for the player experience that players in quite a large amount seeks play -- gameplay outside. I think that, that will slowly come into play. Right now, regulators talk only about what they do as repressive measures, but they don't talk about what happens to the players that are outside the regulated remit. And I think that, that needs to come into focus and you need to find that balance. I look forward to see that balance coming back. Benjamin Shelley: And then just lastly, on competitive intensity in the live casino industry. Are you experiencing any pricing pressures, any loss of share? Martin Carlesund: We have experienced that all along. I mean, I've been in the company for quite a long time. I think that the only difference is that there are different names related to the competitors. Some during one period it's one name and the second period is another name and so on. The pricing pressure from competition, not able to cover the gaps that we increase all along with the innovation and the game shows we do is always compact. It's always there. Operator: The next question comes from Martin Arnell from DNB Carnegie. Martin Arnell: My first question is on Europe and this discussion what's in your own hands and what you can do to improve. How important do you think the new game releases will be for Europe in order to come back to growth? Martin Carlesund: I have a positive view on Europe going forward. And I think the game releases that we are going to do and also even the games that we already have will have an impact and is super important. I think that some of the games that we do are the creator of gameplay and entertainment and people, persons and end users search those games. So the more of those games that we have, the more pull into the regulated environment we will have. Martin Arnell: And many of them are tilted to second half, but you have a few -- is it correct that you have 2 new Monopoly games scheduled for Q2? Correct. Martin Carlesund: Yes, that's correct. Yes. But the major ones are in the second half. And that's -- I always said it's a little bit frustrating for me, but it takes time. The big game, Game Night, it's a huge game, hundreds and hundreds of square meters of game show and different environment, studios, you go in and you follow the player in those, and it takes time to build. It's not -- it's a really, really complex world that we are creating. Martin Arnell: Interesting to look forward to that. And on the -- just also a question on like orders from your clients on new dedicated tables. Has that changed anything dramatically? Or is it stable? Or how do you... Martin Carlesund: We don't guide on that. I would say that we are continuously doing well. Martin Arnell: On dedicated tables orders, okay. And final question would be on this game show discussion, the product mix when it comes to game shows, are the new game shows more lucrative for you than the old ones in terms of like player activity, bet size, et cetera? Martin Carlesund: I don't -- I'm sorry, I don't guide on profitability per game or new game or old games. I think that the type of games that we do now with the type of Monopoly and Hasbro content is, of course, highly valuable for everyone, us and the operator and the player. Operator: The next question comes from Ed Young from Morgan Stanley. Edward Young: My first question on Europe, please. You've talked through the channelization angle and the subjectivity part of it. But if I look at your disclosure, the regulated mix is up despite the European decline and some Asia growth. So is it fair to say that this is primarily a decline in your European jurisdictions that are not locally regulated in the quarter rather than the channelization issue, which has obviously been ongoing. The second question... Joakim Andersson: Okay, let's take one question at a time... Edward Young: Sorry, let's -- sure. Martin Carlesund: Otherwise, I will -- due to my lack of memory, probably not answer. You have to look at -- we're growing nicely. everything more or less in LatAm is regulated. We're growing nicely in U.S., adding money there as well, adding a little bit of money in Asia. There is a percentage point here and there and there are decimals to that. So I wouldn't necessarily draw that conclusion to a point. There are other regulations in Europe that are not regulated that are suffering and there are regulated jurisdiction in Europe that are suffering. Edward Young: Second, you obviously added Playtech to your legal complaint. Can you just maybe give your reflection on where you are now in terms of what you're aiming for through the legal process and on what time line we should expect to get an idea of damages, including punitive damages that you're seeking? Martin Carlesund: We have had an opponent in this legal debacle that has been ongoing for 4 years, and we have systematically been progressing and winning in court. That's taken 4 years. It will take a very long time. And the opponent that we have is also taking a lot of measures to delay everything, which we have seen in the past, and we expect that in the future as well. So think about years, probably many years. Edward Young: And then finally, there's been some confusion in some of the questions we've had this morning. So perhaps you could help clear this up. In terms of the Argentina studio acquisition, just to be clear, you've acquired the studio, i.e., the building of a competitor's departed? Or have you acquired a competitor in some of their revenues in Argentina that have contributed to the quarter? Martin Carlesund: Studio. Operator: The next question comes from Karan Puri from JPMorgan. Karan Puri: Thank you for taking my questions, most of them. Martin Carlesund: Good morning. Karan Puri: Most of them have already been answered, but just quickly on the Argentina point, I just want to clarify, is there any inorganic revenue contribution coming from that acquisition for LatAm or not? That's... Martin Carlesund: No, no. Karan Puri: That's -- got it. And the second question, actually, I just wanted to check on the U.K., do you see any further discussions with the regulator on this front? Any idea when this might be resolved? Martin Carlesund: I have no idea when it will be resolved. Nothing -- no progress to report. Karan Puri: Just one quick one, if I can squeeze that one in. One on the RNG performance. It seems like it came in much stronger than anticipated, at least on a year-over-year basis. Maybe can you provide some incremental color on this, please? Martin Carlesund: I think we're doing great in RNG right now, fantastic games on Nolimit. We're gaining traction. We are on our way. We systematically methodically work with it, and I think that we're doing better and better. Operator: The next question comes from Andrew Tam from Rothschild & Co Redburn. Andrew Tam: Just one for me. We just heard from some of the operators out there about some of the headwinds in terms of the Turkish market. To what extent, just curious, did Turkish weakness contribute to the weak European result? Martin Carlesund: I won't quantify market specifics in Europe, but that also contributes to the decline in Europe, yes. Operator: The next question comes from Rasmus Engberg from Kepler Cheuvreux. Rasmus Engberg: Good morning. Joakim Andersson: Good morning. Martin Carlesund: I took a sleep of comfort, that's why I was a bit slow. That's why I was a bit slow. Rasmus Engberg: In the Americas, both North and LatAm, which business is growing faster? Is it RNG or is it live? Martin Carlesund: Live is growing faster. Rasmus Engberg: In both? Martin Carlesund: In LatAm in total, I don't want to go down to a specific number. We're doing a little bit better and better on RNG in total. And it's -- yes, but live is the main show. Rasmus Engberg: Okay. And second question, your rate of expansion with new studios this year compared to last year? Is it higher or lower or roughly the same? Martin Carlesund: Good question. The decisions we will take during 2026 will be a little bit more forward leaning and expansion will be maybe in actual terms about the same, but we are doing more for 2026, 2027, 2028 this year than we actually did 2025. I look forward to that. Rasmus Engberg: And I don't know if you can answer this, but are you -- is Evolution going to have a Board meeting after the AGM or in conjunction with the AGM? Martin Carlesund: I actually don't want to answer that to avoid any speculation. Joakim Andersson: So it's a constituent Board meeting in connection with the AGM. That's correct. Yes. Rasmus Engberg: Thank you. Martin Carlesund: Thank you, interesting question. Operator: The next question comes from Ben Shelley from UBS. Benjamin Shelley: I just wanted to ask on accounts receivables and compared to your quarterly revenues, they remain elevated year-on-year and broadly stable quarter-on-quarter. Are there any comments or any updates on your Q4 comments here? Joakim Andersson: Yes, I can pick that up. No, I mean, yes, you said any updates from Q4. Yes, Q4 was definitely on an elevated basis, and we are constantly looking into it, constantly reminding customers, constantly chasing overdues. When we review, there's nothing alarming in there. So we are now kind of more methodological -- whatever that word is, thoroughly doing this work and with a higher discipline than before. So we saw a roughly EUR 10 million reduction during this quarter, and I expect that to continue. Operator: The next question comes from Jamie Bass from Citi. James Bass: Just one question from me or 2 parts to one question, I guess. So firstly, are you feeling relatively confident that a solution will be found for Galaxy Gaming before the deadline? And if not, is the deadline you've got now, is that a hard deadline? Or can that be extended again? Martin Carlesund: I can't -- I don't want to guide on it. Of course, we are working hard to solve everything outstanding, and it's progressing. And right now, the deadline is hard. So then that comes down to, is there any possibility with some to postpone it. Right now, the deadline is hard. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Martin Carlesund: Thank you very much for participating, listening to us here today and looking forward to see you in a quarter again. Thank you. Bye-bye.
Tom Erixon: Hello, and welcome to Alfa Laval's first quarter report. Fredrik and I will share some time going through the details. Because of today, we also have an AGM starting relatively soon, we need to limit this call to 45 minutes. So our apologies if our Q&A session is slightly short. With that, let me, as always, go to some first introductory comments before moving on to the presentation. So first, overall, we felt we had a stable quarter, well in line with our expectations. The pattern of a strong transactional business and a hesitant project business continued in the quarter. Second, the implementation of the new operating model continued in a high pace with adjustments to the financial reporting, management appointments and consolidation in various areas. The financial weight of the changes during this process was limited in the quarter. And then finally, with the war in the Middle East, our main priority has been employee safety in the region and appropriate customer support in difficult times. The financial impact on Alfa Laval was limited in the first quarter and medium term, the energy crisis may provide both some downsides and some upsides across the world in terms of our customer base. So with that, let me go to the key figures. We started '26 well with order intake growing sequentially and with a 6% organic growth compared to last year. Sales was on the low side, partly because of a very high invoicing towards the end of 2025. Despite the lower invoicing and big currency movements, the margin improved slightly to above 18%, mainly due to a positive mix. Moving on to the Energy division. Demand was as expected on a very high level across many end segments, and with a continued recovery of volumes in HVAC, including the heat pump market. The data center business was as expected, strong and continued to grow in the quarter. Going forward, we are now starting to build the data center order book for 2027. We are, of course, concerned for our customers in the Middle East with the damage inflicted on critical infrastructure. The rebuilding process in the region is not clear to us at this point, but we are ready to put all available resources to support the regional needs in the years to come in this very critical situation. Then to the Food & Pharma division. Demand was firm with a 9% organic growth in the quarter. While the transactional business was on a new record level, it was gratifying to finally book sizable oils and fats projects in Brazil, including biofuel components. The outlook for biofuel projects is improving gradually with a viable project pipeline going forward. The consolidation of the BU structure continued in the quarter and in addition to building the future growth platform for the Pharma business. In the Ocean division, we remained as expected on a lower order intake pace compared to the record last year. But at the minus 12% organic decline, it was still a good quarter and better than expected. Ship contracting at the yards was very active due to high freight rates and longer shipping routes. It had a positive effect on orders in general and for cargo pumping specifically. In this application, we are now starting to build the order book for 2028. The energy crisis may trigger additional offshore projects outside of the Gulf to gradually compensate somewhat for the shortfall of volumes. It may impact our offshore business in a positive way going forward. The margin remained stable at around 22% based on the solid order book, which will continue during 2026. Then on to Service. On group level, we remained at about 30% of orders in Service for the Ocean division higher due to the slightly lower capital sales and for the Energy division, the opposite at 25% of total orders due to significant growth in capital sales, especially on the data center side. Volumes were perhaps a little bit on the low side overall and flat compared to last year. We expect to regain the growth path in service going forward. In the Ocean division, there is a negative effect though from sanctioned ships that we cannot serve amounting to about 5% of the global fleet at this point. In addition, there is significant stress on ships and crews in the current crisis, which may delay some service work further. In general, though, as I said, we expect to return to growth in the year. A couple of comments on the top markets and regions. As you know, China and the U.S. are 2 top markets in some time, and both developed well in the quarter with the U.S. on a new all-time high. Our expansion plans in both markets continued with full speed with several site investments in both countries. We also added a smaller Chinese heat exchange companies to the group, supporting their growth plans as well as creating a better coverage of the Chinese market for Alfa Laval as a whole. In terms of the regions, please note that the numbers includes currencies, so they're not the organic. They are the overall growth numbers. And as mentioned, North America and Latin America had a very strong quarter with significant growth, especially in the North America. Europe was flattish with the exception of Eastern Europe that grew well in the quarter. Middle East and India, both faced headwinds due to the ongoing crisis and the energy crisis, and that was reflected in the order intake at this point. And in fact, both India and Southeast Asia are the 2 regions with the biggest short-term exposure to the energy crisis at this moment. Finally, Northeast Asia had a good quarter overall. But of course, they are impacted by the very high marine orders from Q1 last year. Other than that, China and Northeast Asia developed well in the quarter. So that's a summary where we are on that. And I'd like to hand over to Fredrik for some further details. Fredrik Ekstrom: And thank you, Tom. So moving on then to some comments around orders received. But before I start I have some additional comments on order intake and a quick word on the change. We have adopted an order intake approach that reflects new orders in the quarter only, meaning revaluations of the order book are not deducted from the order intake. This is highlighted and explained in more detail in Note 1 referring to accounting policies in the quarter 1 report. And now to some additional comments on order intake. A clear impact on the comparability of figures is currency rates, where the SEK has appreciated against both the euro and the U.S. dollar over the last 12 months. This impacts the comparability with almost 10%. The structural component is related to acquisitions and mainly due to volumes of the acquired Cryogenics business. Organic growth in the quarter exceeded 6% with the Energy division accounting for a good part of that increase with growing data center volumes and a recovery in the HVAC end markets. Food & Pharma also noted a strong organic growth intake in its 2 largest markets, oils and fats and dairy while the Ocean division remained stable with a normalized marine pumping systems order intake. The order book closed in the quarter at SEK 48.7 billion compared to the SEK 48.3 billion at the year-end 2025. SEK 32.1 billion of this is scheduled for invoicing this year. The current order book supports a continued good invoicing level and the order book is assessed to be in line with current input cost levels and the book-to-bill in the quarter was 1.11. On to sales. Currently, we are only experiencing minor disruptions to our supply chain related to the escalated geopolitical tensions, primarily the conflict in the Middle East. Once again, we are impacted by currency with almost 9% negative comparability. Organic growth at almost 2% with a structural contribution of 3.8%. The aggregate impact is negative with 3.3% with a quarter sales level of SEK 15.9 billion. This level, which is somewhat lower than expected, is affected by delaying -- delayed invoicing of projects to a minor extent, transportation disruptions, particularly related to the Middle East and normal seasonality from quarter 4 to quarter 1. Our gross profit margin was on a high level of 39.9% compared to 37.5% in quarter 1 2025. The positive data can be traced to an accretive invoicing mix of transactional business and service, a strong factory in engineering result and good purchase price variances from cost levels set in our standard costing. On the cost side, S&A increased with 1.9% in the quarter and R&D with 4.2%. Approximately SEK 75 million cost increase in the quarter was related to the new divisional structure. Amortization of step-up values increased to SEK 174 million, reflecting the acquisitions made during 2025 with majority related to the Cryogenics business. Taxes also landed within guidance range and operating income in the quarter landed at SEK 2.7 billion. And finally, an EPS of SEK 4.59 with the majority of the deviation stemming from lower invoicing and currency impact. Adjusted EBITDA of almost SEK 2.9 million was, as previously mentioned, supported by a strong factor in engineering result, positive purchasing price variances and an accretive invoicing mix of transactional business and service, negatively impacted by currency with SEK 264 million and SEK 75 million related to the new divisional structures and strategy initiatives. 18.1% adjusted EBITDA margin in the quarter exceeded the 17.7% in quarter 1 of 2025 and is well above our target level of 17% over a business cycle. On debt levels, they have increased from quarter 1 last year, reflecting the financing of the Cryogenic acquisition. In the quarter, we have an MTN bond of EUR 300 million that has matured and been repaid. SEK 1.2 billion in commercial papers was issued, and we expect to issue a further amount of commercial papers during the coming quarter to cover the upcoming proposed dividend of SEK 3.7 billion. Net debt in relation to the last 12 months EBITDA was just shy of 0.7. The increase in lease liabilities reflects the balance sheet impact of renewed long-time leases for some of our operating footprint. Cash flow in the quarter saw a strong EBITDA contribution of SEK 3.7 billion. Working capital change had a negative impact of SEK 1.5 billion, where the majority comes from the building up of work-in-progress inventory and a strategic buildup of buffer inventories for some commodities that we believe are at risk of disturbance from the disruptions that are caused by the conflict in the Middle East. Capital expenditures were somewhat below guidance at SEK 529 million and yielded a free cash flow before acquisitions of SEK 708 million. Acquisitions in the quarter accounted for a cash flow impact of SEK 565 million, stemming from the majority share acquisition of the Chinese heat exchanger manufacturer and a SEK 50 million share in Industrikraft. Finally, the contribution of financing activities is related to the repayment of the EMTN bond of EUR 300 million and the issuance of commercial papers of SEK 1.2 billion. Finally, some financial guidance going forward. We expect CapEx to remain high but stable within a range of SEK 0.6 billion to SEK 0.8 billion in the next quarter and a whole year level within the range of SEK 2.5 billion to SEK 3 billion. Amortization on about the same level of quarter 1 with SEK 175 million and in the next quarter and SEK 600 million for the entire year. And finally, a tax interval of 24% to 26% for both quarter 2 and the entire year. And with that, I hand back to Tom for some forward-look commentary. Tom Erixon: Thank you, Fredrik. And while history is clear, obviously, forecasting in today's environment is somewhat complicated. We don't consider that the looming energy crisis and the war in the Middle East is having any major impact on our outlook in this moment in time. In general, we are somewhat more optimistic about the year now than when the year started about a quarter ago. And demand specifically sequentially for this year in the second quarter is expected to be on a group level, somewhat higher than the first quarter. And on a divisional level, we expect the Energy division to remain on the current all-time high level in the second quarter. We expect demand in the Ocean division to be higher than in the first quarter and we expect the Food & Pharma division to remain at approximately this level with both some upside and perhaps downside depending on how larger projects are materializing in the quarter. So that's where we are in terms of our forecasting in a crystal ball. And with that, I'd like to open up for questions. Operator: [Operator Instructions] The first question comes from the line of Daniela Costa from Goldman Sachs. Meihan Yang: It's actually Meihan here. I just want to have 1 question on data center business. What is the percentage of the energy businesses is data center now? And do you see a difference on the order intake trend on liquid cooling versus air cooling? And what's the ASP difference on those 2 products for you? Tom Erixon: If we move back 1 quarter, we then stated that the 12-month rolling order intake on the data center side amounted to approximately SEK 2 billion. If we move up to this quarter, now 1 quarter later, the ongoing rolling 12 months is at around SEK 2.5 billion. Obviously a bit higher in this quarter specifically, but over the last 12 months, that's what it is. So it's a clear growth trajectory as we have indicated earlier. We remain on that growth territory right now. I don't have in my head the split between air and liquid cooling, but what we have in the plans, and it's pretty clear is that we will have fairly slow, but still a meaningful gradual shift towards water cooling in the incoming orders. But I believe we are still clearly in the majority of the air cooling if I take it from the hip. We can confirm to you later on. But I think that's where we are. Operator: The next question comes from the line of Kim John from Deutsche Bank. John-B Kim: I'm wondering if you can help us kind of square the circle here. If you look at Clarksons data, I think you had some pretty good activity in tanker contracting. I'm trying to think about that and the cadence of your order intake, not just for Q1, but potentially through the rest of this year. Is that something that would have shown in your numbers at some point in time? Or is this still to come or am I misinterpreting here? Tom Erixon: No, I think we came in a bit stronger on the order book for new contracting in this quarter than we had expected when we started. As you know, the outlook -- your outlook was a little bit gloomy when the year started. I think right now, we are at the -- the count is at around 500 ships this year so far, which is significantly higher than last year at the same date. And so it looks like we are coming into a decent year of contracting and we saw a little bit of those effects and a little bit higher product tanker contracting than expected in the beginning of the year. And in March, we had a bit of effect on that, and we may very well have something on that kind also in Q2. Operator: The next question comes from the line of Gustaf Schwerin from Handelsbanken. Gustaf Schwerin: I have a few. Maybe starting with the invoicing level in Q1. Can you give us a sense of the magnitude of sales delay here? And also if this is an effect of customer decisions or something else? That's the first one. Tom Erixon: I'd be a little bit careful in sort of using the delay. What you should be aware of is that after the SEK 19 billion in invoicing in Q4, obviously, sort of we went a bit all in on the invoicing side towards the end of the year, and that had some spillover effect into Q1. We are shipping products on normal delivery times a normal delivery commitments without any major disruptions on our side. I think the difficulty we sometimes have is to predict exactly the percentage of completion. And so those payment schedules, typically they don't get accelerated. But for various reasons, in larger projects, the execution of those projects, they moved the time line a little bit here and there in terms of commissioning and final payments. And so I don't want to -- it's not an -- we're not looking at an operational problem. It's just a bit of seasonality between Q4, Q1, and perhaps not a perfect bridge to the timing of invoicing in the number of projects. Gustaf Schwerin: Okay. Secondly, on energy orders, clearly stronger than we had expected and also better than the comments you had back in Q4. I mean the main positive delta there is data center. Is there something else that's stacking out? Tom Erixon: I think there was a lot of things sticking out actually. I think the transactional business in Food & Pharma went to a new all-time high after a fairly strong Q4. That was not exactly in our mind at the time. The slight improvement on the ship contracting side was not exactly in our mind at the time. And maybe even the HVAC side, although we saw a turn already in Q4 last year. We picked up a bit better on that as well. So I think that there have been a number of contributing factors. So it sounds like I'm all super happy with all of the order intake. It's not -- that's exactly true. If we have 1 miss in the quarter, I think that is related to the service side, which is flattish compared to last year. There are some maybe small structural temporary reasons around that. So we feel fairly committed that we're going to return to a growth path for the rest of the year. But as an individual quarter, we didn't quite see the organic growth in service that we've been used to for the last 6, 7 years. Gustaf Schwerin: Perfect. Just lastly, the comment in the CEO letter around escalating cost inflation and you potentially considering price increases by midyear. I mean, how should we read that? As we stand now, do you foresee a material change in your cost base Q2 versus Q1? Tom Erixon: It is a reflection that the energy crisis we are going into is clearly, macroeconomic-wise continuing to drive an inflationary environment that has been higher than we've been used to for a long period of time, and we haven't got the grips with it. And this process that we have of escalating energy prices is not helpful in the current inflationary environment. We see specifically issues in part of our bill of materials. We see a bit of challenge on the logistical cost, and we are just not prepared to passively watch that escalation go on. And we are, by the way, not sure that this problem is over. And we are now returning back to some sort of normality on the energy side. So I think we created a bit of inflationary way ahead of us. And as we did last time when we had this problem, we will prefer to deal with it proactively rather than afterwards. But it's no -- it's nothing specific on Alfa Laval's sourcing mix or exposure that puts us in a different position than anybody else. I think you will see a number of companies doing the same thing. Operator: The next question comes from the line of Andreas Koski from BNP Paribas. Andreas Koski: Two questions. First on HVAC, where you're seeing the recovery continuing. Can you -- do you have a good feeling of how the distributors' inventory levels are today? Is there a possibility that we will see both end market demand improving at the same time as the distributors have to restock a lot after the destocking that we have seen over the many years? Tom Erixon: I'm looking at Frederik. Listen, I think I think we are -- when we look at the... Andreas Koski: I can ask it this way instead, if you want. I mean when we look at HVAC in the past, we were at a quite high level. And I think the heat pump business was at a total of around SEK 3 billion, and now we've been below SEK 1 billion when it comes to the heat pump business. So is there a possibility that we will reach the previous peak that we saw a few years ago in the... Tom Erixon: I think -- all right, let's take it from there. I think we actually peaked at around SEK 2 billion, if I remember correctly. And we've been partly down in the pace that has been below SEK 500 million. So this has been a really significant destocking. And we've seen now for a couple of quarters that the volumes are picking slowly up, and they were picking up a little bit faster in Q1 than before. But I don't think there's a lot of inventory, certainly not excess inventory in the systems right now. I think we are looking at -- we're looking -- we are still on less than half of the peak. So I think we are balanced with the market. I think the big question for us is how much? There's a number of questions as to the current energy crisis, how will it affect our business in offshore? How will it affect the electrification, the move to heat pump and a number of other areas. And so there are some upside coming from the current energy crisis in terms of energy resilience and diversification that may put some extra volume growth into the market. But otherwise, we expect a fairly slow growing heat pump market in Europe. And we expect to be maybe back towards the -- the then record levels early as 2030 or so. So it is -- that's our main business case. But of course, we may see increased subsidies and increased push again, higher gas prices and so on, that is again favoring the heat pump market. So it is kind of an upside, but I would not look at that upside as more than maximum SEK 1 billion or so, if I were you. Andreas Koski: Okay. Great. And then coming back to Gustaf's questions about potential price increases. And you mentioned that you're seeing inflation picking up. But can you just remind us how you are impacted by the tariffs? And if there will be an incremental impact for you because of the updated Section 232 tariffs? Fredrik Ekstrom: Yes. So as Tom expressed, I mean, the inflation that we're seeing is probably ahead of us, and it comes in the form of being -- staying close to our suppliers, and there's a signaling that for a lot of the energy-intensive inputs that we have into our products that, of course, that's being driven up by the current energy prices. That's one part of your question. And to the second part of your question, yes, there has been a shift in the so-called Section 232 or an update of it. I believe it was the second of April that the update went through. Our assessment when we look at it and we look at it from the different product groups and the different supply chains that we have is that it's fairly neutral for us. We don't see that we have a big impact neither negatively nor positively. There are some negatives and some positives, and they weigh out in the end. But of course, we keep a close eye on this. And you have to remember that when I say different supply chains. We have everything from delivering finished units to delivering components for assembly in the U.S. to spare parts and then there's whole host of supply networks around there that come from Mexico, Europe, China and so forth, it's a little bit different, but our assessment as it stands today is that it doesn't imply any major changes to the cost of tariffs as we have it today. And to be clear, from the new level that was set after the previous round of tariffs was deemed illegal. Andreas Koski: Understood. And then lastly, on the updated way of how you will present your order intake and that you will not include cancellations and revaluations. When you write about the order book in the text, in the report, will you there mention if you have had revaluations and cancellations? Or will we just see the order book development basically? Fredrik Ekstrom: Yes. No, you will see the order book development for certain. And referring to that change, I will remind you that when we went into quarter 1 last year and we had the big movements of the NOK and the U.S. dollar, in particular, to pumping systems where we had a revaluation of backlog that was reflected in our order intake at that point in time of almost SEK 800 million. And so the critique or the feedback that we got from the market was you're not really reflecting the demand and the new orders as you get them on the market if you're actually netting out revaluation. So this was a little bit a response from our side to say, let's align ourselves with the way the market is getting this information from other peer companies. So it was a little bit in response to that. So we don't see it as anything dramatic. I think the new number clearly reflects what the real demand is on the market and what the new orders in the quarter are. And I take on board your feedback on whether we should include it into the backlog in the report. Andreas Koski: No, because there is -- when I look at it now, there is a possibility that you have had some cancellations, which would also be interesting to know about, actually, because the order intake was SEK 1.6 billion higher than sales, but your order book only increased by SEK 400 million in the quarter. And that's why I was wondering if you would have mentioned in the text if you had cancellations or revaluations, but I understand that you... Fredrik Ekstrom: But I take it with me and just to answer the question, the lion part of that change is revaluation due to currency. Operator: The next question comes from the line of Klas Bergelind from Citi. Klas Bergelind: Sorry, I joined a bit late, maybe you covered some of this. So first, on Ocean, the higher demand you see into the second quarter. I'm trying to understand the dynamics between cargo pumping versus offshore and then rest of Ocean. Is this a step-up you see in cargo pumping or in the other categories, i.e., ex Framo? The reason for asking is that it typically take some time from contracting improvement until you see improved orders outside Framo. So that dynamic would be interesting. Tom Erixon: Yes. You're asking for a lot of granularity here. So I'm a little bit hesitant to meet your question too much. But as I indicated before, part of a slightly stronger order intake in the ocean than we perhaps expected for Q1 was related to higher product tanker contracting that had some effects at Framo. And it's possible that, that, to some degree, will continue. But don't keep me hostage for doing product-by-product prophesies. All in all, we see a slightly more favorable environment on it, and then you have to do a little bit of your own risk assessments there. Klas Bergelind: All right. Fair enough. My second was on the heat pump side. Did you say that there is a quarter-on-quarter improvement already in your orders now within HVAC? Or is this a sentiment improving? It feels a bit early that we would have a broad-based improvement in heat pump orders. I mean maybe in certain countries, but I'm just interested in what you said there. And sorry, I was late on the call, maybe you talked about this. Tom Erixon: Yes, we did but no problem. But there has been, over the last couple of quarters, a clear improvement in the volumes. Now I would say that the big part of that has been the completion of the destocking process, which was getting completed towards the end of last year as far as we could judge. And if we were correct in the depletion of excess stock towards the end of this year, then the first quarter order intake on heat pumps were reflecting a better production plan and a stronger production plan at our customer site in terms of their expectations into Q2, Q3. So we had a pretty clear growth at that point in time. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Tom Erixon for any closing remarks. Tom Erixon: Thank you very much. Thanks for being. It's a very busy day for all of you guys. So we appreciate taking the time and we're going to be off to AGM. And so hopefully meet some of our investors there. So thank you very much for your attention, and see you next quarter. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your line. Goodbye.
Operator: Hello, and welcome, everyone, joining today's Kimberly-Clark de México First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to CEO, Pablo Gonzalez. Please go ahead. Pablo Roberto González Guajardo: Thanks so much, Nicki. Good morning, everyone. I hope you're all doing well, and thanks for participating on our call. We had another strong quarter and a good start to the year with record revenue behind a strong performance in our Consumer Products businesses, double-digit increases in gross profit, operating profit, EBITDA and net income and EBITDA margin at the top end of our range. Our strategies and actions are having the intended impact, spearheaded by strong commercial and operating execution, and we continue to make progress on our KCM+ innovation, growth and transformation strategy. More on that after Xavier takes you through our first quarter results. Xavier? Xavier Cortés Lascurain: Thank you. Good morning, everyone. During the quarter, our sales were MXN 14.3 billion, a 3.6% increase versus the first quarter of 2025 and an all-time high. Total volume was up 3.7%, driven by consumer products, while price/mix was flat. Net sales were boosted by consumer products, which grew 5.4% with a 3.7% volume increase and 1.7% price and mix growth, while away-from-home decreased 1.3%. Exports were down 6.8% due to lower hard rolled sales, while converted products grew 15.8%. Sequentially, Consumer Products grew 1.4%, mainly volume driven, while away-from-home and exports grew 10.1% and 6.2%, respectively. Cost of goods sold decreased 1.1%. Our cost reduction program once again had very good results and yielded approximately MXN 450 million of savings during the quarter. These savings are mainly at the cost of goods sold level. They were generated through a combination of global fiber contracting initiatives, changes in sourcing and the use of alternative fibers, product redesigns and the introduction of new raw materials in nonwoven fabrics, diaper geometry redesigns to improve material efficiency and logistics and distribution efficiencies across our network. These initiatives reflect ongoing actions across procurement, product design, manufacturing and logistics. In addition to these actions, compared to last year, virgin and recycled fibers, fluff, superabsorbent materials and resins compared favorably. The FX was also lower, averaging around 15% less than last year. Gross profit increased 11.1% for the quarter. SG&A expenses were 10.2% higher year-over-year and as a percentage of sales were up 100 basis points. Distribution expenses were higher, while we continue to invest behind our brands and work to improve our footprint and streamline logistics operations. Operating profit increased 11.9% and operating margin was 23.2%. We generated MXN 3.8 billion of EBITDA, a 10.1% increase year-over-year with EBITDA margin at 26.7% at the upper part of our long-term range. Cost of financing was MXN 439 million in the first quarter compared to MXN 295 million in the same period last year. Net interest expense was higher since we earned less on our cash investments. During the quarter, we had a MXN 9 million foreign exchange loss compared to a MXN 14 million gain last year. During the quarter, in early March, considering that maturities of recent years have been paid from cash, we issued Certificados Bursátiles for MXN 10 billion through 2 placements. The first placement was for MXN 8 billion with equal amortizations in years '10, '11 and '12, and the second placement was for MXN 2 billion with a 2.6-year term. This allowed us to benefit from favorable conditions and improve our debt maturity profile. Net income for the quarter was MXN 2 billion, a 10.2% increase. Earnings per share were MXN 0.68, a 13.3% increase. We maintain a very strong and healthy balance sheet. Our total cash position as of March 31 was MXN 20.4 billion. Our net debt-to-EBITDA ratio was 0.9x with EBITDA to net interest coverage of 9x. With that, I turn that to Pablo.Thank you. Pablo Roberto González Guajardo: As mentioned, we had a strong start to the year despite still subdued economic growth and private consumption. We expect growth to improve as the year progresses, spurred by job creation and higher salaries, together with increased spending in anticipation of and during the World Cup. We expect consumer products businesses to continue to lead the way, Professional business stabilizing during the second quarter and growing during the second half of the year and parent roll sales still trailing due to more tissue required for consumer product sales, but becoming less of a drag as the year goes on. With respect to raw material costs, fundamentals support lower dollar prices versus last year, but we will experience some months of higher costs, both sequentially and in some cases versus last year, stemming from the oil shock the world is experiencing. We hope the impact will be limited in both strength and duration with prices returning to underlying market fundamentals. In the meantime, we're focused on price realization. We just implemented price increases in most of our businesses averaging 4%, and we'll continue to apply our revenue growth management capabilities. And we'll continue to be focused on operational efficiencies and ensuring another good year in cost reduction efforts. Of greater importance, we continue to make good progress on our KCM+ strategies. Our core businesses are performing well, and our diamond categories are accelerating growth behind consumer-centric, relevant and differentiated innovation together with greater engagement and improved commercial execution. Further, we're making inroads in private label and have identified opportunities to strengthen the North American supply chain together with our strategic partner. When it comes to new areas of growth, in the coming quarters, we will be working to consolidate and to increase efficiencies in adjacencies. Further, we continue to make progress on pet food and are actively analyzing the Kenvue opportunity. All in all, our KCM+ initiatives focused on accelerating growth are going well. Equally important, we have specific initiatives to develop our skill set, better utilize data to define consumer needs and engagement, work closely with our retail partners to remain a supplier of choice and continue to improve and where needed, transform our end-to-end cost structure in an increasingly dynamic environment. Effectively deploying and efficiently utilizing the most advanced technology solutions is the fundamental layer to support and drive all these efforts and time is of the essence. We hope these comments provide a good picture of where we stand and why we are so excited about KCM's present and future. With that, let me open the call for questions. Operator: [Operator Instructions] We'll take our first question from Ben Theurer with Barclays. Benjamin Theurer: Two quick ones. So first, if I remember right, about a year ago, the strategy over summer in terms of campaigning, promoting, you took a little bit more of a hands-off approach, a little bit more on the back, not as aggressive as in prior years. So just wanted to understand with the announcement you just had the 4% price increase on certain products that you're pushing, what should we expect from you guys as we go into the summer promotional campaign that usually kicks off by the end of the second quarter? That's my first question. And I'll have a quick follow-up. Pablo Roberto González Guajardo: Sure, Ben. Thanks for the question. We will follow the same path as last year, meaning we will not be as aggressive as in the past, although one thing that is happening is that the summer promotional season continues to expand in length. It's pretty much has already started here in mid-April. And it might have to do with the World Cup and all of the retailers wanted to get ahead of that event. But we're starting to see more promotion out there. But in our case, we continue to be more disciplined about it to ensure we can keep the value of our categories. Benjamin Theurer: Okay. And then a quick follow-up on the commodity cost side because I kind of like missed the commentary because obviously, you do have some exposure to oil price derivative products. So I just wanted to understand how the current surge in oil prices is kind of like affecting you on what might be more like, call it, a petro-exposed or just oil derivative exposed raw material cost pressure. Pablo Roberto González Guajardo: Yes, we are seeing some pressure on oil derivatives. But so far, and given where things stand, we believe it will be limited both in strength and duration. But that's where it stands right now. And as it is, it would have some impact, of course, on our cost and our margins, but we don't think it will be significant. Now things can change, of course, but where it stands right now, again, limited in both strength and duration. Operator: Our next question comes from Bob Ford with Bank of America. Robert Ford: Pablo, can you comment a little bit about how clients and competitors are responding to your 4% price hike? And when it comes to the North American production footprint with Kimberly-Clark Corp, how should we think about the magnitude of the opportunity as well as the economics of that? And is there a role for you in the very short term to help address the inventory loss that Kimberly-Clark Corp suffered in California? And then lastly, how are you thinking about Kenvue Mexico with respect to the final deal terms and the closing date? Pablo Roberto González Guajardo: Sure. Thank you, Bob, for the questions. First, on retailers and competitors responding to our price increases. I mean we're right in the midst of implementing those. It was really at the end of March, early April. We haven't seen anyone respond so far, not unusual because you know they always lag. Now it might be a little bit more difficult this time around to see that response and to even have this reflected quickly. Because again, we're already starting with the summer promotional season. And although we're going to be more disciplined, that always has an impact. So we expect that as this season goes through and we get into the third quarter, then we might see competitors react and our own prices reflect fully on going forward. When it comes to the U.S., I mean, we continue to have very good meetings with our partner to understand our regional footprint and what's best for everyone and how we can have the most competitive and efficient footprint in the region. And we're finding really good opportunities that I think will take a little bit of time to materialize, but we're seeing some very interesting opportunities, both for them and for us, and we continue to work on those going forward. And I think some of them will start to materialize end of this year, probably next year. Hard to tell the magnitude of the opportunity. We believe it's important. But again, we're starting with a couple of projects to make sure this goes the way we all expect and continue to look for opportunities. In the short term, yes, we are helping them bring back their inventories given what happened in the warehouse in California. So in the short term, we'll be helping with that. And then when it comes to Kenvue, we are in the process of the due diligence of the business and we're starting our discussions with our partner on the business. As you know, they're moving forth with their integration plans. And as part of that, we're discussing with them what would be next for KCM Mexico. I expect that we will have a more complete analysis and discussion with them probably May, early June and hopefully have a decision by the end of this quarter or early next quarter on whether we move forward with this or not, but things are looking good. Operator: We'll take our next question from Renata Cabral with Citigroup. Renata Fonseca Cabral Sturani: Congrats on the results. So my first question is related to costs and a follow-up actually. As considering the current level of the FX, it's natural we consider that those margin improvements can carry over along the year, but we are now in a situation of volatility in terms of raw material prices. Just to check the view regarding this margin trend along the year broadly, if you can? And the number two is related to the consumer division that had a growth of 5%. We see the slowdown in the Mexican economy. If you can give us some color in terms of a category that is doing better, would be great as well. Pablo Roberto González Guajardo: Thank you, Renata. Well, first, on the cost side, yes, you're right. I mean, the FX will continue to be a tailwind. And again, if raw materials were driven at this moment for by fundamentals, we would continue to see improvements, and that would also be a tailwind. But again, we're experiencing this uncertainty right now with the oil shock and the impact that, that's having on all derivative commodities. So that will have an impact, but we still believe that we have enough with our efficiencies, our cost reduction program and the FX to continue to post margins within our target and most likely at the upper range of our target even with that cost impact. Now if that goes away, then we could see further improvements throughout the year. When it comes to the market, yes, it still feels, as I mentioned, the economy is still stagnated. I mean we are not seeing great growth and domestic consumption is still pretty subdued. And we continue to see the same dynamics in our categories as we saw second half of last year. So that's soft volume growth and some pricing in most of the categories, particularly on the core categories, that's bathroom tissue, diapers, napkins, a little bit more growth in categories that have further room for penetration like incontinence and wipes, et cetera. So no changes really there on the dynamic on the categories. So all in all, given where the categories stand, our results of 5.4% in consumer products and I think particularly 3.7% in volume, we believe those are pretty strong given that there's not a lot of volume growth in the categories. So that also means that our shares are strong, and we continue to make inroads with the innovation we're putting out there in the market. So good start to the year, and we feel good about where we're positioned and a lot more coming in terms of innovation and commercial execution to continue this trend that really started in the second half of last year with consumer products. We had a very strong 3 quarters sequentially in Consumer Products, and we hope we can get that to continue. Operator: We will move next with Alejandro Fuchs with Itau. Alejandro Fuchs: Pablo, Xavier, and team, congratulations on the results. My question is just a very quick one regarding the MXN 10 billion increase in debt that you posted during the quarter. I wanted to see maybe, Xavier, if you can elaborate a little bit more on what the use of proceeds is -- and if this has anything to do maybe with, as Pablo was mentioning, a potential deal with Kenvue and KC in the U.S. in the second half of the year, maybe. Xavier Cortés Lascurain: Alejandro, in principle, the placement was not tagged to anything directly. As you know, we usually like to renew debt in advance when we see an opportunity, given the size of the deals that you need to do for them to be efficient. We prefinance, let me use that word, 2 or 3 years ahead. And the last 2 debt payments that we did came from our cash. Having said that, if we were to do anything in terms of M&A coming forward, this places us in a good position to be already prefinanced for that. I hope that answers it. Operator: [Operator Instructions] We will take our next question from Antonio Hernandez with Actinver. Antonio Hernandez: Congrats on the results. Just a quick one regarding Away from Home that continues declining. What is your perspective here? Do you see any data that reflects an overall improvement, maybe how you started the quarter versus how you ended the quarter? Pablo Roberto González Guajardo: Thanks for the question, Antonio. Look, Away from Home was lower versus last year, but it did have an important sequential improvement. So we see the business starting to improve. As I've mentioned in prior calls, this is a business that suffered more the effects of the slowdown of the economy and the adjustment in inventories by the trade. And we continue to see some of that. But again, our volumes are starting to improve sequentially. And we believe this might be -- the second quarter might be still a little bit flattish. But given where we see inventory levels at this stage in the trade and our plans going forward, we expect this business to grow in the second half of the year. So it's had a little bit of a rough patch, but I think it's coming under control and the right trend. And again, second half, we should be growing the business nicely. Operator: And at this time, there are no further questions in queue. I will now turn the meeting back to Pablo Gonzalez for closing comments. Pablo Roberto González Guajardo: Well, nothing more to say. Just thanks so much for participating in the call. We really, really appreciate it. And as always, if there's further questions, you can certainly reach out to us, and we'll be more than glad to talk to you. So thanks again, and have a great rest of the week. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect. Pablo Roberto González Guajardo: Thank you, Nicki.
Operator: Hello, and welcome to the Royal Vopak First Quarter 2026 Results Update. [Operator Instructions] This call is being recorded. I'm pleased to present, Fatjona Topciu, Head of Investor Relations. Please go ahead with your meeting. Fatjona Topciu: Good morning, everyone, and welcome to our Q1 2026 Results Analyst Call. My name is Fatjona Topciu, Head of IR. Our CEO, Dick Richelle; and CFO, Michiel Gilsing, will guide you through our latest results. We will refer to the Q1 2026 analyst presentation, which you can follow on screen and download from our website. After the presentation, we will have the opportunity for Q&A. A replay of the webcast will be made available on our website as well. Before we start, I would like to refer you to the disclaimer content of the forward-looking statements, which you are familiar with. I would like to remind you that we may make forward-looking statements during the presentation, which involve certain risks and uncertainties. Accordingly, this is applicable to the entire call, including the answers provided to questions during the Q&A. And with that, I would like to hand over the call to Dick. D.J.M. Richelle: Thank you very much, Fatjona, and good morning to all of you joining us in the call this morning. I would like to start with the key highlights of the year so far. We've had a strong start of the year, where we saw a healthy demand for our services, which is reflected by our continuously high occupancy rate of 91%. Our financial performance remains strong. Proportional EBITDA grew by 4.1% compared to Q1 2025, and that is the result adjusted for negative currency translation and divestment impact. Importantly, we were able to convert 76% of this EBITDA into operating free cash flow, resulting in an operating cash return of 16.6%. We also made good progress on executing our growth strategy. In West Canada, the construction of our REEF LPG project export terminal is progressing well. And in the Netherlands, approximately 90% of the 4th tank construction at Gate terminal has been completed. The project is on track to be commissioned within budget and on time at the end of Q3 2026. In addition, we took an investment decision in the Netherlands to repurpose capacity at our Europoort terminal for the storage of pyrolysis oil and another FID in Spain to expand the capacity in Tarragona. Finally, despite the increased volatility in the market related to the Middle East conflict, we are confirming our full year 2026 outlook, subject to ongoing market uncertainties and currency exchange movements. As per our current assessment, we anticipate the financial impact of the ongoing conflict will be absorbed by our strong underlying business performance and is within the range of our full year 2026 outlook. However, we do see that the uncertainty has increased, which is what I will talk about in more detail in the following slides. First, look at the market dynamics. Before diving into the results, I'd like to provide some context on the conflict in the Middle East. It has caused a historic supply side shock across global energy and manufacturing markets. This presents a major challenge for some of our customers. Broadly speaking, supply-side substitution has not been sufficient to offset the loss of physical products normally sourced from the Gulf countries. This has triggered significant commodity price volatility and forced a redirection of energy flows, domestic and -- towards domestic and transportation sectors, further impacting industrial demand. As a result, we see cautious customer sentiment and increased uncertainty. Let's take a closer look at how this impacts our business, starting off with our exposure to the region. We own and operate 4 storage terminals across the Middle East, with strategic locations in Saudi Arabia and the United Arab Emirates. In terms of financial exposure, around 5% of our proportional EBITDA is generated by these terminals, and they represent around 4% of our capital employed. Our terminals in Saudi Arabia are linked to industrial clusters, while our Fujairah terminal in the Emirates located outside the Strait of Hormuz, functions as an oil hub. The conflict has had severe impact on the industrial activity in the Gulf countries because of physical damage to the production facility and production halts. As a result of the closure of the Strait of Hormuz, Fujairah, despite its strategic location, faces reduced product flows. In terms of indirect exposure, to substitute for the loss of product volume from the Middle East, we see a rebalancing of trade routes emerging. While our infrastructure facilities facilitate the rebalancing of global trade flows, throughput levels are impacted by reduced products in the market. We do see that this presents a major challenge for some of our customers impacting their business continuity. While with our well-diversified portfolio of terminals, we've proven to be resilient against geopolitical tensions as well as energy market volatility and disruptions in the past. Our diversification is a structural strength, allowing our network to serve the evolving supply chain and energy security needs of our customers and partners. In addition, with the shift of our portfolio towards gas and industrial terminals, the duration of our contracts has increased significantly, reducing our exposure to short-term volatility. However, we are resilient, but we're not immune. The conflict in the Middle East introduces variables from shifts in global trade routes to heightened security risks and regional price shocks that we are not insulated from. We continue to monitor these developments to protect our operations and our customers' interest. Now let's take a closer look at our results for the different terminal types we operate. We see an overall strong performance with higher results compared to Q1 of last year when adjusting for the impact of currency translation and divestments. It's important to highlight that Q1 results had limited impact from the Middle East conflict. We saw a strong performance of our chemicals and oil terminals, which was primarily driven by increased throughput combined with strong contribution from growth projects. Our industrial terminals performed broadly stable year-on-year. However, due to the contribution of growth projects, we saw a slight increase compared to Q1 2025. For our gas terminals, we saw a slight decline year-over-year, which is primarily related to disruptive gas supply from the Middle East conflict. All in all, this has led to a proportional EBITDA of EUR 295 million and a strong operating cash return of 16.6%. Notwithstanding the volatility and uncertainty on the market during Q1, we continued to execute on our growth strategy. In the United States, at our Deer Park terminal, we commissioned repurposed capacity for biofuels. And in Spain, our Terquimsa joint venture with FID to expand its capacity to address market needs as well as further solidify its leadership position. Last but not least, we've taken a final investment decision to repurpose capacity at our Europoort terminal in the Netherlands for the storage of pyrolysis oil. This is an important step in our continued commitment to the energy transition and is strengthening and further integrating our industrial partnership at the Europoort. Since 2022, we've committed around EUR 1.9 billion to grow our base in gas and industrial terminals and to accelerate the energy transition. Around EUR 650 million of this is already commissioned and is contributing to the financial results. Around EUR 1.3 billion is still under construction. We expect to commission around EUR 775 million near year-end related to mainly Gate, the 4th tank and the LPG export terminal in Canada. In the period 2027, 2028, we expect to commission around EUR 325 million and around EUR 175 million in 2029 and beyond. This is based on the FIDs that we've taken so far. The already commissioned growth projects as well as the growth CapEx under construction will further reinforce our long-term stable return profile and diversify our revenues. Looking ahead, we remain well positioned to achieve our long-term ambitions. We've shown strong business performance in recent years and the market indicators for storage demand remain firm, supporting the delivery of growth projects and the resilient performance of our existing business. This is reflected in our long-term ambition. We have an operating cash return ambition for an annual range of between 13% to 17% and are well on track to invest EUR 4 billion growth CapEx through 2030. Also, as announced during our full year 2025 results, we are distributing around EUR 1.7 billion to our shareholders through year-end 2030 via a progressive dividend and a multiyear share buyback program. With that, I'd like to hand it over to Michiel to give more details on the Q1 2026 results. Michiel Gilsing: Thank you, Dick, and also from my side, good morning to all of you. As Dick mentioned already, we have had a very strong start of the year. We reported a healthy occupancy rate, increased our EBITDA and further improved our free cash flow generation. These results highlight the strength of our well-diversified portfolio, particularly in times of increased uncertainty and volatility. Simultaneously, we continue to invest in attractive and accretive growth projects while returning value to our shareholders. Let's take a closer look at the performance of the portfolio. Our operating cash return was broadly stable at 16.6%, compared to the 16.8% in Q1 2025, driven primarily by the negative effect of currency translation in our free cash flow. On an autonomous basis, excluding currency and divestments, our proportional operating free cash flow per share increased 7.1% versus Q1 2025. Demand for our services remained healthy, reflected in a proportional occupancy rate of 91%. Adjusted for currency movements and divestments, proportional EBITDA increased by 4.2% which we will detail further in the next slide. Moving on to our business unit performance overview. Excluding negative currency exchange effects of EUR 15 million and EUR 2 million divestment impact, our proportional EBITDA increased by 4.2% compared to Q1 2025. A large part of this growth can be explained by the strong EBITDA contribution of EUR 9 million from our growth projects, particularly in the U.S. and India. The performance across the network was relatively stable as regional headwinds are balanced by robust activities at our major oil hubs in the Netherlands and Singapore. We are continuously focused on generating predictable growing cash flows to create value for our shareholders. Compared to Q1 2025, we have seen our proportional operating free cash flow grow by 7.1%, adjusted for currency translation and divestment impact. This is primarily driven by the autonomous improvement of our proportional EBITDA and the reduced share count following our share buyback programs. Moving from the cash flows to our financial position. Our proportional leverage, which reflects the economic share of our joint venture debt remained stable at 2.6x. If we exclude the impact of assets under construction, which do not contribute yet to the EBITDA, the proportional leverage is at 1.99x, which is the lowest level in over 5 years. Our ambition for the proportional leverage range is between 2.5 and 3x. To facilitate the development of growth opportunities that enhance our operating cash return, Vopak's proportional leverage may temporarily fluctuate between 3 and 3.5 during the construction period, which can last 2 to 3 years. This is all in line with our disciplined capital allocation framework. Our capital allocation framework consists of 4 distinct pillars aiming to maintain a robust balance sheet, distribute value to shareholders, invest in attractive growth projects and yearly evaluate the share buyback program. As announced during our full year results, we are distributing around EUR 1.7 billion to our shareholders through year-end 2030 via a progressive dividend and a multiyear share buyback program. In addition, we have the ambition to invest EUR 4 billion on a proportional basis by 2030 to grow our base in gas and industrial terminals and to accelerate towards energy transition infrastructure. That brings me to the outlook for full year 2026. As mentioned by Dick, the market indicators for storage demand remain firm, supporting the delivery of growth projects and the resilient performance of our existing business. However, we do acknowledge that the market has become significantly more volatile following the conflict in the Middle East. For now, we expect that the financial impact of the ongoing situation is absorbed by our strong underlying business performance and growth project contribution. This gives us the confidence to reaffirm our full year 2026 outlook with the proportional operating free cash flow projected at around EUR 800 million and a proportional EBITDA expected to range between EUR 1.15 billion and EUR 1.2 billion. Bringing it all together in this slide, we are off to a strong start of the year with solid cash generation. Our portfolio remains well positioned to cater for increased volatility in the market. And last but not least, we continue investing in attractive growth opportunities while returning value to our shareholders. And with that, I hand over back to you, Dick. D.J.M. Richelle: Thank you, Michiel. And with that, I'd like to ask the operator to please open the line for questions and answers. Operator: [Operator Instructions] And now we're going to take our first question, and that question comes from the line of Kristof Samoy from KBC Securities. Kristof Samoy: First of all, congratulations with the results. I have 2 questions to start with. If we look at the ongoing conflict in the Middle East, there are, let's say, 2 factors at play there, which impact your business. First of all, positively, you have the rush for energy molecules, so energy security. On the other hand, you have uncertainty, which impacts the FID process that you are undergoing for certain projects. So my first question would be, how is the process looking for Australia right now? Has FID become less likely? Or although more likely given the fact that Australia can simply import oil from its own -- from another region in their country. And secondly, if you could comment on EemsEnergyTerminal and the potential extension there because we have seen the news that Exmar is progressing with the vessel conversion. And then the second question, we know that throughput rather than guaranteed offtake is more of a key driver for revenues in India. If we look at the drop in proportional occupancy rates in the Middle East and India, could we say that this drop is still mainly linked to the Middle East and that the drop linked to throughput in India has yet to be reflected in the numbers? D.J.M. Richelle: Kristof, thanks for the questions. Yes, maybe on your first question related to Australia and EET and then specifically on the timing of them, I think for Australia LNG project, the way we would look at it is and what we can see at this point in time, the need for that project is set by the local Victoria state for gas, and that's just for electricity generation. So that is a need that is almost independent of what happens in the rest of the world. They have a very strong need to find substitution for current gas supply offshore that is depleting. So there's no indication at this point in time that there is a fundamental change in -- that there is a fundamental change in the time line of that project. So we still expect to get back with more information towards the end of this year. I think that's around VVET. So that's the Australia energy project and maybe to EET. So EemsEnergy, the extension over there process is still ongoing. Yes, we've seen Exmar making the announcement. We are not there yet to make any announcement. As you know, we run an open season on the recontracting of the capacity post the end of the current contract by fourth quarter next year. And that is a moment that we are still working through or a process that we are still working through. And once we have news to share, we will come back to the market and share that. I think then maybe to the lower occupancy rate, it has more to do with the fact that the Fujairah capacity in the first quarter was lower in terms of also out-of-service capacity. Then had a direct impact of what's happening in India. I think still, if you look at Q1, it's a bit early to see the effect of any of the disruptions from the Middle East directly in our business in India. But indeed, the flows of LPG that flow to India have a lot to do with the source of origin, and that's the Middle East. Kristof Samoy: Okay. But for EemsEnergy, you do not experience a change of attitude with your partners in terms of the run-up to the FID being taken given everything that's going on in the Middle East. D.J.M. Richelle: No, I think many parties take for processing like this, a long-term approach. They know that the capacity is available in 2028. As you know, a lot of the flow that was coming from Qatar is taken out. That has a massive impact, but it is also expected to have a massive impact for, as they call it, a bit of extra supply that was expected to come in towards the end of this decade. So you could almost argue that with all the repair and restoration that is going on, it pushes out that supply -- extra supply a little bit further out in time, and it doesn't necessarily have an immediate impact on, for instance, product that needs to leave the U.S. and needs to find a home in Europe. So I think it's a bit of a long answer to say, for now, we do not see a material different approach of potential customers towards EemsEnergy. Operator: Now we're going to take our next question. And the question comes from the line of Thijs Berkelder from ODDO. Thijs Berkelder: Congrats with the strong Q1 performance, especially in chemicals. Can you maybe further explain why chemicals was so strong? And related to that, can you explain what you now see happening in your Deer Park and European chemical operations given recent Middle East events? Second question relates to the strong performance in Rest of World. Can you explain where that is coming from? D.J.M. Richelle: Thanks for that. I think on the Chemical side, I would say, overall, Deer Park has done quite well in the first quarter, and the same goes for Vlaardingen specifically that actually participated and contributed quite strongly to the results in the first quarter. When it gets to the conflict and the impact of chemicals as such for our network, I think Deer Park, although we do not see it yet fundamentally, but Deer Park or the U.S. in general, you would expect that they will benefit a bit from the fact that the U.S. as a chemical producer has quite a competitive -- a strong competitive position in the current global landscape. So we expect that, that will result in at least continued healthy demand for our services, especially Deer Park. I think that's one. So I would say strong performance there. I would say if you change that to Europe, particularly, I would say, Belgium, it's still hard to see, but quite a lot of the flows that are moving into Belgium are flows that come from the Middle East. It's a very strong market for Middle Eastern producers to sell product in Europe. That is subject to the disruptions as a result of the conflict. And what you see over there is, obviously, there's a lot of people that are trying to take positions, traders that try to take positions in that market to try to supply the demand for the end product that continues to be there. So it remains to be seen how that effect is going to balance out. Too early to tell in that sense for Belgium. If you look at it overall for the rest of the portfolio, I think what we said, it's still healthy demand on the main oil hubs, in the first quarter, Singapore Strait, strong, Rotterdam, high occupancy, high activity, so pretty strong over there and fuel distribution, quite healthy across the board in the first quarter. So I think we are pleased if we look back at the first quarter. And I think as we said, the outlook for the rest of the year given everything that's going on is within the range of what we said already in the first -- in February when we announced the 2025 results. Michiel Gilsing: We also had a few growth project contributions in the U.S. and India, which also helped on the Chemical side. So that has led to an increase versus Q4 2025 as well. Thijs Berkelder: Yes. And rest of the world primarily driven by Belgium then? D.J.M. Richelle: Not necessarily. No, not Belgium, I would say. I think if any, Belgium is a bit under pressure first quarter. I think rest of the world, just healthy across the board, not a particular region, I would say that jumps out. As I said, oil stable and relatively strong and just a positive good start of the year. China, quite well. So nothing particular that jumps out, Thijs, in a extreme way. Operator: Now, we're going to take our next question. And the question comes from the line of Philip Ngotho from Kepler Cheuvreux. Philip Ngotho: I have 3 questions, if I may. The first question is on China and North Asia. If I look at the consolidated numbers, I see the occupancy rates. It was already low last year, but it actually dropped further to 55%. So I assume it has to do with the Chinese terminals that are just generating or have low occupancy rate. I was wondering if you could share any -- because in the past, I think you also mentioned that the chemical market in China has been weak, and it seems that occupancy rate continues to drop further there. Do you have any -- what are the projections for those assets there? And could we be thinking of anything if it remains structurally weak to -- that you might take some portfolio actions there? The other thing that I'm wondering about is what portions of earnings is really dependent on throughput levels rather than really take-or-pay contracts? And the last question I have is if a client would declare force majeure and you have a take-or-pay contract with that client or client is impacted by force majeure and with the take-or-pay contract, what happens to that take-or-pay contract? Do you actually -- can you still incur revenues on that? Those are my 3 questions. Michiel Gilsing: Philip, maybe start on the China side. Yes, if you look at the consolidated occupancy, effectively, that's only one terminal. So we have a portfolio of 8 terminals in China. So that doesn't give you a very representative picture of China. Dick already mentioned, the China results were actually quite good and slightly above our own expectations. Indeed, that terminal is the Zhangjiagang terminal, which then has a relatively low occupancy because it's in a very competitive market, and it's one of the distribution terminals. Most of the terminals we have in China are industrial terminals. So basically backed by long-term take-or-pay type of contracts. So you see that the overall portfolio is quite healthy. We don't have any immediate portfolio actions, we're going to take in China. To the contrary, we commissioned last year a new terminal in China. So that is an add-on to our portfolio. We still see quite a few growth opportunities in industrial terminal locations. And overall, the returns in China, if you compare it to the rest of the portfolio is quite healthy, and we're quite capable of distributing our dividends from China back to the Netherlands. So that's maybe on the China side. On the earnings side, yes, there is always a component of throughput income. So even in contracts which -- where people buy, let's say, effectively the capacity, we still have an opportunity that if throughputs are at a higher level than expected that we will charge additionally for excess throughputs. So approximately 10% of the earnings are throughput related in some locations, more throughput related than in others. For example, location like Belgium is much more activity related than in another location. And some of the locations like I just mentioned, some of the industrial or some of the gas contracts are very low in terms of throughput dynamics. So that's maybe only a portion of the earnings, which is throughput related. And Dick, on the first, force majeure? D.J.M. Richelle: Yes. So force majeure, Philip, what we see happening is that some of our customers are declaring force majeure, but they are declaring it in all those cases towards their customers. So an inability sometimes to get product out of a region in order to deliver it to a customer that is further away that is not necessarily related to the type of services that they -- or obligations that they have towards us in the storage contract and arrangements that we have. So we obviously have to follow this case by case and understand very clearly what some of the situations of our customers are in this respect. And as was indicated, I think, in the presentation already before, we need to kind of like be prepared for those discussions because if that customers are under serious stress and under duress, we have to sit down and understand what we can do to support them. But legally speaking, the force majeure, there's very clear guidelines of what and how that applies in the contract obligations and responsibilities between the storage provider and our customers. Philip Ngotho: Okay. Very clear. Just one follow-up. So far, have you had any clients where you already had to sit down and renegotiate terms? Or given that they were just faced with difficulties or challenges? D.J.M. Richelle: It's no comment on that. And the reason for saying it, I don't want to go into individual discussions and official, it's -- I think it's a bit of a gray area where there is -- obviously, there are customers that say we're under a lot of stress, can we talk versus how official that is and how official those negotiations are. I think this is part and partial of what we've seen in previous crises. We are confident that we can manage through that. We're close to our customers and see where and when we can support them while at the same time, respecting and safeguarding the interest of Vopak, which is we made investment in certain infrastructure to support our customers in good times and in bad times. So no details. Operator: Now we'll go and take our next question. And the next question comes from the line of Quirijn Mulder from ING. Quirijn Mulder: On the whole situation in the Middle East. Can you give me an idea about, let me say, the first panic in the first week of March compared to what the situation is now? Are the customers still scrambling for products and has its impact on your throughput in, let me say, mainly in the Far East? So can you give me a view on what's in reality happening and what is -- you take a cautious stance on the second quarter. And it looks like that, okay, the March was not the issue, but maybe April is more an issue than March. Can you give any feeling on what's the current situation for many customers and also the impact on your business? D.J.M. Richelle: Yes. Quirijn, thank you for that question. I think first and foremost, as we already said, key priority for us is to make sure that people are safe and have been safe throughout the course of the conflict. The noncritical staff we leave away from the facility. We take noncritical staff not with a permanent resident in that region, take them out and move them back to their countries of origin. That has all been done. We monitor obviously the situation very closely, purely from a safety and security point of view and do whatever we can to support our partners and our people over there. I think that's in the first -- that's the first instance and first priority. If you look at it, what's happening at the moment, I think a few things to mention here. The amount of information that comes out of the region is limited. That's -- so what the exact damage is outside and far outside of the perimeter of the facilities that we operate is not publicly known, and it's also not always known to us. I think the second element is if you look at it physically what's going on, people would like to remove product in a safe manner, if that's possible as soon as possible in some instances, as we particularly have seen in Fujairah, while at the same time, making sure that now that the cease fire is in place, increased activities are happening to make sure that as much as possible, business continues as possible, as usual, with demand for fuel oil, demand for some of the products that need to be moved in and out, and that is, I wouldn't say all back to normal of how it was before because that would be too strong a statement simply because the product is not always available. The product that comes out of the region is hampered and is limited and restricted. But slowly but surely, as we speak now, things are -- people are trying to get back to normal and resume as much as possible, normal operations with a cautious view and a clear view on the uncertainty that's happening in the region, as you can imagine. Quirijn Mulder: Yes. And that's in the region, but there's a ripple effect, let me say, elsewhere in the Far East. So let me say, the situation in Australia and Sydney, et cetera. And let me say, for example, in South Africa, as you mentioned, in Pakistan. Is there anything you can update us on that -- on the development there? D.J.M. Richelle: Yes. So we continue -- what you see, Quirijn, is that things literally move quite volatile and hectically kind of like almost from week to week. So let's take South Africa, maybe as an example, dependent very much on imports from the Middle East. So in the first weeks of the conflict, you see product on the water still finding a home in South Africa. So first 2 weeks, it was almost business as usual. Then you have a period where there's no new supply coming simply because the supply was choked coming out of the Middle East. So then there's actually a bit of panic in the local market, what's happening and how can we supply new product. And then after a week, 2 weeks, you see that there's alternative supply coming into the market from different parts of the world. And for instance, West Africa is then becoming one of the suppliers of South Africa, which is then supporting. Over time, it obviously needs to work out what it does to total volumes once things start to settle down. But the challenge is it's never clear of when things really start to settle down. And I think that's what we are working through. So it's -- I think that's the best way to characterize it. And I realize you maybe want to have maybe sustainable longer-term view of where this is trending to. That's simply too hard to say at this point in time, and we continue to support where possible. And I think if I can take it one notch up, the general confidence that we have in the fact that we operate these critical assets at strategic locations that support the primary needs in local economies continues to give us a lot of confidence on the medium- to longer-term outlook for our network, but we have to navigate through the current circumstances. Quirijn Mulder: But I understand, let me say, if I look at the second quarter and especially in the month of April, then thus far -- okay, there's a lot of uncertainty, but it's not very concrete impact there, if I understand. There's not that you see, let me say, really impact from, let me say, the business happening on your -- the business happening on your business, in fact. Is that correct? D.J.M. Richelle: I think it's -- what we are saying is that with a lot of uncertainty and volatility in the market, we are certainly not immune for the supply shocks that are currently happening, Quirijn. This is not a relative easy exercise between brackets, easy exercise of rebalancing the remainder of the flows to the world. There's simply also a shortage of product in some regions, and that will have effect on the flows that are coming through some of our terminals, while at the same time, there's, in some instances, a rush for a particular storage position for a particular product because product is trapped and you need to find an intermediate source of storage. So I think it's too early still to tell. We haven't closed April yet. It's way too early to tell what the impact then will be. The assessment that we made is the assessment for the full year 2026, which is reflected in our outlook. And there, we think that we are capable of absorbing the negative impact of the conflict in the outlook that we've already presented. Michiel Gilsing: Yes. Because on outlook -- you may assume on the outlook that obviously -- well, the first quarter was relatively strong. So if you compare it to the outlook we have given, it's at the higher end of the outlook, if you would have 4 of these quarters, but then we still have some growth coming on stream and some positive currency exchange compared to Q1. So yes -- and that will compensate for the potential impact of the conflict, what we feel could be the potential impact of the conflict today because it's very hard to make an assessment. We don't know, let's say, how long this is going to last, how severe this is going to be. But we feel that where we are today and what we know today, that those compensating factors are sufficient to absorb, let's say, the impact of the Middle East. Operator: Now we're going to take our next question. And the question comes from the line of David Kerstens from Jefferies. David Kerstens: I have 2 questions also about the conflict in the Middle East. And maybe specifically on Fujairah, can you give an indication how occupancy trended in the month of March? And given that this is a hub location, do you see any impact from reduced product flows in Fujairah elsewhere, for example, going to Asia into Singapore, will there be a knock-on effect on occupancy levels there as well? And Dick, I heard you say you will see global trade flows rebalancing, I think in response to the former question, you talked about new supply coming out of West Africa. And also, you have a very well-balanced portfolio. Does that mean that you also see terminals that are seeing positive effects from the current conflict in the Middle East? D.J.M. Richelle: Yes. So I think individual occupancy level for particular months, let's refrain a little bit from that or we want to refrain from that. I think VHFL, as we said, total occupancy has gone down quite a bit in -- towards the end of the first quarter. And we see that around 8% of that capacity in Fujairah is out of service simply as a result of some of the damage that we've seen in Fujairah. So that is something that we have to repair and get back into service. The impact that, that has for the rest of the network, it's not necessarily that the immediate flows from Fujairah are moving to all other terminals throughout the network. So I think Singapore has its own dynamic, and it is impacted by the fact that there's products not flowing from the Middle East to Singapore, but that has different sources than to potentially repair that with. And we haven't seen up until now a big impact in, for instance, Singapore for the demand for oil storage. If there are positive elements in the outlook for some of our terminals, I think we mentioned already the effect in Deer Park. We see increased -- quite some increased activity in the Europoort as well. But I think you have to also understand this particular case, it's very relatively straightforward sometimes to assess what is not going well and what the direct impact is, it will take time for us to assess where we see some of the upsides coming from. I think it's simply also harder to predict that at this point in time. Operator: Now we'll go and take our next question. And the question comes from the line of Jeremy Kincaid from Van Lanschot Kempen. Jeremy Kincaid: I just have one question on your guidance. You obviously reconfirmed it today. But within that, there was -- it seems like there's some positives and negatives. On the negative side, clearly, there's the disruption from Strait of Hormuz. But on the positive side, you talked to FX. And I think the other key thing was some growth projects coming in. I assume this doesn't refer to the Europoort terminal or the Spanish development that you're working on because those seem to be -- will be operational in 2027. So can you just talk to what those growth projects are and what's changed from when you last gave the guidance? Michiel Gilsing: Well, definitely that, in the growth projects are not these projects you mentioned indeed. So the growth project, the major one, which will come on stream this year is tank #4 here of the LNG import facility, the Gate terminal here in Rotterdam. So that is still within budget, but also within its original schedule. So we would be able to commission it on time. That is the latest outlook we can give. So that's going to be the major positive contribution. There's a few other projects, but these are relatively smaller compared to the tank #4. Indeed, foreign exchange is a positive element. And then, effectively, what happened is the underlying business performed a bit better in Q1 than we expected. So as a result, if we wouldn't have had the Middle East impact, then obviously, there was -- there could have been a likelihood to basically adjust the outlook upward. But yes, the Middle East conflict basically brings the outlook to the level we have given to the market for both free cash flow as well as the EBITDA. Free cash flow is still healthy. So if you look at where we were last year and where we anticipate to be this year, we should still be able to report a strong cash flow, and that's obviously the main driver for value creation. So yes, basically, I hope that answers the question, Jeremy. Operator: Dear speakers, there are no further questions for today. Dear analysts, thank you very much for all your questions. And that does conclude our conference for today, and have a nice day. Fatjona Topciu: Thank you. D.J.M. Richelle: Thank you very much. Good day. Bye-bye.
Operator: Welcome to the Corbion Q1 2026 Results Conference Call. [Operator Instructions] Please note that this call will be recorded. I would now like to hand over to Mr. Alex Sokolowski, Head of Investor Relations. Please go ahead, sir. Alex Sokolowski: Thank you, operator. Good morning, and welcome to Corbion's First Quarter 2026 Interim Management Statement Conference Call. This morning, we published our Q1 2026 results. The press release and presentation can be found on our website, www.corbion.com Investor Relations Financial Publications. Before we begin, please note that today's discussion will include forward-looking statements based on current expectations and assumptions. These statements involve risks and uncertainties that may cause actual results to differ materially from those expressed. Factors beyond our control, including market conditions, economic changes and regulatory actions can impact outcome. Corbion does not undertake any obligation to update statements made in this call or contained in today's press release and presentation. For more details on our assumptions and estimates, please refer to our annual reports. This is Alex Sokolowski, Head of IR. And with me on the call are Olivier Rigaud, Chief Executive Officer; and Peter Kazius, Chief Financial Officer. Now I would like to hand the call over to Olivier. Olivier? Olivier Rigaud: Thank you, Alex, and good morning, everyone, and thank you for joining us today for Corbion's First Quarter 2026 Earnings Call. Let me get straight to the point. As we outlined in February, the first quarter reflects phasing effects, primarily Nutrition, and the very strong comparison base in Functional Ingredients & Solutions. Against that backdrop, we delivered group sales of nearly EUR 294 million and an adjusted EBITDA of EUR 37.8 million with a margin of 12.9%. While this is below last year's exceptional start, it's fully in line with our expectations. And importantly, it doesn't change our confidence in the year end. In fact, what we are seeing now is encouraging. April trading confirms that momentum is building, and we expect a clear acceleration in both volume and earnings as we move through the year. Let me highlight what is driving that momentum. In Functional Ingredients & Solutions, we delivered stable sales of EUR 236 million against a very strong prior year. Underneath that, volume and mix were positive, supported by continued strong demand for natural preservation solutions and the solid growth in Biochemicals and Lactic Acid to PLA. While margins were temporarily impacted by mix, we expect a steady improvement from Q2 onwards. This will be supported by lower sugar costs and disciplined cost reduction execution. Growth will continue to be driven by structural demand for food safety solutions and increasing adoption of PLA, particularly in 3D printing and as dynamics in fossil-based plastics evolve. In Health & Nutrition, Q1 sales of nearly EUR 58 million reflects phasing into the remaining of the year. The fundamentals here are strong. Demand remained robust. Fish oil prices are going up. Our contract positions are intact, and we expect a normalization of sales and volume growth from the second quarter onwards. Our Biomaterials business continues to build momentum and delivered a second record quarter in a row delivering growth across orthopedics, drug delivery and aesthetics. On the TotalEnergies Corbion joint venture, we also achieved organic growth and our divestment process is progressing as planned. At the group level, margins were impacted by mix effects and temporarily lower operational leverage in Q1. These are timing-related factors, and we expect a clear improvement as volume ramp-up and cost measures take effect. This bring me to cost discipline. In a macroeconomic environment that remains volatile, particularly with well-known geopolitical tensions, we are acting decisively and have implemented a focused cost reduction program. Turning to cash flow. Q1 free cash flow was negative at EUR 15.7 million, and as expected, given seasonal patterns. We remain fully confident in delivering EUR 85 million to EUR 90 million for the full year. Looking ahead, we fully reaffirm our 2026 outlook. We continue to target 3% to 6% organic sales growth and adjusted EBITDA margin of around 17% and strong cash generation with performance weighted towards the second half. This will be driven by sustained demand in natural preservation, normalization in nutrition, improving PLA market conditions and disciplined execution of our cost reduction initiatives. While uncertainty in energy and input cost remains, we have robust mechanisms in place, and are actively managing volatility through pricing, hedging, sourcing and operational control. So let me close with this. Q1 reflects timing and conversion effects, not the strength of our underlying business. Our fundamentals are strong. Momentum is building, and we are executing with discipline and focus. We are confident in our ability to deliver on our commitment for 2026. With that, let us move now to questions. Alex Sokolowski: Thank you, Olivier. [Operator Instructions] Our first question this morning comes from Wim Hoste, KBC Securities. Wim Hoste: Yes. I have 3, please. The first one is on the raw materials versus pricing dynamics. I know there's significant hedging on sugar and energy and some of the other components. But can you maybe quantify or elaborate a little bit on the kind of headwinds you're seeing maybe also on transportation costs or logistics issues, et cetera? And then also, what kind of pricing initiatives you put against that? So that's the first question. The second one is on foods. Can you maybe elaborate on the contract wins that are mentioned in the press release? What kind of products, geographies are we talking about regarding these contract wins? And then third and last question would be on the progress with the PLA divestments. Can you maybe elaborate a little bit on the process, the number of interested parties, the alignment with Total on that? So those are the questions. Olivier Rigaud: Okay. Thank you, Wim. I will answer the food and the contract wins, and Peter, the points on the raw material pricing and the PLA. Let me start with your second question on contract wins. Basically, what we see in foods are twofold. One is related to our natural preservatives and primarily related to some specialties in there on clean label. You might remember, we discussed during our CMD about the new EU listeria regulation, that is getting implemented in July this year '26. So we've been actively working on this, and this is bringing very nice upside, primarily related to our natural vinegar systems. And we see that really already starting in Q1, but accelerating over Q2 as customers are preparing to switch to new preservation systems. Amongst others, we see strong momentum in seafood. That is one. The second one is more U.S.-related where back on the GLP-1 trend, we've had a couple of major wins on high-protein functional systems for our bakery business. And we have been able to build some inventory to prepare for the big launch in Q2 on that front as well. These are the -- amongst the two major drivers of these food ingredients contract wins, you know, that we discussed about in the press release. Now to you, Peter, for the 2 other questions. Peter Kazius: Yes. So if you look on a raw material perspective, Wim, then you are right that in sugar, we have kind of full visibility for the coming periods, and look fully hedged for this year and also hedged into 2027. I think the other key components, which I would like to call out, which relates to the Middle East is, of course, energy prices and therefore transport prices, as well as if you look to the Middle East, then sulfur is playing a role as well and we use sulfuric acid in the production of lactic acid. Now, if you look to the three components: energy, and you can find it in the annual report is around 7% of input cost, is well hedged. So for the remaining part of the year. So I would say minimal exposure on that one. In transport, we do see some exposure, and I think the exposure is mainly on the sulfuric acid part of the equation, which how we currently view and look to it, we were talking here on a number in this year of up to EUR 10 million. And we are indeed taking pricing actions and mechanisms in the market, and that's a combination of prices, surcharges and all the rest. So that's a bit the current outlook, Middle East impact, I would say, from a cost perspective. Then on your question on PLA, I would like to stay a bit higher level, but we are progressing nicely and on track. And I indicated in the Q4 call that we anticipate to bring more news by mid-2026 because I don't want to hamper or jeopardize the process itself. Alex Sokolowski: Our next call this morning comes from Robert Jan Vos from ABN AMRO. Robert Vos: I have a few questions as well. Based on what you said about pricing in FI&S in Q1, still slightly negative, but the mix plus phasing of input cost materials, should we anticipate positive pricing in the forthcoming quarters? That's first on FI&S. Second one is maybe elaborate a little bit on the softness in the North American market? Then moving to H&N. You say that you expect volume mix growth to return to positive in the next quarters compensating for Q1. So my question here is, do you expect -- because Q1 was pretty negative, do you expect positive volume mix growth for H&N in the full year? And related to this what about pricing in H&N in the coming quarters? And my final question, the cost savings. Can you elaborate a little bit on this? What is the amount that you expect for this year that you can take out of your model? How is it split per division? And are there upfront costs related to this? Olivier Rigaud: Thank you, Robert Jan. So I will discuss the answer on North American softness and the H&N. Whilst Peter, you can take pricing and cost savings, yes. So let me start over, Jan, with the softness on North American market. Indeed, we are exposed to some large categories as bakery and meat there. And we've seen, of course, the inflation impact and tariffs impact in the U.S. to some large customers, that impacted already Q4 last year. And we've seen some continuation of that in some of these categories. Although I have to say lately, when we look at retail numbers, you would say bakery is leveling off. So it's not declining anymore, whilst the meat sector is still declining in the U.S. Now as I said, it's unequal. We see, indeed some of these developments, as I just mentioned, in a very specific area being the natural preservation in the clean label. There is still underlying quite a lot going on related to MAHA on clean label development, primarily on preservation specialties. And nothing new, but the continuation of the fortified proteins compounds that we see. So yes, as you know, it's a big market for us. It's a mixed bag. On the meat side, it's more negative than in bakery where things are stabilizing. There is a new spot which is a bright spot for Corbion emerging in the U.S. being around culinary, where it was part of also our strategy to develop business in culinary. And I mentioned just before on the previous question that, indeed, we also spread around this Listeria antimicrobial systems now primarily based on vinegar. So we see really strong sales of vinegar-based preservatives across the board, not just in Europe, but also in North America. On the H&N expected return, there, as we said, indeed, we see already a much better momentum starting in Q2, and we have a very good visibility as we speak now on Q2. As you know, and we explained primarily going into aquaculture, this is a concentrated market with 5 large players, and it's really phasing to one of these customers that we knew upfront, that is now kicking in as from Q2 on one side. But the reason why -- I mean -- and to your question, we expect a positive volume mix growth for the year. And we see a few strong underlying drivers. First of all, as we said, we've been able to renew the expired longer-term contract. So we have a good contracted position for the year. That's one thing. We are developing nicely into adjacent market, being human nutrition, and also we have very nice development into the shrimp market as well as we speak in the Asian markets. So that's the second driver we see supporting our growth this year. And obviously, on pricing, we see also nice upcoming impact on -- later on this year, non-contracted part of our business, supported by a fish oil price increase. You might have seen now the final quota for Peru has been officialized and is 36% lower than last year. So that is obviously driving fish oil price up, which is a nice support going forward for a non-contracted part of the business. What also these lower quota do say, just to close that point, is basically that the famous fish oil gap we've discussed many times and also at CMD was anticipated to be around 50,000 tons shortfall for fish oil, is more likely going to be much higher than the 50,000 tons for this year. Again, we are tracking that every day, but so that -- what makes us feeling really comfortable on our H&N for this year. Peter? Peter Kazius: Yes. So your point on the pricing, Robert Jan, it was indeed negative in Q1, driven, by the way, by lactic acid pass-through mechanism to the joint venture, with a bit of positive even in some other areas. The price uptake, which I just discussed related to the Middle East, is not included in Q1 and will be only as of Q2, but mainly in the second part of the year. So I anticipate a mild negative in Q2 and then basically returning into positive. If you look in terms of the acceleration of our cost savings program and if I look a bit on the timing and the impact of that, then the saving program, together with the sugar basically, if I look to an impact Q2 already versus Q1, I anticipate an increase of around EUR 5 million. It will be mainly in Functional Ingredients & Solutions and a bit and Health & Nutrition. I want to make one additional comment because you did ask, sorry, I forgot. In terms of kind of additional costs, we did incur some additional costs in Q1 in anticipation basically of this program. Robert Vos: Okay. That's very helpful. One follow-up maybe. Now that you mentioned that there were some costs taken in Q1. I also saw that depreciation and amortization was EUR 23 million in the quarter, which appeared a bit high. Is that a proxy for the remaining quarters? Or did it include some impairments in Q1? Peter Kazius: No, it includes some small adjusted items related to two different elements. One is the divestment process of PLA, as you can imagine. And the other one, which is good news, which you will not see basically in our numbers, but only in -- sorry, H1 is that we had a positive tax outcome in a discussion with the Spanish authorities, which would have a positive impact of around EUR 5 million in terms of tax this year, and we incurred some costs, which are also included in that part. So if you look from a depreciation element specifically, it's around just above EUR 22 million, which is in line basically with kind of the trend in Q2, Q3, Q1 and Q4. Alex Sokolowski: Our next question this morning comes from Fernand de Boer from the Degroof Petercam. Fernand de Boer: Fernand de Boer, Degroof Petercam. Actually I had one question. If I look to the drop in EBITDA in FI&S, you can say, okay, part is because of ForEx, maybe the mix was negative, but still, there is an absolute decline of EUR 10 million. So could you help me out a little bit on the bridge because I can understand maybe that food sales were quite negative in that respect. Peter Kazius: So if you look to the absolute EBITDA, indeed, it is a drop. There indeed currency in it, as you know, because it was $1.05 basically in last year, and it is $1.17 in the U.S. dollar in the average of this year. Then if you look to the delta, there is indeed a kind of negative impact in the equation of mix, price and volume. There is, if you compare to last year, of course, a bit of inflation in that one. We did have some additional costs as I indicated. And the other one is, and it's maybe a bit technical accounting wise, but we do share the kind of bill of SG&A, across the different segments. So that means if you have a reduction of your overall sales, it's also impacting basically the absolute number in... Alex Sokolowski: Our next question this morning comes from Setu Sharda of Barclays. Setu Sharda: Yes. So one question on the volumes, given the soft Q1 start and the ongoing inflationary pressure on end market, on customers, has your base case assumption for the volume growth changed in either division and how sensitive is your FY '26 guidance to a slower-than-expected volume ramp-up in Health & Nutrition? And my second question is on the fish oil contracts. Could you clarify how much of your Nutrition business is currently sold on a spot basis versus under contracts? And when do the existing contracts typically come up for renegotiation? And could you provide like more color on how you are approaching contracting in context of volatile fish oil prices? And my third question is on if you can give more info on the trading, how has been the Q2 trading till date in both in FI&S and Health & Nutrition? And are you already seeing some sort of recovery that you are expecting? Olivier Rigaud: Yes. Thank you, Setu. So on taking your question on H&N and fish oil, basically, if you look to the way we are ramping up the H&N volume and primarily the omega-3, which is the large chunk there, what we see is that, again, across the year -- last year, if you remember, on customer phasing, we had a kind of U-curve and this year it's more a V-curve in terms of the contract. And this is, of course, the pattern -- the ordering pattern of this business, which is volatile quarter from a quarter to another, although we have this now firm contract position for the year, but we have a great visibility on this contracted part. And then, as you know, we are adding more stable sales and predictable sales in both pet nutrition and human nutrition that is now nicely ramping up. So we have -- and there, we have also very good visibility. So if I look to the fully contracted position, this year is very similar in H&N than last year, where we have around about 2/3 of our business and their longer-term contract and 1/3 that is open. To your pricing question, obviously, what is open going forward, we have already proof of evidence that we can pass on already some price increases over the next 3 quarters. And these are roughly double-digit price increase on the open contract related to fish oil. Now, where fish oil is going, as you know, we've seen fish oil prices going from the low $3,000 per ton, now around $4,500, $4,600 sometime. And this is what we are translating. On the long-term agreement, to your second question, we are really not looking to align our pricing on fish oil only. The aim of the game during this 2 to 3 years deal is to have visibility on margin because then we are hedging our sugar. And we do not want to play the commodity game that fish oil is about. So it's about giving really visibility and security of supply to fuel the supply gap to our key customers. And some of them, of course, do share that view, others less, but this is the way we approach it. Now, on the renewal, to your question, we had a contract that was ending by end '25 that we have renewed, and the others we are ending in '26. So it means that we would probably start next multiyear negotiation for the next years in the course of the summer to renew these type of contracts because they're all ending now by end of '26. So that's, I mean, again, what I could say on that. On the inflationary pressure, this is, I mean, a difficult one because, of course, I mean, we see our customers trying to push also price to retail and to their consumers. Now, with what Peter explained and what we are facing with the Middle East crisis and how we're going to push also our sulfuric cost and extra freight costs, these are really pricing we are implemented wherever now we have open contracts, but the vast majority will be implemented as from early H2. So this is what we have and what we are planning. But quite a lot of conversations are going on. I have to say that, on freight, it's different from FI&S than H&N. In H&N, on this large aquaculture contract, we have freight clause in all these contracts where we pass immediately any freight surcharge. It's a lot more limited in FI&S where you have this lag. There's going to be a 3-month lag to push these prices as from the end of July, early August. Setu Sharda: That was helpful. Just one question, like because -- do you see any -- like how is the trading update until now, like have you seen the recovery in Health & Nutrition? Olivier Rigaud: No, it's a pretty good. We have very good visibility on Q2, very good, and it's really a very strong start of Q2 there. So I'm feeling really good, feeling really confident what we see in both divisions actually already in April. Alex Sokolowski: Okay. Our next question this morning comes from Karel Zoete from Kepler Cheuvreux. Karel Zoete: I've had two questions actually in relation to the FI&S business unit because the margin has been, of course, a bit lower than expected in the quarter. But if we zoom out, it's been a couple of quarters in which profit margins are declining instead of going up towards the 14% to 15% ambition level. So in relation to that, what are the incremental savings efficiencies, et cetera, you try to capture now? And the more longer-term question then is the positioning of the business. Where are you losing market share? Or is it simply the exposure to more mature categories in the U.S. that have been under pressure? Peter Kazius: Okay. Let me do the first one in terms of the longer-term trajectory and then Olivier can take the market one from that perspective. And you are right, that you see basically a kind of negative momentum if you look quarter after quarter. And I don't want to be -- but there is always a bit of volatility around it, frankly speaking, a bit of phasing. And I don't want to basically go to all these details. But if you look to Q2, and let's start with that. Then I did mention we anticipate a kind of EUR 5 million impact of sugar and cost reduction savings, of which the majority will be in FI&S, and that will lead to a kind of sizable margin improvement as of Q2, following actually an improvement into Q3, Q4. So with that one, I think that in terms of Q1, we reached the bottom, Karel, from a longer term perspective. If you then say the ambition level is still there, I anticipate for the full year to be higher in terms of FI&S margin than last year, but not to the 15%. Olivier Rigaud: Karel, so on the cost positioning of the business, this is a very valid question. So if you look to the entire FI&S, basically, I'm taking it outside the lactic to PLA that is a longer-term formula contract to the other pieces, basically there is this natural preservation specialty that is where we invest in growth, which is high margin, high growth. And we see even a lot more options around the lactic derivatives, but also the vinegar, the antioxidant and a lot of food ferments that are growing the mold inhibitors. So this is the part we really want to grow and focus on. And this is where we are investing in resources, as well. There is the functional systems that basically is transitioning right now from a pure bakery-only play, where we want to specialize in something that has close synergies with preservation, meaning enzyme cocktail shelf-life extension, and this is a business we are now really simplifying as part of the cost program as well to really simplify SKUs and focus on the high end. So this is really one of the big angle of our cost optimization program that Peter mentioned. And then you have what I call the basic derivatives, lactic -- plain lactic acid that is commoditizing where we basically changed the governance, where we run this business now since January with a new team in a very lean base. And that's the business we also are looking to now restructure, leveraging basically where we have the lowest cost plant in Thailand and primarily the new lactic gypsum-free plant. And this is not where we're going to invest going forward. So the aim is really to have this gradual shift in portfolio to the preservation specialties and restructure the functional systems into the shelf life extension and less exposure to bakery-only business going forward. So that's, I mean, our mission there. Now, as you know, there is still a large chunk of these commoditized lactic acid or less differentiated, if I would say, which is where I think pricing discipline is important, but also cost management. And back a minute to the FI&S margin, as Peter alluded before, we started this program. We presented our new Chief Operating Officer ambition in the CMD as well, where as part of also the new ExCo governance, he kicked off a major program that we embarked on. And of course, in Q1, you see the cost of that program is not a benefit yet. But that's fine, we are planning to develop more around that during our H1 results. So that is to come. Alex Sokolowski: Our next call this morning comes from Sebastian Bray at Berenberg. Sebastian Bray: I have two, please. You have talked about, Olivier, the pieces of movement in terms of last expiry of long-term contracts in '26 for algal oils. If everything were to remain the same as it is today and spot prices for fish oil were to remain the same, assuming that the contracts expire and are then re-struck, is the pricing effect from algal oils for 2027, roughly flat? Or is it different to that? My second question is on the ongoing negotiations regarding PLA divestment. Are there any dissynergies to think of here? Because the current setup of contracting is that there is almost an over-the-fence style cost-plus agreement. Is a buyer interested in, let's say, renegotiating that? Or do the economics in all likelihood remain intact as they are for supply of lactic acid to the PLA JV post divestment? Olivier Rigaud: Thanks, Sebastian. So your H&N question is very relevant. Now, you know, what we said publicly in the past is that these long-term contracts were at that time negotiated between $4,000 and $5,000 equivalent, yes. So obviously, we need to understand the fish oil price dynamic in the coming months when we're going to be at the table of negotiation in the summertime. Now, having said that, if you compare the fish oil price volatility, we know it has been picking up to $8,000 or $9,000 and going down as low as $2,000 in the past. We believe this type of price level are the longer-term sustainable price at the margin we have and we need going forward, and you know this level. So I mean, again, it's a difficult answer because, indeed, obviously, as we are growing volume, we have better and better operational leverage and we should get better margin as we go at this price level between $4,000 and $5,000. And we believe these are the longer-term right level of prices. Now let's see where the fish oil price development going to be over the next month, but again, for these contracts, we want to disconnect from fish oil volatility. On the PLA dissynergies, obviously, you know, and this is not -- I'm not pitching that, of course, the sale of that business, but the combination of this PLA factory next to the largest lactic acid plant in the world and the lowest cost one is very powerful for any new owner of that business. Now, obviously, there is a long-term agreement to supply lactic acid that is in place until 2035 and that would survive any change of control of the PLA JV. And for Corbion, whether we own part of the JV or not, it's a very nice plant filler because this business is, as you know, in these huge lactic acid factories, operational leverage is very important and you really make -- and start to make a lot of money when you run above 80% to 85% capacity. And for us, this plant is a guarantee that we run at really very high capacity rate. So it's quite critical. We remain the supplier, and it's the way also to buffer our two lactic plant on sites, yes. So we see it as, I think, a very nice addition. And actually, it's a deal and a contract with very little, if any, cost. It's a pipeline. So yes, on the front face, the margin might look low, but it has such a huge operational leverage impact on the rest of the lactic that we sell to the preservation and other categories that it's very important. So there are no specific dissynergies that we see from that deal. Alex Sokolowski: Our next question this morning comes from Reg Watson at ING. Reginald Watson: I'd like to come back to the cost cutting, if I may, Peter. Thank you for giving us the EUR 5 million delta between sort of Q1 and Q2. Could you break that down a bit, please? How much of that is the absence of the costs you had to take in Q1? And how much of that is the cost saving? And how much of that is the sugar? And a follow-on question from that is, how do you expect this to build through the quarters in the year? Is this a one-off cost-saving exercise? Or do you see further benefits to come in the coming quarters? Peter Kazius: Yes. No, thanks. So the EUR 5 million, by the way, relates to sugar and cost reduction activities. So it's not even reversing the other basically element. This is a kind of recurring benefit, and I actually think it will increase over the second half of the year as well. Reginald Watson: Okay. And then to that, in terms of the language and Olivier, Peter, feel free either of you to answer this. You mentioned that the sales strength in Q2 is expected to "more than compensate for Q1." As analysts, we're too hung up on quarterly volatility, if we look at first half in the round, do you expect them to deliver positive volume for -- sorry, positive sales with particular volume mix for the business as a whole? Peter Kazius: So if I look for, let's say, the business as a whole in terms of volume mix, then for the first half, I do anticipate indeed a kind of positive elements. If I look in the combination a bit, then Health & Nutrition, I see a recovery, but that is around kind of the same. If you look in terms of price, I think I alluded in terms of FI&S, I anticipate in Q2, still a mild year-on-year price reduction, driven by lactic acid to PLA and then basically reversing of that trend in the second half of the year, driven by the growth which we made on Middle East and partly pricing that's true. In terms of Health & Nutrition, if I pick pricing, then we had a kind of 4% pricing delta. I anticipate a mild kind of price erosion during the remainder part of the year. Reginald Watson: And then final question from me. How is the ramp-up of the gypsum-free lactic acid plant going? Where are you at on continuous capacity utilization? Olivier Rigaud: So Reg, so where we are, as you know, the plant is designed on 125,000 tons of lactic acid. We are now approaching really the 100,000 tons type of level on that plant, yes. And it's also important that -- because we've discussed that in the past as well. It's also because these are significant additional volume we put in the market that we -- it's important we also put that in the market wisely, also making sure that, yes, we do not come with large volume that would necessarily impact our margin anywhere. So there is a conscious ramp-up that we have as well on this. Obviously, the sooner we can fill it, the better, but we see a very nice upside on the remaining part of the year on basically PLA that is requiring a lot more globally. And that's, I would say, to me, quite an important statement because, as you know, the conversion ratio usually between lactic and PLA is 1.4. So you need 1.4x lactic to PLA. So when PLA grows, it's really accelerating massively the need of lactic acid. And we see that for our JV, but we see that also for Chinese players right now. And that's something that when we look to the whole balance of lactic market, it would be really helpful to see how Corbion can leverage on one side, the fact that we have a competitive position because we are gypsum-free. And we know our main competition is Chinese. The second is, if you look over the last 6 months, there is quite a positive trend in the favor of Corbion when we look to the carb cost, the sugar -- the Thai sugar cost versus Chinese cost and all our competitors in China are on corn. So the ratio is again back in favor of Thai sugar since September last year. So it's already 2 quarters. And that, I think, going to support also Corbion margin going forward. Reginald Watson: Okay. So I'm really pleased to view that you're running that plant at 80% capacity utilization because that must be driving efficiencies in terms of variable cost of production, et cetera. So that must make it probably the most cost-efficient plant in the world for lactic acid, Am I wrong with that? Olivier Rigaud: No. You're right. But primarily right now with the Middle East, this is the only plant in the world with no sulfuric acid because this -- the whole story about, of course, as you know, conventional lactic process is that you are using lime and then you need sulfuric to precipitate into gypsum. Reginald Watson: Yes. Olivier Rigaud: And the reason why we developed that process over the years is to have no gypsum, hence, you don't need sulfuric. So that's a big competitive advantage, primarily these days with what's happening in the Middle East. Reginald Watson: And then does that mean then that the cost benefit of the ramp-up is now already included in the numbers? Or should we continue to see more benefit to come from any further utilization, any further ramping of this, through the year? Olivier Rigaud: We have already factored in, in our outlook what we think we're going to achieve in terms of capacity this year. So the rest, we keep for '27. Alex Sokolowski: Very good. And our last question this morning comes from Eric Wilmer at Van Lanschot Kempen. Eric Wilmer: Yes, two remaining questions, brief questions, actually. Given that sugar prices or sugar costs actually have come down year-on-year, might this actually result in market dynamics and forcing lower product pricing for functional ingredients during the remainder of this year? And maybe on customer behavior, are there any signs of -- given the current disruptions, customers stocking up your product, you mentioned sulfuric acid supply chain issues. And maybe actually also a third one then on transportation costs. You talked about obviously increasing them. I was wondering to what extent are customers receptive, different from what they may read. Energy costs have actually started to come down a bit again. And I've been hearing that this is not always a very straightforward discussion. Olivier Rigaud: No, I think, Eric, so good point. So basically, I think, we have -- except -- I mean, again, in a few large U.S. contracts, and of course, the joint venture of PLA and sugar-related costs is not something we have really widely spread. So obviously, key customers do track, of course, input cost. But in terms of competitive dynamic, today, it's getting really about, as you know, our critical competitors in lactic are in China, and they are based on corn. So the important is to look to the Chinese corn versus New York 11, Thai sugar or Brazilian sugar. So that's one. And this is what plays in the competitive dynamic. On stocking, we -- I mean, we don't see that because -- of course, the situation has been heavily complexified with tariffs and still is. And what we see is that the advantage of Corbion being the only lucky producer having a plant in each geography is really helpful for us. So there are different dynamics if you look to the U.S., where we have our plant in Blair, Nebraska, in Brazil, in Campos dos Goytacazes, in Thailand. So we do not anticipate any extra customer stocking. On the opposite, we see people being so tight on working capital that we have a lot of rush orders, a lot of last minute which are creating other issues. So that's what we see. And on freight cost, yes, of course, as I said, Health & Nutrition is very different than FI&S. In Health & Nutrition, all the large contracts do have a freight clause that we review on a quarterly basis. So if freight costs are, let's say, improving or declining in the next quarter, we would apply it and vice versa. In FI&S, it's very different. And as you know, we have a big route that is impacting Corbion, where most of the European lactic acid is freight from Thailand to Europe. And this is a very large volume because this is the feedstock for all the derivatives we are making into our Spanish and Dutch operations. So that's an important one for us, where basically, we have more choices than to push these extra freight cost to the market. And this is what Peter explained what we are busy doing and what we have to do. Alex Sokolowski: Okay. This concludes our conference call this morning. Thank you all for your attendance and questions, and we look forward to discussions at upcoming conferences in the next weeks. Please note that we will hold our Annual General Shareholders Meeting on May 13, 2026, in Amsterdam, and our Q2 half year '26 results on July 31. Information on both meetings is available on the Investor Relations page of our website, and we look forward to engaging with you again. Operator, you may close the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the Preferred Bank First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Mr. Evan New. Please go ahead. Evan New: Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the first quarter ended 03/31/2026. With me today from management are Chairman and CEO, Li Yu; President and Chief Operating Officer, Wellington Chen; Chief Financial Officer, Edward Czajka; and Deputy Chief Operating Officer, Johnny Hsu. Management will provide a brief summary of the results, and then we will open the call to your questions. During the course of this conference call, statements made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks, uncertainties, and other factors relating to Preferred Bank's operations and business environment, all of which are difficult to predict and many of which are beyond the control of Preferred Bank. For a detailed description of these risks and uncertainties, please refer to the SEC-required documents the Bank files with the Federal Deposit Insurance Corporation, or FDIC. If any of these uncertainties materialize or any of these assumptions prove incorrect, Preferred Bank's results could differ materially from its expectations set forth in these statements. Preferred Bank assumes no obligation to update such forward-looking statements. At this time, I would like to turn the call over to Mr. Li Yu. Please go ahead. Li Yu: Thank you very much. I am very pleased to report first quarter net income of 31.3 million dollars, or 2.53 dollars per share. This quarter's net income was negatively impacted by the placement of a large relationship into non-performing status. If you recall, in February and March, we issued a press release informing all of you that we placed a nine-loan relationship on a nonaccrual basis. This relationship consists of two C&I loans of a small 2 million dollars, and the rest are all commercial real estate loans in a total amount of 177 million dollars on a nonaccrual basis. Shortly after the announcement, we were able to sell one loan at par of 9.4 million dollars, and on April 1, we sold another two loans at par for 48.5 million dollars. So as of today, we have effectively reduced the relationship by approximately 50%, and we will continue our progress in the second quarter and in the third quarter. Hopefully, by that time, we should have substantial resolution of this situation. Loan growth was a moderate 1.1% sequentially, and deposit growth was a moderate 1.2% sequentially. Market competition, especially in pricing, has been very severe. It seems to me that the war in the Middle East is trending toward a more stabilized basis. I assume, hope I do not mislead you; we should concentrate on economic affairs in the ensuing months. Our net interest margin was 3.57% for this quarter, which is down from 3.74% in the previous quarter. Again, the reversal of interest income is the main reason. Since this reversal of interest income is nonrecurring, we are very hopeful, especially when there seems to be no imminent rate movements, that our net interest margin will rebound in the ensuing quarters. Operating overhead, or noninterest expense, has been stable, and we will continue to keep it on a stable basis in the future. For your information, the Bank has repurchased roughly 400 thousand shares of our common stock for total consideration at roughly 89.90 dollars per share. Thank you very much. I am ready for your questions. Operator: We will now open the call for questions. We will now begin the question-and-answer session. To ask a question, please press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. We will pause momentarily to assemble our roster. The first question will come from Matthew Clark with Piper Sandler. Please go ahead. Matthew Clark: Hey, good morning, everyone. Just on the loans held for sale, the move there. I am assuming 48.5 million dollars of that is the two loans that you sold on April 1 at par, but I want to confirm that and also what else is in there. And any pricing thoughts on the other two? On deposit costs, I want to get a sense for where your deposit costs were in March and your thoughts on competition going forward along those lines. Just remind us how much you have in CDs coming due in the quarter and the rate it is rolling off at, and the renewal rate that you expect. And lastly, on the expense run rate going forward, how should we think about noninterest expense? Edward Czajka: Yes, you are correct. Part of that 76 million dollars is the two notes sold at par on April 1 totaling 48.5 million dollars. There are two other notes in there that we are actively marketing at this point as well to sell the notes. That is why they are placed in held for sale. On deposit costs, they are coming down, but not at the same velocity they were in Q4, so the pace of decline is starting to slow. For your record, March deposit cost was 3.10% overall. In terms of maturities, we have 1.35 billion dollars maturing in the quarter at a 3.89% rate. Those will likely be put on at similar rates, maybe a little bit lower, but we are getting close to the point where we are reaching stagnation in terms of the rolling off of CDs to newer, lower-priced CDs. On expenses, we were at roughly 23.5 million dollars for the quarter. Over 1 million dollars of that was heightened payroll tax related to bonus payout and related to stock vesting, which both occurred in the first quarter. As we go forward into Q2, I am looking for something in the high 22 millions to low 23 millions. Matthew Clark: Great. Thanks again. Operator: The next question will come from Gary Tenner with D.A. Davidson. Please go ahead. Gary Tenner: Thanks. Good morning. I wanted to ask on loan growth. The production must have been pretty decent this quarter just to have the defined growth of loans held for investment and loans held for sale. Can you talk about production, competition, and pricing? In terms of the activity levels and quality of credit that you are seeing come through, how does that look today? Li Yu: Pricing is all over. We are still facing a lot of people pricing below 6% on a fixed-rate basis. We cannot afford to do that. Especially when the movement of interest rates is unclear at this point in time, we have not been getting the rate cuts that were previously forecast. So most people have been, frankly speaking, doing long-term fixed-rate loans lower than we want to do them. On the quality side, we see the quality pretty much in the same situation. I do not think the industry has been loosening on quality. Based on my colleagues, they have been very much controlling themselves in that aspect, and likewise, obviously, we try to do that too. Gary Tenner: Alright. Thank you. Operator: The next question will come from Andrew Terrell with Stephens. Please go ahead. Andrew Terrell: Hey, good afternoon. I want to start on the margin. The 3.4 million dollars interest reversal seems like that is 19 to 20 basis points of margin or so. As that normalizes in 2Q, if we add that back in, it gets closer to, like, a 3.75% type margin, so similar to your fourth quarter. Is that how you are thinking about 2Q? Or how else should we think about trends of the NIM going into 2Q and then throughout the year? And on the note sales, good to see you get out of them in April at a pretty good price. When you talk about resolution of the remainder of these credits by the third quarter timeframe, is note sales the primary avenue, or are there other plans on the nonperformers? Edward Czajka: I think you are directionally correct but probably about five basis points high there. The margin for March came in at 3.71%. We are looking for something in that area as we go forward. With the sale of the note on April 1, we are going to recoup some interest that we reversed out, so that will be a little bit of a tailwind for Q2. It might be a little higher than that, but right around the 3.70% number is probably good for us. Li Yu: Obviously, note sale is the quickest and best for us if we can get the price that we want to get. That is really also a pricing issue for us. Each loan has its different nature—most clearly, the loan-to-value ratio based on appraisal. Normally speaking, when the situation is narrow, you do not get as good pricing as loans with a bigger margin. In the meantime, the other resolution process, which is foreclosure, is still going on. Right now, most of the loans have filed bankruptcy or started that process, so we have to deal with bankruptcy too. It depends on what the bankruptcy judge is awarding. They might award certain cases more time to sell it or to operate it, to reorganize it. To the extent we can get them immediately, we will resell them. Each property has a different resolution nature—not necessarily very predictable. Andrew Terrell: Understood. Thank you. And just one more on the competitive backdrop. If I add back in the held-for-sale loans this quarter, it looks like you were tracking mid–single digits. In this environment, is that a decent cadence through the year for loan growth, or are we more likely to see some compression? Li Yu: About three months ago, I said internally we were guiding ourselves to do high single-digit growth. However, we did not know there would be a war involving Iran. Whether and how much that changes things, we do not know. Plus, the administration is presenting more changes in many aspects that usually relate to banks. We are bouncing backwards and forwards in terms of our internal expectations. We have to be realistic. When wars are going on and petroleum prices go through the roof, you are not going to sustain the same loan demand as in a peacetime situation. All we can do is stay alert, but we still hope this will be a growth year for Preferred Bank. Andrew Terrell: Great. Thanks so much for taking the questions. Operator: The next question will come from David Feaster with Raymond James. Please go ahead. David Feaster: Hey, good morning, everybody. I wanted to follow up on the growth discussion. Could you help break down the dynamics behind the slower growth we are seeing? It sounds like we may be seeing somewhat of a slowdown in demand. Is that a fair characterization? Any commentary on how payoffs and paydowns have been playing into this and where you are seeing the most opportunity within the pipeline to grow loans right now? And then shifting to credit, you have been very active managing credit and worked through a lot of issues. Do you think we are at or near an inflection here? Are you seeing continued migration, or is some of this broader macro? Is credit at that point yet, or is it still pretty uncertain? Li Yu: I think demand slowdown is a foregone conclusion. Just think about when oil is going to 100 dollars per barrel. When products are related—various products related—the short-term and long-term effects are hard to measure, and the supply nature also makes it immeasurable. Definitely that is a factor; we may not see it all yet reflected in our economy. That is what we are discussing in-house at Preferred Bank. On credit, I do not know if in the past we have been this busy on credit. This transaction is really the inflection point on current attention. It has been a group of loans that was performing pretty well until some irregular withdrawals were found—I guess everybody knows—by Western Alliance Bank; they published an announcement, and the whole thing started to go sour from that point on in the next several months to the point we had to call it nonaccrual, and we have to resolve that immediately. Other than that, our total credit picture has remained stable. I can send you the FDIC statistics about our ten-year charge-off ratio; we are probably lower than the average of the banking group. So we are not struggling about credit in the past, but we are struggling about this group of credits right now. David Feaster: You are still sitting on a lot of excess capital. You have been more active with buybacks. How are you thinking about capital priorities today, especially with the stock moving a bit higher from where you repurchased more recently? And given the current rate backdrop and the market looking at the Fed on pause, has your thinking on managing rate sensitivity shifted at all? Li Yu: There are two groups of investors. One group represents more active traders. Their idea is that if you have enough capital, you just go do the buyback as much as you can immediately. Then we have another group of long-term investors—probably their position in the Bank hardly moves a lot in the past ten years—and we also have rating agencies. Both of them seem to say, you need to play it safe on your capital. Look at the future economy, look at your earnings focus, and determine on a flexible basis what you can do year by year. Our Board decided security is above all. So we are leaning toward our long-term shareholder viewpoint. On rate sensitivity, my feeling is that within the next few rate moves, Preferred Bank is near neutral in asset sensitivity, particularly because of a lot of the time deposits—our TCD portfolio. Under the current status, where the rate is not moving, actually our TCD rate we are paying is slowly improving each quarter, albeit very slowly because of market competition. We are not fearful about the economy yet. With all the things happening—war is one of them—what will that do to our economy? Are we going to have a recession ahead of us, low growth, or high growth? This question is puzzling almost everyone at this point in time because of a lot of uncertainty. So this year, the challenge is, in my opinion, to stay flexible. Edward Czajka: Similarly, we have not really changed much in terms of the balance sheet profile in the last twelve months. Since we hit the higher rates in 2023, we started doing more fixed-rate loans. The percentage between fixed and variable on the book is about the same as it has been—about 75/25 variable to fixed. Along with that, we try to get more and more of our large corporate deposit accounts—interest-bearing checking and money market—tied directly to Fed funds. To the extent we can tie them to Fed funds, it makes our asset-liability matching, as Mr. Yu said, closer to neutral than the asset sensitivity we had going into 2021–2022 when we were highly asset sensitive and took advantage of all the rate hikes. We are kind of on a pause in terms of changing the balance sheet and want to keep it where it is right now, with flexibility. If this war continues and inflation creeps up, we may not be looking at rate cuts as the next rate change from the FOMC. We want to stay flexible, and what we have always done is keep both sides of the balance sheet short, and that way we can react to anything. David Feaster: That is helpful. Thank you. Operator: This will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Li Yu: Thank you so much for your interest in Preferred Bank. We hope what we have described today is our roadmap for the next few quarters and that we can produce even better financial results in the next period of time. Thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: [Audio Gap] Before we begin, I would like to remind you that this conference call may contain forward-looking statements with respect to the future performance and financial condition of Civista Bancshares, Inc. that involve risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures which are intended to supplement, but not substitute the most directly comparable GAAP measures. The press release, also available on the company's website, contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures. This call will be recorded and made available on Civista Bancshares' website at www.civb.com. At the conclusion of Mr. Shaffer's remarks, he and the Civista management team will take any questions you may have. Now I will turn the call over to Mr. Shaffer. Please go ahead. Dennis Shaffer: Good afternoon. This is Dennis Shaffer, President and CEO of Civista Bancshares, and I would like to thank you for joining us for our first quarter 2026 earnings call. I'm joined today by Chuck Parcher, EVP of the company and President of the bank; Rich Dutton, SVP of the company and Chief Operating Officer; Ian Whinnem, SVP of the company and Chief Financial Officer; and other members of our executive team. This morning, we reported net income for the first quarter of $15 million or $0.72 per diluted share, which represents a $4.8 million or 47% increase over our first quarter of 2025 and a $2.7 million or 22% increase over our linked quarter. This also represented an increase in pre-provision net revenue of $3.8 million or 29% over our first quarter in 2025 and a $3.2 million or 3.8% increase over our linked quarter. Our first quarter highlights include the successful completion of the core system conversion of the Farmers Savings Bank that we acquired during the fourth quarter of 2025. As a result, our first quarter earnings include what should be the last expenses associated with the acquisition. These onetime expenses impacted our first quarter net income by approximately $400,000 or $0.02 per common share. For the quarter, core deposit funding increased organically by over $60 million. This allowed us to reduce brokered deposits by $25 million. This represents the sixth consecutive quarter in which we reduced the brokered funding. Our net interest margin expanded by 16 basis points to 3.85% as we continued our disciplined approach to managing our asset pricing and funding costs. Our earning asset yield for the quarter increased by 5 basis points over our linked quarter to 5.66%. Our cost of funds was 1.96% for the quarter, down 35 basis points from the first quarter of 2025 and 12 basis points from the linked quarter, while our cost of deposits was 1.81%, down 19 basis points year-over-year and 11 basis points sequentially. Our decline in funding cost was largely attributable to $125 million of brokered CDs that matured in late December that carried a weighted average rate of 4.23%. And we were able to replace and reduce these mature and brokered CDs with $100 million in brokered CDs with a weighted average rate of 3.87%, representing a savings of 36 basis points in addition to reducing the amount of brokered funding. Net interest income for the quarter was $37.8 million, which represents an increase of $5.1 million or 15% compared to the first quarter of 2025 and an increase of $1.4 million or 4% compared to our linked quarter. Despite loan balances being down, we had strong loan production across our footprint during the quarter that was offset by significant payoffs. Our lending teams generated $214 million of new loan production during the quarter that was offset by $83 million in early payoffs in addition to normal principal pay down. Our ROA for the quarter was 1.41%. Our ROE for the quarter improved to 10.97%, and our tangible book value per share improved to $19.70. Our continued strong financial performance and ability to consistently create capital gives us options as we think about the best ways to deploy our capital. Earlier this week, we announced a quarterly dividend of $0.18 per share, which is consistent with our prior dividend and the renewal of our stock repurchase program authorizing management to repurchase up to $25 million in outstanding common shares. During the quarter, noninterest income declined by $453,000 or 4.6% from our linked quarter and increased $1.6 million or 20% over the first quarter of 2025. The primary driver of the decline from our linked quarter was a $336,000 decline in card fees due to the typical elevated spending that comes during the holiday. The primary drivers of the increase in noninterest income over the prior year were a $190,000 increase in service charges, a $1 million increase in net gains on loan and lease sales and a $444,000 increase in other income related to reserves that have been established at our insurance subsidiary for claims that subsequently never materialized. Noninterest expense declined by $1.1 million or 3.6% from our linked quarter and decreased -- or increased $2.7 million or 10% over the prior year. The decline from our linked quarter was a result of a commission accrual adjustment in the fourth quarter of 2025. Our actual commission expense was $1.4 million lower than what had been accrued and was adjusted in the fourth quarter. We are now adjusting all accruals at least quarterly. The primary driver of the increase in noninterest expense over the prior year was a $2.2 million increase in compensation expense associated with increased salaries, commissions and medical expenses. In addition to annual increases, our average FTE employees increased from 520 in the first quarter of last year to 535 in the first quarter of 2026. Much of the increase in FTEs came from the employees that joined us through our recent Farmers acquisition. We also had $400,000 in other expenses that we believe will be the last significant expenses related to the acquisition. Our efficiency ratio for the quarter improved to 60.1% compared to 64.9% for the prior year first quarter. Our effective tax rate was 16.8% for the quarter. Turning our focus to the balance sheet. Strong loan production across our footprint was offset by significant payoffs during the quarter. Our lending teams generated $214 million of new loan production during the quarter that was offset by $83 million in payoffs in addition to normal principal pay down. This compares to the prior year's first quarter, when we originated $181 million in new loans and we experienced $21 million in loan payoffs. We consider these good payoffs, as they were successful real estate projects that were sold or taken to the permanent market. We also had a few loans to operating companies that were sold during the quarter and paid off their loans. Loan production grew with each month's production during the quarter from $49 million in January to $59 million in February to $106 million in March. During the quarter, new and renewed commercial loans were originated at an average rate of 6.52%, and leases were originated at an average rate of 9.03%. Additionally, our undrawn construction lines were $175 million at quarter-end compared to $161 million at year-end. We ended the quarter with a loan-to-deposit ratio of 92%. Loans secured by office buildings make up only 4.7% of our total loan portfolio. As we have stated previously, these loans are not secured by high rise metro office buildings, rather, they are predominantly secured by single or 2-story offices located outside of central business districts. We also have very little exposure to non-deposit financial institutions. As a commercial real estate lending bank, we are mindful of our non-owner occupied CRE concentration and continue to diversify our loan portfolio. At March 31, 2026, our CRE to risk-based capital ratio was 261%. While we experienced a reduction in total loans during the quarter, loan demand remains solid in each of our markets, and our pipelines continue to grow. At March 31, 2026, our residential mortgage loan pipeline was up 25%, and our commercial loan pipeline was up 102% over the prior year. We anticipate growing the loan portfolio at a mid-single-digit rate over the balance of the year. On the funding side, total deposits increased $35.4 million or an annualized growth rate of 4%. However, if we back out the brokered deposits, our core deposit balances grew by $60.4 million or 8% for the quarter. This represents 6 of the last 7 quarters in which we have grown our core deposit balances while reducing our cost of funds. Much of this growth came in interest-bearing demand accounts and in our savings and money market accounts. This increase in lower rate deposits, combined with our continued shift from brokered deposits to more core deposit funding, contributed to an 11 basis point decline in our cost of deposits from the linked quarter. Our deposit base remains fairly granular, with our average deposit count, excluding CDs, approximately $28,000. Other than the $523 million of public funds, which are primarily operating accounts with various municipalities across our footprint, we had no deposit concentrations at quarter-end. Our commercial bankers, treasury management officers, private bankers and retail staff continue to have success gathering additional deposits from our commercial, small business and retail customers, as evidenced by our organic deposit growth. We believe our low-cost deposit franchise continues to be one of Civista's most valuable characteristics, contributing significantly to our solid net interest margin and overall profitability. We view our securities portfolio as a significant source of liquidity. At quarter-end, our securities portfolio totaled $682 million, which represented 16% of our balance sheet, and when combined with our cash balances, represents 22% of our total deposits. Our securities are classified as available for sale and had $49 million or approximately 7% of unrealized losses associated with them. Civista's strong earnings continue to create capital, and our overall goal remains to maintain our capital at a level that supports organic growth and allows for prudent investment into our company. Earlier this week, we announced an $0.18 per share dividend based on the quarter-end market close of $22.79. This represents an annualized yield of 3.16% and a payout ratio of 25%. We view this as a sign of confidence management and our Board of Directors have in Civista's ability to continue generating strong earnings. Additionally, Civista's Board of Directors increased and renewed a $25 million common share repurchase authorization earlier this week. While we have not repurchased any shares over the past several quarters, our regulatory capital and tangible common equity ratios are strong and continue to grow. We continue to believe our stock is a value, and we'll continue to evaluate repurchase opportunities. During the quarter, we made a $768,000 credit to our provision and had net charge-offs of $716,000. The credit to our provision was attributable to lower expected losses due to lower outstanding loans and our continued strong credit metrics. Our ratio of the allowance for credit losses to total loans is 1.26% at March 31, 2026, which is consistent with the 1.28% at December 31, 2025. Similarly, our ratio of allowance to nonperforming loans of 135% was virtually unchanged when comparing the same periods. Other than the general concern over the impact of macroeconomic uncertainties, the economy across Ohio and Southeastern Indiana is showing no sign of deterioration, and our credit quality remains strong. In summary, we are very pleased with the continued expansion in our net interest margin, our ability to generate noninterest income from diversified revenue streams and to control our noninterest expense. We're also very pleased with our team's success in attracting more lower cost funding, which allowed us to continue reducing our dependency on brokered funding and anticipate mid-single-digit deposit and loan growth for the balance of 2026. Overall, 2026 is off to a good start, and our focus continues to be on creating shareholder value. Thank you for your attention this afternoon and in your investment. And now we'll be happy to address any questions you may have. Operator: [Operator Instructions] Our first question comes from the line of Brendan Nosal from Hovde Group. Brendan Nosal: Maybe just starting off here on the loan growth outlook. I totally get the moving pieces this quarter. I mean, it sounds like origination activity is quite strong, but the payoffs were a significant headwind for this quarter. I guess just as you look ahead, what gives you confidence that payoff levels will decline such that you can get back to that mid-single-digit pace of growth? Charles Parcher: We watch those closely. This is Chuck. We watch those closely. We've got a couple of other large ones we know that we're going to look at here in the second quarter, but we still think we're going to see some growth in the second quarter. And we feel like that mid-single-digit outlook is pretty good looking forward. I've got confidence in -- as Dennis mentioned in his comments, our pipeline today is twice as large as it was in the pipeline at the same time last year. And we just got to get those to the closing table. And our -- just based on the production we had in the first quarter, as Dennis also alluded to, our undrawn construction funds are $14 million higher at the end of this quarter than they were at the end of the year. So we feel good about kind of [ prognosticating ] out that mid-single digits. Dennis Shaffer: And first quarter typically is slower for us, too, Brendan, just because we do some construction-type commercial construction loans and stuff. And as Chuck alluded to, I think we put on a lot of balances there towards the end of the first quarter, and some of those were construction projects that we think those funds will draw up. Brendan Nosal: Okay. Okay. Maybe pivoting to the net interest margin. Heck of a lot of margin expansion this quarter, certainly more than I was expecting. Just as we look ahead, if we're in an environment where we don't get any more Fed rate cuts this year, how do you see the margin trending from this quarter's 3.85% level? Ian Whinnem: Brendan, this is Ian. So second quarter, we expect flat to maybe a little bit of expansion, 1 to 2 basis points. And then likely putting that in the mid- to upper 3.80s and then leveling out in the high 3.80s in Q3 and beyond. That's with no rate cuts being planned. If there is a rate cut, we expect that to be maybe 1 to 2 basis points lower. If there's a rate increase at the end of the year, it could be 1 to 2 basis points higher. Dennis Shaffer: And Brendan, we do have about $60 million of loans repricing in the second quarter and I think about $140 million after that for the remainder of the year. So a couple of hundred million dollars of loans will reprice from the 4.75% range to -- reprice today in the 6s. Operator: Our next question comes from the line of Jeff Rulis from D.A. Davidson. Jeff Rulis: Late last year, we had discussions of kind of the bank putting up $0.75 in quarterly earnings towards the end of '26, implying a $3 annual run rate. It kind of seems like you pulled that forward 9 to 12 months, you're basically at that -- at the core level. I guess as you think about where you reorient with kind of the outlook from here, not to put you on the spot of earnings, but I guess, how do you met that opportunity with also as you talked about the buyback? Ian Whinnem: I would say, Jeff, the part of the earnings lift this time was that provision. We didn't have to fund any loan growth. That's going to cost us a couple of cents every quarter, on top of the couple of cents reduction that we got this quarter. So from a normalized basis, that $0.72 is probably more in the mid-60s. So not quite into that run rate of $0.75 yet, but we do still anticipate getting there towards the end of this year, maybe into the first quarter next year. Jeff Rulis: Got it. Appreciate that. And then I guess on the expense run rate, I think we talked previously that as merit increases kind of kick in, in the second quarter, offset by maybe some -- the conversions complete. So just trying to walk through the quarterly progression, do you see sort of flat linked quarter on a core basis and then maybe in -- a little -- some savings? Or how do you see the outlook on run rate? Ian Whinnem: So excluding the nonrecurring items, we're at $29.4 million for the first quarter. So that would include some of the, I'll call them, duplicative operating expenses, pre-conversion, having 2 cores and some staff that's no longer with Civista. So we've also done reinvestment back into the company by hiring some revenue-generating colleagues, some marketing spend and some tech improvements. So with that, we're anticipating second quarter being $29.5 million to $30 million, and then probably a little bit of an expansion maybe to $30 million, $30.7 million in the third quarter and fourth quarter. Dennis Shaffer: But we have merit increases that took effect in the -- took effect April 1. So that's in those expense numbers that Ian's [indiscernible]. Jeff Rulis: Okay. And so any sort of cost saves kind of offset by investment kind of getting to that run rate that you outlined? Ian Whinnem: Yes, that's correct. Yes. It's helping to fund some of those cost investments or spend investments that were just mentioned. Operator: Your next question comes from the line of Adam Kroll from Piper Sandler. Adam Kroll: Yes. Maybe just starting on deposits, some really impressive core deposit growth during the quarter. And just given some of the recent investments you made on the tech side, I was just curious, how large of a contributor was the digital channel to that growth and maybe just overall prospects within that segment? Dennis Shaffer: Well, we think it's helping some. Most of our investments are aimed at making it easier to do business with us. So it is helping that some. We have all set up to do online account opening now with our digital apps and stuff. So we are getting that. The bigger thing that's helping us in some of the deposit growth, at least the organic stuff, is just some of the recent disruption within our marketplace. Ohio has had quite a bit of disruption. And we think by one of the investments we made in the technology and making it easier to do business with us. And then just that disruption, it -- we think we're very well positioned, I think, to attract new clients to the bank and to expand existing relationships. So our teams are doing a fantastic job with their calling efforts. We're being really collaborative, and we're going to market as a team. And I think through their efforts and making -- just making it easier to do business with us and that disruption, that's the reason behind a lot of that deposit growth. Adam Kroll: Got it. I really appreciate the color there. Sticking on the funding side, deposit costs came down quite nicely during the quarter. I was just curious, are you still seeing opportunities to reduce funding costs on both the maturity and non-maturity side if the Fed were to remain on hold? Ian Whinnem: So right now -- this is Ian -- if rates stay flat on the CDs that are maturing, we're renewing those or picking up these fees at about the same. Staying with those brokers, we're not going to see that significant increase that we saw from the Q4 maturities into Q1. So we have some wiggle room on some of our non-maturities. For the most part, I think most of that's passed and we will be staying about the same. Adam Kroll: Got it. And last one for me. Ian, I was wondering if you had the purchase accounting accretion number for the quarter? Ian Whinnem: I will have to follow up with you on that. Operator: Your next question comes from the line of Tim Switzer from KBW. Timothy Switzer: Well, first off, congrats on the retirement announcement, Dennis, and for Chuck on becoming CEO on the exciting news. Dennis Shaffer: Thank you. Charles Parcher: Thank you. Timothy Switzer: Most of my questions have been asked already, but the first one I had is on deposit competition. There's been some chatter about it picking up a little bit. Can you talk about what you guys are seeing in your markets and if there's any specific geographies or deposit categories where it's been a little bit more intense? Charles Parcher: I would tell you -- this is Chuck. I think it's almost equally intense across almost all of our -- at least our major metro markets. Obviously, the most banked of all the cities is Columbus, so we're probably seeing a little bit more pressure there from the rate side. But we've held our own pretty well, as you can tell by the deposit growth that we've had. And we feel like we're priced properly to continue to retain our clients and grow at that mid-single-digit pace. So it is very competitive. We're still seeing some banks with some 4 handles, and we're kind of in the high 3s right now, but we feel good about where we're positioned. Dennis Shaffer: We're really just focused on relationships, growing relationships and providing value and providing solutions for our clients. And again, I think attacking the market from a team perspective by bringing different business lines into meeting a lot of our business customers, I think it's been working for us, and that's really going to be our focus. And with that disruption, I think it gives us opportunity there. Charles Parcher: Yes. To Dennis' point, the disruption, some of the bigger players in our market, Huntington's, Fifth Third's, Park's, First Financial's are all working on acquisitions, not just in Ohio, but in other regions. I feel like their eye is off the ball a little bit on Ohio. Our biggest competition is coming from really, some of the smaller institutions. From a rate perspective, not from a, I guess, competitive perspective, but from a rate perspective. Timothy Switzer: Got it. Very helpful. And then the last question I had was in terms of credit. Any areas that have caused you guys to want to pull back at all, or any levels of concern? And do you have exposure to any end market that could maybe be exposed by the higher oil prices? Charles Parcher: Go ahead, Mike. Michael Mulford: This is Mike. No, we're not seeing anything that's market-specific or industry-specific right now that's causing us any concerns, especially to pull back on any areas. Operator: Your next question comes from the line of Matthew Breese from Stephens. Matthew Breese: I wanted to just touch on the NIM a little bit. I know you didn't have a accretable yield at your fingertips, but maybe you could help me out. To what extent the prepayment fees play a role this quarter in loan yields and the NIM? Was that a factor? And is that a factor in kind of your more stable guide in the back half of the year? Ian Whinnem: This is Ian. No, the payoffs really didn't impact the NIM that way. We got a little bit of fee income on those, just breakage fees, but nothing in the NIM. And as Dennis mentioned earlier, we have a lot of loans that are just going to be repricing in the remainder of the year. So they're going to be moving from these mid 4s into the low 6s. So that's the stuff that we saw come across the first quarter. And we'll continue to see for the remainder of the year, just some NIM lift coming from that. Dennis Shaffer: Yes. The biggest NIM lift again, was the repricing of that brokered CD and the reduction of it. So we reduced to $25 million, then we repriced $100 million and picked up 36 basis points. That was -- that contributed more. And then on the fee income side, it was just really -- most of those fees were generated by our residential mortgage teams and our leasing group, who both had much better production results than we had a year ago. So that's where a lot of the fees came from. Matthew Breese: Understood. You had mentioned just some of the fixed asset repricing. So outside of loans that are pure floating priced off of prime or SOFR, what is kind of the cash flow schedule and maturity schedule for fixed rate and adjustable rate loans for the rest of the year? And new origination yields I'm assuming are kind of in the mid- to high 6s. Is that accurate there? Dennis Shaffer: That's correct. On what's -- the repricing, we're somewhere in that 6.5% range as far as new loans going on and things that would adjust. Most of them are -- the real estate loans are written on 5-year adjustables, and the average margin on those are probably 2.75% over a 5-year treasury or so. Which will take us a little bit, maybe 6.5%, 6.6% today. And we're looking for your -- what was your other question? Matthew Breese: Just the loans that are either fixed rate or adjustable, kind of quarterly maturities or quarterly cash flows. You had mentioned that what's maturing is going from a 4 handle to a 6 handle. I just want to get some sense for how much is going to mature this year. Charles Parcher: I would tell you, over the next 12 months, we got a little over $200 million. Richard Dutton: Yes. $60 million of that -- this is Rich. $60 million of that will happen in the next quarter, in Q2. The balance of it is the rest of the year. Charles Parcher: Right. Matthew Breese: Got it. Okay. And then you had mentioned brokered being a big area of deposit cost pickup. How much of that is maturing over the next 3 quarters? And what are the rates -- or what is the estimated rate on the stuff that's maturing? Ian Whinnem: Yes. So we have some that's maturing in April or is maturing this month. That was at 3.70%, repricing a little bit under 4%. Then we have about another [ $125 million ] maturing still this quarter outside of April. That's in that 3.80% range. And then a little bit in September. Dennis Shaffer: We would stay relatively short on all of that. So it's going to reprice pretty close to where it's at, maybe a little bit higher. But again, our plan is to continue to gather deposits and reduce brokered. That helps offset some of that, too. Matthew Breese: Got it. Okay. Last one for me is just on [ Reg E ] production that you keep for yourselves and put on the balance sheet versus pursue the secondary market and gain on sale. What is kind of the breakdown of that? And did it shift more towards gain on sale this quarter? Just seasonality-wise, I would expect gain on sale to be down this quarter, but you were up modestly. I'm just curious, how that breakdown was? Charles Parcher: Our breakdown by number is usually -- or has been here for the last couple of quarters is about 60% sold, 40% portfolio. And I would tell you that from a balance perspective, that probably runs close to 50-50, just because the stuff that we have to hold on the balance sheet is usually some of our private banking, what I call physician loans and some of the higher balance things, higher balance construction. So dollar volume, 50-50, number, 60-40. And we feel like it's going to probably continue to trend that way. If we get any kind of blip downward in interest rates, we'll see a little bit more refinance action. And that refinance action is normally much more 80-20-ish that would be sold versus held. But that's kind of the run rate we've had here over the last couple of quarters. Operator: Your next question comes from the line of Adam Kroll from Piper Sandler. Adam Kroll: Just a follow-up for me. A pretty strong start to the year on the core fee income side. And I know leasing can kind of jump around, but I'm just curious, how you're thinking about core fee income growth for the remainder of the year? Ian Whinnem: Yes. So for the noninterest income, so as you mentioned, strong first quarter, had a good recovery on the mortgage and CLF when compared to this time last year. We did have a captive reinsurance reserve release that occurred in the first quarter that would be nonrecurring and only a small amount of security gains. So when we adjust for the seasonality of gain on sale, thinking that Q2 comes in between $9.1 million and $9.5 million and then maybe increasing another $0.25 million in the third quarter just due to seasonality on gain on sale. Operator: Your next question comes from the line of Daniel Cardenas from Brean Capital. Daniel Cardenas: Just a quick question. Given the market disruption that we've seen in Ohio, what kind of opportunities is that presenting for you on the talent addition side? Charles Parcher: It's been really good for us, to be honest with you, Dan. I mean, we've had a lot of -- not moving as far as lenders moving out, but we've reassigned some people, people got promoted, et cetera. And we've done a really good job of picking up talent from those institutions that have had some M&A activities with them. The one we still benefit from, even though it's probably the farthest one away, is the whole WesBanco/Premier piece. We've continued to get some talent from that area, but it's probably the one that we've probably got the most talent from in our entire organization. But it's been good. And everybody is sitting around our table right now is continuing to get calls from some of those institutions to see if they got -- if we've got opportunities here. Probably our most recent acquisition came from the Westfield deal that got sold. We just -- our new Treasurer just came over and started a month ago from their institution. So it's been really good for us to be able to upgrade talent. Daniel Cardenas: Excellent. And then I know you just completed the FSB deal, but as you look at future acquisitions, I mean geographically, where do you see yourself targeting? Charles Parcher: You want to take -- I mean, I think we're going to be very similar. Our thoughts are still very similar to what they always have been. Ohio and the adjoining states is probably as far as we would look right now. And obviously, if it's fill in, it would be a little bit more preferable than to an add-on in some of those locations. But I think that we're not going to jump to Tennessee or to South Carolina or whatever. We're going to kind of stick to our knitting and stay within our marketplace right now in Ohio and the adjoining states. Dennis Shaffer: Yes. And I would just say, Dan, that our first priority really is on organic initiatives that create sustainable value for the company. We made -- as I mentioned, those -- we've made a lot of investments in technology that makes it easier to do business with us. And with all that disruption, we think we're really well positioned to attract new clients and deepen those relationships. We continue to maintain pretty good dialogue with a lot of the banks within our footprint here. But anything we would do, I think will need to create great strategic value for us and be financially compelling. But the first -- our main focus really right now is on building capacity from within and prioritizing just some of that organic development. Operator: There are no further questions at this time. I will now turn the call over to Mr. Shaffer. Please continue. Dennis Shaffer: Okay. Well, in closing, I just want to thank everyone for their investment in Civista and for joining today's call. Our first quarter results, I think, were due in large part to the hard work and discipline of our team. I'm very pleased with this quarter's accomplishments, our strong financial results and just the disciplined approach that we have here in managing Civista. And I remain very confident that we are well positioned for long-term future success. So I look forward to talking to you all again in a few months to share our second quarter results. Thank you for your time today. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to Pegasystems 1Q 2026 Earnings Call and webcast. [Operator Instructions] I would now like to turn the call over to Peter Welburn, Vice President of Corporate Development and Investor Relations. Please go ahead. Peter Welburn: Thank you, Carly. Good morning, everyone, and welcome to Pegasystems' Q1 2026 Earnings Call. Before we begin, I'd like to read our safe harbor statement. Certain statements contained in this presentation may be construed as forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, forecasts and similar expressions are intended to identify these forward-looking statements. These statements speak only as of the date the statement was made and are based on current expectations and assumptions. Because these statements relate to future events, they're subject to certain risks and uncertainties that could cause actual results to differ materially from our current expectations for fiscal year 2026 and beyond. Factors that could cause such differences are described in the company's press release announcing our Q1 2026 results and our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2025, as well as other recent SEC filings. Investors are cautioned not to place undue reliance on these forward-looking statements as there can be no assurances that the results contemplated will be realized. Except as required by law, we undertake no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. In addition, non-GAAP financial measures discussed on this call should be considered in conjunction with and not a substitute for our consolidated financial statements prepared in accordance with GAAP. Constant currency measures are calculated by applying the March 31, 2025, foreign exchange rates to all periods presented. Reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. And with that, I'll turn the call over to Alan Trefler, Founder and CEO of Pegasystems. Alan Trefler: Thank you very much, Peter. I've just gotten back from a few weeks on the road across EMEA and the U.S. and including an AI conference last week. And it's interesting because I think we're pretty practice at separating it from what's real, but there is a lot of confusion out there. Nonetheless, I'm hearing consistent themes from leaders of clients and prospects and partners. In a world of constant disruption, clients want and need innovation without sacrificing reliability. They want solutions to reimagine how their businesses work while still running them predictably and delivering measurable results. This means platforms architected for scale, interoperability and continuous change, where AI is governed, explainable and harnessed in workflows rather than bolted on. That's what Pega provides, a harness for enterprise AI. Blueprint to help reimagine how work should run and have people rethink their businesses and then the Pega platform to operationalize it with confidence and evolve it as regulatory demands evolve. There's a lot of noise about the future of the software industry itself, and it's creating some real confusion and some real moments of doubt and bias. Some investors I've met aren't sure what the future looks like and are even questioning the long-term viability of enterprise software vendors. But we think AI will be good for some and bad for others. And for Pega, it will be good. The reality is that enterprises don't succeed based on the alternative of coding fast using AI. They succeed based on whether they can design the right outcomes, execute them predictably and evolve safely over time. The assumption that AI-generated code can replace architecture is backwards. In mission-critical enterprises, AI increases the value of platforms that are architected for predictability, governance, interoperability and continuous change, and that's us. When outcomes matter with customers, regulators and systems that must evolve for decades, AI-generated code still needs structure. Certainly, for the types of things we do, we have very small things. You can just bind code together. But AI doesn't replace the need to have a business system. Alternatively, if people are using AI to just dynamically reason each process over and over, what we're seeing that's now running up costs and giving nondeterministic outcomes. At the moment you weaken your enterprise platform, you make your whole business weak. Putting AI in the middle in an ungoverned way, that's, I think, just a recipe for disaster. So whether you use AI to generate code that you want to be able to orchestrate and pull together, whether you use AI to be able to run or handle certain parts of your business where you want the creativity of agent-to-agent interactions or whether you want Pega, or whether you want these AI to be able to pull together and orchestrate multiple business functions with a harness like Pega driving that. In all of those cases, Pega adds tremendous value. So let's talk about how mission-critical enterprise software is built. Enterprise applications has always been around a continuous life cycle regardless of technology. It's not a single build moment. You need to design and align on what the software must do and how it must perform. And that design really can involve collaboration for many parties and having a collaborative environment like Blueprint that brings the power of the Internet, the power of Pega best practices and the power of a customer and/or partners thinking all together in a way that they can understand the experience and improve is absolutely central to get it to a great outcome. You got to build it. And there are lots of ways to build it, but the great news about something you've done in Blueprint is basically both. You need to be able to execute or operate it to run it at scale, secure, make sure that it's performance that's being watched and managed. And with Pega Cloud, which you'll see is really, really continuing to grow beautifully, we give our customers a price to execute that is without parallel. And then you need to be able to evolve it and respond to change if the cycle starts again. And this cycle is high stakes, and it's absolutely critical to get businesses not just what they want to get done in 2 weeks or 4 weeks or 6 weeks, but to get them to operate over the years of the business. The Pega model, which is at the heart of the Pega system is the key to most of these key factors. It's the same that lets you design it, let you collaborate, it makes the build trivial. It actually executes it and orchestrates the AI. And best of all, it lets you go back to it and have a structure that you can look at, you can understand and you can direct change from. And that ultimately to us is how this life cycle operates in this new AI orchestration age. While LLMs dramatically accelerate the build, they don't replace these other key factors nor are they going to be able to. That's why clients see Pega. Some people are going, well, why don't we just get software. And certainly, AI can generate code quickly. But prompts to code alone falls short. It doesn't tell the enterprise what should change. And the gap we have isn't coding speed. It's understanding what's there and making sure you don't accidentally change something with unintended consequences. When you're operating at the speed of the prompt, it's actually easier to do that, not harder, particularly if you haven't put out a nice solid architecture that makes what's going on visible. Now we do want it to some people who say that they believe in AI-only execution. Why do I need a workflow engine at all? Why do I need a harness at all? Why don't you just simply turn everything over to general purpose AI agents and manage it and just have, say, a control power that watches what's going on and reports out and keeps things in line. But I'll tell you, this great systems that are difficult to test, expensive to run and nearly impossible to evolve safely. LLMs are incredibly sensible, effective to even the tiniest bits of additional data. And a new version of the LLM, and let's look at how quickly they're coming out, can often behave differently from the one you used just the day before. I think it's safe to say that for many kinds of work, in provision, in propagation is not a reasonable business strategy. People want predictability and reliability. But the other thing which really broke last week is that this approach to AI reasoning is becoming cost prohibitive. I hear growing discussion about the cost of GenAI and how teams are bouncing between token matching in which they try to tell the team to use as many tokens as possible to rationing tokens to usage caps to supplying bills. The concerns are real, but they reflect the misapplication of AI using the wrong AI at the wrong time. When you ask GenAI to reason and run time over and over, again, for processes you've already validated, every interaction becomes a new experiment and consumes tokens. You end up paying repeatedly for the same thinking, which is expensive, unpredictable and hard to scale. Instead, do what Blueprint AI does, do the super heavy reasoning at design time, where GenAI can brilliantly explore options, math work for close, let you collaborate and pressure test decisions. Then use the right AI for the execution, focusing on consistency and speed. Costs become predictable and value scales with governance. GenAI isn't expensive, but misapplication is, and the smart organizations will stop paying the LLM to relearn their business every 5 minutes. Success in the enterprise doesn't come from AI reasoning everything on the fly. It comes from executing redesigned work, reimagined work within clear governance structures. Our architecture uniquely allows enterprises to design intelligence into how work gets done, not bolted on afterwards. Now since we last spoke, we introduced new vibe coding tooling into Pega Blueprint. And this combines the speed of AI augmented design with security and predictability that Blueprint gives. You can try it out on Pega.com/Blueprint. Remember that Blueprint facilitates the reimagination of critical work, not just the development of applications. And that reimagination goes beyond process alone. It includes redefining roles, decision rights, skills and experiences. AI can be applied intentionally to these rather than accelerating what already exists. Users interact with Blueprint designs in natural language now, describing changes by typing or speaking. And the result are enterprise-ready governed workflows. We received continued validation of Pega's leadership across the industry from clients, partners and analysts who see and work with Blueprint AI. Recently, Forrester named Pega as a leader in customer service solutions, recognizing Pega Customer Service, Pega Blueprint and Pega Process Mining for automation and agentic capabilities. So we're also winning awards for our software. We've already this year received 4 awards for innovation related to how we're leveraging AI, including a Product of the Year award. Now we love receiving awards for our work. But personally, it's even better seeing our clients win awards for the work that they do with our software. Just last month, the National Health Service, which provides 24-hour digital and telephone-based health service to Scotland's 5.5 million citizens, received the public sector award for work leveraging Pega software. These sorts of recognitions reinforce our strength and the need to be able to orchestrate complex service journeys and apply AI predictably. Now this is not theoretical at all. If you take a look at how this is playing out, we recently had one of our customers, Proximus, Belgium's largest telecommunications operator, use Pega to modernize a mission-critical B2B installations application, moving from a fragile legacy tool to an orchestrated cloud-ready solution. They built their first prototype Blueprint in 15 minutes and went live in weeks. And numerous other great names, [indiscernible] Vodafone, National Australia Bank have really been able to drive change include a redesign and include extensive automation, all AI-powered. I love the customers are excited about this and that they're going to be coming to PegaWorld in quantity to talk in detail about what they're doing. And these same stories that you just heard and others will be shared to PegaWorld in June in Las Vegas because the way that I think we all learn is by seeing what other clients are doing. And it is such an honor and it's wonderful that customers are willing to come and do that. It's from June 7 to 9, and I would say it's a must-see event, a chance to interact with thousands of transformation leaders from around the world and see incredible new developments at over 200 different AI-powered demos. We have these exciting keynotes lined up with nearly 100 more customers from 60 organizations presenting detailed breakout sessions. MetLife will show how a highly regulated insurer moved from AI experimentation to AI at scale. Unum will discuss large-scale legacy modernization, leveraging Pega Blueprint and AWS transform to rearchitect decades of legacy core system. And I would say that what is also exciting is the breadth of industries. Wells Fargo will talk about how they highlight AI-driven decisioning across billions of customer interactions. So we're going to have great customer stories, but I'm also going to tell you that this year, we're going to have a tremendous product agenda that we're going to be releasing because this is going to be a very substantial year for the product. You've already seen what Blueprint has done. And Blueprint AI has fundamentally changed the upfront design and the reimagining of how people should work with systems. What we're doing this year and what you'll see us be able to show at Pega is how Blueprint AI is moving into the entire development and support suite, so that, that interface, that AI-driven guidance and that power will operate from the moment of visualization and inception that you get from Blueprint, all the way through to how you complete a system and how you support a production system. I think this is the most consequential change to the underlying technology that I have seen and it's there to support the Agentic process fabric technology we have that then allows all of your Pegasystems and even non-Pegasystems to be able to operate as a connected orchestrated network for the next generation of technology. I think only Pega has the efficient runtime intelligence, the deep design time skills, the experience with these key workflow harnesses and is going to be able to put in your hands the way for you to make our harness yours. We look forward to continuing the conversation, and we can continue the investor conversation on Monday, June 8, at noon in Las Vegas, we're also hosting an investor session. So thank you all. We are working hard. And for the numbers, let me turn it over to Ken. Kenneth Stillwell: Thanks, Alan. As discussed last quarter, the rhythm of our business was expected to return to a more typical seasonal pattern in the Q1 of 2026. We entered the year knowing the first quarter would also be a challenging comparison given the $60 million of net ACV add in the first quarter of 2025, which was very much an outlier and roughly 20% higher than any other quarter last year. It's no doubt, and it's an interesting start to 2026. With all of the AI experimentation that Alan mentioned, the federal government shutdown, 2 wars, both in Europe and in the Middle East, clearly puts pressure on the entire environment. So it's not surprising as well that Q1 did have a lower growth rate. We continue to believe in the durability of demand for our platform, especially for our cloud offering. Pega Cloud in the first quarter of -- Pega Cloud revenue in the first quarter of 2026 increased year-over-year from $151 million to $205 million and also grew 30% if you look at that Pega Cloud revenue growth on a trailing 12-month basis. Pega Cloud ACV grew 29% year-over-year as reported, and 27% in constant currency to just over $900 million, an over $200 million jump. It's very exciting to see Pega Cloud ACV now rapidly approach the $1 billion mark. As we've said, ACV growth and mix is reflective of the evolution of our business. Pega Cloud ACV now represents about 56% of total ACV. Our focus on growing Pega Cloud puts pressure on both term and maintenance ACV as well as revenue. Naturally, as Pega Cloud ACV continues to grow as a percentage of overall ACV, it will impact near-term and in-quarter revenue for term and maintenance. Moving to free cash flow. Free cash flow reached $207 million in Q1 of 2026, marking a strong start to the year. As a reminder, our free cash flow is primarily driven by our operating efficiency and our ACV growth, which serves as a proxy for subscription billing growth. We remain confident in our strategy to drive free cash flow and ACV growth for several reasons. First, expansion within our existing client base remains a core go-to-market motion with our sales team continuing to successfully cross-sell and upsell into our installed base. Second, we're accelerating new logo pipeline build with Pega Blueprint as a key enabler. Blueprint makes it easy for sellers to showcase the power of the Pega platform while enabling buyers to reimagine their legacy mission-critical workflows. As a result, Blueprint is already driving meaningful pipeline creation across both new logo and existing clients. We expect this new pipeline will begin converting into ACV in the second half of the year as deals progress through the sales cycle with a faster motion, thanks to Blueprint. This is also an unusually high level of new logo pipeline growth, which is just awesome to see. Third, we're already seeing early proof of Blueprint's ability to accelerate time to value. Last month, I met with a large healthcare organization. This existing client of ours use Blueprint to design and build 2 new applications, one going live in 92 days and a second in 70 days, a strong example of what our platform can do powered by Blueprint. Fourth, we're seeing renewed interest in legacy transformation as more enterprises look to leverage AI and the cloud to modernize their operations. Blueprint is unlocking these legacy transformation opportunities by simplifying how clients reimagine and redesign their workflows to drive growth, reduce costs and improve customer experience. Together, Blueprint and Pega Infinity create a powerful combination, Blueprint to design and reimagine the work and Infinity to run it, reinforcing Pega's position as the platform of choice for large-scale mission-critical workflow transformation. Unlocking legacy transformation is just one way Blueprint is transforming our business. Early signals show Blueprint is accelerating pipeline growth and helping us capture new clients. For example, in Q4, we signed a new financial services logo, leveraging Blueprint's new legacy transformation capabilities with plans to migrate more than 30 applications from a legacy application platform to Pega Cloud. Blueprint is also driving meaningful go-to-market efficiency, where deals once required a full bench of supporting roles, today, our client executives can now cover far more ground with our clients when leveraging Blueprint. Finally, we're seeing R&D benefits as well. Our new Agentic engineering approach will enable us to execute our product road map more efficiently, allowing us to increase our pace of innovation. Since Blueprint runs on Pega Cloud, we can deliver new features and capabilities rapidly to clients and prospects. We're excited to share more about this new approach with you at our upcoming investor session in June. Moving to capital allocation. We continue to maintain a balanced approach, prioritizing investments in long-term ACV growth while returning capital to shareholders as appropriate. In Q1, we returned more than 80% of our free cash flow to shareholders, repurchasing 3.5 million shares for $167 million under our repurchase program and paying $5 million in quarterly dividends. As of March 31, 2026, our shares outstanding decreased from the end of 2025 by 1.6 million shares. Looking ahead, we will continue to opportunistically return capital while maintaining strategic flexibility. Our buyback reflects our unwavering confidence in the durability of our cash flow. As you know, these buybacks are accretive to earnings and also combat stock-based compensation dilution. They are made possible by this strong and durable cash flow. Next, a few thoughts on modeling. We provide full year guidance at the start of the year, and we typically do not issue quarterly guidance or update our outlook during the year. As I mentioned earlier, our renewal portfolio is back-end loaded this year, which means we expect to have higher level of business activity in the second half of the year. The shape of our pipeline also influences the timing of term license revenue, which is largely recognized upfront in the quarter a client contract is renewed. As a result, we expect term license revenue to be more heavily weighted towards the second half of 2026. At the same time, our focus on driving Pega Cloud ACV growth also puts pressure on term and maintenance ACV. The success of our Pega Cloud sales efforts is already reflecting this shift, and we expect it to continue as Pega Cloud ACV scales to 75% or more of our total ACV over time. Put simply, a portion of our Pega Cloud ACV growth is displacing term and maintenance ACV as intended, and we expect this dynamic will persist as we march toward our cloud mix goal. In addition, we're beginning to see a meaningful change in how enterprise clients are thinking about AI. The economics of AI are changing. Frontier models providers are tightening monetization. And in the era of low-cost subsidized all you can use experimentation seems to be coming to an end. As a result, AI usage is increasingly treated as what it is, a true operating expense. Every API call must be justified with clear business value. Given this change, buyers are moving out of the experimental phase of AI into the ROI stage. This transition to profitable AI plays directly to our strengths. Pega has always been focused on delivering measurable business value. AI is not just about efficiency. It's about generating tangible returns, and that's exactly what Pega is built to do. Importantly, our pricing model is aligned with the shift toward outcomes. Pega prices based on cases, which is a measure of the amount of work that the Pega platform executes, tying our economics directly to the business value delivered rather than on users or seats. This stands in contrast to many model providers where pricing is driven by usage metrics like tokens or API calls. As AI costs come under greater scrutiny, we believe our outcome-based pricing model provides a clearer and more efficient path for clients to generate and measure return on their AI investments. As Alan mentioned earlier, we're holding our annual investor session at PegaWorld on Monday, June 8, at the MGM Grand in Las Vegas. During the investor session, we look forward to providing you with additional color on several of the topics that I discussed today. We also plan to provide more insight into how we envision clients driving legacy transformation with Pega and how we're progressing against the long-term targets we laid out last year. We also plan to give you insights into several key Blueprint metrics, including the impact of pipeline build and deal progression and what is most interesting of some of the metrics around new logo momentum. In closing, we look forward to seeing you on the road at conferences and non-deal roadshows over the next few months and at our investor session at PegaWorld in June, which we encourage all of you to join us. Please also note that we plan to participate in the NASDAQ opening bell ceremony on Monday, July 13, at NASDAQ Marketplace in New York to celebrate the 30th anniversary of Pega's initial public offering. With that, operator, please open the line for questions. Operator: [Operator Instructions] your first question comes from Alexei Gogolev with JPMorgan. Alexei Gogolev: Ken, would you mind providing a bit more color on acceleration of ACV growth through the year? I remember you talking about client compelling events and renewal cycles driving potential uplift in the back half of '26? Kenneth Stillwell: Yes. So there's 2 different factors to that. One is our renewal cycle is tipped towards the back end of 2026, which is more -- that's more the usual distribution than unusual. But in 2025, that was reversed. There was not as many compelling events in the back half of the year. So that's one factor. When there are renewal cycles, that is typically an event where clients, if they're going to expand their relationship, tend to do it around that renewal cycle. So that's one factor. The second factor is we've put a renewed interest in new logo focus with Blueprint. And as we build pipeline, that will naturally grow and the conversion of that pipeline will grow the opportunity tends to sit towards the back end of the year as well. So there's 2 different factors that really tip our business momentum towards the back end of the year, which is very different than last year where we had a very, very unusually tipped towards the front end of 2025. Alexei Gogolev: And Alan, in the past, you spoke about AI adoption disconnect. Can you talk a bit more about what you're seeing in terms of the narrative in the industry and update us on the trends from Q1 in terms of agentic adoption? Alan Trefler: Yes. I think that there's some things that looked at properly, you have to really laugh or cry as the case may be. I talk to people -- I spent my whole time out in the field talking to people about what they're doing. So much going on when people talk about LLMs, people talk about the word agentic, people talk -- we talk a lot about LLM technology as we make very heavy use of vector databases, which is a way to use LLM technology but to do it in a very cost-effective fashion. And what I encounter is there are some people who actually article about this, where they think that they will be at their most successful when they use the LLMs for as much as possible. And I'll be honest, that's just crazy. The LLMs do magical things. But what you want to do is use them for the right things, not for the parts of this problem that are statistical and not for the parts of the problem that should be planned out in advance. The be planned out with an LLM that the blueprint does, but should not be just planned and wean and pay this incredible tax for rethinking what you already know. But some people are just so enamored with the LLMs that they're in love with it. And I think some of the enterprises out there have told their teams, hey, we just want you to use this stuff. And I can appreciate that if they're trying to get people to understand it, that's not going to be remotely what ends up sticking, not just cost, but also lack of reliability. And it's like most ungreen thing you could do in terms of the electricity use and all of that. So I think understanding proper use of LLMs is absolutely key. And to be honest, I think we've nailed it. And what I see with the others, structurally different path in just about all cases. Operator: Your next question comes from Raimo Lenschow with Barclays. Raimo Lenschow: I just wanted to stay on that new logo focus that we have, like if I look at you guys over the years, you have been really the high-end provider, very good for complex scenarios, et cetera. But on the new logo side, that was always like a bit of a question. You had a really big installed base. Talk a little bit more about that new focus on new logos. I can see how Blueprint is really going to help you here, but I just want to understand a little bit better on that one. And then the -- Ken, one for you also on the maintenance side. I hear you that the push towards Pega Cloud will impact maintenance. The numbers we saw this quarter, are they indicative of what we see for the year? Or is that -- was there other factors in Q1 that we should be aware of? Kenneth Stillwell: I'll touch on the maintenance one. I think you will see, as we continue to move towards Pega Cloud, you will see maintenance go down over time, and you will see term license be flat to down as well. Even though some clients will still continue to run on client cloud, I think you will start to see that shift, not -- certainly not 100% at any point in the near -- in the foreseeable future, but it will move in that direction. I'll touch on the first question that you asked because -- so the way we think about it, and this is just a framework. If you look at a company like Gartner, they have something like 15,000 clients. I think Forrester has slightly less than that, but still many thousands, probably approaching 10,000 clients. The types of companies that would go and seek advice from a Gartner or Forrester clearly have enterprise spend of some level of size. We believe all of those organizations are an opportunity for Pega. There are others that don't actually subscribe to Gartner as well. But we think the universe is very large. We're not talking about going down to tiny organizations to get that opportunity. There's just a lot of companies that we've not historically sold to. It is a newer motion for us, but not a brand-new motion. We have always added a few new logos. It's just that Blueprint completely changes the dynamic of how fast we can engage with a new logo and the speed at which we can validate if there's interest. And that was the reason why we never really pushed hard on that in the past because we didn't -- in some cases, it might be a 2-year sales cycle to see if there was momentum. And that was the reason why we were very thoughtful about new logos. With Blueprint, that really changes the game. Alan Trefler: Yes. And Blueprint is a great starter, but the thing for that. But a couple of other things we've done that also changed that game. First, Blueprint let you design things that you would have had to be a lead system architect, have had years and decades of Pega experience and some to really do. And now it just happens. We've got a lot of that expertise built in. And every month, we build in more. So we've radically changed the training required curve. We've radically changed the expertise required curve. And candidly, all of these also adjust the cost curves as well at the same time that the improved speed of delivery. We've added this Socratic education, which is a way that we can now make it easier to teach people about their gaps as opposed to having them to go to big formal courses. So there's been a huge simplification. And when we think and we talk about how we want to go from the like 850-ish companies that we would really sell to and have as customers in double, and we're going to continue to really try to do great work for them there to, say, 10,000 as a much more easily acceptable population of multibillion firms that we can go after. We now have a tool that's well equipped for that. And between the fact now that it runs on Pega Cloud and that Pega Cloud is tied in to our predictive diagnostic cloud, which does a lot of self-maintenance, a tremendous amount of making sure performance runs, handle scalingfully on Kubernetes. We're just in a position where we can really go after this. So it's not just a choice to go after, it's also years of product evolution and business evolution that has made this possible. Operator: Your next question comes from Steve Enders with Citi. Steven Enders: To see everybody last week at our conference. I guess I wanted to start on kind of the AI discussion and the focus on becoming a harness for enterprises. I guess I want to understand a little bit better about maybe what this means candidly for your customers in terms of use cases that you see as you kind of try to become that harness layer, kind of how you're thinking about that adoption curve within some of these bigger customers that you have? Alan Trefler: Yes. What I see is that customers, think of Proximus as we just mentioned, think of some of the others look to the use of our AI powered by Blueprint, but still able at critical points in the workflow to call even a non-Pega agent. The idea is that we can actually use our agents, customers' agents, but it all is in the context of a business objective that they were able to think out and design. That, I believe, gives the customers a level of reliability and auditability that they can't come close to with any of the other alternatives there. So I see customers who take the moment to understand that they don't want to read everything all the time. You guys probably all use Claude and Gemini and OpenAI. I was using Claude this morning, putting some questions in, and it starts explaining to me that it's reasoning. It uses terms like frolicking, canoodling. Well, when it's doing that, it's feeding itself tokens. I mean we're paying for these journeys of intellectual research that it's doing. I am thrilled to do that when it's not the exact same stuff that was done that morning. And people who think that they're going to handle credit card disputes by turning them over to a LLM to figure out the detail and nuance for each individual customers are missing the chance to bring stability and efficiency into those operations. And when we explain the harness concept, I think customers really get that. Kenneth Stillwell: I'll just add one additional thought there. If you think about the value that Alan mentioned of the concept of Pega functioning as a harness, you got the efficiency, you've got the risk management that Alan mentioned. You also have the resiliency aspect because we're using multiple models and being able to actually use the right -- the models are -- they have variability in their performance and their speed in the context. So I think we're able to really create this best of all of the models in terms of leveraging it when providing that value at design time and selectively at run time. Steven Enders: Okay. That's helpful context there. Maybe just on ACV dynamics here. I think it would be helpful to kind of know kind of what the net new ACV was if we look at kind of forward FY 2025 constant currency, like what that was for the quarter? And then I guess, on the levels that came in this quarter, I guess, did this kind of come in as you were expecting? Like was that the level you were assuming when you guided for the year? Or does this maybe change how you think about what the ACV growth for the year will look like? Kenneth Stillwell: Yes. So we -- I'll talk about Q1, and I'll also actually mention kind of the first half that we had talked about at the beginning of last quarter. First half last year, we had a significant amount of net of -- everything I'm saying is in constant currency, Steve. We had a significant amount of constant currency growth last year in the first half of the year. That was unusual and will not -- I mentioned will not repeat this year. We were going to be more back-end loaded. So the constant currency growth in Q1 was somewhere around $20 million. I would say it was in a few million dollars of where I thought it would be. It's probably a couple of million dollars lower than what I thought it would be, but pretty close. It was, I would say, more of a rounding error than something that was significant in terms of the growth. And I would say Q2, once again, we don't -- Q2 is not a big renewal quarter either. It's really Q3 and Q4. So that's -- I think the year is not that different than the way that I envisioned it playing out in terms of just the numbers. And we knew that cash flow was going to be stronger in Q1 because Q1 is typically a strong cash flow quarter. So I would say kind of across the board, it wasn't dramatically different than our plan. Operator: Your next question comes from Rishi Jaluria with RBC. Rishi Jaluria: Maybe 2 for me. Ken, let me start with you. In your prepared remarks, you talked a little bit about some of the macro or at least the macro backdrop that we've been seeing and obviously, with everything with government and geopolitical tension and obviously, the prevailing AI side. There's a lot going on there. Maybe can you be a little bit more or expand a little bit more in terms of what have you seen so far this year as a result of kind of all of these? And let's put AI aside for a second because obviously, we spent a lot of time on that. But very specifically around some of the geopolitical stuff, government, et cetera, how has that impacted your business so far? And as you think about things going forward, I know you're not updating guidance, and that's in line with kind of your historical practices. But just how should we be thinking about that potential impact on your business for the rest of the year? And then I've got a follow-up. Kenneth Stillwell: Okay. So once again, I'll follow your lead and leave AI off to the side. I think on government and the government shutdown and some of the changes the government has made, there were a few deals and a renewal or 2 that actually did slip out of Q1. We don't believe that those are like lost deals. It's just more that the process by which we go through like procurement changes in the government definitely has caused a little bit of confusion in Q1, specifically more in March. So that's -- I don't suspect that will extend for a very prolonged period of time, but probably Q2 might still be a little bit of confusion as like GSA starts to take deals more directly, et cetera. So that's -- there's no doubt that there's some backlog of work that needs to process through the government that happened in Q1. On the war, I think that -- look, the war is -- 2 wars, by the way, not 1, both of those wars are very impactful for Europe, right? And 30% or so of our business comes from Europe. So I think that it would be accurate to say that there are people -- there's a potential for a derisking that would happen just because of the impact of higher oil prices, temporary inflation, goods flow being disrupted, et cetera, into not just the Asia Pacific area, but also parts of Europe that are dependent on those same regions. So I think government, yes, some delays. I think that will probably clean up through the rest of the year. The war and how long that stays outstanding will has a risk of hurting the spending environment across IT and all and everything else. I mean, just because of the disruption in supply chain. So -- and we started to hear some conversations that I wouldn't say that I could point to deals in Q1 necessarily, but I think it is definitely something we're watching. Alan Trefler: I think there's been more of a push to go for some of these "sovereign clouds" which AWS, for example, is working on one. But just having that as an extra complication just has the ability to drag things out. Kenneth Stillwell: Yes. Now thankfully, we have cloud choice, and we have the ability to work with different hyperscalers in regions. But there's definitely some tension between U.S. providers and other parts of the world. And we just have -- we have to do our best to manage through that as this war continues -- these wars, I should say, continue on. Steven Enders: Okay. That's very helpful. And then maybe, Ken, I wanted to expand, and this is for both of you. Ken, you talked about this idea of maybe the kind of era of subsidized unlimited tokens might be doing. And I think everyone's experiences with Claude and the likes has kind of shown that as they've been a little bit more -- at least throttling some of the usage a lot. And I think that makes sense. But just to maybe expand on that, can you talk a little bit about as that kind of trend plays out, number one, what does that do to your own cost structure with Blueprint and where you are using the LLM for the design and ideation side, not necessarily in run time as you've been speaking about? And then number two, does that maybe change the nature of some of the conversations where maybe in the past, customers have said, hey, we're going to try AI for everything, whether it makes sense to do it or not or use ours for everything, whether it makes sense to do it or not. And maybe that can change the nature of conversations and has that been showing up yet? Alan Trefler: Yes. I was really seeing those last week actually after Anthropic announced its price changes. It's going to be fabulous for us because Blueprint -- yes, Blueprint is as consumptive as anything else. But when you design something wrong once and run it 200,000 times, the design cost is not really relevant. So that's really nailing it. I do think it's great that the tokens have started to approach closer to reality. They're still very, very heavily subsidized. And I think that subsidy will persist because people are trying to push the numbers up to one of you guys take them public. Operator: Our next question comes from Devin Au with KeyBanc Capital Markets. Devin Au: Maybe just for Ken, on the first one, I know you mentioned some geopolitical disruption in EMEA that's ongoing. But when I look at your revenue performance in the U.S. and APAC in the quarter, it seems like both regions were down quite notably. I know revenue isn't the best metric to assess the business quarter-over-quarter, but I would love to just get some more color on kind of what drove the downtick specifically for those regions in the quarter. Kenneth Stillwell: That's solely just the timing of term license revenue, Devin, and how that compares year-over-year and quarter-over-quarter from Q4 and Q1. In terms of the business activity, I don't believe we've seen any impact kind of bookings or new business in either of those regions. My comment was more -- it would be reasonable to think they would be under pressure. But we have -- the revenue is just related to term license revenue. It's not structural. It's just the timing of accounting. Alan Trefler: And we hate that revenue behaves the way it does. Nothing would make us happier than just be able to report everything on a recurring rate. Devin Au: Understood. Yes. I appreciate the context. And then just a quick follow-up. I know you've kind of talked about a little bit on your remarks on the new bide coding capability that got released to Blueprint. I would love to just speak to -- for you to speak to how kind of usage engagement have kind of trended since that release came out for Blueprint. I mean has that -- have you seen any sort of early signs or signals on greater expansion activity from users using that vibe coding tool? Alan Trefler: Yes, we're getting great comments on it. It's right on the face of Blueprint. There's a little panel on the left of Blueprint. It's an AI assistant. And on any of the pages, if you say, hey, add an insurance policy to this travel request, it will design the data structures and the fields and everything right into the Blueprint. And so you don't have to get it right upfront. Peter would be thrilled to get all that to you. But anybody can just go on to do it. It's absolutely central to what we're doing and great feedback. Operator: Your next question comes from Patrick Walravens with Citizens. Patrick Walravens: Great. Alan, 2 for you. So you talked in your script about the long-term viability of enterprise software vendors and you said, well, we think AI will be good for some and bad for others. What is it going to be bad? That's my first question. Alan Trefler: Well, we've seen it be really bad for it. There are some products that generative AI has just made a feature. For example, we used to -- there was a company we used to license their document processing software. And if a customer wants to, for example, peel feels off of a physical document, they're really good. Now you can just do that by having the customer call the LLM. And so there are what I would describe as point features that massively changed or gone away. I think that there are also -- a lot of the low-end workflow companies, guys like Asana and Monday have really, I think, suffered in the market. They were called work management companies, which was a moniker sometimes applied to us. But I would tell you, we never really competed with them because the types of things we do are so fundamentally different. I think the types of things they do, which often tend to be kind of a small little system for a 10-person work group are going to be the types of things that somebody might be able to just code. Ramping that up to do work across even a 500-person company a 5,000-person company, which is our bread and butter. I think AI just adds a tremendous amount of value to that and doesn't really open us up to risk, as I said. Steven Enders: And then the second question is a little out of left field, but I'm sure you have a point of view on it, and I am feeling it fits into your remarks somewhere. So SpaceX buying Cursor or maybe buying Cursor with -- through $60 billion with a $10 billion breakup fee. What does that tell us about what is going on in the AI world? Alan Trefler: I think I would have to rely on guys like you to tell me, look, I think there are so many -- last week, I was driving up 101, and there was a billboard after billboard of AI company after AI company that I have not heard of many of them. We've got this enormous, enormous collection of code writers, some of whom have become instant unicorns. And what that tells me is AI is in parts of it are in the bubble phase, and that will all shake out. Whether SpaceX makes Cursor one of the few survivors, there'll be a couple of survivors, whether Claude go kills them all, I don't know. I'm not fighting in that brain. So I have no interest to get thrown into it. Kenneth Stillwell: I'll just give one little point that we heard last week at the AI conference we were at Pat, which is Cursor is sort of a harness, right? And so I do think that maybe [indiscernible] for programmers. But I do think it kind of like suggests that like the AI models really need to be governed in different ways for different use cases. Alan Trefler: So when I use the word harness, which is the word somebody else used, but I kind of like it, it's really thinking about being a harness at run time. It is a hard move, but it's a harness design time guys decide, make sure you think about the design the right way, things in the right structure in order, et cetera. But I think you need a design time harness and a run time harness. And I would agree, Cursor is a good design tool. Kenneth Stillwell: It's guardrails for the AI models, right? So I think that's the one thing I could read into that. Operator: Your next question is from Mark Schappel with Loop Capital Markets. Mark Schappel: Ken, a question for you. Could you just talk about what portion of your pipeline is now, say, AI-driven versus more traditional platform ACV? Kenneth Stillwell: So I think I'm going to reframe your question because I think what you're suggesting is how much of our pipeline is led by Blueprint. And I would say almost all of our new pipeline growth is connected to a use of Blueprint in some way, which I would put in the AI camp. In terms of our AI accelerators that we have, like we talked about like Knowledge Buddy, Coach, et cetera, some of the specific run time AI accelerators that we have, we typically think about those as a premium markup, so to speak, on the value of activity that happens through the platform. But if you want to think about all of our new pipeline that's been added, certainly, any new logos, any new workflows, those are led by Blueprint and led by Pega AI. Mark Schappel: Okay. And then, Alan, I was wondering if you could just comment on how the -- how demand for the legacy scale modernization programs you're seeing is evolving, especially in the government and regulated industries. Alan Trefler: So we're engaging. It's slow, but we actually have a number of these legacy transformation projects going on now. And I'm pretty excited about it. It's such a big, big, big market. So we're building up our expertise. We're getting some good examples. And when you come to PegaWorld, you'll be able to see some pretty amazing things in support of that. Operator: This concludes the Q&A portion of our call. I'll now turn the call back over to Alan for any closing remarks. Alan Trefler: Thank you very much, everybody. We're working hard. We appreciate our investors. And I really, really hope to see all of you at PegaWorld. You should fire up your AI agents and have them book your reservations from June 7 to 9 in Las Vegas. And as Ken -- as we mentioned, on the 8th, we're going to have a very, very good and very important investor session, and we have a lot of new things to show. So it should be awesome. See you there. Thanks. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ASM First Quarter 2026 Earnings Call. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Victor Bareño. Head of Investor Relations. Please go ahead, sir. Victor Bareño: Thank you, operator. Good afternoon, and thank you for joining our Q1 earnings call. With me today are our CEO, Hichem M'Saad; and our CFO, Paul Verhagen. ASM issued its first quarter 2026 results yesterday at 6:00 p.m. Central European Time. For those of you who have not yet seen the press release, it is available on our website together with our latest investor presentation. As always, we remind you that today's conference call may contain forward-looking statements in addition to historical information. For more details on the risk factors relating to such forward-looking statements, please refer to our press releases and financial reports, all of which are available on our website. Please also note that during this call, we will refer to profitability metrics, primarily on an adjusted basis. Reconciliations to reported numbers can be found in the press release and in the investor presentation. And with that, I will now turn the call over to our CEO, Hichem M'Saad. Hichem M'Saad: Thank you, Victor, and thanks to everyone for attending our first quarter 2026 results conference call. We will follow the usual agenda for today's call. Paul will begin with a review of our first quarter financial results. I will then discuss market trends and our outlook followed by the Q&A session. I will now turn it over to you, Paul. Paul Verhagen: Thank you, Hichem, and thanks, everyone, for joining our call today. Let me first walk you through the Q1 financial results. Our revenue in the first quarter of 2026 amounted to EUR 863 million, which was at the high end of our guided range of EUR 830 million plus or minus 4%. On a constant currency basis, revenue increased by 16% year-on-year and by 26% compared to Q4 '25. Equipment sales increased by 14% at constant currency and were led by ALD. Spares & services continued to deliver a very strong performance with a 23% year-on-year growth at constant currency. This was the result of continued expansion of our outcome-based services and strong spares demand in an environment of elevated set utilization rates. In terms of customer segments, revenue was led by logic/foundry, which accounted for the clear majority. For the full year, advanced logic/foundry sales are expected to show significant growth this year. However, due to quarterly phasing, they were down from the very strong first quarter last year. Mature logic/foundry for the large part from customers in China increased compared to Q1 last year and rebounded strongly compared to the relatively low level in Q4. Memory sales showed sequential growth compared to Q4 last year and also expected to grow significantly for the full year, mainly in DRAM. Sales in the memory segment were predominantly driven by applications for high-performance DRAM in HBM-related applications. Sales in the power analog wafer segment increased compared to the first quarter of last year, mostly in silicon-based solutions but from a low base. Gross margin in the first quarter amounted to a strong 53.3%. This was virtually unchanged compared to 53.4% in Q1 of last year, up from 49.8% in Q4. Gross margin was supported by a favorable product and customer mix including an increased sales contribution from China, which rebound strongly compared to the lower level in Q4. The gross margin also benefited from a gradual impact from cost reduction programs that we have been implementing over the past few years. We expect the gross margin to be at the higher end of the target range of 47% to 51% for the full year. SG&A expenses increased by 8% year-on-year at constant currency, mostly due to higher variable expenses, but dropped slightly as a percentage of sales, demonstrating our ongoing focus on cost control. For the full year, we continue to expect SG&A as a percentage of sales to drop below 9%. Net R&D increased 11% year-on-year at constant currency in Q1. We continue to step up R&D investments to support customer transitions to next-generation nodes and to advance our expanding pipeline of opportunities. For the full year, we intend to keep the net R&D within our target range of a low double-digit percentage of revenue. Operating profit increased by a solid 21% year-on-year at constant currency, and the operating margin reached a new record of 33.1%. If you look at the main movements below the operating line, financial results included a currency translation gain of EUR 10 million in Q1 '26 compared to a translation loss of EUR 40 million in the first quarter of last year. As a reminder, we hold a large part of our cash in U.S. dollars and the related translation differences are included in our financial results. Our share of income from investments, reflecting our stake of approximately 25% in ASMPT amounted to EUR 7 million in the first quarter, up EUR 2 million in the year ago periods. Next, the balance sheet and cash flow. ASM's financial position remains [ solid ], and we ended the quarter with a cash position of close to a EUR 1 billion. Free cash flow was EUR 48 million negative mainly reflecting the working capital outflow in the quarter marked by a sharp ramp in activity levels. Days of working capital increased to 69 at the end of March, up from 45 at the end of December. The main driver for the increase was higher accounts receivable due to strong sales increase compared to the relatively low level in Q4 as well as back-end loaded distribution of sales during the quarter. CapEx amounts to EUR 38 million in the first quarter, up from EUR 30 million in the same quarter of last year. And for the full year, we expect CapEx to be around or to be somewhat above the higher end of the guided range of EUR 150 million to EUR 250 million, with the largest part related to the construction of a new site in Scottsdale, which remains on track for completion in Q1 2027. And with that, I'll turn the call back over to Hichem. Hichem M'Saad: Thank you, Paul. Let's now continue with a review of the market trends. The first quarter, again, confirmed that AI is the main driver of semiconductor demand. Customers continue to add capacity to support the ongoing expansion of AI data centers and the broader infrastructure build-out. This is keeping demand strong in the areas where we are most exposed, especially logic/foundry and we saw this demand strengthening further during the quarter. We have also noted a continuing proliferation and diversification of the AI workloads into the CPU and the power markets. For this reason, we see AI driving strength in all segments of our business: advanced logic/foundry, mature logic/foundry, memory and especially DRAM and, to a lesser extent, power, wafer, analog market. Looking ahead, our strategic view remains unchanged. As AI adoption broadens and demand continues to scale, compute capacity is increasingly the limiting factor. In semiconductors, this is translating into tighter capacity needs for advanced logic/foundry and memory devices, driving higher investment intensity and increasing the urgency of tool deliveries. Against this backdrop, our focus is on execution as we continue to support our customers' expansion plans. The pace of demand is putting additional pressure from the supply chain. But so far, we have been able to manage these rising challenges in close cooperation with both suppliers and customers, reflected in the sharp step-up in our quarterly sales from EUR 700 million in Q4 of last year, to a level approaching EUR 1 billion projected for Q2. Turning now to customer segments. Logic/foundry again led our performance in Q1 supported by continued strength at the advanced nodes and a sequential rebound in mature logic/foundry demand. Our view is unchanged that logic/foundry will be a strong driver of our sales in 2026 and also going into 2027. The structural outlook for this segment remains strong. AI-driven compute requirement and the ongoing shift to more complex 3D device architecture and new materials continued to increase ALD and epitaxy and density. As we progress through the year, we expect momentum to build further with ongoing capacity additions as the 2-nanometer technology node accounting for the largest part of advanced logic/foundry sales in 2026. This first generation of gate-all-around device technology is shaping up to be a large node, enabling new applications in high-performance compute, including AI as well as advanced mobile and other leading applications. We continue to benefit from the step-up in our served available market at 2-nanometer supported by a broader position in Epi and sustained strong market share in ALD. In addition, we have seen a healthy uptick in demand related to the nodes from 3-nanometer to 7-nanometer, driven by agentic AI. The demand is outstripping supply which has led to renewed capacity investment. Looking ahead to the industry's next node transition to 1.4 nanometer, we expect pilot-line investment to begin later this year. We are deeply engaged with key customers as they prepare for that transition, and we expect the first meaningful contribution to our sales in the second half of 2026. As we have highlighted before, we expect the SAM uplift at the 1.4 nanometer to be even larger than what we saw at 2-nanometer node. At 2-nanometer, the industry's main priority was to get the first generation gate-all-around architecture and to high-volume manufacturing with gate-all-around now in production and ramping, customer have more room to include additional performance boosters. And for ASM, that translates into more functional there in the transition stack to further optimize power and performance, including additional dipole layers to enable Multi-Vt options. Alongside the higher SAM opportunity, we have already secured several key product penetration which supports our expectation for a higher ALD market share in the 1.4 nanometer node, public disclosure from some leading customers suggest that the 1.4 nanometer node is designed to deliver clear improvement in performance, power efficiency and density versus today's 2-nanometer node. This is well aligned with ever increasing AI token demand and the associated compute and power constraints in data centers. As our customers move toward higher volume manufacturing in 2027 and 2028, we expect 1.4 nanometer to become a meaningful driver for ASM. Next, looking at memory. Demand in Q1 was solid, with robust momentum in the most advanced DRAM technologies used in HBM-related applications. Continued investment in AI infrastructure is keeping demand for high-performance memory strong and supporting ongoing expansion of advanced DRAM capacity. For the full year, we continue to expect healthy growth in our memory business. Looking further out, DRAM remains a meaningful and strategic opportunity for ASM. From a technology perspective, our customer R&D engagement in memory continue to expand, including development work around new ALD and epi applications that support the transition to 4F² and very fantastic DRAM. As we highlighted at Investor Day, the transition to 4F² is expected to drive a step-up in ALD and Epi intensity and expand our served available market by approximately USD 400 million to USD 450 million based on 100,000 wafer start per month capacity. Turning over to power, analog, wafer market segment. The contribution in Q1 remained relatively low, reflecting the soft market condition in broader parts of automotive and industrial. That said, we have seen some pockets of strength in selected areas, particularly in power applications for AI data centers. For 2026, our view is unchanged that this segment should recover gradually from a low base. We remain well positioned to benefit once demand conditions improve more broadly. Moving on to China. The increase in Q1 was largely driven by the mature logic/foundry segment, where we saw higher activity across a broader set of customers, reflecting improving market conditions and to a lesser extent, the power, analog segment. In addition, I'd like to highlight ASM's ongoing success in winning new positions which also contributed to our strong performance in China. This demonstrated the continued competitiveness of our solution and the strength of our local team. Based on current visibility, we expect sales in China to increase for the full year with a stronger contribution in the first half. Now let's talk about advanced packaging. As we have discussed during the Investor Day, we are looking into advanced packaging as another midterm growth area for ASM. We believe that this market is ripe for disruptive solution in new materials and interface engineering playing into ASM's strength. We are engaged with multiple customers on advanced packaging, and we are seeing some encouraging traction for our innovative solutions. That brings me to the outlook. At current currency, we project revenue to increase in Q2 2026 to EUR 980 million plus or minus 5%, and we continue to expect revenue in the second half of 2026 to be higher than in the first half. As mentioned, China sales are expected to be first half weighted. This means that our other business segments are expected to strengthen from the first to the second half, including continued solid momentum in advanced logic/foundry higher sales in memory and a gradual recovery in power analog. While it's too early to provide specific guidance for the full year, based on our guidance in Q2 and a further increase in the second half, it should be clear that 2026 is going to be a strong year for ASM. And with that, we have finished our introduction. Victor Bareño: Thank you, Hichem. Let's now move on to the Q&A to ensure that everyone has an opportunity to participate please limit your questions to no more than two at a time. Operator, we are ready for the first question, please. Operator: [Operator Instructions] First question is from Andrew Gardiner, Citi. Andrew Gardiner: Hichem, just sort of pick up on the point you were making at the end of your prepared comments there. You're saying you will have growth in the second half of the year versus the first half, but obviously, the visibility is perfect to quantify it for us yet. Previously, you've been willing to talk about your performance relative to the wafer fab equipment market broadly and that ASM would outperform that. Clearly, WFE expectations are moving quite rapidly as well at the moment. Could you give us an update on how you see the broader market in terms of WFE? And can you confirm that you will still outgrow that in 2026? Hichem M'Saad: Thank you very much for the questions. Yes, we talked about that in our previous conference call that we're going to at least perform as good as the wafer fab equipment market or better. Yes, we have seen improvement in the WFE market. I mean we follow very closely what Gartner and VLSI are talking about. And we can reconfirm again that our growth in our market, in our revenue in 2026 will at least outgrow the WFE market again. So as I mentioned, we see strength in the market and our revenue is strengthening, and we are very confident that we'll be able to at least grow at least at the WFE market or beat that in 2026. Andrew Gardiner: Okay. And just a clarifying question, the point you were making on China. In the second half, so is that China down second half on first half? Or down year-on-year or perhaps it's both? Hichem M'Saad: No. I think China is really up year-on-year. So the -- what we talked about that we see right now that China is lower in the second half of 2026 versus the first half of 2026, saying this, and I want to repeat it again. China visibility is not that great as we talked about it, okay? So from that point of view, if there is anything, that second half China business that we see right now might also increase eventually. But right now, what we see very strongly that the second half would be a little bit slower than the first half. But again, that might strengthen in the second half. We don't know. Operator: Next question is from Nigel Van Putten, Morgan Stanley. Nigel van Putten: I want to follow up on the previous question on China. Perhaps for the full year, there are some limited visibility. But can you provide us a revenue or China revenue as a percentage of overall revenue for the first half at least? And how that maybe compares to the full year '25 when you said it's going to be -- or it came in a little bit over 30%. That is my first question? Hichem M'Saad: Nigel, thank you for your question. Nigel, maybe there's a misunderstanding that about the visibility -- low visibility of China. Right now, okay, our visibility for 2026 is very good, okay? China or no China, okay? Because I mean, it's really clear everywhere in our market, okay? So that's why we are really confident about the market. If there's anything in China, the revenue is going to increase further in the second half, okay, from where we see it right now. So, but China business has been good, and we feel very confident about it. Paul Verhagen: So maybe to add to what Hichem is saying, what we see in is now, at this moment, at least, is an accelerated demand. And in China, we have a higher H1 expectation. And H2, which might still change, we don't know, as Hichem has indicated. Possibly, that is because of concerns on export controls, we don't know. One thing is for sure that the overall sentiment is very good, like in the rest of world, also AI related. That's itself positive. Two, we also won some more layers in itself is a positive. But yes, there is clearly an acceleration going on, which, of course, customers are on tariffs, but which could be triggered by concerns around export controls and how that will develop further, I think, at this stage, and nobody knows. Then on the full year, based on everything we know today, I think the equipment revenue as a percentage of total sales will be similar to last year. But again, it's really too early to tell, so this might change because for all the reasons that we already mentioned. Nigel van Putten: Got it. That's really helpful. Then now maybe switching to the advanced logic customers which I understand are providing increased visibility maybe 8 quarters on a rolling basis. Question would be, do you see any sort of broadening on the horizon, sort of it's clear that the main customer remains very strong, but how are the other two doing maybe today? And how do you see that developing into the second half of the year? Hichem M'Saad: No, I think, Nigel, I think we see -- we're working right now with all customers in advanced node for both of the 2-nanometer node and 1.4 nanometer node. And then we see that gate-all-around is a technology that's going to be adopted by more customers. And we feel very confident that that's going to be the case. Of course, okay, some customers have better yield or performance than the other ones. But we think that gate-all-around is going to be really a broad technology node and for a variety of customers. Operator: Next question is from Didier Scemama, Bank of America. Didier Scemama: Just a follow-up actually to the previous question on the boarding of the customer base in advanced logic. Obviously, your largest customer is doing terrific. On the two smaller ones, is that supposed like expected to strengthen in Q2? Or is that more of an H2 driver? And I've got a follow-up. Paul Verhagen: Yes, let me take that question. I think what I can say on that. I don't want to be specific on Q1 and Q2 or Q3 when it comes out both down to customers. But what I can say is at least that based on current visibility that all those customers are expected to grow year-on-year. And of course, there is a significant difference with regard to the size of the various customer and the absolute amount of growth as a result of that. But we expect all three for the logic part, all three of them to grow year-on-year. Didier Scemama: Okay. And for my follow-up for Q2, would you expect China to be up sequentially or flat? Or how should we think about that relative to your overall sequential growth guidance? Paul Verhagen: What we've said indeed is that for next quarter, we expect EUR 980 million plus or minus 5%. We also said that for H1, we see an accelerated demand for China coming in for various reasons I just discussed in the call before. So I think it's reasonable to assume that also Q2, China will be pretty good. Didier Scemama: Should we expect, therefore, the gross margins in Q2 to remain at sort of above the long-term guidance given the mix? Paul Verhagen: You know that I'm not going to specifically guide on a quarterly basis for the margin, but the margin will be good that I can say China is accretive, as you know. But also, I think what is also not unimportant. I also want to highlight that is that the other product mix that we've seen actually in the last few quarters has been very strong. So that also helps. And last, but not least, the structural cost improvements that we're working on, which will every year add a little bit also play a role. But having said that, yes, higher share of China typically is accretive, yes. Operator: Next question is from Francois Bouvignies, UBS. Francois-Xavier Bouvignies: I have a question for 2027, actually. So if we look at your '26 growth drivers. I mean if I look at the different drivers, I don't see much layers increase in '26 as a growth driver, because I think it's mostly capacity, [indiscernible] was already adding a lot of capacity last year. So from a year-over-year point of view, you don't have a lot of incremental layers. Now if you look at '27, it looks like you will have a lot of layers opportunity that you laid out at your Capital Markets Day. So I was wondering, if we think about this dynamic of layers increasing, is it fair to say that '27, if we assume the same capacity increase that '26, that should be a higher growth than '26? You have more drivers on top of the capacity in '27 than you had in '26. Is that the right way to look at it, if you understand my question? Hichem M'Saad: Yes. I think we understand your question. I think it really depends both on the end demand from that point of view. But we -- as the technology node transition from 2-nanometer to 1.4 nanometer, we see the adoption of 1.4 nanometer starting in the second half of 2026. And we see the 1.4 nanometer bias to increase in 2027 for final production in the first half of 2028. And with the 1.4 nanometer node, there's more ALD and more Epi. And as we mentioned, these ALD layers are mainly in the front end of line for performance level. And that's where we have many more -- a lot of strength, and that's where we're going to have many more ALD layers. So we are really very happy with -- we'll be very happy with the 1.4 nanometer transition, because of the higher ALD intensity. Also, we have more ALD layers in molybdenum. I think that as we mentioned in our last press release that we are very happy to be in production, high-volume production at the 2-nanometer node with our moly ALD. And with the transition to the 1.4 nanometer, we also have won some process of record layer in molybdenum. So overall, the transition to 1.4 will be very accretive to us, and we'll be very excited with that transition in the future. Francois-Xavier Bouvignies: And the memory side -- Yes, go ahead. Paul Verhagen: I think you said it, but I want to make it a little bit more explicit that just for you guys to be clear that already in this year with the pilot for 1.4, which is also, of course, increased layers, as you know, we already see a very, very meaningful contribution of 1.4. So that's not only in '27, but it's already starting in '26. Francois-Xavier Bouvignies: Good to know. And maybe you didn't address maybe the memory layers and maybe for '27. And then you mentioned market share higher in A14. So can you maybe explain a bit the higher share here? I mean, is it because just your time is getting higher than the others? Or you just have more layers than you expected? -- more than before? Hichem M'Saad: Yes. So the 1.4 nanometer, what's the difference between the 1.4 nanometer node and the 2-nanometer node. So they are both gate-all-around. But for the 2-nanometer node, that's an architecture change. So customers didn't want to be very aggressive in putting many functional layers because of the change in architecture. But once we move to 1.4, they have added many goodies, which we call performance layers. And those layers are really mainly ALD layers. And they are all in the front end of line, where we play significant. That's where our strength is. Yes. So definitely, we see more ALD layers in 1.4 nanometer. Second thing, as you shrink, those -- and with the gate-all-around structure, as you shrink those layers become much more difficult because of the 3D nature and the shrinking. And with that, the since every layer becomes much more difficult, that also slows down the process. And with that, you need more equipment from that point of view. The other thing we see is that also there is a higher epitaxy intensity going forward. So overall, that's very positive. Operator: Next question is from Stephane Houri, ODDO BHF. Stephane Houri: Yes. To come back on the Q2 guidance, which is about EUR 100 million of what the consensus was expecting. So I'm just trying to understand what led to this acceleration, if it's more advanced logic or memory. And if you could comment also on the lead time at the moment if they are increasing? And is there a difference between the two different segments? And I have a follow-up. Hichem M'Saad: I think that the acceleration is happening in mainly in the 3-nanometer to 7-nanometer node. in addition to the gate-all-around node. So what we have seen lately is that Agentic AI is becoming more important. And with that, that tends to favor using the CPU instead of GPU. So the 3 to 7-nanometer node is really mainly driven with CPU. And we see much more demand from our customer in that node, and that's really happening super fast at this point in time. We also see strength in memory continuing. So overall, the market is really strong in the leading edge, both logic and mainly logic and foundry, that's really the highest part of the market. Second is really also DRAM is also increasing. Stephane Houri: And about the lead time, sorry. Hichem M'Saad: So regarding the lead time, I mean, lead time has increased because of the supply chain constraints right now. I mean there's a huge demand everywhere. So yes, the supply chain has increased, and that's really the customer specific. We've been able to expect that to happen. That's why we can -- we have increased our capacity to from like EUR 700 million per quarter in Q4 of last year to about EUR 1 billion per quarter this year. And it's going to continue to increase in the second half, as we have mentioned. Stephane Houri: Okay. And that's exactly my follow-up. I mean you're going to be at least EUR 1 billion per quarter in the second half run rate and there's probably some additional growth coming in 2027, given what you said and what we see in the market. So at what point will you fill all your plants and notably the Singapore plant and that you will have to again increase the capacity? Hichem M'Saad: I think our manufacturing capacity is -- can take care of our business. I think we have expensive manufacturing capacity in Singapore and Korea. So we're ready for much higher volume. I think what's limiting -- if there's any limit is really the supply chain that's limiting the capacity than anything else. But I think that we'll be able to manage that in the second half. So that's why we're confident of increased volume in the second half of 2026. Operator: Next question is from Sandeep Deshpande, JPMorgan. Sandeep Deshpande: Maybe you can give a comment on what has changed in your customer behavior versus what you were -- you had seen from your customers the last time you reported in -- reported your results. Has something substantially changed given your very strong guidance into the second quarter? And then I have a small follow-up. Hichem M'Saad: I think that the market is really strong all over. Has there been any significant change? I think the change that we have seen is really on the PC part where for -- on the CPU part where it used to be that AI is mostly driven by GPU, but we see that CPU part becoming more important than before. And we see that's the strength we see in the 3-nanometer to 7-nanometer node, which was not there before. So that's really the strength we see. It's mainly the CPU-driven part for artificial intelligence. Sandeep Deshpande: And then when you look at the WFE, I mean you had said 15% to 20% at last results. I mean, given your guidance for the second quarter and your indication on the second half of the year, it looks like you're going to grow well over 20%. So what is your perception on WFE at this point for this year? And I mean, despite your lower exposure in the memory market, you are growing incredibly well. And so is this mainly associated with the second half ramp also with 1.4 nanometer where your content is growing, your number of layers you have is growing very substantially. So this is essentially share gain in the WFE market? Paul Verhagen: Yes. Let me take that, Sandeep. So yes, to give you a very short answer, that's part of it, absolutely. But also basically, I think as Hichem already said, but maybe in different words, we're firing in all cylinders. Every segment of the market is growing significantly. I mean, advanced logic/foundry, mature logic/foundry, memory of which, in particular, DRAM, we see a high growth and even power with analog for power-related AI data center applications from a low base, but as a percentage, still high growth. And of course, also pilots 1.4, that I started with, adds a decent amount for this year already, yes. Operator: Next question is from Adithya Metuku, HSBC. Adithya Metuku: Firstly, I wanted to talk about 2027. I know you gave these targets of EUR 3.9 billion to EUR 4.6 billion, top line at a EUR 125 billion WFE number. So call it EUR 4.2 billion midpoint. If you look at WFE numbers now, people are depending on whose numbers you take 40% to 50% higher than that EUR 125 billion in 2027. So my first question is, should we assume that, that EUR 4.2 billion could be maybe 40% to 50% higher from 2027? What are the nuances we need to keep in mind when we think about where WFE is going and how your revenues might go in 2027, you've clearly talked about outperforming WFE, I presume that will continue. So just any pointers you can give around how we should think about these targets you gave at the CMD 40% higher, 50% higher? And I've got a follow-up. Paul Verhagen: Yes. Let me take that. So indeed, I think we said EUR 3.8 billion to EUR 4.7 billion at CMD, where we assumed EUR 120 billion WFE, which today's view is indeed significantly higher, but there's one big difference. The assumption that we took at that time, which was somewhere September last year on the composition of the mix is very different from what we see today. So we had by far the largest part of the total WFE basically logic/foundry, while now the relative share of memory is significantly larger than what we assumed. And although we grow a lot in memory, but still our relative share of memory in our business is still relatively small. So that's why you will not see the full benefit of that increased WFE dripping down into our numbers. Having said that, based on everything we see today, we believe that '27 will be a strong year. But adding 40% to 50%, I would not recommend you to do that. That would give some distorted figure. At the same time, it's a very wide range, EUR 3.8 billion to EUR 4.7 billion is almost EUR 1 billion range. So also even within that range, there's still a lot of room to maneuver. And more than that, at this stage, I don't like to say. Adithya Metuku: Got it. Okay. We'll leave 40% or 50% of side go with 30% then. And just quick follow-up. On the MATCH Act, can you give us some color on how you're thinking about any potential impact for you guys as you think about your China revenues? Yes. Any color you can give around how you might be affected? I know it's hard to quantify numbers, but any qualitative color would be great. Paul Verhagen: Yes. So the MATCH Act indeed is being discussed as we speak. If it will happen or not is uncertain. It might or it might not. In what shape it will happen is also uncertain because at the end of the day, it is important, literally the point and the commerce are very important there, especially in relation to how to interpret what is exactly restricted. We're in, of course, discussion with relevant authorities, as you can imagine. So it's very hard, and I would love I could give you some more color to give decent color at this stage. Obviously, if something like that were to happen, it's not a positive, that might be clear. But how much, I'm really not in a position yet. It's too -- it's literally too unclear and too uncertain still on what might happen. So I don't like to speculate on that. Operator: Next question is from Tammy Qiu, Berenberg. Tammy Qiu: So the first one is regarding your very strong short-term momentum. You mentioned that just now it's all driven by the CPU-related incremental demand. I just want to confirm that, have you seen any customer from both logic and memory perspective, pulling forward? Are you asking you to accelerate the shipment of equipment because end market demand is coming so dramatic in the short term. So therefore, it's like a pull forward from 2027 at all? Hichem M'Saad: I think every customer wants the tools now instead of tomorrow. I think the demand is really high. And for us, it's which customer we ship to first than the other one. So I think like we mentioned, we are fully booked for this year. From that point of view, we have a strong demand in all parts of our business, really every part of our business very high demand. And yes, we see customers the demand is even increasing. So I mean, we -- our book is full. So we have to do our best to be able to satisfy the demand that we're getting right now. Tammy Qiu: Okay. And the second one is, last quarter, we discussed that the 1.4 nanometer is mainly driven by one customer versus others have been having discussion with you, but still a bit distant away from pilot production, et cetera. I'm just wondering where is the status of those remaining customers? Are they getting closer to make the decision on pilot production? Or are they still further down the line? Hichem M'Saad: So as we mentioned that we see -- we are working with all customers to the 1.4 second generation with a 1.4 nanometer technology node. And we see that business strengthening in all the customers from that point of view. Some of them is at a marginal increase and the other have a higher increase, but I'm not here to speculate on which customer, which, but we see at least a marginal strength in some and a significant strength in other customer. But saying this, I think more likely, like I mentioned that 1.4 nanometer would be more than one customer. Tammy Qiu: Just to confirm, have you seen any progress during the quarter, i.e., all of them have moved forward or just one of them moved forward comparing to last quarter. Hichem M'Saad: Can you repeat your question, please? Tammy Qiu: So basically, the time line of the 1.4 nanometer, last quarter, you mentioned that one is active preparing for pilot production, remaining two is still in discussion firmly at this stage. I'm just wondering, this is three months after, have you actually seen other customers together with a leading customer or moved forward in the time line for 1.4 nanometer? Or just one customer has moved forward instead of all three of them? Hichem M'Saad: I'm going to repeat my answer, where we see 1.4 nanometer strengthening broadly with some strengthening marginally in some customers and significant increase in other customers. Operator: Next question is from Jakob Bluestone, BNP Paribas. Jakob Bluestone: I want to come back to Adi's question around your ability to sort of take part in growth in memory. And my question is, when do you anticipate the transition to 4F² and FinFET for the cell periphery in DRAM to impact your revenues? So is this something that would impact in '27? Is it '28? Or do you think it's further out? Paul Verhagen: I can take that question. Yes, I think because I think last time already, we mentioned that the pace of adoption customer by customer is different. There might be even a customer that might completely skip it. We don't know yet, but that's to be seen. And I think for us, based on what we see and think we know today, I think you should take into account '28 as the first year where we start to see a positive contribution related to 4F². [ Might ] -- maybe a little bit earlier, I don't know yet, but I would -- I mean time line is still a little bit uncertain and very different from customer to customer. So I think the best color I can give right now is in '28. Hichem M'Saad: So add to what Paul has mentioned here, we see a strength in memory in 2026 and also increasing for us in 2027 and beyond. The biggest increase for us will happen really in the move into 4F², where we have more ALD layers and more also Epi intensity. But also we've seen some customers put in FinFET in their node in their road map. And with that, we're working with them and we might -- and since we have been very prominent in our FinFET technology in logic. So that we see some customers really pulling in that technology node. And with that, we probably will get some more layers as customer put in their FinFET technology node. So the biggest increase would be '28 and beyond, but also we see some increase in 2027. Jakob Bluestone: Understood. If I can just ask a quick follow-up as well. You mentioned a few times the sort of pickup in 3 to 7-nanometer transition, and I don't know if you can give any color on whether that's your largest customer or kind of more broad-based? Hichem M'Saad: Which transition, are you talking about, sorry? Jakob Bluestone: 3 to 7? Hichem M'Saad: Yes, I think it's really broad based. That's really broad-based. It's not only one customer, it's very broad-based. Operator: Next question is from Ruben Devos, Kepler Cheuvreux. Ruben Devos: I just had one on Epi in HBM. I believe you talked about significant Epi engagements with another HBM customer and expect good news this year. So of course, curious whether two months on has anything firmed up on that additional qualification? And would that be, let's say, fully incremental to your memory plan in '26? Hichem M'Saad: Okay. So to answer your question, yes, we talked about that, and we are engaging with our customer on epitaxy. There's really nothing else to say right now, but we'll let you know if there's any news from that point of view. It's really working with customers on a couple of customers on epitaxy. And hopefully, we can share some good news with you in the next investor call meeting. Ruben Devos: Okay. And then second one, really to just get a feel of maybe the aftermarket sales, right? I mean you've had a stretch of very good performance in the last few quarters, again, 23% up the past quarter. Outcome-based is about 25% of the mix. So it looks like, I mean, the target you said at the Investor Day of 12% CAGR is becoming more of a floor. I was curious whether you could talk a bit about, yes, the extended visibility you might have now in aftermarket sales. And I can imagine a margin uplift to realize if you manage to make a transition more towards outcome-based. But also besides that, are you able to sort of have the customer pay more per tool for the servicing packaging in general? Hichem M'Saad: I think that for service market, okay? What I mentioned, the service market is really good as you transition in a newer technology node because of process complexity. It's very important to -- a customer need more support from us and for the more advanced node. And with the advanced node also, we see a transition to much tighter specification on wafer-to-wafer and also repeatability on chamber-to-chamber matching and also on system-to-system matching. And with that, we have to provide a new solution to customers to improve the uptime and the availability. So we are very really -- we think that the surface business is going to increase in the future as you transition to tighter and tighter technology node. And we see that happening in the area of automation, in the area of robotics, in the area of optics. And those are really the solution that we're providing our customers. So the growth is going to be good in that part of the market. You mentioned that 12% growth. To be honest with you, right now, every part of the market is growing a lot. This year, the market is growing over 20%. I mean, latest, you see Gartner talking about 25%. So everything is great. It's really just spending my time, okay, to make sure that we can execute on getting customers the tools in time and make sure that the availability and the execution is top notch. Operator: Next question is from Timm Schulze-Melander, Rothschild & Co Redburn. Timm Schulze-Melander: First one for Hichem, please. Just looking at the technology execution and just trying to scale maybe how much upside there is to that? If I look at your long-term revenue guide, the high low range is kind of 20%, 25% between the low and the high. Obviously, part of that is the strength of the cycle. Maybe part of that is also conversion of existing evaluations and layer wins. Maybe could you just share how much of that is upside potential from layer wins? So if you could just think about that in the context of your go-forward revenues? And then I had a follow-up. Hichem M'Saad: You said the percentage I didn't hear you well on the percentage, which percentage are you talking about, please? Timm Schulze-Melander: Yes. So if we look at your EUR 3.8 billion to EUR 4.7 billion revenue guide, so part of that is going to be cyclical. Part of that's going to be your execution in terms of technology wins. I'm just trying to think is that half off, but some kind of scale of that? Hichem M'Saad: If you look into the business and where we are, one thing I can tell you, I'm really very excited about our technology road map. I think that things are going in our direction. If you look into logic, you see more and more layers coming in with 2-nanometer and also with 1.4 nanometer. ALD intensity is increasing and [indiscernible] intensity is increasing, and we're winning share in that part of the market. If you look into memory, memory is moving more and more into FinFET more and more in 4F², which needs more Epi, needs more ALD. So we're going to have more layers, and we feel very confident about it. And if you look into logic -- if you look into power, wafer, analog, we are really -- if you look at the power, wafer, analog, the power part of the market is the only part of the power, wafer, analog that's strong right now. And that's being driven by data centers, power devices for data center. If the wafer part and the analog part goes up, it's going to be even accretive to us. So the service business is also good. In the service business, we're going more and more by automation. And we really -- we're getting some -- getting into even robotics and that customer and leading customer, we're even selling them, okay, some robots to improve the system availability and so on. If you look into advanced packaging, that's an area that we mentioned that we have entered last year. It's a new area for us. I can tell you that we have so many -- believe me, so many interactions with customers. And we have to prioritize which one to do and some customers tell them, guys, maybe we don't have -- we cannot really help you there. And -- but with the customers that we're really engaging right now, I can see that they really like to work with us as a company because we're looking into the advanced packaging through a different option. We're looking into that as, okay, what can we do to disrupt the technology? What can we do to provide a solution that's better than what it is right now. How can we -- a solution to make sure that, okay, we reduce the -- to reduce the thermal mass on advanced packages coming with a new material that improve thermal conductivity. We're working with customers to make sure that we can seal the devices much better. So there is no moisture going in the packages. We're working with customers to actually improve the speed of connection between one chip to the other one, working with them on some innovative photonic layers. So I'm sure that with all of this really, we feel very confident where things are are going to go from that point of view. And depending where the market is going to go, I'm very confident that we're going to at least match the WFE market growth or actually have a higher growth than WFE. It's a great time for ASM right now. And we -- I see customers really want to work with us. I think our execution has improved. I think our competitiveness is getting even better than before. And what I can tell you, it's the best time to be in semiconductor. Timm Schulze-Melander: A very impressive runway. Maybe just a quick follow-up for Paul, just some housekeeping, actually. You talked about rising utilization rates, but actually Q1 aftermarket sales were down sequentially. And on your guide, I think last quarter, your guidance range was plus minus 4%. This time, you've widened that range to plus minus 5%, which doesn't maybe sit that well with a sort of improving visibility. Just wondered if there's any color you could share in terms of what you're seeing. Paul Verhagen: Yes. So actually, the range is, I think, already referred to is related to supply chain challenges. So far, we've been able to manage it. But at the same time, we have to be on top of it to make sure that we get what we need to deliver what we need as per our customer preferred COD customer request date. So that's a little bit where the range comes from, Timm. It's not so much demand. It's more what can we deliver on time given the supply chain constraints that so far manageable again. But yes, we have to be on top of it and nothing can go wrong here. Timm Schulze-Melander: So that's what was in the aftermarket in Q1 and maybe there's some catch-up in Q2? Paul Verhagen: I don't know if there's catch-up in Q2. I mean I think had a very good Q1. I think we delivered more or less what we wanted to deliver, and we will target to do the same in Q2. Victor Bareño: Thank you, Timm. We still have a number of participants in the queue, but we are running out of time. So let's take one final question. Operator, can we have the last caller? Operator: Final question is from Javier Correonero, Morningstar Equity Research. Javier Correonero Borderia: In the interest of time, I will just ask one. So your Axus acquisition 3 months ago, it is small, but I think there is a lot to unpack there when you think longer term. So Axus is specialized in silicon carbide processing. So I was wondering if you could explain a little bit more what's the rationale of the acquisition here? Is it like more silicon carbide content as we move into the 800-volt data center? Or is it TSMC potentially adopting silicon carbide interposers in the next few years or both? And of course, it is very early and small acquisitions, but do you have an estimate of what service of addressable market this acquisition could open once it is properly integrated with ASM [indiscernible]? Hichem M'Saad: Okay. So thank you very much for the question. So yes, we have acquired this company called Axus Technology, which is -- we're very excited about the acquisition in CMP. They have a very great CMP technology and very innovative, to be honest with you. And the -- like we mentioned, we have acquired this for the advanced packaging market because advanced packaging is -- needs more and more CMP layer, many, many, many more CMP layer. So there is room for another player. Also, it's a technology that's all about interfaces. And I think that we have some -- we do have some knowledge in interface engineering so that we will be able to really put our print there. It also CMP helps us with our new materials that we're developing for advanced packaging that I just talked about a few minutes ago because I mean, you deposit the film, but also you need to CMP. So we want to understand what's the interaction about the material that we're depositing the new material that we're depositing and the CMP, because CMP also has a slurry. There's a new -- with a slurry that means we're talking about new chemicals and so on and so forth. So it would help us also develop better materials in ALD, but at the same time, also good polymerization, which is extremely important for advanced packaging. So that's really why we made that acquisition. And then we're working right now on developing the product for advanced packaging, and it's going to increase our SAM absolutely. It is going to increase our SAM and we're in the process of doing R&D and so on in this part of the market. Victor Bareño: Okay. That concludes the Q&A. Thank you all for attending our call today, also on behalf of Hichem and Paul. Thank you. Goodbye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Good afternoon. This is the conference operator. Welcome, and thank you for joining the GTT First Quarter 2026 Activity Update Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Francois Michel, the company's CEO. Please go ahead, sir. Francois Michel: Good afternoon, everyone, and welcome to GTT's activity update for the first quarter of 2026. I am sitting here in Paris with Thierry Hochoa, our CFO. And together, we will walk you through the usual key business highlights, but also our revenue for the first quarter. The agenda for the presentation today is the usual one. I am sure that you have noticed that we now go with a new setup, hence, first introductory point to further explain what lies behind the One GTT brand. I will then provide you with a business update for our key activities, meaning the GTT Energy and GTT Marine divisions. Thierry will elaborate on our revenue for the first quarter, and I will then share with you closing remarks before we can open the floor to your questions. So first, the One GTT brands. This new organization, which is as you know emphasizes the fact that GTT is now at a turning point following the very successful acquisition of Danelec last year and taking into account our ambition, which we have explained to further develop the core business, but also associated services. It was very important for us and for our customers to bring all teams together under a clear vision, but also a clear structure. So the creation of 2 divisions, GTT Energy on the one hand and GTT Marine on the other, thus provides greater clarity on our activities to our customers and to our staff. It fosters the execution of our strategy to, of course, keep the core business running but also to ensure the success of our service approach to the shipping industry, in particular, in the LNG. I have already set very clear operational targets for these 2 divisions. For GTT Energy, it is 3 priorities: accelerate innovation, strengthen our service offer and revamp our LNG as a fuel and onshore offers. For GTT Marine, the priority is to deliver on the synergies, combining the hardware and software solutions that we have now in this division, and you will see the first results of this strategy. We have also put in place a hub of advanced technologies to put together in the same -- under the same roof, all breakthrough technologies and venture capital. Let's turn now to our first activity, GTT Energy, very much in line with our expectations and with the messages that I had delivered at the annual results and in line with the growing need for new LNG carriers. In Q1, our order intake continued its upward trend. We have announced 29 LNGC orders in the first quarter. It marks our second best Q1 commercial performance after the 2022 record year. We are close to that level. We have also received 2 orders for very large ethane carriers, each of 100,000 cubic meters capacity and one onshore storage tank. This momentum, which I had announced, has continued despite the situation in the Middle East. We have registered 8 LNGC orders just in March and the momentum, I can tell you, continues to date in April. We are, of course, closely monitoring the current situation in the Middle East. To date, and I will come back to this point, this conflict has no direct impact on GTT's business activity, meaning on orders and on deliveries. And if you look at deliveries year-to-date in Q1 22, LNGCs have been delivered versus 23 last year, so a level which is totally equivalent. Now let's turn to the impact of the current situation in the Middle East on LNG global production capacity. As we all know, the closing of the Strait of Hormuz has heavily disrupted the energy and the shipping markets because about 20% of production volumes are nonavailable today. But if I now look at the production capacity, today, only about 3% of the production capacity in LNG has been damaged with the drone attacks on Ras Laffan. As you know, 2 liquefaction trains have been hit. We know that this infrastructure will restart. It will take perhaps a couple of years. Some people say between 3 and 5 years. It could be faster than that, but who knows. I would like to underline, however, a couple of things that, first of all, the situation does not slow down or undermine the need for new vessels to export future volumes associated to FIDs. And if I look at the additional capacity, which is expected to come online by 2030, it represents 180 million tonnes per annum of additional capacity, which is 40% more than the production level today, most of this coming from the U.S.A. And of course, all of this will require new vessels. Now if I look at the FIDs that can come on top of this already high level of FIDs that have been taken, you have the list on the screen. The list of FIDs that are likely to reach -- to be taken this year or in '27 confirms the greater exposure of the overall LNG production to the U.S.A. and to other regions than the Middle East. And as a reminder, this year, 23 million tonnes per annum of FIDs have been taken, including in Qatar and in the U.S.A., and we start the year after a record level in 2025. Now if we look at the shipping routes and the shipping intensity, what you see is that the war confirms that energy security risk will remain persistent. Indeed, the closure of the Strait of Hormuz calls for greater flexibility to ensure energy security and all this at the most reasonable price possible. And we know that some countries with significant exposure to Qatar such as India, Pakistan, Bangladesh; I could mention Taiwan, Singapore, Korea, China, but also in Europe, Italy, will need to diversify their source of LNG. So looking ahead, what we anticipate is that we anticipate that heightened scrutiny on the LNG supply diversification, which could possibly result into a higher shipping intensity over the long run. But we also anticipate the need to create more buffers in the LNG capacity in storage in particular. Now let's move on to our second activity, GTT Marine. The GTT Marine division won new contracts, very good contracts, both in the Performance Solutions and in the safety units. As for safety, GTT Marine has secured new accreditation from 2 new oil majors, which is a prerequisite to expand its addressable offshore fleet, very good news. And second, we start to leverage our broad customer base to sell more of the systems in performance, so for performance solutions, meaning adding performance and voyage optimization to initial data collection. And consistent with the strategy, we have, in particular, signed a new contract, a very good contract with Petrobras a new customer to equip up to 120 vessels with combined hardware and software solutions. Third point for this new division, the integration of Danelec in the GTT Group is progressing as planned, and we are well on track to deliver the synergies that we have announced. Let me now hand over to Thierry Hochoa, our CFO. Thierry Hochoa: Thank you, Francois. Good afternoon, everyone. Now moving on to the financial part of the presentation. Let's start with the order book. Continuing the commercial dynamic seen in the fourth quarter of 2025, GTT recorded a total of 32 orders in the first quarter of 2026. They include 29 orders for new LNG carriers and 2 VLEC, very large ethane carriers and 1 onshore storage. Their delivery is scheduled between the second quarter of 2028 and the fourth quarter of 2029. This is our second best first quarter commercial performance. Over the period, 22 LNG carriers were delivered, a similar level with the first quarter of 2025, around -- not around, but 23 LNG carriers delivered last year for the first quarter. Finally, our backlog at the end of Q1 2026 remains very solid with 297 units for the core business and 46 units for LNG as a fuel. Let's look into more details at revenue by activity at the end of Q1 2026. Total revenues at EUR 193 million are up 1% compared to Q1 2025 and driven by new builds standing at EUR 173 million, meaning minus 4% compared to last year and mainly impacting from lower order intake in 2025, driven by revenues from services increased by 28% at EUR 5.4 million, thanks to a higher level of assistance to vessels in operations and pre-engineering studies. Regarding GTT Marine, revenues increased by 208%, thanks to the contribution of Danelec acquired last July. I now hand the floor back to Francois for the outlook and the key takeaways. Francois Michel: Thank you, Thierry. So in the absence of any significant order delays or cancellations, we can confirm today our 2026 objectives. Our estimated 2026 consolidated revenue ranging between EUR 740 million and EUR 780 million, our estimated EBITDA ranging between EUR 490 million and EUR 530 million. And of course, we can confirm that the dividend policy will remain unchanged. So a couple of takeaways after this first quarter and before we move on to your questions. The first quarter is very well in line with our expectations and I think what we had announced at the annual results. We have seen a sustained level of orders recorded at the end of 2025 continued despite the geopolitical situation. And in fact, it even accelerated. We saw revenue for the first quarter slightly up versus last year, which is somewhat good news, but well on track. And we also saw a growing contribution of GTT Marine with commercial wins consistent with our combined offering, combining hardware and software solutions. Again, as of today, and we are cautious, but as of today, the conflict in the Middle East has no direct impact on GTT's business activity. Thank you for your attention, and we are very happy to take your questions. Operator: [Operator Instructions] The first question is from Matt Smith of Bank of America. Matthew Smith: I had a couple, please. I think last time we spoke, you talked to around 150 orders to come through over the next few years, perhaps next couple of years as a result of FIDs already taken on LNG projects. I guess my question really was, have your assessment on the pace of those orders coming through. I think you referenced largely in a 2-year time period. Has that assessment changed at all? Does the excess of Qatari vessels make any difference to your assessment there? That would be the first one, please. And then the second one would be turning to digital on Marine. You point out that this is now 7% of group revenue, so quite significant. I just wondered if you could add some color, latest thinking how material could this be by 2030, perhaps in terms of group contribution? Or what's the sort of growth rate that we could see with the benefit of the acquisitions, the synergies? Any additional color there would be useful, please. Francois Michel: Thank you. So regarding the pace of the order intake, we have no information whatsoever today regarding a slowdown of the pace of those orders following the FIDs of last year. And the majority -- what I can say is that the majority of the ships related to the FIDs of last year still need to be ordered. So after the end of Q1, and of course, it's a little bit difficult for us to mark exactly where the -- for which FID the ships are ordered, sometimes we don't know. But from the 29 ships that have been ordered in the first -- Q1, we know that 10 ships are nonchartered, 19 ships are chartered. And from those chartered ships, only 5 are related to the FIDs from last year. So the majority of the volume that we have discussed about still needs to be ordered in the coming 2 or 3 years, I mean, with the usual uncertainty. Second, regarding digital, we are exactly on track with our budget after the first quarter. We will report on this Marine division because it includes, in fact, Marine hardware and digital solutions at the end of the first half of this year. And we are also on track to deliver the synergies of EUR 25 million to EUR 30 million expected at the end of 2030. So today, our vision is that this division, of course, without M&A, but could represent 10% to 15% of the group revenue, perhaps a little bit more, but that's the vision today. Operator: The next question is from Guilherme Levy of Morgan Stanley. Guilherme Levy: The first one, just thinking about secondary implications to your business from the current conflict. If we think about an environment in which the oil prices stay higher for longer, how would you think that could increase demand from shipowners for performance improvement solutions on your Marine business? And then secondly, maybe a question related to that, but on LNG as a fuel, what could be the potential in the first years if oil prices stay, say, at spot over a prolonged period of time? Francois Michel: Thank you for the questions, which are hard questions. In our view over the long run, it is clear that there will be longer LNG routes and also longer periods of storage and buffer storage that will increase the need for low boil-off rate and additional performance solutions, as you point out. I am not -- at least this is what we assess at the Board level. I am not yet able to put specific figures based on that, but this is the trend that we see. And I hope that I can give more specific indication after the first half of this year. Regarding LNG as a fuel, today, we believe that the move towards LNG as a fuel is primarily due to environment concerns and that this trend will continue. I have asked the teams to totally revamp our offer of systems, including to be able to have prefabricated systems delivered on the shipyards, but also turnkey solutions, including fully installed solutions. And so the question for us is probably less a question of market evolution than a question of penetration of our solution, where I believe we can get a lot of business. So it can be very significant, but it will take me a couple of quarters to revamp the offer and to present it -- to present a fully revamped offer, new technology and new commercial systems before the end of the year. That's for sure. Operator: The next question is from Richard Dawson of Berenberg. Richard Dawson: Two from me. So good to see no direct impact from -- on GTT from the Middle Eastern conflict yet. But is there a risk that this could change if the duration of the conflict extends further? So can we maybe see some of the Middle Eastern clients asking for construction or deliveries on those vessels to pause as those LNG projects start-ups are delayed. So particularly the Qatari volumes from [ NFS and NFE ]. Is that potentially at a risk? And then secondly, just going back to the structuring of the business. So what does that really mean from an operational point of view? Will there be separate management teams running GTT Energy and Marine, for example? And can we maybe get more disclosure on profitability between the 2 segments? Francois Michel: I would say -- so thank you for all your questions. Regarding the direct impact, what I mean is that today, for instance, you have very indirect impacts on our ability to conduct business, such as logistic constraints to travel to the region, for instance, to engage with customers. And so of course, if the situation were to stay -- to last for a very prolonged time, at some point, we could expect some logistic delays or just issues in interacting with customers or supporting the customers in the region. But it's very important to see that today, there has been absolutely no indication whatsoever of any slowdown of construction, no cancellation of FIDs nor of ships. And to the contrary, the indications that we have received from Qatar is that they ask more the engineering companies to be able to restart as soon as possible the construction and the buildup of the capacity in Qatar so as to offset at least partly even in the short run, the capacity that has been damaged. So we have no indication whatsoever that there is a long-term delay. If there was a delay, it would be -- an impact, it would be, in my view, very indirect such as disruptions in the supply chain, in particular, in electronic components because to deliver ships, you need electronic components, but we are not yet there, I believe so and far from there. Second, yes, in terms of new organization, for me, it means 2 business units, of course, one which is very much larger than the other one as we speak. But the Marine activity is a fully operational business unit with its management well in place with clear operational priorities. We will report on the results. It has a CEO, a CFO and a management team. Regarding GTT Energy, for the moment, because of the size of the business, in practice, I run this division myself together with the management team of the group. Operator: The next question is from Kevin Roger of Kepler Cheuvreux. Kevin Roger: The first one is a kind of follow-up on the order intake dynamic. Basically, Q1 has been very good, and you implicitly say that you still need to have a lot of orders for 2025 FID project. So do you expect in a sense to be able to replicate the Q1 commercial performance over the next few quarters? Just to understand what you expect as a dynamic, which is quite important in a way for the share price reaction. And the second one is also on the, let's say, long-term outlook because when we look at the implicit comment that you made from the Middle East, which is basically new LNG project, diversification, possible increase in vessel intensity, more buffer, et cetera. Can you give us a bit of color on what it makes as an impact on the 10-year market outlook? And if you can, in a way, precise a bit the famous EUR 450 million plus, plus number that you provided at the full year earnings. If you have a bit of sense or a bit more color on where you think this number can land? Francois Michel: Thank you for your questions. So regarding the order intake dynamic, as you know, we cannot guide on orders and certainly not on a quarterly basis. But explicitly, I can say that the vast majority of the ships that need to be ordered after 2025 record level of FIDs, and in fact, the FIDs of this year, have not been ordered yet. And I still expect today those ships to be ordered in the coming 2 to 3 years with the usual pace. So yes, I would not be surprised if the implication of that would be good quarters in the coming years. So that is mechanical. But I cannot guide on a specific level or normalized level quarter-by-quarter, in particular, in the current context because some orders could shift from one quarter to another, and that would have no material implications regarding our medium-term business model. Regarding the need for more diversification and more buffers. We know talking directly to governments in Asia, I just come back from Asia. We know that when we talk to the Indians, for instance, we know that there will be more buffers from those countries, meaning more storage. This is clear. So there will be more floating storage and more onshore storage, more strategic storage of LNG in the region, but also a need to diversify the sources of gas. If you take a country like India, 60% of the Indian gas is coming today from the Middle East. It's, of course, a situation that must be controlled with more buffers, but also with more diverse routes. And so that implies a number of additional ships to be ordered over the medium term. That is our assessment today. And it's -- this effect is material. So it's not a marginal effect on the overall volume of ships. Now can I revise the overall estimate of how many ships will need to be ordered over the next decade? We, of course, have an idea, but it would be, let's say, not cautious for us to release the figure today in the midst of the crisis in the Middle East. And so we will do it most likely, I believe, in the first half of next year when the crisis is over and when the situation is completely stabilized because we are looking at a long-term cushion. Operator: The next question is from Henri Patricot of UBS. Henri Patricot: Two questions from my side. The first one, following up on LNG as a fuel. Just wondering if you can give some comments on the outlook for orders for this year. I mean you mentioned that you're in the middle of revamping your offers. Does that imply that we shouldn't expect many orders this year or perhaps more coming next year? And then secondly, to follow up on the comments on the long-term outlook. Do you have any concern that the current events and disruption to LNG flows coming quite soon after the disruption that we saw back in 2022 with the Russia-Ukraine war could have a negative impact on the long term on LNG demand as the fuel is perhaps not seen as reliable as it could be for some of the buyers? Francois Michel: We are working on a good number of projects for LNG as a fuel as we stand today. So we have a good technology, which many shipyards can use. And so we are working very actively. What is true is that we would like to increase the penetration further because we know that in the majority of cases, LNG as a fuel can be used with membrane containment system, which is not our historical market share. So it is more, let's say, a plan to win aggressively market share in this area. And yes, of course, I expect an acceleration of the sales between this year and next year and the year after. So yes, that's totally true. Second, regarding the long-term outlook, for me, the question is less the question of LNG that it is the question of investment in the Middle East. The Middle East, in general, has been seen as a haven, as a very safe place to invest, not only for energy, but also in a couple of other areas. It's clear that people will take a buffer when they source energy from the Middle East, not only gas. But what we try to show in the presentation is that, in fact, the largest dynamic that we see in the coming years is indeed coming from the U.S.A. And so we see that the implications -- the overall implications of the situation can be a much more diverse source of LNG, much less concentrated. Clearly, no country is buying 100% of their gas from a single country, whatever is this country, but also longer shipping routes and more buffers. This is our situation now. I have not heard of any country, in particular in Asia, which is the largest dynamic in demand that they are thinking about not investing anymore in gas. That's not at all the situation today. It's not the situation. Operator: The next question is from Jamie Franklin of Jefferies. Jamie Franklin: Just one left from me. So if I look at your order intake through the first quarter, obviously, about half of those were announced prior to Middle East conflict escalation, about half after that during March and onwards. But presumably, a lot of these were already in advanced stages of discussion prior to the conflict. Could you help us give us -- get a sense of kind of how many of the 1Q orders were from discussions that started post conflict? Or in other words, if you've seen any sort of acceleration or deceleration in inquiries for new orders? Francois Michel: Thank you. It's a good question. The majority of those orders, of course, have been discussed for a couple of weeks or a couple of months, in fact. So the cycle for us is long, and we don't see any deceleration of the discussions regarding the pace of orders. And so we don't expect a slowdown of orders in the coming quarters, if that answers your question. I hope it [ doesn't ]. Operator: [Operator Instructions] The next question is from Jean-Luc Romain of CIC CIB. Jean-Luc Romain: I've got 2. The first is about the adoption of your new GTT NEXT1 technology. In light of the evolving needs of your customers and your clients, do you see this technology as possibly adopted faster? And the second question is regarding the map you show on Slide 10. I don't think it was -- I saw -- I didn't see Russia, but I think I guess it's in other producers. So just one question. Francois Michel: Okay. So over the medium term -- thank you for your question. Over the medium term, what we believe is that if we have longer routes of shipping and in general, longer storage and people will invest in general on systems with a low boil-off rate, and as you know, NEXT1 one has been developed as a platform, in fact, to reach a very, very low levels of boil-off. So we believe that the overall environment is conducive to an acceleration of low boil-off rate systems, including NEXT1. Yes. Thierry Hochoa: And regarding your second question, the map. Okay, answered. Operator: The last question is from Jean-Francois Granjon of ODDO BHF. Jean-Francois Granjon: Yes. You probably already answered my 2 questions. Nevertheless, I will come back on the first one on the Middle East, taking into account the situation, do you expect a slowdown for the future FID? I think, for the ship owner, it's not very interesting to invest immediately on the new vessel, new LNGCs. So do you expect some potential risk to see a slowdown for the future orders with probably lower FIDs from the Middle East area? And the second question, I will come back on the LNG as a fuel. You mentioned in the press release some more and more competition. So could you explain more or give us some more color about that? What do you expect? And do you consider that it will be more and more difficult to develop your own technology, membrane technology? And are you more cautious regarding the trend expected for your business in this market? Francois Michel: So thank you for your questions. On the Middle East, what I think is important to see is that, of course, for, let's say, consumers of LNG, in particular, in Asia Pacific, but also from the Middle East perspective, it is a crisis, but for other continents, in particular, for the U.S. and for exporters of LNG, which are not in the Middle East, this crisis is very unfortunately, but it is an opportunity. And so if anything, we don't see at all a slowdown of orders of LNGC. We don't anticipate it from the non-Middle East part, if you want. We also don't anticipate a slowdown in FIDs from the non-Middle East part. There will be in the short run, volatility and uncertainty regarding everything that comes out of the Middle East, meaning FIDs, but also LNGC orders perhaps in the very short run. But beyond those short-term effects, what we anticipate is that it will be more than compensated by additional investments outside of the Middle East. Regarding your second question, LNG as a fuel. Well, I think what I think is, first of all, the trend towards LNG as a fuel will continue for, again, primarily for environment concerns, but also because it's -- it has really become the fuel of choice for large container ships and for cruise ships. So I don't expect any disruptions in this trend. But what we also believe is that for many reasons, but including because of rising labor cost, lower labor availability, lower qualified labor availability, we must industrialize our membrane containment systems more to bring them in, let's say, more easy to do business with directly to the yards, which is something that GTT has not done historically. We have been a little bit shy at providing solutions in a turnkey fashion and in a prefab fashion together with partners. And this is the core of what we are working on. And I have absolutely no doubt that -- and from my experience in the yard, I have no doubt about the fact that by making our solutions easier to do -- to use directly in the yards, we will increase the penetration of our solution. So I'm optimistic regarding this market. Operator: Gentlemen, there are no more questions at this time. Francois Michel: Thank you all for your various questions and for your attention. We look forward to continuing the discussions with you and to seeing you soon. Thierry Hochoa: Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ASM First Quarter 2026 Earnings Call. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Victor Bareño. Head of Investor Relations. Please go ahead, sir. Victor Bareño: Thank you, operator. Good afternoon, and thank you for joining our Q1 earnings call. With me today are our CEO, Hichem M'Saad; and our CFO, Paul Verhagen. ASM issued its first quarter 2026 results yesterday at 6:00 p.m. Central European Time. For those of you who have not yet seen the press release, it is available on our website together with our latest investor presentation. As always, we remind you that today's conference call may contain forward-looking statements in addition to historical information. For more details on the risk factors relating to such forward-looking statements, please refer to our press releases and financial reports, all of which are available on our website. Please also note that during this call, we will refer to profitability metrics, primarily on an adjusted basis. Reconciliations to reported numbers can be found in the press release and in the investor presentation. And with that, I will now turn the call over to our CEO, Hichem M'Saad. Hichem M'Saad: Thank you, Victor, and thanks to everyone for attending our first quarter 2026 results conference call. We will follow the usual agenda for today's call. Paul will begin with a review of our first quarter financial results. I will then discuss market trends and our outlook followed by the Q&A session. I will now turn it over to you, Paul. Paul Verhagen: Thank you, Hichem, and thanks, everyone, for joining our call today. Let me first walk you through the Q1 financial results. Our revenue in the first quarter of 2026 amounted to EUR 863 million, which was at the high end of our guided range of EUR 830 million plus or minus 4%. On a constant currency basis, revenue increased by 16% year-on-year and by 26% compared to Q4 '25. Equipment sales increased by 14% at constant currency and were led by ALD. Spares & services continued to deliver a very strong performance with a 23% year-on-year growth at constant currency. This was the result of continued expansion of our outcome-based services and strong spares demand in an environment of elevated set utilization rates. In terms of customer segments, revenue was led by logic/foundry, which accounted for the clear majority. For the full year, advanced logic/foundry sales are expected to show significant growth this year. However, due to quarterly phasing, they were down from the very strong first quarter last year. Mature logic/foundry for the large part from customers in China increased compared to Q1 last year and rebounded strongly compared to the relatively low level in Q4. Memory sales showed sequential growth compared to Q4 last year and also expected to grow significantly for the full year, mainly in DRAM. Sales in the memory segment were predominantly driven by applications for high-performance DRAM in HBM-related applications. Sales in the power analog wafer segment increased compared to the first quarter of last year, mostly in silicon-based solutions but from a low base. Gross margin in the first quarter amounted to a strong 53.3%. This was virtually unchanged compared to 53.4% in Q1 of last year, up from 49.8% in Q4. Gross margin was supported by a favorable product and customer mix including an increased sales contribution from China, which rebound strongly compared to the lower level in Q4. The gross margin also benefited from a gradual impact from cost reduction programs that we have been implementing over the past few years. We expect the gross margin to be at the higher end of the target range of 47% to 51% for the full year. SG&A expenses increased by 8% year-on-year at constant currency, mostly due to higher variable expenses, but dropped slightly as a percentage of sales, demonstrating our ongoing focus on cost control. For the full year, we continue to expect SG&A as a percentage of sales to drop below 9%. Net R&D increased 11% year-on-year at constant currency in Q1. We continue to step up R&D investments to support customer transitions to next-generation nodes and to advance our expanding pipeline of opportunities. For the full year, we intend to keep the net R&D within our target range of a low double-digit percentage of revenue. Operating profit increased by a solid 21% year-on-year at constant currency, and the operating margin reached a new record of 33.1%. If you look at the main movements below the operating line, financial results included a currency translation gain of EUR 10 million in Q1 '26 compared to a translation loss of EUR 40 million in the first quarter of last year. As a reminder, we hold a large part of our cash in U.S. dollars and the related translation differences are included in our financial results. Our share of income from investments, reflecting our stake of approximately 25% in ASMPT amounted to EUR 7 million in the first quarter, up EUR 2 million in the year ago periods. Next, the balance sheet and cash flow. ASM's financial position remains [ solid ], and we ended the quarter with a cash position of close to a EUR 1 billion. Free cash flow was EUR 48 million negative mainly reflecting the working capital outflow in the quarter marked by a sharp ramp in activity levels. Days of working capital increased to 69 at the end of March, up from 45 at the end of December. The main driver for the increase was higher accounts receivable due to strong sales increase compared to the relatively low level in Q4 as well as back-end loaded distribution of sales during the quarter. CapEx amounts to EUR 38 million in the first quarter, up from EUR 30 million in the same quarter of last year. And for the full year, we expect CapEx to be around or to be somewhat above the higher end of the guided range of EUR 150 million to EUR 250 million, with the largest part related to the construction of a new site in Scottsdale, which remains on track for completion in Q1 2027. And with that, I'll turn the call back over to Hichem. Hichem M'Saad: Thank you, Paul. Let's now continue with a review of the market trends. The first quarter, again, confirmed that AI is the main driver of semiconductor demand. Customers continue to add capacity to support the ongoing expansion of AI data centers and the broader infrastructure build-out. This is keeping demand strong in the areas where we are most exposed, especially logic/foundry and we saw this demand strengthening further during the quarter. We have also noted a continuing proliferation and diversification of the AI workloads into the CPU and the power markets. For this reason, we see AI driving strength in all segments of our business: advanced logic/foundry, mature logic/foundry, memory and especially DRAM and, to a lesser extent, power, wafer, analog market. Looking ahead, our strategic view remains unchanged. As AI adoption broadens and demand continues to scale, compute capacity is increasingly the limiting factor. In semiconductors, this is translating into tighter capacity needs for advanced logic/foundry and memory devices, driving higher investment intensity and increasing the urgency of tool deliveries. Against this backdrop, our focus is on execution as we continue to support our customers' expansion plans. The pace of demand is putting additional pressure from the supply chain. But so far, we have been able to manage these rising challenges in close cooperation with both suppliers and customers, reflected in the sharp step-up in our quarterly sales from EUR 700 million in Q4 of last year, to a level approaching EUR 1 billion projected for Q2. Turning now to customer segments. Logic/foundry again led our performance in Q1 supported by continued strength at the advanced nodes and a sequential rebound in mature logic/foundry demand. Our view is unchanged that logic/foundry will be a strong driver of our sales in 2026 and also going into 2027. The structural outlook for this segment remains strong. AI-driven compute requirement and the ongoing shift to more complex 3D device architecture and new materials continued to increase ALD and epitaxy and density. As we progress through the year, we expect momentum to build further with ongoing capacity additions as the 2-nanometer technology node accounting for the largest part of advanced logic/foundry sales in 2026. This first generation of gate-all-around device technology is shaping up to be a large node, enabling new applications in high-performance compute, including AI as well as advanced mobile and other leading applications. We continue to benefit from the step-up in our served available market at 2-nanometer supported by a broader position in Epi and sustained strong market share in ALD. In addition, we have seen a healthy uptick in demand related to the nodes from 3-nanometer to 7-nanometer, driven by agentic AI. The demand is outstripping supply which has led to renewed capacity investment. Looking ahead to the industry's next node transition to 1.4 nanometer, we expect pilot-line investment to begin later this year. We are deeply engaged with key customers as they prepare for that transition, and we expect the first meaningful contribution to our sales in the second half of 2026. As we have highlighted before, we expect the SAM uplift at the 1.4 nanometer to be even larger than what we saw at 2-nanometer node. At 2-nanometer, the industry's main priority was to get the first generation gate-all-around architecture and to high-volume manufacturing with gate-all-around now in production and ramping, customer have more room to include additional performance boosters. And for ASM, that translates into more functional there in the transition stack to further optimize power and performance, including additional dipole layers to enable Multi-Vt options. Alongside the higher SAM opportunity, we have already secured several key product penetration which supports our expectation for a higher ALD market share in the 1.4 nanometer node, public disclosure from some leading customers suggest that the 1.4 nanometer node is designed to deliver clear improvement in performance, power efficiency and density versus today's 2-nanometer node. This is well aligned with ever increasing AI token demand and the associated compute and power constraints in data centers. As our customers move toward higher volume manufacturing in 2027 and 2028, we expect 1.4 nanometer to become a meaningful driver for ASM. Next, looking at memory. Demand in Q1 was solid, with robust momentum in the most advanced DRAM technologies used in HBM-related applications. Continued investment in AI infrastructure is keeping demand for high-performance memory strong and supporting ongoing expansion of advanced DRAM capacity. For the full year, we continue to expect healthy growth in our memory business. Looking further out, DRAM remains a meaningful and strategic opportunity for ASM. From a technology perspective, our customer R&D engagement in memory continue to expand, including development work around new ALD and epi applications that support the transition to 4F² and very fantastic DRAM. As we highlighted at Investor Day, the transition to 4F² is expected to drive a step-up in ALD and Epi intensity and expand our served available market by approximately USD 400 million to USD 450 million based on 100,000 wafer start per month capacity. Turning over to power, analog, wafer market segment. The contribution in Q1 remained relatively low, reflecting the soft market condition in broader parts of automotive and industrial. That said, we have seen some pockets of strength in selected areas, particularly in power applications for AI data centers. For 2026, our view is unchanged that this segment should recover gradually from a low base. We remain well positioned to benefit once demand conditions improve more broadly. Moving on to China. The increase in Q1 was largely driven by the mature logic/foundry segment, where we saw higher activity across a broader set of customers, reflecting improving market conditions and to a lesser extent, the power, analog segment. In addition, I'd like to highlight ASM's ongoing success in winning new positions which also contributed to our strong performance in China. This demonstrated the continued competitiveness of our solution and the strength of our local team. Based on current visibility, we expect sales in China to increase for the full year with a stronger contribution in the first half. Now let's talk about advanced packaging. As we have discussed during the Investor Day, we are looking into advanced packaging as another midterm growth area for ASM. We believe that this market is ripe for disruptive solution in new materials and interface engineering playing into ASM's strength. We are engaged with multiple customers on advanced packaging, and we are seeing some encouraging traction for our innovative solutions. That brings me to the outlook. At current currency, we project revenue to increase in Q2 2026 to EUR 980 million plus or minus 5%, and we continue to expect revenue in the second half of 2026 to be higher than in the first half. As mentioned, China sales are expected to be first half weighted. This means that our other business segments are expected to strengthen from the first to the second half, including continued solid momentum in advanced logic/foundry higher sales in memory and a gradual recovery in power analog. While it's too early to provide specific guidance for the full year, based on our guidance in Q2 and a further increase in the second half, it should be clear that 2026 is going to be a strong year for ASM. And with that, we have finished our introduction. Victor Bareño: Thank you, Hichem. Let's now move on to the Q&A to ensure that everyone has an opportunity to participate please limit your questions to no more than two at a time. Operator, we are ready for the first question, please. Operator: [Operator Instructions] First question is from Andrew Gardiner, Citi. Andrew Gardiner: Hichem, just sort of pick up on the point you were making at the end of your prepared comments there. You're saying you will have growth in the second half of the year versus the first half, but obviously, the visibility is perfect to quantify it for us yet. Previously, you've been willing to talk about your performance relative to the wafer fab equipment market broadly and that ASM would outperform that. Clearly, WFE expectations are moving quite rapidly as well at the moment. Could you give us an update on how you see the broader market in terms of WFE? And can you confirm that you will still outgrow that in 2026? Hichem M'Saad: Thank you very much for the questions. Yes, we talked about that in our previous conference call that we're going to at least perform as good as the wafer fab equipment market or better. Yes, we have seen improvement in the WFE market. I mean we follow very closely what Gartner and VLSI are talking about. And we can reconfirm again that our growth in our market, in our revenue in 2026 will at least outgrow the WFE market again. So as I mentioned, we see strength in the market and our revenue is strengthening, and we are very confident that we'll be able to at least grow at least at the WFE market or beat that in 2026. Andrew Gardiner: Okay. And just a clarifying question, the point you were making on China. In the second half, so is that China down second half on first half? Or down year-on-year or perhaps it's both? Hichem M'Saad: No. I think China is really up year-on-year. So the -- what we talked about that we see right now that China is lower in the second half of 2026 versus the first half of 2026, saying this, and I want to repeat it again. China visibility is not that great as we talked about it, okay? So from that point of view, if there is anything, that second half China business that we see right now might also increase eventually. But right now, what we see very strongly that the second half would be a little bit slower than the first half. But again, that might strengthen in the second half. We don't know. Operator: Next question is from Nigel Van Putten, Morgan Stanley. Nigel van Putten: I want to follow up on the previous question on China. Perhaps for the full year, there are some limited visibility. But can you provide us a revenue or China revenue as a percentage of overall revenue for the first half at least? And how that maybe compares to the full year '25 when you said it's going to be -- or it came in a little bit over 30%. That is my first question? Hichem M'Saad: Nigel, thank you for your question. Nigel, maybe there's a misunderstanding that about the visibility -- low visibility of China. Right now, okay, our visibility for 2026 is very good, okay? China or no China, okay? Because I mean, it's really clear everywhere in our market, okay? So that's why we are really confident about the market. If there's anything in China, the revenue is going to increase further in the second half, okay, from where we see it right now. So, but China business has been good, and we feel very confident about it. Paul Verhagen: So maybe to add to what Hichem is saying, what we see in is now, at this moment, at least, is an accelerated demand. And in China, we have a higher H1 expectation. And H2, which might still change, we don't know, as Hichem has indicated. Possibly, that is because of concerns on export controls, we don't know. One thing is for sure that the overall sentiment is very good, like in the rest of world, also AI related. That's itself positive. Two, we also won some more layers in itself is a positive. But yes, there is clearly an acceleration going on, which, of course, customers are on tariffs, but which could be triggered by concerns around export controls and how that will develop further, I think, at this stage, and nobody knows. Then on the full year, based on everything we know today, I think the equipment revenue as a percentage of total sales will be similar to last year. But again, it's really too early to tell, so this might change because for all the reasons that we already mentioned. Nigel van Putten: Got it. That's really helpful. Then now maybe switching to the advanced logic customers which I understand are providing increased visibility maybe 8 quarters on a rolling basis. Question would be, do you see any sort of broadening on the horizon, sort of it's clear that the main customer remains very strong, but how are the other two doing maybe today? And how do you see that developing into the second half of the year? Hichem M'Saad: No, I think, Nigel, I think we see -- we're working right now with all customers in advanced node for both of the 2-nanometer node and 1.4 nanometer node. And then we see that gate-all-around is a technology that's going to be adopted by more customers. And we feel very confident that that's going to be the case. Of course, okay, some customers have better yield or performance than the other ones. But we think that gate-all-around is going to be really a broad technology node and for a variety of customers. Operator: Next question is from Didier Scemama, Bank of America. Didier Scemama: Just a follow-up actually to the previous question on the boarding of the customer base in advanced logic. Obviously, your largest customer is doing terrific. On the two smaller ones, is that supposed like expected to strengthen in Q2? Or is that more of an H2 driver? And I've got a follow-up. Paul Verhagen: Yes, let me take that question. I think what I can say on that. I don't want to be specific on Q1 and Q2 or Q3 when it comes out both down to customers. But what I can say is at least that based on current visibility that all those customers are expected to grow year-on-year. And of course, there is a significant difference with regard to the size of the various customer and the absolute amount of growth as a result of that. But we expect all three for the logic part, all three of them to grow year-on-year. Didier Scemama: Okay. And for my follow-up for Q2, would you expect China to be up sequentially or flat? Or how should we think about that relative to your overall sequential growth guidance? Paul Verhagen: What we've said indeed is that for next quarter, we expect EUR 980 million plus or minus 5%. We also said that for H1, we see an accelerated demand for China coming in for various reasons I just discussed in the call before. So I think it's reasonable to assume that also Q2, China will be pretty good. Didier Scemama: Should we expect, therefore, the gross margins in Q2 to remain at sort of above the long-term guidance given the mix? Paul Verhagen: You know that I'm not going to specifically guide on a quarterly basis for the margin, but the margin will be good that I can say China is accretive, as you know. But also, I think what is also not unimportant. I also want to highlight that is that the other product mix that we've seen actually in the last few quarters has been very strong. So that also helps. And last, but not least, the structural cost improvements that we're working on, which will every year add a little bit also play a role. But having said that, yes, higher share of China typically is accretive, yes. Operator: Next question is from Francois Bouvignies, UBS. Francois-Xavier Bouvignies: I have a question for 2027, actually. So if we look at your '26 growth drivers. I mean if I look at the different drivers, I don't see much layers increase in '26 as a growth driver, because I think it's mostly capacity, [indiscernible] was already adding a lot of capacity last year. So from a year-over-year point of view, you don't have a lot of incremental layers. Now if you look at '27, it looks like you will have a lot of layers opportunity that you laid out at your Capital Markets Day. So I was wondering, if we think about this dynamic of layers increasing, is it fair to say that '27, if we assume the same capacity increase that '26, that should be a higher growth than '26? You have more drivers on top of the capacity in '27 than you had in '26. Is that the right way to look at it, if you understand my question? Hichem M'Saad: Yes. I think we understand your question. I think it really depends both on the end demand from that point of view. But we -- as the technology node transition from 2-nanometer to 1.4 nanometer, we see the adoption of 1.4 nanometer starting in the second half of 2026. And we see the 1.4 nanometer bias to increase in 2027 for final production in the first half of 2028. And with the 1.4 nanometer node, there's more ALD and more Epi. And as we mentioned, these ALD layers are mainly in the front end of line for performance level. And that's where we have many more -- a lot of strength, and that's where we're going to have many more ALD layers. So we are really very happy with -- we'll be very happy with the 1.4 nanometer transition, because of the higher ALD intensity. Also, we have more ALD layers in molybdenum. I think that as we mentioned in our last press release that we are very happy to be in production, high-volume production at the 2-nanometer node with our moly ALD. And with the transition to the 1.4 nanometer, we also have won some process of record layer in molybdenum. So overall, the transition to 1.4 will be very accretive to us, and we'll be very excited with that transition in the future. Francois-Xavier Bouvignies: And the memory side -- Yes, go ahead. Paul Verhagen: I think you said it, but I want to make it a little bit more explicit that just for you guys to be clear that already in this year with the pilot for 1.4, which is also, of course, increased layers, as you know, we already see a very, very meaningful contribution of 1.4. So that's not only in '27, but it's already starting in '26. Francois-Xavier Bouvignies: Good to know. And maybe you didn't address maybe the memory layers and maybe for '27. And then you mentioned market share higher in A14. So can you maybe explain a bit the higher share here? I mean, is it because just your time is getting higher than the others? Or you just have more layers than you expected? -- more than before? Hichem M'Saad: Yes. So the 1.4 nanometer, what's the difference between the 1.4 nanometer node and the 2-nanometer node. So they are both gate-all-around. But for the 2-nanometer node, that's an architecture change. So customers didn't want to be very aggressive in putting many functional layers because of the change in architecture. But once we move to 1.4, they have added many goodies, which we call performance layers. And those layers are really mainly ALD layers. And they are all in the front end of line, where we play significant. That's where our strength is. Yes. So definitely, we see more ALD layers in 1.4 nanometer. Second thing, as you shrink, those -- and with the gate-all-around structure, as you shrink those layers become much more difficult because of the 3D nature and the shrinking. And with that, the since every layer becomes much more difficult, that also slows down the process. And with that, you need more equipment from that point of view. The other thing we see is that also there is a higher epitaxy intensity going forward. So overall, that's very positive. Operator: Next question is from Stephane Houri, ODDO BHF. Stephane Houri: Yes. To come back on the Q2 guidance, which is about EUR 100 million of what the consensus was expecting. So I'm just trying to understand what led to this acceleration, if it's more advanced logic or memory. And if you could comment also on the lead time at the moment if they are increasing? And is there a difference between the two different segments? And I have a follow-up. Hichem M'Saad: I think that the acceleration is happening in mainly in the 3-nanometer to 7-nanometer node. in addition to the gate-all-around node. So what we have seen lately is that Agentic AI is becoming more important. And with that, that tends to favor using the CPU instead of GPU. So the 3 to 7-nanometer node is really mainly driven with CPU. And we see much more demand from our customer in that node, and that's really happening super fast at this point in time. We also see strength in memory continuing. So overall, the market is really strong in the leading edge, both logic and mainly logic and foundry, that's really the highest part of the market. Second is really also DRAM is also increasing. Stephane Houri: And about the lead time, sorry. Hichem M'Saad: So regarding the lead time, I mean, lead time has increased because of the supply chain constraints right now. I mean there's a huge demand everywhere. So yes, the supply chain has increased, and that's really the customer specific. We've been able to expect that to happen. That's why we can -- we have increased our capacity to from like EUR 700 million per quarter in Q4 of last year to about EUR 1 billion per quarter this year. And it's going to continue to increase in the second half, as we have mentioned. Stephane Houri: Okay. And that's exactly my follow-up. I mean you're going to be at least EUR 1 billion per quarter in the second half run rate and there's probably some additional growth coming in 2027, given what you said and what we see in the market. So at what point will you fill all your plants and notably the Singapore plant and that you will have to again increase the capacity? Hichem M'Saad: I think our manufacturing capacity is -- can take care of our business. I think we have expensive manufacturing capacity in Singapore and Korea. So we're ready for much higher volume. I think what's limiting -- if there's any limit is really the supply chain that's limiting the capacity than anything else. But I think that we'll be able to manage that in the second half. So that's why we're confident of increased volume in the second half of 2026. Operator: Next question is from Sandeep Deshpande, JPMorgan. Sandeep Deshpande: Maybe you can give a comment on what has changed in your customer behavior versus what you were -- you had seen from your customers the last time you reported in -- reported your results. Has something substantially changed given your very strong guidance into the second quarter? And then I have a small follow-up. Hichem M'Saad: I think that the market is really strong all over. Has there been any significant change? I think the change that we have seen is really on the PC part where for -- on the CPU part where it used to be that AI is mostly driven by GPU, but we see that CPU part becoming more important than before. And we see that's the strength we see in the 3-nanometer to 7-nanometer node, which was not there before. So that's really the strength we see. It's mainly the CPU-driven part for artificial intelligence. Sandeep Deshpande: And then when you look at the WFE, I mean you had said 15% to 20% at last results. I mean, given your guidance for the second quarter and your indication on the second half of the year, it looks like you're going to grow well over 20%. So what is your perception on WFE at this point for this year? And I mean, despite your lower exposure in the memory market, you are growing incredibly well. And so is this mainly associated with the second half ramp also with 1.4 nanometer where your content is growing, your number of layers you have is growing very substantially. So this is essentially share gain in the WFE market? Paul Verhagen: Yes. Let me take that, Sandeep. So yes, to give you a very short answer, that's part of it, absolutely. But also basically, I think as Hichem already said, but maybe in different words, we're firing in all cylinders. Every segment of the market is growing significantly. I mean, advanced logic/foundry, mature logic/foundry, memory of which, in particular, DRAM, we see a high growth and even power with analog for power-related AI data center applications from a low base, but as a percentage, still high growth. And of course, also pilots 1.4, that I started with, adds a decent amount for this year already, yes. Operator: Next question is from Adithya Metuku, HSBC. Adithya Metuku: Firstly, I wanted to talk about 2027. I know you gave these targets of EUR 3.9 billion to EUR 4.6 billion, top line at a EUR 125 billion WFE number. So call it EUR 4.2 billion midpoint. If you look at WFE numbers now, people are depending on whose numbers you take 40% to 50% higher than that EUR 125 billion in 2027. So my first question is, should we assume that, that EUR 4.2 billion could be maybe 40% to 50% higher from 2027? What are the nuances we need to keep in mind when we think about where WFE is going and how your revenues might go in 2027, you've clearly talked about outperforming WFE, I presume that will continue. So just any pointers you can give around how we should think about these targets you gave at the CMD 40% higher, 50% higher? And I've got a follow-up. Paul Verhagen: Yes. Let me take that. So indeed, I think we said EUR 3.8 billion to EUR 4.7 billion at CMD, where we assumed EUR 120 billion WFE, which today's view is indeed significantly higher, but there's one big difference. The assumption that we took at that time, which was somewhere September last year on the composition of the mix is very different from what we see today. So we had by far the largest part of the total WFE basically logic/foundry, while now the relative share of memory is significantly larger than what we assumed. And although we grow a lot in memory, but still our relative share of memory in our business is still relatively small. So that's why you will not see the full benefit of that increased WFE dripping down into our numbers. Having said that, based on everything we see today, we believe that '27 will be a strong year. But adding 40% to 50%, I would not recommend you to do that. That would give some distorted figure. At the same time, it's a very wide range, EUR 3.8 billion to EUR 4.7 billion is almost EUR 1 billion range. So also even within that range, there's still a lot of room to maneuver. And more than that, at this stage, I don't like to say. Adithya Metuku: Got it. Okay. We'll leave 40% or 50% of side go with 30% then. And just quick follow-up. On the MATCH Act, can you give us some color on how you're thinking about any potential impact for you guys as you think about your China revenues? Yes. Any color you can give around how you might be affected? I know it's hard to quantify numbers, but any qualitative color would be great. Paul Verhagen: Yes. So the MATCH Act indeed is being discussed as we speak. If it will happen or not is uncertain. It might or it might not. In what shape it will happen is also uncertain because at the end of the day, it is important, literally the point and the commerce are very important there, especially in relation to how to interpret what is exactly restricted. We're in, of course, discussion with relevant authorities, as you can imagine. So it's very hard, and I would love I could give you some more color to give decent color at this stage. Obviously, if something like that were to happen, it's not a positive, that might be clear. But how much, I'm really not in a position yet. It's too -- it's literally too unclear and too uncertain still on what might happen. So I don't like to speculate on that. Operator: Next question is from Tammy Qiu, Berenberg. Tammy Qiu: So the first one is regarding your very strong short-term momentum. You mentioned that just now it's all driven by the CPU-related incremental demand. I just want to confirm that, have you seen any customer from both logic and memory perspective, pulling forward? Are you asking you to accelerate the shipment of equipment because end market demand is coming so dramatic in the short term. So therefore, it's like a pull forward from 2027 at all? Hichem M'Saad: I think every customer wants the tools now instead of tomorrow. I think the demand is really high. And for us, it's which customer we ship to first than the other one. So I think like we mentioned, we are fully booked for this year. From that point of view, we have a strong demand in all parts of our business, really every part of our business very high demand. And yes, we see customers the demand is even increasing. So I mean, we -- our book is full. So we have to do our best to be able to satisfy the demand that we're getting right now. Tammy Qiu: Okay. And the second one is, last quarter, we discussed that the 1.4 nanometer is mainly driven by one customer versus others have been having discussion with you, but still a bit distant away from pilot production, et cetera. I'm just wondering where is the status of those remaining customers? Are they getting closer to make the decision on pilot production? Or are they still further down the line? Hichem M'Saad: So as we mentioned that we see -- we are working with all customers to the 1.4 second generation with a 1.4 nanometer technology node. And we see that business strengthening in all the customers from that point of view. Some of them is at a marginal increase and the other have a higher increase, but I'm not here to speculate on which customer, which, but we see at least a marginal strength in some and a significant strength in other customer. But saying this, I think more likely, like I mentioned that 1.4 nanometer would be more than one customer. Tammy Qiu: Just to confirm, have you seen any progress during the quarter, i.e., all of them have moved forward or just one of them moved forward comparing to last quarter. Hichem M'Saad: Can you repeat your question, please? Tammy Qiu: So basically, the time line of the 1.4 nanometer, last quarter, you mentioned that one is active preparing for pilot production, remaining two is still in discussion firmly at this stage. I'm just wondering, this is three months after, have you actually seen other customers together with a leading customer or moved forward in the time line for 1.4 nanometer? Or just one customer has moved forward instead of all three of them? Hichem M'Saad: I'm going to repeat my answer, where we see 1.4 nanometer strengthening broadly with some strengthening marginally in some customers and significant increase in other customers. Operator: Next question is from Jakob Bluestone, BNP Paribas. Jakob Bluestone: I want to come back to Adi's question around your ability to sort of take part in growth in memory. And my question is, when do you anticipate the transition to 4F² and FinFET for the cell periphery in DRAM to impact your revenues? So is this something that would impact in '27? Is it '28? Or do you think it's further out? Paul Verhagen: I can take that question. Yes, I think because I think last time already, we mentioned that the pace of adoption customer by customer is different. There might be even a customer that might completely skip it. We don't know yet, but that's to be seen. And I think for us, based on what we see and think we know today, I think you should take into account '28 as the first year where we start to see a positive contribution related to 4F². [ Might ] -- maybe a little bit earlier, I don't know yet, but I would -- I mean time line is still a little bit uncertain and very different from customer to customer. So I think the best color I can give right now is in '28. Hichem M'Saad: So add to what Paul has mentioned here, we see a strength in memory in 2026 and also increasing for us in 2027 and beyond. The biggest increase for us will happen really in the move into 4F², where we have more ALD layers and more also Epi intensity. But also we've seen some customers put in FinFET in their node in their road map. And with that, we're working with them and we might -- and since we have been very prominent in our FinFET technology in logic. So that we see some customers really pulling in that technology node. And with that, we probably will get some more layers as customer put in their FinFET technology node. So the biggest increase would be '28 and beyond, but also we see some increase in 2027. Jakob Bluestone: Understood. If I can just ask a quick follow-up as well. You mentioned a few times the sort of pickup in 3 to 7-nanometer transition, and I don't know if you can give any color on whether that's your largest customer or kind of more broad-based? Hichem M'Saad: Which transition, are you talking about, sorry? Jakob Bluestone: 3 to 7? Hichem M'Saad: Yes, I think it's really broad based. That's really broad-based. It's not only one customer, it's very broad-based. Operator: Next question is from Ruben Devos, Kepler Cheuvreux. Ruben Devos: I just had one on Epi in HBM. I believe you talked about significant Epi engagements with another HBM customer and expect good news this year. So of course, curious whether two months on has anything firmed up on that additional qualification? And would that be, let's say, fully incremental to your memory plan in '26? Hichem M'Saad: Okay. So to answer your question, yes, we talked about that, and we are engaging with our customer on epitaxy. There's really nothing else to say right now, but we'll let you know if there's any news from that point of view. It's really working with customers on a couple of customers on epitaxy. And hopefully, we can share some good news with you in the next investor call meeting. Ruben Devos: Okay. And then second one, really to just get a feel of maybe the aftermarket sales, right? I mean you've had a stretch of very good performance in the last few quarters, again, 23% up the past quarter. Outcome-based is about 25% of the mix. So it looks like, I mean, the target you said at the Investor Day of 12% CAGR is becoming more of a floor. I was curious whether you could talk a bit about, yes, the extended visibility you might have now in aftermarket sales. And I can imagine a margin uplift to realize if you manage to make a transition more towards outcome-based. But also besides that, are you able to sort of have the customer pay more per tool for the servicing packaging in general? Hichem M'Saad: I think that for service market, okay? What I mentioned, the service market is really good as you transition in a newer technology node because of process complexity. It's very important to -- a customer need more support from us and for the more advanced node. And with the advanced node also, we see a transition to much tighter specification on wafer-to-wafer and also repeatability on chamber-to-chamber matching and also on system-to-system matching. And with that, we have to provide a new solution to customers to improve the uptime and the availability. So we are very really -- we think that the surface business is going to increase in the future as you transition to tighter and tighter technology node. And we see that happening in the area of automation, in the area of robotics, in the area of optics. And those are really the solution that we're providing our customers. So the growth is going to be good in that part of the market. You mentioned that 12% growth. To be honest with you, right now, every part of the market is growing a lot. This year, the market is growing over 20%. I mean, latest, you see Gartner talking about 25%. So everything is great. It's really just spending my time, okay, to make sure that we can execute on getting customers the tools in time and make sure that the availability and the execution is top notch. Operator: Next question is from Timm Schulze-Melander, Rothschild & Co Redburn. Timm Schulze-Melander: First one for Hichem, please. Just looking at the technology execution and just trying to scale maybe how much upside there is to that? If I look at your long-term revenue guide, the high low range is kind of 20%, 25% between the low and the high. Obviously, part of that is the strength of the cycle. Maybe part of that is also conversion of existing evaluations and layer wins. Maybe could you just share how much of that is upside potential from layer wins? So if you could just think about that in the context of your go-forward revenues? And then I had a follow-up. Hichem M'Saad: You said the percentage I didn't hear you well on the percentage, which percentage are you talking about, please? Timm Schulze-Melander: Yes. So if we look at your EUR 3.8 billion to EUR 4.7 billion revenue guide, so part of that is going to be cyclical. Part of that's going to be your execution in terms of technology wins. I'm just trying to think is that half off, but some kind of scale of that? Hichem M'Saad: If you look into the business and where we are, one thing I can tell you, I'm really very excited about our technology road map. I think that things are going in our direction. If you look into logic, you see more and more layers coming in with 2-nanometer and also with 1.4 nanometer. ALD intensity is increasing and [indiscernible] intensity is increasing, and we're winning share in that part of the market. If you look into memory, memory is moving more and more into FinFET more and more in 4F², which needs more Epi, needs more ALD. So we're going to have more layers, and we feel very confident about it. And if you look into logic -- if you look into power, wafer, analog, we are really -- if you look at the power, wafer, analog, the power part of the market is the only part of the power, wafer, analog that's strong right now. And that's being driven by data centers, power devices for data center. If the wafer part and the analog part goes up, it's going to be even accretive to us. So the service business is also good. In the service business, we're going more and more by automation. And we really -- we're getting some -- getting into even robotics and that customer and leading customer, we're even selling them, okay, some robots to improve the system availability and so on. If you look into advanced packaging, that's an area that we mentioned that we have entered last year. It's a new area for us. I can tell you that we have so many -- believe me, so many interactions with customers. And we have to prioritize which one to do and some customers tell them, guys, maybe we don't have -- we cannot really help you there. And -- but with the customers that we're really engaging right now, I can see that they really like to work with us as a company because we're looking into the advanced packaging through a different option. We're looking into that as, okay, what can we do to disrupt the technology? What can we do to provide a solution that's better than what it is right now. How can we -- a solution to make sure that, okay, we reduce the -- to reduce the thermal mass on advanced packages coming with a new material that improve thermal conductivity. We're working with customers to make sure that we can seal the devices much better. So there is no moisture going in the packages. We're working with customers to actually improve the speed of connection between one chip to the other one, working with them on some innovative photonic layers. So I'm sure that with all of this really, we feel very confident where things are are going to go from that point of view. And depending where the market is going to go, I'm very confident that we're going to at least match the WFE market growth or actually have a higher growth than WFE. It's a great time for ASM right now. And we -- I see customers really want to work with us. I think our execution has improved. I think our competitiveness is getting even better than before. And what I can tell you, it's the best time to be in semiconductor. Timm Schulze-Melander: A very impressive runway. Maybe just a quick follow-up for Paul, just some housekeeping, actually. You talked about rising utilization rates, but actually Q1 aftermarket sales were down sequentially. And on your guide, I think last quarter, your guidance range was plus minus 4%. This time, you've widened that range to plus minus 5%, which doesn't maybe sit that well with a sort of improving visibility. Just wondered if there's any color you could share in terms of what you're seeing. Paul Verhagen: Yes. So actually, the range is, I think, already referred to is related to supply chain challenges. So far, we've been able to manage it. But at the same time, we have to be on top of it to make sure that we get what we need to deliver what we need as per our customer preferred COD customer request date. So that's a little bit where the range comes from, Timm. It's not so much demand. It's more what can we deliver on time given the supply chain constraints that so far manageable again. But yes, we have to be on top of it and nothing can go wrong here. Timm Schulze-Melander: So that's what was in the aftermarket in Q1 and maybe there's some catch-up in Q2? Paul Verhagen: I don't know if there's catch-up in Q2. I mean I think had a very good Q1. I think we delivered more or less what we wanted to deliver, and we will target to do the same in Q2. Victor Bareño: Thank you, Timm. We still have a number of participants in the queue, but we are running out of time. So let's take one final question. Operator, can we have the last caller? Operator: Final question is from Javier Correonero, Morningstar Equity Research. Javier Correonero Borderia: In the interest of time, I will just ask one. So your Axus acquisition 3 months ago, it is small, but I think there is a lot to unpack there when you think longer term. So Axus is specialized in silicon carbide processing. So I was wondering if you could explain a little bit more what's the rationale of the acquisition here? Is it like more silicon carbide content as we move into the 800-volt data center? Or is it TSMC potentially adopting silicon carbide interposers in the next few years or both? And of course, it is very early and small acquisitions, but do you have an estimate of what service of addressable market this acquisition could open once it is properly integrated with ASM [indiscernible]? Hichem M'Saad: Okay. So thank you very much for the question. So yes, we have acquired this company called Axus Technology, which is -- we're very excited about the acquisition in CMP. They have a very great CMP technology and very innovative, to be honest with you. And the -- like we mentioned, we have acquired this for the advanced packaging market because advanced packaging is -- needs more and more CMP layer, many, many, many more CMP layer. So there is room for another player. Also, it's a technology that's all about interfaces. And I think that we have some -- we do have some knowledge in interface engineering so that we will be able to really put our print there. It also CMP helps us with our new materials that we're developing for advanced packaging that I just talked about a few minutes ago because I mean, you deposit the film, but also you need to CMP. So we want to understand what's the interaction about the material that we're depositing the new material that we're depositing and the CMP, because CMP also has a slurry. There's a new -- with a slurry that means we're talking about new chemicals and so on and so forth. So it would help us also develop better materials in ALD, but at the same time, also good polymerization, which is extremely important for advanced packaging. So that's really why we made that acquisition. And then we're working right now on developing the product for advanced packaging, and it's going to increase our SAM absolutely. It is going to increase our SAM and we're in the process of doing R&D and so on in this part of the market. Victor Bareño: Okay. That concludes the Q&A. Thank you all for attending our call today, also on behalf of Hichem and Paul. Thank you. Goodbye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.